SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 15, 2000
KEY TECHNOLOGY, INC.
(Exact name of registrant as specified in charter)
OREGON 0-21820 93-0822509
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) 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)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective July 12, 2000, KTC Acquisition Corp. ("KTC"), an Oregon
corporation and wholly-owned subsidiary of Key Technology, Inc. ("Key
Technology" or the "Company") merged with and into Advanced Machine Vision
Corporation, a California corporation ("AMVC"), pursuant to an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of February 15, 2000, as
amended by Amendment No. 1 dated as of February 25, 2000, and as amended by
Amendment No. 2 dated as of April 24, 2000, by and among the Company, KTC and
AMVC (the "Merger"). AMVC was the surviving corporation in the Merger and became
a wholly-owned subsidiary of the Company. A copy of the press release announcing
the consummation of the Merger is filed as Exhibit 99.1 to this report.
At the Effective Time of the Merger (the "Effective Time"), each issued
and outstanding share of AMVC common stock, no par value, was converted into the
right to receive:
o $1.00 per share in cash.
o 1/10 of a share of Key Technology Series B convertible preferred stock
("Series B"). Each whole share of Series B is redeemable for $10.00 in cash
any time after two years, or convertible at any time into 2/3 of a share of
Key Technology common stock.
o 1/40 of a five-year warrant to purchase Key Technology common stock (the
"Warrant"). Each whole Warrant is redeemable at any time for $10.00 in cash,
or can be exercised to purchase one share of Key Technology common stock at
an exercise price of $15.00 per share.
No fractional shares of Key Technology Series B convertible preferred
stock, common stock or warrants will be issued in connection with the Merger.
Instead of any fractional shares of preferred stock or fractional warrant, AMVC
shareholders will receive an amount of cash equal to the amount determined by
multiplying their fraction by $10.00. Instead of any fractional share of common
stock issuable upon exercise of warrants, warrant holders will receive an amount
of cash equal to the amount determined by multiplying their fraction by the then
fair market value per share of Key Technology common stock.
At the Effective Time, FMC Corporation, the sole holder of AMVC Series B
preferred stock, received the right to convert each share of AMVC Series B
preferred stock into one share of Key Technology Series C convertible preferred
stock ("Series C"). Each share of Series C is accompanied by a warrant,
redeemable at any time by the holder for $2.50 in cash and exercisable at any
time to purchase one-quarter of a share of Key Technology common stock at a
price of $15.00 per share. Each share of Series C is convertible at any time at
the election of the holder into 12/3 shares of Key Technology common stock and
may be redeemed at the election of the holder at any time after issuance for
$20.00 per share. In addition, an option for AMVC common stock held by FMC
Corporation was converted into an option to purchase 210,000 shares of Key
Technology Series B convertible preferred stock plus a warrant to purchase
52,500 shares of Key Technology common stock.
The Merger will be accounted for as a purchase transaction for financial
accounting purposes in accordance with generally accepted accounting principals.
The consideration paid by Key Technology was determined pursuant to arm's
length negotiations. Key Technology financed the cash payments to be made and
any redemption of the warrants issued to the AMVC shareholders through an
operating line of credit and a revolving credit loan totaling $14,500,000 from
U.S. Bank National Association. The assets acquired by Key Technology in the
Merger were used to design and manufacture machine vision systems for the food
processing industry and industrial markets including tobacco, plastics and pulp
wood industries. Key Technology intends to continue using the assets in the same
manner.
Material relationships between AMVC and Key Technology, any affiliate,
director or officer of Key Technology or any associate of any such director or
officer include:
o arrangements with the directors and officers of AMVC and the holder of the
AMVC Series B preferred stock that grant the parties insurance and
indemnification against liabilities, including Key Technology maintaining
directors' and officers' liability insurance arising out of such person's
services as a director or officer of AMVC for the next six years;
o change of control payments aggregating up to approximately $2,000,000,
subject to certain limitations of the Internal Revenue Code, to certain
officers and directors of AMVC pursuant to employment agreements;
o amendments to restricted stock agreements that permit certain directors or
officers of AMVC and its subsidiaries to participate in a "cashless exercise"
of their restricted stock; and
o arrangements with FMC Corporation pursuant to which FMC Corporation voted
its shares of preferred stock in favor of the Merger and terminated certain
agreements with AMVC in exchange for receiving Key Technology Series C
preferred stock which has certain rights and privileges different from and
superior to the Key Technology Series B preferred stock.
AMVC designs, develops, manufactures and markets machine vision systems
that process images not discernible to the human eye. These systems combine
technologies in four key areas (lighting, cameras, processors and software) to
improve quality, enhance yield, reduce production costs and increase throughput
in a variety of markets and applications where human vision is inadequate due to
fatigue, visual acuity or speed. Key Technology designs, manufactures, sells and
services process automation systems, primarily for the food processing industry,
that process product streams of discrete pieces to improve food safety and
quality. These systems integrate electro-optical automated inspection and
sorting systems, specialized conveying systems and process and preparation
systems.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
The following financial statements of AMVC and the report of
PricewaterhouseCoopers LLP, independent certified public accountants, are
included in this report:
Report of Independent Accountants
Consolidated Balance Sheets -- March 31, 2000 (unaudited),
December 31, 1999 and 1998
Consolidated Statements of Operations -- Fiscal Years Ended
December 31, 1999, 1998 and 1997 and the three months ended
March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Mandatorily Redeemable Preferred Stock and
Non-Redeemable Shareholders' Equity -- Fiscal Years Ended
December 31, 1999, 1998 and 1997 and the three months ended
March 31, 2000 (unaudited)
Consolidated Statements of Cash Flows -- Fiscal Years Ended
December 31, 1999, 1998 and 1997 and the three months ended
March 31, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule VIII -- Valuation and Qualifying Accounts
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Advanced Machine Vision Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of mandatorily redeemable
preferred stock and non-redeemable shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Advanced
Machine Vision Corporation and its subsidiaries (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed more fully in Note 1, the Company has restated its 1998
financial statements to account for a redemption feature included in the October
1998 Preferred Stock agreement with FMC Corporation. The carrying value of the
Preferred Stock of $2,579,000, which was previously presented as a component of
stockholders' equity, has been reclassified as mandatorily redeemable preferred
stock, outside of shareholders' equity, at December 31, 1998. The restatement of
the 1998 financial statements had no effect on the Company's net income, total
assets or total liabilities.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PricewaterhouseCoopers LLP
Portland, Oregon
February 29, 2000
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31,
MARCH 31, --------------------
2000 1999 1998
----------- -------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,298 $ 5,889 $ 4,423
Accounts receivable, net of allowance for doubtful
accounts of $205,000 at March 31, 2000, December 31,
1999 and $230,000 at December 31, 1998............... 2,687 1,601 4,073
Inventories (Note 2).................................... 8,572 8,399 7,379
Prepaid expenses........................................ 218 206 181
Current deferred tax asset (Note 7)..................... 870 870 1,175
-------- -------- --------
Total current assets............................... 14,645 16,965 17,231
Property, plant and equipment -- net (Notes 3 and 6)...... 4,713 4,860 5,274
Intangible assets, net (Note 4)........................... 3,995 4,175 4,894
Deferred tax asset (Note 7)............................... 1,230 1,230 925
Other assets.............................................. 722 790 1,515
-------- -------- --------
$ 25,305 $ 28,020 $ 29,839
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,375 $ 937 $ 984
Short-term borrowings (Note 6).......................... -- 2,000 --
Accrued liabilities (Notes 5 and 9)..................... 638 388 997
Customer deposits....................................... 1,917 1,569 1,151
Accrued payroll......................................... 665 714 761
Warranty reserve........................................ 351 373 448
Current portion of notes payable (Note 6)............... 43 43 790
-------- -------- --------
Total current liabilities.......................... 4,989 6,024 5,131
-------- -------- --------
Notes payable to related parties, less current portion
(Note 6)................................................ 2,500 2,500 4,779
Notes payable, less current portion (Note 6).............. 3,784 3,794 3,083
-------- -------- --------
Total notes payable................................ 6,284 6,294 7,862
-------- -------- --------
Commitments and contingencies (Note 9)....................
