<PAGE>
===============================================================================
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 September 25, 1999
------------------
[ ] 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 11,605,725
- ----------------------------- ----------------------------------
Class Outstanding as of November 5, 1999
===============================================================================
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Title PAGE
----- ----
<S> <C>
Part I. Financial Information
Item 1 Financial Statements
Consolidated Statements of Operations for the Three
Months Ended September 25, 1999 and September 26, 1998 2
Consolidated Balance Sheets -
September 25, 1999 and June 26, 1999 3
Consolidated Statements of Cash Flows for the Three
Months Ended September 25, 1999 and September 26, 1998 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Item 3 Quantitative and Qualitative Disclosure about
Market Risk 12
PART II. OTHER INFORMATION
Items 1-6 None
SIGNATURES 13
Appendix 14
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ITEM 1 FINANCIAL STATEMENTS
Applied Science and Technology, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share data)
THREE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
--------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Product sales, net $ 28,516 $ 10,848
Research contact revenue 32 120
Other revenue 2,054 1,132
-------- --------
Total revenue 30,602 12,100
Cost of sales and revenue:
Product sales and other revenue 19,417 10,844
Research contracts 3 81
-------- --------
Total cost of sales and revenue 19,420 10,925
-------- --------
Gross profit 11,182 1,175
-------- --------
Operating expenses:
Research and development expenses 2,696 2,324
Selling expenses 2,026 1,202
General and administrative expenses 2,571 1,865
Restructuring charge 0 1,497
-------- --------
Total operating expenses 7,293 6,888
-------- --------
Earnings (loss) from operations 3,889 (5,713)
-------- --------
Other expense (income):
Interest expense 0 12
Interest income (407) (124)
Other expense (income) 8 8
-------- --------
Total other income (399) (104)
-------- --------
Earnings (loss) before income taxes 4,288 (5,609)
-------- --------
Income tax expense (benefit) 1,658 (2,128)
-------- --------
Net earnings (loss) $ 2,630 $ (3,481)
======== ========
Basic net earnings (loss) per share $ 0.23 $ (0.41)
======== ========
Diluted net earnings (loss) per share $ 0.22 $ (0.41)
======== ========
Weighted average common shares
outstanding used to calculate
basic earnings (loss) per share 11,427 8,585
======== ========
Weighted average common shares
outstanding used to calculate
diluted earnings (loss) per share 12,207 8,585
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 25, JUNE 26,
1999 1999
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,884 $ 31,775
Trade receivables 20,364 18,093
Other receivables 806 906
Inventories 15,424 12,419
Prepaid expenses and other assets 527 386
Deferred income taxes 1,413 1,514
-------- --------
Total current assets 64,418 65,093
-------- --------
Property and equipment:
Land 473 473
Building 1,652 1,652
Equipment 12,914 11,181
Furniture and fixtures 1,033 1,043
Leasehold improvements 2,207 2,193
-------- --------
18,279 16,542
Less accumulated depreciation and amortization (8,859) (8,394)
-------- --------
Net property and equipment 9,420 8,148
-------- --------
Other assets:
Patents, net 990 992
Goodwill, net of accumulated amortization 7,985 3,967
Deferred income taxes 2,600 1,936
Notes receivable, less current maturities 391 394
Other, net 2 5
-------- --------
Total other assets 11,968 7,294
-------- --------
$ 85,806 $ 80,535
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,578 $ 5,496
Accrued expenses 6,697 3,471
Accrued compensation expense and related costs 1,811 2,624
Accrued income taxes 348 607
Commissions payable and customer advances 759 616
-------- --------
Total current liabilities 15,193 12,814
-------- --------
Stockholders' equity:
Common stock 115 114
Additional paid-in capital 70,281 70,045
Retained earnings (accumulated deficit) 505 (2,124)
Less: Notes receivable for common stock purchases (126) (148)
Accumulated comprehensive income (loss) (162) (166)
-------- --------
Total stockholders' equity 70,613 67,721
-------- --------
$ 85,806 $ 80,535
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,630 $ (3,481)
Adjustments to reconcile net earnings (loss) to net cash
cash provided by operating activities:
Depreciation 692 765
Amortization 268 150
Deferred income taxes (563) (2,128)
Loss on disposal of assets 493 625
Changes in operating assets and liabilities::
Trade receivable (2,270) 3,139
Other receivables 100 --
Inventories (2,359) (270)
Prepaid expenses and other assets (138) 33
Notes receivable 2 (498)
Accounts payable 81 (548)
Accrued expenses 2,050 (509)
Commission payable and customer advances 143 34
-------- --------
Net cash provided by (used for)
operating activities 1,128 (2,688)
-------- --------
Cash flows from investing activities:
Acquisition of subsidiaries, less cash acquired (6,164) --
Additions to property and equipment (1,080) (567)
Patent costs (39) (4)
-------- --------
Net cash used for investing activities (7,283) (571)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 259 1
-------- --------
Net cash provided by financing
activities 259 1
-------- --------
Effect of exchange rate changes on cash 4 144
-------- --------
Net decrease in cash and cash equivalents (5,891) (3,113)
Cash and cash equivalents at beginning of period 31,775 7,687
-------- --------
Cash and cash equivalents at end of period $ 25,884 $ 4,573
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ 12
======== ========
Income taxes $ 924 $ 221
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes on Consolidated Financial Statements
(UNAUDITED)
1) BASIS OF PRESENTATION
The unaudited financial statements as of September 25, 1999 and September
26, 1998, and for the three 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 26, 1999 and the notes thereto included in our Form 10-K filed
with the Securities and Exchange Commission.
