<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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) September 30, 1998
BROOKS AUTOMATION, INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-25434 04-3040660
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(State or Other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
15 Elizabeth Drive, Chelmsford, Massachusetts 01824
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(Address of Principal Executive Offices) (Zip Code)
(978) 262-2400
Registrant's telephone number, including area code . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION
On September 30, 1998, FASTech Acquisition Corporation, a wholly-owned
subsidiary of the Registrant, merged with and into FASTech Integration, Inc.
("FASTech"), a Delaware corporation, as a result of which FASTech became a
wholly-owned subsidiary of the Registrant and all shares of FASTech Common
Stock, $0.000002 par value per share and FASTech Preferred Stock, $0.01 par
value per share issued and outstanding immediately prior to the effective time
of the merger were converted into the right to receive a total of approximately
850,000 shares of the Registrant's common stock, $0.01 par value per share. The
terms of the merger and the exchange of FASTech securities for the Registrant's
common stock are more fully described in the Agreement and Plan of Merger (the
"Merger Agreement") dated as of September 21, 1998 among the Registrant, FASTech
and FASTech Acquisition Corporation. This transaction has been accounted for as
a pooling of interests and has been structured as a tax-fee reorganization. The
terms of this transaction and the consideration received by FASTech stockholders
were the result of arm's-length negotiations between representatives of FASTech
and the Registrant.
FASTech designs, develops, markets and supports an integrated suite of
manufacturing execution system workflow software products to the semiconductor,
electronics and general discrete manufacturing industries.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Business Acquired. The following
---------------------------------------------
historical statements of FASTech appear as Exhibits 99.1 to
this Current Report on Form 8-K and are incorporated herein
by this reference:
(i) Consolidated Financial Statements as of December 31,
1997 and 1996 and for the three years ended December 31,
1997;
(ii) Unaudited Consolidated Financial Statements as of June
30, 1998 and for the three months and six months ended
June 30, 1998 and 1997.
(b) Pro Forma Financial Information. The following unaudited pro
-------------------------------
forma combined financial information appears as Exhibit 99.2
to this Current Report on Form 8-K and is incorporated
herein by this reference:
Unaudited Pro Forma Combined Balance Sheet as of June
30, 1998 and Unaudited Pro Forma Combined Statement of
Operations for the three years ended September 30, 1997
and for the nine months ended June 30, 1998 and 1997.
<PAGE>
(c) Exhibits.
--------
2.01 Agreement and Plan of Merger dated as of
September 21, 1998 among the Registrant,
FASTech Acquisition Corporation and FASTech
(incorporated by reference as Exhibit 2.01 to
the Registrant's Registration Statement on
Form S-4 (No. 333-64037)).
99.1 FASTech historical consolidated financial
statements.
99.2 Unaudited pro forma combined financial
information.
<PAGE>
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 hereunto duly authorized.
BROOKS AUTOMATION, INC.
Date: October 14, 1998 By: /s/ Deborah D. Fox
----------------------------------------------
Deborah D. Fox, Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.01 Agreement and Plan of Merger dated as of September 21, 1998
among the Registrant, FASTech Acquisition Corporation and
FASTech (incorporated by reference as Exhibit 2.01 to the
Registrant's Registration Statement on Form S-4 (No. 333-
64037)).
99.1 FASTech historical consolidated financial statements.
99.2 Unaudited pro forma combined financial information.
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FASTech Integration, Inc.:
We have audited the accompanying consolidated balance sheet of FASTech
Integration, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the accompanying consolidated financial statements,
the Company has restated its financial statements as of December 31, 1997 and
for the year then ended.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FASTech Integration,
Inc. as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 2, 1998, except as to the information
in Note 2 for which the date is
June 16, 1998
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying consolidated statements of operations, of cash
flows and of stockholders' deficit for the year ended December 31, 1995 present
fairly, in all material respects, the results of operations and cash flows of
FASTech Integration, Inc. and its subsidiaries for the year ended December 31,
1995, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of FASTech
Integration, Inc. for any period subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 17, 1996
2
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,500,000 $ 4,082,000
Accounts receivable, net of allowance for doubtful accounts of $616,000
and $740,000 at December 31, 1997 and 1996, respectively 4,952,000 5,272,000
Prepaid expenses and other current assets 211,000 457,000
-------------- --------------
Total current assets 8,663,000 9,811,000
Property and equipment, net 2,295,000 2,263,000
Deferred income taxes - 1,025,000
Other assets 301,000 314,000
-------------- --------------
Total assets $ 11,259,000 $ 13,413,000
============== ==============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable 787,000 772,000
Accrued expenses 2,545,000 4,059,000
Current portion of capital lease obligations 234,000 259,000
Deferred revenue 2,326,000 2,009,000
Short-term borrowings - 1,000,000
-------------- --------------
Total current liabilities 5,892,000 8,099,000
-------------- --------------
Long-term portion of capital lease obligations 222,000 219,000
Subordinated debt, net of discount of $392,000 2,108,000 -
Customer deposits - 25,000
-------------- --------------
Total liabilities 8,222,000 8,343,000
-------------- --------------
Commitments (Note 13)
Redeemable convertible preferred stock, $.01 par value; 2,946,988 shares
authorized and issued, 2,754,637 shares issued and outstanding, at
issuance price plus accumulated accretion of $3,942,000 and
$3,407,000 at December 31, 1997 and 1996, respectively 10,366,000 9,831,000
-------------- --------------
Stockholders' deficit:
Series E convertible preferred stock, $.01 par value; 70,000 shares
authorized, issued and outstanding, at issuance price (liquidation
preference of $245,000) 152,000 152,000
Common stock, $.000002 par value; 5,000,000 shares authorized,
1,131,484 and 1,041,744 shares issued at December 31, 1997 and
1996, respectively - -
Common stock warrants, 250,000 issued and outstanding 420,000 -
Additional paid-in capital - -
Cumulative translation adjustment (111,000) (5,000)
Accumulated deficit (7,790,000) (4,908,000)
Treasury stock, at cost; 23,684 shares of common stock - -
-------------- --------------
Total stockholders' deficit (7,329,000) (4,761,000)
-------------- --------------
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit $ 11,259,000 $ 13,413,000
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Software licenses $ 15,356,000 $ 16,329,000 $ 12,488,000
Services 6,976,000 5,969,000 5,042,000
-------------- -------------- --------------
22,332,000 22,298,000 17,530,000
-------------- -------------- --------------
Costs and expenses:
Cost of software licenses 1,010,000 1,141,000 936,000
Cost of services 4,356,000 4,210,000 3,365,000
Selling and marketing 8,053,000 7,859,000 5,830,000
Research and development 6,370,000 5,977,000 4,440,000
General and administrative 3,053,000 2,881,000 1,880,000
-------------- -------------- --------------
22,842,000 22,068,000 16,451,000
-------------- -------------- --------------
Income from operations (510,000) 230,000 1,079,000
Interest income 70,000 73,000 83,000
Interest expense (251,000) (81,000) (47,000)
Foreign exchange gains (losses) (49,000) (2,000) 1,000
-------------- -------------- --------------
Income (loss) before provision (benefit) for income (740,000) 220,000 1,116,000
taxes
Provision (benefit) for income taxes 1,667,000 123,000 (544,000)
-------------- -------------- --------------
Net income (loss) (2,407,000) 97,000 1,660,000
