** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

 

 

**FORM 10–Q**

 

 

 

**(Mark One)**

 

 

**ý****        Quarterly Report Pursuant to Section 13 or 15 (d) of theSecurities Exchange Act of 1934****For the quarterly period endedSeptember 30, 2001 or**

 

 

**o****        Transition Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934****For the transition period from________ to ________**

 

**Commission File Number: 0–28236**

 

 

**INVISION TECHNOLOGIES, INC.******(Exact name of registrantas specified in its charter)

 

**Delaware**

 

**94-3123544**

 

**7151 GatewayBoulevard, Newark,****CA 94560**(Address of principal executiveoffices, including zip code)

 

**(510) 739-2400**(Registrant's telephone number, includingarea code)

 

 

Indicateby check mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.              Yes  ý   Noo

 

 

On October 28, 2001, there were 13,270,088 shares of the Registrant'sCommon Stock outstanding.

 

 

**InVisionTechnologies, Inc.****Form 10-Q****INDEX**

 

 
| **Part  I:   FINANCIAL INFORMATION** |                                                                                                   |
|------------------------------------------------|--------------------------------------------------------------------------------------------------------|
|                                           |                                                                                                   |   |   |
| **Item**                                       |                                                                                                   |
|                                           |                                                                                                   |   |   |
| 1.                                             | Financial Statements  (unaudited)                                                                      |   |
|                                           |                                                                                                   |   |   |
|                                           | a.                                                                                                     | Consolidated Balance Sheets  – September 30, 2001 and December 31, 2000 * |   |
|                                           |                                                                                                   |   |   |
|                                           | b.                                                                                                     | Consolidated  Statements of Operations – Three months and nine months ended September 30,  2001 and October 1, 2000 |   |
|                                           |                                                                                                   |   |   |
|                                           | c.                                                                                                     | Consolidated  Statements of Cash Flows – Nine months ended September 30, 2001 and October  1, 2000 |   |
|                                           |                                                                                                   |   |   |
|                                           | d.                                                                                                     | Notes to  Consolidated Financial Statements |   |
|                                           |                                                                                                   |   |   |
| 2.                                             | Management’s  Discussion  and Analysis of Financial Condition and Results of Operations |   |
|                                           |                                                                                                   |   |   |
| 3.                                             | Quantitative  and Qualitative Disclosures about Market Risk                                            |   |
|                                           |                                                                                                   |   |   |
|                                           |                                                                                                   |   |   |
| **Part  II.   OTHER INFORMATION**    |                                                                                                   |
|                                           |                                                                                                   |   |   |
| **Item**                                       |                                                                                                   |
|                                           |                                                                                                   |   |
| 1.                                             | Legal Proceedings                                                                                      |   |
|                                           |                                                                                                   |   |
| 2.                                             | Changes  in Securities and Use of Proceeds                                                             |   |
|                                           |                                                                                                   |   |
| 3.                                             | Defaults Upon  Senior Securities                                                                       |   |
|                                           |                                                                                                   |   |
| 4.                                             | Submission  of Matters to a Vote of Securities Holders                                                 |   |
|                                           |                                                                                                   |   |
| 5.                                             | Other  Information                                                                                     |   |
|                                           |                                                                                                   |   |
| 6.                                             | Exhibits and  Reports on Form 8-K                                                                      |   |
|                                           |                                                                                                   |   |
| Signature Page                                 |                                                                                                   |

 

----

*****December31, 2000 consolidated balance sheet is derived from the audited financialstatements included within the Company’s Form 10-K filed on   March 29, 2001.

 

 

**PART I. FINANCIAL INFORMATION**

** **

**Item 1.Financial Statements**

** **

**InVisionTechnologies, Inc.Consolidated Balance Sheets**

**(In thousands, except sharedata)**

 
|                                                                                                                    |   |                    |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                    |   | **September  30, 2001** |    | **December  31, 2000** | ** ** |
|                                                                                                                    |   | **(Unaudited)**         |    |   |   |
| **Assets**                                                                                                              |   |                    |    |   |   |
|                                                                                                                    |   |                    |    |   |   |
| Current assets:                                                                                                         |   |                    |    |   |   |
| Cash and cash equivalents                                                                                               |   | $                       | 9,569   |   | $ | 11,908 |   |
| Short-term investments                                                                                                  |   | 750                     |    | - |   |
| Accounts receivable, net                                                                                                |   | 22,008                  |    | 22,547 |   |
| Inventories                                                                                                             |   | 24,806                  |    | 20,207 |   |
| Other current assets                                                                                                    |   | 2,698                   |    | 2,977 |   |
| Total current assets                                                                                                    |   | 59,831                  |    | 57,639 |   |
|                                                                                                                    |   |                    |    |   |   |
| Property and equipment, net                                                                                             |   | 5,953                   |    | 6,741 |   |
| Intangible assets, net                                                                                                  |   | 3,842                   |    | 4,412 |   |
| Other assets                                                                                                            |   | 1,146                   |    | 540 |   |
| Total assets                                                                                                            |   | $                       | 70,772  |   | $ | 69,332 |   |
|                                                                                                                    |   |                    |    |   |   |
| **Liabilities  and stockholders' equity**                                                                               |   |                    |    |   |   |
|                                                                                                                    |   |                    |    |   |   |
| Current liabilities:                                                                                                    |   |                    |    |   |   |
| Accounts payable                                                                                                        |   | $                       | 4,892   |   | $ | 5,353 |   |
| Accrued liabilities                                                                                                     |   | 9,983                   |    | 11,213 |   |
| Deferred revenue                                                                                                        |   | 1,233                   |    | 2,107 |   |
| Short-term debt                                                                                                         |   | 3,281                   |    | 890 |   |
| Current maturities of  long-term obligations                                                                            |   | 254                     |    | 404 |   |
| Total current liabilities                                                                                               |   | 19,643                  |    | 19,967 |   |
|                                                                                                                    |   |                    |    |   |   |
| Long-term obligations                                                                                                   |   | 745                     |    | 1,861 |   |
|                                                                                                                    |   |                    |    |   |   |
| Commitments and  contingencies                                                                                          |   |                    |    |   |   |
|                                                                                                                    |   |                    |    |   |   |
| Stockholders' equity:                                                                                                   |   |                    |    |   |   |
| Preferred stock, no par  value, 5,000,000 shares authorized; no shares issued and outstanding                           |   | -                       |    | - |   |
| Common stock, $0.001 par  value, 20,000,000 shares authorized; 13,134,000 and 12,613,000 shares issued  and outstanding |   | 13                      |    | 13 |   |
| Additional paid-in capital                                                                                              |   | 61,871                  |    | 59,671 |   |
| Accumulated deficit                                                                                                     |   | (10,301                 | )  | (10,981 | )  |
| Treasury stock, at cost  (201,000 shares)                                                                               |   | (1,199                  | )  | (1,199 | )  |
| Total stockholders' equity                                                                                              |   | 50,384                  |    | 47,504 |   |
| Total liabilities and  stockholders' equity                                                                             |   | $                       | 70,772  |   | $ | 69,332 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

 

**InVision Technologies, Inc.Consolidated Statements ofOperations**

**(In thousands, except per share data)**

**(Unaudited)**

** **

** **
|                                            |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|-------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                            |   | **Sept. 30, 2001**     |   | **Oct. 1, 2000**      |   | **Sept. 30, 2001** |   | **Oct. 1, 2000** | ** ** |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Revenues:                                       |   |                   |   |                  |   |   |   |   |   |
| Product revenue                                 |   | $                      | 8,806  |                  | $      | 16,775 |   | $ | 30,614 |   | $ | 42,563 |   |
| Service revenue                                 |   | 3,037                  |   | 2,497                 |   | 8,441 |   | 7,493 |   |
| Government contract revenue                     |   | 4,561                  |   | 2,869                 |   | 12,246 |   | 7,746 |   |
| Total revenues                                  |   | 16,404                 |   | 22,141                |   | 51,301 |   | 57,802 |   |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Cost of revenues:                               |   |                   |   |                  |   |   |   |   |   |
| Product costs                                   |   | 5,647                  |   | 11,391                |   | 19,003 |   | 29,107 |   |
| Service costs                                   |   | 1,694                  |   | 1,460                 |   | 5,393 |   | 4,945 |   |
| Government contract costs                       |   | 3,710                  |   | 2,199                 |   | 9,787 |   | 5,678 |   |
| Total cost of revenues                          |   | 11,051                 |   | 15,050                |   | 34,183 |   | 39,730 |   |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Gross profit                                    |   | 5,353                  |   | 7,091                 |   | 17,118 |   | 18,072 |   |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Operating expenses:                             |   |                   |   |                  |   |   |   |   |   |
| Research and development                        |   | 1,927                  |   | 3,129                 |   | 6,684 |   | 8,074 |   |
| Selling, general and administrative             |   | 3,278                  |   | 4,006                 |   | 9,889 |   | 12,764 |   |
| Total operating expenses                        |   | 5,205                  |   | 7,135                 |   | 16,573 |   | 20,838 |   |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Income (loss) from operations                   |   | 148                    |   | (44                   | )      | 545 |   | (2,766 | ) |
| Interest expense                                |   | (76                    | )      | (46                   | )      | (224 | ) | (134 | ) |
| Interest and other income, net                  |   | 388                    |   | 287                   |   | 493 |   | 772 |   |
| Income (loss) before provision for income taxes |   | 460                    |   | 197                   |   | 814 |   | (2,128 | ) |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Provision for income taxes                      |   | 13                     |   | -                     |   | 134 |   | - |   |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Net income (loss)                               |   | $                      | 447    |                  | $      | 197 |   | $ | 680 |   | $ | (2,128 | ) |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Net income (loss) per share:                    |   |                   |   |                  |   |   |   |   |   |
| Basic                                           |   | $                      | 0.03   |                  | $      | 0.02 |   | $ | 0.05 |   | $ | (0.17 | ) |
| Diluted                                         |   | $                      | 0.03   |                  | $      | 0.02 |   | $ | 0.05 |   | $ | (0.17 | ) |
|                                            |   |                   |   |                  |   |   |   |   |   |
| Weighted average shares outstanding:            |   |                   |   |                  |   |   |   |   |   |
| Basic                                           |   | 13,046                 |   | 12,322                |   | 12,871 |   | 12,273 |   |
| Diluted                                         |   | 13,992                 |   | 12,833                |   | 13,856 |   | 12,273 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

