================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________to___________________
COMMISSION FILE NUMBER 0-22646
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Name of Issuer in its Charter)
DELAWARE 04-2962110
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
35 CABOT ROAD, WOBURN, MASSACHUSETTS 01801-1053
(Address of Principal Executive Offices) (Zip Code)
(617) 933-5560
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
COMMON STOCK, $0.01 PAR VALUE 4,456,145
----------------------------- ------------------
Class Outstanding as of May 1, 1997
================================================================================
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Statements of Operations-
Three Months and Nine Months
Ended March 29,1997
and March 30, 1996 2
Consolidated Balance Sheets-
March 29, 1997 and June 29, 1996 3
Consolidated Statements of Cash Flows-
Nine Months Ended March 29, 1997
and Nine Months Ended March 30, 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
PART II. OTHER INFORMATION
Item 1-5 None
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
1
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
------------ ------------ ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales, net $ 10,123,941 $ 11,686,021 $ 27,120,927 $ 23,280,585
Research contract revenue 247,332 279,867 791,562 575,213
Other revenue 641,259 715,600 2,253,159 1,324,072
------------ ------------ ------------- ------------
Total revenue 11,012,532 12,681,488 30,165,648 25,179,870
------------ ------------ ------------- ------------
Cost of sales and revenue:
Product sales and other revenue 6,995,463 7,566,056 18,681,827 14,847,838
Research contracts 130,733 140,973 388,676 290,586
------------ ------------ ------------- ------------
Total cost of sales and revenue 7,126,196 7,707,029 19,070,503 15,138,424
------------ ------------ ------------- ------------
Gross profit 3,886,336 4,974,459 11,095,145 10,041,446
Operating expenses:
Research and development expenses
(note 5) 1,735,389 1,586,084 4,814,654 3,287,550
Selling expenses 605,724 1,029,791 2,004,572 2,164,741
General and administrative expenses 886,740 1,175,313 2,620,667 2,578,101
Acquisition-related expenses (note 8) 0 0 0 2,953,000
------------ ------------ ------------- ------------
Total operating expenses 3,227,853 3,791,188 9,439,893 10,983,392
------------ ------------ ------------- ------------
Earnings (loss) from operations 658,483 1,183,271 1,655,252 (941,946)
Other expense (income):
Interest expense 138,200 164,228 431,622 164,228
Interest income (99,126) (137,932) (313,608) (546,413)
Other expense (income) (990) 2,978 (21,665) 11,837
------------ ------------ ------------- ------------
Total other (income) expense 38,084 29,274 96,349 (370,348)
------------ ------------ ------------- ------------
Earnings (loss) before income taxes 620,399 1,153,997 1,558,903 (571,598)
Income tax expense 230,000 429,000 577,000 799,000
------------ ------------ ------------- ------------
Net earnings (loss) $ 390,399 $ 724,997 $ 981,903 $(1,370,598)
------------ ------------ ------------- ------------
Primary net earnings (loss) per share $ 0.09 $ 0.16 $ 0.22 $ (0.32)
------------ ------------ ------------- ------------
Fully diluted net earnings (loss) per share $ 0.09 $ 0.16 $ 0.22 $ (0.32)
------------ ------------ ------------- ------------
Weighted average common shares outstanding
used to calculate primary earnings (loss)
per share 4,530,650 4,556,703 4,529,451 4,280,546
------------ ------------ ------------- ------------
Weighted average common shares outstanding
used to calculate fully diluted earnings
(loss) per share 4,530,650 4,575,001 4,529,451 4,286,698
------------ ------------ ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets March 29, June 29,
------ 1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,763,890 $ 5,182,294
Short-term marketable investments 0 1,990,962
Accounts receivable, trade, net (note 3) 8,718,501 8,921,890
Inventories (note 4) 8,694,213 8,734,401
Prepaid expenses and other assets 306,855 276,848
