-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OO42YM/K/jhtca/Tj9W82cW47+eOS2a/oJyvy8vmtqmoTvLTPPq516piTBoLj3wv OoZ/ttT6DbIXQCrHXJEjjQ== 0000927016-99-004043.txt : 19991231 0000927016-99-004043.hdr.sgml : 19991231 ACCESSION NUMBER: 0000927016-99-004043 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990328 FILED AS OF DATE: 19991230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASECO CORP CENTRAL INDEX KEY: 0000896645 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042816806 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-21294 FILM NUMBER: 99783674 BUSINESS ADDRESS: STREET 1: 500 DONALD LYNCH BLVD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084818896 MAIL ADDRESS: STREET 1: 500 DONALD LYNCH BOULEVARD CITY: MARLBORO STATE: MA ZIP: 01752 10-K405/A 1 FORM 10-K/A FOR YEAR ENDED MARCH 28, 1999 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- FORM 10-K/A ---------------- [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for fiscal year ended March 28, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) Registrant's telephone number, including area code 508-481-8896 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01 par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X . The aggregate market value of voting stock held by non-affiliates of the registrant was $3,850,658 as of May 28, 1999. 3,850,658 (Number of shares of common stock outstanding as of May 28, 1999) Documents Incorporated by Reference Part III incorporates by reference certain information from the Registrant's proxy statement for the annual meeting of stockholders to be held on August 11, 1999. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Overview Aseco designs, manufactures and markets test handlers used to automate the testing of integrated circuits in surface mount packages. Aseco provides high quality, versatile test handlers designed to maximize the productivity of the significantly more costly testers with which they operate. Aseco also designs, manufactures and markets integrated circuit wafer handling and inspection systems. These systems are used to load, sort and transport wafers during both manual and automatic inspection as well as other wafer processing steps in the semiconductor manufacturing process. Industry Background The manufacture of integrated circuits (IC's) takes place in ultra-clean fabrication plants. Flat circular discs of silicon ("wafers"), of extremely high perfection and purity, are taken through a variety of processes-- principally micro-patterning, where small structures are etched into the surface, and physical and chemical processes, where material is deposited or implanted into the structures. Between these major processing steps the wafers must be transported cleanly and safely and inspected and assessed for quality and cleanliness. Automated wafer handling and inspection equipment facilitates the safe transport, handling and defect detection and assessment of wafers between process steps preventing damage, contamination and breakage which often results from manual intervention. Following the manufacturing process, IC devices are tested by semiconductor manufacturers for quality and electrical performance before shipment to end users. In addition, volume purchasers of IC devices often test IC devices during incoming inspection. Test handlers facilitate the fast, automated and cost-effective testing of IC devices. The automated test process requires two major pieces of equipment: a tester and a test handler. Testers are specialized, computer-controlled electronic systems that perform the electrical test of IC devices, including memory, logic, linear, microprocessor and Application Specific Integrated Circuit (ASIC) devices. Test handlers are electro-mechanical systems which are connected to and communicate with the tester. IC devices are loaded into the test handler and are then stabilized at a specified temperature to simulate operating extremes for the IC device. The test handler then transports the IC device to a contactor, which provides an electrical connection between the IC device and the tester and allows an interchange of electrical signals between the tester and device under test so the tester can evaluate the performance of the IC. Finally, the handler segregates the devices as determined by the tester. Traditionally, IC devices were attached to one side of a printed circuit board by means of pins, also referred to as leads, that were inserted into pre-drilled holes and soldered to the electrical circuits on the board, a technique known as "through-hole" mounting. Surface mount technology ("SMT"), an alternative technology which is widely used, involves soldering of IC devices directly to the surface of the board. This technology has been increasingly adopted in response to the introduction of more powerful IC devices with more leads and the demand for ever more increasing miniaturization. SMT has several distinct advantages over through-hole technology. First, because IC device leads are not inserted through the board, IC device leads can be closer together allowing IC devices and the boards they populate to be smaller. This reduction in IC device size also enhances circuit processing speed and thus board and system performance. Second, because IC device leads are not inserted through the board, boards can be populated on both sides which further reduces overall required board size. The demand for test handlers is driven primarily by IC device production levels and technological changes relating to the packaging of integrated circuits. Because only the test handler has physical contact with the IC devices, changes in integrated circuit packaging have minimal effect on tester requirements but generally have a major effect on test handler requirements and the demand for the test handlers. 2 The test handler market is commonly segmented on the basis of the function of the IC devices handled: test handlers which process memory IC devices, such as Dynamic Random Access Memory devices (DRAM) and Static Random Access Memory devices (SRAM), and test handlers which process non-memory IC devices, such as digital, logic, linear, ASIC and microprocessor devices. Non-memory IC devices generally have short test times, are often configured with leads on four sides, come in a wide variety of package configurations and are produced in relatively small lot sizes. Consequently, non-memory IC device test handlers must be able to handle devices gently and transport them to and from the contactor rapidly ("index time") and must be adaptable to accommodate many different package types. Memory IC devices, by contrast, generally have longer test times, have leads on just two sides, come in fewer package configurations and are produced in larger lot sizes. The index time of memory IC device test handlers is less important because of the long test times of memory IC devices. Test handlers capable of facilitating the testing of multiple IC devices simultaneously ("multi-site test handlers") have been developed to improve test handler throughput of memory IC devices. Traditionally, multi-site test handlers have not been used in connection with the testing of non-memory IC devices. Recently, however, as non-memory IC devices have become more complex and their test times have correspondingly increased, multi-site test handlers have been used in connection with the testing of non-memory IC devices as well. In addition, certain SRAM IC devices possess characteristics typical of non-memory IC devices, such as shorter test time, leads on four sides and wider variety of package configurations, therefore creating the demand in the SRAM market for a multi-site test handler with fast index speed and gentle handling capabilities. The majority of DRAM IC devices are manufactured in Japan and Korea while the majority of non-memory IC devices are manufactured in the United States. A significant number of SRAM IC devices are manufactured in the United States as well as in Japan and Korea. To date, the Company's products have primarily addressed the non-memory surface mount device portion of the test handler market. Aseco's Automation Equipment Test Handlers Test handlers are used to automate the electrical testing of IC devices. IC devices are loaded into the handler from tubes, magazines or trays. They are then transported to a temperature chamber within the test handler where they are thermally conditioned at temperatures typically ranging from -55 to +155 Celsius to simulate operating extremes for the IC device. After the IC devices are stabilized at a specified temperature, the test handler positions the IC devices within a contactor, which provides an electrical connection between the IC device and the tester and insulates the tester from the temperature extremes inside the handler. Test routines can last from fractions of a second to minutes depending on the type of IC device being tested and the purpose of the test. After testing, the tester signals the test handler to sort the IC devices into various categories for shipment, additional testing or disposal. There are four basic types of test handlers: gravity-feed systems, pick and place systems, belt-conveyance systems and air-bearing systems. The appropriate type of test handler is generally determined by the size and lead configuration of the IC devices being tested. The gravity-feed system, the oldest of the four test handler types, is the predominant test handler for through-hole IC devices. As the name indicates, gravity-feed systems rely on gravity to move IC devices through the test handler. This type of test handler has the advantage of being able to process IC devices quickly, but has a greater tendency to damage IC devices with leads on four sides. Damaged leads can cause soldering defects when the IC devices are mounted on boards, which in turn increases re-work and warranty costs. Pick and place systems, in contrast, transport IC devices by means of robotic arms, which prevent the IC devices from coming into contact with one another and reduce the chance of lead damage. While pick and place systems are suitable for fragile IC devices that are susceptible to lead damage such as the Quad Flat Pack (QFP), they typically process IC devices more slowly than other types of test handlers. Air- 3 bearing systems, which transport IC devices on a bed of air in the temperature chamber, permit high-speed processing while minimizing the potential for lead damage characteristic of gravity-feed systems. Belt-conveyance systems move large quantities of devices quickly into and out of the system on belts without damaging fragile leads. Key Test Handler Features The primary function of the test handler is to automate the testing process thereby increasing the productivity of the tester resulting in the accurate testing of IC devices at the lowest per unit cost possible. Important test handler features include: Gentle Handling. In order for the test handler user to maximize yield and the quality of the IC devices it ships, it is imperative that the test handler not damage the IC devices it processes. Due to their fragility, surface mount IC device leads are especially susceptible to damage, and as IC devices with higher lead counts and more fragile leads have become more prevalent, gentle handling has become an increasingly important test handler feature. Aseco currently offers test handlers with four IC device transport mediums--gravity- feed, air-bearing, pick and place and belt-conveyance test handlers. The four transport mediums allow customers to use the type of test handler most suitable for the IC device being tested. In addition, Aseco test handlers are equipped with vacuum stops, limited force contactors and other features to further minimize lead damage. Signal Integrity. Signal integrity is the ability of the test handler to facilitate accurate transmission of electrical signals between the tester and the IC device being tested. Poor transmission can lead to incorrect test results. Aseco maximizes its performance in this area by equipping its test handlers with Aseco's proprietary contactors which position the IC device under test in close proximity to the tester which allows fast and accurate signal transmission. If so desired by customers, other contactors can also be used with Aseco equipment. Cold Operation. The ability of the test handler to operate for extended periods of time at cold temperatures (typically -55 Celsius) without interruption for defrosting is an especially important factor in the overall productivity of the test handler. Aseco has developed considerable expertise in thermal engineering and insulation technology which is reflected by the fact that its test handlers are capable of operating for long periods over multiple work shifts without interruption. Productivity. The productivity of a test handler is largely a function of the rate at which it moves IC devices through the test handler ("throughput") and the percentage of time the test handler is available for use ("uptime"). The throughput of Aseco's test handlers is enhanced by their use of forced air to thermally condition IC devices. This produces an effect analogous to wind chill and minimizes the time IC devices are required to stay in the temperature chamber. The Company believes its handlers are able to achieve high uptime because of their relatively simple design that reduces jam rates and the frequency and duration of required maintenance. Maintenance time is also reduced by the diagnostic software incorporated in each Aseco test handler. Versatility. With the increase in the number of different IC device lead configurations, an important feature of a test handler is its ability to accommodate IC devices with different lead configurations. Through the use of easy to install conversion kits, Aseco's test handlers are currently capable of processing many different IC device configurations. Test Handler Products The Company's test handlers share certain common features including the ability to operate at cold, ambient and hot temperatures and a menu-driven CRT user interface that displays test handler performance and diagnostic information. The following is a complete list of the Company's test handler product offerings: Model S-130 Test Handler The S-130 is a versatile air-bearing test handler, capable of handling a broad array of non-memory IC device types. Through the use of conversion kits, the S-130 is currently able to accommodate a wide variety of IC device 4 configurations. The S-130 reaches throughput rates of 2,400 devices per hour, and has the capability to operate at temperatures between -55 and +150 Celsius. The versatility of the S-130 has made it popular with suppliers of ASIC devices and others who need to test a relatively small number of many different IC device package types. Model S-133 Test Handler The S-133 is a modified version of the S-130 test handler. It offers all the features and capabilities of the S-130 plus the ability to position the device for electrical testing of accelerometers while under physical shock. An accelerometer is a device that activates when a large amount of force is placed upon it and is used in such applications as car airbags. Model S-170 Test Handler The S-170 is a high-speed gravity-feed test handler capable of a throughput rate of 6,000 IC devices per hour. This test handler is equipped with high performance contactors and provides test handling at temperatures ranging from - -55 to +155 Celsius. Changing between different IC device package lead counts is achieved by simple keypad entry on a menu-driven CRT display. The S-170 is most appropriate for high volume testing of small surface mount IC devices having short test times and leads on only two sides such as linear devices. Model S-170C and S-170D Test Handlers The S-170C and S-170D are modified versions of the S-170 gravity feed test handler. Each offers all the features and capabilities of the S-170 plus the ability to handle a broader spectrum of the popular SOIC package types. In addition, the S-170D offers plunge to board capability that allows an electrical connection between the IC device and a device under test ("dut") board eliminating the need for a contactor and facilitating testing of IC devices with very short lead lengths. Model S-170CS Test Handler The S-170CS is a modified version of the S-170. The S-170CS offers all the features and capabilities of the S-170 including plunge to board capability. This test handler, which is used to handle newer chip-scale packages, offers a significantly faster and less expensive alternative to conventional "pick-and- place" test handlers traditionally used to handle chip scale packages. Model S-200 Test Handler The S-200 is a pick and place test handler, particularly suitable for handling fragile lead IC devices such as the popular QFP package. The S-200 has a throughput capacity of 1,200 devices per hour and operates at temperatures ranging from -55 to +155 Celsius. Key features of the S-200 include its simple design, which enhances uptime, and the ease with which it can be converted to handle different package types plus automatic tray loading and unloading. A key distinguishing feature is its ability, through the addition of an optional machine vision system, to provide in-line lead inspection in addition to its normal electrical test handling capability. Model S-450 Test Handler The S-450 test handler employs an air-bearing transport system. This product incorporates the many features of Aseco's other test handlers, while incorporating additional capabilities such as a touch screen user interface, multi-site testing, high throughput and automated IC device loading and unloading. The S-450 handles PLCC, SOIC(W), Molded Carrier Ring (MCR) devices and may be used in SRAM applications. The multi-site test capability of the S- 450 allows up to eight IC devices to be tested simultaneously, can be converted to handle numerous IC device package types and, like the Company's other test handler models, allows testing at hot, cold and ambient temperatures. 