Dividends on preferred stock (521,000) (521,000) (521,000)
-------------- -------------- --------------
Net income (loss) available to common stockholders $ (2,928,000) $ (424,000) $ 1,139,000
============== ============== ==============
Earnings (loss) per common share:
Basic $ (2.73) $ (.43) $ 1.52
Diluted $ (2.73) $ (.43) $ .41
Weighted average common shares outstanding:
Basic 1,074,000 982,000 751,000
Diluted 1,074,000 982,000 4,042,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SERIES E CONVERTIBLE COMMON ADDITIONAL CUMULATIVE
PREFERRED STOCK COMMON STOCK STOCK PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ADJUSTMENT DEFICIT
--------- --------- -------- -------- -------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 70,000 $152,000 778,164 $(5,749,000)
Exercise of common stock 82,610 $ 43,000
options
Accretion of redeemable
convertible preferred
stock to redemption value (43,000) (491,000)
Net income 1,660,000
--------- --------- -------- ----------- --------------
Balance at December 31, 1995 70,000 152,000 860,774 (4,580,000)
Exercise of common stock options 180,970 108,000
Translation adjustment $ (5,000)
Accretion of redeemable
convertible preferred
stock to redemption value (108,000) (425,000)
Net income 97,000
--------- --------- --------- ----------- ------------- --------------
Balance at December 31, 1996 70,000 152,000 1,041,744 (5,000) (4,908,000)
Exercise of common stock options 89,740 60,000
Issuance of warrants attached to
subordinated debt $420,000
Translation adjustment (106,000)
Accretion of redeemable
convertible preferred
stock to redemption value (60,000) (475,000)
Net loss (2,407,000)
--------- --------- --------- -------- -------- ----------- ------------- --------------
Balance at December 31, 1997 70,000 $152,000 1,131,484 $420,000 - $(111,000) $(7,790,000)
========= ========= ========= ======== ======== =========== ============= ==============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
--------------
<S> <C>
Balance at December 31, 1994 $(5,597,000)
Exercise of common stock 43,000
options
Accretion of redeemable
convertible preferred
stock to redemption value (534,000)
Net income 1,660,000
--------------
Balance at December 31, 1995 (4,428,000)
Exercise of common stock options 108,000
Translation adjustment (5,000)
Accretion of redeemable
convertible preferred
stock to redemption value (533,000)
Net income 97,000
--------------
Balance at December 31, 1996 (4,761,000)
Exercise of common stock options 60,000
Issuance of warrants attached to
subordinated debt 420,000
Translation adjustment (106,000)
Accretion of redeemable
convertible preferred
stock to redemption value (535,000)
Net loss (2,407,000)
--------------
Balance at December 31, 1997 $(7,329,000)
==============
</TABLE>
5
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,407,000) $ 97,000 $ 1,660,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,329,000 1,113,000 735,000
Deferred income taxes 1,334,000 (211,000) (1,123,000)
Provision for doubtful accounts 171,000 431,000 398,000
Changes in assets and liabilities:
Accounts receivable 125,000 1,373,000 (4,676,000)
Prepaid expenses and other current assets (71,000) 113,000 (130,000)
Accounts payable 18,000 (161,000) 948,000
Accrued expenses (1,492,000) 1,103,000 916,000
Deferred revenue 322,000 (255,000) 1,381,000
Customer deposits (25,000) (100,000) -
------------ ----------- ------------
Net cash (used in) provided by operating activities (696,000) 3,503,000 109,000
------------ ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (1,362,000) (1,841,000) (1,205,000)
(Increase) decrease in other assets 6,000 67,000 (1,000)
------------ ----------- ------------
Net cash used in investing activities (1,356,000) (1,774,000) (1,206,000)
------------ ----------- ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (280,000) (261,000) (148,000)
Proceeds (payments) from short-term borrowings (1,000,000) 1,000,000 -
Proceeds from sale and leaseback of equipment 258,000 451,000 44,000
Proceeds from exercise of common stock options 60,000 108,000 43,000
Proceeds from issuance of subordinated notes 2,500,000 - -
------------ ----------- ------------
Net cash provided by (used in) financing activities 1,538,000 1,298,000 (61,000)
------------ ----------- ------------
Effect of exchange rates on cash and cash equivalents (68,000) (5,000) -
Net (decrease) increase in cash and cash equivalents (582,000) 3,022,000 (1,158,000)
Cash and cash equivalents, beginning of year 4,082,000 1,060,000 2,218,000
------------ ----------- ------------
Cash and cash equivalents, end of year $ 3,500,000 $ 4,082,000 $ 1,060,000
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 251,000 $ 83,000 $ 46,000
Cash paid for income taxes $ 31,000 $ 224,000 $ 380,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
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
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue from software licenses is recognized upon shipment provided that no
significant obligations remain, and collection of the related receivable is
probable. The estimated costs of insignificant support obligations are
accrued upon shipment. In the event the Company has significant post-
shipment obligations or uncertainties remain, software license revenue is
deferred and recognized when such obligations are fulfilled by the Company
or the uncertainties are resolved.
Service revenue is recognized ratably over the period the services are
performed for software maintenance contracts or as services are performed
for certain application consulting contracts and training. Revenue from
fixed fee application consulting contracts is recognized using the
percentage-of-completion method of contract accounting based on the ratio
that costs incurred to date bear to estimated total costs at completion.
Revisions in revenue and cost estimates are recorded in the periods in
which the facts that require such revisions become known. Losses, if any,
are provided for in the period in which such losses are first identified by
management.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
which provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions and supersedes
SOP 91-1, "Software Revenue Recognition." The Company will adopt SOP 97-2
effective January 1, 1998. The Company does not expect the new
pronouncement will have a material impact on its financial position or
results of operations in the future.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires the presentation of
comprehensive income and its components.
Continued
7
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Comprehensive income presents a measure of all changes in equity that
result from recognized transactions and other economic events of the period
other than transactions with owners. SFAS 130 requires restatement of all
prior-period statements presented after the effective date. The Company
will adopt SFAS 130 for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
maturities at date of purchase of three months or less to be cash
equivalents. The Company invests its excess cash in mutual funds which
invest in U.S. Treasury securities. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company performs ongoing credit evaluations of customers' financial
condition and, generally, does not require collateral. The Company
maintains reserves for potential credit losses, and such losses in the
aggregate have not exceeded management expectations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, generally three
years. Equipment held under capital leases is stated at the lower of the
fair market value of the related asset or the present value of the minimum
lease payments at the inception of the lease, and is amortized on a
straight-line basis over the shorter of the life of the related asset or
the term of the lease. Upon retirement or sale, the cost of the property
and equipment disposed of and the related accumulated depreciation are
removed from the accounts at which time any gain or loss is recorded in
results of operations. Maintenance and repair costs are expensed as
incurred.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred subsequent to the establishment of
technological feasibility, and prior to general release of the Company's
products, are capitalized and amortized to cost of software licenses on a
straight-line basis over the estimated useful lives of the related
products, generally three years or the ratio of current gross revenue to
total current and expected future gross revenue of the related products.
