SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 6, 1999
CYBEROPTICS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota (0-16577) 41-1472057
- ---------------------------------------------------- ----------
(State or other jurisdiction of COMMISSION FILE NO. (I.R.S. Employer
incorporation or organization) Identification No.)
5900 Golden Hills Drive
MINNEAPOLIS, MINNESOTA 55416
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(612) 542-5000
------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
CyberOptics Corporation (the "Company") on April 21, 1999 (the "Initial 8-K") to
include certain financial information omitted from the Initial Report pursuant
to Item 7(a)(4) of Form 8-K and the consent of independent certified accountants
with respect to the audited financial statements included herein.
This Current Report on Form 8-K/A (including the financial statements and pro
forma financial information included herein) contains statements regarding the
product development efforts, estimated costs for product completion, potential
product release dates, anticipated market penetration, estimated cost of sales,
estimated product sales growth rate and other forward-looking statements
regarding Kestra Limited, a British company recently acquired by the Company and
which has not completed its initial proposed products and has no history of
product sales. Such forward looking statements are subject to substantial risks
over which the Company may have little or no control, including the following:
* Release dates may be delayed by software problems that may be
identified during prototype testing or by problems with integration of
optics
* Kestra products may not perform as anticipated at the speeds and
volumes required in a production environment
* The anticipated markets for Kestra's products may not develop
* Kestra has never sold product and there can be no assurance that the
Company will be able to adapt its sale and distribution channels to
Kestra's products
* There can be no assurance that Kestra's product will be accepted by
customers over other competing products
* Kestra has no history of product performance and there can be no
assurance that its products, if successfully developed, will not
require substantial repair or rework
Further, although the Company believes the assumptions upon which the accounting
treatment of the Kestra business that was acquired are appropriate, there can be
no assurances that such accounting treatment, upon review by the Securities and
Exchange Commission (the SEC), will not be questioned or that adjustments to the
purchase accounting will not be required by the SEC.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial statements of the business acquired and interim
financial information
The consolidated balance sheet at July 31, 1998 and the
related profit and loss account, cash flow statement and
reconciliation of movement in shareholders' funds of Kestra
Limited ("Kestra") for the year then ended and the report of
KPMG, independent accountants, thereon, together with the
notes thereto, are located at pages 4 through 28 of the
Amendment No. 1 to the Current Report on Form 8-K.
The unaudited consolidated balance sheet as of March 31, 1999
and the related profit and loss account, cash flow statements
and reconciliation of movement in shareholders' funds of
Kestra for the eight months ended March 31, 1999 and 1998, and
the notes thereto are located at pages 10 through 28 of the
Amendment No. 1 to Current Report on Form 8-K.
b) Pro forma financial information
The unaudited pro forma combined balance sheet as of March 31,
1999, and the unaudited pro forma combined statements of
income for the year ended December 31, 1998, and for the three
months ended March 31, 1999, and the notes thereto are located
at pages 29 through 39 of the Amendment No. 1 to Current
Report on Form 8-K.
c) Exhibits
Exhibit Number Description
-------------- -----------
*2.1 Asset Purchase Agreement
*2.1 Asset Purchase Agreement
*2.2 Escrow Agreement
*20.1 Press Release
23.1 Consent of KPMG
- ---------
*Filed with the first filing of this Form 8-K
-3-
<PAGE>
KESTRA LIMITED
DIRECTORS' REPORT AND CONSOLIDATED FINANCIAL
STATEMENTS
31 JULY 1998
Registered number 3270431
-4-
<PAGE>
KESTRA LIMITED
Directors' report and consolidated financial statements
CONTENTS PAGE
Directors' report 6-7
Statement of directors' responsibilities 8
Auditors' report 9
Consolidated profit and loss account 10
Consolidated balance sheet 11
Consolidated cash flow statement 12
Reconciliation of movements in shareholders' funds 13
Notes 14-28
-5-
<PAGE>
KESTRA LIMITED
Directors' report
The directors present their annual report and the audited consolidated financial
statements for the year ended 31 July 1998.
PRINCIPAL ACTIVITIES
The principal activity of the group is that of the development and subsequent
manufacture of computer vision systems.
The principal activity of the company is that of a holding company.
BUSINESS REVIEW
The results for the year are set out on page 10 of this document.
POST BALANCE SHEET EVENT
An agreement has been reached to sell the entire share capital of the company to
Cyberoptics Corporation for a consideration which is in excess of the book value
of the net assets.
TRANSFER TO RESERVES
The loss for the year is (pound)1,209,567.
DIRECTORS AND DIRECTORS' INTERESTS
The directors who held office during the year were as follows:
EXECUTIVE DIRECTORS
Mr C B Jackson
Mr J Tinning
Dr M A Bowes
NON EXECUTIVE DIRECTORS
Mr G H Brown
Mr D C Pratt
-6-
<PAGE>
KESTRA LIMITED
Directors' report (CONTINUED)
DIRECTORS AND DIRECTORS' INTERESTS (CONTINUED)
The directors who held office at the end of the financial year had the following
interests in the ordinary shares of the company as recorded in the register of
directors' share and debenture interests:
CLASS INTEREST AT
OF SHARE BEGINNING AND END OF
YEAR
Dr MA Bowes 'B' Ordinary(pound)1 21,712
Mr C B Jackson 'B' Ordinary(pound)1 21,712
Mr J Tinning 'B' Ordinary(pound)1 3,289
Mr GH Brown 'B' Ordinary(pound)1 877
=======
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution for the
re-appointment of KPMG as auditors of the company is to be proposed at the
forthcoming Annual General Meeting.
By order of the board
DR M A BOWES
SECRETARY
4 Tree Tops
Bromley Cross
Bolton
BL7 9YB
-7-
<PAGE>
KESTRA LIMITED
Statement of directors' responsibilities
Company law requires the directors to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
company and the group and of the profit or loss of the group for that period. In
preparing these financial statements, the directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
* prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in business.
The directors are responsible for maintaining proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
group and to enable them to ensure that the financial statements comply with the
Companies Act 1985. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the group and to prevent
and detect fraud and other irregularities.
-8-
<PAGE>
St James' Square
Manchester M2 6DS
Independent auditors' report
The Shareholders and Board of Directors
Kestra Limited
We have audited the accompanying consolidated balance sheet of Kestra Limited
and subsidiaries at July 31, 1998 and the related consolidated profit and loss
account, cash flow statement, statement of total recognised gains and losses and
reconciliation of movements in shareholders' funds of Kestra Limited for the
year ended July 31, 1998. These consolidated financial statements are the
responsibility of the management of Kestra Limited. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in the UK which standards are substantially equivalent to auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Kestra
Limited and subsidiaries at July 31, 1998 and the consolidated results of
operations and cash flows of Kestra Limited for the year ended July 31, 1998 in
conformity with generally accepted accounting principles in the UK.
