SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended September 30, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-21820
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KEY TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
OREGON 93-0822509
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Avery Street, Walla Walla, Washington 99362
(Address of principal executive offices) (Zip Code)
(509) 529-2161
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
SERIES B CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE
WARRANTS TO PURCHASE COMMON STOCK, DATED JULY 12, 2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Registrant's common stock held by
non-affiliates on December 6, 2000 (based on the last sale price of such shares)
was approximately $25,742,562.
The number of shares of the Registrant's common stock outstanding on
December 6, 2000 was 4,733,829 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Registrant's Proxy Statement dated January 2, 2001 prepared in
connection with the Annual Meeting of Shareholders to be held on February 7,
2001 are incorporated by reference into Part III of this Report.
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KEY TECHNOLOGY, INC.
2000 FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 12
Item 3. LEGAL PROCEEDINGS........................................... 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 14
Item 6. SELECTED FINANCIAL DATA..................................... 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 24
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE......................... 45
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 45
Item 11. EXECUTIVE COMPENSATION...................................... 45
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................. 46
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 46
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................... 47
SIGNATURES........................................................... 50
EXHIBIT INDEX........................................................ 51
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PART I
Certain statements set forth below may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements to differ from those expressed or implied by the forward-looking
statements. With respect to the Company, the following factors, among others,
could cause actual results or outcomes to differ materially from current
expectations:
o the ability to achieve revenue growth and cost savings objectives of mergers
and acquisitions;
o the ability of new products to compete successfully in either existing or new
markets;
o competitive factors;
o the performance and needs of industries served by the Company and the
financial capacity of customers in these industries to purchase capital
equipment;
o the risks involved in expanding international operations and sales;
o achievement of product performance specifications and any related effect on
product upgrade or warranty expenses;
o the potential for adverse fluctuations in foreign currency exchange rates;
o the effect of product or market development activities;
o availability and future costs of materials and other operating expenses;
o uncertainties relating to patents and proprietary information;
o the potential for patent-related litigation expenses and other costs
resulting from claims asserted against the Company or its customers by third
parties; and
o other factors discussed in Exhibit 99.1 hereto which is hereby incorporated
by reference.
Given these uncertainties, readers are cautioned not to place undue reliance on
the forward-looking statements. The Company disclaims any obligation
subsequently to revise or update forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
ITEM 1. BUSINESS.
GENERAL
Key Technology, Inc. (the "Company") was founded in 1948 as a local producer
of vegetable processing equipment and has evolved into a worldwide supplier of
process automation solutions not only to the food processing industry, and other
industries such as forest products, plastics and tobacco. The present Company
was incorporated in 1983 as a result of a management buyout of that predecessor
organization.
The Company and its operating subsidiaries design, manufacture, sell and
service process automation systems that process product streams of discrete
pieces to improve safety and quality. These systems integrate electro-optical
automated inspection and sorting systems, specialized conveying systems and
process and preparation systems. The Company provides parts and service for each
of its product lines to customers located throughout the world. Industries
served include food processing; non-food and industrial applications such as
tobacco, plastics, and pharmaceutical; and the forest products industry.
During fiscal 2000, the Company's net sales were $67.6 million compared to
sales of $68.0 million in fiscal 1999. The Company incurred a net loss of
$333,000, or $0.12 per share, for the year ended September 30, 2000, which
included merger-related and one-time acquisition costs of $3.0 million or
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$1.9 million after tax. Excluding merger-related and one-time acquisition
charges, net earnings would have been $1.6 million or $0.29 per share for the
year ended September 30, 2000. This compared to net earnings of $3.5 million or
$0.75 per share in 1999.
The Company acquired two separate organizations during fiscal 2000:
o The Company acquired on July 12, 2000 Advanced Machine Vision Corporation
(AMVC), a company based in Medford, Oregon. AMVC and its subsidiaries design,
manufacture and market machine vision systems that combine lighting, camera,
processor and software technologies to improve quality, enhance yield, reduce
production costs and increase throughput in a variety of markets.
Applications include systems for the food, tobacco, plastics recycling, pulp
wood, and wood panel industries.
o The Company acquired on June 1, 2000 Farmco, Inc. and its sister company
Ro-Tech, Inc. (collectively "Farmco") both companies based in Redmond,
Oregon. Farmco manufactures and sells equipment that mechanically sorts,
grades, selects, or removes product based upon its size or shape. Ro-Tech,
Inc. performed research and development activities for Farmco products and
owned the intellectual property associated with Farmco products.
Subsequent to these acquisitions, the Company reorganized its corporate
structure such that the Company consists of Key Technology, Inc. and four direct
subsidiaries: Key Technology FSC, Inc., a foreign sales corporation (FSC); Key
Holdings USA LLC; Key Technology AMVC LLC; and Ventek, Inc. Key Holdings USA LLC
owns Suplusco Holdings B.V. which owns Key Technology B.V. Key Technology AMVC
LLC owns ALS, Inc. and ARC Netherlands B.V. The operations, assets and
liabilities of AMVC, SRC Vision and Farmco have been merged into Key Technology,
Inc. The Company's European business unit operations are conducted by its
indirect, wholly-owned European subsidiary, Key Technology B.V., which is the
result of a merger of KEY/Superior B.V. and SRC Vision B.V. Key Technology B.V.
is a manufacturer of specialized conveying systems sold primarily within Europe.
The Company also utilizes Key Technology B.V. as the primary sales and service
organization for automated inspection systems sold to European customers. Key
Technology B.V. is located in Beusichem, The Netherlands.
The Company's domestic operations are headquartered in Walla Walla,
Washington with manufacturing facilities in Walla Walla and Medford, Redmond,
and Eugene, Oregon. The Company manufactures its three major product groups in
these facilities, in certain cases interchangeably between facilities to
maximize utilization of facility capacity. The Company anticipates moving the
manufacturing activities from Medford to Walla Walla, but will continue to
maintain a significant presence in Medford performing research and development,
service and sales activities. The Company supplies all product groups -
automated inspection systems, specialized conveying systems and processing and
preparation systems - to customers in its primary markets through common sales
and distribution channels. In addition, the Company supplies parts and service
through its worldwide service organization.
The acquisitions in fiscal 2000 are consistent with the Company's strategy
for growth through acquisitions. The acquired companies bring complementary
products that can be exploited through the application of the Company's core
skills in distribution, marketing, new product development, manufacturing and
business systems. The Company has begun to experience some of the benefits of
the acquisitions as first envisioned:
o The Company believes it is competing more effectively in markets for
automated inspection systems and specialized conveying systems.
Additionally, the Company expects a higher level of conveying systems
revenue to accompany the sale of AMVC optical sorting equipment.
Previously the customer was required to purchase this equipment from
other suppliers.
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o The Company's customers now choose from a more complete product line and
have access to expanded customer support and services with the
combination of two customer service organizations.
o The Company is achieving substantial cost reductions, through
elimination of expenses related to redundant sales, marketing, research
and development and corporate staffing, and elimination of redundant
public company costs.
o The acquisitions have provided the Company with greater depth of
skilled personnel, strengthened research and development activity and
expanded sales and marketing capacity.
o The creation of a larger customer base, a higher market profile and
greater financial strength presents opportunities for marketing the
products and services of the Company to expanded geographic markets and
new industries in not only new markets for food, but also non-food
markets such as tobacco and forest products.
The Company expects the merger and acquisitions to be accretive to earnings
in fiscal 2001.
INDUSTRY BACKGROUND
The Company considers the size and variety of worldwide processing industries
to be a significant opportunity for growth, not only to solve existing quality
and safety issues, but also to assist in providing safe processing technologies
to expanding global markets. Accordingly, the Company devoted increased
resources in fiscal 2000 to selling and marketing activities, new product
research and development and acquisitions that will increase the Company's
ability to address these potential global markets.
FOOD PROCESSING INDUSTRY
Historically, defect removal and quality control in the food processing
industry have been labor intensive and dependent upon and limited by the
variability of the work force. Food processors must process large quantities of
raw product through different stages, including sorting to remove defective
pieces and inspection for product quality and safety. The frequency and severity
of defects in the raw product is highly variable depending upon local factors
affecting crops. The industry has sought to replace manual methods with
automated systems that achieve higher yield, better product quality and safety
and reduced cost.
The Company's strategy is to solve processing industry problems of high labor
costs, inadequate yields and inconsistent quality and safety by providing
automated inspection systems and specialized conveying systems. The Company's
automated inspection systems use advanced optical inspection technology to
improve product yield (more of the good product recovered) and quality (higher
percentage of defective product being removed) over the manual sorting and
defect removal methods historically used by food processors. In a typical
application, a single automated inspection system can replace 25 to 75
processing line employees, resulting in labor cost savings and improved yield
sufficient to pay for the system in less than one year, as well as providing
significant improvements in product quality.
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NON-FOOD INDUSTRIES - TOBACCO, PHARMACEUTICAL & PLASTICS
Processors in non-food industries are also implementing systems solutions to
reduce costs, increase yields, and produce higher quality products that are safe
for consumers.
Key Technology introduced a specially configured optical sorter into the
tobacco industry in fiscal 1998 and sold several automated inspection systems to
major producers. With the acquisition of AMVC and its subsidiary SRC Vision,
which had an installed base of approximately 100 units in the tobacco industry,
the Company significantly increased its potential in this market and now has the
opportunity to introduce other products along with automated inspection systems
to these customers. At present, the pharmaceutical, plastics and other non-food
industries represent a relatively small share of the Company's sales and
installed base. However, to further its growth strategy, the Company is actively
pursuing expansion into new markets that are well defined, some of which have
the potential for higher profit margins. The Company believes that many
additional applications for its products exist in both food and non-food
markets, particularly in the area of automated process control.
FOREST PRODUCTS INDUSTRY
The Company entered the forest products industry with the acquisition of AMVC
and its subsidiaries SRC Vision, Inc. and Ventek, Inc. SRC Vision, founded in
1964, evolved from a single-product company that manufactured an optical device
to measure length and diameter of freshly cut logs, serving the timber industry,
into a provider of machine vision systems for a number of processing industries.
The Company has been testing a version of its inspection system in the pulp wood
industry to remove bark, rot and other undesirable wood parts from high quality
wood, improve recovery and save chemical processing costs in paper
manufacturers' plants. There can be no assurance that the pulp wood industry
will accept this new machine.
Ventek, founded in 1991, introduced its "New Vision" system in 1994 to
replace an outdated product used to detect defects in wood veneer in the plywood
industry. Ventek's experience in wood panel production complements the Company's
lighting, camera, processing and software capabilities. In turn, Ventek's vision
system was enhanced by incorporating SRC Vision's high-speed camera into its
veneer scanning systems, thereby increasing their ability to separate the
product into various grades, as well as to detect and remove defects.
Factors affecting sales in the forest products industry include housing
starts, which are directly affected by interest rates, and environmental
regulation which increases the need to obtain maximum yield and high quality
from the natural resources used in the industry.
PRODUCTS
The Company has developed a modular family of product lines that can be
configured in a variety of ways and integrated to provide complete solutions for
specific applications. Advances in any one module can therefore benefit a number
of the Company's products that incorporate optical scanning and image analysis.
Despite the incorporation of sophisticated technology, the Company's products
can be operated by plant personnel with minimal specialized training and are
built to withstand the harsh environments found in processing plants.
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The following table sets forth sales by product category for the periods
indicated:
FISCAL YEAR ENDED SEPTEMBER 30,
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2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Automated inspection systems........ $25,166 $22,342 $21,388
Specialized conveying systems....... 23,630 28,422 21,807
Processing and preparation systems.. 2,784 5,528 1,687
Parts and service/contracts......... 16,054 11,736 8,251
--------- --------- ---------
Net sales.................... $67,634 $68,028 $53,133
========= ========= =========
Service and maintenance contracts are less than 10% of total net sales and
therefore are summarized with parts.
The following table sets forth the percent of the total gross margin
contributed by each product category for the periods indicated:
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------
2000 1999 1998
--------- --------- ---------
Automated inspection systems........ 42% 39% 44%
Specialized conveying systems....... 30% 38% 36%
Processing and preparation systems.. 1% 3% 2%
Parts and service/contracts......... 27% 20% 18%
--------- --------- ---------
Total gross margin........... 100% 100% 100%
========= ========= =========
AUTOMATED INSPECTION SYSTEMS
Automated inspection systems are used in processing applications to detect
and eliminate defects during raw product processing. The Company's systems
within this group include the ADR(R) and Tegra(R) systems, representing the
fourth generation of automated inspection systems manufactured by Key
Technology; Prism(TM) and Tobacco Sorter II(TM) and Tobacco Sorter III(TM)
manufactured by SRC Vision; and New Vision Veneer Scanning System, Sequoia
Sentry Dryer Control System and GS2000 Veneer Grading System manufactured by
Ventek, Inc.
Nearly all systems in this group use proprietary linear array charged coupled
device ("CCD") mono-chromatic (black and white), color or multi-spectral
cameras. Each of the cameras scan the product-streams, which move at 5 to 20
feet per second, at the rate of 1,500 to 4,000 times per second and can identify
defects as small as 1/16 of an inch (1.5 mm) in diameter. Systems with
monochromatic cameras generally are sold at lower price levels and are most
effective for product that has a marked disparity in shade between the defective
and the good product. Systems with color cameras are required when a variety of
defect and product colors occur simultaneously or when the difference in shading
between the defective and the good product is more subtle. In 1998, the Company
developed multi-spectral systems which utilize either infra-red or ultraviolet
technologies, individually or in combination with visible light, to identify
defects that may not be detectable by using solely visible light spectra.
TEGRA SYSTEM. In fiscal 1996, the Company introduced its fourth generation of
automated inspection system sorters. Named Tegra, this generation of automated
inspection systems incorporates a number of technological and mechanical
advances that result in significant improvements to processing efficiency and
product throughput with higher recovery and defect-removal rates. Certain
present and potential applications for Tegra systems include potato products,
green beans, dried beans, corn, carrots, peas, spinach and other leafy
vegetables, pears, nuts, grains, coffee and tobacco.