Unamortized software development costs included in other assets in the
accompanying consolidated balance sheet as of December 31, 1996 were
$42,684. Software development costs were fully amortized during 1997.
Continued
8
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future
tax consequences, using current tax rates, of temporary differences between
the financial statement carrying amounts and the income tax bases of assets
and liabilities. A valuation allowance is applied against net deferred tax
assets if, based on the weighted available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123), in 1996. As permitted by SFAS No. 123, the Company will
elect to continue to apply the intrinsic value methodology provisions of
Accounting Principles Board Opinion No. 25 (APB No. 25) for grants or
awards of equity instruments to employees. Accordingly, no compensation
cost has been recognized in the Company's consolidated financial
statements. As required by SFAS No. 123, the Company is using a fair value
methodology to measure the compensation element of grants or awards of
equity instruments to nonemployees and has disclosed, beginning in 1996,
the pro forma effect on net income of using a fair value approach to
measure compensation for grants or awards of equity instruments in 1997,
1996 and 1995.
FOREIGN CURRENCY TRANSLATION
Generally, the functional currency of the Company's wholly-owned foreign
subsidiaries is the U.S. dollar. Accordingly, monetary assets and
liabilities are translated using period-end exchange rates; nonmonetary
assets and liabilities are translated at historical rates and results of
operations are translated at average rates for the period. In 1996, the
Company changed the functional currency of a wholly-owned subsidiary from
the U.S. dollar to its local currency as a result of a change in economic
circumstances. Accordingly, assets and liabilities of this foreign
subsidiary are translated to U.S. dollars at period-end exchange rates and
revenues and expenses are translated using the average rates during the
period. In 1997 and 1996, the effects of foreign currency translation
adjustments have been accumulated and are included as a separate component
of stockholders' deficit.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform to the 1996 and 1997 presentations.
2. RESTATEMENT OF FINANCIAL INFORMATION:
------------------------------------
In May 1998, in response to a customer dispute regarding the payment due date
of an account receivable, the Company re-examined the terms of the
originating transaction. As a result of this re-examination, the Company has
restated its financial position and operating results as of
Continued
9
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
December 31, 1997, and for the year then ended, to exclude a software sale
that, prior to the restatement, was recorded in the fourth quarter of 1997
and to increase the valuation allowance applied against net deferred tax
assets from $1,886,000 (as reported) to $3,651,000 (as restated). The impact
of the restatement for the year ended December 31, 1997, is summarized as
follows:
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
---------------- ----------------
<S> <C> <C>
Revenue $ 23,332,000 $ 22,332,000
Income (loss) before provision for income taxes 227,000 (740,000)
Provision for income taxes 197,000 1,667,000
Net income (loss) 30,000 (2,407,000)
Total assets 13,856,000 11,259,000
Total liabilities 8,382,000 8,222,000
Total stockholders' deficit (4,892,000) (7,329,000)
</TABLE>
3. BASIC AND DILUTED EARNINGS PER SHARE:
------------------------------------
Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based
upon the weighted average number of common shares outstanding during the
period plus additional weighted average common equivalent shares outstanding
during the period when the effect is not antidilutive. Common equivalent
shares result from the assumed exercise of outstanding stock options or the
assumed conversion of convertible preferred stock. Common equivalent shares
have not been included in the per share calculations for the years ended
December 31, 1997 or 1996 as the effect would be antidilutive.
The following table reconciles the numerator and denominator for basic and
diluted earnings per share for the year ended December 31, 1995:
<TABLE>
<CAPTION>
INCOME AVAILABLE EARNINGS
TO COMMON PER
STOCKHOLDERS SHARES SHARE
-------------------- ---------- -------------
<S> <C> <C> <C>
Basic earnings per share $ 1,139,000 751,000 $ 1.52
Effect of dilutive securities:
Stock options 466,000
Convertible preferred stock 2,825,000
Dividends on convertible preferred stock 521,000
--------------- ----------- -------------
Diluted earnings per share $ 1,660,000 4,042,000 $ .41
================ ============ =============
</TABLE>
Continued
10
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of December 31, 1997, total potential common equivalent shares consist
of 692,580 stock options outstanding with a weighted average exercise price
of $3.14, 250,000 warrants with an exercise price of $6.50, 2,754,637
shares of redeemable convertible preferred stock and 70,000 shares of
Series E convertible preferred stock.
4. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE DECEMBER 31,
---------------------
(IN YEARS) 1997 1996
---------- ---- ----
<S> <C> <C> <C>
Equipment, furniture and fixtures 3-7 $ 5,512,000 $ 4,454,000
Leasehold improvements 3 173,000 223,000
Equipment under capital leases 3 1,223,000 965,000
------------ ------------
6,908,000 5,642,000
Less accumulated depreciation and amortization 4,613,000 3,379,000
------------ ------------
$ 2,295,000 $ 2,263,000
============ ============
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1996 and 1995 was $1,302,000, $1,113,000 and $735,000, respectively,
of which $316,000, $194,000 and $139,000, respectively, related to
equipment under capital leases. Accumulated amortization for equipment
under capital leases was $938,000 and $622,000 at December 31, 1997 and
1996, respectively. The equipment under capital leases collateralizes the
related lease obligations.
5. DEBT:
----
SUBORDINATED NOTES
In July 1997, the Company issued $2,500,000 of subordinated notes with
attached warrants to certain stockholders which are due June 30, 2004. One
of the stockholders is also a member of the Company's Board of Directors.
The Company is required to make quarterly interest payments on the
subordinated notes at the rate of 9% per year. The effective interest rate
on the subordinated notes is 10.8%. Interest expense on the subordinated
notes was $107,000 for the year ended December 31, 1997. In connection with
the issuance of the subordinated notes and warrants, the Company recorded a
discount on the subordinated notes of $420,000 to reflect the value of the
warrants as determined by use of the Black-Scholes option pricing model.
Amortization of the discount on the subordinated notes totaled $28,000 for
the year ended December 31, 1997.
Continued
11
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The warrants attached to the subordinated notes give the holders the right
to purchase 250,000 shares of common stock at an exercise price of $6.50
per share, subject to antidilution adjustments, or by surrender of the
subordinated notes in an amount equivalent to the exercise price. The
warrants may also be exchanged, without payment of additional
consideration, for shares of common stock as defined by the related
agreement. The warrants expire on June 30, 2004.
