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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended December 31, 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 (IRS Employer
incorporation or organization) Identification Number)
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
(Address of principal executive offices)
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 preceeding 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 February 14, 2003 61,168,747
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
DECEMBER 31, SEPTEMBER 30,
2002 2002
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 649 $ 446
Accounts receivable, net 4,016 3,560
Inventories 3,763 4,678
Prepaid expenses and other current assets 1,323 812
Assets of discontinued operations 32,006 38,475
--------- ---------
Total current assets 41,757 47,971
Plant and equipment, net 1,155 1,433
Goodwill 1,554 1,554
Software development costs, net 3,305 3,438
Other assets 2,422 2,493
--------- ---------
$ 50,193 $ 56,889
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Facility $ 8,353 $ 7,132
Notes payable and current portion of long-term debt 2,391 2,364
Accounts payable current 2,911 2,893
Accounts payable past-due 2,190 1,699
Accrued expenses and other current liabilities 5,703 5,408
Deferred gross profit 288 5
Liabilities of discontinued operations 21,347 22,269
--------- ---------
Total current liabilities 43,183 41,770
Long-term debt 2,291 1,882
--------- ---------
Total liabilities 45,474 43,652
Commitments and contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value; shares authorized
100,000 shares, issued and outstanding;
December 31, 2002 - 61,169 and September 30,
2002 - 60,657 612 607
Additional paid-in capital 293,089 292,990
Accumulated deficit (287,351) (278,798)
Accumulated other comprehensive loss (1,631) (1,562)
--------- ---------
Total stockholders' equity 4,719 13,237
--------- ---------
$ 50,193 $ 56,889
========= =========
See notes to consolidated financial statements
2
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED DECEMBER 31,
----------------------
2002 2001
------- -------
Revenues $ 5,054 $ 8,552
Cost of revenues 3,158 4,533
------- -------
Gross profit 1,896 4,019
------- -------
Operating costs and expenses:
Research and development expenses 1,153 1,776
Selling, general and administrative expenses 4,420 5,977
Gain on sale of assets -- (6,935)
Severance and other costs -- 26
------- -------
(Loss) income from operations (3,677) 3,175
Interest expense, net (253) (259)
------- -------
(Loss) income from continuing operations (3,930) 2,916
Loss from discontinued operations (4,604) (6,355)
------- -------
Loss before provision for income taxes (8,534) (3,439)
Provision for income taxes -- --
------- -------
Net loss $(8,534) $(3,439)
======= =======
Per Share:
(Loss) income from continuing operations:
Basic $ (0.06) $ 0.08
Diluted $ (0.06) $ 0.08
Loss from discontinued operations:
Basic $ (0.08) $ (0.17)
Diluted $ (0.08) $ (0.17)
Net loss:
Basic $ (0.14) $ (0.09)
Diluted $ (0.14) $ (0.09)
Weighted Average shares
Basic 60,889 37,779
Diluted 60,889 37,779
See notes to consolidated financial statements.
3
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS
ENDED DECEMBER 31,
--------------------
2002 2001
------- -------
OPERATING ACTIVITIES:
Net (Loss) income $(3,930) $ 2,916
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 705 869
Issuance of shares in lieu of cash 21 --
Bad debt provision 268 110
Warranty provision -- 40
Gain on sale of assets -- (6,935)
Changes in operating assets and liabilities (net of effects of business
acquired and assets sold)
Accounts receivable (724) (330)
Inventories 915 1,554
Prepaid expenses and other current assets (511) 64
Other assets (45) 41
Accounts payable current 17 472
Accounts payable past-due 491 (1,428)
Accrued expenses and other current liabilities 290 (133)
Deferred gross profit 283 9
------- -------
Net cash used in continuing operating activities (2,220) (2,751)
Net cash provided by (used in) operating activities of discontinued
operations 943 (5,490)
------- -------
Net cash used in operating activities (1,277) (8,241)
INVESTING ACTIVITIES:
Additions to plant and equipment, net (12) (76)
Additions to software development costs (167) (134)
Proceeds from sale of assets -- 10,189
------- -------
Net cash (used in) provided by investing activities (179) 9,979
------- -------
FINANCING ACTIVITIES:
Issuance of convertible note 500 --
Net proceeds from (payments of) revolving credit facility 1,221 --
Repayment of long-term borrowings -- (2,385)
------- -------
Net cash provided by (used) in financing activities 1,721 (2,385)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (62) (7)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 203 (654)
CASH AND CASH EQUIVALENTS:
Beginning of period 446 3,887
======= =======
End of period $ 649 $ 3,233
======= =======
Supplemental Cash Flow Information:
Interest paid $ 119 $ 153
======= =======
Taxes paid $ -- $ 44
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Cashless exercise of prepaid warrants for 4,586 shares of common stock $ -- $ 2,148
======= =======
881 shares of common stock issued in payment of accrued warrant premium $ -- $ 606
======= =======
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. BUSINESS OVERVIEW AND GOING CONCERN CONSIDERATIONS
The consolidated balance sheet of Robotic Vision Systems, Inc. and its
subsidiaries (the "Company") as of December 31, 2002, the consolidated
statements of operations for the three month periods ended December 31, 2002 and
2001 and the consolidated statements of cash flows for the three month periods
ended December 31, 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,
results of operations and cash flows at December 31, 2002 and 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
annual report on Form 10-K for the year ended September 30, 2002. The operating
results for the three months ended December 31, 2002 are not necessarily
indicative of the operating results for the full year.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, because of continuing
negative cash flow, limited credit facilities, and the uncertainty of the sale
of the Company's Semiconductor Equipment Group ("SEG"), there is no certainty
that the Company will have the financial resources to continue in business. The
Company has incurred operating losses for fiscal 2002 and 2001 amounting to
$40,539 and $83,226, respectively, and negative cash flows from operations for
fiscal 2002, 2001 and 2000 amounting to $25,905, $12,584 and $21,222,
respectively. In addition, the Company is not in compliance with certain
covenants of its revolving credit facility, which expires in April 2003.
