<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1998
--------------
Commission File Number 0-22472
-------
ADAPTIVE SOLUTIONS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0981962
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 N.W. COMPTON DRIVE, SUITE 340, BEAVERTON, OR 97006
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 690-1236
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
/X/ Yes / / No
Number of shares of common stock outstanding as of
June 30, 1997:
1,519,371 shares, no par value
------------------------------
<PAGE>
ADAPTIVE SOLUTIONS, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the
three months and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
ADAPTIVE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 806 $1,892
Restricted cash -- 160
Short-term investments -- 337
Accounts receivable, net 1,829 915
Inventory, net 390 536
Prepaid expenses and other assets 137 72
----------- -------------
Total current assets 3,162 3,912
Fixtures and equipment, net 785 679
Intangible assets, net 580 99
Other assets 45 148
----------- -------------
$4,572 $4,838
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 409 $ 286
Accrued expenses 1,131 452
Current portion of capital lease
obligations 80 254
Deferred revenue 520 183
Notes payable 180 376
----------- -------------
Total current liabilities 2,320 1,551
Capital lease obligations, less current portion 77 38
Long-term debt 229 --
Total stockholders' equity 1,946 3,249
$4,572 $4,838
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
ADAPTIVE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------
1998 1997 1998 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Net product revenue $ 905 $ 606 $ 1,927 $ 1,282
Service and other revenue 245 -- 435 --
Research and development revenue 100 233 156 282
----------- ------------ ----------- ------------
TOTAL REVENUE 1,250 839 2,518 1,564
OPERATING COSTS AND EXPENSES
Cost of product revenue 487 167 700 407
Research and development 690 370 1,303 654
Sales and marketing 660 246 1,136 448
General and administrative 223 257 414 542
In-process research and development -- -- 678 --
----------- ------------ ----------- ------------
TOTAL OPERATING COSTS AND
EXPENSES 2,060 1,040 4,231 2,051
----------- ------------ ----------- ------------
OPERATING LOSS (810) (201) (1,713) (487)
Other income/(expense) 89 30 108 38
----------- ------------ ----------- ------------
NET LOSS $ (721) $ (171) $(1,605) $ (449)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
NET LOSS PER SHARE
Basic and diluted $(0.47) $(0.12) $ (1.07) $ (0.32)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
SHARES USED IN CALCULATING
NET LOSS PER SHARE
Basic and diluted 1,519 1,398 1,499 1,396
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
ADAPTIVE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,605) $ (449)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization 216 158
Royalty income (44) --
In-process research and development 678 --
Loss on sale of asset -- 9
Changes in assets and liabilities:
Short-term investment -- (337)
Trade accounts receivable (914) 94
Inventory 146 245
Prepaid expenses and other assets (65) 13
Accounts payable 123 (35)
Accrued expenses 679 (591)
Deferred revenue 337 (717)
----------- -------------
Net cash (used in) operating activities (449) (1,610)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- 869
Purchases of property and equipment (157) (115)
Purchase of intangible assets (545) (9)
----------- -------------
Net cash provided by (used in) investing activities (702) 745
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 13
Payments on capital lease obligations (173) (255)
Proceeds from/(payments on) notes payable, net (196) 247
Proceeds from/(payments on) long-term debt, net 273 --
Change in restricted cash 160 --
----------- -------------
Net cash provided by financing activities 64 5
Effect of exchange rate on cash 1 --
----------- -------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,093) (860)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,892 3,612
----------- -------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 806 $ 2,752
----------- -------------
----------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Cash paid for interest $ 12 $ 19
Net assets acquired in acquisitions 637
Property acquired by capital leases 38
Long-term debt offset by royalty income 44
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
ADAPTIVE SOLUTIONS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have been
prepared by the Company without audit and in conformity with generally
accepted accounting principles for interim financial information.
Accordingly, certain financial information and footnotes have been omitted or
condensed, therefore, these financial statements should be read in
conjunction with the Company's 1997 annual report to stockholders filed with
the Securities and Exchange Commission. In the opinion of management, the
condensed financial statements include all necessary adjustments (which are
of a normal and recurring nature) for the fair presentation of the results of
the interim periods presented. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results for the
entire fiscal year ending December 31, 1998.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the average cost method. The components of inventories are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
Finished goods $ 278 $ 488
Work in process - 2
Raw materials 439 439
Reserve for obsolete inventory (327) (393)
------- --------
$ 390 $ 536
------- --------
------- --------
</TABLE>
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Beginning December 31, 1997 basic and diluted earnings per share (EPS) are
computed using the methods prescribed by Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share". It requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Prior-period EPS data have
been restated to conform with the presentation requirements of SFAS 128.
