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 August 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.)
10050 16th STREET NORTH, ST. PETERSBURG, FLORIDA 33716
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(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 10,396,061
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Class Outstanding as of September 18, 1996
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INDEX
PAGE
NUMBER
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PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - August 31, 1996 and
November 30, 1995................................................... 3
Statements of Income - Three Months and Nine Months Ended
August 31, 1996 and August 31, 1995................................. 5
Statements of Cash Flows - Nine Months Ended
August 31, 1996 and August 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 6. Exhibits and Reports on Form 8-K................................. 15
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
ASSETS 1996 1995
------------ ------------
(unaudited)
Current assets
Cash and cash equivalents $ 5,331,214 $ 5,058,718
Accounts receivable 6,629,294 7,882,427
Prepaid income taxes 42,564 18,048
Inventories 11,756,206 9,832,853
Prepaid expenses and other 809,786 269,875
Deferred tax asset 351,000 603,000
----------- -----------
Total current assets 24,920,064 23,664,921
----------- -----------
Property and equipment, at cost
Building 4,175,678 0
Machinery and equipment 2,665,836 2,301,273
Leasehold improvements 139,527 419,263
----------- -----------
6,981,041 2,720,536
Less accumulated depreciation and
amortization 1,804,837 1,954,377
----------- -----------
5,176,204 766,159
Land 786,017 786,017
Construction in process 0 1,417,353
----------- -----------
5,962,221 2,969,529
----------- -----------
Other assets
Deferred tax asset 68,745 182,850
Other 99,920 91,720
----------- -----------
168,665 274,570
----------- -----------
$31,050,950 $26,909,020
=========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
LIABILITIES 1996 1995
----------- ------------
(unaudited)
Current liabilities
Short-term borrowings $2,000,000 $2,000,000
Current portion of notes payable 525,363 343,647
Current maturities of obligations under
capital leases 78,895 73,010
Accounts payable 1,894,712 2,920,079
Accrued payroll and related 411,576 402,649
Accrued expenses 208,527 356,895
Accrued warranty expense 693,515 693,515
Income taxes payable - -
----------- -----------
Total current liabilities 5,812,588 6,789,795
----------- -----------
Long-term obligations
Notes payable 3,502,833 908,485
Obligations under capital leases 178,516 238,475
----------- -----------
3,681,349 1,146,960
----------- -----------
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock
$.01 par value
Authorized - 25,000,000 shares
Issued and outstanding - 10,354,061
shares - 1996 and 10,279,561 shares -
1995 103,542 102,797
Additional paid-in capital 14,841,540 14,645,775
Retained earnings 6,611,931 4,223,693
----------- -----------
21,557,013 18,972,265
----------- -----------
$31,050,950 $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 NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
Net sales $9,622,781 $9,068,855 $27,404,581 $21,215,376
---------- ---------- ----------- -----------
Costs and expenses
Cost of products sold 5,732,189 6,206,380 16,857,224 14,907,565
Research and development 744,113 710,462 2,079,689 1,898,999
Selling and administrative 1,769,385 1,509,488 4,559,038 3,564,795
Interest expense 113,312 60,610 221,462 135,155
Interest income (66,490) (83,097) (201,694) (261,616)
Other (income) expense, net (9,909) (586) 14,450 3,172
---------- ---------- ----------- -----------
8,282,600 8,403,257 23,530,169 20,248,070
---------- ---------- ----------- -----------
Income before income taxes 1,340,181 665,598 3,874,412 967,306
Income taxes 490,368 277,775 1,486,174 395,013
---------- ---------- ----------- -----------
Net income $ 849,813 $ 387,823 $ 2,388,238 $ 572,293
========== ========== =========== ===========
Income per share
(primary and fully diluted) $ 0.08 $ 0.04 $ 0.22 $ 0.05
========== ========== =========== ===========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1995
---------- ----------
Cash flows from operating activities
Net income $2,388,238 $ 572,293
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 554,156 372,018
Loss on disposal of assets 16,066 5,100
Deferred taxes 366,105 (246,903)
Compensation - stock options 31,032 93,203
Changes in assets and liabilities
(Increase) decrease in accounts receivable 1,253,133 (3,348,045)
(Increase) decrease in income tax deposits (24,516) 298,807
Increase in inventories (1,923,353) (1,721,195)
(Increase) decrease in prepaid expenses and other (584,911) 11,335
Decrease in billing in excess of costs and
estimated earnings on uncompleted contracts - (27,330)
Increase (decrease) in accounts payable (1,025,367) 616,117
Increase in accrued payroll and related 8,927 11,471
Increase (decrease) in accrued expenses (148,368) 553,471
Increase (decrease) in income taxes payable
(exclusive of tax benefits derived from
exercise of options/warrants) 1,808 (151,962)
Decrease in customer deposits - (698,218)
---------- ----------
Net cash provided by (used in)
operating activities 912,950 (3,659,838)
---------- ----------
Cash flows from investing activities
Capital expenditures (3,573,030) (1,338,487)
Payments received on note receivable 45,000 45,000
Proceeds from sale of assets 10,116 0
Other (8,200) (25,930)
---------- ----------
Net cash used in investing activities (3,526,114) (1,319,417)
---------- ----------
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1995
---------- ----------
Cash flows from financing activities
Proceeds from issuance of notes payable 3,118,900 -
Principal payments on notes payable (342,836) (291,667)
Principal payments under capital lease obligations (54,074) (89,372)
Net issuances under line of credit agreements - 1,000,000
Issuance of common stock and warrants 163,670 384,078
Issuance of common stock in private placement - 5,759,097
Net cash provided by
financing activities 2,885,660 6,762,136
---------- ----------
Net increase in cash and cash
equivalents 272,496 1,782,881
---------- ----------
Cash and cash equivalents, beginning of period 5,058,718 2,625,850
---------- ----------
Cash and cash equivalents, end of period $5,331,214 $4,408,731
========== ==========
See accompanying notes to these consolidated financial statements.
