Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

prcp-10q_20180930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2018.

Commission file number:  0-20206

 

PERCEPTRON, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Michigan

(State or Other Jurisdiction of

Incorporation or Organization)

 

38-2381442

(I.R.S. Employer

Identification No.)

47827 Halyard Drive, Plymouth, Michigan

(Address of Principal Executive Offices)

 

48170-2461

(Zip Code)

 

(734) 414-6100

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit  such files).

 

Yes

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes

No

 

The number of shares outstanding of each of the issuer’s classes of common stock as of November 2, 2018, was:

 

Common Stock, $0.01 par value

 

9,617,889

Class

 

Number of shares

 

1


PERCEPTRON, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

For the Quarter Ended September 30, 2018

 

 

 

Page

Number

COVER

 

1

 

 

 

INDEX

 

2

 

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.  Financial Statements

 

3

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

32

Item 4.  Controls and Procedures

 

32

 

 

 

PART II.  OTHER INFORMATION

 

 

Item 1A.  Risk Factors

 

33

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 6.     Exhibits

 

34

 

 

 

SIGNATURES

 

35

 

2


PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

June 30,

 

(In Thousands, Except Per Share Amount)

 

2018

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,416

 

 

$

5,830

 

Short-term investments

 

 

548

 

 

 

877

 

Receivables:

 

 

 

 

 

 

 

 

Billed receivables, net of allowance for doubtful accounts of $398 and $404,

   respectively

 

 

28,509

 

 

 

31,797

 

Unbilled receivables, net

 

 

4,906

 

 

 

-

 

Other receivables

 

 

300

 

 

 

346

 

Inventories, net of reserves of $1,845 and $2,115, respectively

 

 

11,664

 

 

 

13,829

 

Other current assets

 

 

1,858

 

 

 

1,327

 

Total current assets

 

 

55,201

 

 

 

54,006

 

 

 

 

 

 

 

 

 

 

Property and Equipment, Net

 

 

6,827

 

 

 

6,613

 

Goodwill

 

 

7,970

 

 

 

7,985

 

Intangible Assets, Net

 

 

3,611

 

 

 

3,820

 

Long-Term Investments

 

 

725

 

 

 

725

 

Long-Term Deferred Income Tax Asset

 

 

956

 

 

 

1,055

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

75,290

 

 

$

74,204

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Line of credit and short-term notes payable

 

$

122

 

 

$

175

 

Accounts payable

 

 

7,764

 

 

 

7,592

 

Accrued liabilities and expenses

 

 

4,361

 

 

 

4,256

 

Accrued compensation

 

 

2,377

 

 

 

3,155

 

Current portion of taxes payable

 

 

498

 

 

 

526

 

Income taxes payable

 

 

1,156

 

 

 

768

 

Reserves for restructuring and other charges

 

 

675

 

 

 

675

 

Deferred revenue

 

 

7,142

 

 

 

8,691

 

Total current liabilities

 

 

24,095

 

 

 

25,838

 

 

 

 

 

 

 

 

 

 

Long-Term Taxes Payable

 

 

324

 

 

 

450

 

Long-Term Deferred Income Tax Liability

 

 

1,728

 

 

 

1,717

 

Other Long-Term Liabilities

 

 

604

 

 

 

601

 

Total Liabilities

 

$

26,751

 

 

$

28,606

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, no par value, authorized 1,000 shares, issued none

 

 

-

 

 

 

-

 

Common stock, $0.01 par value, authorized 19,000 shares, issued and outstanding

   9,593 and 9,554, respectively

 

 

96

 

 

 

96

 

Accumulated other comprehensive loss

 

 

(2,495

)

 

 

(2,098

)

Additional paid-in capital

 

 

48,507

 

 

 

48,110

 

Retained earnings (deficit)

 

 

2,431

 

 

 

(510

)

Total Shareholders' Equity

 

$

48,539

 

 

$

45,598

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

75,290

 

 

$

74,204

 

The notes to the consolidated financial statements are an integral part of these statements.

