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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 COMMISSION FILE NUMBER 0-8623
ROBOTIC VISION SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2400145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 302-2439
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 twelve 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 [ ]
Number of shares of Common Stock outstanding as of August 12, 2002 60,609,856
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, SEPTEMBER 30,
2002 2001
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents .................................................. $ 466 $ 3,554
Accounts receivable, net ................................................... 13,061 14,866
Inventories ................................................................ 30,006 34,765
Prepaid expenses and other current assets .................................. 2,108 2,168
--------- ---------
Total current assets ..................................................... 45,641 55,353
Plant and equipment, net ................................................... 7,538 10,393
Goodwill, net .............................................................. 3,954 4,265
Software development costs, net ............................................ 8,385 9,944
Other assets ............................................................... 7,096 7,992
--------- ---------
$ 72,614 $ 87,947
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility .................................................. $ 2,680 $ 2,385
Notes payable and current portion of long-term debt ........................ 5,609 4,259
Accounts payable ........................................................... 11,790 13,694
Accrued expenses and other current liabilities ............................. 14,627 17,401
Deferred gross profit ...................................................... 1,367 2,469
--------- ---------
Total current liabilities ................................................ 36,073 40,208
Long-term debt ............................................................. 3,076 7,240
--------- ---------
Total liabilities ........................................................ 39,149 47,448
Commitments and contingencies .............................................. -- --
Prepaid warrants ........................................................... -- 7,067
Stockholders' Equity:
Common stock, $0.01 par value; shares authorized, 100,000 shares; issued and
outstanding, June 30, 2002 -- 60,610 and September 30, 2001 -- 35,960 .... 606 360
Additional paid-in capital ................................................. 293,091 270,564
Accumulated deficit ........................................................ (259,172) (236,810)
Deferred compensation ...................................................... (138) --
Accumulated other comprehensive loss ....................................... (922) (682)
--------- ---------
Total stockholders' equity ............................................... 33,465 33,432
--------- ---------
$ 72,614 $ 87,947
========= =========
See notes to consolidated financial statements
2
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues ......................................... $ 15,348 $ 21,061 $ 44,356 $ 91,332
Cost of revenues ................................. 10,435 15,117 29,422 59,201
Inventory provisions ............................. -- 650 -- 10,949
-------- -------- -------- --------
Gross profit ................................... 4,913 5,294 14,934 21,182
-------- -------- -------- --------
Operating costs and expenses:
Research and development expenses .............. 4,497 6,307 13,785 22,644
Selling, general and administrative expenses ... 8,882 12,756 27,734 41,407
Gain on sale of assets ......................... -- -- (6,935) --
Severance and other charges .................... 1,225 497 1,601 4,197
In-process research and development ............ -- -- -- 1,050
-------- -------- -------- --------
Loss from operations ......................... (9,691) (14,266) (21,251) (48,116)
Interest expense, net ............................ (301) (357) (898) (545)
-------- -------- -------- --------
Loss before income taxes ....................... (9,992) (14,623) (22,149) (48,661)
Provision for income taxes ....................... -- -- -- --
-------- -------- -------- --------
Loss before cumulative effect of accounting change (9,992) (14,623) (22,149) (48,661)
Cumulative effect of accounting change ......... -- -- -- (10,747)
-------- -------- -------- --------
Net loss ......................................... $ (9,992) $(14,623) $(22,149) $(59,408)
======== ======== ======== ========
Per Share:
Loss before cumulative effect:
Basic .......................................... $ (0.18) $ (0.41) $ (0.48) $ (1.38)
======== ======== ======== ========
Diluted ........................................ $ (0.18) $ (0.41) $ (0.48) $ (1.38)
======== ======== ======== ========
Cumulative effect of accounting change:
Basic .......................................... $ -- $ -- $ -- $ (0.30)
======== ======== ======== ========
Diluted ........................................ $ -- $ -- $ -- $ (0.30)
======== ======== ======== ========
Loss per share:
Basic .......................................... $ (0.18) $ (0.41) $ (0.48) $ (1,68)
======== ======== ======== ========
Diluted ........................................ $ (0.18) $ (0.41) $ (0.48) $ (1.68)
======== ======== ======== ========
Weighted average shares
Basic .......................................... 56,298 35,864 46,452 35,610
Diluted ........................................ 56,298 35,864 46,452 35,610
See notes to consolidated financial statements
3
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
2002 2001
-------- --------
OPERATING ACTIVITIES:
Net loss ..................................................................... $ (22,149) $ (59,408)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization .............................................. 7,291 11,020
Gain on sale of assets ..................................................... (6,935) --
Issuance of warrants and shares in lieu of cash ............................ 39 --
Cumulative effect of accounting change ..................................... -- 10,747
Inventory provisions ....................................................... -- 10,949
Bad debt provisions ........................................................ -- 646
Warranty provisions ........................................................ 756 2,256
In-process research and development ........................................ -- 1,050
Write-off of tangible and intangible assets................................. 269 679
Changes in operating assets and liabilities (net of effects of business
acquired and assets sold)
Accounts receivable ...................................................... 1,805 45,410
Inventories .............................................................. 1,805 (1,903)
Prepaid expenses and other current assets ................................ 60 699
Other assets ............................................................. (211) (841)
Accounts payable ......................................................... (1,904) (15,358)
Accrued expenses and other current liabilities ........................... (1,206) (5,157)
Deferred gross profit .................................................... (1,102) (7,646)
-------- --------
Net cash used in operating activities .................................... (21,482) (6,857)
-------- --------
INVESTING ACTIVITIES:
Additions to plant and equipment, net ........................................ (1,315) (2,184)
Additions to software development costs ...................................... (1,466) (2,221)
Proceeds from sale of assets ................................................. 10,189 --
Cash paid for acquisitions, net .............................................. -- (3,125)
-------- --------
Net cash provided by (used in) investing activities ........................ 7,408 (7,530)
-------- --------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants ..................... -- 25
Proceeds for private placement of common stock, net of offering costs ........ 13,591
Net borrowings under the revolving line of credit ............................ 295 --
Repayment of long-term borrowings ............................................ (2,814) (265)
-------- --------
Net cash provided by (used in) financing activities ........................ 11,072 (240)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ................. (86) 54
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (3,088) (14,573)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................ 3,554 22,947
-------- --------
End of period .............................................................. $ 466 $ 8,374
======== ========
Supplemental Cash Flow Information:
Interest paid ................................................................ $ 694 $ 583
======== ========
Taxes paid ................................................................... $ 91 $ 197
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Note payable and future payments for acquisition ............................. $ -- $ 9,053
======== ========
Cashless exercise of prepaid warrants for 11,921 shares of common stock
in 2002 and 683 in 2001..................................................... $ 7,067 $ 1,576
======== ========
Issuance of 2,433 shares of common stock in payment of accrued warrant premium $ 1,951 $ --
======== ========
See notes to consolidated financial statements
4
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet of Robotic Vision Systems, Inc. and its
subsidiaries (the "Company") as of June 30, 2002, the consolidated statements of
operations for the three and nine month periods ended June 30, 2002 and 2001 and
the consolidated statements of cash flows for the nine month periods ended June
30, 2002 and 2001 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial condition at June 30,
2002 and results of operations and cash flows for all periods presented have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
amendment #2 of the Form 10-K for the year ended September 30, 2001. The
operating results for the three and nine month periods ended June 30, 2002 are
not necessarily indicative of the operating results for the full year.
