SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number 0-16577
CYBEROPTICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1472057
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5900 Golden Hills Drive, Golden Valley, Minnesota 55416
(Address of principal executive offices)
(612) 542-5000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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.
At March 31, 1996, 5,652,831 shares of the issuer's Common Stock, no par value,
were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CYBEROPTICS CORPORATION
BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
MAR. 31, 1996 DEC. 31, 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,467 $ 8,718
Marketable securities, at cost 13,000 10,146
Accounts receivable, net 6,407 8,514
Inventories 3,655 3,874
Other current assets 1,804 1,473
------- -------
Total current assets 31,333 32,725
Marketable securities, at cost 23,500 21,000
Equipment and furnishings, net 1,143 943
Capitalized patent costs, net 102 72
------- -------
Total assets $56,078 $54,740
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,086 $ 737
Income taxes payable 911 898
Accrued expenses 1,681 2,368
------- -------
Total current liabilities 3,678 4,003
Commitments and Contingency
Stockholders' equity:
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 10,000 shares
authorized, 5,652 and 5,612 shares issued
and outstanding, respectively 42,900 42,658
Retained earnings 9,500 8,079
------- -------
Total stockholders' equity 52,400 50,737
------- -------
Total liabilities and stockholders' equity $56,078 $54,740
======= =======
</TABLE>
See the accompanying notes to interim financial statements
CYBEROPTICS CORPORATION
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31, 1996 1995
------ ------
Revenues $8,513 $4,555
Cost of revenues 3,909 2,049
------ ------
Gross margin 4,604 2,506
Research and development expenses 1,301 725
Selling, general and administrative expenses 1,813 1,100
------ ------
Income from operations 1,490 681
Interest income 571 30
------ ------
Income before income taxes 2,061 711
Provision for income taxes 640 214
====== ======
Net income $1,421 $ 497
====== ======
Net income per share (fully diluted) $ 0.24 $ 0.11
====== ======
Weighted average common and
common equivalent shares 5,932 4,493
====== ======
See the accompanying notes to interim financial statements.
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
THREE MONTHS ENDED MARCH 31, 1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,421 $ 497
Adjustments to reconcile net income to
net cash (used) provided by operating
activities:
Depreciation and amortization 132 86
Provision for losses on inventories 61 2
Changes in operating assets and
liabilities:
Accounts receivable 2,107 (602)
Inventories 158 (568)
Other current assets (331) (29)
Accounts payable 349 345
Income taxes payable 13 191
Accrued expenses (687) (79)
-------- --------
Net cash provided (used)
by operating activities 3,223 (157)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities 5,146 300
Purchases of marketable securities (10,500) (1,232)
Additions to equipment and furnishings (318) (164)
Additions to patents (44) (6)
-------- --------
Net cash used by investing
activities (5,716) (1,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 242 15
-------- --------
Net cash provided by financing
activities 242 15
Increase (decrease) in cash and cash equivalents (2,251) (1,244)
Cash and cash equivalents - beginning
of period 8,718 1,428
-------- --------
Cash and cash equivalents - end of period $ 6,467 $ 184
======== ========
See the accompanying notes to interim financial statements.
CYBEROPTICS CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996
1. INTERIM REPORTING:
The interim financial statements are unaudited; however, in the opinion of
management, the interim statements include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the results
and balances for the interim periods.
The results of operations for the three-month period ended March 31, 1996 do not
necessarily indicate the results to be expected for the full year. These
statements should be read in conjunction with the Company's financial statements
and notes thereto, contained in the Company's Annual Report to Stockholders for
the year ended December 31, 1995.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
2. INVENTORIES (IN THOUSANDS):
March 31, Dec, 31
1996 1995
(unaudited)
Raw materials $2,602 $3,172
Work in process 803 608
Finished goods 250 94
------ ------
Total inventories $3,655 $3,874
====== ======
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CyberOptics Corporation designs and manufactures intelligent sensors and systems
for high-precision, non-contact dimensional measurement and process control.
