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, 1999
[ ] 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
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(Exact name of registrant as specified in its charter)
Minnesota 41-1472057
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5900 Golden Hills Drive, Minneapolis, Minnesota 55416
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(Address of principal executive offices)
(612) 542-5000
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(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 August 12, 1999, 4,977,912 shares of the issuer's Common Stock, no par value,
were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1999 DEC. 31, 1998
(UNAUDITED)
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,903 $ 4,963
Marketable securities 9,407 17,142
Accounts receivable, net 6,673 6,362
Inventories 4,984 6,045
Other current assets 1,683 1,540
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Total current assets 25,650 36,052
Marketable securities 9,756 16,397
Intangible assets, net 11,472 --
Equipment and leasehold improvements, net 2,641 2,571
Capitalized patent costs, net 139 157
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Total assets $ 49,658 $ 55,177
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,817 $ 1,215
Income taxes payable 726 589
Accrued expenses 2,368 1,940
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Total current liabilities 4,911 3,744
Commitments and Contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares
authorized, none outstanding
Common stock, no par value, 25,000 shares
authorized, 4,975 and 4,950 shares issued
and outstanding, respectively 32,956 32,735
Retained earnings 11,826 18,525
Accumulated other comprehensive income (loss) (35) 173
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Total stockholders' equity 44,747 51,433
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Total liabilities and stockholders' equity $ 49,658 $ 55,177
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</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
CYBEROPTICS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
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<S> <C> <C>
Revenues $ 8,811 $ 9,718
Cost of revenues 3,905 4,401
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Gross margin 4,906 5,317
Research and development expenses 2,469 1,944
Selling, general and administrative expenses 2,396 2,418
Acquired in-process research and development 7,301 --
Amortization of goodwill and other intangibles 353 --
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Income (loss) from operations (7,613) 955
Interest income 310 597
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Income (loss) before income taxes (7,303) 1,552
Provision for income taxes (54) 500
================================================================================================
Net income (loss) $ (7,249) $ 1,052
================================================================================================
Net income (loss) per share - Basic $ (1.46) $ 0.20
Net income (loss) per share - Diluted $ (1.46) $ 0.19
================================================================================================
Weighted average shares outstanding - Basic 4,968 5,392
Weighted average shares outstanding - Diluted 4,968 5,575
================================================================================================
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
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Revenues $ 16,516 $ 20,348
Cost of revenues 7,442 8,848
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Gross margin 9,074 11,500
Research and development expenses 4,221 3,788
Selling, general and administrative expenses 4,554 5,052
Acquired in-process research and development 7,301 --
Amortization of goodwill and other intangibles 359 --
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Income (loss) from operations (7,361) 2,660
Interest income 840 1,190
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Income (loss) before income taxes (6,521) 3,850
Provision for income taxes 178 1,230
================================================================================================
Net income (loss) $ (6,699) $ 2,620
================================================================================================
Net income (loss) per share - Basic $ (1.35) $ 0.49
Net income (loss) per share - Diluted $ (1.35) $ 0.47
================================================================================================
Weighted average shares outstanding - Basic 4,963 5,382
Weighted average shares outstanding - Diluted 4,963 5,619
================================================================================================
</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,699) $ 2,620
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Acquired in-process research and
development, net of tax benefit 7,038 --
Depreciation and amortization 945 536
Provision for losses on inventories 149 221
Changes in operating assets and liabilities
excluding impact of acquisitions:
Accounts receivable 32 296
Inventories 1,005 (1,455)
Other current assets 190 (97)
Accounts payable 400 43
Income taxes payable 137 (50)
Accrued expenses 343 (155)
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Net cash provided
by operating activities 3,540 1,959
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities 16,181 14,882
Purchases of marketable securities (2,035) (10,521)
Purchases of businesses and technology, net of
cash acquired (17,124) --
Additions to equipment and leasehold improvements (477) (798)
Additions to patents (24) (57)
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Net cash provided (used) by
investing activities (3,479) 3,506
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 198 419
Repurchase of common stock -- (2,459)
Repayment of long-term debt (2,364) --
Other 45 51
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Net cash provided (used) by financing
activities (2,121) (1,989)
Increase (decrease) in cash and cash equivalents (2,060) 3,476
Cash and cash equivalents - beginning
of period 4,963 6,160
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Cash and cash equivalents - end of period $ 2,903 $ 9,636
============================================================================================
</TABLE>
SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
CYBEROPTICS CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. INTERIM REPORTING:
The interim consolidated financial statements presented herein as of June 30,
1999, and for the three and six month periods ended June 30, 1999 and 1998, are
unaudited; however, in the opinion of management, the interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented.
The results of operations for the three and six month periods ended June 30,
1999, do not necessarily indicate the results to be expected for the full year.
