<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 March 28, 1998
( ) 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 8,555,701
----------------------------- ----------------------
Class Outstanding as of April 29, 1998
==============================================================================
==============================================================================
<PAGE> 2
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
TITLE PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Operations for the Three Months and
Nine Months Ended March 28, 1998, and March 29, 1997 2
Consolidated Balance Sheets-
March 28, 1998, and June 28, 1997 3
Consolidated Statements of Cash Flows for the Nine Months Ended
March 28, 1998, and March 29, 1997 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II. OTHER INFORMATION
Items 1-5 None
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 13
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
ITEM 1 FINANCIAL STATEMENTS
Applied Science and Technology, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
-------------- ------------- --------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales, net $ 22,195,896 $ 10,123,941 $ 59,506,344 $ 27,120,927
Research contract revenue 293,503 247,332 693,923 791,562
Other revenue 972,437 641,259 3,122,666 2,253,159
-------------- ------------- --------------- --------------
Total revenue 23,461,836 11,012,532 63,322,933 30,165,648
-------------- ------------- --------------- --------------
Cost of sales and revenue:
Product sales and other revenue 15,076,802 6,995,463 40,111,450 18,681,827
Research contracts 177,617 130,733 300,230 388,676
-------------- ------------- --------------- --------------
Total cost of sales and revenue 15,254,419 7,126,196 40,411,680 19,070,503
-------------- ------------- --------------- --------------
Gross profit 8,207,417 3,886,336 22,911,253 11,095,145
-------------- ------------- --------------- --------------
Operating expenses:
Selling expenses 1,145,261 605,724 3,162,060 2,004,572
General and administrative expenses 1,791,298 886,740 5,078,619 2,620,667
Research and development expenses (note 5) 3,019,286 1,735,389 8,430,544 4,814,654
Acquisition-related expenses (note 8) 0 0 212,423 0
-------------- ------------- --------------- --------------
Total operating expenses 5,955,845 3,227,853 16,883,646 9,439,893
-------------- ------------- --------------- --------------
Earnings from operations 2,251,572 658,483 6,027,607 1,655,252
-------------- ------------- --------------- --------------
Other expense (income):
Interest expense 36 138,200 196,068 431,622
Interest income (157,522) (99,126) (380,947) (313,608)
Other income (37,463) (990) (252,820) (21,665)
-------------- ------------- --------------- --------------
Total other (income) expense (194,949) 38,084 (437,699) 96,349
-------------- ------------- --------------- --------------
Earnings before income taxes 2,446,521 620,399 6,465,306 1,558,903
Income tax expense 869,000 230,000 2,458,000 577,000
-------------- ------------- --------------- --------------
Net earnings $ 1,577,521 $ 390,399 $ 4,007,306 $ 981,903
-------------- ------------- --------------- --------------
Basic net earnings per share $ 0.19 $ 0.06 $ 0.51 $ 0.15
-------------- ------------- --------------- --------------
Diluted net earnings per share $ 0.18 $ 0.06 $ 0.47 $ 0.15
-------------- ------------- --------------- --------------
Weighted average common shares outstanding
used to calculate basic earnings per share 8,482,518 6,671,963 7,874,262 6,670,166
-------------- ------------- --------------- --------------
Weighted average common shares outstanding
used to calculate diluted earnings per share 8,922,323 6,793,079 8,455,678 6,737,677
-------------- ------------- --------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
<TABLE>
<CAPTION>
Applied Science and Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets March 28, June 28,
1998 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,647,058 $ 3,246,337
Short-term marketable investments 1,299,884 0
Accounts receivable, net (note 3) 13,101,423 11,915,919
Inventories (note 4) 15,858,422 10,013,422
Prepaid expenses and other assets 507,568 276,682
Deferred income taxes 1,389,945 895,237
--------------- ---------------
Total current assets 38,804,300 26,347,597
--------------- ---------------
Property, plant and equipment:
Land 473,000 473,000
Building and improvements 1,625,360 1,621,469
