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 SEPTEMBER 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 November 13, 1996 was 8,743,583.
1
<PAGE>
Opal, Inc.
INDEX
Page No.
--------
Part 1. Condensed Consolidated Financial Information
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 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 1-5. 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
Exhibit 27 Financial Data Schedule 14
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
OPAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
September 30, December 31,
ASSETS 1996 1995
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 15,325 $ 12,562
Short-term investments 16,981 14,473
Accounts receivable, net 13,243 12,269
Receivables - Government of Israel 1,259 1,188
Inventories 14,538 10,002
Prepaid expenses and other assets 909 542
-------- --------
Total current assets 62,255 51,036
Property and equipment, net 5,054 4,216
-------- --------
$ 67,309 $ 55,252
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans $ 265 $ 120
Accounts payable 2,116 2,487
Accrued expenses and other liabilities 8,797 6,137
-------- --------
Total current liabilities 11,178 8,744
-------- --------
Stockholders' equity:
Common Stock, par value $0.01 per share,
12,500,000 shares authorized;
8,736,583 and 8,687,587 shares
issued and outstanding 87 87
Capital in excess of par value 45,785 45,508
Retained earnings 10,454 1,221
Deferred compensation expense (171) (283)
Notes receivable from stockholders (24) (25)
-------- --------
Total stockholders' equity 56,131 46,508
-------- --------
$ 67,309 $ 55,252
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
OPAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 16,411 $ 12,655 $ 47,954 $ 30,992
Cost of revenues 7,726 5,959 22,548 14,512
-------- -------- -------- --------
Gross profit 8,685 6,696 25,406 16,480
-------- -------- -------- --------
Operating expenses:
Research and development expenses 2,913 1,930 8,147 5,143
Less: grants (1,082) (584) (2,956) (1,803)
-------- -------- -------- --------
Research and development, net 1,831 1,346 5,191 3,340
Selling, general and administrative 3,774 2,936 11,020 7,194
-------- -------- -------- --------
Income from operations 3,080 2,414 9,195 5,946
Other income, net 409 335 918 451
-------- -------- -------- --------
Income before provision for income taxes 3,489 2,749 10,113 6,397
Provision for income taxes (340) (90) (880) (153)
-------- -------- -------- --------
Net income $ 3,149 $ 2,659 $ 9,233 $ 6,244
======== ======== ======== ========
Net income per share $ 0.34 $ 0.29 $ 1.01 $ 0.80
======== ======== ======== ========
Weighted average common shares and equivalents 9,154 9,098 9,104 7,842
======== ======== ======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
OPAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
(unaudited)
<CAPTION>
Nine months ended
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,233 $ 6,244
Adjustments to reconcile net income to net cash used in
(provided by) operating activities:
Depreciation, amortization and other 1,234 666
Changes in assets and liabilities:
Accounts receivable (1,045) (3,912)
Inventories (4,536) (1,912)
Other current assets (367) (234)
Accounts payable and accrued liabilities 2,289 2,346
-------- --------
Net cash provided by operating activities 6,808 3,198
-------- --------
Cash flows from investing activities:
Investments in property and equipment (1,960) (1,511)
(Purchase) Sale of short-term investments available for sale (2,508) (13,222)
-------- --------
Net cash used in investing activities (4,468) (14,733)
-------- --------
Cash flows from financing activities:
Proceeds (Repayment) of borrowings, net 145 (1,299)
Repayment of Series E Mandatorily Redeemable Preferred Stock -- (1,499)
Proceeds from sale of stock, net of issuance costs 278 27,644
-------- --------
Net cash provided by investing activities 423 24,866
-------- --------
Increase in cash and cash equivalents 2,763 13,331
Cash and cash equivalents at beginning of period 12,562 1,398
-------- --------
Cash and cash equivalents at end of period $ 15,325 $ 14,729
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 31 $ 85
Cash paid for income taxes $ 143 $ --
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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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 nine months ended September 30, 1996 are not
necessarily indicative of results to be expected for the entire year
ending December 31, 1996 or other future periods.
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.
3. In October 1996, Opal Technologies Limited ("Opal Ltd."), a
wholly-owned subsidiary of the Company, acquired all outstanding shares
of Integrated Circuit Testing GmbH ("ICT") of Heimstetten, Germany for
approximately $4.5 million. ICT manufactures patented scanning electron
microscope (SEM) columns, including optics lens design, which provide
high quality image resolution required for manufacturing advanced
semiconductor chips. Prior to the closing, ICT had supplied the Company
with the SEM column used in Opal's 7830i CD-SEM system which is used by
semiconductor manufacturers to qualify and monitor advanced
semiconductor production processes and tools. The fair value of ICT's
tangible net assets at the date of acquisition was approximately
$600,000.
The Company is in the process of completing its accounting for the
purchase of ICT and expects to take a charge for in-process research
and development of ICT in the quarter ending December 31, 1996.
6
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OPAL, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenue
Revenues increased 30% to $16.4 million for the quarter ended September 30, 1996
from $12.7 million for the quarter ended September 30, 1995 and increased 55% to
$48.0 million for the nine months ended September 30, 1996 from $31.0 million
for the nine months ended September 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 approximately 44% of the systems shipped in the
first three quarters of 1995 being the Opal 7830 CD-SEM system. Additionally,
sales in the first three 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 29% and 23% of total net sales for the third quarter
of 1996 and 1995, respectively.
