<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 0-10605
-------
ODETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2588496
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 South Manchester Avenue 92802
Anaheim, California (Zip Code)
(Address of principal executive office)
(714) 774-5000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all documents
and 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.
Number of shares of Common Stock outstanding as of November 9, 2000
Class A Common Stock 9,422,890 shares.
Class B Common Stock 1,045,741 shares.
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
-------------------------------- ----
<S> <C>
ITEM 1. CONSOLIDATED STATEMENTS OF OPERATIONS FOR 3
THE THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 30, 1999 AND 2000 (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 4
AND SEPTEMBER 30, 2000 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 6
THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND
2000 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 11
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 23
ABOUT MARKET RISKS
PART II OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 23
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
</TABLE>
In this Report, "Odetics," the "Company," "we," "us," and "our"
collectively refers to Odetics, Inc. and its subsidiaries.
2
<PAGE>
PART I FINANCIAL INFORMATION
ODETICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1999 2000 1999 2000
---- ---- ---- ----
Net sales and contract revenues:
Net sales $ 15,334 $ 14,175 $ 32,704 $ 29,017
Contract revenues 4,838 4,850 9,543 9,632
-------- --------- -------- --------
Total net sales and contract revenues 20,172 19,025 42,247 38,649
Costs and expenses:
Cost of sales 11,806 11,457 24,009 23,221
Cost of contract revenues 3,812 3,052 6,972 6,311
-------- --------- -------- --------
Gross Profit 4,554 4,516 11,266 9,117
-------- --------- -------- --------
Selling, general and administrative expense 8,493 10,789 17,352 21,933
Research and development expense 4,329 5,564 8,208 10,174
-------- --------- -------- --------
Total operating expenses 12,822 16,353 25,560 32,107
-------- --------- -------- --------
Loss from operations (8,268) (11,837) (14,294) (22,990)
-------- --------- -------- --------
Non-operating items
Other income 0 0 0 (19,055)
Interest expense net 750 429 1,367 901
-------- --------- -------- --------
Income loss before taxes (9,018) (12,266) (15,661) (4,836)
-------- --------- -------- --------
Income tax benefit (6,575) 0 (6,575) 0
-------- --------- -------- --------
Net loss ($2,443) ($12,266) ($9,086) ($4,836)
======== ========= ======== ========
Basic and diluted loss per share ($0.27) ($1.27) ($1.00) ($0.51)
======== ========= ======== ========
Weighted average number of shares outstanding 9,068 9,664 9,049 9,456
======== ========= ======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
2000 2000
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 4,880 $ 9,871
Trade accounts receivable, net 13,576 13,269
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,283 2,604
Inventories:
Finished goods 1,203 1,257
Work in process 859 565
Materials and supplies 16,150 18,175
-------- ---------
Total inventories 18,212 19,997
Prepaid expenses 1,978 1,935
Income taxes receivable 0 0
Deferred income taxes 0 0
-------- ---------
Total current assets 41,929 47,676
Property, plant and equipment:
Land 2,060 2,060
Buildings and improvements 18,868 18,968
Equipment, furniture and fixtures 33,328 34,693
-------- ---------
54,256 55,721
Less accumulated depreciation (33,520) (34,696)
-------- ---------
Net property, plant and equipment 20,736 21,025
Capitalized software costs, net 6,482 5,874
Goodwill, net 12,004 11,577
Other assets 699 573
-------- ---------
Total assets $ 81,850 $ 86,725
======== =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ODETICS, INC.
CONSOLIDATED BALANCE SHEETS (cont'd)
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
2000 2000
--------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 10,702 $ 11,938
Accrued payroll and related 4,892 5,152
Accrued expenses 2,313 1,358
Contract loss accrual 3,056 2,738
Billings in excess of costs and
estimated earnings on uncompleted contracts 1,303 1,802
Revolving line of credit 3,706 2,095
Current portion of long-term debt 3,102 3,225
--------- -----------
Total current liabilities 29,074 28,308
Long-term debt, less current portion 11,666 10,588
Other liabilities 5,000 0
Deferred income taxes 0 0
Stockholders' equity
Preferred stock, authorized 2,000,000 shares;
none issued - -
Common stock, authorized 10,000,000 shares of
Class A and 2,600,000 shares of Class B;
9,417,490 shares of Class A and 1,047,541
shares of Class B issued and outstanding
at September 30, 2000 - $.10 par value 923 1,046
Paid-in capital 61,200 78,176
Treasury stock (22) (1)
Notes receivable from associates (61) (61)
Accumulated deficit (26,192) (31,028)
Accumulated other comprehensive income 262 (303)
--------- -----------
Total stockholders' equity 36,110 47,829
--------- -----------
Total liabilities and stockholders' equity $ 81,850 $ 86,725
========= ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ODETICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------------
<S> <C> <C>
1999 2000
-------- ---------
Operating activities
Net (loss) $(9,086) $ (4,836)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 2,844 2,461
Provision for losses on accounts receivable 0 46
Provision for deferred income taxes (6,345) 0
Other 0 (565)
Changes in operating assets and liabilities:
Decrease in accounts receivable 822 261
(Increase) decrease in net costs and
estimated earnings in excess of billings (96) 1,178
(Increase) decrease in inventories (984) (1,785)
(Increase) decrease in prepaids and other assets 265 169
(Decrease) in accounts payable and
accrued expenses 5,047 223
-------- ---------
Net cash (used) in operating activities (7,533) (2,848)
Investing activities
Purchases of property, plant and, equipment (964) (1,465)
Software development costs (102) 0
-------- ---------
Net (cash) used in investing activities (1,066) (1,465)
Financing activities
Proceeds from revolving line of credit and
long-term borrowings 16,727 15,176
Principal payments on line of credit, long-term
debt and capital lease obligations (7,244) (22,742)
Proceeds from issuance of common stock 242 16,870
-------- ---------
Net cash provided by financing activities 9,725 9,304
-------- ---------
Increase in cash 1,126 4,991
Cash at beginning of year 787 4,880
-------- ---------
Cash at September 30 $ 1,913 $ 9,871
======== =========
Non cash transaction
Issuance of stock to former MMA shareholders - $ 251
======== =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ODETICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the consolidated
financial position of Odetics, Inc. as of September 30, 2000 and the
consolidated results of operations and cash flows for the three and six
month periods ended September 30, 1999 and 2000. Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The results of operations for
the three and six month periods ended September 30, 2000 are not
necessarily indicative of those to be expected for the entire year.
