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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 March 31, 2003 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)
486 AMHERST STREET, NASHUA, NH 03063
(Address of principal executive offices)
Registrant's telephone number, including area code (603) 598-8400
5 Shawmut Road, Canton, MA 02021
(Former address, if changed since last report on Form 10-Q)
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2) of the Exchange Act).
YES [ ] NO [X]
Number of shares of common stock outstanding as of May 16, 2003 61,293,730
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
MARCH 31, SEPTEMBER 30,
2003 2002
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 440 $ 446
Accounts receivable, net 3,245 3,560
Inventories 3,510 4,678
Prepaid expenses and other current assets 730 812
Assets of discontinued operations 25,132 38,475
---------- ----------
Total current assets 33,057 47,971
Plant and equipment, net 836 1,433
Goodwill 1,554 1,554
Software development costs, net 3,146 3,438
Other assets 2,306 2,493
---------- ----------
$ 40,899 $ 56,889
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 8,609 $ 7,132
Notes payable and current portion of long-term debt 2,390 2,364
Accounts payable current 2,324 2,893
Accounts payable past-due 2,867 1,699
Accrued expenses and other current liabilities 5,646 5,408
Deferred gross profit 244 5
Liabilities of discontinued operations 26,763 22,269
---------- ----------
Total current liabilities 48,843 41,770
Long-term debt 2,291 1,882
---------- ----------
Total liabilities 51,134 43,652
Commitments and contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value; shares authorized 100,000
shares, issued and outstanding; March 31, 2003 - 61,292
and September 30, 2002 - 60,657 611 607
Additional paid-in capital 293,093 292,990
Accumulated deficit (302,153) (278,798)
Accumulated other comprehensive loss (1,786) (1,562)
---------- ----------
Total stockholders' equity (10,235) 13,237
---------- ----------
$ 40,899 $ 56,889
========== ==========
See notes to consolidated financial statements
2
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues $ 3,676 $ 6,781 $ 8,730 $ 15,333
Cost of revenues 1,847 3,225 5,005 7,758
-------- -------- -------- --------
Gross profit 1,829 3,556 3,725 7,575
-------- -------- -------- --------
Operating costs and expenses:
Research and development expenses 876 1,648 2,029 3,424
Selling, general and administrative expenses 4,451 5,385 8,871 11,362
Gain on sale of assets -- -- -- (6,935)
Severance and other charges 309 1 309 27
-------- -------- -------- --------
Loss income from operations (3,807) (3,478) (7,484) (303)
Interest expense, net (240) (209) (493) (468)
-------- -------- -------- --------
Loss from continuing operations (4,047) (3,687) (7,977) (771)
Loss from discontinued operations (10,785) (5,031) (15,389) (11,386)
-------- -------- -------- --------
Loss before provision for income taxes (14,832) (8,718) (23,366) (12,157)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss $(14,832) $ (8,718) $(23,366) $(12,157)
======== ======== ======== ========
Per Share:
Loss income from continuing operations:
Basic $ (0.06) $ (0.08) $ (0.13) $ (0.02)
======== ======== ======== ========
Diluted $ (0.06) $ (0.08) $ (0.13) $ (0.02)
======== ======== ======== ========
Loss from discontinued operations:
Basic $ (0.18) $ (0.11) $ (0.25) $ (0.26)
======== ======== ======== ========
Diluted $ (0.18) $ (0.11) $ (0.25) $ (0.26)
======== ======== ======== ========
Net loss:
Basic $ (0.24) $ (0.19) $ (0.38) $ (0.28)
======== ======== ======== ========
Diluted $ (0.24) $ (0.19) $ (0.38) $ (0.28)
======== ======== ======== ========
Weighted Average Shares
Basic 61,170 45,354 60,916 43,509
Diluted 61,170 45,354 60,916 43,509
See notes to consolidated financial statements
3
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED MARCH 31,
------------------------------
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (7,977) $ (771)
Adjustments to reconcile net loss to net cash used in operating
Activities
Depreciation and amortization 1,347 1,743
Non cash restructuring 145 --
Issuance of warrants and shares in lieu of cash 38 29
Bad debt provision 241 --
Gain on sale of assets -- (6,935)
Changes in operating assets and liabilities (net of effects of business
acquired and assets sold)
Accounts receivable 74 754
Inventories 1,168 517
Prepaid expenses and other current assets 82 288
Other assets (56) 352
Accounts payable current (569) (1,064)
Accounts payable past-due 1,168 (426)
Accrued expenses and other current liabilities (28) (1,058)
Deferred gross profit 239 --
--------- ---------
Net cash used in continuing operating activities (4,034) (6,571)
Net cash provided by (used in) operating activities of discontinued
Operations 2,448 (9,092)
--------- ---------
Net cash used in operating activities (1,586) (15,663)
INVESTING ACTIVITIES:
Additions to plant and equipment, net (15) (211)
Additions to software development costs (307) (266)
Proceeds from sale of assets -- 10,189
--------- ---------
Net cash (used in) provided by investing activities (323) 9,712