Mandatorily redeemable preferred stock (Note 10):
Series B -- No par value; 119,106 shares authorized
and outstanding at March 31, 2000, December 31, 1999
and 1998 (aggregate liquidation preference of
$2,620,000).......................................... 2,579 2,579 2,579
-------- -------- --------
Non-redeemable shareholders' equity (Notes 8 and 10):
Common stock:
Class A and B -- No par value; 63,000,000 shares
authorized; 12,927,000, 12,970,000 and 10,720,000
shares issued and outstanding at March 31, 2000,
December 31, 1999 and 1998, respectively........... 26,053 26,103 24,329
Common stock warrants................................... -- -- 110
Additional paid in capital.............................. 5,020 5,020 4,910
Accumulated deficit..................................... (19,596) (18,007) (15,112)
Accumulated other comprehensive income.................. (24) 7 30
-------- -------- --------
Total non-redeemable shareholders' equity.......... 11,453 13,123 14,267
-------- -------- --------
$ 25,305 $ 28,020 $ 29,839
======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
Net sales............................................. $ 5,388 $ 5,158 $24,312 $27,041 $31,974
Cost of sales......................................... 2,822 2,504 12,212 12,585 16,042
------- ------- ------- ------- -------
Gross profit.......................................... 2,566 2,654 12,100 14,456 15,932
------- ------- ------- ------- -------
Operating expenses:
Selling and marketing............................... 1,422 947 5,948 4,762 4,930
Research and development............................ 1,253 1,260 4,758 5,024 3,950
General and administrative.......................... 1,191 794 3,191 3,413 3,303
Goodwill amortization............................... 180 180 720 695 731
------- ------- ------- ------- -------
4,046 3,181 14,617 13,894 12,914
------- ------- ------- ------- -------
Income (loss) before other income and expense......... (1,480) (527) (2,517) 562 3,018
Other income and expense:
Gain on sale of Pulsarr............................. -- -- -- -- 4,989
Investment and other income......................... 59 67 191 286 371
Interest expense.................................... (168) (140) (569) (689) (1,263)
------- ------- ------- ------- -------
Income (loss) before income taxes..................... (1,589) (600) (2,895) 159 7,115
Provision for (benefit from) income taxes (Note 7).... -- (24) -- (2,083) 99
------- ------- ------- ------- -------
Net income (loss)..................................... $(1,589) $ (576) $(2,895) $ 2,242 $ 7,016
======= ======= ======= ======= =======
Earnings (loss) per share (Note 10):
Basic............................................... $ (0.13) $ (0.05) $ (0.24) $ 0.21 $ 0.64
Diluted............................................. $ (0.13) $ (0.05) $ (0.24) $ 0.18 $ 0.49
Shares used in per-share calculations:
Basic............................................... 12,285 11,520 12,084 10,517 11,002
Diluted............................................. 12,285 11,520 12,084 14,735 14,888
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE PREFERRED STOCK
AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1999 AND
THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
NON-REDEEMABLE SHAREHOLDER'S EQUITY
MANDATORILY REDEEMABLE ---------------------------------------
PREFERRED STOCK
------------------------
SERIES B COMMON STOCK COMMON
------------------------ --------------------------- STOCK
SHARES AMOUNT SHARES AMOUNT WARRANTS
---------- ---------- ----------- ------------ --------
Balance, December 31, 1996........... -- $ -- 11,250,000 $ 25,720 $ 2,403
Issuance of restricted stock......... -- -- 2,000,000 -- --
Retirement of restricted stock....... -- -- (1,800,000) -- --
Repurchase of Class A Common Stock
and Class F and H Warrants......... -- -- (1,001,000) (1,782) (180)
Exercise of options.................. -- -- 97,000 97 --
Partial conversion of note payable... -- -- 133,000 250 --
Expiration of warrants............... -- -- -- -- (26)
Translation adjustment............... -- -- -- -- --
Net income........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1997........... -- -- 10,679,000 24,285 2,197
Comprehensive income 1997............
Expiration of warrants............... -- -- -- -- (2,087)
Exercise of options.................. -- -- 8,000 8 --
Issuance of restricted stock......... -- -- 33,000 36 --
Issuance of mandatorily redeemable
preferred stock.................... 119,106 2,579 -- -- --
Translation adjustment............... -- -- -- -- --
Net income........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1998........... 119,106 2,579 10,720,000 24,329 110
Comprehensive income 1998............
Conversion of note payable........... -- -- 1,800,000 1,774 --
Expiration of warrants............... -- -- -- -- (110)
Issuance of restricted stock......... -- -- 450,000 -- --
Translation adjustment............... -- -- -- -- --
Net (loss)........................... -- -- -- -- --
---------- ---------- ----------- ------------ --------
Balance, December 31, 1999........... 119,106 $ 2,579 12,970,000 $ 26,103 $ --
Comprehensive (loss) 1999............
Repurchase of Common Stock........... -- (43,000) (50) --
Translation adjustment............... -- -- -- -- --
Net (loss)........................... -- -- -- -- --
Balance, March 31, 2000.............. 119,106 $ 2,579 12,927,000 $ 26,053 $
========== ========== =========== ============ ========
Comprehensive (loss) for the three
months ended March 31, 2000..........
NON-REDEEMABLE SHAREHOLDER'S EQUITY
-------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
PAID IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
CAPITAL DEFICIT INCOME INCOME
----------- ----------- ------------- -------------
Balance, December 31, 1996........... $ 2,797 $ (24,370) $ (50)
Issuance of restricted stock......... -- -- --
Retirement of restricted stock....... -- -- --
Repurchase of Class A Common Stock
and Class F and H Warrants......... -- -- --
Exercise of options.................. -- -- --
Partial conversion of note payable... -- -- --
Expiration of warrants............... 26 -- --
Translation adjustment............... -- -- 50 $ 50
Net income........................... -- 7,016 -- 7,016
----------- ----------- -------- -----------
Balance, December 31, 1997........... 2,823 (17,354) --
Comprehensive income 1997............ $ 7,066
===========
Expiration of warrants............... 2,087 -- --
Exercise of options.................. -- -- --
Issuance of restricted stock......... -- -- --
Issuance of mandatorily redeemable
preferred stock.................... --
Translation adjustment............... -- -- 30 $ 30
Net income........................... -- 2,242 -- 2,242
----------- ----------- -------- -----------
Balance, December 31, 1998........... 4,910 (15,112) 30
Comprehensive income 1998............ $ 2,272
===========
Conversion of note payable........... -- -- --
Expiration of warrants............... 110 -- --
Issuance of restricted stock......... -- -- --
Translation adjustment............... -- -- (23) $ (23)
Net (loss)........................... -- (2,895) -- (2,895)
----------- ----------- -------- -----------
Balance, December 31, 1999........... $ 5,020 $ (18,007) $ 7
Comprehensive (loss) 1999............ $ (2,918)
===========
Repurchase of Common Stock........... -- -- --
Translation adjustment............... -- -- (31) $ (31)
Net (loss)........................... -- (1,589) (1,589)
Balance, March 31, 2000.............. $ 5,020 $ (19,596) $ (24)
=========== =========== ======== ===========
Comprehensive (loss) for the three
months ended March 31, 2000........ $ (1,620)
===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ADVANCED MACHINE VISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss)........................... $(1,589) $ (576) $(2,895) $ 2,242 $ 7,016
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Benefit from deferred income taxes....... -- -- -- (2,100) --
Gain on sale of Pulsarr.................. -- -- -- -- (4,989)
Charge for deferred debt issuance
costs.................................. -- -- -- -- 233
Depreciation and amortization............ 371 373 1,550 1,610 1,369
Changes in assets and liabilities (net of
amounts purchased/sold in
acquisition/divesture):
Accounts receivable.................... (1,086) 35 2,472 (1,363) 11
Inventories............................ (173) (447) (1,020) (2,199) (499)
Prepaid expenses and other assets...... 56 119 699 (760) (186)
Accounts payable, accrued liabilities,
customer deposits, accrued payroll
and warranty reserve................ 965 (89) (113) (539) 842
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities................ (1,456) (585) 693 (3,109) 3,797
------- ------- ------- ------- -------
Cash (used in) provided by investing
activities:
Proceeds from sale of Pulsarr............... -- -- -- -- 7,010
Purchases of property and equipment......... (55) (22) (438) (1,383) (1,014)
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities................ (55) (22) (438) (1,383) 5,996
------- ------- ------- ------- -------
Cash (used in) provided by financing
activities:
Proceeds from (repayment of) line of credit
borrowings............................... (2,000) -- 2,000 -- --
Notes payable to bank and others -- net..... (10) (759) (789) 283 (3,792)
Proceeds from issuance of mandatorily
redeemable preferred stock............... -- -- -- 2,579 --
Proceeds from exercise of stock options..... -- -- -- 8 97
Repurchase of Common Stock and Warrants..... (50) -- -- -- (1,962)
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities................ (2,060) 759 1,211 2,870 (5,657)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash....... (20) -- -- -- --
=======
Net increase (decrease) in cash............... 3,591 (1,366) 1,466 (1,622) 4,136
Cash and cash equivalents, beginning of the
period...................................... 5,889 4,423 4,423 6,045 1,909
------- ------- ------- ------- -------
Cash and cash equivalents, end of the
period...................................... $ 2,298 $ 3,057 $ 5,889 $ 4,423 $ 6,045
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information: Cash paid for:
Interest................................. $ 181 $ 143 $ 532 $ 583 $ 939
Income taxes............................. $ -- $ -- $ -- $ 62 $ 20
Supplemental disclosures of non-cash investing
and financing activities:
Conversion of debt, including accrued
interest, to equity...................... $ -- $ 1,774 $ 1,774 $ -- $ --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Advanced
Machine Vision Corporation ("AMV" or the "Company") and its four wholly-owned
subsidiaries: SRC VISION, Inc. and its wholly-owned SRC VISION BV subsidiary
("SRC"); Ventek, Inc. ("Ventek"); ARC Netherlands BV (inactive) and its
respective wholly-owned subsidiary, Pulsarr Holding BV ("Pulsarr"), from its
March 1, 1996 acquisition date to its May 6, 1997 disposition date (see Note 4);
and Applied Laser Systems, Inc. (inactive).
Through its subsidiaries, the Company designs, manufactures and markets
computer-aided vision defect detection and sorting and defect removal equipment
for use in a variety of applications, including food processing, wood products
and recycling. The Company's systems combine optical and mechanical systems
technologies to perform diverse scanning, analytical sensing, measuring and
sorting applications on a variety of products such as food, wood and plastics.
The Company sells its products throughout the world (see Note 11).
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying interim financial statements as of March 31, 2000 and for
the three months ended March 31, 2000 and 1999 are unaudited. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the annual audited financial statements and reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
Company's financial position at March 31, 2000, its results of operations and
its cash flows for the three-month periods ended March 31, 2000 and 1999. The
results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
EFFECTS OF RESTATEMENTS
As described in Note 10, the Company issued 119,106 shares of Series B
Preferred Stock ("Preferred Stock") to FMC Corporation in October 1998.