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PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 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 August 31, 1996 and
November 30, 1995 and the results of operations and cash flows
for the nine months ended August 31, 1996 and 1995.
The results of operations for the nine months ended August 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.
Reclassifications
To be consistent with the Company's peer groups, in 1995 field
service costs have been reclassified entirely from selling and
administrative to cost of products sold.
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
AUGUST 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. During each of the periods
presented, the primary and fully diluted earnings for such period
was the same. The following is the weighted average outstanding
share information.
Three Months Ended August 31,
--------------------------------
1996 1995
--------------- ---------------
Primary 10,828,856 10,728,344
Fully Diluted 10,850,732 10,734,481
Nine Months Ended August 31,
--------------------------------
1996 1995
--------------- ---------------
Primary 10,724,165 10,692,453
Fully Diluted 10,832,280 10,751,694
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
AUGUST 31, 1996 AND NOVEMBER 30, 1995
(UNAUDITED)
NOTE 5 NOTES PAYABLE
In March 1996 the Company executed two promissory notes for an
aggregate of $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 paid an initial license fee of 450,000 deutsche
marks which is approximately $300,000 at the then 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 per plasma processing chamber.
Thereafter, the royalty fee will be reduced to 25,000 deutsche marks
per plasma processing chamber.
NOTE 7 COMMITMENTS
On August 27, 1996 the Company executed a lease with its bank for
furniture for its new manufacturing facility. Total minimum lease
payments are $466,055 to be paid in 60 monthly installments (initial
term) of $7,768 beginning August 27, 1996. At the end of the initial
term the Company has the option to extend the lease for an additional
twelve months at a monthly rental of $4,694 or purchase the furniture
for a price equal to the greater of the then fair market value of the
furniture or $50,216. If the Company chooses to extend the lease
term, at the end of the extended term the Company will either return
the furniture to its bank or purchase the furniture at its then fair
market value.
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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 August 31, 1996 was $5,331,214
compared to $5,058,718 at November 30, 1995. Working capital at
August 31, 1996 was $19,107,476, which is an increase of
$2,232,350 from November 30, 1995. The increase in working
capital is primarily the result of an increase in inventories of
$1,923,353 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 approximately
$397,000 of notes payable and capital leases. In addition, the
Company has incurred approximately $3,573,000 in capital
expenditures, of which approximately $716,000 relates primarily
to cash outlays for manufacturing software and various computer
hardware. Of the $716,000, approximately $496,000 was financed
through notes payable to the Company's bank (See Note 5 to the
Consolidated Financial Statements). Approximately $2,758,000
consists of the costs incurred for the construction of the new
building. These costs were 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 remaining $99,000 in capital
expenditures relates to the purchase of various machinery and
equipment used in the production of the Company's products.
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 $9.6 million for the third quarter of 1996 increased
by 6% from net sales of $9.1 million for the third quarter of
1995. For the first nine months of 1996, the Company reported
net sales of $27.4 million, 29% higher than net sales of $21.2
million for the first nine months of 1995. The increase in net
sales for both the third quarter and nine 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 $5.7 million for the third quarter of
1996 was 60% of net sales, compared to 68% for the same period
last year. Cost of products sold of $16.9 million for the first
nine months of 1996 was 62% of net sales compared to 70% for the
same period last year. The decrease for both the third quarter
and nine 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 and third quarters of 1995.
Research and development expense for the third quarter of 1996
and 1995 was $744,113 and $710,462, which is 7.7% and 7.8% of net
sales respectively. Research and development expense for the
first nine months of 1996 and 1995 was $2,079,689 and $1,898,999,
which is 7.6% and 9% of net sales 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 29% 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 $1,769,385 in the third quarter
of 1996, up from $1,509,488 in the third quarter of 1995. The
increase as a percentage of net sales to 18.4% from 16.6% for the
third quarter of 1996 and 1995, respectively, is primarily the result
of costs associated with the move to the Company's new manufacturing
facility in June. Selling and administrative expense for the first
nine months of 1996 was $4,559,038 up from $3,564,795 for the first
nine months of 1995. Selling and administrative expense has remained
constant at 17% of net sales for the first nine months of 1996 and
1995, although actual expense has increased.
The Company reported income before income taxes of $1,340,181 in
the third quarter of 1996, up from $665,598 in the third quarter
of 1995. Income before income taxes of $3,874,412 for the first
nine months of 1996 as compared to $967,306 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. PAGE NO.
--------
10.44 Equipment Lease Agreement dated August 27, 1996 between
NationsBanc Leasing Corporation and the Registrant. 17
27. Financial Data Schedule (For SEC use only) 27
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third 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: September 27, 1996 By: /s/ STACY WAGNER
---------------------------
Stacy Wagner
V.P. of Finance,
Date: September 27, 1996 By: /s/ RONALD H. DEFERRARI
----------------------------
Ronald H. Deferrari
Chief Executive Officer
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