<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the quarterly period ended July 1, 1995
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to
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Commission file number 0-12094
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ACUITY IMAGING, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 04-2688311
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Townsend West, Nashua, New Hampshire 03063
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(Address of principal executive offices)
Issuer's telephone number (603) 598-8400
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Former name, former address and former fiscal year, if changed since last
report: Not Applicable
------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
------ ------
As of August 11, 1995 issuer had outstanding 2,486,937 shares of Common Stock.
This report on Form 10-QSB contains 16 pages (excluding the EDGAR Financial Data
Schedule which is Exhibit 27).
The exhibit index is on page 15.
1
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ACUITY IMAGING, INC. AND SUBSIDIARIES
-------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheets at
July 1, 1995 and December 31, 1994.................. 3
Condensed Consolidated Statements of Operations
for the Thirteen and Twenty-six weeks ended
July 1, 1995 and July 2, 1994....................... 4
Condensed Consolidated Statements of Cash Flows
for the Twenty-six weeks ended
July 1, 1995 and July 2, 1994....................... 5
Notes to Condensed Consolidated Financial Statements.. 6
Management's Discussion and Analysis.................. 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.............. 14
Signature............................................. 14
Exhibit Index......................................... 15
</TABLE>
2
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ACUITY IMAGING, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
Notes (Unaudited) (Audited)
----- ----------- -------------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 384 $ 529
Accounts receivable, net 2,609 3,605
Inventories 1,821 1,665
Other current assets 11 249 28
-------- --------
Total current assets 5,063 5,827
PROPERTY AND EQUIPMENT - NET 936 873
OTHER ASSETS 20 20
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TOTAL ASSETS $ 6,019 $ 6,720
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,530 $ 1,573
Advances from customers 178 193
Accrued expenses 1,126 1,591
Loan payable 10 1,300 -
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Total current liabilities 4,134 3,357
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LOAN PAYABLE 8 - 1,015
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized,
10,000,000 shares, issued, 2,484,517
shares at July 1, 1995 and 2,389,532
shares at December 31, 1994 25 24
Additional paid-in capital 61,247 61,081
Accumulated deficit (59,528) (58,888)
Cumulative translation adjustment 141 131
-------- --------
Total stockholders' equity 1,885 2,348
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,019 $ 6,720
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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ACUITY IMAGING, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
------------------ -----------------
July 1, July 2, July 1, July 2,
Notes 1995 1994 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES AND SERVICE REVENUE 2 $ 4,099 $5,386 $ 8,994 $10,575
------- ------ ------- -------
COSTS AND EXPENSES:
Cost of sales and service revenue 1,892 2,368 4,013 4,469
Research and development 938 1,003 2,027 1,941
Marketing and selling 1,452 1,269 2,921 2,519
General and administrative 283 435 620 808
------- ------ ------- -------
Total costs and expenses 4,565 5,075 9,581 9,737
------- ------ ------- -------
INCOME (LOSS) FROM OPERATIONS (466) 311 (587) 838
INTEREST EXPENSE - NET 33 22 53 95
------- ------ ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (499) 289 (640) 743
PROVISION FOR INCOME TAXES - 30 - 74
------- ------ ------- -------
NET INCOME (LOSS) ($499) $ 259 ($640) $ 669
======= ====== ======= =======
NET INCOME (LOSS) PER SHARE 5 ($.20) $.10 ($.26) $.26
======= ====== ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 5 2,469 2,580 2,443 2,579
======= ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
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ACUITY IMAGING, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twenty-Six Weeks ended
-------------------------
July 1, July 2,
Notes 1995 1994
----- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) ($ 640) $ 669
------- -------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 280 179
Interest expense - 84
Increase (decrease) in cash
resulting from a change in:
Accounts receivable 996 (525)
Inventories (156) 67
