<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999 Commission File Number 0-8623
------
ROBOTIC VISION SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 11-2400145
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
- --------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (781) 821-0830
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of Common Stock outstanding
as of August 10, 1999 27,337,083
No of Pages 17
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
--------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,475 $ 2,421
Accounts receivable, net 29,796 32,367
Inventories 31,189 36,213
Other current assets 1,562 1,226
--------- ---------
Total current assets 66,022 72,227
Plant and equipment, net 12,974 17,591
Deferred income taxes 8,820 8,820
Goodwill 5,410 5,847
Software development costs, net 13,726 11,812
Other assets 5,198 5,274
--------- ---------
$ 112,150 $ 121,571
--------- ---------
--------- ---------
LIABILITIES, PREPAID WARRANTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $ 35,648 $ 38,038
Accounts payable 18,814 21,388
Accrued expenses 14,973 22,289
--------- ---------
Total current liabilities 69,435 81,715
Long-term debt 2,932 3,059
--------- ---------
Total liabilities 72,367 84,774
Prepaid warrants 8,913 --
Stockholders' equity:
Common stock, authorized 75,000 shares at June 30,
1999 and authorized 50,000 shares at Sept 30, 1998,
$0.01 par value; issued and outstanding 26,249 at
June 30, 1999 and 24,870 at September 30, 1998 262 249
Additional paid in capital 172,466 168,493
Accumulated deficit (141,584) (131,962)
Cumulative translation adjustment (274) 17
--------- ---------
Stockholders' equity: 30,870 36,797
--------- ---------
$ 112,150 $ 121,571
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 31,260 $ 39,090 $ 87,959 $ 140,605
Cost of revenues 17,017 28,171 49,284 82,602
--------- --------- --------- ---------
Gross profit 14,243 10,919 38,675 58,003
Research and development expenses 4,804 7,508 15,276 21,527
Selling, general and administrative expenses 11,235 15,662 33,105 46,213
Merger expenses -- -- -- 623
Severance and other charges 255 2,420 255 5,604
--------- --------- --------- ---------
Loss from operations (2,051) (14,671) (9,961) (15,964)
Interest expense, net 1,047 762 2,569 1,490
Loss (gain) on sales of assets 63 -- (2,985) --
--------- --------- --------- ---------
Loss before provision for income taxes (3,161) (15,433) (9,545) (17,454)
Provision for income taxes -- -- -- 108
--------- --------- --------- ---------
Net loss (3,161) (15,433) (9,545) (17,562)
Premium on prepaid warrant 193 270
--------- --------- --------- ---------
Net loss attributable to common stockholders $ (3,354) $ (15,433) $ (9,815) $ (17,562)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share:
Basic $ (0.13) $ (0.63) $ (0.39) $ (0.72)
Diluted $ (0.13) $ (0.63) $ (0.39) $ (0.72)
Weighted average shares:
Basic 25,837 24,609 25,197 24,534
Diluted 25,837 24,609 25,197 24,534
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (9,815) $(17,562)
Adjustments to reconcile net income to net cash from
operating activities:
Gain on Sale of Assets (2,985) --
Depreciation and amortization 8,003 5,542
Other (14)
Changes in assets and liabilities:
Accounts receivable 2,571 9,030
Inventories 4,576 (13,488)
Other current assets (336) (290)
Other assets (48) (1,398)
Accounts payable (2,574) 4,786
Accrued expenses (7,473) 439
Other long-term liabilities -- (831)
-------- --------
Net cash used in operating activities (8,081) (13,786)
-------- --------
INVESTING ACTIVITIES:
Additions to plant and equipment (1,511) (6,707)
Additions to software development costs (4,096) (5,599)
Proceeds from sales of assets 4,759 --
-------- --------
Net cash used in investing activities (848) (12,306)
-------- --------
FINANCING ACTIVITIES:
Exercise of stock options and warrants 20 309
Sale of common stock and warrants, net 12,518 --
Borrowings (repayments) of bank debt (2,358) 20,178
Repayments of long-term debt (220) (1,070)
Proceeds from long-term borrowings -- 259
-------- --------
Net cash provided by financing activities 9,960 19,676
-------- --------
Effect of exchange rate changes on cash 23 --
-------- --------
Net increase (decrease) in cash and cash equivalents 1,054 (6,416)
Beginning balance - cash and cash equivalents 2,421 8,811
-------- --------
Ending balance - cash and cash equivalents $ 3,475 $ 2,395
-------- --------
-------- --------
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,859 $ 1,608
Taxes paid -- 240
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheet of Robotic Vision Systems, Inc. and
Subsidiaries (the "Company") as of June 30, 1999, the Consolidated Statements of
Operations for the three month and nine month periods ended June 30, 1999 and
