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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-8623
ROBOTIC VISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2400145
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (781) 821-0830
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
The number of shares outstanding of the Registrant's common stock is
27,432,330 as of December 23, 1999.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is $238,472,667 as of December 23, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K
Document in which incorporated
-------- ---------------------
Registrant's Proxy Statement Part III
relating to the 2000 Annual
Meeting of Stockholders
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL
We design, manufacture and sell products and systems that do the
following:
- automate the inspection of semiconductors and semiconductor
packages
- provide machine-vision-based scrutiny of a broad range of
commercial and industrial products where high volume quality
assurance can best be accomplished by computer-based
inspection
- read two-dimensional bar codes of any size or complexity on
virtually any surface
- accurately scan and record bar code labels on packages moving
at high speeds
- provide specialty lighting for machine vision applications
Collectively, these capabilities give computers the power of sight.
Our products range from state-of-the-art machine vision systems on a
circuit board, which are priced at under $10,000, to $500,000 wafer inspection
systems with fully automated output capabilities. Certain of our products are
sold by our own sales force; other products are sold either through
manufacturers' representatives or to original equipment manufacturers for
incorporation into customized systems.
We operate our business through our Semiconductor Equipment Group
principally located in Hauppauge, New York, with additional facilities in
Arizona and Wisconsin, and through our Acuity CiMatrix division located in
Canton, Massachusetts.
We were incorporated in New York in 1976 and reincorporated in Delaware
in 1977. Our executive offices are located at 5 Shawmut Road, Canton,
Massachusetts 02021; our telephone number is (781) 821-0830.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For the purpose of segment reporting, our management considers us to
operate in two segments servicing the machine vision industry.
(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) Principal Products and Product Development
The diversity of our product lines has grown substantially in the past
several years, primarily as a result of acquisitions. Our acquisition history is
summarized below.
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NAME OF ACQUIRED COMPANY DATE OF ACQUISITION PRODUCTS
- ------------------------ ------------------- --------
Acuity Imaging, Inc. September 1995 2-D vision systems for diverse markets
International Data Matrix, October 1995 Data matrix symbology code readers
Incorporated
Northeast Robotics, Inc. May 1996 Illumination products for machine vision systems
Computer Identics Corporation August 1996 Standard barcode products, data collection
networks and systems for data collection and
material handling markets
Systemation Engineered October 1996 Tape-and-reel, and tube and tray based component
Products, Inc. processing systems for semiconductor and
electronics industries
Vanguard Automation, Inc. December 1997 Ball grid array and chip scale packaging equipment for
semiconductor and connector industries
A. Semiconductor Equipment Group
Our Semiconductor Equipment Group is comprised of our Electronics
division, as well as our wholly owned subsidiaries, Systemation Engineered
Products ("Systemation") and Vanguard Automation, Inc ("Vanguard").
The Electronics division supplies inspection equipment to the
semiconductor industry. The division's LS, GS and CS Series lead scanning
systems offer automated, high-speed, 3-D semiconductor package lead inspection
with the added feature of non-contact scanning of the packages in their shipping
trays ("in-tray scanning"). The systems use a laser-based, non-contact, 3-D
measurement technique to inspect and sort quad flat packs, thin quad flat packs,
chip scale packages ("CSP"), ball grid arrays ("BGA") and thin small outline
packs in their carrying trays. The system measurements include coplanarity,
total package height, true position spread and span, as well as lead angle,
width, pitch and gap.
Systemation offers tape-and-reel component processing systems designed to
handle and inspect various types of semiconductor packages. We believe that
Systemation's leadership in tape-and-reel component processing and expertise in
designing and manufacturing systems that handle components in tubes provides us
with the means to further expand the breadth of our product offerings to the
semiconductor market. Systemation is also the primary supplier of handling
systems to the Electronics division.
Vanguard is a supplier of equipment used in the manufacture of BGA and CSP
components for the semiconductor and connection industries. Customers for
Vanguard's proprietary BGA and CSP equipment include over a dozen of the top
semiconductor manufacturers in the world.
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The Acuity CiMatrix division designs, manufactures and markets 1-D and 2-D
data collection products and barcode reading systems, as well as 2-D machine
vision systems and lighting products for use in industrial automation. These
products are used by a broad range of businesses, including customers in the
semiconductor, electronics, automotive, pharmaceutical, consumer products,
postal services and material handling industries. The Acuity CiMatrix division
also supplies machine vision products to our Semiconductor Equipment Group. In
addition, we own the patent to the data matrix code, a 2-D code resembling a
scrambled checkerboard. Because of its method of storing data and its small size
relative to the 1-D bar code label, the data matrix code can be directly marked
on parts and components, greatly enhancing a manufacturer's capability for
serialization and traceability.
Machine vision systems use an image processing computer, software and
electronic cameras to perform functions such as measurement, flaw detection and
inspection of manufactured products. Our data collection and bar code reading
systems use similar functionality to read and collect data from 1-D and 2-D bar
codes for purposes such as sortation, manufacturing quality control,
traceability and security.
In September 1998, Acuity CiMatrix introduced Visionscape, the first
machine vision product platform on a single PCI board for the Pentium/Windows
PC. This product family is designed to meet the needs of both original equipment
manufacturers, which incorporate vision products into their systems, as well as
for direct use by manufacturers on their factory floor.
In December 1998, Acuity CiMatrix introduced the MXi, the first hand-held
imager for reading digital direct part marks, 1-D barcodes and new, digital 2-D
symbologies, such as the Data Matrix code. The MXi is a result of a joint
development and marketing arrangement with Polaroid. In November 1999, we
acquired Polaroid's interest in the MXi, including all relevant intellectual
property rights, for $2.0 million and our agreement to pay Polaroid a 10-year
royalty upon net sales of the MXi. Our $2.0 million obligation to Polaroid is
evidenced by a five year subordinated note, convertible into shares of our
common stock at $8.00 per share if conversion were to occur on or before
November 10, 2004 and, thereafter, the higher of $4.25 or the then fair market
value per share. We concurrently entered into an agreement with Polaroid calling
for its manufacture on our behalf of up to 5,000 MXi units.
(ii) Manufacturing
Each of our production facilities are capable of fabricating and
assembling total electronic and electromechanical systems and subsystems.
Facilities include assembly and wiring operations that have the ability to
produce complex wiring harnesses, as well as intricate electronic subassemblies.
We maintain comprehensive test and inspection programs to ensure that all
systems meet exacting customer requirements for performance and quality
workmanship prior to delivery.
(iii) Marketing and Sales
Our Semiconductor Equipment Group's marketing strategy focuses on
cultivating long-term relationships with the leading manufacturers of electronic
and semiconductor inspection and quality control equipment. Its marketing
efforts rely heavily on direct sales. The selling cycle for products, generally,
is between six to nine months from initial customer contact to closure. A
lengthier process is often the case in the purchase of an initial unit.
Subsequent purchases require less time and often result in multiple orders.
Group sales activities in the domestic market are handled by direct sales
personnel. The Semiconductor Equipment Group also maintains sales capabilities
in both Europe and the Far East through independent sales representatives and
distributors, providing access to all major markets for electronic and
semiconductor test equipment. Sales and technical support offices are maintained
in the Philippines, Singapore and Taiwan.
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The Acuity CiMatrix division markets its products through a combination
of direct sales personnel, distributors and system integrators. For sales made
through distributors, the Acuity CiMatrix division supports these activities
with direct sales management and technical support personnel. The Acuity
CiMatrix division maintains sales and technical support offices in various
locations in the United States, as well as in the United Kingdom, France and
Germany.
(iv) Sources of Supply
To support our internal operations and to extend our overall capacity,
we purchases a wide variety of components, assemblies and services from proven
outside manufacturers, distributors and service organizations. We have not
experienced any significant difficulty in obtaining adequate supplies to perform
under our contracts.
A number of our components and sub-systems are purchased from single
sources. We believe that alternative sources of supply could be obtained, if
necessary, without major interruption in production. In addition, certain
products or sub-systems developed and marketed by the Acuity CiMatrix division
are incorporated into the Semiconductor Equipment Group's product offerings.
(v) Proprietary Protection
At September 30, 1999, we owned over 100 issued U.S. patents, with
expiration dates ranging from November 1999 to September 2019. We also have
various U.S. and foreign registered trademarks.
We do not believe that our present operations are materially dependent
upon the proprietary protection that may be available to us by reason of any one
or more of such patents. Moreover, as our patent position has not been tested,
with the exception of the litigation referred to elsewhere in this Report, we
can give no assurance as to the effectiveness of the protection afforded by our
patent rights.
(vi) Customers
No customers accounted for more than 10% of sales during the fiscal
year ended September 30, 1999. Intel Corporation accounted for 20% and 23% of
our revenues during the fiscal years ended September 30, 1998 and 1997,
respectively. No other customer accounted for more than 10% of sales during the
fiscal years ended September 30, 1998 and 1997, respectively.
(vii) Backlog
At September 30, 1999 our backlog was $35.3 million as compared to
$16.9 million and $43.2 million at September 30, 1998 and September 30, 1997,
respectively. We believe that most of our backlog at September 30, 1999 will be
delivered in the next 12 months. The change in our backlog in these periods is a
reflection of short term business levels and customer lead times. We do not
believe that our backlog at any particular time is necessarily indicative of our
long-term future business.
(viii) Competition
We believe that machine vision has evolved into a new industry over the
past several years, in which a number of machine vision-based firms have
developed successful industrial applications for the technology. We are aware
that a large number of companies, estimated to be upward of 100 firms, entered
the industry in the 1980's and that most of these were small private concerns.
Over the last several years the number of competitors has narrowed to less than
25. We believe this is attributable, to a large extent, to consolidation within
the industry. Our principal competitor is Accusort in 1-D scanning and Cognex in
machine vision, respectively. We believe that we are a significant competitor in
the machine vision industry based upon the breadth of our product lines, our
customer base and our board array of patents. The pricing of our semiconductor
inspection systems is somewhat higher, generally, than that of our competitors,
but we do not regard this factor as a significant competitive disadvantage as
customers have historically demonstrated their willingness to pay our asking
prices to obtain features that are unavailable in our competitors' product
offerings.
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(ix) Research and Development
Our sponsored research and development efforts over recent years have
been largely devoted to continued development of advanced 2-D and 3-D vision
technology and applications software for use in various inspection and process
control automation systems. Research and development has also included activity
related to automatic identification technology development. Research and
development expenditures, net of capitalized software development costs, were
$20.5 million, $28.1 million and $25.5 million for the years ended September
30, 1999, 1998 and 1997, respectively. In the fiscal years ended September 30,
1999, 1998 and 1997, we capitalized $4.9 million, $7.4 million and $4.8 million,
respectively, of our software development costs in accordance with the
provisions of Statement of Financial Accounting Standards No. 86.
(x) Environmental Regulation
We believe that compliance with federal, state, local and, where
applicable, foreign environmental regulations does not have any material effect
on our capital expenditures, earnings or competitive position.
(xi) Employees
At September 30, 1999 we employed 685 persons, of whom 324 were
engineering and other technical personnel. None of our employees is a member of
a labor union.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Revenues from unaffiliated customers generated by our European
subsidiaries were $10.5 million, $14.6 million and $16.8 million for the years
ended September 30, 1999, 1998 and 1997, respectively.
Total revenues to customers outside the U.S. were $71.5 million, $108.7
million and $115.9 million for the years ended September 30, 1999, 1998 and
1997, respectively.
ITEM 2. PROPERTIES
Our executive offices, as well as our Acuity CiMatrix division, are
located in a 60,000 square foot facility in Canton, Massachusetts. The Acuity
CiMatrix division also maintains a 50,000 square foot engineering facility in
Nashua, New Hampshire and its Northeast Robotics operations are located in a
12,000 square foot facility in Weare, New Hampshire. Our Electronics division is
located in a 65,000 square foot facility located in Hauppauge, New York.
Systemation's operations are located in a 90,000 square foot facility located in
New Berlin, Wisconsin and Vanguard's operations are located in a 38,000 square
foot facility in Tucson, Arizona.
We also maintain sales and service offices across the United States to
support our various operations. The Acuity CiMatrix division has sales and
service offices in the United Kingdom, France and Germany. We maintain sales and
service offices in the Philippines, Singapore and Taiwan to support our
Semiconductor Equipment group's operations.
All of our facilities are leased, with lease expiration dates ranging
from 2000 to 2014.
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ITEM 3. LEGAL PROCEEDINGS
We initiated two actions in the United States District Court for the
Central District of California against General Scanning, Incorporated, now known
as GSI Lumonics, Inc., and its subsidiary View Engineering, Inc., ("View"),
alleging infringement by View of a number of our patents relating to View's
assembly and distribution of View's own 3-D machine vision products. In June
1998, the Court, in the first of these actions, involving the coplanarity
inspection of ball grid array semiconductor package substrates, found
infringement by View and granted our request for injunctive relief against View.
