-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KkFNkbGvj2knBW6Ked6jwpzJsP1j7TG3EPsnHkTjuq0yDT9xYHZQfkRnKOrKULdL HXXu/vErsabuSBy+Lm0KSw== 0000927016-98-003642.txt : 19981016 0000927016-98-003642.hdr.sgml : 19981016 ACCESSION NUMBER: 0000927016-98-003642 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKS AUTOMATION INC CENTRAL INDEX KEY: 0000933974 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 043040660 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-25434 FILM NUMBER: 98726235 BUSINESS ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 5084531112 MAIL ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSBORO STATE: MA ZIP: 01824 8-K 1 FORM 8-K 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) 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. (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. 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 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. EX-99.1 2 FASTECH HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS 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 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 FASTECH INTEGRATION, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
ASSETS 1997 1996 --------------- --------------- 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 ============== ==============
The accompanying notes are an integral part of the consolidated financial statements. 3 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1997, 1996, and 1995
1997 1996 1995 --------------- --------------- --------------- 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
The accompanying notes are an integral part of the consolidated financial statements. 4 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT for the years ended December 31, 1997, 1996 and 1995
SERIES E CONVERTIBLE COMMON ADDITIONAL CUMULATIVE PREFERRED STOCK COMMON STOCK STOCK PAID-IN TRANSLATION ACCUMULATED SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL ADJUSTMENT DEFICIT --------- --------- -------- -------- -------- ----------- ------------- -------------- 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) ========= ========= ========= ======== ======== =========== ============= ============== TOTAL STOCKHOLDERS' DEFICIT -------------- 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) ==============
5 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- 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
The accompanying notes are an integral part of the consolidated financial statements. 6 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 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 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 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:
AS REPORTED AS RESTATED ---------------- ---------------- 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)
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:
INCOME AVAILABLE EARNINGS TO COMMON PER STOCKHOLDERS SHARES SHARE -------------------- ---------- ------------- 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 ================ ============ =============
Continued 10 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:
USEFUL LIFE DECEMBER 31, --------------------- (IN YEARS) 1997 1996 ---------- ---- ---- 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 ============ ============
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 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:
DECEMBER 31, ------------------- 1997 1996 ---- ---- 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 =========== ===========
Continued 12 FASTECH INTEGRATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES: ------------ The components of income (loss) before income taxes are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ---- ---- ---- 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 =========== ========== ============
The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 ---- ----- ---- 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) ============ ========== ============
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 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:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1997 1996 1995 ---------- --------- ----------- 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) =============================================
Deferred tax assets consist of the following:
DECEMBER 31, ------------------------------ 1997 1996 ----------- ----------- 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 ===============================
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 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:
DECEMBER 31, ------------------------- 1997 1996 -------- --------- 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 ============================
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 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 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 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:
WEIGHTED NUMBER OF AVERAGE SHARES EXERCISE PRICE --------- -------------- 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 ============
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:
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 ------------------------ ------------- ----------- -------- ----------- --------- $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 ============== ===========
Options exercisable at December 31, 1996 and 1995 were 252,930 and 302,300, respectively. Continued 18 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 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:
OPERATING CAPITAL LEASES LEASES ---------- -------- 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 =============
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 FASTECH INTEGRATION, INC. CONSOLIDATED BALANCE SHEETS as of June 30, 1998 and December 31, 1997
ASSETS 1998 1997 ---- ---- (UNAUDITED) 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 ============ ============
The accompanying notes are an integral part of the financial statements. 21 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the six months ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- 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
The accompanying notes are an integral part of the financial statements. 22 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the three months ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- 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
The accompanying notes are an integral part of the financial statements. 23 FASTECH INTEGRATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOW for the six months ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- 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 =========== ============
The accompanying notes are an integral part of the financial statements. 24 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 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:
Six months ended June 30, 1998 1997 ---- ---- 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 =============== =========
26 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 EX-99.2 3 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 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 BROOKS AUTOMATION, INC. PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1998 (UNAUDITED) (In thousands, except per share data)
Historical Historical Pro Forma Pro Forma Brooks FASTech Adjustments Combined -------------- ----------- ----------- ---------- 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 ============== =========== =========== ==========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements 2 BROOKS AUTOMATION, INC. PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
Years ended September 30, Nine months ended June 30, -------------------------------------- -------------------------- 1995 1996 1997 1997 1998 -------------------------------------- -------------------------- 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
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. 3 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 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 -----END PRIVACY-ENHANCED MESSAGE-----