UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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(X) |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016 |
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or
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( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________ |
Commission file number: 0-10394 |
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DATA I/O CORPORATION |
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(Exact name of registrant as specified in its charter) |
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Washington |
91-0864123 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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6645 185 th Ave NE, Suite 100, Redmond, Washington, 98052 (Address of principal executive offices, including zip code)
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(425) 881-6444 (Registrant’s telephone number, including area code) |
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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 X No __
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes X No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer __ Accelerated filer __ Non-accelerated filer __ Smaller reporting company X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No X
Shares of Common Stock, no par value, outstanding as of October 26, 2016:
7,992,394
1
DATA I/O CORPORATION |
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FORM 10-Q |
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For the Quarter Ended September 30, 2016 |
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INDEX |
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Part I. |
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Financial Information |
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Item 1. |
Financial Statements |
3 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
23 |
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Item 4. |
Controls and Procedures |
23 |
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Part II |
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Other Information |
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Item 1. |
Legal Proceedings |
24 |
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Item 1A. |
Risk Factors |
24 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
24 |
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Item 3. |
Defaults Upon Senior Securities |
24 |
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Item 4. |
Mine Safety Disclosures |
24 |
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Item 5. |
Other Information |
24 |
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Item 6. |
Exhibits |
24 |
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Signatures |
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26 |
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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4
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6
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
Data I/O Corporation (“Data I/O”, “We”, “Our”, “Us”) prepared the financial statements as of September 30, 2016 and September 30, 2015 according to the rules and regulations of the Securities and Exchange Commission ("SEC"). These statements are unaudited but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented. The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America according to such SEC rules and regulations. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in our Form 10-K for the year ended December 31, 2015.
Revenue Recognition
We recognize revenue at the time the product is shipped. We have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
The revenue related to products requiring installation that is perfunctory is recognized at the time of shipment. Installation that is considered perfunctory includes any installation that can be performed by other parties, such as distributors, other vendors, or in most cases the customers themselves. This takes into account the complexity, skill and training needed as well as customer expectations regarding installation.
We enter into multiple deliverable arrangements that arise during the sale of a system that includes an installation component, a service and support component and a software maintenance component. We allocate the value of each element based on relative selling prices. Relative selling price is based on the selling price of the standalone system. For the installation and service and support components, we use the value of the discount given to distributors who perform these components. For software maintenance components, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is recognized on the system sale based on shipping terms, installation revenue is recognized after the installation is performed, and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement, typically one year.
When we sell software separately, we recognize software revenue upon shipment, provided that only inconsequential obligations remain on our part and substantive acceptance conditions, if any, have been met.
We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, the buyer has paid or is obligated to pay, collectability is reasonably assured, substantive acceptance conditions, if any, have been met, the obligation is not contingent on resale of the product, the buyer’s obligation would not be changed in the event of theft, physical destruction or damage to the product, the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items.
7
We transfer certain products out of service from their internal use and make them available for sale. The products transferred are our standard products in one of the following areas: service loaners, rental or test units; engineering test units; or sales demonstration equipment. Once transferred, the equipment is sold by our regular sales channels as used equipment inventory. These product units often involve refurbishing and an equipment warranty, and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value and the sale transaction is accounted for as revenue and cost of goods sold.
Stock-Based Compensation Expense
We measure and recognize compensation expense as required for all share-based payment awards, including employee stock options and restricted stock unit awards, based on estimated fair values and estimated forfeiture rate on the grant dates.
Income Tax
Historically, when accounting for uncertainty in income taxes, we have not incurred any interest or penalties associated with tax matters and no interest or penalties were recognized during the three and nine months ended September 30, 2016 . However, we have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.
We have incurred net operating losses in certain past years. We continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance associated with our net operating losses and credit carryforwards, as sufficient uncertainty exists regarding our ability to realize such tax assets in the future. There were $222,000 and $211,000 of unrecognized tax benefits related to uncertain tax positions and related valuation allowance as of September 30, 2016 and 2015, respectively.
Tax years that remain open for examination include 2013, 2014, and 2015 in the United States of America. In addition, tax years from 2001 to 2012 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.
Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (ASU 2016-09), “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 requires excess tax benefits to be recognized in the statement of operations as an income tax expense and is applied prospectively by means of a cumulative-effect adjustment of excess tax benefits from equity in the period of adoption. The standard establishes an alternative practical expedient for estimating the expected term of an award by recognizing the effects of forfeitures in compensation cost when the forfeitures occur. Adoption of the alternative practical expedient is applied prospectively on an entity-wide basis. The standard requires that amounts paid to a taxing authority on the employee’s behalf as a result of directly withholding shares for tax-withholding purposes are to be presented on a retrospective basis as a financing activity on the statement of cash flows. The standard becomes effective beginning January 1, 2017. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “ Leases ” (ASU 2016-02). ASU 2016-02 requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoption of the standard is allowed. The standard becomes effective beginning January 1, 2019. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
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In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. In August 2015, the FASB issued ASU 2015-14, “ Revenue from Contracts with Customers” (ASU 2015-14). ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
NOTE 2 – INVENTORIES
Inventories consisted of the following components: |
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September 30,
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December
31,
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(in thousands) |
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Raw material |
$2,373 |
$2,262 |
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Work-in-process |
1,249 |
1,099 |
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Finished goods |
274 |
344 |
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Inventories |
$3,896 |
$3,705 |
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NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, NET
Property and equipment consisted of the following components:
September 30,
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December 31,
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(in thousands) |
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Leasehold improvements |
$389 |
$77 |
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Equipment |
5,172 |
4,482 |
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Sales demonstration equipment |
992 |
1,257 |
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6,553 |
5,816 |
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Less accumulated depreciation |
4,759 |
4,579 |
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Property and equipment, net |
$1,794 |
$1,237 |
NOTE 4 – BUSINESS RESTRUCTURING
Our previous years’ restructure actions have been fully implemented. As a result of the lease amendment discussed in Note 6, “Operating Lease Commitments”, which started in July 2015, the balance of the restructure liability of approximately $120,000 was incorporated into our deferred rent liability at July 2015 as part of the new lease incentive.
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NOTE 5 – OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following components:
September 30,
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December 31,
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(in thousands) |
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Product warranty |
$353 |
$368 |
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Sales return reserve |
50 |
61 |
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Other taxes |
111 |
92 |
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Other |
119 |
19 |
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Other accrued liabilities |
$633 |
$540 |
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The changes in our product warranty liability for the nine months ending September 30, 2016 are as follows:
September 30,
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(in thousands) |
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Liability, beginning balance |
$368 |
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Net expenses |
561 |
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Warranty claims |
(603) |
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Accrual revisions |
27 |
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Liability, ending balance |
$353 |
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NOTE 6 – OPERATING LEASE COMMITMENTS
We have commitments under non-cancelable operating leases and other agreements, primarily for factory and office space, with initial or remaining terms of one year or more as follows:
For the years ending December 31:
Operating
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(in thousands) |
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2016 (remaining) |
$218 |
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2017 |
831 |
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2018 |
816 |
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2019 |
847 |
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2020 |
844 |
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Thereafter |
432 |
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Total |
$3,988 |
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10
During the second quarter of 2015, we amended our lease agreement for the Redmond, Washington headquarters facility effective July 8, 2015. The amended lease resulted in our headquarters relocating to a nearby building, extending the term through April 2021, lowering the square footage to approximately 20,460, providing lease inducement incentives and lowering the rental rate. The new lease commitment of approximately $1.7 million will be paid over the term of the lease. As a result of this lease amendment, the remaining balance of the restructure liability of approximately $120,000 was incorporated into our deferred rent liability in July, 2015.