The Preferred Stock is subject to redemption requirements that are outside
the control of the Company under certain change-in-control circumstances as
defined in the preferred stock purchase agreement. Those circumstances include
(i) a sale of all or substantially all of the assets of the Company, (ii) a
liquidation or dissolution of the Company, (iii) the consummation of any
transaction resulting in a new "beneficial owner" of more than 37.5 percent of
the Company's common stock, (iv) a change in the majority of the Company's board
of directors, and (v) a combination or merger of the Company with or into a new
entity in which the Company's common shareholders hold less than 80 percent of
the surviving entity. Under such circumstances, the holders of Preferred Stock
are entitled to receive, prior to and in preference to any distribution of any
of the assets of the Company to the holders of common stock, an amount equal to
the greater of (a) $22.00 per share or (b) the market value of the Company's
common stock issuable upon conversion of such shares of Preferred Stock,
calculated as the average of the closing price of the common stock for the
forty-five consecutive trading days immediately preceding the date of
repurchase.
The Company has restated its 1998 financial statements to account for the
redemption features of the Preferred Stock. The carrying value of the Preferred
Stock of $2,579,000, which was previously presented as a component of
shareholders' equity, has been reclassified as mandatorily redeemable, outside
of shareholders' equity, at December 31, 1998.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The restatement of the 1998 financial statements for the matter described
above had no effect on the Company's net income, total assets or total
liabilities.
The following table sets forth the overall effect of the restatement on the
Company's shareholders' equity:
DECEMBER 31,
1998
------------
Shareholders' equity prior to restatement................... $16,846,000
Non-redeemable shareholders' equity after restatement....... $14,267,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING PERIOD
The Company utilizes a 52- to 53-week fiscal year ending on the Sunday
closest to the end of the fiscal period. Fiscal periods shown ended January 2,
2000, January 3, 1999 and December 27, 1997. In these financial statements, the
fiscal periods are shown as December 31 for clarity of presentation.
CASH EQUIVALENTS
For financial reporting purposes, cash equivalents consist primarily of
money market instruments and bank certificates of deposit that have original
maturities of three months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of money market instruments
and trade receivables. The Company invests its excess cash in money market
instruments and certificates of deposit with high credit quality financial
institutions, and by policy, limits the amount of credit exposure to any one
issuer. Concentrations of credit risk with respect to trade receivables exist
because the Company's subsidiaries rely heavily on a relatively small number of
customers (see Note 11). The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses, to date, have been within
management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value, with
cost determined principally by use of the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed by either the straight-line or an accelerated method
over the estimated useful lives of the assets, which range
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from three to twenty years. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in operations for the period. The cost
of maintenance and repairs is charged to expense as incurred; significant
renewals and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets primarily represent the excess of the purchase price of
acquisitions over the fair value of net assets acquired ("goodwill"). The gross
cost of intangible assets aggregated $7,536,000 as of December 31, 1999 and
1998. Intangible assets are being amortized on the straight-line basis over
seven to fifteen years (see Note 4). Accumulated amortization aggregated
$3,361,000 and $2,642,000 as of December 31, 1999 and 1998, respectively. The
Company assesses the recoverability of its intangible assets and to date has not
had any significant impairments.
LONG-LIVED ASSETS
Statement of Financial Accounting Standard No. 121 (FAS 121), Accounting
for the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed
Of, requires that long-lived assets and certain identifiable intangible assets
to be held and used by a company be reviewed for impairment whenever events or
changes in circumstances indicate that expected future cash flows (undiscounted
and without interest charges) for individual subsidiaries may not be sufficient
to support the recorded assets. If undiscounted cash flows are not sufficient to
support the recorded assets, an impairment is recognized to reduce the carrying
value of the assets based on expected discounted cash flows of the subsidiary.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products or, in the case of
trial units, upon the customer's acceptance of the product. Customer deposits
represent monies received in advance of shipment of products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development expense is related to developing new products and to improving
existing products or processes.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for 1999, 1998 and 1997 have been computed in
accordance with Statement of Financial Accounting Standards No. 128 (FAS 128),
"Earnings per Share."
CHANGES IN CLASSIFICATION
Certain reclassifications have been made to the fiscal 1998 and 1997
financial statements to conform with the financial statement presentation for
fiscal 1999. Such reclassifications had no effect on the Company's results of
operations or shareholders' equity.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes.
FAS 109 requires the recognition of deferred tax assets and liabilities for the
expected tax effects from differences between the financial reporting and tax
bases of assets and liabilities. In estimating future tax effects, FAS 109
generally considers all expected future events other than enactments of changes
in tax law or statutorily imposed rates.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value based method in accounting for its
stock option plans as prescribed by Accounting Principle Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees (see Note 8).
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the fair value of certain
financial assets and liabilities. The Company estimates the fair value of its
monetary assets and liabilities based upon the existing interest rates related
to such assets and liabilities compared to current market rates of interest for
similar nature and degree of risk. The Company estimates that the carrying value
of all of its monetary assets and liabilities approximates fair value as of
December 31, 1999.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into U.
S. dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of other
comprehensive income.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" as of January 1, 1998. Translation
adjustments represent the Company's only Other Comprehensive Income item.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new accounting
treatment for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. For the Company, this pronouncement, as
amended by SFAS 137, will be effective in 2001 and is not anticipated to have a
material effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revenue recognition policies. The Company believes that the impact of SAB 101
will not have a material effect on the consolidated financial statements.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
DECEMBER 31,
------------------------
1999 1998
---------- ----------
Raw materials....................................... $3,034,000 $2,837,000
Work-in-process..................................... 1,603,000 1,563,000
Finished goods...................................... 3,762,000 2,979,000
---------- ----------
$8,399,000 $7,379,000
========== ==========
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
Land.............................................. $ 1,338,000 $ 1,338,000
Buildings......................................... 3,970,000 3,734,000
Machinery and equipment........................... 883,000 869,000
Furniture, fixtures and office equipment.......... 1,983,000 2,026,000
----------- -----------
8,174,000 7,967,000
Less: accumulated depreciation.................... (3,314,000) (2,693,000)
----------- -----------
$ 4,860,000 $ 5,274,000
=========== ===========
Substantially all of the property, plant and equipment is secured by a note
payable (see Note 6). Depreciation expense aggregated $830,000, $915,000 and
$638,000, respectively, for 1999, 1998 and 1997.
NOTE 4 -- ACQUISITIONS
SRC VISION
On February 2, 1994, the Company purchased all of the outstanding shares of
stock of SRC VISION for $8.1 million in cash. The Company has accounted for this
acquisition using the purchase method. The cost of the acquisition was allocated
to the assets acquired and liabilities assumed on the bases of their fair values
at the date of acquisition. Goodwill of $2.6 million was recorded as the
difference between the acquisition cost and the fair values of the assets
acquired and liabilities assumed. The Company is amortizing goodwill over seven
years using the straight-line method.
PULSARR
On March 1, 1996, the Company acquired all of the outstanding capital stock
of Pulsarr for cash of $6.5 million and notes payable aggregating $1.3 million.
The acquisition was accounted for under the purchase method of accounting. The
$7.8 million purchase price was allocated based on the fair values of the
identifiable assets of Pulsarr as follows: $1.1 million represented the fair
values of net tangible assets of
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pulsarr, $4.9 million represented acquired in-process technology that was
charged to operations, and the remainder of $1.8 million represented existing
technologies and goodwill to be amortized over fifteen years. The fair values of
the acquired in-process technology and existing technologies and goodwill were
determined from independent appraisals received by the Company.
On May 6, 1997, the Company sold its Pulsarr subsidiary to Barco NV of
Belgium for $8.4 million resulting in a gain of approximately $5 million. The
sale resulted in net cash proceeds to AMV of approximately $7 million and a
reduction of current and long-term debt of approximately $4.6 million. The gain
on the sale of Pulsarr is largely a result of the previous reduction in the
carrying value of the Company's investment in Pulsarr due to the $4.9 million
charge for acquired in-process technology the Company recorded in the quarter
ended March 31, 1996 in conjunction with this acquisition.
VENTEK
On July 24, 1996, the Company acquired certain assets and the business of
Ventek, subject to certain liabilities. The purchase price was approximately
$5.1 million in notes and other securities (see Note 6). The Company also issued
a warrant to purchase 1,000,000 shares of common stock. In 1998, the warrant was
reduced to 250,000 fully vested shares, and was subsequently eliminated upon the
restructuring of the acquisition notes (see Note 6). The acquisition was
accounted for under the purchase method of accounting. The $5.1 million purchase
price was allocated based on the fair values of the identifiable assets of
Ventek as follows: $.2 million represented the fair values of net tangible
assets of Ventek, and the remaining $4.9 million represented goodwill to be
amortized over fifteen years.
The consolidated results of operations for the Company include SRC
VISION's, Pulsarr's and Ventek's results of operations from their respective
acquisition dates, and in the case of Pulsarr, through its disposition date in
May 1997.
