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 June 28, 199827, 1999
Commission file number 0-21294
Aseco 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)
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 June 28, 1998.27, 1999.
Common Stock, $.01 par value 3,731,7183,850,658
(Title of each class) (Number of shares)
-1-1
ASECO CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at June 28, 199827, 1999 and March 29, 199828, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended June 28,
199827, 1999
and June 29, 199728, 1998 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended June 28,
199827, 1999
and June 29, 199728, 1999 5
Notes to Condensed Consolidated Financial Statements 6-76-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-109-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 1114
Item 2. Changes in Securities 11and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 1114
Item 4. Submission of Matters to a Vote of Security Holders 1114
Item 5. Other Information 1114
Item 6. Exhibits and Reports on Form 8-K 11-1214
Signatures 13
-2-15
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 27, March 28,
(in thousands, except share and per share data) 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 379 $ 1,229
Accounts receivable, less allowance
for doubtful accounts of $1,016 at
June 27, 1999 and $1,027 at March 28, 1999 5,355 4,041
Inventories, net 5,531 5,893
Prepaid expenses and other current assets 1,964 1,918
----------------- -----------------
Total current assets 13,229 13,081
Plant and equipment, at cost 7,348 7,341
Less accumulated depreciation and amortization 5,437 5,207
----------------- -----------------
1,911 2,134
Other assets, net 115 109
$15,255 $15,324
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 575 $ 475
Accounts payable 2,545 1,964
Accrued expenses 2,661 2,868
Current portion of capital lease obligations 8 12
----------------- -----------------
Total current liabilities 5,789 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 3,850,658 and 3,832,799 shares
at June 27, 1999 and March 28, 1999, respectively 39 38
Additional paid in capital 18,332 18,321
Accumulated deficit (8,933) (8,382)
Foreign currency translation adjustment 28 28
----------------- -----------------
Total stockholders' equity 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 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 per share, diluted ($ .30) ($ 1.29)
======== ==========
Three months ended
June 27, June 28,
1999 1998
- ------------------------------------------------------------------------------------------
Net sales $ 4,717 $ 6,630
Cost of sales 2,813 4,060
----------------- -----------------
Gross profit 1,904 2,570
Research and development costs 856 1,661
Selling, general and administrative
expense 1,614 2,384
----------------- -----------------
Loss from operations (566) (1,475)
Other income (expense), net 15 13
----------------- -----------------
Loss before income taxes (551) (1,462)
Income tax benefit --- (343)
----------------- -----------------
Net loss ($ 551) ($1,119)
================= =================
Loss per share ($ 0.14) ($ 0.30)
================= =================
Shares used to compute
loss per share 3,841,000 3,732,000
3,667,000
diluted
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
======= =======
Three months ended
------------------------------------------------
June 27, June 28,
1999 1998
- --------------------------------------------------------------------------------------------------------------
Operating activities:
Net loss $ (551) $(1,119)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 254 508
Loss on sale of plant and equipment -- 5
Changes in assets and liabilities:
Accounts receivable (1,314) 1,848
Inventories, net 362 (1,318)
Prepaid expenses and other current assets (46) (304)
Accounts payable and accrued expenses 374 (2,586)
-------------------- ---------------------
Total adjustments (370) (1,847)
-------------------- ---------------------
Cash used in operating activities (921) (2,966)
Investing activities:
Proceeds from sale of plant and equipment -- 7
Acquisition of plant and equipment (7) (218)
Increase in software development costs and
other assets (30) (86)
-------------------- ---------------------
Cash used in investing activities (37) (297)
Financing activities:
Net proceeds from issuance of common stock 12 --
Borrowings on line of credit 100 300
Payments of long-term capital lease obligations (4) (14)
-------------------- ---------------------
Cash provided by financing activities 108 286
-------------------- ---------------------
Effect of exchange rate changes on cash -- (3)
Net decrease in cash and cash equivalents (850) (2,980)
Cash and cash equivalents at the beginning of period 1,229 4,431
-------------------- ---------------------
Cash and cash equivalents at the end of period $ 379 $ 1,451
==================== =====================
See notes to condensed consolidated financial statements
-5-5
ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 28, 199827, 1999
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-monththree month period ended June 28, 199827, 1999 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 which includes the dilutive effect
of options, warrants and convertible securities. 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 first quarter of 1998
and 1997,fiscal 2000, total
comprehensive loss amounted to $1,130,000 and $4,752,000
respectively.$551,000 versus comprehensive loss of $1,080,000
for the first quarter of fiscal 1999. The difference between total comprehensive loss
and net 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:-
June 27, March 28,
(in thousands) June 28, 1998 March 29, 19981999 1999
------------- -----------
Raw Material $ 5,521 $ 5,612$1,713 $1,966
Work in Process 5,661 4,7123,255 3,441
Finished Goods 1,736 1,551
------ ------
$ 12,918 $ 11,875
======== ========
-6-
563 486
------------- -----------
$5,531 $5,893
============= ===========
5. On May 23, 1997,Restructuring and Other Charges -- In the second quarter of fiscal 1999,
the Company acquired 100%announced a plan to consolidate its UK wafer handling and inspection
operations. This plan included the closure of the outstanding stockCompany's UK facility and
related transfer of Western Equipment Developments (Holdings) Ltd. ("WED")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 approximately
$6,100,000inventory write-downs related to product discontinuation and a
$1.3 million restructuring charge. The principal components of the restructuring
charge include
6
$627,000 for a write-down of fixed and other long-term assets no longer used by
the operation, $241,000 for severance related charges, $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, fixed assets
were disposed of and 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 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
acquisitioncapital equipment market, a more gradual
recovery than was accountedpreviously 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 purchaseresult of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and accordingly,administrative expense including $544,000 related to the resultswrite-down
of operationsvarious 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 acquired businessCompany'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 been includeda 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 consolidated financial statements commencing May 23, 1997. Theposition 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 initial allocationcash 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 purchase price atprincipal portion of an outstanding loan.