Other current assets 11 (221) 17
Accounts payable (43) 179
Advances from customers (15) 992
Accrued expenses (465) (451)
------- -------
Total adjustments 376 542
------- -------
Net cash provided by (used in)
operating activities (264) 1,211
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (343) (395)
------- -------
Net cash used in investing
activities (343) (395)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options 167 3
Proceeds from bank loan 10 285 1,000
Payment of short term debt 8 - (3,419)
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Net cash provided by (used in)
financing activities 452 (2,416)
------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 10 -
------- -------
DECREASE IN CASH AND EQUIVALENTS (145) (1,600)
CASH AND EQUIVALENTS, BEGINNING OF
PERIOD 529 2,324
------- -------
CASH AND EQUIVALENTS, END OF PERIOD $ 384 $ 724
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
INTEREST PAID DURING THE PERIOD $ 58 $ 1,297
======= =======
INCOME TAXES PAID DURING THE PERIOD $ 30 $ 68
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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ACUITY IMAGING, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments which are necessary to present
fairly the financial position as of July 1, 1995 (unaudited) and December
31, 1994 and the unaudited results of operations for the thirteen weeks
ended July 1, 1995 and July 2, 1994, and the unaudited results of
operations and cash flows for the twenty-six weeks ended July 1, 1995 and
July 2, 1994. Certain information and footnote disclosures normally
included in the annual financial statements which are prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Accordingly, Acuity Imaging, Inc. (the "Company")
believes that although the disclosures are adequate to make the information
presented not misleading, the financial statements should be read in
conjunction with the financial statements and footnotes in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994.
2. On January 26, 1994 Acuity Imaging, Inc. was formed by the merger (the
"Merger") of Automatix Incorporated ("Automatix") and Itran Corp. ("Itran")
of Manchester, New Hampshire, a privately held corporation, with Automatix
as the surviving entity. In connection with the Merger, the Company
effected a 1 for 20 reverse stock split. The Merger has been accounted for
as a pooling of interests; accordingly, the Company has restated its
historical consolidated financial statements and financial information to
reflect the combined financial condition and results of operations of
Automatix and Itran.
3. On April 27, 1995 the Company and Robotic Vision Systems, Inc. ("RVSI")
of Hauppauge, New York signed an Agreement and Plan of Merger and
Reorganization, which was amended and restated as of July 11, 1995, whereby
RVSI would acquire all of Acuity's outstanding stock. The transaction is
intended to be completed as a tax free reorganization and to be accounted
for as a pooling of interests. To effect the transaction RVSI would issue
0.766 of a share of its common stock in exchange for each outstanding share
of Acuity common stock; provided, however, that if the average of the
closing prices of RVSI Common Stock on the Nasdaq National Market for the
20 trading days ending on (and including) the third trading day immediately
prior to the RVSI Special Meeting of Stockholders is greater than $14.50,
then the exchange ratio shall be equal to the quotient of $11.107 divided
by the average closing price (provided that in no event shall the exchange
ratio be less than 0.555375); and if the average closing price is less than
$10.00, then the exchange ratio shall be equal to the quotient of $7.66
divided by the average closing price (provided that in no event shall the
exchange ratio be more than 0.925626). In addition, Acuity's outstanding
stock options would be exchanged for options on RVSI'S common stock in the
same ratio as described above. Consummation of the merger is subject to
conditions customary for transactions of this nature, including approval by
the stockholders of each of Acuity and RVSI.
4. The condensed consolidated financial statements include the financial
statements of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
5. Income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the respective periods,
including the assumed net shares issuable (treasury stock method) upon
exercise of stock options and warrants when dilutive. Fully diluted and
primary income per common share do not differ materially for any of the
periods presented.
6. Certain amounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
6
<PAGE>
7. The results of operations for the thirteen and twenty-six weeks ended July
1, 1995 are not necessarily indicative of the results for the entire fiscal
year.
