Item 1. Business.............................................. 3 Executive Officers of the Company.................. 14 Item 2.
Item 2. PROPERTIES - ------------------- The Company leases approximately 28,400 square feet of office and manufacturing space in suburban Minneapolis pursuant to a seven year lease beginning in March 1994. Rent payments for its facilities commenced at $7,093 per month during the first year of the lease and increase over the term of the lease to $16,551 during the final twelve months of the lease. The Company believes that its facilities are adequate for its current operations and that additional space will be available for expansion, if necessary.
Item 3.
Item 3. LEGAL PROCEEDINGS - ------------------------- None.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- None.
PART II -------
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ PRICE RANGE OF COMMON STOCK
Since December 28, 1995, the Common Stock of the Company has been listed on the Nasdaq National Market under the symbol "PPTV." Prior to that time, the Common Stock was traded on the Nasdaq SmallCap Market. The following table sets forth the high and low sales prices of the Company's Common Stock on the Nasdaq National Market for the period beginning December 28, 1995, and the high and low closing bid prices for the Company's Common Stock on the Nasdaq SmallCap Market for the periods prior to December 28, 1995, each as reported by Nasdaq. The Nasdaq SmallCap Market quotations listed below indicate inter-dealer prices without retail mark-up, mark-down or commissions, and may not represent actual transactions.
The Company estimates that there were approximately 3,700 beneficial holders of the Company's Common Stock at January 7, 1997.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock. The Company currently intends to retain any earnings for use in its operations and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future.
Item 6.
Item 6. SELECTED FINANCIAL DATA - --------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Year Ended October 31, 1996 to Year Ended October 31, 1995 - ------------------------------------------------------------------------ Net Revenues: Net revenues increased 30% to $12,693,000 in fiscal 1996, compared to net revenues of $9,750,000 in fiscal 1995. The increase in net revenues in fiscal 1996 was due to a 40% growth in unit sales, with sales of the Company's machine vision systems increasing to 465 in fiscal 1996 versus 333 in fiscal 1995. The Company attributes its sales growth to increased demand in all markets. Net revenues in fiscal 1996 increased 42% in North America and 7% outside North America. Sales to customers outside North America represented 27% of total revenues in fiscal 1996, compared to 33% for in fiscal 1995. The increase in North America is primarily the result of increased sales to electronic component and automobile manufacturers.
Gross Profit: Gross profit increased 44% to $7,649,000 in fiscal 1996, compared to $5,308,000 in fiscal 1995. Gross profit as a percentage of net revenues for fiscal 1996 increased to 60%, compared with 54% in fiscal 1995. The increase in gross profit as a percentage of net revenues in 1996 is primarily due to economies of scale related to increasing volume, model mix shift, and decreased material costs. The Company anticipates that it can support increased net revenues at its current manufacturing capacity. The Company anticipates that the gross profit as a percentage of net revenues may fluctuate and may decline temporarily at certain times in fiscal 1997 due to normal start-up costs associated with expected new product introductions.
Selling Expenses: Selling expenses increased 27% to $2,897,000 in fiscal 1996, compared to $2,279,000 in fiscal 1995. As a percentage of net revenues, fiscal 1996 selling expenses remained relatively constant at 23%. Although the Company anticipates selling expenses to increase in fiscal 1997 as the Company maintains its investments in sales and applications engineering, the Company believes that these expenditures will not increase substantially as a percentage of net revenues in fiscal 1997.
General and Administrative Expenses: General and administrative expenses increased 15% to $976,000 in fiscal 1996, compared to $851,000 in fiscal 1995. As a percentage of net revenues, general and administrative expenses decreased to 8% for fiscal 1996, compared to 9% for fiscal 1995. The increase in expenditures in fiscal 1996 is primarily attributable to increased expenses associated with operating the Company as it continues to grow and to investments in management infrastructure. The decrease as a percentage of net revenues is mainly related to operating leverage provided by the Company's growing revenue base. The Company believes that general and administrative expenses may decline slightly as a percentage of net revenues during fiscal 1997.
Research and Development Expenses: Research and development expenses increased 41% to $1,827,000 in fiscal 1996, compared to $1,299,000 in fiscal 1995. Research and development expenses as a percentage of net revenues for fiscal 1996 increased to 14%, compared to 13% for fiscal 1995. The increase in expenses in fiscal 1996 is mainly due to new product development programs and
increased staffing to support these efforts. As the Company continues to invest in next generation software and hardware development, it expects research and development expenses may remain constant or increase slightly as a percentage of net revenues during fiscal 1997.
