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 endedQuarter Ended December 28, 199727, 1998
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 December 28, 1997.27, 1998.
Common Stock, $.01 par value 3,714,4193,779,313
(Title of each class) (Number of shares )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 28, 1997 and March 30, 1997 3
Condensed Consolidated Statements of Operations
(unaudited)for the three and nine months ended
December 28, 1997 and December 29, 1996 4
Condensed Consolidated Statements of Cash Flows
(unaudited)for the nine months ended December 28, 1997
and December 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
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 12
Signatures
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(InDecember 27, March 29,
(in thousands, except share and per share data) 1998 1998
- ------------------------------------------------------------------------------
December 28, March 30,
1997 1997
ASSETS
Current assetsAssets
Cash and cash equivalents $ 2,1851,126 $ 14,0824,431
Accounts receivable, less allowance
for doubtful accounts of $918,000$754 at
December 28, 199727, 1998 and $407,000$781 at
March 30, 1997 14,059 9,15329, 1998 3,991 9,140
Inventories, net 12,847 9,23811,279 11,875
Prepaid expenses and other current
assets 1,768 1,414
------ ------3,012 2,761
--------- --------
Total current assets 30,859 33,88719,408 28,207
Plant and equipment, at cost 8,225 5,1798,520 8,796
Less accumulated depreciation and
amortization 4,527 2,952
------ ------
3,698 2,2275,349 4,755
--------- --------
3,171 4,041
Other assets, net 3,408 526
------- -------
$ 37,965 $ 36,640
======= =======
772 1,443
$23,351 $33,691
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
LineBorrowings on line of credit $ 250 $--372 $ --
Accounts payable 4,682 2,0911,876 4,591
Accrued expenses 4,317 2,608
Income taxes payable 436 3213,100 4,886
Current portion of capital lease
obligations 9 13
13
------- --------------- --------
Total current liabilities 9,698 5,0335,357 9,490
Deferred taxes payable 465 465594 594
Long-term capital lease obligations 28 298 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 3,714,4193,779,313 and 3,664,5193,731,718
shares at December 28, 199727, 1998 and March 30, 1997,29,
1998, respectively 37 3738 38
Additional paid in capital 18,089 17,64218,253 18,203
Retained earnings 9,600 13,434(963) 5,291
Foreign currency translation adjustment 48 --
------ ------64 50
--------- --------
Total stockholders' equity 27,774 31,113
------ ------
$ 37,965 $ 36,640
======= =======17,392 23,582
$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 Nine months ended
December 28, December 29,27, December 28, December 29,27, December 28,
1998 1997 19961998 1997
1996- ---------------------------------------------------------------------------------------------------
Net sales $ 4,288 $ 13,551 $ 6,72215,313 $ 33,974 $ 26,712
Cost of sales 2,745 7,438 3,59510,447 18,511
14,013
-------- -------- -------- ------------------ ---------- ---------- ----------
Gross profit 1,543 6,113 3,1274,866 15,463 12,699
Research and development costs 1,103 1,945 1,2873,980 4,866 3,798
Selling, general and
administrative expense 1,951 3,288 1,7136,488 8,746
6,381Restructuring charge -- -- 1,300 --
Acquired in-process research
and development --- ----- -- -- 4,900
---
------- ------- ------- ----------------- ---------- ---------- ----------
Income (loss) from
operations (1,511) 880 127(6,902) (3,049) 2,520
Other income (expense):
Interest income 37 42 16695 295 489
Interest expense (70) (64) (1)(129) (103)
(5)
Other, expense, net (18) (33) --(7) (44)
--
------- ------- ------- ----------------- ---------- ---------- ----------
(51) (55) 165(41) 148 484
------- ------- ------- -------
Income (loss) before income
taxes (1,562) 825 292(6,943) (2,901) 3,004
Income tax (benefit) expense -- 337 58(689) 933
959
------- ------- ------- ----------------- ---------- ---------- ----------
Net income (loss) $ (1,562) $ 488 $ 234(6,254) $ (3,834)
$ 2,045
======= ======= ======= ================= ========== ========== ==========
Earnings (loss) per share,
basic $.13 $.06 $(1.04) $.56($ 0.41) $0.13 ($ 1.67) ($ 1.04)
Shares used to compute
earnings (loss) per share,
basic 3,779,000 3,714,000 3,645,0003,749,000 3,688,000 3,632,000
Earnings (loss) per share,
diluted $.13 $.06 $(1.04) $.55$ (0.41) $ 0.13 $ (1.67) $ (1.04)
Shares used in
computingto compute
earnings (loss) per share,
diluted 3,779,000 3,876,000 3,711,0003,749,000 3,688,000 3,708,000
See notes to condensed consolidated financial statements
4
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
(in thousands)
Nine months ended
------------------------------
December 27, December 28,
December 29,1998 1997
1996- -------------------------------------------------------------------------------------
Operating activities:
Net income (loss) $(6,254) $ (3,834) $ 2,045
Adjustments to reconcile net income (loss) to net