The Company incurred a net loss of $104,373 for the fiscal year ended
September 30, 2001 and used $12,584 of cash in operations during that same
period. For the nine month period ended June 30, 2002, the Company incurred a
net loss of $22,149 and used $21,482 of cash in operations during that same
period. These results are primarily attributable to the worldwide downturn in
demand for semiconductor capital equipment.
Throughout fiscal 2001 and through the third quarter of fiscal 2002,
management took a series of steps, including reductions in headcount and exiting
facilities, to reduce operating expenses and to restructure operations in
response to this downturn.
As discussed in Note 10, the Company sold the one-dimensional material
handling business ("material handling business") as of December 15, 2001; the
net proceeds from the disposition of the material handling business were
approximately $10,189, after closing costs.
On May 2, 2002, the Company completed a private placement, which raised
approximately $13,591, net of offering expenses. A total of 10.3 million shares
of common stock were sold at $1.46 per share. The placement also included
warrants to purchase up to 2.1 million shares at $1.46 per share on or before
June 30, 2002 (the "60-day Warrants"), and warrants to purchase up to 2.6
million shares at $1.50 per share on or before May 1, 2005 (the "3-year
Warrants"). On June 27, 2002, the 60-day Warrants were modified to expire on
August 30, 2002. The private placement also included warrants issued to the
placement agent (the "Placement Warrants"), to purchase up to 0.6 million shares
of common stock at $1.50 per share on or before May 1, 2005. The Company may
call the $1.50 warrants, effectively forcing conversion, if the price of the
Company's common stock trades above $2.35 per share for twenty consecutive
trading days at any time prior to the warrants' expiration. The fair value of
the 60-day Warrants, totaling approximately $525, the 3-year Warrants, totaling
approximately $1,400, and the Placement Warrants, totaling approximately $305,
was credited to additional paid-in capital.
The Company continues to implement plans intended to control operating
expenses, inventory levels, and capital expenditures as well as plans to manage
accounts payable and accounts receivable to enhance cash flows. The Company
recognizes that additional financing will also be needed and we are in
discussions to raise such financing. The Company believes that through a
combination of the credit facility, customer advance payments, additional
debt/equity financing, continued expense reductions and cash flows from
operations, it will have sufficient liquidity to fund cash requirements for at
least the next 12 months. If the Company are unsuccessful in obtaining
additional financing, it would face a severe constraint on its ability to
sustain operations at current levels, and the Company would intend to adjust
its operations consistent with its available resources. Such adjustments might
include further work force reductions, exiting of facilities, or disposition of
certain operations.
5
2. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In fiscal year 2001, the Company changed its method of accounting for
revenue on certain semiconductor equipment sales to comply with SEC Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Previously, the Company generally recognized revenue upon shipment
to the customer, and accrued the cost of providing any undelivered services
associated with the equipment at the time of revenue recognition. Under the new
accounting method, adopted as of October 1, 2000, the Company now recognizes
revenue based on the type of equipment that is sold and the terms and conditions
of the underlying sales contracts. The cumulative effect of the change as of
October 1, 2000 resulted in a charge to operations of $10,747, which is included
in the consolidated statement of operations for the nine month period ended June
30, 2001.
3. INVENTORIES
Inventories consisted of the following:
JUNE 30, 2002 SEPTEMBER 30, 2001
----------------- --------------------
Raw Materials................ $15,045 $ 18,640
Work-in-Process.............. 6,303 4,968
Finished Goods............... 8,658 11,157
------- --------
Total.............. $30,006 $ 34,765
======= ========
Inventory on consignment was $1,494 and $1,701 at June 30, 2002 and
September 30, 2001, respectively.
4. EARNINGS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares outstanding during each period. Diluted net loss per share reflects the
effect of the Company's outstanding stock options and warrants (using the
treasury stock method), except where such options and warrants would be
anti-dilutive. The calculations of earnings per share for the three and nine
month periods ended June 30, 2002 and 2001 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
BASIC AND DILUTED EPS
Loss before cumulative effect ............................... $ (9,992) $(14,623) $(22,149) $(48,661)
Premium on prepaid warrants ................................. (15) (167) (213) (533)
-------- -------- -------- --------
Loss before cumulative effect -- basic numerator ............ (10,007) (14,790) (22,362) (49,194)
Cumulative effect of accounting change -- basic numerator ... -- -- -- (10,747)
-------- -------- -------- --------
Net loss -- basic numerator ................................. (10,007) (14,790) (22,362) (59,941)
Weighted average number of common shares -- basic and diluted
denominator 56,298 35,864 46,452 35,610
-------- -------- -------- --------
Per Share:
Loss before cumulative effect -- basic ...................... $ (0.18) $ (0.41) $ (0.48) $ (1.38)
======== ======== ======== ========
Cumulative effect of accounting change -- basic ............. -- -- -- $ (0.30)
-------- -------- -------- --------
Net loss -- basic and diluted ............................... $ (0.18) $ (0.41) $ (0.48) $ (1.68)
======== ======== ======== ========
For the three month periods ended June 30, 2002 and June 30, 2001 and for
the nine month periods ended June 30, 2002 and June 30, 2001, the Company had
potential common shares excluded from the earnings per share of 13,133, 8,191,
13,092 and 7,151, respectively, as they were anti-dilutive.
6
5. COMPREHENSIVE INCOME (LOSS)
In addition to net loss, the only item that the Company currently records as
other comprehensive income or loss is the change in the cumulative translation
adjustment resulting from the changes in exchange rates and the effect of those
changes upon translation of the financial statements of the Company's foreign
operations. The following table presents information about the Company's
comprehensive loss for the following periods:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net loss ............................. $ (9,992) $(14,623) $(22,149) $(59,408)
Effect of foreign currency translation
adjustments (302) (3) (240) 51
-------- -------- -------- --------
Comprehensive loss ................... $(10,294) $(14,626) $(22,389) $(59,357)
======== ======== ======== ========
6. SEGMENT INFORMATION
The Company operates in two reportable segments serving the machine vision
industry. The Company has determined segments primarily based on the nature of
the products offered by the Semiconductor Equipment Group and the Acuity
CiMatrix division. The Semiconductor Equipment Group is comprised of the
Electronics, Systemation and Vanguard subdivisions. The Electronics subdivision,
including Abante Automation Inc. ("Abante"), supplies inspection equipment to
the semiconductor industry; the Systemation subdivision offers tape and reel
component processing systems designed to handle and inspect chip scale packages
("CSP") and ball grid array ("BGA") packages; and the Vanguard subdivision is a
supplier of BGA and CSP equipment for the semiconductor and connection
industries. The Acuity CiMatrix division designs, manufactures and markets 2-D
data collection products and barcode reading systems, as well as 2-D machine
vision systems and lighting products for use in industrial automation.
Sales between segments are determined based on an intercompany price that is
consistent with external customers. Intersegment sales by the Acuity CiMatrix
division were $16 and $1,042 for the nine month periods ended June 30, 2002 and
2001, respectively.
