SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON,Washington, DC 20549
                                        
                                   FORM 10-Q
                                        
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                                        
                    For the quarter ended SeptemberQuarter Ended December 27, 1998
                                        

                        Commission file number 0-21294

                               --------------------------------------------
                               Aseco CorporationASECO CORPORATION
            (Exact name of registrant as specified in its charter)


            DELAWAREDelaware                                              04-2816806
   (State or other jurisdiction of                           (I.R.S. Employer
    incorporation or organization)                           Identification No.)
        


           500 DONALD LYNCH BOULEVARD, MARLBORO, MASSACHUSETTSDonald Lynch Boulevard, Marlboro, Massachusetts 01752
                   (Address of principal executive offices)


                                 (508)481-8896
             (Registrant's telephone number, including area code)

                                        
                                        
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 
              ---          ---No 
               ------      ------


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of SeptemberDecember 27, 1998.


                COMMON STOCK,Common Stock, $.01 PAR VALUE                           3,774,313par value                      3,779,313
                   (Title of each class)                      (Number of shares)

                                       1

 
                               ASECO CORPORATION

                               TABLE OF CONTENTS
                                        

Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets (unaudited) at SeptemberDecember 27, 1998 and March 29, 1998 3 Condensed Consolidated Statements of Operations (unaudited) for the three months and sixnine months ended SeptemberDecember 27, 1998 and SeptemberDecember 28, 1997 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the sixnine months ended SeptemberDecember 27, 1998 and SeptemberDecember 28, 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-108-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 1112 Item 2. Changes in Securities 11and Use of Proceeds 12 Item 3. Defaults upon Senior Securities 1112 Item 4. Submission of Matters to a Vote of Security Holders 1112 Item 5. Other Information 1112 Item 6. Exhibits and Reports on Form 8-K 1112 Signatures
2 PART I. FINANCIAL INFORMATION ITEMItem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidated Financial Statements ASECO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
SEPTEMBERDecember 27, MARCHMarch 29, (in thousands, except share and per share data) 1998 1998 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ASSETS Current Assets Cash and cash equivalents $ 5,2071,126 $ 4,431 Accounts receivable, less allowance for doubtful accounts of $770$754 at SeptemberDecember 27, 1998 and $781 at March 29, 1998 5,3763,991 9,140 Inventories, net 11,96911,279 11,875 Prepaid expenses and other current assets 3,1233,012 2,761 --------- -------- --------- Total current assets 25,67519,408 28,207 Plant and equipment, at cost 8,6288,520 8,796 Less accumulated depreciation and amortization 5,3505,349 4,755 --------- -------- --------- 3,2783,171 4,041 Other assets, net 795772 1,443 -------- --------- $ 29,748 $ 33,691$23,351 $33,691 ========= ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Borrowings on line of credit $ 4,390372 $ -- Accounts payable 2,1181,876 4,591 Accrued expenses 3,6583,100 4,886 Current portion of capital lease obligations 129 13 --------- -------- --------- Total current liabilities 10,1785,357 9,490 Deferred taxes payable 594 594 Long-term capital lease obligations 98 25 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding --- --- Common stock, $.01 par value: Authorized 15,000,000 shares, issued and outstanding 3,774,3133,779,313 and 3,731,718 shares at SeptemberDecember 27, 1998 and March 29, 1998, respectively 38 38 Additional paid in capital 18,253 18,203 Retained earnings 601(963) 5,291 Foreign currency translation adjustment 7564 50 --------- -------- --------- Total stockholders' equity 18,96717,392 23,582 -------- --------- $ 29,748 $ 33,691$23,351 $33,691 ========= ======== =========