Further, the Company has debt payments due, which relate to acquisitions the
Company has made. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
The Company is executing a plan to address its financial needs. The Company
recognizes that it cannot continue to sustain the losses of both its SEG and
Acuity CiMatrix Division. Accordingly, while the Company had not adopted a
formal plan as of September 30, 2002 to dispose of SEG, on September 17, 2002
the Company announced that it was exploring the sale of SEG. During November
2002, the Company adopted a formal plan to sell SEG. Accordingly, the
Consolidated Statements of Operations have been reclassified to present the
results of SEG separately from continuing operations. Furthermore, the assets
and liabilities of SEG are classified separately under discontinued operations
on the Consolidated Balance Sheets (see Note 9). Also, the Consolidated
Statements of Cash Flows classify separately the cash usage from discontinued
operations. The Company no longer will present segment information, as the
continuing Acuity CiMatrix business is its only segment.
As of February 2003, the Company is in advanced discussions with one party
interested in acquiring the SEG business, and it continues more preliminary
exchanges with other possible acquirers. The sale of SEG, if completed, is
expected to result in sufficient proceeds to pay down the Company's debt, reduce
accounts payable, and provide working capital for the Company's remaining
businesses; however, no assurance can be given that the ultimate sale of SEG
will be at a price, or on sufficient terms, to allow for such a result. Upon
such sale, the assets supporting the Company's current revolving credit
agreement will be substantially reduced and it cannot be assured of having this
credit agreement remain in place. Moreover, the continuation of the Company's
current line of credit is conditioned upon obtaining waivers for the events of
noncompliance of that facility. Thus, the Company's financial planning must
include a replacement of its current revolving credit agreement, additional
equity financing or generation of sufficient working capital to operate without
a credit facility.
Because the proceeds of the prospective sale are uncertain, and because
there will inevitably be a delay between the reaching of a definitive agreement
and the completion of a sale of the division, the Company also recognizes that
it will likely require a supplemental infusion of capital. This capital infusion
may be required either for some short-term period prior to the completion of a
sale of the division, or for long-term self-sufficiency of working capital. To
that end, on December 4, 2002, Pat V. Costa, the Company's Chairman, President
and CEO, loaned the Company $500 and the Company issued a 9% Convertible Senior
Note. The Company's plan also calls for continued actions to control operating
expenses, inventory levels, and capital expenses, as well as to
5
manage accounts payable and accounts receivable to enhance cash flow.
If the Company does not succeed in selling SEG, it will have insufficient
working capital to continue in business. Even if the Company were to complete
such a sale, there can be no assurance that the proceeds of a sale will be
sufficient to finance the Company's remaining businesses. In that event, the
Company would be forced either to seek additional financing or to sell some or
all of the remaining product lines of Acuity CiMatrix.
2. INVENTORIES
Inventories consisted of the following:
DECEMBER 31, 2002 SEPTEMBER 30, 2002
----------------- ------------------
Raw Materials $1,831 $2,214
Work-in-Process 741 927
Finished Goods 1,191 1,537
------ ------
Total $3,763 $4,678
====== ======
Inventory on consignment was $35 and $84 at December 31, 2002 and September
30, 2002, respectively.
3. EARNINGS PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during each period. Diluted net income (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 months ended December 31, 2002 and 2001 are as follows:
2002 2001
------- -------
BASIC EARNINGS PER SHARE
(Loss) income from continuing operations $(3,930) $ 2,916
Premium on warrants (2) (143)
Common stock dividend (18) --
------- -------
(Loss) income from continuing operations - basic numerator (3,950) 2,773
Loss from discontinued operations - basic numerator (4,604) (6,355)
------- -------
Net loss - basic numerator $(8,554) $(3,582)
Weighted average number of common shares - basic denominator 60,889 37,779
------- -------
Per Share:
(Loss) income from continuing operations - basic $ (0.06) $ (0.08)
======= =======
Loss from discontinued operations - basic $ (0.08) $ (0.17)
======= =======
Net loss - basic $ (0.14) $ (0.09)
======= =======
DILUTED EARNINGS PER SHARE
(Loss) income from continuing operations - basic numerator $(3,950) $ 2,773
Effect of conversion of prepaid warrants -- --
------- -------
(Loss) income from continuing operations - diluted numerator (3,950) 2,773
Loss from discontinued operations - diluted numerator (4,604) (6,355)
------- -------
Net loss - diluted numerator $(8,554) $(3,582)
Weighted average number of common shares - basic denominator 60,889 37,779
Effect of conversion of prepaid warrants -- --
Effect of other dilutive common stock options and warrants -- --
------- -------
Weighted average number of common and common equivalent shares - diluted denominator 60,889 37,779
------- -------
Per Share:
Income (loss) from continuing operations - diluted $ (0.06) $ (0.08)
======= =======
Loss from discontinued operations - diluted $ (0.08) $ (0.17)
======= =======
Net loss - diluted $ (0.14) $ (0.09)
======= =======
For the three months ended December 31, 2002 and 2001, potential common shares
were anti-dilutive due to the loss for the period. For the three months ended
December 31, 2002 and 2001, the Company had potential common shares excluded
from the earnings per share calculations of 7,131 and 8,397, respectively.
