SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 JUNE 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
Commission File Number: 0-25922
Opal, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2962212
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3203 Scott Boulevard, Santa Clara, California 95054
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 727-6060
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such a 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 |_|
The number of shares of Registrant's Common Stock, $0.01 par value,
outstanding as of August 5, 1996 was 8,715,298.
<PAGE>
Opal, Inc.
INDEX
Page No.
--------
Part 1. Condensed Consolidated Financial Information
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1-3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
Exhibit 11.1 Computation of Net Income Per Common Share 13
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
<TABLE>
OPAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
- - ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,145 $ 12,562
Short-term investments 14,447 14,473
Accounts receivable, net 9,290 12,269
Receivables - Government of Israel 1,695 1,188
Inventories 13,354 10,002
Prepaid expenses and other assets 560 542
-------------- ---------------
Total current assets 59,491 51,036
Property and equipment, net 4,186 4,216
-------------- ---------------
$ 63,677 $ 55,252
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Short-term bank loans $ 95 $ 120
Accounts payable 2,345 2,487
Accrued expenses and other liabilities 8,301 6,137
-------------- ---------------
Total current liabilities 10,741 8,744
-------------- ---------------
Stockholders' equity:
Common Stock, par value $0.01 per share, 12,500,000 shares
authorized; 8,715,298 and 8,687,587 shares issued and outstanding 87 87
Capital in excess of par value 45,778 45,508
Retained earnings 7,305 1,221
Deferred compensation expense (209) (283)
Notes receivable from stockholders (25) (25)
-------------- ---------------
Total stockholders' equity 52,936 46,508
-------------- ---------------
$ 63,677 $ 55,252
============== ===============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
OPAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 16,052 $ 10,024 $ 31,543 $ 18,337
Cost of revenues 7,564 4,664 14,822 8,553
--------- ---------- --------- -----------
Gross profit 8,488 5,360 16,721 9,784
--------- ---------- --------- -----------
Operating expenses:
Research and development expenses 2,682 1,749 5,234 3,213
Less: grants (1,031) (584) (1,874) (1,219)
--------- ---------- --------- -----------
Research and development, net 1,651 1,165 3,360 1,994
Selling, general and administrative 3,736 2,294 7,246 4,258
--------- ---------- --------- -----------
Income from operations 3,101 1,901 6,115 3,532
Other income, net 307 142 509 116
--------- ---------- --------- -----------
Income before provision for income taxes 3,408 2,043 6,624 3,648
Provision for income taxes 283 38 540 63
--------- ---------- --------- -----------
Net income $ 3,125 $ 2,005 $ 6,084 $ 3,585
========= ========== ========= ===========
Net income per share $ 0.34 $ 0.26 $ 0.67 $ 0.50
========= ========== ========= ===========
Weighted average common shares and equivalents 9,069 7,809 9,053 7,213
========= ========== ========= ===========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
OPAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
(unaudited)
<CAPTION>
Six months ended
June 30,
--------
1996 1995
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,084 $ 3,585
Adjustments to reconcile net income to net cash used in
(provided by) operating activities:
Depreciation, amortization and other 692 431
Changes in assets and liabilities:
Accounts receivable 2,472 (3,842)
Inventories (3,352) (1,430)
Other current assets (18) 96
Accounts payable and accrued liabilities 2,021 2,310
-------------- ---------------
Net cash provided by operating activities 7,899 1,150
-------------- ---------------
Cash flows from investing activities:
Investments in property and equipment (587) (837)
Purchase (Sale) of short-term investments available for sale 26 (4,850)
-------------- ---------------
Net cash provided by investing activities (561) (5,687)
-------------- ---------------
Cash flows from financing activities:
Repayment of borrowings, net (25) (362)
Repayment of Series E Mandatorily Redeemable Preferred Stock - (1,499)
Proceeds from sale of stock, net of issuance costs 270 27,644
-------------- ---------------
Net cash provided by investing activities 245 25,783
-------------- ---------------
Increase in cash and cash equivalents 7,583 21,246
Cash and cash equivalents at beginning of period 12,562 1,398
-------------- ---------------
Cash and cash equivalents at end of period $ 20,145 $ 22,644
============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 25 $ 77
Cash paid for income taxes $ 143 $ -
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
OPAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, that in
the opinion of management are necessary to fairly state the Company's
and its subsidiary's consolidated financial position, the results of
their operations, and their cash flows for the periods presented. This
Quarterly Report on Form 10-Q should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto
for the year ended December 31, 1995, included in the Company's 1995
Annual Report and Form 10K. The condensed consolidated statements of
operations for the six months ended June 30, 1996 are not necessarily
indicative of results to be expected for the entire year ending
December 31, 1996.