Deferred income taxes 969,741 969,741
------------- ------------
Total current assets 24,453,200 26,076,136
------------- ------------
Property, plant and equipment:
Land 473,000 473,000
Building and improvements 1,633,946 1,606,947
Equipment 7,514,310 7,068,802
Furniture and fixtures 549,454 543,860
Leasehold improvements 1,475,703 1,455,977
------------- ------------
11,646,413 11,148,586
Less accumulated depreciation and amortization (4,618,765) (3,458,407)
------------- ------------
Net property, plant and equipment 7,027,648 7,690,179
------------- ------------
Other assets:
Patents, net 151,408 141,525
Other 250,150 262,224
Long-term investments 1,299,432 0
Notes receivable 158,646 191,362
------------- ------------
Total other assets 1,859,636 595,111
------------- ------------
$ 33,340,484 $ 34,361,426
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of long-term debt (note 7) 1,627,193 1,624,641
Accounts payable 2,124,476 2,564,149
Accrued expenses 1,143,220 820,030
Accrued compensation expense and related costs 687,405 1,428,759
Accrued income tax expense 244,554 173,179
Commissions payable and customer advances 183,012 248,836
------------- ------------
Total current liabilities 6,009,860 6,859,594
------------- ------------
Long-term debt, less current maturities (note 7) 4,927,099 6,169,517
Deferred income taxes 36,507 36,507
------------- ------------
Total liabilities 10,973,466 13,065,618
------------- ------------
Stockholders' equity (note 6):
Common stock: issued 4,455,745 shares (4,448,375
shares at 6/29/96): 44,557 44,484
outstanding 4,455,745 shares (4,448,375 shares at
6/29/96)
Additional paid-in capital 26,694,340 26,690,108
Accumulated deficit (4,223,553) (5,205,458)
Less: Notes receivable for common stock purchases (148,326) (233,326)
------------- ------------
Total stockholders' equity 22,367,018 21,295,808
------------- ------------
$ 33,340,484 $ 34,361,426
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
March 29, March 30,
1997 1996
------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 981,903 $ (1,370,598)
Adjustments to reconcile net earnings to net
cash provided by (used for) operating
activities:
Depreciation 1,255,655 894,813
Amortization 48,983 176,480
Equipment transferred to inventory 93,566 0
Acquisition-related expense 0 2,203,000
Changes in assets and liabilities:
Accounts receivable 203,389 (2,019,868)
Inventories 40,188 (1,547,657)
Prepaid expenses and other assets (30,007) 290,273
Note receivable 32,716 107,325
Accounts payable (439,673) 324,547
Accrued expenses (346,789) (1,358,857)
Commissions payable and customer
advances (65,824) (32,231)
------------- ---------------
Net cash provided by (used for)
operating activities 1,774,107 (2,332,773)
------------- ---------------
Cash flows from investing activities:
Acquisition of subsidiaries, less cash acquired 0 (12,318,331)
Purchases of investments (1,299,102) (3,006,211)
Sales of investments 1,990,632 10,260,925
Additions to property and equipment (686,688) (2,056,757)
Patents and other assets (46,792) (74,424)
Investment in Low Entropy Systems, Inc. 0 (250,000)
------------- ---------------
Net cash used for
investing activities (41,950) (7,444,798)
------------- ---------------
Cash flows from financing activities:
Proceeds from long term debt 0 8,000,000
Proceeds from notes payable to bank 0 391,770
Repayments of notes payable (1,239,866) (276,774)
Net proceeds from issuance of common stock 81,805 1,917,769
Repayment of notes receivable for common stock
purchase 7,500 0
------------- ---------------
Net cash provided by (used for)
financing activities (1,150,561) 10,032,765
------------- ---------------
Net increase in cash and cash equivalents 581,596 255,194
Cash and cash equivalents at beginning of period 5,182,294 2,303,645
------------- ---------------
Cash and cash equivalents at end of period $ 5,763,890 $ 2,558,839
============= ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 438,037 $ 164,228
Income taxes $ 512,905 $ 860,555
</TABLE>
See accompanying notes to consolidated financial statements.