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Tegra incorporates object-specific IntelliSort(TM) technology. IntelliSort
sorting technology recognizes not only color and size, but also shape. This
capability provides a solution to previously difficult sorting problems, such as
differentiation between green beans and green bean stems. Tegra cameras are
capable of high fidelity color-image processing to scan product at a rate of
over 4,000 times per second, offering a sensitivity to color subtleties beyond
human vision. Tegra also incorporates KeyWare(R) software that substantially
reduces operational complexity. KeyWare consists of application packages, each
specifically designed for a single product category that, together with the
system's computer hardware capability and networking software, support all
standard factory control and automation interfaces. These features allow Tegra
to establish data connectivity and communication with a processing plant's
computer network system.
PRISM SYSTEM. In 1999, SRC Vision introduced the new Prism sorting system.
Designed for stable performance in challenging environments, Prism has gained
strong acceptance in segments of the fruit and vegetable markets. It
incorporates optional sensing of short-wave infrared light, uses a novel
broad-band illumination system, and is designed to require minimal maintenance.
In addition to present and potential applications in potato products,
vegetables, fruits and plastics, Prism adds specific applications with products
such as potato chips, dehydrated potato flakes, plastic flake and peaches.
Prism incorporates a new image processing module, the "Advanced Vision
Processor" ("AVP(TM)"). Introduced concurrently with Prism, AVP uses a high
speed serial processor to convert color camera signals into product separation
actions. It incorporates the latest in high frequency bus architecture, and
incorporates cameras that have eight times the color resolution of previous
generations. Designed for flexibility, AVP is comprised of modules that provide
an on-going upgrade path, minimizing sustaining development costs, and
maximizing the effective life of the design. AVP uses a powerful combination of
a high speed "super-pipelined" sorting engine with a Windows NT-based user
interface. An internal communication network enables detailed self-diagnosis to
be performed on many system components.
TOBACCO SORTER II AND TOBACCO SORTER III. The tobacco industry has special
requirements in the handling and sorting of its leaf products, which vary in
size and moisture content depending upon the type of product being produced and
the point of handling and inspection. SRC Vision's Tobacco Sorter II, introduced
in 1996, and Tobacco Sorter III, introduced in 2000, utilize the machine vision
systems of the Prism and other SRC products in a specially constructed frame and
enclosure to meet the specific product handling needs of this industry. The
Company received orders for two Tobacco Sorter III systems during fiscal 2000
and anticipates increased acceptance in Fiscal 2001.
ADR SYSTEM. The Company's ADR systems are used to transport, inspect and
remove defects from french fry potatoes. The Company believes its ADR system is
the principal optical inspection and defect removal system used in the french
fry processing market. The Company's full-capacity ADR systems can process up to
27,000 pounds of product per hour.
As a result of product development activities in fiscal 1999 and 2000, the
Company introduced a fourth generation of the ADR to the frozen french fry
industry during fiscal 2000. In addition to allowing processors to automatically
detect and trim defects from french fries, this new product also allows
processors to custom-cut the fries to optimize plant production while meeting
customer demand for length distribution. Selective length cutting of the french
fries also allows them to be packed more densely which reduces shipping expense,
a significant contributor to the cost of the delivered product.
PHARMACEUTICAL INSPECTION SYSTEM. In fiscal 1996, the Company purchased
certain inventory, trademarks and patents related to a pharmaceutical
inspection product line, the I-300 Pharmaceutical Inspection System, from
the Imaging Division of Oncor, Inc. Using patented spatial color analysis
technology, this product line inspects solid-dose pharmaceuticals, including
tablets, capsules and softgels for broken or missing pieces, foreign
products, discoloration or coating defects, as well as the integrity of
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capsules. The pharmaceutical inspection system also verifies and detects color,
size, location and shape defects at processing rates over one million pieces
per hour. The Company expects sales of this product line will be a minor to
moderate contributor to automated inspection system revenues during fiscal 2001.
NEW VISION VENEER SCANNING SYSTEM, SEQUOIA SENTRY DRYER CONTROL SYSTEM AND
GS2000 VENEER GRADING SYSTEM. In 1994, Ventek introduced the New Vision Veneer
Scanning System to replace outdated optical systems then used in the plywood
industry. This product scans for defects in the peeled ribbon of veneer and
controls a clipper (manufactured by another company) which clips the veneer
immediately before and after the defect. The New Vision system reduces the
amount of good wood attached to the defect and ensures complete defect
identification at the beginning of the plywood production process, which
decreases the number of downgraded panels, increases dryer utilization and
reduces re-clipping of previously undetected defects. In 1998, Ventek introduced
the Sequoia Sentry veneer dryer control system to measure moisture in veneer
exiting the dryer to determine if additional time in the dryer is necessary. In
1999, Ventek introduced its GS2000 veneer grading system that enables a more
consistent grading of panels than human inspection. The Company will seek to
leverage Ventek's brand name recognition in veneer scanning to reach customers
at multiple insertion points in not only the plywood production process but also
in the production process, newer products such as oriented strand board and
medium density fiberboard.
SPECIALIZED CONVEYING SYSTEMS
Conveying systems are utilized throughout the food industry, as well as other
industries, to move large quantities of product within a processing plant. The
Company's specialized conveying systems include the Iso-Flo(R) vibratory
conveyor systems, food pumping systems, belt conveyors, electromagnetic conveyor
and spiral elevator technologies.
ISO-FLO VIBRATORY CONVEYING SYSTEMS. The Company's principal specialized
conveying system is its patented Iso-Flo vibratory conveyor system, which was
introduced in 1978. The Iso-Flo conveyor is a type of pan conveyor. Pan
conveyors are common throughout industries that process product streams of
discrete pieces, especially the food processing industry. Pan conveyors move
product pieces by vibrating the pan at high frequency along a diagonal axis,
upward and forward. This action propels the product ahead in small increments
and distributes it evenly for close control of movement and presentation.
Most Iso-Flo conveyors are custom designed and engineered by the Company to
customer specifications. Iso-Flo systems are used in a variety of processing
applications, including potato products, vegetables and fruits (green beans,
peas, carrots, corn, peaches, pears, cranberries and apples), snack foods,
cereals, pet foods, poultry, seafood and certain nonfood products.
The Company considers its vibratory conveyor technology to be a proprietary
core competency. Consequently, while investment in research and development
activities related to specialized conveying systems decreased slightly in fiscal
2000 compared to 1999, research and development activities for this product
group are expected to increase significantly in fiscal 2001 compared to 2000. As
a result of the Company's research and development activities in fiscal 1999 and
2000, it expanded its family of vibratory conveyors with the introduction of
three new products in the first quarter of fiscal 2000. These products were the
Horizon(TM), the Impulse(TM) and the Marathon(TM) conveying systems.
The Horizon is a horizontal motion vibratory conveyor that uses a gentle
conveying action to move fragile foods, such as snacks, cereals and
seasoned/coated products, through the processing stages. The design of the
Horizon eliminates vertical bounce of the processor's product. This feature
results in reduced costs to the processor due to minimized product damage,
reduced seasoning/coating loss and elimination of condiment build-up on the
conveyor bed.
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The Impulse is a line of electromagnetic conveyors which combine the
advantage of starting and stopping in milliseconds with precise metering
control. Additionally, the Impulse conveyor drive systems are oil free which
limits the potential for contamination and improves the safety of edible food
products. This conveyor system was developed for packaging applications in snack
food, dry ingredient, chemical and pharmaceutical processing.
The Marathon is the Company's longest conveyor and moves product up to 100
feet or more on a single conveyor bed. This conveyor is targeted for use in high
volume applications such as corn, green beans and other bulk conveying markets
to maximize the processor's production efficiency.
FOOD PUMPING SYSTEMS AND BELT CONVEYORS. The Company's hydro food pumping
systems are used to transport food items over distances and elevations in
processing plants. A typical pumping system consists of a stainless steel
contoured tank and food pump to propel the product through lengths of piping to
a water removal/product spreading subsystem. The systems can be configured so
that food processing functions, such as blanching, cooling and cutting, can also
occur during pumping. The Company also designs and manufactures belt conveyors
using a variety of belt materials.
PROCESS AND PREPARATION SYSTEMS
The Company designs and manufactures raw food preparation systems to prepare
vegetables prior to freezing, canning or other processing. Products in this
group include blanchers, air cleaners, air coolers, froth flotation cleaners,
vegetable metering systems, and bulk handling equipment. These products
represent the Company's most mature product line. Sales of these products over
the years have formed a customer base for sales of other Company products and
are also establishing a customer base in developing country markets.
Process and preparation system revenues also include a variety of third-party
supplied equipment and installation services which are sold as components of
larger processing lines, for which the Company has assumed turn-key sales
responsibility. In fiscal 2000, these third-party supplied products accounted
for approximately $1.8 million of the $2.8 million total net sales of process
and preparation systems compared to $3.1 million of $5.5 million in total net
sales in fiscal 1999.
PARTS AND SERVICE/CONTRACTS
The Company generates revenues from the sale of spare parts and post-sale
field and telephone-based repair services to support its customers' routine
maintenance requirements and seasonal equipment startup and winterization
processes. In response to increasing customer demand for maintenance and parts
services, the Company introduced a new multi-level service product offering
named UpTime(TM) in fiscal 1999. During fiscal 2000 the Company tested the
ability to supply remote diagnostics in the UpTime(TM) offering and expects to
implement these capabilities in Fiscal 2001. The UpTime program was a principal
contributor to increases of 44% and 52% in maintenance service revenues in
fiscal 2000 and 1999, respectively. The Company considers its parts and
maintenance service sales to be important potential sources of future revenue
growth and expects to continue to devote additional resources in fiscal 2001 to
increase such sales. The Company also typically provides system installation
support services which are included in the sales price of certain of its
products, principally the automated inspection systems.
CUSTOMERS AND MARKETS
The Company's primary market is the food processing industry. The largest
markets for the Company's products have been processors of potatoes,
vegetables and snack foods. The Company has also penetrated other food
markets, including fruits, cereals and pet foods. The Company believes many
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additional applications for its systems exist in both food and nonfood markets.
In non-food, the Company's principal markets are in forest products and in
industrial processing, particularly in the tobacco industry.
The principal potato market served by the Company's systems is french fries.
French fries comprise approximately 90% of the over eight billion pounds of
frozen potato products processed annually in the United States. The expansion of
American-style fast food chains in foreign countries is resulting in parallel
development of the frozen french fry market overseas.
The Company's products are used in the fruit and vegetable processing market
where field-harvested products are cleaned, graded, automatically sorted,
blanched and processed prior to freezing, canning or packaging for sale to
institutional and retail markets. Principal fruit and vegetable market segments
for the Company are green beans, corn, carrots, peas, onions, apples, pears,
cranberries and peaches. The Company also sells pharmaceutical systems, together
with other products, to pharmaceutical manufacturers in the United States,
Puerto Rico and Europe.
In fiscal 1998, the Company expanded its addressable markets by introducing
Tegra-based product applications into the coffee and tobacco markets. During
fiscal 1999 and 2000, the Company sold Tegra systems to coffee processors
located in Brazil and Colombia and in the Ivory Coast. Several Tegra systems
were also installed in fiscal 2000 on either rental or trial placements in
tobacco processing applications. Additionally, the Company expects that the
coffee and tobacco markets may provide opportunities for expanded sales of
specialized conveying systems.
The acquisition of Superior B.V. in fiscal 1996 provided the Company with a
manufacturing base from which it can more rapidly manufacture and deliver
conveying systems to European customers. Export and international sales for the
fiscal years ended September 30, 2000, 1999 and 1998 accounted for 40%, 46% and
37% of net sales in each such year, respectively. Nearly all export sales of
products manufactured in the United States for shipment into international
markets other than Europe have been denominated in U.S. dollars. Sales into
Europe of systems, spare parts and service, as well as products manufactured in
Europe, are generally denominated in European currencies. In its export and
foreign sales, the Company is subject to the risks of conducting business
internationally, including unexpected changes in regulatory requirements;
fluctuations in the value of the U.S. dollar, which could increase the sales
prices in local currencies of the Company's products in international markets;
tariffs and other barriers and restrictions; and the burdens of complying with a
variety of international laws. Additional information regarding export and
foreign sales is set forth in Note 12 to the Company's Consolidated Financial
Statements for the year ended September 30, 2000.
The Company does not rely on annual recurring sales to particular customers.
However, the Company's customers often make periodic large purchases of complete
systems. Therefore, while in any given fiscal year sales to a single customer
might represent 10 percent or more of the Company's consolidated revenues, the
Company believes the loss of such customer would not have a material adverse
effect on the Company. During fiscal 2000, sales to one customer amounted to
approximately 14% of total net sales. During fiscal 1999, sales to one customer
amounted to approximately 11% of total net sales. No single customer accounted
for more than 10% of net sales during fiscal 1998.
The Company markets its products directly and through independent sales
representatives. In North America, the Company operates sales offices in Walla
Walla, Washington; Medford, Oregon; Redmond, Oregon; Eugene, Oregon; Doyline,
Louisiana; Rockville, Maryland; and Beaver Dam, Wisconsin. The Company's
subsidiary, Key Technology B.V., provides sales and service to European
customers. Sales in Australia and New Zealand are made through an independent
distributor, which the Company also licenses to manufacture certain of its
products.
9
<PAGE>
ENGINEERING, RESEARCH AND DEVELOPMENT
At September 30, 2000, the Company's engineering departments had 117
technical and support employees who conduct new product research and
development, sustaining engineering for released products and project
engineering for custom systems. The department includes electronic, mechanical
and software engineers, mathematicians and technical support personnel.
