================================================================================
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 December 28, 1996
( ) 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 4,443,725
----------------------------- ----------------------------------
Class Outstanding as of February 7, 1997
================================================================================
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Operations-
Three Months and Six Months
Ended December 28,1996
and December 30, 1995 2
Consolidated Balance Sheets-
December 28, 1996 and June 29, 1996 3
Consolidated Statements of Cash Flows-
Six Months Ended December 28, 1996
and Six Months Ended December 30, 1995 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 15
SIGNATURES 16
</TABLE>
1
<TABLE>
<CAPTION>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------ ------------ ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales, net $ 8,174,529 $ 6,506,727 $ 16,996,986 $ 11,594,564
Research contract revenue 284,314 87,725 544,230 295,346
Other revenue 833,934 264,515 1,611,901 608,472
------------ ------------ ------------- ------------
Total revenue 9,292,777 6,858,967 19,153,117 12,498,382
------------ ------------ ------------- ------------
Cost of sales and revenue:
Product sales and other revenue 5,758,982 3,857,866 11,686,365 7,281,781
Research contracts 138,400 57,481 257,943 149,612
------------ ------------ ------------- ------------
Total cost of sales and revenue 5,897,382 3,915,347 11,944,308 7,431,393
------------ ------------ ------------- ------------
Gross profit 3,395,395 2,943,620 7,208,809 5,066,989
Operating expenses:
Research and development expenses (note 5) 1,409,836 965,415 3,079,266 1,701,468
Selling expenses 632,885 601,960 1,398,848 1,134,950
General and administrative expenses 891,602 780,752 1,733,927 1,402,786
Acquisition-related expenses (note 8) 0 2,953,000 0 2,953,000
------------ ------------ ------------- ------------
Total operating expenses 2,934,323 5,301,127 6,212,041 7,192,204
------------ ------------ ------------- ------------
Earnings (loss) from operations 461,072 (2,357,507) 996,768 (2,125,215)
Other expense (income):
Interest expense 141,222 0 293,422 0
Interest income (99,265) (207,644) (214,482) (408,481)
Other expense (income) (24,473) 4,250 (20,676) 8,859
------------ ------------ ------------- ------------
Total other (income) expense 17,484 (203,394) 58,264 (399,622)
------------ ------------ ------------- ------------
Earnings (loss) before income taxes 443,588 (2,154,113) 938,504 (1,725,593)
Income tax expense 164,000 240,000 347,000 370,000
------------ ------------ ------------- ------------
Net earnings (loss) $ 279,588 $ (2,394,113) $ 591,504 $ (2,095,593)
============ ============ ============= ============
Primary net earnings (loss) per share $ $ 0.06 ($.57) $ 0.13 (0.50)
============ ============ ============= ============
Fully diluted net earnings (loss) per share $ $ 0.06 ($.58) $ 0.13 (0.51)
============ ============ ============= ============
Weighted average common shares outstanding
used to calculate primary earnings (loss)
per share 4,474,109 4,198,724 4,484,306 4,169,246
============ ============ ============= ============
Weighted average common shares outstanding
used to calculate fully diluted earnings
(loss) per share 4,484,908 4,151,367 4,487,324 4,114,187
============ ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 28, June 29,
1996 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,133,201 $ 5,182,294
Short-term marketable investments 999,496 1,990,962
Accounts receivable, trade, net (note 3) 7,372,989 8,921,890
Inventories (note 4) 9,116,930 8,734,401
Prepaid expenses and other assets 322,249 276,848
Deferred income taxes 969,741 969,741
------------- ------------
Total current assets 22,914,606 26,076,136