The adoption of SFAS 128 had no effect on the previously reported loss per
share amounts for the quarter ended June 30, 1997. Losses were reported in
all periods presented and, accordingly, the denominator was equal to the
weighted average outstanding shares with no consideration for outstanding
options to purchase shares of the Company's common stock, because to do so
would have been anti-dilutive.
6
<PAGE>
COMPREHENSIVE INCOME
On January 1, 1998 the Company adopted SFAS No. 130 "Reporting Comprehensive
Income" which established requirements for disclosure of comprehensive
income. The objective of SFAS 130 is to report all changes in equity that
result from transactions and economic events other than transactions with
owners. Comprehensive income is the total net income(loss) and all other
non-owner changes in equity. There was no impact from the adoption of SFAS
No. 130.
REVENUE RECOGNITION
On January 1, 1998 the Company adopted AICPA Statement of Position 97-2,
"Software Revenue Recognition" (SOP 97-2). In accordance with SOP 97-2,
revenue earned on software arrangements involving multiple elements is
allocated to each element based on the relative fair values of the elements.
The revenue allocated to software products generally is recognized upon
delivery of the products. The revenue allocated to post-contract customer
support generally is recognized ratably over the term of the support and
revenue allocated to service elements generally is recognized as service is
performed.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
OVERVIEW
Adaptive Solutions, Inc., (the "Company"), was incorporated in Oregon in
1988, and has its principal executive offices located at 1400 NW Compton
Drive, Suite 340, Beaverton, Oregon 97006. The Company develops and markets
highly accurate, turnkey automated data entry products for processing mission
critical business transactions.
The Company's goal is to become a leader in providing automated data entry
solutions to corporate and government organizations that need to accurately
extract relevant data generated from large volumes of paper, electronic, and
internet-based forms. These organizations process 5,000 to 50,000 forms per
day and include healthcare, transportation, state governments, and federal
agencies. The Company is dedicated to building breakthrough data entry
products that migrate customers from manual to automated data entry for
paper, electronic, and/or internet-based forms with next generation data
validation and common indexing across all form types.
During the second quarter the Company introduced its new EntryLink-TM-
product with full-function automated data entry capabilities for paper-based
forms. EntryLink-TM- is a complete, turnkey solution that combines hardware,
software, support, and service. EntryLink-TM- is pre-configured and
optimized for each installation. The product is contained in one cabinet and
links to a variety of scanners and imagers on the front end. EntryLink-TM-
is fully supported by same day service from Kodak Professional Services.
The Company's future success will be substantially dependent upon its ability
to integrate the products and technologies from its partners and recent
acquisitions into the Company's products and product strategy. If the
Company is unable, for technological or other reasons, to develop products in
a timely manner in response to changes in the industry, or if products or
product enhancements developed by the Company do not achieve market
acceptance, the Company's results of operations will be materially adversely
affected. There can be no assurance that the Company will be successful in
developing and marketing products and product enhancements, that the Company
will not experience difficulties that could delay the successful development
and marketing of these products, or that its products and product
enhancements will be accepted in the marketplace. Moreover, from time to
time, the Company or its competitors may introduce new products or
technologies that have the potential to replace the Company's existing
products. There can be no assurance that these new products may delay or
eliminate the purchase of the Companies existing products, which could have a
material adverse affect on the Company's results of operations.
8
<PAGE>
REVENUES
Total revenue of $1,250,000 for the three months ended June 30, 1998
increased 49% compared to revenue of $839,000 in the second quarter of 1997.
Revenue for the second quarter was mainly comprised of revenue from the
Company's EntryLink-TM- product family, Imagelink product, CNAPS boards and
service revenues. Also included in revenue for the quarter ended June 30,
1998 are sales of Mimetics EasyReader products, products resold through
Mimetics and, research and development revenues associated with certain
non-recurring engineering projects. The sales cycle for the Company's
EntryLink-TM- product family has been longer than planned (typically
averaging 12 - 18 months) and revenues from these products are expected to
increase in future periods, but revenues from the Company's CNAPS product are
expected to continue to decline.
