1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 1996 Commission File Number 0-12353
PLASMA-THERM, INC.
------------------
(Exact name of registrant as specified in its charter)
FLORIDA 04-2554632
------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
9509 INTERNATIONAL COURT, ST. PETERSBURG, FLORIDA 33716
-------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (813) 577-4999
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
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 10,301,061
- -------------------------------------- -----------------------------
Class Outstanding at June 20, 1996
2
INDEX
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - May 31, 1996 and
November 30, 1995 ............................................... 3
Statements of Income - Three Months and Six Months Ended
May 31, 1996 and May 31, 1995 ................................... 5
Statements of Cash Flows - Six Months Ended
May 31, 1996 and May 31, 1995 ................................... 6
Notes to Consolidated Financial Statements ....................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders ....... 15
Item 6. Exhibits and Reports on Form 8-K .......................... 16
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
ASSETS 1996 1995
------------ ------------
(unaudited)
Current assets
Cash and cash equivalents $ 5,041,812 $ 5,058,718
Accounts receivable 7,131,163 7,882,427
Prepaid income taxes 58,087 18,048
Inventories 11,499,803 9,832,853
Prepaid expenses and other 757,195 269,875
Deferred tax asset 354,000 603,000
------------ ------------
Total current assets 24,842,060 23,664,921
------------ ------------
Property and equipment, at cost
Machinery and equipment 2,395,501 2,301,273
Leasehold improvements 133,900 419,263
------------ ------------
2,529,401 2,720,536
Less accumulated depreciation and
amortization 1,588,700 1,954,377
------------ ------------
940,701 766,159
Land 786,017 786,017
Construction in process 3,730,936 1,417,353
------------ ------------
5,457,654 2,969,529
------------ ------------
Other assets
Deferred tax asset 94,152 182,850
Other 60,361 91,720
------------ ------------
154,513 274,570
------------ ------------
$ 30,454,227 $ 26,909,020
============ ============
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
LIABILITIES 1996 1995
------------ ------------
Current liabilities
Short-term borrowings $ 2,000,000 $ 2,000,000
Current portion of notes payable 531,104 343,647
Current maturities of obligations under
capital leases 76,887 73,010
Accounts payable 2,306,987 2,920,079
Accrued payroll and related 440,661 402,649
Accrued expenses 194,095 356,895
Accrued warranty expense 693,515 693,515
Income taxes payable - -
------------ ------------
Total current liabilities 6,243,249 6,789,795
------------ ------------
Long-term obligations
Notes payable 3,440,652 908,485
Obligations under capital leases 198,978 238,475
------------ ------------
3,639,630 1,146,960
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock
$.01 par value
Authorized - 25,000,000 shares
Issued and outstanding - 10,301,061
shares - 1996 and 10,279,561 shares -
1995 103,012 102,797
Additional paid-in capital 14,706,218 14,645,775
Retained earnings 5,762,118 4,223,693
------------ ------------
20,571,348 18,972,265
------------ ------------
$30,454,227 $ 26,909,020
=========== ============
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
Net sales $ 9,491,798 $ 7,159,661 $17,781,800 $ 12,146,521
----------- ----------- ----------- ------------
Costs and expenses
Cost of products sold 5,836,730 4,776,213 11,125,035 8,193,726
Research and development 716,253 673,725 1,335,576 1,188,537
Selling and administrative 1,451,217 1,484,766 2,789,653 2,562,766
Interest expense 49,933 38,889 108,150 74,545
Interest income (63,598) (93,756) (135,204) (178,511)
Other (income) expense, net 23,681 (401) 24,359 3,750
----------- ----------- ----------- ------------
8,014,216 6,879,436 15,247,569 11,844,813
----------- ----------- ----------- ------------
Income before income taxes 1,477,582 280,225 2,534,231 301,708
Income taxes 584,716 104,188 995,806 117,238
----------- ----------- ----------- ------------
Net income $ 892,866 $ 176,037 $ 1,538,425 $ 184,470
=========== =========== =========== ============
Income per share (primary and fully diluted) $ 0.08 $ 0.02 $ 0.14 $ 0.02
