<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1997
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 0-12353
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
------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (813) 577-4999
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
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
--- ---
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of January 9, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $58,128,494.*
As of January 9, 1998, 11,134,561 shares of Common Stock, $.01 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders presently scheduled to be held on May 5, 1998 are incorporated
by reference in Part III.
*Calculated by using the applicable closing trade price and by excluding all
shares that may be deemed to be beneficially owned by executive officers and
directors of the Registrant, without conceding that all such persons are
"affiliates" of the Registrant for purposes of the Federal securities laws.
ii
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PART I
ITEM 1. BUSINESS
GENERAL
Plasma-Therm, Inc., together with its subsidiary, (collectively, the
"Company") is engaged in the design and production of thin film etching and
deposition manufacturing equipment. The Company sells this equipment directly to
manufacturers in the compound semiconductor, thin film head, photomask,
microeletectromechanical (MEMS) and flat panel display industries. The Company's
products are marketed, together with service and technical support, by the
Company's direct sales force, its Japanese distributor and independent domestic
and foreign manufacturer's representatives. The Company is a Florida corporation
and was founded in 1975.
RECENT DEVELOPMENTS
Fiscal year ended November 30, 1997 showed continued strong interest in
the Versalock 700 family of cluster tools. Solid sales were observed in the thin
film head, compound semiconductor, and photomask markets. This increase in
demand for the Versalock 700 products resulted from both the move to production
systems with current customers, as well as the development of new processes on
the Versalock 700.
Additionally, the Inductively Coupled Plasma source (ICP) has been well
accepted in the market place for a number of advanced etch processes. This
acceptance has been well received in the Company's four served markets, compound
semiconductor, thin film head, photomask, and MEMS, resulting in increases in
both Shuttlelock(R) 770 and Versalock(R) 770 sales.
All four served markets contributed to the improved financial performance
in 1997. Photomask systems sales and bookings increased significantly, as dry
etch is becoming a necessary technology for advanced reticle fabrication. This
market is primarily supported by Versalock(R) 770 systems. Additionally, the
first Versalock(R) 770 systems for advanced compound semiconductor device
production were shipped to a major US manufacturer during 1997. Thin film head
production orders were also strong in 1997, as Versalock(R) 700 systems were
shipped both to existing and new customers in this high growth area. Lastly, the
Shuttlelock(R) 770 ICP etcher has provided the MEMS community with a cost
effective development system for manufacture of these products.
A significant new technology developed and sold during 1997 was High
Density Plasma deposition (HDP). This improved method for deposition utilizes
the basic ICP reactor to deposit advanced thin films for a number of
applications. Users of this advanced technology realize a number of important
benefits to their existing methods of manufacturing, with the applications of
this new technology initially being focused on the thin film head and compound
semiconductor markets.
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PLASMA-THERM PRODUCT LINES
The Company manufactures various product lines that perform thin film
etching and deposition. Several products utilize batch processing in which
wafers or substrates are placed into the plasma chamber and processed
simultaneously. Also, the Company's products permit single wafer or substrate
processing.
The Company's thin film etching systems provide a combination of Reactive
Ion Etching (RIE), Plasma-Etching (PE), and Inductively Coupled Plasma (ICP)
capability, which permits advanced process applications for the Photomask, Thin
Film Head, compound semiconductor, and Microelectromechanical (MEMS) markets.
The Company also offers Plasma Enhanced Chemical Vapor Deposition (PECVD)
and High Density Plasma (HDP) systems for depositing thin films for use in the
same four served markets.
The Company's plasma systems are divided into two groups. The batch group
consists of three products lines: (1) 790 Series, (2) Shuttlelock(R) Series, and
(3) the 7000 Series. The automated group of products consists of the
Versalock(R) 700 Series. These groups of products permit our customers to go
from research and development to pilot production and then on to high volume
manufacturing, utilizing the Company as their primary supplier.
The batch product lines are marketed as related products to a wide range
of industries (see Item 1, Business, General). They are modular in design with
components that are largely interchangeable. The automated group of products are
targeted specifically to high volume manufacturers of thin film heads, compound
semiconductors, MEMS devices, and Mask fabricators.
In addition to plasma systems, the Company produces specialty power
subsystems and devices.
790 Series
The 790 Series RIE, PECVD and ICP plasma system are widely accepted
research and development plasma processing systems. The 790 Series has been
successful in the marketplace as the successor to the System VII 70 and 700
Series. The 790 Series is primarily used for advanced research and development
and pilot production of compound semiconductor devices.
Shuttlelock(R) Series
The Shuttlelock(R) Series RIE, PECVD, and ICP plasma systems continue to
be successful products. The Shuttlelock(R) is a loadlocked, single or dual
chamber plasma processing system. The loadlock allows the processing chambers to
remain under vacuum, thus permitting increased process integrity. The
Shuttlelock(R) Series is used for pilot production and production of compound
semiconductor devices, opto-electronics, and MEMS systems.
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7000 Series
The 7000 Series RIE and PECVD systems were originally introduced in 1987
and received a complete redesign in 1995. This series of manually loaded plasma
systems are unique because of their 24 inch diameter electrode areas. This
feature makes the product attractive for use on either large area substrates or
large load batches of medium or small substrates. The 7000 Series is primarily
used for high volume manufacturers of thin film heads and compound semiconductor
devices.
Versalock(R) 700 Series
The Versalock(R) 700 Series RIE, PECVD, and ICP plasma systems are the
Company's newest products. The Versalock(R) 700 is the Company's first plasma
system platform where multiple product generations will be developed using the
same substrate handling mechanisms. The Versalock(R) 700 has a central handler
that permits up to three processing modules. The Versalock(R) 700 is available
with manual or cassette-to-cassette capability allowing it to meet advanced
research and development and volume production requirements of the compound
semiconductor, thin film head, photomask, and MEMS system markets.
Specialty Power Subsystems and Devices
The Company's wholly-owned subsidiary, Magnetran, Inc., is in the
business of manufacturing transformers, reactors, power centers and related
components. These products are used by manufacturers of induction melting
furnaces, RF power supplies and AM/FM broadcast transmitters.
MANUFACTURING AND SUPPLIES
The Company designs and develops a substantial portion of its systems'
components. The Company has multiple potential commercial sources for all of its
components and sub-assemblies that it acquires from outside vendors, although it
often uses a single vendor for a given item to achieve consistency, favorable
pricing and dependable close relationships. The Company maintains a significant
inventory due to lengthy lead times of certain components, aggressive customer
delivery requirements and the need to provide quality parts and service to its
customers.
PATENTS AND TRADEMARKS
The Company believes that its success is generally less dependent upon
patent protection than on the scientific and engineering skills which are
applied to its products. The Company believes that licenses for products or
processes that are developed in the future could be valuable components of its
business strategy and intends to grant or seek such licenses and agreements and
seek possible patent protection, wherever it deems appropriate.
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RESEARCH AND DEVELOPMENT
The market served by the Company is characterized by rapid and constant
technological change. There is no assurance that the Company's current products
will be viable for extended time periods. Accordingly, the Company spends
substantial resources for research and product development directed toward
improving existing products and developing new products.
During fiscal years ended November 30, 1997, 1996 and 1995, the Company
spent approximately $3,725,000, $2,880,000 and $2,570,000, respectively, for
research and product development.
No assurance can be given that the Company will be technologically or
commercially successful in these or in any other research and product
development efforts. As of November 30, 1997, 33 employees were engaged
primarily in research and product development activities.
MARKETING, SALES AND SERVICE
In the United States, the Company sells its products through a
combination of direct sales (West Coast, Central, and East Coast) and one
manufacturer's representative. Service is provided directly with locations
throughout the U.S. near customer sites.
A substantial portion of the Company's markets is outside of the United
States. In Japan, the Company distributes its products exclusively through its
distributor, Hakuto Co., Ltd., located in Tokyo. Hakuto purchases the Company's
products for resale for its own account and provides sales and service through
several locations in Japan.
Sales of the Company's products in Europe are handled through a network
of manufacturer's representatives managed by the Company's direct sales office
located in Somerset, England. Service is provided by locations throughout
Europe.
In the Far East (other than in Japan), sales are handled exclusively by
manufacturer's representatives. Far Eastern service is supported by the
manufacturer's representatives and the Company directly.
The Company's marketing efforts include the operation of a process
demonstration laboratory in Florida. This laboratory is used for process
demonstration, customer support, and advanced development. Additionally, 1997
represented the year for significant increases in marketing efforts in all
target markets through the growth of a strategic marketing group. This
department is responsible for both tactical and strategic marketing efforts and
supports the company internationally.
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The following table sets forth the estimated percentages of revenues
represented by the Company's principal areas of activity for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Area Revenues
- -------------
Domestic ..................... 73% 61% 69%
Foreign ...................... 27% 39% 31%
--- --- ---
Total 100% 100% 100%
Product Revenues
- ----------------
Plasma systems (1) ........... 95% 94% 94%
Other (2) .................... 5% 6% 6%
--- --- ---
Total 100% 100% 100%
</TABLE>
See Note 8 to the Consolidated Financial Statements for additional foreign and
domestic operations and export sales information.
__________________________
(1) Includes core products and automated products.
(2) Includes transformers and other systems.
A substantial amount of equipment is sold by the Company with
applications support and warranties of the systems' ability to perform the
desired process within specified limits. In substantiating those warranties, the
Company offers customers the opportunity to perform tests on the customers'
sample wafers and substrates in the Company's process laboratories. The warranty
period is approximately one year from date of shipment.
Sales to Hakuto Co., Ltd., the Company's current Japanese distributor
(since September 1995), amounted to 9% and 8% of total revenues in 1997 and
1996, respectively. Sales to Nissin Hi-Tech, Inc./Nissin Electric Co., Ltd., the
Company's Japanese distributor until August 1995, amounted to 7% of total
revenues in 1995.