We renewed our lease agreement for what is now our former Shanghai, China facility, effective June 15, 2015, extending the term through December 31, 2015. Operations continued in this facility through January 31, 2016. In October 2015, we signed a lease agreement for a new facility located in Shanghai, China which was effective November 1, 2015 and extends through October 31, 2021. The new lease approximately doubled our space to 19,400 square feet at approximately 54% of the prior lease rental rate.
Our lease for our Munich, Germany facility is for approximately 4,306 square feet and is scheduled to end May 31, 2017.
NOTE 7 – OTHER COMMITMENTS
We have purchase obligations for inventory and production costs as well as other obligations such as capital expenditures, service contracts, marketing, and development agreements. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty, and with short notice, typically less than 90 days. At September 30, 2016, the purchase commitments and other obligations totaled $1,394,000 of which all but $38,000 are expected to be paid over the next twelve months.
NOTE 8 – CONTINGENCIES
As of September 30, 2016, we were not a party to any legal proceedings or aware of any indemnification agreement claims, the adverse outcome of which in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position.
NOTE 9 – EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method. Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be anti-dilutive.
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The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended |
Nine Months Ended |
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Sep. 30,
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Sep. 30,
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Sep. 30,
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Sep. 30,
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(in thousands except per share data) |
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Numerator for basic and diluted |
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earnings per share: |
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Net income |
$625 |
$439 |
$901 |
$589 |
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Denominator for basic |
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earnings per share: |
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weighted-average shares |
7,977 |
7,930 |
7,955 |
7,896 |
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Employee stock options and awards |
206 |
112 |
128 |
159 |
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Denominator for diluted |
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earnings per share: |
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adjusted weighted-average shares & |
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assumed conversions of stock options |
8,183 |
8,042 |
8,083 |
8,055 |
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Basic and diluted |
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earnings per share: |
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Total basic earnings per share |
$0.08 |
$0.06 |
$0.11 |
$0.07 |
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Total diluted earnings per share |
$0.08 |
$0.05 |
$0.11 |
$0.07 |
Options to purchase 198,395 and 162,526 shares were outstanding as of September 30, 2016 and 2015, respectively, but were excluded from the computation of diluted earnings per share for the periods then ended because the options were anti-dilutive.
NOTE 10 – SHARE-BASED COMPENSATION
For share-based awards granted, we have recognized compensation expense based on the estimated grant date fair value method. For these awards we have recognized compensation expense using a straight-line amortization method reduced for estimated forfeitures.
The impact on our results of operations of recording share-based compensation, net of forfeitures, for the three and nine months ended September 30, 2016 and 2015, respectively, was as follows:
Three Months Ended |
Nine Months Ended |
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Sep. 30,
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Sep. 30,
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Sep. 30,
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Sep. 30,
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(in thousands) |
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Cost of goods sold |
$3 |
$2 |
$11 |
$11 |
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Research and development |
23 |
18 |
82 |
58 |
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Selling, general and administrative |
84 |
73 |
316 |
261 |
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Total share-based compensation |
$110 |
$93 |
$409 |
$330 |
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Impact on net earnings per share: |
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Basic and diluted |
($0.01) |
($0.01) |
($0.05) |
($0.04) |
12
Equity awards granted during the three and nine months ended September 30, 2016 and 2015 were as follows:
Three Months Ended |
Nine Months Ended |
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Sep. 30,
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Sep. 30,
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Sep. 30,
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Sep. 30,
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Restricted Stock |
3,000 |
- |
225,100 |
193,800 |
There were no stock option awards issued during the three and nine months ended September 30, 2016 and 2015.
Non-employee directors Restricted Stock Units (“RSU’s”) vest over one year, employee RSU’s vest over four years with the expense being recognized over the vesting period.
The remaining unamortized expected future equity compensation expense and remaining amortization period associated with unvested option grants, restricted stock awards and restricted stock unit awards at September 30, 2016 are:
Sep. 30,
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(in thousands unless specified) |
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Unamortized future equity compensation expense |
$1,188 |
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Remaining weighted average amortization period in years |
2.67 |
NOTE 11 – SHARE REPURCHASE PROGRAMS
On February 24, 2016, our Board of Directors approved a share repurchase program with provisions to buy back up to $1 million of our stock during the period from March 2, 2016 through March 31, 2017. The program was established with a 10b5-1 plan under the Exchange Act to provide flexibility to make purchases throughout the period. For the three months ended September 30, 2016, 6,500 shares of stock have been repurchased at an average price of $2.61 for a total of $16,951 plus $136 in commissions. For the nine months ended September 30, 2016, 80,345 shares of stock have been repurchased at an average price of $2.36 for a total of $189,360 plus $1,652 in commissions.
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The following is a summary of share repurchase activity under the plan through September 30, 201 6:
Repurchases by Month |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program |
Approximate Dollar Value of Shares that May Yet Be Purchased under the Program |
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March 2016 |
$2.26 |
42,515 |
$903,161 |
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April 2016 |
$2.35 |
8,480 |
$883,064 |
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May 2016 |
$2.52 |
7,650 |
$863,602 |
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June 2016 |
$2.45 |
15,200 |
$826,078 |
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July 2016 |
$2.61 |
6,500 |
$808,991 |
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Total |
$2.36 |
80,345 |
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14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking. In particular, statements herein regarding industry prospects or trends; expected revenues; expected level of expense; expected savings; future results of operations; reversals of tax valuation allowances; breakeven point, or financial position; changes in gross margin; economic conditions and capital spending outlook; market acceptance of our newly introduced or upgraded products; development, introduction and shipment of new products; building lease arrangements; sales channels and any other guidance on future periods are forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or other future events. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this report. The reader should not place undue reliance on these forward-looking statements. The discussions above and in the section in Item 1A., Risk Factors “Cautionary Factors That May Affect Future Results” in our Annual report on Form 10-K for the year ended December 31, 2015 describe some, but not all, of the factors that could cause these differences.
OVERVIEW
We continued our focus on managing the core programming business with the goal of operating profitably, while developing and enhancing products to drive future revenue and earnings growth. Our challenge continues to be operating in a cyclical and rapidly evolving industry environment. We are continuing our efforts to balance business geography shifts, exchange rate volatility, increasing costs and strategic investments in our business with the level of demand and mix of business we expect. We continue to manage our costs carefully and create strategies for cost reduction.
We are focusing our research and development efforts in our strategic growth markets, namely managed and secure programming technology, automated programming systems and their enhancements for the manufacturing environment and software. We continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices, including NAND Flash, e-MMC, and microcontrollers on our newer products. In 2015, we announced our new PSV5000 and our new Lumen™X programmer. In 2016, we released the integrated PSV5000 with LumenX.
Our customer focus is on strategic high volume and high growth market segments: automotive electronics and IoT (Internet of Things) including industrial and consumer devices.
During the quarter ended September 30, 2016, we announced the signing of a five year supply agreement with Bosch Car Multimedia division, recognized to be a leading automotive electronics manufacturer. This resulted from a complex benchmark evaluation versus our key competitors. We have begun to see initial system orders in 2016, with a larger business impact expected for 2017 and 2018.
