<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 31, 1997
or
[ ] 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: 0-25862
AG ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
California 94-2776181
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4425 Fortran Drive, San Jose, California 95134-2300
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 935-2000
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 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 outstanding of the Registrant's Common Stock, no par value,
was 5,990,938 at April 30, 1997.
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AG ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Description Page Number
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Statements of Operations for the Three and Six
Month Periods Ended March 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets as of March 31, 1997 and
September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the Six Month Periods
Ended March 31, 1997 and 1996 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: Legal Proceedings 13
Item 2: Changes in Securities 13
Item 3: Defaults Upon Senior Securities 13
Item 4: Submission of Matters to a Vote of Security Holders 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
--------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $11,140 $23,200 $20,273 $45,060
Cost of sales 9,329 11,971 15,063 23,376
------------- ------------- ------------ --------------
Gross profit 1,811 11,229 5,210 21,684
Operating expenses:
Research and development 2,850 4,378 6,027 7,753
Selling, general and administrative 1,994 2,981 4,084 5,876
------------- ------------- ------------ --------------
Total operating expenses 4,844 7,359 10,111 13,629
------------- ------------- ------------ --------------
Income (loss) from operations (3,033) 3,870 (4,901) 8,055
Interest income (expense), net 84 167 187 380
Other income, net 26 15 63 32
Equity interest in loss of unconsolidated subsidiary -- (277) -- (652)
------------- ------------- ------------ --------------
Income (loss) before income taxes (2,923) 3,775 (4,651) 7,815
Provision (benefit) for income taxes (731) 1,548 (1,163) 3,204
------------- ------------- ------------ --------------
Net income (loss) ($2,192) $2,227 ($3,488) $4,611
============= ============= ============ ==============
Net income (loss) per share ($0.37) $0.37 ($0.59) $0.75
============= ============= ============ ==============
Shares used in per share computations 5,953 6,081 5,957 6,169
============= ============= ============ ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------------- -------------------
(unaudited) (*)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $1,051 $1,996
Short-term investments 6,323 9,989
Accounts receivable, net 8,881 8,560
Inventories 8,642 11,668
Income taxes refundable 1,463 1,463
Deferred tax assets 4,022 2,859
Prepaid expenses and other current assets 709 462
------------------ -------------------
Total current assets 31,091 36,997
Property and equipment, net 8,344 8,210
Deferred tax assets 645 645
------------------ -------------------
Total assets $40,080 $45,852
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,810 $4,669
Accrued liabilities 2,339 2,571
Product warranty reserves 1,616 2,440
Current portion of capital lease obligations 90 222
Customer advances and deferred revenue -- 245
------------------ -------------------
Total current liabilities 7,855 10,147
Capital lease obligations -- 11
Shareholders' equity
Common stock 35,673 35,640
Deferred stock compensation -- (17)
Net unrealized loss on short-term investments (42) (10)
Retained earnings (accumulated deficit) (3,406) 81
------------------ -------------------
Total shareholders' equity 32,225 35,694
------------------ -------------------
Total liabilities and shareholders' equity $40,080 $45,852
================== ===================
</TABLE>
(*) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended March 31,
-----------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($3,488) $4,611
Reconciliation to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,364 905
Equity interest in loss of unconsolidated subsidiary -- 652
Deferred income taxes (1,163) (671)
Deferred stock compensation -- 37
Changes in assets and liabilities:
Accounts receivable (321) (784)
Inventories 3,026 (4,120)
Prepaid expenses and other current assets (247) 181
Accounts payable (859) (411)
Accrued liabilities and product warranty reserve (1,056) 848
Customer advances and deferred revenue (245) (242)
Income taxes payable -- 567
------------ ------------
Net cash provided by (used in) operating activities (2,989) 1,573
Cash flows from investing activities:
Purchases of short-term investments (6,281) (23,819)
Maturities of short-term investments 9,916 26,545
Capital expenditures (1,498) (4,981)
Investment in unconsolidated subsidiary -- (500)
------------ ------------
Net cash provided by (used in) investing activities 2,137 (2,755)
Cash flows from financing activities:
Reductions in capital lease obligations (143) (152)
Proceeds from repayment of shareholder notes -- 92
Proceeds from issuance of common stock 50 226
------------ ------------
Net cash provided by (used in) financing activities (93) 166
------------ ------------
Net decrease in cash and equivalents (945) (1,016)
Cash and equivalents at beginning of period 1,996 8,258
------------ ------------
Cash and equivalents at end of period $1,051 $7,242
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $52 $35
============ ============
Income taxes $0 $3,308
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
NOTE 1 - Basis of Presentation
The financial statements have been prepared by AG Associates, Inc. (the