2. The preparation of these interim condensed financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
<PAGE>
OPAL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- - ---------------------
Revenue
Revenues increased 60% to $16.1 million for the quarter ended June 30, 1996 from
$10.0 million for the quarter ended June 30, 1995 and increased 72% to $31.5
million for the six months ended June 30, 1996 from $18.3 million for the six
months ended June 30, 1995 due to increased unit sales and due to the majority
of sales in 1996 being of the more advanced and higher priced Opal 7830i CD-SEM
system versus the majority of sales in the first two quarters of 1995 being the
Opal 7830 CD-SEM system. Additionally, sales in the first and second quarters of
1996 were favorably impacted by the introduction and inclusion of a workstation
with the Opal 7830i. Sales outside of the U.S. accounted for 25% and 19% of
total net sales for the second quarter of 1996 and 1995, respectively.
Gross margins
Gross margins for the quarter and six months ended June 30, 1996 were 52.9% and
53.0%, respectively, as compared to 53.5% and 53.4% for the quarter and six
months ended June 30, 1995, respectively. The decrease was primarily due to
higher material costs which the company was not able to pass on to customers.
Research and development, net
Research and development, net, increased 42% to $1.7 million for the quarter
ended June 30, 1996 from $1.2 million for the quarter ended June 30, 1995 and
increased 69% to $3.4 million for the six months ended June 30, 1996 from $2.0
million for the six months ended June 30, 1995. Gross research and development
expenses increased by 53% to $2.7 million for the quarter ended June 30, 1996
from $1.7 million for the quarter ended June 30, 1995, and increased 63% to $5.2
million for the six months ended June 30, 1996 from $3.2 million for the six
months ended June 30, 1995. Grants from the Office of the Chief Scientist in the
Israeli Ministry of Industry and Trade (the "Chief Scientist") increased to $1.0
million for the quarter ended June 30, 1996 from $584,000 for the quarter ended
June 30, 1995 and increased 54% to $1.9 million for the six months ended June
30, 1996 from $1.2 million for the six months ended June 30, 1995. Research and
development, net, as a percentage of revenue decreased to 10% of revenue for the
quarter ended June 30, 1996 from 12% of revenue for the quarter ended June 30,
1995; for the six months ended June 30, 1996 and 1995 it remained constant at
11%. Increased research and development expenses in absolute terms were
primarily directed at enhancing the new Opal 7830i and developing new products.
The Company conducts all of its research and development activities at its
facility in Israel. Grants from the Chief Scientist are accounted for using the
cost reduction method, under which research and development expenses are
decreased by the amounts of the grants. The Company is not obligated to repay
these grants; however, it is required to pay a royalty based on the sale of
products utilizing the technology that was partially funded by grant proceeds.
The Company intends to continue significant expenditures on research and
development to develop new products and enhance its existing products. While the
Company believes that these current research and development expenditures
7
<PAGE>
will be beneficial in the long term development of its business, there can be no
assurance that the Company's development and enhancement of products will be
successful. Research and development expenditures are incurred substantially in
advance of related revenue and in some cases do not result in the generation of
revenue.