The accompanying financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended March
31, 2000 filed with the Securities and Exchange Commission.
NOTE 2 - Income Taxes
------
Income tax expense (benefit), if any, for the three and six month
periods ended September 30, 1999 and 2000 has been provided at the
estimated annualized effective tax rates based on the estimated income
tax liability or assets and change in deferred taxes for their
respective fiscal years. Deferred taxes result primarily from temporary
differences in the reporting of income for financial statement and
income tax purposes. These differences relate principally to the use
of accelerated cost recovery depreciation methods for tax purposes,
capitalization of interest and taxes for tax purposes, capitalization
of computer software costs for financial statement purposes, deferred
compensation, other payroll accruals, reserves for inventory and
accounts receivable for financial statement purposes and general
business tax credit and alternative minimum tax credit carryforwards
for tax purposes. The Company did not provide income tax benefit for
the losses incurred three month and six month periods ended September
30, 2000 due to the uncertainty as to the ultimate realization of the
benefit at that time.
NOTE 3 - Long-Term Debt
------
March 31, September 30,
2000 2000
------------ -------------
(in thousands)
Mortgage note $ 7,027 $ 6,416
Notes payable 5,750 5,750
Contracts payable 1,991 1,647
------------ -------------
14,768 13,813
Less current portion 3,102 3,225
------------ -------------
$11,666 $10,588
============ =============
7
<PAGE>
NOTE 4 - Legal Proceedings
------
On October 11, 1999, Odetics settled a patent infringement case it had
brought against Storage Technology Corporation ("StorageTek"). Pursuant
to an agreement, StorageTek agreed to pay the Company a license fee
totaling $100.0 million for use of the Company's United States Patent
No. 4,779,151. Under the agreement, the license fee was payable in
three installments: $80.0 million upon signing of the agreement, and
two annual installments of $10.0 million payable in each of October
2000 and 2001. In connection with the initial payment, the Company
received $38.4 million, net of legal fees and other direct expenses,
which was reflected as royalty income in the Company's statement of
operations in its fiscal year ended March 31, 2000.
On June 12, 2000, the Company and StorageTek amended the agreement;
whereby StorageTek agreed to pay a final discounted payment of $17.8
million immediately in full settlement of the $20.0 million otherwise
due to complete the settlement. Accordingly, included in non-operating
income in the six months ended September 30, 2000 is $17.8 million,
which was recognized in the quarter ended June 30, 2000.
NOTE 5 - Comprehensive Income
------
The components of comprehensive income (loss) for the three months and
six months ended September 30, 1999 and 2000 are as follows in
thousands:
<TABLE>
<CAPTION>
Three Months Six Months
------------------------- ---------------------
1999 2000 1999 2000
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) $(2,443) $(12,266) $(9,086) $(4,836)
Foreign currency
translation adjustment (109) (83) 1 (565)
---------- ----------- --------- ---------
Comprehensive (loss) $(2,552) $(12,349) $(9,085) $(5,401)
========== =========== ========= =========
</TABLE>
NOTE 6 - Business Segment Information
------
The Company operates in three reportable segments: intelligent
transportation systems, video products, which includes products for the
television broadcast and video security markets, and
telecommunications. Selected financial information for the Company's
reportable segments for the three month and six month periods ended
September 30, 1999 and 2000 follows in thousands:
8
<PAGE>
<TABLE>
<CAPTION>
Intelligent Video Telecom
Transportation Products Products Total
-------------- -------- -------- -----
<S> <C> <C> <C> <C>
Three months ended 9/30/99
Revenue from external customers 6,108 9,882 2,061 18,051
Intersegment revenues 0 1,337 24 1,361
Segment income (loss) (768) (3,380) (1,804) (5,952)
Three months ended 9/30/00
Revenue from external customers 6,544 8,375 1,760 16,679
Intersegment revenues 0 1,553 14 1,567
Segment income (loss) (1,243) (4,156) (3,726) (9,125)
</TABLE>
The following reconciles segment income to consolidated income before
income taxes in thousands:
<TABLE>
<CAPTION>
3 months ended 3 months ended
Sept. 30, 1999 Sept. 30, 2000
-------------- --------------
<S> <C> <C>
Revenue
Total revenues for reportable segments 19,412 18,246
Non-reportable segment revenues 2,121 2,346
Other revenues 0 0
Elimination of intersegment sales (1,361) (1,567)
---------- ----------
Total consolidated revenues 20,172 19,025
Total loss for reportable segments (5,952) (9,125)
Other profit or loss (534) (1,327)
Unallocated amounts:
Corporate and other expenses (1,779) (1,385)
Special charge 0 0
Interest expense (753) (429)
---------- ----------
Loss before income taxes (9,018) (12,266)
</TABLE>
<TABLE>
<CAPTION>
Intelligent Video Telecom
Transportation Products Products Total
-------------- -------- -------- -----
<S> <C> <C> <C> <C>
Six months ended 9/30/99
Revenue from external customers 11,205 21,326 5,705 38,236
Intersegment revenues 0 2,504 40 2,544
Segment income (loss) (1,456) (5,557) (2,819) (9,832)
Six months ended 9/30/00
Revenue from external customers 12,321 18,589 3,120 34,030
Intersegment revenues 0 2,780 42 2,822
Segment income (loss) (3,624) (7,370) (5,414) (16,408)
</TABLE>
9
<PAGE>
The following reconciles segment income to consolidated income before
income taxes in thousands:
<TABLE>
<CAPTION>
6 months ended 6 months ended
Sept. 30, 1999 Sept. 30, 2000
-------------- ---------------
<S> <C> <C>
Revenue
Total revenues for reportable segments 40,780 36,852
Non-reportable segment revenues 4,011 4,619
Other revenues 0 0
Elimination of intersegment sales (2,544) (2,822)
---------- ----------
Total consolidated revenues 42,247 38,649
Total loss for reportable segments (9,832) (16,408)
Other profit or loss (1,376) (2,452)
Unallocated amounts:
Corporate and other expenses (3,086) 14,925
Special charge 0 0
Interest expense (1,367) (901)
---------- ----------
Loss before income taxes (15,661) (4,836)
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto contained in this Report
and in the Annual Report on Form 10-K of Odetics. When used in this Report, the
words "expect(s)," "feel(s)," "believe(s)," "intends," "plans," "will," "may,"
"anticipate(s)" and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements include, among other things,
statements concerning projected revenues and results of operations, funding and
cash requirements, supply issues, market acceptance of new products, the Odetics
incubator strategy, and involve a number of risks and uncertainties, including
without limitation, those set forth at the end of this Item 2 under the caption
"Risk Factors." Odetics' actual results may differ materially from any forward-
looking statements discussed herein. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Odetics undertakes no obligation to republish revised forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Results of Operations
General. Odetics defines its business segments as Video Products, Telecom
Products, and Intelligent Transportation Systems ("ITS"). The Video Products
segment includes our Broadcast, Inc. and our Gyyr, Inc. subsidiaries. The
Telecom Products segment includes Zyfer, Inc., which manufactures timing and
synchronization products, and Mariner Networks, Inc., a wholly owned subsidiary,
which manufactures multi-service access devices for the telecommunications
industry. The ITS segment represents Odetics' 93% owned subsidiary Iteris, Inc.
