<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------------------
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 0-26778
-----------------------
APPLIED MICROSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
-----------------------
WASHINGTON 91-1074996
(State of incorporation) (I.R.S. Employer Identification Number)
5020 148TH AVENUE N.E., REDMOND, WASHINGTON 98052-5172
(425) 882-2000
(Address of principal executive offices, including zip code;
registrant's telephone number, including area code)
-----------------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $.01 par value: 6,937,795 shares outstanding as of August 4,
2000.
===============================================================================
<PAGE>
APPLIED MICROSYSTEMS CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999...............................3
Consolidated Statements of Operations for the three months and six months ended
June 30, 2000 and 1999..............................................................................4
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999...............5
Notes to Consolidated Financial Statements..........................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..........................................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........................................13
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................................14
Item 6. Exhibits and Reports on Form 8-K...................................................................14
Signatures.........................................................................................15
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIED MICROSYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ ------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 7,964 $ 5,682
Securities available-for-sale......................................... 4,668 10,664
Accounts receivable, net.............................................. 5,679 5,848
Inventories........................................................... 2,435 2,471
Prepaid and other current assets...................................... 477 501
------------------ ------------------
Total current assets.............................................. 21,223 25,166
Property and equipment, net................................................ 2,186 2,372
Other assets............................................................... 478 504
------------------ ------------------
Total assets...................................................... $ 23,887 $ 28,042
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 2,728 $ 2,494
Accrued payroll....................................................... 2,072 1,704
Other accrued expenses................................................ 1,225 1,058
Deferred revenue...................................................... 3,118 3,599
------------------ ------------------
Total current liabilities......................................... 9,143 8,855
Shareholders' equity:
Preferred stock, par value $.01....................................... -- --
Common stock, par value $.01.......................................... 26,190 25,792
Accumulated other comprehensive income (loss)......................... (568) 48
Accumulated deficit................................................... (10,878) (6,653)
------------------ ------------------
Total shareholders' equity........................................ 14,744 19,187
------------------ ------------------
Total liabilities and shareholders' equity........................ $ 23,887 $ 28,042
================== ==================
</TABLE>
See accompanying notes.
-3-
<PAGE>
APPLIED MICROSYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales...................................... $ 7,251 $ 7,435 $ 15,220 $ 15,953
Cost of sales.................................. 2,450 1,972 4,636 4,018
-------------- -------------- -------------- --------------
Gross profit................................... 4,801 5,463 10,584 11,935
Operating expenses:
Sales, general and administrative......... 4,249 4,982 8,741 9,876
Research and development.................. 3,347 2,762 6,428 5,444
-------------- -------------- -------------- --------------
Total operating expenses....................... 7,596 7,744 15,169 15,320
-------------- -------------- -------------- --------------
Loss from operations........................... (2,795) (2,281) (4,585) (3,385)
Interest income and other, net................. 177 174 359 344
-------------- -------------- -------------- --------------
Net loss....................................... $ (2,618) $ (2,107) $ (4,226) $ (3,041)
============== ============== ============== ==============
Basic and diluted loss per share................ $ (0.38) $ (0.31) $ (0.62) $ (0.45)
Shares used in per-share calculation............ 6,909 6,708 6,858 6,698
</TABLE>
See accompanying notes.
-4-
<PAGE>
APPLIED MICROSYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
2000 1999
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................... $ (4,226) $ (3,041)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization......................................... 517 603
Net change in operating accounts:
Accounts receivable................................................. 169 1,925
Inventories......................................................... 36 497
Prepaid and other current assets.................................... 24 (201)
Other assets........................................................ 5 17
Accounts payable and accrued expenses............................... 769 (368)
Deferred revenue.................................................... (481) (385)
------------------ ------------------
Net cash used in operating activities............................. (3,187) (953)
INVESTING ACTIVITIES
Purchases of securities available-for-sale............................ (3,697) (8,025)
Maturities and sales of securities available-for-sale................. 9,693 9,954
Additions to property and equipment................................... (309) (599)
------------------ ------------------
Net cash provided by investing activities......................... 5,687 1,330
FINANCING ACTIVITIES
Sale of common stock to employees..................................... 338 94
Stock options exercised............................................... 60 1
------------------ ------------------
Net cash provided by financing activities......................... 398 95
Effects of foreign exchange rate changes on cash........................... (616) (825)
------------------ ------------------
Increase (decrease) in cash and cash equivalents........................... 2,282 (353)
Cash and cash equivalents at beginning of period........................... 5,682 6,041
------------------ ------------------
Cash and cash equivalents at end of period................................. $ 7,964 $ 5,688
================== ==================
</TABLE>
See accompanying notes.