See notes to condensed consolidated financial statements 3 ASECO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except share and per share data)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBERThree months ended Nine months ended December 27, SEPTEMBERDecember 28, SEPTEMBERDecember 27, SEPTEMBERDecember 28, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net sales $ 4,3954,288 $ 11,55713,551 $ 11,02515,313 $ 20,42233,974 Cost of sales 3,641 6,253 7,701 11,0732,745 7,438 10,447 18,511 ---------- ---------- ----------- --------------------- ---------- Gross profit 754 5,304 3,324 9,3491,543 6,113 4,866 15,463 Research and development costs 1,217 1,565 2,876 2,9211,103 1,945 3,980 4,866 Selling, general and administrative expense 2,151 2,985 4,537 5,4581,951 3,288 6,488 8,746 Restructuring charge 1,300-- -- 1,300 -- Acquired in-process research and development -- -- -- 4,900 ---------- ---------- ----------- --------------------- ---------- Income (loss) from operations (3,914) 754 (5,389) (3,930)(1,511) 880 (6,902) (3,049) Other income (expense): Interest income 31 84 58 25337 42 95 295 Interest expense (54) (33) (59) (39)(70) (64) (129) (103) Other, net 20 (11) 11 (11)(18) (33) (7) (44) ---------- ---------- ----------- ----------- (3) 40 10 203---------- ---------- (51) (55) (41) 148 Income (loss) before income taxes (3,917) 794 (5,379) (3,727)(1,562) 825 (6,943) (2,901) Income tax (benefit) expense (347) 376-- 337 (689) 595933 ---------- ---------- ----------- --------------------- ---------- Net income (loss) $ (3,570)(1,562) $ 418488 $ (4,690)(6,254) $ (4,322)(3,834) ========== ========== =========== ===================== ========== Earnings (loss) per share, basic $ (0.96) $0.11 $ (1.26) $ (1.18)($ 0.41) $0.13 ($ 1.67) ($ 1.04) Shares used to compute earnings (loss) per share, basic 3,735,000 3,685,000 3,734,000 3,676,0003,779,000 3,714,000 3,749,000 3,688,000 Earnings (loss) per share, diluted $ (0.96) $0.11(0.41) $ (1.26)0.13 $ (1.18)(1.67) $ (1.04) Shares used to compute earnings (loss) per share, diluted 3,735,000 3,979,000 3,734,000 3,676,0003,779,000 3,876,000 3,749,000 3,688,000
See notes to condensed consolidated financial statements 4 ASECO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
SIX MONTHS ENDED -------------------------------- SEPTEMBERNine months ended ------------------------------ December 27, SEPTEMBERDecember 28, 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Operating activities: Net (loss) $(4,690) $(4,322)$(6,254) $ (3,834) Adjustments to reconcile net (loss) to net Cashcash used byin operating activities: Depreciation and amortization 1,009 6211,427 1,003 Acquired in-process research and development -- 4,900 Loss on sale of plant and equipment 5 -- Restructuring charge 1,300 -- Inventory write-off 850 -- Changes in assets and liabilities: Accounts receivable 3,246 (2,547)5,112 (1,639) Inventories, net (978) (3,868)(629) (3,309) Prepaid expenses and other current assets 66 (236)(50) (865) Accounts payable and accrued expenses (3,988) 2,671(4,964) (815) Income taxes payable -- 235227 ------- --------------- Total adjustments 1,510 1,7763,051 (498) ------- --------------- Cash used in operating activities (3,180) (2,546)(3,203) (4,332) Investing activities: Acquisitions net of cash acquired -- (6,079) Proceeds from sale of plant and equipment 739 -- Acquisition of plant and equipment (342) (913)(360) (1,296) Increase in software development costs and other assets (136) (392)(186) (295) ------- --------------- Cash used in investing activities (471) (7,384)(507) (7,670) Financing activities: Net proceeds from issuance of common stock 50 307337 Borrowings on line of credit 4,390 1,875372 (225) Payments of long-term capital lease obligations (16) (7)(21) (11) ------- --------------- Cash provided by financing activities 4,424 2,175401 101 ------- --------------- Effect of exchange rate changes on cash 3 (3)4 4 Net increase/decrease in cash and cash equivalents 776 (7,758)(3,305) (11,897) Cash and cash equivalents at the beginning of period 4,431 14,082 ------- --------------- Cash and cash equivalents at the end of period $ 5,2071,126 $ 6,3242,185 ======= ===============
See notes to condensed consolidated financial statements 5 ASECO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIXNINE MONTHS ENDED SEPTEMBERDECEMBER 27, 1998 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and sixnine month periods ended SeptemberDecember 27, 1998 are not necessarily indicative of the results that may be expected for the year ended March 28, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 29, 1998. 2. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" which the Company adopted in the third quarter of fiscal 1998. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. 3. In 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" which establishes standards for the reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. Under this standard, certain revenues, expenses, gains, and losses recognized during the period are included in comprehensive income, regardless of whether they are considered to be results of operations of the period. During the secondthird quarter of Fiscalfiscal 1999 total comprehensive loss amounted to $3,534,000$1,573,000 versus comprehensive income of $426,000$516,000 for the secondthird quarter of fiscal 1998. Comprehensive loss for the first sixnine months of fiscal 1999 was $4,665,000$6,242,000 versus comprehensive loss for the first sixnine months of fiscal 1998 of $4,302,000.$3,786,000. The difference between comprehensive income/loss and net income/loss as reported on the Consolidated Statements of Operations is attributable to the foreign currency translation adjustment. 4. Inventories consisted of: (IN THOUSANDS)