LINE OF CREDIT
The Company has a line of credit arrangement with its principal bank that
allows for borrowings to be used as working capital or for the purchase of
equipment. The weighted average interest rate on these borrowings was 10.8%
and 10.4% for the years ended December 31, 1997 and 1996, respectively.
The line of credit provides for working capital borrowings of up to the
lesser of $4,000,000 or 80% of eligible accounts receivable and bears
interest at the prime rate plus 1/2%. The line of credit also provides for
equipment purchase borrowings of up to $1,000,000 or 100% of eligible
equipment purchases after March 31, 1997, and bears interest at the prime
rate plus 1%. At December 31, 1997, there were no borrowings outstanding
under the line of credit. The line of credit arrangement for working
capital and equipment purchases expires on April 15, 1998 and March 31,
1998, respectively. The Company intends to renew a modified line of credit
arrangement for working capital borrowings of up to the lesser of
$1,500,000 or 80% of accounts receivable which will bear interest at the
prime rate plus 2%.
6. ACCRUED EXPENSES:
-----------------
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Employee compensation $ 758,000 $ 940,000
and benefits
Income and withholding 217,000 232,000
taxes
Commissions and 526,000 1,613,000
royalties
Other accrued expenses 1,044,000 1,274,000
----------- -----------
$ 2,545,000 $ 4,059,000
=========== ===========
</TABLE>
Continued
12
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES:
------------
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $ (789,000) $ 140,000 $ 1,135,000
Foreign 49,000 80,000 (19,000)
----------- ---------- ------------
Income (loss) before income taxes $ (740,000) $ 220,000 $ 1,116,000
=========== ========== ============
</TABLE>
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Current:
Federal $ 198,000 $ 209,000
State $ 4,000 - 31,000
Foreign 329,000 136,000 339,000
------------ ---------- ------------
333,000 334,000 579,000
------------ ---------- ------------
Deferred:
Federal 848,000 (155,000) (803,000)
State 486,000 (46,000) (320,000)
Foreign - (10,000) -
------------ ---------- ------------
1,334,000 (211,000) (1,123,000)
============ ========== ============
Provision (benefit) for income taxes $ 1,667,000 $ 123,000 $ (544,000)
============ ========== ============
</TABLE>
The foreign income tax provision for the years ended December 31, 1997 and
1996 represents withholding taxes imposed upon software license fees in
certain foreign jurisdictions.
Continued
13
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The differences between the income tax provision (benefit) and income taxes
computed using the applicable U.S. statutory federal tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
---------- --------- -----------
<S> <C> <C> <C>
Tax provision at statutory rate $ (252,000) $ 75,000 $ 391,000
State income taxes, net of federal income
tax effect (179,000) (171,000) 19,000
Foreign withholding taxes, net of federal
income tax effect - - 220,000
Federal research and development (279,000) (110,000) (85,000)
tax credit
Change in deferred tax asset valuation
allowance 2,317,000 313,000 (1,201,000)
Permanent differences 50,000 31,000 70,000
Other 10,000 (15,000) 42,000
---------------------------------------------
$ 1,667,000 $ 123,000 $ (544,000)
=============================================
</TABLE>
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 2,634,000 $ 1,933,000
Net operating loss carryforwards 232,000 130,000
Reserves not currently deductible 785,000 605,000
-------------------------------
Gross deferred tax assets 3,651,000 2,668,000
Deferred tax asset valuation allowance (3,651,000) (1,334,000)
-------------------------------
- $ 1,334,000
===============================
</TABLE>
Realization of the net deferred tax asset is dependent on the Company's ability
to generate sufficient taxable income in the future and prior to expiration of
the loss carryforwards and certain tax credits. Although management believes
that it is more likely than not that all of the gross deferred tax assets will
be realized, the weight of objective evidence requires the establishment of a
full valuation allowance of approximately $3,651,000 at December 31, 1997.
As of December 31, 1997, the Company has federal net operating loss
carryforwards of approximately $635,000, which expire at various dates between
2005 and 2008. The Company has federal and state research and development tax
credit carryforwards of approximately $1,291,000 and $507,000, respectively,
expiring at various dates between 2007 and 2011. The Company also has foreign
tax credit carryforwards of approximately $802,000 which expire at various dates
between 1999 and 2002.
Ownership changes, as defined in the Internal Revenue Code, have limited the
amount of net operating loss and tax credit carryforwards generated prior to the
respective changes in ownership
Continued
14
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
that can be utilized annually to offset future taxable income or tax liability.
The amount of the annual limitation is determined based upon the Company's value
immediately prior to the ownership change. Future ownership changes may further
limit utilization of the net operating loss and credit carryforwards.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
--------------------------------------
Redeemable convertible preferred stock, $.01 par value, recorded at issuance
price plus accumulated accretion and net of issuance costs, consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
-------- ---------
<S> <C> <C>
Series D, 942,909 shares authorized, issued and $ 4,733,000 $ 4,462,000
outstanding
Series C, 600,000 shares authorized, issued and 1,951,000 1,853,000
outstanding
Series B, 480,572 shares authorized, issued and 1,431,000 1,362,000
outstanding
Series A, 923,507 shares authorized and issued; 2,251,000 2,154,000
731,156 shares outstanding ----------------------------
$ 10,366,000 $ 9,831,000
============================
</TABLE>
In 1992, the Company repurchased 192,351 shares of Series A redeemable
convertible preferred stock at a cost of $250,000. The carrying value of Series
A redeemable convertible preferred stock and shares outstanding were reduced for
the repurchased shares.
VOTING
Redeemable convertible preferred stockholders are entitled to the number of
votes equal to the number of shares of common stock into which each share of
redeemable preferred stock is convertible.
CONVERSION
The redeemable preferred stock is convertible into common stock at the
option of the stockholder based upon a conversion rate as defined by the
related agreement (1 to 1 at December 31, 1997). In the event of a public
offering of the Company's common stock resulting in gross proceeds of at
least $10,000,000 and a price per share of at least $7.00, the redeemable
preferred stock converts into common stock upon the effective date of the
registration statement.
Continued
15
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DIVIDENDS
Dividends are cumulative and accrue at an annual rate of $.28, $.16, $.14
and $.128 per share on the Series D, Series C, Series B and Series A
redeemable convertible preferred stock, respectively.
REDEMPTION
On the earlier of June 30, 2004 or the repayment of a certain subordinated
note, described in Note 3, the Company is required to redeem up to a
maximum of 25%, in any twelve-month period, of the outstanding redeemable
convertible preferred stock, at the election of at least two-thirds of the
outstanding redeemable convertible preferred stockholders. The redemption
price is $3.50, $2.00, $1.75 and $1.60 per share of Series D, Series C,
Series B and Series A preferred stock, respectively, subject to anti-
dilution adjustments, plus any accrued and unpaid dividends. The difference
between the issuance price and the redemption price is being accreted
through December 31, 2000 by charges to additional paid-in capital and
accumulated deficit in an amount equal to the annual dividend.
