<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ending Commission File No. 0-20229
August 31, 1996
RF POWER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2361086
- ------------------------------ ---------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
502 Gibbsboro-Marlton Road, Voorhees, N.J. 08043
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (609)751-0033
--------------
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
--- ---
As of August 31, 1996, 12,122,840 shares of Common Stock, $.01 par value, were
outstanding.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1
<PAGE>
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets - August 31, 1996 and
November 30, 1995 ............................. 3
Statements of Operations - Three Months and
Nine Months Ended August 31, 1996 and 1995 .... 4
Statements of Cash Flows - Nine Months Ended
August 31, 1996 and 1995 ..................... 5
Notes to Consolidated Financial Statements .... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K .............. 11
2
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RF POWER PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, November 30,
Assets 1996 1995
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
Cash $ 2,242 $ 689,757
Accounts receivable 5,823,700 5,131,379
Inventories 4,850,841 4,440,375
Deferred Taxes 303,435 709,210
Prepaid expenses and other 106,372 116,391
----------- -----------
11,086,590 11,087,112
----------- -----------
Property and equipment 2,196,019 1,472,995
Other assets 269,993 354,886
----------- -----------
$13,552,602 $12,914,993
=========== ===========
Liabilities
Current liabilities
Note Payable $ 434,663 $ 500,000
Current portion long-term debt 350,000 164,153
Accounts payable 2,078,741 2,573,716
Accrued expenses 303,374 1,959,107
Accrued payroll 401,192 437,701
----------- -----------
3,567,970 5,634,677
----------- -----------
Long-term debt,less current
portion 962,500 310,225
----------- -----------
Shareholders' equity
Common stock - $.01 par value
Authorized - 19,000,000
Issued and outstanding:
1996-12,122,840; 1995-12,050,243 121,228 120,502
Additional paid-in capital 6,367,696 6,215,271
Retained Earnings 2,610,208 788,318
Notes receivable from shareholders (77,000) (154,000)
----------- -----------
9,022,132 6,970,091
----------- -----------
$13,552,602 $12,914,993
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RF POWER PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $7,979,403 $6,791,913 $25,722,273 $17,802,403
---------- ---------- ----------- -----------
Costs and expenses
Cost of products sold 5,211,972 4,044,890 16,020,973 10,709,275
Research and development 910,536 567,394 2,621,072 1,605,145
Selling and administrative 1,394,770 985,898 4,028,308 3,962,120
Interest expense 29,492 15,157 66,509 55,512
---------- ---------- ----------- -----------
$7,546,770 $5,613,339 $22,736,862 $16,332,052
---------- ---------- ----------- -----------
Income before income taxes 432,633 1,178,574 2,985,411 1,470,351
Income tax expense 185,535 447,858 1,163,521 901,117
---------- ---------- ----------- -----------
Net Income 247,098 730,716 1,821,890 569,234
---------- ---------- ----------- -----------
Per Share Data:
Earnings Per Share $ .02 $ .06 $ .15 $ .05
----------- ------------ ---------- ----------
Weighted average number of
shares outstanding 12,266,021 12,250,515 12,220,268 12,236,253
---------- ---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
RF POWER PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
( UNAUDITED )
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,821,890 $ 569,234
Adjustments to reconcile net income
to net cash used in operating activities:
Compensation, Non-cash - 957,600
Depreciation and amortization 398,313 384,998
Deferred Income Taxes (Benefit) 405,775 (32,777)
Changes in assets and liabilities
Increase in accounts receivable (692,321) (1,090,691)
Increase in inventories (410,466) (1,076,674)
Decrease(increase)in prepaid expenses
and other 16,921 (33,687)
(Decrease)increase in a/p & accr.
liabilities (2,110,217) 413,709
Other 33,360 -
----------- -----------
Net cash generated (used) in
operating activities (536,745) 91,712
----------- -----------
Cash flows from investing activities
Capital expenditures (1,076,706) (468,382)
Technology Purchase - (155,000)
Other
- (18,232)
----------- -----------
Net cash used in investing activities (1,076,706) (641,614)
----------- -----------
Cash flows from financing activities
Short term borrowing, net (65,337) (250,000)
Payments of long-term debt (1,547,883) (648,165)
Proceeds from issuance of long-term
debt 2,386,005 320,767
Proceeds from sale of common stock under
stock option plan and stock subscription
agreement 153,151 1,533,954
----------- -----------
Net cash provided by (used in)
financing activities 925,936 956,556
----------- -----------
Net increase (decrease) in cash (687,515) 406,654
Cash at beginning of period 689,757 168,250
----------- -----------
Cash at end of period $ 2,242 $ 574,904
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
RF POWER PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996 AND NOVEMBER 30, 1995
Note 1 In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
August 31, 1996 and November 30, 1995, the results of operations for the
three and nine months ended August 31, 1996 and 1995 and the statement
of cash flows for the nine months ended August 31, 1996 and 1995.