15
BUSINESS RESTRUCTURING PROGRESS
Our previous years’ restructure actions have been fully implemented. As a result of the lease amendment discussed in Note 6, “Operating Lease Commitments”, which started in July 2015, the balance of the restructure liability of approximately $120,000 was incorporated into our deferred rent liability at July 2015 as part of the new lease incentive.
cRITICAL aCCOUNTING pOLICY jUDGMENTS AND eSTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that we make estimates and judgments, which affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, estimating the percentage-of-completion on fixed-price professional engineering service contracts, sales returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring charges, contingencies such as litigation, and contract terms that have multiple elements and other complexities typical in the capital equipment industry. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements:
Revenue Recognition: We recognize revenue at the time the product is shipped. We have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element. These systems are standard products with published product specifications and are configurable with standard options. The evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units, results from batteries of tests of product performance to our published specifications, quality inspections and installation standardization, as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based.
The revenue related to products requiring installation that is perfunctory is recognized at the time of shipment. Installation that is considered perfunctory includes any installation that can be performed by other parties, such as distributors, other vendors, or in most cases the customers themselves. This takes into account the complexity, skill and training needed as well as customer expectations regarding installation.
We enter into multiple deliverable arrangements that arise during the sale of a system that includes an installation component, a service and support component and a software maintenance component. We allocate the value of each element based on relative selling prices. Relative selling price is based on the selling price of the standalone system. For the installation and service and support components, we use the value of the discount given to distributors who perform these components. For software maintenance components, we use what we charge for annual software maintenance renewals after the initial year the system is sold. Revenue is recognized on the system sale based on shipping terms, installation revenue is recognized after the installation is performed, and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement, typically one year.
When we sell software separately, we recognize software revenue upon shipment provided that only inconsequential obligations remain on our part and substantive acceptance conditions, if any, have been met.
We recognize revenue when persuasive evidence of an arrangement exists, shipment has occurred, the price is fixed or determinable, the buyer has paid or is obligated to pay, collectability is reasonably assured, substantive acceptance conditions, if any, have been met, the obligation is not contingent on resale of the product, the buyer’s obligation would not be changed in the event of theft, physical destruction or damage to the product, the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer. We establish a reserve for sales returns based on historical trends in product returns and estimates for new items.
16
We transfer certain products out of service from their internal use and make them available for sale. The products transferred are our standard products in one of the following areas: service loaners, rental or test units; engineering test units; or sales demonstration equipment. Once transferred, the equipment is sold by our regular sales channels as used equipment inventory. These product units often involve refurbishing and an equipment warranty, and are conducted as sales in our normal and ordinary course of business. The transfer amount is the product unit’s net book value and the sale transaction is accounted for as revenue and cost of goods sold.
Allowance for Doubtful Accounts: We base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable. If there is deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, our estimates of the recoverability of amounts due to us could be adversely affected.
Inventory: Inventories are stated at the lower of cost or market. Adjustments are made to standard cost, which approximates actual cost on a first-in, first-out basis. We estimate reductions to inventory for obsolete, slow-moving, excess and non-salable inventory by reviewing current transactions and forecasted product demand. We evaluate our inventories on an item by item basis and record inventory adjustments accordingly. If there is a significant decrease in demand for our products, uncertainty during product line transitions, or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory adjustments and our gross margin could be adversely affected.
Warranty Accruals: We accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations. If we experience an increase in warranty claims, which are higher than our historical experience, our gross margin could be adversely affected.
Tax Valuation Allowances: Given the uncertainty created by our loss history, as well as the current uncertain economic outlook for our industry and capital spending, we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances. At the current time, we expect, therefore, that reversals of the tax valuation allowance will take place only as we are able to take advantage of the underlying tax loss or other attributes in carry forward. The transfer pricing and expense or cost sharing arrangements are complex areas where judgments, such as the determination of arms-length arrangements, can be subject to challenges by different tax jurisdictions.
Share-based Compensation: We account for share-based awards made to our employees and directors, including employee stock option awards and restricted stock unit awards, using the estimated grant date fair value method of accounting and estimated forfeiture rate. For options, we estimate the fair value using the Black-Scholes valuation model, which requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption is determined using the historical volatility of our common stock. Changes in the subjective assumptions required in the valuation model may significantly affect the estimated value of the awards, the related stock-based compensation expense and, consequently, our results of operations.
17
Results of Operations
Net Sales
Three Months Ended |
Nine Months Ended |
|||||||||||
Net sales by product line |
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
||||||||||||
Automated programming systems |
$5,196 |
9.1% |
$4,762 |
$13,417 |
3.9% |
$12,914 |
||||||
Non-automated programming systems |
1,392 |
(0.4%) |
1,397 |
3,585 |
(12.7%) |
4,105 |
||||||
Total programming systems |
$6,588 |
7.0% |
$6,159 |
$17,002 |
(0.1%) |
$17,019 |
||||||
Three Months Ended |
Nine Months Ended |
|||||||||||
Net sales by location |
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
||||||||||||
United States |
$464 |
3.3% |
$449 |
$2,086 |
13.0% |
$1,846 |
||||||
% of total |
7.0% |
7.3% |
12.3% |
10.8% |
||||||||
International |
$6,124 |
7.3% |
$5,710 |
$14,916 |
(1.7%) |
$15,173 |
||||||
% of total |
93.0% |
92.7% |
87.7% |
89.2% |
Net sales in the third quarter of 2016 were $6.6 million, compared with $6.2 million in the third quarter of 2015. The year over year increase in sales was primarily a result of strong bookings in the second and third quarters of 2016, particularly for automotive electronics equipment to end customers and programming centers. During the third quarter, we shipped and recorded revenue for the 100 th PSV system. On a regional basis, revenue in the third quarter of 2016 increased in Asia 21% and in the Americas 32% and declined 20% in Europe compared to the third quarter of 2015.
On a product basis, the net sales growth in the third quarter is primarily from higher PSV, LumenX and RoadRunner family and adapter sales, offset in part by declining older product family sales. A sales breakdown by type for the third quarter of 2016 was 63% equipment, 28% adapters, and 9% software and maintenance. Adapters are a consumable item and software and maintenance are typically recurring under annual subscription contracts.
Order bookings were $7.9 million in the third quarter of 2016 compared to $5.9 million in the same period in 2015. The variation in revenue amounts versus order amounts related to the change in deferred revenues, backlog and currency translation. Backlog at September 30, 2016 was $3.1 million compared to $1.6 million on September 30, 2015 and $2.0 million on June 30, 2016. Deferred revenue at September 30, 2016 was $1.3 million compared to $1.1 million on September 30, 2015 and $1.1 million on June 30, 2016.
For the nine months ending September 30, 2016, compared to the same period in 2015, net sales are approximately the same, with a continued trend of higher automated and lower non-automated system sales. On a regional basis, net sales increased 16% in Asia and 13% in the Americas, while declining 20% in Europe compared to the same period in 2015.
18
Gross Margin
Three Months Ended |
Nine Months Ended |
||||||||||
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
|||||||||||
Gross margin |
$3,643 |
15.0% |
$3,169 |
$9,259 |
5.8% |
$8,749 |
|||||
Percentage of net sales |
55.3% |
51.5% |
54.5% |
51.4% |
Gross margin increased in dollars due to the sales volume increase. Gross margin as a percentage of sales was 55.3%, compared to 51.5% in the third quarter of 2015, with the increase primarily due to a product mix shift and favorable factory variances as well as the leverage of relatively fixed factory costs with higher sales volume.
For the first nine months of 2016 compared to the same period in 2015, gross margin as a percentage of sales increased generally due to the same factors discussed above for the third quarter. Based on past experience, we expect variations in our gross margin as a percentage of sales due to changes in key factors for future periods including: sales volume, product mix, channel mix, pricing, inventory fluctuations, warranty, factory variances and currency exchange rates.