Backlog
The Company's backlog, as of November 30, 1997 and 1996 was approximately
$19,000,000 and $12,000,000, respectively. Backlog orders consist solely of
those systems for which a delivery schedule has been specified and to which the
customer has been assigned a purchase order number. Orders generally are subject
to cancellation by the customer upon payment of charges which vary depending on
the nature of the order and the timing of the cancellation. It is expected that
substantially all of the November 30, 1997 backlog will be shipped during fiscal
year 1998.
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COMPETITION
Batch Products
The Company experiences substantial competition for all of its batch
products. Competition derives mainly from two European companies, Oxford Plasma
Technology and Surface Technology Systems (STS). Due to the Company's locally
available Applications Laboratory and substantially larger service organization
and installed base, the Company believes that it maintains competitive
advantages in selling its products in the United States. Conversely, the Company
experiences significantly greater competition in Europe and Japan because of its
competitors' locations.
Automated Products
The competition for the Versalock(R) 700 system is Surface Technology
Systems (STS).
Principal competitive factors include system performance, cost of
ownership, size of installed base, diversity of product line and overall
customer support. The Company's competitors have experience with complex
high-volume manufacturing and financial, technical, and marketing resources.
Therefore, there can be no assurance that the Company's competitors will not
develop systems and features that are superior to the Company's.
EMPLOYEES
As of November 30, 1997, the Company had 181 full-time employees, 143 of
whom are employed in Florida, 19 in New Jersey, 5 in Europe, with the remaining
14 located in its sales and service offices throughout the United States. Of
such employees, 23 are executive or administrative, 40 are sales and service, 85
are manufacturing and 33 are research and development personnel. Management
believes, that in general, its employee relations are good. The Company
currently does not have any collective bargaining agreements.
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EXECUTIVE OFFICERS OF THE COMPANY AND KEY EMPLOYEES
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald H. Deferrari 57 Chairman of the Board,
Chief Executive Officer, Treasurer,
Ronald S. Deferrari 34 President, Chief Operating Officer
Edmond A. Richards 47 Vice President of Engineering
Stacy L. Wagner 34 Vice President of Finance & Administration
W. Nicholas Goetz 38 Vice President, Corporate Secretary
Dr. Jay Sasserath 35 Vice President of Strategic Marketing
</TABLE>
Ronald H. Deferrari is the founder of the Company and the father of
Ronald S. Deferrari. Mr. Deferrari served as President of the Company since its
formation in 1975 until Ronald S. Deferrari became President in 1995.
Ronald S. Deferrari was elected President in June 1995 and has been
employed with the Company in various capacities since 1983. Mr. Deferrari was
appointed Chief Operating Officer in 1993. Prior to his current position, he was
Executive Vice President and Director of Sales and Marketing.
Edmond A. Richards, PE, was elected Vice President of Engineering in
October 1996. Mr. Richards has been Director of Engineering since 1994 and has
been employed with the Company for twenty years. Since 1991 Mr. Richards has
held various engineering management positions and prior to this date, he served
as General Manager of the Company for 11 years.
Stacy L. Wagner, CPA, was elected Vice President of Finance in June 1995
and has been with the Company since July 1993. In August 1997 Ms. Wagner was
elected Vice President of Finance and Administration. Prior to joining
Plasma-Therm, Ms. Wagner was employed in the audit division with Grant Thornton
and Coopers & Lybrand.
W. Nicholas Goetz was elected Vice President and Corporate Secretary in
August 1997. Prior to joining the Company, Mr. Goetz was employed for over ten
years by the Acacia Group-Acacia Life Insurance Company in Washington D.C. where
he held the position of Vice President and Assistant Secretary.
Dr. Jay Sasserath was elected Vice President of Strategic Marketing in
January 1998, and has been employed with the Company since December, 1996. Prior
to coming to Plasma-Therm, he held various management positions in marketing and
technical areas at Materials Research Corporation in New York.
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Other Key Employees
Dr. David J. Johnson, Process Scientist, has sixteen years experience in
the plasma processing field and has been employed with Plasma-Therm since 1979.
Dr. Johnson was recently named Director of Research and Development with
responsibility for overall Company's research and development. He is a widely
acknowledged expert in the area of metal etching for the manufacture of silicon
integrated circuits and complements this with knowledge and publications in
virtually every aspect of plasma processing.
Dr. Christopher Constantine, Applications Manager, has been employed with
the Company since 1984. He has acquired considerable experience working in the
ECR and ICP plasma processes after an extensive career in traditional parallel
plate plasmas, and is widely acknowledged for his expertise.
Lynn Ochs, Director of Sales, has been employed with the Company since
January, 1996. Mr. Ochs brings 20 years of semiconductor capital equipment
experience to the Company, having held similar positions at Applied Materials,
Perkin-Elmer and Bruce Technologies.
Robert Wendland, Director of Operations, has been employed with the
Company since January 1997. Prior to joining the Company, Mr. Wendland was
employed for over twenty years with various positions in manufacturing and
operations, most recently as Director of Operations in the medical device and
commercial electronics industry.
John Sheridan, Director of Customer Service, has been employed with the
Company since January 1996. Prior to joining the Company, Mr. Sheridan held
various management positions in customer service and technical marketing.
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ITEM 2. PROPERTIES
The Company's executive offices, manufacturing and product development
facilities are located in a 60,000 square foot building in St. Petersburg,
Florida which was constructed in June 1996. The Company holds a mortgage on the
building, payable in monthly installments of $33,235, including interest at 8.5%
through July 2001. A balloon payment is due at the end of the term. The loan is
collateralized by the land, the building and its contents.
In December 1997 the Company purchased 1.4 acres (60,530 sq. ft.) of land
adjacent to its current 60,000 square foot facility for $226,975. Contingent
upon board approval, the Company plans to construct a 28,000 square foot
building on this land to be used for additional research and development and
office space. Anticipated completion date is the end of fiscal year 1998.
The Company's subsidiary, Magnetran, Inc., operates in one facility
located in New Jersey. Magnetran, Inc. entered into a 5 year gross lease with
the Company's CEO, commencing November 1, 1994 for approximately 17,750 square
feet in New Jersey. The premises are leased at an aggregate annual base rental
of $86,841, which escalates 3% annually. After the initial term of the lease,
Magnetran has an option to renew for five years with a 3% increase each year.
The aggregate rentals paid to the CEO for all leases for the years ended
November 30, 1997, 1996 and 1995, were approximately $92,000, $90,000 and
$87,000, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that is expected to have a material adverse
effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol PTIS. The following table sets forth the range of high and low trade
prices for the Common Stock for fiscal 1996 and 1997 as reported by NASDAQ. The
Company began trading on the NASDAQ National Market on June 6, 1996 and
previously traded on the NASDAQ SmallCap Market. As of January 9, 1998, the
closing price of the Company's Common Stock was $6-7/16.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ------------ -------------
<S> <C> <C>
First quarter $ 3-1/4 $ 2
Second quarter 4-11/16 2-1/8
Third quarter 5-11/16 3-1/4
Fourth quarter 4-3/4 2-13/16
<CAPTION>
FISCAL 1997 HIGH LOW
----------- ------------ -------------
<S> <C> <C>
First quarter $ 6-11/16 $ 3-9/16
Second quarter 6-5/16 3-11/16
Third quarter 8-7/8 5-1/16
Fourth quarter 12-13/16 7-3/8
</TABLE>
As of January 9, 1998, there were 596 record holders of the shares of
Common Stock.
There have been no dividends declared during 1997. The Company entered
into a new loan agreement with NationsBank of Florida, N.A. (NationsBank) in
April 1997. That agreement contains covenants which relate to the Company's
operating performance and financial condition, including a tangible net worth
ratio not to exceed 1 to 1 and a minimum cashflow ratio (as defined) of 2 to 1.
As of November 30, 1997 and during the fiscal year the Company has been in
compliance with these and other financial covenants. Under the most restrictive
of these covenants, as of November 30, 1997 the Company has retained earnings
available for dividend distribution of approximately $17,800,000.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ------------- -------- ------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of
Operations:
Revenues $44,445 $37,862 $29,612 $23,318 $16,401
Net Income 4,661 2,994 1,089 1,963 233
Net Income per
common share .41 .28 .10 .22(1) .03
</TABLE>
(1) Includes .04 increase (from .18 to .22) as a result of the cumulative
effect of adopting SFAS 109.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance Sheet at end
of period:
Working Capital $22,486 $16,319 $15,102 $10,114 $ 7,647
Total assets 39,607 31,475 26,909 16,583 10,824
Total long-term
obligations 3,671 3,589 1,147 811 66
Shareholders' Equity 28,685 22,219 18,972 11,105 8,623
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The dollar amounts referenced throughout this section are approximations,
rounded to the nearest ten thousand ($10,000). References to years are to the
Company's fiscal years ended November 30 of the year referred to.
RESULTS OF OPERATIONS
Comparison of Fiscal 1997 and Fiscal 1996
For 1997 the Company reported net sales of $44,440,000, 17% higher than
net sales of $37,860,000 for 1996. The increase in net sales was attributable to
higher product demand and increased sales of the Company's newest products, the
Versalock(R) 700 Series and the Shuttlelock(R) ICP Series. Sales of the
Versalock(R) 700 Series began in the fourth quarter of 1995 while sales of the
Shuttlelock(R) (770) ICP Series began in 1996. Total sales related to
Versalock(R) 700 Series in 1997 and 1996 was $20,540,000 and $16,210,000,
respectively. Total sales related to the Shuttlelock(R) (770) ICP Series in 1997
and 1996 was $7,240,000 and 2,390,000, respectively. These products combined,
represented 62% and 49% of net sales in 1997 and 1996, respectively.
