SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 COMMISSION FILE NUMBER 0-8623 ROBOTIC VISION SYSTEMS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 11-2400145 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 302-2439 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of Common Stock outstanding as of August 12, 2002 60,609,856 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) JUNE 30, SEPTEMBER 30, 2002 2001 --------- --------- ASSETS Current Assets: Cash and cash equivalents .................................................. $ 466 $ 3,554 Accounts receivable, net ................................................... 13,061 14,866 Inventories ................................................................ 30,006 34,765 Prepaid expenses and other current assets .................................. 2,108 2,168 --------- --------- Total current assets ..................................................... 45,641 55,353 Plant and equipment, net ................................................... 7,538 10,393 Goodwill, net .............................................................. 3,954 4,265 Software development costs, net ............................................ 8,385 9,944 Other assets ............................................................... 7,096 7,992 --------- --------- $ 72,614 $ 87,947 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Revolving credit facility .................................................. $ 2,680 $ 2,385 Notes payable and current portion of long-term debt ........................ 5,609 4,259 Accounts payable ........................................................... 11,790 13,694 Accrued expenses and other current liabilities ............................. 14,627 17,401 Deferred gross profit ...................................................... 1,367 2,469 --------- --------- Total current liabilities ................................................ 36,073 40,208 Long-term debt ............................................................. 3,076 7,240 --------- --------- Total liabilities ........................................................ 39,149 47,448 Commitments and contingencies .............................................. -- -- Prepaid warrants ........................................................... -- 7,067 Stockholders' Equity: Common stock, $0.01 par value; shares authorized, 100,000 shares; issued and outstanding, June 30, 2002 -- 60,610 and September 30, 2001 -- 35,960 .... 606 360 Additional paid-in capital ................................................. 293,091 270,564 Accumulated deficit ........................................................ (259,172) (236,810) Deferred compensation ...................................................... (138) -- Accumulated other comprehensive loss ....................................... (922) (682) --------- --------- Total stockholders' equity ............................................... 33,465 33,432 --------- --------- $ 72,614 $ 87,947 ========= ========= See notes to consolidated financial statements 2 ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues ......................................... $ 15,348 $ 21,061 $ 44,356 $ 91,332 Cost of revenues ................................. 10,435 15,117 29,422 59,201 Inventory provisions ............................. -- 650 -- 10,949 -------- -------- -------- -------- Gross profit ................................... 4,913 5,294 14,934 21,182 -------- -------- -------- -------- Operating costs and expenses: Research and development expenses .............. 4,497 6,307 13,785 22,644 Selling, general and administrative expenses ... 8,882 12,756 27,734 41,407 Gain on sale of assets ......................... -- -- (6,935) -- Severance and other charges .................... 1,225 497 1,601 4,197 In-process research and development ............ -- -- -- 1,050 -------- -------- -------- -------- Loss from operations ......................... (9,691) (14,266) (21,251) (48,116) Interest expense, net ............................ (301) (357) (898) (545) -------- -------- -------- -------- Loss before income taxes ....................... (9,992) (14,623) (22,149) (48,661) Provision for income taxes ....................... -- -- -- -- -------- -------- -------- -------- Loss before cumulative effect of accounting change (9,992) (14,623) (22,149) (48,661) Cumulative effect of accounting change ......... -- -- -- (10,747) -------- -------- -------- -------- Net loss ......................................... $ (9,992) $(14,623) $(22,149) $(59,408) ======== ======== ======== ======== Per Share: Loss before cumulative effect: Basic .......................................... $ (0.18) $ (0.41) $ (0.48) $ (1.38) ======== ======== ======== ======== Diluted ........................................ $ (0.18) $ (0.41) $ (0.48) $ (1.38) ======== ======== ======== ======== Cumulative effect of accounting change: Basic .......................................... $ -- $ -- $ -- $ (0.30) ======== ======== ======== ======== Diluted ........................................ $ -- $ -- $ -- $ (0.30) ======== ======== ======== ======== Loss per share: Basic .......................................... $ (0.18) $ (0.41) $ (0.48) $ (1,68) ======== ======== ======== ======== Diluted ........................................ $ (0.18) $ (0.41) $ (0.48) $ (1.68) ======== ======== ======== ======== Weighted average shares Basic .......................................... 56,298 35,864 46,452 35,610 Diluted ........................................ 56,298 35,864 46,452 35,610 See notes to consolidated financial statements 3 ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) (IN THOUSANDS) 2002 2001 -------- -------- OPERATING ACTIVITIES: Net loss ..................................................................... $ (22,149) $ (59,408) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization .............................................. 7,291 11,020 Gain on sale of assets ..................................................... (6,935) -- Issuance of warrants and shares in lieu of cash ............................ 39 -- Cumulative effect of accounting change ..................................... -- 10,747 Inventory provisions ....................................................... -- 10,949 Bad debt provisions ........................................................ -- 646 Warranty provisions ........................................................ 756 2,256 In-process research and development ........................................ -- 1,050 Write-off of tangible and intangible assets................................. 269 679 Changes in operating assets and liabilities (net of effects of business acquired and assets sold) Accounts receivable ...................................................... 1,805 45,410 Inventories .............................................................. 1,805 (1,903) Prepaid expenses and other current assets ................................ 60 699 Other assets ............................................................. (211) (841) Accounts payable ......................................................... (1,904) (15,358) Accrued expenses and other current liabilities ........................... (1,206) (5,157) Deferred gross profit .................................................... (1,102) (7,646) -------- -------- Net cash used in operating activities .................................... (21,482) (6,857) -------- -------- INVESTING ACTIVITIES: Additions to plant and equipment, net ........................................ (1,315) (2,184) Additions to software development costs ...................................... (1,466) (2,221) Proceeds from sale of assets ................................................. 10,189 -- Cash paid for acquisitions, net .............................................. -- (3,125) -------- -------- Net cash provided by (used in) investing activities ........................ 7,408 (7,530) -------- -------- FINANCING ACTIVITIES: Proceeds from the exercise of stock options and warrants ..................... -- 25 Proceeds for private placement of common stock, net of offering costs ........ 13,591 Net borrowings under the revolving line of credit ............................ 295 -- Repayment of long-term borrowings ............................................ (2,814) (265) -------- -------- Net cash provided by (used in) financing activities ........................ 11,072 (240) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ................. (86) 54 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (3,088) (14,573) CASH AND CASH EQUIVALENTS: Beginning of period ........................................................ 