-5-
<PAGE>
APPLIED MICROSYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by Applied Microsystems Corporation ("Applied" or the
"Company") in accordance with generally accepted accounting principles for
interim financial information and according to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1999 has been derived from the audited financial statements
included in the Company's Form 10-K for the year then ended. The results of
operations for the three and six-month periods ended June 30, 2000, are not
necessarily indicative of results to be expected for the entire year ending
December 31, 2000 or for any other fiscal period. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Form 10-K for the year ended December 31, 1999.
2. COMPUTATION OF LOSS PER SHARE
Basic loss per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted loss per share is
computed using the weighted-average number of common shares and dilutive
common stock equivalent shares outstanding during the period. Common stock
equivalent shares are excluded from the computation of diluted loss per share
if their effect is antidilutive; therefore, due to the Company's losses,
basic and diluted loss per share are determined excluding common stock
equivalents for the periods ended June 30, 2000 and 1999, respectively.
3. COMPREHENSIVE LOSS
As defined by applicable accounting and reporting standards,
Applied's comprehensive loss is comprised of net loss and the effects of
current-period translation adjustments which are recorded directly to equity.
During the second quarter of 2000, comprehensive loss amounted to $3.0
million, compared to comprehensive loss of $2.2 million for the second
quarter of 1999. For the six months ended June 30, 2000, comprehensive loss
amounted to $4.8 million, compared to comprehensive loss of $3.9 million for
the six months ended June 30, 1999.
-6-
<PAGE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Finished goods........................ $ 167 $ 557
Work in process....................... 90 60
Purchased parts....................... 2,178 1,854
------------------ ------------------
$ 2,435 $ 2,471
================== ==================
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the fair values of those derivatives would be
accounted for in current earnings unless specific hedge criteria are met. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
Applied must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting, if any. SFAS 133 will be
effective for the Company's consolidated financial statements for the fiscal
year ending December 31, 2001. The Company has not yet determined the impact,
if any, of adopting this Statement; however, no hedging activities were in
effect during the first six months of 2000 nor at any time during 1999.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." The new SAB provides guidance related to revenue
recognition based upon interpretations and practices followed by the SEC. SAB
101 is effective for the fourth quarter of 2000 and requires companies to
report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation. The Company is currently
evaluating the impact SAB 101 will have on its financial position or results
of operations.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Applied Microsystems Corporation ("Applied" or the "Company") is a
leader and innovator in software tools and technologies. Applied's products
help customers bring products to market faster by providing innovative tools
to develop, debug, and test products faster, more reliably, and at a lower
cost. The Company's products have historically been targeted to meet the
needs of embedded systems markets, and Applied develops, markets and supports
a comprehensive suite of software and hardware-enhanced development and test
tools for the development of complex embedded microprocessor-based
applications. Embedded systems are used extensively in the Internet device
industry, telecommunications, internetworking, avionics, computer
peripherals, office products, medical instrumentation and industrial process
control. Embedded systems are also found in consumer markets such as the
automotive and entertainment industries. A wide variety of products use
embedded systems, such as video games, hand-held computing devices, cellular
telephones, set-top boxes, automated teller machines, hospital patient
monitors, airplane flight control systems, automotive braking systems,
modems, and facsimile machines.
The Company is pursuing development efforts to leverage its
expertise in traditional embedded systems markets to apply its development
and performance-enhancement solutions more specifically to game developers,
Web developers, and complex Internet infrastructure needs. The Company
expects that traditional embedded systems tools may become the tools of
choice for creating modern Internet applications and establishing and
maintaining Internet infrastructure because these tools are well suited to
creating applications that are highly reliable. Such tools are also able to
handle real-time operating requirements and complex hardware/software
integration.
