-----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, Hp6bHaRlIGHzAIMcFgWZMbtFcPpCnk9CLmu7hXz7r9bhioLwfR4pAieSEx0XkTzW LXCWYn2IqtiSjEEVRYeopQ== 0000927016-99-004044.txt : 19991231 0000927016-99-004044.hdr.sgml : 19991231 ACCESSION NUMBER: 0000927016-99-004044 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990926 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-Q/A SEC ACT: SEC FILE NUMBER: 000-21294 FILM NUMBER: 99783675 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-Q/A 1 FORM 10-Q/A FOR QUARTER ENDED 09/26/1999 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- FORM 10-Q/A ---------------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 26, 1999 Commission file number 0-21294 Aseco Corporation (Exact name of registrant as specified in its charter) Delaware 04-2816806 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752 (Address of principal executive offices) (508) 481-8896 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 26, 1999. Common Stock, $.01 par value 3,908,370 (Title of each class) (Number of shares) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements.................... 3 Condensed Consolidated Balance Sheets (unaudited) at September 26, 1999 and March 28, 1999.................................... 3 Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended September 26, 1999 and September 27, 1998....................................................... 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended September 26, 1999 and September 27, 1998........................................................... 5 Notes to Condensed Consolidated Financial Statements........... 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 9-15 Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 16 Item 2. Changes in Securities and Use of Proceeds...................... 16 Item 3. Defaults upon Senior Securities................................ 16 Item 4. Submission of Matters to a Vote of Security Holders............ 16 Item 5. Other Information.............................................. 16 Item 6. Exhibits and Reports on Form 8-K............................... 16 Signatures..................................................... 17
2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ASECO CORPORATION Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share and per share data)
September 26, March 28, 1999 1999 ------------- --------- Assets Current assets Cash and cash equivalents............................ $ 1,652 $ 1,229 Accounts receivable, less allowance for doubtful accounts of $1,014 at September 26, 1999 and $1,027 at March 28, 1999................................... 6,437 4,041 Inventories, net..................................... 5,624 5,893 Prepaid expenses and other current assets............ 330 1,918 ------- ------- Total current assets............................... 14,043 13,081 Plant and equipment, at cost........................... 7,341 7,341 Less accumulated depreciation and amortization......... 5,666 5,207 ------- ------- 1,675 2,134 Other assets, net...................................... 124 109 ------- ------- $15,842 $15,324 ======= ======= Liabilities and Stockholders' Equity Current liabilities Line of credit....................................... $ 1,351 $ 475 Accounts payable..................................... 2,865 1,964 Accrued expenses..................................... 2,509 2,868 Current portion of capital lease obligations......... 4 12 ------- ------- Total current liabilities.......................... 6,729 5,319 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding............. -- -- Common stock, $.01 par value: Authorized 15,000,000 shares, issued and outstanding 3,908,370 and 3,832,799 shares at September 26, 1999 and March 28, 1999, respectively.................................. 39 38 Additional paid in capital............................. 18,422 18,321 Accumulated deficit.................................... (9,376) (8,382) Foreign currency translation adjustment................ 28 28 ------- ------- Total stockholders' equity......................... 9,113 10,005 ------- ------- $15,842 $15,324 ======= =======
See notes to condensed consolidated financial statements 3 ASECO CORPORATION Condensed Consolidated Statements of Operations (unaudited) (in thousands, except share and per share data)
Three months ended Six months ended --------------------------- --------------------------- September 26, September 27, September 26, September 27, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net sales............... $ 5,652 $ 4,395 $ 10,369 $ 11,025 Cost of sales........... 3,345 3,641 6,158 7,701 ---------- ---------- ---------- ---------- Gross profit.......... 2,307 754 4,211 3,324 Research and development costs.................. 850 1,217 1,706 2,876 Selling, general and ad- ministrative expense... 1,859 2,151 3,473 4,537 Restructuring charge.... -- 1,300 -- 1,300 ---------- ---------- ---------- ---------- Loss from operations.. (402) (3,914) (968) (5,389) Other income (expense): Interest income....... -- 31 58 Interest expense...... (41) (54) (50) (59) Other, net............ -- 20 24 11 ---------- ---------- ---------- ---------- (41) (3) (26) 10 ---------- ---------- ---------- ---------- Loss before income taxes.................. (443) (3,917) (994) (5,379) Income tax benefit...... -- (347) -- (689) ---------- ---------- ---------- ---------- Net loss................ ($443) ($3,570) ($994) ($4,690) ========== ========== ========== ========== Loss per share, basic... ($0.11) ($0.96) ($.26) ($1.26) Shares used to compute loss per share, basic.. 3,881,000 3,735,000 3,861,000 3,734,000 Loss per share, diluted................ ($0.11) ($0.96) ($.26) ($1.26) Shares used to compute loss per share, diluted................ 3,881,000 3,735,000 3,861,000 3,734,000