--------- ---------
FINANCING ACTIVITIES:
Issuance of convertible note 500 --
Net proceeds from (payments of) revolving credit facility 1,477 3,060
Repayment of long-term borrowings -- (239)
--------- ---------
Net cash provided by (used) in financing activities 1,977 2,821
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (74) 14
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6) (3,116)
CASH AND CASH EQUIVALENTS:
Beginning of period 446 3,887
========= =========
End of period $ 440 $ 771
========= =========
Supplemental Cash Flow Information:
Interest paid $ 180 $ 413
========= =========
Taxes paid $ -- $ 55
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Cashless exercise of prepaid warrants for 10,036 shares of common stock $ -- $ 5,627
========= =========
Issuance of 2,012 shares of common stock in payment of accrued warrant premium $ -- $ 1,521
========= =========
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 March 31, 2003, the consolidated statements
of operations for the three and six month periods ended March 31, 2003 and 2002
and the consolidated statements of cash flows for the six month periods ended
March 31, 2003 and 2002 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 March 31, 2003 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 and six months ended March 31, 2003 are not necessarily
indicative of the operating results for the full year.
Rule 10-01(d) of Regulation S-X requires that interim financial statements
included in quarterly reports on Form 10-Q be reviewed by an independent public
accountant in accordance with specified standards and procedures prior to the
filing of such quarterly report with the Securities and Exchange Commission. As
a result of fees owing to the Company's independent auditors, such auditors
declined to review the Company's interim financial statements included in this
quarterly report on Form 10-Q.
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 was not as of March 31, 2003, in
compliance with certain covenants of its revolving credit facility, which was
due to expire on April 28, 2003. The termination date has been extended three
times by the lender, the latest of which extends the facility termination date
to May 23, 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, 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.
On April 11, 2003, the Company entered into a Settlement and Release
Agreement with a major customer, which provided for the release of certain
claims among the parties and the payment of $1,000 to the Company. On the same
date, the Company entered into a Loan Agreement with this customer ("Lender"),
which provided for the loan of $4,000 to the Company, in two tranches, subject
to the conditions of each closing. The first closing occurred on April 11, 2003,
at which time the Company delivered to Lender a secured promissory note in the
amount of $2,000 with a maturity date of April 2004. The second closing for the
delivery of a separate promissory note is subject to terms and conditions.
On April 17, 2003, the Company engaged the services of The U-Group LLC, for
the purposes of providing management services to the Company's Semiconductor
Equipment Group. The U-Group is comprised of a number of executives with
significant semiconductor capital equipment industry experience. The Company has
charged The U-Group with restoring SEG's profitability, improving SEG's balance
sheet, and restructuring SEG's debt. The Company believes that these steps will
enhance the prospects for an eventual sale of SEG at a higher price than would
otherwise be obtained. The U-Group is also charged with assisting in the sale of
SEG, as well as with bringing additional capital into that business.
The Company has not altered its belief that the sale of SEG is in the best
interests of shareholders, nor has the Company changed its desire to consummate
a sale of SEG at the earliest date. The Company has, however, determined that
SEG can be made to be either profitable or cash-flow positive. As a result, the
Company believes the sale can wait for an appropriate buyer for SEG at a price
that more closely reflects SEG's value. The Company continues to solicit
interest in SEG from prospective buyers
5
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 SEG will be sold at a price, or on sufficient terms, to allow for
such a result. Furthermore it cannot be assured that the credit facility will
continue to be extended or a new credit facility established with a new lender.
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 timing and proceeds of a prospective sale of SEG is uncertain,
the Company 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 manage accounts payable and accounts
receivable to enhance cash flow.
If the Company does not sell 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:
MARCH 31, 2003 SEPTEMBER 30, 2002
-------------- ------------------
Raw Materials $1,729 $2,214
Work-in-Process 795 927
Finished Goods 986 1,537
------ ------
Total $3,510 $4,678
====== ======
Inventory on consignment was $6 and $84 at March 31, 2003 and September 30,
2002, respectively.