NOTE 5 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1999 1998
-------- --------
Commissions............................................ $111,000 $359,000
Interest............................................... 75,000 317,000
Legal and accounting fees.............................. 90,000 176,000
Income taxes........................................... 34,000 34,000
Other.................................................. 78,000 111,000
-------- --------
$388,000 $997,000
======== ========
NOTE 6 -- FINANCING ARRANGEMENTS
As of December 31, 1999, the Company had a borrowing facility with a
commercial bank that provided for a secured operating line of credit up to
$2,000,000. At the option of the Company, interest is stated at the prime rate
plus .50% or at an "offshore rate" plus 2.35%. The Business Loan Agreement
governing the line of credit contains covenants requiring certain levels of cash
flow, tangible equity and working capital. At December 31, 1999, the Company had
borrowed the entire $2,000,000 under the line and was not in compliance with the
cash flow covenant. The bank waived compliance with the covenant subject to an
amendment being executed by the Company, which would require that security for
the line
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be changed from receivables, inventory and machinery and equipment to cash
instruments. On February 29, 2000, the Company executed the amendment and paid
back the entire amount borrowed. The amended line expires on April 30, 2000.
Long-term debt consists of the following:
DECEMBER 31,
------------------------
1999 1998
---------- ----------
Mortgage note (SRC VISION).......................... $2,937,000 $2,973,000
6.75% convertible note.............................. 900,000 900,000
6.75% note (Ventek)................................. 250,000 1,000,000
6.75% convertible note (Ventek)..................... 2,250,000 2,250,000
Ventek note......................................... -- 1,529,000
---------- ----------
6,337,000 8,652,000
Less: current maturities............................ (43,000) (790,000)
---------- ----------
$6,294,000 $7,862,000
========== ==========
The SRC VISION mortgage note is payable to a bank in monthly installments
of $24,000 including interest at 8.3%, with the remaining unpaid balance due on
May 1, 2008. The note is secured by substantially all of SRC VISION's property,
plant and equipment and is guaranteed by the Company. The loan agreement
contains certain covenants and restrictions including limitations on incurrence
of debt. At December 31, 1999, the Company was in violation of the cash flow
covenant of the mortgage loan agreement. The Company has obtained a temporary
waiver of this covenant through December 31, 2000.
In April 1996, in connection with the acquisition of Pulsarr, the Company
raised a net of $3,000,000 in a private placement of $3,400,000 of convertible
secured notes. The notes presently bear interest at 10.75% payable quarterly.
The interest rate may be adjusted upward on each anniversary date of the notes
if the market price of the Company's common stock fails to reach certain levels.
The maximum possible coupon interest rate is 11.25% if none of the market price
thresholds are met. The principal amount will be due in April 2001. The notes
are secured by 54% of the stock of ARC Netherlands BV, a wholly-owned subsidiary
of the Company established to purchase Pulsarr. The notes are convertible into
the Company's common stock at $2.125 per share. In connection with the
borrowing, the Company paid a finder's fee of $400,000 and issued 340,000
warrants to purchase common stock at $2.125 per share. In September 1997, the
Company prepaid $2,500,000 of the note. The 340,000 warrants issued in
conjunction with this borrowing were repurchased in August 1997.
AMV issued the following notes in connection with the acquisition of
Ventek: (i) a 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75% $2,250,000
note due July 23, 1999 convertible into the Company's common stock at $2.25 per
share; and (iii) a $1,125,000 note and stock appreciation rights payable (a) by
issuance of up to 1,800,000 shares of common stock or, at the Company's option,
in cash on July 23, 1999, or (b) solely in cash in the event AMV common stock is
delisted from the Nasdaq Stock Market. The $1,125,000 note and stock
appreciation rights payable were valued at $1,529,000 on the acquisition date
based upon an independent appraisal received by the Company. All three notes are
secured by all of the issued and outstanding shares of Ventek. The three notes
are payable to Veneer Technology, Inc., a company owned by the four former
shareholders of Ventek, all of whom are current employees of the Company.
In February 1999, the Ventek notes were restructured. $750,000 of the
$1,000,000 note was prepaid, and the maturity date of the remaining $250,000 was
extended to July 23, 2000. The maturity date of the
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,250,000 note was extended to July 23, 2000. The $1,125,000 note was paid in
full by delivery of 1,800,000 restricted shares (see Note 10) and the stock
appreciation rights were cancelled.
In December 1999, the Ventek notes were again restructured by extending the
due dates to July 23, 2001 and increasing the interest rate by 1% to 7.75%.
As of December 31, 1999, the aggregate amount of minimum maturities of
long-term debt, as adjusted for the Ventek debt restructuring, are as follows:
2000 -- $43,000; 2001 -- $3,446,000; 2002 -- $50,000; 2003 -- $55,000; 2004 --
$59,000 and thereafter $2,684,000.
NOTE 7 -- INCOME TAXES
Income (loss) before income taxes is composed of the following:
1999 1998 1997
----------- --------- ----------
Domestic...................................... $(2,843,000) $ 366,000 $2,143,000
Foreign....................................... (52,000) (207,000) 4,972,000
----------- --------- ----------
$(2,895,000) $ 159,000 $7,115,000
=========== ========= ==========
The components of the provision for income taxes are as follows:
1999 1998 1997
----------- --------- ----------
Federal:
Current..................................... $ -- $ 17,000 $ 99,000
Deferred.................................... (947,000) 59,000 870,000
---------- ----------- ---------
Total federal............................ (947,000) 76,000 969,000
---------- ----------- ---------
State:
Deferred.................................... (111,000) 15,000 107,000
---------- ----------- ---------
Total state.............................. (111,000) 15,000 107,000
---------- ----------- ---------
Increase (decrease) in valuation allowance.... 1,058,000 (2,174,000) (977,000)
---------- ----------- ---------
Total provision.......................... $ -- $(2,083,000) $ 99,000
========== =========== =========
The tax effect of temporary differences between financial reporting and the
tax bases of assets and liabilities relate to the following:
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
Deferred tax asset:
Loss carry-forwards..................................... $ 5,913,000 $ 4,686,000
Property basis differences.............................. 1,005,000 876,000
Reserves and accruals................................... 290,000 563,000
Research and development costs.......................... 47,000 69,000
Alternative minimum taxes............................... 74,000 77,000
----------- -----------
7,329,000 6,271,000
Deferred tax asset valuation allowance.................... (5,229,000) (4,171,000)
----------- -----------
Net deferred tax asset.................................. $ 2,100,000 $ 2,100,000
=========== ===========
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recognized a deferred tax asset of $2,100,000. The
recognized deferred tax asset is based upon expected utilization of the
temporary differences as well as a portion of the net operating loss
carry-forwards.
The Company has assessed its past earnings history and trends, budgeted
sales and the expiration dates of carry-forwards and has determined that it is
more likely than not that $2,100,000 of the deferred tax asset will be realized.
The remaining valuation allowance of $5,229,000 as of December 31, 1999 is
maintained against the net operating loss carry-forwards, which the Company has
determined may not be realized.
The increase in the valuation allowance of $1,058,000 in 1999 was the
result of the net increase in temporary differences that was caused primarily
from the losses incurred in 1999.
The net reduction in the valuation allowance of $2,174,000 in 1998 was the
result of the utilization of the net operating loss carry-forwards to reduce
current income taxes, partially offset by the net changes in temporary
differences.
The Company has net operating loss carry-forwards of approximately
$15,500,000. Such carry-forwards may be used to offset taxable income, if any,
in future years through their expirations in 2005 to 2015. Because of the
substantial change in the Company's ownership, which occurred as a result of the
initial public offering in March 1992, the annual amount of tax loss
carry-forward that can be utilized is limited. Utilization of approximately
$2,700,000 of the above carry-forwards is limited to approximately $475,000 per
year. Such limitation could result in the expiration of a part of the
carry-forwards before their utilization.
The provision for (benefit from) income taxes differs from an amount
computed using the statutory federal income tax rate as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- ----------- -----------
Provision for (benefit from) income taxes at
federal statutory rate..................... $(967,000) $ 124,000 $ 2,419,000
State taxes (benefit)........................ -- 15,000 107,000
Non-taxable gain on sale of Pulsarr.......... -- -- (1,696,000)
Realized benefit from utilizing net operating
loss carry-forward......................... -- (271,000) (1,302,000)
Deferred tax valuation allowance............. 1,058,000 (1,903,000) 370,000
Alternative Minimum Tax...................... -- 17,000 99,000
Other........................................ (91,000) (65,000) 102,000
--------- ----------- -----------
$ -- $(2,083,000) $ 99,000
========= =========== ===========
NOTE 8 -- EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company sponsors a defined contribution 401(k) plan covering
substantially all employees. Pursuant to the provisions of the plan, eligible
participants may elect to contribute up to 15% of their base compensation,
subject to certain limitations, and the Company may, at its option, match
employee contributions up to a certain percentage. No Company matching has
occurred under the plan.
The Company maintains several stock option plans under which non-qualified
and incentive stock options for the Company's common stock have been granted to
directors, officers and other employees.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plans are administered by the Stock Option Committee of the board of
directors (the "Committee"). Additionally, the Company has occasionally granted
non-plan options to directors, officers or consultants on terms similar to plan
options. The stock option price per share for options granted is determined by
the Committee and is based on the market price of the Company's common stock on
the date of grant, and each option is exercisable within the period and in the
increments as determined by the Committee, except that no option can be
exercised later than ten years from the date it was granted. The stock options
generally vest over one to four years. The terms of non-plan options are
determined by the full board of directors or the Compensation Committee of the
Board.