Cost of products sold of $25,690,000 for 1997 was 58% of net sales,
compared to $23,480,000 for 1996, representing 62% of net sales. The percentage
decrease was primarily due to a combination of increased sales of the Company's
most profitable product line, the Versalock(R) 700 Series and an increase in
average gross margin for both the Versalock(R) 700 Series and Shuttlelock(R)
(770) Series. In addition, other manufacturing costs as a percentage of net
sales decreased slightly from 1996 to 1997 which is primarily the result of
improved operating efficiencies.
Also included in cost of products sold was a provision for warranty costs
and inventory obsolescence totaling $430,000 and $1,200,000 in 1997 and $660,000
and $390,000 in 1996, respectively. The $230,000 decrease in warranty costs and
$810,000 increase in inventory obsolescence was primarily the direct result of
the discontinuance of the Clusterlock(R) 7000 series product line in 1997. As of
November 30, 1997, the Company had no material warranty obligations related to
this product line. Furthermore, the Company's increase in net sales in 1997 did
not result in a corresponding increase in the warranty provision because the
increase in net sales related primarily to the Company's newest products, the
Versalock(R) 700 series and Shuttlelock(R) (770) ICP series which have lower
warranty costs as compared to the Company's other products. Of the $1,200,000
provision for inventory obsolescence in 1997, $670,000, representing 2.6% of
cost of products sold, related to the discontinuance of Clusterlock(R) 7000
series. The remaining $530,000 provision was 2% of cost of products compared to
$390,000 for 1996 which was 1.7% of cost of products sold. The Company's
warranty reserves and inventory provisions are determined by management
considering among other factors, an ongoing analysis of the Company's actual
costs and product lines and industry experience.
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<PAGE> 15
Research and development expenses for 1997 were $3,730,000 compared to
$2,880,000 in 1996, which were 8.4% and 7.6% of net sales, respectively. In 1997
several research and development programs were implemented to enhance
development efforts in the Company's target markets. In addition, as new
products and technology continue to be introduced, total dollars expended on
research and development are expected to increase.
Selling and administrative expenses for the year ended November 30, 1997
were $7,340,000, up from $6,540,000 for the year ended November 30, 1996 which
were 16.5% and 17.3% of net sales, respectively. The slight decrease in the
percentage was the result of certain overhead expenditures increasing at a lower
rate than the increase in sales. Although selling and administrative expense as
a percentage of net sales decreased slightly from 1996 to 1997, total dollars
expended increased by $800,000. This increase related primarily to the marketing
initiatives which began in the second quarter of 1997 resulting in higher
expenditures associated with payroll, travel, conventions, and advertising.
Income before income taxes for 1997 was $7,540,000, an increase of
$2,690,000 or 55.3%, from $4,850,000 earned in 1996. Net income increased
$1,667,000, or 55.7%, from $2,994,000 for 1996 to $4,661,000 for 1997. Net
income per share was $.41 for 1997, an increase of $.13 from $.28 for the year
ended November 30, 1996. Additionally, net income for 1997 and 1996 was 10.5%
and 7.9% of net sales, respectively. The components of this increase are
described above.
Effective December 1, 1996, management elected to continue using the
method under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," to account for stock option awards granted to employees.
As a result, Statement of Accounting Standards No. 123 (SFAS No. 123),
"Accounting or Stock-Based Compensation" proforma disclosures are required in
these financial statements. The adoption of SFAS No. 123's accounting and
reporting provisions had no effect on the Company's financial statements except
for the required pro forma disclosures (See Note 4 to the Consolidated Financial
Statements).
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" was issued by the Financial Accounting Standards Board which is effective
for financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The adoption of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the financial statements.
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SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, and amends SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries. This Statement requires annual financial statements to disclose
information about products and services, geographic areas and major customers
based on a management approach, along with interim reports. The management
approach requires disclosing financial and descriptive information about an
enterprise's reportable operating segments based on reporting information the
way management organizes the segments for making business decisions and
assessing performance. The Company plans to adopt SFAS No. 131 in 1999 which has
a possible impact only to the Company's disclosure information and not its
results of operations.
Comparison of Fiscal 1996 and Fiscal 1995
For 1996 the Company reported net sales of $37,860,000, 28% higher than
net sales of $29,610,000 for 1995. The increase in net sales was attributable to
higher product demand and sales of the Company's newest products, the
Versalock(R) 700 Series and the Shuttlelock(R) (770) ICP Series. Sales of the
Versalock(R) 700 Series began in the fourth quarter of 1995 while sales of the
Shuttlelock(R) (770) ICP Series began in fiscal 1996. Total sales related to
Versalock(R) 700 Series in 1996 and 1995 was $16,210,000 and $2,560,000,
respectively. Total sales related to the Shuttlelock(R) (770) ICP Series was
$2,390,000 in 1996.
Cost of products sold of $23,480,000 for 1996 was 62% of net sales,
compared to $20,240,000 for 1995 which was 68% of net sales. The decrease was
primarily due to a combination of higher margins related to the sales of the
Versalock(R) 700 Series in 1996 and lower margins on the Clusterlock(R) 7000
sales in 1995.
For comparative purposes and to be consistent with the Company's peer
groups, in 1995 and 1994 field service costs, including warranty, were
reclassified entirely from selling and administrative to cost of products sold.
Warranty expense in 1996 was $660,000 as compared to $1,200,000 in 1995.
A large component of the $540,000 difference between the years related to a
provision established in 1995 for Clusterlock(R) 7000 systems sold. In 1996 the
Clusterlock(R) 7000 sales were substantially lower. The Company's increase in
net sales in 1996 did not result in a corresponding increase in warranty
provision because the increase in net sales related primarily to the
Versalock(R) 700 series which has lower warranty costs compared to the
Clusterlock(R) 7000 and certain other of the Company's products.
Also included in cost of products sold in 1996 and 1995 was a provision
for inventory obsolescence of $390,000 and $340,000, respectively.
14
<PAGE> 17
Research and development expenses for 1996 were $2,880,000 compared to
$2,570,000 in 1995, which were 8% and 9% of net sales, respectively. Although
the percentage of research and development expense to net sales decreased
slightly, total dollars spent increased by $310,000. 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 28% from 1995 to 1996.
Selling and administrative expenses for the year ended November 30, 1996
were $6,540,000 up from $5,090,000 for the year ended November 30, 1995 which
were 17% of net sales for both years. A portion of the dollar increase related
to increased sales volume and costs associated with the move to the Company's
new manufacturing facility in June, 1996. In addition, $270,000 related to
termination payments which will be paid in 1997 and 1998, to a former officer of
the Company under his employment agreement. Also, in 1996 commissions paid to
international sales representatives amounted to $950,000, a $550,000 increase
over 1995 commissions of $400,000. The increase in international sales
representative commissions directly related to a 60% increase in international
sales from $9,190,000 to $14,760,000 in 1996. In addition, foreign sales as a
percentage of total sales increased 8% from 31% in 1995 to 39% in 1996.
Income before income taxes for 1996 was $4,850,000, an increase of
approximately $3,050,000 or 170%, from $1,800,000 earned in 1995. Net income
increased $1,905,000 or 175%, from $1,089,000 for 1995 to $2,994,000 for 1996.
Net income per share was $.28 for 1996, an increase of $.18 from $.10 for the
year ended November 30, 1995. The components of this increase are described
above.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
Working capital at November 30, 1997 was $22,490,000, which is an
increase of $6,170,000 over $16,320,000 at November 30, 1996. Working capital in
1997 benefited from, among other things, funds provided by the Company's
increased earnings from its operations in 1997. See the following discussion of
the Company's cash position which also supplements this commentary on working
capital.
Cash at November 30, 1997 was $5,400,000 which is an increase of $130,000
over $5,270,000 at November 30, 1996. The primary components of this increase
are described herein. The following discussion highlights certain aspects of the
Company's cashflow activities impacting cash along with certain related balance
sheet line items. The activities to be discussed are as follows:
<TABLE>
<CAPTION>
NET CASH PROVIDED BY
(USED IN)
----------------------------
1997 1996 INC(DEC)
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities $(280,000) $4,010,000 $(4,290,000)
Investing Activities (2,290,000) (5,560,000) 3,270,000
Financing Activities 2,700,000 1,760,000 940,000
</TABLE>
15
<PAGE> 18
Net cash used in operating activities in 1997 was ($280,000) compared to
net cash provided by operating activities of 4,010,000 in 1996. This
($4,290,000) change, which is a decrease, is composed of the increase in net
income in 1997 compared to 1996 of $1,670,000 and the increase in depreciation
and amortization of $940,000, offset by changes in operating assets and
liabilities, including ($5,550,000) increase in the change in accounts
receivable, ($2,020,000) increase in the change in inventories, $1,610,000
increase in the change in accounts payable, and ($440,000) decrease in the
change in customer deposits between the years.
Depreciation and amortization was $1,870,000 in 1997 compared to $930,000
in 1996, a $940,000 increase. Approximately $1,150,000 and $750,000 of
self-constructed and purchased research and development equipment, respectively,
was added in 1997 to be used in the development efforts in the Company's target
markets discussed previously. The majority of the equipment is being depreciated
over a three year life.
Accounts receivable increased by $5,710,000 at November 30, 1997 to
$13,760,000 from $8,050,000 at November 30, 1996, due primarily to increased
sales and the timing of sales and related payments.
Inventories increased by $1,920,000 at November 30, 1997 to $9,880,000
from $7,960,000 at November 30, 1996. The increase was principally due to
purchases required for the increased level of sales orders. The Company's
backlog at November 30, 1997 was approximately $19,000,000, which is a 58%
increase over the backlog at November 30, 1996 of approximately $12,000,000.
Accounts payable increased by $920,000 at November 30, 1997 to $3,140,000
from $2,220,000 at November 30, 1996 due to a higher level of purchases
associated with the increased sales volume and backlog.
At November 30, 1997 no customer deposits were recorded as compared to
$220,000 recorded at November 30, 1996. The 1996 balance is comprised of a
prepayment from one customer which was subsequently recorded as revenue in 1997.