This ruling has been appealed by View to the United States Appeals Court for the
Federal Circuit. The second of these actions, in which we have sought both
injunctive relief and monetary damages of not less than $75.0 million, was the
subject of a non-jury trial completed in November 1999. The Court's decision is
expected sometime during the first half of calendar year 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) Market Information
Our common stock is quoted on The Nasdaq National Market under the
symbol ROBV. The following table sets forth the high and low closing prices for
our common stock for the periods indicated:
FISCAL QUARTER ENDED HIGH LOW
-------------------- ---- ---
September 30, 1999 $5-3/4 $3-5/16
June 30, 1999 3-25/32 1-21/32
March 31, 1999 3-15/16 2-5/16
December 31, 1998 4-1/2 2-1/8
September 30, 1998 4-7/8 2
June 30, 1998 12-3/4 3-1/2
March 31, 1998 14-3/8 10
December 31, 1997 17-1/2 10-1/4
On December 23, 1999 the closing price of our common stock was
$8.94 per share.
(b) Holders
The number of holders of record of our common stock as of December 23,
1999 was approximately 3,427.
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(c) Dividends
We have never paid any cash dividends and intend, for the foreseeable
future, to retain any future earnings for the development of our business. Our
bank credit agreement restricts our ability to pay dividends. Our future
dividend policy will be determined by our board of directors on the basis of
various factors, including our results of operations and financial condition.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data below should be read
in conjunction with our consolidated financial statements including the
accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations, both elsewhere in this Report. The data as
of September 30, 1999 and 1998 and for each of the three years in the period
ended September 30, 1999 have been derived from, and should be read in
conjunction with, our audited consolidated financial statements and accompanying
notes, which are contained elsewhere in this Report. The Balance Sheet Data as
of September 30, 1997, 1996 and 1995 and the Statement of Operations Data for
each of the two years in the period ended September 30, 1996 and 1995 have been
derived from our audited financial statements which are not contained in this
Report.
Statement of Operations Data:
(In thousands, except per share amounts)
Fiscal Year Ended September 30,
1999 1998 1997 1996 1995
Revenues.................. $128,230 $169,007 $169,342 $153,975 $145,415
Income (loss)
before income
taxes................. $ (9,258) $(40,505) $ 1,393 $ (319) $ 12,092
Provision (benefit)
for income
taxes................. $ -- $ -- $ 745 $ (1,154) $ (56)
Net income (loss)......... $ (9,258) $(40,505) $ 648 $ 835 $ 12,148
Premium on prepaid
warrant............... $ 463 $ -- $ -- $ -- $ --
Net income (loss)
attributable to
common
stockholders.......... $ (9,721) $(40,505) $ 648 $ 835 $ 12,148
Basic net income
(loss) per
share................. $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.65
Diluted net income
(loss) per share...... $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.58
Selected Balance Sheet Data:
(In Thousands)
At September 30,
1999 1998 1997 1996 1995
Current assets................... $ 77,636 $ 72,227 $110,541 $ 88,370 $71,755
Total assets..................... $123,201 $121,571 $139,923 $107,471 $83,520
Long term debt and other........ $ 2,855 $ 3,059 $ 6,414 $ 492 $ 1,242
Total liabilities................ $ 76,106 $ 84,774 $ 64,346 $ 43,858 $39,171
Prepaid warrants................. $ 9,105 -- -- -- --
Stockholders' equity............. $ 37,990 $ 36,797 $ 75,577 $ 63,613 $44,349
Working capital (deficit)........ $ 4,385 $ (9,488) $ 55,159 $ 45,751 $34,590
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Fiscal Years Ended September 30, 1999 and 1998
Our revenues were $128.2 million for the fiscal year ended September
30, 1999, compared to $169.0 million for the fiscal year ended September 30,
1998, a decline of 24.1%. The lower revenues year-to-year largely reflect the
effect of the severe semiconductor industry downturn which began in early
calendar 1998. Revenues for our Semiconductor Equipment Group were down 32.4%
and revenues for our Acuity CiMatrix division were down 2.3% from the prior
year. Semiconductor equipment revenues declined because of a significant decline
in orders, and cancellations of previously placed orders, for semiconductor
inspection and handling equipment. The weak semiconductor industry conditions
were largely a result of the Asian economic crisis and excess industry capacity.
The year-to-year decline in revenues for our Acuity CiMatrix division was almost
entirely a result of lower revenues from European customers, which was
partially offset by higher revenues from US customers. Revenues in Europe
declined mostly because of our shift in focus to products manufactured by us
versus products purchased from third parties and resold.
In the three months ended September 30, 1999 revenues were $40.3
million, compared with revenues of $28.4 and $31.3 million in the three months
ended September 30, 1998 and June 30, 1999, respectively. Increased levels of
orders and shipments in our Semiconductor Equipment Group accounted for the
increase.
Our gross profit margin, as a percentage of revenues, was 44.2% for the
fiscal year ended September 30, 1999, compared to a gross profit margin of 33.1%
of revenues for the fiscal year ended September 30, 1998. Our gross profit
margin for the fiscal year ended September 30, 1998 was reduced by a provision
for excess and obsolete inventories of $16.6 million, or 9.8% of revenues.
Exclusive of the inventory provisions, gross profit margin was 42.9% for the
fiscal year ended September 30, 1998. The gross profit margin increased in
fiscal 1999, as result of a higher mix of sales of Acuity CiMatrix product as
a percentage of the total sales for the current year.
The gross profit margin, as a percentage of revenues, for our
Semiconductor Equipment Group increased to 39.3% of revenues in the year ended
September 30, 1999 compared to 28.6% of revenues for the year ended 1998. Also,
gross profit margin, as a percentage of revenues, increased for our Acuity
CiMatrix division to 48.9% compared to 38.2% for the same period in the prior
year. The majority of the increase was due to the inventory provisions recorded
in fiscal 1998.
In the third and fourth quarters of fiscal 1998, recorded provisions of
$4.5 million and $12.1 million, respectively, for excess and obsolete
inventories primarily for our semiconductor inspection and handling equipment.
These provisions were necessary to reduce the carrying value of inventories to
their appropriate net realizable value and largely reflected reduced demand for
older generation products as a result of the severe semiconductor industry
downturn. The inventory balances at September 30, 1998, net of inventory
provisions, contain older generation products of approximately $4.5 million.
Substantially all of the older generation products were sold or disposed of in
fiscal 1999. However, there can be no assurance that we will not have to take
additional inventory provisions in the future based upon a number of factors
including changing business conditions, shortened product life cycles, the
introduction of new products, and the effect of new technologies.
Our research and development expenses were $20.5 million, or 16.0% of
revenues, in fiscal 1999, compared to $28.1 million, or 16.6% of revenues, in
fiscal 1998. The lower level of expenses reflects the combination of workforce
reductions and other expense reductions that we implemented primarily in the
latter half of fiscal 1998. We are continuing to invest significant resources
into new product development in both our Semiconductor Equipment Group and our
Acuity CiMatrix division. New product development efforts include expansion of
our new machine vision platform, Visionscape, as well as next generation
semiconductor inspection and component handling equipment. During fiscal 1999,
we capitalized $4.9 million of software development costs, in accordance with
SFAS No. 86, compared to $7.4 million in fiscal 1998.
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Our selling, general and administrative expenses were $44.6 million, or
34.8% of revenues, in fiscal 1999, compared to $58.9 million, or 34.8% of
revenues, in fiscal 1998. The lower level of expenses largely reflects the
combination of the cost reduction steps taken by us primarily in the latter half
of fiscal 1998, lower variable selling costs on the decreased level of revenues
and the absence of significant litigation costs which were incurred in the prior
year.
Severance and other charges were $0.3 million for the year ended
September 30, 1999, compared to $6.6 million in the prior year. The current
charges relate to reductions in personnel, particularly in Europe. The prior
year spending relates to the cost reduction steps taken to lower our operating
expenses. Amounts remaining from the prior year severance and other charges are
shown below:
LIABILITY LIABILITY
SEPTEMBER 30, 1998 CASH EXPENDITURES SEPTEMBER 30, 1999
------------------ ----------------- ------------------
Severance payments to employees $1,384 $ 1,384 $ --
Costs for changes in Asia distributors 500 245 255
Costs to consolidate Acuity/CiMatrix 215 215 --
------ ------- ----
Total $2,099 $ 1,844 $255
====== ======= ====
The 1999 severance and other charges were paid out in fiscal 1999, no
amounts were accrued as of September 30, 1999.
Net interest expense was $3.6 million in fiscal 1999 compared to $2.3
million in fiscal 1998. The increase in interest expense is a result of the
significantly higher level of bank borrowings in fiscal 1998 as well as
amortization of $100,000 of value of warrants issued to the banks. Proceeds from
bank borrowings during fiscal 1998 were primarily used to fund working capital
requirements and results of operations.
The gain on sale of assets for the year ended September 30, 1999
primarily relates to the sale of our Aircraft Safety Division.
There was no tax provision in fiscal years 1999 and 1998 as a result of
the loss for the periods.
For fiscal 1999, we had a net loss of $9.7 million, or a loss of $0.38
per share, of which $0.5 million relates to the premiums accrued on our prepaid
warrants. In fiscal 1998, we had a net loss of $40.5 million, or a loss of $1.65
per share. The net loss for fiscal 1998 included inventory provisions of $16.6
million and unusual charges of $6.6 million.
Fiscal Years Ended September 30, 1998 and 1997
Our revenues were $169.0 million for the fiscal year ended September
30, 1998, compared to $169.3 million for the fiscal year ended September 30,
1997. Primarily as a result of a severe downturn in the semiconductor capital
equipment industry, our revenues declined from $53.8 million in the first
quarter of fiscal 1998 to a low of $28.4 million in the fourth quarter of fiscal
1998. Our semiconductor equipment group's operations were adversely affected by
a significant decline in orders, and cancellations of previously placed orders,
for semiconductor inspection and handling equipment. The weak semiconductor
industry conditions were largely a result of the Asian economic crisis and
excess industry capacity. In addition, revenues for our Acuity CiMatrix division
declined approximately 10% year-to-year, largely as a result of lower revenues
to customers in Asia and Europe.
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Our gross profit margin, as a percentage of revenues, was 33.1% for the
fiscal year ended September 30, 1998, compared to a gross profit margin of 44.6%
of revenues for the fiscal year ended September 30, 1997. Our gross profit
margin for the fiscal year ended September 30, 1998 was reduced by a provision
for excess and obsolete inventories of $16.6 million, or 9.8% of revenues.
Exclusive of the inventory provisions in fiscal 1998 gross profit margin was
42.9% for the fiscal year ended September 30, 1998 and 45.4% for the fiscal year
ended September 30, 1997. The gross profit margin declined sequentially in
fiscal 1998 as result of proportionately high fixed manufacturing costs relative
to lower shipment levels, as well as the affect of a lower margin product mix.
During fiscal 1998, we took multiple steps to reduce our expenses and
to lower the level of revenues necessary for break-even results of operations.
These steps included a 10% workforce reduction in April 1998, a 15% workforce
reduction in June 1998 and an additional 16% workforce reduction in September
1998, as well as curtailing discretionary spending and capital expenditures. In
June 1998, we combined our Acuity 2-D machine vision operations with our
CiMatrix 1-D and 2-D barcode reading and data collection operations.
Primarily as a result of these steps, we took a total of $6.6 million
in charges in fiscal 1998. $3.8 million was recorded for severance payments to
approximately 350 terminated employees, all of whom were terminated prior to
September 30, 1998. The terminated employees represented all functions across
all of our operating divisions. Of the $3.8 million, approximately $2.4 million
was paid in cash to employees prior to September 30, 1998. $1.5 million was
recorded for costs associated with changing distributors in Asia. The charge was
recorded in the quarter ended March 31, 1998. Of this charge, $1.0 million
represents the write-off of our investment in our bankrupt Korean distributor.
We terminated our business relationship with the distributor after it could no
longer meet its commitment to service our existing installed base of customers
in Korea nor meet our sales goals. The remaining charge represents termination
of the distributor of our product in Japan. The terms of an agreement to end our
business relationship with the Japanese distributor were reached at the end of
our second fiscal quarter. Under this agreement, we were to repurchase from the
distributor certain demonstration equipment used in selling our product and
settle outstanding commitments of the distributor. The approximately $0.5
million charge represents our liability under the agreement, net of the
realizable value of assets recovered from the Japanese distributor.