The Company's project engineering teams are responsible for engineering and
designing the details of each custom order. A document control team maintains
and controls product documentation and the product modeling database for the
development engineering and project engineering teams as well as the
manufacturing department.
In fiscal 2000, the Company's engineering, research and development expenses
were approximately $5.5 million, compared to $4.3 million and $4.8 million in
1999 and 1998, respectively.
MANUFACTURING
The Company maintains five domestic manufacturing facilities, two located in
Walla Walla, one each in Medford, Eugene and Redmond, Oregon, and a European
manufacturing facility located in The Netherlands. The Company's current
manufacturing facilities and its product design and manufacturing processes
integrate Computer Aided Engineering (CAE), Computer Aided Design (CAD),
Computer Aided Manufacturing (CAM) and Computer Integrated Manufacturing (CIM)
technologies. Manufacturing activities include process engineering; cutting,
welding, fabrication and assembly of custom designed stainless steel systems;
camera and electronics assembly; subsystem assembly; and system test and
integration. The Company manufactures products in the following locations:
------------------------------------------------------------------------
LOCATION SIZE IN SQUARE FEET PRODUCTS/SERVICES PRODUCED
-------- ------------------- --------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Walla Walla, 150,000 Automated Inspection
Washington Specialized Conveying
Parts and Service
------------------------------------------------------------------------
Walla Walla, 100,000 Specialized Conveying
Washington Processing and Preparation
------------------------------------------------------------------------
Medford, 82,000 Automated Inspection
Oregon Parts and Service
------------------------------------------------------------------------
Redmond, 19,000 Processing and Preparation
Oregon Parts and Service
------------------------------------------------------------------------
Eugene, 12,000 Automated Inspection
Oregon Parts and Service
------------------------------------------------------------------------
Beusichem, 45,000 Specialized Conveying
The Netherlands Processing and Preparation
Parts and Service
------------------------------------------------------------------------
Beusichem, 18,000 Parts warehouse
The Netherlands Future manufacturing
expansion
------------------------------------------------------------------------
The Company manufactures certain of its products to Underwriters
Laboratories, United States Department of Agriculture and Occupational
Safety and Health Administration standards. The Company's domestic
manufacturing processes in its Walla Walla operations originally became
qualified in January 1995 for certification to the ISO-9001 quality
management and assurance standards. Those specific operations were
re-certified to ISO-9001:1994 quality standard during fiscal 2000. The
processes of qualifying and certifying the Company's European operations,
and those other operating entities acquired by the Company during
fiscal 2000, to the ISO-9001 quality standard is currently under
10
<PAGE>
review. It is the Company's expectation that each of those entities will
become certified to the ISO-9001 quality standard. The Company's products also
comply with the Canadian Standards Association (CSA) and European CE (Conformite
Europeene) safety standards.
Certain components and subassemblies included in the Company's products are
obtained from single-source or sole-source suppliers. The Company attempts to
ensure that adequate supplies are available to maintain manufacturing schedules.
Although the Company seeks to reduce its dependence on sole and limited source
suppliers, the partial or complete loss of certain sources of supply could have
an adverse effect on the Company's results of operations and relations with
customers.
BACKLOG
The Company's backlog as of September 30, 2000 and September 30, 1999 was
approximately $15.4 million and $12.6 million, respectively. Gross shipments
exceeded orders by $2.2 million in fiscal 2000; however, backlog acquired in the
Farmco and AMVC acquisitions resulted in a net increase in backlog from the
closing backlog in fiscal 1999. The Company schedules production based on firm
customer commitments and forecasted requirements. The Company includes in
backlog only those customer orders for which it has accepted purchase orders.
However, the Company believes that backlog is not necessarily a meaningful
indicator of future financial results as it typically ships products ordered
within eight to thirteen weeks from the date of receipt of the order. Large
multiple-unit system orders or orders for systems in high demand may, however,
result in longer delivery times.
COMPETITION
The markets for automated inspection systems and specialized conveying
systems are highly competitive. Important competitive factors include price,
performance, reliability, and customer support and service. The Company believes
that it currently competes effectively with respect to these factors, although
there can be no assurance that existing or future competitors will not introduce
comparable or superior products at lower prices. Certain of the Company's
competitors may have substantially greater financial, technical, marketing and
other resources. The Company's principal competitors are believed to be FMC
Corporation and its subsidiary Allen Machinery Co., Sortex Ltd., the Pulsarr
B.V. and Elbicon N.V. subsidiaries of Barco N.V., and Kiremko B.V. As the
Company enters new markets, such as coffee, it expects to encounter new niche
competitors such as Satake ESM, Elexso and BEST B.V.
PATENTS AND TRADEMARKS
The Company currently holds fifty-one outstanding United States patents
issued from 1984 through 2000 and thirty-one outstanding patents issued by
foreign countries, the first of which expires in calendar 2002. As of December
6, 2000, thirty-eight United States and foreign patent applications had been
filed and are pending. The Company has thirty-one registered trademarks and an
application pending for three trademarks.
The Company also attempts to protect its trade secrets and other proprietary
information through proprietary information agreements with employees and
consultants and other security measures. The laws of certain countries in which
the Company's products are or may be manufactured or sold may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States.
EMPLOYEES
At September 30, 2000, the Company had 611 full-time employees,
including 254 in manufacturing, 117 in engineering, research and
development, 164 in marketing, sales and service and 76 in general
11
<PAGE>
administration and finance. A total of 96 employees are located outside the
United States. None of the Company's employees in the United States are
represented by a labor union. The manufacturing employees located at the
Company's facility in Beusichem, The Netherlands are represented by the Small
Metal Union. The Company has never experienced a work stoppage, slowdown or
strike. The Company considers its employee relations to be excellent.
ITEM 2. PROPERTIES.
The Company owns or leases the following properties:
--------------------------------------------------------------------------------
SQUARE OWNED OR LEASE RENEWAL
LOCATION PURPOSE FEET LEASED EXPIRES PERIOD
--------------------------------------------------------------------------------
Walla Walla, Corporate office, 150,000 Leased with 2010
Washington manufacturing, option to
research and purchase
development, sales within the
and marketing, lease term
administration
--------------------------------------------------------------------------------
Walla Walla, Manufacturing, 100,000 Leased 2005 2010
Washington research and
development, sales
and marketing
--------------------------------------------------------------------------------
Medford, Manufacturing (1), 82,000 Owned (2)
Oregon research and
development, sales
and marketing
--------------------------------------------------------------------------------
Medford, Vacant Lot 150,000 Owned (3)
Oregon
--------------------------------------------------------------------------------
Redmond, Manufacturing, 19,000 Leased 2003 2008
Oregon research and
development,
administration
--------------------------------------------------------------------------------
Eugene, Manufacturing, 12,000 Leased 2002 2004
Oregon sales and
marketing,
administration
--------------------------------------------------------------------------------
Beusichem, The Manufacturing, 45,000 Leased 2008 2013
Netherlands sales and
marketing,
administration
--------------------------------------------------------------------------------
Beusichem, The Parts warehouse, 18,000 Owned
Netherlands future
manufacturing
expansion
--------------------------------------------------------------------------------
(1) The manufacturing activities currently performed at this location will be
moved to the Company's 150,000 square foot facility in Walla Walla, at
which time the Company may lease a portion of the Medford facility to a
third party.
(2) Subject to a deed of trust securing an approximately $2.9 million loan
made by Bank of America National Trust and Savings Association. The loan
bears interest at 8.3% and is due May 1, 2008.
(3) Subsequent to the end of fiscal 2000, the Company sold 25,000 square feet
to a third party. Based upon this transaction and the number and quality
of continuing inquiries, the Company expects to sell the remaining
property at or above its book value.
The Company leases additional office space in the United States in Medford,
Oregon; Rockville, Maryland; Doyline, Louisiana and Beaver Dam, Wisconsin.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
From time-to-time, the Company is named as a defendant in legal proceedings
arising out of the normal course of its business. As of December 6, 2000, the
Company was not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of shareholders was held on July 12, 2000 for the purpose
of considering and voting on two proposals: (1) a proposal to approve the
issuance of shares of Key Technology Series B and Series C Convertible Preferred
Stock and warrants pursuant to an Agreement and Plan of Merger effective
February 15, 2000 by and among Key Technology, KTC Acquisition Corp., and
Advanced Machine Vision Corporation.; and (2) a proposal to amend the 1996
Employees' Stock Option Plan in increase the number of shares available for
issuance from 750,000 shares to 1,250,000 shares.
A total of 2,905,004 votes, or 61.42% of the outstanding common stock, was
cast for proposal (1), with 15,267 votes against and 3,199 votes abstaining.
Broker non-votes were included in votes cast against the proposal.
A total of 2,607,689 votes, or 55.14% of the outstanding common stock, was
cast for proposal (2), with 307,127 votes against and 8,654 abstaining. Broker
non-votes were included in votes cast against the proposal.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK
Shares of the Company's common stock are quoted on the Nasdaq National Market
System under the symbol "KTEC". The following table shows the high and low bid
prices per share of the Company's common stock by quarter for the two most
recent fiscal years ended September 30:
High Low
---- ---
Fiscal 2000
-----------
1st Quarter $10.00 $6.578
2nd Quarter 11.188 8.125
3rd Quarter 9.875 7.00
4th Quarter 10.063 8.25
Fiscal 1999
-----------
1st Quarter $7.75 $5.25
2nd Quarter 9.50 6.125
3rd Quarter 9.375 4.75
4th Quarter 12.50 5.188
The sources of these quotations for the Company's common stock were Nasdaq's
Summary of Activity(TM) reports and the Nasdaq OnlineSM Internet site.
The Company had approximately 1,975 beneficial owners of its common stock, of
which 195 are of record, as of December 6, 2000.
The Company has not historically paid dividends on its common or preferred
stock. The Board of Directors does not anticipate payment of any dividends in
the foreseeable future and intends to continue its present policy of retaining
earnings for reinvestment in the operations of the Company. The current credit
facility with the Company's principal domestic bank restricts the payment of
dividends on its common stock, other than dividends payable in its stock, or the
retirement of any of the Company's outstanding shares or the alteration or
amendment of the Company's capital structure without the prior written consent
of the bank.
14
<PAGE>
SERIES B CONVERTIBLE PREFERRED STOCK
Shares of the Company's Series B convertible preferred stock were issued in
the merger with AMVC on July 12, 2000 These shares are quoted on the Nasdaq
SmallCap Market under the symbol "KTECP". The following table shows the high and
low bid prices per share of the Company's Series B convertible preferred stock
for the fiscal year ended September 30, 2000:
High Low
---- ---
Fiscal 2000
-----------
1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter N/A N/A
4th Quarter 7.375 6.125
The sources of these quotations for the Company's Series B convertible
preferred stock were Nasdaq's Summary of Activity(TM) reports and the Nasdaq
OnlineSM Internet site.
The Company had approximately 1,750 beneficial owners of its Series B
convertible preferred stock, of which 80 are of record, as of December 6, 2000.
Each whole share of Key Technology Series B convertible preferred stock is:
o convertible at the election of the holder at any time for 2/3 of a
share of Key Technology common stock; or
o redeemable at the election of the holder after July 12, 2002 for
$10.00 in cash; or
o redeemed by the Company on July 12, 2005, or may be redeemed earlier
by the Company if the average closing price of Key Technology common
stock exceeds $15.00 per share for 30 consecutive trading days, for
$10.00 in cash plus declared and unpaid dividends, if any.
Upon closing the AMVC acquisition on July 12, 2000, FMC Corporation's option
to purchase shares of AMVC common stock was converted into an option to
purchase 210,000 shares of Key Technology Series B convertible preferred stock
and warrants to purchase 52,500 shares of Key Technology common stock for
$2,520,000. This option expires October 14, 2003.
The Series B convertible preferred stock is not entitled to dividends. If a
dividend is declared payable on the outstanding common stock, the holders of
Series B convertible preferred stock are entitled to the dividend that would be
payable on the common stock into which the Series B could convert. The holders
of Series B are entitled to vote on all matters. Series B convertible preferred
stock holders vote the number of whole shares of common stock into which the
holder's Series B convertible preferred stock could be converted.
15
<PAGE>
SERIES C CONVERTIBLE PREFERRED STOCK
In connection with the AMVC transaction, shares of AMVC Series B mandatorily
redeemable preferred stock held by FMC Corporation were converted into 119,106
shares of Key Technology Series C convertible preferred stock and 29,776
warrants. Each share of Series C convertible preferred stock is convertible at
the election of the holder into 1 2/3 shares of Key Technology common stock,
and may be redeemed at the election of the holder at any time for $20.00 per
share. In addition, the Company is required to redeem any Series C convertible
preferred stock remaining outstanding on July 12, 2005 for $20.00 per share.
The Series C Convertible preferred stock in not presently traded.
The Series C convertible preferred stock is not entitled to dividends. If a
dividend is declared payable on the outstanding common stock, the holders of
Series C convertible preferred stock are entitled to the dividend that would be
payable on the common stock into which the Series C could convert. The holders
of Series C are entitled to vote on all matters. Series C convertible preferred
stock holders vote the number of whole shares of common stock into which the
holder's Series C convertible preferred stock could be converted.
WARRANTS
Warrants were issued in the merger with AMVC on July 12, 2000. These warrants
are quoted on the Nasdaq SmallCap Market under the symbol "KTECW". The following
table shows the high and low bid prices of the Company's warrants for the fiscal
year ended September 30, 2000:
High Low
---- ---
Fiscal 2000
-----------
1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter N/A N/A
4th Quarter 9.875 9.875
Each whole warrant is exercisable for five years to purchase one share of Key
Technology common stock for $15.00. Each whole warrant is redeemable by the
holder at any time prior to expiration for $10.00. The warrant holders do not
have the right to vote or participate in any other matters as a shareholder.
