<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. 1-12940
May 31, 1998
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.)
1007 Laurel Oak Road, Voorhees, N.J. 08043
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (609)627-6100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 31, 1998, 12,148,695 shares of Common Stock, $.01 par value, were
outstanding.
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INDEX
PAGE
NUMBER
------
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets May 31, 1998 and
November 30, 1997 ................................ 3
Statements of Operations - Three Months and Six
Months Ended May 31, 1998 and 1997 ............ 4
Statements of Cash Flows - Six Months Ended
May 31, 1998 and 1997 ............................. 5
Notes to Consolidated Financial Statements ........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 9
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>
May 31, November 30,
1998 1997
Assets (Unaudited) (Audited)
--------------------------
<S> <C> <C>
Cash $ 570,750 $ 570,453
Accounts receivable 3,657,506 7,669,713
Inventories 5,024,025 5,417,012
Prepaid expenses and other 76,487 89,337
Deferred income taxes 431,043 483,847
----------- -----------
9,759,811 14,230,362
------------ -----------
Property and equipment, net 3,407,144 3,520,411
Other assets 34,658 70,256
----------- -----------
$13,201,613 $17,821,029
=========== ===========
Liabilities
Current liabilities
Note payable $ 499,604 $ 999,721
Current portion long-term debt 700,000 700,000
Accounts payable 1,301,427 3,066,048
Accrued expenses 728,872 1,083,048
Accrued payroll 289,655 295,223
----------- -----------
3,519,558 6,144,040
----------- -----------
Long-term debt,less current
portion 1,151,752 1,498,610
----------- -----------
Shareholders' equity
Common stock - $.01 par value
Authorized - 19,000,000
Issued and outstanding:
1998-12,148,695; 1997-12,147,661 121,645 121,477
Additional paid-in capital 6,414,215 6,414,029
Retained earnings 2,002,724 3,710,062
Notes receivable from shareholders (8,281) (67,189)
----------- -----------
8,530,303 10,178,379
----------- -----------
$13,201,613 $17,821,029
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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RF POWER PRODUCTS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
May 31, MAY 31,
------- ------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 5,823,167 $8,218,622 $13,021,400 $13,653,607
----------- ---------- ----------- -----------
Costs and expenses
Cost of products sold 4,144,297 4,980,505 8,621,333 8,611,317
Research and development 1,560,412 1,106,497 2,684,984 1,861,744
Selling and administrative 1,741,783 1,480,730 3,348,742 2,788,737
Interest expense 44,537 30,699 73,679 51,396
----------- ---------- ----------- -----------
$ 7,491,029 $7,598,431 $14,728,738 $13,313,194
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (1,667,862) 620,191 (1,707,338) 340,413
INCOME TAX EXPENSE 12,632 239,077 0 132,761
----------- ---------- ----------- -----------
Net income (loss) (1,680,494) 381,114 $(1,707,338) $ 207,652
============ ========== =========== ===========
Per share data:
Earnings (loss) per share:
Basic $ (0.14) $ .03 $ (0.14) $ .02
Diluted $ (0.14) $ .03 $ (0.14) $ .02
Weighted average number of
shares outstanding:
Basic 12,148,593 12,129,200 12,147,837 12,126,666
Diluted 12,148,593 12,334,735 12,147,837 12,294,826
</TABLE>
See accompanying notes to consolidated financial statements.
4
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RF POWER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
( UNAUDITED )
<TABLE>
<CAPTION>
Six Months Ended
----------------
May 31,1998 May 31,1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,707,338) $ 207,652
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 524,604 495,999
Deferred income taxes (benefit) 52,804 (24,645)
Changes in assets and liabilities
Decrease (increase)in accounts
receivable 4,012,207 (905,386)
Decrease(increase) in inventories 392,987 (1,010,331)
Decrease in prepaid
expenses and other 12,850 195,170
Increase (decrease) in accounts
payable and accrued liabilities (2,124,365) 1,992,759
Increase other 35,598 14,169
----------- -----------
Net cash generated in
operating activities 1,199,347 965,387
----------- -----------
Cash flows from investing activities
Capital expenditures (411,337) (1,632,636)
----------- -----------
Net cash used in investing activities (411,337) (1,632,636)
----------- -----------
Cash flows from financing activities
Short term borrowings, net (500,117) (434,663)
Payments of long-term debt (346,858) (220,326)
Borrowing against term loan - 1,500,000
Repayment of notes receivable 58,908
Proceeds from issuance of common stock
under stock option plan 354 22,250
----------- -----------
Net cash provided by (used in)
financing activities (787,713) 867,261
----------- -----------
Net increase in cash 297 200,012
Cash at beginning of period 570,453 546,984
----------- -----------
Cash at end of period $ 570,750 $ 746,996
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
</TABLE>
RF POWER PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND NOVEMBER 30, 1997
Note 1 In the opinion of management, the accompanying financial statements
contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
May 31, 1998 and November 30, 1997, the results of operations for the
six months ended May 31, 1998 and May 31, 1997 and the statement of
cash flows for the six months ended May 31, 1998 and 1997.