**InVisionTechnologies, Inc.Consolidated Statements of Cash Flow**

**(Inthousands)(Unaudited)**

** **

 
|                                                                                  |   | **Nine Months  Ended** |   |
|---------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                  |   | **Sept. 30,  2001**    |   | **Oct. 1,  2000** |   |
|                                                                                  |   |                   |   |   |   |
| **Cash flow  from operating activities:**                                             |   |                   |   |   |   |
| Net income (loss)                                                                     |   | $                      | 680    |   | $ | (2,128 | ) |
| Adjustments to reconcile  net income (loss) to net cash used in operating activities  |   |                   |   |   |   |
| Depreciation and amortization                                                         |   | 2,162                  |   | 2,207 |   |
| Amortization of capitalized  software development costs                               |   | 90                     |   | 131 |   |
| Amortization of intangible  assets                                                    |   | 571                    |   | 512 |   |
| Loss (gain) on disposal of  fixed assets                                              |   | (7                     | )      | 5 |   |
| Bad debt expense                                                                      |   | 70                     |   | 146 |   |
| Stock compensation expense                                                            |   | -                      |   | 47 |   |
|                                                                                  |   |                   |   |   |   |
| Changes in operating assets  and liabilities:                                         |   |                   |   |   |   |
| Accounts receivable                                                                   |   | 469                    |   | (9,077 | ) |
| Inventories                                                                           |   | (4,599                 | )      | (3,783 | ) |
| Other current assets                                                                  |   | 229                    |   | 873 |   |
| Other noncurrent assets                                                               |   | (21                    | )      | 9 |   |
| Accounts payable                                                                      |   | (461                   | )      | 539 |   |
| Accrued liabilities                                                                   |   | (1,046                 | )      | 3,006 |   |
| Deferred revenue                                                                      |   | (872                   | )      | (1,807 | ) |
| Other long-term obligations                                                           |   | 40                     |   | 75 |   |
| **Net cash  used in operating activities**                                            |   | $                      | (2,695 | ) | $ | (9,245 | ) |
|                                                                                  |   |                   |   |   |   |
| **Cash flow  from investing activities:**                                             |   |                   |   |   |   |
| Purchases of property and  equipment                                                  |   | (1,343                 | )      | (2,014 | ) |
| Proceeds from (purchases  of) short-term investments, net                             |   | (750                   | )      | 5,887 |   |
| Purchase of subsidiary, net  of cash acquired                                         |   | (267                   | )      | (1,519 | ) |
| **Net cash  provided by (used in) investing activities**                              |   | (2,360                 | )      | 2,354 |   |
|                                                                                  |   |                   |   |   |   |
| **Cash flow  from financing activities:**                                             |   |                   |   |   |   |
| Proceeds from short-term  debt, net                                                   |   | 2,391                  |   | - |   |
| Repayments of long-term  debt                                                         |   | (292                   | )      | (326 | ) |
| Proceeds from issuance of  common stock                                               |   | 617                    |   | 594 |   |
| **Net cash  provided by financing activities**                                        |   | 2,716                  |   | 268 |   |
|                                                                                  |   |                   |   |   |   |
| Net change in cash and cash  equivalents for the period                               |   | (2,339                 | )      | (6,623 | ) |
| Cash and cash equivalents  at beginning of period                                     |   | 11,908                 |   | 18,282 |   |
| **Cash and  cash equivalents at end of period**                                       |   | $                      | 9,569  |   | $ | 11,659 |   |
|                                                                                  |   |                   |   |   |   |
| **Supplemental  disclosures of cash flow information:**                               |   |                   |   |   |   |
| Interest paid                                                                         |   | $                      | 149    |   | $ | 102 |   |
| Income taxes paid                                                                     |   | $                      | 442    |   | $ | 187 |   |
|                                                                                  |   |                   |   |   |   |
| **Supplemental  disclosures of noncash investing and financing activities:**          |   |                   |   |   |   |
| Issuance of common stock in  connection with acquisition of subsidiary                |   | $                      | 933    |   | $ | - |   |
| Warrant issued in connection  with investment advisory and financing related services |   | $                      | 650    |   | $ | - |   |
| Liabilities assumed in  acquisition of subsidiary                                     |   | $                      | -      |   | $ | 2,881 |   |
| Stock payable in connection  with acquisition of subsidiary                           |   | $                      | -      |   | $ | 2,775 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

**InVision Technologies, Inc.****Notes toConsolidated Financial Statements****(Unaudited)**

 

**1.             Summaryof Significant Accounting Policies**

 

**                InterimUnaudited Financial Information**

 

                Theaccompanying interim unaudited consolidatedfinancial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“generally accepted accounting principles”) and with theinstructions to Form 10–Q and Rule 10–01 of Regulation S–X.  Accordingly, they do not contain all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, the accompanying unaudited consolidated financialstatements reflect all adjustments (consisting only of normal recurringadjustments) considered necessary for a fair presentation.  These financial statements should be read inconjunction with the audited consolidated financial statements of InVisionTechnologies, Inc. and its subsidiaries (the “Company”) as of December 31, 2000and 1999 and for each of the three years in the period ended December 31, 2000,including the notes thereto, included in the Company’s Annual Report on Form10-K. 

                Operatingresults for the three and nine month periods ended September 30, 2001 may notnecessarily be indicative of the results that may be expected for the yearended December 31, 2001 or any other future period.

 

                Certainprior period amounts have been reclassified to conform to the current periodpresentation.

 

                **Net Income (Loss) Per Share**

 

                Basicearnings per share is computed by dividing income available to commonstockholders by the weighted-average common shares outstanding for theperiod.  Diluted earnings per sharereflects the weighted-average common shares outstanding plus the potentialeffect of dilutive securities or contracts which are convertible to commonshares such as options, warrants, convertible debt and preferred stock (usingthe treasury stock method) and shares issuable in future periods.

 

                Thefollowing is a reconciliation between the components of the basic and dilutednet income (loss) per share calculations for the periods presented below (inthousands, except per share data):

 
|                                                                     |   | **Three Months  Ended** |   | **Nine Months  Ended** |   |
|--------------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                                                     |   | **September  30, 2001** |   | **October 1,  2000**   |   | **September  30, 2001** |   | **October 1,  2000** |   |
|                                                                     |   | **Income**              |   | **Shares**             |   | **Per  Share  Amount** |   | **Income** |   | **Shares** |   | **Per  Share  Amount** |   | **Income** |   | **Shares** |   | **Per  Share  Amount** |   | **Loss** |   | **Shares** |   | **Per  Share  Amount** |   |
| Basic net income (loss) per  share:                                      |   |                    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) available to  common stockholders                          |   | $                       | 447    |                   | 13,046 |   | $ | 0.03 |   | $ | 197 |   | 12,322 |   | $ | 0.02 |   | $ | 680 |   | 12,871 |   | $ | 0.05 |   | $ | (2,128 | ) | 12,273 |   | $ | (0.17 | ) |
| Effect of dilutive  securities:                                          |   |                    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options                                                                  |   | -                       |   | 844                    |   | - |   | - |   | 511 |   | - |   | - |   | 646 |   | - |   | - |   | - |   | - |   |
| Stock payable in connection  with acquisition of subsidiary              |   | -                       |   | 102                    |   | - |   | - |   | - |   | - |   | - |   | 339 |   | - |   | - |   | - |   | - |   |
| Diluted net income (loss)  per share:                                    |   |                    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) available to  common stockholders plus assumed conversions |   | $                       | 447    |                   | 13,992 |   | $ | 0.03 |   | $ | 197 |   | 12,833 |   | $ | 0.02 |   | $ | 680 |   | 13,856 |   | $ | 0.05 |   | $ | (2,128 | ) | 12,273 |   | $ | (0.17 | ) |

 

                The computation of diluted net loss per share for the nine month periodended October 1, 2000 does not include shares issuable upon exercise of optionsof 1,233,777 shares, and issuance of common stock related to the acquisition ofInovec based on average share prices prior to the scheduled payment dates,because their effect would have been anti-dilutive.**                Derivative Instruments andHedging Activities**

 

                OnJanuary 1, 2001, the Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 133, “Accounting for Derivative Instruments and HedgingActivities.”  SFAS 133 was amended bySFAS 137, which modified the effective date of SFAS 133 to all fiscal quartersof all fiscal years beginning after June 15, 2000.  In June 2000, SFAS 138, “Accounting for Certain DerivativeInstruments and Certain Hedging Activities,” further amended SFAS 133.  SFAS 133, as amended, requires that everyderivative instrument, including certain derivative instruments embedded inother contracts, be recorded on the balance sheet at its fair value.  Changes in the fair value of derivatives arerecorded each period in current earnings or other comprehensive income,depending on whether a derivative is designated as part of a hedge transactionand, if it is, the type of hedge transaction. SFAS 133, as amended, requires that the Company formally document,designate, and assess the effectiveness of transactions that receive hedgeaccounting.  The Company adopted SFAS133, as amended, on January 1, 2001 and did not elect hedge accounting.  The adoption of this statement did not havea material impact on the financial position or results of operations of theCompany.