SEPTEMBER(in thousands) December 27, MARCHMarch 29, 1998 1998 ------------- ------------ ---- Raw Material $ 6,3546,869 $ 5,612 Work in Process 4,7663,484 4,712 Finished Goods 849926 1,551 ------- ------- $11,969$11,279 $11,875 ======= =======
6 5. On May 23, 1997, the Company acquired 100% of the outstanding stock of Western Equipment Developments (Holdings) Ltd. ("WED") for approximately $6,100,000 in cash. WED designs, manufactures and markets integrated circuit wafer handling robot and inspection systems used to load, sort, transport and inspect wafers during the semiconductor manufacturing process. The acquisition was accounted for as a purchase and accordingly, the results of operations of the acquired business have been included in the Company's consolidated financial statements commencing May 23, 1997. The Company's initial allocation of the purchase price at the date of acquisition resulted in an estimate of acquired in-process research and development of $4,900,000 recorded in the first quarter of fiscal 1998. During fiscal 1998, the Company determined that certain acquired technology was not as developed as originally expected, and certain in-process technology would require more time to develop than originally anticipated. At the end of fiscal 1998, the Company completed the allocation of the purchase price which resulted in an additional in-process research and development charge of $1,200,000 resulting in an aggregate fiscal 1998 charge of $6,100,000. The following table summarizes the unaudited pro-forma consolidated results of operations as if the acquisition had been made as of January 1,March 31, 1997, including the aggregate acquired in-process research and development charge of $6,100,000 as if expensed on that date:
SixNine months ended ---------------- SEPTEMBER----------------- December 28, 1997 --------------------------------- Net sales $21,451$35,002 Net loss (6,911)(6,423) Earnings (loss) per share $ (1.89)(1.76)
6. In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection manufacturing operations. This plan includes the closure of the Company's UK facility and related transfer of manufacturing operations to the United States as well as the discontinuation of several older product models in an effort to focus the operation's product offerings. The shutdown and transfer will be substantially completed during the third quarter of fiscal 1999. In conjunction with this plan, the Company recorded a $2.2 million special charge including a $850,000 charge to cost of sales for inventory write-downswrite- downs related to product discontinuations and a $1.3 million restructuring charge.charge in the second quarter of fiscal 1999. The principal components of the restructuring charge include $627,000 for write-down of fixed and other long term assets, $241,000 for severance related charges, $188,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated future cash flows, and $65,000 of lease termination and related costs. As of January 1999 the closure and transfer were substantially complete. Fixed assets written down were disposed of and a significant component of severance related costs were paid. 7 ITEMItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of Operations Three and sixnine months ended SeptemberDecember 27, 1998 and December 28, 1997 Results of Operations - --------------------- Net sales for the secondthird quarter of fiscal 1999 decreased 62%68% to $4.4$4.3 million compared to $11.6$13.6 million for the secondthird quarter of fiscal 1998. Net sales for the first sixnine months of fiscal 1999 decreased 46%55% to $11$15.3 million compared to $20$34.0 million for the first sixnine months of fiscal 1998. The decrease in net sales resulted from fewer unit shipments in fiscal 1999 compared to the second quarter of fiscal 1998 as a result of an industry wide market downturn. International sales represented approximately 51%44% of net sales for the secondthird quarter of fiscal 1999 versus 50%47% in the secondthird quarter of fiscal 1998. On a year to date basis, export sales represented 42%43% of net sales compared to 43%39% in the same period last year. Year to date approximately 85%84% of all international sales were to customers located in the Pacific Rim region. In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection manufacturing operations. This plan includes the closure of the Company's UK facility and related transfer of manufacturing operations to the United States as well as the discontinuation of several older product models in an effort to focus the operation's product offerings. The shutdown and transfer will be substantially completed during the third quarter of fiscal 1999 (See Note 6 to the Condensed Consolidated Financial Statements included herein). In conjunction with this plan, the Company recorded a $2.2 million special charge including a $850,000 charge to cost of sales for inventory write-downs related to product discontinuations and a $1.3 million restructuring charge. The principal components of the restructuring charge include $627,000 for write-down of fixed and other long term assets, $241,000 for severance related charges, $188,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated future cash flows, and $65,000 of lease termination and related costs. As of January 