=========== =========== ============ ============
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended May 31,
-------------------------------
1996 1995
------------ -----------
Cash flows from operating activities
Net income $ 1,538,425 $ 184,470
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 334,230 212,143
Loss on disposal of assets 23,681 5,100
Deferred taxes 337,698 -
Compensation - stock options 28,890 17,043
Changes in assets and liabilities
(Increase) decrease in accounts receivable 751,264 (1,788,544)
Increase in income tax deposits (40,039) (115,100)
Increase in inventories (1,666,950) (1,735,967)
Increase in prepaid expenses and other 517,320) (63,863)
Decrease in billing in excess of costs and
estimated earnings on uncompleted contracts - (27,330)
Increase (decrease) in accounts payable (613,092) 1,020,226
Increase (decrease) in accrued payroll and related 38,012 (75,328)
Increase (decrease) in accrued expenses (162,800) 236,269
Decrease in income taxes payable
(exclusive of tax benefits derived from
exercise of options/warrants) (5,152) (151,962)
Decrease in customer deposits - (386,600)
------------- -----------
Net cash provided by (used in)
operating activities 46,847 (2,669,443)
------------- -----------
Cash flows from investing activities
Capital expenditures (2,848,536) (411,700)
Payments received on note receivable 30,000 30,000
Proceeds from sale of assets 2,500 -
Other 31,359 7,981
------------- -----------
Net cash used in investing activities (2,784,677) (373,719)
------------- -----------
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Six Months Ended May 31,
-------------------------
1996 1995
---------- -------------
Cash flows from financing activities
Proceeds from issuance of notes payable 2,922,981 -
Principal payments on notes payable (203,357) (208,334)
Principal payments under capital lease obligations (35,620) (61,085)
Net issuances under line of credit agreements - (200,000)
Issuance of common stock and warrants 36,920 372,328
Issuance of common stock in private placement - 5,759,097
----------- -----------
Net cash provided by
financing activities 2,720,924 5,662,006
----------- -----------
Net increase (decrease) in cash and
cash equivalents (16,906) 2,618,844
----------- -----------
Cash and cash equivalents, beginning of period 5,058,718 2,625,850
----------- -----------
Cash and cash equivalents, end of period $ 5,041,812 $ 5,244,694
=========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND NOVEMBER 30, 1995
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of May 31, 1996 and
November 30, 1995 and the results of operations and cash flows
for the six months ended May 31, 1996 and 1995.
The results of operations for the six months ended May 31,
1996 and 1995 are not necessarily indicative of results for
the full year.
The November 30, 1995 balance sheet amounts and disclosures
included herein have been derived from the November 30, 1995
audited financial statements of the Registrant. While the
Company believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that
these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes
included in the Company's latest annual report on Form 10-K.
NOTE 2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Plasma-Therm, Inc. and its wholly-owned subsidiary, Magnetran
Inc.. All significant intercompany transactions and balances
have been eliminated.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND NOVEMBER 30, 1995
(UNAUDITED)
NOTE 3 INCOME PER SHARE
Earnings per share is computed based on the weighted average
number of shares of common stock adjusted for the conversion
of dilutive common stock equivalents. The primary and fully
diluted income per share are the same for all periods
presented. The following is the weighted average outstanding
share information.
Three Months Ended May 31,
--------------------------------
1996 1995
---------- ----------
Primary 10,706,415 10,723,039
Fully Diluted 10,799,427 10,723,020
Six Months Ended May 31,
--------------------------------
1996 1995
---------- ----------
Primary 10,660,692 10,662,953
Fully Diluted 10,796,479 10,676,119
NOTE 4 ACCOUNTING FOR STOCK-BASED COMPENSATION
Management has not yet completely analyzed the provisions of
SFAS No. 123 "Accounting for Stock- Based Compensation".
