<PAGE> 1
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 27, 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)
____________________________
(781) 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 8,460,271
----------------------------- ----------------------------------
Class Outstanding as of February 6, 1998
<PAGE> 2
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
TITLE PAGE
----- ----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Operations for the Three Months and
Six Months Ended December 27, 1997, and December 28, 1996 2
Consolidated Balance Sheets -
December 27, 1997 and June 28, 1997 3
Consolidated Statements of Cash Flows for the Six Months Ended
December 27, 1997, and December 28, 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 12
SIGNATURES 13
1
<PAGE> 3
ITEM 1 FINANCIAL STATEMENTS
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------ ----------- ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales, net $ 21,145,162 $ 8,174,529 $ 37,310,447 $ 16,996,986
Research contract revenue 200,380 284,314 400,420 544,230
Other revenue 1,094,252 833,934 2,150,230 1,611,901
------------ ----------- ------------ ------------
Total revenue 22,439,794 9,292,777 39,861,097 19,153,117
------------ ----------- ------------ ------------
Cost of sales and revenue:
Product sales and other revenue 14,155,232 5,758,982 25,034,648 11,686,365
Research contracts 54,744 138,400 122,614 257,943
------------ ----------- ------------ ------------
Total cost of sales and revenue 14,209,976 5,897,382 25,157,262 11,944,308
------------ ----------- ------------ ------------
Gross profit 8,229,818 3,395,395 14,703,835 7,208,809
------------ ----------- ------------ ------------
Operating expenses:
Selling expenses 1,181,740 632,885 2,016,799 1,398,848
General and administrative expenses 1,886,416 891,602 3,287,321 1,733,927
Research and development expenses 2,850,252 1,409,836 5,411,257 3,079,266
Acquisition-related expenses (note 8) 212,423 0 212,423 0
------------ ----------- ------------ ------------
Total operating expenses 6,130,831 2,934,323 10,927,800 6,212,041
------------ ----------- ------------ ------------
Earnings from operations 2,098,987 461,072 3,776,035 996,768
------------ ----------- ------------ ------------
Other expense (income):
Interest expense 35,321 141,222 196,032 293,422
Interest income (143,369) (99,265) (223,425) (214,482)
Other expense (income) 21,200 (24,473) (215,357) (20,676)
------------ ----------- ------------ ------------
Total other (income) expense (86,848) 17,484 (242,750) 58,264
------------ ----------- ------------ ------------
Earnings before income taxes 2,185,835 443,588 4,018,785 938,504
Income tax expense 911,000 164,000 1,589,000 347,000
------------ ----------- ------------ ------------
Net earnings $ 1,274,835 $ 279,588 $ 2,429,785 $ 591,504
------------ ----------- ------------ ------------
Basic net earnings per share $ 0.15 $ 0.04 $ 0.32 $ 0.09
------------ ----------- ------------ ------------
Diluted net earnings per share $ 0.15 $ 0.04 $ 0.30 $ 0.09
------------ ----------- ------------ ------------
Weighted average common shares outstanding
used to calculate basic earnings per share 8,310,436 6,665,522 7,570,134 6,669,145
------------ ----------- ------------ ------------
Weighted average common shares outstanding
used to calculate diluted earnings per share 8,779,355 6,720,527 8,002,489 6,715,897
------------ ----------- ------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 27, June 28,
------ 1997 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,783,977 $ 3,246,337
Short-term marketable investments 1,299,771 0
Accounts receivable, trade, net (note 3) 12,369,921 11,915,919
Inventories (note 4) 13,335,570 10,013,422
Prepaid expenses and other assets 245,743 276,682
Deferred income taxes 1,458,951 895,237
------------ ------------
Total current assets 38,493,933 26,347,597
------------ ------------
Property, plant and equipment:
Land 473,000 473,000
Building and improvements 1,624,577 1,621,469
Equipment 9,299,244 7,871,718
Furniture and fixtures 864,006 741,143
Leasehold improvements 2,074,913 1,946,800
------------ ------------
14,335,740 12,654,130
Less accumulated depreciation and amortization (6,860,666) (5,150,881)
------------ ------------
Net property, plant and equipment 7,475,074 7,503,249