3


PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

September 30,

 

(In Thousands, Except Per Share Amounts)

 

2018

 

 

2017

 

Net Sales

 

$

21,442

 

 

$

19,269

 

Cost of Sales

 

 

13,150

 

 

 

11,619

 

Gross Profit

 

 

8,292

 

 

 

7,650

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,635

 

 

 

4,424

 

Engineering, research and development

 

 

2,198

 

 

 

1,733

 

Severance, impairment and other charges

 

 

-

 

 

 

(52

)

Total operating expenses

 

 

6,833

 

 

 

6,105

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

1,459

 

 

 

1,545

 

 

 

 

 

 

 

 

 

 

Other Income and (Expenses)

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(27

)

 

 

(42

)

Foreign currency loss, net

 

 

(202

)

 

 

(22

)

Other income (expenses), net

 

 

-

 

 

 

30

 

Total other income and (expenses)

 

 

(229

)

 

 

(34

)

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

1,230

 

 

 

1,511

 

 

 

 

 

 

 

 

 

 

Income Tax (Expense) Benefit

 

 

(338

)

 

 

47

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

892

 

 

$

1,558

 

 

 

 

 

 

 

 

 

 

Income Per Common Share

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.16

 

Diluted

 

$

0.09

 

 

$

0.16

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

 

 

 

 

 

Basic

 

 

9,560

 

 

 

9,453

 

Dilutive effect of stock options

 

 

212

 

 

 

49

 

Diluted

 

 

9,772

 

 

 

9,502

 

 

The notes to the consolidated financial statements are an integral part of these statements.


4


PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

September 30,

 

(In Thousands)

 

2018

 

 

2017

 

Net Income

 

$

892

 

 

$

1,558

 

Other Comprehensive (Loss) Income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(397

)

 

 

795

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

$

495

 

 

$

2,353

 

 

The notes to the consolidated financial statements are an integral part of these statements.

5


PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

September 30,

 

(In Thousands)

 

2018

 

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

892

 

 

$

1,558

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

567

 

 

 

552

 

Stock compensation expense

 

 

211

 

 

 

263

 

Asset impairment and related inventory write-down

 

 

-

 

 

 

(56

)

Deferred income taxes

 

 

(194

)

 

 

(144

)

(Gain) loss on disposal of assets

 

 

(15

)

 

 

7

 

Allowance for doubtful accounts

 

 

(6

)

 

 

(4

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(243

)

 

 

6,731

 

Inventories

 

 

700

 

 

 

(1,526

)

Accounts payable

 

 

229

 

 

 

(550

)

Accrued liabilities and expenses

 

 

(595

)

 

 

(452

)

Deferred revenue

 

 

498

 

 

 

(600

)

Other assets and liabilities

 

 

(240

)

 

 

(1,587

)

Net cash provided by operating activities

 

 

1,804

 

 

 

4,192

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(669

)

 

 

(2,243

)

Sales of short-term investments

 

 

988

 

 

 

737

 

Capital expenditures

 

 

(502

)

 

 

(297

)

Capital expenditures-intangibles

 

 

(93

)

 

 

-

 

Net cash used for investing activities

 

 

(276

)

 

 

(1,803

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Payments to on lines of credit and short-term borrowings, net

 

 

(53

)

 

 

(1,153

)

Proceeds from stock plans

 

 

201

 

 

 

15

 

Cash payment for shares surrendered upon vesting of restricted stock

   units to cover taxes

 

 

(15

)

 

 

(17

)

Net cash provided by (used for) financing activities

 

 

133

 

 

 

(1,155

)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(54

)

 

 

86

 

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

1,607

 

 

 

1,320

 

Cash, Cash Equivalents and Restricted Cash, July 1

 

 

5,996

 

 

 

3,943

 

Cash, Cash Equivalents and Restricted Cash, September 30

 

$

7,603

 

 

$

5,263

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

29

 

 

$

50

 

Cash paid during the period for income taxes

 

$

277

 

 

$

375

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

June 30, 2018

 

Cash and cash equivalents

 

$

7,416

 

 

$

5,830

 

Restricted cash included in Short-term investments

 

 

187

 

 

 

166

 

Total Cash, Cash Equivalents and Restricted Cash

 

$

7,603

 

 

$

5,996

 

 

 

 

 

 

 

 

 

 

The notes to the consolidated financial statements are an integral part of these statements.