Generally accepted accounting principles in the UK vary in certain respects from
generally accepted accounting principles in the United States. Application of
generally accepted accounting principles in the United States would have
affected the results of operations for the year ended July 31, 1998 and
shareholders' equity at July 31, 1998 to the extent summarised in Note 19 to the
consolidated financial statements.
KPMG
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
April 6, 1999
-9-
<PAGE>
KESTRA LIMITED
Consolidated profit and loss account
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
NOTE 1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C> <C>
TURNOVER -- -- --
Administrative expenses - excluding
research and development costs (212,032) (138,471) (108,417)
Administrative expenses - research and
development costs (904,180) (487,158) (684,874)
---------- -------- --------
OPERATING LOSS (1,116,212) (625,629) (793,291)
Interest income 6 7,275 4,850 --
Interest expense 7 (35,080) (3,968) (69,388)
---------- -------- --------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION 2-7 (1,144,017) (624,747) (862,679)
Tax on loss on ordinary activities 8 -- -- --
---------- -------- --------
NET LOSS (1,144,017) (624,747) (862,679)
Dividend payable on preference shares 9 (65,550) (43,740) (50,242)
---------- -------- --------
RETAINED NET LOSS (1,209,567) (668,487) (912,921)
========== ======== ========
</TABLE>
The company has no recognised gains or losses in the current or preceding period
other than those reported above and therefore no separate statement of total
recognised gains and losses has been presented.
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
<PAGE>
KESTRA LIMITED
Consolidated balance sheet
AT 31 JULY 1998
<TABLE>
<CAPTION>
31 JULY 31 March
NOTE 1998 1999
(Unaudited)
(POUND) (POUND) (pound) (pound)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 10 79,181 81,395
CURRENT ASSETS
Debtors 11 56,329 39,946
Cash at bank and in hand 264,084 --
---------- ----------
320,413 39,946
CREDITORS: amounts falling
due within one year 12 (224,556) (164,624)
---------- ----------
NET CURRENT ASSETS/(LIABILITIES) 95,857 (124,678)
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 175,038 (43,283)
CREDITORS: amounts falling due after more
than one year 13 (588,802) (1,233,160)
---------- ----------
NET LIABILITIES (413,764) (1,276,443)
========== ==========
CAPITAL AND RESERVES
Called up share capital 14 160,512 160,512
Share premium account 14 1,213,118 1,213,118
Profit and loss account 15 (1,787,394) (2,650,073)
---------- ----------
(413,764) (1,276,443)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-11-
<PAGE>
KESTRA LIMITED
Consolidated cash flow statement
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
NOTE YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C> <C>
CASH OUTFLOW FROM OPERATING ACTIVITIES (984,715) (626,902) (821,200)
RETURN ON INVESTMENTS AND SERVICING OF
FINANCE 16 (27,805) 882 (69,388)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT 16 (29,296) (21,789) (17,854)
FINANCING 16 1,140,121 543,414 644,358
---------- ---------- ----------
INCREASE/(DECREASE) IN CASH IN THE PERIOD 98,305 (104,395) (264,084)
========== ========== ==========
</TABLE>
Reconciliation of operating profit (loss) to operating cashflows
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Operating loss (1,116,212) (625,629) (793,291)
Depreciation charge 27,744 7,401 15,640
Loss on sale of tangible fixed assets 1,927 -- --
Increase in debtors (42,270) (8,691) 16,383
(Decrease)/increase in creditors 144,096 17 (59,932)
---------- ---------- ----------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (984,715) (626,902) (821,200)
========== ========== ==========
</TABLE>
Reconciliation of net cash flow to movement in net debt
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
NOTE YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
INCREASE/(DECREASE) IN CASH IN THE PERIOD 98,305 (104,395) (264,084)
MOVEMENT IN NET DEBT IN THE PERIOD 17 (594,504) (22,797) (644,358)
NET FUNDS/(DEBT) AT THE START OF THE PERIOD 17 165,779 165,779 (330,420)
---------- ---------- ----------
NET FUNDS/(DEBT) AT THE END OF THE YEAR 17 (330,420) 38,587 1,238,862
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-12-
<PAGE>
KESTRA LIMITED
Reconciliation of movements in shareholders' funds
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
NET LOSS (1,144,017) (624,727) (862,679)
Shares issued in year/period 575,000 550,000 --
Goodwill written off on acquisition -- -- --
---------- ---------- ----------
NET (REDUCTION IN)/ADDITION TO
SHAREHOLDERS' FUNDS (569,017) (74,727) (862,679)
Opening shareholders' funds 155,253 155,253 (413,764)
---------- ---------- ----------
CLOSING SHAREHOLDERS' FUNDS (413,764) 80,526 (1,276,443)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-13-
<PAGE>
KESTRA LIMITED
Notes
(FORMING PART OF THE FINANCIAL STATEMENTS)
1 ACCOUNTING POLICIES
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
group's financial statements.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost
accounting rules.
These financial statements have been prepared on the going concern
basis as a result of the support provided by Cyberoptics Corporation as
set out in note 18 to these financial statements.
BASIS OF CONSOLIDATION
The group accounts consolidate the accounts of Kestra Limited and its
subsidiary undertaking. The consolidated accounts are based on accounts
of the subsidiary undertaking which are coterminous with those of the
parent company. These accounts are made up to 31 July 1998.
Unless otherwise stated, the acquisition method of accounting has been
adopted. Under this method, the results of subsidiary and associated
undertakings acquired or disposed of in the year are included in the
consolidated profit and loss account from the date of acquisition or up
to the date of disposal. Goodwill arising on consolidation
(representing the excess of the fair value of the consideration given
over the fair value of the separable net assets acquired) was written
off against reserves on acquisition. Any excess of the aggregate of the
fair value of the separable net assets acquired over the fair value of
the consideration given (negative goodwill) was credited direct to
reserves as a reserve arising on acquisition.
FIXED ASSETS AND DEPRECIATION
Depreciation is provided by the company to write off the cost less the
estimated residual value of tangible fixed assets by equal instalments
over their estimated useful economic lives as follows:
Motor vehicles - 4 years
Fixtures & fittings, scientific and
office equipment - 3 years
PENSION COSTS
The company contributes to directors' personal pension schemes and has
made provision for contributions to be made into the personal pension
schemes of certain employees on a defined contribution basis. The
pension cost charged to the profit & loss account for the year amounted
to (pound)27,850.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed in the year that they
are incurred.