Net Sales and Contract Revenues. Net sales and contract revenues consist
of (i) sales of products and services to commercial and municipal customers
("net sales") and (ii) revenues derived from contracts with state, county and
municipal agencies for intelligent transportation systems projects ("contract
revenues"). Contract revenues also include revenue from contracts with agencies
of the United States Government and foreign entities for space recorders used
for geographical information systems. Total net sales and contract revenues
decreased 5.7% to $19.0 million for the three month period ended September 30
2000, compared to $20.2 million in the corresponding period of the prior fiscal
year. Total net sales and contract revenues decreased 8.5% to $38.6 million for
the sixth month period ended September 30, 2000 compared to $42.2 million in the
corresponding period of the prior fiscal year. Contract revenues of $4.9
million for the three month period ended September 30 2000 was approximately
unchanged compared to $4.8 million in the corresponding period of the prior
fiscal year. Contract revenues for the sixth month period ended September 30,
2000 of $9.6 million was approximately unchanged compared to $9.5 million in the
corresponding period of the prior fiscal year. Contract revenues were
approximately unchanged in the three month periods ended September 30, 2000
compared to the corresponding period of the prior year in both Iteris and Zyfer.
For the six months ended September 30, 2000 compared to the six months ended
September 30, 1999, Iteris experienced an 8.4% increase in contract revenues,
which was offset by a 30.5% decrease at Zyfer. Iteris has continued to execute
on its plans to aggressively compete for new contracts for intelligent
transportation systems projects. The decrease in year to date contract revenues
in Zyfer reflects declining revenues derived from contracts related to
geographical information systems.
Net sales decreased 7.6% to $14.2 million for the three month period ended
September 30, 2000 compared to $15.3 million in the corresponding period of the
prior fiscal year. Net sales decreased 11.3% to $29.0 million for the six month
period ended September 30, 2000 compared to $32.7 million in the corresponding
period of the prior fiscal year. The decrease in net sales in the three month
and six month periods ended September 30, 2000 compared to the corresponding
periods of the prior year primarily reflects the net effect of increased sales
of Iteris products, offset by a decrease in sales of Video Products and, to a
lesser extent, decreased sales of Telecom Products. Iteris' net sales in the
three month and six
11
<PAGE>
month periods ended September 30, 2000 reflects increased unit sales of its
Vantage video based traffic intersection control product. The decrease in Video
Products net sales reflects primarily reduced sales of Broadcast automation
systems. The decrease in Telecom products sales reflects the transition of
Mariner Networks' revenue base away from its legacy network interface module
business toward its Dexter 3000 multi-service access business. Mariner Networks
expects to have its first revenue from Dexter 3000 sales in its quarter ended
December 31, 2000.
Gross Profit. Gross profit as a percent of net sales decreased to 19.2%
for the three month period ended September 30, 2000, compared to 23.0% the
corresponding period in the prior fiscal year. For the sixth month period ended
September 30, 2000 gross profit as a percent of net sales decreased to 20.0%
compared to 26.6% for the corresponding period of the prior fiscal year. The
decrease in gross profit performance in the three month and six month periods
ended September 30, 2000 reflects decreased gross profits experienced by Video
Products and Telecom Products due to lower absorption of fixed manufacturing
costs on reduced net sales volume of Broadcast and Mariner Networks' products.