 

                Duringthe nine months ended September 30, 2001 the Company’s derivative contractsconsisted only of foreign exchange forward contracts to mitigate certain exposuresto future foreign currency rate movements on international salescontracts.  The change in the value ofthese derivative contracts did not have a material impact on the financialposition at September 30, 2001 or results of operations for the nine monthperiod then ended.

 

**                Business Combinations andGoodwill and Other Intangible Assets**

 

                InJune 2001, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 141, “Business Combinations” and SFAS No.142, “Goodwill and Other Intangible Assets.” SFAS 141 requires that all business combinations initiated after June30, 2001 be accounted for under the purchase method and addresses the initialrecognition and measurement of goodwill and other intangible assets acquired ina business combination.  SFAS 142addresses the initial recognition and measurement of intangible assets acquiredoutside of a business combination and the accounting for goodwill and otherintangible assets subsequent to their acquisition.  SFAS 142 provides that intangible assets with finite useful livesbe amortized and that goodwill and intangible assets with indefinite lives willnot be amortized, but will rather be tested at least annually forimpairment.  The Company will adopt SFAS142 for its fiscal year beginning January 1, 2002.  Upon the adoption of SFAS 141 and 142, the Company will no longeramortize goodwill of $2.5 million or acquired workforce of $662,000, resultingin a reduction in the annual amortization expense of $426,000.  The Company has not yet performed theimpairment tests required by the standard.

 

## **                AccountingFor the Impairment or Disposal of Long-Lived Assets**

 

**               **In October2001, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standard No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  SFAS 144 supersedesSFAS 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of,” and addresses financial accounting andreporting for the impairment or disposal of long-lived assets.  Thisstatement is effective for fiscal years beginning after December 15, 2001.  The Company will adopt SFAS 144 on January1, 2002.  The Company is currentlyevaluating the impact of SFAS 144 on its consolidated financial statements.

 

**2.**             **Inventories**

 

                Thecomponents of inventory consist of the following (in thousands):

 

|                                  |   | **September 30, 2001** |   | **December 31, 2000** |
|---------------------------------------|--------|------------------------|--------|-----------------------|
| Inventories:                          |   |                   |   |                  |
| Raw material and purchased components |   | $                      | 8,115  |                  | $ | 9,270 |
| Field service spare parts             |   | 9,058                  |   | 6,240                 |
| Work-in-process                       |   | 6,649                  |   | 4,162                 |
| Finished goods                        |   | 984                    |   | 535                   |
| Total                                 |   | $                      | 24,806 |                  | $ | 20,207 |

 

**3.**             **Accrued Liabilities**

 

                The components of accrued liabilities consist of thefollowing (in thousands):

 

|                          |   | **September 30, 2001** |   | **December 31, 2000** |
|-------------------------------|--------|------------------------|--------|-----------------------|
| Accrued liabilities:          |   |                   |   |                  |
| Warranty and other reserves   |   | $                      | 4,206  |                  | $ | 4,352 |
| Accrued employee compensation |   | 2,668                  |   | 3,172                 |
| Income taxes                  |   | 970                    |   | 1,302                 |
| Other                         |   | 2,139                  |   | 2,387                 |
| Total                         |   | $                      | 9,983  |                  | $ | 11,213 |

 

 

**4.             Acquisitionof Inovec, Inc.**

 

                Effective January 1, 2000, the Company acquiredInovec, Inc. (“Inovec”), a manufacturer of advanced optimization equipment forincreasing the yield of the forest products industry, for $5.2 million in cashand stock.  The Company paid $2.4 millionin cash and issued 249,000 shares of common stock to former shareholders ofInovec in 2000 as the first two installments of the purchase price and issued229,000 shares of common stock in April 2001 for the third installment. Theremaining obligation payable of $1.0 million is payable in stock in April 2002and is based on average share prices prior to the scheduled payment dates.   In addition, the Company is contingentlyliable under the purchase agreement in the event Inovec achieves certainoperating milestones during the years ended December 31, 2000 and 2001.  At December 31, 2000, Inovec had achievedcertain of these milestones and an additional $533,000 was recorded asadditional purchase price and was paid in cash and issuance of 91,000 shares ofcommon stock in April 2001.  An additional$700,000 may be payable in cash and stock upon the achievement of certainperformance milestones at the end of 2001.  The transaction was accounted for as a purchase.

 

 

**5.             SegmentInformation**

 

                Under the provisions of Statement of FinancialAccounting Standards No. 131 (“SFAS 131”), “Disclosures about Segments of anEnterprise and Related Information,” the Company has three reportable segmentsbased on financial information regularly reviewed by the Company’s managementin deciding how to allocate resources and assess performance.  The “EDS” segment is comprised of thebusiness unit that is engaged in the development, manufacturing, marketing andsupport of explosive detection systems based on advanced CT technology.  The “Quantum” segment is comprised of thebusiness unit that is engaged in the development of technology for inspection,detection and analysis of explosives, primarily landmine detection, and othermaterials based on quadrupole resonance technology and passive magneticsensing.   The “Wood” segment iscomprised of those business units that are engaged in the development,manufacturing, marketing and support of technology to optimize the value andyield of harvested timber based on different types of scanning technologies,including CT technology.

 

Financial information bybusiness segment is as follows (in thousands):

 
|                         |   | **EDS** |   | **Quantum** |   | **Wood** |   | **Total** |   |
|------------------------------|--------|---------|--------|-------------|--------|----------|--------|-----------|--------|
|                         |   |    |   |        |   |     |   |      |   |
| **Third quarter 2001**       |   |    |   |        |   |     |   |      |   |
| Revenues:                    |   |    |   |        |   |     |   |      |   |
| Product revenues             |   | $       | 6,901  |        | $      | -        |   | $         | 1,905  |   | $ | 8,806 |   |
| Service revenues             |   | 2,628   |   | 71          |   | 338      |   | 3,037     |   |
| Government contract revenues |   | -       |   | 4,561       |   | -        |   | 4,561     |   |
| Total revenues               |   | $       | 9,529  |        | $      | 4,632    |   | $         | 2,243  |   | $ | 16,404 |   |
|                         |   |    |   |        |   |     |   |      |   |
| Net income (loss)            |   | $       | 913    |        | $      | 139      |   | $         | (605   | ) | $ | 447 |   |
|                         |   |    |   |        |   |     |   |      |   |
| **September 30, 2001**       |   |    |   |        |   |     |   |      |   |
| Total assets                 |   | $       | 58,724 |        | $      | 4,760    |   | $         | 7,288  |   | $ | 70,772 |   |
|                         |   |    |   |        |   |     |   |      |   |
| **Third quarter 2000**       |   |    |   |        |   |     |   |      |   |
| Revenues:                    |   |    |   |        |   |     |   |      |   |
| Product revenues             |   | $       | 13,453 |        | $      | -        |   | $         | 3,322  |   | $ | 16,775 |   |
| Service revenues             |   | 2,099   |   | -           |   | 398      |   | 2,497     |   |
| Government contract revenues |   | -       |   | 2,869       |   | -        |   | 2,869     |   |
| Total revenues               |   | $       | 15,552 |        | $      | 2,869    |   | $         | 3,720  |   | $ | 22,141 |   |
|                         |   |    |   |        |   |     |   |      |   |
| Net income (loss)            |   | $       | 928    |        | $      | 25       |   | $         | (756   | ) | $ | 197 |   |
|                         |   |    |   |        |   |     |   |      |   |
| **December 31, 2000**        |   |    |   |        |   |     |   |      |   |
| Total assets                 |   | $       | 57,261 |        | $      | 4,056    |   | $         | 8,015  |   | $ | 69,332 |   |
|                         |   |    |   |        |   |     |   |      |   |
| **Nine months 2001**         |   |    |   |        |   |     |   |      |   |
| Revenues:                    |   |    |   |        |   |     |   |      |   |
| Product revenues             |   | $       | 23,641 |        | $      | 54       |   | $         | 6,919  |   | $ | 30,614 |   |
| Service revenues             |   | 7,244   |   | 97          |   | 1,100    |   | 8,441     |   |
| Government contract revenues |   | -       |   | 12,246      |   | -        |   | 12,246    |   |
| Total revenues               |   | $       | 30,885 |        | $      | 12,397   |   | $         | 8,019  |   | $ | 51,301 |   |
|                         |   |    |   |        |   |     |   |      |   |
| Net income (loss)            |   | $       | 2,311  |        | $      | 193      |   | $         | (1,824 | ) | $ | 680 |   |
|                         |   |    |   |        |   |     |   |      |   |
| **Nine months 2000**         |   |    |   |        |   |     |   |      |   |
| Revenues:                    |   |    |   |        |   |     |   |      |   |
| Product revenues             |   | $       | 33,033 |        | $      | -        |   | $         | 9,530  |   | $ | 42,563 |   |
| Service revenues             |   | 6,293   |   | -           |   | 1,200    |   | 7,493     |   |
| Government contract revenues |   | -       |   | 7,746       |   | -        |   | 7,746     |   |
| Total revenues               |   | $       | 39,326 |        | $      | 7,746    |   | $         | 10,730 |   | $ | 57,802 |   |
|                         |   |    |   |        |   |     |   |      |   |
| Net income (loss)            |   | $       | (390   | )           | $      | (363     | )      | $         | (1,375 | ) | $ | (2,128 | ) |

 

Substantially all of theCompany’s long-lived assets are located in the United States.