Selling, general and administrative
Selling, general and administrative expenses increased by 63% to $3.7 million
for the quarter ended June 30, 1996 from $2.3 million for the quarter ended June
30, 1995 and increased by 70% to $7.2 million for the six months ended June 30,
1996 from $4.3 million for the six months ended June 30, 1995. The increase was
primarily driven by increased headcount and higher sales commissions related to
increased revenues. On a percentage of revenue basis, selling, general and
administrative expenses remained constant at 23% for the quarter and six months
ended June 30, 1996, respectively, as compared to 23% for the same periods in
the prior year.
Other income (expense), net
Other income (expense), net, which consists primarily of interest income,
interest expense and foreign exchange gains (losses), amounted to $307,000 for
the quarter ended June 30, 1996 and $509,000 for the six month period ended June
30, 1996 as compared to $142,000 and $116,000 for the comparable periods in
1995. The increase is primarily due to interest income earned on proceeds from
the Company's initial public offering in May 1995.
Income tax provision
The effective tax rate for the six months ended June 30, 1996 was 8% and differs
from statutory tax rates principally because of the benefits of an Israeli tax
holiday.
Non-U.S. costs
A significant portion of the Company's expenses are incurred in Israel and
accordingly are non-U.S. dollar denominated. Consequently, the Company is
exposed to fluctuations in shekel exchange rates. Such fluctuations can cause
the Company's Israeli operating expenses which are translated into U.S. dollars
for financial statement reporting purposes to vary from period to period.
The Company's cash flows are substantially U.S. dollar denominated. However, the
Company is exposed to certain foreign currency fluctuations, primarily the
Israeli shekel and German Mark. To hedge against these currency exposures
incurred in the ordinary course of business, the Company enters into foreign
currency forward contracts for amounts consistent with its vendor purchase
commitments. Gains and losses on these foreign currency contracts are deferred
and offset by gains and losses on the underlying hedged transactions. As of June
30, 1996, deferred gains and losses from hedging transactions were not material.
The counterparties to these contracts consist of international financial
institutions. By policy, the Company monitors the credit ratings and capital and
surplus of its counterparties. Although the Company attempts to hedge
significant foreign currency exposures, no assurance can be given that exchange
rate movements will not have a material adverse impact on the Company's results
of operations. At June 30, 1996, the Company had outstanding foreign
8
<PAGE>
currency forward contracts aggregating approximately $1.8 million. These
contracts mature at various periods through 1996 and are consistent with the
amounts and timing of the underlying purchase commitments.
Factors affecting future operating results
The Company's future results will depend on its ability to continuously
introduce new products and enhancements to existing products as customer demands
for higher productivity and specifications of semiconductor process control
equipment change or increase. The Company's results could be affected by the
ability of competitors to introduce new products that have technological and/or
price advantages. Additionally, the Company's operating results may fluctuate
due to a variety of factors, including the cyclicality of the semiconductor
industry, the timing of orders, order cancellations and shipment rescheduling.
In this regard, although the Company has not experienced a decline in unit sales
to date, no assurance can be given that semiconductor manufacturers will
continue to expand fabrication facilities or build new fabrication facilities at
a rate which will assure an increase in demand for the Company's products or
that the current rate of unit sales will not decline especially in light of
uncertain short-term market conditions and heightened competition.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments increased to $34.6 million at
June 30, 1996 from $27.0 million at December 31, 1995. The increase is primarily
attributable to the generation of $7.9 million in cash from operations. As of
June 30, 1996, the Company had no material commitments for capital expenditures.
Assuming there is no significant change in the Company's business, the Company
believes that the existing cash and short-term investment balances and cash flow
from operations will be sufficient to meet its working capital requirements for
at least the next twelve months. The statement made in the preceding sentence is
a forward-looking statement, and as such is subject to a number of risk factors
that could cause the Company's actual results to differ materially. These
factors include the risk that price reductions or declines in demand for the
Company's systems, which constitute a single product line, will occur;
competition from larger public companies in the semiconductor manufacturing
capital equipment industry; dependence on single or limited source suppliers for
certain proprietary components which are essential to the technology of the
Company's products; cyclicality in the semiconductor industry, which affects
demand for the Company's products; the rapidity of technological change and
highly competitive nature of the semiconductor manufacturing capital equipment
industry; regulatory, political, economic and currency risks associated with
international sales; and growth and expansion of the Company's operations and
resultant strain on its limited personnel and management, manufacturing and
other resources.