See notes to condensed consolidated financial statements 4 ASECO CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands)
Six months ended --------------------------- September 26, September 27, 1999 1998 ------------- ------------- Operating activities: Net loss.......................................... $ (994) $(4,690) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................... 504 1,009 Loss on sale of plant and equipment............. -- 5 Restructuring charge............................ -- 1,300 Inventory write-off............................. -- 850 Changes in assets and liabilities: Accounts receivable............................. (2,396) 3,246 Inventories, net................................ 269 (978) Prepaid expenses and other current assets....... 1,588 66 Accounts payable and accrued expenses........... 542 (3,988) ------- ------- Total adjustments............................. 507 1,510 ------- ------- Cash used in operating activities............. (487) (3,180) Investing activities: Proceeds from sale of plant and equipment....... -- 7 Acquisition of plant and equipment.............. -- (342) Increase in software development costs and other assets......................................... (60) (136) ------- ------- Cash used in investing activities............. (60) (471) Financing activities: Net proceeds from issuance of common stock...... 102 50 Borrowings on line of credit.................... 876 4,390 Payments of long-term capital lease obligations.................................... (8) (16) ------- ------- Cash provided by financing activities......... 970 4,424 ------- ------- Effect of exchange rate changes on cash....... -- 3 Net increase in cash and cash equivalents..... 423 776 Cash and cash equivalents at the beginning of period........................................... 1,229 4,431 ------- ------- Cash and cash equivalents at the end of period.... $ 1,652 $ 5,207 ======= =======
See notes to condensed consolidated financial statements 5 ASECO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Months Ended September 26, 1999 1. Basis of Presentation--The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended September 26, 1999 are not necessarily indicative of the results that may be expected for the year ended March 26, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 28, 1999. 2. Comprehensive Income--Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) requires the reporting and display of comprehensive income and its components. Under this standard, certain revenues, expenses, gains and losses recognized during the period are included in comprehensive income, regardless of whether they are considered to be results of operations of the period. During the second quarter of fiscal 2000, total comprehensive loss amounted to $443,000 versus comprehensive loss of $3,534,000 for the second quarter of fiscal 1999. Comprehensive loss for the first six months of fiscal 2000 was $994,000 versus comprehensive loss for the first six months of fiscal 1999 of $4,665,000. The difference between comprehensive loss and net loss as reported on the Consolidated Statements of Operations is attributable to the foreign currency translation adjustment. 3. New Accounting Pronouncements--The Company has not yet adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) which is required to be adopted in fiscal 2002, as amended by Financial Accounting Standards No. 137. Adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations. 4. Inventories--
September 26, March 28, 1999 1999 ------------- --------- (in thousands) Raw Material......................................... $1,833 $1,966 Work in Process...................................... 3,413 3,441 Finished Goods....................................... 378 486 ------ ------ $5,624 $5,893 ====== ======
5. 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 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 6 ASECO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 Western Equipment Develpments (Holdings) Ltd. ("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. 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 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 on 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. 