4. COMPREHENSIVE INCOME (LOSS)
In addition to net income or loss, the only item that the Company currently
records as other comprehensive income or loss is the
6
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. For the three months ended
December 31, 2002 and 2001, total comprehensive loss of $(8,603) and $(3,432),
respectively, included net loss of $(8,534) and $(3,439), respectively, and
foreign currency translation adjustments of $(69) and $7, respectively.
5. 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. This
agreement allows for borrowings of up to 90% of eligible foreign receivables up
to $10,000 of availability provided under the Export-Import Bank of the United
States guarantee of certain foreign receivables and inventories, less the
aggregate amount of drawings under letters of credit and any bank reserves. At
December 31, 2002, the amount available under the line was $8,856 against which
the Company had $8,353 of borrowings, resulting in availability at December 31,
2002 of $503, subject to the terms of the credit facility. Outstanding balances
bear interest at a variable rate as determined periodically by the bank (5.25%
at December 31, 2002). At December 31, 2002, the Company was not in compliance
with certain covenants of the credit agreement, and therefore in technical
default, however, the bank continues to make funds available for borrowings.
There can be no certainty that the bank will continue to make funds available
and the bank may immediately call for repayment of outstanding borrowings.
NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at December 31, 2002 and September 30,
2002 consisted of the following:
DEC 31 SEPT 30
2002 2002
------- -------
AIID notes payable -- prime rate (4.25% at December 31,
2002 and 4.75% at September 30, 2002), payable in annual
installments of $1,855 through January 2004 4,219 4,219
9% Convertible Senior Note - due December 4, 2005 436 --
Other borrowings 27 27
------- -------
Total notes payable and long-term debt 4,682 4,219
Less notes payable and current portion of long-term debt (2,391) (2,364)
------- -------
Long-term debt $ 2,291 $ 1,882
======= =======
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 reached an
agreement with the other former shareholders to pay the sums originally due on
January 3, 2002 in three approximately equal principal installments in April
2002, August 2002 and December 2002. In exchange for the deferral, the Company
issued warrants with an exercise price of $1.14 per share. The fair value of
these warrants (determined using Black-Scholes pricing model), totaling
approximately $137, is being charged to operations through January 2003. In
accordance with the agreement with the other former stockholders, the Company
made note principal and interest payments on April 1, 2002 of approximately $516
and $31, respectively, and note principal and interest payments on August 1,
2002 of $536 and $29, respectively. The Company did not make the December 2002
and January 2003 installment payments due of $535 and $1,855, respectively, and
is therefore in default. Four of the former shareholders have filed a lawsuit
against the Company seeking payment of all amounts currently past due. There is
no provision in the AIID promissory notes giving rights of acceleration of the
future installments due in the event of default under the arrangement. As a
result, the Company has classified the payments due during fiscal 2004 in the
amount of $1,855 as long-term debt in the accompanying consolidated financial
statements.
In total, therefore, the Company is in default of $12,189 of its borrowings
as of February 19, 2003.
7
Principal maturities of notes payable and long-term debt as of December 31,
2002 are as follows:
2003 $2,391
2004 1,855
2005 436
2006 --
------
Total $4,682
======
On December 4, 2002, Pat V. Costa (the "Holder"), loaned the Company $500
and the Company issued a 9% Convertible Senior Note in the amount of $500. Under
the terms of this note, the Company is required to make semiannual interest
payments in cash on May 15 and November 15 of each year commencing May 2003, and
pay the principal amount on December 4, 2005. This note allows the Holder to
require earlier redemption by the Company in certain circumstances including the
sale of a division at a purchase price at least equal to the amounts then due
under this note. Thus, the Holder may require redemption at the time of the sale
of SEG. This note also allows for conversion into shares of common stock. The
note may be converted at any time by the Holder until the note is paid in full
or by the Company if at any time following the closing date, the closing price
of the Company's Common Stock is greater, for 30 consecutive trading days, than
200% of the conversion. The Holder's conversion price is equal to 125% of the
average closing price of our common stock for the thirty consecutive trading
days ending December 3, 2002, or $0.42 per share. This convertible debt
contained a beneficial conversion feature, and as the debt is immediately
convertible, the Company recorded a dividend in the amount of approximately $18
on December 4, 2002.
In connection with the 9% Convertible Senior Note, on December 4, 2002, the
Company issued warrants to Pat V. Costa. Under the terms of the warrants, the
Holder is entitled to purchase from the Company shares equal to 25% of the total
number of shares of Common Stock into which the Convertible Senior Note may be
converted or approximately 300,000 shares. The warrants have an exercise price
of $0.63. The Company recorded the fair value of these warrants of
approximately $65 as a discount to the debt using the Black-Scholes valuation
model with the following assumptions: volatility of 107% and risk-free interest
rate of 2.49%. This discount is being amortized over the period from December
4, 2002 to December 4, 2005.