Utilizing proprietary laser and optics technology combined with advanced
software and electronics, the Company's products enable manufacturers to
increase operating efficiencies, product yields and quality by measuring the
characteristics and placement of components both during and after the
manufacturing process. The Company sells its products worldwide through a
combination of direct sales staff and independent distributors.
The following is management's discussion and analysis of certain significant
factors that have affected the Company's earnings and financial position during
the periods included in the accompanying financial statements. This discussion
should be read in conjunction with the financial statements and associated
notes.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. The following Management's Discussion
and Analysis contains "forward looking statements" within the meaning of federal
securities laws which represent management's expectations or beliefs relating to
future events, including statements regarding levels of orders, marketing and
research and development expenses, growth in revenue, taxation levels, the
sufficiency of cash to meet operating expenses, needs for capital expenditures
and the ability to continue to price foreign transactions in U.S. currency.
These, and other forward looking statements made by the Company, must be
evaluated in the context of a number of factors that may affect the Company's
financial condition and results of operations, including the following:
-- The cyclical nature of capital expenditures in the electronics
industry,
-- The dependence of such operations on orders from several large
OEM customers;
-- The dependence of the Company's manufacturing on outside
contractors and suppliers;
-- The degree to which the Company is successful in protecting
its technology and enforcing its technology rights in the
United States and other countries;
-- The dependence of the Company's operations on several key
personnel;
-- The speed of changes in technology in the microelectronics
manufacturing industry from which most of the Company's sales
are derived;
-- The significant proportion of the Company's revenue that is
derived from export sales;
-- Competition for the functions that the Company's products
perform by larger "vision" companies and by other optical
sensor companies;
-- Quarterly fluctuations in operating results caused by the
timing of shipments and other factors not entirely within the
Company's control.
These and other factors that may affect future operations are discussed in more
detail in Exhibit 99 to this Form 10-Q.
RESULTS OF OPERATIONS
The table below lists certain financial data expressed as a percentage of
revenue for the periods ended March 31, 1996 and 1995.
Three Months Ended
March 31,
1996 1995
--------------------------
Revenues 100% 100%
Gross margin 54% 55%
Research and development expenses 15% 16%
Selling, general and
administrative expenses 21% 24%
Income from operations 17% 15%
Net income 17% 11%
REVENUES
Revenues increased 87 % to $8.5 million during the three month period ended
March 31, 1996 compared to $4.6 million for the comparable period in 1995. This
revenue growth comes from improvement in the revenue levels of both sensors and
systems. Sensor revenues increased 87% to $5.7 million during the first quarter
of 1996 when compared to the same period in 1995. The primary reason for this
increase was increased unit shipments of LaserAlign and other OEM sensor
products, as demand from OEM customers, including Philips Electronics N.V.
("Philips"), in the surface mount industry continued to be strong. Philips
accounted for approximately 31% of the Company's revenue during first quarter of
1996 and the Company's five principal OEM sensor customers accounted for
approximately 62% of revenue during such period. The Company has been advised by
several OEM customers that there is currently a decrease in activity in the
market for capital goods in the microelectronics industry and there cannot,
therefore, be any assurance that the order rates by these OEM customers will be
maintained or increased during the next few quarters.
System revenues increased 87% to $2.8 million during the three months ended
March 31, 1996 from the comparable period in 1995. This increase is primarily
due to revenues from the current version of CyberSentry which began shipping in
March 1995. International revenues comprised 67% and 55% of total revenues
during the three months ended March 31, 1996 and 1995, respectively.
