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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1995
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-8623
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Robotic Vision Systems, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-2400145
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Rabro Drive East, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 273-9700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K. /x/
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
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The number of shares outstanding of the Registrant's common stock is
15,890,686 (as of 12/18/95 ).
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant is $338,910,269 (as of 12/18/95 ).
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement for its Annual Meeting of Stockholders scheduled
to convene in March 1996.
PART I
Item 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Robotic Vision Systems, Inc. ("RVSI"or the "Company") produces
automated 3-dimensional ("3-D") vision-based systems for inspection and
measurement and is a leader in advanced electro-optical sensor technology.
RVSI's core business is its Electronics Division which supplies
inspection equipment to the semiconductor industry. RVSI also has an Aircraft
Safety Division which is developing an ice detection product for the aviation
industry. The Electronics Division's LS-Series lead scanning systems offer
automated high-speed 3-D semiconductor package lead inspection with the added
feature of non-contact scanning of the packages in their shipping trays ("in-
tray scanning"). The systems use a laser-based, non-contact, 3-D measurement
technique to inspect and sort quad flat packs, thin quad flat packs, plastic
leaded chip carriers, ball grid arrays and thin small outline packs from their
carrying trays. The system measurements include coplanarity, total package
height, true position spread and span, as well as lead angle, width, pitch and
gap.
On September 20, 1995, RVSI consummated a merger with Acuity Imaging
Inc., a publicly owned company located in Nashua, New Hampshire ("Acuity"),
pursuant to which Acuity became a wholly owned subsidiary of RVSI. Acuity
designs, develops, manufactures and supplies machine vision systems to a
diversity of markets. The Acuity merger was structured as a tax-free
reorganization and accounted for as a pooling of interest. As a consequence of
the Acuity merger, RVSI issued 1,448,424 shares of its Common Stock in exchange
for all of the outstanding shares of Acuity Common Stock.
On October 23, 1995, RVSI consummated a merger with International Data
Matrix, Inc., a privately owned company located in Clearwater, Florida ("I.D.
Matrix"), pursuant to which I.D. Matrix became a wholly owned subsidiary of RVSI
(the "I.D. Matrix Merger"). I.D. Matrix markets a line of 2-D Data Matrix-TM-
code readers and is widely recognized in the emerging high-density 2-D bar code
segment of the bar code industry. The I.D. Matrix Merger was structured as a
tax-free organization and accounted for as a pooling of interest. As a
consequence of the I.D. Matrix Merger, RVSI issued 369,856 shares of its Common
Stock in exchange for all of the outstanding shares of I.D. Matrix common stock.
The Company was incorporated in New York in 1976 and reincorporated in
Delaware in 1977. Its executive offices are located at 425 Rabro Drive East,
Hauppauge, New York 11788; telephone (516) 273-9700.
1
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
For the purpose of segment reporting, management considers the Company to
operate in one industry, the machine vision industry.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(I) PRINCIPAL PRODUCTS AND PRODUCT DEVELOPMENT. - RVSI ELECTRONICS AND
AIRCRAFT SAFETY DIVISIONS
Revenues derived by RVSI during its fiscal years ended September 30,
1995, 1994 and 1993 are primarily resulting from sales of its semicondutor lead
inspection systems, the LS-2000 and LS-3000 Series.
SEMICONDUCTOR LEAD INSPECTION SYSTEMS
The semiconductor manufacturing process begins with the fabrication of the
semiconductor chip and ends with the final assembly, test/inspection and marking
of the ultimate product. The typical industry descriptions for these areas are
"front end" and "back end", respectively.
The front end is a "planar" process where devices are made in "wafer"
format (i.e., large flat surface where the main process concerns are x-y
alignment for various process tools). The trend toward very high density chips
has demanded more inspection and process control in the front end and,
consequently, has created the need for vision guided processes. This technology
advancement generated several large and profitable optical based companies all
of which used 2-D optical and vision technology. While the front end developed
rapidly to utilize the new technology, the back end of the manufacturing process
did not yet involve such tiny part dimensions. The back end had line
separations of 0.1 inches and above, and pin counts were seldom in excess of 40
leads. In addition, there was very little competitive pressure to improve
quality dramatically. Accordingly, automated inspections were not yet required.
Today, the back end of the production process must deal with pin counts as
high as 500 leads and line spacings down to 0.004 inches. In addition,
manufacturers are seeing demands for quality levels as high as 3 or 4 failures
per million. Unlike the front end, the height dimension is also critical in
assuring proper lead contact when mounted. Therefore, at this end of the
process, vision solutions are more likely "three-dimensional." This advancing
technology has created a significant market opportunity for the Electronic
Division's lead inspection products.
2
The Electronic Division's LS-3000 Series lead scanning systems are an
outgrowth of its prior LS-2000 Series. The LS-2000, was introduced in
October 1990, as the only reliable high-speed automated semiconductor lead
inspection system capable of inspecting devices while they remain in their
protective trays. The LS-2000 was an extension of the Electronic Division's
HR-2000 product, which was originally introduced in 1989 for printed circuit
board solder joint inspection. In June 1992, the Electronic Division
introduced the LS-2000A which was a higher accuracy version of the LS-2000.
At the same time, the Electronic Division also introduced the LS-2700, a
significantly faster version of the LS-2000, which also afforded a greater
level of accuracy. The Electronic Division formally introduced the LS-3000
Series at the Semicon West trade show in July 1994. All of the models in the
LS-3000 Series line are lighter and smaller than the LS-2000A and the
LS-2700. The flagship of the LS-3000 series, the LS3700, is also
significantly faster than the LS-2700. The Company subsequently introduced
the LS-3700DB at the Semicon West show in July 1995. The LS-3700DB is
considerably faster than the LS-3700. The Electronic Division received
purchase orders for a total of 167 LS-2000 and LS-3000 Series machines during
the fiscal year ended September 30, 1995.
AIRCRAFT ICE DETECTION SYSTEM
In January 1993, the Aircraft Safety Division announced the completion of
the initial development phase of its new ID-1 aircraft ice detection system.
The ID-1 is designed to make a major improvement in winter flight safety and to
fulfill the intent of strict new FAA regulations concerning the inspection of
wing surfaces in adverse weather conditions. The device is also anticipated to
reduce winter flying delays and their associated costs and to diminish the
environmental hazard posed by de-icing fluids.
The ID-1 is a full-wing electro-optical ice detection system that is
designed to provide a quick, clear and reliable indication of the presence or
absence of ice, snow or frost. The Aircraft Safety Division has been awarded
one patent and has additional patent applications pending for this technology.
The ID-1 system can be mounted on the bucket of a de-icing truck or other
vehicle and is designed to operate under conditions where visual inspection can
be ineffective or tactile inspection difficult. Its compact size and high
degree of mobility are also designed to allow the ID-1 to detect ice on aircraft
surfaces at any point between the gate and runway.
Extensive engineering testing of the ID-1 took place at several field
locations during the 1994-1995 winter ice season. Operational tests are planned
for the 1995-1996 winter ice season. The commercial viability of the ID-1 has
not as yet been proven nor can it be assured. Consequently, there can be no
assurance that the ID-1 can be commercially marketed at a profit at any time in
the proximate future, if ever.
3
PRINCIPAL PRODUCTS AND PRODUCT DEVELOPMENT - ACUITY IMAGING INC.
Acuity's main business is the general purpose 2-D machine vision market for
automatic inspection of manufactured products, with emphasis on harsh
environments such as manufacturing facilities that require computers specially
designed to allow for operation in hot, dusty or dirty environments, such as
those that may be found on a factory floor.
Machine vision systems generally consist of one or more video cameras and
associated microcomputers and software that analyze images and extract
information about objects and their location in the field of view of the camera.
Acuity's primary application areas include assembly verification, date and lot
code reading, flaw detection, gauging and measurement, label verification and
product identification.
Vision systems designed for the general purpose market comprise the largest
segment of Acuity's revenues, representing 62% of total Acuity revenues in 1995,
as compared to 69% in 1994 and 64% in 1993, respectively. Acuity's primary
products for the general purpose market are described below.
- POWERVISION 90 (PV90) is a high-resolution, gray scale machine vision
system featuring advanced image processing, analysis, and graphics tools to meet
demanding industrial vision needs. The Powervision 90 is an effective solution
for a wide range of measurement, inspection, assembly verification, and motion
guidance applications. The system's architecture, which is based on Apple's
Power Macintosh computer and Acuity's proprietary Image Analyst/Source software
package, offers performance and flexibility to meet the customers' requirements.
- POWERVISION 60 (PV60) is a more compact and lower cost version of the
Powervision 90 for applications that do not require options for expansion.
- IVS, an acronym for Intelligent Visual Sensors, is a high speed gray
scale machine vision system designed to address the broad general industrial
marketplace. Characteristics of IVS include high speed processing, ease of use
and high performance. Typical IVS system configurations address the low to
medium price ranges of the market. The system is designed on industry standards
including VME or ModBus Plus interfaces and standard 6U VME Eurocard format. It
is sold as either a board-level product or as a stand-alone unit with a self-
contained power supply and input/output control. IVS is also designed to be
easy to program and to appeal to the broad requirements of most industrial
customers who do not have machine vision expertise.
4
- MENTORVISION is a new type of machine vision inspection system
which Acuity introduced to the vision market in the fourth quarter of 1994.
Acuity believes that Mentorvision represents an advancement in the commercial
application of electronic inspection products for the packaging industry for
two reasons: (1) Mentorvision learns without extensive programming, by
viewing "good" products on the assembly line; and (2) Mentorvision has the
capability to detect a wide variety of flaws in product appearance that may
be unpredictable as to size, cause, type or location of the product. Acuity
believes that Mentorvision has the potential to address some of the most
demanding, and previously un-addressable, requirements in the packaging
industry. Acuity only had minimal sales of this product in 1995.
Vision systems designed for niche (application specific) markets comprise a
smaller share of Acuity's total revenue. Specifically, in 1995 revenues from
niche market products represented 19% of total Acuity revenues as compared to
17% in 1994 and 22% in 1993. Acuity's products for application specific markets
are described below.
- I-PAK is a product designed to meet the needs of the pharmaceutical
industry to verify that the correct label has been applied to pharmaceutical
products and that the lot and date code printed on the label are legible. I-Pak
performs this function at manufacturing line speeds. I-Pak employs a customized
user interface that has been specifically designed to meet label inspection
needs of pharmaceutical customers. I-Pak requires minimum user programming and
has been designed for ease of use and integration into the manufacturing line.
