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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q/A
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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)
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
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
</TABLE>
2
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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)
<TABLE>
<CAPTION>
September 26, March 28,
1999 1999
------------- ---------
<S> <C> <C>
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
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$15,842 $15,324
======= =======
</TABLE>
See notes to condensed consolidated financial statements
3
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ASECO CORPORATION
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- ---------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
See notes to condensed consolidated financial statements
4
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ASECO CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
---------------------------
September 26, September 27,
1999 1998
------------- -------------
<S> <C> <C>
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
======= =======
</TABLE>
See notes to condensed consolidated financial statements
5
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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--
<TABLE>
<CAPTION>
September 26, March 28,
1999 1999
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(in thousands)
<S> <C> <C>
Raw Material......................................... $1,833 $1,966
Work in Process...................................... 3,413 3,441
Finished Goods....................................... 378 486
------ ------
$5,624 $5,893
====== ======
</TABLE>
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
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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
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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
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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
<PAGE>
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
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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
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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
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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.
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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
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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.
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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
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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.
</TABLE>
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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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/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)
</TABLE>
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