Gross profit as a percent of contract revenues increased to 37.1% for the
three months ended September 30, 2000 compared to 21.2% in the comparable period
of the prior fiscal year. For the six month period ended September 30, 2000
gross profit as a percentage of contract revenues increased to 34.5% from 26.9%
in the comparable period of the prior fiscal year. The increase in gross profits
on contract revenues for the three and six month periods ended September 30,
2000 primarily reflects improved gross margins on contract revenues in Zyfer and
Iteris in the current fiscal year. The Company recognizes contract revenues and
related gross profits utilizing percentage of completion contract accounting,
and the related gross margins recognized in any given period will be affected by
the underlying mix of contract activity.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 27.0% to $10.8 million (or 56.7% of total net
sales and contract revenues) in the three months ended September 30, 2000
compared to $8.5 million (or 42.1% of total net sales and contract revenues) in
the corresponding period of the prior fiscal year. Selling, general and
administrative expenses increased 26.4% to $21.9 million (or 56.8% of total net
sales and contract revenues) for the six months ended September 30, 2000
compared to $17.3 million (or 41.1% of total net sales and contract revenues) in
the corresponding period of the prior fiscal year. Sales and marketing and
general and administrative expenses in each of Odetics entities reflects the
unique growth attributes and maturity of each operation. We have increased the
level of spending in sales and marketing and general and administrative expenses
in the three and six month periods ended September 30, 2000 in Broadcast, Zyfer,
Mariner, and Iteris. Broadcast spending for selling, general and administrative
expenses increased 18.7% and 18.4% in the three and six month periods ended
September 30, 2000 compared to the prior year period as a result of aggressive
ramp of the Broadcast marketing organization and increased programs to support
sales of Microstation, Airo, and Roswell products. Zyfer increased spending in
selling, general and administrative expenses to support its StealthKey(TM)
product initiatives. Mariner Networks spending for selling, general and
administrative expenses increased 176.8% and 110.9% in the three and six month
periods ended September 30, 2000 compared to the prior year periods as a result
of its organizational development required to support the roll-out of its Dexter
3000 product family during the quarter ended September 30, 2000. Iteris
experienced increased selling, general and administrative expenses as a result
of its build up of its product marketing activities and development in
infrastructure required to prepare for spin-off from Odetics which was planned
in the quarter ended June 30, 2000. As a result of the aborted public offering
and spin-off in the current fiscal year, selling, general and administrative
expenses in the six months ended September 30, 2000 includes a charge of
$360,000 relating to the write-off deferred public offering costs.
Research and Development Expense. Research and development expense
increased 28.5% to $5.6 million (or 29.3% of total net sales and contract
revenues) in the three month period ended September 30, 2000 compared to $4.3
million (or 21.5% of total net sales and contract revenues) in the corresponding
period of the prior fiscal year. For the six month period ended September 30,
2000 research and development expenses increased 24.0% to $10.2 million (or
26.3% of total net sales and contract revenues) compared to $8.2 million (or
19.4% of total net sales and contract revenues) in the corresponding period of
12
<PAGE>
the prior fiscal year. The increase in research and development expense for the
three and six month periods ended September 30, 2000 compared to the previous
fiscal year period principally reflects increased product development expenses
in Zyfer, Mariner Networks, and Iteris. Zyfer's expenses for research and
development increased 71.1% and 60.8% in the three and six month periods ended
September 30, 2000, compared to the same periods of the prior year as a result
of the development of StealthKey(TM) , its product offering for secured network
communications. Mariner Networks increased expenses for research and development
47.3% and 14.9% in the three and six month periods ended September 30, 2000,
respectively, compared to the prior periods as a result of continued aggressive
development of the Dexter 3000 product family. Dexter 3000 represents a new
offering of multi-service access products for the telecommunications industry.
Iteris' expenses for research and development increased 72.2% and 78.1% in the
three and six month period ended September 30, 2000, respectively, compared to
the prior year periods as a result of developments supporting its AutoVue
product and the development of solutions for Personalized Traveler Information.
For competitive reasons, Odetics closely guards the confidentiality of its
specific development projects. The increase in product development expense
relates primarily to development labor and related benefits, prototype material
cost and consulting fees.
Interest Expense, Net. Interest Expense, Net reflects interest income and
interest expense as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30,
1999 2000 1999 2000
---- ---- ----- -----
(in thousands)
<S> <C> <C> <C> <C>
Interest Expense 750 536 1,367 1,075
Interest Income 0 107 0 174
Interest Expense, Net 750 429 1,367 901
</TABLE>
Interest expense primarily reflects interest on Odetics' line of credit
borrowings and mortgage interest. Interest income in the three and six months
ended September 30, 2000 was derived from short- term investments of cash
deposits. The decrease in interest expense for the three and six month period
ended September 30, 2000 compared to the prior fiscal year reflects a decrease
in the Odetics' average outstanding borrowings on its line of credit facility.
Income Taxes.
On October 11, 1999, Odetics settled its litigation with Storage Technology
Corporation through an agreement for Storage Technology Corporation to pay
license fees to Odetics of $100 million. As a result of the gain to be
recognized during the fiscal year ended March 31, 2000, the valuation allowance
related to Odetics deferred tax assets were reduced and a related tax benefit of
$6.6 million was recognized in the three and six month periods ended September
30, 1999. There were no tax benefits recognized in the three and six month
periods ended September 30, 2000 because management determined that Odetics
could not meet the criteria for recognition of the resulting deferred tax asset.
Liquidity and Capital Resources
Odetics reported net losses of $4.8 million in the six months ended
September 30, 2000. Net losses recognized in the six months ended September 30,
2000 were net of non-operating gains of $19.1 million. Net losses, adjusted for
non-cash expenses for depreciation, and working capital financing needs of $2.5
million during the six months ended September 30, 2000 yielded net cash used in
operations of $2.8 million. We used $1.5 million of cash during the six months
ended September 30, 2000 to finance capital equipment purchases.
13
<PAGE>
Odetics has a $17.0 million line of credit with Transamerica Business
Credit providing for borrowings at prime plus 2.0% (11.5% at September 30,
2000). At September 30, 2000, Odetics had $2.1 million of outstanding
borrowings on this line of credit. Odetics' borrowing under this line of credit
are secured by substantially all of its assets.
During the six months ended September 30, 2000, we recognized non-operating
income in connection with the settlement with StorageTek and the sale of certain
assets of our solid state recorder product line. In October 1999, we settled
litigation with StorageTek in exchange for license fees payable to us of $100.0
million, $80.0 million of which was paid on the settlement date. In June 2000,
we amended the settlement agreement with StorageTek to provide for the
acceleration of the payment of the $20.0 million still owed Odetics. Under the
terms of the amendment, StorageTek paid us $17.8 million in the three months
ended June 30, 2000 to complete the settlement. We recognized non-operating
income in the amount of $17.8 million, and used cash proceeds to pay down
borrowings on our line of credit during the three months ended June 30, 2000.
During the three months ended June 30, 2000, Odetics sold for cash of $1.5
million certain assets of its solid state recording product line. In connection
with this sale, we recorded a non-operating gain of $1.2 million in the six
months ended September 30, 2000.