-14-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
1 ACCOUNTING POLICIES (CONTINUED)
TAXATION
The charge for taxation is based on the loss for the period and takes
into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes.
Provision is made for deferred tax only to the extent that it is
probable that an actual liability will crystallise.
2 ANALYSIS OF LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
The loss on ordinary activities before taxation is wholly attributable
to the principal activity of the group, and arises wholly within the
United Kingdom.
3 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION IS STATED
AFTER CHARGING:
Auditors' remuneration 3,500 2,333 2,333
Depreciation:
Owned 23,460 4,545 11,356
Leased 4,284 2,856 2,856
Loss on disposal of fixed assets 1,927 -- --
Research and development 904,180 487,158 684,874
======= ======= =======
</TABLE>
4 REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
DIRECTORS' EMOLUMENTS
As executives 183,968 122,645 113,332
Pension contributions 17,267 11,551 11,423
------- ------- -------
201,235 134,196 124,755
======= ======= =======
</TABLE>
The emoluments, excluding pension contributions, of the highest paid
director in the year ended 31 July 1998 were (pound)74,306.
-15-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
5 STAFF NUMBERS AND COSTS
The average number of persons employed by the group (including
directors), who all undertake an administrative role, during the year
ended 31 July 1998 was 10.
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Wages and salaries 343,203 228,802 258,870
Social security costs 32,949 21,966 19,681
Other pension costs (note 1) 27,850 18,566 29,961
------- ------- -------
404,002 269,334 308,512
======= ======= =======
</TABLE>
6 INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Bank interest 7,275 4,850 --
Other interest received -- -- --
------- ------- -------
7,275 4,850 --
======= ======= =======
</TABLE>
7 INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Bank interest paid 35,080 3,968 69,388
======= ======= =======
</TABLE>
8 TAXATION
There is no tax charge due to the availability of losses in the year
and brought forward.
-16-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
9 DIVIDENDS PAYABLE ON PREFERENCE SHARES
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Dividends payable on preference shares (see note 14) 65,550 43,740 50,242
======== ======== ========
</TABLE>
The cumulative preference dividend payable has not been reflected as a
liability, see note 15.
10 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
FITTINGS,
SCIENTIFIC
MOTOR AND OFFICE
VEHICLES EQUIPMENT TOTAL
(POUND) (POUND) (POUND)
<S> <C> <C> <C>
COST
At 1 August 1997 6,800 56,588 63,388
Additions 29,373 32,714 62,087
Disposals (6,800) (2,076) (8,876)
--------- --------- ---------
At 31 July 1998 29,373 87,226 116,599
--------- --------- ---------
DEPRECIATION
At 1 August 1997 2,617 10,538 13,155
Charge for year 4,284 23,460 27,744
Disposal (2,617) (864) (3,481)
--------- --------- ---------
At 31 July 1998 4,284 33,134 37,418
--------- --------- ---------
NET BOOK VALUE
AT 31 JULY 1998 25,089 54,092 79,181
========= ========= =========
At 31 July 1997 4,183 46,050 50,233
========= ========= =========
</TABLE>
Included in the total net book value of motor vehicles is (pound)25,089
(1997:(pound)Nil) in respect of assets held under finance leases.
Depreciation for the year on these assets was (pound)4,284
(1997:(pound)Nil). The company has no tangible fixed assets.
-17-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
11 DEBTORS
<TABLE>
<CAPTION>
31 JULY 31 March 1999
1998 (Unaudited)
(POUND) (pound)
<S> <C> <C>
Other debtors 29,262 24,942
Prepayments 27,067 15,004
-------- --------
56,329 39,946
======== ========
</TABLE>
All debtors fall due within one year.
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
31 JULY 31 March 1999
1998 (Unaudited)
(POUND) (pound)
<S> <C> <C>
Obligations under finance leases and hire purchase contracts 5,642 5,642
Trade creditors 177,528 108,557
Taxation and social security 12,208 14,454
Other creditors 4,463 --
Accruals and deferred income 24,715 35,971
-------- --------
224,556 164,624
======== ========
</TABLE>
-18-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
31 JULY 31 March 1999
1998 (Unaudited)
(POUND) (pound)
<S> <C> <C>
Unsecured loan capital 575,000 1,225,000
Obligations under finance leases and hire
purchase contracts 13,802 8,160
--------- ---------
588,802 1,233,160
========= =========
</TABLE>
On 20 May 1998 3i Plc, a venture capitalist company,
invested(pound)575,000 of funds into the company by way of unsecured
loan capital. The loan is repayable as set out below and attracts
interest at a fixed rate of 8.75% per annum.
CREDITORS PAYABLE BY INSTALMENTS
<TABLE>
<CAPTION>
INSTALMENTS PAYABLE WITHIN INSTALMENTS PAYABLE WITHIN INSTALMENTS PAYABLE
ONE YEAR TWO TO FIVE YEARS AFTER FIVE YEARS
31 JULY 31 March 1999 31 JULY 31 March 1999 31 JULY 31 March 1999
1998 (Unaudited) 1998 (Unaudited) 1998 (Unaudited)
(POUND) (pound) (POUND) (pound) (POUND) (pound)
<S> <C> <C> <C> <C> <C> <C>
Unsecured loan
capital -- -- 230,000 605,000 345,000 620,000
Obligations under
finance leases and
hire purchase
contracts 5,642 5,642 13,802 8,160 -- --
======== ======== ======== ======== ======== ========
</TABLE>
-19-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
14 CALLED UP SHARE CAPITAL AND SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
31 JULY 31 March 1999
1998 (Unaudited)
(POUND) (pound)
<S> <C> <C>
AUTHORISED
Ordinary shares of(pound)1 each 32,895 32,895
'A' Ordinary shares of(pound)1 each 62,815 62,815
'B' Ordinary shares of(pound)1 each 52,632 52,632
7% cumulative redeemable preference shares of 1 penny each 12,170 12,170
--------- ---------
160,512 160,512
========= =========
ALLOTTED, CALLED UP AND FULLY PAID
Ordinary shares of(pound)1 each 32,895 32,895
'A' Ordinary shares of(pound)1 each 62,815 62,815
'B' Ordinary shares of(pound)1 each 52,632 52,632
7% cumulative redeemable preference shares of 1 penny each 12,170 12,170
--------- ---------
160,512 160,512
========= =========
SHARE PREMIUM ACCOUNT
At beginning of period 660,382 1,213,118
Issue of 'A' ordinary shares 8,236 --
Issue of preference shares 544,500 --
--------- ---------
At end of period 1,213,118 1,213,118
========= =========
</TABLE>
On 30 September 1997, following the successful completion of product
trials, 3i plc acquired an additional 550,000 1 penny preference shares
for consideration of (pound)550,000, of which (pound)544,500 has been
credited to the share premium account.