The December 31, 1998, consolidated balance sheet data was derived from audited
consolidated financial statements, but does not include all disclosures required
by generally accepted accounting principles. These unaudited interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto, contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. ACQUISITIONS:
KESTRA LIMITED
On April 6, 1999, the Company completed the acquisition of all of the
outstanding shares of Kestra Limited, a British limited liability company
organized under the Companies Act of 1985 ("Kestra"). Total consideration paid
of $9,040,012 included $8,350,717 of cash and $689,295 of notes payable. The
Company also repaid certain indebtedness of Kestra to one of its shareholders
and certain other obligations related to the shares acquired totaling $2,363,627
and paid direct acquisition costs of approximately $536,000.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Kestra are included in the
consolidated financial statements of the Company since the acquisition date. The
purchase price was allocated as follows (in thousands):
Cash $ 9,040
Direct acquisition costs 536
Kestra liabilities assumed 2,619
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Total Purchase Price 12,195
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<PAGE>
Estimated fair value of tangible assets acquired
(approximates recorded book value) 198
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Purchase price in excess of estimated fair value
of tangible assets acquired $11,997
=======
Estimated fair value of purchased in-process
research and development and goodwill:
In-process research and development 6,530
Goodwill 5,467(1)
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$11,997
=======
(1) The Company has allocated none of the purchase price to the deferred tax
assets related to loss carryforwards of approximately $3.9 million
generated by Kestra in the UK, due to uncertainty about their realization.
Accordingly, the aforementioned deferred tax asset is fully offset by a
valuation allowance. If in the future, realization becomes more likely, any
reduction in the valuation allowance would result in a corresponding
reduction in goodwill.
Valuation of the purchased in-process research and development was conducted by
an independent third party appraisal company. Goodwill resulting from the
acquisition is being amortized over its estimated useful life of seven years.
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 board 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
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:
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<PAGE>
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.
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-tax-deductible charge upon consummation of the acquisition.
The independent third-party appraiser utilized the income valuation approach 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 market release. 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 (approximately 20%) in 2004. Estimated total
revenues expected from the pre-oven and post-reflow systems for the
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.
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<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. The WACC estimated for the Company, as a corporate
business enterprise, is 23.2%. The discount rate used in the income
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.
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. 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 -completion of testing of the system in-line at production
speeds, and the resulting development effort on the PCA application code
required to meet technical specifications. In addition, development work is
required to determine how to meet current and anticipated processing speed
requirements, develop a user interface that meets industry requirements and
complete a Windows NT platform conversion.
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<PAGE>
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 PCA application software that will
potentially meet technical specifications for solder joint inspection. Evaluate
hardware configuration (optics and platform) to determine the requirements of
solder joint inspection and complete development work to meet specifications.
Also, development work on the user interface and Windows NT platform conversion
are required.
The Company is continuing development of the acquired in-process pre-oven and
post-reflow technologies and currently believes that its development efforts are
on schedule to meet the product release schedule referred to above without any
significant changes in its research and development costs. However, these
expectations are subject to change, given uncertainties of the development
process and potential changes in market expectations.
HAMA SENSORS
On May 5, 1999, the Company acquired substantially all of the operating assets
and assumed certain liabilities of HAMA Laboratories, Inc. ("HAMA") through HAMA
Sensors, Inc., a newly formed, wholly-owned subsidiary of the Company ("HSI").
Total consideration paid by the Company was $6,996,000 of cash. In addition, the
Company agreed to pay HAMA up to $4.1 million of additional consideration based
on meeting certain operating results thresholds over the next 3 years. The
Company also paid direct acquisition costs of approximately $170,000.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of HSI have been included in the
financial statements of the Company since the acquisition date. The purchase
price was allocated to the acquired assets and assumed liabilities as follows
(in thousands):
Cash $ 6,996
Direct acquisition costs 168
HAMA liabilities assumed 337
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Total Purchase Price 7,197
Estimated fair value of tangible assets acquired
(approximates recorded book value) 479
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Purchase price in excess of estimated fair value
of tangible assets acquired $ 6,718
=======
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<PAGE>
Estimated fair value of purchased in-process
research and development and intangible assets:
Current technology 4,065
In-process research and development
(net of deffered tax assets) 511
Deferred tax assets 260
Trademarks 82
Goodwill 1,800
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$ 6,718
=======
Valuation of the purchased in-process research and development, current
technology and trademarks was conducted by an independent third-party appraisal
company. Current technology, trademarks and goodwill resulting from the
acquisition are being amortized over their estimated useful lives of seven
years.
At the time of the acquisition, the purchased in-process research and
development consists of HAMA's current projects to develop laser-based proximity
sensors for robotic semiconductor wafer handling which can potentially be used
in a vacuum environment and laser micrometers that will potentially determine
the orientation and alignment of semiconductor wafers during the production
process. The technology under development for use in these laser-based sensors
utilizes a complex combination of optical components, firmware and electronics,
along with customized microprocessors and mechanical designs. Specific
in-process projects as of the date of acquisition include development of
Laser-Based Vacuum Proximity Sensors, Six-Inch Laser Micrometers, Mini Through
Beam Micrometers and Customizable Kit Micrometers. The Company is uncertain
whether the technology being developed for either the proximity sensors or the
laser micrometers will ultimately meet the technical specifications required for
semiconductor wafer handling or be commercially acceptable.
Based upon an independent third-party appraisal, management estimates that
$771,100 of the purchase price represents the fair value of purchased in-process
research and development related to proximity sensors and laser micrometers that
have not yet reached technological feasibility and have no alternative future
uses. The estimated fair value of each acquired in-process research and
development technology was appraised as follows:
Vacuum Proximity Sensors: $82,000 Six-Inch Laser Micrometers: $210,000
Mini Through Beam Micrometers: $55,000 Customizable Kit Micrometers: $424,100
These amounts were expensed upon consummation of the acquisition.