On December 4, 2002, as a condition to making the loan mentioned above and
in order to secure the prompt and complete payment, the Company entered into a
Security Agreement with Pat V. Costa, in connection with the 9% Convertible
Senior Note. Under the terms of this agreement, the Company granted Mr. Costa a
security interest in certain of the Company's assets.
6. RESTRUCTURING
No restructuring or other charges were recorded in the quarter ended
December 31, 2002. A summary of the 2002 remaining restructuring costs is as
follows:
LIABILITY AT CASH LIABILITY AT
SEPTEMBER 30, AMOUNTS DECEMBER 31,
2002 INCURRED 2002
------------- -------- ------------
RESTRUCTURING
Severance payments to employees $ 48 $ 48 $--
Exit costs from facilities 77 77 --
---- ---- ---
Total restructuring $125 $125 $--
---- ---- ---
During the quarter ended December 31, 2001, approximately $169 of employee
severance was recorded. Headcount reductions were made in the discontinued
operation and the Acuity CiMatrix division. Approximately 30 employees were
terminated throughout all functions of these operations.
7. WARRANTY COSTS
We estimate the cost of product warranties at the time revenue is
recognized. While we engage in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of our component
suppliers, our warranty obligation is affected by product failure rates,
material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service delivery
costs differ from our estimates, revisions to the estimated warranty liability
may be required. We recorded warranty provisions totaling $50 and $20 during
the three month periods ended December 31, 2002 and December 31, 2001,
respectively. A summary of accrued warranty costs at December 31, 2002 is as
follows:
LIABILITY AT CHARGED TO LIABILITY AT
SEPTEMBER 30, COSTS AND AMOUNTS DECEMBER 31,
2002 EXPENSES WRITTEN-OFF 2002
- ------------- ---------- ----------- -------------
$120 $50 $50 $120
8
8. 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
("SICK"). 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 recorded a net gain of
$6,935 in the first quarter of fiscal 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.
9. DISCONTINUED OPERATIONS
During November 2002, the Company adopted a formal plan to sell its
Semiconductor Equipment Group ("SEG"). Accordingly, the Company has reported SEG
as a discontinued operation under the provisions of Statement of Financial
Accounting Standards SFAS No. 144 'Accounting for the Impairment or Disposal of
Long Lived Assets'. The Consolidated Financial Statements have been reclassified
to segregate the net assets and operating results of this discontinued operation
for all periods presented.
Summary operating results of the discontinued operation for the three months
ended December 31, 2002 and 2001 were as follows:
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Revenues $ 5,334 $ 6,413
Operating loss (4,604) (6,260)
Loss from discontinued operations (4,604) (6,355)
The operating losses in the three months ended December 31, 2002 and 2001
include depreciation and amortization of intangibles of $1,080 and $1,568,
respectively.
Assets and liabilities of the discontinued operation related to the
Company's SEG business identified for sale are as follows:
DECEMBER 31, 2002 SEPTEMBER 30, 2002
----------------- ------------------
Accounts receivables, net $ 5,823 $10,014
Inventory, net 16,591 18,089
Other current assets 342 255
Property, plant and equipment, net 4,051 4,300
Other assets, including intangible assets 5,199 5,816
------- -------
Assets of discontinued operations $32,006 $38,475
------- -------
Accounts payable $ 6,236 $ 6,453
Accrued expenses and other current liabilities 11,776 12,203
Short-term debt 2,582 2,417
Long-term debt 754 1,194
------- -------
Liabilities of discontinued operations $21,348 $22,267
------- -------
Net assets of discontinued operations $10,658 $16,208
------- -------
The above table includes net assets identified as those pertaining to the
SEG business, however, the Company is not certain at this time that all of these
net assets will be included in an ultimate sale.
In November 2002, certain SEG senior management and technical employees
were granted retention agreements. These agreements allow for employees to
receive cash and stock benefits for remaining with the Company and continuing
through the sale of SEG. The current cash value of the award is approximately
$1,250. The Company is accruing these agreements over the expected
9
service period, which has been based upon the estimated timing of the sale of
SEG. The Company accrued approximately $200 as of December 31, 2002.
On November 21, 2001, the $1,500 note payable issued to the former
principals of Abante Automation Inc. ("Abante") came due, together with 8%
interest thereon from November 29, 2000. In connection with the acquisition of
Abante, the Company agreed to make post-closing installment payments to the
selling shareholders of Abante. These non-interest bearing payments were payable
in annual installments of not less than $500 through November 2005. On November
21, 2001, 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 of Abante, 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 did
not agree to the request for collateralization but continued to make certain
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. The Company did not make either the November 2002 note
principal payment of $1,000 or a significant portion of the November 2002 annual
installment payment of $500, and is therefore in default. Although the Company
has failed to make the installment payment, there is no provision in the
agreements that would require the acceleration of future payments due under this
arrangement. As a result, the Company has classified the payments due during
fiscal 2005 and 2006 in the amount of $754 as long-term debt in the accompanying
financial disclosure for discontinued operations.