Acuity recently released a new version of this product named the I-Pak V-100.
- DATA MATRIX READER began initial shipments in 1993. Unlike bar codes
which have rigid print tolerances, data matrix codes can be read more easily and
applied directly to the surfaces being marked. Data matrix codes allow large
amounts of coded information to be printed in a small space. In general,
manufacturers are requiring that more information be encoded on their products.
The Data Matrix Reader reads matrix-coded information at line speeds and permits
traceability of product, even with small, hard-to-mark products.
5
PRINCIPAL PRODUCTS AND PRODUCT DEVELOPMENT-INTERNATIONAL DATA MATRIX, INC.
(I.D. MATRIX).
I.D. Matrix markets a line of 2-D Data Matrix -TM- code readers and is
widely recognized in the emerging high-density 2-D barcode segment of the well
established barcode market. As a subsidiary of RVSI, I.D. Matrix will focus the
strengths of the RVSI Electronics Division and Acuity Imaging in laser and
charge coupled device (CCD) technology on the field of 2-D barcode.
I.D. Matrix is the inventor of the Data Matrix -TM- code - a 2-D code which
resembles a scrambled checkerboard. This code has recently been recommended for
small part identification by the Automotive Industry Action Group (AIAG). The
Semiconductor Equipment and Materials International (SEMI) has adopted Data
Matrix -TM- as its standard for coding silicon wafers and for wafer box labels,
and the Electronics Industry Association (EIA) is in the process of finalizing
similar recommendations regarding standardization. Recent articles in various
business and industry publications highlight the fact that 2-D coding technology
is one of the most promising-as well as the fastest growing, segments of the
barcode industry. In the industrial sector, the Data Matrix -TM- code is
quickly becoming the 2-D code of choice because of its ability to be printed or
marked directly on parts and components, thereby eliminating the need for paper
labels and the high cost of labeling equipment. The small size of the Data
Matrix -TM- code allows its use in industries and on applications that were
previously impossible to satisfy with machine readable codes. Serialization and
therefore traceability is now possible in industries such as semiconductor,
which have recently seen a surge in the theft of memory chips and other high
priced computer components.
(II) MANUFACTURING
The Company's production facilities in Hauppauge, New York and Nashua,
New Hampshire are capable of fabricating and assembling total electronic and
electromechanical systems and subsystems. Facilities include assembly and
wiring departments that have the capability of producing complex wiring
harnesses, as well as intricate electronic subassemblies. The Company maintains
a comprehensive test and inspection program to ensure that all systems meet
exacting customer requirements for performance and quality workmanship prior to
delivery. In addition, an in-house sheetmetal and machine shop in Hauppauge
allows for the manufacture of both prototype and production hardware. To
support its internal operations and to extend its overall capacity, the Company
purchases a wide variety of components, assemblies and services from proven
outside manufacturers, distributors and service organizations.
6
(III) MARKETING AND SALES - RVSI ELECTRONICS DIVISION
RVSI's Electronics Division marketing strategy focuses on cultivating
long-term relationships with the leading manufacturers of electronic and
semiconductor inspection and quality control equipment. RVSI's marketing
efforts rely heavily on direct sales methods. The selling cycle for the LS-2000
and LS-3000 Series products has proven to be generally between six to nine
months from initial customer contact. A lengthy purchase process is often the
case in the purchase of the initial unit sold by RVSI. Subsequent purchases
require less time and often result in multiple orders. Typically, potential
purchasers visit RVSI's headquarters to receive a full demonstration of the
product and discuss the merits of the product with RVSI's engineers before
making a purchase decision.
Sales activities in the domestic market are handled by direct sales
personnel. Due to the depth of analysis involved in the customer's purchase
decision, management emphasizes active interaction between the direct sales
staff, and the buyer throughout the selling process.
RVSI has also established distribution capabilities in both Europe and
the Far East, providing access to all major markets for electronic and
semiconductor test equipment. Leveraging off management's experience and
contacts in the international markets, RVSI has negotiated agreements with six
independent representatives in the Far East and two independent representatives
in Europe to sell and service RVSI's products. RVSI recently established a
Company office in Singapore.
RVSI presently employs 6 persons primarily engaged in personal
selling. In addition, corporate management is committed to frequent
communications with customers, particularly those in higher, policy-making
positions. Lending further support to the sales effort is RVSI's 91 person
engineering and technical staff, which provides assistance in areas requiring
in-depth technical analysis.
7
MARKETING AND SALES - ACUITY IMAGING
Acuity markets its products worldwide through a direct marketing,
sales and sales application engineering force of 33 persons and through
distributors and system integrators.
The Company has approximately 50 distributors in 80 locations in North
America, Europe and Asia. Sales through distributors allows Acuity to leverage
its sales force and sell to a larger customer base than could be served cost
effectively on a direct sales basis. Acuity supports its distribution channels
with regional sales managers and sales application engineers who support and
interface directly with the distributors. In addition, Acuity provides sales
and product training to the distributors as well as technical product support.
The Company intends to continue to expand its distribution channels.
Acuity sells to four types of customers: the end user solving a
specific problem (sold through distribution or directly); the internal
integrator, an experienced vision engineer (generally within a Fortune 500
company) with the skills and resources to apply the machine vision technology to
various application problems within the many operations of the engineer's
company; the external systems integrator who services the end-user market by
providing engineering, software, and integration services; and OEM's (original
equipment manufacturers) who embed Acuity's products in the OEM's equipment.
(IV) SOURCES OF SUPPLY.
The raw materials and components used in the development and
manufacture of the Company's products are generally available from domestic
suppliers at competitive prices; fabrication of certain major components has
been subcontracted for on an as-needed basis. The Company has not experienced
any significant difficulty in obtaining adequate supplies to perform under its
contracts.
During fiscal 1994, one of the Company's major suppliers voluntarily
filed for protection under Chapter 11 of the Federal Bankruptcy Code. This
supplier has advised RVSI that it has since emerged successfully from
bankruptcy. Several of the Company's components and sub-systems are purchased
from single sources. The Company believes that alternative sources of supply
could be obtained, if necessary, without major interruption in production.
8
(V) PROPRIETARY PROTECTION
At September 30, 1995 the Company owned 78 issued U.S. patents, with
expiration dates ranging from 1995 to 2011, relating to its 2-D and 3-D vision
technology. The Company subsequently was awarded a patent related to its ice
detection technology. The Company also owns the rights to several U.S. patent
applications relating to such technology. Acuity has a number of U.S. and
Foreign registered trademarks including "Acuity".
The Company does not believe that its present operations are
materially dependent upon the proprietary protection that may be available to
the Company by reason of any one or more of such patents. Moreover, as its
patent position has not been tested, no assurance can be given as to the
effectiveness of the protection afforded by its patent rights.
(VI) CUSTOMERS
The Company's sales have been historically concentrated in a small
number of customers at any time, although the specific customers change over
time. Sales to Intel, accounted for approximately 16% of the Company's revenues
during fiscal year ended September 30, 1995. No other customers accounted for
more than 10% of sales during this fiscal years ended September 30, 1995, 1994
and 1993.
(VII)BACKLOG
At September 30, 1995 the Company's backlog was approximately $16
million as contrasted with approximately $8.7 million and $9.5 million at
September 30, 1994 and 1993, respectively. The Company believes that most of
its backlog at September 30, 1995 will be completed prior to the close of fiscal
year 1996. The Company does not believe that its backlog at any particular time
is necessarily indicative of its future business.
(VIII)COMPETITION.
The Company believes that machine vision has evolved into a new
industry over the past several years, in which a number of machine vision-based
firms have developed successful industrial applications for the technology. The
Company is aware that a large number of companies, estimated to be upward of 100
firms, entered the industry in the 1980's and that most of these were small
private concerns. Over the last several years the number of competitors has
narrowed to less than 25. The Company believes this is attributable, to a large
extent, to a classical consolidation within the industry. Based upon the
breadth of its product lines, its customer base, and its level of revenues, the
Company belives that it is a significant factor in the machine vision industry.
9
(IX) RESEARCH AND DEVELOPMENT.
Company-sponsored research and development efforts over recent years
have been largely devoted to continued development of advanced 2-D and 3-D
vision technology and applications software for use in various inspection and
process control automation systems. Research and development expenditures, net
of capitalized software development costs, aggregated approximately $9,701,000,
$7,629,000 and $6,008,000 for the Company's fiscal years ended September 30,
1995, 1994 and 1993, respectively. In its fiscal years ended September 30,
1995, 1994 and 1993 respectively, the Company capitalized $535,000, $433,000 and
$476,000, respectively, of its software development costs in accordance with the
provisions of Statement of Financial Accounting Standards No. 86.
(X) ENVIRONMENTAL REGULATION
The Company believes that compliance with Federal, state, local and,
where applicable, foreign environmental regulations does not have any material
effect on its capital expenditures, earnings or competitive position.
(XI) EMPLOYEES.
At November 30, 1995 the Company employed 302 persons, of whom 132
were engineering and other technical personnel.
(d) FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES.
Domestic and foreign export sales during the Company's fiscal years ended
September 30, 1995, 1994, and 1993, respectively, were as follows (expressed in
thousands of dollars):
Year Ended
September 30,
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1995 1994 1993
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North America $22,653 $27,238 $19,014
Asia/Pacific Rim 33,957 17,300 15,506
Europe 7,034 2,243 4,157
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TOTAL: $63,644 $46,781 $38,677
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10
ITEM 2. PROPERTIES.
The Company leases approximately 65,000 square feet of office and
factory space at 425 Rabro Drive East, Hauppauge, New York under a lease which
extends to March 31, 2001. The lease requires the Company to pay property taxes
and certain operating expenses and contains escalation clauses relating to rent
payments.
The Company leases approximately 2,000 square feet of sales, service
and training space in Singapore under a lease which extends to November 1998.
The Company leases 50,114 square feet in Nashua, New Hampshire for its
Acuity operations under a lease which extends to April 2000.
ITEM 3. LEGAL PROCEEDINGS.
On or about October 22, 1992, the Company instituted an action in the
United States District Court for the Eastern District of New York against
defendant Cybo Systems, Inc., ("Cybo"), entitled ROBOTIC VISION SYSTEMS, INC. V.
CYBO SYSTEMS, INC. A/K/A CYBOT SYSTEMS, INC., alleging that the defendant
breached certain agreements between the parties with respect to the sale by the
Company to the defendant of all of the assets of its welding and cutting systems
business.