Equipment 10,141,769 7,871,718
Furniture and fixtures 968,577 741,143
Leasehold improvements 2,093,540 1,946,800
--------------- ---------------
15,302,246 12,654,130
Less accumulated depreciation and amortization (7,394,607) (5,150,881)
--------------- ---------------
Net property, plant and equipment 7,907,639 7,503,249
--------------- ---------------
Other assets:
Patents, net 1,134,260 148,794
Goodwill, net of accumulated amortization 4,153,047 3,261,652
Long-term investments 0 1,299,545
Notes receivable, less current maturities 373,160 383,080
Deferred income taxes 1,027,384 0
Other, net 0 383,304
--------------- ---------------
Total other assets 6,687,851 5,476,375
--------------- ---------------
$ 53,399,790 $ 39,327,221
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (note 7) $ 0 $ 1,824,397
Accounts payable 4,796,373 3,869,521
Accrued expenses 2,136,361 1,374,635
Accrued compensation expense and related costs 2,030,112 1,448,928
Accrued income tax expense 1,043,031 647,142
Commissions payable and customer advances 282,655 226,672
--------------- ---------------
Total current liabilities 10,288,532 9,391,295
Long-term debt, less current maturities (note 7) 0 6,368,913
Deferred income taxes 0 78,003
--------------- ---------------
Total liabilities 10,288,532 15,838,211
--------------- ---------------
Stockholders' equity (note 6):
Common stock 85,517 67,785
outstanding 8,551,701 shares (6,778,509 shares at 6/28/97)
Additional paid-in capital 43,535,091 27,837,250
Accumulated deficit (260,393) (4,267,699)
Cumulative translation adjustment (100,631) 0
Less: Notes receivable for common stock purchases (148,326) (148,326)
--------------- ---------------
Total stockholders' equity 43,111,258 23,489,010
--------------- ---------------
$ 53,399,790 $ 39,327,221
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
<TABLE>
<CAPTION>
Applied Science and Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
---------------------------------------
March 28, March 29,
1998 1997
---------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,007,306 $ 981,903
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,585,587 1,255,655
Amortization 466,615 48,983
Equipment transferred to inventory 0 93,566
Acquisition-related expense 212,423 0
Gain on sale of investment (250,000) 0
Changes in assets and liabilities:
Accounts receivable (5,031) 203,389
Inventories (4,875,481) 40,188
Prepaid expenses and other assets (230,877) (30,007)
Note receivable 9,920 32,716
Accounts payable (61,920) (439,673)
Accrued expenses 1,074,647 (346,789)
Commissions payable and customer advances (51,198) (65,824)
------------------ ------------------
Net cash provided by
operating activities 1,881,991 1,774,107
------------------ ------------------
Cash flows from investing activities:
Acquisition of subsidiary, less cash acquired (3,682,639) 0
Purchases of investments (339) (1,299,102)
Sales of investments 500,000 1,990,632
Additions to property and equipment (1,715,607) (686,688)
Patents and other assets (24,419) (46,792)
------------------ ------------------
Net cash used for
investing activities (4,923,004) (41,950)
------------------ ------------------
Cash flows from financing activities:
Repayments of notes payable (9,173,208) (1,239,866)
Net proceeds from issuance of common stock 15,715,573 81,805
Repayment of notes receivable for common stock purchase 0 7,500
------------------ ------------------
Net cash provided by (used for)
financing activities 6,542,365 (1,150,561)
------------------ ------------------
Effect of exchange rate changes on cash (100,631) 0
------------------ ------------------
Net increase in cash and cash equivalents 3,400,721 581,596
Cash and cash equivalents at beginning of period 3,246,337 5,182,294
------------------ ------------------
Cash and cash equivalents at end of period $ 6,647,058 $ 5,763,890
================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 249,580 $ 438,037
================== ==================
Income taxes $ 2,000,921 $ 512,905
================== ==================
</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 March 28, 1998, and March 29,
1997, for the three month 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 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 the Statement of Financial
Accounting Standards (SFAS) No. 128 Earnings Per Share. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per
share with a calculation of basic and diluted earnings per share. Basic