For the six months ended June 30, 1998, total revenue of $2,518,000 consisted
of $750,000 in connection with the sale and license of technology to
Motorola, Inc., revenue from EntryLink and Imagelink products, CNAPS
products, service, and research and devlopment revenues, and represents a 61%
increase over total revenues of $1,564,000 for the comparable period in 1997.
Revenue from EntryLink, Imagelink and board products is recognized at the
time of product shipment. Revenue from the software maintenance agreements
is deferred and recognized over the life of the agreement.
The Company's future success and its ability to continue operations will
depend in substantial part on its ability to significantly maintain and
increase sales of its existing products and products being developed under
its revised product strategy. There can be no assurance that the Company
will be able to generate significant additional sales or maintain sales at
current or historical levels; failure to do so would have a material adverse
effect on the Company's financial position and results of operations.
International sales totaled $505,000 (40% of total revenue) for the three
months ended June 30, 1998 and $670,000 (27% of total revenue) for the six
months ended June 30, 1998. For the comparable periods in 1997,
international sales were $9,000 (1% of total revenue) and $84,000 (5% of
total revenue), respectively. The percentage of international revenues to
total revenues has increased as a result of the Company's acquisition of
Mimetics in March 1997.
Foreign regulatory bodies often establish technical standards different from
those in the United States; while the Company tests its products to meet
these standards, there can be no assurance that the Company's products will
comply with such standards in the future. The Company's international sales
and operations may also be materially adversely affected by the imposition of
governmental controls, export license requirements, restrictions on the
export of critical technology, political and economic instability, trade
restrictions, changes in taxes, varying exchange rates, difficulties in
establishing and managing international operations and general economic
conditions. Compliance or noncompliance with international quality standards
may also affect operating results. In this respect, the Company has not
applied for and has no present plans to apply for ISO 9000 certification.
9
<PAGE>
COST OF PRODUCT REVENUE
The cost of product revenue for the three months and six months ended June
30, 1998 was $487,000 and $700,000, respectively. For 1997, the cost of
product revenue for the similar periods was $167,000 and $407,000,
respectively. The cost of product revenue consists of direct manufacturing
costs, overhead costs associated with the manufacturing operations in
Beaverton, Oregon, provisions for warranty costs, and reserves for inventory
obsolescence and return. The increase in cost for the three months and six
months ended June 30, 1998, as compared to the similar periods in the prior
year, was due mainly to the increase in revenues versus the prior year,
changes in the product mix, and increased costs associated with initial
production and shipment of the Company's new products.
Cost of product revenue could be negatively affected in future periods due to
a number of factors, including problems with component supplies, variability
of component cost, product quality or reliability problems, dependence on
limited or sole source suppliers or other factors.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses of $690,000 and $1,303,000 for the three
months and six months ended June 30, 1998 were associated with the
development of the Company's EntryLink product line and high performance
image recognition engines. Research and development expenses were $370,000
and $654,000 for the comparable periods in 1997. The increase in research
and development expenses for the three months and six months ended June 30,
1998, as compared to the same periods in 1997, was a result of the inclusion
of Mimetics S.A., and increased personnel, consulting, and travel expenses.
Future research and development expenses are expected to be focused on new
modules and further enhancements to the EntryLink product line.
The Company believes that a significant investment in research and
development is critical to its future success. To the extent permitted by
its liquidity position, the Company plans to continue to invest substantial
resources in research and development. If resource constraints cause the
Company to allocate resources away from its research and development
activities, the Company's future financial position and results of operations
could be adversely affected.
10
<PAGE>
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three months and six months ended June
30, 1998 were $660,000 and $1,136,000, respectively, as compared to $246,000
and $448,000 for the same periods a year earlier. Sales and marketing
expenses are primarily comprised of salary costs, sales commissions,
promotion, and product and customer literature. Commissions generally vary
with sales volume. The level of spending for promotion and literature costs
is largely dependent on the level of promotion for new products. The
increase in sales and marketing expenses from the prior year is mainly
attributable to increased costs associated with the launch of the Company's
EntryLink product line, building sales infrastructure including pre-sales
field engineers and additional salespeople and increased travel, trade show
expenses, and commissions associated with increased revenues.
