FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1999
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 0-12353
PLASMA-THERM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 04-2554632
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10050 16TH STREET NORTH, ST. PETERSBURG, FLORIDA 33716
- --------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(727) 577-4999
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
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
Outstanding at September 17, 1999:
11,220,061
Page 1 of 23 Pages
INDEX
PAGE
NUMBER
------
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets - August 31, 1999 and
November 30, 1998.......................................................3
Statements of Income - Three Months and Nine Months ended
August 31, 1999 and August 31, 1998 ....................................5
Statements of Cash Flows - Nine Months ended
August 31, 1999 and August 31, 1998 ....................................6
Notes to Consolidated Financial Statements ...............................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...........................13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..............................21
-2-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
ASSETS 1999 1998
----------- ------------
(UNAUDITED)
Current assets
Cash and cash equivalents $ 6,507,345 $ 7,170,464
Accounts receivable 13,708,292 14,842,937
Inventories 9,535,302 9,859,914
Prepaid income taxes 786,522 1,405,591
Prepaid expenses and other 627,269 747,234
Deferred tax asset 475,583 244,691
----------- -----------
Total current assets 31,640,313 34,270,831
----------- -----------
Property, plant and equipment
Building 5,209,292 4,996,731
Machinery and equipment 11,845,951 11,296,080
Leasehold improvements -- 151,005
----------- -----------
17,055,243 16,443,816
Less accumulated depreciation and
amortization 6,503,222 4,610,619
----------- -----------
10,552,021 11,833,197
Land 2,168,851 1,012,992
----------- -----------
12,720,872 12,846,189
----------- -----------
Other assets 869,209 151,762
----------- -----------
$45,230,394 $47,268,782
=========== ===========
See accompanying notes to these consolidated financial statements.
-3-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, NOVEMBER 30,
LIABILITIES 1999 1998
----------- ------------
Current liabilities
Short-term borrowings $ 5,500,000 $ 5,000,000
Current maturities of long-term obligations 415,756 585,228
Accounts payable 3,451,444 4,828,263
Accrued payroll and related 571,835 605,431
Accrued expenses 1,641,166 1,083,535
Accrued restructuring charge 227,759 992,847
Customer deposits 176,507 570,625
Deferred Revenue 875,451 --
----------- -----------
Total current liabilities 12,859,918 13,665,929
----------- -----------
Long-term obligations 3,476,455 3,085,353
----------- -----------
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock, $.01 par value (25,000,000
shares authorized, 11,220,061 and
11,207,061 shares issued and outstanding
at August 31, 1999 and November 30, 1998) 112,202 112,072
Additional paid-in capital 17,212,257 17,156,849
Retained earnings 11,569,562 13,248,579
----------- -----------
28,894,021 30,517,500
----------- -----------
$45,230,394 $47,268,782
=========== ===========
See accompanying notes to these consolidated financial statements.
-4-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales $ 10,479,330 $ 10,740,789 $ 29,003,142 $ 38,015,377
Cost of sales 6,097,284 6,440,026 18,506,323 21,566,552
------------ ------------ ------------ ------------
Gross profit 4,382,046 4,300,763 10,496,819 16,448,825
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,649,472 1,620,855 5,738,868 4,383,872
Selling and administrative 1,943,223 2,018,533 5,947,381 6,419,305
Restructuring charge -- -- 948,069 --
------------ ------------ ------------ ------------
Total operating expenses 3,592,695 3,639,388 12,634,318 10,803,177
------------ ------------ ------------ ------------
Operating income 789,351 661,375 (2,137,499) 5,645,648
Interest (income) expense, net 93,785 46,260 252,283 152,894
------------ ------------ ------------ ------------
Income (loss) before income
taxes (benefit) 695,566 615,115 (2,389,782) 5,492,754
Income taxes (benefit) 257,663 250,971 (710,765) 2,075,017
------------ ------------ ------------ ------------
Net income (loss) $ 437,903 $ 364,144 $ (1,679,017) $ 3,417,737
============ ============ ============ ============
Earnings (loss) per share:
Basic $ 0.04 $ 0.03 $ (0.15) $ 0.31
============ ============ ============ ============
Diluted $ 0.04 $ 0.03 $ (0.15) $ 0.30
============ ============ ============ ============
See accompanying notes to these consolidated financial statements.