7 ASECO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Credit Facility--On August 19, 1999, the Company entered into a two-year revolving credit agreement (the "Credit Agreement") allowing for maximum availibility of $3.0 million based on a percentage of qualified accounts receivable and inventory. Borrowings under the Credit Agreement are secured by all the assets of the Company and are subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. Interest accrues on outstanding balances under the Credit Agreement at prime plus 1.5%. As of November 5, 1999, availibility under this facility was $3.0 million. The Company's indebtedness for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of September 26, 1999, the Company was in compliance with all covanants under the Credit Agreement. 7. Repayment of Loan--On July 6, 1999, an executive officer repaid $140,000 to the Company in settlement of the principal portion of an outstanding loan. The Board of Directors agreed to forgive all accrued interest on such loan. 8. Taxes--No tax benefit was recorded in the second quarter of fiscal 2000 because no benefit from operating loss carryback provisions was available to the Company. The Company recorded a valuation allowance for deferred tax assets, principally representing net operating loss carryforwards and other deferred tax assets the realization of which the Company does not deem more likely than not. 9. Merger--On September 20, 1999, the Company announced a definitive merger agreement with Micro Component Technology, Inc., a test handler manufacturer. The transaction, which is structured as a stock merger, is valued at approximately $16.3 million, subject to certain adjustments. The agreement has been approved by the Board of Directors of each company and is subject to approval by the shareholders of each company and regulatory agencies. The Company anticipates that the merger will close in December 1999. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and six months ended September 26, 1999 and September 27, 1998 Pending Merger On September 20, 1999, the Company announced a definitive merger agreement with Micro Component Technology, Inc., a test handler manufacturer. The transaction, which is structured as a stock merger, is valued at approximately $16.3 million, subject to certain adjustments. The agreement has been approved by the Board of Directors of each company and is subject to approval by the shareholders of each company and regulatory agencies. The Company anticipates that the merger will close in December 1999. Results of Operations--Overview During fiscal 1999, the Company undertook several actions to address the impact of the market downturn on the Company. 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 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. 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 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 on 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 9 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. Three and Six Months Ended September 26, 1999 and September 27, 1998 Net sales for the second quarter of fiscal 2000 increased 29% to $5.7 million from $4.4 million for the second quarter of fiscal 1999. For the first six months of fiscal 2000, net sales decreased 6% to $10.4 million from $11.0 million for the same period last year. The increase in quarterly net sales resulted from an increase in demand for the Company's products, particularly those serving the small outline (SO) and accelerometer product markets, resulting from improved semiconductor capital equipment market conditions. Although demand for the Company's products improved in the second quarter of fiscal 2000, net sales of $10.4 million for the first six months of fiscal 2000 were less than the net sales of $11.0 million for the same period in fiscal 1999. The overall decline was due to continued weakness in the semiconductor capital equipment market experienced in fiscal 1999, continuing into fiscal 2000, resulting in lower sales for the first six months of fiscal 2000. International sales represented approximately 18% of net sales in the second quarter and first six months of fiscal 2000 compared to 35% and 42% of net sales in the second quarter and first six months of fiscal 1999, respectively. The decrease in international sales as a percentage of total sales resulted from a lower level of semiconductor package testing outside of the United States by the Company's customers and lower demand for one of the Company's product models serving the plastic leaded chip carrier ("PLCC") market for which the Company's customers are located overseas. Gross profit for the second quarter of fiscal 2000 was $2.3 million, or 41% of net sales, compared to $754,000, or 17% of net sales, in the second quarter of fiscal 1999. During the first six months of fiscal 2000, gross profit was $4.2 million, or 41% of net sales compared to $3.3 million, or 30% of net sales, for the same 10 period in fiscal 1999. Gross profit in the second quarter and first six months of fiscal 1999 was negatively impacted by a special charge of $850,000 described above in the section "Results of Operations--Overview". Furthermore, the gross profit margins were negatively affected by lower sales volumes. Additionally, gross profit in the quarterly and six month periods in each fiscal year was significantly influenced by a product shipment mix including a larger percentage of the Company's lower gross margin products. This is due to the fact that during the second quarter of fiscal 1999, the Company