 

**6.             Stockholders’Equity**

 

**               **InSeptember 2001, the Company entered into an agreement with Donald & Co.Securities, Inc.  (“Donald & Co.”)for investment advisory and financing related services.  Under this agreement, Donald & Co.received a five-year warrant to purchase 100,000 shares of common stock at aprice of $9.95 per share.  The fairvalue of the warrant, determined using the Black-Scholes options pricing model,was $650,000 and was recorded in other assets. As of September 30, 2001, no shares of common stock had been purchasedunder the warrant.   Stephen Blum,president of Donald & Co., is a member of the Company’s Board of Directors.

 

 

**7.             Litigation**

 

                The Company is involved in routine administrativeproceedings arising in the ordinary course of business.  Management believes that collectively theseproceedings will not have a material effect on the Company’s business,financial condition or results of operations.

 

 

**Item2.  Management's Discussion and Analysisof Financial Condition and Results of Operations**

 

*The discussion below contains forward-looking statementswhich involve risks and uncertainties. When used in this discussion, the words“anticipate,“ “believe,” “estimate,” and “expect” and similar expressions identifysuch forward-looking statements. The Company’s actual results, performance, orachievements could differ materially from the results expressed in, or impliedby, these forward-looking statements. Factors that could cause or contribute tosuch differences include:*

 

•      *risksrelated to market acceptance of the Company's products;*

•      *fluctuationsin the Company's quarterly and annual operating results;*

•      *the loss oforders for the Company's products or the failure to obtain additional orders;*

•      *loss of anyof the Company's major suppliers;*

•      *intensecompetition;*

•      *reliance onfew customers and large orders;*

•      *risksrelated to the lengthy sales cycles for the Company’s products;*

•      *budgetinglimitations of the Company’s customers and prospective customers;*

•      *risksinherent to the development and production of new products and new applicationsand the certification of certain of these products;*

•      *risk ofcertification of competitors’ products;*

•      *risk oforders in backlog being canceled; and*

•      *thosefactors discussed in “Business Risks” below.*

 

## **Overview**

 

                InVision Technologies, Inc. (the “Company”) brings tomarket advanced detection and inspection products by adapting various medicaland laboratory technologies for government and commercial uses, such as security,defense and process control.   TheCompany reports its financial information in three segments, ExplosiveDetection Systems (“EDS”), Quantum, and Wood.

 

*                EDS.*  The Company develops, manufactures, marketsand supports explosive detection systems for civil aviation security based onadvanced computed tomography (“CT”) technology.  The Company’s products were the first automated explosivedetection systems to be certified by the Federal Aviation Administration (“FAA”)as meeting its stringent requirements. The Company has sold 255 systems to the FAA, foreign aviation securityagencies and domestic and foreign airports and airlines through September 30,2001.

 

*                Quantum.*  The Company, through its wholly-ownedsubsidiary Quantum Magnetics, Inc., (“Quantum”) develops for commercializationpatented and proprietary technology for inspection, detection and analysis ofexplosives and other materials. Quantum’s products are based on passive magnetic sensing technology and quadrupoleresonance (“QR”) technology, a form of magnetic resonance.  Quantum receives grants from a variety of USgovernment agencies for research and development of landmine detection,carry-on luggage screening, concealed weapon detection, drug detection, andin-process materials inspection.

 

*                Wood.*  In February 2000, the Company announced theformation of its WoodVision division (“WoodVision”) to develop the Company’s CTtechnology to optimize the value and yield of harvested timber.  Previous studies indicated that CTtechnology can be applied to see inside a log before it is sawn.  The Company believes that a market for aproduct that does this exists.  Inconnection with the formation of WoodVision, the Company acquired, as awholly-owned subsidiary, Inovec, Inc. (“Inovec”), effective as of January 1,2000.  Inovec manufactures, markets andsupports advanced optimization equipment for sawmills based on laser scanningand other optimization technologies. Since inception, Inovec has installed over 600 laser scanners and otheroptimization systems in over 300 sawmills worldwide.  The transaction has been accounted for as a purchase.*                Research and development.*** **The Company considers researchand development to be a vital part of its operating discipline and continues todedicate substantial resources to research and development.  At September 30, 2001, the Company had 140full-time employees engaged in research and development, and productdevelopment activities, 47 for EDS, 62 for Quantum and 31 for Wood.  The Company was also using the services of14 specialized contract employees and consultants in this area.  During the nine month periods endedSeptember 30, 2001 and October 1, 2000, the Company spent $10.1 million and$8.5 million, respectively, on research and development activities, of which$3.4 million and $435,000, respectively, were funded by the FAA and otheragencies under development contracts and grants.  To the extent that research and development contracts and grantreceipts decline in the future, the Company would attempt to manage researchand development expenditures to mitigate the impact on its results ofoperations.  At September 30, 2001, theCompany had in backlog grants of $506,000 for EDS research and development,primarily for the development of ARGUS, an FAA-sponsored program designed todevelop a low-cost, automated explosive detection system to scan checkedbaggage in small airports and low-traffic stations within larger airports.  Additionally, the Company’s Quantumsubsidiary has performed non-funded development and commercialization of the *i*-Portal 100 walk-through portal.  The *i*-Portal100 system uses passive magnetic sensing to detect concealed objects.  The system’s computer workstation displays adigital image of the person walking through the portal and superimposes largedots on the image at the locations of objects that could be weapons.

 

                *Revenues.* The Company's EDS product revenues have principally consisted, and theCompany believes will continue to consist, of orders of multiple units from alimited number of customers. While the number of individual customers may varyfrom period to period, the Company is nevertheless dependent upon thesemultiple orders for a substantial portion of its revenues. The Company cannotassure that it will obtain such multiple orders on a consistent basis.   For the nine month periods ended September30, 2001 and October 1, 2000, $15.0 million and $21.0 million, respectively,were generated from EDS sales to the Company's largest customer, the FAA,representing 29.3% and 36.3%, respectively, of the Company's totalrevenues.  There were no othersignificant customers who accounted for more than 10% of the Company’s totalrevenues in the first nine months of 2001 and 2000.

 

                The Company markets its products and services bothdirectly through internal sales personnel and indirectly through authorizedagents, distributors and systems integrators. In the United States, the Company markets its products and servicesprimarily through direct sales personnel. Internationally, the Company utilizes both a direct sales force andauthorized representatives to sell its products. For the nine month periodsended September 30, 2001 and October 1, 2000, international sales represented27.9% and 24.7%, respectively, of the Company's total revenues.

 

**Results of Operations**

 

                The following table sets forth certain income andexpenditure items from the Company’s consolidated statements of operationsexpressed as a percentage of total revenues for the periods indicated.