------------ ------------
Other assets:
Patents, net 1,172,533 148,794
Goodwill, net of accumulated amortization 4,234,062 3,261,652
Long-term investments 0 1,299,545
Notes receivable, less current maturities 374,978 383,080
Deferred income taxes 1,027,384 0
Other, net 0 383,304
------------ ------------
Total other assets 6,808,957 5,476,375
------------ ------------
$ 52,777,964 $ 39,327,221
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of long-term debt (note 7) $ 0 $ 1,824,397
Accounts payable 5,035,820 3,869,521
Accrued expenses 2,266,740 1,374,635
Accrued compensation expense and related costs 2,255,814 1,448,928
Accrued income tax expense 1,623,302 647,142
Commissions payable and customer advances 375,142 226,672
------------ ------------
Total current liabilities 11,556,818 9,391,295
------------ ------------
Long-term debt, less current maturities (note 7) 0 6,368,913
Deferred income taxes 0 78,003
------------ ------------
Total liabilities 11,556,818 15,838,211
------------ ------------
Stockholders' equity (note 6):
Common stock 84,586 67,785
outstanding 8,458,615 shares (6,778,509 shares at 6/28/97)
Additional paid-in capital 43,171,516 27,837,250
Accumulated deficit (1,837,914) (4,267,699)
Cumulated Translation Adjustment (48,716)
Less: Notes receivable for common stock purchases (148,326) (148,326)
Total stockholders' equity 41,221,146 23,489,010
------------ ------------
$ 52,777,964 $ 39,327,221
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 5
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
December 27, December 28,
1997 1996
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,429,785 $ 591,504
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,043,749 850,016
Amortization 247,209 33,223
Equipment transferred to inventory 0 93,566
Acquisition-related expense 212,423 0
Gain on investment (250,000) 0
Changes in assets and liabilities:
Accounts receivable 726,471 1,548,901
Inventories (2,352,629) (382,529)
Prepaid expenses and other assets 30,948 (45,401)
Note receivable 8,102 31,676
Accounts payable 177,528 (835,901)
Accrued expenses 2,010,999 (1,247,860)
Commissions payable and customer advances 41,289 (38,785)
------------ -----------
Net cash provided by
operating activities 4,325,874 598,410
------------ -----------
Cash flows from investing activities:
Acquisition of subsidiaries, less cash acquired (3,652,639) 0
Purchases of investments (226) (1,299,101)
Sales of investments 0 990,382
Additions to property and equipment (741,203) (479,435)
Patents and other assets (23,309) (43,142)
Proceeds from sale of investment 500,000 0
------------ -----------
Net cash used for
investing activities (3,917,377) (831,296)
------------ -----------
Cash flows from financing activities:
Repayments of notes payable (9,173,208) (826,150)
Net proceeds from issuance of common stock 15,351,067 2,443
Repayment of notes receivable for common stock purchase 0 7,500
------------ -----------
Net cash provided by (used for)
financing activities 6,177,859 (816,207)
------------ -----------
Effect of exchange rate changes on cash (48,716) 0
------------ -----------
Net increase (decrease) in cash and cash equivalents 6,537,640 (1,049,093)
Cash and cash equivalents at beginning of period 3,246,337 5,182,294
------------ -----------
Cash and cash equivalents at end of period $ 9,783,977 $ 4,133,201
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 249,044 $ 274,169
============ ===========
Income taxes $ 620,654 $ 512,304
============ ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 6
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1) BASIS OF PRESENTATION
The unaudited financial statements as of December 27, 1997, and
December 28, 1996, for the three month 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 28,
1997, and the notes thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission.
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
The Company has adopted the provisions of Statement of Financial
Accounting Standards Statement (SFAS) No. 128 Earnings Per Share. In
accordance with the adoption of SFAS 128, the Company has excluded the
effects of dilutive common stock equivalents from its basic earnings
per share, formally primary earnings per share, calculation and
restated all prior periods on that basis.
3) ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 27, June 28,
1997 1997
------------ ------------
(unaudited)
<S> <C> <C>
Accounts receivable, trade $ 12,696,680 $ 11,857,598
Notes receivable, current portion 67,340 384,663
Allowance for doubtful accounts (394,099) (326,342)
------------ ------------
$ 12,369,921 $ 11,915,919
============ ============
</TABLE>
4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 27, June 28,
1997 1997
----------- -----------
(unaudited)
<S> <C> <C>
Raw materials $ 8,153,916 $ 6,566,718
Work in process 3,821,144 2,534,245
Finished goods 1,360,510 912,459
----------- -----------
$13,335,570 $10,013,422
=========== ===========
</TABLE>
5
<PAGE> 7
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 27, December 28, December 27, December 28,
1997 1996 1997 1996
----------- ----------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Research and development costs $2,966,689 $1,548,236 $5,629,144 $3,337,209
Less funding 116,437 138,400 217,887 257,943
---------- ---------- ---------- ----------
$2,850,252 $1,409,836 $5,411,257 $3,079,266
========== ========== ========== ==========
</TABLE>
6) STOCKHOLDERS' EQUITY
Capital stock consists of the following:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------
Authorized Issued and Outstanding
--------------------------------------
December 27, June 28,
1997 1997
--------------------------------------
(unaudited) (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 8,458,615 6,778,509
--------------------------------------
Total common stock 10,000,000 8,458,615 6,778,509
--------------------------------------
Total capital stock 11,000,000 8,458,615 6,778,509
=======================================
</TABLE>
On September 3, 1997, the Company announced that it had met the
requirements for redemption of its redeemable warrants issued in
connection with the Company's IPO and called the warrants for
redemption. During the first and second quarter of Fiscal 1998,
2,011,650 redeemable warrants and 45,500 Representative's warrants were
converted into 1,601,619 shares of common stock. The net proceeds to
the Company were $14,883,000. The proceeds have been used to repay all
bank debt and to complete the acquisition of ASTeX Sorbios GmbH.
On November 26, 1997, the Company announced a 3 for 2 split of its
Common Stock, which was distributed to shareholders in the form of a
stock dividend on December 12, 1997. All prior period share amounts
have been adjusted to reflect the stock split.
6
<PAGE> 8
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7) LONG-TERM DEBT
Long-term debt at June 28, 1997, consisted of the following:
<TABLE>
<S> <C>
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 September 28, 1997). The Note is secured by the land and
building $ 445,853
Unsecured note payable to the bank with interest at bank's prime rate (8.5% at
September 27, 1997) payable in monthly principal installment of
$83,051, plus interest, due June 30, 2002 4,900,000
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 2,847,457
----------
8,193,310
Less current maturities 1,824,397
----------
Long-term debt, less current maturities $6,368,913
==========
</TABLE>
The Company has repaid all of the Company's long term debt during the
second quarter of Fiscal 1998. An unsecured note payable, with interest
at 7.19%, payable in monthly principal installments was subject to a
prepayment penalty equal to the lender's lost net interest income
resulting from any prepayment. This prepayment penalty was waived by
the lender.
8) ACQUISITIONS
On October 1, 1997, the Company completed the acquisition of Sorbios
GmbH, renamed ASTeX Sorbios GmbH, a manufacturer of ozone generators,
and air ionizers for semiconductor production.
The Company acquired all of the stock of Sorbios GmbH for a total
purchase price of $3,699,413. The purchase price was paid in cash, from
the Company's cash reserves. Acquisition costs of $212,423 related to
in-process research and development expenses were charged to operating
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 market value
at the date of acquisition.
7
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Applied Science and Technology, Inc. (the "Company" or "ASTeX") is a leading
provider of innovative production technology for the manufacture of advanced
semiconductor devices. The Company's products are typically used in plasma
production techniques in which gases are heated to form a plasma which
chemically interacts with a substrate material. ASTeX markets its plasma sources
and subsystems, ozone generators and subsystems, and specialty power sources to
the world's leading semiconductor capital equipment manufacturers. ASTeX markets
the same underlying core technology for medical, electro-optic and synthetic
diamond applications.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 27,
1997 AND DECEMBER 28, 1996
The following tables compare the consolidated statements of operations for the
three-month and six-month periods ended December 27, 1997, and December 28,
1996.