The charges also included a $1.1 million non-cash write-down of
previously capitalized software development costs associated with currently
inactive products and $0.2 million in costs associated with the consolidation of
the Acuity and CiMatrix operations. As a result of these measures, our research
and development expenses and selling, general and administrative expenses,
combined, were reduced from $23.0 million in the second quarter to $19.3 million
in the fourth quarter of fiscal 1998.
Our research and development expenses were $28.1 million, or 16.6% of
revenues, in fiscal 1998, compared to $25.5 million, or 15.0% of revenues, in
fiscal 1997. The higher level of research and development expenses reflected our
continued investment in new products, including new semiconductor inspection and
component handling systems, as well as new visual inspection and data collection
products. During fiscal 1998, we capitalized $7.4 million of software
development costs, in accordance with SFAS No. 86, compared to $4.8 million in
fiscal 1997.
Our selling, general and administrative expenses were $58.9 million, or
34.8% of revenues, in fiscal 1998, compared to $48.3 million, or 28.5% of
revenues, in fiscal 1997. The year-to-year increase in expenses is largely
related to personnel additions to our sales and marketing organizations,
primarily in the first half of fiscal 1998. In addition, legal costs associated
with patent infringement and fraud litigation which we initiated against General
Scanning, now known as GSI Lumonics, and its View Engineering subsidiary were
$4.5 million in fiscal 1998.
We incurred merger costs of $0.6 million in the first quarter of fiscal
1998 related to our acquisition of Vanguard Automation.
Net interest expense was $2.3 million in fiscal 1998 compared to $0.3
million in fiscal 1997. The increase in interest expense is a result of the
significantly higher level of bank borrowings in fiscal 1998. Proceeds from bank
borrowings during fiscal 1998 were primarily used to fund working capital
requirements and results of operations.
There was no tax provision in fiscal 1998 as a result of the loss for
the period. In fiscal 1997, we had a tax provision of $0.7 million relating to
minimum federal and state income taxes.
10
13
For fiscal 1998, we had a net loss of $40.5 million, or a loss of $1.65
per share. The net loss for fiscal 1998 included inventory provisions of $16.6
million and unusual charges of $6.6 million. In fiscal 1997, we had net income
of $0.6 million, or $0.03 per share.
Liquidity and Capital Resources
Our cash balance increased $3.9 million, to $6.3 million, in the year
ended September 30, 1999, as a result of $9.6 million of net cash used in
operating activities, $7.8 million of net cash used for additions to plant and
equipment and software development costs offset by $4.2 million of net cash
provided by the sale of assets and $16.9 million of net cash provided by
financing activities.
The $9.6 million of net cash used in operating activities was largely a
result of the operating loss for the period, after non-cash depreciation and
amortization charges, combined with the increase in accounts receivable and
reduction in accounts payable and accrued expenses.
Accounts receivable at September 30, 1999 increased by $5.1 million
from $32.4 million at September 30, 1998 to $37.5 million. This increase in
accounts receivable largely reflects our lower level of revenues in the fourth
quarter of fiscal 1998, as well as our increased revenues in the fourth quarter
of fiscal 1999.
Inventories were $32.6 million at September 30, 1999, compared to $36.2
million at September 30, 1998, a reduction of $3.6 million, as we continued to
consume short-term excess levels, particularly in our semiconductor equipment
group.
Additions to plant and equipment were $2.9 million in the year ended
September 30, 1999, which were substantially below depreciation charges of $6.9
million in the period. Additions to software development costs were $4.9 million
in the year ended September 30, 1999. The additions to plant and equipment were
primarily for equipment used in research and development activities, as well as
customer support activities. Total depreciation and amortization charges for the
year ended September 30, 1999 were $10.8 million compared to $8.8 million in
fiscal 1998. This increase was primarily due to increases in depreciation of
capital equipment.
We have classified our net deferred tax asset as a long-term asset as a
result of the loss for fiscal 1998 and 1999.
Accounts payable and accrued expenses were $37.6 million at September
30, 1999, as compared with $43.7 million at September 30, 1998. The reductions
in accounts payable and accrued expenses, combined, of $6.1 million in the year
ended September 30, 1999, reflects the combination of lower inventory purchases,
cash paid for severance and other charges, as well as some reduction of past due
vendor balances. As a result of our negative cash flow from operations during
fiscal 1998 and 1999, we had a substantial portion of our accounts payable
balances which were beyond normal vendor payment terms at September 30, 1999.
We have a revolving credit agreement with three domestic banks which is
collateralized by substantially all of our domestic tangible and intangible
assets. Borrowings under the agreement currently bear interest at the prime
rate, plus two percent. At September 30, 1999, we had borrowings of $35.3
million outstanding under our revolving credit agreement with our domestic
banks, compared to $37.5 million in borrowings outstanding at September 30,
1998. During the third quarter of fiscal 1999, we amended our credit agreement
with our banks to waive compliance with certain financial covenants through
March 31, 1999 and to establish new financial covenants for the balance of the
term of the loan. We were in compliance with the new covenants at September 30,
1999. We must either repay our total bank indebtedness prior to March 17, 2000,
negotiate an extension of our bank credit facility or obtain replacement
financing. We cannot assure investors that we will be able to do so. In
conjunction with the amendment to the credit agreement, we issued warrants to
our lending banks covering 750,000 shares, at an exercise price of $4.02 per
share, of which 250,000 warrants were immediately exercisable. All, or a
portion, of the remaining 500,000 warrants are only exercisable if the lending
banks extend the credit agreement beyond the original maturity date for
pre-determined periods.
11
14
In February 1999, we completed a private placement of $11.0 million in
stated value of prepaid warrants from which we derived net proceeds of
approximately $10.0 million.
In April 1999, we completed a private placement of common stock and
warrants to a single corporate investor, from which we derived net proceeds of
approximately $2.9 million.
In July 1999, we completed a private placement of common stock and
common stock purchase warrants from which we derived net proceeds of
approximately $6.7 million. As a consequence of this transaction, the respective
exercise price of our prepaid warrants and our incentive warrants, pursuant to
their antidilution provisions, have been each reduced to $3.96 per share.
We believe that through a combination of proceeds from the several 1999
private financings, obtaining additional external capital and existing
receivables and inventories and either the renegotiation of our bank credit
facility or its replacement with alternative bank financing, we will have
sufficient liquidity to fund our cash requirements for at least the next 12
months. Given the significant upturn in both revenues and bookings experienced
by our Semiconductor Equipment Group in the latter months of fiscal 1999 and the
continuation of the trend into the first quarter of fiscal 2000 and, we
anticipate, for the balance of fiscal 2000, we believe, that our banks will
forebear from initiating any default declaration for a reasonable period of time
if we are unable to either renegotiate or replace our current bank credit
facility prior to its expiration on March 17, 2000 in order to permit us to
continue our renegotiation or replacement efforts. However, in the absence of
such forebearance and if a default is declared by our banks, it is likely that
our cash resources would be severely constrained, which may affect our ability
to acquire raw materials and supplies to satisfy orders for our products,
thereby reducing the likelihood that we could sustain our operations at their
pre-default levels.
Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities"--"Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 delays the implementation of SFAS No. 133 until
our fiscal year ending September 30, 2001. We have not completed our evaluation
of the effects of SFAS 133.
Effect of Inflation
We believe that the effect of inflation has not been material during
each of the years ended September 30, 1999, 1998 and 1997, respectively.
12
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Year 2000 Status
We are aware of the potential for business disruption due to the Year
2000 ("Y2K") issue, and have taken steps to assess and address these issues. We
are addressing Y2K compliance in three major areas: internal operating systems,
including sales, purchasing, production, engineering, and finance; products,
including installed base and new products; and third parties, vendors. Based on
current internal reviews, management believes that it has established a Y2K plan
which will address these issues.
In order to assess Y2K compliance in our internal operating systems, we
first took an inventory of all such systems and identified those which are
critical to our operations. All such systems were tested for Y2K compliance by
September 30, 1999. In the course of testing our internal operating systems, we
experienced disruptions in a number of our locations, both domestic and foreign.
Such disruptions, although unexpected, were of a non-material nature,
individually and in the aggregate. We believe that we have now brought all of
our non-compliant systems into compliance through repair, upgrading and/or
replacement. However, due to the uncertainties that are inherent in Y2K
remediation, we can give no assurances that our efforts will prevent business
disruptions.
With the exception of one minor product which we purchase from a third
party and resell, all of our products currently being shipped, as well as a
large part of our installed base, are Y2K compliant. Non-compliant product were
brought into compliance by September 1999. Customers of that part of our older
installed base which is not Y2K compliant will be offered upgrade options, or
replacements, which are Y2K compliant.
The area of Y2K compliance which poses the greatest risk to us is our
vendors, because of our lack of control over their products and operations. In
order to assess their compliance, we are in the process of surveying all major
vendors. We completed these surveys in June 1999.
Costs associated with our Y2K compliance program are not anticipated to
be substantially different than normal, recurring costs, and are not expected to
materially affect financial results.
While we believe that our Y2K compliance program is on plan for
assessing and addressing any Y2K issues, full compliance can not be assured
until this effort is complete. In particular, despite our best efforts, we may
be unable to establish with certainty the compliance of third party vendors,
including those outside the United States. It is possible that the
non-compliance of a key vendor could interrupt our production schedules and
adversely impact our ability to make timely deliveries of our products.
We have developed contingency plans to be put into place in the event
that any of our corrective actions fail to fully address the Y2K issues. We can
give no assurances that our contingency plans will be sufficient to prevent
disruption of our critical business functions.
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
semiconductors manufacturers located in North America, Japan, the Pacific Rim
and Europe. Receivables are mostly from major corporations, 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. At September 30,
1999, we had bank borrowings outstanding of $35.3 million which had a variable
interest rate and long-term note payables of $2.9 million with fixed interest
rates. Using a yield to maturity analysis and assuming an increase in the
interest rate on these borrowings of 78 basis points (10% fluctuation in the
rate), interest rate variability on these borrowings would not have a material
effect on our financial results.
13
16
We are also exposed to the impact of foreign currency fluctuations.
During fiscal 1998, most local currencies of our international subsidiaries
weakened against the U.S. dollar. Since we translate foreign currencies into
U.S. dollars for reporting purposes, these weakened currencies have a negative,
though immaterial, impact on our results. We also believe that our exposure to
currency exchange fluctuation risk is insignificant because our international
subsidiaries sell to customers, and satisfy their financial obligations, almost
exclusively in their local currencies. During fiscal 1999, 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 risk-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.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains forward-looking statements including statements
regarding, among other items, business strategy, growth strategy and anticipated
trends in our business, which are made pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. The words "believe,"
"expect" and "anticipate" and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. These
forward-looking 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. 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
in "Risk Factors," below, describe factors, among others, that could contribute
to or cause such differences. In light of these risks and uncertainties, there
can be no assurance that the forward-looking information contained in this
Report will in fact transpire or prove to be accurate.
RISK FACTORS
Our return to sustained profitability cannot be assured
We incurred net losses of $9.3 million and $40.5 million for the fiscal
years ended September 30, 1999 and 1998, primarily attributable to the worldwide
downturn in demand for semiconductor capital equipment which began in March 1998
and continued through the first half of calendar year 1999. We had operated
profitably for at least five continuous years prior to the onset of this
downturn. While we reported net income of $287,000 on revenues of $40.3 million
for the three month period ended September 30, 1999, our return to sustained
profitable operations will depend upon our ability to maintain this quarterly
revenues level or make further reductions in our costs. There can be no
assurance that we will return to sustained profitability.
Our inability to accurately assess our future order levels may result in excess
inventory charges
Sudden and unexpected downturns in worldwide demand for semiconductor
capital equipment which have historically characterized the semiconductor
industry makes it difficult for us to accurately assess anticipated order rates
for our lead inspection systems for more than three to six months at any given
time. Our inability to project future orders has previously resulted in our
accumulation of excessive inventories of raw materials and supplies, as well as
finished products, as we ramped up production in anticipation of order levels
that failed to materialize, thereby requiring us to subsequently reduce the
carrying value of our inventories. By way of illustration, we were compelled to
reduce our inventory carrying value by approximately $16.6 million for the
fiscal year ended September 30, 1998 as a consequence of an industry downturn
which unexpectedly began in March 1998. Further, we must utilize our cash
resources to build inventories in anticipation of customer orders, which
thereafter may not be replenished in the absence of sales revenues. Any future
downturn in industry demand for our products that we are unable to anticipate
may again place us in a position of excessive inventories and cash flow
constraints.