Accordingly, management has not yet determined whether or not
SFAS No. 123's accounting recognition provisions will be
adopted or if APB No. 25's method will be continued. In
addition, management has not yet determined the potential
effect that the SFAS No. 123 accounting provision, if
adopted, will have on the Company's financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND NOVEMBER 30, 1995
(UNAUDITED)
NOTE 5 NOTES PAYABLE
In March 1996 the Company executed two promissory notes for
$496,032 with its bank for the purchase of computer software
and hardware. Monthly installments of $15,423 including
interest at 7.92% is payable through February, 1999. These
notes are secured by various machinery and equipment.
In August, 1995 the Company executed a promissory note for
$3,375,000 with its bank for the construction of its new
manufacturing facility. On June 14, 1996, the completion of
the construction phase, the note converted to a five year term
loan, amortized over a fifteen year period. The loan is
payable in monthly installments of $33,235, including interest
at 8.5% beginning July 15, 1996. The loan is collateralized by
the land, the building and its contents.
NOTE 6 LICENSE AGREEMENT
Effective June 19, 1996, the Company entered into a license
agreement with a German company for the non-exclusive rights
to their patent on a new plasma process technology. In
exchange for the use of the patent, the Company will pay an
initial license fee of 450,000 deutsche marks which is
approximately $300,000 at the current exchange rates. In
addition, during the first five years of the agreement or the
shipment of the first fifty plasma processing chambers
including the licensed technology, whichever comes first, the
Company will pay a royalty fee of 35,000 deutsche marks which
is approximately $23,000 at the current exchange rates per
plasma processing chamber. Thereafter, the royalty fee will be
reduced to 25,000 deutsche marks per plasma processing
chamber.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
The Company's cash position at May 31, 1996 is $5,041,812
compared to $5,058,718 at November 30, 1995. Working capital
at May 31, 1996 was $18,598,811, which is an increase of
$1,723,685 from November 30, 1995. The increase in working
capital is primarily the result of an increase in inventories
of $1,666,950 due to an increase in backlog and an anticipated
increase in sales over 1995 for the remainder of 1996.
Uses of cash included the principal repayment of $238,977 of
notes payable and capital leases. In addition, the company has
incurred $2,848,536 in capital expenditures, of which
approximately $535,000 relates primarily to cash outlays for
manufacturing software and various computer hardware. Of the
$535,000, approximately $382,000 was financed through notes
payable to the Company's bank (See Note 5 to the Consolidated
Financial Statements).
The remaining balance of capital expenditures of approximately
$2,314,000 consists of the costs incurred for the construction
of the new building. These costs are reimbursed to the Company
through the construction loan as incurred. On June 14, 1996,
the completion of the construction phase, the note converted
to a five year term loan, amortized over fifteen years. The
loan is payable in monthly installments of $33,235, including
interest at 8.5% beginning July 15, 1996. The loan is
collateralized by the land, the building and its contents.
The Company has extensive ongoing capital requirements for
research and development, the repayment of debt, capital
equipment and inventory. The Company believes that its current
cash reserves, together with the proceeds of its private
placement, working capital expected to be generated by
operations and additional funds available under its line of
credit, should be sufficient to meet its capital requirements
for the immediate future. Should order input exceed projected
1996 levels, additional working capital may be required.