The consolidated results of operations for the three and nine months
ended August 31, 1996 and 1995 are unaudited and are not necessarily
indicative of results for the full year.
These consolidated financial statements should be read in conjunction
with the financial statements and the notes included in the Company's
report on Form 10K.
Note 2 Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
August 31, November 30,
1996 1995
---------- ------------
<S> <C> <C>
Raw materials $2,890,133 $3,195,340
Work in process 707,741 330,165
Finished goods 1,252,967 914,870
---------- ----------
$4,850,841 $4,440,375
---------- ----------
</TABLE>
6
<PAGE>
Note 3 Property and Equipment
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
August 31, November 30,
1996 1995
----------- -------------
<S> <C> <C>
Property and equipment,at cost
Machinery and Equipment $3,473,730 $ 2,454,224
Transportation Equipment 54,641 18,196
Leasehold Improvements 181,178 160,423
---------- ----------
3,709,549 2,632,843
Less accumulated depreciation
and amortization 1,513,530 1,159,848
---------- ----------
$2,196,019 $1,472,995
========== ==========
</TABLE>
Note 4 The provision for income taxes for the nine months ended August 31,
1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
August 31, August 31,
1996 1995
---------- ----------
<S> <C> <C>
Current-federal and state $ 756,289 $ 933,894
Deferred-federal & state 407,232 (32,777)
--------- ----------
$1,163,521 $ 901,117
========== ==========
</TABLE>
Note 5 Per share data is computed based upon the weighted average number of
shares of common stock, adjusted for the conversion of dilutive common
stock equivalents. The primary earnings per share and the related
common stock and equivalents are presented. The fully dilutive
earnings per share data is not shown since the dilution is not
material.
Note 6 On March 18, 1996 the Company entered into a ten year lease agreement
for a new Corporate Headquarters and Manufacturing facility. In June
1996 the lease was amended to increase the size of the new facility
from 60,000 square feet to 78,000 square feet. The minimum payments
are $6,209,480 over the ten year term. Management currently
anticipates moving into the new building by the end of 1996.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Financial Position, Liquidity and Capital Requirements
- ------------------------------------------------------
The Company's cash requirements are currently being met through internal cash
flows and existing bank financing.
In May 1996, the Company established a new banking relationship with a local
commercial bank and terminated its relationship with its prior bank. The
Company repaid its prior bank's term loan and the outstanding balance on its
line of credit from a new credit facility provided by the Company's new bank.
The new credit facility is for a $1,400,000 term loan and a $4,000,000 revolving
line of credit. This increases the Company's lines of credit from $1,500,000 to
$4,000,000. The rate of interest for both the term loan and revolving line of
credit are based on current Libor rates. The term loan contains an option to
convert to a fixed rate.
Operating activities utilized $537,000 in cash flows for the nine month period
ending August 31, 1996 while $92,000 was generated in the comparable period in
1995. Approximately $2,626,000 of net cash was generated from net income plus
non-cash depreciation and amortization and deferred taxes during the fiscal 1996
period. This was primarily offset by a $692,000 increase in accounts receivable,
$410,000 increase in inventories and a $2,110,000 use of cash to decrease
accounts payable, payment of accrued bonuses and related taxes, and the legal
settlement with its prior law firm related to the unintended tax consequences to
the Company's executive stock purchase agreements.
Net cash used in investing activities for the nine month period ending August
31, 1996 was $1,077,000 primarily for capital expenditures to sustain the
Company's growth and expanding Research and Development group. The increase is
due to the purchase of capital equipment for the manufacturing operations, field
service and the engineering new product development group. Also, new computer
equipment was needed due to the expansion of the engineering new product
development group.
For the nine months ended August 31, 1996, approximately $773,000 of cash was
provided by the increase in net borrowings resulting from bank financing as
noted above. There was a $153,000 increase in capital resulting from the
exercise of employee stock options.