The independent third-party appraiser utilized the alternative income valuation
approach to determine the estimated fair value of the purchased in-process
research and development. These estimates are based on the following
assumptions:
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<PAGE>
* The estimated revenues are based upon projected average annual revenue
growth rates for the proximity sensors and the laser micrometers once each
technology individually reaches a point of market release. These
projections assume that the HAMA sensors under development achieve a market
share of less than 5% of the factory automation sensor market. Estimated
total revenues projected for sales of proximity sensors and laser
micrometers to be developed using the purchased in-process research and
development, peak in the year 2002 and decline rapidly starting in 2003
through 2005 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 the estimated sales potential for individual customers,
estimated market growth rates (supported by independent market data),
expected trends in technology and the nature and projected timing of the
introduction of the next generation of systems.
* The estimated costs of sales as a percentage of revenues are based on the
estimated costs that management believes could be achieved by HAMA 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 HAMA through year 2001, and are based primarily
on expense levels of similar companies and other industry comparisons for
the years 2002 through 2005, without considering any synergies due to the
acquisition by the Company.
* The discount rate used in the income valuation approach was 35%.
The Company estimated that the purchased in-process research projects related to
the vacuum proximity sensors, the six-inch laser micrometers, the through beam
micrometers, and the customizable kit micrometers were 25%, 70%, 20% and 70%
complete, respectively, as of the acquisition date. These estimates were 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 vacuum proximity sensors project to a point of
technological feasibility was approximately $150,000, expected to be incurred in
the remainder of 1999. As of the date of the acquisition, the estimated cost to
complete the new six-inch laser micrometers, mini through beam micrometers and
the customizable kit micrometers to a point of technological feasibility was
approximately $122,000, $240,000 and $43,000, respectively, expected to be
incurred primarily in the twelve month period following the acquisition. 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 vacuum
proximity sensor product to be developed from the purchased in-process research
and development may be introduced during the third quarter of 1999. As of the
date of acquisition, the Company anticipated that the initial six-inch laser
micrometer product to be developed from the purchased in-process research and
development may be introduced during fourth quarter of 1999. The anticipated
introduction date for the customizable kit micrometers is the fourth quarter of
1999 and the through beam micrometer is targeted for introduction in mid-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's expectations.
As of the date of acquisition, the nature of the development efforts related to
the purchased in-process research and development projects, as well as the
efforts required to complete development of those projects into commercially
viable products are discussed below:
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<PAGE>
Laser -Based Vacuum Proximity Sensors - Early stage development efforts have
focused on preliminary mechanical and electrical designs, and the completion of
early stage prototypes. Environmental and functional testing have just begun on
the early prototypes. Development to be completed includes obtaining feedback
from the prototype testing and determining the level of additional design work
required to complete final mechanical, electrical and optical designs. Once
these processes are completed management believes that, beta prototypes will be
developed and final testing will be performed on the beta units.
Six-Inch Laser Micrometers - Development has focused on completion of the
preliminary mechanical, electrical, CCD (charge coupled device) receiver and
optics designs. Development prototypes have been completed and initial tests
have been performed. Based on the feedback received from the prototype testing,
additional development efforts will be focused on design changes required for
the six-inch micrometer to meet additional technical specifications. If it is
determined that additional development efforts will potentially allow for
development of a product that will meet its specifications, additional
prototypes will be developed. Further functional testing will be performed and
management believes that beta units will then be developed.
Mini Through Beam Micrometers - This product is in the early stages of
development, and efforts have focused preliminary on mechanical, electrical and
optical designs. Once preliminary design efforts are completed, prototypes will
be developed and tested. Future development efforts will depend on the results
of these prototype test results. However, management would anticipate future
development and testing of beta units following this prototype testing.
Customizable Kit Micrometers - Development has focused on completion of the
preliminary mechanical, electrical, CCD receiver and optics designs. Prototypes
have been completed and initial field testing is underway. Initial test results
indicate that the prototypes are performing up to specification in one
application. However, testing in multiple unique applications will be necessary
before the preliminary testing on adaptability of the modular components will be
completed. Other opportunities for testing prototypes in other applications are
being sought. It is anticipated that design changes and modifications to the
firmware will be needed as test results are accumulated and analyzed. If it is
determined that additional development efforts will potentially allow for
development of a product that will meet technical specifications, additional
prototypes will be developed. Further functional testing will be performed and
management then believes that beta units will be developed and tested.
The Company is continuing development of the acquired in-process technologies
described above. However, the Company has encountered certain unanticipated
development issues related to manufacturability of the six-inch micrometer
technology which, combined with existing resource constraints, have caused
management to focus primarily on completing development of the vacuum sensor
technology. Management currently believes that its development efforts for the
vacuum sensor technology are on schedule to meet the product release schedule
referred to above without any significant changes in its research and
development costs. Management believes, for the reasons described above, that
its research and development efforts related to the micrometer technology are
behind the development schedule originally established in estimating the
micrometer product release schedule referred to above. Management is assessing
whether these unexpected issues will significantly impact the cost to develop
the micrometer technology or the estimated timing of product releases. However,
all of management's beliefs and expectations are subject to change, given
uncertainties of the development process and potential changes in market
expectations.