The warrants do not accrue any dividends or interest until exercised and then
only to the extent it is exercised. Identical warrants were issued to AMVC
common shareholders and the holder of AMVC Series B preferred stock, and may be
issued in the future to FMC Corporation upon exercise of its option to purchase
Key Technology Series B preferred stock.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information set forth below for each of
the five years in the period ended September 30, 2000 has been derived from the
audited consolidated financial statements of the Company. The information below
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements and Notes thereto as provided in Item 7 and Item 8 of this
Annual Report on Form 10-K, respectively.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF EARNINGS (LOSS) DATA:
<S> <C> <C> <C> <C> <C>
Net sales............................ $67,634 $68,028 $53,133 $57,268 $54,341
Cost of sales........................ 41,804 42,281 33,838 39,451 33,050
--------- --------- --------- --------- ---------
Gross profit......................... 25,830 25,747 19,295 17,817 21,291
Operating expenses................... 26,712 21,022 18,085 17,648 15,226
--------- --------- --------- --------- ---------
Income (loss) from operations........ (882) 4,725 1,210 169 6,065
Other income - net .................. 174 436 179 450 1,061
--------- --------- --------- --------- ---------
Earnings (loss) before
income taxes...................... (708) 5,161 1,389 619 7,126
Income tax (benefit) expense......... (375) 1,632 464 197 2,252
--------- --------- --------- --------- ---------
Net earnings (loss).................. $ (333) $ 3,529 $ 925 $ 422 $ 4,874
Accretion of mandatorily
redeemable preferred stock........ (235) 0 0 0 0
--------- --------- --------- --------- ---------
Net earnings (loss) available to
common shareholders............... $ (568) $ 3,529 $ 925 $ 422 $ 4,874
========= ========= ========= ========= =========
Earnings (loss) per share -
Basic............................. $ (0.12) $ 0.75 $ 0.20 $ 0.09 $ 1.05
========= ========= ========= ========= =========
Earnings (loss) per share -
Diluted........................... $ (0.12) $ 0.75 $ 0.20 $ 0.09 $ 1.02
========= ========= ========= ========= =========
Shares used in per share
calculation - Basic............... 4,723 4,707 4,692 4,674 4,652
========= ========= ========= ========= =========
Shares used in per share
calculation - Diluted............. 4,723 4,711 4,721 4,760 4,777
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents and short-
term investments.................. $ 6,535 $ 6,403 $ 6,333 $ 2,896 $ 9,528
Working capital...................... 25,202 22,973 18,949 17,308 17,736
Property, plant and equipment,
net............................... 13,784 8,582 9,584 9,380 8,703
Total assets......................... 85,417 44,420 39,357 39,441 45,252
Current portion of long-term debt.... 3,447 304 579 852 923
Long-term debt, less current
portion.............................. 19,483 722 1,103 1,293 1,467
Mandatorily redeemable preferred
stock and warrants................ 17,105 0 0 0 0
Shareholders' equity................. 31,465 32,657 29,315 28,031 27,583
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company and its wholly-owned subsidiaries design, manufacture and sell
process automation systems, integrating electro-optical inspection and sorting,
specialized conveying and processing and preparation equipment.
The Company consists of Key Technology, Inc. which directly owns four
subsidiaries: Key Technology FSC, Inc., a foreign sales corporation (FSC); Key
Holdings USA LLC; Key Technology AMVC LLC; and Ventek, Inc. Key Holdings USA LLC
owns Suplusco Holdings B.V., its European subsidiary, which owns Key Technology
B.V. Key Technology AMVC LLC owns ALS, Inc. and ARC Netherlands B.V. The Company
manufactures products in Walla Walla, Washington; Redmond, Oregon; Eugene,
Oregon; Medford, Oregon and Beusichem, The Netherlands. Through the maintenance
of its wholly-owned foreign sales corporation subsidiary, Key Technology FSC,
Inc., a portion of the Company's domestically originated foreign trade income is
exempt from tax at the corporate level.
RESULTS OF OPERATIONS
For the fiscal years ended September 30, 2000, 1999 and 1998, the Company's
net sales were $67.6 million, $68.0 million, and $53.1 million, respectively.
Sales of automated inspection systems and parts and service/contracts increased
by 13% and 37%, respectively, but was more than offset by decreases in
specialized conveying systems and processing and preparation equipment in fiscal
2000 compared to fiscal 1999. Sales for the year ended September 30, 2000 were
unfavorably affected by market factors including:
o Consolidation among food processors which resulted in delayed investments
in capital equipment by Key's customers;
o Softness in the vegetable industry caused by processed inventories carried
over from the previous season and lower prices for customers' products;
o Customers' higher costs of capital due to increased interest rates in the
United States, which has delayed certain projects; and
o The strength of the U.S. dollar on the world markets, which has made
U.S.-manufactured goods relatively more expensive to foreign customers.
The Company did not experience a comparable level of "turn-key" sales in
fiscal 2000 that it experienced in fiscal 1999, most notably from the vegetable
industry. These turn-key sales incorporate the Company's conveying and
processing systems together with other third-party supplied equipment into
entire processing lines. Sales by subsidiaries acquired during the third and
fourth quarter of fiscal 2000 contributed approximately $6.4 million to the
Company's consolidated gross sales in fiscal 2000, of which $6.1 million was in
the fourth quarter. In fiscal 2001, the Company anticipates increases in sales
due to the acquisitions completed in fiscal 2000, increases in sales to the
tobacco industry, increases in sales to international markets and large
expansion projects projected by the Company's customers, principally in the
french fry industry.
Net sales in fiscal 1999 increased by 28% compared to fiscal 1998. The
increased sales in fiscal 1999 resulted principally from a $6.6 million or 30%
increase sales of in specialized conveying systems followed by a 228% increase
in process and preparation systems and a 42% increase in parts and
service/contracts. Sales of automated inspection systems increased by 4% in
fiscal 1999 compared to fiscal 1998. The increases in sales during fiscal 1999
for both the specialized conveying systems and the process and preparation
systems resulted principally from sales of larger turn-key processing line
18
<PAGE>
systems. The increase in sales of parts and service/contracts in fiscal 1999
compared to 1998 was principally the result of the introduction early in fiscal
1999 of a new multi-level service product offering named UpTime. The increase in
sales of automated inspection systems resulted principally from increased sales
of AccuScan(R) and ADR systems, partially offset by decreased sales of Tegra
systems. Sales of automated inspection systems to European and other
international customers increased by 77% in fiscal 1999 compared to fiscal 1998.
Export and foreign sales accounted for 40%, 46% and 37% of total net sales in
fiscal 2000, 1999 and 1998, respectively. An increase in sales to domestic
customers of 9% was more than offset by a 12% decrease in sales to foreign
customers in fiscal 2000. The largest market for such foreign sales in each of
the three fiscal years was to European customers.
Gross profit was 38%, 38% and 36% of sales in fiscal 2000, 1999 and 1998,
respectively. The gross margin, as a percentage of net sales in fiscal 2000
compared to fiscal 1999, benefited from improved margins in automated inspection
systems and in parts and service, offset by decreased gross margins in
specialized conveying systems and process and preparation systems. Automated
inspection system gross margins, as a percent of sales, improved two percentage
points in fiscal 2000 over fiscal 1999, principally the result of an 16%
decrease in warranty costs, which continued the favorable trend of a 41%
decrease in warranty costs in the previous year. In addition, the Ventek
products carry a higher margin, which favorably affected the automated
inspection systems product group. Decreased specialized conveying system gross
margins were principally due to an increase in manufacturing overhead resulting
from decreased production volumes between the two comparable periods. The gross
margins for parts and service/contracts improved principally as a result of
increased volume of higher margin upgrades. Process and preparation system
revenues in both fiscal 2000 and 1999 included a variety of third-party supplied
equipment and installation services which were sold at very low margins as
components of larger processing lines. During fiscal 2000, the third-party
supplied products accounted for approximately $1.8 million of $2.8 million in
total net sales of process and preparation systems compared to $3.1 million of
the $5.5 million in total net sales in fiscal 1999. The Company anticipates that
gross margins for fiscal 2001 will improve over those experienced in previous
years due to higher margins carried by acquired product lines, efficiencies
gained from the manufacture of all automated inspection systems in one facility,
and higher volumes and economies of scale that can be achieved as a result of
the fiscal 2000 acquisitions.
Operating expenses increased to $26.7 million in fiscal 2000 from $21.0
million in fiscal 1999 and from $18.1 million in fiscal 1998 and represented
39%, 31% and 34% of net sales in each such year, respectively. Operating
expenses increased in fiscal 2000 over fiscal 1999 due to the addition of
operating expenses for the acquired companies, a one-time charge of $1.4 million
of expenses for acquired in-process research and development, non-recurring
integration costs totaling $953,000 and incremental amortization of $643,000 for
acquired intangibles. The Company expects that, as a percentage of net sales,
total operating expenses in fiscal 2001 should be closer to those experienced
prior to fiscal 2000.
Selling and marketing expenses were $13.0 million in fiscal 2000, $11.1
million in fiscal 1999 and $8.0 million in fiscal 1998, and represented 19%, 16%
and 15% of net sales in each such year, respectively. In fiscal 2000, selling
and marketing expenses increased 17% over fiscal 1999, principally due to the
expenses contributed by the acquisitions. The Company also increased investments
in new product promotions related to four new products introduced in fiscal 2000
and expanded sales coverage to European and Latin American markets. Selling and
marketing expenses in fiscal 1999 increased 39% compared to fiscal 1998,
resulting principally from increased commission expenses related to the higher
level of product sales combined with an increased volume and percentage of
those sales sold through outside representatives to whom the Company pays
higher commission rates, increased staff costs and increased advertising and
product promotion expenses. The Company expects to reduce its selling and
19
<PAGE>
marketing expenses as a percentage of net sales as a result of reorganization
of its sales and distribution channels and an anticipated reduction in
investments related to new product introductions.
Research and development expenses increased in fiscal 2000 to $5.5 million
from $4.3 million in fiscal 1999 and $4.8 million in fiscal 1998, and
represented 8%, 6% and 9% of net sales in each such year, respectively. Research
and development expenses in fiscal 2000 increased by approximately 29% compared
to 1999 principally due to expenses contributed by acquisitions. Research and
development expenses in fiscal 1999 decreased by approximately 10% compared to
1998 as a result of an increased level of engineering costs charged to cost of
sales as a direct result of the increased sales volume, particularly in the
Company's specialized conveying product group. However, research and development
expenses related to new product development projects increased by 7% in fiscal
1999 compared to fiscal 1998 as a result of activities devoted to developing the
new fourth generation ADR product and new specialized conveying system products.
The Company expects research and development expenses, as a percentage of fiscal
2001 net sales, to approximate fiscal 2000 levels. Activities in fiscal 2001
will focus on continuing to extend the capabilities and applications of the
technologies contained in Tegra and Prism, and continuing to develop new
specialized conveying system products.
General and administrative expenses increased to $5.9 million in fiscal 2000
from $5.4 million in fiscal 1999 and $5.0 million in fiscal 1998, and
represented 9%, 8% and 9% of net sales in each such year, respectively. General
and administrative expenses increased in fiscal 2000 by approximately 10%
compared to fiscal 1999 principally due to expenses contributed by acquisitions.
During fiscal 1999, general and administrative expenses increased approximately
7% compared to fiscal 1998 due principally to increased incentive compensation
related to the Company's increased level of profitability and increased
consulting and professional service expenses, partially offset by decreased
costs for doubtful accounts receivable. As a percentage of net sales, the
Company expects general and administrative expenses in fiscal 2001 to
approximate those levels experienced in previous years.
The increase in amortization of intangibles and the one-time charge for
acquired in-process research and development costs are due to the acquisitions
completed during fiscal 2000. The Company obtained independent appraisals of the
fair market value of the intangible assets acquired. Acquired intangible assets,
including goodwill, patents, existing technologies and established customer
base, are amortized over the shorter of their remaining lives or periods of 10
to 15 years. A one-time charge of $1.4 million associated with the write-off of
acquired in-process research and development was recorded immediately subsequent
to the acquisition of AMVC in the Company's fourth quarter of fiscal 2000.
Other income and expense includes interest income and expense, royalty income
and other income from miscellaneous sources. Net interest expense in fiscal 2000
was $29,000 compared to net interest income of $210,000 in fiscal 1999 and
$88,000 in fiscal 1998. Decreased net interest income in fiscal 2000 compared to
fiscal 1999 resulted from increased interest expense on long-term debt arising
from the acquisitions in the third and fourth quarter of fiscal 2000, partially
offset by interest earnings on invested cash equivalents and short-term
investments. During fiscal 2000, the Company received royalty payments of
$110,000 compared to total royalty income of $77,000 in fiscal 1999 and $62,000
in fiscal 1998. As part of a settlement agreement entered into during 1997, the
Company may receive royalty payments through 2001 related to the sale of certain
equipment to a selected market. The payment may be reduced by a percentage of
the purchases of equipment from the Company by the other party. The Company
recognized royalty income from this agreement of $71,000 in fiscal 2000, $26,000
in fiscal 1999 and $7,000 in fiscal 1998. During fiscal 2000, the Company
recognized foreign currency conversion losses totaling $407,000 on cash and
accounts receivable held primarily in Euros and Dutch guilders. This compares to
foreign currency conversion gains of $58,000 in fiscal 1999 and $61,000 in
fiscal 1998.
20
<PAGE>
The Company's effective income tax rate was a tax benefit of 53.0% in fiscal
2000 and tax expense of 31.6%, and 33.5% for fiscal 1999 and 1998, respectively.
The effective tax benefit or tax expense rate varies from the statutory rate of
34% due to permanent differences in tax obligations arising from activities of
the FSC, research and development tax credits, and other permanent differences.
The larger variance from statutory rates in fiscal 2000 compared to fiscal 1999
and fiscal 1998 is principally due to the taxable net loss reported for the
latter period compared to larger taxable net earnings for the previous fiscal
years.