4
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1) BASIS OF PRESENTATION
The unaudited financial statements as of March 29, 1997 and March 30,
1996 and for the three and nine month periods then ended, have been
prepared in accordance with generally accepted accounting principles
and include all adjustments, which in the opinion of management, are
necessary to present fairly the results of operations for the periods
then ended. All such adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with the
financial statements for the year ended June 29, 1996, and the notes
thereto included in the Company's Form 10-K filed with the Securities
and Exchange Commission.
Certain third quarter and year to date Fiscal 1996 accounts have been
reclassified to conform to the third quarter and year to date Fiscal
1997 presentation.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for a
full fiscal year.
2) EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common shares outstanding during each period, after giving effect to
stock options and warrants considered to be dilutive common stock
equivalents.
3) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
March 29, June 29,
1997 1996
------------ ------------
(unaudited)
Accounts receivable, trade $ 8,859,022 $ 9,115,345
Notes receivable, current portion 89,465 158,754
Allowance for doubtful accounts (229,986) (352,209)
------------ ------------
$ 8,718,501 $ 8,921,890
============ ============
5
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4) INVENTORIES
Inventories consist of the following:
March 29, June 29,
1997 1996
------------ ------------
(unaudited)
Raw materials $ 4,325,109 $ 5,630,926
Work in process 3,122,339 2,249,579
Finished goods 1,246,765 853,896
------------ ------------
$ 8,694,213 $ 8,734,401
============ ============
5) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred. Research
and development expenses attributed to research contracts are included
in cost of sales and revenue.
The Company also receives funding for certain research and development
costs which is used to offset research and development expenses. The
Company incurred research and development expenses, net of funding
received, as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
------------ ------------ ---------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Research and development cost $ 2,008,869 $ 1,974,583 $ 5,346,077 $ 4,654,872
Less funding 273,480 388,499 531,423 1,367,322
------------ ------------ ---------- ------------
$ 1,735,389 $ 1,586,084 $ 4,814,654 $ 3,287,550
============ ============ ========== ============
</TABLE>
6
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6) STOCKHOLDERS' EQUITY
Capital stock consists of the following:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
Authorized Issued and Outstanding
--------------------------------------------
March 29, June 29,
1996 1996
----------- -----------
Preferred stock: (unaudited)
<S> <C> <C> <C>
Preferred stock, $.01 par value 1,000,000 - -
------------ ---------- ------------
Total preferred stock 1,000,000 - -
------------ ---------- ------------
Common Stock:
Common stock, $.01 par value 10,000,000 4,455,745 4,448,375
------------ ---------- ------------
Total common stock 10,000,000 4,455,745 4,448,375
------------ ---------- ------------
Total capital stock 11,000,000 4,455,745 4,448,375
============ ========== ============
</TABLE>
7
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7) LONG-TERM DEBT
Long-term debt consists of the following:
March 29, June 29,
1997 1996
------------ ------------
(unaudited)
Unsecured note payable to the bank with
interest at bank's prime rate (8.25% at
March 29, 1997) payable in monthly
principal installment of $67,797,
plus interest, due December 31, 2000 $ 3,050,847 3,661,017
Unsecured note payable to the bank with
interest at 7.19%, payable in monthly
principal installments of $67,797, plus
interest, due December 31, 2000. This
note is subject to a prepayment penalty
equal to the lender's lost net interest
income resulting from any prepayment as
defined in the loan agreement. 3,050,847 3,661,017
Note payable to bank, payable in monthly
installments of $5,415 including interest,
with any remaining balance due in July
1999. The interest is adjusted to bank's
prime rate with a maximum change of 1%
annually (8.75% at March 29, 1997). The
Note is secured by the land and building. 452,598 472,124
---------- ------------
6,554,292 7,794,158
Less current maturities 1,627,193 1,624,641
----------- ------------
Long-term debt, less current maturities 4,927,099 6,169,517
=========== ============
8) ACQUISITIONS
At January 2, 1996 the Company completed the acquisition of Ehrnhorn
Technological Operations, Inc. ("ETO"), a manufacturer of radio frequency (RF)
generators used in the semiconductor, medical imaging, medical sterilization and
amateur radio communications applications.