3,554 22,947 -------- -------- End of period .............................................................. $ 466 $ 8,374 ======== ======== Supplemental Cash Flow Information: Interest paid ................................................................ $ 694 $ 583 ======== ======== Taxes paid ................................................................... $ 91 $ 197 ======== ======== NONCASH INVESTING AND FINANCING ACTIVITIES: Note payable and future payments for acquisition ............................. $ -- $ 9,053 ======== ======== Cashless exercise of prepaid warrants for 11,921 shares of common stock in 2002 and 683 in 2001..................................................... $ 7,067 $ 1,576 ======== ======== Issuance of 2,433 shares of common stock in payment of accrued warrant premium $ 1,951 $ -- ======== ======== See notes to consolidated financial statements 4 ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet of Robotic Vision Systems, Inc. and its subsidiaries (the "Company") as of June 30, 2002, the consolidated statements of operations for the three and nine month periods ended June 30, 2002 and 2001 and the consolidated statements of cash flows for the nine month periods ended June 30, 2002 and 2001 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial condition at June 30, 2002 and results of operations and cash flows for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's amendment #2 of the Form 10-K for the year ended September 30, 2001. The operating results for the three and nine month periods ended June 30, 2002 are not necessarily indicative of the operating results for the full year. The Company incurred a net loss of $104,373 for the fiscal year ended September 30, 2001 and used $12,584 of cash in operations during that same period. For the nine month period ended June 30, 2002, the Company incurred a net loss of $22,149 and used $21,482 of cash in operations during that same period. These results are primarily attributable to the worldwide downturn in demand for semiconductor capital equipment. Throughout fiscal 2001 and through the third quarter of fiscal 2002, management took a series of steps, including reductions in headcount and exiting facilities, to reduce operating expenses and to restructure operations in response to this downturn. As discussed in Note 10, the Company sold the one-dimensional material handling business ("material handling business") as of December 15, 2001; the net proceeds from the disposition of the material handling business were approximately $10,189, after closing costs. On May 2, 2002, the Company completed a private placement, which raised approximately $13,591, net of offering expenses. A total of 10.3 million shares of common stock were sold at $1.46 per share. The placement also included warrants to purchase up to 2.1 million shares at $1.46 per share on or before June 30, 2002 (the "60-day Warrants"), and warrants to purchase up to 2.6 million shares at $1.50 per share on or before May 1, 2005 (the "3-year Warrants"). On June 27, 2002, the 60-day Warrants were modified to expire on August 30, 2002. The private placement also included warrants issued to the placement agent (the "Placement Warrants"), to purchase up to 0.6 million shares of common stock at $1.50 per share on or before May 1, 2005. The Company may call the $1.50 warrants, effectively forcing conversion, if the price of the Company's common stock trades above $2.35 per share for twenty consecutive trading days at any time prior to the warrants' expiration. The fair value of the 60-day Warrants, totaling approximately $525, the 3-year Warrants, totaling approximately $1,400, and the Placement Warrants, totaling approximately $305, was credited to additional paid-in capital. The Company continues to implement plans intended to control operating expenses, inventory levels, and capital expenditures as well as plans to manage accounts payable and accounts receivable to enhance cash flows. The Company recognizes that additional financing will also be needed and we are in discussions to raise such financing. The Company believes that through a combination of the credit facility, customer advance payments, additional debt/equity financing, continued expense reductions and cash flows from operations, it will have sufficient liquidity to fund cash requirements for at least the next 12 months. If the Company are unsuccessful in obtaining additional financing, it would face a severe constraint on its ability to sustain operations at current levels, and the Company would intend to adjust its operations consistent with its available resources. Such adjustments might include further work force reductions, exiting of facilities, or disposition of certain operations. 5 2. CUMULATIVE EFFECT OF ACCOUNTING CHANGE In fiscal year 2001, the Company changed its method of accounting for revenue on certain semiconductor equipment sales to comply with SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Previously, the Company generally recognized revenue upon shipment to the customer, and accrued the cost of providing any undelivered services associated with the equipment at the time of revenue recognition. Under the new accounting method, adopted as of October 1, 2000, the Company now recognizes revenue based on the type of equipment that is sold and the terms and conditions of the underlying sales contracts. The cumulative effect of the change as of October 1, 2000 resulted in a charge to operations of $10,747, which is included in the consolidated statement of operations for the nine month period ended June 30, 2001. 3. INVENTORIES Inventories consisted of the following: JUNE 30, 2002 SEPTEMBER 30, 2001 ----------------- -------------------- Raw Materials................ $15,045 $ 18,640 Work-in-Process.............. 6,303 4,968 Finished Goods............... 8,658 11,157 ------- -------- Total.............. $30,006 $ 34,765 ======= ======== Inventory on consignment was $1,494 and $1,701 at June 30, 2002 and September 30, 2001, respectively. 4. EARNINGS PER SHARE Basic net loss per share is computed using the weighted average number of shares outstanding during each period. Diluted net loss per share reflects the effect of the Company's outstanding stock options and warrants (using the treasury stock method), except where such options and warrants would be anti-dilutive. The calculations of earnings per share for the three and nine month periods ended June 30, 2002 and 2001 are as follows: THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, --------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- BASIC AND DILUTED EPS Loss before cumulative effect ............................... $ (9,992) $(14,623) $(22,149) $(48,661) Premium on prepaid warrants ................................. (15) (167) (213) (533) -------- -------- -------- -------- Loss before cumulative effect -- basic numerator ............ (10,007) (14,790) (22,362) (49,194) Cumulative effect of accounting change -- basic numerator ... -- -- -- (10,747) -------- -------- -------- -------- Net loss -- basic numerator ................................. (10,007) (14,790) (22,362) (59,941) Weighted average number of common shares -- basic and diluted denominator 56,298 35,864 46,452 35,610 -------- -------- -------- -------- Per Share: Loss before cumulative effect -- basic ...................... $ (0.18) $ (0.41) $ (0.48) $ (1.38) ======== ======== ======== ======== Cumulative effect of accounting change -- basic ............. -- -- -- $ (0.30) -------- -------- -------- -------- Net loss -- basic and diluted ............................... $ (0.18) $ (0.41) $ (0.48) $ (1.68) ======== ======== ======== ======== For the three month periods ended June 30, 2002 and June 30, 2001 and for the nine month periods ended June 30, 2002 and June 30, 2001, the Company had potential common shares excluded from the earnings per share of 13,133, 8,191, 13,092 and 7,151, respectively, as they were anti-dilutive. 