SECURITIES AND EXCHANGE COMMISSION
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 Decemberquarter ended June 27, 19981999
Commission file number 0-21294
ASECO CORPORATIONAseco Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2816806
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) Identification No.)
500 Donald 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 ------ ------_____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of DecemberJune 27, 1998.1999.
Common Stock, $.01 par value 3,779,3133,850,658
(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 December 27, 1998 and March 29, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months and nine months ended December 27, 1998
and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended December 27, 1998 and
December 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 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at June 27, 1999 and March 28, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended June 27, 1999
and June 28, 1998 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended June 27, 1999
and June 28, 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
15
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
DecemberJune 27, March 29,28,
(in thousands, except share and per share data) 1998 19981999 1999
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,126379 $ 4,4311,229
Accounts receivable, less allowance
for doubtful accounts of $754$1,016 at
DecemberJune 27, 19981999 and $781$1,027 at March 29, 1998 3,991 9,14028, 1999 5,355 4,041
Inventories, net 11,279 11,8755,531 5,893
Prepaid expenses and other current assets 3,012 2,761
--------- --------1,964 1,918
----------------- -----------------
Total current assets 19,408 28,20713,229 13,081
Plant and equipment, at cost 8,520 8,7967,348 7,341
Less accumulated depreciation and amortization 5,349 4,755
--------- --------
3,171 4,0415,437 5,207
----------------- -----------------
1,911 2,134
Other assets, net 772 1,443
$23,351 $33,691
========= ========115 109
$15,255 $15,324
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Borrowings on lineLine of credit $ 372575 $ --475
Accounts payable 1,876 4,5912,545 1,964
Accrued expenses 3,100 4,8862,661 2,868
Current portion of capital lease obligations 9 13
--------- --------8 12
----------------- -----------------
Total current liabilities 5,357 9,490
Deferred taxes payable 594 594
Long-term capital lease obligations 8 255,789 5,319
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 3,779,3133,850,658 and 3,731,7183,832,799 shares
at DecemberJune 27, 19981999 and March 29,
1998,28, 1999, respectively 3839 38
Additional paid in capital 18,253 18,203
Retained earnings (963) 5,29118,332 18,321
Accumulated deficit (8,933) (8,382)
Foreign currency translation adjustment 64 50
--------- --------28 28
----------------- -----------------
Total stockholders' equity 17,392 23,582
$23,351 $33,691
========= ========9,466 10,005
----------------- -----------------
$15,255 $15,324
================= =================
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
Nine months ended
DecemberJune 27, DecemberJune 28,
December 27, December 28,1999 1998
1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 4,2884,717 $ 13,551 $ 15,313 $ 33,9746,630
Cost of sales 2,745 7,438 10,447 18,511
---------- ---------- ---------- ----------2,813 4,060
----------------- -----------------
Gross profit 1,543 6,113 4,866 15,4631,904 2,570
Research and development costs 1,103 1,945 3,980 4,866856 1,661
Selling, general and administrative
expense 1,951 3,288 6,488 8,746
Restructuring charge -- -- 1,300 --
Acquired in-process research
and development -- -- -- 4,900
---------- ---------- ---------- ----------
Income (loss)1,614 2,384
----------------- -----------------
Loss from operations (1,511) 880 (6,902) (3,049)(566) (1,475)
Other income (expense):
Interest income 37 42 95 295
Interest expense (70) (64) (129) (103)
Other,, net (18) (33) (7) (44)
---------- ---------- ---------- ----------
(51) (55) (41) 148
Income (loss)15 13
----------------- -----------------
Loss before income taxes (1,562) 825 (6,943) (2,901)(551) (1,462)
Income tax (benefit) expense -- 337 (689) 933
---------- ---------- ---------- ----------benefit --- (343)
----------------- -----------------
Net income (loss) $ (1,562) $ 488 $ (6,254) $ (3,834)
========== ========== ========== ==========
Earnings (loss)loss ($ 551) ($1,119)