Other loss is comprised of unallocated corporate general and administrative
expenses. Although certain research activities are conducted by the Acuity
CiMatrix division for the Semiconductor Equipment Group, research and
development expenses are reported in the segment where the costs are incurred.
The following table presents information about the Company's reportable
segments.
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
REVENUES:
Semiconductor Equipment ...................... $ 10,450 $ 11,885 $ 24,125 $ 63,121
Acuity CiMatrix .............................. 4,898 9,176 20,231 28,211
-------- -------- -------- --------
Total Revenues ..................... $ 15,348 $ 21,061 $ 44,356 $ 91,332
======== ======== ======== ========
LOSS FROM OPERATIONS:
Semiconductor Equipment ...................... $ (5,365) $ (7,522) $(16,622) $(24,161)
Acuity CiMatrix (including the gain of $6,935
on the sale of the material handling
business for the nine month period ended
June 30, 2002) ............................. (2,017) (4,298) 1,697 (17,488)
Other ........................................ (2,309) (2,446) (6,326) (6,467)
-------- -------- -------- --------
Total loss from operations ......... $ (9,691) $(14,266) $(21,251) $(48,116)
======== ======== ======== ========
DEPRECIATION AND AMORTIZATION:
Semiconductor Equipment ...................... $ 1,616 $ 2,301 $ 4,767 $ 6,731
Acuity CiMatrix .............................. 712 1,244 2,255 4,188
Other ........................................ 67 34 269 101
-------- -------- -------- --------
Total depreciation and amortization $ 2,395 $ 3,579 $ 7,291 $ 11,020
======== ======== ======== ========
INVENTORY PROVISIONS:
Semiconductor Equipment ...................... $ -- $ -- $ -- $ 6,607
Acuity CiMatrix .............................. -- 650 -- 4,342
-------- -------- -------- --------
Total inventory provisions ......... $ -- $ 650 $ -- $ 10,949
======== ======== ======== ========
7
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
SEVERANCE AND OTHER CHARGES:
Semiconductor Equipment .................... $ 869 $ 425 $ 1,218 $ 1,550
Acuity CiMatrix ............................ 288 72 315 2,578
Other ...................................... 68 -- 68 69
-------- -------- -------- --------
Total severance and other charges $ 1,225 $ 497 $ 1,601 $ 4,197
======== ======== ======== ========
TOTAL ASSETS:
Semiconductor Equipment .................... $ 50,612 $ 72,039 $ 50,612 $ 72,039
Acuity CiMatrix ............................ 20,300 41,053 20,300 41,053
Other ...................................... 1,702 18,078 1,702 18,078
-------- -------- -------- --------
Total assets ..................... $ 72,614 $131,170 $ 72,614 $131,170
======== ======== ======== ========
EXPENDITURES FOR PLANT AND EQUIPMENT, NET:
Semiconductor Equipment .................... $ 923 $ 636 $ 1,030 $ 1,126
Acuity CiMatrix ............................ 3 508 246 1,039
Other ...................................... 16 3 39 19
-------- -------- -------- --------
Total expenditures for plant and
equipment, net $ 942 $ 1,147 $ 1,315 $ 2,184
======== ======== ======== ========
EXPENDITURES FOR SOFTWARE DEVELOPMENT COSTS:
Semiconductor Equipment .................... $ 506 $ 569 $ 1,068 $ 1,805
Acuity CiMatrix ............................ 131 27 398 416
-------- -------- -------- --------
Total expenditures for software
development costs ............... $ 637 $ 596 $ 1,466 $ 2,221
======== ======== ======== ========
7. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND LONG-TERM DEBT
Revolving Credit Facility
The Company has a $10,000 credit facility that expires in April 2003. At
June 30, 2002, borrowings under the credit facility were $2,680 and the Company
had $5,515 of remaining availability under the line. Outstanding balances bear
interest at a variable rate as determined periodically by the bank (5.75% at
June 30, 2002). On April 3, 2002, the credit facility was amended, primarily
consenting to modifications to the Articles of Incorporation and to decrease
future quarterly minimum net worth covenants for periods after September 30,
2002. The Company was in compliance with the covenants at June 30, 2002.
Notes Payable and Long-Term Debt:
Notes payable and long-term debt at June 30, 2002 and September 30, 2001
consisted of the following:
JUNE 30, SEPTEMBER 30,
2002 2001
-------- --------
Subordinated note payable -- 8.25%, payable in equal
quarterly installments of $281 through June 2003 .................. $ 1,116 $ 1,969
Abante note payable -- 8% payable in installments though November 2002 1,000 1,500
Abante payable -- non-interest bearing, discounted at 8%,
payable in installments through November 2005 ..................... 1,695 2,129
AIID notes payable -- prime rate (4.75% at June 30, 2002
and 6.0% September 30, 2001), payable in installments
through January 2004 .............................................. 4,800 5,556
Other borrowings ..................................................... 74 345
-------- --------
Total notes payable and long-term debt ............................... 8,685 11,499
Less notes payable and current portion of long-term debt ............. (5,609) (4,259)
-------- --------
Long-term debt ....................................................... $ 3,076 $ 7,240
======== ========
8
On November 21, 2001, the $1,500 note payable issued to the former
principals of Abante came due, together with 8% interest thereon from November
29, 2000. On the same date, the first of five annual installments on the Abante
payable also became due, in the amount of $500. Pursuant to an oral agreement
with the former principals, the Company paid on November 21, 2001 the interest,
$250 of note principal and approximately $112 of the first annual installment.
The balance of the sums originally due on November 21, 2001 were rescheduled for
payment in installments through the first quarter of fiscal 2003. In January
2002, the principals demanded current full payment of these amounts or
collateralization of the Company's future payment obligations. The Company
believes the oral agreement is enforceable and is continuing to make payments in
accordance with the terms of that agreement, paying the interest, $250 of note
principal and approximately $150 of the first annual installment on February 21,
2002, and paying approximately $238 of the first annual installment on May 21,
2002.
On January 3, 2002, a payment of $1,855 under a note issued to the former
shareholders of Auto Image ID, Inc. ("AIID") came due together with interest at
prime rate. On the due date, the Company paid the interest and approximately
$240 of note principal to certain of these shareholders. The Company has reached
an agreement with the other former stockholders to pay the sums originally due
on January 3, 2002 in three equal principal installments in April 2002, August
2002 and December 2002. In accordance with the agreement with the other former
stockholders, the Company paid on April 1, 2002 approximately $516 of the note
principal. In exchange for the deferral, the Company issued warrants with an
exercise price of $1.14 per share. The fair value of these warrants, totaling
approximately $137, is being charged to operations through January, 2003.
8. ACQUISITION
On November 29, 2000, the Company acquired the outstanding shares of Abante
for approximately $1,850 in cash, a twelve-month note of $1,500 at 8% interest
and recorded the net present value of future minimum payments of $500 per year
for 5 years using a discount rate of 8% (see Note 7). Abante designs,
manufactures and markets machine vision systems for three-dimensional inspection
in the semiconductor and electronics industries.
On January 3, 2001, the Company acquired the outstanding shares of AIID for
approximately $1,200 in cash and three-year notes payable at $1,855 per year at
prime rate (see Note 7). AIID designs, manufactures and markets products for
reading direct part marks and two-dimensional bar codes.