Interest income increased 625% to $442,000 in fiscal 1996, compared to $61,000 in fiscal 1995. The increase in interest income is primarily due to interest on the proceeds of a public stock offering completed in June of 1996.
Income Tax Benefit: The income tax benefit of $1,309,000 recorded in fiscal 1996 reflects full recognition of the potential future tax benefits of loss carry forwards and net deductible temporary differences available to offset taxable income in future periods. As a result of this full recognition, beginning in fiscal 1997 the Company will report earnings on a fully-taxed basis.
Comparison of Year Ended October 31, 1995 to Year Ended October 31, 1994 - ------------------------------------------------------------------------ Net Revenues: Net revenues increased 48% to $9,750,000 in fiscal 1995, compared to $6,587,000 in fiscal 1994. The increase in net revenues was due to a 48% growth in unit sales, with sales of the Company's machine vision systems increasing to 333 in fiscal 1995 versus 225 in fiscal 1994. The Company attributes its sales growth to increased demand in all markets, with particularly strong results in international markets. In fiscal 1995 revenues increased 84% outside of North America and 35% in North America. The increase internationally was primarily the result of a 492% increase in Far East sales through distributors. The increase in North America is primarily due to demand in the electronic components market as well as increased sales to systems integrators.
Gross Profit: Gross profit increased 49% to $5,308,000 in fiscal 1995, compared to $3,561,000 in fiscal 1994. The gross profit as a percentage of net revenues for fiscal 1995 remained constant at 54%.
Selling Expenses: Selling expenses increased 16% to $2,279,000 in fiscal 1995, compared to $1,970,000 in fiscal 1994. As a percentage of net revenues, fiscal 1995 selling expenses declined to 23% from 30% in fiscal 1994. The increase in selling expenses in 1995 was related to expanded marketing and promotion efforts and the addition of new employees in the sales and customer support areas. The decline in selling expenses as a percentage of net revenues in fiscal 1995 is primarily due to increased productivity from the Company's sales and applications engineering teams and increased sales through international distributors.
General and Administrative Expenses: General and administrative expenses increased 20% to $851,000 in fiscal 1995, compared to $711,000 in fiscal 1994. As a percentage of net revenues, general and administrative expenses decreased to 9% in fiscal 1995 compared with 11% in fiscal 1994. The increase in expenditures in 1995 is primarily due to incurring a full year of lease expense in the Company's new facility and investments in management infrastructure. The decrease as a percentage of net revenues is mainly related to operating leverage provided by the Company's growing revenue base.
Research and Development Expenses: Research and development expenses increased 15% to $1,299,000 in fiscal 1995, compared to $1,133,000 in fiscal 1994. Research and development expenses as a percentage of net revenues declined to 13% in fiscal 1995 from 17% in fiscal 1994. The increase in expenditures in 1995 is mainly due to new product development programs and the necessary new employees to support these efforts. The decline as a percentage of net revenues in 1995 is the result of the Company's growing revenue base.
Income Tax Benefit: Income tax benefit of $407,000 was recorded in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital increased to $24,083,000 at October 31, 1996 from $4,131,000 at October 31, 1995 primarily as a result of the Company's continued profitability and the successful completion of a secondary offering in June of 1996. The Company financed its increased sales in fiscal 1996 through internally generated cash flow and existing cash and cash equivalents. Net cash provided from operating activities in fiscal 1996 was $788,000. Accounts receivable increased $1,764,000 due to a higher level of sales volume and in part to a higher percentage of sales occurring in the last month of the fourth quarter of fiscal 1996. Inventories increased $285,000 in fiscal 1996 due to raw material purchases to support increased sales and new product introductions.
The Company used $15,797,000 in cash flow in investing activities, primarily for the purchase of marketable securities and capital equipment. Investments in marketable securities consist of short-term investment grade securities. In addition, the Company generated $17,953,000 from its financing activities as a result of the completion of a public stock offering in June of 1996 and issuances of its Common Stock upon exercise of stock options and warrants.
Current assets increased to $25,164,000 at October 31, 1996 from $4,912,000 at October 31, 1995. This increase was primarily due to an increase in marketable securities to $15,135,000 at October 31, 1996 from no marketable securities at October 31, 1995. Cash and cash equivalents also increased to $4,179,000 at October 31, 1996 from $1,235,000 at October 31, 1995.