================= =================
Loss per share basic ($ 0.41) $0.130.14) ($ 1.67) ($ 1.04)0.30)
================= =================
Shares used to compute
earnings (loss)loss per share basic 3,779,000 3,714,000 3,749,000 3,688,000
Earnings (loss) per share,
diluted $ (0.41) $ 0.13 $ (1.67) $ (1.04)
Shares used to compute
earnings (loss) per share,
diluted 3,779,000 3,876,000 3,749,000 3,688,0003,841,000 3,732,000
See notes to condensed consolidated financial statements
4
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
NineThree months ended
------------------------------
December------------------------------------------------
June 27, DecemberJune 28,
1999 1998
1997
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net (loss) $(6,254)loss $ (3,834)(551) $(1,119)
Adjustments to reconcile net (loss)loss to net
cash used in operating activities:
Depreciation and amortization 1,427 1,003
Acquired in-process research and development -- 4,900254 508
Loss on sale of plant and equipment 5 -- Restructuring charge 1,300 --
Inventory write-off 850 --5
Changes in assets and liabilities:
Accounts receivable 5,112 (1,639)(1,314) 1,848
Inventories, net (629) (3,309)362 (1,318)
Prepaid expenses and other current assets (50) (865)(46) (304)
Accounts payable and accrued expenses (4,964) (815)
Income taxes payable -- 227
------- --------374 (2,586)
-------------------- ---------------------
Total adjustments 3,051 (498)
------- --------(370) (1,847)
-------------------- ---------------------
Cash used in operating activities (3,203) (4,332)(921) (2,966)
Investing activities:
Acquisitions net of cash acquired -- (6,079)
Proceeds from sale of plant and equipment 39 -- 7
Acquisition of plant and equipment (360) (1,296)(7) (218)
Increase in software development costs and
other assets (186) (295)
------- --------(30) (86)
-------------------- ---------------------
Cash used in investing activities (507) (7,670)(37) (297)
Financing activities:
Net proceeds from issuance of common stock 50 33712 --
Borrowings on line of credit 372 (225)100 300
Payments of long-term capital lease obligations (21) (11)
------- --------(4) (14)
-------------------- ---------------------
Cash provided by financing activities 401 101
------- --------108 286
-------------------- ---------------------
Effect of exchange rate changes on cash 4 4-- (3)
Net decrease in cash and cash equivalents (3,305) (11,897)(850) (2,980)
Cash and cash equivalents at the beginning of period 1,229 4,431
14,082
------- ---------------------------- ---------------------
Cash and cash equivalents at the end of period $ 1,126379 $ 2,185
======= ========1,451
==================== =====================
See notes to condensed consolidated financial statements
5
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINETHREE MONTHS ENDED DECEMBERJUNE 27, 19981999
1. Basis of Presentation -- 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 nine month periodsperiod ended DecemberJune 27, 19981999 are not necessarily indicative of the
results that may be expected for the year ended March 28, 1999.26, 2000. 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, 1998.28, 1999.
2. In 1997, the Financial Accounting Standards Board issuedComprehensive Income -- 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" Reporting Comprehensive Income" which establishes standards for(SFAS 130) requires the reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements.components. 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 thirdfirst quarter of fiscal 19992000, total
comprehensive loss amounted to $1,573,000$551,000 versus comprehensive incomeloss of $516,000$1,080,000
for the thirdfirst quarter of fiscal 1998. Comprehensive loss for the first nine months of fiscal
1999 was $6,242,000 versus comprehensive loss for the first nine months of
fiscal 1998 of $3,786,000.1999. The difference between comprehensive income/loss
and net income/loss as reported on the Consolidated Statements of Operations for the
period ended June 27, 1998 is attributable to the foreign currency translation
adjustment.
3. New Accounting Pronouncements -- The Company has not yet adopted Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) which is required to be adopted in fiscal
2002, as amended by Financial Accounting Standards No. 137. Adoption of this
standard is not expected to have a material impact on the Company's financial
position or results of operations.