"Company"), pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). While the quarterly financial information contained in this
filing is unaudited, the financial statements presented reflect all normal
recurring adjustments which the Company considers necessary for a fair
presentation of the financial position, results of operations and cash flows for
all interim periods presented. The results for interim periods are not
necessarily indicative of the results to be expected for the entire year. The
information included in this report should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
NOTE 2 - Per Share Information
Net loss per share information for the three and six month periods ended March
31, 1997 are computed using the weighted average number of common shares
outstanding. Common-equivalent shares attributable to stock options outstanding
are excluded from the computation as their effect is anti-dilutive. Net income
per share information for the three and six month periods ended March 31, 1996
are computed using the weighted average number of common and dilutive
common-equivalent shares attributable to stock options outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). The
Company is required to adopt SFAS 128 in the first quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted. The Company has
determined that adoption of SFAS 128 will not have a material effect on losses
per share which have been previously reported.
NOTE 3 - Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
March 31, September 30,
1997 1996
-------------- ---------
<S> <C> <C>
Raw materials $5,629 $7,865
Work-in-progress 3,013 3,803
----- -----
Total $8,642 $11,668
====== =======
</TABLE>
Inventories are shown net of reserves for obsolete, slow-moving and non-salable
inventory of $4,810,000 and $3,289,000 at March 31, 1997 and September 30, 1996,
respectively.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited Consolidated Financial
Statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended September 30,
1996 contained in the Company's 1996 Annual Report on Form 10-K. All references
are to the Company's fiscal periods ended March 31, 1997 and March 31, 1996,
unless otherwise indicated.
The Company's Common Stock price may be subject to significant volatility. For
any given quarter, a shortfall in the Company's announced revenue or earnings
from the levels expected by securities analysts could have an immediate and
adverse effect on the trading price of the Company's Common Stock. The Company
may not learn of, nor be able to confirm, revenue or earnings shortfalls until
late in the quarter or following the end of the quarter. In general, the Company
participates in a very dynamic high technology industry, which can result in
significant fluctuations in the Company's Common Stock price at any time.
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, that involve risks and uncertainties,
including the rate of orders for the Company's products, the timely availability
and acceptance of new products, the impact of competitive products and pricing,
the potential obsolescence of inventories, the management of growth, the
management of cost containment during periods of low or negative revenue and
earnings growth, the impact of the Company's efforts to implement its evolving
long-term strategy and the other risks detailed below and from time to time in
the Company's other reports filed with the Securities and Exchange Commission.
The actual results that the Company achieves may differ materially from any
forward-looking projections due to such risks and uncertainties. The Company has
identified with a preceding asterisk ("*") various sentences within this Form
10-Q which contain such forward looking statements, and words such as
"believes," "anticipates," "expects," "future," "intends" and similar
expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements. In addition, the section labeled
"Factors That May Affect Future Results," which has no asterisks for improved
readability, consists primarily of forward-looking statements. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof.
Factors That May Affect Future Results
AG Associates, Inc. operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
The Company's operating results are subject to quarterly and other fluctuations
due to a variety of factors, including the volume and timing of orders received,
potential cancellation or rescheduling of orders, competitive pricing pressures,
availability and cost of component parts and materials from the Company's
suppliers, the adequate forecasting of the mix of product demand due to
production lead times and capacity constraints, the timing of new product
announcements and introductions by the Company or its competitors, changes in
the mix of products sold, research and development expenses associated with new
product introductions, the timing and level of development costs, market
acceptance of new or enhanced versions of the Company's products, seasonal
customer demand, the cyclical nature of the semiconductor
7
<PAGE> 8
industry and economic conditions generally or in various geographic areas. The
Company's ability to compete also depends upon the Company's ability to develop
new product features that enhance uniformity and repeatability, improve process
capability and flexibility and reduce cost of ownership. In addition, because of
the relatively high selling prices of the Company's products, a significant
portion of the Company's net sales in any given period is often derived from the
sale of a relatively small number of units, and a change, even though minor, in
the number of units sold during a quarter can result in a large fluctuation in
net sales for that quarter.