COST OF REVENUES
Cost of revenues increased slightly as a percent of total revenue to 46 % during
the three month period ended March 31, 1996 compared to 45% during the
comparable period in 1995. This increase in cost of revenue is partially due to
volume price reductions given to significant OEM customers as they reach certain
agreed shipment volume targets. In addition, the Company continued a program
started late in 1995 to outsource a portion of its manufacturing. As part of the
startup of this program, the Company sold portions of its existing inventory at
or about cost to a third party manufacturer, which had the effect of increasing
cost of revenues during the first quarter of 1996.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased 79% to $1.3 million during the
three month period ended March 31, 1996 compared to $725,000 for the comparable
period in 1995, but decreased as a percent of revenue from 16% in 1995 to 15% in
1996. Research and development expenses during the first quarter of 1996 focused
primarily on development of a new HiVision sensor for measurement of three
dimensional objects such as Flip Chip and BGA components, completion of
CyberScan LV 2.0 and enhancements to existing product lines such as CyberSentry
and LaserAlign. Customer funded research and development is deferred and
recognized as a reduction of research and development expenses as costs are
incurred. During the three months ended March 31, 1996, $475,000 of customer
funded research and development was recognized as a reduction of research and
development expense. The Company anticipates that the level of expenditures in
research and development will increase in 1996 in an attempt to accelerate
current development projects and to begin new development projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 65% to $1.8 million
during the three month period ended March 31, 1996 compared to $1.1 million
during the comparable period in 1995. As a percentage of revenue, expenses have
decreased from 24% in 1995 to 21% in 1996. The dollar increase in selling,
general and administrative expenses is primarily the result of additional
resources added to support increased revenues, a $160,000 reserve established to
cover the estimated loss relating to subleasing the Company's old facility and
additional legal costs related to the suit against Yamaha Motor Company, Ltd.
The decrease as a percent of revenues is primarily the result of increases in
the revenue base over this period, enabling the Company to spread fixed overhead
costs over a larger revenue base.
EFFECTIVE TAX RATE
The Company applied an effective rate of 31% during the three months ended March
31, 1996, compared to 30% during the comparable period in 1995. Benefits from
the Company's foreign sales corporation were primarily responsible for reducing
the effective tax rate below the statutory federal rate in 1996.
ORDER RATE AND BACKLOG
CyberOptics' order rate totaled $7.6 million at March 31, 1996 compared to $7.2
million at March 31, 1995. Backlog totaled $6.0 million and $5.4 million at
March 31, 1996 and 1995, respectively. The scheduled shipment of the March 31,
1996 backlog is as follows (In thousands):
2nd Quarter 1996 $4,282
3rd Quarter 1996 1,727
------
Total Backlog $6,009
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $28.7 million as of December 31, 1995 to $27.7
million as of March 31, 1996 primarily as the result of the Company purchasing
long-term marketable securities with funds generated from operations. Marketable
securities generally consist of U.S. Government or U.S. Government backed
obligations with a maturity of three years or less. Included in working capital
are cash and cash equivalents and short-term marketable securities of $19.5
million and $18.9 million as of March 31, 1996 and December 31, 1995,
respectively. Additionally, at March 31, 1996, the Company had long-term
marketable securities (those with maturities greater than one year) of $23.5
million.
The Company generated $3.2 million in cash from operations during the first
three months of 1996, primarily due to net income of $1.4 million and a decrease
in accounts receivable of $2.1 million. The reduction in accounts receivable was
primarily due to the timing of customer payments from sales recorded during the
fourth quarter of 1995. Investing activities used $5.7 million primarily due to
the purchase of marketable securities and additions to equipment required for
operations in its new facility.
In September 1995, the Company executed a lease agreement for 70,000 square feet
of mixed office and warehouse space in a new facility, which it occupied in May
1996. The Company anticipates an investment of approximately $1.5 million in
furniture, fixtures and equipment in connection with its new facility.
At the present time, the Company has no material capital commitments, except as
described above. The Company believes current working capital and anticipated
funds from operations will be adequate for anticipated operating needs.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In January 1996, the Company filed suit in federal court in Minnesota against
Yamaha Motor Company, Ltd. of Japan for fraud and theft of technology related to
the LaserAlign sensor and its applications. The Company is asking the federal
court to reassign or to invalidate two United States patents that Yamaha
obtained by falsely claiming to be the inventor of CyberOptics' technology, to
award CyberOptics damages for the harm Yamaha's patents have already done, and
to order Yamaha to stop filing additional patents relating to CyberOptics'
inventions. CyberOptics indicated that it will seek expedited proceedings. No
trial date has been set.