4. Inventories consisted of:
(in thousands)
December 27, March 29,
1998 1998
---- ----
Raw Material $ 6,869 $ 5,612
Work in Process 3,484 4,712
Finished Goods 926 1,551
------- -------
$11,279 $11,875
======= =======
6
-
June 27, March 28,
(in thousands) 1999 1999
------------- -----------
Raw Material $1,713 $1,966
Work in Process 3,255 3,441
Finished Goods 563 486
------------- -----------
$5,531 $5,893
============= ===========
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, manufacturesRestructuring 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 March 31, 1997, including
the aggregate acquired in-process research and development charge of $6,100,000
as if expensed on that date:
Nine months ended
-----------------
December 28,
1997
-----------------
Net sales $35,002
Net loss (6,423)
Earnings (loss) per share $ (1.76)
6.Other Charges -- In the second quarter of fiscal 1999,
the Company announced a plan to consolidate its UK wafer handling and inspection
manufacturing operations. This plan includesincluded the closure of the Company's UK facility and
related transfer of manufacturing and other 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. 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 discontinuationsdiscontinuation and a
$1.3 million restructuring charge in the second quarter of fiscal 1999.charge. The principal components of the restructuring
charge include
6
$627,000 for a write-down of fixed and other long
termlong-term assets no longer used by
the operation, $241,000 for severance related charges, $188,000$325,000 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. Fixedcomplete, fixed assets
written down
were disposed of and a significant component of severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally of excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
6. Credit Facility -- On June 22, 1999 the Company entered into a loan
modification agreement (the "Credit Agreement") which extends the expiration
date of its revolving line of credit with a bank to November 1, 1999 (the "Line
of Credit"). Borrowings under the Line of Credit were $475,000 and $575,000 at
March 28, 1999 and June 27, 1999, respectively. Terms of the Credit Agreement
specify that as of June 22, 1999, maximum availability under the Line of Credit
was equal to the lesser of (i) $1.3 million or (ii) 80% of qualified accounts
receivable (the "Borrowing Base"). Such maximum availability decreases to the
lesser of (i) $350,000 or (ii) the Borrowing Base after the earlier of August
31, 1999 or receipt by the Company of a refund of federal taxes paid by the
Company in respect of fiscal 1998, which refund the Company expects will be
approximately $1.3 million. At June 27, 1999, the Borrowing Base was $1.3
million. The Credit Line is secured by all assets of the Company. The Credit
Agreement establishing the Credit Line prohibits the payment of dividends
without the bank's consent and requires the maintenance of specified debt to net
worth and current ratios. The Credit Agreement also requires that the Company
not incur quarterly net losses of more than a specified amount. As of June 27,
1999, the Company was in compliance with its bank covenants.
The Company is currently refinancing its bank debt and has received a
commitment from another lender to provide a replacement credit line to the
Company. The replacement line of credit which will have a two year term will
allow for maximum availability of $3.0 million based on a percentage of qualifed
accounts receivable and inventory. The line will be secured by all the assets of
the Company and will be subject to certain financial covenants including
specified levels of net worth, and debt to net worth ratios and limitations on
capital expenditures. The replacement line of credit will accrue interest at a
rate of prime plus 1.5%. The lender may alter or terminate its commitment with
respect to the replacement line of credit if there is any material adverse
change in the Company's financial position or otherwise. However, to the extent
that these is a shortfall of funds under the commitment, management has the
ability and intent to adjust the Company's cash flows to be able to meet
operational needs at least through the end of fiscal 2000
7
7. Repayment of Loan -- On July 6, 1999, an executive officer repaid $140,000
to the Company in settlement of the principal portion of an outstanding loan.
The Company agreed to forgive interest accrued on the loan through July 6, 1999.
8. Taxes -- No tax benefit was recorded in the first quarter of fiscal 2000
because no benefit from operating loss carryback provisions was available to the
Company. The Company recorded a valuation allowance for deferred tax assets,
principally representing net operating loss carryforwards and other deferred tax
assets the realization of which the Company does not deem more likely than not.