9
<PAGE>
PART II. OTHER INFORMATION
OPAL, INC.
Item 1-3. Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders
<TABLE>
The Company's first Annual Meeting of Stockholders (the "Annual
Meeting") was held on April 29, 1996 for the following purposes: (1) The
election of Uzia Galil, Dan Maydan and Israel Niv as the three Class I Directors
of the Company to hold office until the Annual Meeting of Stockholders in 1999
and until their successors are duly elected and qualified; (2) the approval of
an amendment to the Company's Employee Stock Option Plan to increase the number
of shares of the Company's Common Stock that may be issued thereunder from
827,157 to 1,200,000; and (3) the ratification of the selection of Price
Waterhouse LLP as the independent accountants of the Company for the current
fiscal year. The following table describes the results of the shareholder votes.
<CAPTION>
Votes in Favor Votes Withheld
-------------- --------------
<S> <C> <C>
Election of Uzia Galil as a Class I Director 7,922,280 14,930
Election of Dan Maydan as a Class I Director 7,922,280 14,930
Election of Israel Niv as a Class I Director 7,922,280 14,930
Votes in Votes Broker
Favor Opposed Abstain Nonvotes
-------- ------- ------- --------
Approval of Amendment to the
Company's Employee Stock Option Plan 7,567,707 93,945 9,980 266,178
Ratification of Selection of Independent
Accountants 7,886,684 15,230 35,926 --
</TABLE>
Item 5. Not applicable
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11.1 Computation of Net Income Per Common Share
(filed herewith)
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended June 30, 1996.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 5, 1996 OPAL, INC.
(Registrant)
/s/ Henry Schwarzbaum
------------------------------------------------
Henry Schwarzbaum
Vice President of Finance
Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
12
<TABLE>
Exhibit 11.1
OPAL, INC.
COMPUTATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 8,688 7,413 8,688 6,839
Weighted average common equivalent shares from dilutive
options (1) 381 185 365 271
Weighted average common equivalent shares from dilutive options other
than options included under footnote (1) - 211 - 103
------------ ------------ ------------ -------------
Weighted average common shares and equivalents 9,069 7,809 9,053 7,213
============ ============ ============ =============
Net income $ 3,125 $ 2,005 $ 6,084 $ 3,585
============ ============ ============ =============
Net income per share $ 0.34 $ 0.26 $ 0.67 $ 0.50
============ ============ ============ =============
<FN>
(1) Pursuant to the requirements of the Securities and Exchange Commission,
common equivalent shares relating to stock options (using the treasury
stock method and the initial public offering price of $13.00 per share)
issued during the 12-month period prior to the initial public offering
are included in the computation for the three and six month ended June
30, 1995 through to May 18, 1995.
</FN>
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,145,000
<SECURITIES> 14,447,000
<RECEIVABLES> 11,515,000
<ALLOWANCES> 530,000
<INVENTORY> 13,354,000
<CURRENT-ASSETS> 59,491,000
<PP&E> 7,318,000
<DEPRECIATION> 3,132,000
<TOTAL-ASSETS> 63,677,000
<CURRENT-LIABILITIES> 10,741,000
<BONDS> 0
<COMMON> 87,000
0
0
<OTHER-SE> 52,849,000
<TOTAL-LIABILITY-AND-EQUITY> 63,677,000
<SALES> 16,052,000
<TOTAL-REVENUES> 16,052,000
<CGS> 7,564,000
<TOTAL-COSTS> 7,564,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> 3,408,000
<INCOME-TAX> 283,000
<INCOME-CONTINUING> 3,125,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,125,000
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
