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 June 30, 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 registrant 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 June 30, 1996, 5,669,530 shares of the issuer's Common Stock, no par value,
were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1996 1995
(UNAUDITED)
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,148 $ 8,718
Marketable securities, at cost 10,000 10,146
Accounts receivable, net 6,637 8,514
Inventories 3,794 3,874
Other current assets 1,727 1,473
------- -------
Total current assets 26,306 32,725
Marketable securities, at cost 28,500 21,000
Equipment and furnishings, net 2,264 943
Capitalized patent costs, net 99 72
------- -------
Total assets $57,169 $54,740
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,267 $ 737
Income taxes payable 360 898
Accrued expenses 2,289 2,368
------- -------
Total current liabilities 3,916 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 at December 31,1995
and 25,000 at June 30, 1996, 5,669 and 5,612 shares issued
and outstanding, respectively 43,053 42,658
Retained earnings 10,200 8,079
------- -------
Total stockholders' equity 53,253 50,737
------- -------
Total liabilities and stockholders' equity $57,169 $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 JUNE 30,
1996 1995
------ ------
Revenues $7,812 $7,240
Cost of revenues 3,895 3,386
------ ------
Gross margin 3,917 3,854
Research and development expenses 1,635 1,045
Selling, general and administrative expenses 1,880 1,242
------ ------
Income from operations 402 1,567
Interest income 611 29
------ ------
Income before income taxes 1,013 1,596
Provision for income taxes 313 495
====== ======
Net income $ 700 $1,101
====== ======
Net income per share (primary and fully diluted) $ 0.12 $ 0.24
====== ======
Weighted average common and
common equivalent shares 5,863 4,678
====== ======
SIX MONTHS ENDED JUNE 30,
1996 1995
------- -------
Revenues $16,325 $11,796
Cost of revenues 7,804 5,435
------- -------
Gross margin 8,521 6,361
Research and development expenses 2,936 1,770
Selling, general and administrative expenses 3,693 2,343
------- -------
Income from operations 1,892 2,248
Interest income 1,182 59
------- -------
Income before income taxes 3,074 2,307
Provision for income taxes 953 709
======= =======
Net income $ 2,121 $ 1,598
======= =======
Net income per share (primary and fully diluted) $ 0.36 $ 0.34
======= =======
Weighted average common and
common equivalent shares 5,849 4,676
======= =======
See the accompanying notes to interim financial statements.
CYBEROPTICS CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
SIX MONTHS ENDED JUNE 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,121 $ 1,598
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 336 183
Provision for losses on accounts receivable 8 20
Provision for losses on inventories 61 161
Changes in operating assets and
liabilities:
Accounts receivable 1,869 (2,553)
Inventories 19 (2,167)
Other current assets (254) (63)
Accounts payable 530 887
Income taxes payable (538) 509
Accrued expenses (79) 443
-------- --------
Net cash provided (used)
by operating activities 4,073 (982)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities 8,146 1,057
Purchases of marketable securities (15,500) (807)
Additions to equipment and furnishings (1,624) (357)
Additions to patents (60) (12)
-------- --------
Net cash used by investing
activities (9,038) (119)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 395 124
-------- --------
Net cash provided (used) by financing
activities 395 124
Decrease in cash and cash equivalents (4,570) (977)
Cash and cash equivalents - beginning
of period 8,718 1,428
-------- --------
Cash and cash equivalents - end of period $ 4,148 $ 451
======== ========
See the accompanying notes to interim financial statements.
CYBEROPTICS CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 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 six-month period ended June 30, 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. STOCK REPURCHASE:
In June 1996, the Company announced that its board of directors approved the
repurchase of up to 500,000 shares of CyberOptics' common stock. The shares will
be repurchased from time to time in the open market or through negotiated
transactions. Repurchased shares will be utilized for employee compensation
plans and other corporate purposes.
3. INVENTORIES (IN THOUSANDS):
June 30, Dec. 31,
1996 1995
(unaudited)
------ ------
Raw materials $2,811 $3,172
Work in process 539 608
Finished goods 444 94
------ ------
Total inventories $3,794 $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, 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
revenues for the periods ended June 30, 1996 and 1995.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues 100% 100% 100% 100%
Gross margin 50% 53% 52% 54%
Research and development expenses 21% 14% 18% 15%
Selling, general and
administrative expenses 24% 17% 23% 20%
Income from operations 5% 22% 12% 19%
Net income 9% 15% 13% 13%
REVENUES
Revenues increased 38.4% to $16.3 million during the six month period ended June
30, 1996 compared to $11.8 million for the comparable period in 1995. For the
second quarter of 1996, revenues increased 7.9% to $7.8 million from $7.2
million in 1995. Sensor revenues increased 47% to $11.6 million during the six
months ended June 30, 1996 from the comparable period in 1995, and 21% to $5.8
million for the second quarter of 1996 compared to the second quarter of 1995.