 

6


 

 

PERCEPTRON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Additional

 

 

Retained

 

 

Total

 

 

Common Stock

 

 

Comprehensive

 

 

Paid-In

 

 

Earnings

 

 

Shareholders'

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Capital

 

 

(Deficit)

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2018

 

9,554

 

 

$

 

96

 

 

$

 

(2,098

)

 

$

 

48,110

 

 

$

 

(510

)

 

$

 

45,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

892

 

 

 

 

892

 

Adoption of ASC 606 - modified

    retrospective transition method

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

2,049

 

 

 

 

2,049

 

Other comprehensive loss

 

-

 

 

 

 

-

 

 

 

 

(397

)

 

 

 

-

 

 

 

 

-

 

 

 

 

(397

)

Stock-based compensation

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

211

 

 

 

 

-

 

 

 

 

211

 

Stock plans

 

39

 

 

 

 

-

 

 

 

 

-

 

 

 

 

186

 

 

 

 

-

 

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, September 30, 2018

 

9,593

 

 

$

 

96

 

 

$

 

(2,495

)

 

$

 

48,507

 

 

$

 

2,431

 

 

$

 

48,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2017

 

9,438

 

 

$

 

94

 

 

$

 

(2,721

)

 

$

 

46,688

 

 

$

 

(4,226

)

 

$

 

39,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

1,558

 

 

 

 

1,558

 

Other comprehensive income

 

-

 

 

 

 

-

 

 

 

 

795

 

 

 

 

-

 

 

 

 

-

 

 

 

 

795

 

Stock-based compensation

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

131

 

 

 

 

-

 

 

 

 

131

 

Stock plans

 

49

 

 

 

 

1

 

 

 

 

-

 

 

 

 

129

 

 

 

 

-

 

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, September 30, 2017

 

9,487

 

 

$

 

95

 

 

$

 

(1,926

)

 

$

 

46,948

 

 

$

 

(2,668

)

 

$

 

42,449

 

 

The notes to the consolidated financial statements are an integral part of these statements.

7


PERCEPTRON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.Accounting Policies

Perceptron, Inc. (“Perceptron” “we”, “us” or “our”) develops, produces and sells a comprehensive range of automated industrial metrology products and solutions to manufacturers for dimensional gauging, dimensional inspection and 3D scanning.  Our products provide solutions for manufacturing process control as well as sensor and software technologies for non-contact measurement, scanning and inspection applications. We also offer value added services such as training and customer support.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and within the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  Our Consolidated Financial Statements include the accounts of Perceptron and our wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  In our opinion, these statements include all normal recurring adjustments necessary for a fair presentation of the financial statements for the periods presented.  The results of operations for any interim period are not necessarily indicative of the results of operations for a full fiscal year.  The accompanying unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

Use of Estimates

Management is required to make certain estimates and assumptions under U.S. GAAP during the preparation of these Consolidated Financial Statements.  These estimates and assumptions may affect the reported amounts of assets and liabilities as well as the 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.

 

Reclassification

Certain prior period amounts have been reclassified in the Consolidated Statements of Cash Flow to due to the adoption of Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18).

2.New Accounting Pronouncements  

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 Leases (ASU 2016-2), which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.  A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.   In January 2018, the FASB issued Accounting Standards Update No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which permits an entity to elect an optional transition practical expedient to not evaluate land easements under Topic 842.  We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13), which requires the measurement of all expected credit losses for financial assets held at the reporting date to be based on historical experience, current conditions as well as reasonable and supportable forecasts.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years, with early adoption permitted.  We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

In February 2018, the FASB issued Accounting Standards Update 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  ASU 2018-02 is effective for Perceptron on July 1, 2019 and is not expected to have a significant impact on our consolidated financial statements or disclosures.