3. EARNINGS PER SHARE
Basic net 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 net loss per share for the three and six
months ended March 31, 2003 and 2002 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
BASIC AND DILUTED EPS
Loss from continuing operations $ (4,047) $ (3,687) $ (7,977) $ (771)
Premium on warrants -- (55) (2) (198)
Common stock dividend -- -- (18) --
-------- -------- -------- --------
Loss from continuing operations - basic numerator (4,047) (3,742) (7,997) (969)
Loss from discontinued operations - basic numerator (10,785) (5,031) (15,389) (11,386)
-------- -------- -------- --------
Net loss - basic numerator (14,832) (8,773) (23,386) (12,355)
Weighted average number of common shares - basic denominator 61,170 45,354 60,916 43,509
-------- -------- -------- --------
Per Share:
Loss from continuing operations - basic $ (0.06) $ (0.08) $ (0.13) $ (0.02)
======== ======== ======== ========
Loss from discontinued operations - basic $ (0.18) $ (0.11) $ (0.25) $ (0.26)
======== ======== ======== ========
Net loss - basic $ (0.24) $ (0.19) $ (0.38) $ (0.28)
======== ======== ======== ========
DILUTED EARNINGS PER SHARE
6
Loss from continuing operations - basic numerator $ (4,047) $ (3,742) $ (7,997) $ (969)
Effect of conversion of prepaid warrants (--) (--) (--) (--)
-------- -------- -------- --------
Loss from continuing operations - diluted numerator
(4,047) (3,742) (7,997) (969)
Loss from discontinued operations - diluted numerator (10,785) (5,031) (15,389) (11,386)
-------- -------- -------- --------
Net loss - diluted numerator $(14,832) $ (8,773) $(23,386) $(12,355)
Weighted average number of common shares - basic denominator 61,170 45,354 60,916 43,509
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 61,170 45,354 60,916 43,509
Per Share: $ (0.06) $ (0.08) $ (0.13) $ (0.02)
======== ======== ======== ========
Loss from continuing operations - diluted $ (0.18) $ (0.11) $ (0.25) $ (0.26)
======== ======== ======== ========
Loss from discontinued operations - diluted $ (0.24) $ (0.19) $ (0.38) $ (0.28)
======== ======== ======== ========
Net loss - diluted
For the three and six month periods ended March 31, 2003 and 2002, potential
common shares were anti-dilutive due to the loss for the period. For the three
month periods ended March 31, 2003 and March 31, 2002 and for the six month
periods ended March 31, 2003 and March 31, 2002, the Company had potential
common shares excluded from the earnings per share calculations of 12,236,
7,777, 11,448 and 7,869, 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 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2003 2002 2003 2001
--------- --------- --------- ---------
Net loss ......................................... $ (14,832) $ (8,718) $ (23,366) $ (12,157)
Effect of foreign currency translation adjustments (155) 55 (224) 62
--------- --------- --------- ---------
Comprehensive loss ............................... $ (14,987) $ (8,663) $ (23,590) $ (12,095)
========= ========= ========= =========
5. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND LONG-TERM DEBT
REVOLVING CREDIT FACILITY
The Company has a $10,000 revolving credit facility, which was due to expire
on April 28, 2003. The termination date has been extended three times by the
lender, the latest of which extends the facility termination date to May 23,
2003. The Company is currently in discussions with the lender seeking to obtain
an additional extension of time and is also seeking an alternative financing
source. The current credit facility 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 March 31, 2003, the amount available under the line
was $8,775 against which the Company had $8,609 of borrowings, resulting in
availability at March 31, 2003 of $166, 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 March 31, 2003). At March 31, 2003, the
Company was not in compliance with certain covenants of the credit agreement,
and therefore in technical default, although, 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. Further, due to the terms of the credit facility, there
can be no certainty that there will be available borrowings under the credit
facility.
7
NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at March 31, 2003 and September 30, 2002
consisted of the following:
MAR 31 SEPT 30
2003 2002
------- -------
AIID notes payable -- prime rate (4.25% at March 31, 2003
and 4.75% at September 30, 2002) 4,245 4,219
9% Convertible Senior Note - due December 4, 2005 436 --
Other borrowings -- 27
------- -------
Total notes payable and long-term debt 4,681 4,246
Less notes payable and current portion of long-term debt (2,390) (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, was 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. Seven of the former shareholders have filed lawsuits
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 May 2003, the Company reached a tentative settlement with these
noteholders to reschedule payment.