-5-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
----------------------------
1999 1998
----------- -----------
Cash flows from operating activities
Net income (loss) $(1,679,017) $ 3,417,737
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 2,365,832 1,792,087
Gain on sale of Magnetran, net of taxes (84,510) --
Gain on disposal of assets (10,974) --
Deferred taxes (275,866) 27,159
Compensation - stock options 16,340 18,200
Tax benefit related to certain stock options
and warrants 6,638 97,086
Changes in assets and liabilities
Decrease in accounts receivable 838,599 1,430,167
(Increase) decrease in inventories 23,528 (3,369,910)
(Increase) decrease in prepaid income taxes 554,817 (483)
(Increase) decrease in prepaid expenses and other 145,850 (529,920)
Increase (decrease) in accounts payable (1,405,475) 19,320
Decrease in accrued payroll and related (24,820) (227,093)
Increase in accrued expenses 555,048 207,888
Decrease in accrued restructuring charge (765,088) --
Increase (decrease) in customer deposits (394,118) 103,250
Increase in deferred revenue 875,451
----------- -----------
Net cash provided by
operating activities 742,235 2,985,488
----------- -----------
Cash flows from investing activities
Capital expenditures (2,278,322) (3,415,925)
Proceeds from sale of fixed assets 66,975
Net Proceeds from sale of Magnetran 48,706 --
Other 3,097 (75,335)
----------- -----------
Net cash used in investing activities (2,159,544) (3,491,260)
----------- -----------
See accompanying notes to these consolidated financial statements.
-6-
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
NINE MONTHS ENDED AUGUST 31,
----------------------------
1999 1998
----------- -----------
Cash flows from financing activities
Proceeds from issuance of long-term obligations 700,000 --
Principal payments on long-term obligations (478,370) (540,354)
Net proceeds under line of credit agreements 500,000 2,000,000
Exercise of stock options and warrants 32,560 306,445
----------- -----------
Net cash provided by
financing activities 754,190 1,766,091
----------- -----------
Net increase (decrease) in cash and
cash equivalents (663,119) 1,260,319
----------- -----------
Cash and cash equivalents, beginning of period 7,170,464 5,398,030
----------- -----------
Cash and cash equivalents, end of period $ 6,507,345 $ 6,658,349
=========== ===========
See accompanying notes to these consolidated financial statements.
-7-
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999 AND NOVEMBER 30, 1998
(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, 1999 and November 30, 1998 and the results of
operations and cash flows for the nine months ended August 31, 1999 and
1998.
The results of operations for the nine months ended August 31, 1999 and
1998 are not necessarily indicative of results for the full year.
The November 30, 1998 balance sheet amounts and disclosures included
herein have been derived from the November 30, 1998 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.
through June 30, 1999 (See Note 6). All significant intercompany
transactions and balances have been eliminated.
NOTE 3 INVENTORIES
Inventories consist of the following:
AUGUST 31, NOVEMBER 30,
1999 1998
----------- ------------
Raw materials $ 5,093,675 $ 4,974,844
Work-in-process 3,875,745 4,477,355
Finished goods 565,882 407,715
----------- -----------
$ 9,535,302 $ 9,859,914
=========== ===========
-8-
NOTE 4 EARNINGS PER SHARE DISCLOSURES
FOR THE THREE MONTHS ENDED AUGUST 31, 1999
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS:
Income available to common
Shareholders $ 437,903 11,220,061 $.04
====
Effect of Dilutive Securities:
Options -- 40,476
---------- ----------
Diluted EPS:
Income available to common
Shareholders + assumed conversions $ 437,903 11,260,537 $.04
========== ========== ====
FOR THE THREE MONTHS ENDED AUGUST 31, 1998
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS:
Income available to common
Shareholders $ 364,144 11,197,061 $.03
====
Effect of Dilutive Securities:
Options -- 111,721
---------- ----------
Diluted EPS:
Income available to common
Shareholders + assumed conversions $ 364,144 11,308,782 $.03
========== ========== ====
-9-
FOR THE NINE MONTHS ENDED AUGUST 31, 1999
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------ ---------
Basic EPS:
Income (loss) available to common
Shareholders ($1,679,017) 11,218,866 ($.15)
====
Effect of Dilutive Securities:
Options -- 23,457
----------- ----------
Diluted EPS:
Income (loss) available to common
Shareholders + assumed conversions ($1,679,017) 11,242,323 ($.15)
========== ========== ====
FOR THE NINE MONTHS ENDED AUGUST 31, 1998
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic EPS:
Income available to common
Shareholders $ 3,417,737 11,169,497 $ .31
=====
Effect of Dilutive Securities:
Options -- 203,791
----------- ----------
Diluted EPS:
Income available to common
Shareholders + assumed conversions $ 3,417,737 11,373,288 $ .30
=========== ========== =====
-10-
NOTE 5 SHORT-TERM BORROWINGS
CONSTRUCTION LOAN
In February 1999, the Company executed a promissory note for $4,500,000
with its bank for the construction of its 33,000 square foot R&D
facility adjacent to its current facility. During the construction
phase, interest is payable monthly at the one month LIBOR rate plus
2.25% on the outstanding balance. Upon completion of the construction
phase, the note will be converted to a five-year term loan and
amortized over a fifteen-year period. Equal payments of principal and
interest will be payable monthly at a fixed interest rate based on the
LIBOR rate plus 2.25%. The interest rate will be determined prior to
conversion. The loan will be collateralized by the land, the building
and its contents. The facility will reside on existing land and 1.4
acres purchased in December 1997 for $226,975.
In March 1999, the construction of the facility was temporarily put on
hold. The Company is still in the process of evaluating the need for
this facility. No draws have been made on the construction loan.
TERM LOAN
In May 1999, the Company executed a $700,000 term loan with its bank
for the purchase of eight acres of land directly across from its
existing facility. The total cost of the land was $1,150,000. The five
year term loan is amortized over a fifteen year period, and payable in
monthly installments of $3,889 plus interest at the one month LIBOR
rate plus 2.25% (7.61% at August 31, 1999) through May 2004. The note
is secured by the land.
LINE OF CREDIT
In May 1999, the Company renewed its $10,000,000 line of credit with
its bank. The term of the line of credit agreement is through May 2000.
Interest is payable monthly at the one month LIBOR rate plus 2% (7.36%
at August 31, 1999). The line is collateralized by all of the Company's
assets.
All the real estate loans are cross-collateralized, including the $4.5
million construction loan for the new R&D facility, the $700,000 term
loan for the land, and the term loan for the Company's existing
facility. The line of credit is cross-collateralized with the Company's
$1 million term loan. All debt is cross-defaulted.
NOTE 6 SALE OF SUBSIDIARY
On June 30, 1999, the Company disposed of all of the capital stock in
its wholly-owned subsidiary. Magnetran, Inc. redeemed 95% of the
shares, and Magnetran's general manager purchased the remaining 5% of
the shares. The total purchase price for the shares was $1,100,000, of
which the Company received $300,000 in cash. The remaining $800,000
consists of a promissory note from Magnetran dated June 30, 1999. The
principal amount of the note is amortized over 15 years, with a 5-year
balloon. Interest and principal are payable monthly at a
-11-
rate of 7% per year, with the rate of interest increasing by .25% each
year thereafter. The note is secured by the shares of Magnetran. The
Company recognized a gain of $84,510 on the sale, net of taxes.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $10,479,330 for the third quarter of 1999 was similar to
net sales of $10,740,789 for the third quarter of 1998. For the first nine
months of 1999, the Company reported net sales of $29,003,142, which was 24%
lower than net sales of $38,015,377 for the first nine months of 1998. The
decrease in net sales for the first nine months of 1999 was primarily due to the
continued slowdown in the Company's four market segments during the first half
of the year. The slowdown began in the third quarter of 1998 and continued
through the second quarter of 1999. The Company is experiencing an increase in
business as demonstrated by the increase in net sales from $9,227,437 reported
for the second quarter of 1999.