In July 2000, the Company announced that it had signed a letter of
intent with Microsoft Corporation to develop and manufacture DVD-emulation
technology for inclusion in Microsoft's Xbox Development Kit, the development
platform that allows game developers to optimize games for Xbox, Microsoft's
initial entry into the video game machine market. Applied announced in 1999
that it had signed an agreement with Nintendo to develop and manufacture
development kits for Nintendo's next-generation video gaming system. Applied
intends to leverage these relationships over time to also provide its
software analysis tools to game developers, as well as provide other products
and services to the gaming markets.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------- ------------------------------------------
(DOLLARS IN THOUSANDS) 2000 CHANGE 1999 2000 CHANGE 1999
---------------------------- ------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $7,251 $(184) $7,435 $15,220 $(733) $15,953
(2%) (5%)
</TABLE>
The Company generally recognizes revenues from product sales upon
shipment, unless the Company has obligations remaining under a sale or
licensing agreement, in which case revenue is deferred until earned. Revenues
from sales of product support contracts are deferred and recognized ratably
over the contract period, which is typically 12 months.
-8-
<PAGE>
The Company's net sales are presently derived primarily from sales
of debug, test, and performance solutions, as well as product support and
consulting services. Over the past few years, the Company has experienced
continuing declines in net sales of its higher-priced "high-end" emulator
products as the overall market demand for this type of product has decreased.
High-end emulator products accounted for less than 5% of net sales in the six
months ended June 30, 2000, as compared to 8% of net sales in the six months
ended June 30, 1999. High-end emulator products are expected to continue to
generate a declining level of future revenues.
Development solutions for game consoles represent a new revenue
source for Applied and accounted for approximately 9% of second quarter and
year-to-date 2000 net sales, compared to no game-related revenue in the
comparable periods in 1999. These increases were offset primarily by lower
revenues in the Company's CodeTEST-Registered Trademark- software products.
The Company's second quarter 2000 results showed an increase over the prior
year's quarter in its low-end debug product revenues, led by strong
PowerTAP-TM- unit sales; however, year-to-date low-end debug revenues were
lower than the comparable period in 1999 due primarily to a decline in
SuperTAP-TM- unit sales.
The Company's net sales also include product support revenues, which
represented 15% of net sales in the second quarter of 2000, as compared to
16% of net sales in the second quarter of 1999. Year-to-date support revenues
accounted for 14% of net sales in 2000, compared to 15% of net sales in the
comparable period in 1999.
International sales were 43% of net sales in the second quarter of
2000, as compared to 36% of net sales in the second quarter of 1999. For the
six months ended June 30, 2000, international sales were 42% of net sales, in
comparison to 38% for the six months ended June 30, 1999. In comparison to
the comparable periods in 1999, international sales increased 17% in the
three months ended June 30, 2000 and increased 6% in the six months ended
June 30, 2000. The increases in international revenues were primarily the
result of increased product sales volumes in Europe, offset by lower product
sales volumes in Japan in the first half of 2000.
Applied's sales through its foreign subsidiaries are generally
denominated in local currencies; as a result, fluctuations in currency
exchange rates can have a significant effect on the Company's reported net
sales. The Company is unable to predict currency exchange rate fluctuations
and anticipates that such fluctuations will continue to affect its net sales
to varying degrees in the future. The Company expects international sales to
continue to account for a significant percentage of its net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
--------------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
COST OF SALES $2,450 $1,972 $4,636 $4,018
% OF NET SALES 34% 27% 30% 25%
GROSS PROFIT $4,801 $5,463 $10,584 $11,935
% OF NET SALES 66% 73% 70% 75%
</TABLE>
The Company's gross profit percentage declined in the second quarter
and year-to-date 2000 periods due primarily to (i) lower unit pricing on the
Company's older high-end emulator products, (ii)
-9-
<PAGE>
changes in the geographic mix of Company revenues from Applied's
traditionally higher-margin geographic areas such as Japan to moderately
lower-margin geographic areas such as Europe, and (iii) changes in product
mix, including a decline in certain higher-margin software revenues.
The Company expects its gross profit percentage to fluctuate based
upon its product and service mix, geographic mix, foreign currency
fluctuations, product and patent license royalties, and variances in volume
and related absorption of factory overhead costs. Initial sales of game
development kits are expected to be at lower margins than the Company has
historically maintained, thus adding to the potential for future fluctuations
in gross profit percentages.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------------------
(DOLLARS IN THOUSANDS) 2000 CHANGE 1999 2000 CHANGE 1999
------------------------------ ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
SALES, GENERAL AND
ADMINISTRATIVE EXPENSES $4,249 $(733) $4,982 $8,741 $(1,135) $9,876
(15%) (11%)
</TABLE>
Over the past several quarters, Applied's new management team has
shifted operating resources to pursue opportunities in high-growth markets
through developing new products and services. That shift is reflected in the
decrease in sales, general and administrative expenses, with a corresponding
increase in research and development expenses.