6 5. COMPREHENSIVE INCOME (LOSS) In addition to net loss, the only item that the Company currently records as other comprehensive income or loss is the change in the cumulative translation adjustment resulting from the changes in exchange rates and the effect of those changes upon translation of the financial statements of the Company's foreign operations. The following table presents information about the Company's comprehensive loss for the following periods: THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net loss ............................. $ (9,992) $(14,623) $(22,149) $(59,408) Effect of foreign currency translation adjustments (302) (3) (240) 51 -------- -------- -------- -------- Comprehensive loss ................... $(10,294) $(14,626) $(22,389) $(59,357) ======== ======== ======== ======== 6. SEGMENT INFORMATION The Company operates in two reportable segments serving the machine vision industry. The Company has determined segments primarily based on the nature of the products offered by the Semiconductor Equipment Group and the Acuity CiMatrix division. The Semiconductor Equipment Group is comprised of the Electronics, Systemation and Vanguard subdivisions. The Electronics subdivision, including Abante Automation Inc. ("Abante"), supplies inspection equipment to the semiconductor industry; the Systemation subdivision offers tape and reel component processing systems designed to handle and inspect chip scale packages ("CSP") and ball grid array ("BGA") packages; and the Vanguard subdivision is a supplier of BGA and CSP equipment for the semiconductor and connection industries. The Acuity CiMatrix division designs, manufactures and markets 2-D data collection products and barcode reading systems, as well as 2-D machine vision systems and lighting products for use in industrial automation. Sales between segments are determined based on an intercompany price that is consistent with external customers. Intersegment sales by the Acuity CiMatrix division were $16 and $1,042 for the nine month periods ended June 30, 2002 and 2001, respectively. Other loss is comprised of unallocated corporate general and administrative expenses. Although certain research activities are conducted by the Acuity CiMatrix division for the Semiconductor Equipment Group, research and development expenses are reported in the segment where the costs are incurred. The following table presents information about the Company's reportable segments. THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- REVENUES: Semiconductor Equipment ...................... $ 10,450 $ 11,885 $ 24,125 $ 63,121 Acuity CiMatrix .............................. 4,898 9,176 20,231 28,211 -------- -------- -------- -------- Total Revenues ..................... $ 15,348 $ 21,061 $ 44,356 $ 91,332 ======== ======== ======== ======== LOSS FROM OPERATIONS: Semiconductor Equipment ...................... $ (5,365) $ (7,522) $(16,622) $(24,161) Acuity CiMatrix (including the gain of $6,935 on the sale of the material handling business for the nine month period ended June 30, 2002) ............................. (2,017) (4,298) 1,697 (17,488) Other ........................................ (2,309) (2,446) (6,326) (6,467) -------- -------- -------- -------- Total loss from operations ......... $ (9,691) $(14,266) $(21,251) $(48,116) ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION: Semiconductor Equipment ...................... $ 1,616 $ 2,301 $ 4,767 $ 6,731 Acuity CiMatrix .............................. 712 1,244 2,255 4,188 Other ........................................ 67 34 269 101 -------- -------- -------- -------- Total depreciation and amortization $ 2,395 $ 3,579 $ 7,291 $ 11,020 ======== ======== ======== ======== INVENTORY PROVISIONS: Semiconductor Equipment ...................... $ -- $ -- $ -- $ 6,607 Acuity CiMatrix .............................. -- 650 -- 4,342 -------- -------- -------- -------- Total inventory provisions ......... $ -- $ 650 $ -- $ 10,949 ======== ======== ======== ======== 7 THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- SEVERANCE AND OTHER CHARGES: Semiconductor Equipment .................... $ 869 $ 425 $ 1,218 $ 1,550 Acuity CiMatrix ............................ 288 72 315 2,578 Other ...................................... 68 -- 68 69 -------- -------- -------- -------- Total severance and other charges $ 1,225 $ 497 $ 1,601 $ 4,197 ======== ======== ======== ======== TOTAL ASSETS: Semiconductor Equipment .................... $ 50,612 $ 72,039 $ 50,612 $ 72,039 Acuity CiMatrix ............................ 20,300 41,053 20,300 41,053 Other ...................................... 1,702 18,078 1,702 18,078 -------- -------- -------- -------- Total assets ..................... $ 72,614 $131,170 $ 72,614 $131,170 ======== ======== ======== ======== EXPENDITURES FOR PLANT AND EQUIPMENT, NET: Semiconductor Equipment .................... $ 923 $ 636 $ 1,030 $ 1,126 Acuity CiMatrix ............................ 3 508 246 1,039 Other ...................................... 16 3 39 19 -------- -------- -------- -------- Total expenditures for plant and equipment, net $ 942 $ 1,147 $ 1,315 $ 2,184 ======== ======== ======== ======== EXPENDITURES FOR SOFTWARE DEVELOPMENT COSTS: Semiconductor Equipment .................... $ 506 $ 569 $ 1,068 $ 1,805 Acuity CiMatrix ............................ 131 27 398 416 -------- -------- -------- -------- Total expenditures for software development costs ............... $ 637 $ 596 $ 1,466 $ 2,221 ======== ======== ======== ======== 7. REVOLVING CREDIT FACILITY, NOTES PAYABLE AND LONG-TERM DEBT Revolving Credit Facility The Company has a $10,000 credit facility that expires in April 2003. At June 30, 2002, borrowings under the credit facility were $2,680 and the Company had $5,515 of remaining availability under the line. Outstanding balances bear interest at a variable rate as determined periodically by the bank (5.75% at June 30, 2002). On April 3, 2002, the credit facility was amended, primarily consenting to modifications to the Articles of Incorporation and to decrease future quarterly minimum net worth covenants for periods after September 30, 2002. The Company was in compliance with the covenants at June 30, 2002. Notes Payable and Long-Term Debt: Notes payable and long-term debt at June 30, 2002 and September 30, 2001 consisted of the following: JUNE 30, SEPTEMBER 30, 2002 2001 -------- -------- Subordinated note payable -- 8.25%, payable in equal quarterly installments of $281 through June 2003 .................. $ 1,116 $ 1,969 Abante note payable -- 8% payable in installments though November 2002 1,000 1,500 Abante payable -- non-interest bearing, discounted at 8%, payable in installments through November 2005 ..................... 1,695 2,129 AIID notes payable -- prime rate (4.75% at June 30, 2002 and 6.0% September 30, 2001), payable in installments through January 2004 .............................................. 4,800 5,556 Other borrowings ..................................................... 74 345 -------- -------- Total notes payable and long-term debt ............................... 8,685 11,499 Less notes payable and current portion of long-term debt ............. (5,609) (4,259) -------- -------- Long-term debt ....................................................... $ 3,076 $ 7,240 ======== ======== 8 On November 21, 2001, the $1,500 note payable issued to the former principals of Abante came due, together with 8% interest thereon from November 29, 2000. On the same date, the first of five annual installments on the Abante payable also became due, in the amount of $500. Pursuant to an oral agreement with the former principals, the Company paid on November 21, 2001 the interest, $250 of note principal and approximately $112 of the first annual installment. The balance of the sums originally due on November 21, 2001 were rescheduled for payment in installments through the first quarter of fiscal 2003. In January 2002, the principals demanded current full payment of these amounts or collateralization of the Company's future payment obligations. The Company believes the oral agreement is enforceable and is continuing to make payments in accordance with the terms of that agreement, paying the interest, $250 of note principal and approximately $150 of the first annual installment on February 21, 2002, and paying approximately $238 of the first annual installment on May 21, 2002. On January 3, 2002, a payment of $1,855 under a note issued to the former shareholders of Auto Image ID, Inc. ("AIID") came due together with interest at prime rate. On the due date, the Company paid the interest and approximately $240 of note principal to certain of these shareholders. The Company has reached an agreement with the other former stockholders to pay the sums originally due on January 3, 2002 in three equal principal installments in April 2002, August 2002 and December 2002. In accordance with the agreement with the other former stockholders, the Company paid on April 1, 2002 approximately $516 of the note principal. In exchange for the deferral, the Company issued warrants with an exercise price of $1.14 per share. The fair value of these warrants, totaling approximately $137, is being charged to operations through January, 2003. 