Gross profit of $4,382,046 for the third quarter of 1999 was 42% of net
sales, compared to $4,300,763 for the third quarter of 1998 which was 40% of net
sales. Gross profit of $10,496,819 for the first nine months of 1999 was 36% of
net sales, compared to $16,448,825 for the first nine months of 1998, which was
43% of net sales. The increase in gross margin for the third quarter of 1999 is
primarily related to product mix. Approximately 69% of net sales related to the
Versalock/registered trademark/ product line in the third quarter of 1999
compared to 43% in the third quarter of 1998. Generally, the
Versalock/registered trademark/ product line carries the highest margin. The
decrease in gross margin for the first nine months of 1999 was attributable to
lower net sales as a result of the slowdown of the Company's four markets during
the first half of the year, causing the Company to experience an increase in
fixed manufacturing costs as a percentage of net sales. Another contributor to
the reduced gross margin is the strategic placement of lower margin systems sold
in the microelectromechanical (MEMS) market, primarily in the first quarter of
1999, in an effort to increase market share.
Research and development expense for the third quarter of 1999 and 1998
was $1,649,472 and $1,620,855, which was 16% and 15% of net sales, respectively.
Research and development expense for the first nine months of 1999 and 1998 was
$5,738,868 and $4,383,872, which was 20% and 12% of net sales respectively. The
increase for the first nine months of 1999 is the direct result of the continued
implementation of new research and development programs to enhance development
efforts in the Company's target markets: optoelectronics/telecommunications,
data storage, photomask, and MEMS. Specifically, within the data storage market
the Company has invested significant resources for its Physical Vapor Deposition
(PVD) development program. The Company operates in constantly changing and
highly competitive markets. Therefore, the Company believes it is critical to
continue to increase its investment in research and development programs in
order to continue to provide innovative, high-quality products, as well as
maintain and increase its position as a technology leader in the markets served.
Selling and administrative expense was $1,943,223 for the third quarter
of 1999, down slightly from $2,018,533 for the third quarter of 1998, consisting
of 19% of net sales for both
-13-
periods. Selling and administrative expense for the first nine months of 1999
was $5,947,381, down from $6,419,305 for the first nine months of 1998,
consisting of 21% and 17% of net sales, respectively. The net decrease of
$75,310 and $471,924, respectively, for the third quarter and first nine months
of 1999 is attributable to the restructuring of overhead and reduction of
personnel in March of 1999, offset by the incremental costs associated with the
implementation of the business units. As of the beginning of the third quarter
of 1999, as part of the Company's continued reorganization, the implementation
of the market-specific business units was complete. A separate business unit was
established for each of the Company's four key markets. In 1999, certain key
executives joined the Company to head up and staff each business unit,
consisting of a Business Unit Director, process development and applications
scientists, and a Customer Program Manager. This new re-organization has allowed
the Company to make greater penetration into its existing markets, with the
potential for increased market share in the year 2000 and beyond. The business
units split efforts between research and development and marketing. Although
there are intellectual property costs associated with the implementation of the
business units, management believes that the benefits far outweigh the costs.
Income before income taxes for the third quarter of 1999 was $695,566
($.04 per diluted share), compared to income before income taxes of $615,115
($.03 per diluted share) in the third quarter of 1998. Net loss before income
tax benefit for the first nine months of 1999 was $2,389,782 ($.15 per diluted
share) compared to net income before income taxes of $5,492,754 ($.30 per
diluted share) for the first nine months of 1998. Included in the net loss
before the income tax benefit for the first nine months of 1999 was an
additional restructuring charge of $948,069 or $.05 per diluted share, related
to services provided by TRW/BDM International pertaining to the Company's
implementation of the Integrated Supply Chain Management Program, and the
restructuring of overhead and personnel in March of 1999. All charges related to
the restructuring were complete as of the end of the second quarter of 1999. The
primary reasons for the increase in net income for the third quarter of 1999 and
the decrease in net income for the first nine months of 1999 as compared to the
same periods in 1998 are described above.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
Net cash provided by operations totaled $742,235 for the first nine
months of 1999, compared to net cash provided by operations of $2,985,488 for
the same period in 1998. Cash generated from operations for the first nine
months of 1999 consisted of various components including non-cash depreciation
and amortization of $2,365,832 and decreases in accounts receivable and prepaid
income taxes of $838,599 and $554,817, respectively, with an increase in accrued
expenses and deferred revenue of $555,048 and $875,451, respectively. Primary
sources of cash were partially offset by a net loss of $1,679,017 in addition to
decreases in accounts payable, restructuring charge and customer deposits of
$1,405,475, $765,088 and $394,118, respectively.