14
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We will be in default if we do not repay or replace our banks by March 17, 2000
We owed approximately $35.3 million to our banks as of September 30,
1999. This indebtedness is secured by substantially all of our assets. We have
periodically requested waivers of financial covenants or amendments to the
agreement with our banks because we were not able to comply with the
requirements of the agreement. While our financing agreement has recently been
amended to conform its financial covenants to reflect our current operating
plans and we are currently in compliance with its provisions, we cannot be
certain that we will remain in compliance for the balance of its term. We must
either repay our total bank indebtedness prior to March 17, 2000, negotiate an
extension of our bank credit facility or obtain replacement financing. Given the
recent upturn in both our revenues and bookings, principally in our
Semiconductor Equipment group, we believe that, if requested, our banks will
forebear from initiating any default declaration for a reasonable period of time
if we are unable to either renegotiate or replace this credit facility prior to
its expiration on March 17, 2000 in order to permit us to continue our
renegotiation or replacement efforts. However, in the absence of such
forebearance and if a default is declared by our banks, it is likely that our
cash resources would be severely constrained, thereby affecting our ability to
acquire raw materials and supplies to satisfy orders for our products and
reducing the likelihood that we could sustain our operations at their
pre-default levels.
We have a limited number of customers, which may not be easily replaceable
Our sales have been historically concentrated in a small number of
customers. The specific customers change over time. Sales to Intel accounted for
approximately 20% and 23%, respectively, of our revenues during the fiscal years
ended September 30, 1998 and 1997. No customers in fiscal 1999 and no other
customer in fiscal 1998 and 1997 accounted for more than 10% of sales. The loss
or any significant reduction in orders for our products, combined with our
inability to replace such orders with those from new or existing customers, may
reduce both our revenues and profitability.
Economic difficulties encountered by certain of our foreign customers have
resulted in order cancellations and reduced collections of outstanding accounts
receivable
International sales, primarily to Asia and Western Europe, accounted
for approximately 56% and 64% of our revenues for the fiscal years ended
September 30, 1999 and 1998, respectively. In particular, sales to Taiwan, Korea
and other Asian countries accounted for 41% and 54% of our revenues for the
fiscal years ended September 30, 1999 and 1998, respectively. While our sales in
Asia are generally denominated in U.S. dollars, our international business may
be affected by changes in demand resulting from fluctuations in currency
exchange rates, trade restrictions and duties, and other political and economic
factors. The recent Asian economic crisis led to significant order cancellations
from customers in Taiwan, Korea, Malaysia and the Philippines as devaluations of
as much as 90% in their respective local currencies prevented these customers
from acquiring U.S. dollars at favorable exchange rates to pay us for these
orders, thereby adversely affecting both our revenue levels and profitability.
Inadequate cash flow and restrictions in our banking arrangements may prevent us
from investing sufficient funds in research and development to remain
competitive
The markets for our products are extremely competitive. Maintaining our
competitive position will require our continued investment in research and
product development. Our ability to make such investment may be limited by our
cash flow availability and by our need to comply with covenants in our banking
arrangements that may limit our research and product development expenditures.
Our success is dependent on our key personnel who we may not be able to retain
and we may not be able to hire enough additional personnel to meet our needs
Our success depends in large part upon our ability to hire and retain
qualified personnel in technical and management roles. We have a limited number
of employment agreements with our technical and management personnel. Hiring
replacement or additional employees with the combination of skills and
attributes required to carry out our needs is extremely competitive. Our
inability to hire and retain such personnel could adversely effect our growth
and profitability.
15
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System failures or miscalculations attributable to the Year 2000 issue could
disrupt our operations
The Year 2000 issue is the result of computer programs only being able
to use two digits rather than four to define the applicable year. Thus,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. System failure or miscalculation, whether in our internal
operating systems or our products or those of our third party vendors or
suppliers, could result in our inability to process transactions, send invoices,
accept customer orders or timely provide customers with products and services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A discussion of our exposure to and management of market risk appears
in Item 7 of this Report under the heading "Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14(a)(i) herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is hereby incorporated by reference from our definitive proxy
statement to be filed within 120 days of September 30, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Item 11 is hereby incorporated by reference from our definitive proxy
statement to be filed within 120 days of September 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is hereby incorporated by reference from our definitive proxy
statement to be filed within 120 days of September 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is hereby incorporated by reference from our definitive proxy
statement to be filed within 120 days of September 30, 1999.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(i) Financial Statements.
Independent Auditors' Report
Consolidated Balance Sheets at September 30, 1999 and
September 30, 1998
Consolidated Statements of Operations for the Years Ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income (Loss) for the
Years Ended September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule.
Schedule II -- Valuation and Qualifying
Accounts
(iii) Exhibits.
3.1 Registrant's Restated Certificate of
Incorporation (1)
3.2 Amendments to Registrant's Restated Certificate of
Incorporation (2)
3.3 Registrant's Bylaws, as amended (3)
4.1 Rights Agreement, dated as of May 14, 1998, between
Registrant and American Stock Transfer & Trust
Company (3)
4.2 Form of Prepaid Warrant (4)
10.1 Credit Agreement, dated as of March 18, 1998, by and
among Registrant, the Lenders Party thereto and Bank
of New York, as Administrative Agent (5)
10.2 Amendment No. 1 to Credit Agreement, dated June 15,
1998, by and among Registrant, the Lenders Party
thereto and Bank of New York, as Administrative
Agent (2)
10.3 Amendment No. 2 to Credit Agreement, dated June 26,
1998, by and among Registrant, the Lenders Party
thereto and Bank of New York, as Administrative
Agent (2)
10.4 Amendment No. 3 to Credit Agreement and Forbearance,
dated December 4, 1998, by and among Registrant, the
Lenders Party Thereto and Bank of New York, as
Administrative Agent (6)
10.5 Amendment No. 4 to Credit Agreement and Forbearance,
dated January 29, 1999, by and among Registrant, the
Lenders Party Thereto and Bank of New York, as
Administrative Agent (2)
10.6 Amendment No. 5 to Credit Agreement and Forbearance,
dated March 16, 1999, by and among Registrant, the
Lenders Party Thereto and Bank of New York, as
Administrative Agent (2)
10.7 Amendment No. 6 to Credit Agreement and Forbearance
dated April 22, 1999, by and among Registrant, the
Lenders Party Thereto and Bank of New York, as
Administrative Agent (2)
10.8 Amendment No. 7 to Credit Agreement and Forbearance
dated November 5, 1999 by and among Registrant, the
Lenders Party Thereto and Bank of New York, as
Administrative Agent
10.9 Securities Purchase Agreement dated as of February
18, 1999 among Registrant and the purchasers parties
thereto (4)
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10.10 Registration Rights Agreement (4)
10.11 Securities Purchase Agreement dated as of July 19,
1999 among Registrant and the purchasers parties
thereto (7)
10.12 Registration Rights Agreement (7)
10.13 Asset Purchase Agreement, dated November 16, 1998
between Registrant and Rosemount Aerospace, Inc. (5)
10.14 License Agreement, dated December 4, 1999, between
Registrant and Rosemount Aerospace, Inc. (5)
10.15 License Agreement, dated December 4, 1999, between
Registrant and Rosemount Aerospace, Inc. (5)
10.16 Asset Purchase Agreement dated as of November 10,
1999 between Registrant and Polaroid Corporation
21 Subsidiaries of Registrant (5)
23(a) Independent Auditors' Consent of Deloitte & Touche
LLP
27 Financial Data Schedule
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-4,
File No. 333-08633.
(2) Filed as an exhibit to Registrant's Registration Statement on Form S-1,
File No. 333-76927.
(3) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
May 20, 1998.
(4) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
February 24, 1999.
(5) Filed as an exhibit to Registrant's Annual Report on Form 10-K for its
fiscal year ended September 30, 1998.
(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K/A for
its fiscal year ended September 30, 1998, filed on January 28, 1999.
(7) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
July 23, 1999.
(b) Reports on Form 8-K:
None.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Robotic Vision Systems, Inc.
Canton, MA
We have audited the accompanying consolidated balance sheets of Robotic Vision
Systems, Inc. and subsidiaries (the "Company") as of September 30, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income (loss), stockholders' equity, and cash flows for each of the three years
in the period ended September 30, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Robotic Vision Systems, Inc. and
subsidiaries at September 30, 1999 and 1998, and the results of their
operations, and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte and Touche LLP
Boston, Massachusetts
December 27, 1999
F-1
22
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE)
1999 1998
---- ----
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 6,293 $ 2,421
Accounts receivable, net....................................................... 37,502 32,367
Inventories.................................................................... 32,553 36,213
Prepaid expenses and other current assets...................................... 1,288 1,226
------------- ------------
Total current assets..................................................... 77,636 72,227
Plant and equipment, net....................................................... 12,281 17,591
Deferred income taxes.......................................................... 8,820 8,820
Goodwill, net of accumulated amortization of $1,434 and $840................... 5,250 5,847
Software development costs, net .. ............................................ 13,965 11,812
Other assets..................... ............................................. 5,249 5,274
------------- ------------
$ 123,201 $ 121,571
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt............................ $ 35,627 $ 38,038
Accounts payable............................................................... 21,093 21,388
Accrued expenses and other current liabilities................................. 16,531 22,289
------------- -------------
Total current liabilities................................................ 73,251 81,715
Long-term debt................................................................. 2,855 3,059
------------- -------------
Total liabilities........................................................ 76,106 84,774
Commitments and contingencies (Note 10)........................................
Prepaid warrants............................................................... 9,105 --
Stockholders' Equity:
Common stock, $0.01 par value; shares authorized 75,000 shares--1999 and
1998--50,000 issued and outstanding; 1999--27,354 and 1998--24,870........... 274 249
Additional paid-in capital..................................................... 179,466 168,493
Accumulated deficit............................................................ (141,683) (131,962)
Accumulated other comprehensive income......................................... (67) 17
------------- -------------
Total stockholders' equity............................................... 37,990 36,797
------------- -------------
$ 123,201 $ 121,571
============= =============
See notes to consolidated financial statements
F-2
23
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
---- ---- ----
Revenues.............................................................. $ 128,230 $ 169,007 $ 169,342
Cost of revenues...................................................... 71,526 113,005 93,847
------------ ----------- ----------
Gross profit.......................................................... 56,704 56,002 75,495
------------ ----------- ----------
Operating costs and expenses:
Research and development expenses..................................... 20,533 28,121 25,465
Selling, general and administrative expenses.......................... 44,599 58,877 48,259
Merger expenses....................................................... -- 623 69
Severance and other charges........................................... 255 6,615 --
------------ ----------- ----------
Income (loss) from operations......................................... (8,683) (38,234) 1,702
Gain on sale of assets ............................................... (2,985) -- --
Interest expense...................................................... 3,959 2,363 1,076
Interest income....................................................... (399) (92) (767)
------------ ----------- ---------
Income (loss) before income taxes..................................... (9,258) (40,505) 1,393
Provision (benefit) for income taxes.................................. -- -- 745
------------ ----------- ----------
Income (loss) before income taxes..................................... (9,258) (40,505) 648
Premium on prepaid warrants........................................... 463 -- --
------------ ----------- ----------
Net income (loss) attributable to common stockholders................. $ (9,721) $ (40,505) $ 648
============ =========== ==========
Net income (loss) per share:
Basic.............................................................. $ (0.38) $ (1.65) $ 0.03
Diluted............................................................ $ (0.38) $ (1.65) $ 0.03
Weighted Average shares:
Basic.............................................................. 25,669 24,613 23,718
Diluted............................................................ 25,669 24,613 23,967
See notes to consolidated financial statements
F-3
24
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
COMMON STOCK ACCUMULATED
------------------ ADDITIONAL UNREALIZED OTHER TOTAL
NUMBER PAID-IN ACCUMULATED GAIN ON COMPREHENSIVE STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS INCOME EQUITY
--------- ------ ------- ------- ----------- ------ ------
BALANCE, OCTOBER 1, 1996 ........... 23,332 $233 $157,607 $ (94,549) $ 147 $ 175 $ 63,613
Shares issued in connection with
the exercise of stock options
and warrants .................... 384 4 1,839 -- -- -- 1,843
Other stock transactions ........... (104) (1) (488) -- -- -- (489)
Shares issued in connection with
private placement, net of offering
costs ........................... 826 8 7,665 -- -- -- 7,673
Change in year end of pooled
companies ....................... -- -- -- 2,444 -- -- 2,444
Change in net unrealized holding
gains ........................... -- -- -- -- (147) -- (147)
Translation adjustment ............. -- -- -- -- -- (8) (8)
Net income ......................... -- -- -- 648 -- -- 648
--------- ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1997 ........ 24,438 244 166,623 (91,457) -- 167 75,577
Shares issued in connection with
the exercise of stock options
and warrants .................... 161 2 373 -- -- -- 375
Shares issued in connection with
license agreement and non-
competition agreement ........... 271 3 1,497 -- -- -- 1,500
Translation adjustment ............. -- -- -- -- -- (150) (150)
Net loss ........................... -- -- -- (40,505) -- -- (40,505)
--------- ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1998 ........ 24,870 249 168,493 (131,962) -- 17 36,797
Shares issued in conjunction with
the exercise of stock options
and warrants .................... 111 1 168 -- -- -- 169
Shares issued in connection with
private placement, net of
offering costs .................. 2,373 24 5,807 -- -- -- 5,831
Warrants issued in connection with
private placement, net of
offering costs .................. -- -- 4,898 -- -- -- 4,898
Warrants issued for professional
services ........................ -- -- 100 -- -- -- 100
Amortization of warrant premium..... -- -- -- (463) -- -- (463)
Translation adjustment ............. -- -- -- -- -- (84) (84)
Net loss ........................... -- -- -- (9,258) -- -- (9,258)
--------- ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1999 ........ 27,354 $274 $179,466 $(141,683) $ -- $ (67) $ 37,990
========= ==== ======== ========= ===== ===== ========
See notes to consolidated financial statements
F-4
25
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
1999 1998 1997
---- ---- ----
Net income (loss)..................................................... $(9,258) $(40,505) $648
Foreign currency translation adjustment............................... (84) (150) (8)
------- -------- ----
Comprehensive net income (loss)....................................... $(9,342) $(40,655) $640
======= ======== ====
See notes to consolidated financial statements
F-5
26
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
1999 1998 1997
---- ---- ----
OPERATING ACTIVITIES
Net income (loss).............................................................. $(9,721) $(40,505) $ 648
Adjustments to reconcile net income (loss) to net cash
used in operating activities:..................................................