ITEM 6 - EXHIBITS AND REPORTS ON 8-K
a. Exhibits
Exhibit 27--Financial Data Schedule (For SEC use only)
Exhibit 99--Forward Looking Statements Cautionary Statement
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1996
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.
CyberOptics Corporation
/s/ Kent O. Lillemoe
Kent O. Lillemoe, Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
Dated: May 13, 1996
EXHIBIT 99
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT
Statements regarding the future prospects of the Company must be
evaluated in the context of a number of factors that may materially affect its
financial condition and results of operations. Disclosure of these factors is
intended to permit the Company to take advantage of the safe harbor provisions
of the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Most of these factors
have been discussed in prior filings by the Company with the Securities and
Exchange Commission. Although the Company has attempted to list the factors that
it is currently aware may have an impact on its operations, other factors may in
the future prove to be important and the following list should not necessarily
be considered comprehensive.
Industry Concentration and Cyclicality. Substantially all of the
Company's revenue is directly or indirectly related to capital expenditures in
the electronics industry. This industry is highly cyclical and has historically
experienced periodic downturns which often have had a severe effect on capital
expenditures. Several of the Company's customers have recently reported that the
market for the capital goods they sell and that incorporate the Company's
sensors has softened and that they may not maintain the same order rate for such
sensors during the next few quarters. For the foreseeable future, the Company's
operations will continue to be dependent on the capital expenditures in this
industry which, in turn, is largely dependent on the market demand for products
containing integrated circuits. Although the Company's products have been, and
continue to be, used in a variety of industries outside the electronics
industry, the Company's current product development and marketing is focused on
electronics and its business and results of operations would be significantly
and adversely affected by a slowdown in this industry.
Dependence Upon Principal OEM Customers. For the year ended December
31, 1995 and the three-month period ended March 31, 1996, one of the Company's
customers, Philips Electronics N.V. ("Philips"), accounted for approximately 30%
and 31%, respectively, of the Company's revenue. In addition, the Company's five
principal customers (including Philips), in the aggregate, accounted for
approximately 58% and 62%, respectively, of the Company's revenue for such
periods. Several of such customers have indicated to the Company that they may
not be able to sustain the same order rate during the next few quarters.
Although the Company believes that orders from other new OEM customers may
compensate for a decrease, if any, in orders from existing OEM customers, it can
give no assurances that historical rates of OEM sales will increase or can be
maintained. The loss of, or a significant curtailment of purchases by, any one
or more of these OEM customers would have a material adverse effect on the
Company's results of operations.
Dependence on Outside Contractors and Suppliers. The Company currently
contracts with third party assembly houses for a substantial portion of the
purchase and assembly of components of its products. Although the Company
endeavors to inspect and internally test most components prior to final
assembly, reliance on outside contractors reduces its control over quality and
delivery schedules. The failure by one or more of these subcontractors to
deliver quality components in a timely manner could have a material adverse
effect on the Company's results of operations. In addition, a number of the
components used in the Company's products are available from only a single
supplier or from a limited number of suppliers. Some of these components have
relatively long order cycles, in some cases over one year, and the timely
availability of these components to the Company is dependent on the Company's
ability to develop accurate forecasts of customer volume requirements. Any
interruption in or termination of supply of these components, or material change
in the purchase terms, including pricing, of any of these components, or a
reduction in their quality or reliability, could have a material adverse effect
on the Company's business and results of operations.
Proprietary Technology and Intellectual Property. The Company relies
heavily on its proprietary hardware designs and software technology. Although
the Company uses a variety of methods to protect its technology, it relies most
heavily on patents and trade secrets. There can be no assurance that the steps
taken by the Company will be adequate to deter misappropriation of its
technology, that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
a competitive advantage to the Company. In addition, there remains the
possibility that others will "reverse engineer" the Company's products in order
to determine their method of operation and introduce competing products or that
others will develop competing technology independently. Any such adverse
circumstances could have a material adverse effect on the Company's results of
operations.