On or about December 4, 1992, Cybo filed and served an answer denying
the substantive allegations of the Company's complaint. In addition, Cybo
asserted counterclaims against the Company alleging, among other things, breach
of contract and warranties, fraud, bad faith, trespass and conversion and is
seeking aggregate damages in excess of $10.0 million. Shortly thereafter, the
Company moved to dismiss certain of Cybo's counterclaims on the ground that Cybo
failed to plead fraud with the requisite particularity. By Order dated March
20, 1993, the Court (i) granted the Company's motion to dismiss without
prejudice, and (ii) granted Cybo leave to serve an amended answer with amended
counterclaims by April 19, 1993. Cybo has since served an amended answer and
counterclaims which purport to plead fraud with the requisite particularity.
Subsequent thereto, the Company moved to dismiss Cybo's claims for trespass and
conversion, which motion is presently pending. In June 1995, the Company made a
motion for summary judgment to dismiss all of the fraud counterclaims and to
limit Cybo's damages in the event of a finding of liability against the Company.
All of the motion papers have not yet been submitted to the court. The Company,
upon the advice of its general counsel, believes Cybo's counterclaims are
without merit and that the ultimate outcome of this matter will not have a
material adverse effect on the Company's financial position or results of
operations. The Company plans to defend against such counterclaims vigorously.
Except for certain matters relating to the issue of damages, the parties have
completed discovery.
11
In addition, on October 21, 1993, the Company instituted an action
against Cybo and Robert Rongo, a Cybo employee who has previously been employed
by the Company, in the Supreme Court of the State of New York, County of
Suffolk. The action, entitled ROBOTIC VISION SYSTEMS, INC. V. ROBERT RONGO AND
CYBO SYSTEMS, INC. A/K/A CYBOT SYSTEMS, INC., alleges that Rongo, induced by
Cybo, breached a confidentiality agreement which he had entered into while in
the Company's employ. Defendants have asserted an answer to the Company's
complaint, which answer incorporates the counterclaims asserted by Cybo in the
action previously filed by the Company against Cybo, discussed above. Mr. Rongo
made a motion to dismiss the action for lack of jurisdiction, but that motion
was denied.
RVSI is a defendant in a recently filed proceeding instituted by one
of its competitors seeking (i) a declaration of the invalidity of one of RVSI's
patents ("Pertinent RVSI Patent"), (ii) a declaration that the plaintiff is not
infringing the Pertinent RVSI Patent and (iii) a restraining order or other
relief preventing RVSI from contacting customers of the plaintiff regarding the
Pertinent RVSI Patent. Such proceeding does not seek or assert damages. Based
upon the advice of its patent counsel, the Morrison Law Firm, RVSI believes this
suit is without merit. RVSI has filed an answer and counterclaim seeking (i) a
declaration that the Pertinent RVSI Patent is valid, (ii) a declaration that the
plaintiff has infringed a number of RVSI patents, including the Pertinent RVSI
Patent, (iii) the prohibition of further infringement by plaintiff of certain
patents of RVSI, including the Pertinent RVSI Patent, (iv) a denial of the
plaintiff's request for injunctive relief, (v) monetary damages for the
plaintiff's infringement of RVSI's patent, and (vi) a trebling of monetary
damages because of willful infringement by plaintiff of RVSI's patents.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held a Special Meeting in lieu of Annual Meeting of
Stockholders on September 19, 1995. The following is a summary of the proposals
that were voted upon at the meeting and the voting results there from:
PROPOSAL VOTES ABSTENTIONS
-------- AGAINST OR AND BROKER
VOTES FOR WITHHELD NON-VOTES
--------- -------- ---------
Approval and adoption of that certain
Agreement and Plan of Merger and
Reorganization, dated as of April 27, 1995,
as amended and restated as of July 11, 1995,
by and among RVSI, Acuity and a wholly-
owned subsidiary of RVSI ("Subsidiary")
pursuant to which, among other matters,
Subsidiary will be merged with and into
Acuity and Acuity will become a wholly-
owned subsidiary of RVSI 5,770,357 62,947 121,681
Election of nine directors for the ensuing year
Pat V. Costa 9,856,666 18,484
Frank A. DiPietro 9,857,614 17,536
Donald F. Domnick 9,857,614 17,536
Jay M. Haft 9,857,726 17,424
Mark Lerner 9,857,727 17,423
Howard Stern 9,857,847 17,303
Robert H. Walker 9,857,727 17,423
Donald J. Kramer 9,853,285 21,865
Ofer Gneezy 9,857,635 17,515
Approval of RVSI's Amended and
Restated 1991 Stock Option Plan 5,261,317 732,578 213,708
Amendment of RVSI's Certificate of
Incorporation to increase the number
of shares of RVSI's Common Stock
authorized thereunder from 20,000,000 shares
to 30,000,000 shares 9,521,956 215,339 127,197
Ratification of Deloitte & Touche LLP as
RVSI's independent auditors for the fiscal year
ending September 30, 1995 9,733,490 32,081 98,921
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
(a) MARKET INFORMATION.
The Company's Common Stock is quoted on The Nasdaq National Market
under the symbol ROBV. The following table sets forth the high and low bid
prices for the Company's Common Stock for the periods indicated:
Bid (1)
------------------------------
------------------------------
Fiscal Quarter Ended High Low
--------------------
---------- ---------
---------- ---------
September 30, 1995 $23-3/4 $12-35/64
June 30, 1995 15-1/4 6-5/8
March 31, 1995 7-5/8 5-1/2
December 31, 1994 8-1/8 5-1/2
September 30, 1994 6-1/4 4-3/8
June 30, 1994 6-3/4 4-3/4
March 31, 1994 7-1/8 4-5/8
December 31, 1993 5-5/8 3-1/2
(1) Quotations for RVSI's Common Stock commenced on The Nasdaq National Market
on January 5, 1994. The bid prices shown prior to such date represent
quotations on the OTC Bulletin Board.
Bid quotations represent prices between dealers, do not include retail
markups, markdowns or commissions and may not represent actual transactions.
On December 15, 1995 the closing bid and asked prices of the Company's
Common Stock were $23 and $23-1/4 , respectively.
(b) HOLDERS.
The number of holders of record of the Company's Common Stock as of
December 15, 1995 was approximately 6,049. .
(c) DIVIDENDS.
The Company has not paid any cash dividends since its inception and
does not contemplate doing so in the near future. Any decisions as to the
future payment of dividends will depend on the earnings and financial condition
of the Company and such other factors as the Board of Directors deems relevant
at that time.
14
SELECTED FINANCIAL DATA
Statement of Operation Data:
(In Thousands)
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues $ 63,644 $ 46,781 $ 38,677 $ 29,945 $ 23,749
Income (loss) before (provision)
benefit from income taxes,
discontinued operations and
extraordinary items $ 9,307 $ 4,126 $ 1,171 $ (484) $ (1,788)
(Provision) benefit from income
taxes $ 649 $ 291 $ 398 $ (48) $ (37)
Income (loss) before
discontinued operations and
extraordinary items $ 9,968 $ 4,417 $ 1,569 $ (532) $ (1,823)
Discontinued operations $ - $ - $ - $ 1,214 $ (333)
Income (loss) before
extraordinary items $ 9,956 $ 4,417 $ 1,569 $ 682 $ (2,156)
Extraordinary item $ - $ - $ - $ 1,256(a) $ -
Net Income (loss) $ 9,956 $ 4,417 $ 1,569 $ 682 $ (2,156)
Income (loss) per common share
before discontinued operations
and extraordinary items:
Primary $ 0.63 $ 0.31 $ 0.13 $ (0.06) $ (0.24)
Fully diluted $ 0.61 $ 0.30 $ 0.13 $ (0.06) $ (0.24)
Income (loss) per common share
extraordinary items:
Primary $ 0.63 $ 0.31 $ 0.13 $ 0.07 $ (0.28)
Fully diluted $ 0.61 $ 0.30 $ 0.13 $ 0.07 $ (0.28)
Net income (loss) per common
share:
Primary $ 0.63 $ 0.31 $ 0.13 $ 0.21 $ (0.28)
Fully diluted $ 0.61 $ 0.30 $ 0.13 $ 0.21 $ (0.28)
(a) Includes an extraordinary item of $1,138,000 (net of income tax provision
of $97,000) relating to an agreement with General Motors Corporation, and
extraordinary item of $72,000 resulting from the utilization of net
operating loss carryforwards, and an extraordinary item of $46,000
resulting from the extinguishment of long-term debt.
15
SELECTED BALANCE SHEET DATA:
(In Thousands)
AT SEPTEMBER 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total assets $ 47,288 $ 21,708 $ 15,511 $ 10,924 $ 10,151
Current liabilities $ 15,313 $ 9,098 $ 12,812 $ 6,780 $ 7,833
Total liabilities $ 15,387 $ 10,324 $ 13,057 $ 10,149 $ 12,654
Stockholders' equity(deficiency) $ 31,901 $ 11,384 $ 2,451 $ 775 $ (2,503)
Working capital $ 24,507 $ 7,134 $ (413) $ 2,141 $ 793
Reference is made to Item 7 below and the Notes to the Consolidated Financial
Statements for a complete discussion of the financial data presented above.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
Years Ended September 30, 1995 and 1994
Revenues of $63,644,000 for the year ended September 30, 1995
represent an increase of $16,863,000, or 36%, in comparison to revenues of
$46,781,000 for the year ended September 30, 1994. The increase in revenues was
a result of substantially increased shipments of RVSI's LS-2000 and LS-3000
Series semiconductor lead inspection systems. Sales of the LS-2000 and LS-3000
Series accounted for revenues of $44,298,000 for the year ended September 30,
1995, representing an increase of $20,887,000, or 89%, as contrasted with LS-
2000 sales of $23,411,000 for the year ended September 30, 1994. Acuity Imaging
Inc. ("Acuity"), revenues of $19,153,000 for year ended September 30, 1995
represent a decrease of $3,015,000, or 14% in comparison to revenues of
$22,168,000 for the year ended September 30, 1994. The decrease in revenues was
primarily as a result of Acuity's lack of securing orders from any one or two
customers which have traditionally accounted for a significant percentage of
Acuity's revenues.
Gross profit margins for the fiscal years ended September 30, 1995 and
1994 were 55% and 53%, respectively. The increase in gross profit margins
during fiscal 1995 was primarily due to the improved profitability of the LS-
2000 and LS-3000 Series product lines.
