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 June 28,September 27, 1998
Commission file number 0-21294
--------------------------------------------
Aseco Corporation
(Exact name of registrant as specified in its charter)
DelawareDELAWARE 04-2816806
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
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 NoNO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 28,September 27, 1998.
Common Stock,COMMON STOCK, $.01 par value 3,731,718PAR VALUE 3,774,313
(Title of each class) (Number of shares)
-1-
ASECO CORPORATION
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at September 27, 1998 and March 29, 1998 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months and six months
ended September 27, 1998 and September 28, 1997 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended
September 27, 1998 and September 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 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
2
PART I. FINANCIAL INFORMATION
ItemITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
at June 28,
SEPTEMBER 27, MARCH 29,
(in thousands, except share and per share data) 1998 1998
- ------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 5,207 $ 4,431
Accounts receivable, less allowance
for doubtful accounts of $770 at
September 27, 1998 and $781 at March 29, 1998 5,376 9,140
Inventories, net 11,969 11,875
Prepaid expenses and other current assets 3,123 2,761
-------- ---------
Total current assets 25,675 28,207
Plant and equipment, at cost 8,628 8,796
Less accumulated depreciation and amortization 5,350 4,755
-------- ---------
3,278 4,041
Other assets, net 795 1,443
-------- ---------
$ 29,748 $ 33,691
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Borrowings on line of credit $ 4,390 $ --
Accounts payable 2,118 4,591
Accrued expenses 3,658 4,886
Current portion of capital lease obligations 12 13
-------- ---------
Total current liabilities 10,178 9,490
Deferred taxes payable 594 594
Long-term capital lease obligations 9 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 3,774,313 and 3,731,718
shares at September 27, 1998 and March 29, 1998,
respectively 38 38
Additional paid in capital 18,253 18,203
Retained earnings 601 5,291
Foreign currency translation adjustment 75 50
-------- ---------
Total stockholders' equity 18,967 23,582
-------- ---------
$ 29,748 $ 33,691
======== =========
See notes to condensed consolidated financial statements
3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended June 28,
1998 and June 29, 1997 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended June 28,
1998 and June 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11-12
Signatures 13
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ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per Three months ended
share data)
June 28, 1998 June 29,1997
Net sales $ 6,630 $ 8,865
Cost of sales 4,060 4,820
------ ------
Gross profit 2,570 4,045
Research and development costs 1,661 1,356
Selling, general and administrative expenses 2,384 2,473
Acquired in-process research and development
costs -- 4,900
------ ------
Loss from operations (1,475) (4,684)
Other income (expense):
Interest income 27 169
Interest expense (5) (6)
Other, net (9) --
------ ------
13 163
------ ------
Loss before income taxes (1,462) (4,521)
Income tax (benefit) expense (343) 219
------ ------
Net loss $ (1,119) $ (4,740)
======== =========
Loss
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
Net sales $ 4,395 $ 11,557 $ 11,025 $ 20,422
Cost of sales 3,641 6,253 7,701 11,073
---------- ---------- ----------- -----------
Gross profit 754 5,304 3,324 9,349
Research and development costs 1,217 1,565 2,876 2,921
Selling, general and
administrative expense 2,151 2,985 4,537 5,458
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)
Other income (expense):
Interest income 31 84 58 253
Interest expense (54) (33) (59) (39)
Other, net 20 (11) 11 (11)
---------- ---------- ----------- -----------
(3) 40 10 203
Income (loss) before income
taxes (3,917) 794 (5,379) (3,727)
Income tax (benefit) expense (347) 376 (689) 595
---------- ---------- ----------- -----------
Net income (loss) $ (3,570) $ 418 $ (4,690) $ (4,322)
========== ========== =========== ===========
Earnings (loss) per share,
basic $ (0.96) $0.11 $ (1.26) $ (1.18)
Shares used to compute
earnings (loss) per share,
basic 3,735,000 3,685,000 3,734,000 3,676,000
Earnings (loss) per share, diluted ($ .30) ($ 1.29)
======== ==========
Shares used to compute loss per share, 3,732,000 3,667,000
diluted $ (0.96) $0.11 $ (1.26) $ (1.18)
Shares used to compute
earnings (loss) per share,
diluted 3,735,000 3,979,000 3,734,000 3,676,000
See notes to condensed consolidated financial statements
-4-4
ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
(in thousands)
June 28, June 29,