The $838,599 decrease in accounts receivable is related to the timing
of sales and related payments.
-14-
The $554,817 decrease in prepaid income taxes consists of a refund of
approximately $1.2 million for the overpayment of federal income taxes for 1998
partially offset by the recording of the federal tax benefit of approximately
$630,000 related to the net loss realized in the first nine months of 1999.
The $555,048 increase in accrued expenses was primarily related to an
increase in commissions payable to international sales representatives.
Commissions due to international sales representatives at any given time are
directly related to the mix between domestic and international sales and the
timing of receipts from customers. International representatives are paid after
payment is received from the customer.
Deferred revenue totaling $875,451 consists of pre-billings in
accordance with the terms of certain purchase orders, prior to shipment of the
product. This deferred revenue will be recognized upon shipment of the product.
The $1,405,475 decrease in accounts payable from November 30, 1998 is a
result of the continued implementation of the Integrated Supply Chain Management
Program which has resulted in better forecasting and sales order management,
improved product quality, lower product costs, improved cycle times and greater
standardization among product lines. This is demonstrated through the increase
in revenue in the third quarter of 1999 over the prior quarters, and an
anticipated increase in the fourth quarter of 1999, yet the inventory balance of
$9.5 million as of August 31, 1999 is lower than the $9.9 balance as of November
30, 1998 and the $9.8 balance as of the end of the second quarter of 1999.
Additionally, as a result of the weakened economic condition of the
semiconductor industry, in the fourth quarter of 1998 the Company temporarily
extended its payment terms to primarily all of its vendors to ninety days. As of
November 30, 1998, 49%, 42% and 9% of the $4,828,263 balance was less than 30
days old, 30-59 days old, and over 60 days old, respectively. As of May 31,
1999, the majority of the vendors on extended terms had been repaid. In
comparison, as a result of the Company's weakened financial condition through
the second quarter of 1999, in June 1999 the Company once again temporarily
extended its payment terms to ninety days. As of August 31, 1999, 51%, 38%, and
11% of the $3,451,444 balance was less than 30 days old, 30-59 days old, and
over 60 days old, respectively. The Company intends to repay all vendors on
extended terms by the end of the last fiscal year.
The $765,088 reduction in accrued restructuring relates primarily to
payments to TRW/BDM International pertaining to the Company's implementation of
the Integrated Supply Chain Management Program. As of the first quarter of
1999, all costs associated with the consulting arrangement had been recognized.
The $394,118 decrease in customer deposits was the result of the
recognition of revenue of approximately $570,000 in the first six months of 1999
upon shipment of systems on which partial payments had been made and classified
as deposits on the balance sheet as of November 30, 1998, offset by a prepayment
on an order in the third quarter of 1999 of approximately $170,000. The
prepayment will be recognized as revenue upon shipment of the system.
-15-
Net cash used in investing activities for the first nine months of 1999
was $2,159,544 compared to $3,491,260 for the same period in 1998. For the first
nine months of 1999, the Company incurred $2,278,000 in capital expenditures, of
which $578,000 was for the purchase and construction of various lab equipment to
be used for research and development. In addition, approximately $213,000 was
for the construction of a 33,000 square foot facility to be used for additional
research and development and office space. The Company is still evaluating the
need to restart the construction of this facility. The Company also purchased
approximately eight acres of land for $1,150,000 directly across from its
current facilities. The remaining $337,000 was for the purchase of various
computer and manufacturing equipment.
Net cash provided by financing activities for the first nine months of
1999 was $754,190, compared to $1,766,091 for the same period in 1998. Cash
provided by financing activities in the first nine months of 1999 included
$700,000 received from the issuance of a promissory note in relation to the
purchases of the eight acres of land, $500,000 net proceeds on the line of
credit, and approximately $30,000 from the exercise of stock options in
connection with the Company's stock option plan. Cash used for financing
activities in the first nine months of 1999 included principal repayments of
approximately $480,000 for long-term obligations.
-16-
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, including the forward-looking statements contained
in this report. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include but are
not limited to 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 distributors' and representatives' channels, which could
provide these competitors with a competitive advantage in certain geographic
areas.
Plasma-Therm, Inc. 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 data storage, which could materially affect the Company's business.