cash provided by (used in)used in operating activities:
Depreciation and amortization 1,427 1,003 679
Deferred income taxes -- (162)
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 5,112 (1,639) 3,872
Inventories, net (629) (3,309) (1,940)
Prepaid expenses and other current assets (50) (865) (400)
Accounts payable and accrued expenses (4,964) (815) (3,097)
Income taxes payable -- 227
(137)
------- ---------------
Total adjustments 3,051 (498)
(1,185)
------- ---------------
Cash provided by (used in)used in operating activities (3,203) (4,332) 860
Investing activities:
Acquisitions net of cash acquired -- (6,079)
Proceeds from sale of plant and equipment 39 --
Acquisition of plant and equipment (360) (1,296) (638)
Increase in software development costs and
other assets (186) (295)
(207)
------- ---------------
Cash used in investing activities (507) (7,670) (845)
Financing activities:
Net proceeds from issuance of common stock 50 337
157
Net decrease in borrowingsBorrowings on working
capital linesline of credit 372 (225) --
Payments of long-term capital lease obligations (21) (11)
(10)
------- ---------------
Cash provided by financing activities 401 101
147
------- -------
Net increase(decrease) in cash and
cash equivalents (11,901) 162--------
Effect of exchange rate changes on cash 4 --4
Net decrease in cash and cash equivalents (3,305) (11,897)
Cash and cash equivalents at the beginning of period 4,431 14,082
14,083
------- ---------------
Cash and cash equivalents at the end of period $ 2,1851,126 $ 14,2452,185
======= ========
See notes to condensed consolidated financial statements
5
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 28, 199727, 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 nine month
periods ended December 28, 199727, 1998 are not necessarily indicative of the results
that may be expected for the year ended March 29, 1998.28, 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 30, 1997.29, 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 third quarter of fiscal 1999 total comprehensive loss
amounted to $1,573,000 versus comprehensive income of $516,000 for the third
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. The difference between comprehensive income/loss and
net income/loss as reported on the shares
usedConsolidated Statements of Operations is
attributable to compute basic and diluted earnings (loss) per share is comprised
wholly of the effect of employee stock options.
3.foreign currency translation adjustment.
4. Inventories consisted of:
(in thousands)
December 28, 199727, March 30, 199729,
1998 1998
---- ----
Raw Material $ 6,6216,869 $ 4,9965,612
Work in Process 3,886 1,6123,484 4,712
Finished Goods 2,340 2,630926 1,551
------- -------
$ 12,847 $ 9,238
======== ========$11,279 $11,875
======= =======
6
4.5. On May 23, 1997, the Company acquired 100% of the outstanding stock of
Western Equipment Developments (Holdings) Ltd. ("WED"), located in Plymouth,
England, for approximately
$6,000,000$6,100,000 in cash. WED designs, manufactures and markets integrated circuit
wafer handling robot and inspection systems used to load, sort, transport and
transportinspect wafers during the inspection stage of 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. In connection with the acquisition, the Company allocated a portionThe Company's initial allocation of the
purchase price toat 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 a
one-timean additional in-process research and development charge
to operations of approximately $4.9 million.$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 atas of March 31, 1997, including
the beginningaggregate acquired in-process research and development charge of each of the periods
presented:$6,100,000
as if expensed on that date:
Nine months ended
-----------------
December 28,
1997
December 29, 1996-----------------
Net sales $ 35,002 $ 30,596$35,002
Net loss (5,223) (3,647)
Loss(6,423)
Earnings (loss) per share $ (1.43) $ (1.01)(1.76)
5.6. In July 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 "Reporting Comprehensive Income" which is requiredsecond quarter of fiscal 1999, the Company announced a plan to
be
adoptedconsolidate 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. 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 in the firstsecond quarter of fiscal 1999. The adoptionprincipal components of this standard is
not expectedthe
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 havethe 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 material impact on the Company's financial position or
resultssignificant component of operations.
6. In July 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 131 "Disclosure About Segments of an Enterprise and Related
Information" which is required to be adopted in the first quarter of fiscal
1999. The adoption of this standard is not expected to have a material impact
on the Company's financial position or results of operations.severance related
costs were paid.