LIQUIDATION
In the event of liquidation of the Company, holders of the Series D, Series
C, Series B and Series A redeemable convertible preferred stock are
entitled to receive, in preference to any distribution to the shareholders
of Series E convertible preferred stock and common stock, $3.50, $2.00,
$1.75 and $1.60 per share, respectively, subject to antidilution
adjustments, plus any accrued but unpaid dividends.
9. SERIES E CONVERTIBLE PREFERRED STOCK AND COMMON STOCK:
-----------------------------------------------------
SERIES E CONVERTIBLE PREFERRED STOCK
Series E convertible preferred stockholders are entitled to the number of
votes equal to the number of shares of common stock into which each share
of Series E preferred stock is convertible.
The Series E preferred stock is convertible into common stock at the option
of the stockholder based upon a conversion rate as defined by the related
agreement (1 to 1 at December 31, 1997). In the event of a public offering
of the Company's common stock resulting in gross proceeds of at least
$10,000,000 and a price per share of at least $7.00, the Series E preferred
stock converts into common stock upon the effective date of the
registration statement.
In the event of liquidation of the Company, holders of Series E convertible
preferred stock are entitled to receive, in preference to any distribution
to the common stockholders, $3.50 per share, subject to anti-dilution
adjustments, plus any accrued but unpaid dividends.
Continued
16
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
COMMON STOCK
The holders of 481,216 common shares, designated as founders' shares,
must provide the right of first refusal on the transfer of any of their
common shares to preferred stockholders and the Company, pursuant to the
stock transfer agreement. The agreement provides the Company with the
right to repurchase restricted shares for $.01 per share in the event of
termination of employment.
The Company has reserved 4,565,265 shares of common stock for issuance
upon the conversion of the Series D, Series C, Series B and Series A
redeemable convertible preferred stock, Series E convertible preferred
stock, common stock warrants and for use in the stock plan.
10. STOCK PLAN:
----------
The 1988 Stock Plan (the "Plan") provides for the grant of incentive stock
options and nonqualified stock options, stock awards and stock purchase
rights for the purchase of up to an aggregate of 1,298,277 shares of the
Company's common stock by officers, employees, consultants and directors of
the Company. The Board of Directors is responsible for administration of
the Plan. The Board of Directors determines the term of each option, option
exercise price, number of shares for which each option is granted and the
rate at which each option is exercisable (generally ratably over five years
from the grant date). The Company may not grant an employee incentive stock
options, that are first exercisable during any one year, with a fair value
in excess of $100,000. The Plan expired on February 3, 1998. It is the
intention of the Company and the Board of Directors to adopt a new plan in
the second quarter of 1998, having substantially similar provisions.
Incentive stock options may be granted to any officer or employee at an
exercise price per share of not less than the fair value per common share
on the date of the grant (not less than 110% of the fair value in case of
holders of more than 10% of the Company's voting stock). Nonqualified stock
options may be granted to any officer, employee, director or consultant at
an exercise price per share of not less than the book value per common
share as of the end of the fiscal year immediately preceding the date of
such grant, or 50% of the fair value per common share on the date of the
grant. Options granted under the Plan generally expire seven years from the
date of the grant (five years for incentive stock options granted to
holders of more than 10% of the Company's voting stock).
The Company has continued to account for stock-based compensation in
accordance with APB 25. Had compensation cost for the Company's stock-based
compensation plans been determined based on fair value at the grant dates
as calculated in accordance with SFAS 123, the Company's pro forma net
income (loss) and earnings per share for the years ended December 31, 1997,
1996 and 1995 would have been $(2,600,000) and $(2.90), $(26,000) and
$(.56), and $1,649,000 and $1.50 (basic), respectively. In calculating
these pro forma disclosures, the fair value of each option grant in 1997,
1996 and 1995 has been estimated on the date of grant using the minimum
value method assuming
Continued
17
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
a weighted average expected life of 6.1, 5.5, 6.0 years, respectively, and
a weighted average risk-free interest rate of 6.40%, 6.29% and 6.82%,
respectively. The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of future amounts.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1994 660,050 $ .59
Granted 263,500 2.51
Canceled (48,180) .80
Exercised (82,610) .52
------------
Outstanding at December 31, 1995 792,760 1.21
------------
Granted 332,800 8.31
Canceled (225,960) 8.92
Exercised (180,970) .60
------------
Outstanding at December 31, 1996 718,630 2.23
------------
Granted 169,050 6.00
Canceled (105,360) 3.65
Exercised (89,740) .67
------------
Outstanding at December 31, 1997 692,580 3.14
============
</TABLE>
The weighted average fair value of options granted in 1997, 1996 and 1995
were $1.93, $2.42 and $.76, respectively.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.60 336,930 2.9 $0.60 223,520 $0.60
1.00 7,500 4.4 1.00 3,000 1.00
2.50 36,050 4.0 2.50 14,630 2.50
6.00 312,100 5.9 6.00 38,730 6.00
------------- -----------
692,580 279,880
============== ===========
</TABLE>
Options exercisable at December 31, 1996 and 1995 were 252,930 and 302,300,
respectively.
Continued
18
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
At December 31, 1997, there were 129,098 options available for grant under
the 1988 Plan.
11. EMPLOYEE BENEFIT PLAN:
---------------------
The Company sponsors a 401(k) retirement savings plan for eligible
employees. The Plan covers all employees of the Company who meet minimum
age and service requirements and allows participants to defer a portion of
their annual compensation on a pre-tax basis. All full-time employees are
eligible to participate in the 401(k) plan. On February 24, 1997, the Plan
was amended to permit the Company to make mandatory matching contributions
in an amount equal to 10 percent of an employee's pre-tax contribution. For
the year ended December 31, 1997, the Company made mandatory matching
contributions to the 401(k) plan in the amount of $54,000. No contributions
were made to the 401(k) plan in 1996 or 1995.
12. SEGMENT AND GEOGRAPHIC INFORMATION:
----------------------------------
The Company operates in one industry segment. The Company designs,
develops, markets and supports an integrated suite of Manufacturing
Execution System ("MES") workflow software products used primarily by
customers in the semiconductor and electronics industries. The Company
markets its products primarily in the United States, the Far East and
Europe through a direct sales force, system integrators and distributors.
Unaffiliated export sales to the Far East and Europe were $5,209,000 and
$2,140,000, $4,170,000 and $3,919,000, and $14,050,000 and $2,566,000 for
1997, 1996 and 1995, respectively.
Revenue from one customer accounted for 11%, 11% and 13% of total revenues
for the years ended December 31, 1997, 1996 and 1995, respectively. At
December 31, 1997, no customers accounted for greater than 10% of accounts
receivable. At December 31, 1996, one customer accounted for 10% of total
accounts receivable.