In recent quarters, the Company has experienced net sales that were
significantly lower than net sales achieved in respective year ago quarters, and
has incurred net losses on a quarterly basis as a result of the effects of the
semiconductor industry's slow order rate, continuation of a high level of
research and development spending on the Company's next generation products and
competitive pressures. The Company's ability to reduce the trend of declining
net sales, which have resulted in net losses, is dependent on several factors
including increased order rates for the Company's products, successful and
timely development and market acceptance of the Company's next generation
products and successful competition with the Company's competitors on a price
and performance basis. Many of these factors are not within the Company's
control, and if order rates for the Company's products fail to increase, if the
Company's next generation products are not successfully and timely developed and
accepted by the Company's customers, or if the Company cannot successfully
compete with its competitors, many of whom have substantially greater resources
than the Company, the Company's net sales will continue to decline and the
Company would experience further net losses, which would have a material adverse
effect on the Company's financial condition and results of operations. In
particular, the Company expects net sales for the fiscal year ending September
30, 1997 to be lower than the net sales achieved during fiscal 1996 due to the
semiconductor industry's slow order rate and competitive pressures.
Results of Operations
The following table sets forth items in the Company's Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Mar 31, Six Months Ended Mar 31,
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of sales 84 52 74 52
-- -- -- --
Gross profit 16 48 26 48
Operating expenses:
Research and development 25 18 30 17
Selling, general and
administrative 18 13 20 13
---- ---- ---- ----
Total operating expenses 43 31 50 30
---- ---- ---- ----
Income (loss) from operations (27) 17 (24) 18
Interest income (expense), net 1 1 1 1
Other income, net * * * *
Equity interest in loss of
unconsolidated subsidiary -- (1) -- (2)
---- ---- ---- ----
Income (loss) before income taxes (26) 17 (23) 17
Provision (benefit) for income taxes (6) 7 (6) 7
---- ---- ---- ----
Net income (loss) (20)% 10% (17)% 10%
==== ==== ==== ====
</TABLE>
----------------
* less than 1%
8
<PAGE> 9
Net Sales
Net sales for the three and six months ended March 31, 1997 were $11.1 million
and $20.3 million respectively, compared with $23.2 million and $45.1 million
for the same periods in fiscal 1996, representing a decrease of 52% and 55%
respectively. The decline in sales in the three and six month periods ended
March 31, 1997 was due primarily to the decrease in unit sales of the Company's
Heatpulse(R) 8108 product and to a lesser extent, a decrease in sales volume of
spare parts, both of which the Company believes were attributable to the
semiconductor industry's slow order rate and competitive pressures. *Even though
unit sales have increased somewhat from the three month period ended December
31, 1996, the Company anticipates that sales volume of its Heatpulse(R) products
will continue to be below the levels experienced during the prior fiscal year as
a result of the effects of the semiconductor industry's continued slow order
rate, as well as competitive pressures. *Such a low volume of sales could have
an adverse effect on the Company's business and future results of operations.
The Company utilizes distributors in certain geographic regions. All of the
Company's sales in Japan are through Canon Sales Co., Inc. ("Canon"), and those
in Europe and Korea are through Metron Technology ("Metron"). Sales to
distributors generally result in a lower gross profit, caused by lower selling
prices, which are largely offset by reduced selling and marketing expenses. For
the three and six month periods ended March 31, 1997, Canon represented 13% and
15% of net sales, respectively, and Metron represented 9% of net sales for both
periods. For the same periods in the prior fiscal year, net sales to Canon
represented 29% and 23% of net sales, respectively, and Metron represented 7%
and 9% of net sales, respectively. International sales as a percentage of net
sales fell for the three and six month periods ended March 31, 1997 to 33% and
32%, respectively. International sales as a percentage of net sales for the same
periods last fiscal year were 48% and 46%, respectively. The decrease in the
percentage of the Company's net sales represented by Canon, Metron, and
international customers for the three and six month periods ended March 31, 1997
as compared to the same periods in the prior fiscal year is due to the relative
increase in the percentage of net sales represented by the Company's US
customers. *Based upon the geographic locations of semiconductor manufacturers,
the Company anticipates that international sales in general will continue to
account for a significant portion of net sales in fiscal 1997. *However,
international sales as a percentage of net sales will vary on a quarterly basis
depending on the timing of orders and the relative strength of domestic sales.