Research and Development
Three Months Ended |
Nine Months Ended |
||||||||||
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
|||||||||||
Research and development |
$1,358 |
14.3% |
$1,188 |
$3,655 |
3.5% |
$3,530 |
|||||
Percentage of net sales |
20.6% |
19.3% |
21.5% |
20.7% |
Research and development (“R&D”) increased $170,000 in the third quarter of 2016 compared to the same period in 2015, primarily due to intellectual property patent filings and engineering recruiting and related compensation expense.
For the first nine months of 2016 compared to the same period in 2015, the increase in R&D expense was generally due to the same factors discussed above for the third quarter.
Selling, General and Administrative
Three Months Ended |
Nine Months Ended |
||||||||||
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
|||||||||||
Selling, general & |
|||||||||||
administrative |
$1,664 |
10.6% |
$1,505 |
$4,766 |
6.9% |
$4,457 |
|||||
Percentage of net sales |
25.3% |
24.4% |
28.0% |
26.2% |
19
Selling, General and Administrative (“SG&A”) expenses increased $159,000 in the third quarter of 2016 compared to the same period in 2015, primarily due to higher commissions, consulting, employee related costs, and rent, offset in part by the one-time expense of our Redmond headquarters move in 2015.
For the first nine months of 2016 compared to the same period in 2015, the increase in SG&A expense was generally due to the same factors discussed above for the third quarter as well as less charges allocated out of SG&A in 2016.
Interest
Three Months Ended |
Nine Months Ended |
||||||||||
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
|||||||||||
Interest income |
$11 |
(63.3%) |
$30 |
$34 |
(61.4%) |
$88 |
Interest income decreased in the third quarter of 2016 compared to the same period in 2015, due to both lower invested cash balances and lower interest rates.
For the first nine months of 2016 compared to the same period in 2015, the decrease in interest income was generally due to the same factors discussed above for the third quarter.
Income Taxes
Three Months Ended |
Nine Months Ended |
||||||||||
Sep. 30,
|
Change |
Sep. 30,
|
Sep. 30,
|
Change |
Sep. 30,
|
||||||
(in thousands) |
|||||||||||
Income tax (expense) |
($4) |
(76.5%) |
($17) |
($12) |
(50.0%) |
($24) |
Income tax (expense) for the third quarter of 2016 compared to same period in 2015, primarily resulted from foreign subsidiary income tax.
For the first nine months of 2016 compared to the same period in 2015, the change in income tax expense was generally due to the same factors discussed above for the third quarter.
The effective tax rate differed from the statutory tax rate primarily due to the effect of valuation allowances, as well as foreign taxes. We have a valuation allowance of $11.2 million as of September 30, 2016. Our deferred tax assets and valuation allowance have been reduced by approximately $222,000 and $211,000 associated with the requirements of accounting for uncertain tax positions as of September 30, 2016 and 2015, respectively. Given the uncertainty created by our past loss history and the cyclical nature of the industry in which we operate, we expect to continue to limit the recognition of net deferred tax assets and maintain the tax valuation allowances.
20
Financial Condition
Liquidity and Capital Resources
Sep. 30,
|
Change |
Dec. 31,
|
|||
(in thousands) |
|||||
Working capital |
$14,285 |
$462 |
$13,823 |
At September 30, 2016 our cash position was $9.7 million, with $4.5 million in the USA and the balance in foreign subsidiaries. The change in cash during the quarter resulted primarily from earnings for the period.
Although we have no significant external capital expenditure plans currently, we expect that we will continue to make capital expenditures to support our business. We plan to increase our internally developed sales demonstration and test equipment as we develop and release new products. Capital expenditures are expected to be funded by existing and internally generated funds or possible lease financing.
As a result of our significant product development, customer support, selling and marketing efforts, we have required substantial working capital to fund our operations. We have tried to balance our level of development spending with the goal of profitable operations. We have implemented or have initiatives to implement geographic shifts in our operations, optimized real estate usage, reduced exposure to the impact of currency volatility, and additional product development differentiation and cost reductions.
We believe that we have sufficient cash or working capital available under our operating plan to fund our operations and capital requirements through at least the next one-year period. We may require additional cash for U.S. operations, which could cause potential repatriation of cash that is held in our foreign subsidiaries. Although we have no current repatriation plans, there may be tax and other impediments to any repatriation actions. Our working capital may be used to fund possible losses, business growth, project initiatives, share repurchases and business development initiatives including acquisitions, which could reduce our liquidity and result in a requirement for additional cash before that time. Any substantial inability to achieve our current business plan could have a material adverse impact on our financial position, liquidity, or results of operations and may require us to reduce expenditures and/or seek possible additional financing.
OFF-Balance sheet arrangements
Except as noted in the accompanying consolidated financial statements in Note 6, “Operating Lease Commitments” and Note 7, “Other Commitments”, we have no off-balance sheet arrangements.
Non-Generally accepted accounting principles (GAAP) FINANCIAL MeasureS
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) was $755,000 in the third quarter of 2016 compared to $552,000 in the third quarter of 2015. Adjusted EBITDA, excluding equity compensation (a non-cash item) was $865,000 in the third quarter of 2016, compared to $645,000 in the third quarter of 2015.
EBITDA was $1.3 million for the first nine months of 2016 compared to $925,000 in the first nine months of 2015. Adjusted EBITDA, excluding equity compensation was $1.7 million for the first nine months of 2016, compared to $1.3 million for the first nine months of 2015.
Non-GAAP financial measures, such as EBITDA and adjusted EBITDA, should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We believe that these non- GAAP financial measures provide meaningful supplemental information regarding the Company’s results and facilitate the comparison of results. A reconciliation of net income to EBITDA and adjusted EBITDA follows:
21
Non-Generally accepted accounting principles (GAAP) FINANCIAL Measure RECONCILIATION
Three Months Ended |
Nine Months Ended |
|||||||
Sep. 30,
|
Sep. 30,
|
Sep. 30,
|
Sep. 30,
|
|||||
(in thousands) |
||||||||
Net Income |
$625 |
$439 |
$901 |
$589 |
||||
Interest (income) |
(11) |
(30) |
(34) |
(88) |
||||
Taxes |
4 |
17 |
12 |
24 |
||||
Depreciation & amortization |
137 |
126 |
409 |
400 |
||||
EBITDA earnings |
$755 |
$552 |
$1,288 |
$925 |
||||
Equity compensation |
110 |
93 |
409 |
330 |
||||
Adjusted EBITDA, |
|
|
||||||
excluding equity compensation |
$865 |
$645 |
$1,697 |
$1,255 |
||||
22
RECENT ACCOUNTING ANNOUNCEMENTS
Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (ASU 2016-09), “Improvements to Employee Share-Based Payment Accounting” . ASU 2016-09 requires excess tax benefits to be recognized in the statement of operations as an income tax expense and is applied prospectively by means of a cumulative-effect adjustment of excess tax benefits from equity in the period of adoption. The standard establishes an alternative practical expedient for estimating the expected term of an award by recognizing the effects of forfeitures in compensation cost when the forfeitures occur. Adoption of the alternative practical expedient is applied prospectively on an entity-wide basis. The standard requires that amounts paid to a taxing authority on the employee’s behalf as a result of directly withholding shares for tax-withholding purposes are to be presented on a retrospective basis as a financing activity on the statement of cash flows. The standard becomes effective beginning January 1, 2017. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “ Leases ” (ASU 2016-02). ASU 2016-02 requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. Early adoption of the standard is allowed. The standard becomes effective beginning January 1, 2019. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. In August 2015, the FASB issued ASU 2015-14, “ Revenue from Contracts with Customers” (ASU 2015-14). ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017. We are in the process of evaluating the impact of adoption on our consolidated financial statements.