5 Model VT8000 Test Handler The VT8000 employs a combination of machine vision and multi track belt conveyance to enable more gentle handling of fragile devices. The VT8000 allows up to 16 IC devices to be tested simultaneously with simplified conversion kits resulting in cost savings for customers and less complicated set up and changeover. Machine vision facilitates lead inspection of IC devices before and after testing to identify parts with damaged leads. The VT8000 handles a variety of package types and incorporates an optional plunge- to board feature. Wafer Handling and Inspection Automation Equipment Wafer handling and inspection equipment is used to automate the transfer and inspection of wafers between semiconductor manufacturing process steps. Generally, wafers are transported through the factory in receptacles called cassettes. Basic bench top wafer handling equipment extracts a wafer from a cassette and places it on a horizontal stage where microscope inspection takes place. More sophisticated bench top equipment facilitates "macro-inspection" of wafers (i.e., not under a microscope) by placing each wafer on a stage which tilts and rotates the wafer at all angles under a high intensity lamp to reveal defects. During the wafer fabrication process, wafers are tracked in lots (typically of 25 wafers) which often need to be broken down into sub-lots in order to fit into certain process equipment and then returned to the original lots. In order to accomplish this, wafers are identified by alphanumeric or bar-code symbols etched into the surface of each wafer. Integrated wafer automation equipment enables the user to select any wafer from a maximum of 100 wafers (usually 4 lots of 25), identify it automatically, assign it a new position among the wafers, extract a given number of wafers from a batch, reorder the wafers or combine two lots or sublots. These wafer sorting devices then are able to communicate wafer and system status to an external factory computer enabling the sorter to function as an automation center under the control of the central factory automation system. Another type of wafer automation equipment is an integrated inspection station. Such a module enables the user to extract a wafer from a cassette, place it on a stage, inspect the wafer under a microscope using a monitor to view the microscope imaging, identify defects, collect and analyze data and return the wafer to its cassette for further processing. Key Wafer Automation Equipment Features Cleanliness--Semiconductor wafer fabrication is conducted under ultra-clean conditions; therefore, cleanliness of the equipment which operates in this environment is important. Aseco achieves cleanliness in its wafer automation and inspection equipment by covering all moving parts, ensuring that all moving parts are below the wafer plane and carefully selecting the materials used to make the equipment. As wafer sizes and therefore equipment sizes grow and as cleanliness assumes greater importance, the cost of producing wafer fabrication cleanrooms will become prohibitively high. As an alternative, minienvironment technology offers lower costs in the construction of cleanrooms. Within such minienvironments, only the air immediately above the equipment where the wafer resides needs to be clean and this area is isolated by shields from the general area surrounding the equipment. Wafers are carried from process to process in sealed boxes which interface with the equipment shield via a "SMIF" Port (Standard Mechanical Interface). Aseco's entire range of benchtop and integrated systems are compatible with SMIF technology. Safety of Handling--Each wafer processed by a semiconductor manufacturer requires dozens of costly passes through each manufacturing process and ultimately yields numerous individual IC's. As a result, safety of handling, or zero wafer breakage, is of paramount importance to semiconductor manufacturers. Aseco has achieved safe handling using designs which incorporate both hardware sensors and software checks. Versatility--An important aspect of Aseco's technology and product range is the maximum wafer size that it can accommodate. State of the art fabrication units currently are running 8 inch (200mm) wafers. The next generation wafer size is expected to be 12 inches. Aseco offers a full range of 6 inch and 8 inch compatible equipment and plans to broaden its product line to accommodate 12-inch wafers in time to take advantage of the construction of fabrication plants needed to produce 12-inch wafers. 6 Wafer Handling and Inspection Products The following is a complete list of the Company's wafer handling and inspection product offerings: Model AL-1000 The AL-1000 extracts a wafer from its carrying cassette and places it on a flat, horizontal stage, usually for microscope inspection. Wafers can be selected specifically or randomly for quality assurance functions. The microscope operator is freed from the delicate and potentially damaging task of manipulating the wafer to concentrate on the inspection task. Model AV-1000 The AV-1000 shares the same functions and features of an AL-1000 and has a built in "macro-inspection" stage, which tilts and rotates the wafer at all angles ensuring good visibility of all surface features of the wafer. A high intensity lamp shines on the wafer surface revealing wafer defects. Model AS-1000 The AS-1000 is an integrated solution allowing semiconductor wafers to be automatically identified and sorted using advanced vision processing. Operator contact is eliminated as wafer movements are completed by a precision robotic transfer module ensuring clean and safe transfers. The AS-1000 may be fitted with an optional SMIF minienvironment SubClass 1, which creates a clean environment surrounding the cassette transport modules. Model AI-1000 The AI-1000 is an integrated inspection station that provides fully automatic detection of surface contamination, damage and process errors and dimensional tolerance failures on semiconductor wafers. The machine incorporates an autosizing function for 4 to 8 inch wafers, which speeds set up and changeover for multi-size fabrication operations. Wafers are pre- aligned, automatically identified by machine vision and loaded to the microscope for fine alignment and flaw detection. The machine collects and stores inspection data for future recall and reference. Remanufacturing Services The Remanufacturing Services Group provides services such as machine upgrades, reconditioning and reconfiguration for all of the Company's test handler models. Distribution Agreements In November 1997, Aseco entered into a distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan. The SO1000 is a high speed, multi-site gravity fed test handler especially suited to high volume semiconductor test floors. It is designed to handle small SOIC, SSOP, TSSOP, MSOP, and SOT packages in dual as well as quad test site configuration. Customers Customers for the Company's products are primarily semiconductor manufacturers, but also include volume purchasers of IC devices and companies engaged in the business of testing IC devices for others. Since its inception, the Company has sold 1,390 test handler systems to approximately 145 customers in more than 161 worldwide locations. In fiscal 1999, two customers, Analog Devices, Inc., and Motorola accounted for 14% and 13% of net sales, respectively. In fiscal 1998, two customers, Maxim Integrated Products, Inc and 7 Analog Devices, Inc., accounted for 23% and 16% of net sales, respectively. In fiscal 1997, one customer, Analog Devices, Inc., accounted for 17% of net sales. Sales and Marketing The Company markets its products primarily through manufacturers' representative organizations and, in certain geographic regions, a direct sales force. As of March 28, 1999, the Company had 15 United States manufacturers' representatives and 11 international manufacturers' representatives located in England, Germany, France, Israel, Hong Kong, Italy, Malaysia, Singapore, Sweden, and Taiwan. The Company's sales organization coordinates the activities of the Company's manufacturers' representatives and actively participates with them in selling efforts. Aseco provides sales and technical support to its manufacturers' representatives through the Company's sales and service offices in Marlboro, Massachusetts, Santa Clara, California, and Singapore. The Company employs a direct sales force to market and sell test handlers in New England. The Company's marketing efforts include participation in industry trade shows and production of product literature. These efforts are designed to generate sales leads for the Company's manufacturers' representatives. To date, the Company's international sales have been primarily to customers located in the Asia Pacific region (excluding Japan) and Western Europe. International sales accounted for approximately 39%, 36%, and 52% of the Company's net sales in fiscal 1999, 1998, and 1997, respectively. During fiscal 1999 and 1998 a small percentage of the Company's international sales were invoiced in foreign currencies and, accordingly, were subject to fluctuating currency exchange rates. The Company's international sales are subject to certain risks common to many export activities, such as governmental regulations, export license requirements and the risk of imposition of tariffs and other trade barriers. Backlog The Company's backlog, which consists of customer purchase orders which the Company expects to fill within the next twelve months, was approximately $1,285,000 as of March 28, 1999 compared to approximately $4,011,000 as of March 29, 1998. Because all purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. The Company typically ships its test handlers and wafer automation equipment within eight to ten weeks of receipt of purchase order and its conversion kits and spare parts within a shorter period. Customer Service The Company believes that strong customer service is important in achieving its goal of high customer satisfaction. Aseco's customer service organization, augmented by the Company's engineering personnel, provides product training, telephone technical support, applications support, maintenance and operations manuals and on-site service and repair. Such services are provided from the Company's headquarters in Marlboro, Massachusetts and from one other domestic and one international field service center, each strategically located near customers to minimize response time to customer service requests. In addition, the Company's eleven international manufacturer's representatives maintain field service centers. The Company warranties its products against defects in material and workmanship for a period of up to one year. To date, the Company's warranty claims have not been material. The Company believes its accrual for product warranties at March 28, 1999 is adequate. Product Development The Company believes that its future success will depend in large part on its ability to enhance and broaden, with the input of its customers, its existing product line to meet the evolving needs of the test handler market. 8 To date, the Company has relied on internal development and two acquisitions (the TL-50, the forerunner of the S-200, and the Company's wafer automation and inspection equipment) to extend its product offering. The Company is continually engaged in improving its current products and expanding the types of IC devices its test handlers can accommodate and the size of wafers its wafer automation equipment can manage. In addition, the Company is currently focused on the continued development of enhancements and features for its current automation products. As the semiconductor equipment market continues to develop, the software component of the Company's products plays an increasingly important role. The Company currently develops all software in- house and would as needed expand its expertise in this area by hiring additional personnel. Manufacturing and Supply The Company manufactures its products at its facilities in Marlboro, Massachusetts. In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and related transfer of manufacturing and other operations to the United States (See "Management's Discussion and Analysis of Financial Condition and Results of Operations"). The Company's manufacturing operations consist of procurement and inspection of components and subassemblies, assembly and extensive testing of finished products. A significant portion of the components and subassemblies of the Company's products, including circuit boards, vacuum pumps, optical sensors, refrigeration units and contactor elements, are manufactured by third parties on a subcontract basis. Currently all components, subassemblies and parts used in Aseco's products are available from multiple sources. Quality and reliability are emphasized in both the design and manufacture of the Company's equipment. All components and subassemblies are inspected for mechanical and electrical defects. Fully assembled products are thoroughly tested and inspected for conformity to specifications of both Aseco and the customer. Test handler products are tested at all temperatures and with all the IC device packages to be accommodated. Competition The test handler and wafer handling and inspection markets are highly competitive. Aseco competes with a large number of companies ranging from very small businesses to large companies, many of which have substantially greater financial, manufacturing, marketing and product development resources than the Company. Certain of these companies manufacture and sell both testers and test handlers. The Company's test handlers are compatible with all major testers, including those manufactured by companies which sell both testers and test handlers. The large companies in the overall surface mount IC device test handler market with which the Company competes include Advantest and Cohu. In general, the particular companies with which the Company competes vary with the Company's different markets, with no one company dominating the overall test handler market. The companies with which the Company competes most directly in the surface mount non-memory IC device test handler market are companies such as Multitest, JLSI, Aetrium and Micro Component Technology, Inc. The Company's competitors in the wafer handling and inspection market vary depending upon the type of equipment. The Company's major competitors, however, in this market are Irvine Optical, Kensington, PST, Cybeq, Leica, Nikon, Zeiss and JenOptic. The Company competes primarily on the basis of the speed, ease-of-use, accuracy and other performance characteristics of its products, the breadth of its product lines, the effectiveness of its sales and distribution channels and its customer service. Intellectual Property Rights Aseco attempts to protect the proprietary aspects of its products with patents, copyrights, trade secret laws and internal nondisclosure safeguards. The Company has several patents covering certain features of the S-200 9 and the contactor elements incorporated in certain of its other test handlers. In addition, the Company has a patent application pending with respect to the machine vision technology in the VT8000. The source code for all software contained in the Company's products is protected as a trade secret and as unpublished copyrighted work. In addition, the Company has entered into nondisclosure and assignment of invention agreements with each of its key employees. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as a trade secret. Because of the rapid pace of technological changes in the test handler industry, the Company believes that patent, trade secret and copyright protection are less significant to its competitive position than factors such as the knowledge, ability and experience of the Company's personnel, new product development, frequent product enhancements, name recognition and ongoing reliable product maintenance and support. The Company believes that its products and trademarks and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. Employees As of March 28, 1999, Aseco had 116 regular employees and 4 contract employees including 42 in manufacturing, 36 in engineering and product development, 11 in general administration and finance, 28 in sales and marketing and 3 in customer service. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are adequate. ITEM 2. PROPERTIES The Company's administrative, manufacturing and product development, and its principal sales, marketing and field service office is located in Marlboro, Massachusetts where the Company occupies approximately 61,000 square feet under a lease that expires in May 2000. The Company also leases and occupies approximately 2,900 square feet of space in Santa Clara, California under a lease that expires in fiscal 2001 and 213 square meters of space in Singapore under a lease that expires in September 2000. The Company uses these latter two locations for sales and field service support operations. The Company believes its facilities are adequate for all its reasonable foreseeable requirements. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of the fiscal year ended March 28, 1999. 10 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the executive officers of the Company, their ages, present position and principal occupations held for at least the past five years.