The Company's current liabilities increased to $1,081,000 at October 31, 1996 from $781,000 at October 31, 1995. This was mainly due to increased trade accounts payable associated with a higher level of sales.
The Company believes that its cash flow from operations, existing cash and cash equivalents, and marketable securities at October 31, 1996 will be adequate for its foreseeable operating needs.
DILUTION - -------- Management expects further dilution of earnings per share in fiscal 1997 due to the issuance of 1,600,000 shares of common stock in June of 1996 through a public stock offering. Given that these shares were outstanding for less than five months of fiscal 1996 and that they will be outstanding for all of fiscal
1997, the weighted average common shares outstanding will increase to 5.5 million from 4.4 million in fiscal 1996. This represents approximately 20% dilution.
FORWARD LOOKING STATEMENT
Certain of the statements contained in this Form 10-K that relate to expectations regarding future sales and profitability contains forward-looking statements regarding future performance of the Company. The Company's actual results could differ materially from the estimates made in the forward-looking statements as a result of a number of factors, including (i) risks and uncertainty in the market for machine vision, (ii) cyclicality of capital spending by customers, (iii) quarterly fluctuations in operating results by the Company due to the long selling cycle for machine vision products, (iv) the Company's continued ability to achieve significant international revenue, (v) competition in the Company's principal markets and (vi) the Company's ability to continue to enhance its current products and develop new products that keep pace with technological developments and evolving industry standards. The Company wishes to caution readers not to place undue reliance upon any such forward- looking statement, which speak only as of the date made.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- See Item 14 for a list of the financial statements included in this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ----------------------------------------------------------------------- Not applicable.
PART III --------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Information required under this item with respect to directors is contained in the section "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held in March 1997 (the "1997 Proxy Statement"), a definitive copy of which will be filed with the Commission within 120 days of the close of the past fiscal year, and is incorporated herein by reference.
Information concerning executive officers is set forth in the Section entitled "Executive Officers of the Company" in Part I of this Form 10-K pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
Item 11. EXECUTIVE COMPENSATION - -------------------------------- Information required under this item is contained in the sections entitled "Executive Compensation," "Employment Agreements" and "Stock Option Plan" in the Company's 1997 Proxy Statement and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ Information required under this item is contained in the section entitled "Shareholdings of Principal Shareholders, Directors and Officers" in the Company's 1997 Proxy Statement and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Information required under this item is contained in the section entitled "Certain Transactions" in the Company's 1997 Proxy Statement which is incorporated herein by reference.
PART IV -------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------
(a) Documents filed as Part of this Report
(1) FINANCIAL STATEMENTS. The following financial statements of the Company are hereby included in this Form 10-K. Page ---- Report of Independent Accountants..................... 28 Income Statements for the three years ended October 31, 1996, 1995 and 1994.................. 29 Balance Sheets as of October 31, 1996 and 1995........ 30 Statements of Cash Flows for the Years ended October 31, 1996, 1995 and 1994............ 31 Statements of Shareholders' Equity for the Years ended October 31, 1996, 1995 and 1994............ 32 Notes to Financial Statements......................... 33
(2) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS ENDED OCTOBER 31, 1996
VIII. Valuation and Qualifying Accounts.............. 42
All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto.
(b) Reports on Form 8-K -------------------
No reports on Form 8-K were filed during the quarter ended October 31, 1996.
(c) Listing of Exhibits -------------------
Exhibit No. Description Page - ------- ---------------------------------------------------------- ----
3.1..... Restated Articles of Incorporation of Registrant........... 43
3.2..... By-Laws of Registrant...................................... 47
10.1.... Lease Agreement dated February 11, 1993 for facilities at 10321 West 70th Street, Eden Prairie, Minnesota (Incorporated by reference to Exhibit 10.3 of 1993 Form 10-K)
10.2*... PPT VISION, Inc. 1988 Stock Option Plan, as amended (incorporated by reference from Exhibit 10.4 to 1993 Form 10-K)
10.3.... Employment Agreement with Joseph C. Christenson dated as of May 7, 1984 (incorporated by reference from Exhibit 10.4 to May 15, 1996 Form S-2)
10.4.... Employment Agreement with Larry G. Paulson dated as of February 1, 1984 (incorporated by reference from Exhibit 10.5 to May 15, 1996 Form S-2)
10.5.... Employment Agreement with Tom Northenscold dated as of February 27, 1995 (incorporated by reference from Exhibit 10.6 to May 15, 1996 Form S-2)
10.6.... Employment Agreement with Arye Malek dated as of May 1, 1990 (incorporated by reference from Exhibit 10.7 to May 15, 1996 Form S-2)
22...... The Company has no subsidiaries
23...... Consent of Price Waterhouse LLP............................ 53
27...... Financial Data Schedule.................................... 54
*Indicates compensatory plan
SIGNATURES ----------
Pursuant to the requirements of Section 13 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.