One end-user customer represented 37% of net sales in the three months ended
March 31, 1997 compared to this customer representing 22%, and two other
end-user customers representing 16% and 11% for the same period last fiscal
year. For the six months ended March 31, 1997, one end-user customer represented
35% of net sales compared to two end-user customers representing 27% and 16% of
net sales for the same period in the last fiscal year. *The Company expects a
significant portion of its future sales to remain concentrated within a limited
number of strategic customers. *The Company expects increasing competition from
a competitor who has substantially greater resources than the Company,
particularly in the sale of rapid thermal processing ("RTP") systems designed
for 0.25 micron applications. In addition, the Company has experienced, and
continues to experience, competition from other RTP equipment suppliers. *These
competitors' impact on future sales cannot be estimated. *As a result of the
continued slow order rate for the Company's RTP systems and competitive
pressures, there can be no assurance that the Company will be able to retain its
strategic customers or that such customers will not cancel, reschedule or
significantly reduce the volume of orders or, in the event orders are canceled,
that such orders will be replaced by other sales.
9
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AG ASSOCIATES, INC.
Gross Profit
Gross profit for the three and six month periods ended March 31, 1997 was $1.8
million and $5.2 million respectively, compared with gross profit of $11.2
million and $21.7 million respectively, for the same periods in fiscal 1996.
Gross profit as a percentage of net sales for the three and six month periods
ended March 31, 1997 decreased to 16% and 26% respectively, compared to 48% for
both the three and six month periods ended March 31, 1996. The decrease in gross
margin for the three and six month periods ended March 31, 1997 compared to the
same periods in fiscal 1996 was primarily attributable to a non-cash inventory
write-down of $1.4 million, as well as the impact of fixed manufacturing costs
on a decreased sales level. The inventory write-down was primarily related to
the excess inventory associated with the discontinuance of the Heatpulse(R) 4100
product line. The 4100 line is limited to processing only wafers of 150mm and
smaller and also limited to processing of devices with feature size of 0.5
micron or higher. Excluding the $1.4 million inventory write-down, gross profit
as a percentage of net sales for the three and six month periods ended March 31,
1997, would have been 29% and 33%, respectively. *The Company anticipates that
its gross margin will remain below prior year results as sales volumes continue
to be below the level experienced during the prior fiscal year as a result of
the effects of the semiconductor industry's continued slow order rate as well as
competitive pressures. *Continued lower margins could have an immediate adverse
effect on the Company's business and results of operations.
Research and Development Expenses
Research and development ("R&D") expenses were $2.9 million and $6.0 million,
respectively, for the three and six month periods ended March 31, 1997,
representing a decrease of $1.5 million (35%) and $1.7 million (22%),
respectively, when compared with the same periods in fiscal 1996. As a
percentage of net sales, R&D expenses increased to 25% and 30%, respectively,
for the three and six months ended March 31, 1997 from 18% and 17% for the
comparable periods in the prior fiscal year, as a result of substantially lower
sales that were not met with corresponding decreases in R&D spending. R&D
expenses are primarily attributable to the continuing development of the
Company's next generation platform that is being designed to provide previously
unavailable RTP capabilities, both in terms of process results and manufacturing
performance for the 0.25 and 0.18 micron linewidths. *The next generation
products are scheduled for introduction in the third quarter of calendar 1997.