The following table sets forth the options granted, forfeited and exercised
during the three years ended December 31, 1999, and their respective weighted
average exercise price per share:
WEIGHTED
SHARES AVERAGE
UNDER OPTION PRICE PER SHARE
------------ ---------------
Balance at December 31, 1996..................... 3,127,000 $2.00
Granted........................................ 1,194,000 1.75
Exercised...................................... (97,000) 1.00
Canceled....................................... (775,000) 2.21
--------- -----
Balance at December 31, 1997..................... 3,449,000 $1.89
Granted........................................ 528,000 1.86
Exercised...................................... (8,000) 1.00
Canceled....................................... (539,000) 4.05
--------- -----
Balance at December 31, 1998..................... 3,430,000 $1.55
Granted........................................ 205,000 1.22
Canceled....................................... (417,000) 2.50
--------- -----
Balance at December 31, 1999..................... 3,218,000 $1.41
========= =====
The following table sets forth information about stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ---------------- -------- ----------- --------
0.81-1.00 1,333,000 5 years 1.00 1,300,000 1.00
1.03-2.19 1,810,000 7 years 1.64 639,000 1.53
3.00 75,000 4 years 3.00 75,000 3.00
--------- ---------
3,218,000 2,014,000
========= =========
At December 31, 1998 and 1997, 1,911,000 and 2,172,000 options,
respectively, were exercisable. As of December 31, 1999, there were 641,000
shares available for future grants.
In September 1999, the Company decreased the exercise price on 300,000
options previously granted to three members of the board of directors from $1.69
to $1.25 per share. These options will now be accounted for pursuant to a
variable stock option plan, and compensation expense will be recorded to the
extent that the quoted market price of the Company's common stock exceeds the
revised exercise price.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company established an SRC VISION stock option plan
(the "SRC VISION Plan") under which incentive and non-qualified stock options
for SRC VISION's common stock may be granted to directors, officers and other
employees. The plan is administered by the Stock Option Committee of the board
of directors of SRC VISION (the "SRC VISION Committee"). The stock option price
per share for options granted under the SRC VISION Plan is determined by the SRC
VISION Committee and is based on the fair market value of the Company's common
stock on the date of grant, and each option is exercisable within the period and
in the increments as determined by the SRC VISION Committee, except that no
option may be exercised before the ninth anniversary date of grant unless there
shall have been an IPO of SRC VISION's common stock, and except that no option
can be exercised later than ten years from the date it was granted.
In January 1997, SRC VISION granted a total of 342,000 options under the
SRC VISION Plan to purchase SRC VISION common stock at $1.86 per share. The
options become exercisable on January 10, 2006 and expire one year thereafter.
Upon completion of an initial public offering of SRC VISION's common stock, the
vesting of such options will accelerate so that 100% will be exercisable on the
third anniversary date of the IPO. As of December 31, 1999, there were 291,000
options under grant and 105,000 shares available for future grant under the SRC
VISION Plan.
DISCLOSURE REQUIREMENTS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
("FAS 123")
The Company has elected to account for its stock-based compensation plans
under APB 25. FAS 123 requires that the Company provide proforma information
regarding net income and earnings per share as if the Company had accounted for
the stock options granted under the fair value method of the statement. The fair
value of options granted was estimated using the Black-Scholes model. The
Company's proforma information follows:
1999 1998 1997
----------- ---------- ----------
Proforma net income (loss).................... $(3,231,000) $1,746,000 $6,807,000
Proforma diluted earnings (loss) per share.... $ (0.27) $ 0.14 $ 0.46
The fair value of the options granted was $0.66 and $1.05 in 1999 and 1998,
respectively, and estimated using the following weighted average assumptions:
1999 1998 1997
------- ------- -------
Risk-free interest rate................................. 5.65% 5.32% 6.12%
Dividend yield.......................................... 0% 0% 0%
Expected life of option................................. 5 years 5 years 5 years
Volatility factor....................................... 58% 61% 63%
The above information is based on historical activity and may not represent
future trends.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Numerous users of the Company's products have received notice of patent
infringement from Lemelson Medical, Educational and Research Foundation, Limited
Partnership ("Lemelson") alleging that their use of the Company's products
infringes certain patents transferred to Lemelson by the late Jerome H.
Lemelson. Certain of these users have notified the Company that, in the event it
is subsequently determined that their use of the Company's products infringes
any of the Lemelson's patents,
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
they may seek indemnification from the Company for damages or expenses resulting
from this matter. The amount of liability, if any, that may result from this
matter cannot be estimated at this time.
NOTE 10 -- MANDATORILY REDEEMABLE AND NON-REDEEMABLE SHAREHOLDERS' EQUITY AND
EARNINGS (LOSS) PER SHARE
PREFERRED STOCK
In October 1998, the Company sold 119,106 shares of mandatorily redeemable
Preferred Stock ("Preferred Stock") (the entire authorized number of such
shares) to FMC Corporation for $2,579,000. The Preferred Stock is convertible
into 1,191,060 shares of common stock, which, if converted, represents a 10%
ownership position based on the number of common shares outstanding on the
transaction date. Each share of Preferred Stock is allowed ten votes in matters
placed before the common shareholders except in the election of directors, in
which case FMC Corporation has the right to elect one director. The Preferred
Stock pays no dividends. The Preferred Stock has a $22-per-share liquidation
preference. Upon the occurrence of a change in control (as defined), FMC
Corporation has the right to require the Company to repurchase all or part of
the Preferred Stock at a price in cash equal to the greater of (a) $22.00 per
share or (b) the market value of the Company's common stock issuable upon
conversation of the Preferred Stock, calculated as the average of the closing
bid price of the common stock for the 45 consecutive trading days immediately
preceding the date of repurchase, subject to the Company's ability to legally do
so under California General Corporation Law. FMC Corporation also has a
five-year one-time option to purchase a number of shares of common stock equal
to 15% of the shares outstanding on the exercise date at a price equal to the
greater of the then-current market value (as defined) of the common stock or
$2.20 per share.
So long as any shares of Preferred Stock are outstanding, the Company must
obtain the consent of the holders of a majority of the then-outstanding shares
of Preferred Stock to (i) take any action which adversely alters or changes or
may adversely alter or change the rights, preferences or privileges of the
Preferred Stock; (ii) increase or decrease the authorized number of shares of
Preferred Stock; (iii) create (by reclassification or otherwise) any class or
series of shares having rights, preferences or privileges senior to or on a
parity with the Preferred Stock; (iv) redeem or repurchase any shares of capital
stock except in certain instances; (v) merge with or into any other entity or
enter into any other corporate reorganization, recapitalization, sale of control
or any transaction that, directly or indirectly, results in the sale, license,
lease, transfer, conveyance or other disposition of all or substantially all of
the assets or properties of the Company; (vi) sell, license, lease, transfer,
convey or otherwise dispose of the Company's intellectual property in which FMC
Corporation received a security interest; (vii) amend or waive any provision of
the Company's Articles of Incorporation or By-laws; (viii) acquire assets or
securities of another person or entity if the aggregate consideration paid in
all such transactions (other than those in the ordinary course of business)
combined exceeds $2,000,000 or any one such transaction exceeds $500,000; (ix)
issue any additional equity securities or any other securities convertible or
exchangeable into equity securities (other than issuance of shares of common
stock pursuant to employee stock options or other employee stock plans in effect
as of the FMC Corporation transaction date and, with the approval of the board
of directors, shares of common stock to unrelated third parties, in arms-length
transactions that do not exceed 100,000 shares for any fiscal year); or (x)
approve the liquidation, dissolution or winding up of the Company.
The provisions of the preferred stock also provide that if FMC Corporation
desires to transfer the preferred stock, the Company has the right of first
refusal to acquire such shares. For as long as the preferred stock is
outstanding, if the Company intends to issue equity securities other than to FMC
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporation, or as permitted, FMC Corporation shall have the right to acquire a
portion of such securities to retain its percentage ownership immediately prior
to such issuance.
The Company and FMC Corporation also entered a Representative Agreement
whereby FMC Corporation would undertake to sell the Company's machine vision
products to the food processing industry in many areas of the world. The
Representative Agreement may be terminated for or without cause. Each share of
Series B Preferred Stock shall automatically be converted into shares of common
stock upon the later of (i) the third anniversary of the date of issuance or
(ii) the sixtieth day after the termination of the Representative Agreement.
COMMON STOCK
The authorized number of shares of no par value Class A common stock and no
par value Class B common stock are 60,000,000 and 3,000,000, respectively. Upon
sale or transfer, each share of Class B common stock is automatically
convertible into one share of Class A common stock. Both the Class A and Class B
common stock are entitled to one vote per share. As of December 31, 1999, there
were 12,922,000 shares of Class A common stock and 48,000 shares of Class B
common stock outstanding. For purposes of this report, the Class A and B shares
are referred to as "common stock."
SCHEDULE OF OUTSTANDING STOCK, CONVERTIBLE DEBT, PREFERRED STOCK AND POTENTIAL
DILUTION
The following table summarizes outstanding common stock as of December 31,
1999, potential dilution to the outstanding common stock upon the conversion of
convertible debt or preferred stock, and proforma proceeds from the debt
conversion. The table also sets forth the conversion prices and debt due dates.
NUMBER OR PRINCIPAL COMMON STOCK PROFORMA
AMOUNT OUTSTANDING AFTER CONVERSION DEBT
SECURITY AT DECEMBER 31, 1999 CONVERSION PRICE REDUCTION
- -------- -------------------- ------------ ---------- ----------
COMMON STOCK: 12,970,000
----------
CONVERTIBLE DEBT (DUE DATE):
6.75% Notes (4/16/01)............. $ 900,000 423,000 $2.13 900,000
6.75% Ventek Note (7/23/01)....... $2,250,000 1,000,000 2.25 2,250,000
---------- ----------
1,423,000 3,150,000
---------- ----------
PREFERRED STOCK: 119,100 1,191,000
----------
Potentially outstanding shares and
proforma proceeds and reduction of
debt.............................. 15,584,000 $3,150,000
========== ==========
The proforma amounts above are for illustrative purposes only. Unless the
market price of the Company's common stock rises significantly above the
conversion prices, it is unlikely that the debt or preferred stock will be
converted.