Contiuned
19
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. COMMITMENTS:
-----------
The Company leases operating facilities leases operating facilities and
certain equipment under noncancelable operating and capital leases that
expire through 2000. Future minimum lease payments under noncancelable
operating and capital leases are as follows as of December 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
1998 $ 1,511,000 $ 271,000
1999 1,185,000 152,000
2000 887,000 69,000
2001 - -
2002 - -
------------ -------------
$ 3,583,000 492,000
============ =============
Less amounts representing interest 36,000
-------------
Present value of future minimum lease
payments $ 456,000
=============
</TABLE>
Rent expense was $1,489,000, $1,511,000, and $676,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
14. SUBSEQUENT EVENT:
----------------
On January 29, 1998, the Company acquired MIDAS Software, Inc. (MIDAS), a
developer of maintenance management software used to control and monitor
equipment downtime in manufacturing operations. Under the terms of the
merger, to be accounted for as a pooling of interests, the Company
exchanged 200,000 shares of its common stock for all of the outstanding
common stock of MIDAS.
The Company's financial statements for 1997, 1996 and 1995 have not been
prepared to give retroactive effect to the acquisition of MIDAS in
accordance with pooling of interests requirements, due to immateriality.
However, had the 1997 financial statements been restated, unaudited revenue
and net income (loss) for the combined entity would have been $23,382,000
(unaudited) and $(2,431,000) (unaudited), respectively.
20
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED BALANCE SHEETS
as of June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,916,000 $ 3,500,000
Accounts receivable, net 2,735,000 4,952,000
Other current assets 292,000 211,000
------------ ------------
Total current assets 5,943,000 8,663,000
Fixed assets, net 2,343,000 2,295,000
Other assets 296,000 301,000
------------ ------------
Total assets $ 8,582,000 $ 11,259,000
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable 1,242,000 787,000
Accrued expenses 2,071,000 2,545,000
Current portion of capital lease obligations 191,000 234,000
Deferred revenue 3,215,000 2,326,000
Line of credit 1,172,000 -
------------ ------------
Total current liabilities 7,891,000 5,892,000
Long-term portion of capital lease obligations 153,000 222,000
Subordinated debt 2,138,000 2,108,000
------------ ------------
Total liabilities 10,182,000 8,222,000
------------ ------------
Commitments (Note 5)
Redeemable convertible preferred stock 10,625,000 10,366,000
------------ ------------
Stockholders' deficit:
Series E convertible preferred stock 152,000 152,000
Common stock
Common stock warrants 420,000 420,000
Additional paid-in capital
Accumulated comprehensive loss (125,000) (111,000)
Accumulated deficit (12,672,000) (7,790,000)
------------ ------------
Total stockholders' deficit (12,225,000) (7,329,000)
------------ ------------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit $ 8,582,000 $ 11,259,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Software licenses $ 3,939,000 $ 8,136,000
Services 3,427,000 3,268,000
------------ ------------
7,366,000 11,404,000
------------ ------------
Cost and expenses:
Cost of software licenses 696,000 498,000
Cost of services 2,251,000 2,225,000
Selling and marketing 3,902,000 4,009,000
Research and development 3,399,000 3,120,000
General and administrative 1,720,000 1,378,000
------------ ------------
11,968,000 11,230,000
------------ ------------
Income (loss) from operations (4,602,000) 174,000
Other income and (expense), net (159,000) (59,000)
------------ ------------
Income (loss) before provision for income taxes (4,761,00) 115,000
Provision for income taxes 62,000 46,000
------------ ------------
Net income (loss) (4,823,000) 69,000
Dividends on preferred stock (260,000) (260,000)
------------ ------------
Net loss available to common stockholders $ (5,083,000) $ (191,000)
============ ============
Loss per common share:
Basic $ (3.82) $ (.18)
Diluted $ (3.82) $ (.18)
Weighted average common shares outstanding:
Basic 1,331,000 1,047,000
Diluted 1,331,000 1,047,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Software licenses $ 1,731,000 $ 4,201,000
Services 1,771,000 1,609,000
----------- -----------
3,502,000 5,810,000
----------- -----------
Cost and expenses:
Cost of software licenses 263,000 293,000
Cost of services 1,094,000 1,132,000
Selling and marketing 1,851,000 2,043,000
Research and development 1,643,000 1,579,000
General and administrative 717,000 702,000
----------- -----------
5,568,000 5,749,000
----------- -----------
Income (loss) from operations (2,066,000) 61,000
Other income and (expense), net (73,000) (43,000)
----------- -----------
Income (loss) before provision for income taxes (2,139,000) 18,000
Provision for income taxes 62,000 7,000
----------- -----------
Net income (loss) (2,201,000) 11,000
Dividends on preferred stock (130,000) (130,000)
----------- -----------
Net loss available to common stockholders $(2,231,000) $ (119,000)
=========== ===========
Loss per common share:
Basic $ (1.74) $ (.11)
Diluted $ (1.74) $ (.11)
Weighted average common shares outstanding:
Basic 1,338,000 1,062,000
Diluted 1,338,000 1,062,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
FASTECH INTEGRATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
for the six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) $(4,823,000) $ 69,000
Adjustments to reconcile net income(loss) to net cash used in
operating activities:
Depreciation and amortization 672,000 600,000
Provision for doubtful accounts 64,000 117,000
Changes in assets and liabilities:
Accounts receivable 2,430,000 (1,293,000)
Prepaid expenses and other current assets (48,000) (74,000)
Accounts payable 260,000 (253,000)
Accrued expenses (534,000) (679,000)
Deferred revenue 589,000 365,000
Customer deposits - (25,000)
----------- ------------
Net cash used in operating activities (1,390,000) (1,173,000)
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (678,000) (653,000)
Decrease in other assets 11,000 36,000
Cash acquired from MIDAS acquisition 394,000 -
----------- ------------
Net cash used in investing activities (273,000) (617,000)
----------- ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (112,000) (149,000)
Proceeds from short-term borrowings 1,166,000 -
Proceeds from exercise of common stock options 40,000 41,000
----------- ------------
Net cash provided by (used in) financing activities 1,094,000 (108,000)
----------- ------------
Effect of exchange rates on cash and cash equivalents (15,000) (4,000)
Net decrease in cash and cash equivalents (584,000) (1,902,000)
Cash and cash equivalents, beginning of period 3,500,000 4,082,000
----------- ------------
Cash and cash equivalents, end of period $ 2,916,000 $ 2,180,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation:
---------------------
The accompanying condensed consolidated financial statements are unaudited
and have been prepared by the Company in accordance with generally
accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair
presentation of results for the interim periods ended June 30, 1998 and
1997.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1997.
2. Midas Acquisition:
-----------------
On January 29, 1998, the Company acquired MIDAS Software, Inc. (MIDAS), a
developer of maintenance management software used to control and monitor
equipment downtime in manufacturing operations. The Company exchanged
200,000 shares of its common stock for all of the outstanding common stock
of MIDAS. The MIDAS acquisition was accounted for as a pooling of
interests.