8


In July 2018, the FASB issued Accounting Standards Update No. 2018-09 Codification Improvements (ASU 2018-09), which clarifies, corrects and makes minor improvements on a wide variety of Topics in the Codification.  The amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications.  The transition and effective dates are based on the facts and circumstances of each amendment, including some amendments that will be effective upon issuance of the Update and many of them will be effective for annual periods beginning after December 31, 2018.  For the amendments that were effective upon issuance of the Update, there was no material impact to our consolidated financial statements or disclosures.  We are currently evaluating the impact of the remaining amendments of ASU 2018-09 on our consolidated financial statements and disclosures.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirement for Fair Value Measurement (ASU 2018-13), which changes the disclosures related to, among other aspects of fair value, unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement and the narrative description of measurement uncertainty.  ASU 2018-13 is effective for Perceptron on July 1, 2020.  We are currently evaluating the impact of the adoption of ASU 2018-13 on our disclosures.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15 – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain inter-use software.  ASU 2018-15 is effective for Perceptron on July 1, 2020.  We are currently evaluating the impact of the adoption of ASU 2018-15 on our consolidated financial statements and disclosures.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.  In March 2016, the FASB issued the final guidance to clarify the principal versus agent guidance (i.e., whether an entity should report revenue gross or net).  In April 2016, the FASB issued final guidance to clarify identifying performance obligation and the licensing implementation guidance.  In May 2016, FASB updated implementation of certain narrow topics within ASU 2014-09.  Finally, in December 2016, the FASB issued several technical corrections and improvements, which clarify the previously issued standards and corrected unintended application of previous guidance.  These standards (collectively “ASC 606”) are effective for annual periods beginning after December 15, 2017 (as amended in August 2015, by ASU 2015-14, Deferral of the Effective Date), and interim periods therein, using either of the following transition methods:  (i) a full retrospective approach reflecting the applications of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  

We adopted the new standard effective July 1, 2018 using the modified retrospective transition method only for the contracts that were open as of June 30, 2018 with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption. Results for reporting periods beginning July 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, Revenue Recognition.  Under ASC 606, certain of our services are recognized over time instead of at a point in time upon completion of those services as recognized under superseded guidance.  Additionally, for our contracts with multiple performance obligations in which the payment terms do not correspond with performance, we are no longer required to limit the revenue recognized for satisfied performance obligations to the amount for which payment is not delayed until the satisfaction of additional performance obligations.  Instead, we record revenue for each of the performance obligations as control transfers to the customer, which generally accelerates the revenue recognized for such contracts compared to revenue recognized under superseded guidance.  We also capitalize amounts related to certain commissions paid which qualify as costs to obtain a contract.  The revenues associated with our Measurement Solutions and Value Added Services that were impacted beginning at July 1, 2018 which were included in the modified transition method adjustment aggregated to $3.8 million. The net impact on retained earnings associated with these revenues was an increase of $2,049,000.  We have also implemented new business processes and internal controls in order to recognize revenue in accordance with the new standard.  See Note 5 ‘Revenue from Contracts with Customers’ for the further details regarding the impact of the adoption of this Standard.

9


The following table summarizes the cumulative effect of the changes to our unaudited consolidated balance sheet as of July 1, 2018 from the adoption of ASC 606:

 

 

 

 

 

 

 

 

 

 

 

Opening

 

 

 

At June 30,

 

 

ASC 606

 

 

Balance at

 

 

 

2018

 

 

Adjustments

 

 

July 1, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled receivables

 

$

-

 

 

$

1,864

 

 

$

1,864

 

Inventory

 

 

13,829

 

 

 

(1,350

)

 

 

12,479

 

Other current assets

 

 

1,327

 

 

 

49

 

 

 

1,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

8,691

 

 

 

(1,976

)

 

 

6,715

 

Long-Term Deferred Income Tax Liability

 

 

1,717

 

 

 

490

 

 

 

2,207

 

Retained earnings (deficit)

 

 

(510

)

 

 

2,049

 

 

 

1,539

 

 

Under the modified retrospective method of adoption, we are required to disclose in the first year of adoption the hypothetical impact to our financial statements as if we had continued to follow our accounting policies under ASC 605 for the period.  See Note 5 “Revenue from Contracts with Customers” for a summary of the impact as of and for the three months ended September 30, 2018.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  In February 2018, the FASB issued Accounting Standards Update No. 2018-03 —Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2018-03), which contains technical corrections and improvements related to ASU 2016-01. We adopted both ASU 2016-01 and ASU 2018-03 on July 1, 2018.  Adoption of these standards did not have a material impact on our consolidated financial statements or disclosures.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows.  We adopted ASU 2016-15 on July 1, 2018.  Adoption of this standard did not have a material impact on our Consolidated Statement of Cash Flow.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which requires that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  We adopted ASU 2016-16 on July 1, 2018.  Adoption of this standard did not have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, which requires a company to present their Statement of Cash Flows including amounts generally described as restricted cash or restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  We adopted ASU 2016-18 on July 1, 2018.  We hold restricted cash in short-term bank guarantees to provide financial assurance that we will fulfill certain customer obligations in China.  These balances are part of ‘Short-term investments’ on our Consolidated Balance Sheet.  The activity in this account is no longer considered an investing activity on our Consolidated Statement of Cash Flow.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  We adopted ASU 2017-01 on July 1, 2018.  Adoption of this standard did not have a material impact on our consolidated financial statements.