In July 1999, Odetics sold an option to Manchester Capital LLC for an
aggregate purchase price of $5.0 million to purchase certain real property of
Odetics consisting of approximately 14 acres located at 1515 South Manchester
Avenue, Anaheim, California. Odetics used the proceeds of the option sale for
general working capital purposes. In August 2000, Odetics repurchased this
option from Manchester Capital LLC for $5.6 million.
The Odetics strategy of incubating companies for eventual spin-off or sale
requires significant investments of cash. Odetics has historically utilized
several alternatives for meeting its liquidity requirements, including the
monetization of certain real property, the re-negotiation of its credit
facilities, and the sale of additional equity and debt instruments. Odetics
anticipates that it will be successful in its efforts to continue to finance its
capital requirements and that it will be able it to execute its current
operating plans and meet its obligations on a timely basis for at least the next
twelve months.
Pending Adoption of Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new standards
for recording derivatives in interim and annual financial reports requiring that
all derivative instruments be recorded as assets or liabilities, measured at
fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, and therefore we will adopt the new requirements effective with the filing
of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. We do
not anticipate that the adoption of SFAS No. 133 will have a significant impact
on our results of operations, financial position or cash flows.
Pending Adoption of Staff Accounting Bulletin No. 101
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB No. 101). SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We review our sales contracts on an ongoing basis to ensure our
compliance with SAB No. 101. We do not anticipate that adoption of SAB No. 101
will have a material impact on previously reported or future results of
operations, financial position or cash flows.
14
<PAGE>
RISK FACTORS
Our business is subject to a number of risks, some of which are discussed
below. Other risks are presented elsewhere in this report. You should consider
the following risks carefully in addition to the other information contained in
this report before purchasing the shares of our common stock. If any of the
following risks actually occur, they could seriously harm our business,
financial condition or results of operations. In such case, the trading price of
our common stock could decline, and you may lose all or part of your investment.
Our Quarterly Operating Results Fluctuate as a Result of Many Factors. Our
quarterly revenues and operating results have fluctuated and are likely to
continue to vary from quarter to quarter due to a number of factors, many of
which are not within our control. Factors that could affect our revenues
include, among others, the following:
. our significant investment in research and development for our
subsidiaries and business units;
. our ability to develop, introduce, market and gain market acceptance of
new products applications and product enhancements in a timely manner;
. the size, timing, rescheduling or cancellation of significant customer
orders;
. the introduction of new products by competitors;
. the availability of components used in the manufacture of our products;
. our ability to control costs;
. changes in our pricing policies and the pricing policies by our
suppliers and competitors, pricing concessions on volume sales, as well
as increased price competition in general;
. the long lead times associated with government contracts or required by
vehicle manufacturers;
. our success in expanding and implementing our sales and marketing
programs;
. the effects of technological changes in our target markets;
. our relatively small level of backlog at any given time;
. the mix of sales among our business units;
. deferrals of customer orders in anticipation of new products,
applications or product enhancements;
. the risks inherent in our acquisitions of technologies and businesses;
. the Asian economic crisis and instability, and other risks and
uncertainties associated with our international business;
. currency fluctuations and our ability to get currency out of certain
foreign countries; and
. general economic and market conditions.
In addition, our sales in any quarter may consist of a relatively small
number of large customer orders. As a result, the timing of a small number of
orders may impact our quarter to quarter results. The loss of or a substantial
reduction in orders from any significant customer could seriously harm our
business, financial condition and results of operations.
Due to all of the factors listed above and other risks discussed in this
report, our future operating results could be below the expectations of
securities analysts and/or investors. If that happens, the trading price of our
common stock could be adversely affected. As a result of these quarterly
variations, you should not rely on quarter-to-quarter comparisons of our
operating results as an indication of our future performance.
15
<PAGE>
We Have Experienced Substantial Losses and Expect Future Losses. We have
experienced significant operating losses of $23.0 million for the six months
ended September 30, 2000, $38.7 million for the year ended March 31, 2000 and
$18.3 million for the year ended March 31, 1999. We may not be able to achieve
profitability on a quarterly or annual basis in the future. Most of our expenses
are fixed in advance, and we generally are unable to reduce our expenses
significantly in the short-term to compensate for any unexpected delay or
decrease in anticipated revenues. In addition, in order to implement our
incubator strategy successfully, we expect to continue to make significant
investments in each of our business units. As a result, we may continue to
experience losses, which could cause the market price of our common stock to
decline.
Our Incubator Strategy is Expensive and May Not Be Successful. We have
initiated a business strategy called our incubator strategy, which is expensive
and highly risky. The goal of this strategy is to nurture and develop companies
that can be spun-off to our stockholders. This strategy has in the past required
us to make significant investments in our business units, both for research and
development, and also to develop a separate infrastructure for each of our
business units, sufficient to allow the division to function as an independent
public company. We expect to continue to invest heavily in the development of
our business units with the goal of conducting additional public offerings. We
may not recognize the benefits of this investment for a significant period of
time, if at all. Our ability to complete an initial public offering of any of
our business units and/or spin-off our interest to our stockholders will depend
upon many factors, including:
. the overall performance and results of operations of the particular
business unit;
. the potential market for our business unit;
. our ability to assemble and retain a broad, qualified management team
for the business unit;
. our financial position and cash requirements;
. the business unit's customer base and product line;
. the current tax treatment of spin-off transactions and our ability to
obtain favorable determination letters from the Internal Revenue
Service; and
. general economic and market conditions, including the receptivity of the
stock markets to initial public offerings.
We may not be able to complete a successful initial public offering or
spin-off of any of our business units in the near future, or at all. During
fiscal 2000, we attempted to complete the initial public offering of Iteris. We
withdrew the offering due to adverse market conditions. Even if we do complete
additional public offerings, we may decide not to spin-off a particular business
unit, or to delay the spin-off until a later date.
We Must Keep Pace with Rapid Technological Change to Remain Competitive.
Our target markets are in general characterized by the following factors:
. rapid technological advances;
. downward price pressure in the marketplace as technologies mature;
. changes in customer requirements;
. frequent new product introductions and enhancements; and
. evolving industry standards and changes in the regulatory environment.
Our future success will depend upon our ability to anticipate and adapt to
changes in technology and industry standards, and to effectively develop,
introduce, market and gain broad acceptance of new products and product
enhancements incorporating the latest technological advancements.