began shipping units of a product for which it acts as a distributor and which have gross margins that are 50% lower than its manufactured products. Research and development costs decreased 30% to $850,000 in the second quarter of fiscal 2000 from $1.2 million in the same quarter last year. Research and development costs for the first six months of fiscal 2000 decreased 41% to $1.7 million from $2.9 million in the first six months of the prior year. The decrease in spending was primarily the result of workforce reductions of approximately 28%, or 13 people, implemented during the second half of fiscal 1999. Development spending in the first six months of fiscal 2000 was focused on various enhancements and features for the Company's existing products and a new test handler platform. Selling, general and administrative expenses decreased 14% to $1.9 million in the second quarter of fiscal 2000 from $2.2 million in the second quarter of fiscal 1999. During the first six months of fiscal 2000, selling, general and administrative expenses decreased 23% to $3.5 million compared to $4.5 million for the same period in fiscal 1999. The decrease in selling, general and administrative expenses was a result of reductions in headcount of approximately 25%, or 13 people, implemented during the second half of fiscal 1999, and strict controls representing periodic management review of discretionary spending including reduced travel and trade show related expenses. The reduced discretionary spending resulting in approximate savings of approximately $200,000 in the first half of fiscal 2000 versus the same period in fiscal 1999. As a result of the above, the Company generated an operating loss of $402,000 for the second quarter of fiscal 2000 and $968,000 for the first six months of fiscal 2000 compared to an operating loss of $3.9 million and $5.4 million in the second quarter and first six months of fiscal 1999, respectively. Other income (expense), net consists primarily of interest expense paid on the Company's outstanding line of credit balance. The Company recorded no income tax benefit in the second quarter and first six months of fiscal 2000 because no benefits from operating loss carryback provisions were available to the Company. The Company recorded a valuation allowance for deferred tax assets, principally representing net operating loss carryforwards and other deferred tax assets, the realization of which the Company does not deem more likely than not. Net loss for the second quarter of fiscal 2000 was $443,000, or $.11 per share, compared to net loss of $3.6 million, or $.96 per share, in the second quarter of fiscal 1999. Net loss for the first six months of fiscal 2000 was $994,000, or $.26 per share, compared to net loss of $4.7 million, or $1.26 per share, in the same period last year. During fiscal 1998, the Company recorded a charge of approximately $6.1 million for in-process research and development related to its May 23, 1997 acquisition of Western Equipment Developments (Holdings) Ltd. The significant projects related to this charge were an automated wafer logistics unit, a wafer sorter and an optical inspection station. In September 1998, as part of the Company's plan to consolidate its UK wafer handling and inspection operation, the Company decided to abandon both the automated wafer logistics and the sorter projects. 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. Although expected to be completed during fiscal 1999, commercialization of the optical inspection station was delayed until fiscal 2000. As a result, the Company anticipates increased revenue levels and cash inflows for this product in fiscal 2001. The Company does not expect to incur additional costs on these projects. The costs incurred to date on the projects did not exceed the Company's original estimate of $1.2 million. 11 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 September 26, 1999, the Company had cash, net of borrowings, of $301,000 and working capital of approximately $7.3 million. The Company used approximately $487,000 in cash for operating activities during the first six months of fiscal 2000. The primary working capital factors affecting cash from operations were accounts receivable, inventory and accounts payable and accrued expenses. Accounts receivable increased approximately $2.4 million as a result of an increase in net sales from March 1999. Additionally, the majority of second quarter equipment shipments occurred in the last month of the second quarter. Inventory decreased approximately $269,000 during the first six months of fiscal 2000 as the Company was able to manage material receipts and ship product from finished inventory. Accounts payable and accrued expenses increased approximately $542,000 during the first six months of the year as a result of the increase in business volume. The Company used approximately $30,000 to fund internal software development costs while capital expenditures were deminimus as a result of a Company-wide freeze on capital spending. Lastly, in the second quarter of fiscal 2000 the Company received an income tax refund in the amount of approximately $1.3 million related to federal taxes paid by the Company in fiscal 1998 and