RESULTS OF OPERATIONS
Net sales of $9.5 million for the second quarter of 1996
increased by 33% from net sales of $7.2 million for the second
quarter of 1995. For the first half of 1996, the Company
reported net sales of $17.8 million, 46% higher than net sales
of $12.1 million for the first six months of 1995. The
increase in net sales for both the second quarter and six
month period was attributable to higher product demand and
sales of the Company's newest product, the Versalock(TM) 700
Series. Sales of the Versalock(TM) 700 Series began in the
fourth quarter 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cost of products sold of $5.8 million for the second quarter
of 1996 was 61% of net sales, compared to 67% for the same
period last year. Cost of products sold of $11.1 million for
the first six months of 1996 was 63% of net sales compared to
68% for the same period last year. The decrease for both the
second quarter and six month period is primarily due to a
combination of higher margins related to the sales of the
Versalock(TM) 700 Series in 1996 and lower margins on
Clusterlock(R) 7000 orders which shipped during the second
quarter of 1995. Field service costs, which include warranty
and non-warranty expenditures, have been classified in both
the cost of products sold and selling and administrative
categories in the Company's financial statements in prior
years. To be consistent with the Company's peer groups, in
fiscal 1996 field service costs are classified entirely in
cost of products sold. For comparison purposes, including all
field service costs in cost of products sold for 1995 would
result in cost of products sold of 72% of net sales as
compared to 63% in 1996. The Company incurred $818,000 and
$1,152,000 in field service costs for the second quarter and
six months ended May 31, 1996, respectively, compared to
$520,000 and $859,000 for the same periods in 1995. Of the
$520,000 incurred in field service costs for the second
quarter of 1995, $247,000 was classified in cost of products
sold (relating primarily to warranty) and $273,000 was
classified in the selling and administrative category. Of the
$859,000 incurred in field service costs for the six month
period ended May 31, 1995, $352,000 was classified in cost of
products sold (relating primarily to warranty) and $507,000
was classified in the selling and administrative category.
Research and development expense for the second quarter of
1996 and 1995 was $716,253 and $673,725, which is 7.5% and
9.4% of net sales respectively. Research and development
expense for the first half of 1996 and 1995 was $1,335,576 and
$1,188,537, which is 7.5% and 9.8% respectively. Although the
percentage of research and development expense to net sales
has decreased, total dollars spent has increased. A portion of
research and development expenses are fixed costs; therefore
the percentage as it relates to net sales is lower in fiscal
1996 as compared to fiscal 1995 since net sales increased
significantly by 46% from fiscal 1995 to fiscal 1996. As sales
increase, certain overhead expenditures increase, however, at
a lower rate. As new product lines continue to be introduced,
total dollars expended on research and development are
expected to increase to typically 9% to 10% of net sales.
Selling and administrative expense was $1,451,217 in the
second quarter of 1996, down from $1,484,766 in the second
quarter of 1995. Selling and administrative expense for the
first six months of 1996 was $2,789,653, up from $2,562,766
for the first six months of 1995. As discussed above, field
service costs are classified entirely in cost of products sold
in fiscal 1996 whereas a portion of field service costs were
classified in the selling and administrative category in
fiscal 1995. For comparative purposes, selling and
administrative expense for the second quarter of 1995, less
field service costs of approximately $273,000, was
approximately $1,212,000 which would be 16.9% of net sales
compared to 15.3% for the second quarter of 1996. Selling and
administrative expense for the six month period of 1995, less
field service costs of approximately $507,000, was
approximately $2,056,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
which would be 16.9% of net sales compared to 15.7% for the
same period of 1996. As explained in the previous paragraph,
the slight decrease in 1996 is primarily due to the increase
in overhead expenditures at a lower rate than the increase in
sales.
Income before income taxes of $2,534,231 for the first half of
1996 as compared to $301,708 for the same period in 1995, is
significantly higher due to increased sales and higher margins
in the Versalock(TM) 700 Series in 1996 and lower margins
related to the Clusterlock(R) 7000 orders in 1995, as
discussed above. In addition, as explained above, overhead
expenses increase as net sales increase, however, at a lower
rate, thus resulting in higher net income.
FORWARD LOOKING INFORMATION
From time to time, the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological developments,
new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the
anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance,
development and results of the Company's business include the
following:
The Company sells relatively expensive capital equipment, and
in any given quarter or financial period, any one customer or
any individual shipment may represent a significant portion of
revenue in that period. Therefore a delay or cancellation of
that shipment could cause the Company to experience a revenue
or earnings shortfall for a given financial period.