PPT VISION, INC.
Date: January 28, 1997 By:/s/Joseph C. Christenson ---------------------------- Joseph C. Christenson (Principal Executive Officer)
Date: January 28, 1997 By:/s/Thomas R. Northenscold ---------------------------- Thomas R. Northenscold Chief Financial Officer
Signatures and Power of Attorney
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities, and on the dates, indicated. Each person whose signature appears below constitutes and appoints Joseph C. Christenson and Thomas R. Northenscold as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with the exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission.
Date Signature and Title ---- -------------------
January 28, 1997 /s/Joseph C. Christenson ---------------------------- Joseph C. Christenson President, Director (Principal Executive Officer)
January 28, 1997 /s/Thomas R. Northenscold ---------------------------- Thomas R. Northenscold Chief Financial Officer
January 28, 1997 /s/Larry G. Paulson ---------------------------- Larry G. Paulson, Secretary, Vice President of Research and Development, Director
January 28, 1997 /s/Bruce C. Huber ---------------------------- Bruce C. Huber, Director
January 28, 1997 /s/David C. Malmberg ---------------------------- David C. Malmberg, Director
January 28, 1997 /s/Peter R. Peterson ---------------------------- Peter R. Peterson, Director
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of PPT VISION, Inc.
In our opinion, the financial statements listed in the index appearing under Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of PPT VISION, Inc. at October 31, 1996 and 1995, and the results of its operations and cash flows for each of the three fiscal years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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.
/s/Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Minneapolis, MN November 22, 1996
PPT VISION, INC.
INCOME STATEMENTS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
BALANCE SHEETS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND OPERATIONS
The Company designs, manufactures, markets and integrates machine vision based automated inspection systems. The systems are used to improve productivity and quality by automating inspection tasks in manufacturing applications such as assembly verification, flaw detection, character verification or measurement tasks.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of $35,110 at October 31, 1996, and $35,000 at October 31, 1995.
INVENTORIES
Inventories are stated at the lower of cost or market, with costs determined on a first-in, first-out (FIFO) basis. As of October 31, 1996 and 1995 inventories consist of the following:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, marketable securities, short-term trade receivables and payables for which current carrying amounts approximate fair market value.
OTHER ASSETS
Other assets at October 31, 1996 and 1995 consist of the following:
The investment in a related party represents common stock the Company intends to hold as an investment and is recorded at cost. During 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS). No. 115 requires certain investments in debt and equity securities to be recorded at fair market value. No adjustment to market value was recorded as of October 31, 1995 and 1996 as the difference was not material. Patent and trademark costs are amortized over 60 months.
FIXED ASSETS
Fixed assets consist of furniture, fixtures and equipment, and are stated at cost net of accumulated depreciation. Depreciation is computed for book purposes on a straight-line basis over the estimated useful life of the asset and for tax purposes over five and ten years using accelerated and straight- line methods. At October 31, 1996 and 1995 furniture, fixtures and equipment consisted of the following:
REVENUE RECOGNITION
The Company records sales revenue upon shipment to the customer.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Income taxes are provided on the liability method. Under the liability method, deferred income taxes are provided on the difference in basis of assets and liabilities between financial reporting and tax returns using expected tax rates.
INCOME (LOSS) PER SHARE
Income per share computations are based on the weighted average number of common shares and common share equivalents outstanding during the year. Common share equivalents consist of stock options and warrants outstanding during the year.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and investments with original maturities of three months or less.
Non-cash transactions in 1996 consist of $10,568 related to the transfer of long-term assets to inventory. In 1995 non-cash transactions consist of $255,952 related to the conversion of 87,499 preferred shares into 56,250 shares of common stock and $37,514 related to the transfer of long-term assets to inventory. In 1994 non-cash transactions consist of $24,376 related to the conversion of 8,333 preferred shares into 5,357 shares of common stock and $15,345 related to the transfer of long-term assets to inventory.
ESTIMATES BY MANAGEMENT
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.
STOCK SPLIT
On March 14, 1996, the Board of Directors approved a three-for-two stock split in the form of a fifty percent (50%) stock dividend. The distribution of shares was made on April 5, 1996 to shareholders of record as of March 25, 1996. All historical share and per share data included in the financial statements and exhibits have been restated to reflect the stock split.