1999, the closure and transfer were substantially complete. Fixed assets were disposed of and a significant component of severance related costs were paid. Gross margin for the secondthird quarter of fiscal 1999 was 17%36% compared to 46%45% in the same quarter last year. Gross margin for the first sixnine months of fiscal 1999 was 30%32% compared to 46% in the same period last year. The secondthird quarter fiscal 1999 decline in gross margin resulted from higher than normal discounts offered during the $850,000 charge for discontinuedquarter to ensure timing of orders and convert inventory to cash in the quarter, a product shipment mix including a larger component of the Company's lower gross margin products described above,and, to a lesser extent, manufacturing excess capacity resulting from lower production levels and,levels. In addition to a lesser extent, the higher mixabove factors, the decline in gross margin for the first nine months of lower margin productfiscal 1999 compared to fiscal 1998 was also the result of the $850,000 special charge to cost of sales during the second quarter of 1999. Research and development expenses decreased 22% to $1.2 millionrecorded in the second quarter of fiscal 1999 from $1.6(See Note 6 of Condensed Consolidated Financial Statements). Research and development expenses decreased 43% to $1.1 million in the secondthird quarter of fiscal 1999 from $1.9 million in the third quarter of fiscal 1998. Research and development expenses increased as a percentage of sales to 28%26% in the secondthird quarter of fiscal 1999 from 14% in the secondthird quarter of fiscal 1998 due to the decline in net sales. Research and development expenses decreased 18% to $4.0 million for the first sixnine months of fiscal 1999 andfrom $4.9 million for the first nine months of fiscal 1998 were approximately $2.9 million.1998. The decrease in research and development spending in the comparable quarterly periods was principally a result of decreasedreduced headcount. Development spending in the secondthird quarter of fiscal 1999 was focused on various enhancements and features for the VT8000, the Company's newest test handler.handler products. During the first quarter of fiscalnine month period ended December 28, 1998, the Company recorded a special charge to earnings of $4.9 million for acquired in-process research and development related to the initial allocation of the purchase price of the Company's acquisition of Western Equipment Developments Holdings ("WED") (See Note 5 to the Condensed Consolidated Financial Statements included herein). 8 Selling, general and administrative expenses for the secondthird quarter of fiscal 1999 were $2.2$2.0 million versus $3.0$3.3 million for the secondthird quarter of fiscal 1998. Selling, general and administrative expenses for the first sixnine months of fiscal 1999 were $4.5$6.5 million versus $5.5$8.7 million for the first sixnine months of fiscal 1998. The decrease in selling, general and administrative expenses was primarily the result of lower commissions earned due to lower sales volume along with the savings realized from workforce reductions, and a Company wide freeze on discretionary spending.spending and the spending reductions realized from the consolidation of the Company's UK wafer handling and inspection business. Operating loss in the secondthird quarter of fiscal 1999 was $3.9$1.5 million versus operating income of $754,000$880,000 in the secondthird quarter of fiscal 1998. Operating loss infor the first sixnine months of fiscal 1999 was $5.4$6.9 million versus operating loss of $3.9$3.0 million in the first sixnine months of fiscal 1998. The year to date operating loss of $5.4$6.9 million is the result of both the $2.2 million special charge recorded during the second quarter (See Note 6 to the Company's Condensed Consolidated Financial Statements included herein) and the decline in sales and lower gross margins attributable to the shift in product mix.sales. The Company recorded no tax provision in the third quarter of fiscal 1999 as no additional benefits from operating loss carrybacks were available. The Company recorded income tax expense of $337,000 in the third quarter of fiscal 1998. On a year to date basis, the Company recorded income tax benefit of $347,000$689,000 in the second quarter of fiscal 1999 versus income tax expense of $376,000$933,000 in the second quarter of fiscal 1998. Tax rates in both quarters were affected by the inability to offset losses incurred by WED against income earned and taxes paid in the United States. As a result of the foregoing, net loss for the secondthird quarter of fiscal 1999 was $3.6$1.6 million, or $0.96$0.41 per diluted share, as compared to net income of $418,000,$488,000, or $0.11$0.13 per diluted share, for the secondthird quarter of fiscal 1998. Net loss for the first nine months of fiscal 1999 was $6.3 million, or $1.67 per diluted share, as compared to net loss of $3.8 million, or $1.04 per share, for the first nine months of fiscal 1998. Liquidity and Capital Resources - ------------------------------- The Company endedhistorically has funded its operations primarily through cash flow from operations, bank borrowings and