The Company has very limited marketing experience in its chosen markets and
these markets are characterized by long sales cycles, and expanding the
Company's marketing capabilities will require significant expenditures for
items including additions to personnel. The Company intends to increase both
its product offerings and target markets through marketing, sales and
distribution and development of relationships with other companies. The
Company intends to increase the number of its strategic partners. The
Company plans to continue to devote significant resources to its sales and
marketing efforts in order to build such corporate infrastructure.
Therefore, any failure to achieve growth in revenues in excess of increased
expenses would have a material adverse effect on the Company's operating
results and financial condition. There can be no assurance that the Company
will be able to successfully expand its sales and service force or that such
expansion will increase revenues in excess of expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months and six months ended
June 30, 1998 were $223,000 and $414,000 as compared to $257,000 and $542,000
for the same period in 1997. The primary components of these expenses are
salaries, insurance and fees related to legal, accounting and consulting
services. The decreased level of expense from the prior year was primarily
due to reduced consulting, legal, and insurance expenses.
OTHER INCOME AND EXPENSE
Other income and expense is mainly comprised of interest income and expense,
and gains or losses on foreign currency and sales of assets. Interest income
for the three months and six months ended June 30, 1998 was $15,000 and
$39,000 respectively. Interest income for the same periods in 1997 was
$32,000 and $66,000, respectively. Interest income varies depending upon the
cash balances and prevailing interest rates from period to period. Interest
expense for the three months and six months ended June 30, 1998 was $6,000
and $12,000, respectively, compared to $2,000 and $19,000, respectively for
the three months and six months ended June 30, 1997, respectively. Interest
expense is primarily attributable to the Company's capital lease and debt
obligations.
11
<PAGE>
INCOME TAXES
The completion of the initial public offering in November 1993 constituted a
change in ownership that will limit the net operating loss carryforwards that
can be used to offset taxable income in future years. See Notes to Condensed
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through (i) sales of
its equity and convertible debt securities with venture capital and other
investors, (ii) equipment leases, (iii) revenues from technology development
agreements and government research contracts and (iv) revenues from the sales
of the Company's products.
As of June 30, 1998, the Company had established capital leases with four
major equipment leasing companies at effective interest rates ranging from
10% to 21%. The aggregate principal amount outstanding under these capital
leases, including the current portion, totaled $157,000 as of June 30, 1998.
Although the Company has no material commitments to purchase capital
equipment, the Company may need to expend significant additional amounts for
capital equipment in connection with its product strategy. The Company's
cash and cash equivalents at June 30, 1998 were $806,000, a decrease of
$1,086,000 from the cash and cash equivalents balance of $1,892,000 at
December 31, 1997. The Company's working capital at June 30, 1998 was
$842,000, a decrease of $1,519,000 from the working capital balance of
$2,361,000 at December 31, 1997. The company expects that its current
working capital of $842,000 will be sufficient to support operations for only
three months. To address its working capital shortfall, the Company has
reduced operating cash outflows, mainly through a reduction in contractors
and consultants, reduced program spending, deferral of board of director
fees, certain consulting fees, and deferral of a portion of executive
compensation. Additionally, the Company is considering alternative sources
for expected future funding, including equity or debt financing, corporate
partnering relationships involving up-front payments and/or equity
investments, sales of technology and other alternatives.
At August 12, 1998 the Company obtained a $2,000,000 line of credit from
Silicon Valley Bank ("SVB") at prime plus 1.5%. The line of credit is
collateralized by a lien on substantially all of the Company's assets. The
line of credit is backed by eligible accounts receivable, which is defined as
80% of current domestic product credit sales and maintenance agreement
renewals, subject to exclusion for contra, inter-company, foreign, 50%
cross-aging and federal government accounts. In addition, restrictive
covenants require the Company to: i) maintain minimum liquidity coverage of 2
to 1, ii) maintain a tangible net worth of $1,000,000, iii) not contribute
additional capital or lend money to its wholly-owned subsidiary in excess of
$250,000, and iv) not incur more than one quarterly loss in any rolling four
quarter period or exceed a loss of $375,000 in any single quarter. The line
of credit matures on August 7, 1999. There can be no assurance that the
Company can maintain compliance with the terms of this agreement.