Net cash used in investing activities for 1997 was $2,290,000 compared to
$5,560,000 in 1996. This $3,270,000 change, which is a decrease, relates
primarily to capital expenditures. The Company incurred capital expenditures of
$2,310,000 in 1997, of which $1,900,000 was for the construction and purchase of
various lab equipment to be used in research and development. The remaining
$410,000 is comprised of various production and computer equipment. The Company
incurred capital expenditures of $5,380,000 in 1996, of which $2,980,000 was for
the construction of the Company's new facility, $1,220,000 was for the
construction of various lab equipment to be used in research and development,
and $1,180,000 was for the purchase of manufacturing software, computer
hardware, telephone system and inventory storage system.
16
<PAGE> 19
Net cash provided by financing activities for 1997 was $2,700,000
compared to $1,760,000 in 1996. This $940,000 change, which is an increase,
relates to various factors including a decrease in the proceeds from the
issuance of notes payable of ($2,120,000), an increase in the payments of
long-term obligations of ($150,000), an increase in the proceeds under the line
of credit agreements of $2,000,000, and an increase in the exercise of common
stock and warrants of $1,210,000.
In April, 1997 the Company increased its existing line of credit with its
bank from $3,000,000 to $7,000,000. The term of the line of credit agreement is
through May, 1998. Interest is payable monthly at the one month LIBOR rate plus
2% (7.97% at November 30, 1997). The line is collateralized by accounts
receivable. As of November 30, 1997, $2,000,000 was outstanding under the line
of credit. As of November 30, 1997, the Company's availability under the line of
credit was reduced by $42,150 as a result of outstanding letters of credit,
leaving an availability balance of $4,957,850.
In April, 1997 the Company executed a $1,000,000 term loan with its bank.
The loan is payable in monthly installments of $27,778 plus interest at the one
month LIBOR rate plus 2.25% (8.22% at November 30, 1997) through April 2000. The
note is secured by various research and development equipment.
The line of credit and term loan are cross-collateralized, and the bank
has a security interest in the proceeds for the collection of accounts
receivable and the Company's depository accounts. The agreements include
financial covenants relating to the Company's operating performance and
financial condition. In addition, a negative pledge agreement was executed which
does not permit the Company to hold a lien or encumbrance on its inventory.
In December 1997 the Company purchased 1.4 acres (60,530 sq. ft.) of land
adjacent to its current 60,000 square foot facility for $226,975. Contingent
upon board approval, the Company plans to construct a new 28,000 square foot
building on this land to be used for additional research and development and
office space. Anticipated completion date is the end of fiscal year 1998.
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 is
not limited to the following:
17
<PAGE> 20
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.
The Company has conducted a comprehensive review of its computer systems
to identify applications that could be affected by the Year 2000 issue.
Following this review, the Company took corrective measures to resolve any
problems associated with the Year 2000 issue, and the costs associated with such
corrective measures were not material. Additionally, the Company does not
interact electronically with either its customers or vendors. Accordingly, the
Company does not anticipate that Year 2000 issues will have a material adverse
affect on the Company's financial condition or results of operations.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accountants' Report ............................................ 20
Consolidated Financial Statements
Balance Sheets - November 30, 1997, and 1996 ............. 21
Statements of Income - Years Ended
November 30, 1997, 1996, and 1995 ...................... 23
Statements of Shareholders' Equity - Years Ended
November 30, 1997, 1996, and 1995 ...................... 24
Statements of Cash Flows - Years Ended
November 30, 1997, 1996, and 1995 ...................... 25
Notes to the Financial Statements ........................ 27
</TABLE>
19
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Plasma-Therm, Inc.
We have audited the accompanying consolidated balance sheets of Plasma-Therm,
Inc. and Subsidiary as of November 30, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended November 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Plasma-Therm, Inc.
and Subsidiary as of November 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended November 30, 1997 in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Tampa, Florida
January 16, 1998
20
<PAGE> 23
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,398,030 $ 5,266,279
Accounts receivable 13,755,778 8,046,130
Inventories 9,875,801 7,958,620
Prepaid expenses and other 414,521 326,883
Deferred tax asset 293,814 388,313
------------- -------------
Total current assets 29,737,944 21,986,225
------------- -------------
Property, plant and equipment
Land 786,017 786,017
Building 4,444,649 4,394,649
Machinery and equipment 7,678,097 6,026,387
Leasehold improvements 148,055 142,915
------------- -------------
13,056,818 11,349,968
Less accumulated depreciation and 3,405,935 2,155,143
amortization ------------- -------------
9,650,883 9,194,825
------------- -------------
Other assets 218,263 294,126
------------- -------------
$ 39,607,090 $ 31,475,176
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
-21-
<PAGE> 24
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30,
<TABLE>
<CAPTION>
LIABILITIES 1997 1996
------------ ------------
<S> <C> <C>
Current liabilities
Line of credit $ 2,000,000 $ 1,000,000
Current maturities of long-term obligations 723,968 524,901
Accounts payable 3,141,397 2,223,826
Accrued payroll and related 651,505 676,674
Accrued expenses 734,720 1,024,094
Customer deposits -- 218,000
------------ ------------
Total current liabilities 7,251,590 5,667,495
------------ ------------
Long-term obligations 3,670,581 3,588,994
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock, $.01 par value (25,000,000
shares authorized, 11,126,561 and
10,396,061 shares issued and outstanding
at November 30, 1997 and 1996, respectively) 111,267 103,962
Additional paid-in capital 16,695,253 14,897,446
Retained earnings 11,878,399 7,217,279
------------ ------------
28,684,919 22,218,687
------------ ------------
$ 39,607,090 $ 31,475,176
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
-22-
<PAGE> 25
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 44,444,657 $ 37,862,185 $ 29,611,625
------------ ------------ ------------
Costs and expenses
Cost of products sold 25,689,816 23,480,636 20,236,670
Research and development 3,725,465 2,880,226 2,569,700
Selling and administrative 7,337,942 6,540,588 5,090,944
Interest expense 474,602 342,203 203,211
Interest and other income, net (321,382) (235,843) (284,699)
------------ ------------ ------------
36,906,443 33,007,810 27,815,826
------------ ------------ ------------
Income before income taxes 7,538,214 4,854,375 1,795,799
Income taxes 2,877,094 1,860,789 706,857
------------ ------------ ------------
Net income $ 4,661,120 $ 2,993,586 $ 1,088,942
============ ============ ============
Income per share $ 0.41 $ 0.28 $ 0.10
============ ============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
-23-
<PAGE> 26
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
COMMON STOCK CAPITAL EARNINGS
----------------------------- --------------- --------------
SHARES
ISSUED AMOUNT AMOUNT AMOUNT
--------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Balance at November 30, 1994 8,428,561 $ 84,287 $ 7,885,857 $ 3,134,751
Exercise of stock options
(inclusive of income tax benefits) 101,000 1,010 222,621 --
Exercise of warrants
(inclusive of income tax benefits) 250,000 2,500 524,939 --
Compensation on unexercised
stock options -- -- 183,908 --
Sale of 1,500,000 shares of
common stock, net of
offering costs of $616,000 1,500,000 15,000 5,744,097 --
Repayment of obligations under
Section 16(b) of the Securities
Exchange Act of 1934 -- -- 84,353 --
Net income -- -- -- 1,088,942
------------- ---------- ------------- ------------
Balance at November 30, 1995 10,279,561 102,797 14,645,775 4,223,693
Exercise of stock options
(inclusive of income tax benefits) 116,500 1,165 240,466 --
Compensation on unexercised
stock options -- -- 11,205 --
Net income -- -- -- 2,993,586
------------- ---------- ------------- ------------
Balance at November 30, 1996 10,396,061 103,962 14,897,446 7,217,279
Exercise of stock options
(inclusive of income tax benefits) 330,500 3,305 1,482,967 --
Exercise of warrants 400,00 4,000 304,840 --
Compensation on unexercised
stock options -- -- 10,000 --
Net income -- -- -- 4,661,120
------------- ---------- ------------- ------------
Balance at November 30, 1997 11,126,561 $ 111,267 $ 16,695,253 $ 11,878,399
============= ========== ============= ============
</TABLE>
See accompanying notes to these consolidated financial statements.
-24-
<PAGE> 27
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities $ 4,661,120 $ 2,993,586 $ 1,088,942
Net income
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,872,424 934,464 692,944
Loss on disposal of assets 37,185 14,066 15,323
Deferred taxes 94,499 397,537 (79,470)
Compensation - stock options 15,310 33,306 183,908
Tax benefit related to certain stock options
and warrants 372,782 10,442 434,795
Changes in assets and liabilities
Increase in accounts receivable (5,709,648) (163,703) (3,156,551)
(Increase) decrease in inventories (1,917,181) 100,713 (1,277,135)
Increase in prepaid expenses and other (87,638) (83,962) (24,353)
Increase (decrease) in accounts payable 917,571 (696,253) 1,462,166
Increase (decrease) in accrued payroll and related (25,169) 274,025 11,736
Increase (decrease) in accrued expenses (289,374) (26,316) 543,160
Increase (decrease) in customer deposits (218,000) 218,000 (738,000)
----------- ----------- -----------
Net Cash provided by (used in)
operating activities (276,119) 4,005,905 (842,535)
----------- ----------- -----------
Cash flows from investing activities
Capital expenditures (2,305,667) (5,382,421) (4,154,073)
License acquisition -- (297,462) --
Other 15,863 122,171 4,184
----------- ----------- -----------
Net cash used in
investing activities (2,289,804) (5,557,712) (4,149,889)
----------- ----------- -----------
</TABLE>
See accompanying notes to these consolidated financial statements.