In addition, on December 31, 1999, the Company had outstanding options to
purchase 3,218,000 shares of common stock, 2,586,000 of which are under its
stock option plans (see Note 8).
The existence of these outstanding options, convertible debt and preferred
stock, including options that may be granted under the Company's stock option
plans or otherwise, could adversely affect the Company's ability to obtain
future financing. The price that the Company may receive for the common
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock issued upon exercise of options, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of the common stock at the
time such options are exercised or debt is converted. For the life of the
options, convertible debt and preferred stock, the holders are given, at little
or no cost, the opportunity to profit from a rise in the market price of the
common stock without assuming the risk of ownership. Moreover, the holders of
the options might be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain needed capital by a new offering of its
securities on terms more favorable than those provided for by the options.
1997 RESTRICTED STOCK PLAN
The 1997 Restricted Stock Plan ("1997 Plan") was established to retain the
services of selected employees, officers and directors of the Company and
provide them with strong incentives to enhance the the Company's growth and
stock price. The total number of shares of common stock issuable under the 1997
Plan shall not exceed 2,000,000.
In January 1997, the Company's board of directors awarded 2,000,000 shares
of restricted common stock to three key employees of the Company. In September
1997, 1,800,000 shares were donated back to the Company and retired. The
remaining 200,000 shares cannot be traded or transferred unless a payment of
$1.80 per share is made by the employee to Advanced Machine Vision. If payment
is not made, the related shares of stock will be forfeited and returned to the
Company.
In February 1999 and December 1999, the Company's board of directors
awarded 350,000 and 100,000 shares of restricted common stock, respectively, to
four key employees of the Company. The shares cannot be traded or transferred
unless a payment of $1.25 per share is made by the employee to the Company
between February 1, 2000 and January 31, 2001 for the 350,000 shares, and
payment of $.75 per share is made by the employee to the Company before July 23,
2002 for the 100,000 shares. If these conditions are not met, the related shares
will be forfeited and returned to the Company.
STOCK RIGHTS PLAN
In February 1998, the Company implemented a stock rights program. Pursuant
to the program, shareholders of record on February 27, 1998 received a dividend
of one right to purchase for $15.00 one one-hundredth of a share of a newly
created Series A Junior Participating Preferred Stock. The rights are attached
to the Company's common stock and will also become attached to shares issued in
the future. The rights will not be traded separately and will not become
exercisable until the occurrence of a triggering event, defined as an
accumulation by a single person or group of 20% or more of the Company's common
stock. The rights will expire on February 26, 2008 and are redeemable at $.0001
per right.
After a triggering event, the rights will detach from the common stock. If
the Company is then merged into, or is acquired by, another corporation, the
Company has the opportunity to either (i) redeem the rights or (ii) permit the
rights holder to receive in the merger stock of the Company or the acquiring
company equal to two times the exercise price of the right (i.e., $30). In the
latter instance, the rights attached to the acquirer's stock become null and
void. The effect of the rights program is to make a potential acquisition of the
Company more expensive for the acquirer if, in the opinion of the Company's
board of directors, the offer is inadequate.
In December 1998, the Rights Plan was amended to permit FMC Corporation to
acquire up to 1,600,000 shares of the Company common stock on the open market
without causing a triggering event.
In February 2000, the Company's board of directors determined that the
proposed merger with Key Technology, Inc. ("Key") (see Note 13) will not
constitute a triggering event.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK REPURCHASE
On December 29, 1999, the Company's board of directors authorized the
Company to purchase, from time to time, up to $1,000,000 of the Company's common
stock in the open market. 42,800 shares were repurchased subsequent to December
31, 1999.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share, calculated in accordance with FAS 128, is
presented in the following table:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
----------------- ----------------
(LOSS) SHARES (LOSS) SHARES
------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
CALCULATION OF EPS
Income (loss) available to common shareholders............. $(1,589) 12,935 $(576) 11,914
Reduction for contingently returnable shares as all
conditions were not met as of period end................. -- (650) -- (394)
------- ------- ----- -------
Income (loss) available to common shareholders............. $(1,589) 12,285 $(576) 10,520
Basic EPS.................................................. $ (0.13) $ (0.05)
EFFECT OF DILUTIVE SECURITIES:
Stock options and warrants................................. $ -- -- $ -- --
Preferred stock............................................ -- -- -- --
Note and stock appreciation rights agreement............... -- -- -- --
Convertible debt........................................... -- -- -- --
------- ------- ----- -------
Income (loss) available to common shareholders and assumed
conversions.............................................. $(1,589) 12,285 $(576) 10,520
======= ======= ===== =======
Diluted EPS................................................ $ (0.13) $ (0.05)
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
(LOSS) SHARES INCOME SHARES INCOME SHARES
------- ------- ------ ------- ------ -------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
CALCULATION OF EPS
Income (loss) available to common
shareholders............................. $(2,895) 12,639 $2,242 10,717 $7,016 11,202
Reduction for contingently returnable
shares as all conditions were not met as
of period end............................ -- (555) -- (200) -- (200)
------- ------- ------ ------- ------ -------
Income (loss) available to common
shareholders............................. $(2,895) 12,084 $2,242 10,517 $7,016 11,002
Basic EPS.................................. $ (0.24) $ 0.21 $ 0.64
EFFECT OF DILUTIVE SECURITIES:
Stock options and warrants................. -- -- -- 744 -- 663
Preferred stock............................ -- -- -- 251 -- --
Note and stock appreciation rights
agreement................................ -- -- 100 1,800 100 1,800
Convertible debt........................... -- -- 252 1,423 252 1,423
------- ------- ------ ------- ------ -------
Income (loss) available to common
shareholders and assumed conversions..... $(2,895) 12,084 $2,594 14,735 $7,368 14,888
======= ======= ====== ======= ====== =======
Diluted EPS................................ $ (0.24) $ 0.18 $ 0.49
The number of shares of common stock, along with their respective exercise
prices, underlying options, warrants, convertible debt and preferred stock,
which were excluded from the computation of diluted EPS because their exercise
prices were greater than the average market price of common stock or inclusion
of such shares would be antidilutive, are listed below.
1999 1998 1997
------------- ------------- -------------
Number of shares of common stock exercisable from:
Options................................ 3,218,000 2,113,000 1,135,000
Warrants............................... -- 790,000 13,215,000
Convertible debt....................... 1,423,000 -- --
Preferred stock........................ 1,191,000 -- --
------------- ------------- -------------
5,832,000 2,903,000 14,350,000
============= ============= =============
Exercise price ranges.................. $0.81 - $3.00 $1.41 - $3.00 $2.00 - $4.94
NOTE 11 -- BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry -- designing, manufacturing and
marketing of computer-aided vision defect detection and sorting and defect
removal equipment. Advanced Machine Vision has subsidiaries located in the
United States and The Netherlands.
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue transfers between geographic areas, and other intergeographical
eliminations are not material. Net sales and long-lived assets by geographic
areas are as follows:
1999 1998 1997
----------- ----------- -----------
Net sales:
Domestic.................................. $14,308,000 $18,215,000 $21,417,000
International............................. 10,004,000 8,826,000 10,557,000
----------- ----------- -----------
Total net sales........................ $24,312,000 $27,041,000 $31,974,000
=========== =========== ===========
Long-lived assets:
Domestic.................................. $ 9,705,000 $11,498,000 $11,107,000
International............................. 120,000 185,000 53,000
----------- ----------- -----------
Total long-lived assets................ $ 9,825,000 $11,683,000 $11,160,000
=========== =========== ===========
During 1999, the Company sold equipment to two different customers, each
approximating 13% of total net sales. No single customer accounted for more than
10% of total net sales in 1998. During 1997, the Company sold equipment to a
single customer approximating 14% of total net sales.
During 1999, net sales to one customer, located in Russia, approximated 13%
of total net sales. No single international country accounted for more than 10%
of net sales in 1998 or 1997. Location of the customer is the basis for
identification of net sales.
International long-lived assets are located in the Netherlands.
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
- -------------- --------- -------- ------------- ------------ -------
FISCAL 1999
Sales...................................... $5,158 $7,198 $6,646 $ 5,310 $24,312
Gross profit............................... 2,654 4,233 3,015 2,198 12,100
Net income (loss).......................... (576) 210 (484) (2,045) (2,895)
Basic earnings (loss) per share............ (0.05) 0.02 (0.04) (0.17) (0.24)
Diluted earnings (loss) per share.......... (0.05) 0.02 (0.04) (0.17) (0.24)
FISCAL 1998
Sales...................................... $7,103 $9,087 $5,546 $ 5,305 $27,041
Gross profit............................... 3,333 5,035 2,879 3,209 14,456
Net income................................. 182 1,016 75 969 2,242
Basic earnings per share................... 0.02 0.10 0.01 0.09 0.21
Diluted earnings per share................. 0.02 0.08 0.01 0.07 0.18
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENT
On February 15, 2000, the Company entered into an Agreement and Plan of
Merger with Key Technology, whereby the Company would be acquired by Key
Technology. Key Technology is a public company and its stock is traded on the
Nasdaq National Market under the symbol "KTEC." Pursuant to the agreement, Key
Technology would pay the following for each the Company common share:
a. Cash of $1.00.
b. 1/10 of a new share of Key Technology convertible preferred stock that
can be sold back to Key Technology after two years for the equivalent of
$1.00.
c. 1/40 of a new warrant to purchase a share of Key Technology common stock
that can be sold back to Key Technology immediately for the equivalent
of $0.25.