Net loss after tax was $333,000 in fiscal 2000 compared to net earnings of
$3.5 million in fiscal 1999 and $925,000 in fiscal 1998. Basic and diluted net
loss per share was $0.12 compared to earnings per share of $0.75 and $0.20 in
fiscal years 1999 and 1998, respectively. The net loss of $333,000, or $0.12 per
share, for the year ended September 30, 2000 included merger-related and
one-time acquisition costs of $3.0 million, or $1.9 million after tax. Excluding
merger-related and one-time acquisition charges, net earnings would have been
$1.6 million or $0.29 per share for the year ended September 30, 2000. The
decrease in net earnings in fiscal 2000 compared to fiscal 1999 was principally
due to decreased sales volume in the Company's core business and the one-time
acquisition costs and amortization related to acquisitions. The increase in net
earnings in fiscal 1999 compared to 1998 resulted principally from the increased
gross margins due to the increased level of sales, decreased warranty expenses,
and decreased manufacturing costs as a percentage of sales.
The anticipated return on the Company's acquisitions during fiscal 2000 is
dependent upon maintaining and growing total revenues of the combined
organization at or above those experienced by the separate companies prior to
acquisition and merger and achieving cost reductions of $4 to $5 million in
manufacturing and operating expense categories. A significant shortfall of
actual results compared to anticipated results could have an adverse effect the
Company's results of operations. Although the Company has begun to experience
cost savings in fiscal 2000, market, economic or other factors may adversely
intervene. There can be no assurance that the Company will achieve its revenue
growth or cost savings objectives.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, net cash provided by operating activities totaled $4.3
million compared to $1.9 million and $5.1 million in fiscal 1999 and 1998,
respectively. During fiscal 2000, cash provided by operating activities was
affected by a decrease in accounts receivable totaling $4.1 million that
resulted principally from a decrease in sales volume and improved accounts
receivable management, compared to cash used due to an increase in accounts
receivable totaling $3.8 million during fiscal 1999, due principally to an
increase in sales volume. Accounts receivable balances during fiscal 1998
decreased, and cash increased, by $1.6 million. Operating activities during 2000
provided $1.3 million in cash from a decrease in inventory compared to $2.1
million used to fund an increase in inventories in fiscal 1999 and $1.2 million
provided from a decrease in inventories in 1998. Decreases in trade accounts
payable, accrued payroll liabilities, accrued income taxes and other accrued
liabilities, partially offset by an increase in prepaid expenses, utilized cash
totaling $6.4 million during fiscal 2000. By comparison, the Company was
provided cash totaling $2.0 million in fiscal 1999 by increases in trade
accounts payable, accrued payroll liabilities and accrued income taxes,
partially offset by a decrease in accrued customer support and warranty costs.
The Company used cash during 1998 in the amounts of $846,000 to decrease trade
accounts payable balances and accrued customer support and warranty costs and to
pay accrued income taxes and certain accrued payroll liabilities which had been
accrued in previous fiscal years.
Net cash resources from investing activities totaling $16.2 million
were used to acquire AMVC and Farmco during the third and fourth
quarters of fiscal 2000, and $2.2 million, $1.3 million and $2.0
million were used to fund the acquisition of capital equipment during
2000, 1999 and 1998, respectively. At September 30, 2000, the Company
had no material commitments for capital expenditures. During
21
<PAGE>
fiscal 1998, the Company received net cash resources totaling $653,000 from the
sale of a previously vacated facility. Net proceeds of $1.0 million arising
from the sale and purchase of short-term investments in fiscal 2000 compared
to net investments of $984,000 to purchase short-term investments in fiscal
1999 and no such investments in fiscal 1998.
The Company's cash flows from financing activities were affected by the
repayment of long-term debt during fiscal 2000, 1999 and 1998 totaling $2.8
million, $539,000, and $904,000, respectively. Separately, cash flows from the
issuance of long-term debt totaled $18.2 million for fiscal 2000 with no such
issuance in fiscal 1999 and $409,000 in fiscal 1998. Proceeds from the issuance
of common stock under the Company's employee stock option and stock purchase
plans during fiscal 2000, 1999 and 1998 totaled $146,000, $77,000 and $137,000,
respectively. During fiscal 2000, the Company redeemed for cash warrants
totaling $703,000. There were no such redemptions in fiscal 1999 and 1998.
The Company's facility with a domestic commercial bank provides for
operating lines of credit of up to $22.7 million in three components. The first
component is an unsecured operating line of up to $4.5 million which expires
February 1, 2001. At September 30, 2000 the Company had no borrowings under this
credit line. The second component is a revolving credit agreement of up to $10.0
million, secured by business personal property, with a variable interest rate,
due in quarterly installments until May 2007. The Company had borrowings of
$10.0 million under this agreement at September 30, 2000. The third component is
a revolving credit agreement of up to $8.15 million, secured by business
personal property, with a variable interest rate, due in quarterly
installments until July 2008. The Company had borrowings of $8.15 million
under this agreement at September 30, 2000. The authorized borrowing limits
of the revolving credit agreements were reduced by a total of $250,000 on
September 30, 2000 and will reduce by a total of $500,000 each quarter
thereafter beginning December 31, 2000. The Company also maintains a credit
facility with a Dutch bank providing for operating lines of credit totaling up
to approximately $600,000, which are available to the Company's subsidiaries in
the Netherlands. At September 30, 2000, the Company had no borrowings under
this credit facility.
The domestic credit accommodation and the mortgage note payable contain
covenants which require certain levels of tangible equity, working capital,
ratios of current assets to current liabilities, or debt to equity. The Company
was not in compliance with certain covenants at September 30, 2000. The Company
has obtained temporary waivers of these covenants and has negotiated
modifications of the covenants to provide latitude in meeting certain covenants
in the future.
The Company's operating, investing and financing activities during fiscal
2000 resulted in increases in cash and cash equivalents totaling $1.0 million,
compared to a decrease totaling $914,000 in 1999 and an increase totaling $3.4
million in 1998. The balance of cash and cash equivalents totaled $6.4 million,
$5.4 million and $6.3 million at the end of fiscal 2000, 1999 and 1998,
respectively. The Company believes that its cash and cash equivalents, cash
generated from operations and available borrowings under its operating lines of
credit will be sufficient to provide for its working capital needs and to fund
future internal growth.
Pursuant to the terms of conversion or redemption of the Company's preferred
stock and warrants, the Company has contingent cash requirements through fiscal
2005 for possible redemption of these securities. The maximum cash that could be
required totals $17.1 million. The redemption of securities is at the option of
the security holders until July 12, 2005, at which date any outstanding
unconverted preferred stock is mandatorily redeemed by the Company. The market
price of the Company's common stock will determine timing and occurrence of
redemption of these securities. A price of $15.00 per share or more on or
prior to July 12, 2002 could motivate holders to convert their preferred
stock to common stock. At December 6, 2000, holders of 216,605 warrants of the
365,222 warrants issued had redeemed for cash their warrants at $10 each.
If the Company is not able to sustain operating cash through normal
operations or were required to redeem for cash the preferred stock and remaining
22
<PAGE>
warrants, it may have to rely on additional debt or equity financing. There can
be no assurance the Company would be able to obtain future financing on terms
satisfactory to the Company.
THE EURO CONVERSION
On January 1, 1999, certain member countries of the European Union, including
the Netherlands, established fixed conversion rates between their existing
sovereign (legacy) currencies and the Euro, leading to the adoption of the Euro
by these countries as their common legal currency. The information systems of
the Company's European subsidiary, Key Technology B.V., currently accommodates
multiple currency transactions and has integrated Euro denominated transactions
with no difficulty. Key Technology began implementing a conversion of its
business systems to the Euro concurrent with the start of the Company's fiscal
2000 year. The Company expects to complete the conversion during its fiscal year
2001, well before January 1, 2002 when the legacy currencies may no longer be
legal tender.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has assessed its exposure to market risks for its financial
instruments and has determined that its exposures to such risks are generally
limited to those affected by the strength of the U.S. Dollar against the Euro
and the Dutch guilder.
The terms of sales to European customers by Key Technology B.V., the
Company's European subsidiary, are typically denominated in either Euros, U.S.
Dollars, Dutch guilders or to a far lesser extent, the respective legacy
currencies of its European customers. The Company expects that its standard
terms of sales to international customers, other than those in Europe, will
continue to be denominated in U.S. dollars. For sales transactions between
international customers, including European customers, and the Company's
domestic operations which are denominated in currencies other than U.S. dollars,
the Company assesses its currency exchange risk and may enter into a currency
hedging transaction to minimize such risk. At September 30, 2000, the Company
was not a party to any currency hedging transaction.
During the Company's fiscal 2000, the Euro and the Dutch guilder, the latter
normally a stable currency, lost 21% of their respective values against the U.S.
dollar. The majority of this currency exchange movement occurred in the last six
months of the Company's fiscal year. The effect of the stronger dollar on the
operations and financial results of the Company were:
o Margins on automated inspection systems sold into Europe were decreased
approximately 3% as the Company continued a Euro-based pricing model to
maintain market share against European manufacturers.
o Translation adjustments of $770,000, net of income tax, were recognized
as a component of Comprehensive Loss in the Company's Statement of
Shareholders' Equity as a result of converting the guilder denominated
balance sheet of Key Technology into U.S. dollars.
o Foreign exchange losses of $407,000 were recognized in the other income
and expense section of the consolidated income statement as a result of
conversion of guilder and Euro denominated receivables and cash carried
on the balance sheet of the U.S. operations.
Among the factors influencing the strength of the U.S. dollar on the world
market were the general strength of the U.S. economy, the relatively high
interest rates in the U.S. and continuing economic weakness in some economies of
countries comprising the European Union. The Company expects to continue to
experience adverse effects from the relative strength of the U.S. dollar on
business outside of the United States, if factors supporting the strong U.S.
dollar do not reverse themselves to levels experienced in earlier years.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Title Page
----- ----
Independent Auditors' Report................................... 25
Consolidated Balance Sheets at September 30, 2000 and 1999..... 26
Consolidated Statements of Earnings (Loss) for the three
years ended September 30, 2000.............................. 28
Consolidated Statements of Shareholders' Equity for the
three years ended September 30, 2000........................ 29
Consolidated Statements of Cash Flows for the three years
ended September 30, 2000.................................... 30
Notes to Consolidated Financial Statements..................... 32
Supplementary Data............................................. 45
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Key Technology, Inc.
Walla Walla, Washington
We have audited the accompanying consolidated balance sheets of Key Technology,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of earnings (loss), shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 2000. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Key Technology, Inc. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Portland, Oregon
November 13, 2000
(December 14, 2000 as to information in Note 6)
25
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
--------------------------------------------------------------------------------
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $ 6,427 $ 5,419
Short-term investments 108 984
Trade accounts and notes receivable, net 9,426 10,762
Inventories 22,011 14,618
Deferred income taxes 1,699 1,182
Prepaid expenses and other assets 2,372 1,049
--------- --------
Total current assets 42,043 34,014
PROPERTY, PLANT, AND EQUIPMENT, Net 13,784 8,582
DEFERRED INCOME TAXES 1,237 207
OTHER ASSETS 445 2
GOODWILL AND OTHER INTANGIBLES, Net 27,908 1,615
--------- --------
TOTAL $85,417 $44,420
========= ========
(Continued)
See notes to consolidated financial statements.
26
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARES)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
CURRENT LIABILITIES:
Accounts payable $ 3,843 $ 2,753
Accrued payroll liabilities and commissions 3,972 3,801
Accrued customer support and warranty costs 947 797
Income tax payable 185 507
Other accrued liabilities 1,790 1,344
Customers' deposits 2,657 1,535
Current portion of long-term debt 3,447 304
--------- --------
Total current liabilities 16,841 11,041
LONG-TERM DEBT 19,483 722
DEFERRED INCOME TAXES 523 -
COMMITMENTS AND CONTINGENCIES (Note 7) - -
MANDATORILY REDEEMABLE PREFERRED STOCK (Note 8) 14,156 -
WARRANTS (Note 8) 2,949 -
SHAREHOLDERS' EQUITY:
Preferred stock - no par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock - no par value; 15,000,000 shares
authorized; 4,733,560 and 4,713,995 issued and
outstanding 2000 and 1999, respectively 9,329 9,183
Retained earnings 23,370 23,938
Accumulated comprehensive loss (1,234) (464)
--------- --------
Total shareholders' equity 31,465 32,657
--------- --------
TOTAL $85,417 $44,420
========= ========
(Concluded)
See notes to consolidated financial statements.
27
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
THREE YEARS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
2000 1999 1998
NET SALES $67,634 $68,028 $53,133
COST OF SALES 41,804 42,281 33,838
--------- --------- ---------
Gross profit 25,830 25,747 19,295
--------- --------- ---------
OPERATING EXPENSES:
Selling 12,970 11,125 8,025
Research and development 5,521 4,282 4,781
General and administrative 5,907 5,378 5,042
Amortization of intangibles 914 237 237
In-process research and development 1,400 - -
--------- --------- ---------
Total operating expenses 26,712 21,022 18,085
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (882) 4,725 1,210
--------- --------- ---------
OTHER INCOME (EXPENSE):
Royalty income 110 77 62
Interest income 398 318 227
Interest expense (427) (108) (139)
Other, net 93 149 29
--------- --------- ---------
Total other income - net 174 436 179
--------- --------- ---------
Earnings (loss) before income taxes (708) 5,161 1,389
Income tax (benefit) expense (375) 1,632 464
--------- --------- ---------
NET EARNINGS (LOSS) (333) 3,529 925
Accretion of mandatorily redeemable preferred
securities (Note 8) (235) - -
--------- --------- ---------
Net earnings (loss) available to common
shareholders $ (568) $ 3,529 $ 925
========= ========= =========
EARNINGS (LOSS) PER SHARE - Basic $ (0.12) $ 0.75 $ 0.20
========= ========= =========
EARNINGS (LOSS) PER SHARE - Diluted $ (0.12) $ 0.75 $ 0.20
========= ========= =========
SHARES USED IN PER SHARE CALCULATION - Basic 4,723 4,707 4,692
========= ========= =========
SHARES USED IN PER SHARE CALCULATION - Diluted 4,723 4,711 4,721
========= ========= =========
See notes to consolidated financial statements.