The Company agreed to forgive interest accrued on the date of acquisition resulted in
an estimate of acquired in-process research and development of $4,900,000loan through July 6, 1999.
8. Taxes -- No tax benefit was recorded in the first quarter of fiscal 1998. During fiscal 1998,2000
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 determined that certain acquired technology wasdoes not as developed as
originally expected, and certain in-process technology would requiredeem more time
to developlikely 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 ended
June 29, 1997
Net sales $9,894
Net loss (7,329)
Loss per share $(2.00)
-7-not.
8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three monthsMonths ended June 27, 1999
Results of Operations-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 latter part of fiscal 1998. None of these
actions had a financial impact in the first quarter of fiscal 1999. However, in
the second quarter of fiscal 1999, the Company recorded a special charge of $2.2
million including a $850,000 charge to cost of sales for inventory write-downs
related to product discontinuation and a $1.3 million restructuring charge. The
principal components of the restructuring charge included $627,000 for a write-
down of fixed and other long-term assets no longer used by the operation,
$241,000 for severance related charges, $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, fixed assets were disposed
of and 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.
Quarter Ended June 27, 1999 Compared to Quarter Ended June 28, 1998
RESULTS OF OPERATIONS-------------------------------------------------------------------
Net sales for the first quarter of fiscal 19992000 decreased 25%29% to $6.6$4.7 million
compared to $8.9from $6.6 million for the first quarter of fiscal 1998.1999. The decrease in net
sales resulted from fewer unit shipments duringthe 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 19992000 compared to the first quarter of fiscal 1998 as a result of an industry
wide market downturn.
International sales represented approximately 32%35% of net sales in the same quarter last
year as shipments to the Pacific Rim region declined.
9
Gross profit for the first quarter of fiscal 1999 versus 35%2000 was $1.9 million, or 40% of
net sales, compared to $2.6 million, or 39% of net sales, in the first quarter
of fiscal 1998. Approximately 83%1999. Gross profit in both quarters was significantly influenced by a
product shipment mix including a larger component of all internationalthe Company's lower gross
margin products and manufacturing excess capacity because of lower production
levels. Despite the lower net sales were to customers
locatedlevels in the Pacific Rim region.
Gross margin for the first quarter of fiscal 1999 was 39%2000,
the gross profit percentage increased 1% as a result of the Company's reduced
manufacturing cost structure compared to 46%the same quarter last year.
Research and development costs decreased 48% to $856,000 in the first quarter
of fiscal 2000 from $1.7 million in the same quarter last year. The decline resulted from a higher mixdecrease in
spending was primarily the result of lower
margin product salesworkforce reductions implemented during
fiscal 1999. Development spending in the first quarter of 1999 comparedfiscal 2000 was
focused on various enhancements and features for the Company's test handlers and
a new test handler platform.
Selling, general and administrative expenses decreased 32% to the same
quarter last year and excess manufacturing capacity resulting from lower
sales and production levels.
Research and development expenses increased 22% to $1.7$1.6 million in
the first quarter of fiscal 19992000 from $1.4$2.4 million in the first quarter of
fiscal 1998.
Research and development expenses also increased as a percentage of sales to 25%
in the first quarter of fiscal 1999 from 15% in the first quarter of fiscal 1998
due to increased research and development spending and the decline in net
sales. The increase in research and development spending resulted from the
inclusion of a complete quarter of WED expenses in the first quarter fiscal
1999 results and from the Company's expenditures associated with the continued
development of its newest test handler product.
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).