------------- ------------
Property, plant and equipment:
Land 473,000 473,000
Building and improvements 1,619,007 1,606,947
Equipment 7,352,123 7,068,802
Furniture and fixtures 536,639 543,860
Leasehold improvements 1,458,390 1,455,977
------------- ------------
11,439,159 11,148,586
Less accumulated depreciation and amortization (4,213,127) (3,458,407)
------------- ------------
Net property, plant and equipment 7,226,032 7,690,179
------------- ------------
Other assets:
Patents, net 160,564 141,525
Other 253,104 262,224
Long-term investments 1,300,185 0
Notes receivable 159,686 191,362
------------- ------------
Total other assets 1,873,539 595,111
------------- ------------
$ 32,014,177 $ 34,361,426
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (note 7) 1,625,788 1,624,641
Accounts payable 1,728,248 2,564,149
Accrued expenses 691,147 820,030
Accrued compensation expense and related costs 457,806 1,428,759
Accrued income tax expense 25,155 173,179
Commissions payable and customer advances 210,051 248,836
------------- ------------
Total current liabilities 4,738,195 6,859,594
------------- ------------
Long-term debt, less current maturities (note 7) 5,342,220 6,169,517
Deferred income taxes 36,507 36,507
------------- ------------
Total liabilities 10,116,922 13,065,618
------------- ------------
Stockholders' equity (note 6):
Common stock: issued 4,443,725 shares (4,448,375
shares at 6/29/96): 44,438 44,484
outstanding 4,443,725 shares (4,448,375 shares at 6/29/96)
Additional paid-in capital 26,615,097 26,690,108
Accumulated deficit (4,613,954) (5,205,458)
Less: Notes receivable for common stock purchases (148,326) (233,326)
------------- ------------
Total stockholders' equity 21,897,255 21,295,808
------------- ------------
$ 32,014,177 $ 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>
Six Months Ended
---------------------------------
December 28, December 30,
1996 1995
------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 591,504 $ (2,095,593)
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation 850,016 487,264
Amortization 33,223 37,613
Equipment transferred to inventory 93,566 0
Acquisition-related expense 0 2,203,000
Changes in assets and liabilities:
Accounts receivable 1,548,901 (765,712)
Inventories (382,529) (905,323)
Prepaid expenses and other assets (45,401) (70,778)
Note receivable 31,676 67,496
Accounts payable (835,901) 6,946
Accrued expenses (1,247,860) 135,219
Commissions payable and customer advances (38,785) (54,991)
------------- ---------------
Net cash provided by (used for)
operating activities 598,410 (954,859)
------------- ---------------
Cash flows from investing activities:
Acquisition of subsidiaries, less cash acquired 0 (12,318,331)
Purchases of investments (1,299,101) (2,951,408)
Sales of investments 990,382 7,262,203
Additions to property and equipment (479,435) (1,393,686)
Patents and other assets (43,142) (40,259)
Investment in Low Entropy Systems, Inc. 0 (250,000)
------------- ---------------
Net cash used for
investing activities (831,296) (9,691,481)
------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable to bank 0 8,000,000
Repayments of notes payable (826,150) 0
Net proceeds from issuance of common stock 2,443 1,642,818
Repayment of notes receivable for common stock purchase 7,500 0
Net cash provided by (used for)
financing activities (816,207) 9,642,818
------------- ---------------
Net decrease in cash and cash equivalents (1,049,093) (1,003,522)
Cash and cash equivalents at beginning of period 5,182,294 2,303,645
------------- ---------------
Cash and cash equivalents at end of period $ 4,133,201 $ 1,300,123
============= ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 274,169 $ 0
Income taxes $ 512,304 $ 453,555
</TABLE>
See accompanying notes to consolidated financial statements.