Name Age Position - -------------------- --- -------- Sebastian J Sicari.. 47 President, Chief Executive Officer Mary R. Barletta.... 38 Vice President, Chief Financial Officer, Treasurer Robert L. Murray.... 47 Vice President, Worldwide Customer Support Robert E. Sandberg.. 41 Vice President, Sales Richard S. Sidell... 56 Vice President and Chief Technologist Phillip J. Villari.. 50 Vice President, Engineering & Manufacturing Operations
Mr. Sicari has been President and Chief Executive Officer of the Company since August 1998. Mr. Sicari served as President and Chief Operating Officer of the Company from June 1998 until August 1998. Mr. Sicari served as Vice President, Finance and Administration and Chief Financial Officer of the Company from December 1985 until June 1998, served as Treasurer of the Company from July 1988 until August 1998 and has been a Director since 1993. Ms. Barletta has been Vice President, Chief Financial Officer of the Company since June 1998 and Treasurer since August 1998. Ms. Barletta served as Vice President, Corporate Controller from August 1997 to June 1998 and served as Corporate Controller since 1993. Mr. Murray has been Vice President, Worldwide Customer Support since June 1998. Mr. Murray served as Director of Worldwide Customer Support from February 1997 until June 1998. From January 1992 to January 1997, Mr. Murray was Director of Worldwide Support at Optronics, a division of Intergraph, a manufacturer of laser image setters and scanners. Mr. Sandberg has been Vice President, Sales since June 1998. While working at Aseco, Mr. Sandberg served as Director of WED Worldwide Sales from April 1998 to June 1998, Director of Asian Operations from April 1997 to April 1998, Far East Sales Manager from April 1996 to April 1997 and Eastern Region Sales Manager from January 1994 to April 1996. Prior to January 1994, Mr. Sandberg was Marketing Manager at Symtek Systems, Inc., a manufacturer of automatic test handlers. Dr. Sidell has been Vice President and Chief Technologist since October 1998. From 1996 to 1998, Dr. Sidell was Director of Product Engineering, Semiconductor Business Unit, Electro Scientific Industries, Inc., a manufacturer of laser based equipment for circuit fine tuning, memory repair along with equipment for testing surface mount capacitors. Prior to joining ESI in 1996, Dr. Sidell was Senior Vice President of Engineering at XRL, Inc., a manufacturer of laser-based capital equipment. Mr. Villari has been Vice President, Engineering & Manufacturing Operations since June 1998. Mr. Villari served as Vice President, Manufacturing Operations from April 1998 until June 1998. From July 1995 to March 1998, Mr. Villari was Director and General Manager, Semiconductor Business Unit, Electro Scientific Industries, Inc., a manufacturer of laser based equipment for circuit fine tuning, memory repair along with equipment for testing surface mount capacitors. From February 1993 to June 1995 Mr. Villari served as President and CEO of XRL, Inc. a manufacturer of laser based capital equipment. Executive officers of the Company are elected by the Board of Directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of the executive officers or directors of the Company. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Aseco Corporation's common stock is traded on the NASDAQ National Market under the symbol "ASEC." The table below sets forth the high and low sale prices of the common stock during the two most recent fiscal years:
1999 ------------- Period High Low - ------ ------ ------ First Quarter .................................................... $8.00 $ 3.66 Second Quarter.................................................... 4.31 1.00 Third Quarter..................................................... 2.50 .63 Fourth Quarter.................................................... 2.66 1.19 1998 ------------- Period High Low - ------ ------ ------ First Quarter .................................................... $13.38 $ 8.63 Second Quarter ................................................... 19.00 10.63 Third Quarter .................................................... 18.88 8.38 Fourth Quarter ................................................... 11.38 7.25
On May 28, 1999, the closing price of the Company's common stock was $1.00 per share. On such date there were 3,850,658 shares outstanding held of record by 109 persons. This number does not include stockholders for whom shares are held in a "nominee" or "street" name. The Company has not paid cash dividends on its common stock and does not intend to do so in the foreseeable future. The Company's bank line of credit prohibits the payment of cash dividends without the bank's consent. ITEM 6. SELECTED FINANCIAL DATA
Year Ended ------------------------------------------------- March 28, March 29, March 30, March 31, April 2, 1999 1998 1997 1996 1995 --------- --------- --------- --------- -------- (in thousands, except per share data) Statement of Operations Data Net sales................... $ 19,218 $44,246 $34,320 $41,569 $29,192 Income (loss) from operations................. (14,320) (8,411) 2,623 6,397 3,987 Net income (loss)........... (13,673) (8,143) 2,288 4,406 3,088 Earnings (loss) per share, diluted.................... (3.64) (2.20) .62 1.17 .85 Balance Sheet Data Total assets................ $ 15,324 $33,691 $36,640 $36,681 $29,267 Long term capital lease obligations................ -- 25 29 42 53 Stockholders' equity........ 10,005 23,582 31,113 28,416 22,711
In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. (See Note M to the Consolidated Financial Statements). This plan included the closure of the Company's UK facility and the related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models. The Company's actions resulted in the elimination of approximately 20 positions, principally in the manufacturing, selling and administration areas. Benefits expected to be derived from the restructuring effort beginning in the third quarter of fiscal 1999 included estimated annualized cost savings of approximately $1.4 million from elimination of duplicate manufacturing 12 facilities and functions, consolidation of selling and administrative functions in the US and reductions in headcount. 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 discontinuation and a $1.3 million restructuring charge. Inventory included in the $850,000 charge was principally related to inventory parts purchased in anticipation of commercialization of one of the Company's in-process projects which was abandoned in this quarter. The inventory was written down to $0 representing management's estimate of fair value. The inventory was crated and stored offsite to provide evidence, if needed, for breach of warranty and representation claims, concerning the WED purchase agreement. No recovery was ever received for this inventory. The Company intends to discard the inventory as soon as possible. The principal components of the restructuring charge include $495,000 for a write-down of fixed assets no longer used by the operation, which assets were discarded, $241,000 for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated discounted future cash flows, $65,000 of lease termination and related costs, $98,000 for a write-down of UK government grant monies receivable and repayment of amounts previously received for grant activity as a result of abandonment of the automated wafer logistics project and $34,000 for other assets. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. (See Note M to the Consolidated Financial Statements). The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line, cost structure and asset base. As a result of market studies conducted by the Company in its fiscal fourth quarter, it was determined that a more rapid change away from older package configurations such as the plastic leaded chip carrier (PLCC) to small outline (SO) and chipscale packages would occur more rapidly than the Company previously expected. As a result, the Company determined that future demand for its current product portfolio would not be as strong as anticipated earlier in the fiscal year and, accordingly, revised its fiscal 2000 and beyond forecasted operating plans. Based upon this information, the Company also redirected its development efforts toward a new product to address the newer package configurations. Components of the $6.2 million charge included: a) a $5.0 million charge to cost of goods sold for write-downs representing primarily the carrying cost of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans. The inventory was written down to $0 representing management's estimate of fair value. Given the volume of the inventory and the limited resources available due to continued downsizing of the Company, management is periodically segregating and discarding the inventory. This process is expected to be completed during the next 12 months. b) 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. These fixed assets were put out of service and were subsequently discarded. c) a $544,000 write-down to selling, general and administrative expense of various assets whose carrying value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans and adverse market conditions, including $103,000 of sales demonstration equipment, older computers and other fixed assets all of which were put out of service and discarded, $214,000 of other tax assets which management no longer deemed more likely than not to be recoverable, $200,000 related to an increase in the reserve for uncollectible accounts due to the impact of adverse market conditions on the Company's customers and $27,000 of other assets. These assets were written down to $0 representing management's estimate of fair value. d) a $280,000 charge to selling, general and administrative expense associated with the layoff of 13 employees including 1 administration, 3 engineering, 8 manufacturing and 1 sales and service and other costs. As of June 1999, all severance related costs were paid except for $80,000 related to one employee with whom the Company has a separation agreement which provides for payment over 24 months. e) a $30,000 charge to selling, general and administrative expense for the closure of the Company's Malaysian subsidiary. 13 Net loss for the year ended March 29, 1998 includes i) $1.8 million of charges resulting from valuation adjustments for inventory being carried in excess of market and the discontinuation of certain products, ii) acquired in process research and development costs totaling $6.1 million, and the write down of goodwill and other intangible assets totaling $963,000, related to the Company's 1998 acquisition of WED, and iii) approximately $500,000 of expenses related to the layoff of 40 employees and other employee related matters. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operation--Fiscal 1999 Versus Fiscal 1998 Net sales for fiscal 1999 decreased 57% to $19.2 million from $44.2 million in fiscal 1998. The decrease in net sales resulted from a 69% decrease in units shipped during fiscal 1999 compared to fiscal 1998 as a result of an industry wide semiconductor market downturn causing a drop in demand for semiconductors and semiconductor capital equipment during the latter part of fiscal 1998 and throughout fiscal 1999. As a percentage, international sales increased to 39% of net sales in fiscal 1999 compared to 36% of net sales in fiscal 1998. Approximately 81% of all international sales were to customers located in the Pacific Rim region. As noted above, the Company began experiencing declining bookings and, as a result, lower net sales in the fourth quarter of fiscal 1998 as a result of adverse market conditions in the semiconductor industry. The Company expects that such market conditions will continue into the foreseeable future and as a result, will continue to unfavorably impact bookings and net sales levels for some period of time. (See Liquidity and Capital Resources). In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. (See Note M to the Consolidated Financial Statements). This plan included the closure of the Company's UK facility and the related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models. The Company's actions resulted in the elimination of approximately 20 positions, principally in the manufacturing, selling and administration areas. Benefits expected to be derived from the restructuring effort beginning in the third quarter of fiscal 1999 included estimated annualized cost savings of approximately $1.4 million from elimination of duplicate manufacturing facilities and functions, consolidation of selling and administrative functions in the US and reductions in headcount. 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 discontinuation and a $1.3 million restructuring charge. Inventory included in the $850,000 charge was principally related to inventory parts purchased in anticipation of commercialization of one of the Company's in- process projects which was abandoned in this quarter. The inventory was written down to $0 representing management's estimate of fair value. The inventory was crated and stored offsite to provide evidence, if needed, for breach of warranty and representation claims, concerning the WED purchase agreement. No recovery was ever received for this inventory. The Company intends to discard the inventory as soon as possible. The principal components of the restructuring charge include $495,000 for a write-down of fixed assets no longer used by the operation, which assets were discarded, $241,000 for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated discounted future cash flows, $65,000 of lease termination and related costs, $98,000 for a write- down of UK government grant monies receivable and repayment of amounts previously received for grant activity as a result of abandonment of the automated wafer logistics project and $34,000 for other assets. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. (See Note M to the Consolidated Financial Statements). The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line, cost structure and 14 asset base. As a result of market studies conducted by the Company in its fiscal fourth quarter, it was determined that a more rapid change away from older package configurations such as the plastic leaded chip carrier (PLCC) to small outline (SO) and chipscale packages would occur more rapidly than the Company previously expected. As a result, the Company determined that future demand for its current product portfolio would not be as strong as anticipated earlier in the fiscal year and, accordingly, revised its fiscal 2000 and beyond forecasted operating plans. Based upon this information, the Company also redirected its development efforts toward a new product to address the newer package configurations. Components of the $6.2 million charge included: a) a $5.0 million charge to cost of goods sold for write-downs representing primarily the carrying cost of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans. The inventory was written down to $0 representing management's estimate of fair value. Given the volume of the inventory and the limited resources available due to continued downsizing of the Company, management is periodically segregating and discarding the inventory. This process is expected to be completed during the next 12 months. b) 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. These fixed assets were put out of service and were subsequently discarded. c) a $544,000 write-down to selling, general and administrative expense of various assets whose carrying value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans and adverse market conditions, including $103,000 of sales demonstration equipment, older computers and other fixed assets all of which were put out of service and discarded, $214,000 of other tax assets which management no longer deemed more likely than not to be recoverable, $200,000 related to an increase in the reserve for uncollectible accounts due to the impact of adverse market conditions on the Company's customers and $27,000 of other assets. These assets were written down to $0 representing management's estimate of fair value. d) a $280,000 charge to selling, general and administrative expense associated with the layoff of 13 employees including 1 administration, 3 engineering, 8 manufacturing and 1 sales and service and other costs. As of June 1999, all severance related costs were paid except for $80,000 related to one employee with whom the Company has a separation agreement which provides for payment over 24 months. e) a $30,000 charge to selling, general and administrative expense for the closure of the Company's Malaysian subsidiary. In the longer term, the Company believes that the actions taken in the fourth quarter of fiscal 1999 will better position the Company to address expected future technology changes in the semiconductor capital equipment market. Additionally, beginning in the first quarter of fiscal 2000, the Company expects the actions taken to result in a lower cost structure of approximately $1.8 million per year including improved cash flow of approximately $1.2 million per year. The primary drivers of these benefits are reduced salary and related benefits expenses and reduced levels of depreciation and amortization expense. Gross profit for fiscal 1999 was $1.4 million, or 7% of net sales, compared to $17.5 million, or 40% of net sales, in fiscal 1998. The fiscal 1999 decline in gross profit resulted from a product shipment mix including a larger component of the Company's lower gross margin products, manufacturing excess capacity because of lower production levels and special charges of $5.9 million relating to cost of goods sold, described above, recorded during fiscal 1999. Research and development costs decreased 22% to $5.3 million in fiscal 1999 from $6.8 million in fiscal 1998. Fiscal 1999 research and development expenses included a special charge of $351,000 previously described. Net of the charge, the decrease in research and development costs during fiscal 1999 was principally due to a 46% decrease in headcount, representing 31 people, during the year. Selling, general and administrative expenses decreased 30% to $9.1 million in fiscal 1999 from $13.0 million in fiscal 1998. Selling, general and administrative expenses included a special charge of $854,000 in 15 fiscal 1999 previously described and a special charge of $1.5 million in fiscal 1998 described in "Results of Operations--Fiscal 1998 versus Fiscal 1997." Net of such charges in each year, the decrease in selling, general and administrative expenses during fiscal 1999 was a result of a 42% reduction in headcount, representing 30 people, and strict controls over discretionary spending resulting in a 10% reduction, or approximately $400,000, of savings, during the year. As a result of the above, the Company generated an operating loss of $14.3 million (including $8.4 million of special charges) for fiscal 1999 compared to an operating loss of $8.4 million (including $9.4 million of special charges) for fiscal 1998. Other income, net consists principally 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 a tax benefit of $690,000 in fiscal 1999 compared to a tax benefit of $139,000 in fiscal 1998. No tax benefit was recorded in the third or fourth quarters of fiscal 1999 because no additional benefits from operating loss carryback provisions were available to the Company. Furthermore in fiscal 1999, the Company recorded a valuation allowance for deferred tax assets, principally representing net operating loss carryforwards and other deferred tax assets the realization of which the Company does not deem more likely than not. Net loss for fiscal 1999 was $13.7 million, or $3.64 per share, compared to net loss for fiscal 1998 of $8.1 million, or $2.20 per share. Results of Operations--Fiscal 1998 versus Fiscal 1997 Net sales for fiscal 1998 increased 29% to $44.2 million from $34.3 million in fiscal 1997. The increase in net sales resulted from a 34% increase in units shipped during fiscal 1998 compared to fiscal 1997 offset in part by a decrease in average selling price of equipment resulting from large quantity order discounts earned by customers during fiscal 1998. Although unit sales increased in each of the first three quarters of fiscal 1998 from the previous quarter, unit sales declined 10% in the fourth quarter compared to the third quarter of fiscal 1998 as a result of a drop in the demand for semiconductors and semiconductor capital equipment experienced in the fourth quarter. International sales declined to 36% of net sales in fiscal 1998 compared to 52% of net sales in the prior fiscal year. International sales, which represented approximately 46% of sales through the third quarter of fiscal 1998, decreased substantially to 20% of sales in the fourth quarter as orders from countries in the Far East slowed. Gross profit for fiscal 1998 was $17.5 million, or 40% of net sales, compared to $16.2 million, or 47% of net sales, in fiscal 1997. Fiscal 1998 gross profit was impacted by a special charge, recorded in the fourth quarter, of $1.8 million, or 4% of net sales, resulting from valuation adjustments for VT8000 inventory being carried in excess of market, and to a lesser extent, the discontinuation of certain product lines. Excluding the special charge, fiscal 1998 gross profit was $19.3 million, or 44% of net sales, a decrease of 3% from the prior fiscal year gross profit margin percentage. The decrease in gross margin percentage was a result of higher than normal discount rates earned by customers on larger quantity orders shipped during fiscal 1998, a shift in product mix away from older product lines with higher gross margins and manufacturing excess capacity experienced in the fourth quarter of fiscal 1998. Research and development costs increased approximately 30% to $6.8 million in fiscal 1998 from $5.2 million in fiscal 1997. Research and development costs were 15% of sales in both fiscal years. The increase in such spending resulted from the addition of Western Equipment Developments (Holdings) Ltd. ("WED") in the first quarter of fiscal 1998 (see Note L to the Consolidated Financial Statements), and the hiring of additional engineering personnel and procurement of prototype material for continuing development projects. 