Continued development of the LS-3000 Series of lead scanning systems,
the ID-1 aircraft wing ice detection systems, and computerized visual inspection
equipment primarily accounted for $9,701,000 in research and development
expense, net of capitalized software development costs, during the year ended
September 30, 1995, as contrasted with $7,629,000 during fiscal 1994. In its
fiscal year ended September 30, 1995, the Company capitalized $535,000 of its
software development costs as compared to $433,000 over the comparable 1994
period in accordance with the provisions of Statement of Financial Accounting
Standards No. 86.
Selling, general and administrative costs increased by $2,524,000, or
20% for the year ended September 30, 1995 as compared to the prior fiscal year,
primarily as a result of increased marketing and distribution costs for year
ended September 30, 1995. The Company incurred $1,160,000 for merger expenses
relating to the acquisition of Acuity by the Company on September 20, 1995.
For the year ended September 30, 1995 net interest income was $292,000 as
compared to net interest expense of $77,000 in the comparable period in 1994.
The increase is as a result of investing additional available funds.
17
Net income for the year ended September 30, 1995 was $9,956,000, or
$.61 per share (fully diluted), as compared to net income of $4,417,000, or
$.30 (fully diluted), for the year ended September 30, 1994.
During the fiscal years ended September 30, 1995 and 1994, the Company
recorded benefits from income taxes in the amounts of $649,000, and $291,000,
respectively. Such benefits were primarily the result of decreases in the
valuation allowances relating to deferred tax assets which emanated from the
Company's profitable operations in fiscal 1995 and 1994, respectively, and the
extent to which the Company can substantiate projected future earnings.
The deferred tax assets at September 30, 1995 and 1994 of $2,375,000
and $1,163,000, respectively, are equivalent to the benefit to be derived from
net operating loss carryforwards that were expected to be utilized to offset
future taxable income projected as of the respective balance sheet dates. The
deferred tax assets at September 30, 1995 and 1994 have been limited to the
benefit to be derived from projected future income, due to the Company's
projected future profitability currently being primarily dependent on one
existing product line.
18
Years Ended September 30, 1994 and 1993
Revenues of $46,781,000 for the year ended September 30, 1994
represented an increase of $8,104,000, or 21%, in comparison to revenues of
$38,677,000 for the year ended September 30, 1993. The increase in revenues was
a result of substantially increased shipments of RVSI's LS-2000 and LS-3000
Series semiconductor lead inspection systems. The LS-3000 Series system, a more
advanced, high performance machine, was introduced in July 1994, and represents
the next generation lead scanning system design to replace the LS-2000 Series
system. Sales of LS-2000 and LS-3000 Series accounted for revenues of
$23,411,000 for the year ended September 30, 1994, representing an increase of
$5,095,000 or 28%, as contrasted with the LS-2000 sales of $18,316,000 for the
year ended September 30, 1993. Sales of the LS-3000 were $5,826,000 for the
year ended September 30, 1994. Acuity Imaging Inc., revenues increased
approximately 18% in 1994 as compared to 1993. The increase was primarily a
result of increased vision revenues which include a $3.6 million contract from
Brown and Williamson for 60 machine vision based integrated package inspection
systems.
Gross profit margins for the fiscal years ended September 30, 1994 and
1993 were 53% and 50%, respectively. The increase in gross profit margins
during fiscal 1994 was primarily due to the improved profitability of the LS-
2000 and LS-3000 Series product line.
Continued development of the LS-2000 and the LS-3000 Series of lead
scanning systems, the ID-1 aircraft wing ice detection systems, and computerized
visual inspection equipment, primarily accounted for $7,629,000 in research and
development expense, net of capitalized software development cost, during the
year ended September 30, 1994, as contrasted with $6,008,000, during fiscal
1993. In its fiscal year ended September 30, 1994, the Company capitalized
$433,000 of its software development costs as compared to $476,000 over the
comparable 1993 period in accordance with the provisions of Statement of
Financial Accounting Standards No. 86.
Selling, general and administrative costs increased by $1,958,000, or
18% for the year ended September 30, 1994 as compared to the prior fiscal year,
primarily as a result of increased marketing and distribution costs. For the
year ended September 30, 1994, net interest expense was $77,000 compared to net
interest expense of $301,000 in the comparable 1993 period.
19
Net income for the year ended September 30, 1994 was $4,417,000, or
$.30 per share (fully diluted), as compared to net income of $1,569,000, or $.13
per share (fully diluted) for year ended September 30, 1993.
During the fiscal years ended September 30, 1994 and 1993, the Company
recorded benefits from income taxes in the amount of $291,000 and $398,000,
respectively. Such benefits were primarily the result of decreases in the
valuation allowances relating to deferred tax assets which emanated from the
Company's profitable operations in fiscal 1994 and 1993, respectively, and the
extent to which the Company can substantiate projected future earnings.
The deferred tax asset at September 30, 1994 has been limited to the
benefit to be derived from projected future income, due to the Company's limited
history of earnings and its projected future profitability currently being
primarily dependent on one existing product line.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating, investing and financing activities for the
year ended September 30, 1995 generated net cash and cash equivalents of
$14,630,000 as follows:
- Operating activities provided $5,826,000; during the fiscal year
ended September 30, 1995;
- $2,389,000 was used to purchase property and equipment, primarily
computer and demonstration equipment;
- $1,484,000 was invested primarily in U.S. Treasury Notes and U.S.
Treasury Bills, and;
- $1,500,000 was received from the maturity of investments;
$1,970,000 was received from proceeds of a bank loan;
$1,385,000 was used to repay a bank loan and interest;
Other financing activities provided $10,589,000 primarily through
the issuance of Common Stock and warrants in a private equity
placement and the issuance of Common Stock upon the exercise of
stock options and warrants.
The effect of exchange rate changes on cash and cash equivalents
was $3,000.
20
The Company's inventories at September 30, 1995 of $8,074,000
increased by $3,775,000 from $4,299,000 as of September 30, 1994 primarily to
support high production volumes. Accounts receivable at September 30, 1995, of
$11,884,000 increased by $4,867,000 from $7,017,000 as of September 30, 1994,
primarily due to higher operating levels and increased sales to larger customers
with longer payment terms.
On November 20, 1995, the Company obtained a revolving line of credit
from a bank that provides for maximum borrowings of $6,000,000. The agreement
expires on January 31, 1999. Borrowings under the agreement are secured by all
accounts receivable of the Company and will bear interest at the adjusted LIBOR
rate, as defined, plus two percent. The Company will pay a commitment fee of
one quarter of one percent per annum on any unused portion of the credit
facility. The terms of the agreement, amoung other matters, require the Company
to maintain certain tangible net worth, debt to equity, working capital, and
earnings before depreciation and amortization to long-term debt ratios and
restrict the payment of cash dividends.
The Company anticipates that its working capital needs for fiscal
1996 will be satisfied by operating revenues and, if necessary, through
borrowings under the existing line of credit.
EXPORT SALES
Foreign export sales accounted for 64%, 42% and 51% of the Company's
revenues in fiscal 1995, 1994 and 1993, respectively.
PRIVATE EQUITY PLACEMENT
During fiscal year 1995, the Company entered into an agreement with a
group of investors pursuant to which, the Company received approximately
$9,386,000, after expenses, in exchange for the issuance of 1,110,000 shares of
the Company's Common Stock. The Company also issued warrants exercisable
through June 2000 to purchase approximately 68,000 shares of the Company's
Common Stock at exercise prices ranging from $8.75 to $9.00 per share.
FOREIGN CURRENCY TRANSACTION
The Company does not currently engage in international currency
hedging transactions to mitigate its foreign currency exposure. Included in the
foreign exchange gain (loss) are unrealized foreign exchange gains and losses
resulting from the currency remeasurement of the financial statements (primarily
inventories, accounts receivable and intercompany-debt) of the foreign
subsidiaries of the Company into U.S. dollars. To the extend the Company is
unable to match revenue received in foreign currencies with expenses paid in the
same currency, it is exposed to possible losses on international currency
transactions.
21
EFFECT OF INFLATION
Management believes that the effect of inflation has not been material
during each of the years ended September 30, 1995, 1994 and 1993, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to Item 14(a)1 herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in accountants due to disagreements on
accounting and financial disclosure during the 24 months prior to September 30,
1995.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Item 10 is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed within 120 days of September 30, 1995.
ITEM 11. EXECUTIVE COMPENSATIONS.
Item 11 is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed within 120 days of September 30, 1995.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
Item 12 is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed within 120 days of September 30, 1995.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Item 13 is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed within 120 days of September 30, 1995.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial Statements.
Independent Auditors' Reports
Consolidated Balance Sheets at September 30, 1995 and
September 30, 1994
Consolidated Statements of Income for the Years Ended
September 30, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
Ended September 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
All financial statement schedules are omitted because
the conditions requiring their filing do not exist or
the information required thereby is included in the
consolidated financial statements filed, including the
notes thereto.
3. Exhibits.
3(a) The Company's Certificate of Incorporation,
as amended to date
3(b) The Company's By-Laws, as amended to date
4 Stock and Warrant Purchase Agreement by and
between the Company and General Motors
Corporation dated as of December 12, 1984
24
10(a) Patent License and Technology Agreement by
and between the Company and General Motors
Corporation dated as of December 12, 1984
10(b) License Agreement by and between the Company
and Med-Bed Technologies, Inc. dated as of
January 24, 1984
*10(c) Employment agreement dated December 11, 1984
between Pat V. Costa and the Company
*10(d) Letter of agreement dated December 21, 1984
between Howard Stern and the Company
*10(e) Letter of agreement dated July 14, 1983
between Robert H. Walker and the Company
10(f) Lease agreement dated May 2, 1990 between the
Company and NM&J Investors covering the
premises located at 425 Rabro Drive East,
Hauppauge, New York
10(g) Asset Purchase Agreement dated as of
September 30, 1990 between the Company and
Cybo Systems, Inc
10(h) Agreement and Plan of Merger and
Reorganization, dated as of April 27, 1995,
as amended and restated as of July 11, 1995,
by and among the Company, Acuity Imaging Inc.
and RVSI Acquisiton Corp.(5)
11 Computation of per share amounts
23(a) Independent Auditors' Consent -
Deloitte & Touche LLP
23(b) Consent of Independent Public Accountants -
Arthur Andersen LLP
27 Financial Data Schedule
(1) Denotes document filed as Exhibit to the Company's Annual Report on Form
10-K for its fiscal year ended September 30, 1987 and incorporated herein
by reference.
(2) Denotes document filed as Exhibit to the Company's Registration Statement
on Form S-1 (File No. 2-75483) and incorporated herein by reference.
25
(3) Denotes document filed as Exhibit to the Company's Annual Report on From
10-K for its fiscal year ended September 30, 1984 and incorporated herein
by reference.