Item 3 . Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable level of assurance. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
23
Changes in internal controls
There were no changes made in our internal controls during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting which is still under the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of September 30, 2016, we were not a party to any material pending legal proceedings.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the Risk Factors described in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See Note 11 to the consolidated financial statements for information regarding the Company’s stock repurchases.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
4 Instruments Defining the Rights of Security Holders, Including Indentures :
4.5 Amendment No. 3 to Rights Agreement, dated as of July 13, 2016, between Data I/O Corporation and Computershare. (Incorporated by reference to Exhibit 4.4 of Data I/O’s Form 8-A/A filed on July 14, 2016).
10 Material Contracts :
10.31 Negotiation Protocol for the Purchase of Data I/O’s PSV7000, a supply agreement executed July 20, 2016, between Data I/O Corporation and Bosch Car Multimedia Group. *
24
31 Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002:
31.1 Chief Executive Officer Certification
31.2 Chief Financial Officer Certification
32 Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002:
32.1 Chief Executive Officer Certification
32.2 Chief Financial Officer Certification
101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T
*Portions of this exhibit have been omitted based on an application for confidential treatment from the SEC. The omitted portions of these exhibits have been filed separately with the SEC.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: November 10, 2016
DATA I/O CORPORATION
(REGISTRANT)
By : //S//Anthony Ambrose
Anthony Ambrose
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
By : //S//Joel S. Hatlen
Joel S. Hatlen
Vice President and Chief Financial Officer
Secretary and Treasurer
(Principal Financial Officer and Duly Authorized Officer)
26
Exhibit 31.1
CERTIFICATION
I, Anthony Ambrose, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
DATED: November 10, 2016
/s/ Anthony Ambrose
Anthony Ambrose
Chief Executive Officer
(Principal Executive Officer)
27
Exhibit 31.2
CERTIFICATION
I, Joel S. Hatlen, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d) Disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
DATED: November 10, 2016
/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
(Principal Financial Officer)
28
Exhibit 32.1
Certification by Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Data I/O Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Ambrose, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Anthony Ambrose
Anthony Ambrose
Chief Executive Officer
(Principal Executive Officer)
November 10, 2016
29
Exhibit 32.2
Certification by Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Data I/O Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joel S. Hatlen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
(Principal Financial Officer)
November 10, 2016
30
Exhibit 10.31
Negotiation Protocol for the Purchase of Data I/O’s PSV7000, a supply agreement executed July 20, 2016, between Data I/O Corporation and Bosch Car Multimedia Group. *
*Portions of this exhibit have been omitted based on an application for confidential treatment from the SEC. The omitted portions of these exhibits have been filed separately with the SEC.
31
Data I/O Corporation 6645 185 th Ave NE, Suite 100 Redmond, WA 98052 USA
|
Negotiation Protocol
Document no.: CX 46xxxxxx-Z4A
Always quote for reference!
Contact Person: Lars Göbel Department: CP/TME3 Telephone: +49(5121)49-3452 Telefax: +49(711) 811-505-3452 E-Mail: lars.goebel@de.bosch.com Our VAT ID no.: DE811128135
|
|
|
Please note: Document is only valid in connection with a contract no. generated from SAP.
V1.3, Version 05/2015
Postal Address: Robert Bosch GmbH, CP/TME3, P.O. Box 30 02 20, DE-70442 Stuttgart, Germany
Visitors Address: Robert Bosch GmbH, CP/MAE, Im Birkenwald 32-46, DE-70435 Stuttgart, Germany
Negotiation Protocol for the purchase of:
“Description of MAE”
Purchase option valid until: 2021.06.30
Readiness for installation until: in avarage [***] after incoming PO
Binding delivery dates (FCA nearest Data I/O site):
- Pre-programer PSV 7000 in avarage [***] after incoming PO
(with HIC-Adapter [***] weeks)
Binding completion date ready for operation: [***] after commissioning at the latest
Technical contact: CM/MFT1, Sergio Dias
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 1 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
1. Terms of Delivery
1.1 Purchase Option
We, Robert Bosch GmbH (hereinafter referred to as "BOSCH") conducted negotiations with
Data I/O Corporation (hereinafter referred to as "SUPPLIER") on 2016.06.17 concerning the purchase of the Pre-Programmer PSV7000 described in greater detail above (hereinafter referred to as "MAE"). As a result of these negotiations, you granted us the option to order the MAE described in greater detail above subject to the terms set forth in this Negotiation Protocol (hereinafter referred to as “AGREEMENT”. Orders can be placed at your company directly or at your affiliated companies. You granted us the right to exercise the option by the end of 2021.06.30. This option can be exercised at our election by us or by or our affiliated companies in which we have the industrial leadership. If the option is exercised, the following terms of contract shall apply in the following sequence. In case of contradictions, the conditions of the above listed document have precedence:
1. Terms of contract set forth in this AGREEMENT.
2. The specific Purchase Order from BOSCH, excluding any pre-printed terms.
3. BOSCH Terms and Conditions of Purchase Version 01/2011. These Terms and Conditions can be
viewed on the Internet at: www.bosch.de in the download area of purchasing and logistics.
4. For orders through Bosch affiliated companies the purchasing conditions of the affiliated company.
Deviating terms and conditions of SUPPLIER are not accepted.
If the option is exercised after 2021.03.31, the date of readiness for preliminary acceptance, the delivery date and the date for acceptance shall be agreed anew. The other terms of the purchase option shall remain unaffected.
We mutually agree that BOSCH has no obligation to exercise the option and that in the event of the option not being exercised you cannot derive any claims whatsoever against us.
BOSCH has the right to exercise the agreed upon options in this AGREEMENT for an unlimited amount of MAE during the period of validity of this AGREEMENT, subject to SUPPLIER’S standard lead times and production capacity.
The binding dates (see page one of this AGREEMENT), the terms of contract laid down in this AGREEMENT and the total net fixed price were agreed upon with Mr./Ms. <NAME OF CONTACT PERSON> acting on behalf of SUPPLIER by telephone / in person on ____.__.__ (YYYY.MM.DD).
1. 2 Basis of the Agreement
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 2 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
According to current planning, BOSCH will have a worldwide demand for [***] MAE in the period from 2016.07.01 until 2021.06.30. BOSCH intends to cover this demand prior and preferably through orders placed with SUPPLIER, as long as the terms and conditions agreed in this AGREEMENT are generally comparable with quotations from competitors in terms of technology, quality, price and delivery.
BOSCH may exercise the option agreed in this AGREEMENT during the term of validity hereof and for an unlimited number of MAE, subject to SUPPLIER’S standard lead times and production capacity. The foregoing target figures do not, however, constitute an obligation by BOSCH to exercise the option. The actual demand depends on diverse criteria such as the economical situation, technology developments etc.
In return, SUPPLIER shall warrant assure to BOSCH preferential provision of technology, machinery and information. SUPPLIER shall inform BOSCH about new developments/technologies and new machine generations on a regular basis.
1.3 Discount Agreement
Provided BOSCH purchases MAE in US dollars and such shipments are FCA Redmond, WA, USA, SUPPLIER guarantees the following discounts for BOSCH on Purchase Orders placed up until the end of the Agreement see also attached price-list:
[***]
2. Property and Right of Use
BOSCH acquires title product-specific documents prepared for BOSCH (drawings, CAD data, etc.) (hereinafter referred to as "DOCUMENTS"). The DOCUMENTS have to be handed over to BOSCH after completion of the work in the form set forth in subsection “Confidentiality Obligation and Reservation of Rights” below.
