<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 13, 1998
ASPEC TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
000-22565 77-0298386
--------------------- ------------------------------------
(Commission File No.) (IRS Employer Identification Number)
830 East Arques Avenue
Sunnyvale, California 94086
(Address of principal executive offices)
(408) 774-2199
(Registrant's telephone number, including area code)
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
In March 1998, Aspec Technology, Inc. ("Aspec") entered into an
agreement to acquire SIS Microelectronics, Inc. ("SIS Microelectronics") in
exchange for the issuance of an aggregate of 400,000 shares of common stock. SIS
Microelectronics is an engineering design services company located in Longmont
Colorado. It has approximately 20 employees and recorded revenues of
approximately $1.7 million for its fiscal year ended December 31, 1997. The
acquisition was completed on April 13, 1998, was accounted for using the
purchase method and resulted in a charge to in-process research and development
of $3.7 million in Aspec's fiscal quarter ended May 31, 1998.
Aspec became a reporting company under the Securities Exchange Act of
1934, as amended, on April 27, 1998 in connection with the initial public
offering of its common stock. The purpose of this report on Form 8-K is to file
the financial statements listed in the Index to Financial Statements.
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a) FINANCIAL STATEMENTS OF SIS MICROELECTRONICS, INC.:
Independent Auditors' Report..................................................... F-1
Balance Sheet as of December 31, 1997............................................ F-2
Statement of Operations for the Year Ended December 31, 1997..................... F-3
Statement of Cash Flows for the Year Ended December 31, 1997..................... F-4
Notes to Financial Statements.................................................... F-5
(b) UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS:
Balance Sheet as of November 30, 1997............................................ F-9
Statement of Operations for the Year Ended November 30, 1997..................... F-10
Notes to Pro Forma Financial Statements.......................................... F-11
</TABLE>
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
Board of Directors
SIS Microelectronics, Inc.
We have audited the accompanying balance sheet of SIS Microelectronics, Inc. as
of December 31, 1997, and the related statement of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of SIS Microelectronics, Inc. as of December
31, 1997, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
June 4, 1998
F-1
<PAGE> 5
SIS MICROELECTRONICS, INC.
BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 106,148
Certificate of deposit 104,855
Accounts receivable 344,606
Inventories 55,438
Other current assets 17,747
---------
Total current assets 628,794
PROPERTY AND EQUIPMENT - At cost (net of accumulated
depreciation of $1,037,047) 211,673
DEPOSITS 14,800
---------
TOTAL ASSETS $ 855,267
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 250,000
Current portion of long-term debt 51,724
Accounts payable 158,697
Accrued liabilities 171,091
---------
Total current liabilities 631,512
---------
LONG-TERM DEBT 204,546
---------
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized shares - 5,000,000 shares;
issued and outstanding - 1,054,375 shares 947,601
Accumulated deficit (928,392)
---------
Total stockholders' equity 19,209
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 855,267
=========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 6
SIS MICROELECTRONICS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES:
Product sales $ 649,088
Contract services 645,203
Royalties 359,252
-----------
Total revenues 1,653,543
-----------
COST AND OPERATING EXPENSES:
Cost of revenues 730,178
Selling, general and administrative 1,348,721
Research and development 227,683
-----------
Total costs and operating expenses 2,306,582
-----------
LOSS FROM OPERATIONS (653,039)
-----------
OTHER INCOME (EXPENSE):
Interest income 8,233
Interest expense (32,017)
Other 361,777
-----------
Total other income, net 337,993
-----------
NET LOSS (315,046)
ACCUMULATED DEFICIT, DECEMBER 31, 1996 (613,346)
-----------
ACCUMULATED DEFICIT, DECEMBER 31, 1997 $ (928,392)
===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 7
SIS MICROELECTRONICS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss $(315,046)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation 197,999
Net change in operating assets and liabilities:
Accounts receivable (30,238)
Inventories 116,309
Other current assets 19,879
Deposits (7,800)
Accounts payable 142,796
Accrued and other liabilities (502,427)
---------
Net cash used by operating activities (378,528)
---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (110,733)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 250,000
Proceeds from issuance of notes payable 121,000
Principal payments on notes payable (80,544)
---------
Net cash provided by financing activities 290,456
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (198,805)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 304,953
---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 106,148
=========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for interest $ 32,017
=========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 8
SIS MICROELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS - SIS Microelectronics, Inc. (the "Company" or "SIS") a Colorado
corporation, began operations in 1984 and is engaged in semiconductor
design services and sales throughout the United States.