10. SUBSEQUENT EVENT
On January 29, 2003, the Company announced consolidation of the
manufacturing, operations and service functions of the Semiconductor Equipment
Group into its Hauppauge, NY facility. The announcement simultaneously disclosed
the closure of facilities in New Berlin, WI and Tucson, AZ. The Company
estimates severance costs of approximately $300 related to the elimination of
approximately 50 employees. The Company also has net assets for the two
operations of approximately $7,700 and plans to transfer or dispose of those
assets within the next 60 days. The Company expects to record a loss on the
write-down of intangible and tangible assets, and will account for those costs
in the Company's fiscal quarter ending March 31, 2003.
11. RECENT ACCOUNTING PRONOUNCEMENTS
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.
Guarantees -- In November 2002, the FASB issued Interpretation No. 45
("FIN 45"), Guarantor's Accounting And Disclosure Requirements For Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 addresses the
disclosure requirements of a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 also requires a guarantor to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN 45 are effective for the Company
in its quarter ended December 31, 2002. The liability recognition requirements
will be applicable prospectively to all guarantees issued or modified after
December 31, 2002. Accordingly, the Company is currently determining what impact
these provisions will have on its financial statements.
10
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 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.
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 sale of the business reduced our revenues and operating expenses in
future quarters.
The accompanying financial statements have been prepared assuming we will
continue as a going concern. However, because of continuing negative cash flow,
limited credit facilities, and the uncertainty of the sale of the Semiconductor
Equipment Group ("SEG"), there is no certainty that we will have the financial
resources to continue in business. We have incurred operating losses for fiscal
2002 and 2001 amounting to $40.5 million and $83.2 million, respectively, and
negative cash flows from operations for fiscal 2002, 2001 and 2000 amounting to
$25.9 million, $12.6 million and $21.2 million, respectively. In addition, we
are not in compliance with certain covenants of our revolving credit facility,
which expires in April 2003. Further, we have debt payments due, which relate to
acquisitions we have made. These conditions raise substantial doubt about our
ability to continue as a going concern.
We are executing a plan to address our financial needs. We recognize that
we cannot continue to sustain the losses of both SEG and our Acuity CiMatrix
Division. Accordingly, while we had not adopted a formal plan as of September
30, 2002 to dispose of SEG, on September 17, 2002 we announced that we were
exploring the sale of SEG. During November 2002, we adopted a formal plan to
sell SEG. Accordingly, the Consolidated Statements of Operations have been
reclassified to present the results of SEG separately from continuing
operations. Furthermore, the assets and liabilities of SEG are classified
separately under discontinued operations on the Consolidated Balance Sheets (see
Note 9). Also, the Consolidated Statements of Cash Flows classify separately the
cash usage from discontinued operations. We no longer will present segment
information, as the continuing Acuity CiMatrix business is our only segment.
As of February 2003, we are in advanced discussions with one party
interested in acquiring SEG, and we continue more preliminary exchanges with
other possible acquirers. The sale of SEG, if completed, is expected to result
in sufficient proceeds to pay down our debt, reduce accounts payable, and
provide working capital for our remaining businesses; however, no assurance can
be given that the ultimate sale of SEG will be at a price, or on sufficient
terms to allow for such a result. Upon such sale, the assets supporting our
current revolving credit agreement will be substantially reduced and we cannot
be assured of having this credit agreement remain in place. Moreover, the
continuation of our current line of credit is conditioned upon obtaining waivers
for the events of noncompliance of that facility. Thus, our financial planning
must include a replacement of our current revolving credit agreement, additional
equity financing or generation of sufficient working capital to operate without
a credit facility.
Because the proceeds of the prospective sale are uncertain, and because
there will inevitably be a delay between the reaching of a definitive agreement
and the completion of a sale of SEG, we also recognize that we will likely
require a supplemental infusion of capital. This capital infusion may be
required either for some short-term period prior to the completion of a sale of
the division, or for long-term self-sufficiency of working capital. To that end,
on December 4, 2002, Pat V. Costa, our Chairman, President and CEO, loaned us
$0.5 million and we issued a 9% Convertible Senior Note. Our plans also call for
continued actions to control operating expenses, inventory levels, and capital
expenses, as well as to manage accounts payable and accounts receivable to
enhance cash flow.
If we do not succeed in selling SEG, we will have insufficient working
capital to continue in business. While we believe that we will complete such a
sale, there can be no assurance that the proceeds of a sale will be sufficient
to finance our remaining businesses. In that event, we would be forced either to
seek additional financing or to sell some or all of the remaining product lines
of Acuity CiMatrix.
11
Results of Operations
As part of our discussion of results of operations, we have excluded the
results of SEG, as the discontinued operation, for both quarters ended December
31, 2002 and 2001.
For the three months ended December 31, 2002, bookings were $4.3 million
and revenues were $5.1 million. This compares to bookings of $6.3 million and
revenues of $8.6 million for the three months ended December 31, 2001. The
bookings and revenues in the three months ended December 31, 2001, included $1.7
million and $2.8 million, respectively, associated with our material handling
business. Excluding the material handling business, bookings were $5.8 million
and revenues were $4.6 million, respectively. The decline in our bookings and
revenues in the current quarter is a reflection of a general industry slowdown,
as a result of which our customers have decreased demand for our products.
The gross profit margin was negatively affected by the decline in revenues.
The gross margin was 37.5% of revenues in the three months ended December 31,
2002 compared to 47.0% of revenues in the three months ended December 31, 2001.