*The failure of the Company to timely develop this new platform, the failure of
this new platform to meet customer expectations regarding performance and cost
or the failure of this new platform to achieve market acceptance following
product introduction would each have a material adverse effect on the Company's
business, results of operations and financial condition. *The Company continues
to believe that significant investment in R&D is required to remain competitive,
and is expecting to see their effect on revenue in fiscal 1998 in a limited way,
with a significant impact in fiscal 1999 and fiscal 2000. R&D expenses as a
percent of net sales may fluctuate from quarter to quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $2.0 million and $4.1
million respectively, for the three and six month periods ended March 31, 1997,
representing a decrease of $987,000 (33%) and $1.8 million (30%), when compared
with the same periods in fiscal 1996. The decrease in absolute dollars for the
first fiscal quarter of 1997 was due primarily to the Company's management of
expenses in response to the decline in sales in recent quarters as well as
decreased commissions arising from lower sales levels. As a percentage of net
sales, SG&A spending increased to 18% and 20%, respectively, for the three and
six month periods ending March 31, 1997, as compared to 13% for both periods
last fiscal year, as a result of lower sales this fiscal year that were not met
with corresponding decreases in SG&A spending. *Through the
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remainder of the fiscal year, SG&A spending in absolute dollars is expected to
remain in line with current levels; however, actual spending may fluctuate
depending on, among other things, the level of net sales. *As a percentage of
net sales, SG&A spending may vary from quarter to quarter.
Interest Income, Net
Interest income, net decreased to $84,000 and $187,000, respectively, for the
three and six month periods ended March 31, 1997, from $167,000 and $380,000,
respectively, in the comparable periods in fiscal 1996, primarily due to lower
interest income earned on the Company's cash and investments as a result of
lower cash and investment balances.
Equity Interest in Loss of Unconsolidated Subsidiary
Although AG Associates (Israel) Ltd. ("AG Israel"), the Company's unconsolidated
subsidiary, incurred net losses in both the three month and six month periods
ended March 31, 1997 and same periods in fiscal 1996, the Company was not
required to recognize its proportionate share of such net loss for the first and
second quarters of fiscal 1997 compared to $277,000 and $652,000, respectively,
in the same periods of the prior fiscal year as the Company's investment in AG
Israel had previously been reduced to zero during fiscal 1996. *Additional
losses from AG Israel's operations will be recorded only to the extent of any
future investments by the Company. *The Company is considering a proposal to
invest additional amounts in AG Israel not to exceed $500,000 in conjunction
with proposed investments by other investors. *To the extent that the Company
fails to participate in this or any future investment in AG Israel at a
participation percentage at least equal to its percentage ownership interest in
AG Israel, the Company's ownership interest in AG Israel will be diluted. *Upon
participation in any AG Israel financing, the Company would commence recognition
of its share of subsequent AG Israel losses.
Provision (Benefit) for Income Taxes
The Company has recorded a federal tax benefit as a result of its net taxable
losses during the first and second quarters of fiscal 1997, the effect of which
may be carried back and used to offset federal taxes paid during the immediate
three prior fiscal years or carried forward up to fifteen years to offset future
taxable income. The fiscal 1997 tax benefit rate of 25% represents the Company's
current estimate of its annual effective tax rate, which is lower than the 41%
tax expense rate in 1996 as a result of the lack of state loss carryback
provisions, foreseeable losses deductible for tax purposes and expected
limitations on the realizability of certain federal deductions. *A significant
change in income or loss from anticipated levels would have a significant impact
on this tax rate.
Backlog
The Company's system backlog (consisting of product scheduled for delivery
within the next twelve months) as of March 31, 1997 was approximately $15.2
million as compared to $10.3 million at September 30, 1996. Backlog continues to
reflect the effects of the semiconductor industry's slow order rate as customers
continue with reduced expansion plans, as well as competitive pressures. The
Company includes in its backlog customer purchase orders that have been accepted
and to which shipment dates have been assigned within the next twelve months.
All orders are subject to cancellation or delay with limited or no penalty.
*Given the increase in backlog, the Company expects revenues for the three
months ended June 30, 1997 to be somewhat higher than revenues for the three
months ended March 31, 1997; however the results of operations are expected to
continue to yield a net loss, and there can be no assurance that the Company
will achieve higher net sales in the three months ended June 30, 1997. *In
addition,
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there can be no assurance that the Company's net sales will not decline
following the three months ended June 30, 1997 or that the Company will not
incur further net losses, and such a decline and/or such net losses would have a
material adverse effect on the Company's business, results of operations and
financial condition. *The Company believes that the successful introduction of
its next generation products, currently scheduled for the third quarter of
calendar 1997, and the market acceptance of these products, is critical to the
Company's future financial success. *The failure to successfully introduce these
products in a timely manner, or the failure of these products to achieve market
acceptance, would have a material adverse effect on the Company's business,
financial condition and result of operations. *Because of possible changes in
delivery schedules and additions and cancellations of orders, the Company's
backlog at any particular date is not necessarily indicative of actual sales for
any succeeding period.