5
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1) BASIS OF PRESENTATION
The unaudited financial statements as of December 28, 1996 and December
30, 1995 and for the three and six 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 second quarter and year to date fiscal 1996 accounts have been
reclassified to conform to the second 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:
December 28, June 29,
1996 1996
------------- --------------
(unaudited)
Accounts receivable, trade $ 7,555,662 $ 9,115,345
Notes receivable, current portion 116,656 158,754
Allowance for doubtful accounts (299,329) (352,209)
------------- --------------
$ 7,372,989 $ 8,921,890
============= ==============
5
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4) INVENTORIES
Inventories consist of the following:
December 28, June 29,
1996 1996
------------- --------------
(unaudited)
Raw materials $ 4,818,123 $ 5,630,926
Work in process 2,920,339 2,249,579
Finished goods 1,378,468 853,896
------------- --------------
$ 9,116,930 $ 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 Six Months Ended
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------- -------------- ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Research and development costs $ 1,548,236 $ 1,022,896 $ 3,337,209 $ 1,851,080
Less funding 138,400 57,481 257,943 149,612
------------- -------------- ------------ -------------
$ 1,409,836 $ 965,415 $ 3,079,266 $ 1,701,468
============= ============== ============ =============
</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
-------------------------------------------------
December 28, June 29,
1996 1996
-------------- --------------
(unaudited)
<S> <C> <C> <C>
Preferred stock:
Preferred stock, $.01 par value, 1,000,000 - -
--------------------------------- --------------
Total preferred stock 1,000,000 - -
--------------------------------- --------------
Common Stock:
Common stock, $.01 par value 10,000,000 4,443,725 4,448,375
--------------------------------- --------------
Total common stock 10,000,000 4,443,725 4,448,375
--------------------------------- --------------
Total capital stock 11,000,000 4,443,725 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:
December 28, June 29,
1996 1996
------------- --------------
(unaudited)
Unsecured note payable to the bank with interest
at bank's prime rate (8.25% at December
28, 1996) payable in monthly principal
installment of $67,797, plus interest,
due December 31, 2000 $ 3,254,237 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. 3,254,237 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 December 28, 1996).
The Note is secured by the land and
building. 459,534 472,124
------------- --------------
6,968,008 7,794,158
Less current maturities 1,625,788 1,624,641
------------- --------------
Long-term debt, less current maturities 5,342,220 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 SIX MONTHS ENDED DECEMBER 28,
1996 AND DECEMBER 30, 1995
The following table compares the consolidated statements of operations for the
three-month periods ended December 28,1996 and December 30, 1995.
9
<TABLE>
<CAPTION>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
-----------------------------------------------------------------
December 28, 1996 December 30, 1995 Change Change
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 8,175 88% 6,507 95% 1,668 26%
Research contract revenue 284 3% 88 1% 196 223%
Other revenue 834 9% 264 4% 570 216%
-------------------- -------------------- -------------------
Total revenue 9,293 100% 6,859 100% 2,434 35%
Cost of sales and revenue:
Product sales and other revenues 5,760 62% 3,858 56% 1,902 49%
Research contracts 138 1% 58 1% 80 138%
-------------------- -------------------- -------------------
Total cost of sales and revenue 5,898 63% 3,916 57% 1,982 51%
-------------------- -------------------- -------------------
Gross profit 3,395 37% 2,943 43% 452 15%
-------------------- -------------------- -------------------
Operating expenses:
Research and development expenses 1,410 15% 965 14% 445 46%
Selling expenses 633 7% 602 9% 31 5%
General and administrative expenses 891 10% 781 11% 110 14%
Acquisition-related expenses 0 0% 2,953 43% (2,953) -
-------------------- -------------------- -------------------
Total operating expenses 2,934 32% 5,301 77% (2,367) (45%)
-------------------- -------------------- -------------------
Earnings (loss) from operations 461 5% (2,358) (34%) 2,819 (120%)
-------------------- -------------------- -------------------
Other expense (income):
Interest expense 141 1% 0 0% 141 -
Interest income (99) (1%) (208) (3%) 109 (52%)
Other expense (income) (24) 0% 4 0% (28) (700%)
-------------------- -------------------- -------------------
Total other expense (income) 18 0% (204) (3%) 222 (109%)
-------------------- -------------------- -------------------
Earnings (loss) before income taxes 443 5% (2,154) (31%) 2,597 (121%)
Income tax expense 164 2% 240 4% (76) (32%)
-------------------- -------------------- -------------------
Net earnings (loss) 279 3% (2,394) (35%) 2,673 (112%)
-------------------- -------------------- -------------------
</TABLE>
10
The following table compares the consolidated statements of operations for the
six-month periods ended December 28,1996 and December 30, 1995.