28
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
COMMON STOCK
----------------- ACCUMULATED
RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME(LOSS) TOTAL
---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1997 4,684,446 $8,969 $19,484 $ (422) $28,031
Components of comprehensive
income:
Net earnings 925 925
Comprehensive income - foreign
currency translation adjustment,
net of tax 222 222
--------
Total comprehensive income 1,147
--------
Issuance of common stock upon
exercise of stock options 6,472 51 - - 51
Issuance of stock for Employee
Stock Purchase Plan 10,581 86 - - 86
---------- --------- -------- --------- --------
Balance at September 30, 1998 4,701,502 9,106 20,409 (200) 29,315
Components of comprehensive
income:
Net earnings 3,529 3,529
Comprehensive loss - foreign
currency translation adjustment,
net of tax (264) (264)
--------
Total comprehensive income 3,265
--------
Issuance of common stock upon
exercise of stock options 100 1 - - 1
Issuance of stock for Employee
Stock Purchase Plan 12,393 76 - - 76
---------- --------- -------- --------- --------
Balance at September 30, 1999 4,713,995 9,183 23,938 (464) 32,657
Components of comprehensive
income:
Net loss (333) (333)
Comprehensive loss - foreign
currency translation adjustment,
net of tax (770) (770)
--------
Total comprehensive loss (1,103)
--------
Accretion of mandatorily
redeemable preferred stock (235) (235)
Issuance of common stock upon
exercise of stock options 11,500 85 - - 85
Issuance of stock for Employee
Stock Purchase Plan 8,065 61 - - 61
---------- --------- -------- --------- --------
Balance at September 30, 2000 4,733,560 $9,329 $23,370 $(1.234) $31,465
========== ========= ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
--------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (333) $ 3,529 $ 925
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Foreign currency exchange (gain) loss 407 (58) (61)
Depreciation and amortization 3,311 2,371 2,187
In-process research and development 1,400 - -
Deferred income taxes 518 (30) 7
Deferred rent 31 42 50
Bad debt expense (recoveries) (103) (117) 156
Changes in assets and liabilities:
Trade accounts and notes receivable 4,144 (3,768) 1,626
Inventories 1,290 (2,125) 1,230
Prepaid expenses and other current assets (1,184) (452) 1
Accounts payable (686) 354 (85)
Accrued payroll liabilities and commissions (657) 1,665 (194)
Accrued customer support and warranty costs (24) (246) (86)
Income taxes payable (314) 256 (481)
Other accrued liabilities (3,441) 280 (121)
Customers' deposits (18) 189 (64)
Other (46) - 6
--------- --------- --------
Cash provided by operating activities 4,295 1,890 5,096
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 3,500 - -
Purchases of short-term investments (2,519) (984) -
Proceeds from sale of property - - 653
Purchases of property, plant, and equipment (2,168) (1,338) (2,032)
Cash paid for acquired companies, net of cash (16,208) - -
acquired --------- --------- --------
Cash used in investing activities (17,395) (2,322) (1,379)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 146 77 137
Payments on long-term debt (2,750) (539) (904)
Proceeds from issuance of long-term debt 18,150 - 409
Redemption of warrants (703) - -
--------- --------- --------
Cash provided (used in)
financing activities 14,843 (462) (358)
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (735) (20) 78
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 1,008 $ (914) $ 3,437
(Continued)
See notes to consolidated financial statements.
30
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
2000 1999 1998
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 1,008 $ (914) $ 3,437
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,419 6,333 2,896
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,427 $ 5,419 $ 6,333
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 344 $ 148 $ 256
Cash paid during the year for income taxes 880 1,408 800
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment obtained through capital leases $ 96 $ - $ -
Noncash portion of acquisitions (assumption
of liabilities and issuance of mandatorily
redeemable preferred stock and warrants) $33,249 $ - $ -
(Concluded)
See notes to consolidated financial statements.
31
<PAGE>
KEY TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
1. THE COMPANY AND CURRENT YEAR ACQUISITIONS
Key Technology, Inc. and its wholly-owned subsidiaries (the "Company")
design, manufacture, and sell process automation systems, integrating
electro-optical inspection and sorting, specialized conveying and product
preparation equipment. The consolidated financial statements include the
accounts of Key Technology, Inc. and its wholly-owned subsidiaries, Key
Technology Holdings USA LLC, Advanced Machine Vision Corporation ("AMVC")
and Key Technology FSC, Inc., a foreign sales corporation (FSC). Suplusco
Holding B.V., a wholly-owned European subsidiary of Key Technology Holdings
USA LLC includes the accounts of KEY/Superior B.V. AMVC includes the
accounts of SRC Vision, Inc. and its wholly-owned European subsidiary, SRC
Vision B.V., Ventek, Inc., ARC Netherlands B.V. (inactive) and Applied
Laser Systems, Inc. (inactive). Farmco, Inc. and its sister company,
Ro-Tech, Inc. (collectively, "Farmco") were merged into the accounts of Key
Technology, Inc. All significant intercompany accounts and transactions
have been eliminated.
ACQUISITIONS - Effective June 1, 2000, the Company acquired all the
outstanding stock of Farmco. The purchase price was $5,040,000. The Company
financed the cash purchase price from cash on hand, short-term investments
and existing lines of credits. The acquisition was accounted for as a
purchase and Farmco's results of operations for the period subsequent to
the acquisition have been included in the Company's Consolidated Statements
of Earnings for the year ended September 30, 2000. On September 29, 2000
these legal entities were statutorily dissolved and merged with the
Company. The purchase price has been allocated to the assets and
liabilities of Farmco based on their estimated fair values. Based on these
estimates, the Company recorded approximately $1,950,000 million of
goodwill in its consolidated balance sheet at September 30, 2000, which is
being amortized on a straight-line basis over 15 years. Assets and
liabilities acquired were as follows (in thousands):
Fair value of assets acquired:
Tangible assets $1,420
Patents/developed technologies and 5,091
goodwill
Cash paid for common stock, less cash (4,587)
acquired of $453
-------
Liabilities assumed $1,924
=======
The amortization period for patents/developed technologies is ten years. The
product lines associated with theses assets are expected to continue to
generate revenues for an extended period of time.
Effective July 12, 2000, the Company acquired all the outstanding
stock of AMVC. The Company financed the purchase of outstanding common
stock and preferred stock by issuing $11,539,000 of Series B convertible
preferred stock, $2,382,000 of Series C convertible preferred stock,
$3,652,000 of warrants, and by paying cash of $11,621,000. The acquisition
was accounted for as a purchase and AMVC's operations for the period
subsequent to the acquisition have been included in the Company's
consolidated statements of earnings for the year ended September 30, 2000.
The purchase price has been allocated to the assets and liabilities
of AMVC based on their estimated fair values. Based on these estimates,
the Company recorded approximately $5,700,000 million of
32
<PAGE>
goodwill in its Consolidated Balance Sheet at September 30, 2000, which is being
amortized on a straight-line basis over 15 years. Assets and liabilities
acquired were as follows (in thousands):
Fair value of assets acquired:
Tangible assets $17,086
Patents/developed technologies,
in-process research
And development costs and goodwill 23,519
Deferred tax assets acquired 2,341
---------
Fair value of assets acquired 42,946
Less:
Cash paid for stock, less cash acquired 11,621
of $2,877
Mandatorily redeemable preferred stock
issued (both Series B and Series C) 13,921
Warrants issued 3,652
---------
Liabilities assumed $13,752
=========
The Company obtained independent appraisals of the fair market value of the
intangible assets to be acquired. The Company identified eight significant
categories of projects under development at the date of the acquisition
which had not been proven technologically feasible or had not generated
revenue as of the date of the evaluation. These projects are expected to
generate revenue in the near future. A one-time charge of $1.4 million
associated with the write-off of acquired in-process research and
development related to these projects was recorded upon closing of the
transaction.
The Company identified eleven product catagories which were proven
technologically feasible and are classified as patents/developed
technologies. The amortization period for these assets is ten years. The
product lines associated with these assets are expected to continue to
generate revenues for an extended period of time.
Pro forma combined statements of operations data, presented as if the
mergers had occurred on October 1 of each year are as follows (dollars in
thousands, except per share data):
SEPTEMBER 30,
-------------
2000 * 1999
Net sales $87,868 $96,482
Net earnings (loss) (3,749) 1,227
Accretion of mandatorily redeemable preferred (940) (940)
stock
Net earnings (loss) available to common (4,689) 287
shareholders
Pro forma net earnings (loss) per share (0.99) 0.06
Pro forma weighted average shares outstanding 4,723 4,707
* PRO FORMA RESULTS FOR 2000 INCLUDE THE $1.4 MILLION CHARGE FOR IN-PROCESS
RESEARCH AND DEVELOPMENT RESULTING FROM THE ACQUISITION OF AMVC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Sales revenue net of allowances is generally
recognized at the time equipment is shipped to customers or when title
passes or in the case of trial units, upon the customers' acceptance
of the product. Revenue from maintenance and support contracts is
recognized ratably over the period the service is provided. Revenue from
other service contracts is
33
<PAGE>
recognized at the time the service is provided. Upon receipt of an
order, the Company generally receives a deposit which is recorded as
customers' deposits. The Company makes periodic evaluations of the
creditworthiness of its customers and generally does not require collateral.
An allowance for credit losses is provided based upon historical experience
and anticipated losses.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company considers
all highly liquid investments with original maturities of 90 days or less at
date of acquisition to be cash equivalents. The Company invests from
time-to-time in short-term investments which consist primarily of bankers
acceptances and commercial paper with original maturities of greater than 90
days and less than one year. These short-term investments are typically held
to maturity and the carrying value approximates fair value.
INVENTORIES are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT, AND EQUIPMENT are recorded at cost and depreciated over
estimated useful lives on the straight-line method. The range in lives for
the assets is as follows:
YEARS
-----
Buildings and improvements 7 to 40
Manufacturing equipment 5 to 10
Office equipment, furniture, and fixtures 3 to 7
GOODWILL AND OTHER INTANGIBLES - Goodwill is amortized over the estimated
useful lives of the related goodwill or 15 years, whichever is shorter.
Patent costs are amortized over the estimated useful lives of the related
patents or 17 years, whichever is shorter. Management periodically evaluates
the recoverability of goodwill and other intangibles based upon current and
anticipated net income and undiscounted future cash flows. Amortization of
goodwill and other intangibles was $914,000, $237,000, and $237,000 for the
years ended September 30, 2000, 1999, and 1998, respectively.
OTHER ASSETS - Other assets include approximately $280,000 of a note
receivable due from a director of the Company at September 30, 2000.
ACCRUED CUSTOMER SUPPORT AND WARRANTY COSTS - The Company provides customer
support services consisting of installation and training to its customers.
The Company also provides a warranty on its products for one to two years
following the date of shipment. Management establishes a reserve for
customer support and warranty costs based upon the types of products
shipped, customer support and product warranty experience and estimates such
costs for related new products where experience is not available. The
provision of customer support and warranty costs is charged to cost of sales
at the time such costs are known or estimable.
INCOME TAXES - Deferred income taxes are provided for the effects of
temporary differences arising from differences in the reporting of revenues
and expenses for financial statement and income tax purposes under the asset
and liability method using currently enacted tax rates.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in a
foreign currency are translated to U.S. dollars at the exchange rate on the
balance sheet date. Translation adjustments are shown separately in
shareholders' equity. Revenues, costs, and expenses are translated using an
average rate. Realized and unrealized foreign currency transaction gains and
losses are included in the consolidated statement of earnings.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates its long-lived
assets for financial impairments and will continue to evaluate them if
events or changes in circumstance indicate the carrying amount of such
assets may not be fully recoverable.
34
<PAGE>
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards ("SFAS")
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of the estimated fair value of financial instruments. The
carrying value of the Company's cash and cash equivalents, short-term
investments, accounts and notes receivable, trade payables, and other
accrued liabilities approximates their estimated fair values due to the
short maturities of those instruments.
EARNINGS PER SHARE - Basic earnings (loss) per share ("EPS") has been
computed by dividing net earnings (loss) available to common shareholders by
the weighted average number of shares outstanding during each period.
Diluted EPS has been computed by dividing net earnings (loss) available to
common shareholders by the weighted average common stock and common stock
equivalent shares outstanding during each period using the treasury stock
method for employee stock option plans and warrants, and the if-converted
method for mandatorily redeemable preferred stock, if the common equivalent
shares were not anti-dilutive. In the current year, all common stock
equivalents were anti-dilutive. Net earnings (loss) for the calculation of
both basic and diluted EPS is the same for each period presented. The
calculation of the weighted average outstanding shares is as follows (in
thousands):
2000 1999 1998
Weighted average shares outstanding -
basic 4,723 4,707 4,692
Common stock options and warrants - 4 29
----- ----- -----
Weighted average shares outstanding -
diluted 4,723 4,711 4,721
===== ===== =====
Options to purchase 724,833 shares of common stock were outstanding as of
September 30, 2000, but were not included in the computation of diluted EPS
for the year then ended because the options were antidilutive. These options
expire on dates beginning May 2003 through February 2010. For the years
ended September 30, 1999 and 1998, options for 509,183 and 467,250 shares,
respectively, of common stock were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market price of the common stock. Common equivalent shares of
1,091,543 and 294,551 from assumed conversion of mandatorily redeemable
preferred stock and warrants, respectively, were not included in the
computation of diluted EPS due to antidilution.