The agreement specifies other terms, conditions, representations and
warranties for each party. Completion of the transaction is contingent upon
approval of the Company's common shareholders and FMC Corporation, the holder of
all the Company's Series B Preferred Stock.
As part of the acquisition process, registration documents will be filed by
Key Technology with the Securities and Exchange Commission ("SEC"). Completion
of the transaction, which is subject to SEC and other approvals as indicated
above, is expected by mid-2000. Reference is made to the Company's recent
filings with the SEC for a more complete description of the transaction.
ADVANCED MACHINE VISION CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
ADDITIONS
BALANCE --------------------- BALANCE
AT CHARGED TO CHARGED AT END
BEGINNING COST AND TO OTHER OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------- ---------- -------- ---------- -------
Year ended December 31, 1997:
Allowance for excess and obsolete inventory.... $ 436 $ 271 $ -- $ -- $ 707
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 280 $ -- $ (100) $ -- $ 180
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 7,322 $ -- $ -- $ (977) $6,345
========= ===== ====== ========== ======
Year ended December 31, 1998:
Allowance for excess and obsolete inventory.... $ 707 $(145) $ -- $ -- $ 562
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 180 $ 50 $ -- $ -- $ 230
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 6,345 $ -- $ -- $ (2,174) $4,171
========= ===== ====== ========== ======
Year ended December 31, 1999:
Allowance for excess and obsolete inventory.... $ 562 $(199) $ -- $ -- $ 363
========= ===== ====== ========== ======
Allowance for doubtful accounts................ $ 230 $ (25) $ -- $ -- $ 205
========= ===== ====== ========== ======
Deferred tax asset valuation................... $ 4,171 $ -- $1,058 $ -- $5,299
========= ===== ====== ========== ======
(b) Pro Forma Financial Information.
The following pro forma financial information is included in this report:
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 2000
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
Unaudited Pro Forma Condensed Combined Statement of Earnings for the
Year Ended September 30, 1999
Notes to Unaudited Pro Forma Condensed Combined Statement of Earnings
for the Year Ended September 30, 1999
Unaudited Pro Forma Condensed Combined Statement of Earnings for the
Six Months Ended March 31, 2000
Notes to Unaudited Pro Forma Condensed Combined Statement of Earnings
for the Six Months Ended March 31, 2000
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Effective February 15, 2000, Key Technology entered into an agreement and
plan of merger with Advanced Machine Vision. Under the terms of the agreement,
Advanced Machine Vision will become a wholly-owned subsidiary of Key Technology.
Each outstanding share of Advanced Machine Vision common stock will be converted
into the right to receive $1.00 in cash, 1/10 of a share of Key Technology
Series B convertible preferred stock, and 1/40 of a five-year warrant to
purchase one share of Key Technology common stock for $15.00 per share. Each
share of Advanced Machine Vision Series B preferred stock will be converted into
one share of Key Technology Series C convertible preferred stock accompanied by
identical warrants. Key Technology will account for the merger using the
purchase method of accounting.
The financial statements of Advanced Machine Vision use a different fiscal
year than the financial statements of Key Technology. For purposes of the pro
forma information, Advanced Machine Vision's financial statements were adapted
to Key Technology's fiscal year by adding the results of Advanced Machine
Vision's fourth quarter for its fiscal 1998 (the three months ended December 31,
1998) to, and subtracting the fourth quarter of Advanced Machine Vision's fiscal
1999 (the three months ended December 31, 1999) from, the results of Advanced
Machine Vision's fiscal year ended December 31,1999. The Unaudited Pro Forma
Condensed Combined Balance Sheet is prepared as of March 31, 2000 and
illustrates the effects of the merger as if it had occurred on that date. The
Unaudited Pro Forma Condensed Combined Statements of Earnings are prepared for
the six months ended March 31, 2000 and for the year ended September 30, 1999
and illustrate the effects of the merger as if they had occurred as of the
beginning of the earliest period presented. The Unaudited Pro Forma Condensed
Combined Financial Statements should be read in conjunction with the historical
financial statements and accompanying notes of Key Technology, included
elsewhere herein, and the historical financial statements and accompanying notes
of Advanced Machine Vision, also included elsewhere herein. The pro forma
condensed financial information is presented for illustrative purposes only and
is not necessarily indicative of the financial position or the results of
operations that would have actually been reported had the merger occurred at the
beginning of the periods presented, nor is it necessarily indicative of future
financial positions or results of operations.
In addition to not reflecting any cost savings or synergies potentially
resulting from the merger, the pro forma financial statements do not reflect the
following one-time charges: (a) an estimated $1,700,000 of dilution in gross
margins related to the write-up of work-in-process and finished goods acquired
which is expected to be realized primarily during the first 12 months following
the merger; (b) an allocation of $2,500,000 to in process research and
development which will be written off immediately after the merger; and (c)
approximately $1,500,000 of costs expected to be incurred during the first 12
months following the merger associated with the integration of the two
companies, primarily related to reorganization, staff integration and training.
In determining the purchase price of the acquisition, management has
estimated the fair value of the preferred stock and warrants to be given as
consideration by using the discounted present value of potential cash flows of
such equity instruments. The cost of the acquisition has been allocated to the
assets acquired and liabilities assumed based on their estimated fair values as
determined by management. The determination of the purchase price as well as the
allocation of the costs of the acquisition are preliminary. Prior to completion
of the merger, a valuation of the purchase price and allocations of acquisition
costs will be performed. Key Technology management believes this valuation may
derive a purchase price and an allocation of costs that is different than that
shown in the pro forma financial statements.
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
ASSETS
Current Assets:
Cash and Cash Equivalents.................. $ 6,351 $ 2,298 $ (4,673)(1)(2) $ 3,976
Short-term Investments..................... 2,485 0 2,485
Trade Accounts Receivable, net............. 11,939 2,687 14,626
Inventories................................
Raw Materials........................... 4,694 3,433 8,127
Work-in-process and sub-assemblies...... 5,625 1,835 1,187(2) 8,647
Finished Goods.......................... 2,753 3,304 550(2) 6,607
------- ------- -------- -------
Total Inventories..................... 13,072 8,572 1,737 23,381
Other Current Assets....................... 1,935 1,088 1,044(2) 4,067
------- ------- -------- -------
Total Current Assets.................. 35,782 14,645 (1,892) 48,535
Property, Plant, and Equipment, Net.......... 8,073 4,713 814(2) 13,600
Goodwill and Other Intangibles, Net.......... 1,501 3,995 11,867(2) 17,363
Other Assets................................. 624 1,952 7,101(2) 9,677
------- ------- -------- -------
Total................................. $45,980 $25,305 $ 17,890 $89,175
======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities... $ 9,404 $ 3,029 $ 2,900(2) $15,333
Customer Deposits.......................... 2,559 1,917 4,476
Short-term Borrowings and Debt............. 291 43 1,000(2) 1,334
------- ------- -------- -------
Total Current Liabilities............. 12,254 4,989 3,900 21,143
Long-term Debt............................... 510 6,284 9,000(2) 15,794
Other Long-term Liabilities.................. 0 0 4,090(2) 4,090
Mandatorily Redeemable Preferred Stock and
Warrants................................... 0 2,579 14,853(2) 17,432
Total Shareholder's Equity................... 33,216 11,453 (13,953)(1)(2)(3) 30,716
------- ------- -------- -------
Total................................. $45,980 $25,305 $ 17,890 $89,175
======= ======= ======== =======
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
Adjustments
(1) To record the assumed exercise of 1,139,000 Advanced Machine Vision stock
options for Advanced Machine Vision common stock in a cashless exercise and
the use of $415,000 to repurchase 1,260,000 shares exercisable under the
stock option plans.
(2) To record the acquisition and adjust the purchased assets to fair market
value, including the recognition of goodwill. For illustrative purposes the
acquisition price has been calculated as follows:
PURCHASE PRICE:
Cash, mandatorily redeemable preferred stock and warrants
issued for 13,658,491 shares of Advanced Machine Vision
common stock.............................................. $ 28,410,000
Redeemable preferred stock and warrants issued in exchange
for Advanced Machine Vision mandatorily redeemable
preferred stock........................................... 2,680,000
Acquisition costs.......................................... 600,000
------------
Total purchase price....................................... $ 31,690,000
============
FINANCING:
Cash....................................................... $ 4,258,000
Long-term debt............................................. 10,000,000
Mandatorily redeemable preferred stock and warrants........ 17,432,000
------------
Total...................................................... $ 31,690,000
============
THE PURCHASE PRICE IS ALLOCATED AS FOLLOWS:
Cash....................................................... $ 1,883,000
Trade accounts receivable.................................. 2,687,000
Inventories................................................ 10,309,000
Other current assets....................................... 2,132,000
Property, plant and equipment.............................. 5,527,000
Goodwill and other intangibles............................. 18,362,000
Other assets............................................... 9,053,000
Liabilities assumed (including $2,900,000 of relocation and
severance accruals)....................................... (18,263,000)
------------
Total...................................................... $ 31,690,000
============
Included in goodwill and other intangibles is $2,500,000 of in-process
research and development which would be written off immediately upon
consummation of the merger, $5,000,000 of existing patents and technology
and approximately $11,000,000 of goodwill. These allocations were based on
preliminary valuations performed by Key Technology management. The
allocation of the purchase price may change pending a final analysis of the
value of the assets acquired and liabilities assumed. The effect of such
changes could be material and any increases in the amounts allocated to
acquired technology and other identified intangible assets and goodwill
resulting from changes could increase the negative effect of the
amortization on earnings per share.