On 20 May 1998 the authorised share capital of the company was
increased from (pound)154,516 to (pound)160,512 by the creation of
5,996 'A' ordinary shares of (pound)1 each ranking pari passu with the
existing 'A' ordinary shares. On this date 3i Plc invested an
additional (pound)600,000 of funds into the company, (pound)575,000
received by way of unsecured loan capital (see note 13) and
(pound)25,000 received from the issue of share capital.
DIVIDENDS
The profits of the company available for distribution shall be applied
as follows:
FIRST in paying to the holders of the preference shares a fixed
cumulative preferential net cash dividend ('the Preference Dividend')
of 7 pence per annum on each share accruing from the date of
subscription for the preference shares and payable half yearly on 31
January and 31 July in each year, the first payment to be made on 31
January 2000.
-20-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
14 CALLED UP SHARE CAPITAL (CONTINUED)
DIVIDENDS (CONTINUED)
No dividend shall be declared or paid to the holders of the Equity
Shares in any financial year of the Company unless and until:
* the Preference Dividend has been paid in full in respect of
that financial year and in respect of all previous financial
years of the Company; and
* all preference shares which have fallen due for redemption
have been redeemed
* in paying to the holders of the Equity Shares a cumulative net
cash dividend of an amount equal to 20% of Group Profit
'Participating Dividend' the first such Participating Dividend
to be payable in respect of the financial year of the Company
ending in the year 2001 and thereafter in respect of each
financial year of the Company. The Participating Dividend (if
any) shall be paid not later than 6 months after the end of
each successive accounting reference period of the Company;
and
* with the prior written consent of the holders of 75% of the
'A' ordinary shares in distributing any further proportion of
the profits available for distribution amongst the holders of
the Equity Shares.
Every dividend shall be distributed to the appropriate shareholders
pro-rata according to the amounts paid up or credited as paid up on the
shares held by them respectively and shall accrue on a daily basis and
in the case of the Equity Shares for the purposes of dividends and
distributions the same shall be treated as constituting one class of
share ranking pari passu with each other.
RIGHTS ON WINDING UP
On a return of assets on liquidation or capital reduction or otherwise,
the assets of the Company remaining after the payment of its
liabilities shall be applied as follows:
FIRST in paying to the holders of the preference shares(pound)1 per
share together with a sum equal to any arrears or accruals of the
Preference Dividend calculated down to the date of the return of
capital;
THE BALANCE of such assets shall be distributed amongst the holders of
the Equity Shares (pari passu in proportion to the amounts paid up or
credited as paid up on the Equity Shares as if the same constituted one
class of share) held by them respectively.
REDEMPTION OF PREFERENCE SHARES
The preference shares shall be redeemed at (pound) 1 per share in 5
equal annual instalments on 30 November of each year commencing on 30
November 2001 and the last such installment to be made on 30 November
2005.
-21-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
14 CALLED UP SHARE CAPITAL (CONTINUED)
REDEMPTION OF PREFERENCE SHARES (CONTINUED)
The Company may with the prior written consent of the holders of 65% of
the preference shares provided there are no arrears of dividend on the
preference shares redeem all or (in instalments of not less than
100,000 shares) some of the preference shares in advance of the due
date for redemption and in the absence of any contrary agreement
between such holders and the Company any partial early redemption shall
be deemed to relate to the shares falling due for redemption in inverse
order of maturity.
All of the preference shares shall (unless the holders of 65% of the
preference shares give notice in writing to the Company to the
contrary) be redeemed immediately upon any of the following dates:
* the date upon any of the equity share capital of the Company
is admitted to the Official List of the Stock Exchange or
permission for any of the equity share capital of the Company
to be dealt in on any recognised investment exchange becomes
effective; or
* the date upon which a successful offer to purchase 90% or more
of the issued equity share capital of the Company (or 90% or
more of all such capital including any already held by the
offer) is completed.
CONVERSION OF 'A' ORDINARY SHARES AND 'B' ORDINARY SHARES
The holders of the 'A' ordinary shares and 'B' ordinary shares may at
any time convert the whole of their respective holdings of 'A' ordinary
shares and 'B' ordinary shares into a like number of ordinary shares.
The following provisions of the Articles shall apply to any such
conversion.
Any such conversion shall be effected by notice in writing given to the
Company signed by the holders of 75% of the 'A' ordinary shares or 75%
of the 'B' ordinary shares, as the case may require. Such conversion
shall take effect immediately upon the date of delivery of such notice
to the Company (unless such notice states that conversion is to be
effective when any conditions specified in the notice have been
fulfilled in which case conversion shall take effect when such
conditions have been fulfilled) and shall be without prejudice to any
accrued dividend rights attaching to each 'A' ordinary shares or 'B'
ordinary shares, as the case may be, the subject of conversion which
rights shall attach to the ordinary share upon and resulting from such
conversion.
Forthwith after conversion takes effect the holders of the resulting
ordinary shares shall send to the Company the certificates in respect
of their respective holdings of 'A' ordinary shares and 'B' ordinary
shares as the case may be. The company shall issue to such holders
certificates for the ordinary shares resulting from such conversion.
The ordinary shares resulting from any such conversion shall rank from
the date of conversion pari passu in all respects with the other
ordinary shares in the capital of the Company.
-22-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
14 CALLED UP SHARE CAPITAL (CONTINUED)
CLASS RIGHTS
Whenever the capital of the Company is divided into different classes
of shares the special rights attached to any class may be varied or
abrogated either whilst the Company is a going concern or during or in
contemplation of a winding up, only with the consent in writing of the
holders of 65% of the issued shares of that class. The special rights
attaching to the 'A' ordinary shares and the preference shares shall
only be varied by the company altering its Memorandum and Articles of
Association.