Excluding the effects of the material handling business, margins were 54.4% of
revenues in the three months ended December 31, 2001. The lower gross profit
margin primarily reflects the impact of the fixed costs as a percentage of the
lower level of sales, as well as the impact of $0.4 million of inventory
provisions recorded in the three months ended December 31, 2002.
Research and development expenses were $1.2 million, or 23% of revenues, in
the three months ended December 31, 2002, compared to $1.8 million, or 21% of
revenues, in the three months ended December 31, 2001. Excluding the effects of
the material handling business, research and development expenses were $1.4
million or 24% of revenues. The lower level of expenses reflects a lower level
of fixed costs, based on the many cost reductions taken in fiscal 2002. In
fiscal 2003, we intend to continue to invest in enhancing our two-dimensional
barcode reading products.
In the three months ended December 31, 2002, we capitalized approximately
$0.2 million in software development costs under Statement of Financial
Accounting Standards No. 86 as compared with $0.1 million in the three months
ended December 31, 2001. The related amortization expense was $0.3 million and
$0.3 million for the three months ended December 31, 2002 and 2001,
respectively, and is included in cost of sales.
Selling, general and administrative expenses were $4.4 million, or 86% of
revenues, in the three months ended December 31, 2002, compared to $6.0 million,
or 70% of revenues, in the three months ended December 31, 2001. Excluding the
effects of the material handling business, selling, general and administrative
expenses in the three months ended December 31, 2001 were $5.2 million, or 91%
of revenues. The lower level of expenses reflects a combination of lower levels
of variable selling expenses associated with the decrease in revenues and the
lower level of fixed costs, based on the many cost reductions taken in fiscal
2002.
No restructuring or other charges were recorded in the quarter ended
December 31, 2002. A summary of the 2002 remaining restructuring costs is as
follows:
LIABILITY AT CASH LIABILITY AT
SEPTEMBER 30, AMOUNTS DECEMBER 31,
2002 INCURRED 2002
------------- -------- ------------
RESTRUCTURING
Severance payments to
employees $ 48 $ 48 $--
Exit costs from facilities 77 77 --
---- ---- ---
Total restructuring $125 $125 $--
---- ---- ---
During the quarter ended December 31, 2001, approximately $0.2 million of
employee severance was recorded. Headcount reductions were made in the
discontinued operation and the Acuity CiMatrix division. Approximately 30
employees were terminated throughout all functions of these operations.
Net interest expense was $0.3 million the three months ended December 31,
2002 and December 31, 2001. The similar fiscal 2003 and 2002 interest expense
relates primarily to the acquisition debt and bank borrowings.
There was no tax provision in the three months ended December 31, 2002 and
2001, due to the losses incurred and full valuation allowance provided against
net operating loss carryforwards.
12
Discontinued operations
For the three months ended December 31, 2002, revenues from discontinued
operations were $5.3 million compared to $6.4 million for the three months ended
December 31, 2001. The decline in revenues related to demand for the products
and the uncertainty surrounding the potential sale of SEG.
For the three months ended December 31, 2002, the loss from discontinued
operations was $4.6 million compared to $6.3 million for the three months ended
December 31, 2001. The improvements in operating losses can be attributed to the
cost reductions implemented in fiscal 2002.
As of December 31, 2002, SEG had future lease commitments for facilities
and equipment of $14.3 million. We are not certain at this time that all of
these lease commitments will be included in an ultimate sale.
As of December 31, 2002, SEG had purchase commitments with vendors of
approximately $16.2 million, which included computers, handling equipment, and
manufactured components for the lead scanning, wafer scanning, substrate
scanning, handling and ball attach product lines. We are not certain at this
time that all of these purchase commitments will be included in an ultimate
sale.
We have a contingent liability totaling approximately $1.3 million, payable
in cash, to certain SEG senior management and technical employees who were
granted retention agreements. We are accruing these agreements over the
expected service period, which has been based upon the estimated timing of the
SEG sale. We accrued approximately $0.2 million as of December 31, 2002.
Liquidity And Capital Resources
On December 4, 2002, Pat V. Costa (the "Holder"), loaned us $0.5 million
and we issued a 9% Convertible Senior Note in the amount of $0.5 million. Under
the terms of this note, we are required to make semiannual interest payments in
cash on May 15 and November 15 of each year commencing May 2003, and pay the
principal amount on December 4, 2005. This note allows the Holder to require
earlier redemption by us in certain circumstances including the sale of a
division at a purchase price at least equal to the amounts then due under this
note. Thus, the Holder may require redemption at the time of the sale of SEG.
This note also allows for conversion into shares of common stock. The note may
be converted at any time by the Holder until the note is paid in full or by us
if at any time following the closing date, the closing price of our Common Stock
is greater, for 30 consecutive trading days, than 200% of the conversion price.
The Holder's conversion price is equal to 125% of the average closing price of
our common stock for the thirty consecutive trading days ending on December 3,
2002, or $0.42 per share. This convertible debt contained a beneficial
conversion feature, and as the debt is immediately convertible, we recorded a
dividend in the amount of approximately $18 on December 4, 2002.
In connection with the 9% Convertible Senior Note, on December 4, 2002, we
issued warrants to Pat V. Costa. Under the terms of the warrants, the Holder is
entitled to purchase shares equal to 25% of the total number of shares of common
stock into which the Convertible Senior Note may be converted, or approximately
300,000 shares. The warrants have an exercise price of $0.63. We recorded the
fair value of these warrants of approximately $65 as a discount to the debt
using the Black-Scholes valuation model with the following assumptions:
volatility of 107% and risk-free interest rate of 2.49%. This discount is being
amortized over the period from December 4, 2002 to December 4, 2005.