In February 2017, the FASB issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (ASU 2017-05), which clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update No. 2014-09, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers.  We adopted ASU 2017-05 on July 1, 2018.  Adoption of this standard did not have a material impact on our consolidated financial statements.

10


In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09), which provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. We adopted ASU 2017-09 on July 1, 2018.  Adoption of this standard did not have a material impact on our consolidated financial statements.

3.Goodwill

Goodwill represents the excess purchase price over the fair value of the net amounts assigned to assets acquired and liabilities assumed in connection with our acquisitions.  Under the FASB’s Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other, we are required to test goodwill for impairment annually or more frequently, whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount.  Application of the goodwill impairment test requires judgment, including assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.  The qualitative events or circumstances that could affect the fair value of a reporting unit could include economic conditions; industry and market considerations, including competition; increases in raw materials, labor, or other costs; overall financial performance such as negative or declining cash flows; relevant entity-specific events such as changes in management, key personnel, strategy, or customers; sale or disposition of a significant portion of a reporting unit; and regulatory or political developments. 

Companies have the option to evaluate goodwill based upon these qualitative factors, and if it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, then no further goodwill impairment tests are necessary.  If the qualitative review indicates it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we choose not to perform a qualitative assessment, a quantitative impairment test is performed to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any.  During the fourth quarter of fiscal 2018, we elected to complete a quantitative goodwill impairment test which resulted in no impairment.

The quantitative goodwill impairment test contains estimates regarding future revenue growth and expense levels.  To the extent that actual results do not meet projected results, it could result in a material impairment to goodwill which could negatively impact our results of operations.

Goodwill is recorded on the local books of Coord3 and NMS and foreign currency effects will impact the balance of goodwill in future periods. Our goodwill balance was $7,970,000 and $7,985,000 as of September 30, 2018 and June 30, 2018, respectively, with the decrease due to the differences in foreign currency rates at September 30, 2018 compared to June 30, 2018.

4.Intangibles

We acquired intangible assets in addition to goodwill in connection with the acquisitions of Coord3 and NMS in the third quarter of fiscal 2015.  Furthermore, we continue to develop intangibles, primarily software.  These assets are susceptible to shortened estimated useful lives and changes in fair value due to changes in their use, market or economic changes, or other events or circumstances. We evaluate the potential impairment of these intangible assets whenever events or circumstances indicate their carrying value may not be recoverable.  Factors that could trigger an impairment review include historical or projected results that are less than the assumptions used in the original valuation of an intangible asset, a change in our business strategy or our use of an intangible asset or negative economic or industry trends.  

If an event or circumstance indicates that the carrying value of an intangible asset may not be recoverable, we assess the recoverability of the asset by comparing the carrying value of the asset to the sum of the undiscounted future cash flows that the asset is expected to generate over its remaining economic life. If the carrying value exceeds the sum of the undiscounted future cash flows, we compare the fair value of the intangible asset to the carrying value and record an impairment loss for the difference.  We generally estimate the fair value of our intangible assets using the income approach based on a discounted cash flow model. The income approach requires the use of many assumptions and estimates including future revenues and expenses, discount factors, income tax rates, the identification of groups of assets with highly independent cash flows, and assets’ economic lives. Volatility in the global economy makes these assumptions and estimates more judgmental. Actual future operating results and the remaining economic lives of our intangible assets could differ from those used in assessing the recoverability of these assets and could result in an impairment of intangible assets in future periods.  Through September 30, 2018, there are no indications of potential impairment of these intangible assets.