12
<PAGE>
The Company has not received commitments from any other such sources for any
funding of any kind. Accordingly, there can be no assurance that any such
funding can be obtained. If adequate funds are not available as required,
the Company's ability to fulfill product orders, as well as the Company's
financial position and results of operations, will be adversely affected. In
particular, the Company could be required to significantly reduce or suspend
its operations, seek a merger partner or sell additional securities on terms
that are highly dilutive to existing stockholders. The Company's future
capital needs will depend upon numerous factors, including the success of the
Company's revised product strategy, the progress of the Company's research
and development activities, the extent and timing of the acceptance of the
Company's products, the cost of the Company's sales, marketing and
manufacturing activities and the amount of revenues generated from
operations, none of which can be predicted with certainty, and, therefore,
there can be no assurance that the Company will not require additional
funding earlier than anticipated.
The Company has 1,680,764 outstanding warrants entitling the holders to
purchase 2,286,319 shares of the Company's common stock at an exercise price
of $28.19. In addition, there are 67,000 warrants outstanding with an
exercise price of $56.38 which entitle the holders to purchase units
comprised of 2.53 shares of common stock plus additional warrants to purchase
1 share of common stock at $28.19 per share, and 3,000 warrants entitling the
holders to purchase shares of common stock at $90 per share. All of these
warrants expire in November of 1998.
The Company has an additional 75,000 outstanding warrants entitling the
holders to purchase shares of common stock at $16.875 per share. These
warrants expire in November 1999. The Company issued 36,918 warrants to
former shareholders of Mimetics to purchase shares of common stock at $15.00
per share. These warrants expire March 2, 2002.
FACTORS WHICH EFFECT FUTURE RESULTS AND FINANCIAL CONDITIONS
The Company has conducted a review of its products, information technology
and facilities computer systems to identify all software that could be
affected by the "Year 2000" issue and has developed or is developing product
implementation plans to address this issue. The Company expects all Year
2000 conversion projects to be completed on a timely basis. While the
Company does not believe its computer systems or applications currently in
use will be adversely affected by the upcoming change in the century, the
Company has not made an assessment as to whether any of its customers,
suppliers or service providers will be so affected. Failure of the Company's
software or that of its customers, suppliers or service providers could have
a material adverse impact on the Company's business, financial condition and
result of operations. Provided the Company's "Year 2000" projects are
completed on a timely basis, the expense of these projects, and its related
effect on the Company's earnings, is not expected to be material.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on April 22, 1998. At the
meeting, the following directors were elected:
<TABLE>
<CAPTION>
No. of Shares Voted
-------------------
Directors For Withheld
--------- --- --------
<S> <C> <C>
C. Scott Gibson 6,345,701 80,745
Daniel J. Meub 6,354,051 72,395
David Wood 6,354,051 72,395
T. Peter Thomas 6,354,051 72,395
Frederick M. Haney, Ph.D. 6,354,051 72,395
Jean-Claude Peterschmitt 6,354,051 72,395
</TABLE>
In addition, the shareholders approved the following proposals:
<TABLE>
<CAPTION>
Number of Shares Voted
----------------------
Proposal For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
1) Ratify approval of the 2,253,009 424,327 24,617
Company's1998 Stock
Incentive Plan.
2) Ratify appointment of KPMG 6,388,201 24,745 14,500
Peat Marwick, LLP, as
independent auditors of the
Company for the fiscal year
ending December 31, 1998
3) Ratify a one-for five reverse 5,930,559 488,437 8,450
split of the Company's common
stock
</TABLE>
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
On May 18 the Company filed an amendment to its report on Form 8-K
originally filed on March 18 to report the acquisition of Mimetics S.A. of
France.
15
<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.
ADAPTIVE SOLUTIONS, INC.
------------------------
(Registrant)
DATE: AUGUST 11, 1998 BY /s/ DANIEL J. MEUB
--------------- --------------------
DANIEL J. MEUB
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
BY /s/ RICHARD L. BOONSTRA
-------------------------
RICHARD L. BOONSTRA
CORPORATE CONTROLLER
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 806
<SECURITIES> 0
<RECEIVABLES> 2,339
<ALLOWANCES> 510
<INVENTORY> 390
<CURRENT-ASSETS> 3,162
<PP&E> 1,785
<DEPRECIATION> 1,000
<TOTAL-ASSETS> 4,572
<CURRENT-LIABILITIES> 2,320
<BONDS> 0
0
0
<COMMON> 31,682
<OTHER-SE> (29,736)
<TOTAL-LIABILITY-AND-EQUITY> 4,572
<SALES> 1,927
<TOTAL-REVENUES> 2,518
<CGS> 700
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</TABLE>