The Company acquired all of the stock of ETO, for a total purchase price of
$16,749,358. The purchase price included $12,600,000 in cash, of which
8
$4,600,000 was provided from the Company's cash reserves while the remaining
$8,000,000 was provided from two unsecured notes from a bank. In addition, the
Company issued 328,662 shares of ASTeX common stock valued at $4,149,358 to the
former shareholders of ETO. Related acquisition costs were charged to expense.
The acquisition was accounted for by the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and the
liabilities assumed based on their fair values at the date of acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company was formed in January 1987. The Company's initial activities
consisted of selling microwave components and power supplies, and conducting
funded and nonfunded research and development activities. This research led to
the Company's development of proprietary plasma deposition systems used in
commercial applications. Although the Company has supplied products to
end-users, semiconductor capital equipment manufacturers (SCEMs), and
researchers since inception, it did not commence the marketing of deposition
systems for CVD diamond until Fiscal 1990. In February 1992, the Company,
through its wholly-owned subsidiary, ASTeX/Gerling Laboratories, Inc. ("AGL"),
acquired substantially all of the assets of Jova Enterprises, Inc., which
conducted business under the name of "Gerling Laboratories". In November 1995
the Company acquired all the outstanding shares of Newton Engineering Service,
Inc. ("NES"), a manufacturer of high performance transformers used across the
Company's product lines. In January 1996 the Company acquired all the shares of
Ehrhorn Technological Operations, Inc. a manufacturer of radio frequency ("RF")
generators used in semiconductor, medical diagnostic imaging, and medical
sterilization applications. At the acquisition date the name was changed to ETO,
Inc. Applied Science and Technology, GmbH, a German wholly-owned subsidiary of
the Company, has been inactive since its inception. The Company may use this
subsidiary for future activities in Europe. As set forth in the Company's
Consolidated Financial Statements, total revenue consists of product sales,
research contract revenue and other revenue. Other revenue includes service,
repair, spare parts and consulting services.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 29, 1997
AND MARCH 30, 1996
The following table compares the consolidated statements of operations for the
three-month periods ended March 29, 1997 and March 30, 1996.
9
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 29, 1997 MARCH 30, 1996 CHANGE CHANGE
<S> <C> <C> <C> <C> <C> <C>
$ (000) % $ (000) % $ (000) %
Product sales, net 10,124 92% 11,686 92% (1,562) (13%)
Research contract revenue 247 2% 279 2% (32) (11%)
Other revenue 641 6% 716 6% (75) (10%)
----------- ------- ----------- ------- -------------------
Total revenue 11,012 100% 12,681 100% (1,669) (13%)
Cost of sales and revenue:
Product sales and other revenues 6,995 64% 7,566 60% (571) (8%)
Research contracts 131 1% 141 1% (10) (7%)
----------- ------- ----------- ------- -------------------
Total cost of sales and revenue 7,126 65% 7,707 61% (581) (8%)
----------- ------- ------------ ------ -------------------
Gross profit 3,886 35% 4,974 39% (1,088) (22%)
----------- ------- ------------ ------ -------------------
Operating expenses:
Research and development expenses 1,735 16% 1,586 13% 149 9%
Selling expenses 606 5% 1,030 8% (424) (41%)
General and administrative expenses 887 8% 1,175 9% (288) (25%)
Acquisition-related expenses 0 0% 0 0% 0 -
----------- ------- ------------ ------ ----------- ------
Total operating expenses 3,228 29% 3,791 30% (563) (15%)
----------- ------- ------------ ------ ----------- ------
Earnings from operations 658 6% 1,183 9% (525) (44%)
----------- ------- ------------ ------ ----------- ------
Other expense:
Interest expense 138 1% 164 1% (26) (16%)
Interest income (99) (1%) (138) (1%) 39 (28%)
Other expense (income) (1) 0% 3 0% (4) (133%)
----------- ------- ------------ ----- ----------- ------
Total other expense (income) 38 0% 29 0% 9 31%
----------- ------ ------------- ----- ------------ -----
Earnings before income taxes 620 6% 1,154 9% (534) (46%)
Income tax expense 230 2% 429 3% (199) (46%)
---------- -------- ------------- ----- ------------ -----
Net earnings 390 4% 725 6% (335) (46%)
---------- -------- ------------- ----- ----------- ------
</TABLE>
10
The following table compares the consolidated statements of operations for the
nine-month periods ended March 29,1997 and March 30, 1996.