The Company also relies on the health of its four served markets: data
storage, microelectromechanical, photomask, and
optoelectronics/telecommunications, in addition to the general semiconductor
equipment marketplace. A slowdown in capital equipment purchases could also
affect the Company's business from time to time.
YEAR 2000
The Y2K problem ("Millennium Bug") is the inability of computer
hardware, operating system, and/or software to correctly interpret the date
change associated with the transition from 1999 to the year 2000, and associated
dates of significance, for example, handling of the date 9/9/99 and recognizing
the year 2000 as a leap year.
Y2K scenarios can potentially affect products which Plasma-Therm sells,
computers and other computer-controlled equipment used internally by the Company
in the conduct of its business, and the availability of goods and services from
Plasma-Therm suppliers. The Company
-17-
makes no certification or warranty, express or implied, of any kind, concerning
its Y2K readiness, or that of its products.
Based on the SEMATECH YEAR 2000 READINESS TEST SCENARIO product test
results, all supported products can be expected to continue to perform
customer-defined processes during Y2K date scenarios. Specific adjustments or
hardware upgrades are available to make certain that dates potentially affected
by Y2K scenarios are handled correctly. Computers and other computer-controlled
equipment used internally by the Company in the conduct of its business are all
expected to continue to support Company operations without interruption.
Suppliers' parts and services are also expected to be uninterrupted by Y2K
scenarios.
Plasma-Therm continues to make every effort to ensure that Y2K
scenarios will have little or no impact on our customers, internal operations,
and suppliers. Products are tested based on the SEMATECH standard described in
the SEMATECH YEAR 2000 READINESS TEST SCENARIO. SEMATECH, Inc., is the leading
professional organization providing technical services to the semiconductor
industry. Computers and computer-controlled equipment used internally by the
Company are addressed as recommended by the manufacturer or supplier. Supplier
readiness is determined based on direct responses from each supplier regarding
the Y2K readiness of their product and/or internal operations.
Product testing began mid-year 1998 using the SEMATECH YEAR 2000
READINESS TEST SCENARIO. Early in 1999, Plasma-Therm chartered a Y2K team to
deploy the Company practices and monitor progress across all three areas:
products, internal operations, and supplier capabilities. The team includes a
member of the executive staff and representatives from throughout the Company:
Quality, Information Systems, Software Engineering, Customer Service,
Purchasing, and Sales. The team meets biweekly to set direction and action
plans, evaluate new developments, and ensure progress of all plans.
Plasma-Therm products are categorized by their type (such as VLR), the
controller used in the product's control system (such as Intel/registered
trademark/ Pentium/registered trademark/), the controller's operating system
(such as Microsoft/registered trademark/ Windows/registered trademark/), and the
system control software (such as Plasma-Therm Versaworks/registered trademark/).
As a result, four platforms are defined.
Each platform type has been surveyed to identify potential concerns and
determine the level of support to be provided by suppliers of essential
components. Aggressive date/time scenarios (several beyond SEMATECH standards)
were tested on representative products for each platform type to ensure that we
fully understand the impact of Y2K date-related scenarios. System hardware,
operating system, and software must all be Y2K compliant to ensure total Y2K
compliance for the system.
The product testing results show all systems to be capable of
performing the customer's defined processes without interruption for each Y2K
scenario. Some system installations may require a one-time manual adjustment on
or after 1/1/2000, or upgrade prior to 1/1/2000 to ensure the system date is
correct. The adjustment procedure is documented in Plasma-Therm Procedure
GEM0007, available at no cost through Plasma-Therm Customer Service. Depending
on system configuration and options installed, customers may choose to upgrade
their system to
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accommodate a correct system date. The upgrade is dependent upon processor type
and BIOS version installed. Computer hardware shipped since January 1999 is
compliant. The system software for older Versaworks systems (prior to version
3.0) may require a manual adjustment or software date patch to maintain system
functionality. The patch CD and instruction procedure (VWD0007) are available at
no cost through Plasma-Therm Customer Service. Systems with Versaworks software
shipped after May 1999 are compliant.
On an ongoing basis, Plasma-Therm tests all engineering changes to
hardware, software, and operating systems. For those which have potential impact
to date-sensitive operations, tests include current SEMATECH Y2K scenarios to
ensure all product released to manufacturing continue to meet the Company's Y2K
practice.