FUTURE ACCOUNTING CHANGES - In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. The implementation of this statement has been postponed by SFAS No.
137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL
OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133. SFAS No. 137 has postponed
implementation of SFAS No. 133 until fiscal year ending September 30, 2001.
Currently, this statement is not applicable under the Company's current
operating condition.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which, as amended, the Company is required to implement
beginning June 1, 2001. This statement emphasizes that revenue cannot be
recognized until realized or realizable. Management believes this statement
will have an immaterial affect on the financial statements.
35
<PAGE>
3. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable consist of the following (in thousands):
SEPTEMBER 30,
-----------------------
2000 1999
Trade accounts and notes receivable $ 9,847 $11,098
Allowance for doubtful accounts (421) (336)
--------- ---------
Total trade accounts and notes receivable, net $ 9,426 $10,762
========= =========
4. INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 30,
-----------------------
2000 1999
Purchased components and raw materials $ 7,964 $ 6,202
Sub-assemblies 2,941 1,851
Work-in-process 4,343 3,481
Finished goods 6,763 3,084
--------- ---------
Total inventories $22,011 $14,618
========= =========
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
SEPTEMBER 30,
-----------------------
2000 1999
Land $ 1,768 $ 230
Buildings and improvements 7,364 3,233
Manufacturing equipment 11,213 9,223
Office equipment, furniture, and fixtures 11,657 8,012
Equipment purchases in process 433 106
--------- ---------
32,435 20,804
Accumulated depreciation (18,651) (12,222)
--------- ---------
Total property, plant, and equipment - net $13,784 $ 8,582
========= =========
6. FINANCING AGREEMENTS
The Company has a domestic credit accommodation with a commercial bank which
provides for an unsecured operating line up to $4,500,000 and revolving
credit loans of up to $18,150,000. The authorized borrowing limits
of the revolving credit loans were reduced by a total of $250,000 on
September 30, 2000 and will reduce by a total of $500,000 each quarter
thereafter beginning December 31, 2000. The unsecured operating line expires
February 1, 2001. The credit facilities carry interest rates based upon
either the lender's prime rate less certain basis points, the Federal Funds
Borrowing Rate plus certain basis points or the LIBOR rate plus certain
basis points. The spread is determined by the performance of the Company
as reviewed quarterly by the lender. The selection of the interest rate
can be changed from time-to-time by the Company. At September 30, 2000
36
<PAGE>
the Company used the Federal Funds Borrowing Rate which was 8.0% for the
operating line and 8.1% for the revolving credit loans.
The Company also maintains a credit facility with a Dutch bank which
provides for operating lines of credit up to 1.5 million guilders or
approximately $600,000 at an interest rate of 7.00%. Collateral for this
credit facility is certain receivables and inventories of the Company's
Dutch subsidiaries and a guarantee provided by the Company. At September 30,
2000 and 1999, there were no borrowings outstanding.
Long-term debt consists of the following (in thousands):
SEPTEMBER 30,
-----------------------
2000 1999
Revolving credit agreement, variable interest rate,
due in quarterly Installments until May 2007,
secured by business personal property $10,000 $ -
Revolving credit agreement, variable interest rate
through July 2008, secured by business personal
property. 8,150 -
Mortgage note payable, interest of 8.3%, due in
monthly principal and interest installments through
May 2008, secured by specific property, plant, and
equipment. 2,905 -
Notes payable, interest rate of 11.25%, due in quarterly
interest Installments through April 2001. The
principal amount is payable In April 2001. 900 -
Note payable, interest rate of 6%, due in quarterly
principal and interest installments through October 2006,
secured by certain Land and buildings. 400 563
Note payable to Veneer Technology, Inc. (which is owned
by a director and certain employees of the Company)
interest of 6.75%, due in July 2001. 250 -
Note payable, interest rate of 5.625%, due in quarterly
principal and Interest installments through October 2001,
secured by receivables. 100 218
Unsecured borrowing through assignment of lease with
limited Recourse through July 2001. - 222
Capital leases, interest rates between 6% and 11%, due
in principal and interest installments through June 2003,
secured by certain office equipment. 225 23
----------- ---------
22,930 1,026
Current portion (3,447) (304)
----------- --------
Total long-term debt $19,483 $ 722
=========== ========
37
<PAGE>
Principal payments on long-term debt are as follows (in thousands):
YEAR ENDING
SEPTEMBER 30,
-------------
2001 $ 3,447
2002 2,231
2003 2,137
2004 2,123
2005 2,128
Thereafter 10,864
--------
Total $22,930
========
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt
at September 30, 2000 approximates carrying value.
The domestic credit accommodation and the mortgage note payable contain
covenants which require certain levels of tangible equity, working capital,
ratios of current assets to current liabilities, or debt to equity. The
Company was not in compliance with certain covenants at September 30, 2000.
The Company has obtained temporary waivers of these covenants.
7. LEASES
The Company has agreements with the Port of Walla Walla to lease two
operating facilities which expire in 2010. The Company currently has the
option to purchase the land and plant under one of the agreements. The
purchase price is determined by reducing the original plant construction
costs of approximately $8,800,000 by one thirty-fifth for each lease year
prior to the exercise of the option and adding $600,000 for the land,
subject to further reductions if exercised after the fifteenth year of the
lease. The Company has also leased two operating facilities in Oregon which
expire in 2002 and 2003. One of the facilities is owned by a current
employee of the Company. The Company has leased an operating facility in The
Netherlands, which expires in 2008.
Rental expense is recognized on a straight-line basis over the term of the
lease. Rental expense for the Company's operating leases referred to above
was $1,178,000 for the year ended September 30, 2000, $1,133,000 for the
year ended September 30, 1999, and $1,061,000 for the year ended September
30, 1998.
The following is a schedule of future minimum rental payments required under
the operating leases and future rental expense (in thousands):
YEAR ENDING RENTAL RENTAL
SEPTEMBER 30, PAYMENTS EXPENSE
------------- --------- ---------
2001 $ 1,254 $ 1,280
2002 1,245 1,260
2003 1,169 1,161
2004 1,115 1,080
2005 1,141 1,080
Thereafter 5,502 5,084
--------- ---------
Total $11,426 $10,945
========= =========
38
<PAGE>
8. MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS
The Company issued 1,340,366 and 119,106 shares of Series B convertible
preferred stock and Series C convertible preferred stock ("Series B" and
"Series C", respectively) at a price of $8.60 and $20.00 per share,
respectively, in conjunction with the acquisition of AMVC (see Note 1). Both
Series are convertible at the option of the holder at any time, unless
previously redeemed, or by the Company upon a merger, consolidation, share
exchange or sale of substantially all of its assets. The Series B, par value
of $0.01 per share, may be converted into 2/3 of a share of common stock.
The Series C, par value $0.01 per share, may be converted into 1 2/3 shares
of common stock. If not converted to common stock, the Company must redeem
the Series B and the Series C for $10.00 and $20.00 per share, respectively,
on July 12, 2005. The Series B is being accreted from its issue price to its
scheduled redemption price using the effective interest method. The holders
of Series B may require the Company to repurchase any or all of their shares
at any time after July 12, 2002 at the redemption price of $10.00. The
holders of Series C may require the Company to repurchase any or all of
their shares at any time at a redemption price of $20.00.
The holders of Series B and Series C are entitled to vote on all matters
based on the number of whole shares of common stock into which the holder's
stock could be converted. Neither series is entitled to any dividends. In
the event of any liquidation, dissolution or winding up of the Company's
business, the holders of Series B and Series C would be entitled to a
payment of $10.00 and $20.00 per share, respectively, before any mount is
distributed to holders of common stock. If the assets were insufficient to
permit this payment to the holders of Series B and Series C, the entire
assets available for distribution to holders of capital stock would be
distributed ratably among the holders of Series B and Series C.
Also, the Company issued 365,222 warrants at a fair market value of $10.00
per warrant in conjunction with the issuance of the convertible preferred
stock. Each warrant entitles its holder to purchase at any time for a period
of five years one share of common stock at $15.00 per share, subject to
certain adjustments. The warrants permit the holder to engage in a net
exercise of the warrants if the fair market value of one share of common
stock is greater than $15.00 per share on the date of exercise. Prior to the
expiration date of the warrant, the holder may require the Company to redeem
the warrant for cash at a price equal to $10.00 for each whole share of
common stock that may be purchased under the warrant. The warrant holder
does not have the right to vote or participate in any other matters as a
shareholder.
The Series C shareholder held an option to purchase shares of AMVC common
stock at the date of its acquisition by the Company. This option was
converted upon the closing of the merger into an option expiring on October
14, 2003 to purchase 210,000 shares of the Company's Series B convertible
preferred stock and warrants to purchase 52,500 shares of the Company's
common stock for $2,520,000. The Company's warrants issuable in connection
with the exercise of this option are identical to the warrants discussed
above.
39
<PAGE>
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
Current:
Federal $ (850) $1,520 $ 415
State (43) 142 42
--------- --------- ---------
(893) 1,662 457
--------- --------- ---------
Deferred:
Federal 490 (32) 8
State 28 2 (1)
--------- --------- ---------
518 (30) 7
--------- --------- ---------
Total income tax expense (benefit) $ (375) $1,632 $ 464
========= ========= =========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows
(in thousands):
SEPTEMBER 30,
--------------------------
2000 1999
Deferred tax asset:
Reserves and accruals $1,807 $1,347
NOL carryforward 6,301 -
Translation adjustment to equity 636 239
Deferred tax liability:
Accumulated depreciation (148) (270)
Intangible assets (6,183) 73
--------- ---------
Net deferred tax asset $2,413 $1,389
========= =========
Deferred tax:
Current asset $1,699 $1,182
Long-term asset 1,237 207
Long-term liability (523) -
--------- ---------
Net deferred tax asset $2,413 $1,389
========= =========
Income tax expense (benefit) is computed at rates different than statutory
rates. The reconciliation between effective and statutory rates is as
follows:
40
<PAGE>
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
Statutory rates (34.0)% 34.0% 34.0%
Increase (reduction) in income taxes
resulting from:
FSC commissions (15.1) (5.0) (6.8)
FSC tax 5.2 1.7 2.4
R&D credit (8.2) - -
State income taxes, net
of federal benefit (1.3) 1.8 1.9
Other permanent differences 10.3 0.8 2.5
Other (10.1) (1.7) (0.5)
-------- -------- --------
Income tax combined effective rate (53.0)% 31.6% 33.5%
======== ======== ========
10. SHAREHOLDERS' EQUITY
EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase Plan
(the "Plan"). Most employees are eligible to participate in the Plan. Shares
are not available to employees who already own 5% or more of the Company's
stock. Employees can withhold, by payroll deductions, up to 5% of their
regular compensation to purchase shares. The purchase price is 85% of the
fair market value of the common stock on the purchase date. There were
500,000 shares reserved for purchase under the Plan. During the years ended
September 30, 2000, 1999, and 1998, the Company issued 8,065, 12,393, and
10,581, respectively, under the Plan.
EMPLOYEES' STOCK OPTION PLAN - Under the 1996 Employees' Stock Option Plan
(the "1996 Plan"), eligible employees may receive either incentive stock
options or nonstatutory stock options and such options may be exercised only
after an employee has remained in continuous employment for one year after
the date of grant. Thereafter, the options become exercisable as stipulated
by the individual option agreements, generally 25% per year on the
anniversary date of the grant. The option price is determined to be fair
market value at date of grant. The following table summarizes activity under
this Plan:
OUTSTANDING OPTIONS
---------------------------
WEIGHTED
AVERAGE
NUMBER OF PRICE
SHARES PER SHARE
Balance at September 30, 1997 463,333 $16.31
Options granted 156,200 $11.77
Options exercised (6,475) $7.79
Options forfeited (10,275) $17.92
----------
Balance at September 30, 1998 602,783 $15.19
Options granted 45,000 $8.23
Options exercised (100) $7.00
Options forfeited (91,700) $16.09
----------
Balance at September 30, 1999 555,983 $14.48
Options granted 298,250 $8.84
Options exercised (11,500) $7.00
Options forfeited (117,900) $14.96
----------
Balance at September 30, 2000 724,833 $12.20
==========
41
<PAGE>
At September 30, 2000, the total number of shares reserved for option
exercises was 1,187,483, of which 462,650 were available for grant. At
September 30, 2000, options for 326,418 shares were exercisable at prices
from $7.00 to $23.25 per share. At September 30, 1999, the total number of
shares reserved for option exercises was 698,983, of which 143,000 were
available for grant. At September 30, 1999, options for 320,780 shares were
exercisable at prices from $7.00 to $23.25 per share. At September 30, 1998,
the total number of shares reserved for option exercises was 699,083, of
which 96,300 were available for grant. At September 30, 1998, options for
240,568 shares were exercisable at prices from $7.00 to $23.25 per share.
During 1995, FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which defines a fair value based method of accounting for
employee stock options and similar equity instruments and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed
by Accounting Principles Board Opinion No. 25 ("APB 25"). Entities electing
to remain with the accounting in APB 25 must make pro forma disclosures of
net income and, if presented, earnings per share, as if the fair value based
method of accounting defined in SFAS No. 123 has been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25. The Company has computed, for pro forma disclosure purposes,
the value of all stock and stock options granted under the Employee Stock
Purchase Plan and the 1996 Employees' Stock Option Plan during 2000, 1999,
and 1998 using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 using the following weighted average assumptions for the years ended
September 30, 2000, 1999, and 1998:
2000 1999 1998
Risk-free interest rate 6.2 % 5.0 % 5.0 %
Expected dividend yield 0 % 0 % 0 %
Expected lives 5.5 years 6 years 6 years
Expected volatility 66 % 66 % 62 %
Using the Black-Scholes methodology, the total value of stock options
granted during 2000, 1999, and 1998 was $1,598,000, 225,000, and $1,097,000,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically five years). The weighted average fair
value of options granted under the 1996 Employees' Stock Option Plan during
2000, 1999, and 1998 was $5.60 per share, $5.28 per share, and $7.27 per
share, respectively.