NOTE 3: CUSTOMER INFORMATION
SIGNIFICANT CUSTOMER INFORMATION
During 1996 and 1995, revenue from one customer accounted for 14% and 17% of net revenues respectively. During 1996, revenue from another customer accounted for 12% of net revenues. During 1994, revenue from another customer accounted for 10% of net revenues.
CUSTOMER GEOGRAPHIC DATA
North American and export sales as a percentage of net revenues in 1996, 1995 and 1994 are as follows:
NOTE 4: ACCRUED EXPENSES
Accrued expenses at October 31, 1996 and 1995 include:
NOTE 5: COMMON STOCK OPTIONS AND WARRANTS
Under the Company's 1988 Stock Option Plan the Company may issue options to purchase up to 600,000 shares of common stock to employees and directors. Options are granted at prices equal to the average of the bid and ask prices on the date of the grant. The granting of options and their vesting is within the discretion of the Company's Board of Directors.
A summary of stock options issued and outstanding under the 1988 Stock Option Plan is as follows:
During the year ended October 31, 1996, stock options were exercised at prices of $1.00 to $3.67 per share under the Employee Stock Option Plan.
The Company accounts for stock options and other equity instruments in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. SFAS No. 123 establishes a fair value based method of accounting for employee stock based compensation plans and encourages companies to adopt that method. However, it also allows companies to continue to apply the intrinsic value based method currently prescribed under APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS No. 123 is not required to be adopted until fiscal 1997. The Company currently intends to continue to apply the accounting method prescribed by APB Opinion No. 25 and, accordingly, the adoption of SFAS No. 123 will not have a material impact on the Company's operating results.
NOTE 6: STOCK OFFERINGS
In June of 1996, the Company completed a public stock offering, issuing 1,600,000 shares of common stock at $12.00 per share, that raised $17,618,522 net of offering costs of $1,581,478.
In February of 1994, the Company completed a private equity placement, issuing 120,000 shares of common stock at $3.66 per share, that raised $438,365 net of offering costs of $1,635.
NOTE 7: EMPLOYEE STOCK PURCHASE PLAN
In March 1995 shareholders approved the adoption of the 1995 Employee Stock Purchase Plan to replace the 1990 Employee Stock Purchase Plan which expired in 1995. Under the terms of the 1995 Plan, 225,000 shares have been reserved for issuance under the Plan.
The second phase of the 1995 Plan began on June 1, 1996 and employees were granted the right to purchase 6,773 shares at $14.66 per share under the Plan.
The first phase of the 1995 Plan ended on May 31, 1996 and employees purchased 35,691 shares at $2.19 per share under the Plan.
Phase five of the 1990 Plan ended on May 31, 1995 and employees purchased 16,599 shares at $2.19 per share.
NOTE 8: COMMITMENTS & CONTINGENCIES
Rental expense under operating leases was $170,987, $163,100, and $162,823 in 1996, 1995, and 1994 respectively. Minimum future rental payments due under noncancelable operating lease agreements are as follows:
LETTER OF CREDIT
During 1994 the Company obtained a standby letter of credit for a security deposit related to the Company's building lease. The letter of credit is secured by the restricted cash balance of $134,771. As of June 1996 the restricted cash balance decreases on a dollar for dollar basis as rental payments are made.
NOTE 9: EMPLOYEE SAVING PLAN
The Company provides a supplementary retirement savings plan which is structured in accordance with Section 401(k) of the Internal Revenue Code. Employees eligible for the Plan may contribute from one to fifteen percent of their monthly earnings on a pre-tax basis subject to annual contribution limitations. The Company makes matching contributions of fifty cents for each dollar contributed by each Plan participant up to a maximum of $1,000 annually. The Company's contributions under this program were approximately $52,250, $30,876, and $26,407 for the years ended October 31, 1996, 1995 and 1994 respectively.
NOTE 10: INCOME TAXES
No current tax provisions were recorded in the fiscal years ended October 31, 1996 and 1995 due to the utilization of net operating loss (NOL) carry forwards. The deferred tax provisions of approximately $14,000 and $36,000 for the years ended October 31, 1996 and 1995, respectively, are negated primarily by reductions in the FAS 109 valuation allowances.
At October 31, 1996, the Company has available net operating loss and research and development tax credit carry forwards for income tax purposes of $3.6 million and $340,000, respectively. These carry forwards expire in the years ending October 31, 2001 through 2009.