earnings per share computations are based on the weighted average
number of shares of common stock outstanding. Diluted earnings per
share is based upon the weighted average of common shares and dilutive
common stock equivalent shares outstanding during each period. All
earnings per share amounts for all periods have been restated to
conform to SFAS No. 128 requirements. The weighted average number of
shares used to compute diluted income per share consisted of the
following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
March 27, March 29, March 27, March 29,
1998 1997 1998 1997
---------------- --------------- ---------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 8,482,518 6,671,963 7,874,262 6,670,166
Weighted average common
equivalent shares due
to stock options
and warrants 439,805 121,116 581,416 67,511
---------------- --------------- ---------------- ---------------
8,922,323 6,793,079 8,455,678 6,737,677
================ =============== ================ ===============
</TABLE>
5
<PAGE> 7
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
3) ACCOUNTS RECEIVABLE
March 28, June 28,
1998 1997
----------------------- -----------------------
(unaudited)
<S> <C> <C>
Accounts receivable, trade $ 13,409,085 $ 11,857,598
Notes receivable, current portion 67,018 384,663
Allowance for doubtful accounts (374,680) (326,342)
----------------------- -----------------------
$ 13,101,423 $ 11,915,919
======================= =======================
4) INVENTORIES
Inventories consist of the following:
March 28, June 28,
1998 1997
----------------------- -----------------------
(unaudited)
Raw materials $ 10,188,744 $ 6,566,718
Work in process 4,389,893 2,534,245
Finished goods 1,279,785 912,459
----------------------- -----------------------
$ 15,858,422 $ 10,013,422
======================= =======================
</TABLE>
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 28, March 29, March 28, March 29,
1998 1997 1998 1997
---------------------------------------- -----------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Research and development costs $ 3,019,286 2,008,869 $ 8,484,481 $ 5,346,077
Less funding 0 273,480 53,937 531,423
------------------- ------------------ ------------------- -------------------
$ 3,019,286 1,735,389 $ 8,430,544 $ 4,814,654
=================== ================== =================== ===================
</TABLE>
6
<PAGE> 8
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 28, June 28,
1998 1997
-------------------------------------
Preferred stock: (unaudited) (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 30,000,000 8,551,701 6,778,509
-----------------------------------------------------
Total common stock 30,000,000 8,551,701 6,778,509
-----------------------------------------------------
Total capital stock 31,000,000 8,551,701 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 underwriter 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, to complete the acquisition of ASTeX Sorbios GmbH and
increase the Company's working capital.
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.
7) LONG-TERM DEBT
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.
7
<PAGE> 9
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.
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 NINE MONTHS ENDED MARCH 28, 1998
AND MARCH 29, 1997
The following tables compare the consolidated statements of operations for the
three-month and nine-month periods ended March 28, 1998, and March 29, 1997.
8
<PAGE> 10
<TABLE>
<CAPTION>
Applied Science and Technology, Inc. and Subsidiaries
Comparative Consolidated Statements of Operations
Three Months Ended
----------------------------------------------------------------
March 28, 1998 March 29, 1997 Change Change
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 22,196 95% 10,124 92% 12,072 119%
Research contract revenue 294 1% 247 2% 47 19%
Other revenue 972 4% 641 6% 331 52%
-------------------- -------------------- ----------
Total revenue 23,462 100% 11,012 100% 12,450 113%
Cost of sales and revenue:
Product sales and other revenues 15,077 64% 6,995 64% 8,082 116%
Research contracts 178 1% 131 1% 47 36%
-------------------- -------------------- ----------
Total cost of sales and revenue 15,255 65% 7,126 65% 8,129 114%
-------------------- -------------------- ----------
Gross profit 8,207 35% 3,886 35% 4,321 111%
-------------------- -------------------- ----------