15 PROFIT AND LOSS ACCOUNT
(POUND)
At 1 August 1997 (643,377)
Loss for the year for ordinary shareholders (1,209,567)
Appropriation included in the above (see note 9) 65,550
----------
At 31 July 1998 (1,787,394)
Loss for the period for ordinary shareholders
(unaudited) (912,921)
Appropriation included in the above
(unaudited) 50,242
----------
At 31 March 1999 (unaudited) (2,650,073)
==========
-23-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
16 ANALYSIS OF ITEMS NETTED OFF IN CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received 7,275 4,850 --
Interest paid (35,080) (3,968) (69,388)
---------- ---------- ----------
NET CASH (OUTFLOW)/INFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (27,805) 882 (69,388)
========== ========== ==========
TAXATION
Corporation tax paid -- -- --
========== ========== ==========
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (32,764) (21,789) (17,854)
Sale of tangible fixed assets 3,468 -- --
---------- ---------- ----------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (29,296) (21,789) (17,854)
========== ========== ==========
FINANCING
Proceeds from issue of share capital 575,000 550,000 --
Proceeds from issue of unsecured loan 575,000 -- 650,000
Hire purchase movements (9,879) (6,586) (5,642)
---------- ---------- ----------
NET CASH FLOW FROM FINANCING 1,140,121 543,414 644,358
========== ========== ==========
</TABLE>
-24-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
17 ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT 1 AUGUST CASH OTHER AT 31 JULY
1997 FLOWS CHANGES 1998
(POUND) (POUND) (POUND) (POUND)
<S> <C> <C> <C>
Cash in hand, at bank 165,779 98,305 -- 264,084
Finance leases -- (19,504) -- (19,504)
Debt due after 1 year -- (575,000) -- (575,000)
-------- --------- --------- ---------
165,779 (496,199) -- (330,420)
======== ========= ========= =========
</TABLE>
18 POST BALANCE SHEET EVENT
An agreement has been reached to sell the entire share capital of the
company to Cyberoptics Corporation for a consideration which is in
excess of the book value of the net assets.
19 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
POLICIES
The group's consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United
Kingdom (UK GAAP), which differ in certain respects from generally
accepted accounting principles in the United States (US GAAP).
Differences which have a significant effect on the consolidated net
loss and shareholders' equity (deficit) of the group are set out below.
While this is not a comprehensive summary of all differences between UK
and US GAAP, other differences would not have a significant effect on
the consolidated net income or shareholders' equity of the group.
(a) GOODWILL
Under UK GAAP, the group writes off goodwill arising on acquisitions,
being the excess of consideration paid over the fair value of net
assets acquired, against retained earnings in its consolidated balance
sheet in the year of acquisition. Under US GAAP, goodwill is
capitalised on the balance sheet and amortised by charges against
income over its estimated useful life, which the Company has determined
to be 7 years.
Under UK GAAP, the profit or loss on disposal of all or part of a
previously acquired business is calculated after taking account of the
gross amount of any goodwill previously eliminated directly against
reserves.
Under US GAAP, no adjustment to profit or loss on disposal is required
in respect of goodwill previously amortised.
(b) REDEEMABLE PREFERENCE SHARES
Under UK GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holder are classified as
non-equity interests as a component of total shareholders' deficit.
Under US GAAP such mandatorily redeemable preference shares are
classified outside of shareholders' deficit. In addition, under US GAAP
the waiver of the dividend on preference shares is deemed to be a
capital contribution and excluded from net income attributable to
ordinary shareholders.
-25-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
(c) EFFECT ON NET LOSS OF DIFFERENCES BETWEEN UK AND US GAAP FOR THE YEAR
ENDED 31 JULY 1998
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Net loss in accordance with UK GAAP (1,144,017) (624,747) (862,679)
US GAAP ADJUSTMENTS
Goodwill amortisation (44,754) (29,836) (29,836)
Dividends payable on preference shares (65,550) (43,740) (50,242)
---------- ---------- ----------
Net loss attributable to ordinary shareholders
under US GAAP (1,254,321) (698,323) 942,757
========== ========== ==========
</TABLE>
(d) CUMULATIVE EFFECT ON SHAREHOLDERS' FUNDS OF DIFFERENCES BETWEEN UK AND
US GAAP AT 31 JULY 1998
<TABLE>
<CAPTION>
31 JULY 31 March 1999
1998 (Unaudited)
(POUND) (pound)
<S> <C> <C>
Shareholders' funds in accordance with UK GAAP (413,764) (1,276,443)
US GAAP ADJUSTMENTS
Capitalisation of goodwill 313,279 313,279
Accumulated amortisation of goodwill (70,861) (100,697)
Preference share capital (1,217,052) (1,217,052)
---------- ----------
Shareholders' funds in accordance with US GAAP (1,388,398) (2,280,913)
========== ==========
</TABLE>
-26-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
(e) CASH FLOWS
Under UK GAAP, the group complies with Financial Reporting Standard 1
(Revised) Cash Flow Statements (FRS 1 Revised), the objective and
principles of which are similar to those set out in Statement of
Financial Accounting Standards No 95 'Statement of Cash Flows' (SFAS
95). The principal difference between the two standards is in respect
of classification. Under FRS 1 (Revised), the group presents its cash
flows for (a) operating activities; (b) returns on investments and
servicing of finance; (c) taxation; (d) capital expenditure and
financial investment; (e) acquisitions and disposals; (f) dividends to
ordinary shareholders; (g) management of liquid resources; and (h)
financing activities. SFAS 95 requires only three categories of cash
flow activity (a) operating; (b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and
servicing of finance under FRS 1 (Revised) would be included as
operating activities under SFAS 92; dividend payments would be included
as a financing activity under SFAS 95 and cash flows from capital
expenditure, long term investments, acquisitions and disposals would be
included as investing activities under SFAS 95. In addition, under FRS
1 (Revised), cash represents cash at bank and in hand less bank
overdrafts; cash equivalents (ie liquid resources) are not included
with cash. Movements of liquid resources are included under a separate
heading. Under US GAAP, cash and cash equivalents are not offset by
bank overdrafts repayable within twenty four hours from the date of the
advance. Such overdrafts are classified within financing activities
under US GAAP.
Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under US GAAP:
<TABLE>
<CAPTION>
YEAR ENDED 8 months ended 8 months ended
31 JULY 31 March 1998 31 March 1999
1998 (Unaudited) (Unaudited)
(POUND) (pound) (pound)
<S> <C> <C> <C>
Net cash used in operating activities (1,012,520) (626,020) (890,588)
Net cash used in investing activities (29,296) (21,789) (17,854)
Net cash provided by financing activities 1,140,121 543,414 644,358
--------- --------- ---------
Net increase/(decrease) in cash and cash equivalents 98,305 (104,395) (264,084)
Cash and cash equivalents at beginning of year 165,779 165,779 264,084
--------- --------- ---------
Cash and cash equivalents at end of year/period 264,084 61,384 --
========= ========= =========
</TABLE>
-27-
<PAGE>
KESTRA LIMITED
Notes (CONTINUED)
(f) RECENT US ACCOUNTING PRONOUNCEMENTS
SFAS 130 - REPORTING COMPREHENSIVE INCOME
The Group has adopted Statement of Financial Accounting Standards No.