 
|                                             |   | **Three  Months Ended** |   | **Nine Months  Ended** |   |
|--------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                             |   | **Sept. 30,  2001**     |   | **Oct. 1,  2000**      |   | **Sept. 30,  2001** |   | **Oct. 1,  2000** | ** ** |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Revenues:                                        |   |                    |   |                   |   |   |   |   |   |
| Product revenue                                  |   | 53.7                    | %      | 75.7                   | %      | 59.6 | % | 73.6 | % |
| Service revenue                                  |   | 18.5                    |   | 11.3                   |   | 16.5 |   | 13.0 |   |
| Government contract revenue                      |   | 27.8                    |   | 13.0                   |   | 23.9 |   | 13.4 |   |
| Total revenues                                   |   | 100.0                   |   | 100.0                  |   | 100.0 |   | 100.0 |   |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Cost of revenues:                                |   |                    |   |                   |   |   |   |   |   |
| Product costs                                    |   | 34.4                    |   | 51.4                   |   | 37.0 |   | 50.3 |   |
| Service costs                                    |   | 10.3                    |   | 6.6                    |   | 10.5 |   | 8.6 |   |
| Government contract costs                        |   | 22.6                    |   | 9.9                    |   | 19.1 |   | 9.8 |   |
| Total cost of revenues                           |   | 67.3                    |   | 67.9                   |   | 66.6 |   | 68.7 |   |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Gross profit                                     |   | 32.7                    |   | 32.1                   |   | 33.4 |   | 31.3 |   |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Operating expenses:                              |   |                    |   |                   |   |   |   |   |   |
| Research and development                         |   | 11.7                    |   | 14.1                   |   | 13.0 |   | 14.0 |   |
| Selling, general and  administrative             |   | 20.0                    |   | 18.1                   |   | 19.3 |   | 22.1 |   |
| Total operating expenses                         |   | 31.7                    |   | 32.2                   |   | 32.3 |   | 36.1 |   |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Income (loss) from  operations                   |   | 1.0                     |   | (0.1                   | )      | 1.1 |   | (4.8 | ) |
| Interest expense                                 |   | (0.5                    | )      | (0.2                   | )      | (0.4 | ) | (0.2 | ) |
| Interest and other income,  net                  |   | 2.4                     |   | 1.3                    |   | 1.0 |   | 1.3 |   |
| Income (loss) before  provision for income taxes |   | 2.9                     |   | 1.0                    |   | 1.7 |   | (3.7 | ) |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Provision for income taxes                       |   | 0.1                     |   | -                      |   | 0.3 |   | - |   |
|                                             |   |                    |   |                   |   |   |   |   |   |
| Net income (loss)                                |   | 2.8                     | %      | 1.0                    | %      | 1.4 | % | (3.7 | )% |

 

 

**Comparison of the Three Months Ended September 30, 2001 toOctober 1, 2000**

 

*                Revenues.*   The Company's revenues are primarilycomprised of: (i) EDS product revenues, which include revenues from sales ofCTX systems and related accessories and related installation and configuration***,*** and EDS servicerevenues, which include revenues from maintenance contracts related to productsupport, repairs, integration and other services, including those complexinstallations and configurations that are separate from product revenues; (ii)Quantum government contract revenues, which include revenues primarily fromresearch and development contracts utilizing QR and passive magnetictechnologies with government agencies and private entities; and (iii) Woodproduct revenues from the sales of control and automation systems for materialprocessing equipment, primarily in the wood products industry and relatedaccessories, installation and configuration, and Wood service revenues frommaintenance contracts related to product support, repairs, integration andother services.

 

                EDS product revenues were $6.9 million for the thirdquarter of 2001, a decrease of 48.7% from the $13.5 million in the thirdquarter of 2000.  This decrease wasprimarily attributable to decreased system revenue of approximately $7.0million, resulting from fewer CTX systems sold in the third quarter compared tothe same period a year ago.  Thedecrease is partially offset by increased accessories and spare parts revenuein the current quarter.  EDS servicerevenues were $2.6 million for the third quarter of 2001, an increase of 25.2%from the $2.1 million in the third quarter of 2000.  The increase in service revenues is primarily due to morenon-contract services, such as billed time and material, data reporting, andcomplex installations, provided on a greater installed base of systems duringthe third quarter of 2001 compared to the same period a year ago.  The Company typically ships against abacklog of orders for its products.  Asof September 30, 2001, the Company had in backlog EDS equipment orders andservice agreements of $24.1 million. Additionally, subsequent to September 30, 2001, the Company receivedorders for multiple CTX systems, accessories and service totaling approximately$5.7 million.                Quantum’s governmentcontract revenues were $4.6 million for the third quarter of 2001, an increaseof 59.0% from the $2.9 million in the third quarter of 2000.  The increase in government contract revenuesis primarily due to an increase in efforts in the development of landmine andconcealed weapons detection technologies, partially offset by decreases inother types of development efforts as those government contracts and grantswere completed during the last twelve months.  Due to the higher level of contracts and requirements in 2001, Quantumhas more individuals working directly on funded projects compared to the sameperiod a year ago.  As of September 30,2001, the Company had Quantum government contract backlog of approximately$16.3 million, primarily for development of landmine detection technologies.

 

                Woodproduct and service revenues were $2.2 million in the third quarter of 2001, adecrease of 39.7% from the $3.7 million in the third quarter of 2000.   The decrease in wood revenues is primarilydue to fewer system sales and also due to fewer machinery equipment sales, bothreflecting a softness in the wood products industry in the third quarter of2001 compared to the same period a year ago. As of September 30, 2001, the Company had in backlog Inovec equipmentorders and service agreements of $1.9 million.  The Company is still developing the CT based log scanner and hadno related revenues or backlog as of September 30, 2001.

 

*                GrossProfit.*  Cost of EDSproduct revenues primarily consists of purchased materials procured for use inthe assembly of the Company's products, as well as manufacturing labor andoverhead, installation and warranty. Cost of EDS service revenues primarily consists of direct labor andmaterials, and customer support overhead. In any given period the Company's gross profit for products and servicesmay be affected by several factors, including revenue mix, volume of systemsmanufactured in a given period, product configuration, location of theinstallation and complexity of integration into various environments.

 

                Gross profit for EDS products was $2.5 million in thethird quarter of 2001, a decrease of 43.7% from the $4.4 million in the thirdquarter of 2000.  Gross margins for EDSproducts in the third quarter of 2001 and 2000 were 35.7% and 32.5%,respectively.  Gross profit decreasedprimarily due to decreased revenues in the third quarter of 2001 compared tothe same period a year ago.   Theincrease in gross margins is primarily due to improvements in the manufacturingcosts of the CTX 9000 system, which was first introduced in late 1999, and alsodue to variations in product types and accessories sold in the third quartercompared to the same period a year ago.  The increase in revenues from accessories and upgrade sales, whichtypically carry higher margins, in the current quarter added to the improvementin EDS product margins compared to the third quarter of 2000.  Gross profit for EDS services was $1.2million in the third quarter of 2001, an increase of 41.1% from $833,000 in thethird quarter of 2000.  Gross marginsfor EDS services were 44.7% and 39.7% in the third quarter of 2001 and 2000,respectively.  The increase in grossprofit is primarily due to increased service revenues in the third quarter of2001 compared to the third quarter of 2000. The increase in gross margins is primarily due to variations in types ofservice revenue, such as increased billed time and materials services, in thethird quarter of 2001 compared to the same period a year ago, and also due torevenues recorded in the current quarter for services provided in priorperiods, resulting from the realizability of receivables for which revenues hadbeen deferred due to uncertainty of collection.

 

                Cost of Quantum government contract revenuesprimarily consists of direct labor, purchased materials, subcontract labor andthe applicable overhead required to support government funded activities.   Gross profit for government contracts was$851,000 in the third quarter of 2001, a 27.0% increase from the $670,000 inthe third quarter of 2000.  Grossmargins were 18.7% and 23.4% in the third quarter of 2001 and 2000,respectively.   The increase in grossprofit is primarily due to increased government contract revenues in thecurrent quarter compared to the same period a year ago, partially offset bydecreased margins.  The decrease ingross margins is primarily due to increased outside engineering servicesutilized on the landmines contract, which services typically carry lowermargins, in the third quarter of 2001 compared to the same quarter a year ago.

 

                Gross profit for Wood products and services were$849,000 in the third quarter of 2001, a decrease of 30.0% from the $1.2million in the third quarter of 2000. Gross margins were 37.9% and 32.6% in the third quarter of 2001 and2000, respectively.  The decrease ingross profit is primarily due to lower revenues in the current quarter.  The increase in gross margins is primarilydue to a smaller portion of revenues attributable to machinery equipment, whichtypically carry a lower margin than system revenues, in the third quarter of2001 compared to the same period a year ago.

 

*                Researchand Development.* Research and development expenses consist primarily of compensation paidto personnel engaged in research and development activities, amounts paid foroutside services, and costs of materials utilized in the development ofhardware products, including prototype units. Research and development expenditures by the Company are partiallyoffset by amounts reimbursed by the FAA and other government agencies and privateentities under research and development contracts and grants.  These services are provided on a cost basis.                Gross research anddevelopment expenses were $3.2 million in the third quarter of 2001, a decreaseof 4.0% from the $3.4 million in the third quarter of 2000.  Of these amounts, in the third quarter of2001 and 2000, $1.3 million and $255,000, respectively, were funded by researchand development contracts and grants from the FAA and other government agenciesand private entities.  Net research anddevelopment expenses were $1.9 million in the third quarter of 2001, a decreaseof 38.4% compared to the $3.1 million in the third quarter of 2000.  As a percentage of revenues, net researchand development expenses were 11.7% and 14.1% in the third quarter of 2001 and2000, respectively.  The decrease in netresearch and development expenses is primarily due to the focused efforts inthe ARGUS development, funded through research and development grants.  As of September 30, 2001, the Company had inbacklog research and development contracts and grants of $506,000.

 

*                Selling,general and administrative.* Selling, general and administrative expenses consist primarily ofcompensation paid to direct and indirect sales and marketing personnel,administrative personnel, including directors, consultant fees, professionalservice fees, insurance, travel, selling and distribution costs, and othergeneral expenses.