the second quarterprivate and public sale of fiscal 1999 with aequity securities. At December 27, 1998, the Company had cash positionand cash equivalents of approximately $5.2 million compared to $1.5 million at the end of the prior quarter. Borrowings under the Company's bank line of credit at the end of the second quarter of fiscal 1999 amounted to $4.4 million versus $300,000 at the end of the first quarter of fiscal 1999. During the second quarter, the Company's bank committed to an interim extension of the term of the Company's $5 million line of credit to November 15, 1998. As of November 11, 1998, the Company's cash position was approximately $2.6$1.1 million and total availability under the Company's bank lineworking capital of credit was $1.9 million, all of which was borrowed and outstanding. The Company is currently negotiating a further extension of its bank line of credit and it is anticipated that all borrowings under the extended line will be secured by all the assets of the Company and will be subject to certain financial covenants including maintenance of specified debt to net worth, current ratios, and minimum levels of net worth and profitability.approximately $14.0 million. The Company used approximately $3.2 million of cash from operations during the first sixnine months of fiscal 1999. Accounts receivable decreased generating cash of approximately $3.2$5.0 million in the first sixnine months of fiscal 1999. The overall lower level of accounts receivable at the end of the third quarter of fiscal 1999 because of ais due to the decrease in sales volume.volume during the nine month period. For the first sixnine months of fiscal 1999, the Company used approximately $1.0 million$629,000 for material purchases which occurred principally in the first quarter of fiscal 1999 as the Company was not able to reduce its build plan early enough in the first quarter to facilitate timely cancellation of orders. Accounts payable and accrued expenseexpenses decreased approximately $4.0$5.0 million as a result of lower business volume experienced during the quarter.volume. The Company used approximately $471,000$507,000 in cash for investing activities during the first sixnine months of fiscal 1999. The Company spent approximately $342,000$360,000 on capital equipment purchases and $136,000$186,000 to fund internal software development costs. The Company generated cash from financing activities in the first sixnine months of fiscal 1999 of $4.4 million,$401,000, primarily as a result of borrowings under the working capital line of credit. The Company has a $5 million revolving credit line with the bank which expires in September 1999. At December 27, 1998, borrowings under such credit line were $372,000 and an additional $1.6 million was available for borrowing. At February 10, 1999, borrowings under such credit line were $475,000 and an additional $1.5 million was available for borrowing. The revolving credit line is secured by all assets of the Company. The credit agreement establishing this line of credit prohibits the payment of dividends without the bank's consent and requires maintenance of specified debt to net worth, current ratios and net income levels. As of February 10, 1999, the Company was in compliance with all financial covenants of its credit agreement. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry. As a result, the Company intends to monitor,and further reduce if necessary, its expenses if projected lower net sales levels continue. Although the Company anticipates that it will incur losses in future quarters which will negatively impact its liquidity position, the Company believes that funds generated from operations, existing cash balances and 9 available borrowing capacity will be sufficient to meet the Company's cash requirements for at least the next twelve months. 9 However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. Year 2000 Compliance - -------------------- Historically certain computer programs have been written using two digits rather than four to define the applicable year, which could result in a computer recognizing a date using "00" as the year 1900 rather than the year 2000. This, in turn, could result in major system failures or miscalculations, and is generally referred to as the "Year 2000 Problem". In the second quarter of fiscal 1999, the Company completed its implementation of a new enterprise-wide management information system that the vendor has represented is Year 2000 compliant. In addition, the Company has completed an assessment of other software used by the Company for Year 2000 compliance and has noted no material instances of non-compliance. On an on-going basis, the Company reviews each of its new hardware and software purchases to ensure that it is Year 2000 compliant. The Company has also conducted a review of its product line and has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. The Company is in the process of gathering information about the Year 2000 compliance status of its significant suppliers and customers. The Company expects to complete this exercise during fiscal 1999. Additionally, the compliance status of the Company's external agents who process vital