11


Our intangible assets are as follows (in thousands):

 

 

 

September 30,

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

 

 

 

June 30,

 

 

 

2018

 

 

 

 

 

 

2018

 

 

2018

 

 

 

 

 

 

2018

 

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Customer/Distributor Relationships

 

$

3,316

 

 

$

(2,376

)

 

$

940

 

 

$

3,329

 

 

$

(2,219

)

 

$

1,110

 

Trade Name

 

 

2,575

 

 

 

(923

)

 

 

1,652

 

 

 

2,586

 

 

 

(862

)

 

 

1,724

 

Software

 

 

1,583

 

 

 

(564

)

 

 

1,019

 

 

 

1,490

 

 

 

(504

)

 

 

986

 

Other

 

 

124

 

 

 

(124

)

 

 

-

 

 

 

124

 

 

 

(124

)

 

 

-

 

Total

 

$

7,598

 

 

$

(3,987

)

 

$

3,611

 

 

$

7,529

 

 

$

(3,709

)

 

$

3,820

 

 

Amortization expense was $291,000 and $282,000 for the three month periods ended September 30, 2018 and 2017, respectively.   

The estimated amortization of the remaining intangible assets by year is as follows (in thousands):

 

Years Ending June 30,

 

Amount

 

2019 (excluding the three months ended September 30, 2018)

 

 

935

 

2020

 

 

881

 

2021

 

 

439

 

2022

 

 

439

 

2023

 

 

395

 

after 2023

 

 

522

 

 

 

$

3,611

 

 

5.Revenue from Contracts with Customers

Revenue Accounting Policy

The FASB has issued ASC 606, which supersedes the revenue recognition requirements in ASC 605, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

We adopted ASC 606 as of July 1, 2018 using the modified retrospective transition method. The cumulative effect of initially applying the new standard was recorded as an adjustment to the opening balance of retained earnings within our Consolidated Balance Sheet.  The adjustment to retained earnings was the result of changing the timing of our revenue for several performance obligations and the number of performance obligations in our contracts with multiple performance obligations, as well as ceasing the deferral of revenue on satisfied performance obligations for the portion of the sales price of the contract that is not payable until additional performance obligations are satisfied. The revenues associated with our Measurement Solutions and Value Added Services that were impacted beginning July 1, 2018 which were included in the modified transition method adjustment aggregated $3.8 million. The net impact on retained earnings associated with these revenues was an increase of $2,049,000. For all adjustments and changes as a result of adopting ASC 606 for the current period, please refer to the section “Impacts on Financial Statements” below.  In accordance with the modified retrospective transition method, the historical information within the financial statements has not been restated and continues to be reported under the accounting standard in effect for those periods. As a result, we have disclosed the accounting policies in effect prior to July 1, 2018, as well as the policies applied starting July 1, 2018.

Periods prior to July 1, 2018

Revenue is recognized in accordance with ASC 605.  Revenue related to products and services is recognized upon shipment when title and risk of loss has passed to the customer or upon completion of the service, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated.

12


We also have multiple element arrangements in our Measurement Solutions product line which may include elements such as: equipment, installation, labor support and/or training.  Each element has value on a stand-alone basis and the delivered elements do not include general rights of return.  Accordingly, each element is considered a separate unit of accounting.  When available, we allocate arrangement consideration to each element in a multiple element arrangement based upon vendor specific objective evidence (“VSOE”) of fair value of the respective elements. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant third-party evidence.  Our products contain a significant level of proprietary technology, customization or differentiation; therefore, comparable pricing of products with similar functionality cannot be obtained.  In these cases, we utilize our best estimate of selling price (“BESP”).  We determine the BESP for a product or service by considering multiple factors including, but not limited to, pricing practices, internal costs, geographies and gross margin.

For multiple element arrangements, we defer from revenue recognition the greater of the relative fair value of any undelivered elements of the contract or the portion of the sales price of the contract that is not payable until the undelivered elements are completed.  As part of this evaluation, we limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, including a consideration of payment terms that delay payment until those future deliveries are completed.  

Some multiple element arrangements contain installment payment terms with a final payment (“final buy-off”) due upon the completion of all elements in the arrangement or when the customer’s final acceptance is received.  We recognize revenue for each completed element of a contract when it is both earned and realizable.  A provision for final customer acceptance generally does not preclude revenue recognition for the delivered equipment element because we rigorously test equipment prior to shipment to ensure it will function in our customer’s environment.  The final acceptance amount is assigned to specific element(s) identified in the contract, or if not specified in the contract, to the last element or elements to be delivered that represent an amount at least equal to the final payment amount.