16
<PAGE>
We believe that we must continue to make substantial investments to support
ongoing research and development in order to remain competitive. We need to
continue to develop and introduce new products that incorporate the latest
technological advancements in hardware, storage media, operating system software
and applications software in response to evolving customer requirements. Our
recent shift towards providing more software solutions may create additional
challenges for us, particularly in Broadcast. Our business and results of
operations could be adversely affected if we do not anticipate or respond
adequately to technological developments or changing customer requirements. We
cannot assure you that any such investments in research and development will
lead to any corresponding increase in revenue.
Our Future Success Depends on the Successful Development and Market
Acceptance of New Products. We believe our revenue growth and future operating
results will depend on our ability to complete development of new products and
enhancements, introduce these products in a timely, cost-effective manner,
achieve broad market acceptance of these products and enhancements, and reduce
our product costs. We may not be able to introduce any new products or any
enhancements to our existing products on a timely basis, or at all. In addition,
the introduction of any new products could adversely affect the sales of our
certain of our existing products.
Our future success will also depend in part on the success of several
recently introduced products including DVMS, our family of digital time-lapse
recorders; AutoVue, our lane departure warning system; and Dexter, our multi
service access device.
Market acceptance of our new products depends upon many factors, including
our ability to accurately predict market requirements and evolving industry
standards, our ability to resolve technical challenges in a timely and cost-
effective manner and achieve manufacturing efficiencies, the perceived
advantages of our new products over traditional products and the marketing
capabilities of our independent distributors and strategic partners. Our
business and results of operations could be seriously harmed by any significant
delays in our new product development. We have experienced delays in the past
in the introduction of new products, particularly with our Roswell system.
Certain of our new products could contain undetected design faults and software
errors or "bugs" when first released by us, despite our testing. We may not
discover these faults or errors until after a product has been installed and
used by our customers. Any faults or errors in our existing products or in any
new products may cause delays in product introduction and shipments, require
design modifications or harm customer relationships, any of which could
adversely affect our business and competitive position.
We currently anticipate that we will outsource the manufacture of our
AutoVue product line to a single manufacturer. This manufacturer may not be able
to produce sufficient quantities of this product in a timely manner or at a
reasonable cost, which could materially and adversely affect our ability to
launch or gain market acceptance of AutoVue.
We May Need Additional Capital in the Future and May Not Be Able to Secure
Adequate Funds on Terms Acceptable to Us. While we recently raised approximately
$17.1 million in September 2000 in a private placement of our Class A common
stock, we anticipate that we may need to raise additional capital in the near
future, either through additional bank borrowings or other debt or equity
financings. Our capital requirements will depend on many factors, including:
. market acceptance of our products;
. increased research and development funding, and required investments in
our business units;
. our ability to generate operating income;
. technological advancements and our competitors' response to our
products;
. capital improvements to new and existing facilities;
. increased sales and marketing expenses; and
17
<PAGE>
. potential acquisitions of businesses and product lines; and additional
working capital needs.
If our capital requirements are materially different from those currently
planned, we may need additional capital sooner than anticipated. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced and such securities may have
rights, preferences and privileges senior to our common stock. Additional
financing may not be available on favorable terms or at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable to
develop or enhance our products, expand our sales and marketing programs, take
advantage of future opportunities or respond to competitive pressures.
We Have Significant International Sales and Are Subject to Risks Associated
with Operating in International Markets. International product sales represented
approximately 19% of our total net sales and contract revenues for the fiscal
year ended March 31, 2000, approximately 27% for the fiscal year ended March 31,
1999 and approximately 34% for the fiscal year ended March 31, 1998.
International business operations are subject to inherent risks, including,
among others:
. unexpected changes in regulatory requirements, tariffs and other trade
barriers or restrictions;
. longer accounts receivable payment cycles;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences;
. the burdens of compliance with a wide variety of foreign laws;
. import and export license requirements and restrictions of the United
States and each other country in which we operate;
. exposure to different legal standards and reduced protection for
intellectual property rights in some countries;
. currency fluctuations and restrictions; and
. political, social and economic instability.
We believe that international sales will continue to represent a
significant portion of our revenues, and that continued growth and profitability
may require further expansion of our international operations. Our international
sales are currently denominated primarily in U.S. dollars. As a result, an
increase in the relative value of the dollar could make our products more
expensive and potentially less price competitive in international markets. We do
not engage in any transactions as a hedge against risks of loss due to foreign
currency fluctuations.
Any of these factors may adversely effect our future international sales
and, consequently, on our business and operating results. Furthermore, as we
increase our international sales, our total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.
We Need to Manage Growth and the Integration of Our Acquisitions. Over the
past three years, we have significantly expanded our operations and made several
substantial acquisitions of diverse businesses, including Intelligent Controls,
Inc., International Media Integration Services, Ltd., Meyer Mohaddes Associates,
Inc., Viggen Corporation, certain assets of the Transportation Systems business
of Rockwell International, and the Security Products Division of Digital Systems
Processing, Inc. A key element of our business strategy involves expansion
through the acquisition of complementary businesses, products and technologies.
Acquisitions may require significant capital infusions and, in general,
acquisitions also involve a number of special risks, including:
. potential disruption of our ongoing business and the diversion of our
resources and management's attention;
. the failure to retain or integrate key acquired personnel;
18
<PAGE>
. the challenge of assimilating diverse business cultures, and the
difficulties in integrating the operations, technologies and information
system of the acquired companies;
. increased costs to improve managerial, operational, financial and
administrative systems and to eliminate duplicative services;
. the incurrence of unforeseen obligations or liabilities;
. potential impairment of relationships with employees or customers as a
result of changes in management; and
. increased interest expense and amortization of acquired intangible
assets.
Acquisitions may also materially and adversely affect our operating results
due to large write-offs, contingent liabilities, substantial depreciation,
deferred compensation charges or good will amortization, or other adverse tax or
audit consequences.