Company data such as payroll, employee benefits, and banking information have been queried for Year 2000 compliance. To date, the Company is not aware of any such external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. To date the Company has incurred approximately $800,000 ($175,000 expensed and $625,000 capitalized for new systems and equipment) related to all phases of the Year 2000 compliance initiatives. Although the Company does not believe that it will incur any additional material costs or experience material disruptions in its business associated with preparing its internal systems for Year 2000 compliance, there can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems, which are comprised of third party software and third party hardware that contain embedded software. The most reasonably likely worst case scenarios would include (i) corruption of data contained in the Company's internal information systems relating to, among other things, manufacturing and customer orders, shipments, billing and collections, (ii) hardware failure, (iii) the failure of infrastructure services provided by government agencies and other third parties (i.e., electricity, phone service, water transport, payroll, employee benefits, etc.), (iv) warranty and litigation expense associated with third-party software incorporated into the Company's products that is not Year 2000 compliant, and (v) a decline in sales resulting from disruptions in the economy generally due to Year 2000 issues. The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve among other actions, manual workarounds and adjusting staffing strategies. Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private - ----------------------------------------------------------------------------- Securities Litigation Reform Act of 1995 - ------------------------------------------------------------------------------- The Company's future results are difficult to predict and may be affected by a number of important risk factors including, but not limited to, the factors listed in the Company's Annual Report on Form 10K for the fiscal year ended March 29, 1998. The Company wishes to caution readers that those important factors, in some cases, have affected, and in the future could affect, the Company's actual consolidated quarterly or annual operating results and could cause those actual consolidated quarterly or annual operating results to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company. 10 ASECO CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings: None. Item 2. Changes in Securities:Securities and Use of Proceeds: None. Item 3. Defaults upon Senior Securities: None. Item 4. Submissions of Matters to a Vote of Security Holders: On August 11, 1998, the Annual Meeting of Stockholders was held and the following matters were voted upon: 1. Carl S. Archer, Jr. was elected as Director to serve for a three year term. The vote was 3,499,363 in favor, 77,884 withheld. 2. An amendment to the Company's Employee Stock Purchase Plan increasing the maximum number of shares issuable under the plan from 100,000 to 150,000 was approved with 3,406,077 in favor, 152,590 against, and 6,832 abstaining. 3. The Board of Directors' selection of Ernst & Young LLP as the Company's independent auditors for the year ended March 28, 1999 was ratified with 3,546,273 in favor, 28,590 against, and 2,384 abstaining.None. Item 5. Other Information: None. Item 6. Exhibits and reports on Form 8-K: a. Exhibits See exhibit indexNone b. There were no reports on Form 8-K filed for the three months ended SeptemberDecember 27, 1998. 11 ASECO CORPORATION SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OFPursuant 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. SIGNATURE TITLE DATEthe registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Signature Title Date /s/ Sebastian J. Sicari President, Chief Executive November 11, 1998February 10, 1999 - ----------------------- Officer, (principal Sebastian J. Sicari (principal executive officer) /s/ Mary R. Barletta Vice President, Chief November 11, 1998February 10, 1999 - --------------------- Financial Officer, Treasurer Mary R. Barletta (principal financial and accounting officer) 12 Item 6a. Exhibit No. Description ***10.2 1993 Non-Employee Director Stock Option Plan, as amended and restated as of August 11, 1998, filed herewith ***10.23 Separation Agreement, dated August 11, 1998, between Carl S. Archer, Jr. and the Company, filed herewith ***10.24 Severance Agreement, dated July 8, 1998, between Mary R. Barletta and the Company, filed herewith ***10.25 Severance Agreement, dated July 8, 1998, between Robert L. Murray and the Company, filed herewith ***10.26 Severance Agreement, dated July 8, 1998, between Robert E. Sandberg and the Company, filed herewith ***10.27 Severance Agreement, dated July 8, 1998, between Richard S. Sidell and the Company, filed herewith ***10.28 Severance Agreement, dated July 8, 1998, between Phillip J. Villari and the Company, filed herewith ***10.29 Letter agreement, dated August 11, 1998, between Sebastian J. Sicari and the Company, filed herewith *** Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to item 14c. 13