The results of our operations for any interim period are not necessarily
indicative of the results of our operations for a full fiscal year.
2) EARNINGS (LOSS) PER SHARE
The weighted average number of shares used to compute diluted earnings
(loss) per share consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS)
-------------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Weighted average common shares 11,427 8,585
outstanding
Weighted average common equivalent 780 --
shares due to stock options and
warrants
---------- ----------
12,207 8,585
========== ==========
</TABLE>
Weighted average common equivalent shares relating to stock options and
warrants were not included in the weighted average shares used to compute
diluted loss per share for the three months ended September 26, 1998, as
they had an antidilutive effect.
5
<PAGE>
3) ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
(in thousands)
SEPTEMBER 25, JUNE 26,
1999 1999
------------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Accounts receivable, trade $19,826 $17,653
Notes receivable, current portion 1,255 1,175
Allowance for doubtful accounts (717) (735)
----------- ----------
$20,364 $18,093
=========== ==========
</TABLE>
4) Inventories
<TABLE>
<CAPTION>
(in thousands)
SEPTEMBER 25, JUNE 26,
1999 1999
-----------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Raw materials $10,801 $ 7,906
Work in process 2,921 3,458
Finished goods 1,702 1,055
----------- ----------
$15,424 $ 12,419
=========== ==========
</TABLE>
5) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred. Research and
development expenses attributable to research contracts are included in
costs of sales and revenue.
We also receive funding for certain research and development costs which is
used to offset our research and development expenses. We incurred research
and development expenses, net of funding received, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS)
-------------------------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
--------------------------- ---------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Research and development costs $ 2,732 $ 2,346
Less funding 36 22
--------- --------
$ 2,696 $ 2,324
========= ========
</TABLE>
6
<PAGE>
6) COMMITMENTS
We may borrow up to $8,000,000 from a bank under an unsecured demand line
of credit with interest at the bank's prime rate (8.25% at September 25,
1999). Borrowings under the line are limited to 100% of our cash balance
plus 80% of domestic accounts receivable under 90 days outstanding. As of
September 25, 1999 there were no borrowings against the line of credit.
7) STOCKHOLDERS' EQUITY
Capital stock consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
NUMBER OF SHARES
--------------------------------------
AUTHORIZED ISSUED AND OUTSTANDING
SEPTEMBER 25, JUNE 26,
1999 1999
--------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Preferred stock:
Preferred stock, $.01 par value 1,000 - -
--------------------------------------
Total preferred stock 1,000 - -
--------------------------------------
Common stock:
Common stock, $.01 par value 30,000 11,455 11,417
--------------------------------------
Total common stock 30,000 11,455 11,417
--------------------------------------
Total capital stock 31,000 11,455 11,417
--------------------------------------
</TABLE>
8) Comprehensive Income
We adopted the provisions of Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income during the quarter ended September
26, 1998. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. This pronouncement requires that the accumulated
total of other comprehensive income be shown as a separate component of
stockholders' equity with additional disclosure of accumulated balances for
each classification within other comprehensive income in addition to the
reporting of total comprehensive income. Accumulated other comprehensive
income, a component of stockholders' equity previously titled "cumulative
translation adjustment," consists solely of foreign currency translation.
The components of total comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
Three Months
(in thousands)
----------------------------------------
September 25, SEPTEMBER 26,
1999 1998
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Net income (loss) $ 2,630 $ (3,481)
Comprehensive income (loss) 4 144
---------- ---------
$ 2,634 $ (3,337)
========== =========
</TABLE>
7
<PAGE>
9) ACQUISITIONS
On August 24, 1999, we completed the acquisition of the Shamrock product
line from Sputtered Films, Inc. for a total purchase price of $6,163,802.