FIRST ARTICLE INSPECTION
During February of 1999, the Company acquired certain technology and other
assets from Electronic Packaging Company (EPC). The acquired technology and
other assets relate to a system that will inspect loaded circuit boards (circuit
boards with components placed thereon) to determine proper orientation of the
component and that the correct component is placed. The system is designed to be
used off-line and for purposes of first article inspection. These assets were
acquired for $404,000 of cash and were accounted for using the purchase method,
whereby the purchase consideration was allocated to assets based on their
estimated fair values and will be amortized over their estimated remaining
useful life.
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PRO-FORMA INFORMATION:
The following table presents unaudited pro forma consolidated results of
operations as if the acquisitions of Kestra and HAMA had occurred as of the
beginning of each period. The unaudited pro forma consolidated results of
operations have been adjusted to eliminate the effect of the non-recurring
charges to operations of $7,040,000 (net of tax) for the estimated fair value
allocated to the acquired in-process research and development technology. The
pro forma information includes adjustments for additional amortization of
identifiable intangibles and goodwill, the reduction of historical HAMA
compensation expense for executives to reflect contractual changes to the
Company's compensation structure, the reduction of interest income due to the
cash used for the acquisition and the related tax impacts of these adjustments.
The unaudited pro forma consolidated results of operations are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial results that actually would have resulted had the acquisitions, in
fact, occurred on that date (in thousands):
Pro Forma
Six Months Ended
June 30,
----------------------------
1999 1998
---- ----
Revenue $17,311 $21,676
Net income (loss) $ (548) $ 1,057
Net income (loss) per share - Basic $ (0.11) $ 0.20
Net income (loss) per share - Diluted $ (0.11) $ 0.19
3. INVENTORIES (IN THOUSANDS):
June 30, Dec. 31,
1999 1998
(unaudited)
----------------------------
Raw materials $ 3,647 $ 4,427
Work in process 680 1,045
Finished goods 657 573
----------------------------
Total inventories $ 4,984 $ 6,045
============================
4. NET INCOME PER SHARE:
Basic net income per share has been computed using the weighted average number
of shares outstanding. The diluted net income per share includes the effect of
common stock equivalents for each period. The number of shares utilized in the
denominator of the diluted net income per share computation as compared to the
basic net income per share computation has been increased by 237,000 and 183,000
equivalent shares for the six and three month periods ended June 30, 1998,
respectively. The shares used in the basic and diluted net income per share
computation for the six and three month periods ended June 30, 1999 are the same
as additional shares in the denominator would be antidilutive due to the
Company's net loss. Options to purchase 104,000 and 214,000 shares of common
stock at a weighted average price of $22.77 and $21.12 were outstanding but not
included in the computation of diluted net income per share for the six and
three month period ended June 30, 1998 as the exercise price was greater than
the average market price of the common shares.
-13-
<PAGE>
5. COMPREHENSIVE (LOSS) INCOME:
Statement of Financial Accounting Standards No. 130 requires that unrealized
gains and losses on the Company's available-for-sale marketable securities and
certain foreign currency translation adjustments be included as a component of
other comprehensive income.
During the six months ended June 30, 1999 and 1998, total comprehensive (loss)
income amounted to ($6,907,000) and $2,635,000, respectively. During the three
month periods ended June 30, 1999 and 1998, total comprehensive (loss) income
amounted to ($7,332,000) and $1,052,000, respectively. Accumulated other
comprehensive (loss) income at June 30, 1999 and December 31, 1998 was ($35,000)
and $173,000, respectively.
6. BUSINESS SEGMENTS (IN THOUSANDS):
The Company's businesses are organized, managed, and internally reported as four
segments. Management of these segments, with the exception of the Research and
Development segment, are responsible for different product lines and services
and are responsible for managing, on a worldwide basis, revenues as well as
sales and marketing costs. Management does not represent that these segments, if
operated independently, would report the operating income and other financial
information shown below. The table below presents information about revenues and
income from operations for reportable segments for the six and three month
periods ended June 30, 1999 and 1998, and identifiable assets as of June 30,
1999 and December 31, 1998.
<TABLE>
<CAPTION>
OEM SMT Industrial Research and Corporate Total
Sensors Systems Measurement Development Administration(1) Company
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30,
Revenues 1999 $ 11,107 $ 3,794 $ 1,615 $ 16,516
1998 16,264 3,130 954 20,348
Income (loss) from
Operations 1999 $ 5,648 $ 872 $ 288 $ (4,221) $ (9,948) $ (7,361)
1998 8,806 694 (263) (3,788) (2,789) 2,660
Three Months Ended June 30,
Revenues 1999 $ 5,529 $ 2,265 $ 1,017 $ 8,811
1998 7,464 1,601 653 9,718
Income (loss) from
Operations 1999 $ 2,838 $ 610 $ 252 $ (2,469) $ (8,844) $ (7,613)
1998 3,854 415 (11) (1,943) (1,360) 955
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Identifiable
Assets(2) 1999 $ 5,994 $ 2,960 $ 2,702 $ 38,002 $ 49,658
1998 7,617 2,644 2,146 42,770 55,177
</TABLE>
(1) Loss from operations consists of unallocated corporate administrative
expenses. The 1999 amount includes a $7.3 million charge for purchased
in-process research and development.