prior periods. On August 19, 1999, the Company entered into a two-year revolving credit agreement (the "Credit Agreement") allowing for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. Borrowings under the Credit Agreement are secured by all the assets of the Company and are subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. Interest accrues on outstanding balances under the Credit Agreement at prime plus 1.5%. As of November 5, 1999, availability under this facility was $3.0 million. The Company's indebtedness for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of September 26, 1999, the Company was in compliance with all covenants under the Credit Agreement. Although the Company is cautiously optimistic regarding market conditions in the semiconductor industry, the Company continues to expect to be effected by a more gradual recovery in the market 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. However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. Year 2000 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 12 has noted no material instances of non-compliance. On an on-going basis, the Company reviews each of its new hardware and software purchases to ensure that it is Year 2000 compliant. The Company has also conducted a review of its product line and has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. This conclusion is based partly on third party representations that product components, such as personal computers, will be Year 2000 compliant. The Company had no means of ensuring that such suppliers' components will be Year 2000 compliant. The Company is in the 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. Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Report on Form 10Q contains forward-looking statements relating to future events or the future financial performance of the Company. Readers are cautioned that such statements, which maybe 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 September 26, 1999 the Company had cash, net of borrowings, of $301,000 and working capital of approximately $7.3 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. 13 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 Distributor--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 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 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 retain and its current distribution agreement 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 the second quarter and first six months of fiscal 2000, 18% of the Company's net sales were derived from customers in international markets compared to 35% and 42% in the second quarter and first six months of fiscal 1999. 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 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 14 fiscal 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There has been no material change in the Company's assessment of its sensitivity to market risk from that described in the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1999. 15 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS: None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS: On August 11, 1999, the annual Meeting of Stockholders was held and the following matters were voted upon: 1. Dr. Sheldon Buckler and Dr. Gerald L. Wilson were elected to the Board of Directors, for three year terms. The vote was 3,388,932 in favor, 173,543 withheld. 2. An amendment to the Company's Employee Stock Purchase Plan increasing the number of shares issuable under such plan from 150,000 to 500,000. The vote was 3,354,756 in favor, 196,348 against, and 8,371 abstaining. 3. Certain amendments to the Company's 1993 Non-Employee Director Stock Option Plan. The vote was 3,322,796 in favor, 223,626 against, and 16,053 abstaining. 4. The Board of Directors' selection of Ernst & Young LLP as the Company's independent auditors for the year ended March 26, 2000 was ratified with 3,442,091 in favor, 101,799 against, and 18,585 abstaining. ITEM 5. OTHER INFORMATION: None. ITEM 6. LISTING OF EXHIBITS
Exhibit No. Description ------- ----------- 10.24 Commercial Revolving Loan and Security Agreement dated August 19, 1999, between the Company and American Commercial Finance Corporation, filed with the Commission on November 10, 1999 as Exhibit 10.24 to the Company's Form 10-Q for the quarter ended September 26, 1999 and incorporated herein by reference. 2.0 Agreement and Plan of Merger, dated as of September 18, 1999 by and between the Company, Micro Component Technology, Inc. and MCT Acquisition, Inc. filed with the Commission on November 10, 1999 as Exhibit 2.0 to the Company's Form 10-Q for the quarter ended September 26, 1999 and incorporated herein by reference.
16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signature Title Date --------- ----- ---- /s/ Sebastian J. Sicari President, Chief Executive Officer December 29, 1999 ______________________________________ (Principal Executive Officer) Sebastian J. Sicari /s/ Mary R. Barletta Vice President, Chief Financial December 29, 1999 ______________________________________ Officer, Treasurer (Principal Mary R. Barletta Financial and Accounting Officer)
17 -----END PRIVACY-ENHANCED MESSAGE-----