1998 and the Consolidated Statements of Cash Flows for the nine month periods
ended June 30, 1999 and 1998 have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial condition,
results of operations and cash flows at June 30, 1999 and for all periods
presented have been made.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K and Form 10-K/A for the year ended September 30, 1998. The
results of operations for the period ended June 30, 1999 are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
Inventories at June 30, 1999 and September 30, 1998 consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1998
------------- ------------------
(In thousands)
<S> <C> <C>
Raw materials $16,347 $17,124
Work-in-process 6,277 10,429
Finished goods 8,565 8,660
------- -------
Total $31,189 $36,213
------- -------
------- -------
</TABLE>
3. NOTES PAYABLE:
The Company has a revolving credit agreement with three domestic banks
which is collateralized by substantially all of the domestic tangible and
intangible assets of the Company. The agreement has a term which expires in
March 2000 and borrowings under the agreement currently bear interest at the
prime rate plus two percent. At June 30, 1999, the Company had borrowings of
$35,325,500 outstanding, which reflect the maximum commitment under the
agreement. During the third quarter of fiscal 1999, the Company amended the
credit agreement with its banks to waive compliance with certain financial
covenants through March 31, 1999 and establish new financial covenants for the
balance of the term of the agreement. The amended agreement contains certain
financial covenants, including minimum levels of profitability, liquidity and
net worth and maximum capital expenditures. The Company is in compliance with
the new covenants. In conjunction with the amendment to the credit agreement,
the Company issued warrants to its lending banks totaling 750,000 shares, at an
exercise price of $4.02 per share, of which 250,000 shares are immediately
exercisable. All, or a portion, of the remaining 500,000 shares are only
exercisable if the lending banks extend the credit agreement beyond the original
maturity date for a pre-determined period. 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.
5
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. SALE OF PRODUCT LINE
In December 1998, the Company sold its Aircraft Safety product line
("Aircraft Safety") to a subsidiary of B.F. Goodrich ("Goodrich") for
$4,500,000, consisting of $4,050,000 in cash paid on closing and $450,000
payable upon the resolution of certain matters. The Company no longer considered
this technology a key component of its product portfolio or future strategic
direction. The Company sold certain inventory, equipment and intellectual
property in the transaction.
As of June 30, 1999, a contingency of $75,000 related to the novation of a
certain government contract had not been completed. Any additional gain will be
recognized upon resolution of this contingency.
5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during each period. Diluted net income per share
reflects the effect of the Company's outstanding stock options and warrants
(using the treasury stock method), except where such options would be
anti-dilutive.
For the three months and nine months ended June 30, 1999 and 1998, any such
potential common shares related to the Company's outstanding stock options and
warrants were anti-dilutive due to the net loss in the periods.
At June 30, 1999, the Company had approximately 3,775,000 shares of
unexercised stock options, 2,610,000 shares of unexercised warrants as well as
$11,000,000 in stated value of prepaid warrants for an indeterminate number of
shares.
6. COMPREHENSIVE INCOME (LOSS)
Effective October 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Currently, in addition to net income or loss, the only item that the Company
currently records as other comprehensive income or loss is the change in the
cumulative translation adjustment resulting from the changes in exchange rates
and the effect of those changes upon translation of the financial statements of
the Company's foreign operations. For the three months ended June 30, 1999 and
1998, the components of comprehensive income (loss) included net loss of
$(3,161,000) and $(15,433,000), respectively, foreign currency translation
adjustment of $(291,000) and $25,000, respectively, for total comprehensive loss
of $(3,452,000) and $(15,408,000), respectively. For the nine months ended June
30, 1999 and 1998, the components of comprehensive income (loss) included net
loss of $(9,545,000) and $(17,562,000), respectively, foreign currency
translation adjustment of $(291,000) and $14,000, respectively, for total
comprehensive loss of $(9,836,000) and $(17,548,000), respectively.