The utilization of the net operating loss and tax credit carry forwards is dependent upon the Company's ability to generate sufficient taxable income during the carry forward period. A valuation allowance was established in 1994 and subsequent taxable earnings and an analysis of likely taxable income resulted in reductions of the allowance by $2,219,000 and $804,000 for the years ended October 31, 1996 and 1995, respectively.
An analysis of the effective rate on earnings and a reconciliation of the expected federal statutory rate for the years ended October 31, 1996 and 1995 is as follows:
Deferred tax assets (liabilities) are comprised of the following at October 31:
SCHEDULE VIII
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts:
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- See Item 14 for a list of the financial statements included in this Form 10-K.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ----------------------------------------------------------------------- Not applicable.
PART III --------
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Information required under this item with respect to directors is contained in the section "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held in March 1997 (the "1997 Proxy Statement"), a definitive copy of which will be filed with the Commission within 120 days of the close of the past fiscal year, and is incorporated herein by reference.
Information concerning executive officers is set forth in the Section entitled "Executive Officers of the Company" in Part I of this Form 10-K pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
Item 11.
Item 11. EXECUTIVE COMPENSATION - -------------------------------- Information required under this item is contained in the sections entitled "Executive Compensation," "Employment Agreements" and "Stock Option Plan" in the Company's 1997 Proxy Statement and is incorporated herein by reference.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ Information required under this item is contained in the section entitled "Shareholdings of Principal Shareholders, Directors and Officers" in the Company's 1997 Proxy Statement and is incorporated herein by reference.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Information required under this item is contained in the section entitled "Certain Transactions" in the Company's 1997 Proxy Statement which is incorporated herein by reference.
PART IV -------
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------
(a) Documents filed as Part of this Report
(1) FINANCIAL STATEMENTS. The following financial statements of the Company are hereby included in this Form 10-K. Page ---- Report of Independent Accountants..................... 28 Income Statements for the three years ended October 31, 1996, 1995 and 1994.................. 29 Balance Sheets as of October 31, 1996 and 1995........ 30 Statements of Cash Flows for the Years ended October 31, 1996, 1995 and 1994............ 31 Statements of Shareholders' Equity for the Years ended October 31, 1996, 1995 and 1994............ 32 Notes to Financial Statements......................... 33
(2) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS ENDED OCTOBER 31, 1996
VIII. Valuation and Qualifying Accounts.............. 42
All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto.
(b) Reports on Form 8-K -------------------
No reports on Form 8-K were filed during the quarter ended October 31, 1996.
(c) Listing of Exhibits -------------------
Exhibit No. Description Page - ------- ---------------------------------------------------------- ----
3.1..... Restated Articles of Incorporation of Registrant........... 43
3.2..... By-Laws of Registrant...................................... 47
10.1.... Lease Agreement dated February 11, 1993 for facilities at 10321 West 70th Street, Eden Prairie, Minnesota (Incorporated by reference to Exhibit 10.3 of 1993 Form 10-K)
10.2*... PPT VISION, Inc. 1988 Stock Option Plan, as amended (incorporated by reference from Exhibit 10.4 to 1993 Form 10-K)
10.3.... Employment Agreement with Joseph C. Christenson dated as of May 7, 1984 (incorporated by reference from Exhibit 10.4 to May 15, 1996 Form S-2)
10.4.... Employment Agreement with Larry G. Paulson dated as of February 1, 1984 (incorporated by reference from Exhibit 10.5 to May 15, 1996 Form S-2)
10.5.... Employment Agreement with Tom Northenscold dated as of February 27, 1995 (incorporated by reference from Exhibit 10.6 to May 15, 1996 Form S-2)
10.6.... Employment Agreement with Arye Malek dated as of May 1, 1990 (incorporated by reference from Exhibit 10.7 to May 15, 1996 Form S-2)
22...... The Company has no subsidiaries
23...... Consent of Price Waterhouse LLP............................ 53
27...... Financial Data Schedule.................................... 54
*Indicates compensatory plan
SIGNATURES ----------
Pursuant to the requirements of Section 13 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.
PPT VISION, INC.
Date: January 28, 1997 By:/s/Joseph C. Christenson ---------------------------- Joseph C. Christenson (Principal Executive Officer)
Date: January 28, 1997 By:/s/Thomas R. Northenscold ---------------------------- Thomas R. Northenscold Chief Financial Officer
Signatures and Power of Attorney
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities, and on the dates, indicated. Each person whose signature appears below constitutes and appoints Joseph C. Christenson and Thomas R. Northenscold as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with the exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission.