The purchase price was paid in cash from our cash reserves.
10) The Company has four reportable segments. Semiconductor, Medical and
Industrial, Systems and Corporate that have separate financial results that
are reviewed by the Company's chief operating decision-maker. Identifiable
assets and capital expenditures data are presented geographically as they
are managed on that basis.
<TABLE>
<CAPTION>
THREE MONTHS
(IN THOUSANDS)
-------------------------------------------------------
SEMI- MEDICAL AND
CONDUCTOR INDUSTRIAL SYSTEMS CORPORATE TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 25, 1999
Net sales $23,141 3,968 3,493 - $30,602
Inter-segment net sales 739 10 - - 749
Profit (loss) from operations 5,683 (249) 173 (1,718) 3,889
Depreciation 311 76 90 215 692
September 26, 1998
Net sales $ 6,451 5,248 401 - $12,100
Inter-segment net sales 1,033 48 - - 1,081
Profit (loss) from operations (2,849) (231) (155) (2,478) (5,713)
Depreciation 482 168 54 61 765
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
GENERAL
ASTeX provides precision reactive gas solutions to the OEM semiconductor,
medical, and industrial markets, and complete process systems for advanced
packaging and magnetic sensor applications. ASTeX's broad product line is based
on a decade of leadership in core technologies including precision reactive gas
processing, specialized power sources, and system integration. Depending on
customers' needs, ASTeX provides varying levels of integration, from components
to subsystems to complete process solutions. ASTeX helps customers maximize
their competitive advantage by improving time to market while reducing costs and
complexity.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 25, 1999 AND
SEPTEMBER 26, 1998
The following table compares the consolidated statements of operations for the
three-month periods ended September 25, 1999 and September 26, 1998, expressed
as a percentage of total revenue.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
September 25, SEPTEMBER 26,
1999 1998
---------------------------- ---------------------------
<S> <C> <C>
Product sales, net 93.2% 89.7%
Research contract revenue 0.1% 1.0%
Other revenue 6.7% 9.4%
--------------------------- ---------------------------
Total revenue 100.0% 100.0%
--------------------------- ---------------------------
Cost of sales and revenue:
Product sales and other revenue 63.5% 89.6%
Research contracts 0.0% 0.7%
--------------------------- ---------------------------
Total cost of sales and revenue 63.5% 90.3%
--------------------------- ---------------------------
Gross profit 36.5% 9.7%
--------------------------- ---------------------------
Operating expenses:
Selling expenses 6.6% 9.9%
General and administrative expenses 8.4% 15.4%
Research and development expenses 8.8% 19.2%
Restructuring charge 0.0% 12.4%
--------------------------- ---------------------------
Total operating expenses 23.8% 56.9%
--------------------------- ---------------------------
Earnings (loss) from operations 12.7% (47.2)%
--------------------------- ---------------------------
Other expense (income):
Interest expense 0.0% 0.1%
Interest income (1.3)% (1.0)%
Other expense (income) 0.0% 0.1%
--------------------------- ---------------------------
Total other income (1.3)% (0.9)%
--------------------------- ---------------------------
Earnings (loss) before income taxes 14.0% (46.4)%
Income tax expense (benefit) 5.4% (17.6)%
--------------------------- ---------------------------
Net earnings (loss) 8.6% (28.8)%
=========================== ===========================
</TABLE>
REVENUE
Total revenue increased by 153% to a record $30.6 million in the first quarter
of fiscal 2000 compared to revenue of $12.1 million in the first quarter of
fiscal 1999. The increase is primarily due to the recovery of the semiconductor
capital equipment business which increased by 259% to $23.1 million in the first
quarter of fiscal 2000 compared to $6.5 million in fiscal 1999 which is when the
semiconductor business
9
<PAGE>
was at its lowest point for us. The medical and industrial business declined to
$4.0 million in the first quarter of fiscal 2000 compared to $5.2 million in
fiscal 1999 primarily due to slowdown in the medical RF business. The systems
business increased to $3.5 million in fiscal 2000 compared to $0.4 million in
fiscal 1999. The increase is due to the acquisitions of PlasmaQuest and Klee
subsequent to the end of the first quarter of fiscal 1999.
GROSS PROFIT
Gross profit increased by $10.0 million to $11.2 million or 36.5% of total
revenue in the first quarter of fiscal 2000 compared to $1.2 million or 9.7% of
total revenue in the first quarter of fiscal 1999. Gross margin increased due
to increased volume, favorable product mix with higher gross margin, and a lower
fixed cost structure due to plant consolidations undertaken in fiscal 1999.