16 Selling, general and administrative expenses increased 56% to $13.0 million in fiscal 1998 from $8.4 million in fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 29% of net sales in fiscal 1998 compared to 24% of net sales in fiscal 1997. Selling, general and administrative expenses were affected by a special charge of $1.5 million recorded in the fourth quarter of fiscal 1998. Components of the special charge were $963,000 related to the writedown of certain intangible assets associated with the acquisition of WED, as discussed below, and approximately $500,000 related to costs associated with the layoff of 40 employees. Excluding the special charge, selling, general and administrative expense for fiscal 1998 was $11.5 million or 26% of net sales. The balance of the increase in selling, general and administrative expenses was a result of the addition of WED in the first quarter of fiscal 1998, increased promotional and trade show costs related to the VT8000 introduction, increased costs of travel, an increase to the bad debt reserve to cover potential exposure in accounts receivable on Far East shipments and costs related to the establishment of a new sales and service office in Singapore. With respect to the WED acquisition, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Intangible assets acquired consisting of developed technology, and acquired in-process research and development were valued using risk adjusted cash flow models under which estimated future cash flows were discounted taking into account risks related to existing and future target markets and to the completion of the products expected to be ultimately marketed by the Company, and assessments of the life expectancy of the underlying technology. The valuation yielded values for in-process technology of $6.1 million, developed technology of $1.5 million, assembled workforce of $600,000 and trademarks and trade names of $600,000. Since the aggregate of the fair values of the intangible assets acquired as determined by the valuation exceeded the excess of the purchase price of WED (cash paid plus liabilities assumed) over the fair value of tangible assets acquired, the relative values of these assets were applied to the excess purchase price to determine the relative values of developed technology, in-process technology, assembled workforce, and tradenames and trade marks. This exercise yielded an initial allocation of the purchase price at the date of the acquisition to tangible assets acquired of $2.1 million, liabilities assumed of $3.076 million, an estimate of acquired in-process research and development of $4.9 million, developed technology of $1.216 million, assembled workforce of $480,000 and trademarks and tradenames of $480,000. The valuation of the acquired in-process research and development represents the estimated fair value related to incomplete projects acquired. Management is responsible for estimating the fair value of acquired in-process research and development. In management's opinion, the development of these projects had not reached technological feasibility and the research and development in process had no alternative future uses. The valuation of in-process research and development projects was performed using the income approach. Each projects' cash flows were evaluated and discounted back to the present at risk-adjusted discount rates. The most significant project (approximately 70% of the in-process value) related to an automated wafer logistics unit for use in a semiconductor fabrication facility. The development of this project would provide for the integration of multiple standalone wafer storage and sorting units, collection of vital statistical production data and interface to the control systems of the semiconductor production facility. The second most significant project (approximately 20% of the in-process value) related to a wafer sorter. The development of this project would provide improved factory yield management for a semiconductor manufacturer via a high throughput, low vibration solution to moving wafers through the semiconductor production process. Key assumptions used in the analysis of these projects included gross margins of approximately 50% and a discount rate of 35%. Engineering expenses were based on estimated costs to complete the projects and other operating expenses such as selling, marketing, general and administration were based on historical operating performance. The gross margin was based on a five-year historical actual gross margin which ranged between 50% and 60% and forecasted gross margin which for fiscal 1998 was 51%. Basis for the discount rate considered the stage of development of the in-process technologies, the timing of the product introductions, and the potential for lack of market acceptance for the products. As of the date of the acquisition, the Company expected to continue development of the wafer sorter through fiscal 1998 and the automated wafer logistics unit through fiscal 1999 at an additional aggregate cost of approximately $1.5--$2.0 million. Product commercialization was anticipated for the wafer sorter in late fiscal 1998 and the automated wafer logistics unit in late fiscal 1999. Material cash inflows for each product 17 were anticipated for the wafer sorter in fiscal 1999 and the automated wafer logistics unit in fiscal 2000. However, subsequent to the acquisition date, the Company determined that it would take longer than originally anticipated to complete development of these projects. As a result, the Company revised its original expectation for commercialization of the wafer sorter and the automated wafer logistics unit to fiscal 1999 and fiscal 2000, respectively. Additionally, during fiscal 1998, the Company determined that certain projects identified as acquired developed technology were not as developed as originally expected. The most significant project was an optical inspection station for use in a semiconductor fabrication facility. The Company expected to commercially release this product at the time of the acquisition; therefore, in the initial allocation, this project was characterized as developed technology. Subsequently, the Company completed its assessment of the project and concluded that because of significant software and electro- mechanical failures related to subassembly and component level design and reliability issues, the product had not reached technological feasibility. The optical inspection station provides for optical scanning of wafers during the semiconductor manufacturing process using sophisticated optics which can identify defects at a sub-micron level. This unit is unique because it is the only unit available that provides both optical scanning and manual inspection of wafers on one unit. Based on the facts that certain products would not be commercialized as soon as anticipated and the re-characterization of certain products as in-process, the Company re-performed its valuation of its intangibles acquired. Key assumptions used in the analysis of these projects included gross margins of approximately 50% and a discount rate of 30%. Engineering expenses were based on estimated costs to complete the projects and gross margin and other operating expenses such as selling, marketing, general and administration were based on historical operating performance and the unit's fiscal 1999 operating budget. The basis for the discount rate re-considered the factors mentioned previously, but also considered that the revenue forecast was revised downward to reflect market conditions. As of the date of the final allocation, the Company expected to continue development of the optical inspection station through fiscal 1999 at an additional cost of approximately $300,000. The most significant projects characterized as in-process research and development as a result of the final allocation of the purchase price were the wafer sorter, the automated wafer logistics unit and the optical inspection station which collectively represented 96% of the value of in-process research and development. Based on the final valuation of intangible assets acquired, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final valuation and allocation resulted in an additional allocation of $1.2 million to in-process research and development and a corresponding charge of $1.2 million was recorded in the fourth quarter, resulting in an aggregate year to date charge of $6.1 million. The Company's final allocation of the purchase price resulted in an allocation to tangible assets of $2.1 million, liabilities assumed of $3.9 million, acquired in-process research and development of $6.1 million, developed technology of $400,000, goodwill of $1.084 million and other intangibles comprised of assembled workforce of $316,000. In September 1998, as part of the Company's plan to consolidate its UK wafer handling and inspection operation (See Note M to the Consolidated Financial Statements), the Company decided to abandon both the automated wafer logistics and the sorter projects. At that time, the Company was experiencing a weakened financial condition due to the market-wide semiconductor capital equipment market downturn and the resulting lower level of available resources. Because of these factors, the Company decided to focus its development efforts on projects with a shorter-term return on investment; consequently, development efforts on only the optical inspection station were continued. As of the end of fiscal 1998, the Company estimated that $1.2 million would be incurred over the next three years in connection with the completion of acquired research and development. During fiscal 1999 the Company incurred approximately $600,000 related to the completion of these products. None of the new products was completed or shipped in fiscal 1999; however, the Company began shipping its optical inspection station in fiscal 2000. The Company expects to spend slightly less than its original estimate of $1.2 million. 18 Moreover, since WED incurred operating losses in fiscal 1998, which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in selling, general and administrative expenses in the accompanying Statement of Operations. Subsequent to the write-down, the carrying amount of developed technology was $400,000 and the related goodwill was $121,000 as of March 29, 1998. As a result of the above, the Company generated an operating loss of $8.4 million for fiscal 1998 (including $9.4 million of fiscal 1998 special charges) compared to operating income of $2.6 million for fiscal 1997. Other income, net consists principally of interest income earned on cash and cash equivalents which decreased in fiscal 1998 because of the lower average cash balance maintained during the year after the acquisition of WED. The Company recorded a tax benefit of $139,000 in fiscal 1998 compared to a tax provision of $1.0 million in fiscal 1997. The Company's tax rate was affected by the inability to offset losses incurred by WED against income earned in the United States and the write-off of acquired in process research and development and goodwill associated with the acquisition of WED, both of which are not deductible for tax purposes. Furthermore, the Company recorded a valuation allowance principally representing net operating loss carryforwards and other deferred tax assets at WED the realization of which the Company does not deem to be more likely than not. The effective tax rate for fiscal 1997 was 30%. Net loss for fiscal 1998 was $8.1 million, or $2.20 per share, compared to net income for fiscal 1997 of $2.3 million, or $.62 per diluted share. Liquidity and Capital Resources The Company historically has funded its operations primarily through cash flows from operations, bank borrowings and the private and public sale of equity securities. At March 28, 1999, the Company had cash and cash equivalents of $754,000, net of borrowings, and working capital of approximately $7.8 million. The Company used approximately $3.0 million in cash for operating activities during fiscal 1999. The primary working capital factors affecting cash from operations were accounts receivable and accounts payable and accrued expenses. Accounts receivable decreased approximately $5.1 million as a result of the decrease in net sales in fiscal 1999 versus fiscal 1998. Accounts payable and accrued expenses decreased approximately $4.6 million during the fiscal year as a result of the decrease in business volume in fiscal 1999. The Company used approximately $579,000 in cash during fiscal 1999 to fund the acquisition of capital equipment which included the completion of the Company's implementation of a new enterprise-wide management information system and $200,000 to fund internal software development costs. The Company generated cash from financing activities in fiscal 1999 of approximately $118,000 from employee stock purchases under the Company's employee stock option and stock purchase plans and $475,000 from borrowings under the Company's working capital line of credit. 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 $475,000 and $575,000 at March 28, 1999 and June 27, 1999, respectively. As of June 27, 1999, maximum availability under the Line of Credit was equal to the lesser of (i) $1.3 million or (ii) 80% of qualified accounts receivable (the "Borrowing Base"). Such maximum availability decreases to the lesser of (i) $350,000 or (ii) the Borrowing Base after the earlier of August 31, 1999 or receipt by the Company of a refund of federal taxes paid by the Company in respect of fiscal 1998 and prior years, 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 19 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 maintain a minimum capital base and not incur net losses of more than a specified amount. As of March 28, 1999, the Company was in default of the debt to net worth and net loss covenants but has since obtained appropriate waivers from the bank. 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 will have a two-year term and will allow for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. The line will be secured by all the assets of the Company and will be subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. The replacement line of credit will accrue interest at a rate of prime plus 1.5%. The bank may alter or terminate its commitment with respect to the replacement line of credit if there is any material adverse change in the Company's financial position or otherwise. However, to the extent that there is a shortfall of funds under the commitment, management has the ability and intent to adjust the Company's cash flows to be able to meet operational needs at least through the end of fiscal 2000. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line. 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 will be sufficient to meet the Company's cash requirements for at least the next twelve months. (See Note E and Note O to the Consolidated Financial Statements). However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. The Company has been notified by The Nasdaq-Amex Group that the Company currently is 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 at least ten 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 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 Historically, certain computer programs have been written using two digits rather than four to define the applicable year, which could result in a computer recognizing a date using "00" as the year 1900 rather than the year 2000. This in turn, could result in major system failures or miscalculations, and is generally referred to as the "Year 2000 Problem". In the second quarter of fiscal 1999, the Company completed its implementation of a new enterprise-wide management information system that the vendor has represented is Year 2000 compliant. In addition, the Company has completed an assessment of other software used by the Company for Year 2000 compliance and has noted no material instances of non-compliance. On an on- going basis, the Company reviews each of its new hardware and software purchases to ensure that it is Year 2000 compliant. The Company also has 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. 