8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three and nine monthsMonths ended DecemberJune 27, 1998 and December 28, 19971999
Results of Operations
- ---------------------
Net salesOperations-Overview
------------------------------
During fiscal 1999, the Company undertook several actions to address the
impact on the Company of the industry-wide drop in demand for semiconductor
capital equipment that started in the thirdlatter part of fiscal 1998. None of these
actions had a financial impact in the first quarter of fiscal 1999 decreased 68% to $4.3 million
compared to $13.6 million for the third quarter of fiscal 1998. Net sales for
the first nine months of fiscal 1999 decreased 55% to $15.3 million compared to
$34.0 million for the first nine months of fiscal 1998. The decrease1999. However, in net
sales resulted from fewer unit shipments in fiscal 1999 compared to fiscal 1998
as a result of an industry wide market downturn.
International sales represented approximately 44% of net sales for the third
quarter of fiscal 1999 versus 47% in the third quarter of fiscal 1998. On a
year to date basis, export sales represented 43% of net sales compared to 39% in
the same period last year. Year to date approximately 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. (See Note 6 to the Condensed Consolidated Financial Statements
included herein). In conjunction with this plan, the Company recorded a special charge of $2.2
million special charge including a $850,000 charge to cost of sales for inventory write-downs
related to product discontinuationsdiscontinuation and a $1.3 million restructuring charge. The
principal components of the restructuring charge includeincluded $627,000 for write-downa write-
down of fixed and other long termlong-term assets no longer used by the operation,
$241,000 for severance related charges, $188,000$325,000 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. Fixedcomplete, fixed assets were disposed
of and a
significant component of severance related costs were paid.
Gross margin forIn the thirdfourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was 36%previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally of excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
Quarter Ended June 27, 1999 Compared to Quarter Ended June 28, 1998
-------------------------------------------------------------------
Net sales for the first quarter of fiscal 2000 decreased 29% to $4.7 million
from $6.6 million for the first quarter of fiscal 1999. The decrease in net
sales resulted from the industry-wide drop in demand for semiconductors and
semiconductor capital equipment.
International sales represented approximately 19% of net sales in the first
quarter of fiscal 2000 compared to 45%35% of net sales in the same quarter last
year.year as shipments to the Pacific Rim region declined.
9
Gross marginprofit for the first nine monthsquarter of fiscal 19992000 was 32%$1.9 million, or 40% of
net sales, compared to 46%$2.6 million, or 39% of net sales, in the same period last year. The thirdfirst quarter
of fiscal 1999 decline1999. Gross profit in gross margin resulted from higher than normal discounts offered
during the quarter to ensure timing of orders and convert inventory to cash in
the quarter,both quarters was significantly influenced by a
product shipment mix including a larger component of the Company's lower gross
margin products and to a lesser extent, manufacturing excess capacity resulting frombecause of lower production
levels. In additionDespite the lower net sales levels in the first quarter of fiscal 2000,
the gross profit percentage increased 1% as a result of the Company's reduced
manufacturing cost structure compared to the above
factors, the declinesame quarter last year.
Research and development costs decreased 48% to $856,000 in gross margin for the first nine monthsquarter
of fiscal 1999
compared to fiscal 19982000 from $1.7 million in the same quarter last year. The decrease in
spending was alsoprimarily the result of the $850,000 special charge to
cost of sales recorded in the second quarter ofworkforce reductions implemented during
fiscal 1999 (See Note 6 of
Condensed Consolidated Financial Statements).
Research and development expenses decreased 43% to $1.1 million in the third
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 26% in
the third quarter of fiscal 1999 from 14% in the third quarter of fiscal 1998
due to the decline in net sales. Research and development expenses decreased
18% to $4.0 million for the first nine months of fiscal 1999 from $4.9 million
for the first nine months of fiscal 1998. The decrease in research and
development spending in the comparable periods was principally a result of
reduced headcount.1999. Development spending in the thirdfirst quarter of fiscal 19992000 was
focused on various enhancements and features for the Company's test handlers and
a new test handler products.
During the nine 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
platform.
Selling, general and administrative expenses fordecreased 32% to $1.6 million in
the thirdfirst quarter of fiscal 1999 were $2.02000 from $2.4 million versus $3.3 million forin the thirdfirst quarter of
fiscal 1998.
Selling, general and administrative expenses for the first nine months of fiscal
1999 were $6.5 million versus $8.7 million for the first nine months of fiscal
1998.1999. The decrease in selling, general and administrative expenses was primarily
thea
result of workforce reductions a Company wide freeze on discretionary
spending and the spending reductions realized from the consolidation of the
Company's UK wafer handling and inspection business.