Operating expenses:
Selling expenses 1,145 5% 606 5% 539 89%
General and administrative expenses 1,791 8% 887 8% 904 102%
Research and development expenses 3,019 12% 1,735 16% 1,284 74%
-------------------- -------------------- ----------
Total operating expenses 5,955 25% 3,228 29% 2,727 84%
-------------------- -------------------- ----------
Earnings from operations 2,252 10% 658 6% 1,594 242%
-------------------- -------------------- ----------
Other (income) expense:
Interest expense 0 0% 138 1% (138) (100%)
Interest income (158) (1%) (99) (1%) (59) 60%
Other income (37) (0%) (1) (0%) (36) 3600%
-------------------- -------------------- ----------
Total other expense (income) (195) (1%) 38 0% (233) 613%
-------------------- -------------------- ----------
Earnings before income taxes 2,447 11% 620 6% 1,827 295%
Income tax expense 869 4% 230 2% 639 278%
-------------------- -------------------- ----------
Net earnings 1,578 7% 390 4% 1,188 305%
-------------------- -------------------- ----------
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
Applied Science and Technology, Inc. and Subsidiaries
Comparative Consolidated Statements of Operations
Nine Months Ended
--------------------------------------------------------
March 28, 1998 March 29, 1997 Change Change
$ (000) % $ (000) % $ (000) %
<S> <C> <C> <C> <C> <C> <C>
Product sales, net 59,506 94% 27,121 90% 32,385 119%
Research contract revenue 694 1% 792 3% (98) (12%)
Other revenue 3,123 5% 2,253 7% 870 39%
------------------ ------------------ ---------
Total revenue 63,323 100% 30,166 100% 33,157 110%
Cost of sales and revenue:
Product sales and other revenues 40,112 63% 18,682 62% 21,430 115%
Research contracts 300 1% 389 1% (89) (23%)
------------------ ------------------ ---------
Total cost of sales and revenue 40,412 64% 19,071 63% 21,341 112%
------------------ ------------------ ---------
Gross profit 22,911 36% 11,095 37% 11,816 106%
------------------ ------------------ ---------
Operating expenses:
Selling expenses 3,162 5% 2,004 7% 1,158 58%
General and administrative expenses 5,079 8% 2,621 9% 2,458 94%
Research and development expenses 8,431 13% 4,815 16% 3,616 75%
Acquisition-related expenses 212 0% 0 0% 212 -
------------------ -------- --------- ---------
Total operating expenses 16,884 26% 9,440 31% 7,444 79%
------------------ ------------------ ---------
Earnings from operations 6,027 10% 1,655 5% 4,372 264%
------------------ ------------------ ---------
Other (income) expense:
Interest expense 196 0% 432 1% (236) (55%)
Interest income (381) (1%) (314) (1%) (67) 21%
Other income (253) (0%) (22) (0%) (231) 1050%
------------------ ------------------ ---------
Total other expense (income) (438) (1%) 96 0% (534) 556%
------------------ ------------------ ---------
Earnings before income taxes 6,465 10% 1,559 5% 4,906 315%
Income tax expense 2,458 4% 577 2% 1,881 326%
------------------ ------------------ ---------
Net earnings 4,007 6% 982 3% 3,025 308%
------------------ ------------------ ---------
</TABLE>
Total revenue increased in the third quarter of Fiscal 1998 by 113% to
$23,462,000 for the three months and increased by 110% to $63,323,000 for the
nine months ended March 28, 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 89% for the three months and 125%
increase for the nine months, increases in specialty power supply revenues of
197% for the three months and 114% for the nine months, and an increase in the
non-
10
<PAGE> 12
semiconductor plasma systems revenue of 93% for the three months and an
increase of 50% for the nine months. Acquisition of ASTeX CPI, completed in May
1997, added $4,298,000 of revenues for the three months and $11,321,000 for the
nine months primarily in the specialty power supply business. The acquisition of
Sorbios GmbH, completed in October 1997, accounted for a $1,203,000 increase in
revenues for the three months and $2,428,000 for the nine months 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 for the three months and the nine months ended March 28, 1998 compared to
the same periods in Fiscal 1997.
Gross profits increased by $4,321,000 or 111% for the three months and increased
by $11,816,000 or 106% for the nine months of Fiscal 1998 compared to Fiscal
1997. Gross profit as a percent of revenues was 35% for the three months and 36%
for the nine months of Fiscal 1998 which compares to 35% for the three months
and 37% for the nine 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.