The primary reason for this increase was increased unit shipments of LaserAlign
to OEM customers such as Philips Electronics, N.V. ("Philips") and Juki
Corporation ("Juki"). Philips and Juki accounted for approximately 23% and 24%,
respectively, of the Company's revenues during the six month period ended June
30, 1996, and 15% and 38% of revenue for the second quarter of 1996. The
Company's five principal OEM sensor customers accounted for approximately 65% of
revenue for the six months ended June 30, 1996 and 68% for the second quarter of
1996.
The level of orders for shipments in the remainder of 1996 from several OEM
customers, including Philips, decreased significantly during the second quarter
of 1996. The Company believes that second quarter revenue levels and a decrease
in the order rate from OEM customers and a resulting decrease in backlog at June
30, 1996 are the result of weakness in capital expenditures in the electronics
industry. This weakness appears to be due in part to the utilization of excess
capacity and inventory accumulated during the industry expansion of the past two
years, as worldwide demand for electronic components expanded. The Company
anticipates that the effect of this industry weakness on CyberOptics will be
significant and will affect its business and order rates for the next several
quarters.
System revenues increased 5% to $4.1 million during the six months ended June
30, 1996 from a comparable period in 1995, but decreased 33% to $1.6 million for
the second quarter of 1996 compared to the second quarter of 1995. The decrease
in systems revenue during the second quarter is primarily the result of reduced
shipments of the CyberSentry.
International revenues comprised 70% and 60% of total revenues during the six
months ended June 30, 1996 and 1995, and 73% and 60% of total revenues during
the second quarter of 1996 and 1995. Substantially all of the Company's
international export sales are negotiated, invoiced and paid in U.S. dollars.
COST OF REVENUES
Cost of revenues increased as a percent of total revenues to 48% during the six
month period ended June 30, 1996 compared to 46% during the comparable period in
1995. For the second quarter of 1996, cost of revenue was 50% of total revenue
compared to 47 % in 1995. This increase in cost of revenues is primarily the
result of the Company continuing to expand its program of using third party
manufacturers for the production of certain component parts. As part of this
program, the Company has sold portions of its existing inventory at or about
cost, which had the effect of increasing cost of revenues during the first two
quarters of 1996. In addition, the increase is partially due to volume price
reductions given to significant OEM customers as they reach certain agreed
shipment volume targets.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased 66% to $2.9 million during the
six month period ended June 30, 1996 compared to $1.8 million during the
comparable period in 1995. For the second quarter of 1996, expenses have
increased 56% to $1.6 million from the comparable period in 1995. As a
percentage of revenue, expenses have increased from 15% in 1995 to 18% in 1996
during the six months ended June 30, and for the second quarter have increased
from 14% in 1995 to 21% in 1996. Research and development expenses during the
six month period ended June 30, 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 Cobra and enhancements to existing
product lines such as CyberSentry and LaserAlign. The Company anticipates that
the dollar level of expenditures in research and development will remain fairly
flat for the remainder of 1996.
Customer funded research and development is deferred and recognized as a
reduction in research and development expenses as costs are incurred. During the
six months ended June 30, 1996, $475,000 of customer funded research and
development was recognized as a reduction of research and development expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 58% to $3.7 million
during the six month period ended June 30, 1996 compared to $2.3 million during
the comparable period in 1995. For the second quarter of 1996, selling, general
and administrative expenses increased 51% to $1.9 million compared to $1.2
million in 1995. As a percentage of revenue, expenses have increased from 20% in
1995 to 23% in 1996 for the six months ended June 30, and from 17% in 1995 to
24% in 1996 for the second quarter. The increase in selling, general and
administrative expenses is primarily the result of additional resources added to
support increased revenues, additional legal costs related to the suit against
Yamaha Motor Company, Ltd., a $160,000 reserve established to cover the
estimated loss relating to subleasing the Company's old facility and additional
costs associated with moving to the Company's new operating facility.