8. On April 1, 1994 the Company retired its $3.4 million subordinated notes,
which included $1,269,000 of accrued interest, which were due on June 30,
1994. In connection with this retirement the Company then borrowed $1.5
million against its $3.6 million bank line of credit. The additional cash
utilized in the retirement came from operations and from a customer down
payment of approximately $1.2 million on a $3.5 million contract which was
received in March, 1994 (see Note 9 to Condensed Consolidated Financial
Statements).
9. In March, 1994 the Company received a contract from Brown & Williamson for
$3.6 million for 60 vision-based package inspection systems. During the
quarter ended July 2, 1994 the Company shipped the first 12 units of this
60 unit order. The revenue of approximately $715,000 from this contract
represented 13% of the Company's 1994 second quarter total revenue and 7%
of the Company's 1994 six month total revenue.
10. As of the balance sheet date of July 1, 1995 the Company was in default of
certain of the covenants on its outstanding bank line of credit agreement
and as such the "Loan Payable" amount has been classified as a short term
liability. The Company has obtained forbearance from such defaults from
its bank until the earlier of (i) September 30, 1995 or (ii) any
termination of the Company's arrangement for its contemplated merger with
RVSI without such merger having been consummated. In the event that either
of the two events occurs, the Company would need to enter into negotiations
with its bank in an attempt to resolve the termination of such forbearance.
11. Other current assets of $249,000 at July 1, 1995 include $185,000 of
prepaid merger related expenses associated with the proposed RVSI merger
(see Note 3 to Condensed Consolidated Financial Statements). Such costs,
combined with future merger related costs, are expected be expensed in the
quarter in which the merger is consummated.
7
<PAGE>
ITEM 2. MANAGEMENTOS DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On January 26, 1994 Acuity Imaging, Inc. was formed by the merger (the
"Merger") of Automatix Incorporated ("Automatix") and Itran Corp. ("Itran") of
Manchester, New Hampshire, a privately held corporation, with Automatix as the
surviving entity. In connection with the merger, the company effected a 1 for
20 reverse stock split. The Merger has been accounted for as a pooling of
interests; accordingly, the Company has restated its historical consolidated
financial statements and financial information to reflect the combined financial
condition and results of operations of Automatix and Itran. (See Note 2 to
Condensed Consolidated Financial Statements).
On April 27, 1995 the Company and Robotic Vision Systems, Inc. ("RVSI")
of Hauppauge, New York signed an Agreement and Plan of Merger and
Reorganization, which was amended and restated as of July 11, 1995, whereby RVSI
would acquire all of Acuity's outstanding stock. The transaction is intended to
be completed as a tax free reorganization and to be accounted for as a pooling
of interests. To effect the transaction RVSI would issue 0.766 of a share of
its common stock in exchange for each outstanding share of Acuity common stock;
provided, however, that if the average of the closing prices of RVSI Common
Stock on the Nasdaq National Market for the 20 trading days ending on (and
including) the third trading day immediately prior to the RVSI Special Meeting
of Stockholders is greater than $14.50, then the exchange ratio shall be equal
to the quotient of $11.107 divided by the average closing price (provided that
in no event shall the exchange ratio be less than 0.555375); and if the average
closing price is less than $10.00, then the exchange ratio shall be equal to the
quotient of $7.66 divided by the average closing price (provided that in no
event shall the exchange ratio be more than 0.925626). In addition, Acuity's
outstanding stock options would be exchanged for options on RVSI'S common stock
in the same ratio as described above. Consummation of the merger is subject to
conditions customary for transactions of this nature, including approval by the
stockholders of each of Acuity and RVSI.