Selling expenses increased by 89% for the three months and 58% for the nine
months but as a percent of revenue was 5% for the three and nine months of
Fiscal 1998 compared to 5% for the three months and 7% for the nine months of
Fiscal 1997. During the past three quarters, the Company continued to increase
its sales and marketing infrastructure, but was 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 102% for the three months and 94% for the nine months but
decreased to 8% of revenues for the three and nine months of Fiscal 1998
compared to 8% for the three months and 9% for the nine 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 74% for the three months and
75% for the nine 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 49% for the three months and
53% for the nine 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 242% to $2,252,000 or 10% of revenue for
the three months and increased by 264% to $6,027,000 or 10% of revenue for the
nine 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.
There was no interest expense for the three months of Fiscal 1998 compared to
$138,000 in Fiscal 1997. Interest expense decreased by $236,000 for the nine
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
$59,000 for the three months and increased by $67,000 for the nine months of
Fiscal 1998 compared to Fiscal 1997. Other income increased by $233,000 for the
nine 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.
11
<PAGE> 13
Income tax expense was $869,000 for the three months and $2,458,000 for the nine
months of Fiscal 1998 compared to $230,000 for the three months and $577,000 for
the nine months of Fiscal 1997.
The Company's backlog consists of purchase orders for products and research and
development contracts. At March 28, 1998, the Company's backlog was $19,276,000
(consisting of $18,669,000 for products and $607,000 for research contracts)
compared to backlog at March 29, 1997 of $11,142,000 (consisting of $10,557,000
for products and $585,000 for research contracts). 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 March 28, 1998, the Company had cash and short-term marketable investments of
$7,947,000 with working capital of $28,515,000 compared to March 29, 1997 when
the Company had cash, short-term marketable investments and long-term
investments of $7,063,000 with working capital of $18,443,000.
For the first nine months of Fiscal 1998, the Company generated cash of
$1,882,000 from operating activities and used cash of $4,923,000 for investing
activities. Cash used for investing activities was primarily $3,683,000 for
acquisitions and $1,740,000 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 $6,542,000 from financing activities,
primarily due to exercise of redeemable warrants and options which provided cash
of $15,716,000 (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 March
28, 1998. 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.
YEAR 2000 COSTS
ASTeX is proactively addressing the Year 2000 problem on several major fronts
intended to lessen the effort needed to resolve any issues. First, the Company
is replacing, over the next 18
12
<PAGE> 14
months, existing MRP software systems with the Year 2000 compliant SAP R/3 ERP
product at all divisions. Secondly, ASTeX has established and executed an
agreement for the purchase of Year 2000 compliant PC systems with Dell Computer
Corporation. Third, ASTeX continues to make use of Year 2000 compliant Lotus
Notes groupware and Microsoft Office software products at all sites. Fourth, an
assessment is underway to identify any remaining Year 2000 issues which is
anticipated to cost under $50,000. This study will determine the scope of the
remaining year 2000 problem, develop a framework for addressing the problem and
provide an estimate of the cost of remediation. The study will be completed by
June 30, 1998. If the replacement of certain systems is the recommended course
of action, the cost of those replacement systems will be recorded as assets and
amortized. All other costs associated with this issue will be expensed in the
period incurred.
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
On March 5, 1998, Applied Science and Technology, Inc. filed a Form 8-K with
the Securities and Exchange Commission announcing the adoption of a Shareholder
Rights Plan.
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 12, 1998
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Registrant)
Name Capacity Date
- ---- -------- ----
/S/ Richard S. Post Chairman of the Board, Chief May 12, 1998
- --------------------- Executive Officer and President
Richard S. Post (principal executive officer)
/S/ John M. Tarrh Chief Financial Officer, Senior May 12, 1998
- --------------------- Vice president of Finance
John M. Tarrh (principal financial and accounting
officer) and Director
13
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<PERIOD-END> MAR-28-1998
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