The industry in which the Company operates is characterized by rapid
technological changes, risk of patent and intellectual property
infringement, risk of product defect and product liability, significant
competition and increasing concentration in customer base. To the extent
the Company fails to deliver new products on a timely basis and to
effectively manage growth, future operations could be significantly
affected.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less at date of
purchase to be cash equivalents.
INVENTORIES - Inventories are recorded at the lower of cost, using the
first-in, first-out method of accounting or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated on the basis of
cost. Depreciation is calculated using the straight-line method over
estimated useful lives of three to five years.
INCOME TAXES - Deferred tax assets and liabilities, net of valuation
allowances, are recognized for the future tax consequences of temporary
differences between the financial statement carrying amounts and the tax
bases of asset and liabilities.
REVENUE RECOGNITION - Revenues are generally recognized when products are
shipped or services performed.
OTHER INCOME - Other income primarily represents the expiration of the
Company's commitment to provide services to a customer which had previously
been recorded as deferred revenue.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could
differ from these estimates.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable. In addition, revenues from one customer accounted for
14% of the total revenues for 1997.
F-5
<PAGE> 9
2. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Salaries and wages $ 61,921
Vacation 42,000
Deposits 25,000
Other 42,170
--------
$171,091
========
</TABLE>
3. LONG-TERM DEBT
The Company has entered into the following financing agreements:
<TABLE>
<S> <C>
Note payable to bank, due in monthly installments of $1,960 plus interest at
9.75% through March 2000, collateralized by
substantially all of the Company's assets $ 39,393
Note payable to bank, due in monthly installments of $1,385 plus
interest at 10% per annum through December 1999, collateralized
by substantially all of the Company's assets 30,000
Note payable to bank, due in monthly installments of $1,520 plus
interest at 10.5% per annum through February 1999, collateralized
by substantially all of the Company's assets 16,377
Subordinated convertible notes payable to shareholders, bearing
interest at 9% per annum, convertible to one share of common
stock for each dollar of debt, converted to 170,000 shares
of common stock in April 1998 170,000
--------
256,270
Less current portion (51,724)
---------
Long-term debt $204,546
=========
</TABLE>
Annual payments due on long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 51,724
1999 34,546
Thereafter 170,000
--------
Total $256,270
========
</TABLE>
F-6
<PAGE> 10
4. LINE OF CREDIT
The Company has entered into the following lines of credit:
<TABLE>
<S> <C>
Note payable bearing interest at 6.75%, due May 3, 1998,
collateralized by a certificate of deposit $100,000
Note payable bearing interest at 2% over the Bank's prime rate
(10.5% effective rate at December 31, 1997), due May 5, 1998,
collateralized by substantially all of the Company's assets 150,000
--------
$250,000
========
</TABLE>
5. INCOME TAXES
At December 31, 1997, the Company has net deferred income tax assets of
approximately $310,000. Deferred income taxes arise primarily from net
operating loss and differences between the tax and financial statement
accounting treatment of accumulated depreciation and reserves and accruals.
The Company provided a valuation allowance in full against the deferred
income tax assets at December 31, 1997 due to uncertainties regarding the
Company's ability to generate sufficient amounts of taxable income to
utilize the deferred tax assets.
At December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $547,000 and Colorado state net operating
loss carryforwards of approximately $557,000 which expire in years
beginning 2009. The extent to which the loss carryforwards can be used to
offset future taxable income may be limited in the event of an "ownership
change" as defined by the Internal Revenue Code.
6. STOCK OPTION PLANS
During 1997, the Company granted employees options to purchase a total of
102,250 shares of common stock, all of which were outstanding at December
31, 1997. At December 31, 1997, the weighted average exercise price of the
102,250 outstanding options was $1.44 (with a range of $0.62 - $1.70) and
there were 44,125 shares exercisable at a weighted average price of $1.09.
The unvested options expired upon the merger with Aspec (see Note 9). The
pro forma adjustment to the Company's net loss as a result of amortizing
fair value of the option grants was not material.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan which permits participants to
make salary reductions pursuant to section 401(k) of the Internal Revenue
Code. Participant employees can contribute from 1%-15% of their gross
salary. Contributions by the Company are made annually at its discretion
and vest 20% annually following the second year of service. During 1997,
the Company made discretionary contributions totalling $3,750.