Our Measurement Solutions are designed and configured to meet each customer’s specific requirements.  Timing for the delivery of each element in the arrangement is primarily determined by the customer’s requirements and the number of elements ordered.  Delivery of all of the multiple elements in an order will typically occur over a three to 15-month period after the order is received.  We do not have price protection agreements or requirements to buy back inventory.  Our history demonstrates that sales returns have been insignificant.

Periods commencing July 1, 2018

Revenue is recognized when or as our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.  To achieve this principle, we analyze our contracts under the following five steps:

 

Identify the contract with the customer

 

Identify the performance obligation(s) in the contract

 

Determine the transaction price

 

Allocate the transaction price to performance obligation(s) in the contract

 

Recognize revenue when or as we satisfy a performance obligation

We have contracts with multiple performance obligations in our Measurement Solutions product line such as: equipment, installation, labor support and/or training.  Each performance obligation is distinct and we do not provide general rights of return for transferred goods and services.  Accordingly, each performance obligation is considered a separate unit of accounting.  Our Measurement Solutions are designed and configured to meet each customer’s specific requirements.  Timing for the delivery of each performance obligation in the arrangement is primarily determined by the customer’s requirements.  Delivery of all of performance obligations in an order will typically occur over a three to 15-month period after the order is received.  For the equipment performance obligation, we typically recognize revenue when we ship or when the equipment is received by our customer, depending on the specific terms of the contract with our customer.  We have elected to treat shipping and handling costs as an activity necessary to fulfill the performance obligation to transfer product to the customer and not as a separate performance obligation.  For the installation, labor support and training performance obligations, we generally recognize revenue over time as we perform because of the continuous transfer of control to the customer.  Because control transfers over time, based on labor hours, revenue is recognized based on the extent of progress towards completion of the performance obligation.  We do not have price protection agreements or requirements to buy back inventory.  Our history demonstrates that sales returns have been insignificant.

Disaggregated Revenue

We manage our business under three operating segments: Americas, Europe and Asia.  All of our operating segments rely on our core technologies and sell the same products primarily in the global automotive industry.  The segments also possess similar economic

13


characteristics, resulting in similar long-term expected financial performance.  In addition, we sell to substantially the same customers in all of our operating segments.  Accordingly, our operating segments are aggregated into one reportable segment.    

The following tables summarizes our revenue disaggregated by geography, based on our shipping location (in thousands):

 

Geographic Region:

 

Three Months Ended September 30, 2018

 

Americas Sales

 

$

8,379

 

Europe Sales

 

 

8,782

 

Asia Sales

 

 

4,281

 

Total Net Sales

 

$

21,442

 

We have three major product lines: Measurement Solutions, 3D Scanning Solutions and Value Added Services.  Sales by our product lines are as follows (in thousands):

 

Product Lines

 

Three Months Ended September 30, 2018

 

Measurement Solutions

 

$

19,908

 

3D Scanning Solutions

 

 

730

 

Value Added Service

 

 

804

 

Total Net Sales

 

$

21,442

 

 

Our revenues can be disaggregated between two categories (1) Goods transferred at a point in time, which typically includes the equipment performance obligation of our Measurement Solutions and contracts that include a single performance obligation and (2) Services transferred over time, which include installation, labor support and training performance obligations.  

The following table summarizes these two categories for the 3 months ended September 30, 2018 (in thousands):

 

Timing of Revenue Recognition

 

Three Months Ended September 30, 2018

 

Goods transferred at a point of time

 

$

15,200

 

Services transferred over time

 

 

6,242

 

Total Net Sales

 

$

21,442

 

 

Remaining Performance Obligations/Backlog

Backlog represents orders or bookings we have received but have not yet been filled, that is our unsatisfied performance obligations as of the reporting date.  Although most of the backlog is subject to cancellation by our customers, we expect to fill substantially all of the orders.  Our history demonstrates that cancellations have not been significant.  

The estimated recognition of our Backlog by year is as follows (in thousands):

 

Years Ending June 30,

 

Amount

 

2019 (excluding the three months ended September 30, 2018)