The decrease in sales, general and administrative expenses in the
first half of 2000, as compared to the first half of 1999, was achieved
primarily through lower marketing-related expenditures. In the first several
months of 1999, Applied incurred marketing expenses relative to the launch of
its CodeOPTIX-TM- product family, as well as other marketing expenses to
build general awareness of Applied's traditional embedded software solutions.
Marketing expenditures in the latter part of 1999 and through the first six
months of 2000 were at lower levels, and included focused expenses for
repositioning the Company into new market areas. The lower second-quarter
2000 sales, general and administrative expenses were also the result of lower
sales commissions, commensurate with the overall lower reported revenues in
the period. The Company expects its sales and marketing expenditures to
increase in the future as it introduces and markets new products and services
and incurs higher selling expenses to increase net sales.
When incurred, minor foreign exchange gains and losses are included
in sales, general and administrative expenses. In order to mitigate certain
intercompany risks associated with exchange rate fluctuations, the Company at
times hedges a portion of its foreign exchange risk in Japan as it relates to
the trade debt the Company's Japanese subsidiary owes to the Company. No such
hedging activities were in effect during the first six months of 2000 nor at
any time during 1999. Although the Company may engage in exchange-rate
hedging activities with respect to certain exchange-rate risks, there can be
no assurance that it will do so or that any such activities will successfully
protect the Company against such risks.
-10-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------------------
(DOLLARS IN THOUSANDS) 2000 CHANGE 1999 2000 CHANGE 1999
------------------------------ ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT
EXPENSES $3,347 $585 $2,762 $6,428 $984 $5,444
21% 18%
</TABLE>
The quarterly and year-to-date 2000 increases in research and
development expenses were primarily attributable to increased engineering
resources and correspondingly higher consulting and compensation-related
expenses. These increased expenses were a direct result of the Company's
investment in strategic new initiatives.
The Company believes that its continued investment in focused
research and development activities is critical to Applied's future success,
and that the Company's engineering resources represent a competitive
advantage. Therefore, the Company intends to continue to make substantial
investments in product development. Research and development expenses may
also fluctuate to the extent that Applied's engineering resources are
utilized to fulfill the needs of customers under contractual research and
development arrangements. In such cases, engineering costs are charged to
costs of goods sold.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------------------
(DOLLARS IN THOUSANDS) 2000 CHANGE 1999 2000 CHANGE 1999
------------------------------ ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME AND OTHER,
NET $177 $3 $174 $359 $15 $344
2% 4%
</TABLE>
The Company's interest income and other, net, increased modestly
from the prior year's periods - despite a decrease in the Company's average
cash available for short-term investments - due primarily to higher interest
rates earned on investments.
INCOME TAXES
Applicable accounting standards require that the Company calculate
an estimated annual effective tax rate and apply such tax rate to the pre-tax
income (loss) of interim periods. Deferred income taxes reflect the net tax
effects of temporary differences between the tax basis of assets and
liabilities and the corresponding financial statement amounts. Due to the
uncertainty of the Company's ability to utilize its net deferred tax assets,
including its net operating losses and research and development credits, a
valuation allowance has been established for financial reporting purposes
equal to the amount of the net deferred tax assets. Accordingly, no income
tax provision or benefit is recorded for the three and six-month periods
ended June 30, 2000 and 1999, respectively.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $12.6 million in cash, cash
equivalents, and short-term investments, compared to $16.3 million as of
December 31, 1999. The Company requires capital primarily for the financing
of inventories and accounts receivable, sales and marketing efforts, product
development activities, and capital equipment purchases. As a result of its
operating loss, Applied used cash of $3.2 million for operating activities in
the first six months of 2000, compared to using $953,000 for operating
activities in the first six months of the prior year. The Company purchased
$309,000 in property and equipment in the first six months of 2000, compared
to purchasing $599,000 in the first six months of 1999.
The Company believes that its existing working capital, together
with amounts anticipated from operations, will provide the Company with
sufficient funds to finance its operations for at least the next 12 months.