Liquidity And Capital Resources
As of March 31, 1997, the Company had cash, cash equivalents and short-term
investments of $7.4 million, compared to $12.0 million as of September 30, 1996.
The decrease of $4.6 million was primarily attributable to expenditures in
support of research and development as well as the Company's operating results.
Working capital decreased to $23.2 million at March 31, 1997 from $26.9 million
at September 30, 1996.
The Company's operating activities used cash of $3.0 million during the six
months ended March 31, 1997. Net loss before depreciation and amortization
charges, an increase in deferred income taxes and decreases in accounts payable
and accrued liabilities were partially offset by a decrease in inventory. The
decrease in inventory was primarily due to the Company's efforts to reduce
inventory and a non-cash inventory write-down of $1.4 million. The inventory
write-down was primarily related to the excess inventory associated with the
discontinuance of the Heatpulse(R) 4100 product line. The 4100 line is limited
to processing only wafers of 150mm and smaller and also limited to processing of
devices with feature size of 0.5 micron or higher.
The Company's investing activities provided cash of $2.1 million during the six
month period ended March 31, 1997, due to purchases and maturities of short-term
investments of $6.3 million and $9.9 million, respectively, and capital
expenditures of $1.5 million. This is a $3.5 million decrease in capital
expenditures from the prior year's quarter, which reflected expenditures made in
connection with the Company's move to a new facility. *The Company currently
anticipates that its capital expenditures may be as much as $2.2 million for the
remainder of fiscal 1997, principally to support new product development.
*However, the actual level of capital spending will be dependent on a variety of
factors, including the Company's business requirements and general economic
conditions.
Cash used by financing activities was $93,000 during the six months ended March
31, 1997, consisting primarily of proceeds from the issuance of common stock,
offset by payments for capital lease obligations.
*The Company believes that current cash and short-term investment balances,
together with existing sources of liquidity, will satisfy the Company's
anticipated liquidity and working capital requirements through the next twelve
months. *However, due to the uncertain nature of the industry, competitive
market conditions and the strong commitment to developing of the Company's
next-generation products, liquidity and working capital requirements are
difficult to anticipate beyond the next twelve months. *There can be no
assurance that additional financing, when required, will be available, or if
available, can be obtained on terms satisfactory to the Company.
12
<PAGE> 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual meeting of the shareholders of AG Associates, Inc. was held
on January 30, 1997 in Santa Clara, California. Of the 5,945,264 shares
of the Company's Common Stock outstanding as of the record date,
4,499,198 shares were present or represented by proxy at the meeting.
The following matters were submitted to a vote of the shareholders:
(1) To elect the following five persons to serve as a Director of the
Company:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
--------------------- ---------------- ---------------------
<S> <C> <C>
Arnon Gat, Ph.D. 4,460,468 38,730
Anita Gat 4,457,368 41,830
Norio Kuroda 4,460,468 38,730
John C. Moore 4,460,468 38,730
Cecil Parker 4,460,468 38,730
</TABLE>
(2) To ratify the selection of Deloitte & Touche LLP as independent
accountants for the Company for the fiscal year ending September 30,
1997:
Votes for: 4,467,231
Votes against: 20,300
Votes abstaining: 11,667
The proposal carried. The vote required was a majority of the shares of
Common Stock present at the meeting in person or by proxy (without
counting broker non-votes toward the vote required) or at least
2,249,600 shares of the Company's Common Stock.
Item 5. Other Information
Not applicable.
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit 10.39 Employment Agreement, dated February 10,
1997, between the Company and Patrick
Verderico
Exhibit 11.01 Statement re Computation of Earnings per
Share
Exhibit 27 Financial Data Schedule
B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AG Associates, Inc.
(Registrant)
Dated: May 12, 1997 By:/s/ Arnon Gat
-------------------------------------------------
Arnon Gat
Chief Executive Officer and Acting Chief Financial
Officer
(Duly Authorized and Principal Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.39 Employment Agreement, dated February 10, 1997,
between the Company and Patrick Verderico
11.01 Statement re: Computation of Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.39
EMPLOYMENT AGREEMENT, DATED FEBRUARY 10, 1997,
BETWEEN THE COMPANY AND PATRICK VERDERICO
AGREEMENT
This agreement is made between Patrick Verderico on behalf of himself
alone, and AG Associates, Inc., on behalf of itself, its parent companies,
affiliated companies, subsidiaries, and divisions, and the present and former
owners, directors, officers, employees, and agents of any of them ("AG").