6
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. 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 $4.02 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 $4.02 per share. The market price
of the Company's common stock on the placement closing date was $3.03 per share.
As of June 30, 1999, there were issued and outstanding $11,000,000 in stated
value of prepaid warrants, plus accrued premium of $270,000, and incentive
warrants to purchase a total of 1,222,222 shares of common stock. Proceeds from
the transaction were used to meet working capital requirements.
Each prepaid warrant is exercisable at the lower of $4.02 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.
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 $4.02 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
$193,000 and $270,000 for the three and nine months ended June 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.
7
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $363,000 and $506,000 for the three and nine months ended June
30, 1999 in net loss attributable to common shareholders.
8. PRIVATE PLACEMENT SALE OF COMMON STOCK AND INCENTIVE WARRANTS
In April 1999, the Company sold 1,309,850 shares of its common stock at
$2.25 per share, in a private placement with a U.S. corporation. 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 $4.02 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. Net proceeds were approximately $2,900,000,
after expenses. Proceeds from the sale of common stock was used to meet
working capital requirements.
9. PRIVATE PLACEMENT SALE OF COMMON STOCK AND WARRANTS - SUBSEQUENT EVENT
In July 1999, the Company sold 1,063,593 shares of its common stock for
proceeds of $3,244,000 and 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. Net proceeds were approximately
$6,700,000, after expenses. As a consequence of the sale of the Company's
common stock, the exercise price for the prepaid and pursuant to antidilutive
provisions incentive warrants (see Notes 3, 7 and 8) have been reduced to
$3.96 per share. Proceeds from the sale of common stock and warrants will be
used to meet working capital requirements.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998
RESULTS OF OPERATIONS
Revenues were $31.3 million in the three months ended June 30, 1999 compared to
$39.1 million in the three months ended June 30, 1998, a decline of 20.0%. The
lower revenues year-to-year largely reflect the effect of the severe
semiconductor industry downturn which began in early calender 1998. In the three
months ended June 30, 1999, revenues for the Company's Semiconductor Equipment
Group were 29.5% less than the year earlier period and represented 64.4% of
total revenue compared to 73.0% of total revenues in the three months ended June
30, 1998.
Revenues for the Company's Acuity CiMatrix division for 1-D and 2-D barcode
reading and machine vision products increased 5.5% from the same quarter in the
prior year. The quarterly increase in revenues for the Company's Acuity CiMatrix
division was a result of more machine vision sales.
For the nine months ended June 30, 1999, revenues were approximately $88.0
million compared to $140.6 million for the nine months ended June 30, 1998, a
decline of 37.4%. Revenues for the Company's Semiconductor Equipment Group were
down 47.7% and revenues for the Company's Acuity CiMatrix division were down
7.9% from the year earlier periods. Semiconductor equipment revenues declined
year-to-year because of the same factors that effected the quarterly results.
The year-to-year decline in revenues for the Company's Acuity CiMatrix division
was almost entirely a result of lower revenues from European customers.
On a sequential basis, revenues of $31.3 million in the three months ended June
30, 1999 were $4.0 million higher than revenues of $27.3 million in the three
months ended March 31, 1999. Increased levels of orders and shipments in the
Semiconductor Equipment Group accounted for a significant portion of the
increase.
The gross profit margin was 45.6% of revenues in the three months ended June 30,
1999 compared to 27.9% of revenues in the three months ended June 30, 1998. This
increase was largely as a result of the $4.5 million inventory writedown taken
in the third quarter of fiscal 1998. The gross profit margin, as a percentage of
revenues, for the Company's Semiconductor Equipment Group increased to 38.6% of
revenues in the three months ended June 30, 1999 compared to 21.8% of revenues
in the three months ended June 30, 1998. Also, gross profit margin, as a
percentage of revenues increased for the Company's Acuity CiMatrix Division to
48.9% compared to 38.2% for the same period in the prior year.