20 The Company is in the 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 is not aware of any such external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company had no means of ensuring that external agents will be Year 2000 ready. To date the Company has incurred approximately $870,000 ($207,000 expensed and $663,000 capitalized for new systems and equipment) related to all phases of the Year 2000 compliance initiatives. Although the Company does not believe that it will incur any additional material costs or experience material disruptions in its business associated with preparing its internal systems for Year 2000 compliance, there can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems, which is comprised of third party software and third party hardware that contain embedded software. The most reasonably likely worst case scenarios would include (i) corruption of data contained in the Company's internal information systems relating to, among other things, manufacturing and customer orders, shipments billing and collections, (ii) hardware failures, (iii) the failure of infrastructure services provided by government agencies and other third parties (i.e., electricity, phone service, water transport, payroll, employee benefits, etc.), (iv) warranty and litigation expense associated with third-party software incorporated into the Company's products that is not Year 2000 compliant, and (v) a decline in sales resulting from disruptions in the economy generally due to Year 2000 issues. 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. The impact of inflation on the Company's business during the past three fiscal years has not been significant. Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual Report on Form 10K contains forward-looking statements relating to future events or the future financial performance of the Company, including but not limited to statements contained in Item 1--"BUSINESS" Item 2-- "PROPERTIES" and Item 7--"MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". Readers are cautioned that such statements, which may be identified by words including "anticipates," "believes," "intends," "estimates," "plans," and other similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties, over which the Company has little or no control. In evaluating such statements, readers should consider the various factors identified below which could cause actual events, performance or results to differ materially from those indicated by such statements. Liquidity--As of June 27, 1999 the Company had net borrowings of $196,000 and working capital of approximately $7.4 million. As a result of anticipated continued weakness in the semiconductor market, the Company expects to incur further losses in future quarters which will negatively impact its liquidity position. Although the Company believes that funds generated from operations, existing cash balances and available borrowing will be sufficient to meet the Company's cash requirements for at least the next twelve months, if the Company is unable to meet its operating plan, 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. Nasdaq National Market Delisting--The Company has been notified by The Nasdaq-Amex Group that the Company currently is not in compliance with the Nasdaq National Market listing requirement that the market 21 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 at least ten 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 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. Semiconductor Market Fluctuations--The semiconductor market has historically been cyclical and subject to significant economic downturns at various times, which often have a disproportionate effect on manufacturers of semiconductor capital equipment. As a result, there can be no assurance that the Company will not experience material fluctuations in future quarterly or annual operating results as a result of such a market fluctuation. The semiconductor industry in recent periods has experienced decreased demand, and it is uncertain how long these conditions will continue. Reliance on Supplier--In November 1997, Aseco entered into a distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan. To achieve its sales objectives, the Company must rely on Rasco to build and ship test handlers in accordance with a quarterly schedule. There can be no assurance that Rasco will be able to consistently meet such a schedule. Accordingly, the Company's operating results are subject to variability from quarter to quarter and could be adversely affected for a particular quarter if shipments of Rasco equipment for that quarter were lower than anticipated. Additionally, termination of the Rasco relationship with the Company could adversely affect the Company's financial performance. There can be no assurance that the Company will be able to maintain its current distribution arrangement with Rasco. Variability in Quarterly Operating Results--During each quarter, the Company customarily sells a limited number of systems, thus a change in the shipment of a few systems in a quarter can have a significant impact on results of operations for a particular quarter. To achieve sales objectives, the Company must generally obtain orders for systems to be shipped in the same quarter in which the order is obtained. Moreover, customers may cancel or reschedule shipments with limited or no penalty, and production difficulties could delay shipments. Accordingly, the Company's operating results are subject to significant variability from quarter to quarter and could be adversely affected for a particular quarter if shipments for that quarter were lower than anticipated. Moreover, since the Company ships a significant quantity of products at or near the end of each quarter, the magnitude of fluctuation is not known until late in or at the end of any given quarter. New Product Introductions--The Company's success depends in part on its continued ability to develop and market new products. There can be no assurance that the Company will be able to develop and introduce new products in a timely manner or that such products, if developed, will achieve market acceptance. Additionally there can be no assurance that the Company will be able to manufacture such products at profitable levels or in sufficient quantities to meet customer requirements. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company's operating results. International Operations--In fiscal 1999, 39% of the Company's net sales were derived from customers in international markets. The Company is therefore subject to certain risks common to many export activities, such as governmental regulations, export license requirements, air transportation disruptions, freight rates and the risk of imposition of tariffs and other trade barriers. A portion of the Company's international sales are invoiced in foreign currencies and, accordingly, are subject to fluctuating currency exchange rates. As such there can be no assurance that the Company will be able to protect its position by hedging its exposure to currency exchange rate fluctuations. Competition--The markets for the Company's products are highly competitive. The Company's competitors include a number of established companies that have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company also competes with a number of smaller companies. There can be no assurance that the Company will be able to compete successfully against current and future sources of 22 competition or that the competitive pressures faced by the Company will not adversely effect its profitability or financial performance. Customer Concentrations--Although the Company has a growing customer base, from time to time, an individual customer may account for 10% or more of the Company's quarterly or annual net sales. During the year ended March 28, 1999, two customers accounted for 14% and 13% of net sales, respectively. The Company expects that such customer concentration of net sales will continue to occur from time to time as customers place large quantity orders with the Company. As a result, the loss of, or significant reduction in purchases by, any such customer could have an adverse effect on the Company's annual or quarterly financial results. Investments in Research & Development--The Company is currently investing in specific time-sensitive strategic programs related to the research and development area which the Company believes is critical to its future ability to compete effectively in the market. As such, the Company plans to continue to invest in such programs at a planned rate and not to reduce or limit the increase in such expenditures until such programs are completed. As a result there can be no assurance that such expenditures will not adversely affect the Company's quarterly or annual profitability or financial performance. Reliance on Third Party Distribution Channels--The Company markets and sells its products primarily through third-party manufacturers' representative organizations which are not under the direct control of the Company. The Company has limited internal sales personnel. A reduction in the sales efforts by the Company's current manufacturers' representatives or a termination of their relationships with the Company could adversely affect the Company's operations and financial performance. There can be no assurance that the Company will be able to retain its current manufacturers' representatives or its distribution channels by selling directly through its sales employees or enter into arrangements with new manufacturers' representatives. Dependence on Key Personnel--The Company's success depends to a significant extent upon a number of senior management and technical personnel. These persons are not bound by employment agreements. The loss of the services of a number of these key persons could have a material adverse effect on the Company. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial and marketing personnel. Competition for such personnel in the Company's industry is intense. There can be no assurance that the Company will continue to be successful in attracting and retaining the personnel it requires to successfully develop new and enhanced products and to continue to grow and operate profitably. Dependence on Proprietary Technology--The Company's success is dependent upon proprietary software and hardware which the Company protects primarily through patents and restrictions on access to its trade secrets. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. Although the Company believes that its products and technology do not infringe any existing proprietary rights of others, the use of patents to protect software and hardware has increased and there can be no assurance that third parties will not assert infringement claims against the Company in the future. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk represents the risk of loss that may affect the consolidated financial statements of the Company due to adverse changes in financial market prices and rates. The Company's market risk exposure is primarily the result of fluctuations in foreign exchange rates. The Company has not entered into derivative or hedging transactions to manage risk in connection with such fluctuations. The Company derived approximately 39% of its net sales in fiscal 1999 from customers based outside of the United States. Certain of the Company's international sales are denominated in foreign currencies. The price in dollars of products sold outside the United States in foreign currencies will vary as the value of the dollar fluctuates against such foreign currencies. Although the Company's sales denominated in foreign currencies in fiscal 1999 were not material, there can be no assurance that such sales will not be material in the future and that there will not be increases in the value of the dollar against such currencies that will reduce the dollar return to the Company on the sale of its products in such foreign currencies. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Consolidated Financial Statements included in Item 8:
Page ---- Report of Independent Auditors........................................... 25 Consolidated Balance Sheets as of March 28, 1999 and March 29, 1998...... 26 Consolidated Statements of Operations for the years ended March 28, 1999, March 29, 1998, and March 30, 1997...................................... 27 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 28, 1999, March 29, 1998, and March 30, 1997................ 28 Consolidated Statements of Cash Flows for the years ended March 28, 1999, March 29, 1998, and March 30, 1997...................................... 29 Notes to Consolidated Financial Statements............................... 30
24 Report of Independent Auditors The Board of Directors and Stockholders Aseco Corporation We have audited the accompanying consolidated balance sheets of Aseco Corporation as of March 28, 1999 and March 29, 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended March 28, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aseco Corporation at March 28, 1999 and March 29, 1998 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 28, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Boston, Massachusetts May 10, 1999, except for Note O as to which the date is July 9, 1999 25 ASECO CORPORATION Consolidated Balance Sheets (in thousands, except share and per share data)
March 28, March 29, 1999 1998 --------- --------- Assets Current assets Cash and cash equivalents................................ $ 1,229 $ 4,431 Accounts receivable, less allowance for doubtful accounts of $1,027 in 1999 and $781 in 1998...................... 4,041 9,140 Inventories, net......................................... 5,893 11,875 Prepaid expenses......................................... 370 533 Income tax receivable.................................... 1,351 596 Deferred taxes........................................... -- 1,603 Other current assets..................................... 197 29 ------- ------- Total current assets................................... 13,081 28,207 Plant and equipment, less accumulated depreciation and amortization.............................................. 2,134 4,041 Other assets, net.......................................... 109 1,443 ------- ------- $15,324 $33,691 ======= ======= Liabilities and Stockholders' Equity Current liabilities Line of credit........................................... $ 475 $ -- Accounts payable......................................... 1,964 4,591 Accrued expenses......................................... 2,868 4,886 Current portion of capital lease obligations............. 12 13 ------- ------- Total current liabilities.............................. 5,319 9,490 Deferred taxes payable..................................... -- 594 Long-term capital lease obligations........................ -- 25 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding................. -- -- Common stock, $.01 par value: 15,000,000 shares authorized, 3,832,799 and 3,731,718 shares issued and outstanding in 1999 and 1998, respectively.............. 38 38 Additional paid in capital................................. 18,321 18,203 Retained earnings (accumulated deficit).................... (8,382) 5,291 Accumulated other comprehensive income: Foreign currency translation adjustment.................... 28 50 ------- ------- Total stockholders' equity............................. 10,005 23,582 ------- ------- $15,324 $33,691 ======= =======
See notes to consolidated financial statements. 26 ASECO CORPORATION Consolidated Statements of Operations (in thousands, except share and per share data)
Year Ended ---------------------------------- March 28, March 29, March 30, 1999 1998 1997 ---------- ---------- ---------- Net sales................................. $ 19,218 $ 44,246 $ 34,320 Cost of sales............................. 17,856 26,761 18,113 ---------- ---------- ---------- Gross profit............................ 1,362 17,485 16,207 Research and development costs............ 5,305 6,773 5,227 Selling, general and administrative expenses................................. 9,077 13,023 8.357 Restructuring charge...................... 1,300 -- -- Acquired in process research and development costs........................ -- 6,100 -- ---------- ---------- ---------- Income (loss) from operations........... (14,320) (8,411) 2,623 Other income (expense): Interest income......................... 96 309 664 Interest expense........................ (146) (119) (7) Other, net.............................. 7 (61) 11 ---------- ---------- ---------- (43) 129 668 ---------- ---------- ---------- Income (loss) before income taxes......... (14,363) (8,282) 3,291 Income tax expense (benefit).............. (690) (139) 1,003 ---------- ---------- ---------- Net income (loss)......................... $ (13,673) $ (8,143) $ 2,288 ========== ========== ========== Earnings (loss) per share, basic.......... $ (3.64) $ (2.20) $ .63 ========== ========== ========== Shares used to compute earnings (loss) per share, basic............................. 3,758,000 3,695,000 3,640,000 Earnings (loss) per share, diluted........ $ (3.64) $ (2.20) $ .62 ========== ========== ========== Shares used to compute earnings (loss) per share, diluted .......................... 3,758,000 3,695,000 3,717,000
See notes to consolidated financial statements. 27 ASECO CORPORATION Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data)
Accumulated Common Stock Retained Other --------------- Additional Earnings Comprehensive Par Paid-in (Accumulated Income Shares Value Capital Deficit) (Expense) Total --------- ----- ---------- ------------ ------------- -------- Balance at March 31, 1996................... 3,611,501 $36 $17,234 $ 11,146 $-- $ 28,416 Issuance of shares under stock plans............ 53,018 1 344 -- -- 345 Tax benefit from exercise of stock options................ -- -- 64 -- -- 64 Net income.............. -- -- -- 2,288 -- 2,288 -------- Comprehensive income.... -- -- -- -- -- 2,288 --------- --- ------- -------- ---- -------- Balance at March 30, 1997................... 3,664,519 37 17,642 13,434 -- 31,113 Issuance of shares under stock plans............ 67,199 1 449 -- -- 450 Tax benefit from exercise of stock options................ -- -- 112 -- -- 112 Net loss................ -- -- -- (8,143) -- (8,143) Foreign currency translation adjustment............. -- -- -- -- 50 50 -------- Comprehensive loss...... (8,093) --------- --- ------- -------- ---- -------- Balance at March 29, 1998................... 3,731,718 38 18,203 5,291 50 23,582 Issuance of shares under stock plans............ 101,081 -- 118 -- -- 118 Net loss................ -- -- -- (13,673) -- (13,673) Foreign currency translation adjustment............. -- -- -- -- (22) (22) -------- Comprehensive loss...... (13,695) --------- --- ------- -------- ---- -------- Balance at March 28, 1999................... 3,832,799 $38 $18,321 $ (8,382) $ 28 $ 10,005 ========= === ======= ======== ==== ========
See notes to consolidated financial statements. 28 ASECO CORPORATION Consolidated Statements of Cash Flows (in thousands)