In March 1996, the Company signed a lease agreement for a new 60,000 square foot
Corporate Headquarters and manufacturing facility. In June 1996, the Company
agreed to increase the size of the new facility from 60,000 to 78,000 square
feet based on the signing of a major contract with a leading semiconductor
equipment manufacturer of plasma etch systems. The Company projects the building
will be completed by the end of 1996.
The Company requires capital for research and development, inventories and
funding for capital expenditures related to the new facility. Management of the
Company believes that based on its current available bank credit facility,
coupled with working capital generated by operations, it has sufficient funding
to meet the Company's capital requirements for the immediate future.
8
<PAGE>
RESULTS OF OPERATIONS
Net sales for the nine months ended August 31, 1996 increased 44% as compared to
the same period in fiscal 1995. For the three months ending August 31, 1996, net
sales increased by 17% over the comparable period of the prior year. The
increase is the result of continued growth in sales to semiconductor capital
equipment manufacturers which represented 68% and 66% of the Company's sales for
the comparable nine month periods of fiscal 1996 and 1995, respectively. The
Company's sales this year, in the semiconductor market, increased 48% over the
comparable nine month period last year. The Company has generated significant
sales increases from Lam Research, Applied Materials, Plasma Materials and
Technology, Alcatel and Mattson Technology. Third quarter net income was
affected by the sharp slowdown in semiconductor demand evident throughout the
industry. As a supplier of RF power systems to the major manufacturers of
semiconductor manufacturing equipment, the Company began to feel this slowdown
in the middle of the third quarter.
Cost of products sold amounted to 62% and 60% of sales for the nine month
periods and 65% and 60% for the three month periods ending August 31, 1996 and
August 31, 1995, respectively. Cost of products sold was affected by the change
in product mix and under absorbed overhead costs due to the slowdown in
business.
Research and development expenses were 10% and 9% of sales for the nine month
periods and 11% and 8% for the three month periods ending August 31, 1996 and
August 31, 1995 respectively. Research and development expenses increased 63% to
$2,621,000 compared to $1,605,000 last year. The increase is the result of
additional engineering new product development staff and their related costs.
Selling and administrative expenses rose approximately $1,024,000 for the nine
month period and $409,000 for the three month period ending August 31,1996,
respectively, as compared to the comparable period in 1995, excluding a $957,600
non-cash compensation charge last year. However, as a percent of sales, selling
and administrative expenses decreased from 17% to 16% for the nine month period
and increased from 15% to 17% for the three month period ending August 31, 1995
to 1996, respectively. The increase is primarily due to professional fees
related to a medical joint venture that the Company is pursuing and an
unsuccessful secondary offering due to a downturn in market conditions.
The Company's effective tax rate was 39% and 37% for the nine month periods and
43% and 38% for the three month periods ending August 31, 1996 and 1995,
respectively. Fiscal year 1995's effective tax rate excludes the non cash
compensation charge to reflect comparable figures. The major difference is the
increase in state taxes and the reduction of the research and development tax
credit in fiscal year 1996, due to a recent change in the tax laws.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---
(a) Exhibits .............................N/A
(b) No reports on Form 8-K were filed during the
third quarter of fiscal 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF POWER PRODUCTS, INC.
Dated: /s/ Joseph Stach
-----------------------------
Joseph Stach, Chairman and
President
/s/ Domenic N. Golato
------------------------------
Domenic N. Golato, Chief Financial
Officer and Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 2,242
<SECURITIES> 0
<RECEIVABLES> 5,973,664
<ALLOWANCES> 149,964
<INVENTORY> 4,850,841
<CURRENT-ASSETS> 11,086,590
<PP&E> 3,709,549
<DEPRECIATION> 1,513,530
<TOTAL-ASSETS> 13,552,602
<CURRENT-LIABILITIES> 3,567,970
<BONDS> 0
0
0
<COMMON> 121,228
<OTHER-SE> 8,900,904
<TOTAL-LIABILITY-AND-EQUITY> 13,552,602
<SALES> 25,722,273
<TOTAL-REVENUES> 25,722,273
<CGS> 16,020,973
<TOTAL-COSTS> 6,596,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,400
<INTEREST-EXPENSE> 66,509
<INCOME-PRETAX> 2,985,411
<INCOME-TAX> 1,163,521
<INCOME-CONTINUING> 1,821,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,821,890
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