BOSCH receives from SUPPLIER a non-exclusive, irrevocable, unrestricted as to place, time and subject, and sub-licensable right to use the DOCUMENTS. The right of usage includes any use, modification and reproduction of the DOCUMENTS, All intellectual property rights in SUPPLIER’s products, any modifications to SUPPLIET’s products and all other deliverables provided by Supplier shall be owned by SUPPLIER.
3. Scope of Delivery and Performance
SUPPLIER is obliged to deliver a complete MAE, which contains all parts required for use in accordance with the contract, whilst conforming to the agreed characteristics of the selected configuration.
If BOSCH requests in writing the extension of the scope of delivery and/or performance, after a Purchase Order has been confirmed by SUPPLIER, possible price changes must be agreed upon with BOSCH in writing prior to execution of such an extension of scope. If there is no written agreement regarding the price change, SUPPLIER may not charge any costs for the extended scope of delivery and/or performance carried out.
4. Operating Conditions at BOSCH (optional)
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 3 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
During the production of the MAE, SUPPLIER must take into consideration the fact that BOSCH will use the MAE in the following factory environment :
ESD protected area close to SMT lines
SUPPLIER shall ensure that the MAE is suitable for use in this factory environment, according to the agreed upon characteristics.
5. Preliminary Acceptance
NA
6. Commissioning and Trial Operation
If applicable, the first commissioning of the MAE , i.e. the first time BOSCH switches it on at the place of operation under the direction of SUPPLIER ("Commissioning"), and the trial operation, shall be performed in the BOSCH factory by BOSCH personnel in accordance with instructions from SUPPLIER and under the direction of SUPPLIER, however, in mutual agreement with BOSCH. The trial operation shall be conducted immediately following completion of assembly; commencement thereof shall be agreed upon between SUPPLIER and BOSCH.
The trial operation must evidence operational efficiency and must be performed without any substantial malfunctions. If a substantial malfunction occurs, the trial operation shall be recommenced after rectification of the defect. If the trial operation is repeated for reasons for which SUPPLIER is accountable for, incremental costs incurred by BOSCH (e.g. hours of work of personnel, costs of additional raw materials and consumables, transport costs on special journeys) shall be reimbursed by SUPPLIER
7. Characteristics Covenant / Guarantees
SUPPLIER is obliged to deliver the equipment according to the agreed upon technical specification/ requirement specification. SUPPLIER furthermore guarantees the conformity with the following functions and technical data (“Characteristics Covenant”).
- Technical availability VT or VTS > [***]
- Proof of machine capability Cmk >= [***]
- Dimensions, tolerances and machine capability values listed in the enclosure “Machine and process capability examination" dated 2004_07_01 (3 rd edition) (cm respectively cmk factors)
- A noise level of max. [***] dB(A), measured in accordance with DIN 45 635
If BOSCH requirements should preclude technically faultless execution or impede SUPPLIER, SUPPLIER shall inform BOSCH hereof in good time.
8. Proof of the Agreed Characteristics
After the faultless trial operation and immediately after the MAE has become operational, proof of the agreed characteristics of the MAE shall be carried out at the installation location in the relevant BOSCH factory, generally in the presence of both parties; the commencement time thereof shall be
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 4 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
specified jointly. Any preliminary trials scheduled by SUPPLIER are not relevant for proof of the agreed characteristics or acceptance.
Proof of the agreed characteristics is established when the agreed functions and characteristics have been proven over an uninterrupted, fault-free operating period (1 shifts) of 1 working days.
If proof cannot be established initially, SUPPLIER is obliged to perform any retrospective changes to the MAE which may be necessary and then to undertake a second attempt to establish proof without delay. SUPPLIER shall refund , incremental the costs (e.g. working hours of personnel, costs of additional raw materials and consumables, transport costs of special journeys) incurred at BOSCH due to such changes and to repeating of proof for the agreed characteristics.
If proof of the agreed characteristics has not been established within 3 (three) months after completion of the assembly (set-up of the MAE at the installation location), BOSCH has the right - notwithstanding its other rights - to cancel the complete scope of the order without giving an additional grace period, unless SUPPLIER is not responsible for the delay in establishing proof of the agreed characteristics.
BOSCH also has a cancellation right without having to set an additional grace period each time it is not possible to establish proof of the agreed characteristics, if BOSCH has allowed further attempts beyond the deadline of the foregoing paragraph.
In the event of cancellation by BOSCH, SUPPLIER shall bear all incidental costs e.g. the costs of dismantling, packaging, return transport, etc.
Successful proof of the agreed characteristics is merely the prerequisite for acceptance of the MAE and does neither relieve SUPPLIER of its obligation to rectify any defects nor of eventual defect claims. The SUPPLIER shall be held responsible for faults of his sub-suppliers to the same degree as if the faults were its own.
In case of failure to comply with the Guarantees BOSCH has the right to demand full compensation for the thereof accrued damages. Concerning the statute of limitation the paragraph “Warranty period / Self-remedy of defects” in this AGREEMENT below shall apply accordingly (subject to paragraph 31).
9. Acceptance
Title to the MAE passes to BOSCH upon delivery (according to INCOTERMS 2010). If applicable, the precondition for due performance of the Purchase Order is, however, that the MAE is additionally accepted by BOSCH. Acceptance of the MAE by BOSCH is performed by signing the acceptance protocol if the following preconditions have been met:
1. Commissioning,
2. Proper trial operation,
3. Proof of the agreed characteristics,
4. Compliance with the acceptance conditions in accordance with BOSCH standard N51M M20 and all other technical regulations agreed upon,
5. Handover to BOSCH of the complete documentation in accordance Data IO standard, including the complete consumable - , ware – and spare part list, with third party parts and norm parts listed including designation of original supplier name and number according to the part list sent by Data IO.
6. Submission of a quotation for wear and spare parts recommended by SUPPLIER.
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 5 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
The acceptance protocol shall be drawn up jointly in writing. The payment or commissioning of the MAE shall not be deemed to constitute acceptance. Claims by BOSCH due to any defects in the MAE shall remain unaffected by acceptance.
10. Training
Training at BOSCH:
SUPPLIER is obliged to train BOSCH employees in programming, operation and maintenance. Such training shall be conducted in the BOSCH factory and is included in the total net price.
11. Assembly, Set Up, Commissioning and Trial Operation
The costs hereof are included in the total fixed price.
12. Coordination of Work
As customer and in the interests of work safety, BOSCH is obliged to have an employee of BOSCH coordinate the work to be carried out by SUPPLIER in the BOSCH factories. SUPPLIER is obliged to ensure that its employees working on BOSCH premises contact the coordinator of the relevant BOSCH factory prior to commencing their work and maintain contact with him while work is in progress. SUPPLIER and all employees of SUPPLIER are obliged to comply with the Accident Prevention Regulations of BOSCH. The Bosch standard N93 A20 must be complied with.
Employees and subcontractors of SUPPLIER are solely subject to the right of SUPPLIER to give instructions even if their work is conducted on the premises of BOSCH. In case of written request from BOSCH, SUPPLIER must substitute its employees and subcontractors if they act in breach of contractual obligations. SUPPLIER shall bear the costs arising as a result of such substitution.
13. Work performance at the facility site / Provision of Employees
In respect of work carried out on the facility site of BOSCH, third parties may not be subcontracted to perform the work or part of the service without the prior written consent of BOSCH.
Any employees made available by BOSCH shall be subject to the right of SUPPLIER to give professional instructions with regard to the assembly; they shall be deemed to be persons engaged by SUPPLIER in performance of its obligations.