-25-
<PAGE> 28
PLASMA-THERM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEAR ENDED NOVEMBER 30,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from issuance of long-term obligations 1,000,000 3,118,900 752,132
Principal payments on long-term obligations (719,346) (568,622) (486,564)
Net proceeds (payments) under line of credit agreements 1,000,000 (1,000,000) 1,000,000
Exercise of common stock and warrants 1,417,020 209,090 400,627
Issuance of common stock in private placement -- -- 5,759,097
----------- ----------- -----------
Net cash provided by
financing activities 2,697,674 1,759,368 7,425,292
----------- ----------- -----------
Net increase in cash
and cash equivalents 131,751 207,561 2,432,868
----------- ----------- -----------
Cash and cash equivalents, beginning of year 5,266,279 5,058,718 2,625,850
----------- ----------- -----------
Cash and cash equivalents, end of year $ 5,398,030 $ 5,266,279 $ 5,058,718
=========== =========== ===========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the years ended
November 30:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid for:
Interest $ 474,602 $ 347,956 $ 197,458
Income Taxes 2,526,227 1,528,019 525,755
</TABLE>
See accompanying notes to these consolidated financial statements.
-26-
<PAGE> 29
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Plasma-Therm, Inc., a Florida corporation, together with its subsidiary
(collectively, the "Company"), is engaged in the design and production of
semiconductor and flat panel display manufacturing equipment. The Company
sells this equipment directly to manufacturers in the semiconductor, thin
film head, computer, flat panel display, telecommunications and other
industries. The Company's products are marketed, together with service
and technical support, by the Company's domestic sales force, its
Japanese distributor and independent domestic and foreign manufacturer's
representatives.
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.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. While actual results could differ from those
estimates, management does not expect the variances, if any, to have a
material effect on the financial statements.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. The Company utilizes an
overnight automated investment account for sweeping of funds. The
overnight investment account is held in repurchase agreements backed by
U.S. government securities. Additionally, subsequent to December 1, 1996
and prior to November 30, 1997 the Company invested funds in a short-term
treasury fund, investing exclusively in U.S. Treasury obligations.
27
<PAGE> 30
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Accounts Receivable and Bad Debts
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made. Bad debts have not been material.
Inventories
Inventories are stated at the lower of cost or market. Cost was
determined using the first-in, first-out (FIFO) method for substantially
all inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization of property, plant and equipment is provided by generally
using the straight-line method (straight-line and accelerated methods for
tax purposes) over the useful lives of the related assets (machinery and
equipment principally over three to five years and building over 39
years). Depreciation expense for 1997, 1996 and 1995 was $1,812,424,
$904,464 and $692,944, respectively.
Machinery and equipment category includes certain of the Company's
current products which are used two to three years on various research
and development projects and subsequently sold. The items are depreciated
over three years to reflect their use and correspondingly adjust the
items to their estimated fair value. At November 30, 1997 and 1996 the
cost and accumulated depreciation related to these items are
approximately $3,932,000 and $1,477,000, and $2,997,000 and $576,000,
respectively.
Revenue and Cost Recognition
Sales of the Company's products are recognized upon acceptance by the
customer and transfer of title which is generally by the date of
shipment.
28
<PAGE> 31
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Field Service Costs (Principally Warranty and Installation)
Field service costs related principally to warranty and installation are
accrued upon the shipment of the products. The warranty reserve included
in accrued expenses at November 30, 1997 and 1996 is $350,000 and
$610,000, respectively. The warranty expense recorded in 1997, 1996, and
1995 of approximately $428,000, $661,000 and $1,211,000, respectively,
was determined by management, using current and historical actual
expense, industry experience and other factors.
Research and Development
Research and development costs are expensed as incurred.
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 dilutive income per share are
the same for all periods presented. The following is the weighted average
outstanding share information.
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Primary 11,268,204 10,731,927 10,542,114
Fully Dilutive 11,485,361 10,762,945 10,571,995
</TABLE>
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which will be first effective for the Company's
financial statements for the quarter ended February 28, 1998. Early
adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption of
this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
29
<PAGE> 32
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Accounting for Stock-Based Compensation
Effective December 1, 1996, management elected to continue using the
method under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," to account for stock option awards granted to
employees. As a result, Statement of Accounting Standards No. 123 (SFAS
No. 123), "Accounting or Stock-Based Compensation" proforma disclosures
are required in these financial statements. The adoption of SFAS No.
123's accounting and reporting provisions had no effect on the Company's
financial statements except for the required pro forma disclosures (See
Note 4).
Fair Value Presentation
The carrying amounts of cash, accounts receivable, prepaid expenses,
accounts payable, and accrued expenses approximate fair value because of
the short maturity of these items. The carrying amounts of the short-term
borrowings and certain notes payable approximate fair value because the
interest rates on these instruments change with market interest rates.
Certain notes payable with fixed interest rates and obligations under
capital leases approximate fair value because the interest rates on these
instruments are approximately comparable to market rates.
New Accounting Pronouncement - Segment and Related Information (not yet
adopted)
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15,
1997. This Statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, and amends SFAS No. 94, Consolidation
of All Majority-Owned Subsidiaries. This Statement requires annual
financial statements to disclose information about products and services,
geographic areas and major customers based on a management approach,
along with interim reports. The management approach requires disclosing
financial and descriptive information about an enterprise's reportable
operating segments based on reporting information the way management
organizes the segments for making business decisions and assessing
performance. The Company plans to adopt SFAS No. 131 in 1999 which has a
possible impact only to the Company's disclosure information and not to
its results of operations.
30
<PAGE> 33
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Reclassifications
Minor reclassifications have been made to the 1995 and 1996 financial
statements to conform to the 1997 presentation.
NOTE 2 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $6,738,918 $6,085,531
Work-in-process 2,494,527 1,835,722
Finished goods 642,356 37,367
---------- ----------
$9,875,801 $7,958,620
========== ==========
</TABLE>
NOTE 3 SHORT-TERM AND LONG-TERM BORROWINGS
Line of Credit
In April, 1997 the Company increased its existing line of credit
with its bank from $3,000,000 to $7,000,000. The term of the line of
credit agreement is through May, 1998. Interest is payable monthly at the
one month LIBOR rate plus 2% (7.97% at November 30, 1997). The line is
collateralized by accounts receivable. The line is cross-collateralized
with the term loan below, and the bank has a security interest in the
proceeds for the collection of accounts receivable and the Company's
depository accounts. In addition, a negative pledge agreement was
executed which does not permit the Company to hold a lien or encumbrance
on its inventory. As of November 30, 1997, the Company's availability
under the line of credit was reduced by $42,150 as a result of
outstanding letters of credit. The unused balance on the line at November
30, 1997 and 1996 was $4,957,850 and $2,000,000 respectively.
31
<PAGE> 34
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Note payable with a bank, payable in monthly
installments of $33,235 including interest at 8.5%
payable through July 2001. The note is secured by
the land, the building and its contents. $3,211,891 $3,328,454
Note payable with a bank, payable in monthly
installments of $27,778 plus interest at the one month
LIBOR rate plus 2.25% (8.22% at November 30, 1997)
maturing April 2000. The note is secured by various
research and development equipment and is cross
collateralized with the line of credit above. 805,554 --
Notes payable with a bank, payable in monthly
installments of $43,201 including interest ranging from
7.92% to 8.28% payable through February 1999. The
notes are secured by various machinery and equipment. 219,585 546,967
Obligations under capital lease agreements through
August 1999 with an interest rate of 10.3%. The
carrying value of related assets is $137,636 at
November 30, 1997. 157,519 238,474
---------- ----------
4,394,549 4,113,895
Less current portion 723,968 524,901
---------- ----------
$3,670,581 $3,588,994
========== ==========
</TABLE>
32
<PAGE> 35
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Aggregate maturities of notes payable for four years following November
30, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 723,969
1999 585,227
2000 288,969
2001 2,796,384
----------
$4,394,549
==========
</TABLE>
The Company's line of credit and principally all its notes payable with
its bank are subject to certain financial covenants including a tangible
net worth ratio not to exceed 1 to 1 and a minimum cash flow ratio (as
defined) of 2 to 1. As of November 30, 1997 and during the fiscal year
the Company has been in compliance with these and other financial
covenants. Under the most restrictive of these covenants, as of November
30, 1997 the Company has retained earnings available for dividend
distribution of approximately $17,800,000.
NOTE 4 SHAREHOLDERS' EQUITY
1995 Stock Incentive Plan
In June 1995, the Company's shareholders approved the 1995 Stock
Incentive Plan (the Plan). The Plan authorizes the granting of both
incentive stock options and non-qualified stock options up to a total of
1,000,000 shares, increased annually by an additional number of shares
equal to 1% of the number of shares outstanding on the last day of each
fiscal year, commencing November 30, 1995, provided that the maximum
aggregate number of shares to be issued shall not exceed 4,500,000
(2,818,023 authorized as of November 30, 1997). The Plan authorizes the
granting of both incentive stock options and non-qualified stock options.