Deferred income taxes........................................................ -- -- (93)
Depreciation and amortization................................................ 10,771 8,769 5,895
Gain on sale of assets....................................................... (2,985) -- (812)
Other........................................................................ -- (164) (218)
Changes in operating assets and liabilities (net of effects of business
acquired):
Accounts receivable........................................................ (5,135) 18,196 (20,084)
Inventories................................................................ 3,660 2,882 (14,093)
Prepaid expense and other current assets................................... (62) 203 (514)
Other assets............................................................... (57) 373 31
Accounts payable........................................................... (295) (1,932) 10,709
Accrued expenses and other current liabilities............................. (5,758) 850 4,722
Other liabilities.......................................................... -- -- (82)
------- -------- --------
Net cash used in operating activities...................................... (9,582) (11,328) (13,891)
------- -------- --------
INVESTING ACTIVITIES:
Proceeds from maturity of investments.......................................... -- -- 2,319
Additions to plant and equipment, net.......................................... (2,885) (9,137) (7,915)
Additions to software development costs........................................ (4,927) (7,397) (4,842)
Proceeds from sale of assets................................................... 4,229 -- 952
Payment for purchase of business............................................... -- -- (3,144)
------- -------- --------
Net cash used in investing activities...................................... (3,583) (16,534) (12,630)
------- -------- --------
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and warrants--
private equity placement (less offering costs)................................. 19,372 -- 7,673
Proceeds from the exercise of stock options and warrants....................... 168 375 1,271
Purchase of treasury stock..................................................... -- -- (650)
Net proceeds from (payments of) short-term borrowings.......................... (2,411) 28,911 (2,833)
Proceeds from long-term borrowings............................................. -- -- 8,000
Repayment of long-term borrowings.............................................. (204) (7,828) (1,864)
------- -------- --------
Net cash provided by financing activities.................................. 16,925 21,458 11,597
------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS............................................................. 112 14 189
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 3,872 (6,390) (14,735)
CASH AND CASH EQUIVALENTS:
Beginning of year............................................................ 2,421 8,811 23,546
------- -------- --------
End of year.................................................................. $ 6,293 $ 2,421 $ 8,811
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................................................. $ 2,937 $ 2,311 $ 1,027
======= ======== ========
Taxes paid..................................................................... $ -- $ 244 $ 218
======= ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and subordinated note
payable in connection with technology
license agreement and non-competition agreement.............................. -- $ 3,750 --
======= ======== ========
Income tax benefit relating to the exercise of
stock options................................................................ -- $ 16 $ 572
======= ======== ========
Liabilities incurred in connection with acquisition
of business.................................................................. -- -- $ 902
======= ======== ========
Property and equipment acquired under capital leases........................... -- -- $ 22
======= ======== ========
See notes to consolidated financial statements
F-6
27
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a. DESCRIPTION OF BUSINESS--Robotic Vision Systems, Inc. ("RVSI") and
subsidiaries (the "Company") designs, manufactures, markets and sells automated
one dimensional ("1-D"), two dimensional ("2-D") and three dimensional ("3-D")
machine vision based products and systems for inspection, measurement and
identification, and is a leader in advanced electro-optical sensor technology.
b. OPERATIONS--The Company incurred net losses of $9.3 million and
$40.5 million for the fiscal years ended September 30, 1999 and 1998,
respectively, primarily attributable to the worldwide downturn in demand for
semiconductor capital equipment which began in March 1998 and continued through
the first half of calendar 1999. The Company had operated profitably for the
five years prior to the downturn. Primarily during fiscal 1998, management took
a series of steps to reduce expenses and restructure operations in response to
this downturn.
At September 30, 1999, the Company owed $35.3 million to its bank
lenders. The indebtedness is collateralized by substantially all of the
Company's assets. The Company has not been in compliance with certain of the
financial covenants contained in the agreement with the banks. This has
required the Company to periodically request waivers of these covenants or
amendments of the agreement. In March 1999, the agreement was amended to
conform the financial covenants to the Company's operating plans. Through
September 30, 1999, the Company was in compliance with the revised covenants.
The bank agreement expires on March 17, 2000 and the Company must either repay
or replace this indebtedness, or negotiate an extension of the agreement.
Management is continuing to control expenses, inventory levels and
capital expenditures and is pursuing a number of new debt and/or equity
financing alternatives. Management believes that through a combination of new
financings and/or extension of the existing loan agreement, the Company will
have sufficient liquidity at least through September 30, 2000 to fund its cash
requirements.
c. PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the financial statements of RVSI and its subsidiaries, all of which are
wholly-owned. All significant intercompany transactions and balances have been
eliminated in consolidation. The effects of changes in fiscal years of pooled
companies (Vanguard Automation, Inc in fiscal 1998 and Systemation Engineered
Products, Inc. and Computer Identics Corporation in fiscal 1996) are recorded as
adjustments to accumulated deficit.
d. REVENUES AND COST OF REVENUES--The Company recognizes revenue upon
shipment. Warranty costs associated with products sold with warranty protection,
as well as other post-contract support obligations, are estimated based on the
Company's historical experience and recorded in the period the product is sold.
e. CASH AND CASH EQUIVALENTS--Cash and cash equivalents includes money
market accounts and certain debt securities issued by the United States
government purchased with an original maturity of three months or less.
f. INVENTORIES--Inventories are stated at the lower of cost (using the
first-in, first-out cost flow assumption) or market.
g. PLANT AND EQUIPMENT--Plant and equipment is recorded at cost less
accumulated depreciation and amortization. Depreciation is computed by the
straight-line method over estimated lives ranging from two to eight years.
Leasehold improvements are amortized over the lesser of their respective
estimated useful lives or lease terms.
h. INTANGIBLE ASSETS--Goodwill is being amortized over 15 years; a
technology license and non-competition agreement are being amortized over 10
years. The Company reviews its long-lived assets, including goodwill and other
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. A review for impairment includes comparing the carrying value of an
asset to an estimate of the undiscounted net future cash inflows over the life
of the asset. An asset is considered to be impaired when the carrying value
exceeds the calculation of the undiscounted net future cash inflows or fair
market value. An impairment loss is defined as the amount of the excess of the
carrying value over the fair market value of the asset.
i. SOFTWARE DEVELOPMENT COSTS--Software development costs are
capitalized in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86. Such costs are capitalized only to the extent of costs of
producing product masters subsequent to the establishment of their technological
feasibility and capitalization ends when the product is available for general
release to customers. Capitalized software development costs are amortized over
the estimated useful lives (generally five years) on a straight-line basis or
the ratio of current revenues to total expected revenues in a product's expected
life, if greater. Amortization begins in the period in which the related product
is available for general release to customers. The Company reviews the
unamortized capitalized costs of its underlying products to the net realizable
value of these products. An impairment loss is recorded in an amount by which
the unamortized capitalized costs of a computer software product exceeds the net
realizable value of that asset. Certain software development costs totaling
$4,927, $7,397 and $4,842 have been capitalized during the fiscal years ended
September 30, 1999, 1998 and 1997 respectively. Amortization expense relating to
software development costs for the fiscal years ended September 30, 1999, 1998,
and 1997 was $2,775, $2,072, and $962, respectively.
F-7
28
j. RESEARCH AND DEVELOPMENT COSTS--The Company charges research and
development costs for Company-funded projects to operations as incurred.
k. INCOME TAXES--The Company accounts for income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the Company's consolidated
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
accounting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
l. FOREIGN CURRENCY TRANSLATION--Assets and liabilities of the
Company's European subsidiaries are translated at the exchange rate in effect at
the balance sheet date. Income statement accounts are translated at the average
exchange rate for the year. The resulting translation adjustments are excluded
from operations and accumulated as a separate component of stockholders' equity.
Transaction gains (losses) are included in net income and totaled $(163,000),
$106,000 and $(267,000) in 1999, 1998 and 1997, respectively.
m. NET INCOME (LOSS) PER COMMON SHARE--Basic income (loss) per common
share is computed using the weighted average number of common shares outstanding
during each year. Diluted net income per common share reflects the effect of the
Company's outstanding options and warrants (using the treasury stock method),
except where such options would be anti-dilutive.
n. FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
a) Cash and Cash Equivalents--The carrying amounts approximate
fair value because of the short maturity of these instruments.
b) Receivables--The carrying amount approximates fair value
because of the short maturity of these instruments.
c) Debt--The carrying amounts approximate fair value based on
borrowing rates currently available to the Company for loans
with similar terms.
d) Prepaid warrant--At September 30, 1999, the value of the shares
into which the prepaid warrant was exercisable was $18,567.
o. USE OF ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
p. RECLASSIFICATIONS--Certain amounts in the 1997 and 1998 financial
statements have been reclassified to conform with the 1999 presentation.
q. RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" as
amended, and is effective for the Company in the first quarter of fiscal year
2001. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The Company is evaluating the effects of adoption of
SFAS No. 133 on its consolidated financial statements.
F-8
29
2. ACQUISITIONS
a. VANGUARD AUTOMATION, INC.
On December 9, 1997, the Company acquired the outstanding shares of
Vanguard Automation, Inc. ("Vanguard") for approximately 3,391,000 shares of the
Company's common stock, having a market value at the date of the merger of
approximately $45,776,000. Outstanding Vanguard stock options were converted
into stock options to purchase approximately 152,000 shares of the Company's
common stock. Outstanding Vanguard warrants were converted into warrants to
purchase approximately 182,000 shares of the Company's common stock. Vanguard
produces and markets automated manufacturing equipment used in the assembly of
certain types of semiconductor packaging processes, including ball grid array
and chip scale packages. This acquisition has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated to include the accounts of Vanguard for all periods presented. Expenses
of $623,000, relating primarily to investment banking, legal and accounting
fees, were incurred relating to this merger and charged to expense in fiscal
1998.
Detailed below is the effect on the Company's results of operations for
fiscal 1997 as a result of the Company's acquisition of Vanguard.
(IN THOUSANDS, EXCEPT AS PREVIOUSLY
PER SHARE AMOUNTS) REPORTED VANGUARD ELIMINATION COMBINED
- ------------------ -------- -------- ----------- --------
1997
Revenues........................... $152,103 $ 18,218 $(979) $169,342
Net income (loss).................. 8,245 (7,511) (86) 648
Net income per share - diluted..... 0.38 0.03
b. TRIGON
On June 30, 1997, the Company acquired Trigon Technologies, Inc.
("Trigon"), a privately owned company located in Farmington Hills, Michigan.
Trigon markets a line of 2-D machine vision products for the semiconductor
industry. The purchase price was $3,000,000 in cash plus contingent
consideration based upon the sales level of certain products sold by Trigon,
over a five-year period.