RESULTS OF OPERATIONS
Total revenues decreased 24% in the second quarter of 1995 and 15% in the
first six months of 1995 as compared to the second quarter and first six months
of 1994, respectively. The quarterly decrease reflects a 25% decrease in Vision
Systems and Software revenues combined with a 49% decrease in Engineering
Service Revenues which were both partially offset by a 28% increase in Customer
Service and Training revenues. The six month decrease reflects a 19% decrease
in Vision Systems and Software revenues combined with a 10% decrease in
Engineering Service revenues which were both partially offset by an 18% increase
in Customer Service and Training revenues. the decrease in total revenues in
the quarterly and six month periods were primarily a result of the Company's
lack of securing any one or two customers which have traditionally accounted for
a significant percentage of the Company's revenues. During the second quarter
of 1994 revenues from an ongoing $3.6 million contract totaled 13% of q2 1994
revenues and 7% of the revenues in the first six months of 1994. There was no
such comparable contract or customer which accounted for such a significant
percentage of total Company revenues in either of the 1995 periods. In
addition, the decrease in total revenues in each of the 1995 periods was also a
result of an increased percentage of total revenues generated through the
Company's distribution network, which purchase the Company's products at a
discount from its standard list prices. To a lesser extent, the decreases in
revenues were also attributable to a somewhat changing product line which
included certain newly introduced products which did not achieve their projected
sales level during the 1995 periods. Acuity believes that the trends which
resulted in the reduced revenues could continue for the foreseeable future.
8
<PAGE>
The following table summarizes revenues by product line:
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- ---------------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by Product Line: $ % $ % $ % $ %
- - - - - - - -
Vision Systems and Software...... 3,311 81 4,414 82 7,226 80 8,873 84
Customer Service and Training ... 491 12 384 7 992 11 843 8
Engineering Services............. 297 7 588 11 776 9 859 8
------ --- ------ --- ------ --- ------- ---
Total.......................... $4,099 100% $5,386 100% $8,994 100% $10,575 100%
====== === ====== === ====== === ======= ===
</TABLE>
Vision Systems and Software include vision product and application
engineering revenues. Customer Service and Training represents revenues from
the sale of spare parts, training and maintenance agreements. Engineering
Services include both vision and robotic software development contracts, robotic
hardware sales, and U.S. government sponsored SBIR (Small Business Innovation
Research) revenues.
Vision systems designed for the general purpose market comprise the largest
portion of the Company's revenues. In the second quarter and the first six
months of 1995 general purpose vision revenues accounted for 68% and 65%,
respectively, of total Company revenues as compared to 68% and 65%,
respectively, in the second quarter and the first six months of 1994. In 1994
general purpose vision revenues represented 69% of total Company revenues. The
Company believes that this market will continue to be its fastest growing market
although quarterly fluctuations are possible. Fluctuations in revenue from
vision systems and software for the general purpose market were, and are
expected to continue to be, primarily due to fluctuations in sales volume and to
a lesser extent to price fluctuations caused be competitive pricing pressures.
The Company's primary products for the general purpose market include the PV6(R)
(Powervision 60(R)), PV90(R) (Powervision 90(R)), IVS(R) (Intelligent Visual
Sensors), and the recently introduced Mentorvision(TM).
Vision systems designed for niche (application specific) markets accounted for
13% and 16% of total Company revenues in the second quarter and the first six
months of 1995, respectively, as compared to 14% and 19%, respectively, for the
comparable periods in 1994. The Company believes that this market will continue
to be an important part of its business but its growth is not expected to keep
pace with the anticipated growth in the general purpose market, although
quarterly fluctuations are possible. Fluctuations in revenue from vision
systems and software for the niche market were, and are expected to continue to
be, primarily due to fluctuations in sales volume and to a lesser extent to
price fluctuations caused be competitive pricing pressures. The Company's
primary products for the niche markets include the I-Pak(R), a pharmaceutical
label inspection product; DMR (Data Matrix Reader(TM)) and the newly introduced
SR-20(TM) (Symbology Reader), both readers of matrix-coded information.