F-7
<PAGE> 11
8. COMMITMENTS
The Company leases an automobile and office space under noncancelable
operating leases. At December 31, 1997 minimum lease payments are as
follows:
<TABLE>
<S> <C>
1999 $ 91,992
2000 89,752
2001 86,616
2002 86,616
2003 14,436
---------
$ 369,412
=========
</TABLE>
Rent expense for 1997 totalled $84,934.
At December 31, 1997 the Company has purchase commitments totalling
$203,000.
9. AGREEMENT AND PLAN OF REORGANIZATION
On April 13, 1998, the Company merged with Aspec Technology, Inc. (Aspec)
whereby shareholders of SIS exchanged SIS stock for an aggregate of 400,000
shares of common stock of Aspec pursuant to a tax free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended. The merger was accomplished by Aspec Acquisition Corporation, a
wholly-owned subsidiary of Aspec, merging with and into the Company,
pursuant to which the Company become a wholly-owned subsidiary of Aspec. On
or prior to the effective time of the merger, all outstanding options of
SIS terminated unless exercised prior to such time.
******
F-8
<PAGE> 12
ASPEC TECHNOLOGY, INC.
AND SIS MICROELECTRONICS, INC.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AT NOVEMBER 30, 1997 (NOTE 2)
(IN THOUSANDS)
HISTORICAL PRO FORMA
-------------------- ----------------------------
ASSETS ASPEC SIS ADJUSTMENTS COMBINED
----- --- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 2,524 $ 106 $ - $ 2,630
Accounts receivable:
Billed 6,996 345 - 7,341
Unbilled 948 - - 948
Deferred income taxes 1,778 - (283) (2) 1,495
Other current assets 507 178 - 685
-------- ----- ----- ---------
Total current assets 12,753 629 (283) 13,099
Property and equipment - net 4,105 211 (48) (1) 4,268
Other assets 243 15 991 (2) 1,249
-------- ----- ----- ---------
TOTAL $ 17,101 $ 855 $ 660 $ 18,616
======== ===== ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Borrowings $ - $ 302 $ - $ 302
Accounts payable 801 159 - 960
Accrued liabilities 2,379 171 148 (3) 2,698
Income taxes payable 321 - - 321
Customer advances 4,747 - - 4,747
-------- ----- ----- ---------
Total current liabilities 8,248 632 148 9,028
-------- ----- ----- ---------
Long-term debt - 204 - 204
-------- ----- ----- ---------
Redeemable preferred stock 14,168 - - 14,168
-------- ----- ----- ---------
Redeemable common stock 7,116 - - 7,116
-------- ----- ----- ---------
STOCKHOLDERS' EQUITY
Common stock 2,914 947 3,053 (4) 6,914
Retained earnings (14,879) (928) 928 (4) (18,348)
(3,469) (5)
Other (466) - - (466)
-------- ----- ----- ---------
Total stockholders' deficiency (12,431) 19 512 (11,900)
-------- ----- ----- ---------
TOTAL $ 17,101 $ 855 $ 660 $ 18,616
======== ===== ===== ========
</TABLE>
F-9
<PAGE> 13
<TABLE>
<CAPTION>
ASPEC TECHNOLOGY, INC.
AND SIS MICROELECTRONICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1997 (NOTE 2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA
--------------------- ------------------------
ASPEC SIS ADJUSTMENTS COMBINED
------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenue $22,392 $ 1,653 $ - $ 24,045
Costs of revenue 8,763 730 313 (6) 9,806
------- ------ ------ -------
Gross profit 13,629 923 (313) 14,239
------- ------ ------ -------
Operating expenses:
Research and development 1,190 227 9 (6) 1,426
Selling, general and administration 8,900 1,349 56 (6) 10,305
------- ------ ------ -------
Total operating expenses 10,090 1,576 65 11,731
------- ------ ------ -------
Income from operations 3,539 (653) (378) 2,508
Other income, net 173 338 - 511
------- ------ ------ -------
Income before income taxes 3,712 (315) (378) 3,019
Provision for income taxes 1,485 - (129)(6) 1,356
------- ------ ------ -------
Net income 2,227 (315) (249) 1,663
Accretion of redeemable preferred stock 823 - - 823
------- ------ ------ -------
Income attributable to common stockholders $ 1,404 $ (315) $ (249) $ 840
======= ====== ====== =======
Basic earnings per share $ 0.07 $ 0.04
======= =======
Basic average shares outstanding 21,362 21,762 (7)
======= =======
Diluted earnings per share $ 0.06 $ 0.04
======= =======
Diluted average shares outstanding 22,532 22,932 (7)
======= =======
</TABLE>
F-10
<PAGE> 14
ASPEC TECHNOLOGY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1997
- -------------------------------------------------------------------------------
1. ACQUISITION
On April 13, 1998, ASPEC Technology, Inc. ("ASPEC" or the "Company")
completed an acquisition of SIS Microelectronics, Inc. (SIS), whereby the
Company exchanged 400,000 shares of common stock for all of the outstanding
shares of SIS. The acquisition was accounted for using the purchase method.
2. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements are presented in accordance
with Article II of Regulation S-X.
The aggregate purchase price, including 400,000 shares of common stock,
costs directly attributable to the completion of the acquisition and the
assumption of liabilities (totaling $5.1 million), has been allocated to
the assets acquired. The allocation of the purchase price among the
identifiable intangible assets was based on an independent appraisal of the
fair market value of those assets. Such appraisal allocated $3.7 million to
purchased in-process research and development, which has not yet reached
technological feasibility and does not have alternative future uses. This
amount has not been reflected in the pro forma statement of operations as
it represents a non-recurring charge. Other intangible assets acquired
include existing technology, workforce and goodwill totaling approximately
$1.0 million.
To prepare the pro forma unaudited condensed combined balance sheet, the
balance sheet of ASPEC as of November 30, 1997 was combined with SIS's
balance sheet as of December 31, 1997 (such dates representing each
company's fiscal year end). To prepare the pro forma unaudited condensed
combining statement of operations, the ASPEC statement of operations for
the year ended November 30, 1997 has been combined with the statement of
operations of SIS for the year ended December 31, 1997 as if the
acquisition occurred as of the beginning of the period presented. For
presentation purposes, these statements are described as of and for the
year ended November 30, 1997. This method of combining the companies is for
the presentation of unaudited condensed combining financial statements
only. Actual statements of operations of the companies will be combined
from the effective date of the acquisition, with no retroactive
restatement.
The unaudited pro forma condensed combining financial statements should be
read in conjunction with the historical financial statements of ASPEC and
SIS.
The following adjustments have been made to the pro forma condensed
combining financial statements:
(1) To record adjustment of property and equipment to fair value as
certain assets will not be used in the combined entity.
(2) To record estimated fair value of acquired intangible assets
(excluding in-process technology) and the associated deferred tax
liability.
(3) To record estimated costs of the acquisition.
F-11
<PAGE> 15
(4) To eliminate SIS stockholders' equity and record the issuance of
ASPEC common stock.
(5) To record adjustments to retained earnings for (1) charge for
acquired in-process technology of $3.7 million related to this
acquisition, and (2) SIS losses from January 1, 1998 through
April 13, 1998.
(6) Reflects pro forma amortization and related tax effect of the
purchased intangibles.
(7) Reflects the shares issued in the acquisition.
* * * * * *
F-12
<PAGE> 16
(c) Exhibits
2.2* Agreement and Plan of Reorganization by and among Aspec,
Aspec Acquisition Corporation, SIS Microelectronics, Inc.
and certain shareholders of SIS Microelectronics dated as
of March 17, 1998.
-----------------
*Incorporated by reference to Exhibit 2.2 of Aspec's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 6, 1997
(file number 333-22913).
<PAGE> 17
SIGNATURE
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 hereunto duly authorized.
Aspec Technology, Inc.
Dated: June 29, 1998 By: /s/ CONRAD J. DELL'OCA
-------------------------------------
Conrad J. Dell'Oca
President and Chief Executive Officer
<PAGE> 18
ASPEC TECHNOLOGY, INC.
CURRENT REPORT ON FORM 8-K
INDEX TO EXHIBITS
Exhibit No. Description
2.2* Agreement and Plan of Reorganization by and among
Aspec, Aspec Acquistion Corporation, SIS
Microelectronics, Inc. and certain shareholders of SIS
Microelectronics dated as of March 17, 1998.
- ----------------------
* Incorporated by reference to Exhibit 2.2 of Aspec's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on March 6, 1997
(file number 333-22913)