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
DEC 27, 1997 DEC 28, 1996 CHANGE CHANGE
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 21,145 94% 8,175 88% 12,970 159%
Research contract revenue 201 1% 284 3% (83) (29%)
Other revenue 1,094 5% 834 9% 260 31%
----------------- ---------------
Total revenue 22,440 100% 9,293 100% 13,147 141%
Cost of sales and revenue:
Product sales and other revenues 14,155 63% 5,760 62% 8,395 146%
Research contracts 55 0% 138 1% (83) (60%)
----------------- ---------------
Total cost of sales and revenue 14,210 63% 5,898 63% 8,312 141%
----------------- ---------------
Gross profit 8,230 37% 3,395 37% 4,835 142%
----------------- ---------------
Operating expenses:
Selling expenses 1,182 5% 633 7% 549 87%
General and administrative expenses 1,887 8% 891 10% 996 112%
Research and development expenses 2,850 13% 1,410 15% 1,440 102%
Acquisition-related expenses 212 1% 0 0% 212 --
----------------- ---------------
Total operating expenses 6,131 27% 2,934 32% 3,197 109%
----------------- ---------------
Earnings from operations 2,099 10% 461 5% 1,638 355%
----------------- ---------------
Other (income) expense:
Interest expense 35 0% 141 1% (106) (75%)
Interest income (143) 0% (99) (1%) (44) 44%
Other (income) expense 21 0% (24) (0%) 45 (188%)
----------------- ---------------
Total other expense (income) (87) (0%) 18 0% (105) (583%)
----------------- ---------------
Earnings before income taxes 2,186 10% 443 5% 1,743 393%
Income tax expense 911 4% 164 2% 747 455%
----------------- ---------------
Net earnings 1,275 6% 279 3% 996 357%
----------------- ---------------
</TABLE>
8
<PAGE> 10
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------------------------------------
DEC 27, 1997 DEC 28, 1996 CHANGE CHANGE
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 37,311 94% 16,997 89% 20,314 120%
Research contract revenue 400 1% 544 3% (144) (26%)
Other revenue 2,150 5% 1,612 8% 538 33%
----------------------- ----------------------
Total revenue 39,861 100% 19,153 100% 20,708 108%
Cost of sales and revenue:
Product sales and other revenues 25,035 63% 11,686 61% 13,349 114%
Research contracts 122 0% 258 1% (136) (53%)
----------------------- ----------------------
Total cost of sales and revenue 25,157 63% 11,944 62% 13,213 111%
----------------------- ----------------------
Gross profit 14,704 37% 7,209 38% 7,495 104%
----------------------- ----------------------
Operating expenses:
Selling expenses 2,017 5% 1,399 8% 618 44%
General and administrative expenses 3,288 8% 1,734 9% 1,554 90%
Research and development expenses 5,411 14% 3,079 16% 2,332 76%
Acquisition-related expenses 212 1% 0 0% 212 -
----------------------- ----------------------
Total operating expenses 10,928 28% 6,212 32% 4,716 76%
----------------------- ----------------------
Earnings from operations 3,776 9% 997 5% 2,779 279%
----------------------- ----------------------
Other (income) expense:
Interest expense 196 1% 293 1% (97) (33%)
Interest income (224) (1%) (214) (1%) (10) 5%
Other income (215) (1%) (21) (0%) (194) 924%
----------------------- ----------------------
Total other expense (income) (243) (1%) 58 0% (301) (519%)
----------------------- ----------------------
Earnings before income taxes 4,019 10% 939 5% 3,080 328%
Income tax expense 1,589 4% 347 2% 1,242 358%
----------------------- ----------------------
Net earnings 2,430 6% 592 3% 1,838 310%
----------------------- ----------------------
</TABLE>
Total revenue increased in the second quarter of Fiscal 1998 by 141% to
$22,440,000 for the three months and increased by 108% to $39,861,000 for the
six months ended December 27, 1998, compared to the same periods in Fiscal 1997.