14. Release from Liability
SUPPLIER shall indemnify BOSCH from liability for infringement by the MAE of any third party patents or other proprietary rights and all third party claims related to SUPPLIER’s activities while on BOSCH’s premise - regardless of the legal grounds - including reasonable costs of bringing an action, resulting from the supply of the MAE , the breach of its contractual obligations, the breach of other obligations or the violation of third party rights. Further claims by BOSCH shall remain unaffected.
Limitation of liability
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 6 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
Except in the case of intentional misconduct or gross negligence,
liability is excluded for:
- lost profits
- costs of production shut down/break down
- indirect/consequential damages
liability is included for:
- direct third party damages,
- indemnification of intellectual property claims or breaches of confidentiality obligations
from SUPPLIER’S liability for defects as to quality under this Agreement and SUPPLIER’s total liability per calendar year under this Agreement shall be limited to one of the following whichever is higher: (a) [***] of the sales of SUPPLIER to BOSCH (including the sales to affiliates of BOSCH) in the previous calendar year or (b) EUR [***] Please confirm to us the agreements reached by signing and returning this "Negotiation Protocol".
15. Insurance
15.1 Liability Insurance
SUPPLIER is obliged to take out liability insurance for the duration of the contractual engagement with BOSCH. The minimum coverage of this insurance shall be the following amounts per claim:
- Manufacturer's liability and product liability insurances
- Personal injury and property damage (lump sum) USD 2,500,000
- Damage by fire and explosion USD 5,000,000
- Activity-related damage to third party property USD 150,000
- Financial losses USD 100,000
- Environmental liability insurance
- Personal injury and property damage USD 2,500,000
The written confirmation of the liability insurer of SUPPLIER is attached as Appendix 2. SUPPLIER is obligated to inform BOSCH in writing without delay to any relevant changes to the insurance relationships, in particular prior on the lapse of insurance coverage.
15.2 Transport Insurance
Transport insurance has to be clarified in each individual case
Bosch shall take out “door to door” transport insurance. Bosch is a “waiver customer”; transport insurance shall not be taken out by SUPPLIER.
16. Patents and Property Rights
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 7 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
SUPPLIER warrants that the delivered MAE does not infringe any third party patents or other proprietary rights and shall release BOSCH from any third party claims resulting therefrom. Further claims shall remain unaffected.
17. Warranty period / Self-remedy of defects
The limitation period for claims for defects as to quality is 12 months - except in cases of fraudulent intent. The limitation period starts on the date of acceptance , of the MAE or of the work ordered. In case longer limitation periods exist by law or have been agreed by contract, such periods shall apply.
The limitation period shall start to run for the longer of an additional 90 days or until the end of the warranty period for parts that have been replaced or repaired in the context of liability for defects as to quality.
If SUPPLIER does not commence rectifying defects without delay following BOSCH's complaint or within the agreed response time or if the deadline defined by Bosch elapsed without success, BOSCH shall be entitled after the defined notification process to rectify the defect itself or to have this done by a third party at the expense of SUPPLIER, if rectification of the defect allows for no further delay.
18. Stocking up on spare and wear parts
Not applicable
19. After-Sales Service, Provision of Spare and Wear Parts
SUPPLIER warrants that maintenance and repair work on the delivered MAE will be conducted at the place of installation for the duration of their average life expectancy (at least 7 (seven years) after delivery) at competitive prices.
SUPPLIER shall ensure that – even after expiry of the limitation period for defects as to quality – qualified professional staff as well as spare and wear parts will be available at the BOSCH factories to rectify disruptions in operations within defined hours in the service contract of being requested by BOSCH.
The provision of the preceding paragraph shall apply if BOSCH’s request is received by SUPPLIER in the times according the service contract. If the request is notified outside of these hours, then the aforementioned time period shall start to run from on the next working day.
Together with the contractual documentation in accordance with Data IO documentation, SUPPLIER shall submit a quotation to BOSCH for the spare and wear parts recommended by SUPPLIER. Thereafter the parties shall mutually agree on stocking parts at a factory of SUPPLIER or at a factory of BOSCH.
BOSCH shall operate the MAE appropriately and perform maintenance in accordance with the agreed maintenance instructions.
20. Contractual Penalty
SUPPLIER shall deliver / FCA “Pre-Programmer PSV7000” by the binding date if agreed in specific PO at the latest.
If agreed in specific PO, in the event of delayed delivery / completion ready for operation, BOSCH has the right to impose on SUPPLIER a contractual penalty of [***] per week with maximum [***] . The only
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 8 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
delays exempted shall be those caused by force majeure. BOSCH shall be notified of such cases in writing in good time without any specific request being required.
The right to demand payment of the contractual penalty shall not be excluded by acceptance and/or taking delivery of the delayed delivery of the MAE without expressly reserving the right to assert a claim for the contractual penalty.
If the agreed delivery date is delayed due to reasons attributable to BOSCH, the date for the contractual penalty shall be postponed accordingly. SUPPLIER shall notify all delays in writing without delay to the ordering Purchasing Department of BOSCH. This also applies if, as a result of the option being exercised after the agreed upon order date, a new delivery date is agreed.
Any claims for damages exceeding the above shall remain unaffected.
21. Addresses
21.1 Dispatch address
Dispatch to:
The exact delivery address will be indicated in the Purchase Order.
SUPPLIER shall contact the transport agent of BOSCH in good time and coordinate the transport to ensure delivery to the BOSCH factory on the agreed date.
21.2 Address for business correspondence
Postal address of responsible purchasing department:
For example:
ROBERT BOSCH GMBH
Central Purchasing - CP/TME3
Attn. Mr. Lars Goebel
Robert-Bosch-Strasse 200
31139 Hildesheim
GERMANY
22. Transfer of Risk
The risk for the MAE shall pass to BOSCH as soon as SUPPLIER has handed over the MAE incl. packaging and, if relevant, any returnable packaging, to the carrier in Redmond, WA, USA, or Shanghai China, ( FCA in accordance with INCOTERMS 2010; performance is not fulfilled until MAE is finally accepted by Bosch in accordance with Section “Acceptance”, however).
23. Terms and Conditions of Payment
MAE
The invoice shall be issued for 100 % (one hundred percent) of the agreed purchase price, payable as follows:
[***]
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 9 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
SERVICE, SPAREPARTS, WEARABLES
100 % immediately
Invoices shall be payable within [***] days of receipt and no early payment discounts apply.
SUPPLIER shall request payment of the remainder from the BOSCH factory in writing (complete address will be provided by the ordering Purchasing Department). In no case do payments by BOSCH imply acceptance of the goods and services delivered as being in conformity with the contract.
In case BOSCH has accounts receivable from SUPPLIER, BOSCH shall be entitled to withhold payments. Delivery dates agreed in the specific Purchase Orders shall not be affected thereby.
BOSCH is entitled at any time to offset all its own accounts receivable as well as all accounts receivable of an affiliate company of the BOSCH Group within the meaning of Section 15 German Stock Corporation Act (AktG) from SUPPLIER , against accounts receivable by SUPPLIER that are both due and not yet due for payment .
24. Confidentiality Obligation and Reservation of Rights
Insofar as, in connection with the inquiries and specific Purchase Orders, SUPPLIER gains access to DOCUMENTS, including drawings, sketches and samples, oral information, knowledge and know how – hereinafter referred to as "INFORMATION", SUPPLIER is obligated
- to keep the INFORMATION secret with regard to third parties and to refrain from publishing the INFORMATION.
- to utilize the INFORMATION and the know how thus acquired solely in connection with the specific Purchase Orders; in particular, SUPPLIER shall not use the INFORMATION for its own production or for deliveries to third parties.