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------------------------
March 29, 1997 March 30, 1996 Change Change
<S> <C> <C> <C> <C> <C> <C>
$ (000) % $ (000) % $ (000) %
Product sales, net 27,121 90% 23,281 93% 3,840 16%
Research contract revenue 792 3% 575 2% 217 38%
Other revenue 2,253 7% 1,324 5% 929 70%
-------------------- --------------------- -------------------
Total revenue 30,166 100% 25,180 100% 4,986 20%
Cost of sales and revenue:
Product sales and other revenues 18,682 62% 14,848 59% 3,834 26%
Research contracts 389 1% 290 1% 99 34%
-------------------- --------------------- -------------------
Total cost of sales and revenue 19,071 63% 15,138 60% 3,933 26%
-------------------- --------------------- -------------------
Gross profit 11,095 37% 10,042 40% 1,053 10%
-------------------- --------------------- -------------------
Operating expenses:
Research and development expenses 4,815 16% 3,288 13% 1,527 46%
Selling expenses 2,004 7% 2,165 8% (161) (7%)
General and administrative expenses 2,621 9% 2,578 10% 43 2%
Acquisition-related expenses 0 0% 2,953 12% (2,953) (100%)
-------------------- --------------------- -------------------
Total operating expenses 9,440 32% 10,984 43% (1,544) (14%)
-------------------- --------------------- -------------------
Earnings (loss) from operations 1,655 5% (942) (3%) 2,597 (276%)
-------------------- --------------------- -------------------
Other expense (income):
Interest expense 432 1% 164 1% 268 163%
Interest income (314) (1%) (546) (2%) 232 (42%)
Other expense (income) (22) (0%) 12 0% (34) (283%)
-------------------- --------------------- -------------------
Total other expense (income) 96 0% (370) (1%) 466 (126%)
-------------------- --------------------- -------------------
Earnings (loss) before income
taxes 1,559 5% (572) (2%) 2,131 (373%)
Income tax expense 577 2% 799 3% (222) (28%)
-------------------- --------------------- -------------------
Net earnings (loss) 982 3% (1,371) (5%) 2,353 (172%)
-------------------- --------------------- -------------------
</TABLE>
Total revenue decreased in the third quarter of Fiscal 1997 by 13% to
$11,012,000 but increased for the nine months year to date by 20% to $30,166,000
compared to the third quarter and nine months of Fiscal 1996. Of these sums,
$3,402,000 for the third quarter and $10,525,000 for the year to date was from
sales by ETO, compared to the third quarter and the year to date of Fiscal 1996
of $4,287,000. There were no sales from ETO in the first six months of Fiscal
1996 since ETO was acquired at the beginning of the third quarter of Fiscal
1996. The sales decrease in the third quarter of Fiscal 1997 compared to the
third quarter of Fiscal 1996 is primarily due to a reduction of third quarter
sales from ETO of 25%, primarily in the semiconductor segment, a reduction in
sales in diamond systems and accessories offset by increased sales in ozone
generators and systems. For the nine months of Fiscal 1997 the sales increase of
20% is primarily due to the acquisition of ETO which resulted in nine months of
sales from ETO in Fiscal 1997 compared to three months in Fiscal 1996, increased
sales from ozone generators and ozone systems offset by decreases in
semiconductor microwave products.