7
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three and nine months ended December 27, 1998 and December 28, 1997
Results of Operations
- ---------------------
Net sales for the third quarter of fiscal 1998 increased 102%1999 decreased 68% to $4.3 million
compared to $13.6 million versus $6.7 million for the samethird quarter last year.of fiscal 1998. Net sales for
the first nine months of fiscal 1998 increased 27%1999 decreased 55% to $34.0$15.3 million compared to
$26.7$34.0 million for the first nine months of fiscal 1997.1998. The increasedecrease in third
quarter net
sales resulted primarily from an increase infewer unit shipments during
the third quarter ofin fiscal 1999 compared to fiscal 1998
compared to the third quarteras a result of fiscal 1997.an industry wide market downturn.
International sales represented approximately 34%44% of net sales for the third
quarter of fiscal 19981999 versus 41%47% in the third quarter of fiscal 1997.
Approximately 88%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 regionregion.
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 largest proportionCompany recorded a $2.2
million special charge including a $850,000 charge to cost of these sales shippedfor
inventory write-downs related to Taiwan.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 infor the third quarter of fiscal 19981999 was 45%36% compared to 47%45% in the
same quarter last year. Gross margin for the first nine months of fiscal 19981999
was 46%32% compared to 48%46% in the same period last year. The third quarter fiscal
1999 decline in gross margin resulted from increased shipmentshigher than normal discounts offered
during the quarter to ensure timing of newerorders and convert inventory to cash in
the quarter, a product models which
generally haveshipment mix including a larger component of the
Company's lower gross margin percentagesproducts and, to a lesser extent, volume
discounts associated with several large quantity orders shipped duringmanufacturing
excess capacity resulting from lower production levels. In addition to the above
factors, the decline in gross margin for the first nine months of fiscal 1999
compared to fiscal 1998 was also the result of the $850,000 special charge to
cost of sales recorded in the second quarter of 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 51%as a percentage of sales to 26% in
the third quarter of fiscal 1998 to $1.9 million1999 from $1.3 million in the third quarter of fiscal 1997.
Research and development expenses decreased as a percentage of sales to 14% in the third quarter of fiscal 1998
compared with 19%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. Development spending in the third quarter of fiscal 1997. Research1999 was
focused on various enhancements and development expenses increased 28%features for the Company's test handler
products.
During the nine month period ended December 28, 1998, the Company recorded a
special charge to earnings of $4.9 million in the first nine months of fiscal 1998 from $3.8 million in the first nine
months of fiscal 1997. The increase infor acquired in-process research and
development in fiscal
1998 was primarilyrelated to the resultinitial allocation of increased spending on the developmentpurchase price of the
Company's newest test handler model,acquisition of Western Equipment Developments Holdings ("WED") (See
Note 5 to the VT8000.Condensed Consolidated Financial Statements included herein).
8
Selling, general and administrative expenses for the third quarter of fiscal
19981999 were $2.0 million versus $3.3 million or 24% of sales, versus $1.7 million, or 26% of sales,
infor the third quarter of fiscal 1997.1998.
Selling, general and administrative expenses for the first nine months of fiscal
19981999 were $6.5 million versus $8.7 million or 26% of
sales, versus $6.4 million, or 24% of sales for the first nine months of fiscal
1997.1998. The increasedecrease in selling, general and administrative expenses was due toprimarily
the inclusionresult of workforce reductions, a Company wide freeze on discretionary
spending and the expenses of WED in third quarter fiscal 1998
results, costs associated withspending reductions realized from the establishment of a new sales and service
office in Singapore, increased spending on trade shows and marketing related
to the introductionconsolidation of the
Company's newest test handlerUK wafer handling and WED's new high
speed wafer sorter, and an increase in coverage for potential exposure in
accounts receivable on shipments to Far East countries with higher than
tolerable financial risk.inspection business.
Operating incomeloss in the third quarter of fiscal 19981999 was $880,000$1.5 million versus
operating income of $127,000$880,000 in the third quarter of fiscal 1997.1998. Operating
loss infor the first nine months of fiscal 19981999 was $3.0$6.9 million versus operating
incomeloss of $2.5$3.0 million in the first nine months of fiscal 1997.1998. The year to date
operating loss of $3.0$6.9 million is attributablethe result of both the $2.2 million special
charge recorded during the second quarter (See Note 6 to the one-time charge to
earnings of $4.9 million recorded in the first quarter of fiscal 1998 relating
to the acquired in-process research and development associated with the
acquisition of WED (See Note 4 to theCompany's Condensed
Consolidated Financial Statements included herein).
and the decline in sales.