The condensed consolidated financial statements do not include the
financial position, operating results and cash flows of MIDAS prior to
January 1, 1998, due to immateriality.
3. Basic and Diluted Earnings Per Share:
-------------------------------------
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based upon the weighted average number of common shares outstanding during
the period plus additional weighted average common equivalent shares
outstanding during the period when the effect is not anti-dilutive. Common
equivalent shares result from the assumed exercise of outstanding stock
options and warrants or the assumed conversion of convertible preferred
stock. Common equivalent shares have not been included in the per share
calculations for the three and six months ended June 30, 1998 and 1997 as
the effect would be anti-dilutive. As of June 30, 1998, total potential
common equivalent shares consist of 699,820 stock options outstanding with
a weighted average exercise price of $4.01, 250,000 warrants with an
exercise price of $6.50, 2,754,637 shares of redeemable convertible
preferred stock and 70,000 shares of Series E convertible preferred stock.
25
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
CONTINUED
4. Line of Credit:
--------------
On July 13, 1998, the Company renewed and modified an existing line of
credit arrangement for working capital borrowings of up to the lesser of
$1,500,000 or 80% of eligible accounts receivable. The line of credit
bears interest at prime rate plus 2% and is payable on demand. As of June
30, 1998, there was $1,172,000 of borrowings outstanding under the line of
credit.
5. Commitments:
-----------
On April 22, 1998, the Company signed a development agreement with a
software developer. The agreement requires the Company to make development
payments totaling $1,540,000 over a four- year period. Under the
agreement, minimum development payments for the years ended December 31,
1998, 1999, 2000 and 2001 are $420,000, $420,000, $420,000, and $280,000,
respectively.
6. Stockholders' Equity:
--------------------
On January 15, 1998, the Company permanently retired 192,351 shares of
Series A redeemable convertible preferred stock and 23,684 shares of
common stock.
On April 28, 1998, the Company increased the number of authorized shares
of common stock to 5,500,000. The Company also adopted the 1998 Stock
Plan, the successor to the 1988 Stock Plan. The 1998 Stock Plan provides
for the grant of incentive options and nonqualified stock options, stock
awards and stock purchase rights for the purchase of up to an aggregate of
250,000 shares of the Company's common stock by officers, employees,
consultants and directors of the Company.
7. Comprehensive Income:
--------------------
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires that all components of comprehensive income and total
comprehensive income be reported and that changes be shown in a financial
statement displayed with the same prominence as other financial
statements. The Company has elected to disclose this information in its
statement of stockholders' equity. For the six months ended June 30, 1998
and 1997, total comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $(4,823,000) $69,000
Foreign currency translation adjustment (14,000) (4,000)
--------------- ---------
Total comprehensive income (loss) $(4,837,000) $65,000
=============== =========
</TABLE>
26
<PAGE>
FASTECH INTEGRATION, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
CONTINUED
8. New Accounting Pronouncements:
-----------------------------
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
which provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions and supercedes
SOP 91-1, "Software Revenue Recognition." The Company adopted the
guidelines of SOP 97-2 as of January 1, 1998 and the impact of such
adoption was not material to the results of operations or cash flows for
the period ended June 30, 1998.
In July 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for fiscal years beginning after December
15, 1997. The interim reporting disclosures are not required in the first
year of adoption. SFAS 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial
information to be disclosed. SFAS 131 changes current practice under SFAS
No. 14 by establishing a new framework on which to base segment reporting.
The "management" approach expands the required disclosures for each
segment. The Company will adopt SFAS 131 in the fourth quarter ended
December 31, 1998 and has not yet determined the impact of such adoption
on its segment reporting.
9. Subsequent Event:
----------------
In August 1998, the Company signed a Letter of Intent with Brooks
Automation, Inc. ("Brooks") to merge the companies. Brooks is a developer,
manufacturer and supplier of substrate handling robots, modules, software,
controls and fully integrated cluster tool handling systems for the
semiconductor and flat panel display process equipment industries. The
merger is intended to be accounted for as a pooling of interest. The
transaction has been approved by the Company's and Brooks' respective
board of directors and is expected to close in September 1998.
27
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements set forth
below give effect to the Merger on a retroactive basis. The unaudited pro forma
condensed combined balance sheet as of June 30, 1998 gives effect to the Merger
as if it had occurred on June 30, 1998, and combines the historical consolidated
balance sheets of Brooks and FASTech as of June 30, 1998. The unaudited pro
forma condensed combined statements of operations give effect to the Merger as
if it had occurred at the beginning of the earliest period presented. The
unaudited pro forma condensed combined statements of operations for the fiscal
years ended September 30, 1995, 1996 and 1997 combine Brooks' historical
consolidated statements of operations for the fiscal years ended September 30,
1995, 1996 and 1997 with FASTech's historical consolidated statements of
operations for the fiscal years ended December 31, 1995, 1996 and 1997,
respectively. The unaudited pro forma condensed combined statement of operations
for the nine months ended June 30, 1997 combines Brooks' historical consolidated
statement of operations for the nine months ended June 30, 1997 with FASTech's
historical consolidated statement of operations for the nine months ended
September 30, 1997. The unaudited pro forma condensed combined statement of
operations for the nine months ended June 30, 1998 combines Brooks' historical
consolidated statement of operations for the nine months ended June 30, 1998
with FASTech's historical consolidated statements of operations for the six
months ended June 30, 1998 and the three months ended December 31, 1997.
Accordingly, FASTech's historical consolidated statement of operations for the
three months ended December 31, 1997 has been included in the unaudited pro
forma condensed combined statements of operations for both the fiscal year ended
September 30, 1997 and the nine months ended June 30, 1998.
Brooks and FASTech estimate that they will incur direct transaction costs
of approximately $600,000 associated with the Merger, which will be charged to
operations as incurred. There can be no assurance that the combined company will
not incur additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
The unaudited pro forma condensed combined financial information set forth
below is presented for illustrative purposes only, and is not necessarily
indicative of the financial position or results of operations that would have
actually been reported had the Merger occurred at the beginning of the periods
presented, nor is it necessarily indicative of the future financial position or
results of operations of the combined companies.