8. ACQUISITION On November 29, 2000, the Company acquired the outstanding shares of Abante for approximately $1,850 in cash, a twelve-month note of $1,500 at 8% interest and recorded the net present value of future minimum payments of $500 per year for 5 years using a discount rate of 8% (see Note 7). Abante designs, manufactures and markets machine vision systems for three-dimensional inspection in the semiconductor and electronics industries. On January 3, 2001, the Company acquired the outstanding shares of AIID for approximately $1,200 in cash and three-year notes payable at $1,855 per year at prime rate (see Note 7). AIID designs, manufactures and markets products for reading direct part marks and two-dimensional bar codes. The acquisitions have been accounted for as purchases and, accordingly, the results of Abante and AIID are included in the consolidated statements of operations of the Company since their respective dates of acquisition. Under the purchase method of accounting, the acquired assets and assumed liabilities have been recorded at their estimated fair values at the dates of acquisition. The Company hired an independent appraisal firm that completed valuations of the identifiable intangible assets acquired for purposes of allocating the purchase price. The valuation of the existing technology and in-process research and development was determined using the income method. Revenue and expense projections as well as technology assumptions were prepared through 2006. The projected cash flows were discounted using a 30% rate. The value assigned to in-process technology relates primarily to one research project, that had not reached technological feasibility and which had no alternative use at the date of purchase. The in-process research and development related to a single project for the development of 3-D inspection technology. Management is primarily responsible for estimating the fair value of the acquired in-process research and development, and the valuation was determined separately from all other acquired assets using the percentage of completion method. The significant assumptions underlying the valuation of this technology included revenues commencing in 2001, a completion ratio of 64% which was calculated by dividing the total expenditures to date for the project by the total estimated expenditures, and a discount rate of 30%. The efforts required to develop the in-process technologies into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be designed to meet their design specifications, including function, features and technical performance requirements. At September 30, 2001, this project was substantially concluded. The Company expensed $1,050 related to in-process research and development in the quarter ended March 31, 2001. 9 9. RESTRUCTURING During the three and nine month periods ended June 30, 2002, the Company took additional steps in order to reduce its costs, including a reduction of approximately 100 and 160 employees, respectively. The restructuring also included costs related to the closing of foreign offices, which included the write-off of tangible assets of $269. The terminated employees represented all functions across all operating divisions. The charges for severance and other charges in the first, second and third quarters of fiscal 2002 were $165, $211 and $1,225, respectively, net of reversals of $4 and $331 of charges for the first and second quarters, respectively. The reversal of charges is due to a change in operating plans by the Company, which changed plans to close a facility, and severance costs previously accrued for the reduction of employees at that facility have now been reversed. At September 30, 2001, the Company had $1,277 of remaining restructuring charges to be paid. A summary of these restructuring costs is as follows: LIABILITY Q1 & Q2 Q3 NON AT FISCAL 2002 FISCAL 2002 CASH CASH LIABILITY AT SEPT. 30. AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS JUNE 30, 2001 REVERSED ACCRUED ACCRUED INCURRED INCURRED 2002 ------ ------ ------ ------ ------ ------ ------ Severance payments to employees $ 917 $ 256 $ 711 $ 911 -- $1,359 $ 924 Exit costs from facilities .... 360 79 -- 45 -- 147 179 Write-off of other tangible and intangible assets ............. -- -- -- 269 269 -- -- ------ ------ ------ ------ ------ ------ ------ Total ............... $1,277 $ 335 $ 711 $1,225 $ 269 $1,506 $1,103 ====== ====== ====== ====== ====== ====== ====== Also, in the nine months ended June 30, 2001, the Company took steps to reduce its costs. These steps primarily included a reduction of approximately 300 employees and a restructuring of European operations. The charge for severance and other costs of $4,197 included severance costs of approximately $2,645, exit costs from facilities of $873 and the write-off of other tangible and intangible assets of $679. 10. SALE OF PRODUCT LINE As of December 15, 2001 the Company sold its one-dimensional material handling product line ("material handling business"), which had been part of the Company's Acuity CiMatrix division, to affiliates of SICK AG of Germany. The material handling business had designed, manufactured and marketed one-dimensional bar code reading and machine vision systems and related products used in the automatic identification and data collection market to track packages for the parcel delivery services and material handling industries. The sales price was $11,500, which includes the right to receive $500 following the expiration of a 16-month escrow to cover indemnification claims. The costs of the transaction were approximately $800. The Company has recorded a net gain of $6,935 in the nine month period ended June 30, 2002, related to the sale of the material handling business. For the period from October 1, 2001 through December 15, 2001, the material handling business had revenues of approximately $2,800 and had an operating loss of approximately $250. 10 12. RECENT ACCOUNTING PRONOUNCEMENTS Business Combinations -- In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against these new criteria. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. Under this approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. SFAS No. 142 also requires a transitional goodwill impairment test six months from the date of adoption of SFAS No. 142. The Company is required to adopt SFAS No. 142 on October 1, 2002. The adoption of SFAS No. 142 is expected to result in certain intangible assets, including amounts capitalized for workforce, to be reclassified to goodwill. In addition, SFAS No. 142 requires that the Company discontinue the amortization of goodwill. For the three and nine month periods ended June 30, 2002, goodwill amortization totaled approximately $103 and $310, respectively. The Company does not expect that the transitional goodwill impairment will have a significant impact on its financial statements. Impairments -- In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121. The new statement establishes a single accounting model for long-lived assets to be disposed of by sale. Under its provisions, which apply to both continuing and discontinued operations, companies must measure long-lived assets at the lower of fair value, less cost to sell, or the carrying amount. As a result, amounts reported as discontinued operations should no longer be reported at net realizable value or include any losses that have not yet occurred. The Company is required to adopt SFAS No. 144 on October 1, 2002. The Company is currently assessing, but has not yet determined, the impact of SFAS No. 144 on the Company's financial position and results of operations. Restructuring -- In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (FAS 146), which nullifies EITF Issue No. 94-3. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No 94-3 had recognized the liability at the commitment date to an exit plan. The Company is required to adopt the provisions of FAS 146 effective for exit or disposal activities initiated after December 31, 2002. 