130 'Reporting Comprehensive Income' (SFAS 130). It requires that all
items that are required to be recognised under accounting standards as
components of comprehensive income should be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the
equity section of a statement of financial position. The Group does not
have any items of other comprehensive income.
-28-
<PAGE>
CyberOptics Corporation and Kestra Limited
Pro Forma Financial Information - Narrative Overview
(Unaudited)
The following unaudited pro forma combined balance sheet as of March 31, 1999
and statements of income for the year ended December 31, 1998, and for the three
months ended March 31, 1999, give effect to the acquisition of Kestra by
CyberOptics Corporation ("the Company") using the purchase method of accounting.
The unaudited pro forma combined financial statements combine the historical
consolidated balance sheet and statement of income of the Company and the
historical consolidated balance sheet and statement of income of Kestra
(collectively "the Entities"). The unaudited pro forma combined balance sheet as
of March 31, 1999, assumes the Entities were combined as of March 31, 1999. The
unaudited pro forma combined statements of income for the year ended December
31, 1998 and for the three months ended March 31, 1999, assume the Entities were
combined effective January 1, 1998.
The unaudited pro forma combined financial statements give effect to (i) the
acquisition of Kestra, (ii) the payment of $9.0 million in cash in connection
with the acquisition of Kestra, and (iii) other adjustments described in the
accompanying notes.
The unaudited pro forma combined financial statements are not necessarily
indicative of the financial position or results of operations of CyberOptics as
they may be in the future or as they might have been for the periods presented
had the Entities actually been combined effective January 1, 1998 or as of the
date of the unaudited pro forma balance sheet. The unaudited pro forma combined
financial statements and accompanying notes should be read in conjunction with
the historical financial statements of CyberOptics, as filed on Form 10-K for
the year ended December 31, 1998 and on Form 10-Q for the three month period
ended March 31, 1999, and the historical financial statements of Kestra,
including the notes to such financial statements, as of July 31, 1998 and for
the year then ended, and as of March 31, 1999 and for the eight month periods
ended March 31, 1999 and 1998, as set forth in this Form 8-K/A-1. The pro forma
adjustments are based upon information available at this time and upon certain
assumptions that CyberOptics management believes are reasonable in the
circumstances.
-29-
<PAGE>
CYBEROPTICS CORPORATION
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
CYBEROPTICS(1) KESTRA LIMITED(2) ADJUSTMENTS COMBINED
-------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 17,474 $ 3 $ (9,500)(3) $ 7,977
Marketable securities 10,129 10,129
Accounts receivable, net 5,949 5,949
Inventories 5,552 5,552
Other current assets 1,455 64 1,519
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 40,559 67 (9,500) 31,126
Marketable securities 12,284 12,284
Equipment and leasehold improvements, net 2,546 131 2,677
Capitalized patent costs, net 142 142
Other assets, net 731 731
(343)(4)
Goodwill 343 5,287 (5) 5,287
------------ ------------ ------------ ------------
TOTAL ASSETS $ 56,262 $ 541 $ (4,556) $ 52,247
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 1,480 175 1,655
Income taxes payable 767 767
Accrued expenses 2,026 341 2,367
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 4,273 516 -- 4,789
------------ ------------ ------------ ------------
Long-term debt 1,999 1,999
Commitments and contingencies
Manditorily redeamable preferred stock 1,965 (1,965)(6) --
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 25,000 shares
authorized, 4,960 shares issued
and outstanding 32,912 239 (239)(6) 32,912
Additional paid in capital 13 (13)(6) --
Cummulative translation adjustment (80) 80 (6) --
(343)(4)
4,454 (5)
Retained earnings (accumulated deficit) 19,077 (4,111) (6,530)(5) 12,547
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 51,989 (3,939) (2,591) 45,459
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,262 $ 541 $ (4,556) $ 52,247
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
balance sheet.
-30-
<PAGE>
CYBEROPTICS CORPORATION
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(1) Reflects the historical balance sheet of CyberOptics Corporation as
derived from the Company's unaudited balance sheet as of March 31, 1999
as filed on Form 10-Q.
(2) Reflects the historical unaudited balance sheet of Kestra as derived
from the historical unaudited balance sheet of Kestra as of March 31,
1999, adjusted to comply with US GAAP. The financial position and
results of operations of Kestra are measured using the local currency
as the functional currency. Assets and liabilities of Kestra are
translated at the exchange rate in effect at March 31, 1999. Income
statement accounts are translated at the average rates of exchange
prevailing during the year ended December 31, 1998 and during the three
months ended March 31, 1999, respectively. Translation adjustments
arising from the use of differing exchange rates from period to period
are included in the stockholders' equity.
(3) Adjustment reflects the $9.0 million cash consideration paid for the
purchase of Kestra common stock and the estimated $460,000 of related
transaction costs.
(4) Adjustment reflects the elimination of historical Kestra goodwill.
(5) Adjustment reflects the portion of the purchase price allocated to
purchased in-process research and development and goodwill. Valuation
of the purchased in-process research and development was conducted by
an independent third-party appraisal company. The purchase price
exceeded the estimated fair value of tangible assets acquired and
liabilities assumed by approximately $11.8 million. This excess
purchase price was allocated first to purchased in-process research and
development, with the residual value allocated to goodwill.
The table below is a summary of the preliminary amounts allocated to purchased
in-process research and development and goodwill (in thousands):
Cash $ 9,040
Direct acquisition costs 460
Kestra liabilities assumed 2,515
-----------
Total purchase price 12,015
Estimated fair value of tangible assets acquired
(approximates recorded book value) 198
-----------
Purchase price in excess of estimated fair value of
tangible assets acquired $ 11,817
===========
-31-
<PAGE>
Estimated fair value of purchased in-process research
and development and goodwill:
In-process research and development 6,530
Goodwill 5,287
-----------
$ 11,817
===========
The purchased in-process research and development consists of Kestra's projects
to develop pre-oven and post-reflow in-line inspection systems for printed
circuit boards assemblies utilizing a statistical technique called principle
component analysis (PCA). PCA is based on statistical appearance modeling that
can learn for itself how to recognize any object. The pre-oven system involves
checking for placement of components on circuit boards. The post-reflow system
involves inspection of the solder joints, after the solder paste applied to the
leads of components placed on circuit boards has been melted by the oven.