As of May 20, 2003, the Company was in default of an aggregate of $12,445 of
its borrowings.
Principal maturities of notes payable and long-term debt as of March 31,
2003 are as follows:
2003 $ 2,390
2004 1,855
2005 436
2006 --
---------
Total $ 4,681
=========
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 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 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. The Company did not make the semiannual interest payment
due on May 15, 2003.
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
8
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
During the three months period ended March 31, 2003, the Company took
additional steps in order to reduce its costs, including a reduction of
approximately 4 employees. Included in this restructuring are costs associated
with the closing of the Company's Canton, MA facility and relocating those
operations to the Company's Nashua, NH facility. A summary of the 2003 remaining
restructuring costs is as follows:
LIABILITY Q1 Q2 NON
AT FISCAL 2003 FISCAL 2003 CASH CASH LIABILITY AT
SEPT. 30. AMOUNTS AMOUNTS AMOUNTS AMOUNTS MARCH 31,
2002 ACCRUED ACCRUED INCURRED INCURRED 2003
------ ------ ------ ------ ------ ------
Severance payments to employees $ 48 -- $ 39 -- $ 73 $ 14
Exit costs from facilities .... 77 -- 176 -- 134 119
Write-off of other tangible and
intangible assets ............. -- -- 94 94 -- --
------ ------ ------ ------ ------ ------
Total ............... $ 125 $ -- $ 309 $ 94 $ 207 $ 133
====== ====== ====== ====== ====== ======
In the six month period ended March 31, 2002, the Company took steps to
reduce its costs, recording severance and other charges of approximately $27.
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 $25 during the
three month periods ended March 31, 2003 and March 31, 2002, respectively, and
$100 and $45 during the six month periods ended March 31, 2003 and 2002,
respectively. A summary of accrued warranty costs at March 31, 2003 is as
follows:
LIABILITY AT CHARGED TO LIABILITY AT
SEPTEMBER 30, COSTS AND AMOUNTS MARCH 31,
2002 EXPENSES WRITTEN-OFF 2003
------------- ---------- ----------- ------------
$ 120 $ 100 $ 100 $ 120
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
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 and six
months ended March 31, 2003 and 2002 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues $ 5,711 $ 7,262 $ 11,046 $ 13,675
Operating loss (10,756) (4,997) (15,292) (11,257)
Loss from discontinued operations (10,785) (5,031) (15,389) (11,386)
The operating losses in the three month periods ended March 31, 2003 and 2002
and the six month periods ended March 31, 2003 and 2002 include depreciation and
amortization of intangibles of $859, $1,585, $1,939 and $3,153, respectively.
Assets and liabilities of the discontinued operation related to the
Company's SEG business identified for sale are as follows:
MARCH 31, 2003 SEPTEMBER 30, 2002
--------- ---------
Accounts receivables, net $ 5,153 $ 10,014
Inventory, net 11,746 18,090
Other current assets 535 255
Property, plant and equipment, net 3,187 4,300
Other assets, including intangible assets 4,511 5,816
--------- ---------
Assets of discontinued operations $ 25,132 $ 38,475
--------- ---------
Accounts payable $ 6,868 $ 6,453
Accrued expenses and other current liabilities 16,534 12,205
Short-term debt 2,581 2,417
Long-term debt 780 1,194
--------- ---------
Liabilities of discontinued operations $ 26,763 $ 22,269
--------- ---------
Net assets of discontinued operations $ (1,631) $ 16,206
--------- ---------
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 $720. The
Company is accruing these agreements over the expected service period, which has
been based upon the estimated timing of the sale of SEG. The Company accrued
approximately $600 as of March 31, 2003.
In February 2003, the Company closed its New Berlin, WI and Tucson, AZ
facilities, and consolidated these SEG operations into its Hauppauge, NY
facility. This restructuring included costs related to the closing of these
facilities, writing off tangible and intangible assets and a reduction of
approximately 50 employees. The charge for this restructuring totaling $6,926
was comprised of inventory charges of $3,397, facility exit costs of $2,486,
property plant and equipment write-offs of $427, severance charges of $228, and
other asset write-offs of $388. The restructuring charge is included in the loss
from discontinued operations.