This growth is a result of several factors including acquisitions, an increase
in semiconductor capital equipment revenues of 215% for the three months and
152% increase for the six months, increases in specialty power supply revenues
of 88% for the three months and 82% for the six months, offset by a decrease in
the non-semiconductor plasma systems revenue of 20% for the three months and a
decrease of 25% for the six months. Acquisition of ASTeX CPI, completed in May
1997, added $7,023,000 of revenues for the six months, primarily in the
specialty power supply business. The acquisition of Sorbios GmbH, completed in
October 1997, accounted for a $1,222,000 increase in revenues primarily in the
semiconductor equipment business. Research contract revenue and other revenue
consisting of service, spare parts and repairs declined as a percent of sales in
the second quarter of Fiscal 1998 for the three months and six months compared
to Fiscal 1997.
Gross profits increased by $4,835,000 or 142% for the three months and increased
by $7,495,000 or 104% for the six months of Fiscal 1998 compared to Fiscal 1997.
Gross profit as a percent of revenues was 37% for the three months and six
months of Fiscal 1998 which compares to 37% for the three months and 38% for the
six months of Fiscal 1997. The Company continues to focus on improving gross
margins with the introduction of new products with anticipated higher margins,
and improved manufacturing efficiencies and methods.
9
<PAGE> 11
Selling expenses increased by 87% for the three months and 44% for the six
months but decreased as a percent of revenue to 5% for the three and six months
of Fiscal 1998 compared to 7% for the three months and 8% for the six months of
Fiscal 1997. The Company continues to increase its sales and marketing
infrastructure, but is able to decrease expenses as a percent of revenues due to
economies of scale related to the Company's acquisitions and semiconductor sales
activities. General and administrative expenses increased by 112% for the three
months and 90% for the six months but decreased to 8% of revenues for the three
and six months of Fiscal 1998 compared to 10% for the three months and 9% for
the six months of Fiscal 1997. The increase is primarily due to goodwill
amortization and increased expenses from the acquisition of ASTeX CPI and ASTeX
Sorbios and other increases due to growth and complexity of the Company. Despite
these additions, cost reduction efforts have reduced the overall level of the
increase.
Net research and development expenses increased by 102% for the three months and
76% for the six months of Fiscal 1998 compared to Fiscal 1997. Gross spending
(total research and development spending including funded joint development and
the direct cost of research contracts) increased by 92% for the three months and
69% for the six months of Fiscal 1998 compared to Fiscal 1997. The increase is
primarily due to recent acquisitions and increased investments in new products.
The Company is committed to continued investments in research and development in
order to advance its position as a market and technological leader.
Earnings from operations increased by 355% to $2,099,000 or 10% of revenue for
the three months and increased by 279% to $3,776,000 or 9% of revenue for the
six months of Fiscal 1998 compared to Fiscal 1997. The increased operating
income is due to increased revenues, increased gross profit and a reduction of
expenses as a percent of revenue.
Interest expense decreased by $106,000 for the three months and $97,000 for the
six months of Fiscal 1998 compared to Fiscal 1997 primarily due to the repayment
of bank debt in the second quarter of Fiscal 1998. Interest income increased by
$44,000 for the three months and increased by $10,000 for the six months of
Fiscal 1998 compared to Fiscal 1997. Other income increased by $194,000 for the
six months of Fiscal 1998 compared to Fiscal 1997 primarily due to a gain of
$250,000 on the sale of the Company's investment in Low Entropy Systems, Inc.
Income tax expense was $911,000 for the three months and $1,589,000 for the six
months of Fiscal 1998 compared to $164,000 for the three months and $347,000 for
the six months of Fiscal 1997.
The Company's backlog consists of purchase orders for products and research and
development contracts. At December 27, 1997, the Company's backlog was a record
$21,840,000 (consisting of $20,939,000 for products and $901,000 for research
contracts) compared to backlog at December 28, 1996 of $6,540,000 (consisting of
$6,120,000 for products and $420,000 for research contracts). Bookings for the
second quarter of Fiscal 1998 were a record $24,407,000 compared to bookings in
the second quarter of Fiscal 1997 of $10,275,000. The Company expects to
complete all product backlog during the next six to twelve months. The backlog
excludes supply agreements with certain semiconductor capital equipment
manufacturers (SCEM's). The supply agreements, as well as certain government
contracts, typically provide for modification or cancellation 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 27, 1997, the Company had cash and short-term marketable investments
of $11,084,000 with working capital of $26,937,000 compared to December 28, 1996
when the Company had cash, short-term marketable investments and long-term
investments of $6,433,000 with working capital of $18,176,000.