(2) Segment assets include accounts receivable and inventories. Assets included
in Corporate Administration primarily include cash and marketable
securities, equipment and leasehold improvements, capitalized patent costs,
intangible assets, deferred income taxes, accrued interest and certain
prepaid expenses.
-15-
<PAGE>
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.
On April 6, 1999 the Company acquired Kestra Limited, a development-stage
company engaged in research and development related to automated optical
inspection technologies. On May 5, 1999, the Company acquired certain assets
from HAMA Laboratories, Inc., a developer and manufacturer of industrial
measurement products. The results of operations of the Company include the
operations relating to these acquired businesses since the respective
acquisition dates (see Note 2 to the Company's interim consolidated financial
statements).
The following is management's discussion and analysis of certain significant
factors which have affected the Company's results and financial position during
the periods included in the accompanying financial statements. This discussion
should be read in conjunction with the interim consolidated 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 trends in the industries in which
the Company functions, levels of orders, research and development expenses,
taxation levels, the sufficiency of cash to meet operating and capital expenses
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 of two sensor product
lines from several large OEM's of component placement machines in the
surface mount industry;
-- The significant proportion of the Company's revenue that is derived
from export sales, including Asia where poor economic conditions have
continued;
-- The dependence of the Company's manufacturing on outside contractors
and suppliers, many of which require significant lead time;
-- The ability of the Company to produce products that do not experience
significant quality errors;
-- 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 ability of the Company to effectively integrate the operations of
Kestra and HAMA so as to introduce new products on schedule and
effectively market and sell new and existing products.
-- The speed of changes in technology in the microelectronics
manufacturing industry from which most of the Company's sales are
derived;
-- Competition for the functions that the Company's products perform by
larger "vision" companies and by other optical sensor companies;
-- The ability of the Company to successfully develop in-process
technology acquired from Kestra and HAMA into viable products.
-16-
<PAGE>
RESULTS OF OPERATIONS
PERFORMANCE BY BUSINESS SEGMENT
Financial information and other disclosures relating to the Company's four
business segments are provided in this Form 10-Q. In the discussion of results
of operations, certain reclassifications have been made to revenues in order to
include all revenue in segment disclosures. In quarterly filings prior to 1999,
certain revenues, primarily service revenues and sales of miscellaneous
inventory, had not been assigned to a business segment. These reclassifications
had no effect on net income or stockholders' equity.
REVENUES
Revenues decreased 19% to $16.5 million during the six month period ended June
30, 1999 compared to $20.3 million for the same period in 1998. For the second
quarter of 1999, revenues decreased 9% to $8.8 million from $9.7 million in the
second quarter of 1998. Revenues for the six and three month periods ended June
30, 1999 include $404,000 of revenues of HAMA since the Company's acquisition on
May 5, 1999. Kestra, which was also acquired during the second quarter, is in
the development stage with no revenues. Excluding the effect of the
acquisitions, revenues decreased 21% and 13% during the six and three month
periods ended June 30, 1999 compared to the same period in 1998. Decreased
revenues are primarily the result of reduced demand for surface mount technology
(SMT) process control sensors, primarily LaserAlign and Laser Lead Locator, from
original equipment manufacturer (OEM) customers. Revenues are heavily dependant
on the level of capital spending in the global SMT assembly market, as the
Company generates approximately 90% of its revenues from the sales and service
of sensors and system products used primarily in SMT production. The second
quarter of 1998 marked the beginning of a slowing in demand for SMT capital
equipment, following a year of strengthening in 1997. During the remainder of
1998 and the first half of 1999, revenue levels were impacted by a slowdown in
worldwide demand for SMT production equipment, which currently appears to be in
the early stages of recovery.
The following table sets forth revenues by business segment for the three and
six month periods ended June 30:
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
OEM Sensors $ 11,107 $ 16,264 $ 5,529 $ 7,464
SMT Systems 3,794 3,130 2,265 1,601
Industrial Measurement 1,615 954 1,017 653
-------- -------- -------- --------
Total $ 16,516 $ 20,348 $ 8,811 $ 9,718
-17-
<PAGE>
Revenues from the OEM sensor segment decreased 32% to $11.1 million during the
six months ended June 30, 1999 compared to $16.3 million for the comparable
period in 1998, and decreased 26% to $5.5 million in the second quarter of 1999
compared to the same period in 1998. The decrease is primarily due to a slowdown
in worldwide demand for SMT production equipment. In addition, revenues from the
Company's largest customer in 1998 have decreased in 1999 due to weakness in the
Asian economy and a product transition at this Asian manufacturer. The Company's
two largest OEM customers, Juki Corporation (Juki) and Philips Electronics, N.V.
(Philips), accounted for approximately 10% and 37% of total revenues for the six
months ended June 30, 1999, and 34% and 22% of revenues for the comparable
period in 1998. These customers accounted for approximately 11% and 38% of
revenues for the second quarter of 1999 compared to 35% and 27% in the second
quarter of 1998. The five principal OEM customers (including Juki and Philips )
in the aggregate accounted for 61% and 69% of revenues for the six month periods
ended June 30, 1999 and 1998, and 57% and 70% of revenues for the second quarter
of 1999 and 1998.