 

                Selling, general and administrative expenses were$3.3 million in the third quarter of 2001, a decrease of 18.2% from the $4.0million in the third quarter of 2000. As a percentage of total revenues, selling, general and administrativeexpenses were 20.0% and 18.1% in the third quarter of 2001 and 2000, respectively.  The decrease in selling, general andadministrative expenses is primarily due to the Company’s continued efforts toreduce selling, general and administrative spending levels in the third quarterof 2001 compared to the same period a year ago and is also due to thereimbursement of expenses related to the ARGUS grant in the currentquarter.  The decrease is also due tothe business development costs of the newly formed WoodVision division incurredduring the third quarter of 2000.  Thesedecreases are partially offset by restructuring provisions recorded in thethird quarter of 2001 for a reduction in force in July 2001.

 

*                InterestExpense.*  Interestexpense increased to $76,000 in the third quarter of 2001 from $46,000 in thethird quarter of 2000. Interest expense resulted primarily from debt financingassociated with the Company’s working capital lines of credit, equipment termloans and capital leases.  The increaseis primarily due to higher average debt balances in the third quarter of 2001compared to the same period a year ago.

 

                 *Interest andOther Income, Net.*  Interestand other income, net, was $388,000 in the third quarter of 2001 and $287,000in the third quarter of 2000.  The 2001amount consists primarily of interest income on cash equivalents and short-terminvestments of $42,000 and other income (net) of $346,000, primarily thereversal of a reserve due to a favorable outcome of an internationalclaim.  The 2000 amount consistsprimarily of interest income on cash equivalents and short-term investments of$197,000 and other income (net) of $90,000, primarily foreign exchange gains,net.  The decrease in interest income isprimarily due to lower average cash balances in the third quarter of 2001compared to the same period a year ago.

 

*                Provisionfor Income Taxes.*  TheCompany recorded a provision for income taxes of $13,000 in the third quarterof 2001.  At December 31, 2000, theCompany had federal net operating loss carryforwards of approximately $2.7million available to reduce future federal taxable income.  The Company’s net operating losscarryforwards, primarily from the Quantum Magnetics subsidiary, expire from2010 to 2012 and tax credit carryforwards expire from 2005 to 2018.

 

 

**Comparison of the Nine months Ended September 30, 2001 toOctober 1, 2000**

 

*                Revenues.*   EDS product revenues were $23.7 million forthe first nine months of 2001, a decrease of 28.4% from the $33.0 million inthe first nine months of 2000.  Thisdecrease was primarily attributable to fewer system sales and variations inproduct mix, reflecting more CTX 2500 systems and fewer CTX 9000 and 5500systems sold in the first nine months of 2001 compared to the same period ayear ago.  The decrease is also due tofewer upgrade revenues, partially offset by increased accessories and spareparts revenues in the first nine months of 2001 compared to the same period ayear ago.  EDS service revenues were$7.2 million for the first nine months of 2001, an increase of 15.1% from the$6.3 million in the first nine months of 2000. The increase in service revenues is primarily due to increased servicecontract revenue for new support and maintenance agreements for CTX systems forwhich warranty periods expired during the past twelve months, primarily ininternational locations, and more non-contract services, such as billed timeand material, data reporting, and complex installations, provided on a greaterinstalled base of systems during the first nine months of 2001 compared to thesame period a year ago.

 

                Quantum’s government contract revenues were $12.2million for the first nine months of 2001, an increase of 58.1% from the $7.7million in the first nine months of 2000. The increase in government contract revenues is primarily due to anincrease in efforts in the development of landmine technologies, in accordancewith expected milestones in the contracts, partially offset by decreases inother types of development efforts as those government contracts and grantswere completed during the last twelve months.                Wood product and servicerevenues were $8.0 million in the first nine months of 2001, a decrease of25.3% from the $10.7 million in the first nine months of 2000.   The decrease in wood revenues is primarilydue to fewer system and machinery equipment sales in the first nine months of 2001 compared to the same period ayear ago, primarily due to a softness in the wood products industry.

 

*                GrossProfit.*Gross profit for EDS products was $9.2 million in thefirst nine months of 2001, a decrease of 14.3% from the $10.7 million in thefirst nine months of 2000.  Grossmargins for EDS products in the first nine months of 2001 and 2000 were 38.9%and 32.4%, respectively.   The decreasein gross profit is primarily due to lower revenues in the first nine months of2001 compared to the first nine months of 2000.  The increase in gross margins is primarily due to improvements inthe manufacturing costs of the CTX 9000 system, which was first introduced inlate 1999, and also due to variations in product types and accessories sold inthe first nine months of 2001 compared to the same period a year ago.   The increase is also due to competitivepricing factors with an international customer during the first nine months of2000.  These increases are partiallyoffset by additional warranty provisions recorded in the first nine months of2001 to upgrade certain previously sold CTX 9000 systems to currentmanufacturing standards.  Gross profitfor EDS services was $2.5 million in the first nine months of 2001, an increaseof 26.0% from the $2.0 million in the first nine months of 2000.  Gross margins for EDS services were 34.1%and 31.2% in the first nine months of 2001 and 2000, respectively.  The increase in gross profit is primarilydue to increased service revenues in the first nine months of 2001 compared tothe same period a year ago. The increase in gross margins is primarily due tovariations in types of service revenue, such as increased billed time andmaterials services, and continued efforts to maintain constant overhead costswith a greater installed base of CTX systems. The increase in gross margins for EDS services is also due to revenuesrecorded in the current period for services provided in prior periods,resulting from the realizability of receivables for which revenues had beendeferred due to uncertainty of collection.

 

                Gross profit for government contracts was $2.5million in the first nine months of 2001, a 18.9% increase from the $2.1million in the first nine months of 2000. Gross margins were 20.1% and 26.7%, respectively.   The increase in gross profit is primarilydue to higher revenues in the first nine months of 2001 compared to the sameperiod a year ago, partially offset by decreased margins.  The decrease in gross margins is primarilydue to increased outside engineering services utilized on the landminescontract, which services typically carry lower margins, in the first ninemonths of 2001 compared to the same period a year ago.

 

                Gross profit for Wood products and services were $2.9million in the first nine months of 2001, a 12.3% decrease from the $3.3million in the first nine months of 2000. Gross margins were 36.3% and 31.0% in the first nine months of 2001 and2000, respectively.   The decrease ingross profit is primarily due to decreased Wood products and service revenuesin the first nine months of 2001 compared to the first nine months of2000.  The increase in gross margins isprimarily due to fewer machinery equipment sales, which typically carry lowermargins, and variations in system product mix, in the first nine months of 2001compared to the same period a year ago.

 

*                Researchand Development.* Gross research and development expenses were $10.1 million in the firstnine months of  2001, an increase of18.9% from the $8.5 million in the first nine months of 2000.  Of these amounts, in the first nine monthsof 2001 and 2000, $3.4 million and $435,000, respectively, were funded byresearch and development contracts and grants from the FAA and other governmentagencies and private entities.  Netresearch and development expenses were $6.7 million in the first nine months of2001 and $8.1 million in the first nine months of 2000.  As a percentage of revenues, net researchand development expenses were 13.0% and 14.0% in the first nine months of 2001and 2000, respectively.   The increasein gross research and development expenses is primarily due to costs incurredfor the development of ARGUS, the development and commercialization of the *i*-Portal100 system, and also due to engineering services, materials and labor costsincurred for the development of WoodVision products in the first nine months of2001 compared to the first nine months of 2000.   The decrease in net research and development expenses isprimarily due to the focused efforts in the ARGUS development, funded throughresearch and development grants, partially offset by the increased expenditureson the development of the WoodVision products and the *i*-Portal 100 system in thefirst nine months of 2001 compared to the same period a year ago.

 

*                Selling,general and administrative.* Selling, general andadministrative expenses were $9.9 million in the first nine months of 2001, adecrease of 22.5% from the $12.8 million in the first nine months of 2000.  As a percentage of total revenues, selling,general and administrative expenses were 19.3% and 22.1% in the first ninemonths of 2001 and 2000, respectively. The decrease in selling, general and administrative expenses isprimarily due to lower commissions, a result of lower product revenues in thefirst nine months of 2001, and also due to higher commissions paid to outsidesales representatives in the first nine months of 2000.   The decrease in selling, general andadministrative expenses is also due to the reimbursement of expenses related tothe ARGUS grant in the first nine months of 2001, higher costs incurred in thefirst nine months of 2000 relating to the start-up and business developmentcosts of the newly formed WoodVision division, and the Company’s continuedefforts to reduce selling, general and administrative spending levels in2001.  These decreases are partiallyoffset by restructuring provisions recorded in the current period for areduction in force in July 2001.*                Interest Expense.*  Interest expense increased to $224,000 inthe first nine months of 2001 from $134,000 in the first nine months of2000.   The increase is primarily due tohigher average debt balances in the first nine months of 2001 compared to thesame period a year ago.

 

                 *Interest andOther Income, Net.*  Interestand other income, net, decreased to $493,000 in the first nine months of 2001from $772,000 in the first nine months of 2000.  The 2001 amount consists primarily of interest income on cashequivalents and short-term investments of $235,000 and other income (net) of$258,000, primarily the reversal of a reserve due to a favorable outcome of aninternational claim.  The 2000 amountconsists primarily of interest income on cash equivalents and short-terminvestments of $765,000 and other income (net) of $7,000.  The decrease in interest income is primarilydue to lower average cash balances in the first nine months of 2001 compared tothe first nine months of 2000.