1998 1997
Operating activities:
Net loss $ (1,119) $ (4,740)
Adjustments to reconcile net loss to net
cash provided by/used in operating activities:
Depreciation and amortization 508 269
Acquired in-process research and development -- 4,900
Loss on sale of plant and equipment 5 --
Changes in assets and liabilities:
Accounts receivable 1,848 64
Inventories, net (1,318) (1,990)
Prepaid expenses and other current assets (304) (327)
Accounts payable and accrued expenses (2,586) 2,255
------- ------
Total adjustments (1,847) 5,171
------ ------
Cash provided by/used in operating
activities (2,966) 431
Investing activities:
Acquisitions net of cash acquired -- (6,079)
Proceeds from sale of plant and equipment 7 ---
Acquisition of plant and equipment (218) (457)
Increase in software development costs and
other assets (86) (50)
------ ------
Cash used in investing activities (297) (6,586)
Financing activities:
Net proceeds from issuance of common stock -- 3
Borrowings/(payments) on working capital line
of credit 300 (395)
Payments of long-term capital lease obligations (14) (4)
------ ------
Cash provided by/used in financing
activities 286 (396)
Effect of exchange rate changes on cash (3) 1
------ ------
Net decrease in cash and cash equivalents (2,980) (6,550)
Cash and cash equivalents at the beginning of period 4,431 14,082
------ ------
Cash and cash equivalents at the end of period $ 1,451 $ 7,532
SIX MONTHS ENDED
--------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
- -------------------------------------------------------------------------------------------------
Operating activities:
Net (loss) $(4,690) $(4,322)
Adjustments to reconcile net (loss) to net
Cash used by operating activities:
Depreciation and amortization 1,009 621
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)
Inventories, net (978) (3,868)
Prepaid expenses and other current assets 66 (236)
Accounts payable and accrued expenses (3,988) 2,671
Income taxes payable -- 235
------- -------
Total adjustments 1,510 1,776
------- -------
Cash used in operating activities (3,180) (2,546)
Investing activities:
Acquisitions net of cash acquired -- (6,079)
Proceeds from sale of plant and equipment 7 --
Acquisition of plant and equipment (342) (913)
Increase in software development costs and
other assets (136) (392)
------- -------
Cash used in investing activities (471) (7,384)
Financing activities:
Net proceeds from issuance of common stock 50 307
Borrowings on line of credit 4,390 1,875
Payments of long-term capital lease obligations (16) (7)
------- -------
Cash provided by financing activities 4,424 2,175
------- -------
Effect of exchange rate changes on cash 3 (3)
Net increase/decrease in cash and cash equivalents 776 (7,758)
Cash and cash equivalents at the beginning of period 4,431 14,082
------- -------
Cash and cash equivalents at the end of period $ 5,207 $ 6,324
======= =======
See notes to condensed consolidated financial statements
-5-5
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREESIX MONTHS ENDED JUNE 28,SEPTEMBER 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-month periodthree and six month periods ended
June 28,September 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 which includes the dilutive effect
of options, warrants and convertible securities.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-purposegeneral-
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 firstsecond quarter of 1998
and 1997,Fiscal 1999 total comprehensive loss
amounted to $1,130,000 and $4,752,000
respectively.$3,534,000 versus comprehensive income of $426,000 for the second
quarter of fiscal 1998. Comprehensive loss for the first six months of fiscal
1999 was $4,665,000 versus comprehensive loss for the first six months of fiscal
1998 of $4,302,000. The difference between total 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) June 28, 1998 March 29, 1998
Raw Material $ 5,521 $ 5,612
Work in Process 5,661 4,712
Finished Goods 1,736 1,551
------ ------
$ 12,918 $ 11,875
======== ========
-6-(IN THOUSANDS)
SEPTEMBER 27, MARCH 29,
1998 1998
------------- --------
Raw Material $ 6,354 $ 5,612
Work in Process 4,766 4,712
Finished Goods 849 1,551
------- -------
$11,969 $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, 1997, including
the aggregate acquired in-process research and development charge of $6,100,000
as if expensed on that date:
(in thousands, except per share data) Quarter
Six months ended
----------------
SEPTEMBER 28,
1997
----------------
Net sales $21,451
Net loss (6,911)
Earnings (loss) per share $ (1.89)
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-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.
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three and six months ended June 29, 1997
Net sales $9,894
Net loss (7,329)
Loss per share $(2.00)
-7-
Item 2.