(4) Denotes document filed as Exhibit to the Company's Annual Report on Form
10-K for its fiscal year ended September 30, 1990 and incorporated herein
by reference.
(5) Denotes document appended as an Exhibit to the Company's definitive Proxy
Statement dated August 9, 1995 and incorporated herein by reference.
(*) Denotes management employment or compensatory agreement.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed by Registrant during the three month period
ended September 30, 1995.
26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Robotic Vision
Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Robotic Vision
Systems, Inc. and subsidiaries (the "Company") as of September 30, 1995 and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of Robotic Vision Systems, Inc. and Acuity
Imaging, Inc. and subsidiaries, which has been accounted for as a pooling of
interests as described in Note 2 to the consolidated financial statements. We
did not audit the financial statements of Acuity Imaging, Inc. and subsidiaries
("Acuity") for the years ended September 30, 1995 and December 31, 1994 and
1993, respectively, which statements reflect total assets constituting 12% and
31% of consolidated total assets as of September 30, 1995 and 1994,
respectively, and total revenues constituting 30%, 47%, and 48% of consolidated
total revenues for the years ended September 30, 1995, 1994 and 1993,
respectively. Those financial statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Acuity, is based solely on the report of such other
auditors, with the exception that in 1993,we audited the financial statements of
a subsidiary of Acuity, which statements reflect total revenues constituting 23%
of consolidated total revenues of the Company for the year ended September 30,
1993.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at September 30, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Jericho, New York
December 8, 1995
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Acuity Imaging, Inc.:
We have audited the consolidated balance sheets of Acuity Imaging, Inc. (a
Delaware corporation and a wholly owned subsidiary of Robotic Vision Systems,
Inc.) and subsidiaries as of September 30, 1995 and December 31, 1994, and the
related consolidated statements of operations and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
asessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Acuity Imaging, Inc.
and subsidiaries at September 30, 1995 and December 31, 1994, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
On September 20, 1995, Robotic Vision Systems, Inc. acquired Acuity Imaging,
Inc.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 6, 1995
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Itran Corporation:
We have audited the balance sheets of Itran Corporation (a Delaware corpoation)
as of December 31, 1993, and the related statements of operations, stockholders'
investment and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Itran Corporation as of
December 31, 1993, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
On January 24, 1994, Itran Corporation merged with Automatix, Incorporated with
Automatix as the surviving corporation. The surviving corporation was renamed
Acuity Imaging, Inc.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 4, 1994
F-3
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1995 AND 1994
- -------------------------------------------------------------------------------
NOTES 1995 1994
----- ---- ----
ASSETS 9
- ------ (Restated)
Note 2
CURRENT ASSETS:
Cash and cash equivalents $16,407,000 $ 2,097,000
Investments 1,000,000 1,495,000
Receivables - net 3 11,884,000 7,017,000
Inventories 4 8,074,000 4,299,000
Deferred income taxes 5 2,375,000 1,163,000
Prepaid expenses and other 154,000 162,000
Total current assets 39,894,000 16,233,000
----------- -----------
PLANT AND EQUIPMENT - NET 6 3,999,000 2,796,000
OTHER ASSETS 7 1,406,000 1,179,000
INVESTMENTS 1,989,000 1,500,000
----------- -----------
$47,288,000 $ 21,708,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable $ - $ 63,000
Loan payable 9 1,385,000 -
Accounts payable 7,754,000 4,290,000
Accrued expenses 8 5,096,000 3,834,000
Advance contract payments received 1,078,000 912,000
----------- -----------
Total current liabilities 15,313,000 9,099,000
LOAN PAYABLE - 1,015,000
OTHER LIABILITIES 74,000 210,000
TOTAL LIABILITIES 15,387,000 10,324,000
----------- -----------
COMMITMENTS AND CONTINGENCIES 11, 14
STOCKHOLDERS' EQUITY: 12
Common stock, $.01 par value; shares
authorized, 30,000,000; shares issued and
outstanding, 1995 - 14,805,000
and 1994 - 12,973,000 148,000 130,000
Additional paid-in capital 104,682,000 93,896,000
Accumulated deficit (73,072,000) (82,773,000)
Cumulative translation adjustment 143,000 131,000
Total stockholders' equity 31,901,000 11,384,000
----------- -----------
$47,288,000 $21,708,000
----------- -----------
----------- -----------
See notes to consolidated financial statements.
F-4
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTES 1995 1994 1993
----- ---- ---- ----
(Restated) (Restated)
Note 2 Note 2
REVENUES 13 $ 63,644,000 $ 46,781,000 $ 38,677,000
------------- ------------- -------------
COST OF REVENUES 28,386,000 22,091,000 19,206,000
------------- ------------- -------------
GROSS PROFIT 35,258,000 24,690,000 19,471,000
------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Research and development costs 9,701,000 7,629,000 6,008,000
Selling, general and administrative
expenses 15,382,000 12,858,000 10,900,000
Merger expenses 2 1,160,000 - 1,091,000
Interest income (423,000) (122,000) (43,000)
Interest expense 131,000 199,000 344,000
------------- ------------- -------------
25,951,000 20,564,000 18,300,000
------------- ------------- -------------
INCOME BEFORE BENEFIT FROM
INCOME TAXES 9,307,000 4,126,000 1,171,000
BENEFIT FROM INCOME TAXES 5 (649,000) (291,000) (398,000)
------------- ------------- -------------
NET INCOME $ 9,956,000 $ 4,417,000 $ 1,569,000
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER SHARE:
Primary $ 0.63 $ 0.31 $ 0.13
------------- ------------- -------------
------------- ------------- -------------
Fully diluted $ 0.61 $ 0.30 $ 0.13
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Primary 15,878,000 14,364,000 13,597,000
------------- ------------- -------------
------------- ------------- -------------
Fully diluted 16,251,000 14,567,000 13,597,000
------------- ------------- -------------
------------- ------------- -------------
See notes to consolidated financial statements.
F-5
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
Common Stock Additional Cumulative Stockholders'
-----------------------
Number Paid-in Accumulated Translation Equity
Notes of Shares Amount Capital Deficit Adjustment (Deficiency)
----- ---------- ----------- ---------- ----------- ------------- ------------
Balance October 1, 1992 (as
previously reported) 9,614,000 $ 96,000 $ 28,216,000 $(28,595,000) $ - $ (283,000)
Changes resulting from
acquisition accounted for
as pooling-of-interests 2 1,373,000 14,000 61,068,000 (60,164,000) 140,000 1,058,000
----------- ----------- ----------- ------------ ---------- -----------
Balance, October
1, 1992 (Restated) 10,987,000 110,000 89,284,000 (88,759,000) 140,000 775,000
Shares issued to the
Defined Contribution Stock
Ownership and Deferred
Compensation Plan 10 16,000 - 22,000 - - 22,000
Offering costs incurred in
connection with registration
of shares and warrants - - (80,000) - - (80,000)
Shares issued in connection
with the exercise of
stock options 12 22,000 1,000 20,000 - - 21,000
Warrants issued for
professional services
rendered 12 - - 125,000 - - 125,000
Warrants issued in connection
with the settlement
of litigation 12 - - 25,000 - - 25,000
Translation adjustment - - - - (3,000) (3,000)
Net income - - - 1,569,000 - 1,569,000
----------- ----------- ----------- ------------ ---------- -----------
Balance, September 30,
1993 (Restated) 11,025,000 111,000 89,396,000 (87,190,000) 137,000 2,454,000
Shares issued to the Defined
Contribution Stock Ownership
and Deferred Compensation Plan 10 9,000 - 36,000 - - 36,000
Shares and warrants issued in
connection with private
equity placement, net of
offering costs 12 1,360,000 14,000 3,790,000 - - 3,804,000
Warrants issued for
professional services 12 - - 38,000 - - 38,000
Shares issued in connection
with the exercise of stock
options 12 336,000 3,000 368,000 - - 371,000
Shares issued in connection
with the exercise of warrants 12 243,000 2,000 268,000 - - 270,000
Translation adjustment - - - - (6,000) (6,000)
Net income - - - 4,417,000 - 4,417,000
----------- ----------- ----------- ------------ ---------- -----------
Balance, September 30, 1994
(Restated) 12,973,000 130,000 93,896,000 (82,773,000) 131,000 11,384,000
Shares issued to the
Defined Contribution Stock
Ownership and Deferred
Compensation Plan 10 12,000 - 60,000 - - 60,000
Shares and warrants issued
in connection with private
equity placement, net of
offering costs 12 1,110,000 11,000 9,375,000 - - 9,386,000
Warrants issued for
professional services 12 - - 92,000 - - 92,000
Shares issued in connection
with the exercise of
stock options 12 386,000 4,000 770,000 - - 774,000
Shares issued in connection with
the exercise of warrants 12 324,000 3,000 489,000 - - 492,000
Change in year end of
pooled company 2 - - - (255,000) - (255,000)
Translation adjustment - - - - 12,000 12,000
Net income - - - 9,956,000 - 9,956,000
----------- ----------- ----------- ------------ ---------- -----------
Balance, September 30, 1995 14,805,000 $ 148,000 $104,682,000 $(73,072,000) $ 143,000 $31,901,000
----------- ----------- ----------- ------------ ---------- -----------
----------- ----------- ----------- ------------ ---------- -----------
See notes to consolidated financial statements.