SMT system segment revenues increased 21% to $3.8 million during the six month
period ended June 30, 1999 from the comparable period in 1998, and increased 41%
to $2.3 million for the second quarter of 1999 compared to the same period in
1998. SMT systems revenues reflect sales of enhanced versions of the Company's
CyberSentry and LSM products. During the first quarter of 1999, the Company
introduced its new automated LSM product, the AutoLSM, which was made available
for shipment in the second quarter of 1999. Increased SMT system revenue levels
are primarily the result of strong demand for the CyberSentry product from
electronic contract manufacturers.
Industrial measurement segment revenues increased 69% to $1.6 million during the
six month period ended June 30, 1999 from the comparable period in 1998, and
increased 56% to $1.0 million for the second quarter of 1999 compared to the
same period in 1998. Industrial measurement segment revenues include revenues of
HSI from May 5, 1999 (the date of acquisition). Excluding the effect of the HSI
revenues, the dollar level of revenues from the industrial measurement segement
have remained relatively flat over the six and three month periods ended June
30, 1999 and 1998. There have been new system and sensor products introduced
over the last several quarters, including a new thickness measurement product
for the semiconductor wafer fabrication market introduced during the second
quarter of 1999. Future revenue growth in industrial measurement will be
dependent on market acceptance of these and other new product offerings, the
ability of HSI to continue to grow revenues from its existing products at
historical rates and the Company's ability to complete development and bring to
market products derived from in-process research and development acquired from
HAMA.
International revenues comprised 77% and 82% of total revenues during the six
months ended June 30 1999 and 1998, and 77% and 85% of revenues for the second
quarter of 1999 and 1998. Sales of the Company's products, primarily OEM
sensors, in Western Europe, Japan and the rest of the Far East have continued to
represent the majority of the Company's revenues. These international markets
account for a significant portion of the production capability of capital
equipment for the manufacture of electronics, the primary market for the
LaserAlign, Laser Lead Locator, CyberSentry and LSM2 products. Revenues
generated from products used primarily for SMT production (revenues from OEM
sensors and SMT systems) were approximately 90% and 95% of revenues for the six
month periods ended June 30, 1999 and 1998, and approximately 88% and 93% for
the second quarter of 1999 and 1998.
-18-
<PAGE>
GROSS MARGIN
Gross margin decreased as a percent of total revenues to 55% during the six
month period ended June 30, 1999 compared to 57% during the comparable period in
1998. For the second quarter of 1999, gross margin was 56% of total revenues
compared to 55% during the comparable period in 1998. Excluding the gross profit
generated by HSI, gross margin would have been 54% for the six months ended June
30, 1999 and 55% for the second quarter of 1999. The decrease in gross margin
during the six month period is primarily the result of decreased revenue volume
over which to spread the fixed component of cost of revenues as well as
increased warranty costs, partially offset by a shift in the revenue mix towards
higher margin sensor products. During the second quarter of 1999, gross margin
increased slightly even though the Company had lower revenues primarily as the
result of a shift in revenue mix towards higher margin sensor products and
revenues from higher margin HSI products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 11% to $4.2 million during the six
month period ended June 30, 1999 compared to the same period in 1998. For the
second quarter of 1999, research and development expenses increased 27% to $2.5
million from the comparable period in 1998. As a percentage of revenue, research
and development expenses have increased to 26% during the six months ended June
30, 1999 from 19% during the comparable period in 1998, and for the second
quarter increased to 28% of revenues in 1999 from 20% in the comparable period
of 1998. Research and development expenses on legacy products during the six
months ended June30, 1999 were primarily focused on development of new solder
paste inspection product offerings, including the AutoLSM released in the second
quarter of 1999, completion of the first article inspection product, development
of the next generation of the LaserAlign family and development of the
semiconductor wafer thickness measurement system. In addition, the Company's
research and development expenses related to continued development of in-process
projects acquired from Kestra and HAMA were approximately $365,000 during the
second quarter of 1999 (see note 2 to the Company's interim consolidated
financial statements). The Company anticipates that research and development
expense levels for the remainder of 1999 to be relatively constant with the
second quarter of 1999, as it continues development of in-process projects
acquired and works to complete development on a number of important new
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 10% to $4.6 million
during the six month period ended June 30, 1999 compared to $5.1 million during
the comparable period in 1998. For the second quarter of 1999, selling general
and administrative expenses decreased 1% to $2.4 million compared to the same
period in 1998. As a percentage of revenue, selling, general and administrative
expenses have increased to 28% during the six month period ended June 30, 1999
from 25% during the comparable period in 1998, and for the second quarter
increased to 27% in 1999 from 25% in 1998. Selling general and administrative
expenses of Kestra and HSI were approximately $205,000 for the six and three
month periods ended June 30, 1999. The dollar decrease in selling, general and
administrative expenses is primarily due to reduced legal expense related to the
Yamaha litigation which was settled during the first quarter of 1998. To a
lesser extent, reduced selling, general and administrative costs are the results
of a cost containment program initiated by the Company in response to lower
revenue volumes.
-19-
<PAGE>
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
During the second quarter of 1999, in conjunction with the acquisitions of
Kestra and HAMA, the Company recorded a $7.3 million charge to operations for
the estimated fair value allocated to acquired, in-process research and
development (see note 2 to the Company's interim consolidated financial
statements). Of this charge, $6.5 million is related to Kestra and is not
deductible for income tax purposes, with the remaining $771,000 related to the
acquisition of certain net assets of HAMA which is deductible in future income
tax reporting periods.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of acquired intangible assets was approximately $359,000 and
$353,000 for the six month and three month periods ended June 30, 1999. The
amortization is attributable to identifiable intangible assets and goodwill
resulting from the Company's acquisition EPC during the first quarter of 1999
and the Company's acquisitions of Kestra and HAMA during the second quarter of
1999. Amortization of these intangible assets is expected to increase to
approximately $425,000 per quarter in the third and fourth quarters of 1999 and
thereafter as a full quarter of the acquisition-related amortization is
reflected.