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
10
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 EVENTS
On April 11, 2003, the Company entered into a Settlement and Release
Agreement with a major customer, which provided for the release of certain
claims among the parties and the payment of $1,000 to the Company. On the same
date, the Company entered into a Loan Agreement with this customer ("Lender"),
which provided for the loan of $4,000 to the Company, in two tranches, subject
to the conditions of each closing. The first closing occurred on April 11, at
which time the Company delivered to Lender a secured promissory note in the
amount of $2,000 with a maturity date of April 2004. The second closing for the
delivery of a separate promissory note is subject to terms and conditions.
The Company's credit facility was due to expire on April 28, 2003. The
termination date has been extended three times by the lender, the latest of
which extends the facility termination date to May 23, 2003. Under the
extensions, the lender has continued to provide credit to the Company on the
same conditions as it did during the term of the revolving credit agreement. The
Company is seeking an alternative financing source and is currently in
discussions with other lending institutions.
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 adopted the provisions of FAS 146 effective for exit or
disposal activities initiated after December 31, 2002. The adoption of FAS 146
did not have an impact on the Company's consolidated balance sheet or statement
of operations.
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 were 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.
12. GOODWILL
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001 with early adoption permitted for companies with fiscal years
beginning after March 15, 2001. The Company adopted the new rules on accounting
for goodwill and other intangible assets beginning in the first quarter of
fiscal 2003. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives
In accordance with SFAS No. 142, The Company initiated a goodwill impairment
assessment during the second quarter of fiscal 2003. The results of this
analysis concluded that there was no impairment charge. In June 2001, the
Financial Accounting Standards Board issued Statements of Financial Accounting
Standards No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001
with early adoption permitted for companies with fiscal years beginning after
March 15, 2001. The Company adopted the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of fiscal 2003. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives
11
will no longer be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives.
12
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
were not as of March 31, 2003, in compliance with certain covenants of our
revolving credit facility, which was due to expire on April 28, 2003. The
termination date has been extended three times by the lender, the latest of
which extends the facility termination date to May 23, 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, 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.
On April 11, 2003, we entered into a Settlement and Release Agreement with a
major customer, which provided for the release of certain claims among the
parties and the payment of $1.0 million to us. On the same date, we entered into
a Loan Agreement with this customer ("Lender"), which provided for the loan of
$4.0 million to us, in two tranches, subject to the conditions of each closing.
The first closing occurred on April 11, 2003, at which time we delivered to
Lender a secured promissory note in the amount of $2.0 million with a maturity
date of April 2004. The second closing for the delivery of a separate promissory
note is subject to terms and conditions.
On April 17, 2003, we engaged the services of The U-Group LLC, for the
purposes of providing management services to our Semiconductor Equipment Group.
The U-Group is comprised of number of executives with significant semiconductor
capital equipment industry experience. We have charged The U-Group with
restoring SEG's profitability, improving SEG's balance sheet, and restructuring
SEG's debt. We believe that these steps will enhance the prospects for an
eventual sale of SEG at a higher price than would otherwise be obtained. The
U-Group is also charged with assisting in the sale of SEG as well as with
bringing additional capital into that business.
We have not altered our belief that the sale of SEG is in the best interests
of shareholders, nor have we changed our desire to consummate a sale of SEG at
the earliest date. We have, however, determined that SEG can be made to be
either profitable or cash-flow positive. As a result, we believe the sale can
wait for an appropriate buyer for SEG at a price that more closely reflects
SEG's value. We continue to solicit interest in SEG from prospective buyers.
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 SEG will be
sold at a price, or on sufficient terms to allow for such a result.
13
Furthermore we cannot be assured that the credit facility will continue to be
extended or a new credit facility established with a new lender. 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 timing and proceeds of a prospective sale of SEG is uncertain,
we 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 sell 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.
Results of Operations
As part of our discussion of results of operations, we have excluded the
results of SEG, as the discontinued operation, for the three and six month
periods ended March 31, 2003 and 2002.
For the three month period ended March 31, 2003, bookings were $4.6 million
and revenues were $3.7 million. This compares to bookings of $7.2 million and
revenues of $6.8 million for the three month period ended March 31, 2002.