F-6
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
1995 1994 1993
(Restated) (Restated)
Note 2 Note 2
OPERATING ACTIVITIES:
Net income $ 9,956,000 $ 4,417,000 $ 1,569,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (1,212,000) (579,000) (584,000)
Depreciation and amortization 1,532,000 1,038,000 759,000
Interest expense - 84,000 310,000
Provision for doubtful accounts receivable 80,000 - 82,000
Issuance of common stock and warrants for professional services
rendered 92,000 38,000 125,000
Issuance of common stock - Defined Contribution Stock
Ownership and Deferred Compensation Plan 60,000 36,000 22,000
Warrants issued as settlement of litigation - - 25,000
Other 23,000 30,000 7,000
Changes in assets and liabilities:
Receivables (5,002,000) (1,853,000) (112,000)
Inventories (4,030,000) (598,000) (1,681,000)
Prepaid expenses and other current assets 39,000 (27,000) 25,000
Other assets (554,000) (275,000) (650,000)
Accounts payable 3,812,000 503,000 1,646,000
Accrued expenses 1,531,000 (768,000) 727,000
Advance contract payments received (365,000) (176,000) 315,000
Other liabilities (136,000) (35,000) (90,000)
------------ ------------ ------------
Net cash provided by operating activities 5,826,000 1,835,000 2,495,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to plant and equipment (2,389,000) (1,641,000) (1,227,000)
Purchase of investments (1,484,000) (2,984,000) -
Proceeds from maturity of investments 1,500,000 - -
------------ ------------ ------------
Net cash used in investing activities (2,373,000) (4,625,000) (1,227,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Issuance of common stock and warrants - private
equity placements (less offering costs) 9,386,000 3,804,000 (80,000)
Issuance of common stock in connection with the exercise
of stock options and warrants 1,266,000 641,000 21,000
Notes payable (63,000) 63,000 -
Proceeds from bank loan 1,970,000 1,015,000 -
Payment of short-term debt and related accrued interest (1,385,000) (3,419,000) -
------------ ------------ ------------
Net cash provided by (used in) financing activities 11,174,000 2,104,000 (59,000)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 3,000 (6,000) (3,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 14,630,000 (692,000) 1,206,000
CASH AND CASH EQUIVALENTS:
Beginning of year 1,777,000 2,789,000 1,583,000
------------ ------------ ------------
End of year $ 16,407,000 $ 2,097,000 $ 2,789,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL INFORMATION - Interest paid $ 131,000 $ 1,384,000 $ 25,000
------------ ------------ ------------
------------ ------------ ------------
- Taxes paid $ 577,000 $ 383,000 $ 60,000
------------ ------------ ------------
------------ ------------ ------------
See notes to consolidated financial statements.
F-7
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
a. DESCRIPTION OF BUSINESS - Robotic Vision Systems, Inc. and
subsidiaries (the "Company") is principally engaged in the
development, manufacture and marketing of automated two dimensional
and three dimensional vision-based systems for inspection and
measurement products which have a variety of commercial and military
applications.
b. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the financial statements of Robotic Vision Systems, Inc. and
Acuity Imaging, Inc. and subsidiaries (a wholly-owned subsidiary)
("Acuity"). All significant intercompany transactions and balances
have been eliminated in consolidation.
The consolidated financial statements of the Company have been
prepared to give retroactive effect to the business combination with
Acuity Imaging, Inc. and subsidiaries (Note 2) which occurred on
September 20, 1995 and has been accounted for as a pooling of
interests.
c. REVENUES AND COST OF REVENUES - The Company recognizes revenue on its
standard electronic inspection and measurement products upon shipment.
The Company recognizes revenues and related cost of revenues
associated with the long-term contracts using the
percentage-of-completion method of accounting, measured by the
percentage of total costs incurred in relation to total estimated
costs at completion. Contract costs include material, direct labor,
manufacturing overhead and other direct costs. The degree of accuracy
with which the Company is able to estimate the profit to be realized
on fixed-price long-term contracts is greater as the contract
approaches completion; accordingly, the Company reviews its estimates
periodically and records adjustments thereto as required. On firm
fixed-price contracts which are in the early stages of completion, and
for which estimates of profit cannot be reasonably determined, the
Company utilizes the percentage-of-completion method recognizing
revenue in amounts equal to costs incurred until such time that profit
margins can be reasonably estimated. If a loss is anticipated on a
contract, the entire amount of the estimated loss is accrued in the
period in which the loss becomes known.
Revenues are billed in accordance with the terms of each contract.
The Company estimates that all of its unbilled receivables at
September 30, 1995 will become billable during ensuing twelve months.
d. CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes money
market accounts and certain debt securities issued by the United
States government with an original maturity of three months or less.
e. INVESTMENTS - Investments consist of certain debt securities issued by
the United States government with maturities through November 1997.
The Company's intention is to hold such investments until their
maturity, therefore, such investments ar recorded at their
F-8
amortized cost. As of September 30, 1995, the aggregate fair value of
investments maturing within one year was approximately $993,000 and
the fair value of investments with maturities of longer than one year
was approximately $2,020,000. The aggregate unrealized gain as of
September 30, 1995 was approximately $24,000. As of September 30,
1994, the aggregate fair value of investments maturing within one year
was approximately $1,478,000 and the fair value of investment with
maturities of longer than one year was approximately $1,447,000. The
aggregate unrealized loss as of September 30, 1994 was approximately
$70,000.
f. PLANT AND EQUIPMENT - Plant and equipment is recorded at cost less
accumulated depreciation and amortization and includes the costs
associated with demonstration equipment and other equipment internally
developed by the Company. The cost of internally developed assets
includes direct material and labor costs and applicable factory
overhead. Depreciation is computed by the straight-line method over
estimated lives ranging from two to eight years. Leasehold
improvements are amortized over the lesser of their respective
estimated useful lives or lease terms.
g. INVENTORIES - Inventories are stated at the lower of cost (using the
first-in, first-out cost flow assumption) or market.
h. SOFTWARE DEVELOPMENT COSTS - Software development costs are
capitalized in accordance with Statement of Financial Accounting
Standards No. 86. Capitalized software development costs are amortized
primarily over a five-year period, which is the estimated useful life
of the software. Amortization begins in the period in which the
related product is available for general release to customers.
i. RESEARCH AND DEVELOPMENT COSTS - The Company charges research and
development costs for Company-funded projects to operations as
incurred. Research and development costs which are reimbursable under
customer-funded contracts are treated as contract costs.
j. INCOME TAXES - Deferred tax assets and liabilities are determined
based on the differences between the financial accounting and tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
k. FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Company's
European subsidiary are translated at the exchange rate in effect at
the balance sheet date. Income statement accounts are translated at
the average exchange rate for the year. The resulting translation
adjustments are excluded from operations and accumulated as a separate
component of stockholders' equity. Transaction gains are included in
net income and totaled $4,000, $19,000 and $0 in 1995, 1994 and 1993,
respectively.
l. INCOME PER SHARE - Net income per common share is computed by dividing
each year's net income by the respective weighted average number of
shares of common stock outstanding during the period, after giving
effect to dilutive options and warrants. The effect of options and
warrants was calculated using the modified treasury stock method for
the years ended September 30, 1994 and 1993.
m. FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments:
F-9
a. CASH AND CASH EQUIVALENTS - The carrying amounts approximate fair
value because of the short maturity of these instruments.
b. INVESTMENTS - Fair value equals quoted market value.
c. RECEIVABLES - The carrying amount approximates fair value because
of the short maturity of these instruments.
d. DEBT - The carrying amounts approximate fair value because of
the relatively short maturity of those instruments.
n. RECLASSIFICATION - Certain amounts in the 1993 and 1994
financial statements have been reclassified to conform with the
1995 presentation.
2. ACQUISITIONS
a. ACUITY IMAGING, INC. AND SUBSIDIARIES
On September 20, 1995, the Company acquired the outstanding shares of
Acuity for approximately 1,448,000 shares of the Company's common
stock, having a market value at the date of the merger of
approximately $31,141,000. Acuity is a developer and seller of
computerized visual inspection equipment. Outstanding Acuity stock
options were converted into options to purchase approximately 114,000
shares of the Company's common stock. This acquisition has been
accounted for as a pooling of interests and accordingly, the
consolidated financial statements have been restated to include the
accounts of Acuity for all periods presented. The accompanying
September 30, 1994 and 1993 consolidated financial statements include
Acuity's amounts for the years ended December 31, 1994 and 1993. The
accompanying consolidated financial statement for the year ended
September 30, 1995 include the operations of Acuity on a common fiscal
year. Acuity's net income for the period October 1, 1994 through
December 31, 1994 of $255,000, included twice in the accompanying
consolidated statements of income as a result of conforming fiscal
years, has been included as an adjustment to consolidated accumulated
deficit.
The following is a reconciliation of certain restated amounts with
amounts previously reported:
Years ended September 30,
-------------------------
1994 1993
----------- -----------
Revenues:
As previously reported $24,613,000 $19,943,000
Effect of Acuity pooling of interests 22,168,000 18,734,000
----------- -----------
As restated $46,781,000 $38,677,000
----------- -----------
----------- -----------
Net income (loss):
As previously reported $ 3,111,000 $ 1,599,000
Effect of Acuity pooling of interests 1,306,000 (30,000)
----------- -----------
As restated $ 4,417,000 $ 1,569,000
----------- -----------
----------- -----------
F-10
Net income (loss) per share:
Primary:
As previously reported $ 0.24 $ 0.14
Effect of Acuity pooling of interests 0.07 (0.01)
----------- -----------
As restated $ 0.31 $ 0.13
----------- -----------
----------- -----------
Fully diluted:
As previously reported $ 0.24 $ 0.14
Effect of Acuity pooling of interests 0.06 (0.01)
As restated $ 0.30 $ 0.13
----------- -----------
----------- -----------
Included in the operating results of the Company for the year ended
September 30, 1995 are approximately $19,153,000 of revenues and
$1,188,000 of net loss of Acuity prior to the date of acquisition
(September 20, 1995).
b. INTERNATIONAL DATA MATRIX, INC.
On October 23, 1995, the Company acquired the outstanding shares of
International Data Matrix, Inc. ("IDM") for approximately 370,000
shares of the Company's common stock, having a market value at the
date of the merger of approximately $8,183,000. IDM is a developer
and seller of computerized visual inspection equipment. This
acquisition will be accounted for as a pooling of interests.
Unaudited supplemental consolidated statement of income data for the
years ended September 30, 1995, 1994 and 1993 is as follows:
RVSI IDM ELIMINATIONS COMBINED
---- --- ------------ --------
1995
----
Revenues $63,644,000 $ 1,769,000 $ (153,000) $65,260,000
Net income (loss) $ 9,956,000 $(1,123,000) $ - $ 8,833,000
Net income (loss) per share:
Primary $ 0.63 $ 0.55
Fully diluted $ 0.61 $ 0.53
1994
----
Revenues $46,781,000 $ 1,114,000 $ (56,000) $47,839,000
Net income (loss) $ 4,417,000 $ (736,000) $ - $ 3,681,000
Net income (loss) per share:
Primary $ 0.31 $ 0.25
Fully diluted $ 0.30 $ 0.25
1993
----
Revenues $38,677,000 $ 963,000 $ - $39,640,000
Net income (loss) 1,569,000 $ (408,000) $ - $ 1,161,000
Net income (loss) per share:
Primary $ 0.13 $ 0.10
Fully diluted $ 0.13 $ 0.10
c. MERGER OF ACUITY (FORMERLY AUTOMATIX INCORPORATED) WITH ITRAN CORP.