Management's Discussion and Analysis of Financial Condition andSeptember 27, 1998
Results of Operations
Three months ended June 28, 1998
RESULTS OF OPERATIONS- ---------------------
Net sales for the second quarter of fiscal 1999 decreased 62% to $4.4 million
compared to $11.6 million for the second quarter of fiscal 1998. Net sales for
the first quartersix months of fiscal 1999 decreased 25%46% to $6.6$11 million compared to $8.9$20
million for the first quartersix months of fiscal 1998. The decrease in net sales
resulted from fewer unit shipments during the first quarter of fiscal
1999 compared to the firstsecond quarter of fiscal 1998
as a result of an industry wide market downturn.
International sales represented approximately 32%51% of net sales for the firstsecond
quarter of fiscal 1999 versus 35%50% in the firstsecond quarter of fiscal 1998. Approximately 83%On a
year to date basis, export sales represented 42% of net sales compared to 43% in
the same period last year. Year to date approximately 85% 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.
Gross margin for the firstsecond quarter of fiscal 1999 was 39%17% compared to 46% in
the same quarter last year. Gross margin for the first six months of fiscal
1999 was 30% compared to 46% in the same period last year. The second quarter
fiscal 1999 decline in gross margin resulted from the $850,000 charge for
discontinued products described above, manufacturing excess capacity resulting
from lower production levels and, to a lesser extent, the higher mix of lower
margin product sales during the firstsecond quarter of 1999 compared to the same
quarter last year and excess manufacturing capacity resulting from lower
sales and production levels.1999.
Research and development expenses increaseddecreased 22% to $1.7$1.2 million in the firstsecond
quarter of fiscal 1999 from $1.4$1.6 million in the firstsecond quarter of fiscal 1998.
Research and development expenses also increased as a percentage of sales to 25%28% in
the firstsecond quarter of fiscal 1999 from 15%14% in the firstsecond quarter of fiscal 1998
due to increased research and development spending and the decline in net sales. The increase in researchResearch and development expenses for the
first six months of fiscal 1999 and fiscal 1998 were approximately $2.9 million.
The decrease in spending resulted fromin the inclusioncomparable quarterly periods was principally a
result of a completedecreased headcount. Development spending in the second quarter of
WED expenses in the first quarter fiscal 1999 resultswas focused on various enhancements and fromfeatures for the VT8000, the
Company's expenditures associated with the continued
development of its newest test handler product.handler.
During the first quarter of fiscal 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 second quarter of fiscal
1999 were $2.2 million versus $3.0 million for the second quarter of fiscal
1998. Selling, general and administrative expenses for the first quartersix months of
fiscal 1999 were $2.4$4.5 million versus $2.5$5.5 million for the first quartersix months of
fiscal 1998. The decrease in selling, general and administrative expenses was
primarily the result of lower commissions earned during the quarter due to the lower sales level and to a higher percentage of sales originating from the Company's direct
sales force which earn lower commission rates than independent sales
representatives,volume along
with the savings realized from the first quarter
workforce reduction. Thesereductions and other expense controls were partially offset
by the inclusion of a full quarter of WED's operating resultsCompany wide freeze on
discretionary spending.
Operating loss in the firstsecond quarter of fiscal 1999.1999 was $3.9 million versus
operating income of $754,000 in the second quarter of fiscal 1998. Operating
loss in the first quartersix months of fiscal 1999 was $1.5$5.4 million versus an operating
loss of $4.7$3.9 million in the first quartersix months of fiscal 1998. The year to date
operating loss in the first quarter of fiscal 1999 was$5.4 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.
The operating loss of $4.7 million in the first quarter of fiscal
1998 was the result of a special charge to earnings of $4.9 million relating
to the acquired in-process research and development associated with the initial
allocation of the purchase price of the acquisition of WED.
-8-
The Company recorded a tax benefit of $343,000$347,000 in the firstsecond quarter of fiscal
1999 versus income tax expense of $219,000$376,000 in the firstsecond 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 previous years in the United States.
As a result of the foregoing, net loss for the firstsecond quarter of fiscal 1999 was
$1.1$3.6 million, or $.30$0.96 per diluted share, as compared to net lossincome of $4.7 million,$418,000,
or $1.29$0.11 per diluted share, for the firstsecond quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
- -------------------------------
The Company ended the firstsecond quarter of fiscal 1999 with a cash position of
approximately $5.2 million compared to $1.5 million. Additionally,million at the Company had an unsecuredend of the prior
quarter. Borrowings under the Company's bank line of credit with a bank inat the amountend of $5.0the
second quarter of fiscal 1999 amounted to $4.4 million against which there were
borrowingsversus $300,000 at the
end of the first quarter of fiscal 1999 of approximately
$300,000.1999. During the second quarter, the
Company electedCompany's bank committed to utilize its working
capitalan interim extension of the term of the Company's $5
million line of credit to cover its short-termNovember 15, 1998. As of November 11, 1998, the
Company's cash needs rather than
liquidate its investment holdings.