(3) Reflects the elimination of Advanced Machine Vision's shareholders' equity
of $11,453,000 and write-off of $2,500,000 of purchased in-process research
and development.
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
Net Sales..................................... $68,028 $24,307 $92,335
Cost of Sales................................. 42,281 11,196 53,477
------- ------- -------- -------
Gross Profit.................................. 25,747 13,111 0 38,858
Operating Expenses:
Selling and Marketing....................... 11,125 5,584 16,709
Research and Development.................... 4,347 5,521 9,868
General and Administrative.................. 5,550 3,716 526(1)(2) 9,792
------- ------- -------- -------
Total Operating Expense....................... 21,022 14,821 526 36,369
------- ------- -------- -------
Income (Loss) From Operations................. 4,725 (1,710) (526) 2,489
Other Income (Expense)........................ 436 (323) (780)(3) (667)
------- ------- -------- -------
Earnings (Loss) Before Income Taxes........... 5,161 (2,033) (1,306) 1,822
Income Tax Expense (Benefit).................. 1,632 (2,152) 1,017(4)(5) 497
------- ------- -------- -------
Net Earnings (Loss)........................... $ 3,529 $ 119 $ (2,323) $ 1,325
======= ======= ======== =======
Net Earnings Per Share -- Basic............... $ 0.75 $ 0.01 (6) $ 0.04
======= ======= ======== =======
Net Earnings Per Share -- Diluted............. $ 0.75 $ 0.01 (6) $ 0.04
======= ======= ======== =======
Shares used in Per Share
Calculation -- Basic........................ 4,707 12,005 (12,005)(7) 4,707
======= ======= ======== =======
Shares used in Per Share
Calculation -- Diluted...................... 4,711 12,005 (12,005)(7) 4,711
======= ======= ======== =======
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Adjustments
(1) To record the depreciation associated with a $435,000 fair market value
purchase adjustment to buildings, taken over a 20-year life on a straight
line basis.
(2) To record amortization of purchased intangibles and goodwill, net of amounts
already recorded in Advanced Machine Visions' historical financial
statements. This adjustment consists of the following:
Amortization of patents and existing technologies over 10
years on a straight line basis............................ $ 500,000
Amortization of goodwill over 15 years on a straight line
basis..................................................... 724,000
Less: amounts recorded in Advanced Machine Vision's
historical statements..................................... (720,000)
---------
Total..................................................... $ 504,000
=========
(3) To record interest expense assuming an interest rate of 7.8% on the
$10,000,000 debt incurred as part of the acquisition. An increase of 1/8% in
the assumed interest rate would increase interest expense recorded by
$12,500 annually.
(4) To record the income tax effect of pro forma adjustments using the statutory
tax rate of 34%.
(5) To adjust income taxes to eliminate the effect of Advanced Machine Vision
income tax asset revaluation reserves. Advanced Machine Vision recorded
income tax benefits based upon expected utilization of temporary differences
and a portion of net operating loss carry-forwards. This adjustment has been
reversed and income taxes recalculated using the statutory tax rate of 34%.
The net adjustment increases income tax expense by $1,461,000. This
adjustment is required, as had the merger been in effect as of the beginning
of the fiscal year, these income tax benefits would have already been
recorded as part of the acquisition. Consequently, the income tax benefit of
Advanced Machine Vision's operating loss would have been $691,000 on a
consolidated basis using the statutory tax income tax rate.
(6) The mandatorily redeemable preferred stock has been recorded at the
discounted present value of cash flows. As this amount is less than the
mandatory redemption value, the difference must be accreted to retained
earnings over the mandatory two-year holding period. This amount is
estimated to be $1,115,000 in the first fiscal year. For purposes of
computing basic earnings per share this amount is treated as a dividend to
preferred shareholders, and as such, is a reduction in net income available
to common shareholders.
(7) To eliminate Advanced Machine Vision shares purchased. The effects of
assuming full conversion of Key Technology preferred stock and stock
warrants are anti-dilutive and are therefore not assumed to convert in
calculating diluted earnings per share. An additional 1,480,000 Key
Technology shares would be issued assuming full conversion of the Key
Technology preferred stock and stock warrants according to the conversion
terms described in the merger agreement.
KEY TECHNOLOGY, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
IN THOUSANDS, EXCEPT PER SHARE DATA
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
KEY TECH AMVC ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
Net Sales........................................ $32,160 $10,698 $ -- $42,858
Cost of Sales.................................... 20,285 5,934 -- 26,219
------- ------- -------- -------
Gross Profit..................................... 11,875 4,764 0 16,639
Operating Expenses:
Selling and Marketing.......................... 5,739 3,571 -- 9,310
Research and Development....................... 2,404 2,217 -- 4,621
General and Administrative..................... 2,632 2,361 263(1)(2) 5,256
------- ------- -------- -------
Total Operating Expense.......................... 10,775 8,149 263 19,187
------- ------- -------- -------
Income (Loss) From Operations.................... 1,100 (3,385) (263) (2,548)
Other Income (Expense)........................... 279 (233) (351)(3) (305)
------- ------- -------- -------
Earnings (Loss) Before Income Taxes.............. 1,379 (3,618) (614) (2,853)
Income Tax Expense (Benefit)..................... 455 16 (1,455)(4)(5) (984)
------- ------- -------- -------
Net Earnings (Loss).............................. $ 924 $(3,634) $ 841 $(1,869)
======= ======= ======== =======
Net Earnings (Loss) Per Share -- Basic........... $ 0.20 $ (0.30) --(6) $ (0.52)
======= ======= =======
Net Earnings (Loss) Per Share -- Diluted......... $ 0.20 $ (0.30) --(6) $ (0.52)
======= ======= =======
Shares used in Per Share Calculation -- Basic.... 4,717 12,285 (12,285)(7) 4,717
======= ======= ======== =======
Shares used in Per Share Calculation --Diluted... 4,720 12,285 (12,288)(7) 4,717
======= ======= ======== =======
KEY TECHNOLOGY INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
Adjustments
(1) To record the depreciation associated with a $435,000 fair market value
purchase adjustment to buildings, taken over a 20-year life on a straight
line basis.
(2) To record amortization of purchased intangibles and goodwill, net of amounts
already recorded in Advanced Machine Visions' historical financial
statements. This adjustment consists of the following:
Amortization of patents and existing technologies over 10
years on a straight line basis........................... $ 250,000
Amortization of goodwill over 15 years on a straight line
basis.................................................... 362,000
Less: amounts recorded in Advanced Machine Vision's
historical statements..................................... (360,000)
---------
Total..................................................... $ 252,000
=========
(3) To record interest expense assuming an interest rate of 7.80% on the
$9,000,000 remaining of debt incurred as part of the acquisition. An
increase of 1/8% in the assumed interest rate would increase interest
expense recorded by $11,250 annually.
(4) To record the income tax effect of pro forma adjustments using the statutory
tax rate of 34%.
(5) To adjust income taxes to eliminate the effect of Advanced Machine Vision
income tax asset revaluation reserves. During this interim period, Advanced
Machine Vision recorded no income tax benefit associated with the net
operating loss as they did not expect to be able to utilize the operating
loss for tax purposes. An income tax benefit of $1,230,000 has been recorded
as an adjustment to reflect the income tax benefit of the net operating loss
using an the statutory tax rate of 34%. This adjustment is required, as had
the merger been in effect as of the beginning of fiscal year, these income
tax benefits would now be realized on a consolidated basis.
(6) The mandatorily redeemable preferred stock has been recorded at the
discounted present value of cash flows. As this amount is less than the
mandatory redemption value, the difference must be accreted to retained
earnings over the mandatory two-year holding period. This amount is
estimated to be $600,000 in the first six months of this fiscal year. For
purposes of computing basic earnings per share this amount is treated as a
dividend to preferred shareholders, and as such, is a reduction in net
income available to common shareholders.
(7) To eliminate Advanced Machine Vision shares purchased. The effects of
assuming full conversion of Key Technology preferred stock and stock
warrants are anti-dilutive and are therefore not assumed to convert in
calculating diluted earnings per share. An additional 1,480,000 Key
Technology shares would be issued assuming full conversion of the Key
Technology preferred stock and stock warrants according to the conversion
terms described in the merger agreement.
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------------------
2.1 Agreement and Plan of Merger by and among Key Technology,
Inc., KTC Acquisition Corp. and Advanced Machine Vision
Corporation, effective February 15, 2000, as amended by
Amendment No. 1 dated as of February 25, 2000, and as
amended by Amendment No. 2 dated as of April 24, 2000.
99.1 Key Technology, Inc. Press Release issued July 12, 2000.
99.2 Key Technology, Inc. Press Release issued July 13, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this current report on Form 8-K to be
signed on its behalf by the undersigned, hereunto duly authorized.
KEY TECHNOLOGY, INC.
By:
--------------------------------
Thomas C. Madsen, President and
Chief Executive Officer
Dated: July 27, 2000
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------------------
2.1 Agreement and Plan of Merger by and among Key Technology,
Inc., KTC Acquisition Corp. and Advanced Machine Vision
Corporation, effective February 15, 2000, as amended by
Amendment No. 1 dated as of February 25, 2000, and as
amended by Amendment No. 2 dated as of April 24, 2000.
99.1 Key Technology, Inc. Press Release issued July 12, 2000.
99.2 Key Technology, Inc. Press Release issued July 13, 2000.