For the nine months ended June 30, 1999, the gross profit margin was 44.0% of
revenues compared to 41.3% of revenues in the nine months ended June 30, 1998.
This increase was largely as a result of the $4.5 million inventory writedown
taken in the third quarter of fiscal 1998.
9
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Research and development expenses were $4.8 million, or 15.4% of revenues, in
the three months ended June 30, 1999, compared to $7.5 million, or 19.2% of
revenues, in the three months ended June 30, 1998. The lower level of
expenses reflects the combination of workforce reductions and other expense
reductions implemented by the Company over the past twelve months. The
Company is continuing to invest significant resources into new product
development in both its Semiconductor Equipment Group and it Acuity CiMatrix
division. New product development efforts include expansion of the Company's
new machine vision platform, Visionscape, as well as next generation
semiconductor inspection and component handling equipment. In the three
months ended June 30, 1999, the Company capitalized $1.3 million in software
development costs under Statement of Financial Accounting Standards No. 86.,
compared to $ 1.8 million in the three months ended June 30, 1998.
Research and development expenses were $15.3 million, or 17.4% of revenues, in
the nine months ended June 30, 1999 compared to $21.5 million, or 15.3% of
revenues, in the nine months ended June 30, 1998. Capitalized software
development costs in the nine months ended June 30,1999 were $4.0 million
compared to $5.6 million in the nine months ended June 30, 1998.
Selling, general and administrative expenses were $11.2 million, or 35.9% of
revenues, in the three months ended June 30, 1999, compared to $15.7 million, or
40.1% of revenues, in the three months ended June 30, 1998. The lower level of
expenses largely reflects the combination of the cost reduction steps taken by
the Company over the past twelve months and lower variable selling costs on the
decreased level of revenues. In addition, the absence of significant litigation
costs in the three months ended June 30,1999, compared to the year earlier
period, contributed to the decline in of expenses.
Selling, general and administrative expenses were $33.1 million, or 37.6% of
revenues, in the nine months ended June 30, 1999, compared to $46.2 million, or
32.9% of revenues, in the nine months ended June 30, 1998. The year-to-year
reduction in expenses reflects the Company's cost reduction steps taken over the
past twelve months, lower variable selling costs on lower revenues and the
absence of significant litigation costs which were incurred in the nine months
ended June 30, 1998.
Sequentially, the combination of research and development and selling, general
and administrative expenses were $16.0 million in the three months ended June
30, 1999, compared to $15.5 million in the three months ended March 31, 1999, an
increase of $0.5 million in expenses. The increased level of expenses were a
result of increased variable selling expenses associated with the increased
sales and increased travel associated with the increased business.
10
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Severance and other charges were $0.3 million for the three months ended June
30, 1999, compared to $2.4 million in the three months ended June 30, 1998. The
current charges relate to reductions in personnel, particularly in Europe.
Year-to-date, severance and other charges were $0.3 million for the nine months
ended June 30, 1999, compared to $5.6 million in the nine months ended June 30,
1998. The prior years spending relates to the cost reduction steps taken to
lower the Company's operating expenses. Amounts remaining from the prior years
severance and other charges are shown below:
<TABLE>
<CAPTION>
LIABILITY LIABILITY
------------------ CASH ADDITION --------------
SEPTEMBER 30, 1998 EXPENDITURES ACCRUAL JUNE 30, 1999
------------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
Severance payments to employees ........... $1,384 $1,501 $ 305 $ 188
Costs for changes in Asia distributors .... 500 145 355
Costs to consolidate Acuity/Cimatrix ...... 215 215 -- --
Total ................................. $2,099 $1,861 $ 305 $ 543
</TABLE>
Net interest expense was $1.0 million in the three months ended June 30, 1999,
compared to $0.8 million in the three months ended June 30, 1998. The increase
in interest expense primarily reflects the higher interest rate on borrowings in
the three months ended June 30, 1999 as well as amortization of $50,000 of value
of prepaid warrants issued to the banks.
The gain on sale of assets in the nine months ended June 30, 1999 primarily
relates to the sale of Aircraft Safety.
There was no tax provision in the three months ended June 30, 1999 or June 30,
1998, due to the loss for the periods.