 

*                Provisionfor Income Taxes.*  TheCompany recorded a provision for income taxes of $134,000 in the first ninemonths of 2001.

 

 

## **Liquidity and Capital Resources**

 

                At September 30, 2001, the Company had $9.6 millionin cash and cash equivalents, compared to $11.9 million at December 31,2000.  Working capital was $40.2 millionat September 30, 2001 compared to $37.7 million at December 31, 2000.

 

                Net cash used in operating activities was $2.7million in the first nine months of 2001, compared to $9.2 million in the firstnine months of 2000.  Cash used inoperating activities in the first nine months of 2001 primarily resulted from a$4.6 million increase in inventories, a $1.5 million decrease in accountspayable and accrued liabilities, and a $872,000 decrease in deferred revenues,partially offset by net income of $680,000, the $2.8 million non-cash effect ofdepreciation and amortization and a 

$469,000 decrease inaccounts receivable.  Cash used inoperating activities in the first nine months of 2000 primarily resulted from anet loss of $2.1 million, a $9.1 million increase in accounts receivable, a $3.8million increase in inventories, and a $1.8 million decrease in deferredrevenue, partially offset by a $3.5 million increase in accounts payable andaccrued liabilities, the $2.9 million non-cash effect of depreciation andamortization and a $973,000 decrease in other current assets.

 

                Net cash used in investing activities was $2.4million in the first nine months of 2001, compared to $2.4 million provided byinvesting activities in the first nine months of 2000.  Net cash used in investing activities in thefirst nine months of 2001 resulted from $1.3 million in acquisitions of capitalequipment, $750,000 for the purchase of short-term investments,  and $267,000 for the payment of an earn-outto the former shareholders of Inovec in accordance with terms in the purchaseagreement.  Net cash provided byinvesting activities in the first nine months of 2000 primarily resulted from$5.9 million in sales of short-term investments (net of purchases), partiallyoffset by the cash payment of $1.5 million for the purchase of Inovec, net of cashacquired, and $2.0 million in acquisitions of capital equipment.

 

                Net cash provided by financing activities was $2.7million in the first nine months of 2001, compared to $268,000 in the firstnine months of 2000. Net cash provided by financing activities in the firstnine months of  2001 was primarily dueto $2.4 million in proceeds from borrowings of short-term debt, net ofpayments, and $617,000 in proceeds from sales under the employee stock purchaseplan and exercises of incentive stock options, partially offset by $292,000 inrepayments of long-term debt.  Net cashprovided by financing activities in the first nine months of 2000 was primarilydue to $594,000 in proceeds from sales under the employee stock purchase planand exercises of incentive stock options, partially offset by $326,000 inrepayments of long-term debt.

 

                In October 2001, the Company renewed its two line ofcredit agreements with a bank.  Thefirst agreement provides for maximum borrowings in an amount up to the lower of80% of eligible domestic EDS receivables or $5.0 million.  The second agreement is partially guaranteedby the Export–Import Bank (“EXIM”) of the United States and provides formaximum borrowings in an amount up to the lower of:  (a) the sum of 70% to 90% of eligible EDS export accountsreceivable plus the lower of: (i) 70% of eligible raw materials and work–in–processinventory designated for export customers; (ii) 60% of outstanding loans underthis agreement, or; (iii) $2.0 million, or; (b) $5.0 million.  Borrowings under both agreements bearinterest at the bank’s prime rate plus 1.5% (6.0% at September 30, 2001) andare secured by EDS assets. The agreements expire in October 2002 and requirethat the EDS segment maintain certain levels of tangible net worth andintercompany balances from its wholly-owned subsidiaries, and also prohibit theCompany from paying cash dividends. Proceeds of loans under both lines of credit may be used for generalcorporate purposes.  At September 30,2001, the Company had borrowings outstanding of $190,000 under the domestic EDSagreement and $2.7 million under the EXIM agreement.  Additionally, the Company had outstanding guarantees to customersthrough issuance of letters of credit secured by the lines of credit totaling$1.1 million and foreign exchange contracts for which a 10% reserve of $250,000is secured by the lines of credit.   Theremaining available borrowing capacity under the lines of credit was $4.5million at September 30, 2001, based on eligible EDS accounts receivable andinventories as of that date.                The Company previouslyborrowed against a committed equipment line of credit agreement with a bank,which converted into a term loan after draw down.  Borrowings are secured by the assets purchased or financed.  At September 30, 2001, the Company had anoutstanding $232,000 term loan due June 2003 and a $36,000 term loan dueNovember 2001.  The term loans bearinterest at the bank’s prime rate plus 1.5% (6.0% at September 30, 2001).

 

                The Company believes that existing cash, cashequivalents and short-term investments together with available borrowings underits lines of credit and funds expected to be generated from operations will besufficient to finance its working capital and capital expenditure requirementsfor at least the next 12 months.

 

 

**Business Risks**

 

*                Historyof Losses; No Assurance of Continued Profitability.*  The Company commenced operations inSeptember 1990, remained in the development stage through 1994 and received itsfirst revenues from product sales in the first nine months of 1995.  The Company experienced net losses for eachyear from inception through December 31, 1996. The year ended December 31, 1997was the Company’s first year of profitability. As of September 30, 2001, the Company had an accumulated deficit ofapproximately $10.3  million.  Although the Company was profitable on anannual basis for the years 1997, 1998 and 1999, profitability in 1999 was belowthat of the prior two years and the Company was not profitable in 2000.  The Company has been profitable for the fivequarters ended September 30, 2001, but there can be no assurance that theCompany will attain annual profitability for 2001 or in the future. See"Management's Discussion and Analysis of Financial Condition and Resultsof Operations - Liquidity and Capital Resources."

 

*                Fluctuationsin Operating Results.* The Company's past operating results have been, and its future operatingresults will be, subject to fluctuations resulting from a number offactors.  These factors include:

 

•      the timing and size of orders from, and shipments to, majorcustomers;

•      budgeting and purchasing cycles of its customers;

•      delays in product shipments caused by custom requirements ofcustomers or ability of the customer to accept shipment;

•      the acceptance and timing of enhancements to the Company’sproducts

•      the introduction and acceptance of new products by the Companyor its competitors;

•      changes in pricing policies by the Company, its competitors orsuppliers, including possible decreases in average selling prices of theCompany’s products in response to competitive pressures;

•      the proportion of revenues derived from competitive bidprocesses;

•      the mix between sales to domestic and international customersand the mix between sales of the Company’s various  products;

•      the availability and cost of key components; and

•      fluctuations in general economic conditions.

 

                The Company may also choose to reduce prices or toincrease spending in response to competition or to pursue new market opportunities,all of which may have a material adverse effect on the Company’s business,financial condition or results of operations. The Company's systems revenues in any period are derived from sales ofmultiple CTX Series systems to a limited number of customers and are recognizedupon shipment.  The high sales price ofunits in the CTX Series means that minor variations in the number of orders, orin the timing of shipments, substantially affects the Company's quarterlyrevenues. A significant portion of the Company's quarterly operating expensesare, and will continue to be, relatively fixed in nature.  This means that revenue fluctuations willcause the Company's quarterly and annual operating results to vary substantially.Accordingly, the Company believes that period-to-period comparisons of itsresults of operations are not meaningful and cannot be relied upon asindicators of future performance. Because of all of the foregoing factors, theCompany's operating results have from time to time in the past been and mayagain in the future be below the expectations of public market analysts andinvestors.  This failure to meet marketexpectations has in the past and may again in the future result in a decline inthe trading price of the common stock.

* *

*                Impact of September 11, 2001Terrorist Attacks.* The Company believes there may be anincreased demand for its products as a result of the September 11, 2001terrorist attacks, which has heightened the levels of awareness surroundingaviation security around the world. However, the Company cannot anticipate the extent of the increaseddemand or the rate at which it will evolve. The Company may be required to expand its business to respond to anincreased demand; however, such expansion could place a significant strain onexisting managerial, operational and financial systems and resources.  The future operating results could besignificantly affected by the ability of the Company to successfully implementoperating, manufacturing and financial procedures and controls, to achievemanufacturing efficiencies as production volumes increase, to improvecoordination among different operating functions, and to continue to attract,train and motivate additional qualified personnel in all areas.  To prepare for the expansion and anticipatedincreased demand, the Company may incur expenses and experience cash flowrequirements in advance of possible increases in revenues.   Similarly, in anticipation for the increasein demand, the Company may overestimate the expansion of its business and incurexpenses without the related revenues.  These risks described above may have an impact on the Company’sfinancial condition and operating results in the next twelve months.*                Dependence on Few Customers.*  In any given fiscal year, the Company's EDSproduct and service revenues have principally consisted, and the Companybelieves will continue to consist, of orders of multiple units from a limitednumber of customers. While the number of individual customers may vary fromperiod to period, the Company is nevertheless dependent upon these multipleorders for a substantial portion of its revenues. There can be no assurancethat the Company will obtain such multiple orders on a consistent basis. In2001 and 2000, the Company entered into several contracts with customers topurchase CTX Series systems over a period of several years.  These contracts have a minimum and maximumnumber of units the customer can order, however, there can be no assurance thatthe customer will order more than the minimum number of units in accordancewith the terms in the contract.   TheCompany's inability to obtain sufficient multiple orders would have a materialadverse effect on the Company's business, financial condition or results ofoperations.