Year ended ------------------------------ March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- Operating activities: Net income (loss) ............................. $(13,673) $(8,143) $ 2,288 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation................................. 1,505 1,238 776 Amortization................................. 290 484 166 Deferred taxes............................... 1,009 (471) (310) Lower of cost or market and other inventory adjustments................................. 5,600 1,777 -- Acquired in process research and development costs....................................... -- 6,100 -- Write down of goodwill and other assets...... 763 963 -- Fixed asset write down....................... 476 -- -- Restructuring charge......................... 774 -- -- Changes in assets and liabilities: Accounts receivable.......................... 5,099 639 3,193 Inventories, net............................. 544 (4,595) (2,179) Prepaid expenses............................. 73 (33) (61) Accounts payable and accrued expenses........ (4,645) 1,296 (2,665) Income taxes receivable/payable.............. (755) (184) (91) Other current assets......................... (168) (469) (84) Other assets, net............................ 140 -- 9 -------- ------- ------- Total adjustments.......................... 10,705 6,745 (1,246) -------- ------- ------- Cash (used in) provided by operating activ- ities..................................... (2,968) (1,398) 1,042 Investing activities: Acquisition, net of cash acquired............ -- (6,079) -- Acquisition of machinery and equipment....... (579) (1,768) (992) Proceeds from sale of machinery and equip- ment........................................ -- 17 -- Increase in software development costs....... (200) (383) (243) -------- ------- ------- Cash used in investing activities.......... (779) (8,213) (1,235) Financing activities: Loan to officer.............................. -- -- (140) Net proceeds from issuance of common stock... 118 450 345 Increase (reduction) of working line of cred- it.......................................... 475 (477) -- Reductions of capital lease obligations...... (26) (15) (13) -------- ------- ------- Cash (used in) provided by financing activ- ities..................................... 567 (42) 192 Effect of exchange rate changes............ (22) 2 -- -------- ------- ------- Net decrease in cash and cash equivalents.. (3,202) (9,651) (1) Cash and cash equivalents at the beginning of the year...................................... 4,431 14,082 14,083 -------- ------- ------- Cash and cash equivalents at the end of the year.......................................... $ 1,229 $ 4,431 $14,082 ======== ======= =======
See notes to consolidated financial statements. 29 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All tabular amounts in thousands except share and per share amounts) Note A--Nature of Business Aseco (the "Company") designs, manufactures and markets test handlers used to automate the testing of integrated circuits in surface mount packages. Aseco provides high quality, versatile test handlers designed to maximize the productivity of the significantly more costly testers with which they operate. Aseco also design, manufactures and markets integrated circuit wafer handling and inspection systems. These systems are used to load, sort and transport wafers during both manual and automatic inspection as well as other wafer processing steps in the semiconductor manufacturing process. The Company markets its products principally in North America, the Asia Pacific region and Western Europe and sells its products principally to integrated circuit manufacturers. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line. 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 will be sufficient to meet the Company's cash requirements for at least the next twelve months. (See Note E and Note O to the Consolidated Financial Statements). However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. Note B--Summary of Significant Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated. Use of Estimates: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company invests its excess cash in high quality commercial paper (No such amounts at March 28, 1999 and March 29, 1998) and money market funds (No such amounts at March 28, 1999 and $885,000 at March 29, 1998), all of which are cash equivalents as of fiscal year end. Management determines the appropriate classification of these investments at the time of purchase as either held-to-maturity, available-for-sale or trading and re-evaluates such designation at each balance sheet date. Given the short-term nature of the Company's investments and their availability for use in the Company's current operations, these amounts are considered to be available-for-sale. Available-for-sale securities are carried at fair market value and unrealized gains or losses are reported as a separate component of stockholders' equity. At March 29, 1998, the cost of the Company's investments in cash equivalents approximated their fair market value. 30 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Inventories: Inventories are stated at the lower of cost or market, using the first-in, first-out method to determine cost. Plant and Equipment: Plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the applicable assets which are generally three to seven years. Leasehold improvements and equipment under capital leases are being amortized over the lives of the leases. To determine if the value of plant and equipment is impaired, the Company uses estimated future cash flows as the method for estimating the related write-down. Assets no longer used are written down to salvage value at the time of retirement. Intangible Assets and Goodwill: The Company has certain intangible assets including software development costs, developed technology and goodwill. The Company amortizes these assets over their estimated useful lives as follows: Software development costs.......................................... 3 years Developed technology, goodwill and others........................... 15 years
Accumulated amortization associated with these assets was $1,891,000 and $1,760,000 at March 28, 1999 and March 29, 1998, respectively. In determining the value of impaired goodwill, the Company has adopted the use of estimated future discounted cash flows as the method for estimating the related write- down. Warranty Costs: Estimated warranty costs are accrued upon shipment of product. Revenue Recognition: Revenue is recognized generally upon shipment of product, and when special contractual criteria apply, upon acceptance. Earnings Per Share: Basic earnings (loss) per common share is based on the weighted average common shares outstanding. Diluted earnings (loss) per share includes the dilutive effects of options, warrants, and convertible securities. There was no effect of dilutive stock options on the total shares used to compute diluted earnings (loss) per share in fiscal 1999 and fiscal 1998. The effect of dilutive stock options on the total shares used to compute diluted earnings (loss) per share was 77,000 in fiscal 1997. Stock Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its stock-based compensation plans, rather than the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation." Under ABP 25, for those options granted in which the exercise price equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Recent Accounting Pronouncements: In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) which establishes standards for 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. The adoption of this standard had no material impact on the Company's financial position. In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131) which establishes standards for the way that public companies report selected information about operating segments in annual 31 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) financial statements and requires that those companies report selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. 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 2000. Adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations. Reclassification: Certain prior years' amounts have been reclassified to conform to the current years' presentation. Note C--Inventories, net Net inventories consisted of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands ) Raw materials ........................................... $1,966 $ 5,612 Work in process.......................................... 3,441 4,712 Finished goods........................................... 486 1,551 ------ ------- $5,893 $11,875 ====== =======
Note D--Plant and Equipment Plant and equipment consisted of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands) Machinery and equipment.................................. $3,076 $4,365 Office furniture and equipment........................... 3,398 3,602 Property under capital lease............................. 578 578 Leasehold improvements................................... 289 251 ------ ------ 7,341 8,796 Less accumulated depreciation and amortization........... 5,207 4,755 ------ ------ $2,134 $4,041 ====== ======
During the year ended March 28, 1999 and March 29, 1998, the Company transferred approximately $108,000 and $790,000, respectively of equipment from inventory to fixed assets for use as manufacturing test equipment. Note E--Indebtedness The Company has a $5.0 million revolving credit line with a bank, which expires on September 1, 1999 (See Note O to the Consolidated Financial Statements). At March 28, 1999, borrowings under such credit line were $475,000 and an additional $1.9 million was available for borrowing. The revolving credit line is secured by all assets of the Company. The credit agreement establishing this line of credit prohibits the payment of dividends without the bank's consent and requires maintenance of specified debt to net worth and current ratios. The credit agreement also requires that the Company maintain a minimum capital base and not incur net losses 32 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of more than a specified amount. As of March 28, 1999, the Company was in default of the net worth and net income covenants (See Note O to the Consolidated Financial Statements). Borrowings bear interest at the bank's prime rate plus 1.5%, which was 9.25% at March 28, 1999. There was no borrowing outstanding as of March 29, 1998. Cash payments of interest were approximately $146,000, $119,000, and $7,000, for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 respectively. Note F--Leases The Company leases a building in Marlboro, Massachusetts for its corporate and manufacturing activities. The Company also leases sales offices in Santa Clara, California and Singapore. The operating lease for the Massachusetts facility expires in the year 2000, subject to the Company's option to extend the term for an additional three- year period. Rent expense for this lease is approximately $350,000 per year. In addition, the lease is subject to escalation for increases in operating expenses and real estate taxes. The Company also leases equipment under capital and non-cancelable operating leases expiring through the year 2001. The following is a schedule of required minimum lease payments under operating leases at March 28, 1999:
Operating Leases -------------- (In thousands) 2000........................................................ $517 2001........................................................ 72 ---- Total minimum lease payments................................ $589 ====
Total rent expense for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 was approximately $480,000, $510,000, and $372,000, respectively. Note G--Stockholders' Equity The Board of Directors may, at its discretion, designate one or more series of referred stock and establish the voting, dividend, liquidation, and other rights and preferences of the shares of each series, and provide for the issuance of shares of any series. At March 28, 1999, no shares of preferred stock were outstanding. Note H--Stock Plans and Employee Benefits Omnibus Stock Plan: The Company's 1993 Omnibus Stock Plan ( the "Omnibus Plan") is administered by the Compensation Committee of the Board of Directors and provides for the issuance of up to 1,230,000 shares of common stock pursuant to the exercise of options or in connection with awards or direct purchases of stock. Options granted under the Omnibus Plan may be either incentive stock options or non-qualified stock options. Incentive stock options may only be granted under the Omnibus Plan to employees and officers of the Company. Non-qualified stock options may be granted to, awards of stock may be made to, and direct purchases of stock may be made by, employees, officers, consultants or directors of the Company. The terms of the awards or grants, including the number of shares, the duration and rate of exercise of each option, the option price per share, and the determination of any restrictions to be placed on the grants or awards, are determined by the Compensation Committee of the Board of Directors. 33 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Non-Employee Director Stock Option Plan: The Company's 1993 Non-Employee Director Stock Option Plan (the "Director Plan") provides for the grant of non-qualified stock options to non-employee directors of the Company for the purchase of up to an aggregate of 165,000 shares of common stock. Under the Director Plan, each non-employee director is entitled to receive, when first elected to serve as a director, an option to purchase 15,000 shares. In addition, each non-employee director is entitled to receive on April 30 of each year an option to purchase 2,500 shares. The exercise price of the options is equal to the fair market value of the underlying common stock on the date of grant. Options granted under the plan may only be exercised with respect to vested shares. One-half of the shares subject to such options vest on the first anniversary of the date of the grant and the balance vest on the second anniversary of the grant. The following is a summary of activity with respect to the Company's stock option plans:
Weighted Average Options Exercise Price ---------- -------------- Outstanding at March 31, 1996..................... 744,500 $13.30 Granted......................................... 458,000 10.37 Exercised....................................... (33,400) 5.67 Canceled........................................ (449,000) 17.72 ---------- ------ Outstanding at March 30, 1997..................... 720,100 8.91 Granted......................................... 317,500 9.92 Exercised....................................... (38,600) 6.16 Canceled........................................ (130,200) 10.11 ---------- ------ Outstanding at March 29, 1998..................... 868,800 9.33 Granted ........................................ 1,063,800 1.57 Exercised....................................... (3,600) .72 Canceled........................................ (1,115,000) 7.64 ---------- ------ Outstanding at March 28, 1999..................... 814,000 $ 1.47 ========== ======
As of March 28, 1999, March 29, 1998, and March 30, 1997, there were outstanding options exercisable for approximately 473,000, 538,000, and 430,000, respectively. As of March 28, 1999, shares available for future grant were 91,000 shares in the Director Plan and 360,000 shares in the Omnibus Plan. The range of exercises prices for options outstanding at March 28, 1999 was $.29-$13.44. The range of exercise prices is wide due to the inclusion of options granted at a lower fair market value in years preceding the Company's initial public offering in March 1993. In fiscal 1997, 391,000 options outstanding under the Company's 1993 Omnibus Stock Plan having an exercise price of $18.69 per share were cancelled and 290,250 new shares were issued at a price of $10.38 per share representing the fair value on the date of issuance. All other terms of these options, including the vesting period associated with each option remained the same. In fiscal 1999, 915,000 options outstanding under the Company's 1993 Omnibus Stock Plan having exercise prices ranging from $3.16 to $18.69 per share were cancelled and 595,000 new shares were issued at a price of $.75 per share representing the fair value on the date of issuance. All other terms of these options, including the vesting period associated with each option remained the same. 34 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about options outstanding at March 28, 1999:
Weighted Weighted Weighted Average Range of Options Average Options Average Remaining Exercise Prices Outstanding Price Exercisable Price Contractual Life - --------------- ----------- -------- ----------- -------- ---------------- $.29-$.75 750,000 $ .75 420,000 $ .75 8 Years $5.38-$8.98 20,000 $ 7.34 9,000 $ 7.31 8 Years $10.63-$13.44 44,000 $11.09 44,000 $11.09 7 Years ------- ------- 814,000 473,000
Employee Stock Purchase Plan: The Company's Employee Stock Purchase Plan (the "Purchase Plan") is administered by the Board of Directors or by its designee (the "Administrator") and entitles employees of the Company to purchase shares of the Company's common stock through payroll deductions over offering periods specified by the Administrator. Shares may be purchased at a price equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering period, or 85% of the fair market value of the common stock on the last day of the offering period. A total of 150,000 shares have been reserved for issuance under the Purchase Plan. During fiscal 1999 and 1998, a total of approximately 93,000 and 28,600 shares of common stock, respectively, were issued under this plan. As of March 28, 1999, there were no further shares available for grant under this Plan; however, on March 15, 1999 the Board of Directors approved an increase in the number of shares issuable under the Purchase Plan from 150,000 to 300,000, subject to subsequent shareholder approval. Disclosure of pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 "Accounting for Stock-Based Compensation", and has been determined as if the Company had accounted for its employee stock plans under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black- Scholes option pricing model with the following weighted-average assumptions for fiscal years 1999, 1998 and 1997, respectively: risk-free interest rates of 4.49%, 6.28% and 4.73%; dividend yields of 0% in all years; volatility factors of the expected market price of the Company's common stock of 1.07, .475 and .485; and a weighted-average expected life of the options of 3.3, 3.6, and 3.0 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted average grant date fair value of options granted during fiscal 1999, 1998, and 1997 was $1.15, $4.34 and $4.12, respectively. The weighted average grant date fair value of options associated with the Company's Employee Stock Purchase Plan for fiscal 1999, 1998, and 1997 was $.56, $1.17, and $1.47 respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) Pro forma net income/(loss)................... $(14,460) $(9,165) $1,633 Pro forma earnings (loss) per share........... $ (3.85) $ (2.48) $ .44