The total compensatory value of stock purchased under the Employee Stock
Purchase Plan during 2000, 1999, and 1998 was $11,000, $13,000, and $15,000,
respectively. The weighted average fair value of the stock purchased during
2000, 1999, and 1998 was $1.34 per share, $1.08 per share, and $1.42 per
share, respectively.
If the Company had accounted for its 1996 Plan and Employee Stock Purchase
Plan in accordance with SFAS No. 123, the Company's net earnings and
earnings per share would approximate the pro forma disclosures below (in
thousands, except per share amounts):
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998
------------------ ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
Net earnings
(loss) $ (333) $(1,083) $ 3,529 $ 2,633 $ 925 $ 186
Earnings (loss)
per share -
basic and
diluted $(0.12) $ (0.28) $ 0.75 $ 0.56 $ 0.20 $ 0.04
42
<PAGE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
October 1, 1995, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding
at September 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 7.00 - $10.00 399,483 5.0 $ 8.68 80,733 $ 8.20
$10.01 - $15.00 129,100 7.3 11.70 72,050 11.64
$15.01 - $20.00 105,450 6.5 17.21 82,835 17.23
$20.01 - $23.25 90,800 5.6 22.57 90,800 22.57
---------------- ------------ ------------ ---------- ------------ -----------
$ 7.00 - $23.25 724,833 5.7 $ 12.20 326,418 $ 15.25
================ ============ ============ ========== ============ ===========
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan which covers substantially all
employees. The Company is required to match 50% of employee contributions up
to 2% of each participating employee's compensation. The Company contributed
$257,000, $200,000, and $222,000 in matching funds to the plan for the years
ended September 30, 2000, 1999, and 1998, respectively.
The 401(k) plan also permits the Company to make discretionary profit
sharing contributions to all employees. Discretionary profit sharing
contributions are determined annually by the Board of Directors. Profit
sharing plan expense was zero, $506,000, and zero for the years ended
September 30, 2000, 1999, and 1998, respectively.
The Company had a phantom stock plan for certain key employees and the
Company's estimated purchase price of the phantom stock units was included
in other liabilities. No additional awards of phantom stock units could
occur and final settlement occurred in fiscal 1998. The Company paid zero,
zero, and $46,000 in settlement of certain phantom stock unit awards during
the years ended September 30, 2000, 1999, and 1998, respectively.
12. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, as of the fiscal year ended
September 30, 1999. The Company's business units serve customers in its
primary market - the food processing and agricultural products industry -
through common sales and distribution channels. Therefore, the Company
reports on one segment. The following is information about products and
services (in thousands).
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
Net sales by product category:
Automated inspection systems $25,166 $22,342 $21,388
Specialized conveying systems 23,630 28,422 21,807
Process and preparation systems 2,784 5,528 1,687
Parts and service/contracts 16,054 11,736 8,251
-------- -------- ---------
Total net sales by product category $67,634 $68,028 $53,133
======== ======== =========
43
<PAGE>
The following is information about geographic areas:
YEAR ENDED SEPTEMBER 30,
----------------------------------
2000 1999 1998
Net sales:
Domestic $40,264 $37,026 $33,306
International 27,370 31,002 19,827
-------- -------- --------
Total net sales $67,634 $68,028 $53,133
======== ======== ========
Long-lived assets:
Domestic $38,306 $ 6,192 $ 6,852
International 3,332 4,007 4,599
-------- -------- --------
Total long-lived assets $41,638 $10,199 $11,451
======== ======== ========
During 2000, net sales to one major customer amounted to approximately 14%
of total net sales. During 1999, net sales to one major customer amounted to
approximately 11% of total net sales. No single customer accounted for more
than 10% of net sales during the year ended September 30, 1998.
No single geographic location accounted for more than 10% of net sales
during 2000. During 1999, net sales to various customers in Canada accounted
for approximately 11% of total net sales. During 1998, net sales to various
customers in The Netherlands accounted for approximately 11% of total net
sales. Location of the customer is the basis for identification of net
sales.
International long-lived assets are located in The Netherlands.
13. ROYALTY INCOME
As part of a settlement agreement entered into during 1997, the Company may
receive royalty payments through 2001 related to the sale of certain
equipment to a selected market. The payment may be reduced by a percentage
of the purchases of equipment from the Company by the other party. The
Company recognized royalty income from this agreement of $71,000, $26,000,
and $7,000 during the years ended September 30, 2000, 1999, and 1998,
respectively.
* * * * * *
44
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of operating results by quarter for the years
ended September 30, 2000 and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
2000 QUARTER ENDED DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $15,079 $17,081 $16,819 $18,655 $67,634
Gross profit 5,431 6,444 6,923 7,032 25,830
Net earnings (loss) 90 834 1,196 (2,453) (333)
Net earnings (loss) per
share -
Basic and diluted 0.02 0.18 0.25 (0.57) (0.12)
</TABLE>
<TABLE>
<CAPTION>
1999 QUARTER ENDED DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $14,819 $15,676 $15,836 $21,697 $68,028
Gross profit 5,390 5,752 6,874 7,731 25,747
Net earnings 424 547 1,196 1,362 3,529
Net earnings per share
- basic and diluted 0.09 0.12 0.25 0.29 0.75
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There is hereby incorporated by reference the information under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A, which Proxy Statement is anticipated to be filed with the
Securities and Exchange Commission within 120 days after the end of Registrant's
fiscal year ended September 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 2000.
45
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is hereby incorporated by reference the information under the caption
"Principal Shareholders" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fourth quarter of fiscal 2000, the Company paid $2,250,000 plus
accrued interest to Veneer Technology, Inc., representing payment in full of a
note payable. Veneer Technology, Inc. is 25% owned by Rodger A. Van Voorhis, a
director and employee of the Company. At September 30, 2000, the Company owed
Veneer Technology, Inc. $250,000 plus accrued interest on a note due in April
2001. The Company also held at September 30, 2000 a note receivable from Mr. Van
Voorhis of $280,000, including accrued interest receivable. The note payable to
Veneer Technology, Inc. and the note receivable from Mr. Van Voorhis were paid
or received in full with all accrued interest in October 2000, subsequent to the
close of the fiscal year.
The Company leases its manufacturing facility in Redmond, Oregon from John E.
Mobley, an employee and former owner of Farmco. Monthly lease payments of
$10,000 were determined by a real estate professional to be comparable with
similar properties in the area. The lease expires in 2003 with a right to extend
for an additional 5 years.
46
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
PAGE
----
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
Reference is made to Part II, Item 8, for a listing of
required financial statements filed with this report.......... 24
2. FINANCIAL STATEMENT SCHEDULES:
Financial statement schedules are omitted because they are
not applicable or the required information is included in the
accompanying consolidated financial statements or notes thereto.
3. EXHIBITS:
(3) Articles of Incorporation and Bylaws
(3.1) Restated Articles of Incorporation (filed as Exhibit 3.1
to the Registration Statement on Form S-1 (Registration
No. 33-63194) filed with the Securities and Exchange
Commission on May 24, 1993 and incorporated herein by
reference)
(3.2) Restated Bylaws, as amended (filed as Exhibit 3.2 to the
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1993 and incorporated herein by
reference)
(10) Material contracts
(10.1) Construction and Lease Agreement dated October 17, 1989
between the Port of Walla Walla and Registrant (filed as
Exhibit 10.1 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities
and Exchange Commission on May 24, 1993 and incorporated
herein by reference)
(10.2) Indenture of Trust dated as of February 1, 1993 between
Port of Walla Walla Public Corporation and Key Bank of
Washington, as Trustee (filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange
Commission on May 24, 1993 and incorporated herein by
reference)
(10.3) Loan Agreement dated February 1, 1993 between Port of
Walla Walla Public Corporation and Registrant (filed as
Exhibit 10.3 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities
and Exchange Commission on May 24, 1993 and incorporated
herein by reference)
(10.4) Pledge and Security Agreement dated as of
February 1, 1993 between Registrant and U.S. Bank of
Washington, N.A. (filed as Exhibit 10.4 to the
Registration Statement on Form S-1 (Registration No.
33-63194) filed with the Securities and Exchange
Commission on May 24, 1993 and incorporated herein by
reference)
47
<PAGE>
(10.5)* Registrant's 1989 Employees' Stock Option Plan, as
amended (filed as Exhibit 10.5 to the Registration
Statement on Form S-1 (Registration No. 33-63194) filed
with the Securities and Exchange Commission on May 24,
1993 and incorporated herein by reference)
(10.6)* Registrant's 401(k) Profit Sharing Plan dated
May 11, 1992 (filed as Exhibit 10.6 to Amendment No. 1
to Form S-1 (Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24, 1993 and
incorporated herein by reference)
(10.7)* Registrant's Restated Phantom Stock Plan, as amended
(filed as Exhibit 10.7 to the Registration Statement on
Form S-1 (Registration No. 33-63194) filed with the
Securities and Exchange Commission on May 24, 1993 and
incorporated herein by reference)
(10.8) License Agreement effective July 1, 1992 between
Registrant and Simco/Ramic Corporation (filed as Exhibit
10.8 to the Registration Statement on Form S-1
(Registration No. 33-63194) filed with the Securities
and Exchange Commission on May 24, 1993 and incorporated
herein by reference)
(10.9)* Registrant's Restated 1989 Employees' Stock Option Plan,
as amended (filed as Exhibit 10.1 to the Form 10-Q filed
with the Securities and Exchange Commission on May 12,
1995 and incorporated herein by reference)
(10.10)* Registrant's 1996 Employees' Stock Option Plan (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities
and Exchange Commission on May 2, 1996 and incorporated
herein by reference)
(10.11)* Registrant's 1996 Employees Stock Purchase Plan (filed
as Exhibit 10.2 to the Form 10-Q filed with the
Securities and Exchange Commission on May 2, 1996 and
incorporated herein by reference)
(10.12) Lease Agreement dated April 18, 1996 between the Port of
Walla Walla and Registrant (filed as Exhibit 10.1 to the
Form 10-Q filed with the Securities and Exchange
Commission on August 7, 1996 and incorporated herein by
reference)
(10.13) Business Loan Agreement dated as of January 25, 1999
between Registrant and U.S. Bank National Association
(filed as Exhibit 10.1 to the Form 10-Q filed with the
Securities and Exchange Commission on May 14, 1999 and
incorporated herein by reference)
(10.14) Agreement and Plan of Merger by and among the
Registrant, KTC Acquisition Corp. and Advanced Machine
Vision Corporation dated February 15, 2000 as amended by
Amendment No. 1 dated February 25, 2000 and as amended
by Amendment No. 2 dated April 24, 2000 (filed as
Exhibit 2.1 to the Form 8-K filed with the Securities
and Exchange Commission on July 27, 2000 and
incorporated herein by reference)
(10.15) Stock Purchase Agreement by and among the Registrant,
Farmco, Inc., Ro-Tech, Inc., John E. Mobley and Nancy L.
Mobley dated May 16, 2000 (filed as Exhibit 2.1 to the
Form 8-K filed with the Securities and Exchange
Commission on May 31, 2000 and incorporated herein by
reference)
(10.16) Business Loan Agreement dated May 5, 2000 between
Registrant and U.S. Bank National Association (filed as
Exhibit 10.1 to the Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2000 and
incorporated herein by reference)
(10.17) Promissory Note dated April 24, 1998 between SRC Vision,
Inc. and Bank of America National Trust & Savings
Association.
48
<PAGE>
(21) List of Subsidiaries
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
(99) Forward-Looking Statement Risk and Uncertainty Factors
-------------------------------
* Management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K during the fourth quarter of fiscal 2000
were filed:
1. Registrant's Form 8-K/A dated May 16, 2000 and filed with the
Securities and Exchange Commission on July 27, 2000 amending Item 7
Financial Statements and Pro Forma Financial Information related to
the Farmco acquisition.
2. Registrant's Form 8-K dated February 15, 2000 and filed with the
Securities and Exchange Commission on July 27, 2000 related to the
AMVC acquisition.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KEY TECHNOLOGY, INC.
By: /s/ Thomas C. Madsen
-------------------------------------
Thomas C. Madsen
President and Chief Executive Officer
By: /s/ Ted R. Sharp
-------------------------------------
Ted R. Sharp
Chief Financial Officer
(Principal Financial and Accounting Officer)
December 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Thomas C. Madsen December 14, 2000
-------------------------------------------------------
Thomas C. Madsen, Director, President and Chief
Executive Officer
/s/ Harold R. Frank December 14, 2000
-------------------------------------------------------
Harold R. Frank, Director
/s/ John E. Pelo December 14, 2000
-------------------------------------------------------
John E. Pelo, Director
/s/ Michael L. Shannon December 14, 2000
-------------------------------------------------------
Michael L. Shannon, Director
/s/ Peter H. van Oppen December 14, 2000
-------------------------------------------------------
Peter H. van Oppen, Director
/s/ Gordon Wicher December 14, 2000
-------------------------------------------------------
Gordon Wicher, Director
/s/ Rodger A. Van Voorhis December 14, 2000
-------------------------------------------------------
Rodger A. Van Voorhis, Director
/s/ Ted R. Sharp December 14, 2000
-------------------------------------------------------
Ted R. Sharp, Chief Financial Officer (Principal
Financial and Accounting Officer)
50
<PAGE>
KEY TECHNOLOGY, INC.
FORM 10-K
EXHIBIT INDEX
EXHIBIT
NUMBER PAGE
------ ----
10.17 Promissory Note............................................. 52
21.1 List of Subsidiaries........................................ 59
23.1 Consent of Deloitte & Touche LLP............................ 60
27.1 Financial Data Schedule..................................... 61
99.1 Forward-Looking Statement Risk and Uncertainty Factors...... 62
51