1
<PAGE>
BROOKS AUTOMATION, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
Brooks FASTech Adjustments Combined
-------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 65,308 $ 2,916 $ - $ 68,224
Accounts receivable, net 23,560 2,735 - 26,295
Inventories 23,689 - - 23,689
Prepaid expenses and other current assets 2,306 292 - 2,598
Deferred income taxes 4,963 - - 4,963
-------------- ----------- ----------- ----------
Total current assets 119,826 5,943 - 125,769
Fixed assets, net 18,315 2,343 - 20,658
Other assets 3,687 296 - 3,983
-------------- ----------- ----------- ----------
Total assets $ 141,828 $ 8,582 $ - $ 150,410
============== =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,843 $ 1,242 $ - $ 7,085
Accrued expenses and other current liabilities 5,170 6,649 600 (1) 12,419
-------------- ----------- ----------- ----------
Total current liabilities 11,013 7,891 600 19,504
Long-term debt and other liabilities 1,068 2,291 - 3,359
-------------- ----------- ----------- ----------
Total liabilities 12,081 10,182 600 22,863
-------------- ----------- ----------- ----------
Redeemable convertible preferred stock - 10,625 (10,625) (1) -
Stockholders' Equity:
Preferred stock - 152 (152) (1) -
Common stock 101 - 9 (1) 110
Common stock warrants - 420 - 420
Additional paid-in capital 117,772 - 10,768 (1) 128,540
Cumulative translation adjustment (394) (125) - (519)
Deferred compensation (320) - - (320)
Retained earnings (Accumulated deficit) 12,588 (12,672) (600) (1) (684)
-------------- ----------- ----------- ----------
Total stockholders' equity (deficit) 129,747 (12,225) 10,025 127,547
-------------- ----------- ----------- ----------
Total liabilities and stockholders' equity $ 141,828 $ 8,582 $ - $ 150,410
============== =========== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
2
<PAGE>
BROOKS AUTOMATION, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended September 30, Nine months ended June 30,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
-------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 68,488 $ 112,730 $ 108,741 $ 72,917 $ 79,550
Cost of revenues 34,084 57,961 63,761 42,060 57,012
-------------------------------------- --------------------------
Gross profit 34,404 54,769 44,980 30,857 22,538
-------------------------------------- --------------------------
Operating expenses:
Research and development 11,258 18,336 20,592 14,461 18,170
Selling, general and administrative 14,898 23,176 23,952 17,057 20,375
-------------------------------------- --------------------------
Total operating expenses 26,156 41,512 44,544 31,518 38,545
-------------------------------------- --------------------------
Income (loss) from operations 8,248 13,257 436 (661) (16,007)
Other income (expense), net 62 (64) (770) (520) 2,237
-------------------------------------- --------------------------
Income (loss) before income taxes 8,310 13,193 (334) (1,181) (13,770)
Income tax provision (benefit) 1,705 4,599 1,267 (161) (1,541)
-------------------------------------- --------------------------
Net income (loss) $ 6,605 $ 8,594 $ (1,601) $ (1,020) $ (12,229)
====================================== ==========================
Net income (loss) per share:
Basic $0.98 $1.04 ($0.19) ($0.12) ($1.12)
Diluted $0.86 $0.94 ($0.19) ($0.12) ($1.12)
Number of shares used in calculating
net income (loss) per share:
Basic 6,768 8,303 8,493 8,424 10,936
Diluted 7,673 9,152 8,493 8,424 10,936
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
3
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma condensed combined financial statements give
effect to the Merger as if it had occurred on the dates or at the beginning of
the periods presented (as applicable), reflecting the issuance of 0.127469 of a
share of Brooks common stock for each share of FASTech common stock, and
0.147209, 0.167118, 0.197585, 0.372104 and 0.252057 of a share of Brooks common
stock for each share of FASTech Series A, B, C, D and E preferred stock,
respectively. Additionally at the Effective Time, all outstanding options and
warrants to purchase FASTech common stock will be exchanged for options and
warrants to purchase Brooks common stock, based on the Common Stock Conversion
Ratio of 0.127469. As of June 30, 1998, options and warrants to purchase a total
of 699,820 and 250,000 shares of FASTech common stock, respectively, were
outstanding.
The unaudited pro forma condensed combined financial statements set forth
below give effect to the Merger on a retroactive basis. The unaudited pro forma
condensed combined balance sheets as of June 30, 1998 give effect to the Merger
as if it had occurred on June 30, 1998, and combines the historical consolidated
balance sheets of Brooks and FASTech as of June 30, 1998. The unaudited pro
forma condensed combined statements of operations give effect to the Merger as
if it had occurred at the beginning of the earliest period presented. The
unaudited pro forma condensed combined statements of operations for the fiscal
years ended September 30, 1995, 1996 and 1997 combine Brooks' historical
consolidated statements of operations for the fiscal years ended September 30,
1995, 1996 and 1997 with FASTech's historical consolidated statements of
operations for the fiscal years ended December 31, 1995, 1996 and 1997,
respectively. The unaudited pro forma condensed combined statement of
operations for the nine months ended June 30, 1997 combines Brooks' historical
consolidated statement of operations for the nine months ended June 30, 1997
with FASTech's historical consolidated statements of operations for the nine
months ended September 30, 1997. The unaudited pro forma condensed combined
statement of operations for the nine months ended June 30, 1998 combines Brooks'
historical consolidated statement of operations for the nine months ended June
30, 1998 with FASTech's historical consolidated statements of operations for the
six months ended June 30, 1998 and the three months ended December 31, 1997.
Accordingly, FASTech's historical consolidated statement of operations for the
three months ended December 31, 1997, which includes revenues of $5,018,000 and
a net loss of $2,624,000, has been included in the unaudited pro forma condensed
combined statements of operations for both the fiscal year ended September 30,
1997 and the nine months ended June 30, 1998.
2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined earnings per share information is based
upon the weighted average number of common and dilutive potential common shares
outstanding of Brooks and FASTech for each period presented, giving effect to
the Merger as if it occurred at the beginning of the earliest period presented,
using exchange ratios of 0.127469 of a share of Brooks common stock for each
share of FASTech common stock, and 0.147209, 0.167118, 0.197585, 0.372104 and
0.252057 of a share of Brooks common stock for each share of FASTech Series A,
B, C, D and E preferred stock, respectively.
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting
policies of Brooks and FASTech. For the purposes of presenting the unaudited
pro forma condensed combined statements of operations, dividends accrued on
preferred stock in the historical FASTech financial statements were eliminated.
There are no material intercompany transactions included in the unaudited pro
forma condensed combined financial statements.
4
<PAGE>
4. TRANSACTION COSTS
It is estimated that the combined company will incur charges to operations
of approximately $600,000 representing direct transaction costs of the Merger,
primarily for accounting and legal fees. The estimated charge is reflected in
the unaudited condensed pro forma balance sheet as of June 30, 1998, but is not
reflected in the unaudited pro forma condensed combined statements of
operations. These non-recurring transaction costs will be charged to operations
as incurred. These costs reflect a preliminary estimate only and, therefore,
are subject to change.
It is expected that following the Merger, the combined company will incur
additional significant costs associated with integrating the two companies,
which amounts will be charged to operations as incurred. The amount of such
costs is not currently reasonably estimable and, accordingly, the amount has not
been reflected in the unaudited pro forma condensed combined balance sheet as of
June 30, 1998. There can be no assurance that the combined company will not
incur additional material charges to reflect costs associated with the Merger,
or that management will be successful in its efforts to integrate the operations
of the two companies.
5