1. AG agrees to employ Verderico, and Verderico agrees to be employed by AG, in
the position of Vice President, Finance and Chief Financial Officer on a
temporary basis. In the capacity of acting Vice President, Finance and Chief
Financial Officer, Verderico shall have those duties and responsibilities, and
that authority, set forth in Attachment A to this Agreement, which is attached
hereto and incorporated herein by reference.
2. This Agreement is effective February 10, 1997, and shall remain effective to
and including March 28, 1997, unless sooner terminated by either party. Both
parties have the unrestricted right to terminate this Agreement at any time,
with or without cause upon ten (10) days written notice to the other party.
3. During the term of this Agreement, Verderico agrees that he shall devote his
full time, attention and efforts to AG and its interests, and shall not be
employed in any capacity by any other person or entity without the express
written consent of AG.
4. AG agrees to pay Verderico the gross sum of Twenty-six Thousand Two Hundred
Fifty Dollars ($26,250) over the term of this Agreement, minus all applicable
federal, state, and local deductions. Said amount shall be paid in semi-monthly
installments pursuant to AG's normal payroll practices. In the event this
Agreement is terminated for any reason prior to March 28, 1997, Verderico shall
be owed, and AG shall pay Verderico, only the pro-rata portion of the contract
amount earned as of the date of termination.
5. AG will recommend to the Company's Board of Directors that Verderico be
granted the opportunity to purchase up to five thousand (5,000) shares of the
Company's Common Stock under our current Stock Option Plan, in the event he
remains employed to and including March 28, 1997. If granted by the Board in its
sole discretion, said option shall vest in its entirety on February 10, 1998,
and must be exercised in accordance with the AG Associates 1993 Stock Option
Plan.
6. In the event of any change in control of AG on or before February 10, 1998,
the options set forth in paragraph 5 shall vest immediately on the effective
date of the change in control. A "change in control" is defined as any person or
entity not currently holding at least a fifty-one percent (51%) interest in AG
obtaining at least a fifty-one percent (51%) interest.
<PAGE> 2
7. Verderico agrees that he shall not participate in or be entitled to
participate in any employee benefit, including any pension, retirement, or
savings plan, any form of health insurance, disability insurance, income
insurance, or any other benefit, and that the sole and exclusive consideration
owed Verderico under this Agreement is the compensation set forth in paragraph
4, and stock options set forth in paragraph 5, above.
8. Verderico shall be covered by AG's Directors and Officers Liability Insurance
Policy in accordance with the terms and condition of said policy, a copy of
which shall be made available for examination by Verderico upon Verderico's
request.
9. AG agrees to indemnify Verderico in accordance with the terms and conditions
of the AG ASSOCIATES, INC. INDEMNIFICATION AGREEMENT executed between the
parties, a true and correct copy of which is attached hereto and incorporated
herein by reference as Attachment B.
10. The parties agree that in the event of any dispute between them arising out
of or connected with this Agreement, or otherwise arising out of or connected in
any way with Verderico's employment, compensation, or termination of employment,
the sole and exclusive remedy for such dispute shall be final and binding
arbitration pursuant to the labor arbitration rules of the American Arbitration
Association conducted in Santa Clara County, California.
11. THE PARTIES EXPRESSLY AGREE AND ACKNOWLEDGE THAT THEY HAVE READ AND
UNDERSTAND THIS ENTIRE AGREEMENT. THE PARTIES AGREE THAT THEY HAVE HAD ADEQUATE
OPPORTUNITY TO CONSULT WITH COUNSEL PRIOR TO SIGNING THIS AGREEMENT. THE PARTIES
AGREE THAT THE ONLY REPRESENTATIONS REGARDING THIS AGREEMENT, OR TO INDUCE ANY
PARTY TO SIGN THIS AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. THE PARTIES SIGN
THIS AGREEMENT KNOWINGLY AND VOLUNTARILY.
DATED: February 10, 1997
---------------------------------------------
Patrick Verderico
AG ASSOCIATES, INC.