11
Gross profits decreased by $1,088,000 or 22% in the third quarter of Fiscal 1997
and increased by $1,053,000 or 10% for the year to date compared to the prior
comparative periods in Fiscal 1996. Gross margins as a percent of sales
decreased to 35% in the third quarter and 37% for the year to date of Fiscal
1997 compared to 39% in the third quarter and 40% for the year to date of Fiscal
1996. ETO's gross margin historically has been lower than ASTeX primarily due to
lower prices in a more competitive market.
Without the acquisition of ETO the gross margin as a percent of sales would have
been 42% in the third quarter and 44% for the year to date of Fiscal 1997
compared to 45% in the third quarter and 42% for the year to date of Fiscal
1996. The Company's gross margin decreased 2% in the third quarter of Fiscal
1997 but improved by 1% year to date in Fiscal 1997 compared to the third
quarter and year to date in Fiscal 1996. The third quarter's decrease is
primarily due to lower margins in diamond systems due to lower sales volume. The
1% improvement in the year to date gross margin is due to continued efforts to
lower the Company's cost of sales. The semiconductor segment is a highly
competitive market that will require continued cost improvement in order to
maintain existing margins. The Company anticipates that downward price pressure
due to the downturn in the SCEM market could impact future gross margins,
although the Company continues to invest heavily in cost reductions and new
product development as a means to improve gross margin.
Research and development expenses increased by $149,000 or 9% in the third
quarter of Fiscal 1997 and increased $1,527,000 or 46% for the year to date
compared to the third quarter and year to date of Fiscal 1996. The Company
continues to make significant investments in research and development in the
semiconductor, medical and diamond business segments in order to support future
growth. Outcomes of these investments will be anticipated new product
introductions in Fiscal 1997 such as an advanced compact integrated microwave
plasma source. This product will be used for photoresist stripping by leading
SCEMs, and ramping up production began in the third quarter of Fiscal 1997. The
Company anticipates comparable expense spending as a percent of sales though
Fiscal 1997.
Selling expenses decreased to 5% of sales in the third quarter of Fiscal 1997
and decreased to 7% for the year to date compared to 8% of sales in the third
quarter of Fiscal 1996 and 8% for the Fiscal 1996 year to date. Year to date
gross spending decreased by 7% primarily due to cost reduction efforts.
General and administrative expenses decreased to 8% of sales in the third
quarter of Fiscal 1997 and decreased to 8% of sales for the year to date for
Fiscal 1997 compared to 9% of sales in the third quarter of Fiscal 1996 and 10%
of sales for the year to date for Fiscal 1996. The Company anticipates
comparable expense spending though Fiscal 1997.
In the second quarter of Fiscal 1996, in order to establish the fair value of
the ETO assets acquired and liabilities assumed, a valuation process was
performed. In connection with the ETO acquisition, in process research and
development and acquisition related
13
expenses totaled $2,953,000 and were expensed in the second quarter of Fiscal
1996. There are no similar expenses for the second or third quarter of Fiscal
1997.
Earnings from operations for the third quarter of Fiscal 1997 were $658,000 and
$1,655,000 for the year to date. This compares to earnings of $1,183,000 in the
third quarter of Fiscal 1996 and year to date losses of $942,000 in Fiscal 1996.
Of the year to date Fiscal 1996 losses, $2,953,000 was due to in process
research and development and acquisition related expenses. Without these one
time expenses, year to date Fiscal 1996 earnings from operations would have been
$2,011,000.
Interest expense was $138,000 in the third quarter of Fiscal 1997 and $432,000
for the year to date which compares to interest expense in the third quarter and
year to date of Fiscal 1996 of $164,000, which is interest for one quarter in
Fiscal 1996 compared to interest expense for three quarters in Fiscal 1997. The
increase in interest expense is primarily due to two bank notes incurred as part
of the financing of the ETO acquisition. Interest income was $99,000 in the
third quarter of Fiscal 1997 and $314,000 for the year to date compared to
$138,000 in the third quarter of Fiscal 1996 and $546,000 for the year to date.