<TABLE>
<CAPTION>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
----------------------------------------------------------------
December 28, 1996 December 30, 1995 Change Change
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 16,997 89% 11,595 93% 5,402 47%
Research contract revenue 544 3% 295 2% 249 84%
Other revenue 1,612 8% 608 5% 1,004 165%
-------------------- --------------------- -------------------
Total revenue 19,153 100% 12,498 100% 6,655 53%
Cost of sales and revenue:
Product sales and other revenues 11,686 61% 7,281 58% 4,405 60%
Research contracts 258 1% 150 1% 108 72%
-------------------- --------------------- -------------------
Total cost of sales and revenue 11,944 62% 7,431 59% 4,513 61%
-------------------- --------------------- -------------------
Gross profit 7,209 38% 5,067 41% 2,142 42%
-------------------- --------------------- -------------------
Operating expenses:
Research and development expenses 3,079 16% 1,701 14% 1,378 81%
Selling expenses 1,399 8% 1,135 9% 264 23%
General and administrative expenses 1,734 9% 1,403 11% 331 24%
Acquisition-related expenses 0 0% 2,953 24% (2,953) (100%)
-------------------- --------------------- -------------------
Total operating expenses 6,212 32% 7,192 58% (980) (14%)
-------------------- --------------------- -------------------
Earnings (loss) from operations 997 5% (2,125) (17%) 3,122 (147%)
-------------------- --------------------- -------------------
Other expense (income):
Interest expense 293 1% 0 0% 293 -
Interest income (214) (1%) (408) (3%) 194 (48%)
Other expense (income) (21) (0%) 9 0% (30) (333%)
-------------------- --------------------- -------------------
Total other expense (income) 58 0% (399) (3%) 457 (115%)
-------------------- --------------------- -------------------
Earnings (loss) before income taxes 939 5% (1,726) (14%) 2,665 (154%)
Income tax expense 347 2% 370 3% (23) (6%)
-------------------- --------------------- -------------------
Net earnings (loss) 592 3% (2,096) (17%) 2,688 (128%)
-------------------- --------------------- -------------------
</TABLE>
Total revenue increased in the second quarter of Fiscal 1997 by 35% to
$9,293,000 and year to date by 53% to $19,153,000 compared to the second quarter
and first half of Fiscal 1996. Of these sums, $3,569,000 for the second quarter
and $7,123,000 for the year to date was from sales by ETO. There were no sales
from ETO in the prior comparative periods since ETO was acquired at the
beginning of the third quarter of Fiscal 1996. Product sales increased by 26% to
$8,175,000 for the quarter and 47% to $16,997,000 for the year. Product sales to
OEMs increased by 42% for the quarter and 62% for the year, primarily due to the
acquisition of ETO and its sales of medical sterilization and MRI imaging
products which accounted for all of the OEM sales increase. OEM sales to SCEM's
was down by 17% for the quarter and flat for the year compared to prior
comparative periods. Sales to diamond customers was down slightly for the
quarter and the year to date compared to the prior comparative periods.
Research contract revenue increased by $196,000 for the second quarter and
$249,000 for the year to date and other revenue increased by $570,000 for the
quarter and $1,004,000 for the year to date for Fiscal 1997 compared to the
prior comparative periods. The increase in other revenue is primarily due to the
acquisition
11
of ETO which obtains a larger fraction of its total revenue from this category
and the increase in research contract revenue is due to increased government
funding of diamond deposition research at the Company.