11 ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q contains certain forward-looking statements including expectations of market conditions, challenges and plans, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the Safe Harbor provisions created by that statute. The words "anticipate", "expect", "believe", "plan" and similar expressions are intended to identify such statements. Such statements are subject to various risks and uncertainties, including but not limited to those discussed herein and, in particular, under the caption "Forward-Looking Statements And Associated Risks" that could cause actual results to differ materially from those projected. INTRODUCTION Our business activity involves the development, manufacture, marketing and servicing of machine vision equipment for a variety of industries, including the global semiconductor industry. Demand for products can change significantly from period to period as a result of numerous factors including, but not limited to, changes in global economic conditions, supply and demand for semiconductors, changes in semiconductor manufacturing capacity and processes and competitive product offerings. Due to these and other factors, our historical results of operations including the periods described herein may not be indicative of future operating results. We continue to implement plans intended to control operating expenses, inventory levels, and capital expenditures as well as plans to manage accounts payable and accounts receivable to enhance cash flows. We recognize that additional financing will also be needed and we are in discussions to raise such financing. Management believes that through a combination of the credit facility, customer advance payments, additional debt/equity financing, continued expense reductions and cash flows from operations, we will have sufficient liquidity to fund cash requirements for at least the next 12 months. If we are unsuccessful in obtaining additional financing, we would face a severe constraint on our ability to sustain operations at current levels, and we would intend to adjust our operations consistent with our available resources. Such adjustments might include further work force reductions, exiting of facilities, or disposition of certain operations. On May 2, 2002, we completed a private placement, which raised $13.6 million, net of offering expenses. A total of 10.3 million shares of common stock were sold at $1.46 per share. The placement also included warrants to purchase up to 2.1 million shares at $1.46 per share on or before June 30, 2002 (the "60-day Warrants"), and warrants to purchase up to 2.6 million shares at $1.50 per share on or before May 1, 2005 (the "3-year Warrants"). On June 27, 2002, the 60-day Warrants were modified to expire on August 30, 2002. The private placement also included warrants issued to the placement agent (the "Placement Warrants") to purchase up to 0.6 million shares of common stock at $1.50 per share on or before May 1, 2005. We may call the $1.50 warrants, effectively forcing conversion, if the price of our common stock trades above $2.35 per share for twenty consecutive trading days at any time prior to the warrants' expiration. CRITICAL ACCOUNTING POLICIES AND ESTIMATES In Amendment No. 2 to our Quarterly Report on Form 10-Q for the three month period ended March 31, 2002, our most critical accounting policies and estimates upon which our financial statements are based were identified as those relating to revenue recognition, the allowance for doubtful accounts, inventories, intangible assets, income taxes, warranty obligations, restructuring costs and contingencies and litigation. We considered the disclosure requirements of Financial Release 60 ("FR-60") regarding critical accounting policies, and concluded that nothing materially changed during the three month period ended June 30, 2002 that would warrant further disclosure under these releases, except as follows: Going Concern Assumption -- The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. If the consolidated financial statements were prepared on liquidation basis, the carrying value of the assets and liabilities would be adjusted to reflect the liquidation basis of accounting. 12 RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND NINE MONTHS ENDED JUNE 30, 2001 As of December 15, 2001, we sold our one-dimensional material handling product line ("material handling business"), which had been part of our Acuity CiMatrix division, to affiliates of SICK AG of Germany for approximately $11.5 million. This price includes the right to receive $0.5 million following the expiration of a 16-month escrow to cover indemnification claims. The costs of this transaction were approximately $0.8 million. For the period from October 1, 2001 through December 15, 2001, the material handling business had revenues of approximately $2.8 million and had an operating loss of approximately $0.25 million. The material handling business had revenues and operating income of approximately $16.1 million and $0.2 million, respectively, in fiscal 2001. The sale of the business will reduce our revenues and operating expenses in future quarters. The following discussion of results of operations includes the operations of the material handling business in the prior periods as the basis of the analysis, unless otherwise noted. Our bookings and revenues are inevitably tied to the growth of the overall semiconductor industry and the changes in capital spending by semiconductor companies. We define bookings during a fiscal period as incoming orders deliverable to customers in the next eighteen months less cancellations. For the three month period ended June 30, 2002, bookings were $15.7 million, compared to bookings of $18.4 million for the three months ended March 31, 2002, to $10.0 million for the three month period ended December 31, 2001, to $15.0 million for the three month period ended September 30, 2001 and to $13.4 million for the three month period ended June 30, 2001. For the three month periods ended June 30, 2002, March 31, 2002, December 31, 2001, June 30, 2001 and for the nine month period ended June 30, 2001, bookings associated with the material handling business were none, none, $1.7 million, $4.0 million and $13.1 million, respectively. The increase in bookings in the current quarter as compared to the quarter ended June 30, 2001 was primarily attributable to increased bookings in the Semiconductor Equipment Group. The decrease in our bookings during the three month period ended June 30, 2002, versus the three month period ended March 31, 2002 primarily relates to decreased bookings from our Acuity CiMatrix division. For the nine month period ended June 30, 2002, bookings were $44.1 million compared to $56.9 million for the nine month period ended June 30, 2001. The decrease in bookings in the nine month period ended June 30, 2002 as compared to the nine month period ended June 30, 2001 relates to a sharp semiconductor industry slowdown. At June 30, 2002 and June 30, 2001, backlog was $13.9 million and $15.5 million, respectively. For the three month period ended June 30, 2002, revenues were $15.3 million, compared to revenues of $14.0 million for the three month period ended March 31, 2002, to $15.0 million for the three month period ended December 31, 2001, to $16.5 million for the three month period ended September 30, 2001 and $21.1 million for the three month period ended June 30, 2001. For the three month periods ended June 30, 2002, March 31, 2002, December 31, 2001 and June 30, 2001 revenues associated with the material handling business totaled none, none, $2.8 million and $4.7 million, respectively. The decline in revenue in the current quarter versus the quarter ended June 30, 2001 relates to a continued semiconductor industry slowdown, as a result of which our customers have decreased demand for our products. The increase in revenue in the current quarter versus the quarter ended March 31, 2002, relates to increased revenues from our Semiconductor Equipment Group, partially offset by decreased revenues from our Acuity CiMatrix division. For the nine month period ended June 30, 2002, revenues were $44.4 million, compared to $91.3 million for the nine month period ended June 30, 2001. For the nine month periods ended June 30, 2002 and 2001, revenues associated 13 with the material handling business totaled $2.8 million and $12.5 million, respectively. The reason for the decline in our revenues in the nine month period ended June 30, 2002 is the same as in the three month comparison mentioned above. In the three and nine month periods ended June 30, 2002, revenues for our Semiconductor Equipment Group represented 68% and 54%, respectively of total revenues, compared to 56% and 69%, respectively, of total revenues, in the three and nine month periods ended June 30, 2001. In the three month period ended June 30, 2002, Semiconductor Equipment Group revenues were $10.5 million, compared to revenues of $7.3 million for the three month period ended March 31, 2002, to $6.4 million for the three month period ended December 31, 2001, to $8.7 million for the three month period ended September 30, 2001 and to $11.9 million for the three month period ended June 30, 2001. The decrease in our revenues in the current quarter compared to the quarter ended June 30, 2001 reflects a dramatic slowdown in demand from the semiconductor industry. In the Acuity CiMatrix division, revenues were $4.9 million in the three month period ended June 30, 2002, compared to $6.8 million for the three month period ended March 31, 2002, to $8.6 million for the three month period ended December 31, 2001, to $7.8 million for the three month period ended September 30, 2001 and to $9.2 million for the three months ended June 30, 2001. The decrease in revenues in the current quarter from the quarter ended June 30, 2001 reflects the loss of revenues due to the sale of our material handling business. Revenues associated with the material handling business for the three and nine month periods ended June 30, 2001 and the three and nine month period