The option price for non-qualified stock options may be less than, equal
to, or greater than the fair market value on the date the option is
granted, whereas for incentive stock options, the price will be at least
100% of the fair market value. Compensation expense, representing the
difference between the exercise price and the fair market value at date
of grant, is recognized over the vesting or service period. For all the
periods presented substantially all of the options were granted at an
exercise price equal to the fair market value of the Company's common
stock at the date of grant. Stock option activity under the 1995 Plan was
as follows:
33
<PAGE> 36
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------------------------------------
1997 1996 1995
------------------- ------------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 809,000 $3.73 223,000 $3.00 -- $ --
Granted 712,000 5.56 817,500 3.81 223,000 3.00
Exercised 330,500 3.35 94,500 1.80 -- --
Expired 97,000 3.92 -- -- -- --
Forfeited 70,000 4.46 137,000 4.35 -- --
--------- ------- -------
Outstanding -
end of year 1,023,500 5.06 809,000 3.73 223,000 3.00
========= ======= =======
Weighted Average
fair value of
options granted
during the year $2.53 $1.79
</TABLE>
34
<PAGE> 37
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
The following information applies to options outstanding and exercisable at
November 30, 1997:
Outstanding Shares:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE
- ------------------ ------------- ------------------- -----------------
<S> <C> <C> <C>
$2.12 - 3.87 248,000 1.43 $3.74
$4.06 - 5.25 413,500 2.15 $4.17
$6.97 362,000 2.72 $6.97
Exercisable Shares:
$2.12 - 3.87 238,000 1.38 $3.74
$4.06 - 5.25 413,500 2.15 $4.17
</TABLE>
1988 Stock Option Plan and Incentive Stock Option Plan
Upon adoption of the 1995 Stock Incentive Plan, the Company determined that no
additional options would be granted under its former 1988 Plan. At November 30,
1996 no options were outstanding under this Plan. In addition, its former
Incentive Stock Option Plan expired on September 15, 1991, with no options
outstanding at November 30, 1996. Stock option activity was as follows under
these Plans:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------------------
1996 1995
------------------ ------------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ---------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 63,000 $1.41-2.50 167,000 $.26-2.50
Granted -- -- --
Exercised 22,000 1.41-2.50 101,000 .26-1.90
Canceled 41,000 1.41-2.50 3,000 .26
------ -------
Outstanding - end of year -- 63,000 1.41-2.50
====== =======
</TABLE>
35
<PAGE> 38
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
Accounting for Stock-Based Compensation
Management has made the determination not to adopt SFAS No. 123's accounting
recognition provisions for employee stock options. Therefore, only proforma
disclosures under SFAS No. 123 are required for 1996, 1997 and thereafter. Had
compensation cost for stock options been determined based on the fair value of
the options at the grant dates consistent with the method of Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C> <C>
Net Income As reported $4,661,120 $2,993,586
Pro Forma (unaudited) 3,863,798 2,118,899
Primary & Fully
Dilutive EPS As Reported $ .41 $ .28
Pro Forma (unaudited) .34 .20
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Binomial options-pricing model with the following weighted-average assumptions
used for grants in 1997 and 1996 respectively: No dividend yield for all years;
expected volatility of 69.9 and 79.3 percent; risk-free interest rates of 6.1
and 6.0 percent; and expected lives of 2.4 and 2.1 years.
Common Stock Warrants
In connection with the Company's borrowing from its former primary bank, the
Company's Chief Executive Officer (CEO) executed a limited guarantee of the
Company's indebtedness which was subsequently released in 1989. The Company
agreed to compensate the Company's CEO for giving such guarantee by issuing to
him a warrant expiring in April 2002, for the purchase of 500,000 shares of the
Company's common stock at a purchase price per share of $.875. In accordance
with the anti-dilution provisions contained in the above warrants, the exercise
price of the warrants was adjusted as a result of the spin-off of the Company's
subsidiary in 1992. The adjusted conversion price of the warrants is $.7721 per
share. Warrants totaling 100,000 were exercised in April 1995 for $77,210. The
remaining 400,000 warrants were exercised in January 1997 for $308,840.
36
<PAGE> 39
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
In conjunction with previous financing agreements, two warrants expiring
in 1995 were issued to an investment company in November 1988 and June
1989 to purchase 50,000 and 100,000 shares of common stock, respectively,
at a price of $1.25 per share. In accordance with the anti-dilution
provisions contained in the above warrants, the exercise price of the
warrants was adjusted as a result of the spin-off of the Company's
subsidiary in 1992. The adjusted conversion price of the warrants is
$1.1029 per share. Both warrants were exercised in February 1995 for
$165,435. As a result of the exercise of these warrants in 1995, income
taxes payable was reduced and paid-in capital was increased by
approximately $285,000 related to an incremental tax benefit associated
with the exercise of the warrants.
NOTE 5 INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Current
Federal $2,141,214 $1,279,668 $ 279,380
State 268,599 181,951 63,455
---------- ---------- ---------
2,409,813 1,461,619 342,835
---------- ---------- ---------
Deferred (benefit)
Federal 83,823 154,818 (239,739)
State 10,676 18,000 (30,327)
---------- ---------- ---------
94,499 172,818 (270,066)
---------- ---------- ---------
Investment tax credits -- 223,476 200,666
Tax benefit from the
exercise of employee
stock options 372,782 10,442 150,001
Tax benefit from the
exercise of warrants -- -- 284,794
Other -- (7,566) (1,373)
---------- ---------- ---------
$2,877,094 $1,860,789 $ 706,857
========== ========== =========
</TABLE>
37
<PAGE> 40
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
The income tax provision reconciled to the tax computed at the statutory
Federal rate of 34% is as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense at statutory rate $2,562,993 $1,650,488 $612,768
State income taxes, net of federal
income tax benefit 233,819 139,175 60,379
Non-deductible charges 63,112 61,172 35,084
Other 17,170 9,954 (1,374)
---------- ---------- ----------
$2,877,094 $1,860,789 $706,857
========== ========== ==========
</TABLE>
The deferred taxes consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Assets:
Vacation accrual $ 82,942 $ 87,037
Reserves (warranty and other) 298,034 231,513
Deferred compensation 19,105 81,748
Stock options 1,599 2,393
--------- --------
$ 401,680 $402,691
Liabilities:
Depreciation (107,866) (14,378)
--------- --------
Deferred tax asset, net $ 293,814 $388,313
========= ========
</TABLE>
NOTE 6 COMMITMENTS
Operating Leases
Magnetran, Inc. entered into a 5 year gross lease, with the Company's
CEO, commencing November 1, 1994 for approximately 17,750 square feet in
New Jersey. The premises are leased at an aggregate annual base rental of
$86,841, which escalates 3% annually. After the initial term of the
lease, Magnetran has an option to renew for five years with a 3% increase
each year. Total rent paid to the CEO for the years ended November 30,
1997, 1996 and 1995, were approximately $92,000 ,$90,000 and $87,000,
respectively.
38
<PAGE> 41
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
In August 1996 the Company executed a lease with its bank for furniture
for its new manufacturing facility. Total minimum lease payments are
$466,080 to be paid in 60 monthly installments beginning in August 1996.
At the end of the initial term the Company has the option to extend the
lease for an additional twelve months or purchase the furniture at the
then fair market value. Also, the Company uses office equipment under
non-cancelable operating leases expiring through 2002.
The future minimum rental payments required under operating leases that
have an initial or remaining non-cancelable lease term in excess of one
year are as follows:
<TABLE>
<S> <C>
Year ended November 30,
1998 $301,034
1999 284,582
2000 188,246
2001 107,915
2002 6,343
--------
Total minimum lease payments $888,120
========
</TABLE>
The total rental expense for all operating leases was $303,147, $553,188,
and $398,529 for the years ended November 30, 1997, 1996 and 1995,
respectively.
Distributorship Agreement
The Company has an exclusive distributorship agreement with a Japanese
company. If the Company terminates the agreement for reasons other than
breach of contract, the Company is required to repurchase the
demonstration systems and spare parts inventory sold to the distributor
at a purchase price equal to a percentage of the original sales price,
discounted each year the equipment is held by the distributor. Although
there is no intent at November 30, 1997 to terminate the agreement, the
obligation to repurchase the demonstration equipment held by the
distributor would be approximately $430,000 if terminated.
39
<PAGE> 42
PLASMA-THERM, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
License Agreement
In June 1996, the Company entered into a license agreement with a German
company for the non-exclusive rights to its 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. The initial
fee is being amortized using the straight line method and a five year
useful life (unamortized license fee is classified in other assets). 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. In 1997 and 1996 approximately $102,000 and $20,000,
respectively, in royalty fees were paid by the Company.
Contractual Obligations
The Company has employment agreements with its key executive officers,
the terms of which expire at various times through January 2000. The
agreements provide for minimum annual total compensation of approximately
$542,000. In addition, key officers receive an annual bonus as a percent
of net income up to a certain cap.
NOTE 7 AFFILIATE TRANSACTIONS
During 1996 and 1995 in the ordinary course of business the Company had
net sales to and purchases from RF Power Products (RFPP, a former
subsidiary which was spun off in 1992), respectively, as follows:
$871,573 and $1,490,559 in 1996 and $844,000 and $942,000 in 1995;
respectively. At November 30, 1996 accounts receivables and payables
related to RFPP were $109,293 and $209,871, respectively. The Company's
CEO's ownership in RFPP's common stock received at the time of the
spin-off has substantially declined since the spin-off (less than 3% at
November 30, 1997); and accordingly, no disclosures are made herein of
the sales and purchase activity for 1997.
40
<PAGE> 43
NOTE 8 SEGMENT AND OTHER INFORMATION
Geographic Sales
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Export revenues from the
United States to unaffiliated
foreign customers $12,110,184 $14,761,397 $9,190,317
----------- ----------- ----------
</TABLE>
All foreign sales are denominated in U.S. dollars.
Customer Sales
In 1996 approximately 24% of consolidated net sales were to one customer.
No sales in excess of 10% of revenue were made to a single customer in
1997 and 1995. Additionally, in 1995 7% of net sales were to the
Company's former distributor in Japan. In 1997, 1996 and 1995 net sales
to the Company's current Japanese distributor were approximately 9%, 8%
and less than 1% of revenue, respectively. In 1997, 1996 and 1995 two of
the Company's product lines, the Versalock(R) 700 and Shuttlelock(R)
(770) ICP, represented approximately, 62%, 49% and 8% of net sales.
NOTE 9 DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan which is qualified under
Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees over the age of twenty-one. The plan consists
of an employee elective contribution and a company matching contribution
for each eligible participant. The Company's matching contribution is
specified by the Company's Board of Directors, is discretionary and can
change from year to year. Forfeitures resulting from a terminated
participant's failure to be fully vested in the Company's matching
contribution will be used to reduce future contributions of the Company.