35 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Savings Plan: Under the Company's Savings Plan (the "401(k) Plan"), eligible employees are permitted to make pre-tax contributions up to 15% of their salary, subject to certain limitations imposed by Section 401(k) of the Internal Revenue Code. In addition, employees may contribute up to 10% of their salary to the 401(k) Plan on an after tax basis. The Company may, but is not required to, contribute for the benefit of the employees of the Company an amount determined each year by the Company. For the years ended March 29, 1998, and March 30, 1997, the Company contributed approximately $131,000, and $110,000, respectively to the 401(k) Plan. No Company contribution was made for the year ended March 28, 1999. Stockholder Rights Plan: On August 15, 1996, the Board of Directors adopted a Stockholder Rights Plan. Pursuant to the Stockholder Rights Plan, each share of common stock has an associated right. Under certain circumstances, each right entitles the holder to purchase from the Company one one-thousandth of a share of junior preferred stock at an exercise price of $55.00 per one one- thousandth of a share, subject to adjustment. The rights are not exercisable and cannot be transferred separately from the common stock until ten days after a person acquires or obtains the right to acquire 15% or more or makes a tender offer for 30% or more of the Company's common stock. Upon exercise, each right will entitle the holder to purchase, in lieu of preferred stock, at the right exercise price, common stock having a value of two times the exercise price of the right. In addition, if the Company is either (i) acquired in a merger or other business combination in which the Company is not the surviving entity, or (ii) sells or transfers 50% or more of its assets or earning power to another party, each right will entitle its holder to purchase, upon exercise, common stock of the acquiring Company having a value equal to two times the exercise price of the right. The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. The rights expire on August 15, 2006 but may be redeemed by the Company for $.01 per right at any time prior to the tenth day following a person's acquisition of 15% or more of the Company's common stock. So long as the rights are not separately transferable, the Company will issue one right with each new share of common stock issued. 36 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note I--Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of March 28, 1999 and March 29, 1998 are as follows:
Total Current Non-current ------- ------- ----------- (In thousands) 1999 Deferred tax liabilities: Tax over book depreciation.................. $ (263) -- $ (263) Capitalized software........................ (42) -- (42) Capital vs. operating lease................. (65) $ (65) -- Other....................................... (32) (32) -- ------- ------- ------ Total deferred tax liabilities................ (402) (97) (305) Deferred tax assets: Asset valuation allowances.................. 3,390 3,390 -- Net operating loss carryforwards............ 1,060 -- 1,060 Product warranty............................ 59 59 -- Other....................................... 328 328 -- ------- ------- ------ Total deferred tax assets..................... 4,837 3,777 1,060 Valuation allowance for deferred tax assets... (4,435) (3,680) (755) ------- ------- ------ Net deferred tax assets....................... 402 97 305 ------- ------- ------ Net deferred tax assets (liabilities)......... $ -- $ -- $ -- ======= ======= ====== Total Current Non-current ------- ------- ----------- (In thousands) 1998 Deferred tax liabilities: Tax over book depreciation.................. $ (398) -- $ (398) Capitalized software........................ (196) -- (196) Capital vs. operating lease................. (78) $ (78) -- Other....................................... (32) (32) -- ------- ------- ------ Total deferred tax liabilities................ (704) (110) (594) Deferred tax assets: Asset valuation allowances.................. 1,384 1,384 -- Product warranty............................ 152 152 -- Net operating loss carryforwards............ 571 -- 571 Other....................................... 368 291 77 ------- ------- ------ Total deferred tax assets..................... 2,475 1,827 648 Valuation allowance for deferred tax assets... (762) (114) (648) ------- ------- ------ Net deferred tax assets....................... 1,713 1,713 -- ------- ------- ------ Net deferred tax assets (liabilities)......... $ 1,009 $ 1,603 $ (594) ======= ======= ======
37 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Significant components of the provision (benefit) for income taxes are as follows:
Year ended ------------------------------ March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) Current federal tax............................ $(1,699) $ 318 $1,211 Current state tax.............................. -- 14 102 Deferred federal tax........................... 827 (451) (258) Deferred state tax............................. 182 (20) (52) ------- ----- ------ $ (690) $(139) $1,003 ======= ===== ====== The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense is as follows: Year ended ------------------------------ March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- Tax at U.S. statutory rates.................... (34.0)% (34.0)% 34.0 % State income taxes, net of federal benefit..... -- -- 3.1 Foreign sales corporation...................... -- (1.6)% (3.7) Tax credits.................................... -- (.8)% (4.9) Acquired in-process research and development... -- 25.0 % -- Non deductible goodwill and other intangibles.. -- 4.6 % -- Unbenefitted foreign net operating loss........ -- 4.8 % -- Unbenefitted domestic net operating loss....... 7.4 % -- -- Unbenefitted asset valuation reserve........... 18.2 % -- -- Forfeited foreign net operating losses......... 2.9 % -- -- Goodwill amortization.......................... 1.5 % Other, net..................................... (0.7)% .3 % 2.0 ------- ----- ------ (4.8)% (1.7)% 30.5 % ======= ===== ======
During the year ended March 29, 1998 the Company recorded a tax benefit of approximately $112,000 related to the exercise of non-qualified stock options which amounts have been credited to additional paid-in capital. Income taxes paid in the years ended March 28, 1999, March 29, 1998, and March 30, 1997, were $110,000, $827,000, and $1,404,000, respectively. The Company has domestic net operating loss carryforwards of approximately $6,400,000 which will begin to expire in fiscal year 2019. In addition, the Company has approximately $1,150,000 of net operating losses, which will continue indefinitely. During the year, the net operating loss carryforward related to its UK subsidiary expired as a result of the shut down of the operations. 38 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note J--Accrued Expenses Accrued expenses consist of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands) Accrued commissions...................................... $ 756 $1,199 Accrued compensation and benefits........................ 853 1,215 Accrued warranty......................................... 245 823 Other.................................................... 1,014 1,649 ------ ------ $2,868 $4,886 ====== ======
As of March 28, 1999 the Company accrued approximately $200,000 related to costs associated with the layoff of 13 employees (including 3 engineering, 8 manufacturing and 2 in selling, general and administrative) and the shutdown of the Company's Malaysian subsidiary, which are included in selling, general and administrative expenses in the accompanying Statement of Operations. As of June 1999, all severance related costs were paid except for $80,000 related to one employee with whom the Company has a separation agreement which provides for payment over 24 months. As of March 29, 1998 the Company accrued approximately $500,000 related to costs associated with the layoff of 40 employees (including 14 engineering, 15 manufacturing and 11 in selling, general and administrative) and other employee related matters. This accrual is included in selling, general and administrative expenses in the accompanying Statement of Operations. Approximately $110,000 of the costs related to severance payments which were paid in the first quarter of fiscal 1999, approximately $200,000 related to employee benefit payments related to fiscal 1998 such as a savings plan match and were paid in the second quarter of fiscal 1999 and the remainder related to estimated additional costs associated with the downsizing which ultimately were not incurred and were reversed in the second quarter of fiscal 1999. Note K--Segment, Geographic, Customer Information and Concentration of Credit Risk The Company designs, manufactures and markets semiconductor automation equipment and has one reportable operating segment based on the consolidated operating results of the Company. Net sales from customers attributed to the United States and other geographic areas are as follows:
Year ended ----------------------------- March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) United States.................................. $11,742 $28,147 $16,495 Taiwan......................................... 2,491 4,454 6,841 Pacific Rim.................................... 3,601 8,640 7,944 Europe......................................... 902 2,697 2,512 Other.......................................... 482 308 528 ------- ------- ------- $19,218 $44,246 $34,320 ======= ======= =======
The Company does not hold a material amount of long-lived assets outside of the United States. The Company sells its products principally to integrated circuit manufacturers. The Company performs periodic credit evaluations of its customers' financial condition. The Company's accounts receivable included 39 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) balances owed by one customer which represented 18% of total trade accounts receivable as of March 28, 1999, and two customers which represented 16% and 26% of total trade accounts receivable as of March 29, 1998. Two customers accounted for 14% and 13% of net sales for the year ended March 28, 1999. Two customers accounted for 23% and 16% of net sales for the year ended March 29, 1998. One customer accounted for 17% of net sales for the year ended March 30, 1997. Note L--Acquisition On May 23, 1997, the Company acquired 100% of the outstanding stock of Western Equipment Developments (Holdings) Ltd. ("WED"), located in Plymouth, England, for approximately $6,100,000 in cash. WED designs, manufacturers 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 purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Intangible assets acquired consisting of developed technology, and acquired in-process research and development were valued using risk adjusted cash flow models under which estimated future cash flows were discounted taking into account risks related to existing and future target markets and to the completion of the products expected to be ultimately marketed by the Company, and assessments of the life expectancy of the underlying technology. The valuation yielded values for in-process technology of $6.1 million, developed technology of $1.5 million, assembled workforce of $600,000 and trademarks and trade names of $600,000. Since the aggregate of the fair values of the intangible assets acquired as determined by the valuation exceeded the excess of the purchase price of WED (cash paid plus liabilities assumed) over the fair value of tangible assets acquired, the relative values of these assets were applied to the excess purchase price to determine the relative values of developed technology, in-process technology, assembled workforce, and tradenames and trade marks. This exercise yielded an initial allocation of the purchase price at the date of the acquisition to tangible assets acquired of $2.1 million, liabilities assumed of $3.076 million, an estimate of acquired in-process research and development of $4.9 million, developed technology of $1.216 million, assembled workforce of $480,000 and trademarks and tradenames of $480,000. The valuation of the acquired in-process research and development represents the estimated fair value related to incomplete projects acquired. Management is responsible for estimating the fair value of acquired in-process research and development. In management's opinion, the development of these projects had not reached technological feasibility and the research and development in process had no alternative future uses. The valuation of in- process research and development projects was performed using the income approach. Each projects' cash flows were evaluated and discounted back to the present at risk-adjusted discount rates. The most significant project (approximately 70% of the in-process value) related to an automated wafer logistics unit for use in a semiconductor fabrication facility. The development of this project would provide for the integration of multiple standalone wafer storage and sorting units, collection of vital statistical production data and interface to the control systems of the semiconductor production facility. The second most significant project (approximately 20% of the in-process value) related to a wafer sorter. The development of this project would provide improved factory yield management for a semiconductor manufacturer via a high throughput, low vibration solution to moving wafers through the semiconductor production process. Key assumptions used in the analysis of these projects included gross margins of approximately 50% and a discount rate of 35%. Engineering expenses were based on estimated costs to complete the projects and other operating expenses such as selling, marketing, general and administration were based on historical operating performance. The gross margin was based on a five-year historical actual gross margin which ranged between 50% and 60% and forecasted gross 40 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) margin which for fiscal 1998 was 51%. Basis for the discount rate considered the stage of development of the in-process technologies, the timing of the product introductions, and the potential for lack of market acceptance for the products. As of the date of the acquisition, the Company expected to continue development of the wafer sorter through fiscal 1998 and the automated wafer logistics unit through fiscal 1999 at an additional aggregate cost of approximately $1.5--$2.0 million. Product commercialization was anticipated for the wafer sorter in late fiscal 1998 and the automated wafer logistics unit in late fiscal 1999. Material cash inflows for each product were anticipated for the wafer sorter in fiscal 1999 and the automated wafer logistics unit in fiscal 2000. However, subsequent to the acquisition date, the Company determined that it would take longer than originally anticipated to complete development of these projects. As a result, the Company revised its original expectation for commercialization of the wafer sorter and the automated wafer logistics unit to fiscal 1999 and fiscal 2000, respectively. Additionally, during fiscal 1998, the Company determined that certain projects identified as acquired developed technology were not as developed as originally expected. The most significant project was an optical inspection station for use in a semiconductor fabrication facility. The Company expected to commercially release this product at the time of the acquisition; therefore, in the initial allocation, this project was characterized as developed technology. Subsequently, the Company completed its assessment of the project and concluded that because of significant software and electro- mechanical failures related to subassembly and component level design and reliability issues the product had not reached technological feasibility. The optical inspection station provides for optical scanning of wafers during the semiconductor manufacturing process using sophisticated optics which can identify defects at a sub-micron level. This unit is unique because it is the only unit available that provides both optical scanning and manual inspection of wafers on one unit. Based on the facts that certain products would not be commercialized as soon as anticipated and the re-characterization of certain products as in-process, the Company re-performed its valuation of its intangibles acquired. Key assumptions used in the analysis of these projects included gross margins of approximately 50% and a discount rate of 30%. Engineering expenses were based on estimated costs to complete the projects and gross margin and other operating expenses such as selling, marketing, general and administration were based on historical operating performance and the unit's fiscal 1999 operating budget. The basis for the discount rate re-considered the factors mentioned previously, but also considered that the revenue forecast was revised downward to reflect market conditions. As of the date of the final allocation, the Company expected to continue development of the optical inspection station through fiscal 1999 at an additional cost of approximately $300,000. The most significant projects characterized as in-process research and development as a result of the final allocation of the purchase price were the wafer sorter, the automated wafer logistics unit and the optical inspection station which collectively represented 96% of the value of in-process research and development. Based on the final valuation of intangible assets acquired, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final valuation and allocation resulted in an additional allocation of $1.2 million to in-process research and development and a corresponding charge of $1.2 million was recorded in the fourth quarter, resulting in an aggregate year to date charge of $6.1 million. The Company's final allocation of the purchase price resulted in an allocation to tangible assets of $2.1 million, liabilities assumed of $3.9 million, which increased primarily because of a change in the estimate of acquired warranty obligations, acquired in-process research and development of $6.1 million, developed technology of $400,000, goodwill of $1.084 million and other intangibles comprised of assembled workforce of $316,000. In September 1998, as part of the Company's plan to consolidate its UK wafer handling and inspection operation (See Note M to the Consolidated Financial Statements), the Company decided to abandon both the 41 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) automated wafer logistics and the sorter projects. At that time, the Company was experiencing a weakened financial condition due to the market-wide semiconductor capital equipment market downturn and the resulting lower level of available resources. Because of these factors, the Company decided to focus its development efforts on projects with a shorter-term return on investment; consequently, development efforts on only the optical inspection station were continued. As of the end of fiscal 1998, the Company estimated that $1.2 million would be incurred over the next three years in connection with the completion of acquired research and development. During fiscal 1999 the Company incurred approximately $600,000 related to the completion of these products. None of the new products was completed or shipped in fiscal 1999; however, the Company began shipping its optical inspection station in fiscal 2000. The Company expects to spend slightly less than its original estimate of $1.2 million. Moreover, since WED incurred operating losses in fiscal 1998, which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in Selling, General and Administrative expenses in the accompanying Statement of Operations. Subsequent to the write-down, the carrying amount of developed technology was $400,000 and the related goodwill was $121,000 as of March 29, 1998. The following table summarized the unaudited pro-forma consolidated results of operations as if the acquisition had been made at the beginning of each of the periods presented.