Customer Service and Training revenue, including spare parts, training and
maintenance agreements, increased 28% in the second quarter of 1995 while
increasing 18% in the first six months of 1995 as compared to the comparable
periods in 1994. Revenues from this product line accounted for 12% and 11% of
total Company revenues in the 1995 thirteen and twenty-six week periods as
compared to 7% and 8% in the similar periods of 1994. While the newer
generation machine vision product lines require much less repair, maintenance
and general customer support than the previous models, revenues from other types
of services, including maintenance contracts, training and field support, are
expected to offset the decline in the demand for the spare parts of the older
product lines.
Engineering Service revenue decreased 49% in the second quarter and 10% in
the first six months of 1995 as compared to the similar periods in 1994.
Engineering Service revenue accounted for 7% of the total quarterly revenue and
9% of the total six month revenue in the 1995 periods as compared to 11% and 8%,
respectively, of total revenues in the 1994 periods. The decreases in
9
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revenues were primarily a result of decreased billings of Engineering Service
contracts under the U.S. Government sponsored SBIR program. This included
billings on both ongoing and newly obtained contracts. These decreases were also
partially attributed to declining revenues from sales of robotic hardware and
from robotic software development contracts. The Company plans to continue work
on its several SBIR contracts and to bid on new SBIR contracts in the future.
The Company believes that it will experience a continuing decline in robotic
related engineering service contracts but that these will be offset from new
commercial and SBIR funded vision related contracts.
Historically, Acuity has had one or two customers which have accounted for a
significant percentage of its total revenues for a given year. In 1994 Brown &
Williamson was Acuity's largest customer, accounting for 16% of total revenues.
In 1993 Acuity's largest customer, Motorola, accounted for 12% of the Company's
total revenues. As of the end of the second quarter of 1995 and also as of the
date of this Form 10-QSB, the Company did not have any order or contract in its
backlog that would compare with the size of the Brown & Williamson contract
which was booked in March 1994 and which accounted for a significant part of the
Company's total 1994 revenues. Revenue from this contract represented 13% of
the Company's 1994 second quarter revenues and 7% of the Company's 1994 six
month revenues (see Note 9 to the Condensed Consolidated Financial Statements).
There can be no assurance that the Company will be able to secure and complete a
similar contract in the future. Acuity recognizes the potential effects of
reliance upon a few significant customers and therefore continues to attempt to
expand its market share through a diversified customer base.
International (outside North America) revenues remained approximately
constant in the second quarter of 1995 as compared to the second quarter of 1994
while they increased 35% in the six months of 1995 as compared to the comparable
period in 1994. While there was essentially no change in the comparative
quarterly international total, comparative quarterly European revenues increased
8% and Asian revenues declined 28%. The six month overall increase resulted
from a 42% increase in European revenues and a 16% increase in Asian revenues.
The increase in international revenues in the six month period was a result of
what Acuity believes were slightly improved economic conditions in Europe and
Asia with regard to Acuity's products. North American revenues experienced a
29% quarterly decrease and a 25% six month decrease in 1995 as compared to the
comparable 1994 periods. This decrease was primarily a result of the Company's
lack of securing any one or two North American customers which traditionally
account for a significant percentage of the Company's revenues. Sales to all
foreign countries were made in United States Dollars with the exception of the
United Kingdom in which sales are denominated in Pound Sterling and are
transacted by Acuity's wholly-owned subsidiary located in the United Kingdom.
Acuity believes that a weak U.S. Dollar may have contributed to the increase in
foreign revenues in the periods presented and that any future strengthening of
the U.S. Dollar may negatively impact the growth of foreign revenues. Acuity
believes that its foreign exchange exposure from its U.K. subsidiary is not
significant because revenues and a majority of the costs incurred are
denominated in Pound Sterling.