Bookings and revenues in the six month period ended March 31, 2003 were $8.9
million and $8.7 million, respectively, as compared to $13.5 million and $15.3
million in the six month period ended March 31, 2002. The bookings and revenues
in the six month period ended March 31, 2002, included $1.7 million and $2.8
million, respectively, associated with our material handling business. Excluding
the material handling business, bookings were $11.7 million and revenues were
$12.5 million, respectively, in the six month period ended March 31, 2002. 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 margins as a percentage of revenues were 49.8% and 42.7% in the three
and six months ended March 31, 2003 compared to 52.4% and 49.4% in the three and
six month periods ended March 31, 2002. Excluding the effects of the material
handling business, margins were 53.3% of revenues in the six month period ended
March 31, 2002. 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 and six
months ended March 31, 2003.
Research and development expenses were $0.9 million, or 24% of revenues, in
the three month period ended March 31, 2003, compared to $1.6 million, or 24% of
revenues, in the three month period ended March 31, 2002. Research and
development expenses were $2.0 million, or 23% of revenues, in the six month
period ended March 31, 2003, compared to $3.4 million, or 22% of revenues, in
the six month period ended March 31, 2002. Excluding the effects of the material
handling business, research and development expenses were $3.0 million or 24% of
revenues in the six month period ended March 31, 2002. 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 and six month periods ended March 31, 2003, we capitalized
approximately $0.1 million and $0.3 million in software development costs under
Statement of Financial Accounting Standards No. 86 as compared with $0.1 million
and $0.3 million in the three and six month periods ended March 31, 2002. The
related amortization expense was $0.3 million and $0.6 million for the three and
six month periods ended March 31, 2003, respectively, and compares with $0.3
million and $0.6 million for the three and six month periods ended March 31,
2002. The amortization costs are included in cost of sales.
Selling, general and administrative expenses were $4.5 million, or 121% of
revenues, in the three month period ended March 31, 2003, compared to $5.4
million, or 79% of revenues, in the three month period ended March 31, 2002.
Selling, general and administrative expenses were $8.9 million, or 102% of
revenues, in the six month period ended March 31, 2003, compared to $11.4
million, or 74% of revenues, in the six month period ended March 31, 2002.
Excluding the effects of the material handling business,
14
selling, general and administrative expenses in the six month period ended March
31, 2002 were $10.6 million, or 85% 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.
During the three months period ended March 31, 2003, the Company took
additional steps in order to reduce its costs, including a reduction of
approximately 4 employees. Included in this restructuring are costs associated
with the closing of the Company's Canton, MA facility and relocating those
operations to the Company's Nashua, NH facility. A summary of the 2002 remaining
restructuring costs is as follows (in thousands):
LIABILITY Q1 Q2 NON
AT FISCAL 2003 FISCAL 2003 CASH CASH LIABILITY AT
SEPT. 30. AMOUNTS AMOUNTS AMOUNTS AMOUNTS MARCH 31,
2002 ACCRUED ACCRUED INCURRED INCURRED 2003
------- ------- ------- ------- ------- -------
Severance payments to employees $ 48 -- $ 39 -- $ 73 $ 14
Exit costs from facilities .... 77 -- 176 -- 134 119
Write-off of other tangible and
intangible assets ........... -- -- 94 94 -- --
------- ------- ------- ------- ------- -------
Total ............... $ 125 $ -- $ 309 $ 94 $ 207 $ 133
======= ======= ======= ======= ======= =======
In the six month period ended March 31, 2002, the Company took steps to
reduce its costs, recording severance and other charges of approximately $27
thousand.
Net interest expense was $0.2 million and $0.5 million in the three and six
month periods ended March 31, 2003 and also in the three and six month periods
ended March 31, 2002. The interest expense relates primarily to the acquisition
debt and bank borrowings.
There were no tax provisions in the three and six months ended March 31,
2003 and 2002, due to the losses incurred and full valuation allowance provided
against net operating loss carryforwards.
Discontinued operations
For the three and six months ended March 31, 2003, revenues from
discontinued operations were $5.7 million and $11.0 million, compared to $7.3
million and $13.7 million for the three and six months ended March 31, 2002. The
decline in revenues related to demand for the products and the uncertainty
surrounding the potential sale of SEG.
For the three and six months ended March 31, 2003, the loss from
discontinued operations was $10.8 million and $15.4 million,
respectively,compared to $5.0 million and $11.4 million, respectively, for the
three and six months ended March 31, 2002. The increase in operating losses can
be attributed to restructuring charges in the current quarter relating to
closure of facilities in New Berlin, WI and Tucson, AZ. The restructuring
charges were offset in part by cost reductions implemented in fiscal 2002.