At the time of the acquisition, Kestra had under development technology using
PCA for the application of Automated Optical Inspection (AOI) in electronic
circuit board production. Kestra is attempting to develop complex application
software that will allow PCA to be applied to a pre-oven AOI system and a
completely separate complex application software that will allow PCA to be
applied to a post-reflow AOI system that will inspect circuit boards in-line at
different points in the production process. The Company is uncertain whether the
technology being developed for either system will ultimately meet the technical
specifications required for circuit board production or be commercially
acceptable. The development of the pre-oven and post-reflow AOI systems requires
many design and engineering innovations as discussed below:
Pre-Oven System - Inspection at this stage of the circuit board production
process involves inspecting the placement of electronic components placed on
circuit boards with solder paste, which has not been melted to form solder
joints. In order to accomplish this, the system must make measurements at very
high speeds that are repeatable and accurate to the micron level, by processing
digitized images and identifying variations. These images are captured using
commercially available cameras and attempting to apply complex PCA techniques
using highly-complex algorithms that must be developed through extended off-line
field testing and then imbedded in system application software.
-32-
<PAGE>
Post-Reflow System - Inspection at this stage of the circuit board production
process, when the solder paste has been melted by the oven and turned into a
solder joint, requires inspection of the solder joint itself. Inspection of such
solder joints involves methods and considerations very different from those
involved in the placement inspection to be performed by the pre-oven machine.
Specifically, the significant variations in solder joint size, color, shape and
reflection levels, among other variables, make this a very different
technological development effort from that applicable to the pre-oven system.
Accordingly, development of this system will require development of a different
application of PCA techniques with completely different highly-complex
algorithms that must still be developed through extended off-line field testing.
Development of the post-reflow system will also require development of improved
optics to capture the images required for this very different inspection system.
It is not certain that development efforts on either system will allow for
technical and user specifications to be met, particularly when tested at
production line speeds and the very high volumes associated with electronic
assembly. Failure to achieve these specifications will cause the pre-oven and
post-reflow projects to fail.
Based upon an independent third-party appraisal, management estimates that $3.3
million and $3.2 million of the purchase price represents the fair value of
purchased in-process research and development related to the pre-oven and
post-reflow systems, respectively, that has not yet reached technological
feasibility and has no alternative future uses. These amounts were expensed as a
non-recurring, non-tax-deductible charge upon consummation of the acquisition.
These amounts have been reflected as a reduction in stockholders' equity and
have not been included in the unaudited pro forma combined statements of income
due to their non-recurring nature.
The independent third-party appraiser utilized the alternative income valuation
approach as prescribed by the Securities and Exchange Commission to determine
the estimated fair value of the purchased in-process research and development.
These estimates are based on the following assumptions:
* The estimated revenues are based upon projected average annual revenue
growth rates for the pre-oven and for the post-reflow systems once each
technology individually reaches a point of feasibility. These
projections assume that the Kestra systems under development reach
approximately 20% of the forecasted AOI market by 2003 and grow at
estimated market growth rates of approximately 20% in 2004. Estimated
total revenues expected from the pre-oven and post-reflow systems for
these products to be developed from using the purchased in-process
research and development peak in the year 2004 and decline rapidly
starting in 2005 through 2009 as the next generation of these systems
are expected to enter the market. These projections are based on
estimates made by the Company's management of market size and growth
(which are supported by independent market data), expected trends in
technology and the nature and projected timing of the introduction of
the next generation of systems.
-33-
<PAGE>
* The estimated costs of sales as a percentage of revenues are based on
the estimated costs that management believes could be achieved by
Kestra without considering any synergies due to the acquisition by the
Company.
* The estimated selling general and administrative expenses are based on
the estimated expense levels of Kestra through year 2001, and are based
on the Company's historical percentage and industry comparisons for the
years from 2002 through 2009, without considering any synergies due to
the acquisition by the Company.
* The discount rate utilized in the alternative income valuation approach
is based on the weighted average cost of capital (WACC). The WACC
calculation produces the average required rate of return of an
investment in an operating enterprise, based on various areas of that
enterprise. The WACC assumed for CyberOptics, as a corporate business
enterprise, is 23.2%. The discount rate used in the alternative
valuation approach was 35%. This discount rate is higher than the WACC
due to the inherent uncertainties in the estimates described above
including the uncertainty surrounding the successful development of the
purchased in-process research and development, the useful life of such
completed research and development, the profitability levels of such
completed research and development and the uncertainty of technological
advances that are unknown at this time
The Company estimated that the purchased in-process research projects related to
the pre-oven and post-reflow systems were 79% and 71% complete, respectively,
based upon research and development costs incurred to date compared to total
estimated development costs for each project. As of the date of acquisition, the
estimated cost to complete the pre-oven project to a point of technological
feasibility was $487,000, expected to be incurred in the second and third
quarters of 1999. As of the date of the acquisition, the estimated cost to
complete the post-reflow system to a point of technological feasibility was
$540,000, expected to be incurred primarily in the fourth quarter of 1999 and
the first and second quarters of 2000. These estimates are subject to change,
given uncertainties of the development process, and no assurance can be given
that deviations from these estimates will not occur.
As of the date of acquisition, the Company estimated that the initial pre-oven
product developed from the purchased in-process research and development may be
introduced during the second half of 1999. As of the date of acquisition, the
Company anticipated that the initial post-reflow product developed from the
purchased in-process research and development may be introduced during second
quarter of 2000. The Company expects that all the purchased in-process research
and development will reach technological feasibility. However, even if
technological feasibility is achieved (of which there can be no assurance) there
can be no assurance that the commercial viability of the purchased in-process
research and development projects will achieve management expectations.
-34-
<PAGE>
As of the date of acquisition, the nature of the development efforts related to
the pre-oven system included initial proof of concept through early prototype
testing, field testing in an off-line environment, continuous development of the
underlying complex PCA application software, initial development work on the
user interface and preliminary development work on the required Windows NT
platform conversion which may impair the speed of the in-process system. For the
post-reflow system, development efforts include limited off-line field testing,
preliminary revisions to the PCA application software that is anticipated to be
required for the post-reflow application and preliminary evaluation of
requirements for improved optics and the user interface. The nature of the
efforts required to complete development of the purchased in-process research
and development projects into commercially viable products principally relates
to the following:
Pre-Oven System - Testing of the system in-line at production speeds and
volumes, and the resulting development effort on the application software
required to meet speed, repeatability, accuracy and volume requirements of the
AOI industry. In addition, other development work is required to determine how
to meet current and anticipated processing speed requirements, develop a user
interface that meets AOI industry requirements and complete a Windows NT
platform conversion that management believes may reduce processing speeds and
therefore require even further product development efforts.