The Company's contribution for this plan for 1997, 1996 and 1995 was
$70,428, $23,616 and $18,459, respectively.
NOTE 10 SUBSEQUENT EVENTS
In December 1997 the Company purchased 1.4 acres (60,530 sq. ft.) of land
adjacent to its current 60,000 square foot facility for $226,975. The
Company plans to construct a 28,000 square foot facility on this land to
be used for additional research and development and office space.
Anticipated completion date is the end of fiscal year 1998.
41
<PAGE> 44
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Except for the information regarding executive officers called for by
Item 401 of Regulation S-K, which is included in Item 1, "Executive Officers of
the Company", and the information regarding security ownership of certain
beneficial owners and management called for by Item 403 of Regulation S-K, which
is included in Item 12, "Security Ownership of Certain Beneficial Owners and
Management", Items 10, 11 and 13 are hereby incorporated by reference to the
Company's definitive proxy statement for its Annual Meeting of Stockholders
presently scheduled for May 5, 1998 (the "Proxy Statement") which Proxy
Statement will be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company's fiscal year, in accordance with General Instruction
G(3) to Form 10-K. Only those sections of the Proxy Statement that specifically
address the set forth herein are incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 9, 1998, based on
11,134,561 shares of the Company's Common Stock outstanding on that date, by (i)
each person who is known to beneficially own more than 5% of the Company's
Common Stock, computed in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, as amended; (ii) each of the Company's directors; (iii) each of the
Company's named executive officers; and (iv) all directors and executive
officers of the Company as a group. The shareholders listed possess sole voting
and investment power with respect to the shares listed.
42
<PAGE> 45
<TABLE>
<CAPTION>
AMOUNT APPROXIMATE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS
- ---- ------------- -----------
<S> <C> <C>
Ronald H. Deferrari
10050 16th Street North
St. Petersburg, FL 33716 2,038,300 18.31%
Anastasios S. Gianoplus
8007 Algarve St
McLean, VA 22102 35,000(1) 0.31%(7)
Lubek Jastrzebski
450 Gulfview Blvd
Apartment 1705
Clearwater, FL 34630 35,000(2) 0.31%(7)
Richard T. Heglin
105 Wiltshire Lane
McMurray, PA 15317 1,000 0.01%(7)
Ronald S. Deferrari
10050 16th Street North
St. Petersburg, FL 33716 440,592(3) 3.81%
Edmond A. Richards
10050 16th Street North
St. Petersburg, FL 33716 111,000(4) 0.99%(7)
Stacy Wagner
3333 San Pedro Street
Clearwater, FL 33759 118,000(5) 1.05%
W. Nicholas Goetz
4668 Ayron Terrace
Palm Habor, FL 34685 20,000(6) .0.18%(7)
Executive officers
and directors as a group
(8 persons) 2,923,892 23.66%
</TABLE>
(1) Includes an option to purchase 20,000 shares at a price of $4.12 per
share, which expires on May 6, 2000; an option to purchase 5,000 shares
at a price of $3.60 per share, which expires on June 30, 2000; and an
option to purchase 5,000 shares at a price of $6.97 which expires on
August 19, 2000.
(2) Includes an option to purchase 5,000 shares at a price of $3.87 per
share, which expires April 30, 1999; an option to purchase 20,000 shares
at a price of $4.12 per share, which expires on May 6, 2000; an option to
purchase 5,000 shares at a price of $3.60 per share, which expires on
June 30, 2000; and an option to purchase 5,000 shares at a price of $6.97
per share, which expires on August 19, 2000.
43
<PAGE> 46
(3) Includes an option to purchase 30,000 shares at a price of $4.06 per
share, which expires June 26, 1998; an option to purchase 110,000 shares
at a price of $3.87 per share, which expires on April 30, 1999; an option
to purchase 150,000 shares at a price of $4.12 per share, which expires
on May 6, 2000; and an option to purchase 125,000 shares at a price of
$6.97 per share, which expires on August 19, 2000.
(4) Includes an option to purchase 15,000 shares at a price of $3.87 per
share, which expires on April 30, 1999; an option to purchase 50,000
shares at a price of $4.12 per share, which expires on May 6, 2000; and
an option to purchase 30,000 shares at a price of $6.97 which expires on
August 19, 2000.
(5) Includes an option to purchase 4,000 shares at a price of $4.06 per
share, which expires on June 26, 1998; an option to purchase 10,000
shares at a price of $2.62 per share, which expires on December 26, 1998;
an option to purchase 50,000 shares at a price of $3.87 per share, which
expires on April 30, 1999; an option to purchase 10,000 shares at a price
of $5.25 which expires on June 26, 1999; an option to purchase 15,000
shares at a price of $4.12 per share, which expires on May 6, 2000; and
an option to purchase 10,000 shares at a price of $6.97 per share, which
expires on August 19, 2000.
(6) Represents an option to purchase 20,000 shares at a price of $6.97 per
share, which expires on August 19, 2000.
(7) Less than 1% of the outstanding Common Stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this Form 10-K:
(1) Consolidated Financial Statements
The index to the Consolidated Financial Statements of the
Company is included on page 17 in Part II, Item 8.
(2) Financial Statement Schedules
(a) Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted either because the
schedule is inapplicable or the required information
is included elsewhere in the Financial Statements.
(3) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended November 30, 1997.
(4) Exhibits
44
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits
----------- -----------------------
<S> <C>
3.1* Articles of Incorporation of the Registrant, as
amended May 6, 1994 (Exhibit 3.1 to the
Registrant's 1994 Form 10-K).
3.2* By-laws of the Registrant (Exhibit 3.2 to the
Registrant's 1994 Form 10-K).
3.3* Amendment to the Registrant's Articles of
Incorporation (Exhibit 3.1 to the Registrant's May
31, 1995 Form 10-Q).
3.4* Amendment to the Registrant's Articles of
Incorporation (Exhibit 3.4 to the Registrant's May
31, 1996 Form 10Q).
4.1* Notes and Warrant Agreements dated July 1, 1980
and February 17, 1981, and amendments thereto,
between the Registrant and Atalanta Investment
Company, Inc. and related consents (Exhibits 3.3,
3.4 and 3.5 to the 1981 Registration Statement,
Exhibit 3.5.1 to Amendment No. 1 to the
Registration Statement No. 2-73281-NY filed on
July 20, 1981 and Exhibit 4.3 to the Registration
Statement No. 2-82980 filed on April 11, 1983).
4.2* Amendment, dated November 1, 1988, to the Note and
Warrant Agreements between the Registrant and
Atalanta Investment Company (Exhibit 4.2 to the
Registrant's Annual Report Form 10-K for the year
ended November 30, 1988).
4.3* Amendment, dated July 21, 1989 to the Note and
Warrant Agreements between the Registrant and
Atalanta Investment Company (Exhibit 4.3 to
Registrant's Annual Report on Form 10-K for the
year ended November 30, 1989).
4.4* Warrant dated as of July 24, 1987 between the
Registrant and Ronald H. Deferrari (Exhibit 4.6 to
the Registrant's Annual Report on Form 10-K for
the year ended November 30, 1987).
4.5* Stock Option Plan of the Registrant, dated
December 1, 1988. (Exhibit 4.4 to the Registrant's
1988 Form 10-K).
4.6* 1995 Stock Incentive Plan of the Registrant, dated
June 14, 1995 (Exhibit 4 to the Registrant's 1995
Form S-8).
4.7* Form of stock certificate (Exhibit 4.6 to the
Registrant's 1994 Form 10-K).
4.8* The Company's 1995 Stock Incentive Plan, as
Amended and Restated.
10.1* Employment Agreement dated May 3, 1994 between the
Registrant and Ronald H. Deferrari (Exhibit 10.1
to the Registrant's 1994 Form 10-K).
</TABLE>
45
<PAGE> 48
<TABLE>
<S> <C>
10.2* Amendment to Employment Agreement between the
Registrant and Ronald H. Deferrari, dated June 26,
1995 (Exhibit 10.30 to the Registrant's August 31,
1995 Form 10-Q).
10.3* Amendment between the Registrant and Diana M.
DeFerrari, dated September 18, 1996.
10.4* Employment Agreement between the Registrant and
Diana M. DeFerrari, dated February 9, 1995
(Exhibit 10.1 to the Registrant's May 31, 1995
Form 10-Q).
10.5* Employment Agreement dated May 18, 1994 between
the Registrant and Ronald S. Deferrari (Exhibit
10.3 to the Registrant's 1994 Form 10-K).
10.6* Amendment to Employment Agreement between the
Registrant and Ronald S. Deferrari, dated June 26,
1995 (Exhibit 10.31 to the August 31, 1995 Form
10-Q).
10.7* Lease dated as of November 1, 1994 between
Magnetran, Inc., and Ronald H. Deferrari for
property located at 136 Route 73, Voorhees, New
Jersey.
10.8* Amendment to Employment Agreement between the
Registrant and Ronald S. Deferrari, dated June 26,
1995.
10.9* Employment Agreement dated December 1, 1992
between the Registrant and Edmond A. Richards.
10.10* Amendment to Employment Agreement between the
Registrant and Curtis A. Barratt, dated September
18, 1996.
10.11* Amendment to Employment Agreement between the
Registrant and Edmond A. Richards, dated October
9, 1996.
10.12* Employment Agreement between the Registrant and
Edmond A. Richards, dated January 22, 1997.
10.13* Employment Agreement between the Registrant and
Ronald S. Deferrari, dated January 22, 1997.
10.14* Employment Agreement between the Registrant and
Stacy L. Wagner, dated January 22, 1997.
10.19* Loan Agreement dated January 19, 1995 between the
Registrant and NationsBank of Florida, N.A.
(including Revolving Credit Agreement, Security
Agreement, Term Promissory Note and Line of Credit
Note), (Exhibit 10.16 to the Registrant's 1994
Form 10-K).