Gross margins also improved over the prior year due to a $1.1 million inventory
write-down in the first quarter of 1999 with no comparable expense in the first
quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses increased by 69% to $2.0 million or 6.6% of total revenue in
the first quarter of fiscal 2000 compared to $1.2 million or 9.9% of total
revenue in the first quarter of fiscal 1999. The increase is due to the
creation of Global Customer Operations (GCO) during the second half of fiscal
1999 and increased staffing of marketing, sales, service, and product management
in the second half of fiscal 1999 as well as in the first quarter of fiscal 2000
in order to better serve and meet customer needs on a global basis. General and
administrative expenses increased to $2.6 million or 8.4% of total revenue in
the first quarter of fiscal 2000 compared to $1.9 million or 15.4% of total
revenue in the first quarter of fiscal 1999. The increase is due to increased
goodwill amortization due to new acquisitions, management changes including
expanding the senior management team, increased administrative costs of
acquisitions, and increased administrative expenses due to the two new
acquisitions.
As a result of consolidation of two facilities, in the first quarter of fiscal
1999 we incurred a restructuring charge of $1.5 million for the costs of
severance, abandonment of leasehold improvements, fixed assets and facility
costs, primarily future lease payments. There was no comparable cost in the
first quarter of fiscal 2000.
RESEARCH AND DEVELOPMENT EXPENSES
Net research and development expense increased by 16% to $2.7 million or 8.8% of
total revenue in the first quarter of fiscal 2000 compared to $2.3 million or
19.2% of total revenues in the first quarter of fiscal 1999. Increased research
and development expenses are primarily a result of the acquisitions of
PlasmaQuest and Klee.
OPERATING INCOME (LOSS)
We had operating income of approximately $3.9 million or 12.7% of total revenues
in the first quarter of fiscal 2000 compared to a loss of $5.7 million or 46.3%
of total revenue in the first quarter of fiscal 1999. The increase in operating
income is due to increased revenues, gross margin and lower expenses as a
percentage of sales compared to the first quarter of fiscal 1999.
OTHER INCOME AND INCOME TAXES
Total other income increased by $295,000 to $399,000 in the first quarter of
fiscal 2000 compared to $104,000 in the first quarter of fiscal 1999 primarily
due to interest income earned on the cash investment from our secondary stock
offering in March 1999. We had income tax expense of $1.7 million in the first
quarter of fiscal 2000 compared to a tax benefit of $2.1 million in the first
quarter of fiscal 1999.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
At September 25, 1999 we had cash and short-term investments of $25.9 million
with working capital of $49.2 million as compared to June 26, 1999 when we had
cash and short-term investments of $31.8 million and working capital of $52.3
million.
During the three months ended September 25, 1999 our cash position decreased by
$5.9 million. Cash provided by operating activities was $1.1 million, cash used
for investing activities was $7.3 million and cash provided by financing
activities was $0.3 million, primarily due to the exercise of stock options.
Cash provided by operating activities consisted of $2.6 million of net income,
$2.5 million used for changes in working capital including changes in deferred
income taxes, offset by non-cash depreciation and amortization of $1.0 million.
Cash used for financing activities consisted primarily of $6.2 million for the
August 1999 acquisition of the Shamrock product line from Sputtered Films, Inc.,
and $1.1 million for additions to property, plant and equipment.
We have a credit facility with State Street Bank and Trust Company which
consists of an $8 million unsecured demand line of credit with interest at the
bank's prime rate of 8.25% at September 25, 1999.
We will continue to use our cash resources for developing new products,
expanding sales and marketing, performing collaborative product development
projects, and for general working capital. We seek joint ventures and/or
acquisitions that will enhance our position in our markets with potential to
increase revenue and profitability.
EFFECTS OF INFLATION
We believe that inflation has not had a significant impact on our revenues or
operating results.
YEAR 2000 DISCLOSURE
Many currently installed computer systems and software products are dependent
upon internal calendars coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with Year 2000 requirements.
We believe that our financial reporting and enterprise resource planning (ERP)
systems are Year 2000 compliant as of September. We are currently in the process
of updating our financial reporting and ERP systems with SAP R/3, which has been
represented as being Year 2000 compliant by its producer. We are currently using
SAP R/3 in our facility in Woburn, MA. The current ERP software packages used by
ASTeX ETO are represented as being Year 2000 compliant. The software package
used by ASTeX Sorbios was not Year 2000 compliant; however, we purchased an
upgrade that is represented as being Year 2000 compliant and implemented this
software in April 1999. Our other software is generally certified by the vendor
as Year 2000 compliant or is not considered critical to our operations.