Gross margins
Gross margins for the quarter and nine months ended September 30, 1996 were
52.9% and 53.0%, respectively, as compared to 52.9% and 53.2% for the quarter
and nine months ended September 30, 1995, respectively.
Research and development, net
Research and development, net, increased 36% to $1.8 million for the quarter
ended September 30, 1996 from $1.3 million for the quarter ended September 30,
1995 and increased 55% to $5.2 million for the nine months ended September 30,
1996 from $3.3 million for the nine months ended September 30, 1995. Gross
research and development expenses increased by 51% to $2.9 million for the
quarter ended September 30, 1996 from $1.9 million for the quarter ended
September 30, 1995, and increased 58% to $8.1 million for the nine months ended
September 30, 1996 from $5.1 million for the nine months ended September 30,
1995. Grants from the Office of the Chief Scientist in the Israeli Ministry of
Industry and Trade (the "Chief Scientist") increased to $1.1 million for the
quarter ended September 30, 1996 from $584,000 for the quarter ended September
30, 1995 and increased 64% to $3.0 million for the nine months ended September
30, 1996 from $1.8 million for the nine months ended September 30, 1995.
Research and development, net, as a percentage of revenue remained constant at
11% for the quarter and nine months ended September 30, 1996 and 1995,
respectively. Increased research and development expenses in absolute terms were
primarily directed at enhancing the new Opal 7830i and developing new products.
The Company conducts primarily 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.
7
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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 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 29% to $3.8 million
for the quarter ended September 30, 1996 from $2.9 million for the quarter ended
September 30, 1995 and increased by 53% to $11.0 million for the nine months
ended September 30, 1996 from $7.2 million for the nine months ended September
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 nine months ended September 30, 1996 and 1995, respectively.
Other income (expense), net
Other income (expense), net, which consists primarily of interest income,
interest expense and foreign exchange gains (losses), amounted to $409,000 for
the quarter ended September 30, 1996 and $918,000 for the nine month period
ended September 30, 1996 as compared to $335,000 and $451,000 for the comparable
periods in 1995. The increase for the nine months ended September 30, 1996, 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 nine months ended September 30, 1996 was 9% 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 have historically been 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 September 30, 1996, deferred gains and losses from hedging
transactions were not material.
8
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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 September 30, 1996, the Company had outstanding foreign
currency forward contracts aggregating approximately $1.2 million. These
contracts mature at various periods through January 1997 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 revenues
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 assist the Company in obtaining an increase in demand for the
Company's products or that the current rate of revenues will not decline
especially in light of uncertain short-term market conditions and heightened
competition. The Company experienced demand weakness in the third quarter of
1996, with order intake falling below shipments.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments increased to $32.3 million at
September 30, 1996 from $27.0 million at December 31, 1995. The increase is
primarily attributable to the generation of $6.8 million in cash from
operations. Net cash used in investing activities for the nine month period
ended September 30, 1996 was $4.5 million. This represented an investment in
property and equipment of $2.0 million and purchase of short-term investments of
$2.5 million. As of September 30, 1996, the Company had no material commitments
for capital expenditures.
In October 1996, Opal Technologies Limited ("Opal Ltd."), a wholly-owned
subsidiary of the Company, acquired all outstanding shares of Integrated Circuit
Testing GmbH ("ICT") of Heimstetten, Germany for approximately $4.5 million, of
which approximately $0.6 million is payable in January 1997. ICT manufactures
patented scanning electron microscope (SEM) columns, including optics lens
design, which provide high quality image resolution required for manufacturing
advanced semiconductor chips. Prior to the closing, ICT had supplied the Company
with the SEM column used in Opal's 7830i CD-SEM system which is used by
semiconductor manufacturers to qualify and monitor advanced semiconductor
production processes and tools. The fair value of ICT's tangible net assets at
the date of acquisition was approximately $600,000. The Company is in the
process of completing its accounting for the purchase of ICT and expects to take
a charge for in-process research and development of ICT in the quarter ending
December 31, 1996.
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
9
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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.
10
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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 September 30, 1996.
11
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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: November 13, 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
Exhibit 11.1
<TABLE>
OPAL, INC.
COMPUTATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 8,729 8,632 8,702 7,443
Weighted average common equivalent shares from dilutive
options (1) 425 -- 402 179
Weighted average common equivalent shares from dilutive options other
than options included under footnote (1) -- 466 -- 220
------ ------ ------ ------
Weighted average common shares and equivalents 9,154 9,098 9,104 7,842
====== ====== ====== ======
Net income $3,149 $2,659 $9,233 $6,244
====== ====== ====== ======
Net income per share $ 0.34 $ 0.29 $ 1.01 $ 0.80
====== ====== ====== ======
<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 nine months ended
September 30, 1995 through to May 18, 1995.
</FN>
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,325
<SECURITIES> 16,981
<RECEIVABLES> 15,032
<ALLOWANCES> 530
<INVENTORY> 14,538
<CURRENT-ASSETS> 62,255
<PP&E> 8,691
<DEPRECIATION> 3,637
<TOTAL-ASSETS> 67,309
<CURRENT-LIABILITIES> 11,178
<BONDS> 0
<COMMON> 87
0
0
<OTHER-SE> 56,044
<TOTAL-LIABILITY-AND-EQUITY> 67,309
<SALES> 16,411
<TOTAL-REVENUES> 16,411
<CGS> 7,726
<TOTAL-COSTS> 7,726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 3,489
<INCOME-TAX> 340
<INCOME-CONTINUING> 3,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,149
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