DATED: February 10, 1997 By
---------------------------------------------
Arnon Gat, Chief Executive Officer
<PAGE> 3
ATTACHMENT A
Patrick Verderico Agreement
February 10, 1997
- The CFO is expected to be a key contributor to the global business
activities such as strategic and business planning, the formulation and
execution of general business and quality management efforts, business
and management reviews including presentations to the Board of
Directors, and the continued development of AG Associates' presence in
the financial community.
- The CFO is responsible for all aspects of the accounting, finance,
treasury, and related administrative functions. These include the
following:
Accounting and Control -- Develop and apply sound accounting principles and
financial controls which will lead to providing timely and accurate financial
statements. Of particular importance is the development of financial reporting
that provides quality information to the functional management of the Company.
The financial information needs to meet the requirements for reporting to
various governmental agencies and investor groups, and meet the requirements for
acceptability by Certified Public Accountants auditing the Company. Cost
accounting is an area of particular visibility and working with Operations to
develop accurate cost identification and analysis along with efficient inventory
management will be an important task. This aspect of the position includes the
management of the Audit function and the CPA relationship.
Financial Planning and Analysis -- Review the financial planning and budgeting
framework, and lead the yearly budget planning process within the Company, as
well as arrange for a regular analysis of budget-to-actual performance within a
relevant departmental review process. This also will include the development of
a range of analytical tools and reports to support business decision making
within the Company, again with the emphasis on team solutions. Of particular
importance here is the enhancement of the business decision-making process
within the Company through visibility into financial ramifications and proactive
work with management to help achieve objectives.
Treasury -- Continue to develop and implement efficient cash management
strategies as well as the operational aspects of cash forecasting and
monitoring. In addition, the CFO is responsible for negotiating and securing
favorable Company credit lines and banking relationships, and for insuring
covenant compliance. You will provide leadership on all Company financing
initiatives. This could include international financing to support offshore
activities as well.
Management Information Systems -- Identify and implement Company-wide
information systems appropriate to support the future growth of the business. Of
particular importance is the optimization of system linkages to provide a highly
integrated approach to management, thus insuring the timely and accurate
information for analysis and business decision making.
Legal -- Interface with legal counsel and assume responsibility for all legal
issues, with the exception of labor/human resource-related issues, including
patents, litigation, contracts, etc., with a focus on successful and cost
effective results.
<PAGE> 4
External Relationships -- The CFO's involvement in the Company's external
relationships will be critical to the growth and development of our business.
You will be responsible for leading many aspects of these activities as a
knowledgeable and capable spokesperson for the business and a full participant
in various outside financial and business relationships for the Company. These
relationships include dealing with governmental agencies; bank and other debt
sources; equity investors; the financial community in the larger context -- Wall
Street, investment banks, technical analysts; customers, vendors, joint venture
partners; Certified Public Accounting firms; and legal and contractual parties.
Your leadership or active participation in contractual negotiations such as
licenses and joint ventures are a critical element of this position, as the
Company needs to have all its senior executives take a highly contributory role
in the growth of the business.
<PAGE> 1
EXHIBIT 11.01
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
------------------------------ -------------------------------
1997 1996 1997 1996
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during the period 5,953 5,857 5,957 5,856
Common share equivalents 0 224 0 313
-------- ------ -------- ------
Total 5,953 6,081 5,957 6,169
======== ====== ======== ======
Net income (loss) ($2,192) $2,227 ($3,488) $4,611
======== ====== ======== ======
Net income (loss) per share ($0.37) $0.37 ($0.59) $0.75
======== ====== ======== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10Q FOR THE PERIOD ENDING
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,051
<SECURITIES> 6,323
<RECEIVABLES> 9,784
<ALLOWANCES> 903
<INVENTORY> 8,642
<CURRENT-ASSETS> 31,091
<PP&E> 14,183
<DEPRECIATION> 5,839
<TOTAL-ASSETS> 40,080
<CURRENT-LIABILITIES> 7,855
<BONDS> 0
0
0
<COMMON> 35,673
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,080
<SALES> 20,273
<TOTAL-REVENUES> 20,273
<CGS> 15,063
<TOTAL-COSTS> 15,063
<OTHER-EXPENSES> 10,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (4,651)
<INCOME-TAX> (1,163)
<INCOME-CONTINUING> (3,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,488)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