The effectiveCompany recorded no tax rate forprovision in the third quarter of fiscal 1998 was 41% versus 20%
for the same quarter last year.1999 as no
additional benefits from operating loss carrybacks were available. The increase was due to the Company's
inability to offset losses incurred by WED againstCompany
recorded income earned by the
Companytax expense of $337,000 in the United States and to the fact that the third quarter of fiscal 1997 tax rate reflected1998.
On a lower than usual tax provision,year to date basis, the intended effect
of which was to bring the year-to-date fiscal 1997 rate in line with the
projected annual rate of 31%. The Company recorded aincome tax provisionbenefit of $689,000 in
fiscal 1999 versus income tax expense of $933,000 for the first nine months ofin fiscal 1998 on a pretax loss of $2.9
million. The tax provision was recorded as a result of the combination of the
first quarter one-time write-off of in-process research and development which
is not deductible for tax purposes and operating losses of WED for which no
tax benefit was recorded.1998.
As a result of the foregoing, net incomeloss for the third quarter of fiscal 19981999 was
$488,000,$1.6 million, or $.13$0.41 per diluted share, as compared to net income of $234,000,$488,000,
or $.06$0.13 per diluted share, for the third quarter of fiscal 1997.1998. Net loss for
the first nine months of fiscal 19981999 was $3.8$6.3 million, or $1.04$1.67 per diluted
share, as compared to net incomeloss of $2.0$3.8 million, or $.55$1.04 per share, for the
first nine months of fiscal 19971998.
Liquidity and Capital Resources
- -------------------------------
The Company endedhistorically has funded its operations primarily through cash flow
from operations, bank borrowings and the third quarterprivate and public sale of fiscalequity
securities. At December 27, 1998, with athe Company had cash positionand cash equivalents of
approximately $2.2$1.1 million and working capital of approximately $14.0 million. The Company has an unsecured line of credit with
a bank in the amount of $5.0 million against which there were borrowings of
$250,000 at the end of the third quarter of fiscal 1998.
The Company used approximately $4.3$3.2 million of cash from operations during the
first nine months of fiscal 1998.1999. Accounts receivable increaseddecreased generating cash
of approximately $4.9$5.0 million duringin the first nine months of fiscal 1998 as a
result1999. The
overall lower level of bothaccounts receivable at the increaseend of the third quarter of
fiscal 1999 is due to the decrease in sales andvolume during the inclusion of WED's accounts
receivable balance as a result of the acquisition. Inventory increased
approximately $3.6 million duringnine month period.
For the first nine months of fiscal 19981999, the Company used approximately
$629,000 for material purchases which occurred principally in the first quarter
of fiscal 1999 as the result of the Company purchasing inventory for the production ofwas not able to reduce its build plan early enough
in the first unitsquarter to facilitate timely cancellation of its newly introduced test handler and high speed wafer sorter coupled
with the inclusion of WED's inventory as a result of the acquisition.orders. Accounts
payable and accrued expenses increaseddecreased approximately $4.3$5.0 million as a result of
both increases in material receipts and the inclusion of WED's
current liabilities in the fiscal 1998 balance sheet.lower business volume.
The Company used approximately $7.7 million$507,000 in cash for investing activities during
the first nine months of fiscal 1998, most of which was used to fund
the Company's acquisition of WED. Additionally, the1999. The Company spent approximately $1.3 million$360,000 on
capital equipment purchases and $295,000$186,000 to fund internal software development
costs.
The Company generated cash from financing activities in the first nine months of
fiscal 19981999 of approximately $101,000,$401,000, primarily as thea result of proceeds
from issuancesborrowings under the working
capital line of common stock.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. 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, 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 30, 1997.29, 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:
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
December 28, 199727, 1998.
11
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/ Carl S. Archer, Jr. President and Chief Executive February 11, 1998
- ------------------------ Officer (principal executive
Carl S. Archer, Jr. officer)
/s/ Sebastian J. Sicari Vice President, Finance and February 11, 1998
- ------------------------ Administration, Chief Financial Sebastian J. Sicari President, Chief Executive February 10, 1999
- ----------------------- Officer,
Sebastian J. Sicari (principal executive officer)
/s/ Mary R. Barletta Vice President, Chief February 10, 1999
- --------------------- Financial Officer, Treasurer (principal
financial officer)
/s/ Mary R. Barletta Vice President, Corporate February 11, 1998
- ----------------------- Controller
Mary R. Barletta (principal financial and
accounting officer)
12