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, 1998
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.
Common Stock, $.01 par value 3,731,718
(Title of each class) (Number of shares)
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ASECO CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at June 28, 1998 and March 29, 1998 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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<PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
June 28, 1998 March 29, 1998
ASSETS
Current assets
Cash and cash equivalents $ 1,451 $ 4,431
Accounts receivable, less allowance for
doubtful accounts of $777 at June 28, 1998
and $781 at March 29, 1998 7,255 9,140
Inventories, net 12,918 11,875
Prepaid expenses and other current assets 3,198 2,761
------ ------
Total current assets 24,822 28,207
Plant and equipment, at cost 8,612 8,796
Less accumulated depreciation and amortization 4,564 4,755
------ ------
4,048 4,041
Other assets, net 1,328 1,443
------ ------
$ 30,198 $ 33,691
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 300 $ --
Accounts payable 3,055 4,591
Accrued expenses 3,773 4,886
Current portion of capital lease obligations 13 13
------ ------
Total current liabilities 7,141 9,490
Deferred taxes payable 594 594
Long-term capital lease obligations 11 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 3,731,718 shares at
June 28,1998 and March 29, 1998, respectively 38 38
Additional paid in capital 18,203 18,203
Retained earnings 4,172 5,291
Foreign currency translation adjustment 39 50
------ ------
Total stockholders' equity 22,452 23,582
------ ------
$ 30,198 $ 33,691
======== ========
See notes to condensed consolidated financial statements
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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 per share, diluted ($ .30) ($ 1.29)
======== ==========
Shares used to compute loss per share, 3,732,000 3,667,000
diluted
See notes to condensed consolidated financial statements
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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
======= =======
See notes to condensed consolidated financial statements
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ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 28, 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 period ended June 28, 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. 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 first quarter of 1998
and 1997, total comprehensive loss amounted to $1,130,000 and $4,752,000
respectively. The difference between total comprehensive loss and net 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
======== ========
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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 ended
June 29, 1997
Net sales $9,894
Net loss (7,329)
Loss per share $(2.00)
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Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three months ended June 28, 1998
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1999 decreased 25% to $6.6 million
compared to $8.9 million for the first quarter of fiscal 1998. The decrease in
net sales resulted from fewer unit shipments during the first quarter of fiscal
1999 compared to the first quarter of fiscal 1998 as a result of an industry
wide market downturn.
International sales represented approximately 32% of net
sales for the first quarter of fiscal 1999 versus 35% in the first quarter of
fiscal 1998. Approximately 83% of all international sales were to customers
located in the Pacific Rim region.
Gross margin for the first quarter of fiscal 1999 was 39% compared to 46% in
the same quarter last year. The decline resulted from a higher mix of lower
margin product sales during the first quarter of 1999 compared 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 million in the first
quarter of fiscal 1999 from $1.4 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.
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, along with the savings realized from the first quarter
workforce reduction. These and other expense controls were partially offset
by the inclusion of a full quarter of WED's operating results in the first
quarter of fiscal 1999.
Operating loss in the first quarter of fiscal 1999 was $1.5 million versus an
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 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.
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The Company recorded a tax benefit of $343,000 in 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, net loss for the first quarter of
fiscal 1999 was $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 in the first quarter of fiscal 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 rescheduling of purchase commitments. Accounts
payable and accrued expenses decreased approximately $2.6 million as a result of
timing of payments and lower sales volume experienced during the quarter.
The Company used $297,000 in cash for investing activities during the first
quarter of fiscal 1999 The Company spent $218,000 on capital equipment
purchases and $86,000 to fund internal software development costs.
The Company generated cash from financing activities in the first quarter of
fiscal 1999 of $286,000, primarily as a result of 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, 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.
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-
The Company is in the process 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. The Company also reviews each of its
new hardware and software purchases to ensure that they are Year 2000 compliant.
Based on the foregoing, the Company believes that the computer systems used
by it are Year 2000 compliant or will become Year 2000 compliant without
materially and adversely affecting the Company's financial position or
results of operations. However, there can be no assurance that the Company will
not be materially and adversely affected by the failure of its significant
vendors or customers to successfully and timely achieve Year 2000 compliance
with respect to their own computer systems.
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.
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ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities:
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. See Exhibit Index
b. There were no reports on Form 8-K filed for the three months
ended June 28, 1998.
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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)
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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 officer)
/s/ Mary R. Barletta Vice President, Chief August 12,1998
- ----------------------- Financial Officer,
Mary R. Barletta Treasurer (principal financial
and accounting officer)
13
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