Operating loss in the third quarter ofheadcount during fiscal 1999 was $1.5 million versus
operating income of $880,000 in the third quarter of fiscal 1998. Operating
loss for the first nine months of fiscal 1999 was $6.9 million versus operating
loss of $3.0 million in the first nine months of fiscal 1998. The year to date
operating loss of $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.
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 $689,000 in
fiscal 1999 versus income tax expense of $933,000 in fiscal 1998.strict controls over
discretionary spending.
As a result of the foregoing, netabove, the Company generated an operating loss of $566,000
for the thirdfirst quarter of fiscal 1999 was
$1.6 million, or $0.41 per diluted share, as2000 compared to net incomean operating loss of $488,000,
or $0.13 per diluted share, for$1.5
million in the thirdfirst quarter of fiscal 1998.1999.
Other income (expense), net consists primarily of interest income earned on
cash and cash equivalents and interest expense paid on the Company's outstanding
line of credit balance.
The Company recorded no income tax benefit in the first quarter of fiscal
2000 because no benefits from operating loss carryback provisions were available
to the Company. The Company recorded a valuation allowance for deferred tax
assets, principally representing net operating loss carryforwards and other
deferred tax assets the realization of which the Company does not deem more
likely than not.
Net loss for the first nine monthsquarter of fiscal 19992000 was $6.3 million,$551,000, or $1.67$.14 per
diluted
share, as compared to net loss of $3.8$1.1 million, or $1.04$.30 per share, forin the first
nine monthsquarter of fiscal 1998.1999.
Liquidity and Capital Resources
-
-------------------------------
The Company historically has funded its operations primarily through cash
flowflows from operations, bank borrowings and the private and public sale of equity
securities. At DecemberJune 27, 1998,1999, the Company had borrowings, net of cash and cash equivalentson hand of
approximately $1.1 million$196,000 and working capital of approximately $14.0$7.4 million.
The Company used approximately $3.2 million of$921,000 in cash from operationsfor operating activities
during the
first nine months of fiscal 1999. Accounts receivable decreased generating cash
of approximately $5.0 million in the first nine months of fiscal 1999. The
overall lower level of accounts receivable at the end of the third quarter of
fiscal 1999 is due to the decrease in sales volume during the nine month period.
For the first nine months of fiscal 1999, the Company used approximately
$629,000 for material purchases which occurred principally in the first quarter of fiscal 19992000. The primary working capital factors
affecting cash from operations were accounts receivable, inventory and accounts
payable and accrued expenses. Accounts receivable increased approximately $1.3
million as a result of a sequential quarterly increase in net sales, for which
the majority of equipment was shipped in the last two weeks of the quarter.
Inventory decreased approximately $362,000 during the first quarter of fiscal
2000 as the Company was not able to reduce its build plan early enough
in the first quarter to facilitate timely cancellation of orders.manage
10
material receipts and ship product from finished inventory. Accounts payable and
accrued expenses decreasedincreased approximately $5.0 million$374,000 during the first quarter as a
result of lowerthe increase in business volume.volume and the lengthening of the payment
cycle for certain vendors.
The Company used approximately $507,000 in cash for investing activities during
the first nine months fiscal 1999. The Company spent approximately $360,000 on
capital equipment purchases and $186,000$30,000 to fund internal software development
costs.
The Company generated cash from financing activities in the first nine months of
fiscal 1999 of $401,000, primarilycosts while capital expenditures were $7,000 as a result of borrowings under the workinga Company-wide
freeze on capital line of credit.spending.