On December 4, 2002, as a condition to making the loan mentioned above and
in order to secure the prompt and complete payment, we entered into a Security
Agreement with Pat V. Costa, in connection with the 9% Convertible Senior Note.
Under the terms of this agreement, we granted Mr. Costa a security interest in
certain of our assets.
Our cash balance increased $0.3 million, to $0.7 million, in the quarter
ended December 31, 2002, as a result of $1.3 million of net cash used in
operating activities, $0.2 million of net cash used by investing activities, and
$1.8 million of net cash provided by financing activities.
The $1.3 million of net cash used in operating activities was primarily a
result of the $3.9 million loss in the quarter ended December 31, 2002, an
increase in accounts receivable of $0.7 million and an increase in prepaid
expenses and other current assets of $0.5 million, offset in part by net cash
provided by discontinued operations of $0.9 million, depreciation and
amortization of $0.7 million and a decrease in inventory of $0.9 million.
Additions to plant and equipment were minimal in the quarter ended December
31, 2002, as compared to $0.1 million in fiscal 2001. The capitalized software
development costs for fiscal 2002 were $0.2 million as compared with $0.1
million in fiscal 2001.
We have a $10.0 million credit facility that expires in April 2003. This
agreement allows for borrowings of up to 90% of eligible foreign receivables up
to $10 million of availability provided under the Export-Import Bank of the
United States guarantee of certain foreign receivables and inventories, less the
aggregate amount of drawings under letters of credit and bank reserves. At
December 31, 2002, the amount available under the line was $8.9 million, against
which we had $8.4 million of borrowings, resulting in an availability at
December 31, 2002 of $0.5 million, subject to the terms of the credit facility.
Outstanding balances bear interest at a variable rate as determined periodically
by the bank (5.25 % at December 31, 2002). At December 31, 2002, we were not in
compliance with certain covenants of the credit agreement, and therefore in
technical default on the facility, however, the bank continues to make funds
available for borrowings. There can be no certainty that the bank will continue
to make funds available and the bank may immediately call for repayment of
outstanding borrowings.
13
On January 3, 2002, a payment of $1.85 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 reached an
agreement with the other former stockholders to pay the sums originally due on
January 3, 2002 in three approximately equal principal installments in April
2002, August 2002 and December 2002. 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 $0.1 million, (determined using Black-Scholes
pricing model), is being charged to operations through January 2003. In
accordance with the agreement with the other former stockholders, we made note
principal and interest payments on April 1, 2002 of approximately $0.52 million
and $31 thousand, respectively, and note principal and interest payments on
August 1, 2002 of approximately $0.54 million and $29 thousand, respectively. We
did not make the December 2002 and January 2003 installment payments due of
$0.50 million and $1.85 million, respectively, and are therefore in default.
Four of the former shareholders have filed a lawsuit against us seeking payment
of all amounts currently past due. There is no provision in the AIID promissory
notes giving rights of acceleration of the future installments due in the event
of default under the arrangement. As a result, we have classified the payments
due during fiscal 2004 in the amount of $1.8 million as long-term debt in the
accompanying consolidated financial statements.
In total, therefore, we are in default of $12.2 million of our borrowings
as of February 19, 2003.
Our consolidated financial statements have been prepared assuming that we
will continue as a going concern. However, because of continuing negative cash
flow, limited credit facilities, and the uncertainty of the sale of SEG, there
is no certainty that we will have the financial resources to continue in
business. We have incurred operating losses in fiscal 2002 amounting to $41.8
million, and $104.4 million in fiscal 2001. Net cash used in operating
activities amounted to $25.9 million, $12.6 million and $21.2 million in fiscal
2002, 2001 and 2000, respectively. In addition, we are not in compliance with
certain covenants of our revolving credit facility, which expires in April 2003.
Further, we have debt payments past due, which relate to prior years'
acquisitions. These conditions raise substantial doubt about our ability to
continue as a going concern.
We are executing a plan to address our financial needs. We recognize that
we cannot continue to sustain the losses of both SEG and our Acuity CiMatrix
Division. Accordingly, while we had not adopted a formal plan as of September
30, 2002 to dispose of SEG, on September 17, 2002 we announced that we were
exploring the sale of SEG. During November 2002, we adopted a formal plan to
sell SEG. Accordingly, the Consolidated Statements of Operations have been
reclassified to present the results of SEG separately from continuing
operations. Furthermore, the assets and liabilities of SEG are classified
separately on the Consolidated Balance Sheets (see Note 8). Also, the
Consolidated Statements of Cash Flows separately classify the cash usage from
discontinued operations. We no longer will present segment information, as the
continuing Acuity CiMatrix business is our only segment.
Also, we continue to implement plans to control operating expenses,
inventory levels, and capital expenditures as well as plans to manage accounts
payable and accounts receivable to enhance cash flows. As of February 2003, we
are in advanced discussions with one party interested in acquiring SEG, and we
continue more preliminary exchanges with other possible acquirers. The sale of
SEG, if completed, is expected to result in sufficient proceeds to pay down our
debt, reduce accounts payable, and provide working capital for our remaining
businesses. Upon such sale, the assets supporting our current revolving credit
agreement will be substantially reduced and we cannot be assured of having this
credit agreement remain in place. Moreover, the continuation of our current line
of credit is conditioned upon obtaining waivers for the events of noncompliance
of that facility. Thus, our financial planning must include a replacement of our
current revolving credit agreement, additional equity financing or generation of
sufficient working capital to operate without a credit facility.