On January 26, 1994, Acuity (formerly Automatix Incorporated
["Automatix"]) merged with Itran Corp. ("Itran") in a tax-free
exchange of approximately 1,483,000 registered shares of Automatix
common stock for substantially all of Itran's outstanding common and
preferred stock. Itran was a developer and seller of computerized
visual inspection equipment. Automatix was the surviving corporation
and, simultaneiously with the merger, changed its name to Acuity
Imaging, Inc. Outstanding Itran stock options were
F-11
converted into options to purchase approximately 162,000 shares of
Acuity's common stock. The merger has been accounted for as a pooling
of interests. Expenses of approximatly $1,091,000 were incurred
related to merger.
3. RECEIVABLES
Receivables at September 30, 1995 and 1994 consisted of the following:
1995 1994
---- ----
Billed accounts receivable $10,880,000 $6,597,000
Unbilled accounts receivable 1,298,000 702,000
----------- ----------
Total 12,178,000 7,299,000
Less allowance for doubtful
accounts receivable 294,000 282,000
----------- ----------
Receivables - net $11,884,000 $7,017,000
----------- ----------
----------- ----------
Unbilled receivables primarily relate to sales recorded on standard
products which have been shipped, but have not yet been finally accepted by
the customer. The Company has no significant remaining obligations
relating to these unbilled receivables and collectibility is probable.
4. INVENTORIES
Inventories at September 30, 1995 and 1994 consisted of the following:
1995 1994
Raw materials $1,960,000 $ 945,000
Work-in-process 5,515,000 2,904,000
Finished goods 409,000 325,000
Field engineering parts and components 190,000 125,000
---------- ---------
Total $8,074,000 $4,299,000
---------- ---------
---------- ---------
5. INCOME TAXES
The benefit from income taxes for the fiscal years ended September 30,
1995, 1994 and 1993 consisted of the following:
1995 1994 1993
---- ---- ----
Current:
Federal $ 3,676,000 $1,377,000 $ 676,000
State 677,000 264,000 214,000
Utilization of net operating
loss carryforwards (3,790,000) (1,353,000) (704,000)
------------ ---------- -----------
563,000 288,000 186,000
------------ ---------- -----------
Deferred:
Federal 1,983,000 891,000 -
State 371,000 108,000 -
Adjustment of valuation
allowance (3,566,000) (1,578,000) (584,000)
------------ ---------- -----------
(1,212,000) (579,000) (584,000)
------------ ---------- -----------
Total $ (649,000) $ (291,000) $ (398,000)
------------ ---------- -----------
------------ ---------- -----------
F-12
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") during fiscal 1993. The adoption
of SFAS 109 was made as of the beginning of the fiscal year on a
prospective basis. This accounting change had no effect on the Company's
financial statements as of the date of adoption. However, the adoption of
SFAS 109 resulted in an increase in the income tax benefit recognized in
fiscal 1993 and, therefore, an increase in net income of $584,000 ($0.04
per common share for both primary and fully diluted).
The adjustments of the valuation allowance during fiscal 1995, 1994 and
1993 emanate from the Company's profitable operations during those years
and the extent to which the Company can substantiate projected future
earnings. The deferred tax assets as of September 30, 1995 and 1994 are
equivalent to the benefit to be derived from net operating loss
carryforwards that were expected to be utilized to offset future taxable
income projected as of the respective balance sheet dates. The deferred tax
assets at September 30, 1995 and 1994 have been limited to the benefit to
be derived from projected future income, primarily due to the Company's
limited history of earnings and its projected future profitability
currently being primarily dependent on one existing product line.
A reconciliation between the statutory U.S. Federal income tax rate and the
Company's effective tax rate for the years ended September 30, 1995, 1994
and 1993 is as follows:
1995 1994 1993
------ ------ ------
U.S. Federal statutory rate 34.0% 34.0% 34.0%
Increases (reductions) due to:
State taxes - net of Federal
tax benefit 4.8 5.0 7.4
Utilization of net operating
loss carryforwards (37.8) (32.0) (33.4)
Anticipated future utilization of
net operating loss carryforwards (13.0) (14.1) (49.9)
Nondeductible merger expenses - - 7.2
Net operating loss not producing
current tax benefits 4.3 - -
Other - net .7 - .7
------ ------ -------
Total (7.0%) (7.1%) (34.0%)
------ ------ -------
------ ------ -------
The net deferred tax asset at September 30, 1995, 1994 and 1993 is
comprised of the following:
Deferred Tax Assets
(Liabilities) 1995 1994 1993
------------------- ----------- ----------- -----------
Net operating loss
carryforwards $ 8,675,000 $11,418,000 $12,938,000
Tax credit carryforwards 1,671,000 1,092,000 785,000
Accrued liabilities 1,030,000 747,000 796,000
Inventories 524,000 460,000 423,000
Property and equipment (114,000) 52,000 198,000
Receivables 137,000 130,000 111,000
----------- ----------- -----------
11,923,000 13,899,000 15,251,000
Less valuation allowance (9,548,000) (12,736,000) (14,667,000)
----------- ----------- -----------
Total $ 2,375,000 $1,163,000 $ 584,000
----------- ----------- -----------
----------- ----------- -----------
F-13
As of September 30, 1995, Robotic Vision Systems, Inc. ("RVSI") had
Federal net operating loss carryforwards of approximately $11,997,000.
Such loss carryforwards expire in the fiscal years 2001 through 2007.
Additionally, RVSI had Federal income tax credits of approximately $847,000
and state income tax credits of approximately $499,000. The utilization of
the carryforwards to offset future tax liabilities is dependent upon the
Company's ability to generate sufficient taxable income during the
carryforward periods.
As of September 30, 1995, Acuity had Federal net operating loss
carryforwards of approximately $11,851,000 and foreign net operating loss
carryforwards relating to its United Kingdom subsidiary of approximately
$349,000. Such loss carryforwards expire in the fiscal years 1996 through
2010. In addition, Acuity has available approximately $325,000 of unused
investment tax credits. Because of the changes in ownership, as defined in
the Internal Revenue Code, which occurred in January 1994 and September
1995 (Note 2), certain of the net operating loss carryforwards and credits
are subject to annual limitations.
6. PLANT AND EQUIPMENT
Plant and equipment at September 30, 1995 and 1994 consisted of the
following:
1995 1994
Machinery and equipment $2,043,000 $1,863,000
Furniture, fixtures and other equipment 2,136,000 1,165,000
Demonstration equipment 2,633,000 1,875,000
Leasehold improvements 457,000 274,000
---------- ----------
Total 7,269,000 5,177,000
Less accumulated depreciation and
amortization 3,270,000 2,381,000
---------- ----------
Plant and equipment - net $3,999,000 $2,796,000
---------- ----------
---------- ----------
7. OTHER ASSETS
Other assets at September 30, 1995 and 1994 consisted of the following:
1995 1994
---- ----
Software development costs, net of
accumulated amortization of
$738,000 and $413,000, respectively $ 1,274,000 $ 1,064,000
Other 132,000 115,000
----------- -----------
Total $ 1,406,000 $ 1,179,000
----------- -----------
----------- -----------
F-14
Certain software development costs totaling $535,000 and $433,000 have been
capitalized during the fiscal years ended September 30, 1995 and 1994,
respectively. Amortization expense relating to software development costs
for 1995, 1994 and 1993 was $325,000, $239,000 and $137,000, respectively.
8. ACCRUED EXPENSES
Accrued expenses at September 30, 1995 and 1994 consisted of the
following:
1995 1994
---- ----
Accrued wages and related employee benefits $ 1,577,000 $ 1,556,000
Accrued sales commissions 1,815,000 539,000
Accrued warranty and other product
related costs 675,000 575,000
Other 1,029,000 1,164,000
----------- -----------
Total $ 5,096,000 $ 3,834,000
----------- -----------
----------- -----------
9. LOAN PAYABLE
In March 1995, Acuity obtained a revolving line of credit that provided for
borrowings up to the lesser of $3,500,000 or 80 percent of eligible
accounts receivable, as defined, plus 50 percent of unpledged domestic cash
and cash equivalents. Interest was payable monthly at a rate of prime plus
.5 percent. Borrowings under the line were secured by substantially all
assets of Acuity. The agreement required, among other covenants, that
Acuity maintain minimum levels of profitability, current ratio, net worth
and limits the levels of leverage.
After the merger with RVSI, the line of credit balance of $1,375,000 was
repaid with the proceeds from a 90-day note payable from a new bank,
guaranteed by RVSI. The note is collateralized by certain investments and
cash equivalents of RVSI. The note has a maturity date of December 28,
1995. At September 30, 1995, the outstanding balance under the note was
$1,385,000, bearing interest at 8.25 percent.
10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN - The Company has a noncontributory pension plan for
employees who meet certain minimum eligibility requirements. The level of
retirement benefit is based on a formula which considers both employee
compensation and length of credited service.
Plan assets are invested in pooled bank investment accounts, and the fair
value of such assets is based on the quoted market prices of underlying
securities in such accounts. The Company funds pension plan costs based on
minimum and maximum funding criteria as determined by independent actuarial
consultants.
F-15
The components of net pension cost for the fiscal years ended September 30,
1995, 1994 and 1993 are summarized as follows:
1995 1994 1993
---- ---- ----
Service cost - benefits earned during the period $ 158,000 $143,000 $ 91,000
Interest on projected benefit obligations 83,000 62,000 49,000
Estimated return on plan assets (56,000) (52,000) (43,000)
Other - amortization of actuarial gains and
net transition asset (20,000) (30,000) (32,000)
-------- --------- --------
Net pension cost $165,000 $123,000 $65,000
-------- --------- --------
-------- --------- --------
The funded status of the plan compared with the accrued expense included in
the Company's consolidated balance sheet at September 30, 1995 and 1994 is
as follows:
1995 1994
---- ----
Fair value of plan assets $ 810,000 $ 724,000
--------- ---------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including
vested benefits of $754,000 and $636,000 in
1995 and 1994, respectively 933,000 790,000
Effect of projected compensation increases 340,000 226,000
--------- ---------
Projected benefit obligation for services
rendered to date 1,273,000 1,016,000
--------- ---------
Projected benefit obligation in excess of plan
assets (463,000) (292,000)
Unrecognized net loss 217,000 67,000
Remaining unrecognized net transition asset being
amortized over 11 years (86,000) (122,000)
Unrecognized prior service costs 34,000 40,000
--------- ---------
Accrued pension cost $(298,000) $(307,000)
--------- ---------
--------- ---------
Significant assumptions used in determining net periodic pension cost and
related pension obligations are as follows:
1995 1994
---- ----
Discount rate 8.00% 7.50%
Rate of compensation increase 4.00% 4.00%
Expected long-term rate of
return on assets 8.25% 8.25%
DEFINED CONTRIBUTION STOCK OWNERSHIP AND DEFERRED COMPENSATION PLAN -- The
Company has a defined contribution plan for all eligible employees, as
defined by the Plan. The Plan provides for employee cash contributions
ranging from two to ten percent of compensation and matching employer
contributions of Company stock at a rate of 25 percent of an employee's
contribution, limited to a maximum of six percent of a participant's
compensation. The Plan also provides for additional employer contributions
of Company stock at the discretion of the Company's Board of Directors.