The following table summarizes revenues by geographic region:
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- ---------------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
-------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues by Geographic Region: $ % $ % $ % $ %
- - - - - - - -
North America................. 3,212 78 4,497 83 6,559 73 8,776 83
Europe........................ 738 18 683 13 1,889 21 1,329 13
Asia.......................... 149 4 206 4 546 6 470 4
------ --- ------ --- ------ --- ------- ---
Total...................... $4,099 100% $5,386 100% $8,994 100% $10,575 100%
====== === ====== === ====== === ======= ===
</TABLE>
Total costs and expenses, as a percentage of revenue, increased to 111% of
revenue in the second quarter of 1995 from 94% of revenue in the second quarter
of 1994 while increasing to 107%
10
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for the first six months of 1995 from 92% during the first six months of 1994.
As a percentage of revenue, the change in total costs and expenses consisted of
an approximate 15 percentage point increase in other costs and expenses combined
with a 2 percentage point increase in the cost of goods sold during the
quarterly comparative periods while the six month comparative change resulted
from an approximate 12 percentage point increase in other costs and expenses
combined with an approximate 3 percentage point increase in the cost of goods
sold. Headcount totaled 112 at the end of the second quarter of 1995 as compared
to 114 at the end of the second quarter of 1994.
Cost of goods sold, as a percentage of revenue, increased 2 percentage
points to approximately 46% in the second quarter of 1995 from approximately 44%
in the second quarter of 1994 while during the 1995 six month period it
increased approximately 3 percentage points to 45% from 42% in the 1994 period.
The increase was primarily attributable to a product mix change to lower gross
margin products in the 1995 periods. In addition, increased sales through
distribution, as a percentage of total revenues, and somewhat higher
manufacturing labor costs in the 1995 periods also contributed to the increased
cost of goods sold. Future gross margins will be impacted by the product mix of
future revenues and the level of revenues generated through the Company's
distribution network. Because a significant percentage of Acuity's quarterly
revenues are for products booked and shipped in the same quarter, it is
difficult for Acuity to accurately predict the flow and product mix of
shipments. Acuity believes that its margins could slightly further decrease due
to an increased percentage of sales of lower margin products, pricing pressures
and an increased percentage of sales through distribution. This trend continued
throughout the second quarter of 1995 and the Company believes that it may
continue for the foreseeable future. Acuity continues to monitor and react to
market events and developments in an attempt to improve its gross margin levels.
However, the Company's future profitability will be dependent upon the Company's
ability to effectively market and manufacture its products, to develop new
products to meet changing customer demands and to expand its market share
through a more diversified customer base.
Research and development expenses decreased 6% in the thirteen weeks ended
July 1, 1995 while increasing 4% during the twenty-six weeks then ended as
compared to the similar periods in 1994. The expense decrease in the quarterly
period reflects a decreased average R&D headcount in the comparable periods
which decreased salary, travel, and employee development expenses. The increase
in the six month period expenses reflect costs associated with a higher
headcount in the first quarter of 1995. Acuity expects to expend additional
resources in the future to improve and expand its product lines and to respond
to its customers' needs.
Marketing and selling expenses increased 14% in the second quarter of 1995
and 16% in the first six months of 1995 as compared to the comparable periods in
1994. The increase was partially attributable to increased trade show,
advertising, salary and travel expenses. Other expenses also increased as a
result of the higher average headcount in the 1995 periods. The decrease in
revenues in the 1995 quarterly and six month periods as compared to the 1994
comparable periods produced a corresponding decrease in commission expense which
partially offset the other expense increases. As Acuity attempts to expand its
marketing and sales programs, in an effort to increase its market share and
subsequently its revenues, additional expenditures in marketing and sales are
planned.
General and administrative expenses decreased 35% in the 1995 thirteen week
quarter and 23% in the 1995 twenty-six week period as compared to the similar
1994 periods. The decreases were primarily attributable to a lower average
headcount which decreased salary and other employee related expenses.
Additional resources will be invested in the general and administrative areas as
required by the future growth of Acuity.