- only to grant access to the INFORMATION to those employees who are engaged in performing obligations under the specific Purchase Orders and only to the extent to which it is absolutely necessary for the foregoing purpose.
- to take suitable measures to ensure that its employees keep the INFORMATION secret and use it only in execution of the specific Purchase Orders (e.g. by using password-protected access, safe custody of documents, samples and data media, physical andfunctional separation from other activities).
Each partner shall comply with the statutory regulations on data privacy and take the technical and organizational protective measures necessary in accordance therewith.
The afore-mentioned obligations shall continue to apply after the specific Purchase Orders have been processed unless the INFORMATION has become public knowledge through no fault of SUPPLIER.
All DOCUMENTS provided by BOSCH, including drawings, sketches and samples, shall remain the exclusive property of BOSCH. SUPPLIER is obliged to handle and store them carefully and to return them to BOSCH in their entirety immediately after completion of the specific purchase orders.
The grant of a license by BOSCH is not associated with the disclosure of INFORMATION to SUPPLIER. BOSCH reserves all rights to all INFORMATION originating from BOSCH, including copyright and the right to register industrial property rights such as patents, utility models, topography
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 10 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
rights etc. If the INFORMATION disclosed by BOSCH originates from third parties, this reservation of rights also applies in favor of such third parties. CAD data and other electronically stored INFORMATION provided by BOSCH and compiled for BOSCH shall be filed on a memory medium capable of storage (CD ROM, DVD etc.) after conclusion of the work and the memory media shall be handed over to BOSCH. If the data are required for service activities and delivery of spare parts, SUPPLIER may keep the required number of copies. Data not required for this purpose must be deleted from the computer system of SUPPLIER.
Any advertising using the contractual relationship or the subject matter of the Agreement and INFORMATION hereon is inadmissible unless BOSCH has given prior written approval to such procedure in an individual case.
26. The following documents form integral components of this AGREEMENT and are already in the possession of SUPPLIER:
- Technical Specifications/Requirement Specification
“Device Pre-programming batch Robots”,
revision 2.0 dated 2016.05.13
with attachment "C360121_Supplier_Details_to_
Requirement_Spec_commented 20151207 V4 (002).xls and as evaluated in cw 15.2016 in
Hildesheim
- Delivery regulations in the version applying on the date of the Purchase Order
N51M M20
N51M M23
N51M M25
N51M M26
as applicable and evaluated during benchmark CW15/2016
- Quality Assurance Guideline for Suppliers QSL, Version 12/2011
27. Commencement and Termination of the AGREEMENT (optional, if Section 1.2 was agreed)
The AGREEMENT shall become effective when signed by both parties as per 2016.07.01 and terminates with the validity of the purchasing option (see page 1), if it is terminated by one of the two contracting parties by giving 6 month's advance notice to expire on 2021.06.30. Otherwise, the AGREEMENT shall be extended by one year with the same terms.
28. Download Service on the Internet
http://purchasing.bosch.com/en/start/Allgemeines/Download/index.htm
Use Bosch Rexroth AG Components!
See delivery regulation N51M M20 item 2 or
https://www.boschrexroth.com/corporate/sys/productindex_xml/en/index.jsp?oid=614362
29. Modifications and Amendments
Amendments or supplements to this Corporate Agreement, including this Section 29 hereof, as well as postponing the delivery dates agreed in specific Purchase Orders must be agreed in writing.
30. Ineffectiveness
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 11 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
If any provision of this AGREEMENT should be or become ineffective, this shall not affect the validity of the remaining provisions of this AGREEMENT. In such a case, the respective provision shall be replaced by a regulation approximating most closely the economic content of the original provision. The same shall apply to any gaps in this Agreement.
31. Applicable Law and Jurisdiction
This AGREEMENT as well as all agreements hereunder and disputes arising herefrom shall be governed by German law, excluding the rules on conflicts of laws. The Hague Uniform Law on the International Sale of Goods, the UN Convention on Contracts for the International Sale of Goods and other international conventions on the international sale of goods do not apply.
The courts of Stuttgart have exclusive jurisdiction over contractual disputes if all the disputing parties have their registered office in Germany, in Switzerland or in any country of the European Union. In cases before local courts, the local court of Stuttgart ( Amtsgericht Stuttgart , 70190 Stuttgart) shall have jurisdiction. In all other cases, contractual disputes shall be definitively adjudicated in accordance with the arbitration rules of the International Chamber of Commerce by one or more arbitrators appointed in accordance with such rules. The place of arbitration is Stuttgart, Germany, unless otherwise agreed by the parties in dispute. The arbitration language is English. The parties in dispute shall treat in confidence all information which they receive with regard to arbitration proceedings in accordance with this provision, including the existence of arbitration proceedings. In judicial and/or arbitration proceedings, they shall only disclose such information to the extent that this is necessary to exercise their rights. The chairman or a sole arbitrator must be of different nationality to the parties in dispute. Subject to any other ruling returned by the arbitration tribunal, the parties in dispute shall continue to perform the contracts affected by the dispute .
Robert Bosch GmbH
/s/ Dirk Knauerhase /s/Lars Göbel /s/ Joel Hatlen
Dirk Knauerhase Lars Göbel Joel Hatlen (CFO)
CP/PIR2-EN CP/TME3
Date: 11.07.16 Date: 19.7.16 Date: 20 July 2016
Company Stamp
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 12 / 16
Exhibit A
Data-IO Benchmark BAT10 FPSB 2016/06/17 - Update 2016/06/18 |
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Single Cost |
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kUSD |
|||||
[***] |
[***] |
||||
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[***] |
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[***] |
[***] |
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[***] |
[***] |
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[***] |
[***] |
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Service costs |
Single Cost
|
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
Spare parts Cost |
Single Cost |
||||
kUSD |
|||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
Global sockets costs for A-IVI Total production volume (Normal Sockets) |
Single Cost |
||||
kUSD |
|||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
For Information:
|
Single Cost |
||||
kUSD |
|||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
Special Parts |
Single Cost |
||||
kUSD |
|||||
[***] |
[***] |
||||
[***] |
[***] |
||||
[***] |
[***] |
||||
excluding from TCO-Matrix |
Single Cost |
||||
kUSD |
|||||
[***] |
[***] |
[***] |
|||
[***] |
[***] |
[***] |
|||
[***] |
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[***] |
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[***] |
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[***] |
|||
[***] |
[***] |
[***] |
|||
Service kUSD |
Penang |
Braga |
Wuhu |
Hildesheim |
|
[***] |
[***] |
[***] |
[***] |
[***] |
|
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|
|
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Changes to version from 14.06.2016: [***] |
|||||
Prices valid for [***] Years |
|||||
after [***] Years Data IO has the right to increase prices by maximum of [***] % per Year |
|||||
In the original plan all [***] are purchased within the first [***] Years so [***] effect should be for the BM |
[***] confidential treatment requested
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 13 / 16
Doc. No.: CX _______ Buyer no. / dated ____.__.__ (YYYY.MM.DD)
Name of the supplier: Data I/O Corporation
Registered Office: Stuttgart, Registration Court: Amtsgericht Stuttgart, HRB 14000;
Chairman of the Supervisory Board: Franz Fehrenbach; Managing Directors: Dr. Volkmar Denner,
Dr. Stefan Asenkerschbaumer, Dr. Rolf Bulander, Dr. Stefan Hartung, Dr. Markus Heyn, Dr. Dirk Hoheisel,
Christoph Kübel, Uwe Raschke, Dr. Werner Struth, Peter Tyroller
Page 14 / 16