Our competitors are also soliciting potential acquisition candidates, which
could both increase the price of any acquisition targets and decrease the number
of attractive companies available for acquisition. We cannot assure you that we
will be able to consummate any additional acquisitions, successfully integrate
any acquisitions or realize the benefits anticipated from any acquisition.
Acquisitions, combined with the expansion of our business divisions and
recent growth has placed and is expected to continue to place a significant
strain on our resources. To accommodate this growth, we anticipate that we will
be required to implement a variety of new and upgraded operational and financial
systems, procedures and controls, including the improvement of our accounting
and other internal management systems. All of these updates will require
substantial management effort. Our failure to manage growth and integrate our
acquisitions successfully could adversely affect our business, financial
condition and results of operations.
We Depend on Government Contracts and Subcontracts and Face Additional
Risks Related to Fixed Price Contracts. A significant portion of the sales by
Iteris and a portion of our sales by Zyfer were derived from contracts with
governmental agencies, either as a general contractor, subcontractor or
supplier. Government contracts represented approximately 24% and 25% of our
total net sales and contract revenues for the year ended March 31, 2000 and the
six months ended September 30, 2000, respectively. We expect revenue from
government contracts will continue to increase in the near future. Government
business is, in general, subject to special risks and challenges, including:
. long purchase cycles;
. competitive bidding and qualification requirements;
. performance bond requirements;
. delays in funding, budgetary constraints and cut-backs; and
. milestone requirements, and liquidated damage provisions for failure to
meet contract milestones.
In addition, a large number of our government contracts are fixed price
contracts. As a result, we may not be able to recover for any cost overruns.
These fixed price contracts require us to estimate the total project cost based
on preliminary projections of the project's requirements. The financial
viability of any given project depends in large part on our ability to estimate
these costs accurately and complete the project on a timely basis. In the event
our costs on these projects exceed the fixed contractual amount, we will be
required to bear the excess costs. These additional costs adversely affect our
financial condition and results of operations. Moreover, certain of our
government contracts are subject to termination or renegotiation at the
convenience of the government, which could result in a large decline in our net
sales in any given quarter. Our inability to address any of the foregoing
concerns or the loss or renegotiation of any material government contract could
seriously harm our business, financial condition and results of operations.
19
<PAGE>
The Markets in Which We Operate Are Highly Competitive and Have Many More
Established Competitors. We compete with numerous other companies in our target
markets and we expect such competition to increase due to technological
advancements, industry consolidations and reduced barriers to entry. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could seriously harm our business, financial
condition and results of operations. Many of our competitors have far greater
name recognition and greater financial, technological, marketing and customer
service resources than we do. This may allow them to respond more quickly to
new or emerging technologies and changes in customer requirements. It may also
allow them to devote greater resources to the development, promotion, sale and
support of their products than we can. Recent consolidations of end users,
distributors and manufacturers in our target markets have exacerbated this
problem. As a result of the foregoing factors, we may not be able to compete
effectively in our target markets and competitive pressures could adversely
affect our business, financial condition and results of operations.
We Cannot Be Certain of Our Ability to Attract and Retain Key Personnel and
We Do Not Have Employment Agreements with Any Key Personnel. Due to the
specialized nature of our business, we are highly dependent on the continued
service of our executive officers and other key management, engineering and
technical personnel, particularly Joel Slutzky, our Chief Executive Officer and
Chairman of the Board, and Gregory A. Miner, our Chief Operating Officer and
Chief Financial Officer. We do not have any employment contracts with any of our
officers or key employees. The loss of any of these persons would seriously harm
our development and marketing efforts, and would adversely affect our business.
Our success will also depend in large part upon our ability to continue to
attract, retain and motivate qualified engineering and other highly skilled
technical personnel. Competition for employees, particularly development
engineers, is intense. We may not be able to continue to attract and retain
sufficient numbers of such highly skilled employees. Our inability to attract
and retain additional key employees or the loss of one or more of our current
key employees could adversely affect upon our business, financial condition and
results of operations.
We May Not be Able to Adequately Protect or Enforce Our Intellectual
Property Rights. If we are not able to adequately protect or enforce the
proprietary aspects of our technology, competitors could be able to access our
proprietary technology and our business, financial condition and results of
operations will likely be seriously harmed. We currently attempt to protect our
technology through a combination of patent, copyright, trademark and trade
secret laws, employee and third party nondisclosure agreements and similar
means. Despite our efforts, other parties may attempt to disclose, obtain or use
our technologies or solutions. Our competitors may also be able to independently
develop products that are substantially equivalent or superior to our products
or design around our patents. In addition, the laws of some foreign countries do
not protect our proprietary rights as fully as do the laws of the United States.
As a result, we may not be able to protect our proprietary rights adequately in
the United States or abroad.
From time to time, we have received notices that claim we have infringed
upon the intellectual property of others. Even if these claims are not valid,
they could subject us to significant costs. We have engaged in litigation in
the past, and litigation may be necessary in the future to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Litigation may also be necessary to defend against
claims of infringement or invalidity by others. An adverse outcome in litigation
or any similar proceedings could subject us to significant liabilities to third
parties, require us to license disputed rights from others or require us to
cease marketing or using certain products or technologies. We may not be able to
obtain any licenses on terms acceptable to us, or at all. We also may have to
indemnify certain customers or strategic partners if it is determined that we
have infringed upon or misappropriated another party's intellectual property.
Any of these results could adversely affect on our business, financial condition
and results of operations. In addition, the cost of addressing any intellectual
property litigation claim, both in legal fees and expenses, and the diversion of
management resources, regardless of whether the claim is valid, could be
significant and could seriously harm our business, financial condition and
results of operations.
20
<PAGE>
The Trading Price of Our Common Stock Is Volatile. The trading price of our
common stock has been subject to wide fluctuations in the past. We may not be
able to increase or sustain the current market price of our common stock in the
future. As such, you may not be able to resell your shares of common stock at or
above the price you paid for them. The market price of our common stock could
continue to fluctuate in the future in response to various factors, including,
but not limited to:
. quarterly variations in operating results;
. shortages announced by suppliers;
. announcements of technological innovations or new products by our
competitors, customers or us;
. acquisitions or businesses, products or technologies;
. changes in pending litigation or new litigation;
. changes in investor perceptions;
. our ability to spin-off any business unit;
. applications or product enhancements by us or by our competitors; and
. changes in earnings estimates or investment recommendations by
securities analysts.