Date Signature and Title ---- -------------------
January 28, 1997 /s/Joseph C. Christenson ---------------------------- Joseph C. Christenson President, Director (Principal Executive Officer)
January 28, 1997 /s/Thomas R. Northenscold ---------------------------- Thomas R. Northenscold Chief Financial Officer
January 28, 1997 /s/Larry G. Paulson ---------------------------- Larry G. Paulson, Secretary, Vice President of Research and Development, Director
January 28, 1997 /s/Bruce C. Huber ---------------------------- Bruce C. Huber, Director
January 28, 1997 /s/David C. Malmberg ---------------------------- David C. Malmberg, Director
January 28, 1997 /s/Peter R. Peterson ---------------------------- Peter R. Peterson, Director
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of PPT VISION, Inc.
In our opinion, the financial statements listed in the index appearing under Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of PPT VISION, Inc. at October 31, 1996 and 1995, and the results of its operations and cash flows for each of the three fiscal years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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.
/s/Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Minneapolis, MN November 22, 1996
PPT VISION, INC.
INCOME STATEMENTS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
BALANCE SHEETS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND OPERATIONS
The Company designs, manufactures, markets and integrates machine vision based automated inspection systems. The systems are used to improve productivity and quality by automating inspection tasks in manufacturing applications such as assembly verification, flaw detection, character verification or measurement tasks.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of $35,110 at October 31, 1996, and $35,000 at October 31, 1995.
INVENTORIES
Inventories are stated at the lower of cost or market, with costs determined on a first-in, first-out (FIFO) basis. As of October 31, 1996 and 1995 inventories consist of the following:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents, marketable securities, short-term trade receivables and payables for which current carrying amounts approximate fair market value.
OTHER ASSETS
Other assets at October 31, 1996 and 1995 consist of the following:
The investment in a related party represents common stock the Company intends to hold as an investment and is recorded at cost. During 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS). No. 115 requires certain investments in debt and equity securities to be recorded at fair market value. No adjustment to market value was recorded as of October 31, 1995 and 1996 as the difference was not material. Patent and trademark costs are amortized over 60 months.
FIXED ASSETS
Fixed assets consist of furniture, fixtures and equipment, and are stated at cost net of accumulated depreciation. Depreciation is computed for book purposes on a straight-line basis over the estimated useful life of the asset and for tax purposes over five and ten years using accelerated and straight- line methods. At October 31, 1996 and 1995 furniture, fixtures and equipment consisted of the following:
REVENUE RECOGNITION
The Company records sales revenue upon shipment to the customer.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Income taxes are provided on the liability method. Under the liability method, deferred income taxes are provided on the difference in basis of assets and liabilities between financial reporting and tax returns using expected tax rates.
INCOME (LOSS) PER SHARE
Income per share computations are based on the weighted average number of common shares and common share equivalents outstanding during the year. Common share equivalents consist of stock options and warrants outstanding during the year.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and investments with original maturities of three months or less.
Non-cash transactions in 1996 consist of $10,568 related to the transfer of long-term assets to inventory. In 1995 non-cash transactions consist of $255,952 related to the conversion of 87,499 preferred shares into 56,250 shares of common stock and $37,514 related to the transfer of long-term assets to inventory. In 1994 non-cash transactions consist of $24,376 related to the conversion of 8,333 preferred shares into 5,357 shares of common stock and $15,345 related to the transfer of long-term assets to inventory.
ESTIMATES BY MANAGEMENT
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.
STOCK SPLIT
On March 14, 1996, the Board of Directors approved a three-for-two stock split in the form of a fifty percent (50%) stock dividend. The distribution of shares was made on April 5, 1996 to shareholders of record as of March 25, 1996. All historical share and per share data included in the financial statements and exhibits have been restated to reflect the stock split.
NOTE 3: CUSTOMER INFORMATION
SIGNIFICANT CUSTOMER INFORMATION
During 1996 and 1995, revenue from one customer accounted for 14% and 17% of net revenues respectively. During 1996, revenue from another customer accounted for 12% of net revenues. During 1994, revenue from another customer accounted for 10% of net revenues.