The Company's future capital requirements will depend on a number of factors,
including costs associated with sales and marketing programs, product
development efforts, the success of the commercial introduction of new
Applied products, and the potential use of funds for strategic purposes. To
the extent additional funds are required, the Company may sell additional
equity, debt or convertible securities, or obtain credit facilities; however,
there can be no assurance that the Company will be able to obtain such funds
or on terms that are acceptable.
IMPACT OF YEAR 2000
In the years leading up to the Year 2000, the Company performed a
comprehensive analysis of its exposure to potential Year 2000 problems and
took necessary action to address identified problems. The Company estimates
that it spent less than $200,000 in assessing and addressing internal Year
2000 issues, in addition to system upgrades that were made as part of
standard system maintenance. To date, Applied has not experienced any known
Year 2000 issues and has been informed by material suppliers and vendors that
they have also not experienced material Year 2000 issues. The Company will
continue to monitor its position with respect to Year 2000 issues.
-12-
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Statements in this report that are not historical facts constitute
forward-looking statements which are subject to a number of risks and
uncertainties which might cause actual results to differ materially from
stated expectations. Such risks and uncertainties include the Company's
recent operating losses, dependence on industries characterized by rapidly
changing technology, manufacturing and product ship schedules, customer
design starts utilizing environments served by Applied, relationships with
semiconductor manufacturers, Applied's focus on a few key markets,
competition, dependence on key personnel, management of expected growth,
intellectual property rights and the potential for corresponding litigation,
the potential for product liability, uncertainties surrounding international
operations, potential fluctuations in quarterly operating results, and
potential continued volatility of stock price.
For a more detailed discussion of these and other factors, please
refer to the Company's filings with the Securities and Exchange Commission,
including those set forth under the heading "Factors Affecting Future Results
and Forward-Looking Statements" in the Company's 1999 Annual Report on Form
10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Applied develops products in the United States and sells primarily
in North America, Asia and Europe. As a result, financial results could be
affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets. Since the Company's products are
generally initially priced in U.S. Dollars and translated to local currency
amounts, a strengthening of the dollar could make the Company's products less
competitive in foreign markets.
The Company is exposed to market risk related to changes in interest
rates, which could adversely affect the value of the Company's short-term
investments. Applied maintains a short-term investment portfolio consisting
of interest bearing securities with an average maturity of less than one
year. These securities are classified as "available-for-sale" securities.
These interest-bearing securities are subject to interest rate risk and will
fall in value if market interest rates increase. If market interest rates
were to increase immediately and uniformly by 10% from levels at June 30,
2000, the fair value of the portfolio would decline by an immaterial amount.
The Company does not expect its operating results or cash flows to be
affected to any significant degree by a sudden change in market interest
rates.
-13-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 23, 2000. The
following summarizes the results of matters voted upon at the Annual Meeting.
(1) The following persons were elected to serve as directors until
the next Annual Meeting of Shareholders or until their earlier
retirement, resignation or removal:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Lary L. Evans 6,645,224 9,686
Charles H. House 6,645,124 9,786
Elwood D. Howse, Jr. 6,445,124 9,786
Anthony Miadich 6,445,124 9,786
Stephen J. Verleye 6,645,224 9,686
</TABLE>
(2) The shareholders voted 3,569,090 shares in the affirmative,
75,728 shares in the negative, 18,977 shares abstained, and
3,226,531 other shares were unvoted relative to the approval
of the Applied Microsystems Corporation Amended and Restated
1996 Employee Stock Purchase Plan, and the increase of the
number of shares issuable thereunder from 250,000 shares to
500,000 shares.
(3) The shareholders voted 6,646,983 shares in the affirmative,
4,230 shares in the negative, 3,697 shares abstained, and
235,416 other shares were unvoted relative to ratification of
the appointment of Ernst & Young LLP as independent auditors
for the Company's fiscal year ending December 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) The following exhibits are filed as part of this report.
27 Financial Data Schedule
(B) Report on Form 8-K
The registrant did not file any reports on Form 8-K during the
quarter ended June 30, 2000.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED MICROSYSTEMS CORPORATION
(Registrant)
Date: August 11, 2000 By: /s/ Robert C. Bateman
-------------------------- ------------------------------------
Robert C. Bateman
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER AND DULY AUTHORIZED SIGNING
OFFICER )
-15-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
-16-