March 29, March 30, 1998 1997 --------- --------- (In thousands) Net sales............................................... $45,274 $39,303 Net loss................................................ (9,519) (4,878) Earnings (loss) per share............................... $ (2.58) $ (1.31)
Note M--Restructuring and Other Charges In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and the related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models. The Company's actions resulted in the elimination of approximately 20 positions, principally in the manufacturing, selling and administration areas. Benefits expected to be derived from the restructuring effort beginning in the third quarter of fiscal 1999 included estimated annualized cost savings of approximately $1.4 million from elimination of duplicate manufacturing facilities and functions, consolidation of selling and administrative functions in the US and reductions in headcount. 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 discontinuation and a $1.3 million restructuring charge. Inventory included in the $850,000 charge was principally related to inventory parts purchased in anticipation of commercialization of one of the Company's in-process projects which was abandoned in this quarter. The inventory was written down to $0 representing management's estimate of fair value. The inventory was crated and stored offsite to provide evidence, if needed, for breach of warranty and representation claims, concerning the WED purchase agreement. No recovery was ever received for this inventory. The Company intends to discard the inventory as soon as possible. The principal components of the restructuring charge include $495,000 for a write-down of fixed asset no longer used by the operation, which assets were discarded, $241,000 42 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated discounted future cash flows, $65,000 of lease termination and related costs, $98,000 for a write-down of UK government grant monies receivable and repayment of amounts previously received for grant activity as a result of abandonment of the automated wafer logistics project and $34,000 for other assets. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line, cost structure and asset base. As a result of market studies conducted by the Company in its fiscal fourth quarter, it was determined that a more rapid change away from older package configurations such as the plastic leaded chip carrier (PLCC) to small outline (SO) and chipscale packages would occur more rapidly than the Company previously expected. As a result, the Company determined that future demand for its current product portfolio would not be as strong as anticipated earlier in the fiscal year and, accordingly, revised its fiscal 2000 and beyond forecasted operating plans. Based upon this information, the Company also redirected its development efforts toward a new product to address the newer package configurations. Components of the charge included: a) a $5.0 million charge to cost of goods sold for write-downs representing primarily the carrying cost of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans. The inventory was written down to $0 representing management's estimate of fair value. Given the volume of the inventory and the limited resources available due to continued downsizing of the Company, management is periodically segregating and discarding the inventory. This process is expected to be completed during the next 12 months. b) 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. These fixed assets were put out of service and were subsequently discarded. c) a $544,000 write-down to selling, general and administrative expense of various assets whose carrying value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans and adverse market conditions, including $103,000 of sales demonstration equipment, older computers and other fixed assets all of which were put out of service and discarded, $214,000 of other tax assets which management no longer deemed more likely than not to be recoverable, $200,000 related to an increase in the reserve for uncollectible accounts due to the impact of adverse market conditions on the Company's customers and $27,000 of other assets. These assets were written down to $0 representing management's estimate of fair value. d) a $280,000 charge to selling, general and administrative expense associated with the layoff of 13 employees including 1 administration, 3 engineering, 8 manufacturing and 1 sales and service and other costs. As of June 1999, all severance related costs were paid except for $80,000 related to one employee with whom the Company has a separation agreement which provides for payment over 24 months. e) a $30,000 charge to selling, general and administrative expense for the closure of the Company's Malaysian subsidiary. Note N--Related Party Transactions On April 15, 1996, the Company loaned $140,000 to an executive officer, who is also a director of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of the executive officer's employment with the Company or April 15, 1999. The loan is secured by shares of the Company's common stock owned by the executive officer (See Note O of Consolidated Financial Statement). 43 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note O--Subsequent Events 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 and prior years, 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 maintain a minimum capital base and not incur net losses of more than a specified amount. As of March 28, 1999, the Company was in default of the debt to net worth and net loss covenants but has since obtained appropriate waivers from the bank. 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 will have a two year term and will allow for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. The line will be secured by all the assets of the Company and will be subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. The replacement line of credit will accrue interest at a rate of prime plus 1.5%. The bank may alter or terminate its commitment with respect to the replacement line of credit if there is any material adverse change in the Company's financial position or otherwise. However, to the extent that there is a shortfall of funds under the commitment, management has the ability and intent to adjust the Company's cash flows to be able to meet operational needs at least through the end of fiscal 2000. On July 6, 1999, an executive officer repaid $140,000 to the Company in settlement of the principal portion of an outstanding loan (See Note N). The Board of Directors agreed to forgive interest accrued on the loan through July 6, 1999. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Election of Officers" and is incorporated herein by reference thereto. The information required by this item with respect to executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Executive Officer Compensation" and is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Stock Ownership of Directors, Nominees, Executive Officers and Principal Stockholders" and is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS On April 15, 1996, the Company loaned $140,000 to Sebastian J. Sicari, a director and executive officer of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of Mr. Sicari's employment with the Company or April 15, 1999. At March 28, 1999, principal and accrued interest on the loan totaled $163,599. The loan is secured by shares of the Company's common stock owned by Mr. Sicari. On July 6, 1999, Mr. Sicari repaid $140,000 to the Company in settlement of the principal portion of the outstanding loan. The Company agreed to forgive interest accrued on the loan through July 6, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1.Financial Statements The following consolidated financial statements are included in Item 8: Consolidated Balance Sheets as of March 28, 1999 and March 29, 1998 Consolidated Statements of Operations for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 28, 1999, March 29, 1998 and March 30, 1997 Consolidated Statements of Cash Flows for the years ended March 28, 1999, March 29, 1998 and March 30, 1997 45 (a)2.Financial Statement Schedules
Page ---- Schedule II--Valuation and Qualifying Accounts............................. F-1
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (a)3.Listing of Exhibits
Exhibit No. Description ------- ----------- 3.2 Third Restated Certificate of Incorporation of the Company, filed as Exhibit 3.2 to the Registration Statement on Form S-1 (SEC File No. 33-57644) filed with the Commission on January 29, 1993 and incorporated herein by reference. 3.3 Certificate of Designations, Rights, Preferences and Privileges of Series A Junior Preferred Stock of the Company, filed with the Commission on July 13, 1999 as Exhibit 3.3 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated by reference. 3.4 Amended and Restated By-laws of the Company, filed as Exhibit 4.2 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. 4.2 Rights Agreement dated August 15, 1996 between the Company and State Street Bank & Trust Company as Rights Agent (including the exhibits thereto), incorporated by reference from the Company's Registration Statement on Form 8-A filed with the Commission on August 26, 1996. 4.3 Amendment No. 1 to the Rights Agreement dated January 2, 1997 between the Company and American Stock Transfer & Trust Company, filed as Exhibit 4.2 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.2 1993 Non-Employee Director Stock Option Plan (as amended and restated as of August 11, 1998), filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 27, 1998 and incorporated herein by reference. 10.3 1993 Employee Stock Purchase Plan (as amended and restated as of June 18, 1998), filed as Exhibit 99.1 to the Registration Statement on Form S-8 (SEC File No. 333-68907) filed with the Commission on December 15, 1998 and incorporated herein by reference. 10.4 1993 Omnibus Stock Plan, as amended and restated as of June 14, 1996, filed as Exhibit 10.1 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. 10.5 Lease dated April 13, 1993, between the Company and CIGNA Investments, Inc., filed as Exhibit 10.5 to the Registration Statement on Form S-1 (SEC File No. 33-57644) filed with the Commission on January 29, 1993 and incorporated herein by reference. 10.6 $5,000,000 Revolving Note dated November 27, 1998 made by the Company and payable to Fleet National Bank, filed with the Commission on July 13, 1999 as Exhibit 10.6 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. 10.7 Inventory, Accounts Receivable and Intangibles Security Agreement from the Company to Fleet National Bank, filed with the Commission on July 13, 1999 as Exhibit 10.7 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. 10.8 Supplementary Security Agreement from the Company to Fleet National Bank, filed with the Commission on July 13, 1999 as Exhibit 10.8 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference.
46
Exhibit No. Description ------- ----------- 10.9 Letter Agreement between the Company and Fleet National Bank dated November 27, 1998, filed with the Commission on July 13, 1999 as Exhibit 10.9 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. 10.10 Modification Agreement between the Company and Fleet National Bank dated June 22, 1999, filed with the Commission on July 13, 1999 as Exhibit 10.10 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.11 Severance agreement dated December 30, 1996, between the Company and Sebastian J. Sicari, filed with the Commission on July 13, 1999 as Exhibit 10.11 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.12 Letter Agreement between Sebastian J. Sicari and the Company, dated August 11, 1998, filed with the Commission on July 13, 1999 as Exhibit 10.12 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.13 Severance Agreement dated July 8, 1998, by and between the Company and Mary R. Barletta, filed with the Commission on July 13, 1999 as Exhibit 10.13 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.14 Severance Agreement dated July 8, 1998, by and between the Company and Phillip Villari, filed with the Commission on July 13, 1999 as Exhibit 10.14 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.15 Severance Agreement dated July 8, 1998, by and between the Company and Robert L. Murray, filed with the Commission on July 13, 1999 as Exhibit 10.15 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.16 Severance Agreement dated July 8, 1998, by and between the Company and Robert E. Sandberg, filed with the Commission on July 13, 1999 as Exhibit 10.16 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.17 Severance Agreement dated October 21, 1998, by and between the Company and Richard S. Sidell, filed with the Commission on July 13, 1999 as Exhibit 10.17 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. *10.18 Separation Agreement dated August 11, 1998, by and between the Company and Carl S. Archer, filed with the Commission on July 13, 1999 as Exhibit 10.18 to the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. 10.19 Promissory Note between the Company and Sebastian J. Sicari dated April 15, 1996, and filed as Exhibit 10.13 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.20 Pledge Agreement between the Company and Sebastian J. Sicari dated April 15, 1996, filed as Exhibit 10.15 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.21 Share Purchase Agreement dated as of May 23, 1997 by and among the Company and each of the shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.1 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference. 10.22 Tax Deed dated May 23, 1997 by and among the Company and certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.2 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference. 10.23 Escrow Agreement dated as of May 23, 1997 by and among the Company and David Carr and Philip Steven Walsh as representatives for certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.3 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference.
47
Exhibit No. Description ------- ----------- 21 Subsidiaries of the Company, filed with the Commission on July 13, 1999 with the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. 23.1 Consent of Ernst & Young LLP, filed herewith. 27 Financial Data Schedule, filed with the Commission on July 13, 1999 with the Company's Form 10-K for the year ended March 28, 1999 and incorporated herein by reference. - -------- * Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item (c) of Form 10-K.
(b) Reports on Form 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the fiscal quarter ended March 28, 1999. 48 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. ASECO Corporation /s/ Sebastian J. Sicari By: _________________________________ Sebastian J. Sicari President, Chief Executive Officer, and Director (Principal Executive Officer) December 29, 1999 /s/ Mary R. Barletta By: _________________________________ Mary R. Barletta Vice President, Chief Financial Officer, Treasurer (Principal Financial and Accounting Officer) December 29, 1999 49 SCHEDULE II ASECO CORPORATION VALUATION AND QUALIFYING ACCOUNTS
Balance Charges at to costs Balance at beginning and Other end of Classification of year expenses Deductions Changes (1) year -------------- --------- -------- ---------- ----------- ---------- Year ended March 28, 1999 Allowance for doubtful accounts............... $781,000 $200,000 $ 30,000 $ 79,000(2) $1,027,000 Year ended March 29, 1998 Allowance for doubtful accounts............... $407,000 $407,000 $358,000 $325,000(1) $ 781,000 Year ended March 30, 1997 Allowance for doubtful accounts............... $397,000 $100,000 $ 90,000 -- $ 407,000
- -------- (1) Represents the balance of the allowance for doubtful accounts of the acquisition date May 23, 1997. (See Note L to Consolidated Financial Statements.) (2) Represents additional allowance for doubtful accounts resulting from final settlement of acquisition purchase price. (See Note L to Consolidated Financial Statements.) 50 EX-23.1 2 CONSENT OF ERNST & YOUNG Exhibit 23.1 Consent of Independent Auditors We consent to the use of our report dated May 10, 1999, except for Note O as to which the date is July 9, 1999, included in the Annual Report on Form 10-K of Aseco Corporation for the year ended March 28, 1999, with respect to the consolidated financial statements, as amended, and schedule, included in this Form 10-K/A. We also consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 33-66250, 33-80425, 33-89036, 333-18337) of Aseco Corporation and Amendment No. 3 to the Registration Statement (Form S-4 No. 333-89675) of our report dated May 10, 1999, except for Note O as to which the date is July 9, 1999, with respect to the consolidated financial statements, as amended, and schedule of Aseco Corporation included in its Annual Report (Form 10-K, as amended by Form 10-K/A) for the year ended March 28, 1999. ERNST & YOUNG LLP Boston, Massachusetts December 28, 1999 -----END PRIVACY-ENHANCED MESSAGE-----