In February 2003, we closed our New Berlin, WI and Tucson, AZ facilities,
and consolidated these SEG operations into our Hauppauge, NY facility. This
restructuring included costs related to the closing of these facilities,
writing off tangible and intangible assets and a reduction of approximately 50
employees. The charge for this restructuring totaling $6.9 million was comprised
of inventory charges of $3.4 million, facility exit costs of $2.5 million
property plant and equipment write-offs of $0.4 million, severance charges of
$0.2 million, and other asset write-offs of $0.4 million. The restructuring
charge is included in the loss from discontinued operations.
As of March 31, 2003, SEG had future lease commitments for facilities and
equipment of $13.7 million. We are not certain at this time that all of these
lease commitments will be included in an ultimate sale.
As of March 31, 2003, SEG had purchase commitments with vendors of
approximately $15.9 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. As a result of the slowdown experienced by SEG, we identified certain
purchase commitments for products that have been discontinued. We have recorded
a loss in the amount of $1.1 million related to these commitments in the three
month period ended March 31, 2003.
We have a contingent liability totaling approximately $0.7 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,
15
which has been based upon the estimated timing of the SEG sale. We accrued
approximately $0.6 million as of March 31, 2003.
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. We did not make
the semiannual interest payment due on May 15, 2003.
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 remained at $0.4 million, in the six month period ended
March 31, 2003, primarily as a result of $1.6 million of net cash used in
operating activities, $0.3 million of net cash used by investing activities, and
$2.0 million of net cash provided by financing activities.
The $1.6 million of net cash used in operating activities was primarily a
result of the $8.0 million loss from continuing operations in the six month
period ended March 31, 2003, offset in part by net cash provided by discontinued
operations of $2.4 million, depreciation and amortization of $1.3 million, a
decrease in inventory of $1.2 million, a decrease in accounts payable of $0.6
million and decreases in accrued expenses and other current liabilities of $0.2
million.
Additions to plant and equipment were minimal in the six month period ended
March 31, 2003, as compared to $0.2 million in fiscal 2002. The capitalized
software development costs for fiscal 2003 were $0.3 million as compared with
$0.3 million in fiscal 2002.
We have a $10.0 million credit facility, which was due to expire on April
28, 2003. The termination date has been extended three times by the lender, the
latest of which extends the facility termination date to May 23, 2003. The
Company is currently in discussions with the lender seeking to obtain an
additional extension of time, and is also seeking an alternative financing
source. This credit facility 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 March 31, 2003, the amount available under the line was
$8.8 million, against which we had $8.6 million of borrowings, resulting in
availability at March 31, 2003 of $0.2 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 March 31, 2003). We are not in
compliance with certain covenants of the credit agreement, and therefore in
technical default on the facility, although, 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. Further, due to the terms of the credit facility, there
can be no certainty that there will be available borrowings under the line.
16
As of May 20, 2003, we were in default of an aggregate of $12.4 million of
our borrowings.
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 2002. 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 in technical default of
our credit facility which may not be extended beyond May 23, 2003. The bank may
immediately call for repayment of outstanding borrowings under this credit
facility. 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, 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.
On April 11, 2003, we entered into a Settlement and Release Agreement with a
major customer, which provided for the release of certain claims among the
parties and the payment of $1.0 million to us. On the same date, we entered into
a Loan Agreement with this customer ("Lender"), which provided for the loan of
$4.0 million to us, in two tranches, subject to the conditions of each closing.
The first closing occurred on April 11, 2003, at which time we delivered to
Lender a secured promissory note in the amount of $2.0 million, with a maturity
date of April 2004. The second closing for the delivery of a separate promissory
note is subject to terms and conditions.
On April 17, 2003, we engaged the services of The U-Group LLC, for the
purposes of providing management services to our Semiconductor Equipment Group.
The U-Group is comprised of a number of executives with significant
semiconductor capital equipment industry experience. We have charged The U-Group
with restoring SEG's profitability, improving SEG's balance sheet, and
restructuring SEG's debt. We believe that these steps will enhance the prospects
for an eventual sale of SEG at a higher price than would otherwise be obtained.
The U-Group is also charged with assisting in the sale of SEG, as well as with
bringing additional capital into that business.
We have not altered our belief that the sale of SEG is in the best interests
of shareholders, nor have we changed our desire to consummate a sale of SEG at
the earliest date. We have, however, determined that SEG can be made to be
either profitable or cash-flow positive. As a result, we believe the sale can
wait for an appropriate buyer for SEG at a price that more closely reflects
SEG's value. We continue to solicit interest in SEG from prospective buyers
17
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. 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 that this
credit facility will continue to be extended or a new credit facility
established with a new lender. 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 eventually 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.