The acquisitions have been accounted for as purchases and, accordingly, the
results of Abante and AIID are included in the consolidated statements of
operations of the Company since their respective dates of acquisition. Under the
purchase method of accounting, the acquired assets and assumed liabilities have
been recorded at their estimated fair values at the dates of acquisition. The
Company hired an independent appraisal firm that completed valuations of the
identifiable intangible assets acquired for purposes of allocating the purchase
price.
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through 2006. The
projected cash flows were discounted using a 30% rate. The value assigned to
in-process technology relates primarily to one research project, that had not
reached technological feasibility and which had no alternative use at the date
of purchase. The in-process research and development related to a single project
for the development of 3-D inspection technology. Management is primarily
responsible for estimating the fair value of the acquired in-process research
and development, and the valuation was determined separately from all other
acquired assets using the percentage of completion method. The significant
assumptions underlying the valuation of this technology included revenues
commencing in 2001, a completion ratio of 64% which was calculated by dividing
the total expenditures to date for the project by the total estimated
expenditures, and a discount rate of 30%. The efforts required to develop the
in-process technologies into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the products can be designed to
meet their design specifications, including function, features and technical
performance requirements. At September 30, 2001, this project was substantially
concluded.
The Company expensed $1,050 related to in-process research and development
in the quarter ended March 31, 2001.
9
9. RESTRUCTURING
During the three and nine month periods ended June 30, 2002, the Company
took additional steps in order to reduce its costs, including a reduction of
approximately 100 and 160 employees, respectively. The restructuring also
included costs related to the closing of foreign offices, which included the
write-off of tangible assets of $269. The terminated employees represented all
functions across all operating divisions. The charges for severance and other
charges in the first, second and third quarters of fiscal 2002 were $165, $211
and $1,225, respectively, net of reversals of $4 and $331 of charges for the
first and second quarters, respectively. The reversal of charges is due to a
change in operating plans by the Company, which changed plans to close a
facility, and severance costs previously accrued for the reduction of employees
at that facility have now been reversed. At September 30, 2001, the Company had
$1,277 of remaining restructuring charges to be paid. A summary of these
restructuring costs is as follows:
LIABILITY Q1 & Q2 Q3 NON
AT FISCAL 2002 FISCAL 2002 CASH CASH LIABILITY AT
SEPT. 30. AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS JUNE 30,
2001 REVERSED ACCRUED ACCRUED INCURRED INCURRED 2002
------ ------ ------ ------ ------ ------ ------
Severance payments to employees $ 917 $ 256 $ 711 $ 911 -- $1,359 $ 924
Exit costs from facilities .... 360 79 -- 45 -- 147 179
Write-off of other tangible and
intangible assets ............. -- -- -- 269 269 -- --
------ ------ ------ ------ ------ ------ ------
Total ............... $1,277 $ 335 $ 711 $1,225 $ 269 $1,506 $1,103
====== ====== ====== ====== ====== ====== ======
Also, in the nine months ended June 30, 2001, the Company took steps to
reduce its costs. These steps primarily included a reduction of approximately
300 employees and a restructuring of European operations. The charge for
severance and other costs of $4,197 included severance costs of approximately
$2,645, exit costs from facilities of $873 and the write-off of other tangible
and intangible assets of $679.
10. SALE OF PRODUCT LINE
As of December 15, 2001 the Company sold its one-dimensional material
handling product line ("material handling business"), which had been part of the
Company's Acuity CiMatrix division, to affiliates of SICK AG of Germany. The
material handling business had designed, manufactured and marketed
one-dimensional bar code reading and machine vision systems and related products
used in the automatic identification and data collection market to track
packages for the parcel delivery services and material handling industries. The
sales price was $11,500, which includes the right to receive $500 following the
expiration of a 16-month escrow to cover indemnification claims. The costs of
the transaction were approximately $800. The Company has recorded a net gain of
$6,935 in the nine month period ended June 30, 2002, related to the sale of the
material handling business. For the period from October 1, 2001 through December
15, 2001, the material handling business had revenues of approximately $2,800
and had an operating loss of approximately $250.
10
12. RECENT ACCOUNTING PRONOUNCEMENTS
Business Combinations -- In July 2001, the FASB issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against these new criteria. SFAS No.
142 requires, among other things, the discontinuance of goodwill amortization.
Under this approach, goodwill and certain intangibles will not be amortized into
results of operations, but instead would be reviewed for impairment and written
down and charged to operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. SFAS No. 142
also requires a transitional goodwill impairment test six months from the date
of adoption of SFAS No. 142. The Company is required to adopt SFAS No. 142 on
October 1, 2002.
The adoption of SFAS No. 142 is expected to result in certain intangible
assets, including amounts capitalized for workforce, to be reclassified to
goodwill. In addition, SFAS No. 142 requires that the Company discontinue the
amortization of goodwill. For the three and nine month periods ended June 30,
2002, goodwill amortization totaled approximately $103 and $310, respectively.
The Company does not expect that the transitional goodwill impairment will have
a significant impact on its financial statements.
Impairments -- In August 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121. The
new statement establishes a single accounting model for long-lived assets to be
disposed of by sale. Under its provisions, which apply to both continuing and
discontinued operations, companies must measure long-lived assets at the lower
of fair value, less cost to sell, or the carrying amount. As a result, amounts
reported as discontinued operations should no longer be reported at net
realizable value or include any losses that have not yet occurred. The Company
is required to adopt SFAS No. 144 on October 1, 2002. The Company is currently
assessing, but has not yet determined, the impact of SFAS No. 144 on the
Company's financial position and results of operations.
Restructuring -- In July 2002, the FASB issued Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (FAS 146), which nullifies
EITF Issue No. 94-3. FAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No 94-3 had recognized the liability at the commitment date to an
exit plan. The Company is required to adopt the provisions of FAS 146 effective
for exit or disposal activities initiated after December 31, 2002.
11
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements including
expectations of market conditions, challenges and plans, within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the Safe Harbor provisions created by that statute. The words "anticipate",
"expect", "believe", "plan" and similar expressions are intended to identify
such statements. Such statements are subject to various risks and uncertainties,
including but not limited to those discussed herein and, in particular, under
the caption "Forward-Looking Statements And Associated Risks" that could cause
actual results to differ materially from those projected.
INTRODUCTION
Our business activity involves the development, manufacture, marketing and
servicing of machine vision equipment for a variety of industries, including the
global semiconductor industry. Demand for products can change significantly from
period to period as a result of numerous factors including, but not limited to,
changes in global economic conditions, supply and demand for semiconductors,
changes in semiconductor manufacturing capacity and processes and competitive
product offerings. Due to these and other factors, our historical results of
operations including the periods described herein may not be indicative of
future operating results.
We continue to implement plans intended to control operating expenses,
inventory levels, and capital expenditures as well as plans to manage accounts
payable and accounts receivable to enhance cash flows. We recognize that
additional financing will also be needed and we are in discussions to raise such
financing. Management believes that through a combination of the credit
facility, customer advance payments, additional debt/equity financing, continued
expense reductions and cash flows from operations, we will have sufficient
liquidity to fund cash requirements for at least the next 12 months. If we are
unsuccessful in obtaining additional financing, we would face a severe
constraint on our ability to sustain operations at current levels, and we would
intend to adjust our operations consistent with our available resources. Such
adjustments might include further work force reductions, exiting of facilities,
or disposition of certain operations.