Net interest expense increased 50% in the second quarter of 1995 as
compared to the second quarter of 1994 and decreased 44% in the half-year
comparable periods. The quarterly comparative increase was due to the Company's
higher borrowings in the 1995 quarterly period. The six month comparative
decrease was primarily a result of the retirement of the Company's 10%
subordinated notes which were paid on April 1, 1994 (see Note 8 to the Condensed
Consolidated Financial Statements).
11
<PAGE>
A provision for income taxes was not made in either the 1995 quarterly or
six month periods since the Company had operating losses. The 1994 rate of
approximately 10% reflects federal and state taxes, and the use of tax loss and
tax credit carryovers. The Company has significant tax loss and tax credit
carryovers both in the United States and the United Kingdom, but these have
certain limitations on their use.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
For the twenty-six weeks ended July 1, 1995, cash and cash equivalents
decreased 27% from the 1994 year end amount. At the end of the second quarter
of 1995 working capital totaled $929,000 as compared to $2,470,000 at year end
1994, a decrease of 62%. The significant decline was primarily a result of the
Company's line of credit becoming a short term liability as of April 1, 1995 and
the Company's twenty-six week loss of $640,000.
In March 1995 the Company secured, from a commercial bank, a long term $3.5
million line of credit carrying more favorable terms than its previous line from
another commercial bank (See Notes 8 and 10 to Condensed Consolidated Financial
Statements). However, since the Company was in default of certain covenants
under this line of credit as of July 1, 1995, the then borrowings of $1,300,000
are classified as a short term liability in the Company's unaudited July 1, 1995
Balance Sheet. The Company has obtained forbearance from such defaults from its
bank until the earlier of (i) September 30, 1995 or (ii) any termination of the
Company's arrangement for its contemplated merger with RVSI without such merger
having been consummated. In the event that either of the two events occurs, the
Company would need to enter into negotiations with its bank in an attempt to
resolve the termination of such forbearance. As of the date of this Form 10-QSB
borrowings of $1,375,000 were outstanding and the Company had approximately
another $48,000 in available borrowings against its line of credit.
During the twenty-six weeks ended July 1, 1995 the Company received
$167,000 from the exercise of stock options and borrowed an additional $285,000
on its line of credit. During the same period the Company invested $343,000 in
the purchase of property and equipment. These costs were primarily for assets
required for product development and enhancement. As of July 1, 1995 the
Company had capitalized $185,000 of merger related costs associated with the
proposed RVSI merger and such costs are classified in the Company's July 1, 1995
Balance Sheet as other assets. Such costs, combined with future merger related
costs, are expected be expensed in the quarter in which the merger is
consummated.
Commencing in the second quarter of 1995, in order to conserve its cash
resources and in an effort to improve its operating results, the Company has
reduced previously planned purchases of capital assets, closely monitored its
non-fixed expenses, and offered discounts and otherwise endeavored to accelerate
the payment of its receivables.
If the contemplated merger with RVSI is not consummated, the forbearance of
the Company's bank lender would terminate and the Company would need to either
renegotiate the terms of its line of credit or obtain additional funds to repay
its bank lender. In view of the Company's recent losses, no assurance can be
given that the Company could renegotiate such line of credit or obtain
additional funds on terms acceptable to the Company. In such event, the Company
would need to re-evaluate its business plan and expenditures in order to
significantly reduce its cash outflows.
Due to recent losses in 1995, the Company revised downward its plans to
purchase capital assets during the current fiscal year. These costs are not
expected to have a material effect on the Company's operations. The Company has
no material commitments for capital expenditures. Inventory levels should
remain somewhat consistent with levels maintained during the past two years,
other than possible fluctuations caused by the timing of large orders.