ending June 30, 2002 were $4.7 million, $12.5 million, none and $2.8 million, respectively. Excluding the material handling business, revenues for the three and nine month periods ended June 30, 2002 were $4.9 million and $17.4 million, respectively, as compared to revenues for the three and nine month periods ended June 30, 2001 of $4.5 million and $15.7 million, respectively. This increase in revenues for the three and nine month periods ended June 30, 2002 as compared to the three and nine month periods ended June 30, 2001, excluding the material handling business, was due to additional volume of sales of data matrix products. Our gross profit margins, as a percentage of revenues, were 32.0% and 33.7% for the three and nine month periods ended June 30, 2002, compared to gross profit margins of 25.1% and 23.2% of revenues for the three and nine month periods ended June 30, 2001. In fiscal 2001, our gross profit margin was reduced by a provision for excess and obsolete inventories of $0.7 million and $10.9 million, or 3.1% and 12.0% of revenues for the three and nine month periods ended June 30, 2001. We review and evaluate the excess, obsolescence and net realizable value of inventories on a quarterly basis. The carrying value of the inventory is compared to the future realizable value of such products given sales prices and revenue projections. As a result of these quarterly analyses, we recorded a $0.7 and $10.9 million inventory provision during the three and nine month periods ended June 30, 2001, related primarily to excess inventories. Exclusive of the inventory provisions, gross profit margins were 28.2% and 35.2% of revenues for the three and nine month periods ended June 30, 2001. The increase of the gross profit percentage, exclusive of the inventory provisions, in the current quarter versus the quarter ended June 30, 2001 is a result of decreased fixed costs of our manufacturing infrastructure over the last year, along with the impact of lower margin material handling business revenues included in the June 30, 2001 quarter. The slight decrease in the gross profit percentage for the nine month period ended June 30, 2002 versus the nine month period ended June 30, 2001, excluding the inventory provisions, primarily relates to the lower sales from our Semiconductor Equipment Group compared to the prior year, partially offset by the cost reductions this year and the impact of the lower margin material handling business that was included in the prior year. Research and development expenses were $4.5 million, or 29.3% of revenues, in the three month period ended June 30, 2002, compared to $6.3 million, or 29.9% of revenues, in the three month period ended June 30, 2001. Research and development expenses were $13.8 million, or 31.1% of revenues, in the nine months ended June 30, 2002, compared to $22.6 million, or 24.8% of revenues in the nine month period ended June 30, 2001. The decline in spending relates primarily to our cost cutting efforts during fiscal years 2001 and 2002 and the sale of the material handling business. Research and development expenses associated with the material handling business for the three and nine month periods ended June 30, 2001 and the three and nine month periods ending June 30, 2002 were $0.4 million, $1.5 million, none and $0.4 million, respectively. The current level of research and development expense reflects spending associated with our continued efforts to maintain our market position and ensure we have the appropriate products for our customers when demand returns. In our Semiconductor Equipment Group, the research and development projects include work on the new wafer scanning inspection systems and enhanced capabilities for our lead scanning systems. At Acuity CiMatrix, we continue to invest in enhancing our two-dimensional barcode reading products and expanding our machine vision platform, Visionscape. We believe research and development expenses will be reduced for the remainder of fiscal 2002, a result of the cost reduction efforts discussed above. In the three and nine month periods ended June 30, 2002, we capitalized approximately $0.6 million and $1.5 million, respectively, in software development costs under Statement of Financial Accounting Standards No. 86, which compares with $0.6 million and $2.2 14 million of capitalization in the three and nine month periods ended June 30, 2001. The related amortization expense was $0.7 million and $2.2 million for the three and nine month periods ended June 30, 2002, respectively, and compares with $0.9 million and $3.4 million for the three and nine month periods ended June 30, 2001. The amortization costs are included in cost of sales. Selling, general and administrative expenses were $8.9 million, or 57.9% of revenues, in the three months ended June 30, 2002, compared to $12.8 million, or 60.6% of revenues, in the three month period ended June 30, 2001. The decrease in spending is a combination of a lower level of variable selling expenses associated with the decrease in revenues and cost reductions taken in the restructurings discussed below. In addition, we incurred less cost in fiscal 2002 due to the sale of the material handling business. Selling, general and administrative expenses associated with the material handling business for the three and nine month periods ended June 30, 2001 and the nine month period ending June 30, 2002 were $0.7 million, $2.2 million and $0.8 million, respectively. Selling, general and administrative expenses were $27.7 million, or 62.5% of revenues, in the nine month period ended June 30, 2002, compared to $41.4 million, or 45.3% of revenues, in the nine month period ended June 30, 2001. The lower aggregate amount of expenses reflects a combination of a lower level of variable selling expenses associated with the decrease in revenues and the cost reductions taken throughout fiscal 2001 and fiscal 2002. We believe the fixed cost component of selling, general and administrative expenses will decrease based on the cost reductions discussed above, while the variable component will increase or decrease based upon changes in revenues for the remainder of fiscal 2002. During the three and nine month periods ended June 30, 2002, we took additional steps in order to reduce our costs, including a reduction of approximately 100 and 160 employees, respectively. The restructuring also included costs related to the closing of foreign offices, which included the write-off of tangible assets of $0.3 million. The terminated employees represented all functions across all operating divisions. The charges for severance and other charges in the first, second and third quarters of fiscal 2002 were $0.2 million, $0.2 million and $1.2 million, respectively, net of reversals of $0.3 million of prior charges. The reversal of charges is due to a change in operating plans, as we changed plans to close a facility, and severance costs previously accrued for the reduction of employees at that facility have now been reversed. At September 30, 2001, we had $1.3 million of remaining restructuring charges to be paid. A summary of these restructuring costs is as follows: Q1 & Q2 Q3 NON FISCAL 2002 FISCAL 2002 CASH CASH LIABILITY AT LIABILITY AT AMOUNTS AMOUNTS AMOUNTS AMOUNTS AMOUNTS JUNE 30, SEPT. 30, 2001 REVERSED ACCRUED ACCRUED INCURRED INCURRED 2002 --------------- -------- ----------- ----------- -------- -------- ---------- Severance payments to employees..... $ 917 $ 256 $ 711 $ 911 -- $ 1,359 $ 924 Exit costs from facilities.......... 