The Company incurred $83,000, $60,000 and $36,000 for employer
contributions to the Plan in 1995, 1994 and 1993, respectively. In 1995,
1994 and 1993, the Company issued 12,000, 9,000 and 16,000 shares,
respectively, of its common stock to the Plan related to its prior year
contribution.
F-16
STOCK APPRECIATION RIGHTS - During fiscal 1992, the Company entered into a
stock appreciation rights agreement with its President. Under the terms of
the agreement, the President will receive a cash payment equal to the
appreciation in the market value of a fixed number of shares of the
Company's common stock if certain conditions are met.
The Company records the compensation expense related to this agreement at
the date that the amount of payment to be made can be reasonably estimated.
The Company recorded compensation expense of $90,000 and $85,000 related to
this agreement during fiscal 1995 and 1994, respectively. No compensation
expense was recorded relating to this agreement during fiscal 1993. No
additional compensation may be earned under this agreement.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company has entered into operating lease agreements
for equipment, manufacturing and office facilities. The minimum
noncancelable scheduled rentals under these agreements are as follows:
Year Ending September 30:
------------------------
Building Equipment Total
1996 $ 835,000 $ 99,000 $ 934,000
1997 793,000 87,000 880,000
1998 791,000 54,000 845,000
1999 817,000 20,000 837,000
2000 705,000 4,000 709,000
Thereafter 341,000 - 341,000
---------- -------- ----------
Total $4,282,000 $264,000 $4,546,000
---------- -------- ----------
---------- -------- ----------
Rent expense for 1995, 1994 and 1993 was $696,000, $686,000 and $632,000,
respectively.
LITIGATION - During fiscal 1992, the Company instituted an action against
Cybo Systems, Inc. ("Cybo"), alleging that Cybo breached certain agreements
between the parties with respect to the sale by the Company to Cybo of all
of the assets of its welding and cutting systems business.
In response to the action brought by the Company, Cybo asserted claims
against the Company alleging, among other things, breach of contract and
warranties, fraud, bad faith, trespass and conversion. Cybo is seeking
aggregate damages in excess of $10,000,000. The Company believes that
Cybo's claims are without merit and plans to defend against them
vigorously. The Company's management, after discussion with legal counsel,
believes that the ultimate outcome of this matter will not have a material
adverse impact on the Company's consolidated financial position or results
of operations.
UNITED STATES GOVERNMENT CONTRACTS - Certain of the Company's contracts are
subject to audit by applicable United States governmental agencies. Until
such audits are completed, the ultimate profit on these contracts cannot be
finally determined; however, in the opinion of management, the final
contract settlements will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-17
12. STOCKHOLDERS' EQUITY
PRIVATE EQUITY PLACEMENTS - During fiscal 1995, the Company entered into an
agreement with a group of investors. Under the agreement, the Company
received approximately $9,386,000, after expenses, in exchange for the
issuance of 1,110,000 shares of the Company's common stock. The Company
also issued warrants exerciseable through June 2000 to purchase
approximately 68,000 shares of the Company's common stock at exercise
prices ranging from $8.75 to $9.00 per share.
During fiscal 1994, the Company entered into an agreement with a group of
investors. Under the agreement the Company received approximately
$3,804,000, after expenses, in exchange for the issuance of 1,360,000
shares of the Company's common stock. The Company also issued warrants
exerciseable through December 1999 to purchase 51,000 shares of the
Company's common stock at an exercise price of $3.75 per share.
WARRANTS ISSUED FOR SERVICES RENDERED - During fiscal 1995, the Company
issued warrants under certain agreements granting the holders thereof the
right through July 1999 to purchase up to approximately 82,000 shares of
the Company's common stock at exercise prices ranging from $5.81 to $23.38
per share as compensation for professional services rendered. The Company
recorded an expense of approximately $92,000 related to the issuance of
such warrants.
During fiscal 1994, the Company issued warrants for the purchase of 30,000
shares of the Company's common stock at an exercise price of $4.69 per
share as compensation for professional services rendered. The Company
recorded an expense of approximately $38,000 related to the issuance of
such warrants.
During fiscal 1993, the Company issued warrants under certain agreements
granting the holders thereof the right through June 1998 to purchase up to
approximately 227,000 shares of the Company's common stock at exercise
prices ranging from $0.88 to $3.00 per share as compensation for
professional services rendered. The Company recorded an expense of
approximately $125,000 related to the issuance of such warrants.
WARRANT ISSUED IN SETTLEMENT OF LITIGATION - During fiscal 1993, the
Company issued warrants in connection with the settlement of a lawsuit to
purchase up to 25,000 shares of the Company's common stock at an exercise
price of $4.37 per share. The expiration date of such warrants is November
1, 1996. The Company recorded an expense of approximately $25,000 related
to the issuance of such warrants.
WARRANTS EXERCISED - During fiscal 1995, the Company received approximately
$492,000 in connection with the issuance of approximately 324,000 shares of
its common stock upon the exercise of warrants to purchase such shares at
prices ranging between $1.00 and $4.38 per share.
During fiscal 1994, the Company received approximately $270,000 in
connection with the issuance of approximately 243,000 shares of its common
stock upon the exercise of warrants to purchase such shares at prices
between $0.88 and $4.38 per share.
F-18
WARRANTS OUTSTANDING - As of September 30, 1995, there were warrants
outstanding to purchase approximately 1,198,000 shares of the Company's
common stock with exercise prices ranging between $1.00 and $23.38 per
share.
STOCK OPTION PLANS - The Company has four stock option plans (the 1977,
1982, 1987 and 1991 plans) which provide for the granting of options to
employees or directors at prices and terms as determined by the Board of
Directors' Stock Option Committee (the "Committee"). With respect to the
1977 and 1987 plans, option prices may not be less than the fair market
value at date of grant. Any excess of the fair market value of shares
under option at the date of grant over the exercise price is charged to
operations over the period in which the stock options vest. All options
issued by the Company to date have exercise prices which were equal to
market value of the Company's common stock at the date of grant. No new
options may be granted under the 1977 and 1982 plans.
The following table sets forth summarized information concerning the
Company's stock options:
Number of Exercise
Shares Price Range
---------- ---------------
Options outstanding for shares of common stock at October 1, 1992 1,475,862 $0.53 - $38.72
Granted 471,486 0.88 - 9.29
Canceled or expired (111,472) 0.53 - 17.43
Exercised (21,528) 0.53 - 1.44
--------- ---------------
Options outstanding for shares of common stock at September 30, 1993 1,814,348 0.53 - 38.72
Granted 305,074 3.63 - 15.06
Canceled or expired (32,285) 0.53 - 21.51
Exercised (335,982) 0.53 - 17.43
--------- ---------------
Options outstanding for shares of common stock at September 30, 1994 1,751,155 0.53 - 38.72
Granted 246,699 4.25 - 22.50
Canceled or expired (52,924) 0.53 - 17.43
Exercised (380,574) 0.53 - 17.43
--------- ---------------
Options outstanding for shares of common stock at September 30, 1995 1,564,356 $0.53 - $38.72
--------- ----------------
--------- ----------------
Options exercisable at September 30, 1995 888,492
---------
---------
Shares reserved for issuance at September 30, 1995 2,140,021
---------
---------
13. SEGMENT AND PRINCIPAL CUSTOMER INFORMATION
For the purposes of segment reporting, management considers the Company to
operate in one industry, the machine vision industry.
F-19
During 1995, revenues from a single customer represented 16 percent of
total revenues. No other customer accounted for more than 10 percent of
total revenues for fiscal 1995, 1994 and 1993.
Foreign export sales accounted for 64 percent, 42 percent and 51 percent of
the Company's revenues in fiscal 1995, 1994 and 1993, respectively.
The Company's domestic and foreign export sales during the years ended
September 30, 1995, 1994 and 1993 are set forth below:
1995 1994 1993
---- ---- ----
North America $22,653,000 $27,238,000 $19,014,000
Asia/Pacific Rim 33,957,000 17,300,000 15,506,000
Europe 7,034,000 2,243,000 4,157,000
----------- ----------- -----------
Total $63,644,000 $46,781,000 $38,677,000
----------- ----------- -----------
----------- ----------- -----------
14. SUBSEQUENT EVENT
On November 20, 1995, the Company obtained a revolving line of credit from
a bank that provides for maximum borrowing of $6,000,000. The agreement
expires on January 31, 1999. Borrowings under the agreement are secured by
all accounts receivable of the Company and will bear interest at the
adjusted LIBOR rate, as defined, plus two percent. The Company will pay a
commitment fee of one quarter of one percent per annum on any unused
portion of the credit facility. The terms of the agreement, among other
matters, require the Company to maintain certain tangible net worth, debt
to equity, working capital, and earnings before depreciation and
amortization to long-term debt ratios and restrict the payment of cash
dividends.
* * * * * * *
F-20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the village of
Hauppauge, State of New York, on the 27th day of December, 1995.
ROBOTIC VISION SYSTEMS, INC.
By: /s/ PAT V. COSTA
---------------------------
Pat V. Costa, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
- ---------- -------- ----
/s/ PAT V. COSTA Chairman of the Board, December 27, 1995
- ---------------- President and Director
Pat V. Costa (Principal Executive Officer)
/s/ ROBERT H. WALKER Executive Vice President December 27, 1995
- -------------------- Secretary/Treasurer and
Robert H. Walker Director (Principal
Financial Officer)
/s/ HOWARD STERN Senior Vice President December 27, 1995
- ---------------- and Director
Howard Stern
/s/ JAY M. HAFT Director December 27, 1995
- ---------------
Jay M. Haft
(By Ira Roxland,
Attorney in-fact)
/s/ OFER GNEEZY Director December 27, 1995
- ---------------
Ofer Gneezy
- ------------------- Director
Donald J. Kramer
- ------------------- Director
Donald F. Domnick
- ------------------- Director
Mark J. Lerner
- ------------------- Director
Frank A. DiPietro