The Y2K Committee identified areas critical to the Company's internal
operations and addressed Y2K scenarios within these areas. All systems have been
or will be brought into compliance by September 30, 1999.
For Y2K compliance activities, the Y2K Committee groups the Company's
suppliers. Based on these groups, and the value of business transactions over
the past five years, Plasma-Therm sent each supplier a questionnaire. The
response requires a Y2K disclosure statement from each supplier. The standards
and follow-up actions required by Plasma-Therm are defined by supplier category.
The supplier responses indicate that currently, they are positioned to
support the Company without incident with regard to Y2K scenarios. Supplier
response results through August 1999 show that 84% of critical parts suppliers
will be capable of supporting Plasma-Therm without incident. Critical service
providers are all capable of supporting the Company, and 86% of critical
facilities suppliers are capable as of August 1999. The Company continues to
work with each supplier not conforming to Plasma-Therm standards to achieve
readiness by year-end 1999.
For installed products, Plasma-Therm service personnel are prepared to
provide assistance to our customers in preparing for or during Y2K scenarios.
Plasma-Therm procedures are available to assist customers in these activities.
In addition, hardware upgrade kits for processors or BIOS modules may
be available for specific systems. These optional upgrades are stated by the
manufacturer to be Y2K compliant. They can be installed prior to the Y2K
transition date, based on scheduling with Plasma-Therm's Customer Service.
To assist our customers in preparing for Y2K scenarios, Plasma-Therm
provides support via the Y2K Readiness Committee and Customer Service. In
addition, should any unforeseen incident occur during any Y2K scenario,
Plasma-Therm service personnel can provide assistance.
Plasma-Therm is continually assessing year 2000 readiness as additional
information regarding Y2K scenarios becomes available. The Company's Y2K program
is specifically
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designed to address and help protect our customers from the possibility of
Y2K-related problems. The Plasma-Therm Y2K team ensures the Y2K program
continues its high priority focus. The Company is committed to applying all
reasonable efforts to achieve and maintain compliance in accordance with the
SEMATECH YEAR 2000 READINESS TEST SCENARIO. The Company makes no certification
or warranty, express or implied, of any kind, concerning its Y2K readiness, or
that of its products. Based on the Company's Year 2000 analysis described above,
the Company is uncertain of its worst case scenario if the Company's products,
systems, customers, or suppliers are not Year 2000 compliant.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.60 Stock Purchase and Redemption Agreement dated June
21, 1999 between the Company and Magnetran, Inc. and
George McCauley, including Promissory Note dated June
30, 1999 from Magnetran, Inc. to the Company, and
Stock Pledge and Security Agreement dated June 30,
1999 between the Company, Magnetran, Inc., George
McCauley and U.S. Bank Trust National Association.
10.61 Amendment No. 3 to Employment Agreement between
Registrant and Stacy L. Wagner, dated June 30, 1999.
10.62 Amendment No. 2 to Employment Agreement between
Registrant and Edmond A. Richards, dated June 30,
1999.
10.63 Amendment No. 2 to Employment Agreement between
Registrant and Ronald S. DeFerrari, dated July 19,
1999.
27 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the third quarter of
fiscal 1999.
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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 17, 1999 BY: /s/ STACY WAGNER
--------------------------------------
Stacy Wagner
Chief Financial Officer, Treasurer and
Secretary
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PLASMA-THERM, INC.
FOR 10-Q (FOR THE NINE MONTHS ENDED AUGUST 31, 1999)
EXHIBIT INDEX
10.60 Stock Purchase and Redemption Agreement dated June
21, 1999 between the Company and Magnetran, Inc. and
George McCauley, including Promissory Note dated June
30, 1999 from Magnetran, Inc. to the Company, and
Stock Pledge and Security Agreement dated June 30,
1999 between the Company, Magnetran, Inc., George
McCauley and U.S. Bank Trust National Association.
10.61 Amendment No. 3 to Employment Agreement between
Registrant and Stacy L. Wagner, dated June 30, 1999.
10.62 Amendment No. 2 to Employment Agreement between
Registrant and Edmond A. Richards, dated June 30,
1999.
10.63 Amendment No. 2 to Employment Agreement between
Registrant and Ronald S. DeFerrari, dated July 19,
1999.
27 Financial Data Schedule (for SEC use only).