The results of operations for the six months ended May 31, 1998 and
1997 are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
financial statements and the notes included in the Company's annual
report on Form 10K.
<TABLE>
<CAPTION>
Note 2 Inventories
Inventories consist of the following:
May 31, November 30,
1998 1997
---------- ------------
<S> <C> <C>
Raw materials, net $2,366,721 $2,604,724
Work in process 331,864 1,051,065
Finished goods, net 2,325,440 1,761,223
---------- ----------
$5,024,025 $5,417,012
========== ==========
</TABLE>
6
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<TABLE>
<CAPTION>
Note 3 Property and Equipment
Property and equipment consists of the following:
May 31, November 30,
1998 1997
----------- ------------
<S> <C> <C>
Property and equipment,
at cost
Machinery and equipment $5,663,948 $5,252,611
Transportation equipment 54,641 54,641
Leasehold improvements 863,525 863,525
---------- ----------
6,582,114 6,170,777
Less accumulated depreciation
and amortization 3,174,970 2,650,366
---------- ----------
$3,407,144 $3,520,411
========== ==========
</TABLE>
Note 4 Income Taxes
The provision (benefit)for income taxes for the six months
ended May 31, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>
May 31, May 31,
1998 1997
------- ----------------
<S> <C> <C>
Current-federal
and state $ 0 $157,406
Deferred-federal
and state 0 (24,645)
----- --------
$ 0 $132,761
===== ========
</TABLE>
Note 5 Earnings Per Share
The Company adopted SFAS 128 in the first quarter of fiscal year 1998.
Basic per share data presented includes the weighted average number of
shares of common stock only. Diluted per share data presented includes
the weighted average number of shares of common stock adjusted for the
conversion of dilutive common stock equivalents in fiscal 1997. In
fiscal 1998, due to the net loss, the shares were not adjusted for the
conversion of common stock equivalents.
7
<PAGE>
Note 6 Debt Covenant Violation
The Company's loan agreement with Mellon Bank includes a cash flow
covenant that stipulates that the Company operate at a minimum
earnings level for a 4 quarter rolling period as a multiple of its
principal and interest expense. The Company was in violation of this
covenant as of May 31, 1998. Mellon Bank issued the Company a waiver
for this condition on June 24, 1998.
Note 7 Merger Agreement with Advanced Energy Industries, Inc.
On June 4, 1998, the Company filed a report on Form 8-K regarding a
joint press release with Advanced Energy Industries, Inc. dated June
2, 1998, announcing a Plan of Reorganization and Merger Agreement. The
Merger Agreement has been approved by the respective Boards of
Directors of Advanced Energy Industries, Inc. and RF Power Products,
Inc. The consummation of the Merger is subject, among other things, to
the approval of the Merger by the stockholders of RF Power Products,
Inc.
8
<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 funded through operations
coupled with the proceeds of bank financing.
In January 1998, the Company revised the credit facility with its commercial
bank. The new credit facility is for a $6,000,000 revolving line of credit.
The Company has the option to convert to a term loan up to $1,000,000 of the
line of credit for the purchase of capital equipment, which if exercised reduces
the line of credit by the amount converted. The rate of interest for both the
term loan option and revolving line of credit are based on current LIBOR rates
plus a variable percentage based on the Company's quarterly cash flow
performance. Under the terms of the credit facility, the Company is required to
maintain certain minimum financial ratios as defined in the credit facility
agreement and is prohibited from paying dividends.
The Company was granted a waiver by its commercial bank on June 24, 1998 for
violation of its cash flow convenant due to a lack of earnings as of May 31,
1998. The Company expects that it will continue to be in violation of this
covenant in the next quarter and plans to either renegotiate its credit facility
or request future short term waivers.
Operating activities provided $1,199,347 in cash for the six month period ending
May 31, 1998 versus $965,387 in cash flows for the comparable period in 1997.
Depreciation aggregated $524,604 during the 1998 six month period. A decrease
in accounts receivable of $4,012,207 and inventories of $392,987 more than
offset a decrease in accounts payable and accrued liabilities of $2,124,365, and
the net loss of $1,707,338.