The Company relies on distributors and representatives, which
complement its direct sales and service staff, to sell and
service its products in various geographic locations. Should
these sales and service channels be rendered ineffective, it
could materially impact the Company's business. Some of the
Company's competitors have more extensive direct sales and
service locations in the Company's distributor's and
representatives' channels, which could provide these
competitors with a competitive advantage in certain geographic
areas.
Plasma-Therm depends heavily on the success and growth of the
high technology marketplace. In particular, a slowdown in
personal computer consumption could cause a slowdown of disk
drive production, resulting in lower output of thin film
heads, which could materially effect the Company's business.
The Company also relies on the health of the general
semiconductor equipment marketplace. A slowdown in the
semiconductor capital equipment purchases could also affect
the Company's business from time to time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company also participates in the flat panel display
marketplace. The Company's Clusterlock(R) 7000, a flat panel
display manufacturing system, has been successful in its
customers' R&D and pilot production manufacturing runs of flat
panel displays in the United States. The ability to compete on
a global basis and to compete for the high volume
manufacturing of flat panel displays is essential for the long
term viability of the Clusterlock(R) product line. Many of the
Company's competitors are much larger and are better
capitalized and maintain a larger customer service and support
infrastructure. Currently, the Company has not determined
whether it will be successful in this marketplace.
The upcoming move to the Company's new manufacturing facility
could produce short term production inefficiencies, higher
costs and start-up expenses.
The rate of growth in Plasma-Therm's Customer Service, Sales,
General & Administrative expenses, and the impact of unusual
items resulting from Plasma-Therm's ongoing evaluation of its
business strategies, could affect results.
The Company faces a risk of technological obsolescence for its
products that are based on rapidly changing technology. Its
ability to remain competitive will depend to a significant
extent on the success of its research and development
activities in enhancing existing products and developing new
ones. The success of its research and development effort will
depend in part upon its ability to attract and retain
technically qualified personnel who are much in demand.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held its Annual Meeting of Shareholders on April
30, 1996. At the meeting, the shareholders voted on the
election of directors and an amendment to the Company's
Articles of Incorporation.
Three directors were elected to the Board of Directors of the
Company to serve until the next annual meeting of shareholders
and until their successors are duly elected and qualified, for
the terms of office expiring at the next annual meeting of
shareholders: Ronald H. Deferrari, A.S. Gianoplus and Lubek
Jastrzebski. No other director's term of office continued
after the meeting. A total of 9,396,754 votes each were cast
for Mr. Deferrari and Mr. Gianoplus, respectively, and a total
of 9,396,654 votes were cast for Mr. Jastrzebski. A total of
89,475 votes each were withheld with respect to the election
of Mr. Deferrari and Mr. Gianoplus, respectively, and 89,575
votes were withheld with respect to the election of Mr.
Jastrzebski.
The amendment to the Company's Articles of Incorporation, that
was submitted to a vote of shareholders, amended the Articles
to eliminate the right of the shareholders to act by written
consent without holding a meeting. The amendment to the
Articles of Incorporation was approved by a total of 4,522,015
votes in favor of the amendment. There were a total of 596,663
votes against approval of the amendment and 79,698 abstentions
and broker non-votes with respect to this vote.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.4 Amendment to the Registrant's Articles of
Incorporation.
10.41 Note and Security Agreement dated March 20, 1996
between the Registrant and NationsBanc Leasing
Corporation.
10.42 Extension Agreement dated June 14, 1996 and Addendum
Letter to Extension Agreement dated June 17, 1996
between the Registrant and NationsBanc, N.A. (South).
10.43 License Agreement dated June 19, 1996 between the
Registrant and Robert Bosch GmbH.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of
fiscal 1996.
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SIGNATURES
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.
PLASMA-THERM, INC.
Date: June 28, 1996 By: /s/ STACY WAGNER
----------------------------------------
Stacy Wagner
V.P. of Finance
Date: June 28, 1996 By: /s/ RONALD S. DEFERRARI
----------------------------------------
Ronald S. Deferrari
President, Chief Operating Officer
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