We have spent approximately $1.5 million through September 1999 on SAP R/3
software, hardware and consultants. We plan future SAP R/3 implementation
expenditures of approximately $300,000. Although we believe future SAP R/3
implementation cost estimates to be accurate, we can not provide any assurance
that these costs will not increase or that the implementations will occur by the
dates estimated.
11
<PAGE>
We have conducted a review of our manufacturing equipment and facilities to
ensure Year 2000 compliance. Based on our assessment, we do not anticipate that
a material Year 2000 issue will be discovered in this area.
We have addressed the Year 2000 preparedness of our critical suppliers and our
major customers and related electronic data interfaces with these third parties.
We have contacted critical suppliers and major customers to determine whether
they are, or will be, compliant by the Year 2000. Based upon this evaluation,
we will seek new vendors where necessary and have formulated contingency plans
to resolve customer-related issues that may arise. At this time we cannot
estimate the impact that noncompliant suppliers and customers may have on us or
our level of operations in the Year 2000.
We have completed a systematic review of our products in operation at customer
locations and have identified noncompliant products and offered all necessary
modifications to make them compliant. However, as many of our products are
complex, interact with third-party products, and operate on computer systems
that are not under our control, there can be no assurance that we have
identified all of the Year 2000 problems associated with our products.
There is expected to be a significant amount of litigation relating to the Year
2000 issue and there can be no assurance that we will not incur material costs
in defending or bringing lawsuits. In addition, if any Year 2000 issues are
identified, there can be no assurance that we will be able to retain qualified
personnel to remedy such issues. Any unexpected costs or delays arising from
the year 2000 issue could have a significant adverse impact on our business,
operations, and financial condition in amounts that cannot be reasonably
estimated at this time.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements regarding anticipated
results of operations, the cyclical nature of the semiconductor equipment
industry, liquidity and other matters. These statements, in addition to
statements made in conjunction with the words "anticipate," "expect," "believe,"
"intend," "seek," "estimate" and similar expressions, are forward-looking
statements that are based on management's current expectations and are subject
to a number of factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. Such
risks and uncertainties include, but are not limited to the following: business
conditions and growth in certain market segments and the general economy;
fluctuating operating results; new product development; the cyclical nature of
the semiconductor equipment industry; uncertainties concerning Asian and
European markets and currencies; the impact of competitive products and pricing;
increased or continued market acceptance of our products and proposed products;
availability of materials; the loss of the services of one or more of our key
employees, dependence on significant customers; the availability of additional
capital to fund expansion on acceptable terms, if at all; and other risks and
uncertainties indicated from time to time in our filings with the Securities and
Exchange Commission.
BACKLOG
Backlog consists of purchase orders for standard products and contracts for
research and development. At September 25, 1999, backlog was approximately
$21.4 million of which $21.1 million was for standard products and $0.3 million
was for research contracts. We had bookings of $27.2 million and a book-to-bill
ratio of 0.9:1 for the first quarter of fiscal 2000. The backlog at September
26, 1998 was approximately $12.3 million of which $12.0 million was for standard
products and $0.3 million was for
12
<PAGE>
research contracts. We expect to complete all standard product backlog during
the next six months and all research contracts during the next twelve months.
The backlog figure excludes orders under certain just-in-time supply agreements
with major semiconductor capital equipment manufacturers. These multi-year
supply agreements, as well as certain government contracts, typically provide
for cancellation or modification with little or no penalty. In addition,
customers may push out deliveries, put firm orders on hold, or cancel existing
orders with little or no penalty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of change in value of short-term investments and
financial instruments caused by fluctuations in investment prices, interest
rates and foreign currency exchange rates.
We address market risks in accordance with established policies. Our risk
management activities involve risk and uncertainties and accordingly, results
could differ materially from those projected.
INTEREST RATE RISK. Due to the fact that long-term notes receivable mature
within 4 years, management has determined that the fair value does not differ
materially from the carrying amount.
FOREIGN EXCHANGE RISK. We do not obtain a significant amount of sales
denominated in other than U.S. currency.
INVESTMENT RISK. Our investment securities are United States instruments with
original maturities of ninety days or less and are considered cash equivalents.
PART II.
Items 1-6
Not applicable
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.
13
<PAGE>
Dated: November 5, 1999
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Registrant)
Name Capacity Date
- ---- -------- ----
/s/Richard S. Post Chairman of the Board, Chief November 5, 1999
- ------------------
Richard S. Post Executive Officer and President
(principal executive officer)
/s/John M. Tarrh Chief Financial Officer, Senior November 5, 1999
- ----------------
John M. Tarrh Vice President of Finance
(principal financial and accounting
officer) and Director
14
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