The Company has a $5 million revolving line of credit line with thea bank which expires November
1, 1999 (the "Line of Credit"). Borrowings under the Line of Credit were
$575,000 at June 27, 1999. As of June 27, 1999, maximum availability under the
Line of Credit was equal to the lesser of (i) $1.3 million or (ii) 80% of
qualified accounts receivable (the "Borrowing Base"). Such maximum availability
decreases to the lesser of (i) $350,000 or (ii) the Borrowing Base after the
earlier of August 31, 1999 or receipt by the Company of a refund of federal
taxes paid by the Company in September 1999.respect of fiscal 1998, which refund the Company
expects will be approximately $1.3 million. At DecemberJune 27, 1998, borrowings under such credit line were
$372,000 and an additional $1.6 million1999, the Borrowing Base
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.$1.3 million. The revolving credit lineCredit Line is secured by all assets of the Company. The
credit agreement establishing this line of creditthe Credit Line prohibits the payment of dividends
without the bank's consent and requires the maintenance of specified debt to net
worth and current ratios andratios. The credit agreement also requires that the Company
not incur quarterly net income
levels.losses of more than a specified amount. As of February 10,June 27,
1999, the Company was in compliance with its bank covenants.
The Company is currently refinancing its bank debt and has received a
commitment from another lender to provide a replacement credit line to the
Company. The replacement line of credit which will have a two year term will
allow for maximum availability of $3.0 million based on a percentage of qualifed
accounts receivable and inventory. The line will be secured by all the assets of
the Company and will be subject to certain financial covenants including
specified levels of net worth, and debt to net worth ratios and limitations on
capital expenditures. The replacement line of credit will accrue interest at a
rate of prime plus 1.5%. The bank may alter or terminate its commitment with
respect to the replacement line of credit agreement.
The Company expects to continue to experience a slowdownif there is any material adverse
change in the volumeCompany's financial position or otherwise. However, to the extent
that there is a shortfall of business duefunds under the commitment, management has the
ability and intent to adverse marketadjust the Company's cash flows to be able to meet
operational needs at least through the end of fiscal 2000.
Although the Company is cautiously optimistic that it will benefit from
improving conditions in the semiconductor industry.market generally, improvement in the
Company's results of operation may be tempered by technological changes in
semiconductor packaging designs impacting the demand for the Company's current
products. 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. 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.
The Company has been notified by The Nasdaq-Amex Group that the Company is
currently not in compliance with the Nasdaq National Market listing requirement
that the market value of the Company's common stock held by the public be
greater than $5,000,000. If the Company is unable to satisfy this requirement
for a specified number of consecutive days prior to September 16, 1999, its
common stock will be delisted at the opening of business on September 20, 1999.
Although in that event the Company
11
could apply to list its shares with the Nasdaq SmallCap Market, its delisting
from the Nasdaq National Market could adversely affect the liquidity of the
Company's stock. In addition, delisting from the Nasdaq National Market might
negatively impact the Company's reputation and, as a consequence, its business.
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. This
conclusion is based partly on third party representations that product
components, such as personal computers, will be year 2000 compliant. The Company
had no means of ensuring that such suppliers' components will 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 hashad
no means of ensuring that external agents will be Year 2000 ready.
To date the Company has incurred approximately $800,000$870,000 ($175,000207,000 expensed
and $625,000$663,000 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 areis 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,failures, (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.
12
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
- -------------------------------------------------------------------------------
This Report on Form 10-Q contains forward-looking statements relating to
future events or the future financial performance of the Company. 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, 1998.28, 1999.
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.
1013
ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities and Use of Proceeds:
None.
Item 3. Defaults upon Senior Securities:
None.
Item 4. Submissions of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and reports on Form 8-K:
a. Exhibits - None
b. There were no reports on Form 8-K filed for the three months ended
DecemberJune 27, 1998.
111999.
14
ASECO CORPORATION
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.
Signature Title Date
/s/ Sebastian J. Sicari President, Chief Executive February 10,
Signature Title Date
/s/ Sebastian J. Sicari President, Chief Executive Officer August 11, 1999
- ----------------------- Officer,
Sebastian J. Sicari (principal executive officer)
Sebastian J. Sicari
/s/ Mary R. Barletta Vice President, Chief Financial Officer, August 11, 1999
- ----------------------- Treasurer (principal financial and accounting
Mary R. Barletta officer)
/s/ Mary R. Barletta Vice President, Chief February 10, 1999
- --------------------- Financial Officer, Treasurer
Mary R. Barletta (principal financial and
accounting officer)
12
15