PROVISION FOR INCOME TAXES AND EFFECTIVE INCOME TAX RATE
The Company recorded a tax provision of $178,000 for the six months ended June
30, 1999 and a tax benefit of $54,000 for the second quarter of 1999 on losses
before income taxes of $6.5 million and $7.3 million, respectively. For the six
and three months ended June 30, 1998, the effective tax rate was approximately
32%. The tax rate during 1999 has been adjusted to reflect both the
non-deductible acquired in-process research and development charge resulting
from the Kestra acquisition and the valuation allowances established to
eliminate the possible future tax benefit of net operating losses generated by
Kestra (due to uncertainty of realization). During 1998, benefits from the
Company's foreign sales corporation and the research and experimentation tax
credit were primarily responsible for reducing the effective tax rate below the
statutory federal rate.
ORDER RATE AND BACKLOG
The Company's order rate totaled $15.9 million during the six month period ended
June 30, 1999 compared to $16.6 million during the same period in 1998. For the
second quarter of 1999, the order rate totaled $9.2 million compared to $7.8
million in 1998. Backlog totaled $5.1 million and $4.9 million at June 30, 1999
and 1998, respectively. The scheduled shipment of the June 30, 1999 backlog is
as follows (in thousands):
3rd Quarter 1999 $4,403
4th Quarter 1999 and after 679
------
Total backlog $5,082
-20-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities decreased $16.4 million to
$22.1 million as of June 30, 1999 from $38.5 million as of December 31, 1998,
primarily due to $19.5 million of cash used to acquire businesses and technology
and $501,000 of cash used to purchase fixed assets and other intangibles.
Decreases in cash were partially offset by $3.5 million of cash provided by
operations.
The Company generated $3.5 million of cash from operations during the first six
months of 1999, primarily due to a net loss of $6.7 million, offset by $7.0
million of non-cash charges for acquired in-process research and development
(net of tax), $1.1 million of non-cash expenses for depreciation and
amortization and the provision for inventory obsolescence and a decrease of $1.0
million in inventory. The decrease in inventory is primarily due to reduced
revenues and related reduced production volume requirements during the first six
months of 1999 compared to the same period in 1998, and new inventory control
programs initiated by the Company. During 1998, the Company generated $2.0
million of cash from operations, primarily due to net income of $2.6 million,
including $757,000 of non-cash expenses, offset by a $1.5 million increase
in inventory.
The Company used $3.5 million of cash in investing activities during the six
month period ended June 30, 1999 compared to providing $3.5 million during the
same period in 1998. The primary reason for the use of cash is $17.1 million
used to purchase businesses and technology. This use was offset by the change in
cash from investing activities due to changes in the level of investment in
marketable securities resulting from the purchases and sales of those
securities, which provided $14.1 million of cash in 1999 and $4.4 million in
1998. The Company used approximately $477,000 and $798,000 of cash for the
purchase of fixed assets during the six months ended June 30, 1999 and 1998,
respectively.
The Company used $2.1 million of cash from financing activities during the six
months ended June 30, 1999 and used $2.0 million in the same period during 1998.
During 1999, cash used primarily represents the repayment of $2.4 million of
debt of Kestra following the acquisition, offset by cash generated from stock
option exercises. In 1998, cash generated from stock option exercises was offset
by $2.5 million of cash used to repurchase common stock of the Company.
As of June 30, 1999, the Company has no material capital commitments except for
the funding of working capital requirements of Kestra during its product
development and early product introduction period. The Company believes working
capital and anticipated funds from operations will be adequate for anticipated
operating needs.
-21-
<PAGE>
OTHER FACTORS
Changes in revenues have resulted primarily from changes in the level of unit
shipments and new product introductions. The Company believes that inflation has
not had any significant effect on operations. Substantially all of the Company's
international export sales are negotiated, invoiced and paid in U.S. dollars.
Accordingly, although currency fluctuations do not effect the Company's revenue
and income per unit, they can influence the price competitiveness of the
Company's products relative to other technologies and the willingness of
existing and potential customers to purchase units. In addition, although many
of the OEM sensor products the Company manufactures for foreign consumption are
incorporated into products of our OEM customers that are re-exported worldwide,
the Company's operations have been effected by general economic conditions
associated with currency devaluations in Asia.
YEAR 2000 STATUS
The Securities and Exchange Commission and other regulatory bodies have
identified the potential failure of many computer systems to properly recognize
and process date specific information on and after January 1, 2000 as a
significant risk to companies. The Company has established a comprehensive plan
to address this issue, most of which has been implemented. The components of the
plan include: an assessment of internal systems vulnerability; a close
examination of all production equipment that contains microprocessors; a survey
of suppliers to determine their ability to maintain an uninterrupted supply of
goods and services; and an evaluation of the year 2000 issue on Company
products.