This acquisition has been accounted for as a purchase and, accordingly,
the results of Trigon are included in the consolidated statements of operations
of the Company since the date of acquisition and the purchase price (including
acquisition costs) has been allocated to net assets acquired based upon their
fair values. Goodwill relating to the acquisition of $2,997,000 is being
amortized over 15 years. The historical results of operations of Trigon were not
material to the operations of the Company.
c. SYSTEMATION ENGINEERED PRODUCTS, INC.
On October 1, 1996, the Company acquired the outstanding shares of
Systemation Engineered Products, Inc. ("Systemation") for 1,740,000 shares of
the Company's common stock, having a market value at the date of the merger of
approximately $22,838,000. Systemation designs manufactures, markets and sells
specialized high speed production machinery for the electronics component
industry. Systemation's product lines include tape and reel packaging equipment
and automatic optical inspection systems. This acquisition has been accounted
for as a pooling of interests. Expenses of $904,000 were incurred related to
this merger were included in the Consolidated Statement of Operations for fiscal
1997.
F-9
30
3. ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 1999 and 1998 consisted of the
following:
1999 1998
---- ----
(IN THOUSANDS)
Total accounts receivable............................................................... $ 38,394 $ 33,367
Less allowance for doubtful accounts receivable......................................... (892) (1,000)
----------- -----------
Accounts receivables, net............................................................... $ 37,502 $ 32,367
=========== ===========
As of September 30, 1999 and 1998, the Company had $1,053 and $2,444
respectively, of unbilled receivables primarily relating to sales recorded on
standard products which have been shipped, but have not yet been finally
accepted by the customer. The Company has no significant remaining obligations
relating to these unbilled receivables and collectibility is probable. All
unbilled receivables owed to the Company as of September 30, 1998 have been
collected. The Company believes that all of its unbilled receivables at
September 30, 1999 will be billed and collected during the next twelve months.
4. INVENTORIES
Inventories at September 30, 1999 and 1998 consisted of the following:
1999 1998
---- ----
(IN THOUSANDS)
Raw materials.................................................................. $ 16,817 $ 17,124
Work in process................................................................ 7,360 10,429
Finished goods................................................................. 8,376 8,660
----------- ------------
Total................................................................. $ 32,553 $ 36,213
=========== ============
INVENTORY PROVISIONS--During the third and fourth quarters of fiscal
1998, the Company took provisions of $4.5 million and $12.1 million,
respectively, primarily for excess and obsolete inventories related principally
to its semiconductor inspection and handling equipment. These provisions largely
reflected reduced demand of older generation products as a result of the severe
semiconductor industry downturn. The Company believes that the inventory
provisions taken in fiscal 1998 reduced the carrying value of inventories to
their appropriate net realizable value. These amounts have been recorded in cost
of sales in the accompanying consolidated financial statements. The inventory
balances at September 30, 1998, net of inventory provisions, contain older
generation products of approximately $4.5 million. Substantially all of the
older generation products were sold or disposed of in fiscal 1999.
5. INCOME TAXES
The components of income (loss) before income tax provision (benefit),
for the fiscal years ended September 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Domestic ............................................................. $(7,496) $(36,758) $2,114
Foreign ............................................................. (1,762) (3,747) $ (721)
------- -------- ------
Total........................................................ $(9,258) $(40,505) $1,393
======= ========= ======
F-10
31
The income tax provision (benefit) for the fiscal years ended September
30, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Current:
Federal........................................................... $ -- $ -- $ 737
State............................................................. -- -- 110
Foreign........................................................... -- -- (9)
------- -------- -------
-- -- 838
------- -------- -------
Deferred:
Federal........................................................... (4,042) (18,044) 1,187
State............................................................. (476) (2,140) 246
Change in valuation allowance..................................... 4,518 20,184 (1,526)
------- -------- --------
-- -- (93)
------- -------- -------
Total........................................................ $ -- $ -- $ 745
======= ======== =======
The income tax benefits related to the exercise of stock options
reduces taxes currently payable or increases net deferred tax assets, and is
credited to additional paid-in capital.
A reconciliation between the statutory U.S. Federal income tax rate and
the Company's effective tax rate for the fiscal years ended September 30, 1999,
1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
U.S. Federal statutory rate ..................... (34.0)% (34.0)% 34.0%
Increases (reductions) due to:
State taxes--net of Federal tax benefit ......... (4.0) (4.0) 13.7
Anticipated future utilization of net operating
loss carryforwards .......................... -- -- (88.9)
Net operating loss not producing current
tax benefits ................................ 34.0 34.6 203.5
Exempt income of foreign sales corporation ...... -- -- (55.1)
Worthless stock deduction relating to liquidation
of foreign subsidiaries ..................... -- -- (55.1)
Other--net ...................................... 4.0 3.4 1.4
----- ----- -----
Total ........................................... 0.0% 0.0% 53.5%
===== ===== =====
The net deferred tax asset at September 30, 1999, 1998 and 1997 is
comprised of the following:
1999 1998 1997
---- ---- ----
DEFERRED TAX ASSETS (LIABILITIES): (IN THOUSANDS)
Net operating loss carryforwards $37,632 $ 27,257 $ 17,021
Tax credit carryforwards ....... 2,109 2,315 2,655
Accrued liabilities ............ 1,257 2,754 2,277
Inventories .................... 3,325 6,899 2,427
Receivables .................... 372 418 1,078
Property and equipment ......... 885 361 (129)
F-11
32
Merger expenses ................ -- 329 271
Software development costs ..... (4,293) (3,538) (2,043)
Other .......................... 30 4 176
-------- -------- --------
41,317 36,799 23,733
Less valuation allowance ... (32,497) (27,979) (14,913)
-------- -------- --------
Total ................. $ 8,820 $ 8,820 $ 8,820
======== ======== ========
As of September 30, 1999, the Company had U.S. Federal net operating
loss carryforwards of approximately $95,327 of which $29,972 are subject to
annual limitations because of the changes in ownership, as defined in the
Internal Revenue Code. Such loss carryforwards expire in the fiscal years 2000
through 2014. The utilization of the carryforwards to offset future tax
liabilities is dependent upon the Company's ability to generate sufficient
taxable income during the carryforward periods. The Company has recorded a
valuation allowance to reduce the net deferred tax asset to an amount that
management believes is more likely than not to be realized. The change in the
valuation allowance in fiscal 1999 relates primarily to the fiscal 1999
operating loss.
6. PLANT AND EQUIPMENT
Plant and equipment at September 30, 1999 and 1998 consisted of the
following:
1999 1998
---- ----
(IN THOUSANDS)
Land ............................................................................... $ -- $ 490
Machinery and equipment................................................................. 12,584 10,475
Furniture, fixtures and other equipment................................................. 13,043 13,163
Demonstration equipment................................................................. 4,880 7,531
Leasehold improvements.................................................................. 2,595 2,492
------------- -----------
Total.......................................................................... 33,102 34,151
Less accumulated depreciation and amortization.......................................... (20,821) (16,560)
------------- -----------
Plant and equipment--net.......................................................... $ 12,281 $ 17,591
============= ===========
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at September 30, 1999
and 1998 consisted of the following:
1999 1998
---- ----
(IN THOUSANDS)
Accrued wages and related employee benefits................................... $ 4,285 $ 5,948
Accrued sales commissions..................................................... 3,538 5,468
Advance contract payments received............................................ 2,705 1,216
Accrued warranty and other product related costs.............................. 1,448 2,826
Accrued severance and other charges........................................... 255 2,099
Other ..................................................................... 4,300 4,732
------- -------
Total.................................................................... $16,531 $22,289
======= =======
Severance and other charges--During fiscal 1998, the Company took
multiple steps to reduce its expenses and to lower the level of revenues
necessary for break-even results of operations. As a result of these steps, the
Company recorded a total of $6.6 million in charges in fiscal 1998.
The Company terminated 400 employees at a cost of $3.8 million. Of the
$3.8 million, approximately $2.4 million was paid in cash to employees prior to
September 30, 1998. An additional $1.5 million was recorded for costs associated
with changing distributors in Asia. The charge was recorded in the quarter ended
March 31, 1998. Of this charge, $1.0 million represents the write-off of the
Company's investment in its bankrupt Korean distributor. The Company terminated
its business relationship with the distributor after such distributor could no
longer meet its commitment to service the Company's existing installed base of
customers in Korea nor meet the Company's sales goals. The remaining charge
represents termination of the distributor of the Company's product in Japan. The
terms of an agreement to end the Company's business relationship with the
Japanese distributor were reached at the end of the Company's second fiscal
quarter. Under this agreement, the Company was to repurchase from the
distributor certain demonstration equipment used in selling the Company's
product and settle outstanding commitments of the distributor. The approximately
$0.5 million charge represents the Company's liability under the agreement, net
of the realizable value of assets recovered from the Japanese distributor.
The charges also included a $1.1 million non-cash write-down of
previously capitalized software costs associated with currently inactive
products and $0.2 million in costs associated with the consolidation of Acuity
and CiMatrix operations.
F-12
33
The components of the severance and other charges, related fiscal 1998
expenditures and remaining liability at September 30, 1999 are detailed below:
ACCRUED ACCRUED
SEPTEMBER 30 CASH SEPTEMBER 30
1998 EXPENDITURES 1999
------------ ------------ ------------
(IN THOUSANDS)
Severance payments to employees........................ $ 1,384 $ 1,384 $ --
Costs for changes in Asia distributors................. 1,500 1,245 255
Costs to consolidate Acuity CiMatrix operations........ 215 215 --
------- ------- -----
Total............................................. $ 2,099 $ 1,844 $ 255
======= ======= =====
The Company expects that the remaining balance at September 30, 1999
will be paid in cash during fiscal 2000. Severance and other charges were $0.3
million for the year ended September 30, 1999. These charges relate to
reductions in personnel, particularly in Europe. The 1999 severance and other
charges were paid out in fiscal 1999, no amount were accrued as of September
30, 1999.
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at September 30, 1999 and 1998
consisted of the following:
1999 1998
---- ----
(IN THOUSANDS)
Lines of credit with domestic banks(a)................................... $ 35,325 $ 37,500
Subordinated note payable(b)............................................. 2,250 2,250
Other borrowings......................................................... 907 1,347
-------- --------
Total notes payable and long-term debt.............................. 38,482 41,097
Less notes payable and current portion of long-
term debt.............................................................. (35,627) (38,038)
-------- --------
Long-term debt........................................................... $ 2,855 $ 3,059
======== ========
a. In March 1998, the Company entered into a $37,500 revolving credit
agreement with three domestic banks, which replaced $19,500 in existing
lines of credit and $6,900 outstanding under a term loan. In the third
quarter of fiscal 1999, the agreement was amended to waive compliance
with certain financial covenants of the agreement through March 31,
1999 and establish new financial covenants for the balance of the term
of the agreement. The amended agreements expires on March 17, 2000 and
borrowings under the agreement bears interest at prime rate plus 2% asp
of September 30, 1999 or 10.25%. Borrowings are collateralized by
substantially all of the domestic tangible and intangible assets of the
Company. The amended agreement, among other things, contains certain
financial covenants, including minimum levels of profitability,
liquidity and net worth, with which the Company was in compliance at
September 30, 1999. Borrowings under the agreement at September 30,
1999, have been classified as current. Average borrowings during fiscal
1999 were 36,420. The average interest rate on borrowings were
approximately 10.0%. The Company is working to replace the revolving
credit agreement.
b. The subordinated note matures in June 2003, bears interest at prime
(8.25% at September 30, 1999) and is payable in equal quarterly
installments of $281 commencing September 12, 2001.
9. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN--The Company has a noncontributory pension plan
for certain employees hired prior to September 1996, and meet certain minimum
eligibility requirements. The level of retirement benefit is based on a formula
which considers both employee compensation and length of credited service.
Plan assets are invested in pooled bank investment accounts and mutual
funds, and the fair value of such assets is based on the quoted market prices of
underlying securities in such accounts. The Company funds pension plan costs
based on minimum and maximum funding criteria as determined by independent
actuarial consultants.