On May 2, 2002, we completed a private placement, which raised $13.6
million, net of offering expenses. A total of 10.3 million shares of common
stock were sold at $1.46 per share. The placement also included warrants to
purchase up to 2.1 million shares at $1.46 per share on or before June 30, 2002
(the "60-day Warrants"), and warrants to purchase up to 2.6 million shares at
$1.50 per share on or before May 1, 2005 (the "3-year Warrants"). On June 27,
2002, the 60-day Warrants were modified to expire on August 30, 2002. The
private placement also included warrants issued to the placement agent (the
"Placement Warrants") to purchase up to 0.6 million shares of common stock at
$1.50 per share on or before May 1, 2005. We may call the $1.50 warrants,
effectively forcing conversion, if the price of our common stock trades above
$2.35 per share for twenty consecutive trading days at any time prior to the
warrants' expiration.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In Amendment No. 2 to our Quarterly Report on Form 10-Q for the three month
period ended March 31, 2002, our most critical accounting policies and estimates
upon which our financial statements are based were identified as those relating
to revenue recognition, the allowance for doubtful accounts, inventories,
intangible assets, income taxes, warranty obligations, restructuring costs and
contingencies and litigation. We considered the disclosure requirements of
Financial Release 60 ("FR-60") regarding critical accounting policies, and
concluded that nothing materially changed during the three month period ended
June 30, 2002 that would warrant further disclosure under these releases, except
as follows:
Going Concern Assumption -- The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
assets or the amounts or classification of liabilities that might be necessary
should we be unable to continue as a going concern. If the consolidated
financial statements were prepared on liquidation basis, the carrying value of
the assets and liabilities would be adjusted to reflect the liquidation basis of
accounting.
12
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND NINE MONTHS
ENDED JUNE 30, 2001
As of December 15, 2001, we sold our one-dimensional material handling
product line ("material handling business"), which had been part of our Acuity
CiMatrix division, to affiliates of SICK AG of Germany for approximately $11.5
million. This price includes the right to receive $0.5 million following the
expiration of a 16-month escrow to cover indemnification claims. The costs of
this transaction were approximately $0.8 million. For the period from October 1,
2001 through December 15, 2001, the material handling business had revenues of
approximately $2.8 million and had an operating loss of approximately $0.25
million. The material handling business had revenues and operating income of
approximately $16.1 million and $0.2 million, respectively, in fiscal 2001. The
sale of the business will reduce our revenues and operating expenses in future
quarters. The following discussion of results of operations includes the
operations of the material handling business in the prior periods as the basis
of the analysis, unless otherwise noted.
Our bookings and revenues are inevitably tied to the growth of the overall
semiconductor industry and the changes in capital spending by semiconductor
companies. We define bookings during a fiscal period as incoming orders
deliverable to customers in the next eighteen months less cancellations.
For the three month period ended June 30, 2002, bookings were $15.7
million, compared to bookings of $18.4 million for the three months ended March
31, 2002, to $10.0 million for the three month period ended December 31, 2001,
to $15.0 million for the three month period ended September 30, 2001 and to
$13.4 million for the three month period ended June 30, 2001. For the three
month periods ended June 30, 2002, March 31, 2002, December 31, 2001, June 30,
2001 and for the nine month period ended June 30, 2001, bookings associated with
the material handling business were none, none, $1.7 million, $4.0 million and
$13.1 million, respectively. The increase in bookings in the current quarter as
compared to the quarter ended June 30, 2001 was primarily attributable to
increased bookings in the Semiconductor Equipment Group. The decrease in our
bookings during the three month period ended June 30, 2002, versus the three
month period ended March 31, 2002 primarily relates to decreased bookings from
our Acuity CiMatrix division.
For the nine month period ended June 30, 2002, bookings were $44.1 million
compared to $56.9 million for the nine month period ended June 30, 2001. The
decrease in bookings in the nine month period ended June 30, 2002 as compared to
the nine month period ended June 30, 2001 relates to a sharp semiconductor
industry slowdown. At June 30, 2002 and June 30, 2001, backlog was $13.9 million
and $15.5 million, respectively.
For the three month period ended June 30, 2002, revenues were $15.3 million,
compared to revenues of $14.0 million for the three month period ended March 31,
2002, to $15.0 million for the three month period ended December 31, 2001, to
$16.5 million for the three month period ended September 30, 2001 and $21.1
million for the three month period ended June 30, 2001. For the three month
periods ended June 30, 2002, March 31, 2002, December 31, 2001 and June 30, 2001
revenues associated with the material handling business totaled none, none, $2.8
million and $4.7 million, respectively. The decline in revenue in the current
quarter versus the quarter ended June 30, 2001 relates to a continued
semiconductor industry slowdown, as a result of which our customers have
decreased demand for our products. The increase in revenue in the current
quarter versus the quarter ended March 31, 2002, relates to increased revenues
from our Semiconductor Equipment Group, partially offset by decreased revenues
from our Acuity CiMatrix division. For the nine month period ended June 30,
2002, revenues were $44.4 million, compared to $91.3 million for the nine month
period ended June 30, 2001. For the nine month periods ended June 30, 2002 and
2001, revenues associated
13
with the material handling business totaled $2.8 million and $12.5 million,
respectively. The reason for the decline in our revenues in the nine month
period ended June 30, 2002 is the same as in the three month comparison
mentioned above.
In the three and nine month periods ended June 30, 2002, revenues for our
Semiconductor Equipment Group represented 68% and 54%, respectively of total
revenues, compared to 56% and 69%, respectively, of total revenues, in the three
and nine month periods ended June 30, 2001. In the three month period ended June
30, 2002, Semiconductor Equipment Group revenues were $10.5 million, compared to
revenues of $7.3 million for the three month period ended March 31, 2002, to
$6.4 million for the three month period ended December 31, 2001, to $8.7 million
for the three month period ended September 30, 2001 and to $11.9 million for the
three month period ended June 30, 2001. The decrease in our revenues in the
current quarter compared to the quarter ended June 30, 2001 reflects a dramatic
slowdown in demand from the semiconductor industry.
In the Acuity CiMatrix division, revenues were $4.9 million in the three
month period ended June 30, 2002, compared to $6.8 million for the three month
period ended March 31, 2002, to $8.6 million for the three month period ended
December 31, 2001, to $7.8 million for the three month period ended September
30, 2001 and to $9.2 million for the three months ended June 30, 2001. The
decrease in revenues in the current quarter from the quarter ended June 30, 2001
reflects the loss of revenues due to the sale of our material handling business.
Revenues associated with the material handling business for the three and nine
month periods ended June 30, 2001 and the three and nine month period ending
June 30, 2002 were $4.7 million, $12.5 million, none and $2.8 million,
respectively. Excluding the material handling business, revenues for the three
and nine month periods ended June 30, 2002 were $4.9 million and $17.4 million,
respectively, as compared to revenues for the three and nine month periods ended
June 30, 2001 of $4.5 million and $15.7 million, respectively. This increase in
revenues for the three and nine month periods ended June 30, 2002 as compared to
the three and nine month periods ended June 30, 2001, excluding the material
handling business, was due to additional volume of sales of data matrix
products.