All internal automated systems have been identified and their Year 2000 risk
assessed. Such systems include the hardware and software in the company-wide
network as well as personal computers located on desks or in labs. All central
hardware compliance has been confirmed. Needed software "patches" have been
obtained and are scheduled for implementation by September 15, 1999. All desk
mounted computer hardware has been made compliant as needed. Software patches
for common applications have been distributed and are being installed.
Production equipment surveys found 83 separate machines or fixtures with
computing capability. Year 2000 vulnerability was limited and corrected manually
where needed. Software on equipment was individually tested. Where the tests
discovered problems, the need for correction was assessed and necessary changes
made.
The Company is highly dependent on suppliers to continue operations. The most
critical 38 material suppliers were individually surveyed and the risk potential
of each determined. Nine were identified for follow-up. Certification of
compliance has been received from eight. The ninth recently installed a new
manufacturing system. Status will be monitored over the next two months.
Non-material vendors (e.g. electricity, banking) have provided statements of
compliance.
Several older company products are affected by Year 2000. Methods for customers
to use in evaluating the Year 2000 impact were established and corrective
procedures documented. All customers potentially impacted were notified in
writing and referred to the Year 2000 section of the Company's web site, where
questions were answered and corrective actions outlined. Over 100 of those
accessing the Year 2000 section have registered to get periodic updates on Year
2000 status. All customer inquiries have been satisfied.
After an initial assessment, recent acquisitions are believed to present minimal
risk due to their size, their limited dependence on automated systems, the
number of products being sold and because all in-process technologies are being
developed with year 2000 compliance considered.
Costs to date have been minimal and the majority of the planned effort has been
completed. Despite a comprehensive review of potential risks, there is no
assurance that problems will not still arise. The Company believes that manual
intervention, the existence of multiple sources for key components, and use of
available inventory will provide adequate time for corrective actions to be
determined and implemented.
The failure to identify and remediate Year 2000 problems or, the failure of key
third parties who do business with the company or government/regulatory agencies
to timely remediate their Year 2000 issues could cause system failures or
errors, business interruptions and in a worst case scenario, the inability to
engage in normal business practices for an unknown length of time. Litigation
could also ensue. The effect on the company's results of operations, financial
position, or liquidity could be materially adverse.
-22-
<PAGE>
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of CyberOptics Corporation was held at 3:30
p.m. on Tuesday June 22, 1999. Shareholders holding 3,912,653 shares, or
approximately 78.8% 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 1999 or until such
time as a successor may be elected:
TABULATION OF VOTES
-------------------
FOR WITHHELD
--- --------
Steve K. Case 3,840,719 71,934
Steven M. Quist 3,840,719 71,934
Alex B. Cimochowski 3,840,719 71,934
Kathleen P. Iverson 3,827,469 85,184
Erwin A. Kelen 3,840,419 72,234
Irene M. Qualters 3,839,389 73,264
Michael M. Selzer 3,839,889 72,764
b. Approval of amendment to the 1992 Employee Stock Purchase Plan
Shareholders approved an amendment to the 1992 Employee Stock Purchase Plan
to increase the number of shares of common stock reserved for issuance by
200,000 by a vote of 3,820,529 shares in favor, 77,341 shares against,
14,783 abstained and 0 shares not voted.
c. Approval of amendments to Stock Option Plan for nonemployee directors
Shareholders approved amendments to the Cyberoptics Corporation Stock
Option Plan for Nonemployee Directors to provide for the automatic grant to
each director who is not also an employee of the Company of an option to
purchase 3,000 shares of common stock at each annual meeting of
shareholders at which such director is elected or reelected beginning for
new directors with the Annual Meeting to which the June 22, 1999 Proxy
Statement relates and beginning for current directors with the annual
meeting in the year in which prior options granted under the plan are fully
vested, by a vote of 3,742,947 shares in favor, 144,898 shares against,
21,808 abstained and 0 shares not voted.
-23-
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON 8-K
a. Exhibits
Exhibit 27--Financial Data Schedule (For EDGAR filing only)
b. Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
June 30, 1999, or during the period from June 30, 1999 to the date of
this quarterly report on Form 10-Q.
-Form 8-K - Kestra Acquisition (4/21/99)
-Form 8-K - HAMA Acquisition (5/20/99)
-Form 8-K/A - Kestra Acquisition (6/21/99)
-Form 8-K/A - HAMA Acquisition (7/19/99)
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CyberOptics Corporation
/s/ Steven M. Quist
-------------------
Steven M. Quist, President
(Principal Executive Officer and
Duly Authorized Officer)
/s/ Richard G. Ballintine
-------------------------
Richard G. Ballintine, Vice President - Finance
(Principal Accounting Officer and
Duly Authorized Officer)
Dated: August 16, 1999
-25-
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,903
<SECURITIES> 9,407
<RECEIVABLES> 6,798
<ALLOWANCES> 125
<INVENTORY> 4,984
<CURRENT-ASSETS> 25,650
<PP&E> 6,000
<DEPRECIATION> 3,359
<TOTAL-ASSETS> 49,658
<CURRENT-LIABILITIES> 4,911
<BONDS> 0
0
0
<COMMON> 32,956
<OTHER-SE> 11,791
<TOTAL-LIABILITY-AND-EQUITY> 49,658
<SALES> 16,516
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<CGS> 7,442
<TOTAL-COSTS> 7,442
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