The Company reported a net loss of $3.2 million for the three months ended June
30, 1999, compared to a net loss of $15.4 million, for the three months ended
June 30, 1998. The net loss for the three months ended June 30, 1999 included a
charge related to severance costs of $0.3 million and a gain of $0.3 million
related to the sale of assets. In the three months ended June 30, 1998, the net
loss of $15.4 million included severance and other charges of $2.4 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased $1.1 million, to $3.5 million, in the nine
months ended June 30, 1999, as a result of $8.1 million of net cash used in
operating activities, $5.6 million of net cash used for additions to plant and
equipment and software development costs, $4.8 million of net cash provided by
the sale of assets and $10.0 million of net cash provided by financing
activities.
11
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
The $8.1 million of net cash used in operating activities was largely a result
of the operating loss for the nine month period, after non-cash depreciation and
amortization charges, combined with the reduction in accounts payable and
accrued expenses. Accounts receivable decreased $2.6 million in the nine months
ended June 30,1999. Inventories declined $4.6 million in the nine months ended
June 30, 1999, primarily as a result of inventory reductions in the Company's
Semiconductor Equipment Group.
Additions to plant and equipment were $1.5 million in the nine months ended June
30, 1999, which were substantially below depreciation charges of $5.4 million in
the period. Additions to software capitalization were $4.1 million in the nine
months ended June 30, 1999.
The reductions in accounts payable and accrued expenses, combined, of $10.0
million in the nine months ended June 30, 1999, reflects the combination of
lower inventory purchases, cash paid for severance and other charges, as well as
a reduction of past due vendor balances.
At June 30, 1999, the Company had borrowings of $35.3 million outstanding
under its revolving credit agreement with its domestic banks, compared to
$37.5 million in borrowings outstanding at September 30, 1998. During the
third quarter of fiscal 1999, the Company amended its credit agreement with
its 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. The Company was in compliance with the new covenants at
June 30, 1999.
In February 1999, the Company completed a private placement of its equity
securities consisting of 5-year prepaid warrants with a stated value of $11.0
million and 5-year incentive warrants totaling 1,222,222 shares of the
Company's common stock with an exercise price of $4.02 per share, subject to
anti-dilution adjustment. These securities were sold to a group of
institutional investors. Net proceeds from the financing were $9.8 million.
Proceeds from the private placement were used for working capital
requirements (see Note 7).
In April 1999, the Company sold 1,309,850 shares of its common stock at $2.25
per share, in a private placement with a U.S. corporation. The Company received
$2.9 million in net proceeds on the closing date of the sale. Proceeds from the
sale were used for working capital requirements (see Note 8).
In July, 1999, the Company sold 1,063,593 shares of its common stock at $3.05
per share and the Company sold warrants for 3,090,909 shares of the Company's
common stock at $1.375 per share at an exercise price of $4.02 per share, in a
private placement. Net proceeds were approximately $6.7 million. Proceeds from
the sale will be used to meet working capital requirements (see Note 9).
12
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Management believes 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. We can give no assurance of our ability to either renegotiate or
replace our current bank credit facility prior to its expiration in March
2000. Our inability to renegotiate or replace this facility would result in
severe constraints upon our then available cash resources, 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.
EFFECT OF INFLATION
Management believes that during the three months ended June 30, 1999 the effect
of inflation was not material.
YEAR 2000 STATUS
We are aware of the potential for business disruption due to the Year 2000
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 audits, 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 have been or will be tested for Y2K compliance
by April 1999. Based on the results of testing to date, it is estimated that
about 80% of these systems are Y2K compliant. All non-compliant systems will be
brought into compliance by September 1999, either by upgrades or replacement.
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. We expect that this
non-compliant product will be 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 surveys in June 1999, and any compliance issues will be addressed
by September 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.
13
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
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.