Gross profits increased by $452,000 or 15% in the second quarter of Fiscal 1997
and increased by $2,142,000 or 42% for the year to date compared to the prior
comparative periods in Fiscal 1996. Gross margins as a percent of sales
decreased to 37% in the second quarter and 38% for the year to date of Fiscal
1997 compared to 43% in the second quarter and 41% 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 43% in the second quarter
and 45% for the year to date of Fiscal 1997 compared to 43% in the second
quarter and 41% for the year to date of Fiscal 1996. The Company's gross margin
improved in Fiscal 1997 year to date due to manufacturing efficiencies, design
improvements, and controlling of fixed manufacturing cost. 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.
Research and development expenses increased by $445,000 or 46% in the second
quarter of Fiscal 1997 and increased $1,378,000 or 81% for the year to date
compared to the second quarter and year to date of Fiscal 1996. The Company
continues to make significant investments in research and development in order
to support future growth. The investments are in the semiconductor, medical and
diamond business segments. 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 is expected to go into production in the second half of
Fiscal 1997. The Company anticipates comparable expense spending as a percent of
sales though Fiscal 1997.
Selling expenses decreased to 7% of sales in the second quarter of Fiscal 1997
and decreased to 8% for the year to date compared to 9% of sales in the second
quarter of Fiscal 1996 and 9% for the Fiscal 1996 year to date. Year to date
gross spending increased by 23% primarily due to the acquisition of ETO. The
Company anticipates comparable expense spending though Fiscal 1997.
General and administrative expenses decreased to 10% of sales in the second
quarter of Fiscal 1997 and decreased to 9% of sales for the year to date for
Fiscal 1997 compared to 11% of sales in the second quarter of Fiscal 1996 and
11% of sales for the year to date for Fiscal 1996. Gross spending increased by
24% for the year to date primarily due to the acquisition of ETO. 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 expenses totalled $2,953,000 and were
expensed in the second quarter of Fiscal 1996. There are no similar expenses for
the second quarter of Fiscal 1997.
12
Earnings from operations for the second quarter of Fiscal 1997 were $461,000 and
$997,000 for the year to date. This compares to losses in the second quarter of
Fiscal 1996 of $2,358,000 and losses of $2,125,000 for the year to date. In the
second quarter of Fiscal 1996 earnings from operations would have been $595,000
and $828,000 for the year to date without the acquisition related expenses of
$2,953,000.
Interest expense was $141,000 in the second quarter of Fiscal 1997 and $293,000
for the year to date. There was no comparable expense in the second quarter of
Fiscal 1996 or year to date. 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 second quarter of Fiscal 1997 and $214,000
for the year to date compared to $208,000 in the second quarter of Fiscal 1996,
and $408,000 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 $164,000 in the second quarter of Fiscal 1997 and
$347,000 for the year to date. This compared to $240,000 in the second quarter
of Fiscal 1996 and $370,000 for the year to date.
ETO contributed $3,569,000 in sales or 38% of the total Company's sales in the
second quarter of Fiscal 1997 and $7,123,000 or 37% for the year to date
compared to zero for the second quarter and year to date in Fiscal 1996. ETO was
profitable during the quarter and the year to date, however the acquisition was
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 $0.17 rather than $0.13.
The Company's backlog consists of purchase orders for products and research and
development contracts. At December 28, 1996 the Company's backlog was $6,540,000
(consisting of $6,120,000 for products and $420,000 for research contracts)
compared to backlog at December 30,1995 of $9,636,000 (consisting of $8,332,000
for products and $1,304,000 for research contracts). The Company excepts to
complete all product backlog during the next 12 months. The backlog excludes
supply agreements with certain SCEM's. Shipments under these agreements were
$963,000 for the second quarter of Fiscal 1997 and $1,877,000 for the year to
date compared to $1,557,000 in the second quarter of Fiscal 1996 and $3,100,000
for the year to date for Fiscal 1996. The supply agreements, as well as certain
government contracts, typically provide for cancellation or modification with
little or no penalty.