We have operating lease agreements for equipment, and manufacturing and
office facilities. The minimum noncancelable lease payments under these
agreements are as follows (in thousands):
TWELVE MONTH PERIOD ENDING MARCH 31: FACILITIES EQUIPMENT TOTAL
------------------------------------ ---------- --------- -----
2004 $ 665 $ 44 $ 709
2005 541 28 569
2006 170 11 181
2007 15 -- 15
------- ------- -------
Total $ 1,391 $ 83 $ 1,474
======= ======= =======
Purchase Commitments -- As of March 31, 2003, we had approximately $1.1
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 and six months ended March 31,
2003 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 adopted the provisions of FAS 146 effective for exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS No.
146 did not have an impact on our consolidated balance sheet or statement of
operations.
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 were 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
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
18
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
March 31, 2002 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 former 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.
(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
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A number of purported securities class actions were filed beginning on or
about June 11, 2001 against us, Pat V. Costa, our Chief Executive Officer, and
Frank Edwards, our former Chief Financial Officer, in the Federal District Court
for the District of Massachusetts. The consolidated action is now pending as In
Re Robotic Vision Systems, Inc. Securities Litigation, Master File No.
01-CV-10876 (RGS). The plaintiffs seek damages for alleged false and misleading
statements made prior to our announcement that we would restate our financial
results in fiscal year 2000 and the first quarter of fiscal year 2001. The
parties to this action have agreed in principle to settle this matter, subject
to the parties drafting and executing appropriate settlement documents,
conducting certain limited confirmatory discovery and obtaining court approval.
A preliminary settlement order was signed on April 14, 2003 and a hearing
thereon is scheduled to be held on July 11, 2003. We expect the settlement
amount to be covered by proceeds from our directors and officers liability
insurance policy.
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 sought damages to us as a
result of the statements at issue in the pending purported securities class
actions. The action was dismissed with predjudice as to the plaintiff only, on
May 14, 2003.
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 of approximately $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 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on March 19, 2003.
At that meeting, seven of the current directors were re-elected. The vote
was as follows:
FOR WITHHOLD AUTHORITY
--- ------------------
Pat V. Costa........ 45,942,764 4,097,216
Frank A. DiPietro... 48,900,145 1,139,835
Jay M. Haft......... 48,899,691 1,140,289
Tomas Kohn.......... 48,871,744 1,168,236
Mark J. Lerner...... 48,880,158 1,159,822
Howard Stern........ 46,231,032 3,808,948
Robert H. Walker.... 48,900,236 1,139,744
At that meeting, the shareholders ratified the selection of Deloitte &
Touche LLP as our independent auditors for fiscal 2003. The vote was as follows:
For 49,318,136
Against 533,673
Abstain 188,171
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
EXHIBIT NO.
(b) Report on Form 8-K.
During the quarter ended March 31, 2003;
We filed a current report on Form 8-K, dated March 18, 2003, with the
Securities and Exchange Commission. The item reported on such Form 8-K was Item
5 - Other Events, which referenced the announcement that we had changed the
location of our executive offices from 5 Shawmut Road, Canton, Massachusetts
02021 to 486 Amherst Street, Nashua, NH 03063; our new telephone number is:
(603) 598-8400.
We filed a current report on Form 8-K dated January 14, 2003, with the
Securities and Exchange Commission. The item reported on such Form 8-K was Item
9 (Regulation FD Disclosure). This Form 8-K stated that we had certified the
annual report for the period ended September 30, 2002 by our Chief Executive
Officer and Chief Financial Officer.
We filed a current report on Form 8-K dated February 19, 2003, with the
Securities and Exchange Commission. The item reported on such Form 8-K was Item
9 (Regulation FD Disclosure). This Form 8-K stated that we had certified the
quarterly report for the period ended December 31, 2002 by our Chief Executive
Officer and Chief Financial Officer.
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: May 20, 2003 /s/ PAT V. COSTA
----------------
PAT V. COSTA
President and CEO
(Principal Executive Officer,
and Acting Chief Financial Officer)
10.22 Extension to the Revolving Credit and Security Agreement, dated
May 16, 2003, between PNC Bank, National Association (as lender and
agent) and Registrant (as borrower).
21
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,
Chief Executive Officer and
Acting Chief Financial
Officer
Date: May 20, 2003
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