Theposition was approximately $2.6 million and total availability
under the Company's bank line of credit was $1.9 million, all of which was
borrowed and outstanding. The Company is conditioned upon meetingcurrently 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 maintainingmaintenance of
specified debt to net worth, current ratios, and minimum levels of quarterly and annual
earnings, tangible net worth and
restrictions on dividend payments. As of
June 30, 1998, the Company was not in compliance with certain covenants and
consequently has requested a waiver.profitability.
The Company used approximately $3.0$3.2 million of cash from operations during the
first quartersix months of fiscal 1999. Accounts receivable decreased generating cash
of approximately $1.9$3.2 million in the first quartersix months of fiscal 1999 because of
a decrease in net
sales fromvolume. For the fourth quarterfirst six months of fiscal 1998. Inventory increased1999, the
Company used approximately $1$1.0 million duringfor 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 the timely
reschedulingcancellation of purchase commitments.orders. Accounts payable and accrued expensesexpense decreased
approximately $2.6$4.0 million as a result of timing of payments and lower salesbusiness volume experienced
during the quarter.
The Company used $297,000approximately $471,000 in cash for investing activities during
the first quartersix months of fiscal 19991999. The Company spent $218,000approximately $342,000 on
capital equipment purchases and $86,000$136,000 to fund internal software development
costs.
The Company generated cash from financing activities in the first quartersix months of
fiscal 1999 of $286,000,$4.4 million, primarily as a result of borrowings under the Company utilizing it
working capital line of credit.
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 available borrowing capacity and if necessary additional financing, will be
sufficient to meet the Company's cash requirements for at least the next twelve
months.
YEAR9
Year 2000 COMPLIANCECompliance
- --------------------
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".
-9-
TheIn the second quarter of fiscal 1999, the Company is in the processcompleted its implementation
of implementing a new enterprise-wide management information system that the vendor has
represented is Year 2000 compliant. In addition, the Company has completed an
initial assessment of other software used by the Company for Year 2000 compliance. Thecompliance and
has noted no material instances of non-compliance. On an on-going basis, the
Company also reviews each of its new hardware and software purchases to ensure that
they areit is Year 2000 compliant. Based onThe Company has also conducted a review of its
product line and has determined that most of the foregoing,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 believes that the computer systems used
by it areis not aware of any such
external agent with a Year 2000 compliantissue 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 becomebe Year 2000 compliant without
materiallyready.
To date the Company has incurred approximately $800,000 ($175,000 expensed and
adversely affecting$625,000 capitalized for new systems and equipment) related to all phases of the
Company's financial positionYear 2000 compliance initiatives.
Although the Company does not believe that it will incur any additional material
costs or results of operations. However,experience material disruptions in its business associated with
preparing its internal systems for Year 2000 compliance, there can be no
assuranceassurances that the Company will not be materiallyexperience 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 adversely affected bythird 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 its significant
vendors or customers to successfullyinfrastructure services
provided by government agencies and timely achieveother 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 compliance
with respectcompliant, and (v) a decline in
sales resulting from disruptions in the economy generally due to their own computer systems.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OFYear 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.
-10-10
ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities:
None.
Item 3. Defaults upon Senior Securities:
NoneNone.
Item 4. Submissions of Matters to a Vote of Security Holders:
NoneOn 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.
Item 5. Other Information:
NoneNone.
Item 6. Exhibits and reports on Form 8-K:
a. Exhibits See Exhibit Indexexhibit index
b. There were no reports on Form 8-K filed for the three months ended
June 28,September 27, 1998.
-11-
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
10.2 1993 Non-Employee Director Stock Option Plan (as amended
and restated as of May 12, 1998)
10.3 1993 Employee Stock Purchase Plan (as amended and restated
as of June 18, 1998)
-12-11
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, and Chief Executive August 12,1998November 11, 1998
- ----------------------- Officer, (principal
executive
Sebastian J. Sicari executive officer)
/s/ Mary R. Barletta Vice President, Chief August 12,1998November 11, 1998
- -------------------------------------------- Financial Officer, Treasurer
Mary R. Barletta Treasurer (principal financial and
accounting officer)
1312
2
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