Our gross profit margins, as a percentage of revenues, were 32.0% and 33.7%
for the three and nine month periods ended June 30, 2002, compared to gross
profit margins of 25.1% and 23.2% of revenues for the three and nine month
periods ended June 30, 2001. In fiscal 2001, our gross profit margin was reduced
by a provision for excess and obsolete inventories of $0.7 million and $10.9
million, or 3.1% and 12.0% of revenues for the three and nine month periods
ended June 30, 2001. We review and evaluate the excess, obsolescence and net
realizable value of inventories on a quarterly basis. The carrying value of the
inventory is compared to the future realizable value of such products given
sales prices and revenue projections. As a result of these quarterly analyses,
we recorded a $0.7 and $10.9 million inventory provision during the three and
nine month periods ended June 30, 2001, related primarily to excess inventories.
Exclusive of the inventory provisions, gross profit margins were 28.2% and 35.2%
of revenues for the three and nine month periods ended June 30, 2001. The
increase of the gross profit percentage, exclusive of the inventory provisions,
in the current quarter versus the quarter ended June 30, 2001 is a result of
decreased fixed costs of our manufacturing infrastructure over the last year,
along with the impact of lower margin material handling business revenues
included in the June 30, 2001 quarter. The slight decrease in the gross profit
percentage for the nine month period ended June 30, 2002 versus the nine month
period ended June 30, 2001, excluding the inventory provisions, primarily
relates to the lower sales from our Semiconductor Equipment Group compared to
the prior year, partially offset by the cost reductions this year and the impact
of the lower margin material handling business that was included in the prior
year.
Research and development expenses were $4.5 million, or 29.3% of revenues,
in the three month period ended June 30, 2002, compared to $6.3 million, or
29.9% of revenues, in the three month period ended June 30, 2001. Research and
development expenses were $13.8 million, or 31.1% of revenues, in the nine
months ended June 30, 2002, compared to $22.6 million, or 24.8% of revenues in
the nine month period ended June 30, 2001. The decline in spending relates
primarily to our cost cutting efforts during fiscal years 2001 and 2002 and the
sale of the material handling business. Research and development expenses
associated with the material handling business for the three and nine month
periods ended June 30, 2001 and the three and nine month periods ending June 30,
2002 were $0.4 million, $1.5 million, none and $0.4 million, respectively.
The current level of research and development expense reflects spending
associated with our continued efforts to maintain our market position and ensure
we have the appropriate products for our customers when demand returns. In our
Semiconductor Equipment Group, the research and development projects include
work on the new wafer scanning inspection systems and enhanced capabilities for
our lead scanning systems. At Acuity CiMatrix, we continue to invest in
enhancing our two-dimensional barcode reading products and expanding our machine
vision platform, Visionscape. We believe research and development expenses will
be reduced for the remainder of fiscal 2002, a result of the cost reduction
efforts discussed above.
In the three and nine month periods ended June 30, 2002, we capitalized
approximately $0.6 million and $1.5 million, respectively, in software
development costs under Statement of Financial Accounting Standards No. 86,
which compares with $0.6 million and $2.2
14
million of capitalization in the three and nine month periods ended June 30,
2001. The related amortization expense was $0.7 million and $2.2 million for the
three and nine month periods ended June 30, 2002, respectively, and compares
with $0.9 million and $3.4 million for the three and nine month periods ended
June 30, 2001. The amortization costs are included in cost of sales.
Selling, general and administrative expenses were $8.9 million, or 57.9% of
revenues, in the three months ended June 30, 2002, compared to $12.8 million, or
60.6% of revenues, in the three month period ended June 30, 2001. The decrease
in spending is a combination of a lower level of variable selling expenses
associated with the decrease in revenues and cost reductions taken in the
restructurings discussed below. In addition, we incurred less cost in fiscal
2002 due to the sale of the material handling business. Selling, general and
administrative expenses associated with the material handling business for the
three and nine month periods ended June 30, 2001 and the nine month period
ending June 30, 2002 were $0.7 million, $2.2 million and $0.8 million,
respectively. Selling, general and administrative expenses were $27.7 million,
or 62.5% of revenues, in the nine month period ended June 30, 2002, compared to
$41.4 million, or 45.3% of revenues, in the nine month period ended June 30,
2001. The lower aggregate amount of expenses reflects a combination of a lower
level of variable selling expenses associated with the decrease in revenues and
the cost reductions taken throughout fiscal 2001 and fiscal 2002. We believe the
fixed cost component of selling, general and administrative expenses will
decrease based on the cost reductions discussed above, while the variable
component will increase or decrease based upon changes in revenues for the
remainder of fiscal 2002.
During the three and nine month periods ended June 30, 2002, we took
additional steps in order to reduce our costs, including a reduction of
approximately 100 and 160 employees, respectively. The restructuring also
included costs related to the closing of foreign offices, which included the
write-off of tangible assets of $0.3 million. The terminated employees
represented all functions across all operating divisions. The charges for
severance and other charges in the first, second and third quarters of fiscal
2002 were $0.2 million, $0.2 million and $1.2 million, respectively, net of
reversals of $0.3 million of prior charges. The reversal of charges is due to a
change in operating plans, as we changed plans to close a facility, and
severance costs previously accrued for the reduction of employees at that
facility have now been reversed. At September 30, 2001, we had $1.3 million of
remaining restructuring charges to be paid. A summary of these restructuring
costs is as follows:
Q1 & Q2 Q3 NON
FISCAL 2002 FISCAL 2002 CASH CASH LIABILITY AT
LIABILITY AT AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS JUNE 30,
SEPT. 30, 2001 REVERSED ACCRUED ACCRUED INCURRED INCURRED 2002
--------------- -------- ----------- ----------- -------- -------- ----------
Severance payments to employees..... $ 917 $ 256 $ 711 $ 911 -- $ 1,359 $ 924
Exit costs from facilities.......... 360 79 -- 45 -- 147 179
Write-off of other tangible and
intangible assets................. -- -- -- 269 269 -- --
Total..................... ------- ----- ----- ----- ----- ------- ----
$ 1,277 $ 335 $ 711 $1,225 $ 269 $ 1,506 $1,103
======= ===== ===== ====== ===== ======= ======
Also, in the nine month period ended June 30, 2001, we took steps in order
to reduce our costs. These steps primarily included a reduction of approximately
300 employees and a restructuring of European operations. The charge for
severance and other costs of $4.2 million included severance costs of
approximately $2.6 million, exit costs from facilities of $0.9 million and the
write-off of other tangible and intangible assets of $0.7 million.
Net interest expense was $301 in the three month period ended June 30, 2002,
compared to net interest expense of $357 in the three months ended June 30,
2001. The fiscal 2002 and 2001 interest expense relates primarily to the debt
issued in the acquisitions of Abante and AIID. Net interest expense was $898 in
the nine month period ended June 30, 2002, compared to net interest expense of
$545 in the nine month period ended June 30, 2001, for the same reasons
mentioned above.