The decrease in interest income is primarily due to having less cash investments
than in the prior fiscal year due to the cash used for the ETO acquisition.
Income tax expense was $230,000 in the third quarter of Fiscal 1997 and $577,000
for the year to date. This compared to $429,000 in the third quarter of Fiscal
1996 and $799,000 for the year to date.
ETO contributed $3,402,000 in sales or 31% of the total Company's sales in the
third quarter of Fiscal 1997 and $10,525,000 or 35% for the year to date
compared to $4,287,000 or 34% for the third quarter of Fiscal 1996 and
$4,287,000 or 17% year to date. ETO has been profitable for the year to date,
however the acquisition has been dilutive to earnings, which is consistent with
the impairment of goodwill write-off that the Company took in the fourth quarter
of Fiscal 1996. Without ETO, year to date earnings per share would have been
$0.32 rather than $0.22. However, the Company anticipates that ETO will not be
dilutive in the future due to new business at major SCEM's.
The Company's backlog consists of purchase orders for products and research and
development contracts. At March 29, 1997 the Company's backlog was $11,142,000
(consisting of $10,557,000 for products and $585,000 for research contracts)
compared to backlog at March 30, 1996 of $10,910,000 (consisting of $9,884,000
for products and $1,026 for research contracts). The Company expects to complete
all product backlog during the next 12 months. The backlog excludes supply
agreements with certain SCEM's. Shipments under these agreements were $1,256,000
for the third quarter of Fiscal 1997 and $3,133,000 for the year to date
compared to $1,298,000 in the third quarter of Fiscal 1996 and $4,397,000 for
the year to date for Fiscal 1996. The supply agreements, as well as certain
government contracts, typically provide for modification or cancellation with
little or no penalty.
The backlog at March 29, 1997 is a all-time record high end-of-quarter for the
Company. The previous record was the year earlier figure at March 30, 1996. This
14
record backlog was driven by record bookings during the third quarter of Fiscal
1997 of $15,627,000 which includes $1,256,000 of shipments under supply
agreements. These record bookings also yielded a record book-to-bill for the
Company of 1.42. Based on the strength of these bookings and backlog, the
Company expects improved performance in the fourth quarter compared to the first
three quarters of Fiscal 1997.
The Company does not expect inflation to have a material effect on its
operations. The Company does not know of any environmental issues that would
have a material effect on its operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1997 the Company had cash, short term marketable investments and
long-term investments of $7,063,000 with working capital of $18,443,000 compared
to March 30, 1996 when the Company had had cash, short term marketable
investments and long-term investments of $5,531,000 with working capital of
$15,220,000.
For the first nine months of Fiscal 1997, the Company provided cash of
$1,774,000 from operating activities and used cash of $42,000 for investing
activities. Cash used for investing activities was primarily $1,299,000 used to
purchase investments, off-set by sales of $1,991,000 of investments, and the
addition of fixed assets and patents for $734,000. The Company used cash of
$1,151,000 for financing activities, primarily for repayment of notes payable.
For the nine months ended March 30, 1996, the Company used $2,333,000 for
operating activities and $7,445,000 for investing activities. Cash used for
investment activities consisted of $12,318,000 for the acquisition of ETO (less
cash acquired with the acquisitions of ETO and NES), fixed assets and patent
additions of $2,131,000, and a $250,000 equity investment in Low Entropy
Systems, Inc., offset by the reduction of short term investments. Cash of
$10,033,000 was provided from financing activities, primarily $8,000,000 of
proceeds from notes payable to State Street Bank (used in the acquisition of
ETO), $1,918,000 from issuance of common stock through the exercise of private
placement warrants and incentive stock options, and short term borrowing under a
line of credit for $391,000, which has been repaid in Q4 of fiscal 1996. At
March 30, 1996 a total of 159,237 warrants had been exercised to purchase common
stock at a price of $9.60 per share, which provided funds of $1,529,000 during
the nine months ending March 30, 1996.