The Company has incurred significant operating losses during its history
and has an accumulated deficit of approximately $60,000,000. In the past, the
Company attempted to address the primary issues which led to its significant
operating losses in past years by changing its product
12
<PAGE>
lines, restructuring, and merging with Itran in January 1994. While the
Company completed four profitable quarters during 1994 since the Merger, each
with increasing revenues, the first and second quarters of 1995 showed a decline
in revenues and a net loss. The Company reduced its headcount at the end of
March 1995 in an attempt to bring its expense level in line with its projected
revenue levels. Such measures may again be required if the booking and revenue
trends experienced during the first half of 1995 continue. There can be no
assurance that these measures, or any further measures the Company may employ,
will cause the Company to experience revenue growth or have profitable
operations in the future. The Company's future liquidity and profitability are
dependent upon the Company's ability to effectively market and manufacture its
products, to develop new products to meet changing customer demands and to
expand its market share through a more diversified customer base.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10SS* Agreement and Plan of Merger and Reorganization dated as of April 27,
1995, as amended and restated as of July 11, 1995 by and among
Robotic Vision Systems, Inc., RVSI Acquisition Corp. and Acuity
Imaging, Inc.
11 Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR)
* Incorporated by reference from Joint Proxy Statement/Prospectus
contained as part of registration statement on Form S-4 of Robotic
Vision Systems, Inc. (registration number 33-59637) effective
August 9, 1995.
(b) Reports on Form 8-K
There were three reports on Form 8-K filed during the thirteen weeks
ended July 1, 1995.
The Form 8-K Report dated April 17, 1995 concerning Item 5.
"Other Events" was filed with the S.E.C. and is incorporated
herein by reference.
The Form 8-K Report dated April 24, 1995 concerning Item 5.
"Other Events" was filed with the S.E.C. and is incorporated
herein by reference.
The Form 8-K Report dated April 27, 1995 concerning Item 5.
"Other Events" was filed with the S.E.C. and is incorporated
herein by reference.
There was one report on Form 8-K filed subsequent to the thirteen weeks
ended July 1, 1995 and prior to the filing of this Form 10-QSB.
The Form 8-K Report dated July 11, 1995 concerning Item 5. "Other
Events" was filed with the S.E.C. and is incorporated herein by
reference.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACUITY IMAGING, INC.
Date: August 11, 1995 /s/ Ofer Gneezy
----------------
Ofer Gneezy
President
Date: August 11, 1995 /s/ John A. Rogers
-------------------
John A. Rogers
Vice President and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX PAGE NO.
------------- --------
11 Computation of Per Share Earnings 16
27 Financial Data Schedule (EDGAR) 17
15
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
----- -----
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted Average Number of Shares
outstanding:
Common Stock 2,469 2,367 2,443 2,366
Common equivalent shares
resulting from stock options and
warrants (treasury stock method) - 213 - 213
------ ------ ------ ------
Total 2,469 2,580 2,443 2,579
====== ====== ====== ======
Net Income (loss) applicable to common
stock ($ 499) $ 259 ($640) $ 669
====== ====== ====== ======
Net Income (loss) per common share ($ .20) $ .10 ($.26) $ .26
====== ====== ====== ======
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-02-1995 JAN-01-1995
<PERIOD-END> JUL-01-1995 JUL-01-1995
<CASH> 384 0
<SECURITIES> 0 0
<RECEIVABLES> 2,609 0
<ALLOWANCES> 0 0
<INVENTORY> 1,821 0
<CURRENT-ASSETS> 5,063 0
<PP&E> 936 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 6,019 0
<CURRENT-LIABILITIES> 4,134 0
<BONDS> 0 0
<COMMON> 25 0
0 0
0 0
<OTHER-SE> 1,860 0
<TOTAL-LIABILITY-AND-EQUITY> 6,019 0
<SALES> 4,099 8,994
<TOTAL-REVENUES> 4,099 8,994
<CGS> 1,892 4,013
<TOTAL-COSTS> 1,892 4,013
<OTHER-EXPENSES> 2,673 5,568
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 33 53
<INCOME-PRETAX> (499) (640)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (499) (640)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (499) (640)
<EPS-PRIMARY> (.20) (.26)
<EPS-DILUTED> (.20) (.26)
</TABLE>