One of the Company's OEM customers, Yamaha Motor Company, Ltd., has
filed patent applications in Japan, the United States and several other foreign
jurisdictions on technology proprietary to the Company, or on applications of
such technology that the Company believes are incremental or obvious in a
practice know as "patent flooding." Several United States patents have been
issued to Yamaha on such technology. The Company has filed suit against Yamaha
in United States District Court for the District of Minnesota for theft of its
trade secrets, breach of contract and to transfer ownership of several of such
patents. The Company intends to vigorously pursue such litigation, but the costs
of this, and other action to protect its intellectual property, could have an
adverse effect on the Company's results of operations.
As the number of its products increases, the markets in which its
products are sold expands, and the functionality of those products grows and
overlaps with products offered by competitors, the Company believes that it may
become increasingly subject to infringement claims. Although the Company does
not believe any of its products or proprietary rights infringe the rights of
third parties, there can be no assurances that infringement claims will not be
asserted against the Company in the future or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation.
Dependence on Key Personnel. The Company is highly dependent upon the
technical expertise, management and leadership of Dr. Steven K. Case, President,
Chief Executive Officer and a director of the Company, as well as other members
of the Company's senior management team, many of whom would be difficult to
replace. Although the Company has a $5,000,000 key-man insurance policy on Dr.
Case and has retained other experienced and qualified senior managers, the loss
of the services Dr. Case or other key personnel would have a material adverse
effect on the Company.
Technological Change and New Product Development. The market for the
Company's products is characterized by rapidly changing technology. Accordingly,
the Company believes that its future success will depend upon its ability to
continue to develop and introduce new products with improved price and
performance. In order to develop such new products successfully, the Company is
dependent upon close relationships with its customers and their willingness to
share information about their requirements and participate in joint development
efforts with the Company. There can be no assurance that the Company's customers
will continue to provide it with timely access to such information or that the
Company will be able to develop and market such new products successfully and
respond effectively to technological changes or new product announcements by
others.
International Revenue. In the years ended December 31, 1993, 1994, and
1995 and the three months ended March 31, 1996, sales of the Company's products
to customers outside the United States accounted for approximately 39%, 57%, 68%
and 67%, respectively, of the Company's revenue. The Company anticipates that
international revenue will continue to account for a significant portion of its
revenues. The Company's operating results are subject to the risks inherent in
international sales, including, but not limited to, various regulatory
requirements, political and economic changes and disruptions, transportation
delays, difficulties in staffing and managing foreign sales operations, and
potentially adverse tax consequences. In addition, fluctuations in exchange
rates may render the Company's products less competitive relative to local
product offerings. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's operating results.
Competition. The Company competes with other vendors of optical
sensors, with vendors of machine vision systems, and with the internal
engineering efforts of the Company's current or prospective customers, many of
which may have greater financial and other resources than the Company. There can
be no assurance that the Company will be able to compete successfully in the
future or that the Company will not be required to incur significant costs in
connection with its engineering research, development, marketing and customer
service efforts to remain competitive. Moreover, the Company's principal
customers operate within the electronics industry, which is highly competitive
and highly dependent upon its suppliers' ability to provide high quality, cost
efficient products. Competitive pressures may result in price erosion or other
factors which will adversely affect the Company's financial performance.
Quarterly Fluctuations. The Company has experienced quarterly
fluctuations in operating results and anticipates that these fluctuations will
continue. These fluctuations have been caused by various factors, including the
capital procurement practices of its customers and the electronics industry
generally, the timing and acceptance of new product introductions and
enhancements, and the timing of product shipments and marketing. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop innovative products, the
introduction of new products by the Company's competitors, the Company's product
and customer mix, the level of competition and overall trends in the economy.
Possible Volatility of Stock Price. The Company believes that factors
such as the announcement of new products by the Company or its competitors,
market conditions in the electronics and precision measurement industries
generally and quarterly fluctuations in financial results could cause the market
price of the Common Stock to vary substantially. In recent years, the stock
market has experienced price and volume fluctuations that have particularly
affected the market prices for many high technology companies and which often
have been unrelated to the operating performance of such companies. The market
volatility may adversely affect the market price of the Company's Common Stock.
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