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 December 28, 1996 the Company had cash, short term marketable investments and
long-term investments of $6,433,000 with working capital of $18,176,000 compared
to December 30, 1995 when the Company had had cash, short term
13
marketable investments and long-term investments of $7,215,000 with working
capital of $16,583,000.
For the first six months of Fiscal 1997, the Company provided cash of $598,000
from operating activities and used cash of $831,000 for investing activities.
Cash used for investing activities was primarily $1,299,000 used to purchase
investments, off-set by sales of $990,000 of investments, and the addition of
fixed assets and patents for $523,000. The Company used cash of $816,000 for
financing activities, primarily for repayment of notes payable.
For the first six months of Fiscal 1996 the Company used $955,000 for operating
activities and $9,691,000 for investment 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 $1,434,000, purchase of investments of $2,951,000 and $250,000 for
an equity investment in Low Entropy Systems, Inc., offset by the sale of
investments of $7,262,000. Cash of $9,643,000 was provided from financing
activities, primarily $8,000,000 of proceeds from notes payable to State Street
Bank (used in the acquisition of ETO), and $1,643,000 from issuance of common
stock. Common stock issuance resulted from the exercise of private placement
warrants and incentive stock options. At December 30, 1995 a total of 146,737
warrants had been exercised to purchase common stock at a price of $9.60 per
share, which provided funds of $1,409,000 during the six months ending December
30, 1995.
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 December 28, 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 acquisitions that will enhance the Company's position in the
market while increasing revenue growth and profitability. However, the Company
has made no material commitments to acquire other businesses at this time and no
assurance can be given that the Company will make such acquisitions in the
future.
14
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 Six Months Ended
-------------------------------------------------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------------ ------------------ ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 279,588 $ (2,394,113) 591,505 $ (2,095,593)
============ ================== ============= ============
Primary earnings (loss) per share:
Weighted average common
shares outstanding... 4,443,681 4,048,197 4,446,097 4,011,017
Dilutive stock options
and warrants... 30,428 150,527 38,209 158,229
------------ ------------------ ------------- ------------
4,474,109 4,198,724 4,484,306 4,169,246
============ ================== ============= ============
Earnings (loss) per share...$ 0.06 $ (0.57) 0.13 $ (0.50)
============ ================== ============= ============
Fully diluted earnings (loss) per share:
Weighted average common
shares outstanding... 4,443,681 4,048,197 4,446,097 4,011,017
Dilutive stock options
and warrants... 41,227 103,170 41,227 103,170
------------ ------------------ ------------- ------------
4,484,908 4,151,367 4,487,324 4,114,187
============ ================== ============= ============
Earnings (loss) per share...$ 0.06 $ (0.58) 0.13 $ (0.51)
============ ================== ============= ============
</TABLE>
15
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: February 7, 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
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,133,201
<SECURITIES> 999,496
<RECEIVABLES> 7,532,675
<ALLOWANCES> (299,329)
<INVENTORY> 9,116,930
<CURRENT-ASSETS> 22,914,606
<PP&E> 11,439,159
<DEPRECIATION> (4,213,127)
<TOTAL-ASSETS> 32,014,177
<CURRENT-LIABILITIES> 4,738,195
<BONDS> 5,342,220
0
0
<COMMON> 44,438
<OTHER-SE> 21,852,817
<TOTAL-LIABILITY-AND-EQUITY> 32,014,177
<SALES> 18,608,887
<TOTAL-REVENUES> 19,153,117
<CGS> 11,686,365
<TOTAL-COSTS> 11,944,308
<OTHER-EXPENSES> 6,212,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 293,422
<INCOME-PRETAX> 938,504
<INCOME-TAX> 347,000
<INCOME-CONTINUING> 591,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 591,504
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