EFFECTIVE TAX RATE
The Company applied an effective rate of 31% during the six months ended June
30, 1996 and 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 $13.0 million during the six months ended June
30, 1996 compared to $15.6 million during the same period in 1995. For the
second quarter of 1996, the order rate totaled $5.4 million compared to $8.2
million in 1995. Backlog totaled $3.6 million and $6.4 million at June 30, 1996
and 1995, respectively. The scheduled shipment of the June 30, 1996 backlog is
as follows (In thousands):
3rd Quarter 1996 $3,007
4th Quarter 1996 647
------
Total backlog $3,654
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from $28.7 million as of December 31, 1995 to $22.4
million as of June 30, 1996, primarily as the result of the Company purchasing
long-term marketable securities with funds generated from operations and
received from the secondary public offering completed in 1995. Marketable
securities generally consist of U.S. Government or U.S. Government backed
obligations with maturities of 3 years or less. Included in working capital is
cash and cash equivalents and short-term marketable securities of $14.1 million
and $18.9 million as of June 30, 1996 and December 31, 1995, respectively.
Additionally, at June 30, 1996, the Company had long-term marketable securities
(those with maturities greater than one year) of $28.5 million.
The Company generated $4.1 million in cash from operations during the first 6
months of 1996, primarily due to net income of $2.1 million and a decrease in
accounts receivable of $1.9 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 $9.0 million primarily due to
the purchase of marketable securities and $1.6 million in additions to equipment
and furnishings. Equipment and furnishing purchases are primarily the result of
the Company moving to its new operating facility during the second quarter of
1996.
In June 1996, the Company announced that its board of directors approved the
repurchase of up to 500,000 shares of CyberOptics' common stock. The shares will
be repurchased from time to time in the open market or through negotiated
transactions. Repurchased shares will be utilized for employee compensation
plans and other corporate purposes. In July and August 1996, the Company has
repurchased 235,000 shares, at a cost of $3.0 million.
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.
OTHER
In July 1996, the Company announced that it will make a significant effort to
reduce operating expenses, which included a reduction in workforce. The
reduction is expected to produce annual expense reductions of approximately $1.0
million, and is primarily focused on production and administrative areas of the
Company. In addition, the reduction is expected to result in a charge of
approximately $150,000 (or $.02 per share) in the third quarter of 1996.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of CyberOptics Corporation was held at 3:30
p.m. on Tuesday, May 14, 1996. Shareholders holding 4,894,227 shares, or
approximately 86.5% of the outstanding shares, were represented at the meeting
by proxy or in person. Matters submitted at the meeting for vote by the
shareholders were as follows:
a. Election of Directors
The following nominees were elected to serve as members of the Board of
Directors until the annual meeting of shareholders in 1997 or until
such time as a successor may be elected:
TABULATION OF VOTES
-------------------
FOR WITHHELD
--- --------
Steve K. Case 4,766,106 128,121
Alex B. Cimochowski 4,766,406 127,821
George E. Kline 4,766,206 128,021
Steven M. Quist 4,765,415 128,812
P. June Min 4,766,266 127,961
Erwin A. Kelen 4,765,901 128,326
b. Approval of amendment to Restated Stock Option Plan
Shareholders approved an amendment to the Company's Restated Stock
Option Plan increasing the number of shares of common stock reserved
for issuance thereunder by 400,000 shares by a vote of 3,205,786 shares
in favor, 511,809 shares against, 16,150 shares abstained and 1,160,482
shares not voted.
c. Approval of amendment to Articles of Incorporation
Shareholders approved an amendment to the Company's Articles of
Incorporation to increase the number of shares of common stock reserved
for issuance to 25,000,000 shares by a vote of 3,151,485 shares in
favor, 1,722,251 shares against, 13,791 shares abstained and 6,700
shares not voted.
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 June 30,
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: August 12, 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. The Company's revenue levels
continue to be largely dependent on the order rates of its large OEM customers.
For the year ended December 31, 1995 and the six month period ended June 30,
1996, the Company's five principal customers accounted for approximately 58% and
65%, respectively , of the Company's revenue for such periods. Several of such
customers have reduced their order rates during the second quarter of 1996 and
indicated to the Company that they may not be able to sustain historical order
rates during the next few quarters. 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 six months ended June 30, 1996, sales of the Company's products to
customers outside the United States accounted for approximately 39%, 57%, 68%
and 70%, 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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