There was no tax provision in the three and nine month periods ended June
30, 2002 and 2001, due to the operating losses incurred and the valuation
allowances provided on those deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
On May 2, 2002, we completed a private placement, which raised $13.6
million, net of offering expenses. A total of 10.3 million shares of common
stock were sold at $1.46 per share. The placement also included warrants to
purchase up to 2.1 million shares at $1.46 per share on or before June 30, 2002
(the "60-day Warrants"), and warrants to purchase up to 2.6 million shares at
$1.50 per share on or before May 1, 2005 (the "3-year Warrants"). On June 27,
2002, the 60-day Warrants were modified to expire on August 30, 2002. The
private placement also included warrants issued to the placement agent to
purchase up to 0.6 million shares of common stock at $1.50 per share on or
before May 1, 2005 (the "Placement Warrants"). We may call the $1.50 warrants,
effectively forcing conversion, if the price of our common stock trades above
$2.35 per share for twenty consecutive trading days at any time prior to the
15
warrants' expiration. The fair value of the 60-day Warrants, totaling
approximately $0.5 million, the 3-year Warrants, totaling approximately $1.4
million, and the Placement Warrants, totaling approximately $0.3 million, was
credited to additional paid-in capital.
Our cash balance decreased $3.1 million, to $0.5 million, in the nine months
ended June 30, 2002, as a result of $21.5 million of net cash used in operating
activities, $7.4 million of net cash provided by investing activities, including
$10.2 million in net proceeds from the sale of the material handling business,
and $11.1 million of net cash provided by financing activities, including $13.6
million of net proceeds from the private placement.
The $21.5 million of net cash used in operating activities was primarily a
result of the $22.1 million loss incurred during the nine month period ended
June 30, 2002, a $6.9 million gain on sale of the material handling business,
depreciation and amortization of $7.3 million, a $1.9 million decrease in
accounts payable, a $1.1 million decrease in deferred gross profit, a $1.2
million decrease in accrued expenses, partially offset by decreases in accounts
receivable of $1.8 million and inventory of $1.8 million.
Additions to plant and equipment were $1.3 million in the nine months ended
June 30, 2002, as compared to $2.2 million in the nine months ended June 30,
2001. The capitalized software development costs in the nine months ended June
30, 2002 and 2001 were $1.5 million and $2.2 million, respectively.
At June 30, 2002, we had a $10.0 million credit line that expires in April
2003. At June 30, 2002, there were $2.6 million of borrowings on the credit
facility and we had $5.5 million of remaining availability under the line. At
September 30, 2001, the outstanding principal on the credit facility totaled
approximately $2.4 million. Outstanding balances bear interest at a variable
rate as determined periodically by the bank (5.75% at June 30, 2002).
On November 21, 2001, the $1.5 million note payable issued to the former
principals of Abante came due, together with 8% interest thereon from November
29, 2000. On the same date, the first of five annual installments on the Abante
payable also became due, in the amount of $0.50 million. Pursuant to an oral
agreement with the former principals, we paid on November 21, 2001 the interest,
$0.25 million of note principal and approximately $0.11 million of the first
annual installment. The balance of the sums originally due on November 21, 2001
were rescheduled for payment in installments through the first quarter of fiscal
2003. In January 2002, the principals demanded current full payment of these
amounts or collateralization of our future payment obligations. We believe the
oral agreement is enforceable and are continuing to make payments in accordance
with the terms of that agreement, paying the interest, $0.25 million of note
principal and approximately $0.15 million of the first annual installment on
February 21, 2002, and paying approximately $0.24 million of the first annual
installment on May 21, 2002.
On January 3, 2002, a payment of $1.8 million under a note issued to the
former shareholders of Auto Image ID, Inc. ("AIID") came due together with
interest at prime rate. On the due date, we paid the interest and approximately
$0.24 million of note principal to certain of these shareholders. We have
reached an agreement with the other former stockholders to pay the sums
originally due on January 3, 2002 in three equal principal installments in April
2002, August 2002 and December 2002. In accordance with the agreement with the
other former stockholders, the Company paid on April 1, 2002 approximately $0.52
million of the note principal. In exchange for the deferral, we issued warrants
with an exercise price of $1.14 per share. The fair value of these warrants,
totaling approximately $0.14 million, is being charged to operations through
January, 2003.
We have operating lease agreements for equipment, and manufacturing and
office facilities. The minimum noncancelable lease payments under these
agreements are as follows:
TWELVE MONTH PERIOD ENDING JUNE 30: FACILITIES EQUIPMENT TOTAL
- ----------------------------------- ------------ ------------- -------
2003........................................................... $ 2,801 $131 $ 2,932
2004........................................................... 2,331 104 2,435
2005........................................................... 2,036 65 2,101
2006........................................................... 1,674 8 1,682
2007........................................................... 1,618 -- 1,618
Thereafter..................................................... 6,439 -- 6,439
-------- ---- -------
Total..................................................... $ 16,899 $308 $17,207
======== ==== =======
As of June 30, 2002, we had approximately $19.4 million of purchase
commitments with vendors. Approximately $17.4 million was for the Semiconductor
Equipment Group, and included computers, handling equipment, and manufactured
components for the
16
division's lead scanning, wafer scanning, handling and ball attach product
lines. Approximately $2.0 million was for the Acuity CiMatrix Division, and
included computers, PC boards, cameras, and manufactured components for the
division's machine vision and two-dimensional inspection product lines. We
are required to take delivery of these over the next couple of years.
Substantially all deliveries are expected to be taken in the next eighteen
months.
As of June 30, 2002, we had principal maturities of long-term debt payable as
follows:
TWELVE MONTH PERIOD ENDING JUNE 30:
- -----------------------------------
2003....................................................... $ 5,609
2004....................................................... 2,382
2005....................................................... 694
-------
Total................................................. $ 8,685
=======
At June 30, 2002, we were not associated with any special purpose entities
nor did we have any other off balance sheet financing arrangements.
We continue to implement plans intended to control operating expenses,
inventory levels, and capital expenditures as well as plans to manage accounts
payable and accounts receivable to enhance cash flows. We recognize that
additional financing will also be needed and we are in discussions to raise such
financing. The Company believes that through a combination of the credit
facility, customer advance payments, additional debt/equity financing, continued
expense reductions and cash flows from operations, we will have sufficient
liquidity to fund cash requirements for at least the next 12 months. If we are
unsuccessful in obtaining additional financing, we would face a severe
constraint on our ability to sustain operations at current levels, and we would
intend to adjust our operations consistent with our available resources. Such
adjustments might include further work force reductions, exiting of facilities,
or disposition of certain operations.
RECENT ACCOUNTING PRONOUNCEMENTS
Business Combinations -- In July 2001, the FASB issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against these new criteria. SFAS No.
142 requires, among other things, the discontinuance of goodwill amortization.
Under this approach, goodwill and certain intangibles will not be amortized into
results of operations, but instead would be reviewed for impairment and written
down and charged to operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. SFAS No. 142
also requires a transitional goodwill impairment test six months from the date
of adoption of SFAS No. 142. We are required to adopt SFAS No. 142 on October 1,
2002.