For the six months ended May 31, 1998, the Company repaid $500,117 on its line
of credit and $346,858 of its long term debt.
The Company requires substantial capital for research and development and
inventories. Although there were significant capital expenditures of
$1,632,636 during the Company's 1997 first six months for its new facility,
1998 first six months capital expenditures decreased to $411,337. 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.
Year 2000 Exposure
Many information systems have been designed to function based on years that
begin with 19. The Company believes that it has taken the necessary steps to
ensure that the Company's business operations and systems are year 2000
compliant. The company will continue to evaluate all supplier and customer
software. In the event problems are encountered, the company cannot reasonably
predict the degree to which it will be successful in mitigating the potential
negative effects of the year 2000 date-recognition problem for this type of
software.
9
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended May 31, 1998
- -------------------------------
Net sales for the three months ended May 31, 1998 decreased 29% as compared to
the same period in fiscal 1997. This is the result of a decrease of sales to
the semiconductor capital equipment manufacturers during the second quarter of
fiscal year 1998.
Cost of products sold amounted to 71% and 61% of sales for the three month
periods ending May 31, 1998 and May 31, 1997, respectively. The decrease in
gross profit is primarily the result of lower absorbed labor and overhead costs
due to the lower production volume along with inventory obsolescence charges of
$360,000 for the three month period ending May 31, 1998.
Research and development expenses were 27% and 14% of sales for the three month
periods ending May 31, 1998 and May 31, 1997, respectively. The increase is due
primarily to support the development of new products, including the high power
Hercules, Atlas RF generators and Mercury series electronically tuned matching
networks.
Selling and administrative expenses were 30% and 18% of sales for the three
month periods ending May 31, 1998 and May 31, 1997, respectively. The increase
was caused primarily by severance and other charges associated with a reduction
in workforce of $225,000 for the three month period ended May 31, 1998.
The Company's effective tax rate was 0% and 39% for the three month periods
ending May 31, 1998 and May 31, 1997, respectively. The Company has not
recorded a tax liability for 1998 due to the three month loss from operations.
Six Months Ended May 31, 1998
- -----------------------------
Net sales for the six months ended May 31, 1998 decreased 5% as compared to the
same period in fiscal 1997. This is the result of a decrease of sales to the
semiconductor capital equipment manufacturers during the first six months of
fiscal year 1998.
Cost of products sold amounted to 66% and 63% of sales for the six month periods
ending May 31, 1998 and May 31, 1997, respectively. The decrease in gross
profit is primarily the result of lower absorbed labor and overhead costs due to
the lower production volume.
Research and development expenses were 21% and 14% of sales for the six month
periods ending May 31, 1998 and May 31, 1997, respectively. The increase is due
primarily to support the development of new products, including the high power
Hercules, Atlas RF generators and Mercury series electronically tuned matching
networks.
Selling and administrative expenses were 26% and 21% of sales for the six month
periods ending May 31, 1998 and May 31, 1997, respectively. The increase was
caused primarily by severance and other charges associated with a reduction in
workforce.
The Company's effective tax rate was 0% and 39% for the six month periods ending
May 31, 1998 and May 31, 1997, respectively. The Company has not recorded a tax
liability for 1998 due to the six month loss from operations.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
---
(a) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On June 4, 1998, the Company filed a report on Form 8-K
regarding a joint press release with Advanced Energy Industries,
Inc. dated June 2, 1998, announcing a Plan of Reorganization and
Merger Agreement.
11
<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: July 14, 1998 /s/Joseph Stach
--------------------------
Joseph Stach, Chairman and
President
/s/Paul Zaun
--------------------------
Paul Zaun, Controller
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 570,749
<SECURITIES> 0
<RECEIVABLES> 3,838,740
<ALLOWANCES> 181,234
<INVENTORY> 5,024,025
<CURRENT-ASSETS> 9,759,811
<PP&E> 6,582,114
<DEPRECIATION> 3,174,970
<TOTAL-ASSETS> 13,201,613
<CURRENT-LIABILITIES> 3,519,558
<BONDS> 0
0
0
<COMMON> 121,645
<OTHER-SE> 8,408,657
<TOTAL-LIABILITY-AND-EQUITY> 13,201,613
<SALES> 13,021,399
<TOTAL-REVENUES> 13,021,399
<CGS> 8,621,333
<TOTAL-COSTS> 14,616,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,700
<INTEREST-EXPENSE> 73,679
<INCOME-PRETAX> (1,707,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,707,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,707,338)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