For the first six months of Fiscal 1998, the Company generated cash of
$4,326,000 from operating activities and used cash of $3,917,000 for investing
activities. Cash used for investing
10
<PAGE> 12
activities was primarily $3,653,000 for acquisitions and $765,000 for additions
to fixed assets and patents, off-set by the proceeds of the sale of the
Company's investment in Low Entropy Systems, Inc. The Company generated cash of
$6,178,000 from financing activities, primarily due to exercise of redeemable
warrants and options which provided cash of $15,351,000 (see footnote 6 of the
Notes to Consolidated Financial Statements), offset by repayment of debt for
$9,173,000.
The Company has a credit facility with State Street Bank and Trust Company which
consists of an $8,000,000 unsecured demand line of credit for working capital
purposes. There were no outstanding borrowings under the line of credit at
December 27, 1997. The credit facility expires in May, 2000.
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.
Management believes that existing cash resources, investments, anticipated cash
flows from operations and its credit facility will be sufficient to meet planned
operating expenses and working capital requirements for a period of at least the
next 12 months.
11
<PAGE> 13
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 27, December 28, December 27, December 28,
1997 1996 1997 1996
-------------- ---------------- ----------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net earnings $ 1,274,835 $ 279,588 $ 2,429,785 $ 591,504
============= ============ ============= ==============
Basic earnings per share:
Weighted average common
shares outstanding 8,310,436 6,665,522 7,570,134 6,669,145
------------- ------------ ------------- --------------
8,310,436 6,665,522 7,570,134 6,669,145
============= ============ ============= ==============
Basic earnings per share $ 0.15 $ 0.04 $ 0.32 $ 0.09
============= ============ ============= ==============
Diluted earnings per share:
Weighted average common
shares outstanding 8,310,436 6,665,522 7,570,134 6,669,145
Dilutive stock options
and warrants 468,919 55,005 432,355 46,752
------------- ------------- ------------- --------------
8,779,355 6,720,527 8,002,489 6,715,897
============= ============ ============= ==============
Earnings per share $ 0.15 $ 0.04 $ 0.30 $ 0.09
------------- ------------- ------------- --------------
</TABLE>
12
<PAGE> 14
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 9, 1998
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Registrant)
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/S/ Richard S. Post Chairman of the Board, Chief February 9, 1998
- --------------------- Executive Officer and President
Richard S. Post (principal executive officer)
/S/ John M. Tarrh Chief Financial Officer, Senior February 9, 1998
- ----------------- Vice President of Finance
John M. Tarrh (principal financial and accounting
officer) and Director
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> DEC-27-1997
<CASH> 9,783,977
<SECURITIES> 1,299,771
<RECEIVABLES> 12,369,921
<ALLOWANCES> 394,099
<INVENTORY> 13,335,570
<CURRENT-ASSETS> 38,493,933
<PP&E> 14,335,740
<DEPRECIATION> (6,860,666)
<TOTAL-ASSETS> 52,777,964
<CURRENT-LIABILITIES> 11,556,818
<BONDS> 0
0
0
<COMMON> 84,586
<OTHER-SE> 41,136,560
<TOTAL-LIABILITY-AND-EQUITY> 52,777,964
<SALES> 39,460,677
<TOTAL-REVENUES> 39,861,097
<CGS> 25,034,648
<TOTAL-COSTS> 25,157,262
<OTHER-EXPENSES> 10,927,800
<LOSS-PROVISION> (67,757)
<INTEREST-EXPENSE> 196,032
<INCOME-PRETAX> 4,018,785
<INCOME-TAX> 1,589,000
<INCOME-CONTINUING> 2,429,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,429,785
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.30
</TABLE>