The stock market in general has recently experienced volatility, which has
particularly affected the market prices of equity securities of many high
technology companies. This volatility has often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock. In the past, companies that have
experienced volatilities in the market price of their securities have been the
subject of securities class action litigation. If we were to become the subject
of a class action lawsuit, it could result in substantial losses and divert
management's attention and resources from other matters.
We Are Controlled by Certain of Our Officers and Directors. As of
September 30, 2000, our officers and directors beneficially owned approximately
28% of the total combined voting power of the outstanding shares of our Class A
common stock and Class B common stock. As a result of their stock ownership, our
management will be able to significantly influence the election of our directors
and the outcome of corporate actions requiring stockholder approval, such as
mergers and acquisitions, regardless of how our other stockholders may vote.
This concentration of voting control may have a significant effect in delaying,
deferring or preventing a change in our management or change in control and may
adversely affect the voting or other rights of other holders of common stock.
Our Stock Structure and Certain Anti-Takeover Provisions May Affect the
Price of Our Common Stock. Certain provisions of our certificate of
incorporation and our stockholder rights plan could make it difficult for a
third party to acquire us, even though an acquisition might be beneficial to our
stockholders. These provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock. Our Class A common
stock entitles the holder to one-tenth of one vote per share and our Class B
common stock entitles the holder to one vote per share. In addition, holders of
the Class B common stock are presently entitled to elect six of our nine
directors. The disparity in the voting rights between our common stock, as well
as our insiders' significant ownership of the Class B common stock, could
discourage a proxy contest or make it more difficult for a third party to effect
a change in our management and control. In addition, our Board of Directors is
authorized to issue, without stockholder approval, up to 2,000,000 shares of
preferred stock with voting, conversion and other rights and preferences
superior to those of our common stock, as well as additional shares of Class B
common stock. Our future issuance of preferred stock or Class B common stock
could be used to discourage an unsolicited acquisition proposal.
In March 1998, we adopted a stockholder rights plan and declared a dividend
of preferred stock purchase rights to our stockholders. In the event a third
party acquires more than 15% of the outstanding voting control of our company or
15% of our outstanding common stock, the holders of these rights will be
21
<PAGE>
able to purchase the junior participating preferred stock at a substantial
discount off of the then current market price. The exercise of these rights and
purchase of a significant amount of stock at below market prices could cause
substantial dilution to a particular acquiror and discourage the acquiror from
pursuing our company. The mere existence of the stockholder rights plan often
delays or makes a merger, tender offer or proxy contest more difficult.
We Do Not Pay Cash Dividends. We have never paid cash dividends on our
common stock and do not anticipate paying any cash dividends on either class of
our common stock in the foreseeable future.
We May Be Subject to Additional Risks. The risks and uncertainties
described above are not the only ones facing our company. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also adversely affect our business operations.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Substantially all of the Company's debt outstanding at September 30, 2000
is fixed rate debt and, accordingly, the Company does not have significant
exposure to changes in interest rates.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Annual Meeting of the Stockholders of Odetics, Inc.
held on September 30, 2000, the following proxies were tabulated representing
698,158 shares of Class A Common Stock or 85.10% of the eligible voting share,
and 798,423 of Class B Common Stock or 75.93% of the eligible voting shares
voted in the following manner:
Proposal I: Election of the Board of Directors
------------------------------------------------
<TABLE>
<CAPTION>
Class A Common Stock Total Vote for Total Vote Withheld
-------------------- Each Director From Each Director
--------------- --------------------
<S> <C> <C>
Crandall Gudmundson 695,464 2,693
Jerry F. Muench 695,614 2,543
</TABLE>
<TABLE>
<CAPTION>
Class A & Class B Total Vote For Total Vote For Total Vote Total Vote
Common Stock Each Director Each Director Withheld From Withheld From
Voting Together Class A Class B Each Director Each Director
As A Single Class Class A Class B
------------------ ------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Joel Slutzky 695,531 797,523 2,626 900
Kevin Daly 695,614 797,523 2,543 900
Tom Thomas 695,614 797,523 2,543 900
Gregory A. Miner 695,534 797,523 2,624 900
John W. Seazholtz 695,414 797,523 2,743 900
Paul E. Wright 695,464 797,523 2,693 900
</TABLE>
Proposal II: To approve an amendment to the 1997 Stock Incentive Plan for an
-------------------------------------------------------------------------------
additional 400,000 Shares of Class A Common Stock; increase the
-----------------------------------------------------------------
number of option shares granted to each nonemployee director upon
-----------------------------------------------------------------
his initial appointment to the Board of Directors from 5,000
-----------------------------------------------------------------
shares to 20,000 shares; increase the number of option shares
-----------------------------------------------------------------
granted to each nonemployee director on the date of each annual
-----------------------------------------------------------------
meeting of stockholders thereafter from 4,000 shares to 5,000.
-----------------------------------------------------------------
23
<PAGE>
Class A Class B
Common Stock Common Stock
(1/10 vote per share) (1 vote per share)
--------------------- ------------------
For 662,605 726,386
Against 30,214 5,282
Abstain 5,338 66,754
Proposal III: To Ratify the Appointment of Ernst & Young LLP as the Company's
-----------------------------------------------------------------------------
independent auditors for the fiscal year ending March 31, 2001.
---------------------------------------------------------------
Class A Class B
Common Stock Common Stock
(1/10 vote per share) (1 vote per share)
--------------------- ------------------
For 694,402 798,104
Against 1,050 100
Abstain 2,706 219
Item 5. OTHER INFORMATION
NONE.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
24
<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.
ODETICS, INC.
(Registrant)
By /s/ Gregory A. Miner
---------------------
Gregory A. Miner
Vice President, Chief Financial Officer
By /s/ Gary Smith
---------------
Gary Smith
Vice President, Controller
(Principal Accounting Officer)
Dated: November 14, 2000
-------------------
25