360 79 -- 45 -- 147 179 Write-off of other tangible and intangible assets................. -- -- -- 269 269 -- -- Total..................... ------- ----- ----- ----- ----- ------- ---- $ 1,277 $ 335 $ 711 $1,225 $ 269 $ 1,506 $1,103 ======= ===== ===== ====== ===== ======= ====== Also, in the nine month period ended June 30, 2001, we took steps in order to reduce our costs. These steps primarily included a reduction of approximately 300 employees and a restructuring of European operations. The charge for severance and other costs of $4.2 million included severance costs of approximately $2.6 million, exit costs from facilities of $0.9 million and the write-off of other tangible and intangible assets of $0.7 million. Net interest expense was $301 in the three month period ended June 30, 2002, compared to net interest expense of $357 in the three months ended June 30, 2001. The fiscal 2002 and 2001 interest expense relates primarily to the debt issued in the acquisitions of Abante and AIID. Net interest expense was $898 in the nine month period ended June 30, 2002, compared to net interest expense of $545 in the nine month period ended June 30, 2001, for the same reasons mentioned above. There was no tax provision in the three and nine month periods ended June 30, 2002 and 2001, due to the operating losses incurred and the valuation allowances provided on those deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES On May 2, 2002, we completed a private placement, which raised $13.6 million, net of offering expenses. A total of 10.3 million shares of common stock were sold at $1.46 per share. The placement also included warrants to purchase up to 2.1 million shares at $1.46 per share on or before June 30, 2002 (the "60-day Warrants"), and warrants to purchase up to 2.6 million shares at $1.50 per share on or before May 1, 2005 (the "3-year Warrants"). On June 27, 2002, the 60-day Warrants were modified to expire on August 30, 2002. The private placement also included warrants issued to the placement agent to purchase up to 0.6 million shares of common stock at $1.50 per share on or before May 1, 2005 (the "Placement Warrants"). We may call the $1.50 warrants, effectively forcing conversion, if the price of our common stock trades above $2.35 per share for twenty consecutive trading days at any time prior to the 15 warrants' expiration. The fair value of the 60-day Warrants, totaling approximately $0.5 million, the 3-year Warrants, totaling approximately $1.4 million, and the Placement Warrants, totaling approximately $0.3 million, was credited to additional paid-in capital. Our cash balance decreased $3.1 million, to $0.5 million, in the nine months ended June 30, 2002, as a result of $21.5 million of net cash used in operating activities, $7.4 million of net cash provided by investing activities, including $10.2 million in net proceeds from the sale of the material handling business, and $11.1 million of net cash provided by financing activities, including $13.6 million of net proceeds from the private placement. The $21.5 million of net cash used in operating activities was primarily a result of the $22.1 million loss incurred during the nine month period ended June 30, 2002, a $6.9 million gain on sale of the material handling business, depreciation and amortization of $7.3 million, a $1.9 million decrease in accounts payable, a $1.1 million decrease in deferred gross profit, a $1.2 million decrease in accrued expenses, partially offset by decreases in accounts receivable of $1.8 million and inventory of $1.8 million. Additions to plant and equipment were $1.3 million in the nine months ended June 30, 2002, as compared to $2.2 million in the nine months ended June 30, 2001. The capitalized software development costs in the nine months ended June 30, 2002 and 2001 were $1.5 million and $2.2 million, respectively. At June 30, 2002, we had a $10.0 million credit line that expires in April 2003. At June 30, 2002, there were $2.6 million of borrowings on the credit facility and we had $5.5 million of remaining availability under the line. At September 30, 2001, the outstanding principal on the credit facility totaled approximately $2.4 million. Outstanding balances bear interest at a variable rate as determined periodically by the bank (5.75% at June 30, 2002). On November 21, 2001, the $1.5 million note payable issued to the former principals of Abante came due, together with 8% interest thereon from November 29, 2000. On the same date, the first of five annual installments on the Abante payable also became due, in the amount of $0.50 million. Pursuant to an oral agreement with the former principals, we paid on November 21, 2001 the interest, $0.25 million of note principal and approximately $0.11 million of the first annual installment. The balance of the sums originally due on November 21, 2001 were rescheduled for payment in installments through the first quarter of fiscal 2003. In January 2002, the principals demanded current full payment of these amounts or collateralization of our future payment obligations. We believe the oral agreement is enforceable and are continuing to make payments in accordance with the terms of that agreement, paying the interest, $0.25 million of note principal and approximately $0.15 million of the first annual installment on February 21, 2002, and paying approximately $0.24 million of the first annual installment on May 21, 2002. On January 3, 2002, a payment of $1.8 million under a note issued to the former shareholders of Auto Image ID, Inc. ("AIID") came due together with interest at prime rate. On the due date, we paid the interest and approximately $0.24 million of note principal to certain of these shareholders. We have reached an agreement with the other former stockholders to pay the sums originally due on January 3, 2002 in three equal principal installments in April 2002, August 2002 and December 2002. In accordance with the agreement with the other former stockholders, the Company paid on April 1, 2002 approximately $0.52 million of the note principal. In exchange for the deferral, we issued warrants with an exercise price of $1.14 per share. The fair value of these warrants, totaling approximately $0.14 million, is being charged to operations through January, 2003. We have operating lease agreements for equipment, and manufacturing and office facilities. The minimum noncancelable lease payments under these agreements are as follows: TWELVE MONTH PERIOD ENDING JUNE 30: FACILITIES EQUIPMENT TOTAL - ----------------------------------- ------------ ------------- ------- 2003........................................................... $ 2,801 $131 $ 2,932 2004........................................................... 2,331 104 2,435 2005........................................................... 2,036 65 2,101 2006........................................................... 1,674 8 1,682 2007........................................................... 1,618 -- 1,618 Thereafter..................................................... 6,439 -- 6,439 -------- ---- ------- Total..................................................... $ 16,899 $308 $17,207 ======== ==== ======= As of June 30, 2002, we had approximately $19.4 million of purchase commitments with vendors. Approximately $17.4 million was for the Semiconductor Equipment Group, and included computers, handling equipment, and manufactured components for the 16 division's lead scanning, wafer scanning, handling and ball attach product lines. Approximately $2.0 million was for the Acuity CiMatrix Division, and included computers, PC boards, cameras, and manufactured components for the division's machine vision and two-dimensional inspection product lines. We are required to take delivery of these over the next couple of years. Substantially all deliveries are expected to be taken in the next eighteen months. As of June 30, 2002, we had principal maturities of long-term debt payable as follows: TWELVE MONTH PERIOD ENDING JUNE 30: - ----------------------------------- 2003....................................................... $ 5,609 2004....................................................... 2,382 2005....................................................... 694 ------- Total................................................. $ 8,685 ======= At June 30, 2002, we were not associated with any special purpose entities nor did we have any other off balance sheet financing arrangements. We continue to implement plans intended to control operating expenses, inventory levels, and capital expenditures as well as plans to manage accounts payable and accounts receivable to enhance cash flows. We recognize that additional financing will also be needed and we are in discussions to raise such financing. The Company believes that through a combination of the credit facility, customer advance payments, additional debt/equity financing, continued expense reductions and cash flows from operations, we will have sufficient liquidity to fund cash requirements for at least the next 12 months. If we are unsuccessful in obtaining additional financing, we would face a severe constraint on our ability to sustain operations at current levels, and we would intend to adjust our operations consistent with our available resources. Such adjustments might include further work force reductions, exiting of facilities, or disposition of certain operations. RECENT ACCOUNTING PRONOUNCEMENTS Business Combinations -- In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against these new criteria. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. Under this approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. SFAS No. 142 also requires a transitional goodwill impairment test six months from the date of adoption of SFAS No. 142. We are required to adopt SFAS No. 142 on October 1, 2002. The adoption of SFAS No. 142 is expected to result in certain intangible assets, including amounts capitalized for workforce, to be reclassified to goodwill. In addition, SFAS No. 142 requires that we discontinue the amortization of goodwill. For the three month period ended June 30, 2002, goodwill amortization totaled approximately $0.1 million. We do not expect the transitional goodwill impairment to have a significant impact on our financial statements. Impairments -- In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121. The new statement establishes a single accounting model for long-lived assets to be disposed of by sale. Under its provisions, which apply to both continuing and discontinued operations, companies must measure long-lived assets at the lower of fair value, less cost to sell, or the carrying amount. As a result, amounts reported as discontinued operations should no longer be reported at net realizable value or include any losses that have not yet occurred. We are required to adopt SFAS No. 144 on October 1, 2002. We are currently assessing, but have not yet determined, the impact of SFAS No. 144 on our financial position and 17 results of operations. Restructuring -- In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (FAS 146), which nullifies EITF Issue No. 94-3. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No 94-3 had recognized the liability at the commitment date to an exit plan. We are required to adopt the provisions of FAS 146 effective for exit or disposal activities initiated after December 31, 2002. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS This report contains forward-looking statements including statements regarding, among other items, anticipated trends in our business, which are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based largely on our expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control, including the following: any significant downturn in the highly cyclical semiconductor industry or in our general economic conditions would likely result in a reduction in demand for our products and would hurt our business; we will be unable to achieve profitable operations unless we increase quarterly revenue or make further reductions in our costs; a loss of or decrease in purchases by one of our significant customers could materially and adversely affect our revenues and profitability; economic difficulties encountered by certain of our foreign customers may result in order cancellations and reduced collections of outstanding accounts receivable; development of our products requires significant lead time and we may fail to correctly anticipate the technical needs of our markets; inadequate cash flows and restrictions in our banking arrangements may impede production and prevent us from investing sufficient funds in research and development; the loss of key personnel could have a material adverse effect on our business; the large number of shares available for future sale could adversely affect the price of our common stock; the volatility of our stock price could adversely affect the value of an investment in our common stock, and our common stock may be delisted from the Nasdaq National Market. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this report, including those set forth above, describe factors, among others, that could contribute to or cause such differences. This 10-Q should be read in conjunction with detailed risk factors in our annual report on Form 10-K, and other filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents and trade receivables. We place our cash equivalents with high-quality financial institutions, limit the amount of credit exposure to any one institution and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity. Our trade receivables result primarily from sales to semiconductor manufacturers located in North America, Japan, the Pacific Rim and Europe. Receivables are denominated in U.S. dollars, mostly from major corporations or distributors or are supported by letters of credit. We maintain reserves for potential credit losses and such losses have been immaterial. We are exposed to the impact of fluctuation in interest rates, primarily through our borrowing activities. Our policy has been to use U.S. dollar denominated borrowings to fund our working capital requirements. The interest rates on our current borrowings fluctuate with current market rates. A 100 basis point change in interest rates would not have a material impact on our results of operations. We believe that our exposure to currency exchange fluctuation risk is insignificant because the operations of our international subsidiaries are immaterial. Sales of our U.S. divisions to foreign customers are primarily U.S. dollar denominated. During fiscal 2001 and 2002, we did not engage in foreign currency hedging activities. Based on a hypothetical ten percent adverse movement in foreign currency exchange rates, the potential losses in future earnings, fair value of foreign currency sensitive instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In May 2002, a purported shareholder derivative action entitled Mead Ann Krim v. Pat V. Costa, et al., Civil Action No. 19604-NC, was filed in the Court of Chancery of the State of Delaware against the members of our Board of Directors, and against us as a nominal defendant. The complaint seeks damages to us as a result of the statements at issue in the pending purported securities class actions. The individual defendants deny the wrongdoing alleged and intend to vigorously defend the litigation. There have been no material developments in the legal proceedings we previously reported on Amendment No. 2 to our Quarterly Report on Form 10-Q filed July 17, 2002. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 2, 2002, we completed a private placement of shares of our common stock. An aggregate of 10.3 million shares were sold to accredited investors at a price of $1.46 per share. We also issued warrants to these accredited investors to purchase up to 2.1 million shares at $1.46 per share on or before August 30, 2002, and to purchase up to 2.6 million shares at $1.50 per share on or before May 1, 2005. The placement also included warrants issued to the placement agent to purchase up to 0.6 million shares of common stock at $1.50 per share on or before May 1, 2005. The net proceeds to us from the sale of the securities were approximately $13.5 million, after deducting the placement agent fees and offering expenses. The securities we issued were not registered under the Securities Act of 1933 because such securities were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act pursuant to Section 4(2) and in compliance with Rule 506 thereunder. During the nine month period ended June 30, 2002, we issued 18,274 shares of our common stock to non-employee members of our Board of Directors as compensation for their attendance at Board and Committee meetings held during that period. The shares issued to these Board members were not registered under the Securities Act of 1933, as amended (the "Act"), because the issuances were exempt from registration under the Security Act pursuant to section 4(2) of the Act. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders was held on April 3, 2002. (b) At that meeting, seven of the current directors were re-elected. The vote was as follows: FOR WITHHOLD AUTHORITY Pat V. Costa............................ 39,086,619 3,432,514 Frank A. DiPietro....................... 41,277,152 1,241,981 Jay M. Haft............................. 41,284,628 1,234,505 Tomas Kohn.............................. 41,290,269 1,228,864 Mark J. Lerner.......................... 41,277,433 1,241,700 Howard Stern............................ 39,167,831 3,351,302 Robert H. Walker........................ 41,126,769 1,392,364 (c) At that meeting, the shareholders voted to amend our certificate of incorporation to increase the authorized number of shares of common stock, par value $.01, from 75,000,000 to 100,000,000. The vote was as follows: For 39,963,249 Against 2,464,209 Abstain 91,675 (d) At that meeting, the shareholders ratified the selection of Deloitte & Touche LLP as our independent auditors for fiscal 2002. The vote was as follows: For 41,850,161 Against 533,866 Abstain 135,106 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. Reports on Form 8-K. - We filed a current report on Form 8-K dated May 3, 2002, with the Securities and Exchange Commission. The items reported on such Form 8-K were Item 5 (Other Events) and Item 7 (Financial Statement and Exhibits). This Form 8-K stated that we had issued a press release announcing that we had completed a private placement of our common stock. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROBOTIC VISION SYSTEMS, INC. Registrant Dated: August 14, 2002 /s/ PAT V. COSTA -------------------- PAT V. COSTA President and CEO (Principal Executive Officer) Dated: August 14, 2002 /s/ JOHN J. CONNOLLY -------------------- JOHN J. CONNOLLY Chief Financial Officer (Principal Financial and Accounting Officer) 21