Selling, general and administrative expenses for the first quarter of fiscal
1999 were $2.4 million versus $2.5 million for the first quarter of fiscal 1998.1999. The decrease in selling, general and administrative expenses was primarily thea
result of lower commissions earnedreductions in headcount during fiscal 1999 and strict controls over
discretionary spending.
As a result of the quarter due toabove, the lower sales
level and to a higher percentageCompany generated an operating loss of sales originating from the Company's direct
sales force which earn lower commission rates than independent sales
representatives, along with the savings realized from$566,000
for the first quarter workforce reduction. These and other expense controls were partially offset
by the inclusion of a full quarterfiscal 2000 compared to an operating loss of WED's operating results$1.5
million in the first quarter of fiscal 1999.
Operating lossOther 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
1999 was $1.5 million versus an2000 because no benefits from operating loss of $4.7 million in the first quarter of fiscal 1998.
The operating loss in the first quarter of fiscal 1999 was the result of the
decline in sales and lower gross margins attributablecarryback provisions were available
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-
Company. The Company recorded a valuation allowance for deferred tax
benefitassets, principally representing net operating loss carryforwards and other
deferred tax assets the realization of $343,000 inwhich the first quarter of fiscal
1999 versus income tax expense of $219,000 in the first 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, netCompany does not deem more
likely than not.
Net loss for the first quarter of fiscal 19992000 was $551,000, or $.14 per
share, compared to net loss of $1.1 million, or $.30 per diluted share, as compared to net loss
of $4.7 million, or $1.29 per diluted share, for the first quarter of fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter of fiscal 1999 with a cash position of
approximately $1.5 million. Additionally, the Company had an unsecured line of
credit with a bank in the amount of $5.0 million against which there were
borrowings at the end of the first quarter of fiscal 1999 of approximately
$300,000. During the quarter, the Company elected to utilize its working
capital line of credit to cover its short-term cash needs rather than
liquidate its investment holdings.
The Company's line of credit is conditioned upon meeting certain financial
covenants, including maintaining specified 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.
The Company used approximately $3.0 million of cash from operations during the first
quarter of fiscal 1999.
Accounts receivable decreased approximately
$1.9 million inLiquidity and Capital Resources
-------------------------------
The Company historically has funded its operations primarily through cash
flows from operations, bank borrowings and the first quarterprivate and public sale of fiscalequity
securities. At June 27, 1999, because of a decrease in net
sales from the fourth quarter of fiscal 1998. Inventory increased
approximately $1 million during 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 reschedulinghad borrowings, net of purchase commitments. Accounts
payablecash on hand of
$196,000 and accrued expenses decreasedworking capital of approximately $2.6 million as a result of
timing of payments and lower sales volume experienced during the quarter.$7.4 million.
The Company used $297,000approximately $921,000 in cash for investingoperating activities
during 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 able to manage
10
material receipts and ship product from finished inventory. Accounts payable and
accrued expenses increased approximately $374,000 during the first quarter as a
result of the increase in business volume and the lengthening of the payment
cycle for certain vendors.
The Company spent $218,000 on capital equipment
purchases and $86,000used approximately $30,000 to fund internal software development
costs.
The Company generated cash from financing activities in the first quarter of
fiscal 1999 of $286,000, primarilycosts while capital expenditures were $7,000 as a result of a Company-wide
freeze on capital spending.
The Company has a revolving line of credit with a 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 utilizing it
working capitalof 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.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 expectsand will be subject to continuecertain financial covenants including
specified levels of net worth, and debt to experiencenet worth ratios and limitations on
capital expenditures. The replacement line of credit will accrue interest at a
slowdownrate of prime plus 1.5%. The bank may alter or terminate its commitment with
respect to the replacement line of credit if 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 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. YEARHowever, 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".
-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. BasedThe 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 foregoing,process of gathering information about the Year 2000
compliance status of its significant suppliers and customers. 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 had
no means of ensuring that external agents will becomebe Year 2000 compliant without
materiallyready.
To date the Company has incurred approximately $870,000 ($207,000 expensed
and adversely affecting$663,000 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 is 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 failures, (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.
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.
-10-13
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:
NoneNone.
Item 4. Submissions of Matters to a Vote of Security Holders:
NoneNone.
Item 5. Other Information:
NoneNone.
Item 6. Exhibits and reports on Form 8-K:
a. See Exhibit IndexExhibits - None
b. There were no reports on Form 8-K filed for the three months ended
June 28, 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)
-12-27, 1999.
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 and Chief Executive August 12,1998
- ----------------------- Officer (principal executive Sebastian J. Sicari President, Chief Executive Officer August 11, 1999
- ----------------------- (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 August 12,1998
- ----------------------- Financial Officer,
Mary R. Barletta Treasurer (principal financial
and accounting officer)
13
2
15