 

*                Salesto FAA.* To date, allorders for CTX Series systems from United States customers have beensubstantially funded by the FAA.  TheCompany's largest sales contract to date, for 105 CTX Series systems, all ofwhich have been shipped, was with the FAA. The failure of the FAA to continue such purchases or funding would havea material adverse effect on the Company's business, financial condition orresults of operations.

 

*                PublicAgency Contract and Budget Considerations.*  Substantially all of the Company’s EDScustomers and a high percentage of Quantum’s research and development customersto date have been public agencies or quasi-public agencies.  In contracting with public agencies, theCompany is subject to public agency contract requirements which vary fromjurisdiction to jurisdiction and which are subject to budgetary processes andexpenditure constraints.  Budgetaryallocations for explosive detection systems are dependent, in part, upongovernmental policies which fluctuate from time to time in response to politicaland other factors, including the public's perception of the threat ofcommercial airline bombings.  Inaddition, public agency bidding processes have been and may continue to beprotracted, and typically contain provisions that permit cancellation in theevent that funds are unavailable to the public agency.

 

                *Export Control.*  The Company is subject to risks associatedwith regulations relating to the export of defense articles.  In particular, the Company’s aviationautomated explosive detection systems and landmine detection systems are deemedto be regulated defense articles subject to export control by the U.S.Department of State. Exports may be prohibited or limited to a small number ofcountries, even for purposes of demonstration and further data collection anddevelopment.

 

                *Wood IndustryPurchasing Cycle*.  TheCompany’s Wood revenues will be subject to the ability and willingness ofcustomers in the wood industry to purchase capital equipment to improveproductivity, yield and finished product value.  The factors that affect the decision to purchase such capitalequipment include the demand for wood products, market prices for logs andfinished wood products, labor costs, interest rates and other general economicfactors.  In addition, the revenuesrelated to the Company’s CT scanners for the wood industry will be subject tothe acceptance of new technology by customers in the wood industry.  There are no assurances that marketconditions in the wood industry will be favorable for the sale of capitalequipment, or that the Company’s new products will be accepted by the industryin any particular time, or at all.

 

## **Item 3.  Quantitative andQualitative Disclosures About Market Risk**

 

###### *ForeignExchange Risk and Impact of Inflation*

 

                The Company's international system sales andmaintenance contracts are generally denominated in U.S. dollars.   In instances where there are significantinternational system sales contracts denominated in a foreign currency, theCompany enters into forward contracts to mitigate foreign exchange risk.   In the first nine months of 2001, theCompany entered into foreign exchange forward contracts with notional values ofapproximately $5.9 million to hedge against foreign exchange risk for contractswith international customers and, at September 30, 2001, had outstandingcontracts with notional values totaling $2.5 million with a fair value ofapproximately $94,000.   Purchases ofraw materials and other inventory components are primarily denominated in U.Sdollars and when purchased in foreign currencies, are generally made on an asneeded basis.  The Company has someadvance purchase commitments in foreign currencies with a few Europeansuppliers.   The Company currently doesnot hedge against these purchase commitments, as the foreign exchange ratefluctuations have not had a material adverse impact on these purchases;however, the Company will continue to monitor the foreign exchange rates andenter into forward contracts to mitigate foreign exchange risk as appropriate.                On January 1, 2001, theCompany adopted SFAS 133, as amended. This statement requires that every derivative instrument, includingcertain derivative instruments embedded in other contracts, be recorded on thebalance sheet at its fair value. Changes in the fair value of derivatives are recorded each period incurrent earnings or other comprehensive income, depending on whether aderivative is designated as part of a hedge transaction and, if it is, the typeof hedge transaction.  SFAS 133, asamended, requires that the Company formally document, designate, and assess theeffectiveness of transactions that receive hedge accounting.  The Company adopted SFAS 133, as amended, onJanuary 1, 2001 and did not elect hedge accounting.  The adoption of this statement did not have a material impact onthe financial position or results of operations of the Company.

 

                During the nine month period ended September 30,2001, the Company’s derivative contracts consisted only of foreign exchangeforward contracts to mitigate certain exposures to future foreign currency ratemovements on international sales contracts. The change in value of these derivative contracts did not have amaterial impact on the financial position at September 30, 2001 or results ofoperations for the quarter then ended, and the Company does not believe thatthe exposures related to the future changes in the value of these derivativecontracts and underlying hedged transactions will have a material impact on thefinancial position or results of operation of the Company in the future.

 

                Certaincosts of providing warranty and maintenance services for systems sold toforeign countries are denominated in local currencies. To the extent exchangerates fluctuate, it could become more expensive to provide these services. Todate, these costs have not been significant; however, the Company expects theywill increase as the Company's installed base increases.

 

                The impact of inflation has not been material on theCompany’s operations or liquidity to date.

 

 

**Part II.  OTHER INFORMATION**

 

 

**Item 1. Legal Proceedings**

 

                The Company is involved inroutine administrative proceedings arising in the ordinary course ofbusiness.  Management believes thatcollectively these proceedings will not have a material adverse effect on theCompany’s business, financial condition or results of operations.

 

## **Item 2.    Changes in Securities andUse of Proceeds**

 

                On September 26, 2001, theCompany issued a warrant to purchase 100,000 shares of its common stock, at aprice of  $9.95 per share, to Donald& Co. Securities, Inc. in connection with Donald & Co. providinginvestment advisory and financing related services to the Company.  The warrant was issued in reliance onSection 4(2) of the Securities Act of 1933, in that the recipient of thewarrant was an accredited investor that had the financial sophistication andknowledge required under this exemption.

 

**Item 3.    DefaultsUpon Senior Securities**

 

                Not applicable.

 

**Item4.    Submission of Matters to a Vote ofSecurities Holders**

 

                Not applicable.

 

**Item 5.    Other Information**

 

                None.

 

**Item 6. Exhibitsand Reports on Form 8-K**

 
| (a)     | Exhibits                                                                                  |
|---------|-------------------------------------------------------------------------------------------|
|    |                                                                                      |   |
|    | 2.1                                                                                       | Agreement  and Plan of Merger and Reorganization dated as of February 23, 2000, among  InVision Technologies, Inc., a Delaware corporation, InVision Acquisition  Corporation, a Delawarecorporation, and Inovec, Inc., an Oregon Corporation  (1) |
|    | 2.2                                                                                       | Form  of Escrow Agreement between InVision, Merger Sub, the Shareholders and  Greater Bay TrustCompany, dated February 23, 2000 (1) |
|    | 3.1                                                                                       | Amended  and Restated Certificate of Incorporation of the Registrant. (2) |
|    | 3.2                                                                                       | Bylaws  of Registrant, as amended. (3) |
|    | 4.1                                                                                       | Reference is made to Exhibits 3.1 and 3.2. |
|    | 10.44                                                                                     | Amendment to Loan and Security Agreement, dated October 12, 2001,  between the Registrant and Silicon Valley Bank. |
|    | 10.45                                                                                     | Amendment to Loan and Security Agreement (EXIM Program), dated October  12, 2001, between the Registrant and Silicon Valley Bank |
|    | 10.46                                                                                     | Director Retainer Agreement, dated August 1, 2001, between the  Registrant and Louis A. Turpen. |
|    | 10.47                                                                                     | Director Retainer Agreement, dated May 30, 2001, between the Registrant  and Stephen Blum. |
|    | 10.48                                                                                     | Warrant to Purchase Common Stock of InVision Technologies, Inc., dated  September 26, 2001, to Donald & Co. Securities, Inc. |
|    |                                                                                      |   |
|    |                                                                                      | (1) | Filed as the like -  numbered exhibit to Registrant's Current Report on Form 8-K filed May 18,  2000. |
|    |                                                                                      |   |   |
|    |                                                                                      | (2) | Filed as an exhibit to  Registrant's Registration Statement on Form S-1 (No. 333-380) or amendments  thereto and incorporated herein by reference. |
|    |                                                                                      |   |   |
|    |                                                                                      | (3) | Filed as an exhibit to  Registrant's Quarterly Report on Form 10-Q for the quarterly period ended  June 30, 1998 and incorporated herein by reference. |
|    |                                                                                      |   |   |
|    |                                                                                      |   |
| **(b)** | The Registrant filed no Reports on Form 8-K during  the quarter ended September 30, 2001. |

 

 

**SIGNATURES**

 

 

 

                Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 

 
|                    | **INVISION  TECHNOLOGIES, INC.**                  |
|-------------------------|---------------------------------------------------|
|                    |                                              |
|                    |                                              |
|                    |                                              |
| Date: November 14, 2001 | /s/ *Sergio Magistri*                             |
|                    | Dr. Sergio Magistri                               |
|                    | President and Chief Executive Officer             |
|                    | *(Principal  Executive Officer)*                  |
|                    |                                              |
|                    |                                              |
| Date: November 14, 2001 | */s/  Ross Mulholland*                            |
|                    | Ross Mulholland                                   |
|                    | Senior Vice President and Chief Financial Officer |
|                    | *(Principal  Financial and Accounting Officer)*   |
|                    |                                              |