As this program progresses, we will be better able to assess our Y2K status in
all of the areas outlined above, and focus our efforts on any Y2K issues which
become identified. By June 1999, we have begun to develop contingency plans to
be put into place in the event that any of our corrective actions fail to fully
address the Y2K issues. We expect to complete contingency plans by September
1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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 fiscal year ending September 30, 2001. Although the Company has
not completed it's evaluation of the effects of SFAS 133 yet, the Company
believes the adoption of SFAS No. 133 will not have a material effect on our
consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains forward-looking statements including statements regarding,
among other items, financing activities and anticipated trends in the Company's
business, which are made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These statements are based largely on
the Company's expectations and are subject to a number of risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
the Company's 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 describe factors and uncertainties, among
others, that could contribute to or cause such differences. Readers are
specifically referred to the risk factors detailed in the Company's most recent
registration statement on Form S-1 (#333-76927), declared effective on August 7,
1999, annual report on Form 10-K and 10-K/A, and other filings with the
Securities and Exchange Commission.
RISK FACTORS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that potentially subject the Company to concentrations of
credit-risk consist principally of cash equivalents and trade receivables. The
Company places cash equivalents with high-quality financial institutions, limit
the amount of credit exposure to any one institution and has established
investment guidelines relative to diversification and maturities designed to
maintain safety and liquidity. The Company's 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. The Company maintains
reserves for potential credit losses and such losses have been immaterial.
14
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
The Company is exposed to the impact of fluctuation in interest rates, primarily
through our borrowing activities. The Company policy has been to use U.S. dollar
denominated borrowings to fund working capital requirements. The interest rates
on 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 June 30, 1999, we had bank borrowings
outstanding of $35.3 million and a long-term note payable of $2.9 million which
have a variable interest rate. 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.
The Company is also exposed to the impact of foreign currency fluctuations.
During both fiscal 1998 and 1999, most local currencies of our international
subsidiaries weakened against the U.S. dollar. Since the Company translates
foreign currencies into U.S. dollars for reporting purposes, these weakened
currencies have a negative, though immaterial, impact on our results. The
Company also believes 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 both fiscal 1998 and 1999, the Company 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.
The Company estimates 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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on June 10, 1999.
(b) At that meeting, all of the current directors were re-elected. The vote was
as follows:
<TABLE>
<CAPTION>
For Withhold Authority
<S> <C> <C>
Pat V. Costa 22,043,195 778,627
Frank A. DiPietro 22,056,516 765,306
Jay M. Haft 22,058,639 763,183
Tomas Kohn 22,058,637 763,185
Donald J. Kramer 22,058,827 762,995
Mark J. Lerner 22,058,949 762,873
Howard Stern 22,057,032 764,790
Robert H. Walker 22,058,817 763,005
</TABLE>
15
<PAGE>
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
(c) At that meeting, the shareholders ratified the issuance of shares pursuant
to the February $11,000,0000 private placement. The vote was as follows:
<TABLE>
<S> <C>
For 10,024,365
Against 1,102,276
Abstain 152,287
Broker Non-Votes 11,542,894
</TABLE>
(d) At that meeting, the shareholders ratified the amendment to the certificate
of incorporation to increase the authorized number of shares of common
stock from 50 million to 75 million. The vote was as follows:
<TABLE>
<S> <C>
For 21,462,446
Against 1,141,929
Abstain 217,447
Broker Non-Votes --
</TABLE>
(e) At that meeting, the shareholders ratified the selection of Deloitte &
Touche LLP as the Company's independent auditors for fiscal 1999. The vote
was as follows:
<TABLE>
<S> <C>
For 22,523,659
Against 215,657
Abstain 82,506
Broker Non-Votes --
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) July 23, 1999; Items 5 and 7
16
<PAGE>
ROBOTIC VISION SYSTEMS, INC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROBOTIC VISION SYSTEMS, INC.
Registrant
Dated: August 13, 1999 /S/ PAT V. COSTA
------------------------------
PAT V. COSTA
President and CEO
(Principal Executive Officer)
Dated: August 13, 1999 /S/ FRANK D. EDWARDS
-------------------------------
FRANK D. EDWARDS
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
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<CIK> 0000225868
<NAME> ROBOTIC VISION SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,475
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<RECEIVABLES> 31,006
<ALLOWANCES> (1,210)
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<CURRENT-LIABILITIES> 69,435
<BONDS> 2,932
0
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<COMMON> 262
<OTHER-SE> 172,466
<TOTAL-LIABILITY-AND-EQUITY> 112,150
<SALES> 31,260
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