The adoption of SFAS No. 142 is expected to result in certain intangible
assets, including amounts capitalized for workforce, to be reclassified to
goodwill. In addition, SFAS No. 142 requires that we discontinue the
amortization of goodwill. For the three month period ended June 30, 2002,
goodwill amortization totaled approximately $0.1 million. We do not expect the
transitional goodwill impairment to have a significant impact on our financial
statements.
Impairments -- In August 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121. The
new statement establishes a single accounting model for long-lived assets to be
disposed of by sale. Under its provisions, which apply to both continuing and
discontinued operations, companies must measure long-lived assets at the lower
of fair value, less cost to sell, or the carrying amount. As a result, amounts
reported as discontinued operations should no longer be reported at net
realizable value or include any losses that have not yet occurred. We are
required to adopt SFAS No. 144 on October 1, 2002. We are currently assessing,
but have not yet determined, the impact of SFAS No. 144 on our financial
position and
17
results of operations.
Restructuring -- In July 2002, the FASB issued Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (FAS 146), which nullifies
EITF Issue No. 94-3. FAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No 94-3 had recognized the liability at the commitment date to an
exit plan. We are required to adopt the provisions of FAS 146 effective for exit
or disposal activities initiated after December 31, 2002.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains forward-looking statements including statements
regarding, among other items, anticipated trends in our business, which are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based largely on our expectations and
are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our control, including the following: any
significant downturn in the highly cyclical semiconductor industry or in our
general economic conditions would likely result in a reduction in demand for our
products and would hurt our business; we will be unable to achieve profitable
operations unless we increase quarterly revenue or make further reductions in
our costs; a loss of or decrease in purchases by one of our significant
customers could materially and adversely affect our revenues and profitability;
economic difficulties encountered by certain of our foreign customers may result
in order cancellations and reduced collections of outstanding accounts
receivable; development of our products requires significant lead time and we
may fail to correctly anticipate the technical needs of our markets; inadequate
cash flows and restrictions in our banking arrangements may impede production
and prevent us from investing sufficient funds in research and development; the
loss of key personnel could have a material adverse effect on our business; the
large number of shares available for future sale could adversely affect the
price of our common stock; the volatility of our stock price could adversely
affect the value of an investment in our common stock, and our common stock may
be delisted from the Nasdaq National Market.
Future events and actual results could differ materially from those set
forth in, contemplated by, or underlying the forward-looking statements.
Statements in this report, including those set forth above, describe factors,
among others, that could contribute to or cause such differences.
This 10-Q should be read in conjunction with detailed risk factors in our
annual report on Form 10-K, and other filings with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that potentially subject us to concentrations of
credit risk consist principally of cash equivalents and trade receivables. We
place our cash equivalents with high-quality financial institutions, limit the
amount of credit exposure to any one institution and have established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. Our trade receivables result primarily from sales to
semiconductor manufacturers located in North America, Japan, the Pacific Rim and
Europe. Receivables are denominated in U.S. dollars, mostly from major
corporations or distributors or are supported by letters of credit. We maintain
reserves for potential credit losses and such losses have been immaterial.
We are exposed to the impact of fluctuation in interest rates, primarily
through our borrowing activities. Our policy has been to use U.S. dollar
denominated borrowings to fund our working capital requirements. The interest
rates on our current borrowings fluctuate with current market rates. A 100 basis
point change in interest rates would not have a material impact on our results
of operations.
We believe that our exposure to currency exchange fluctuation risk is
insignificant because the operations of our international subsidiaries are
immaterial. Sales of our U.S. divisions to foreign customers are primarily U.S.
dollar denominated. During fiscal 2001 and 2002, we did not engage in foreign
currency hedging activities. Based on a hypothetical ten percent adverse
movement in foreign currency exchange rates, the potential losses in future
earnings, fair value of foreign currency sensitive instruments, and cash flows
are immaterial, although the actual effects may differ materially from the
hypothetical analysis.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 2002, a purported shareholder derivative action entitled Mead Ann
Krim v. Pat V. Costa, et al., Civil Action No. 19604-NC, was filed in the Court
of Chancery of the State of Delaware against the members of our Board of
Directors, and against us as a nominal defendant. The complaint seeks damages to
us as a result of the statements at issue in the pending purported securities
class actions. The individual defendants deny the wrongdoing alleged and intend
to vigorously defend the litigation.
There have been no material developments in the legal proceedings we
previously reported on Amendment No. 2 to our Quarterly Report on Form 10-Q
filed July 17, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 2, 2002, we completed a private placement of shares of our common
stock. An aggregate of 10.3 million shares were sold to accredited investors at
a price of $1.46 per share. We also issued warrants to these accredited
investors to purchase up to 2.1 million shares at $1.46 per share on or before
August 30, 2002, and to purchase up to 2.6 million shares at $1.50 per share on
or before May 1, 2005. The placement also included warrants issued to the
placement agent to purchase up to 0.6 million shares of common stock at $1.50
per share on or before May 1, 2005. The net proceeds to us from the sale of the
securities were approximately $13.5 million, after deducting the placement agent
fees and offering expenses. The securities we issued were not registered under
the Securities Act of 1933 because such securities were offered and sold in
transactions not involving a public offering, exempt from registration under the
Securities Act pursuant to Section 4(2) and in compliance with Rule 506
thereunder.
During the nine month period ended June 30, 2002, we issued 18,274 shares of
our common stock to non-employee members of our Board of Directors as
compensation for their attendance at Board and Committee meetings held during
that period. The shares issued to these Board members were not registered under
the Securities Act of 1933, as amended (the "Act"), because the issuances were
exempt from registration under the Security Act pursuant to section 4(2) of the
Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on April 3, 2002.
(b) At that meeting, seven of the current directors were re-elected. The
vote was as follows:
FOR WITHHOLD AUTHORITY
Pat V. Costa............................ 39,086,619 3,432,514
Frank A. DiPietro....................... 41,277,152 1,241,981
Jay M. Haft............................. 41,284,628 1,234,505
Tomas Kohn.............................. 41,290,269 1,228,864
Mark J. Lerner.......................... 41,277,433 1,241,700
Howard Stern............................ 39,167,831 3,351,302
Robert H. Walker........................ 41,126,769 1,392,364
(c) At that meeting, the shareholders voted to amend our certificate of
incorporation to increase the authorized number of shares of common stock, par
value $.01, from 75,000,000 to 100,000,000. The vote was as follows:
For 39,963,249
Against 2,464,209
Abstain 91,675
(d) At that meeting, the shareholders ratified the selection of Deloitte &
Touche LLP as our independent auditors for fiscal 2002. The vote was as follows:
For 41,850,161
Against 533,866
Abstain 135,106
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
Reports on Form 8-K. - We filed a current report on Form 8-K dated May
3, 2002, with the Securities and Exchange Commission. The items reported
on such Form 8-K were Item 5 (Other Events) and Item 7 (Financial
Statement and Exhibits). This Form 8-K stated that we had issued a press
release announcing that we had completed a private placement of our
common stock.
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SIGNATURES
Pursuant to the requirements 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.
ROBOTIC VISION SYSTEMS, INC.
Registrant
Dated: August 14, 2002 /s/ PAT V. COSTA
--------------------
PAT V. COSTA
President and CEO
(Principal Executive Officer)
Dated: August 14, 2002 /s/ JOHN J. CONNOLLY
--------------------
JOHN J. CONNOLLY
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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