</TABLE>
46
<PAGE> 49
<TABLE>
<S> <C>
10.20* Promissory Note dated August 14, 1995 between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.23 to the Registrant's August 31, 1995
Form 10-Q).
10.21* Mortgage, Assignment of Rents and Security
Agreement dated August 14, 1995 between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.24 to the Registrant's August 31, 1995
Form 10-Q).
10.22* Environmental Indemnity Agreement dated August 14,
1995 between the Registrant and NationsBank of
Florida, N.A. (Exhibit 10.25 to the Registrant's
August 31, 1995 Form 10-Q).
10.23* Amendment dated August 14, 1995 (to Amended and
Restated Revolving Credit Agreement between
Plasma-Therm, Inc. and NationsBank of Florida,
N.A., dated January 19, 1995) between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.26 to the Registrant's August 31, 1995
Form 10-Q).
10.24* Construction Loan Agreement dated August 14, 1995
between the Registrant and NationsBank of Florida,
N.A. (Exhibit 10.27 to the Registrant's August 31,
1995 Form 10-Q).
10.25* Collateral Assignment of General Construction
Contract, Subcontracts, Plans and Specifications
and Permits dated August 14, 1995 between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.28 to the Registrant's August 31, 1995
Form 10-Q).
10.26* Collateral Assignment of Professional Agreements
and Plans and Specifications dated August 14, 1995
between the Registrant and NationsBank of Florida,
N.A. (Exhibit 10.29 to the Registrant's August 31,
1995 Form 10-Q).
10.27* Third Future Advance Promissory Note dated
November 17, 1995 between the Registrant and
NationsBank of Florida, N.A. (Exhibit 10.27 to the
Registrant's 1995 Form 10-K).
10.28* Third Consolidation Line of Credit Promissory Note
dated November 17, 1995 between the Registrant and
NationsBank of Florida, N.A. (Exhibit 10.28 to the
Registrant's 1995 10-K).
10.29* Future Advance Consolidation and Modification
Agreement dated November 17, 1995 between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.29 to the Registrant's 1995 10-K).
</TABLE>
47
<PAGE> 50
<TABLE>
<S> <C>
10.30* Second Amendment (to Amended and Restated
Revolving Credit Agreement) dated November 17,
1995 between the Registrant and NationsBank of
Florida, N.A. (Exhibit 10.30 to the Registrant's
1995 10-K).
10.31* Amendment to Amended and Restated Security
Agreement dated November 17, 1995 between the
Registrant and NationsBank of Florida, N.A.
(Exhibit 10.31 to the Registrant's 1995 10-K).
10.36* Registrant's 401(k) Savings Plan Summary Plan
Description dated July 1, 1992 (Exhibit 10.25 to
the Registrant's 1992 Form 10-K).
10.37* Registrant's 401(k) Adoption and Trust Agreement
dated January 1, 1995.
10.38* Distributorship Agreement between the Registrant
and Hakuto Co., Ltd., dated August 1, 1995
(Exhibit 10.38 to the Registrant's 1995 Form
10-K).
10.39* Note and Security Agreement dated March 6, 1996
between the Registrant and NationsBanc Leasing
Corporation. (Exhibit 10.39 to the February 29,
1996 Form 10-Q).
10.40* Employment Agreement between the Registrant and
Curtis A. Barratt, dated February 28, 1996
(Exhibit 10.40 to the February 29, 1996 Form
10-Q).
10.41* Note and Security Agreement dated March 20, 1996
between the Registrant and NationsBanc Leasing
Corporation (Exhibit 10.41 to the May 31, 1996
Form 10-Q).
10.42* Extension Agreement dated June 14, 1996 and
Addendum Letter to Extension Agreement dated June
17, 1996 between the Registrant and NationsBank,
N.A. (South) (Exhibit 10.42 to the May 31, 1996
Form 10-Q).
10.43* License Agreement dated June 19, 1996 between the
Registrant and Robert Bosch GmbH (Exhibit 10.43 to
the May 31, 1996 form 10-Q).
10.44* Equipment Lease Agreement dated August 27, 1996
between the Registrant and NationsBanc Leasing
Corporation (Exhibit 10.44 to the August 31, 1996
Form 10-Q).
10.45* Loan Agreement dated April 18, 1997 between the
Company and NationsBank, N.A. (South) including
Credit Agreement, Security Agreement, Negative
Pledge Agreement, Third Amendment (to Amended and
Restated Revolving Credit Agreement) and First
Amendment (to Amended and Restated Security
Agreement), Term Promissory Note and Line of
Credit Note.
10.46* License Agreement Amendment dated August 2, 1997
between the Registrant and Robert Bosch GmbH.
</TABLE>
48
<PAGE> 51
11. Statement RE: Computation of per share earnings.
21. Subsidiary of the Registrant.
23. Consent of Grant Thornton LLP.
27. Financial Data Schedule (for SEC use only).
- -----------------------------------------
* Incorporated by reference.
49
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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.
/s/ RONALD H. DEFERRARI
------------------------------------------
Ronald H. Deferrari, Chairman of the Board,
Chief Executive Officer and Treasurer
Date: 1/16/98
--------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities on the dates indicated.
By: /s/ RONALD H. DEFERRARI
-----------------------
Ronald H. Deferrari, Chairman of the Board,
Chief Executive Officer and Treasurer
(Principal Executive Officer and
Principal Financial Officer)
Date: 1/16/98
--------
By: /s/ A.S. GIANOPLUS
------------------
A.S. Gianoplus, Director, Chairman of the Audit
and Stock Option Committees
Date: 1/16/98
--------
By: /s/ LUBECK JASTRZEBSKI
----------------------
Lubeck Jastrzebski, Director
Date: 1/16/98
--------
By: /s/ RICHARD T. HEGLIN
---------------------
Richard T. Heglin, Director
Date: 1/16/98
--------
By: /s/ STACY WAGNER
----------------
Stacy Wagner, Vice President of Finance and Administration
(Principal Accounting Officer)
Date: 1/16/98
--------
50
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON THE SCHEDULE
Board of Directors
Plasma-Therm, Inc.
In connection with our audit of the consolidated financial statements of
Plasma-Therm, Inc. and Subsidiary referred to in our report dated January 9,
1998, which is included in the Annual Report on Form 10-K for the year ended
November 30, 1997, we have also audited Schedule II for each of the three years
in the period ended November 30, 1997. In our opinion, the schedule presents
fairly, in all material respects, the information required to be set forth
therein.
GRANT THORNTON LLP
Tampa, Florida
January 16, 1998
51
<PAGE> 54
PLASMA-THERM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COL.A COL.B COL.C COL.D COL.E
- ------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES - DESCRIBE DESCRIBE PERIOD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30, 1997:
- -----------------------------
Warranty Liability $ 610,000 $ 427,800 $ -- $ 687,800(1) $ 350,000
YEAR ENDED NOVEMBER 30, 1996:
- -----------------------------
Warranty Liability $ 693,515 $ 661,147 $ -- $ 744,662(1) $ 610,000
YEAR ENDED NOVEMBER 30, 1995:
- -----------------------------
Warranty Liability $ 143,000 $1,211,289 $ -- $ 660,774(1) $ 693,515
</TABLE>
52
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------
1997 1996 1995
------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 10,941 10,329 10,093
Net effect of dilutive stock options and
warrants based on the treasury stock
method using average market price 327 403 449
------- ------- -------
TOTAL 11,268 10,732 10,542
======= ======= =======
Net income $ 4,661 $ 2,994 $ 1,089
======= ======= =======
Net income per share $ 0.41 $ 0.28 $ 0.10
======= ======= =======
FULLY DILUTED
Average shares outstanding 10,941 10,329 10,093
Net effect of dilutive stock options and
warrants based on the treasury stock
method using the year-end market price,
if higher than average market price 544 434 479
------- ------- -------
TOTAL 11,485 10,763 10,572
======= ======= =======
Net income $ 4,661 $ 2,994 $ 1,089
======= ======= =======
Net income per share $ 0.41 $ 0.28 $ 0.10
======= ======= =======
</TABLE>
53
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
NAME OF INCORPORATION
- ---- ---------------------------
<S> <C>
Magnetran, Inc. New Jersey
</TABLE>
54
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated January 9, 1998, accompanying the consolidated
financial statements and the schedule of Plasma-Therm, Inc. and Subsidiary
included in the Annual Report on Form 10-K of Plasma-Therm, Inc. and Subsidiary
for the year ended November 30, 1997. We hereby consent to the incorporation
by reference of said reports in the Registration Statements of Plasma-Therm,
Inc. and Subsidiary on Form S-3 (File No. 33-88836, effective February 1, 1995)
and Forms S-8 (File No. 33-29104, effective June 22, 1989, File 33-60375,
effective June 14, 1995, and File No. 333-44405, effective January 16, 1998).
GRANT THORNTON LLP
Tampa, Florida
January 16, 1998
55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER 30, 1997 AND CONSOLIDATED STATEMENTS
OF INCOME FOR THE YEAR ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 5,398,030
<SECURITIES> 0
<RECEIVABLES> 13,755,778
<ALLOWANCES> 0
<INVENTORY> 9,875,801
<CURRENT-ASSETS> 29,737,944
<PP&E> 13,056,818
<DEPRECIATION> 3,405,935
<TOTAL-ASSETS> 39,607,090
<CURRENT-LIABILITIES> 7,251,590
<BONDS> 4,394,549
0
0
<COMMON> 111,267
<OTHER-SE> 28,573,652
<TOTAL-LIABILITY-AND-EQUITY> 39,607,090
<SALES> 44,444,657
<TOTAL-REVENUES> 44,444,657
<CGS> 25,689,816
<TOTAL-COSTS> 11,538,009
<OTHER-EXPENSES> (321,382)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474,602
<INCOME-PRETAX> 7,538,214
<INCOME-TAX> 2,877,094
<INCOME-CONTINUING> 4,661,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,661,120
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