Post-Reflow System - Complete study of the appearance of solder joints through
field testing of prototype machines to determine the number of examples required
by the system and complete development of application software that will
potentially meet technical specifications for solder joint inspection. Evaluate
hardware configuration (optics and platform) to determine the requirements of
such a solder joint inspection system and complete hardware development work to
meet AOI industry specifications. In addition, other development work is
required to develop a user interface that meets AOI industry requirements and to
complete a Windows NT platform conversion that management believes may reduce
processing speeds and therefore require even further product development
efforts.
If these products are not successfully developed, the sales and profitability
of the combined company may be adversely affected in future periods.
(6) Adjustment reflects the elimination of Kestra's historical
stockholders' equity.
-35-
<PAGE>
CYBEROPTICS CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
CYBEROPTICS(1) KESTRA LIMITED(2) ADJUSTMENTS COMBINED
-------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 36,636 $ $ $ 36,636
Cost of revenues 16,499 16,499
------------ ------------ ------------ ------------
Gross margin 20,137 -- -- 20,137
Research and development costs 7,072 1,664 8,736
(74)(3)
Selling, general and administrative expenses 9,881 405 755 (4) 10,967
------------ ------------ ------------ ------------
Income (loss) from operations 3,184 (2,069) (681) 434
Interest income (expense), net 2,220 (112) (523)(5) 1,585
------------ ------------ ------------ ------------
Income (loss) from operations 5,404 (2,181) (1,204) 2,019
Provision for income taxes 1,735 -- (168)(6) 1,567
------------ ------------ ------------ ------------
Net income (loss) $ 3,669 $ (2,181) $ (1,036) $ 452
============ ============ ============ ============
Net income per share - Basic $ 0.71 $ 0.09
Net income per share - Diluted $ 0.69 $ 0.08
Weighted average shares outstanding - Basic 5,192 5,192
Weighted average shares outstanding - Diluted 5,320 5,320
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
statement of income.
-36-
<PAGE>
CYBEROPTICS CORPORATION
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(1) Reflects the historical results of operations of CyberOptics as derived
from the Company's statement of income for the year ended December 31,
1998 as filed on Form 10-K.
(2) Reflects the historical unaudited results of operations of Kestra as
derived from the unaudited statement of profit and loss of Kestra for
the year ended December 31, 1998. The results of operations of Kestra
are measured using the local currency as the functional currency.
Income statement accounts are translated at the average rates of
exchange prevailing during the year ended December 31, 1998 and for the
three months ended March 31, 1999.
(3) Adjustment reflects the elimination of amortization of the historical
Kestra goodwill.
(4) Adjustment reflects the annual non-tax-deductible amortization charge
resulting from amortization of the $5.3 million of goodwill, over an
estimated useful life of 7 years.
(5) Adjustment reflects the reduction of interest income resulting from the
liquidation of investments or the use of cash to complete the
acquisition. The estimated rate of return on investments and the cash
balance was 5.5%.
(6) Adjustment reflects the estimated income tax impact of the above
adjustments (note that the amortization of the goodwill is not
deductible for income tax reporting purposes).
-37-
<PAGE>
CYBEROPTICS CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
CYBEROPTICS(1) KESTRA LIMITED(2) ADJUSTMENTS COMBINED
-------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 7,705 $ $ $ 7,705
Cost of revenues 3,537 3,537
------------ ------------ ------------ ------------
Gross margin 4,168 -- -- 4,168
Research and development Costs 1,752 415 2,168
(18)(3)
Selling, general and administrative expenses 2,164 120 189 (4) 2,455
------------ ------------ ------------ ------------
Income (loss) from operations 252 (536) (171) (455)
Interest income (expense), net 530 (47) (131)(5) 352
------------ ------------ ------------ ------------
Income (loss) from operations 782 (583) (302) (103)
Provision for income taxes 230 (38)(6) 192
------------ ------------ ------------ ------------
Net income (loss) $ 552 $ (583) $ (264) $ (295)
============ ============ ============ ============
Net income (loss) per share - Basic $ 0.11 $ (0.06)
Net income (loss) per share - Diluted $ 0.11 $ (0.06)
Weighted average shares outstanding - Basic 4,955 4,955
Weighted average shares outstanding - Diluted 5,039 5,039
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
statement of income.
-38-
<PAGE>
CYBEROPTICS CORPORATION
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(1) Reflects the historical results of operations of CyberOptics as derived
from the Company's statement of income for the three months ended March
31, 1999 as filed on Form 10-Q.
(2) Reflects the historical unaudited results of operations of Kestra as
derived from the unaudited statement of profit and loss of Kestra for
the three months ended March 31, 1999. The results of operations of
Kestra are measured using the local currency as the functional
currency. Income statement accounts are translated at the average rates
of exchange prevailing during the year ended December 31, 1998 and for
the three months ended March 31, 1999.
(3) Adjustment reflects the elimination of amortization of the historical
Kestra goodwill.
(4) Adjustment reflects the estimated quarterly non-tax-deductible
amortization charge resulting from amortization of the $5.3 million of
goodwill, over an estimated useful life of 7 years.
(5) Adjustment reflects the reduction of interest income resulting from the
liquidation of investments or the use of cash to complete the
acquisition. The estimated rate of return on investments and the cash
balance was 5.5%.
(6) Adjustment reflects the estimated income tax impact of the above
adjustments (note that the amortization of the goodwill is not
deductible for income tax reporting purposes).
-39-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CYBEROPTICS CORPORARTION
By /s/ Steven M. Quist
-------------------
Steven M. Quist, President
Dated: June 21, 1999
-40-
Exhibit 23.1 Consent of KPMG:
KESTRA LIMITED
We consent to the inclusion of our report dated April 6, 1999, with respect to
the consolidated balance sheet of Kestra Limited and subsidiaries as of July 31,
1998, and the related consolidated statements of earnings, shareholders' equity,
and cash flows for the year ended July 31, 1998, which report appears in the
Form 8-K of Cyberoptics Corporation dated June 21, 1999.
Yours sincerely
KPMG