The components of net pension cost for the fiscal years ended September
30, 1999, 1998 and 1997 are summarized as follows:
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Service cost--benefits earned during the period................. $ 257 $ 286 $ 272
Interest on projected benefit obligations....................... 164 164 135
F-13
34
Estimated return on plan assets................................. (128) (167) (117)
Other--amortization of actuarial gains
and net transition asset..................................... 23 (12) (15)
----- ----- -----
Net pension cost................................................ $ 316 $ 271 $ 275
===== ===== =====
The funded status of the plan compared with the accrued expense
included in the Company's consolidated balance sheet at September 30, 1999 and
1998 is as follows (in thousands):
1999 1998
---- ----
Reconcillation of benefit obligation
Obligation at October 1............................... $2,157 $2,186
Service cost.......................................... 257 286
Interest cost......................................... 164 164
Plan amendment........................................ 68 0
Actuarial (gain) loss................................. 5 279
Benefit payments...................................... (535) (27)
Curtailments.......................................... -- (33)
Settlements........................................... -- (698)
------ ------
Obligation at September 30............................ $2,166 $2,157
====== ======
Reconcillation of fair value of plan assets
Fair value of plan assets at October 1................ $1,548 $1,861
Actual return on plan assets.......................... 199 153
Employer contributions................................ 42 259
Benefit payments...................................... (535) (27)
Settlements........................................... 0 (698)
------ ------
Fair value of plan assets at September 30............. $1,254 $1,548
====== ======
Funded status
Funded status at September 30......................... (912) (609)
Unrecognized transition (assets) obligation........... 0 0
Unrecognized prior service cost....................... 73 14
Unrecognized (gain) loss.............................. 277 307
------ ------
Net amount recognized, before additional minimum
liability........................................... $ (562) $ (288)
====== ======
Significant assumptions used in determining net periodic pension cost
and related pension obligations are as follows:
1999 1998
---- ----
Discount rate 7.25% 7.25%
Rate of compensation increase 4.00% 4.00%
Expected long-term rate of return on assets 8.25% 8.25%
DEFINED CONTRIBUTION PLANS (IN THOUSANDS)--The Company has four defined
contribution plans (the "Plans") for all eligible employees, as defined by the
Plans. The Company made matching employer contributions at various percentages
in accordance with the respective plan documents. The Company incurred $645,
$747 and $604 for matching employer contributions to the Plans in 1999, 1998 and
1997, respectively.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--The Company has entered into operating lease
agreements for equipment, and manufacturing and office facilities. The minimum
noncancelable scheduled rentals under these agreements are as follows (in
thousands):
FISCAL YEAR ENDING SEPTEMBER 30: FACILITIES EQUIPMENT TOTAL
- -------------------------------- ---------- --------- -----
2000............................................. $ 2,886 $ 367 $ 3,253
2001............................................. 1,894 263 2,157
2002............................................. 1,403 67 1,470
2003............................................. 1,210 4 1,214
2004............................................. 818 3 821
Thereafter....................................... 7,613 -- 7,613
------- ----- -------
Total............................................ $15,824 $ 704 $16,528
======= ===== =======
Rent expense for the fiscal years ended September 30, 1999, 1998 and
1997 was $3,400, $3,305 and $3,015, respectively.
F-14
35
LITIGATION--In June 1998, RVSI and General Scanning Inc, now known as
GSI Lumonics, Inc. ("GSI"), executed a settlement agreement of RVSI's claims
arising out of GSI's acquisition of View Engineering, Inc. ("View"). In August
1996, RVSI claimed that GSI used improperly obtained information in connection
with the acquisition. GSI denied all such claims. Under the settlement
agreement, GSI has agreed not to compete for ten years in the inspection of
interconnect leads of semiconductor packages. Under the settlement, GSI licensed
to RVSI its 2-D and 3-D vision technology solely and exclusively for RVSI's use
in the interconnection leads. In consideration for the technology license and
non-competition agreement, RVSI agreed to pay GSI $3.75 million, of which $1.50
million represented 271,493 shares of the Company's common stock and $2.25
million in a subordinated note payable with a maturity date of five years.
The Company, as plaintiff, was a party to two actions in the United
States District Court for the Central District of California against View,
alleging infringement by View of a number of the Company's patents relating to
View's assembly and distribution of View's own 3-D machine vision products. In
June 1998, the Court, in the first of these actions, involving the coplanarity
inspection of ball grid array semiconductor package substrates, found
infringement by View and granted the Company's request for injunctive relief
against View. This ruling has been appealed by View to the United States Appeals
Court for the Federal Circuit. The second of these actions, in which GSI was
also a defendant, involving the "in-tray" inspection of semiconductor packages
came to trial in November 1999 and is awaiting decision.
The Company is presently involved in other litigation matters in the
normal course of business. Based upon discussion with Company's legal counsel,
management does not expect that these matters will have a material adverse
impact on the Company's consolidated financial statements.
11. STOCKHOLDERS' EQUITY
WARRANTS OUTSTANDING--As of September 30, 1999, there were warrants
outstanding to purchase approximately 9,078,000 shares of the Company's common
stock as described below:
PROCEEDS ON
DATE ISSUED QUANTITY EXERCISE EXPIRATION DATE
(IN THOUSANDS)
COMMON STOCK PURCHASE WARRANTS
------------------------------
a. December 1993 - September 1998 284 $ 2,852 December 1999 - September 2002
b. February 1999 1,247 4,938 February 2004
c. April 1999 750 2,970 April 2004
d. April 1999 327 1,297 April 2004
e. July 1999 3,091 12,425 July 2004
f. July 1999 150 750 July 2004
----- -------
5,849 $25,232
=======
PREPAID WARRANTS
----------------
b. February 1999 3,229 February 2004
-----
9,078
=====
a. Warrants issued in various transactions having an exercise price of between
$2.57 and $24.43.
b. The Company issued in February 23, 1999 private placement of its equity,
prepaid common stock purchase warrants and common stock purchase warrants.
See "Prepaid and incentive warrants" for more details.
c. During the third quarter of fiscal 1999, the Company amended the credit
agreement with its banks and issued warrants to its lending banks covering
750,000 shares, at an exercise price of $3.96 per share, of which 250,000
warrants are immediately exercisable. All, or a portion, of the remaining
500,000 warrants are only exercisable if the lending banks extend the
credit agreement beyond the original maturity date for pre-determined
periods. Using a Black-Scholes valuation model the Company valued the
warrants at approximately $600,000 which will be charged to income pro-rata
over the term of the credit agreement with respect to the 250,000 shares
immediately exercisable and over the extension, if any, with respect to the
remaining 500,000 shares.
d. In April 1999, in conjunction with the sale of common stock, the Company
issued 5-year incentive warrants for 327,462 shares of the Company's common
stock at an exercise price of $3.96 per share, subject to anti-dilution
adjustments. The incentive warrants are exercisable, beginning 18 months
after closing, at any time during their 5-year term.
e. In July 1999, the Company sold warrants to purchase 3,090,909 shares of the
Company's common stock at an exercise price of $4.02 per share for proceeds
of $4,250,000, in a private placement.
f. Warrants issued to placement agent in connection with the sale of warrants
and common stock.
F-15
36
PREPAID AND INCENTIVE WARRANTS-- On February 23, 1999, the Company
completed a private placement of its equity securities consisting of 5-year
prepaid common stock purchase warrants ("prepaid warrants") with a stated value
of $11,000,000 and 5-year incentive common stock purchase warrants ("incentive
warrants") to purchase 592,307 shares of the Company's common stock upon payment
of an exercise price of $3.96 per share. These securities were sold to four
institutional investors. At the closing, the Company received gross proceeds of
$11,000,000 from the issuance of the prepaid warrants and incentive warrants,
and net proceeds of $9,763,000 after placement agent fees and other expenses of
the transaction. The Company also issued to the placement agent 5-year incentive
warrants to purchase 629,915 shares of common stock at an exercise price of
$3.96 per share. The market price of the Company's common stock on the placement
closing date was $3.03 per share. As of September 30, 1999, there were issued
and outstanding $11,000,000 in stated value of prepaid warrants, plus accrued
premium of $463,000, and incentive warrants to purchase a total of 1,222,222
shares of common stock.
Each prepaid warrant is exercisable at the lower of $3.96 per share or
95% of the average of the three lowest closing bid prices of the Company's
common stock during the 20-day trading period ending on the date of notice of
exercise. On September 30, 1999, the exercise price would have been $3.55. The
prepaid warrants bear an annual premium of 7% per annum, payable in cash or, at
the Company's option, in shares of the Company's common stock, and are initially
exercisable, to the extent of 25% of the total number of shares issuable,
commencing on the 180th day (August 19, 1999) following their issuance,
increasing by increments of 25% every 90 days thereafter so that after the
passage of 450 days following the date of original issuance, the prepaid
warrants will have become fully exercisable. The incentive warrants are
exercisable at any time during their 5-year term.
The holders of the prepaid warrants can require that the Company redeem
the prepaid warrants in cash in the event of default by the Company under the
warrant agreement. An event of default as defined under the warrant agreement
includes failure to keep the Company's stock listed on a major exchange, failure
to file registration statements and to have such registration statements
declared effective, failure to make the shares underlying the warrants available
for exercise, merger into another entity where the Company is not the surviving
entity, bankruptcy proceedings, and failure to follow other material provisions
of the agreement.
In the event of a default the Company may be required to pay the
greater of 105% of the stated value of the prepaid warrants inclusive of accrued
but unpaid premium or an amount based on the highest closing bid price of the
Company's common stock during the default period.
The prepaid warrants are subject to call at the Company's option if
both, during the 20-day trading day period immediately preceding the date of the
Company's notice of redemption the average closing bid price, and on the date of
the Company's notice of redemption the closing bid price, of the Company's
common stock is less than $3.96 per share, subject to anti-dilution adjustment,
at a cash price equal to 120% of the exercise amount of the prepaid warrants,
inclusive of earned premium, called for redemption. Such call right may be
exercised by the Company up to four times during the term of the prepaid
warrants. The prepaid warrants are also subject to redemption by the Company, at
the Company's option, if their exercise price falls below $2.50 per share. The
prepaid warrants have been recorded outside of stockholder's equity because the
warrant holders can require the Company to redeem the prepaid warrants under
certain circumstances outside the Company's control.
The incentive warrants have been included in stockholders' equity in
the amount of $1,120,000, which reflects their estimated fair value. The prepaid
warrants have been recorded at $8,643,000, which reflects the amount of the net
proceeds received for the issuance of the prepaid warrants and incentive
warrants, less the value assigned to the incentive warrants. The premium of
$463,000 for the year ended September 30, 1999, on the prepaid warrant is
included in the net loss attributable to all common stockholders. Under
accounting literature in effect at the date of issue of the prepaid warrants,
the exercise terms of the prepaid warrants were not considered to be a
beneficial conversion feature.
Had the accounting requirements of EITF 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" ("EITF 98-5"), which is effective for instruments
issued after May 20, 1999, been in effect at the time of issuance of the prepaid
warrants, the exercise terms of the prepaid warrants would have been considered
a beneficial conversion feature and valued at approximately $1,120,000. This
amount would have been recorded as a discount to the amount recorded as prepaid
warrants and amortized over the period to initial exerciseability of the prepaid
warrants resulting in an increase of approximately $807,000 for the year ended
September 30, 1999 in net loss attributable to common shareholders.
F-16
37
STOCK OPTION PLANS--The Company has several stock option plans which
provide for the granting of options to employees or directors at prices and
terms as determined by the Board of Directors' Stock Option Committee. Such
options vest over a period of three to five years. All options issued by the
Company to date have exercise prices which were equal to market value of the
Company's common stock at the date of grant.
Shares granted and canceled during fiscal 1998 include a stock option
re-pricing offered by the Company to existing stock option holders of
unexercised options of each of the Company's stock option plans, excluding
members of the Board of Directors and certain corporate officers. Options
granted prior to June 26, 1998 were eligible for replacement under the terms of
the stock option re-pricing. At their election, stock option holders could
surrender their unexercised stock options for a proportionately lower amount of
stock options, based on a formula, at an exercise price of $4.13 per share, the
fair value of the Company's common stock on June 26, 1998. A total of
approximately 2,169,000 options, with exercise prices ranging from $5.19 per
share to $19.50 per share, were canceled, and approximately 1,446,000 options
were reissued at an exercise price of $4.13 per share. Reissued stock options
vest 40% on the six-month anniversary of the replacement date and 60% on the
date specified in the original option grant. The expiration date of these
reissued options are as specified in the original option grant. The options were
priced in excess of market value on the measurement date and accordingly, no
compensation was recognized.