The Company has two unsecured promissory note agreements with State Street Bank
and Trust Company, as described in footnote 7. In addition the Company has a
credit facility with State Street Bank and Trust Company which consists of a $2
million unsecured demand line of credit for working capital purposes. There were
no outstanding borrowings at March 30, 1996. The credit facility expires
November 30, 1997, and the Company anticipates that the line of credit will be
renewed.
The Company continues to use its cash resources for development of new products,
expanding sales and marketing, performing collaborative product development
projects, and for general working capital. The Company continues to seek joint
ventures and/or
15
acquisitions that will enhance the Company's position in the market while
increasing revenue growth and profitability.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 125, Earnings per
share, in February 1997. This Statement establishes new standards for computing
and presenting earnings per share ("EPS"). This Statement changes the standards
for computing EPS previously found in Accounting Principles Board Opinion No. 15
("Opinion No. 15"), Earnings per share, and makes them comparable to
international EPS standards. It replaces presentation of primary EPS with a
presentation of basic EPS. It also requires the presentation of basic diluted
EPS on the face of the income statement for all entities with complex capital
structures.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented.
If the provisions of this Statement had been applied to the three months and
nine months ended March 29, 1997 and March 30, 1996 basic EPS would have been
materially the same as the earnings per share presented in the accompanying
consolidated financial statements. The Company has not calculated diluted EPS
under the provisions of this statement.
15
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
------------ ------------- ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 390,399 $ $ 724,997 981,903 $ (1,370,598)
============ ============= ============ =============
Primary earnings (loss) per
share:
Weighted average common
shares outstanding... 4,447,976 4,421,885 4,446,777 4,133,581
Dilutive stock options
and warrants... 82,674 134,818 82,674 146,965
------------ ------------- ------------ -------------
4,530,650 4,556,703 4,529,451 4,280,546
============ ============= ============ =============
Earnings (loss) per share...$ 0.09 $ 0.16 $ 0.22 $ (0.32)
============ ============= ============ =============
Fully diluted earnings (loss)
per share:
Weighted average common
shares outstanding... 4,447,976 4,421,885 4,446,777 4,133,581
Dilutive stock options
and warrants... 82,674 153,116 82,674 153,117
------------ ------------- ------------ -------------
4,530,650 4,575,001 4,529,451 4,286,698
============ ============= ============ =============
Earnings (loss) per share...$ 0.09 $ 0.16 $ 0.22 $ (0.32)
============ ============= ============ =============
</TABLE>
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 1, 1997
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Registrant)
/S/ Richard S. Post
-----------------------------------
Richard S. Post
President & Chairman of the Board
/S/ John M. Tarrh
----------------------------------
John M. Tarrh
Senior Vice President
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 5,763,890
<SECURITIES> 0
<RECEIVABLES> 8,877,147
<ALLOWANCES> (229,986)
<INVENTORY> 8,694,213
<CURRENT-ASSETS> 24,453,200
<PP&E> 11,646,413
<DEPRECIATION> (4,618,765)
<TOTAL-ASSETS> 33,340,484
<CURRENT-LIABILITIES> 6,009,860
<BONDS> 4,927,099
0
0
<COMMON> 44,557
<OTHER-SE> 22,322,461
<TOTAL-LIABILITY-AND-EQUITY> 33,340,484
<SALES> 30,957,210
<TOTAL-REVENUES> 30,165,648
<CGS> 18,681,827
<TOTAL-COSTS> 19,070,503
<OTHER-EXPENSES> 9,439,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431,622
<INCOME-PRETAX> 1,558,903
<INCOME-TAX> 577,000
<INCOME-CONTINUING> 1,558,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 981,903
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