If we do not succeed in selling SEG, we will have insufficient working
capital to continue in business. While we believe that we will complete such a
sale, there can be no assurance that the proceeds of a sale will be sufficient
to finance our remaining businesses. In that event, we would be forced either to
seek additional financing or to sell some or all of the remaining product lines
of Acuity CiMatrix.
14
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 DECEMBER 31: FACILITIES EQUIPMENT TOTAL
- --------------------------------------- ---------- --------- ------
2003 $ 760 $ 62 $ 822
2004 585 40 625
2005 258 12 270
2006 30 2 32
------ ---- ------
Total $1,633 $116 $1,749
====== ==== ======
Purchase Commitments -- As of December 31, 2002, we had approximately $2.0
million of purchase commitments with vendors, 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
this inventory over the next three years. Substantially all deliveries are
expected to be taken in the next twelve months.
Effect of Inflation
Management believes that during the three months ended December 31, 2002
the effect of inflation was not material.
Recent Accounting Pronouncements
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.
Guarantees -- In November 2002, the FASB issued Interpretation No. 45
("FIN 45"), Guarantor's Accounting And Disclosure Requirements For Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 addresses the
disclosure requirements of a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 also requires a guarantor to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN 45 are effective for the Company
in its quarter ended December 31, 2002. The liability recognition requirements
will be applicable prospectively to all guarantees issued or modified after
December 31, 2002. Accordingly, the Company is currently determining what impact
these provisions will have on its financial statements.
Forward-Looking Statements And Associated Risks
15
This report contains forward-looking statements including statements
regarding, among other items, financing activities and 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: we may not have sufficient resources to continue as a going
concern; any significant downturn in the highly cyclical semiconductor industry
or in general business conditions would likely result in a reduction of demand
for our products and would be detrimental to our business; we will be unable to
achieve profitable operations unless we increase quarterly revenues or make
further cost reductions; relations with a major customer have deteriorated; 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 receivables; 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; and the volatility of our stock price could adversely affect the
value of an investment in our common stock.
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. The extent
of risk associated with an increase in the interest rate on our borrowings is
not quantifiable or predictable because of the variability of future interest
rates and our future financing requirements.
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 2002 and 2003, 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.
We estimate the fair value of our notes payable and long-term liabilities
based on quoted market prices for the same or similar issues or on current rates
offered to us for debt of the same remaining maturities. For all other balance
sheet financial instruments, the carrying amount approximates fair value. The
fair value of the shares into which the prepaid warrants was exercisable at
December 31, 2001 was approximately $10.2 million.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our senior
management team, led by our chief executive officer and chief financial
officer, after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) within 90
days of the filing date of this report, has concluded that there were
deficiencies in the operation of our internal controls which adversely affected
our ability to record, process, summarize and report financial data.
16
(b) Changes in Internal Controls. As a result of the conclusions discussed
above, under the direction of the Audit Committee and the Board of Directors,
we are in the process of determining the appropriate corrective action to
strengthen our internal controls and procedures to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
accurately reported, within the time periods specified in the SEC's rules and
forms.
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 individual defendants deny
the wrongdoing alleged. The parties to this action have tentatively agreed in
principle to settle the matter, subject to negotiation of appropriate settlement
documents and completion of all procedures necessary to effect a final
settlement.
In February 2003, four of the former shareholders of Auto Image ID, Inc.
filed an action in the United States District Court for the Eastern District of
Pennsylvania, C. A. No. 03-841, seeking payments in excess of $2 million of
amounts allegedly owed under promissory notes issued to them by us in connection
with our purchase of Auto Image ID, Inc. in January 2001. The matter remains at
a preliminary stage.
In addition to legal proceedings discussed in our annual report on Form
10-K for the year ended September 30, 2002, we are presently involved in other
litigation matters in the normal course of business. Based upon discussion with
our legal counsel, management does not expect that these matters will have a
material adverse impact on our consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Report on Form 8-K.
During the quarter ended December 31, 2002, we filed a current report on
Form 8-K, dated October 25, 2002, with the Securities and Exchange Commission.
The item reported on such Form 8-K was Item 5 - Other Events, which referenced
the announcement that our request to transfer from the Nasdaq National Market to
the Nasdaq Small Cap Market had been approved.
17
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: February 19, 2003 /s/ PAT V. COSTA
-----------------------------
PAT V. COSTA
President and CEO
(Principal Executive Officer)
Dated: February 19, 2003 /s/ JOHN J. CONNOLLY
-----------------------------
JOHN J. CONNOLLY
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
I, Pat V. Costa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Robotic Vision
Systems, Inc. (the "registrant")
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ PAT V. COSTA
---------------------------
Pat V. Costa
Chairman, President and
Chief Executive Officer
Date: February 19, 2003
19
I, John J. Connolly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Robotic Vision
Systems, Inc. (the "registrant")
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ JOHN J. CONNOLLY
---------------------------
John J. Connolly
Chief Financial Officer
and Treasurer
Date: February 19, 2003
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