The following table sets forth summarized information concerning the
Company's stock options:
NUMBER OF EXERCISE
SHARES PRICE RANGE
---------- -----------
(IN THOUSANDS)
Options outstanding for shares of
common stock at October 1, 1996........................................ 2,961 $0.53-$38.72
Granted................................................................ 2,660 7.71- 19.00
Canceled or expired.................................................... (1,636) 0.81- 38.72
Exercised.............................................................. (293) 0.53- 15.34
-------
Options outstanding for shares of common
stock at September 30, 1997............................................ 3,692 0.75- 34.42
Granted................................................................ 2,943 3.19- 16.94
Canceled or expired.................................................... (2,926) 2.20- 34.42
Exercised.............................................................. (138) 0.75- 10.00
-------
Options outstanding for shares of common
stock at September 30, 1998............................................ 3,571 1.00- 19.38
Granted................................................................ 1,424 2.00- 4.38
Canceled or expired.................................................... (1,038) 1.53- 18.25
Exercised.............................................................. (48) 1.00- 3.75
-------
Options outstanding for shares of common
stock at September 30, 1999.......................................... 3,909 1.00- 19.38
=======
Options exercisable at September 30, 1999................................ 350
=======
September 30, 1998................................ 548
=======
Shares reserved for issuance at September 30, 1999....................... 966
=======
Weighted average option exercise price information for the fiscal
years ended September 30, 1999, 1998 and 1997 was as follows:
1999 1998 1997
---- ---- ----
Outstanding at beginning of year.............. $6.94 $11.08 $12.14
Granted during the year....................... 2.61 6.68 12.86
Exercised during the year..................... 2.19 2.36 4.14
Canceled, terminated and expired.............. 8.64 11.88 16.51
Exercisable at year end....................... 4.74 7.12 5.86
F-17
38
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued To Employees", and related interpretations in
accounting for its option plans. Accordingly, as all options have been granted
at exercise prices greater than or equal to fair market value on the date of
grant, no compensation expense has been recognized by the Company in connection
with its stock-based compensation plans. Had compensation cost for the Company's
stock option plans been determined based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed under
Statement of Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation", the Company's net income (loss) and earnings per share would have
been reduced (increased) by approximately $(4,485,000), $(5,961,000) and
$5,032,000 or $(0.17), $(0.24) and $0.21 per share in fiscal 1999, 1998 and
1997, respectively. The weighted average fair value of the options granted
during fiscal 1999, 1998 and 1997 is estimated at $2.01, $3.99 and $7.44 on the
date of grant (using Black-Scholes option pricing model) with the following
weighted average assumptions for fiscal 1999, 1998 and 1997, respectively:
volatility of 95%, 70% and 64%, risk-free interest rate of 6.02%, 4.30% and
5.83%, and an expected life of five years in fiscal 1999, 1998 and 1997.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND 1998:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues ............................... $29,405 $27,294 $31,260 $40,271
Gross profit.............................. 12,571 11,861 14,243 18,029
Net income (loss) attributable to common
stockholders............................. (2,272) (4,189) (3,354) 94
Net income (loss) per share:
Basic and diluted....................... (0.07) (0.17) (0.13) 0.00
1998
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues ............................... $53,788 $47,727 $ 39,090 $ 28,402
Gross profit.............................. 26,043 21,041 10,919 (2,001)
Net income (loss)......................... 3,543 (5,672) (15,433) (22,943)
Net income (loss) per share:
Basic and diluted...................... 0.14 (0.23) (0.63) (0.92)
During fiscal 1998, the Company recorded inventory provisions of
$4,500,000 in the third quarter and $12,062,000 in the fourth quarter, which
reduced gross profit. The Company also recorded severance and other charges of
$3,184,000 in the second quarter, $2,420,000 in the third quarter and $1,011,000
in the fourth quarter of fiscal 1998.
13. CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION
MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS
During fiscal 1999, no customer accounted for more than 10% of total
revenues. In fiscal 1998 and 1997, revenues from a single customer represented
20% and 23% of total revenues, respectively. No other customer accounted for
more than 10% of total revenues for fiscal 1998 and 1997.
39
GEOGRAPHIC OPERATIONS
For the purposes of segment reporting, management considers the Company
to operate in two segments of the machine vision industry. Operations by
geographic area are summarized as follows (in thousands):
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1999 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------ ------ ------ ------------ ------------
Revenues from unaffiliated
customers............................... $ 117,924 $ 10,306 $ -- $ 128,230
Transfers between geographic
areas................................... 4,405 (4,405) --
------------- --------------- ----------------- --------------
Total revenues............................ $ 122,329 $ 10,306 $ (4,405) $ 128,230
============= =============== ================= ==============
Income (loss) before income
tax provision........................... $ (7,511) $ (1,747) $ -- $ (9,258)
============== ================ ================ ===============
Identifiable assets....................... $ 125,911 $ 6,821 $ (9,531) $ 123,201
============= =============== ================= ==============
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1998 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------ ------ ------ ------------ ------------
Revenues from unaffiliated
customers............................... $ 154,451 $ 14,556 -- $ 169,007
Transfers between geographic
areas................................... 4,852 -- $ (4,852) --
------------- --------------- ---------------- --------------
Total revenues............................ $ 159,303 $ 14,556 $ (4,852) $ 169,007
============= =============== ================ ==============
Income (loss) before income
tax provision (benefit)................. $ (36,529) $ (3,747) $ (229) $ (40,505)
============= =============== ================ ==============
Identifiable assets....................... $ 123,312 $ 7,979 $ (9,720) $ 121,571
============= =============== ================ ==============
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1997 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------ ------ ------ ------------ ------------
Revenues from unaffiliated
customers............................... $ 152,530 $ 16,812 $ -- $ 169,342
Transfers between geographic
areas................................... 4,611 -- (4,611) --
------------- --------------- ---------------- --------------
Total revenues............................ $ 157,141 $ 16,812 $ (4,611) $ 169,342
============= =============== ================ ==============
Income (loss) before income
tax provision.......................... $ 2,120 $ (721) $ (6) $ 1,393
============= =============== ================ ==============
Identifiable assets ...................... $ 136,448 $ 8,451 $ (4,976) $ 139,923
============= =============== ================ ==============
Total revenues to customers outside the U.S. were $71,352,000
$108,711,000 and $115,854,000 for the fiscal years ended September 30, 1999,
1998 and 1997, respectively.
Export sales from the Company's United States operations to
unaffiliated customers, which are generally denominated in U.S. dollars, for the
fiscal years ended September 30, 1999, 1998 and 1997 were as follows:
1999 1998 1997
---- ---- ----
Europe........................................................ $ 6,686 $ 7,501 $ 16,413
Asia/Pacific Rim.............................................. 52,724 84,606 80,714
Other......................................................... 1,636 2,048 1,915
------------- -------------- --------------
Total......................................................... $ 61,046 $ 94,155 $ 99,042
============= ============== ==============
F-19
40
SEGMENT INFORMATION
The Company operates in two reportable segments servicing the machine vision
industry. The Company has determined segments primarily based on the nature of
the products offered. The Semiconductor Equipment Group is comprised of our
Electronics division, as well as wholly-owned subsidiaries, Systemation
Engineered Products ("Systemation") and Vanguard Automation, Inc, ("Vanguard").
The Electronics division supplies inspection equipment to the semiconductor
industry; Systemation offers tape and reel component processing systems
designed to handle and inspect chip scale packages ("CSP") an ball grid array
("BGA") packages; and, Vanguard is a supplier of BGA and CSP equipment for the
semiconductor and connection industries. The Company's other segment is the
Acuity CiMatrix division. The Acuity CiMatrix division designs, manufactures
and markets 1-D and 2-D data collection products and barcode reading
systems, as well as 2-D machine vision systems and lighting products for use in
industrial automation.
The accounting policies of each segment are the same as those described in Note
1. Sales between segments are determined based on an intercompany price that is
consistent with external customers. Intersegment sales by the Acuity CiMatrix
division were $1,300,000, $2,900,000 and $600,000 for fiscal 1999, 1998 and
1997, respectively. Other income (loss) is comprised of corporate general and
administrative expenses. Other assets are comprised primarily of deferred taxes
and corporate accounts. Although certain research activities are conducted by
the Acuity CiMatrix division for the Semiconductor Equipment Group, research and
development expenses are reported in the segment where the costs are incurred.
The following table presents information about the Company's reportable segments
for the years ended September 30 (in thousands):
1999 1998 1997
---- ---- ----
REVENUES:
Semiconductor Equipment...................... $ 82,793 $122,003 $118,182
Acuity CiMatrix.............................. 45,437 47,004 51,160
-------- -------- --------
Total Revenues............................... $128,230 $169,007 $169,342
======== ======== ========
INCOME (LOSS) FROM OPERATIONS
Semiconductor Equipment...................... $ 41 $(16,867) $ 4,973
Acuity CiMatrix.............................. (1,464) (12,856) (3,271)
Other........................................ (7,260) (8,511) --
-------- -------- --------
Total income (loss) from operations.......... $ (8,683) $(38,234) $ 1,702
======== ======== ========
DEPRECIATION AND AMORTIZATION
Semiconductor Equipment $ 7,375 $ 5,943 $ 4,009
Acuity CiMatrix 3,396 2,826 1,886
-------- -------- --------
Total depreciation and amortization $ 10,771 $ 8,769 $ 8,895
======== ======== ========
TOTAL ASSETS
Semiconductor Equipment...................... $ 79,800 $ 78,441
Acuity CiMatrix.............................. 32,286 35,415
Other........................................ 11,115 7,715
-------- --------
Total Assets................................. $123,201 $121,571
======== ========
14. EARNINGS PER SHARE
The calculations for earnings per share for the fiscal years ended
September 30, 1999, 1998 and 1997 are as follows (in thousands, except per share
amounts):
1999 1998 1997
---- ---- ----
Net income (loss)............................................. $ (9,721) $ (40,505) $ 648
============= ============== ==============
Weighted average number of common
shares--basic............................................... 25,669 24,613 23,718
Assumed number of shares issued from
common share equivalents.................................... -- -- 249
------------- -------------- --------------
Weighted average number of common and
common equivalent shares--diluted........................... 25,669 24,613 23,967
============= ============== ==============
Net income (loss) per share--basic............................ $ (0.38) $ (1.65) $ 0.03
============= ============== ==============
Net income (loss) per share--diluted.......................... $ (0.38) $ (1.65) $ 0.03
============= ============== ==============
For the years ended September 30, 1999 and 1998, the Company had potential
common shares equivalents excluded from the earnings per shares calculation of
2,500,000 and 594,000 respectively as they were considered anti-dilutive.
F-20
41
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
COLUMN C
----------
COLUMN A COLUMN B ADDITION COLUMN E
---------- ---------- CHARGED TO COLUMN D ---------
BALANCE AT CHARGED TO OTHER -------- BALANCE
BEGINNING COST AND ACCOUNTS-- DEDUCTIONS-- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- --------- -------- -------- -------- ------
Year Ended September 30,
1999:
Allowance for doubtful
accounts.................... $ 1,000 $ 202 $ $ 310(1) $ 892
------------ ------------ --------- ----------- ----------
Reserve for excess and
obsolete inventory.......... $ 14,741 $ 418 $ -- $ 8,405(1) $ 6,754
------------ ------------ --------- ----------- ----------
Year Ended September 30,
1998:
Allowance for doubtful
accounts.................... $ 2,716 $ 329 $ -- $ 2,045(1) $ 1,000
============ ============ ========= =========== ==========
Reserve for excess and
obsolete inventory.......... $ 3,836 $ 16,562 $ -- $ 5,657(1) $ 14,741
============ ============ ========= =========== ==========
Year Ended September 30,
1997:
Allowance for doubtful
accounts.................... $ 1,400 $ 1,924 $ -- $ 608(1) $ 2,716
------------ ------------ --------- ----------- ----------
Reserve for excess and
obsolete inventory.......... $ 3,960 $ 1,435 $ -- $ 1,559(1) $ 3,836
------------ ------------ --------- ----------- ----------
(1) Amounts written off.
F-21
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Canton,
Commonwealth of Massachusetts, on the 29th day of December, 1999.
ROBOTIC VISION SYSTEMS, INC.
By: /s/ PAT V. COSTA
Pat V. Costa
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of ROBOTIC VISION
SYSTEMS, INC. hereby constitutes and appoints each of PAT V. COSTA and FRANK D.
EDWARDS as true and lawful, attorney-in-fact and agent with full power of
substitution and resubstitution, for him in his name in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and to prepare any and all exhibits thereto, and other documents in
connection therewith, granting unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done to enable ROBOTIC VISION SYSTEMS, INC. to comply with the
provisions of the Securities Act of 1934, as amended, and all requirements of
the Securities and Exchange Commission, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PAT V. COSTA Chairman, President and Chief December 29, 1999
Pat V. Costa Executive Officer
(Principal Executive Officer)
/s/ FRANK D. EDWARDS Chief Financial Officer and December 29, 1999
Frank D. Edwards Treasurer (Principal Financial
and Accounting Officer)
/s/ HOWARD STERN Director December 29, 1999
Howard Stern
Director
Frank DiPietro
/s/ JAY M. HAFT Director December 29, 1999
Jay M. Haft
Director
Tomas Kohn
/s/ DONALD J. KRAMER Director
Donald J. Kramer December 29, 1999
Director
Mark J. Lerner
/s/ ROBERT H. WALKER Director December 29, 1999
Robert H. Walker