CUSTOMER GEOGRAPHIC DATA
North American and export sales as a percentage of net revenues in 1996, 1995 and 1994 are as follows:
NOTE 4: ACCRUED EXPENSES
Accrued expenses at October 31, 1996 and 1995 include:
NOTE 5: COMMON STOCK OPTIONS AND WARRANTS
Under the Company's 1988 Stock Option Plan the Company may issue options to purchase up to 600,000 shares of common stock to employees and directors. Options are granted at prices equal to the average of the bid and ask prices on the date of the grant. The granting of options and their vesting is within the discretion of the Company's Board of Directors.
A summary of stock options issued and outstanding under the 1988 Stock Option Plan is as follows:
During the year ended October 31, 1996, stock options were exercised at prices of $1.00 to $3.67 per share under the Employee Stock Option Plan.
The Company accounts for stock options and other equity instruments in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. SFAS No. 123 establishes a fair value based method of accounting for employee stock based compensation plans and encourages companies to adopt that method. However, it also allows companies to continue to apply the intrinsic value based method currently prescribed under APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS No. 123 is not required to be adopted until fiscal 1997. The Company currently intends to continue to apply the accounting method prescribed by APB Opinion No. 25 and, accordingly, the adoption of SFAS No. 123 will not have a material impact on the Company's operating results.
NOTE 6: STOCK OFFERINGS
In June of 1996, the Company completed a public stock offering, issuing 1,600,000 shares of common stock at $12.00 per share, that raised $17,618,522 net of offering costs of $1,581,478.
In February of 1994, the Company completed a private equity placement, issuing 120,000 shares of common stock at $3.66 per share, that raised $438,365 net of offering costs of $1,635.
NOTE 7: EMPLOYEE STOCK PURCHASE PLAN
In March 1995 shareholders approved the adoption of the 1995 Employee Stock Purchase Plan to replace the 1990 Employee Stock Purchase Plan which expired in 1995. Under the terms of the 1995 Plan, 225,000 shares have been reserved for issuance under the Plan.
The second phase of the 1995 Plan began on June 1, 1996 and employees were granted the right to purchase 6,773 shares at $14.66 per share under the Plan.
The first phase of the 1995 Plan ended on May 31, 1996 and employees purchased 35,691 shares at $2.19 per share under the Plan.
Phase five of the 1990 Plan ended on May 31, 1995 and employees purchased 16,599 shares at $2.19 per share.
NOTE 8: COMMITMENTS & CONTINGENCIES
Rental expense under operating leases was $170,987, $163,100, and $162,823 in 1996, 1995, and 1994 respectively. Minimum future rental payments due under noncancelable operating lease agreements are as follows:
LETTER OF CREDIT
During 1994 the Company obtained a standby letter of credit for a security deposit related to the Company's building lease. The letter of credit is secured by the restricted cash balance of $134,771. As of June 1996 the restricted cash balance decreases on a dollar for dollar basis as rental payments are made.
NOTE 9: EMPLOYEE SAVING PLAN
The Company provides a supplementary retirement savings plan which is structured in accordance with Section 401(k) of the Internal Revenue Code. Employees eligible for the Plan may contribute from one to fifteen percent of their monthly earnings on a pre-tax basis subject to annual contribution limitations. The Company makes matching contributions of fifty cents for each dollar contributed by each Plan participant up to a maximum of $1,000 annually. The Company's contributions under this program were approximately $52,250, $30,876, and $26,407 for the years ended October 31, 1996, 1995 and 1994 respectively.
NOTE 10: INCOME TAXES
No current tax provisions were recorded in the fiscal years ended October 31, 1996 and 1995 due to the utilization of net operating loss (NOL) carry forwards. The deferred tax provisions of approximately $14,000 and $36,000 for the years ended October 31, 1996 and 1995, respectively, are negated primarily by reductions in the FAS 109 valuation allowances.
At October 31, 1996, the Company has available net operating loss and research and development tax credit carry forwards for income tax purposes of $3.6 million and $340,000, respectively. These carry forwards expire in the years ending October 31, 2001 through 2009.
The utilization of the net operating loss and tax credit carry forwards is dependent upon the Company's ability to generate sufficient taxable income during the carry forward period. A valuation allowance was established in 1994 and subsequent taxable earnings and an analysis of likely taxable income resulted in reductions of the allowance by $2,219,000 and $804,000 for the years ended October 31, 1996 and 1995, respectively.
An analysis of the effective rate on earnings and a reconciliation of the expected federal statutory rate for the years ended October 31, 1996 and 1995 is as follows:
Deferred tax assets (liabilities) are comprised of the following at October 31:
SCHEDULE VIII
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts: