UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
July 31, 1996.
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 No. 0-27498
CFM Technologies, Inc.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2298698
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1336 Enterprise Drive, West Chester, Pennsylvania 19380
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 696-8300
--------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
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
--- ---
The number of outstanding shares of the Registrant's Common Stock, no
par value per share, on September 9, 1996 was 6,052,924.
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited)
July 31, 1996 and October 31, 1996 .............................. 3
Consolidated Statements of Income (unaudited)
Three months and nine months ended July 31, 1996 and 1995 ........ 4
Consolidated Statements of Cash Flows (unaudited)
Nine months ended July 31, 1996 and 1995 ........................ 6
Notes to Consolidated Financial Statements ...................... 7
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 .................................. 12
Signatures ........................................................ 13
Exhibit Index ..................................................... 14
Statement re: computation of per share earnings .................. 15
Financial Data Schedule ........................................... 16
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 11,685 $ 408
Accounts receivable ................................... 15,638 8,886
Inventories ........................................... 7,470 3,700
Prepaid expenses and other ............................ 226 184
Deferred income taxes ................................. 862 529
-------- --------
Total current assets ............................ 35,881 13,707
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land .................................................. 540 540
Building and improvements ............................. 2,973 2,205
Machinery and equipment ............................... 3,623 1,640
Furniture and fixtures ................................ 841 412
-------- --------
7,977 4,797
Less - Accumulated depreciation and amortization ...... (901) (406)
-------- --------
Net property, plant and equipment ............... 7,076 4,391
-------- --------
OTHER ASSETS:
Patents, net of accumulated amortization of $71 and $57 247 251
Other ................................................. 126 105
-------- --------
Total other assets .............................. 373 356
-------- --------
$ 43,330 $ 18,454
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
July 31, 0ctober 31,
1996 1995
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt .................................. $ 488 $ 574
Accounts payable ................................................... 3,960 2,537
Accrued expenses ................................................... 4,354 2,373
Customer deposits .................................................. 34 87
------- -------
Total current liabilities .................................... 8,836 5,571
------- -------
Long-term debt ............................................................ 2,605 3,005
Deferred income taxes ..................................................... 107 103
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000 authorized shares; no
shares issued or outstanding ................................... -- --
Common stock, no par value; 10,000,000 authorized shares; 6,052,924
and 3,392,928 shares issued and outstanding .................... 29,639 9,616
Retained earnings ................................................. 2,143 159
------- -------
Total shareholders' equity .................................. 31,782 9,775
------- -------
$43,330 $18,454
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ ------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES ............................................. $11,096 $ 6,601 $30,793 $15,932
COST OF SALES ......................................... 5,841 3,848 16,478 $ 9,442
------- ------- ------- -------
Gross profit ............................ 5,255 2,753 14,315 6,490
------- ------- ------- -------
OPERATING EXPENSES:
Research, development and engineering .......... 881 426 2,973 1,237
Selling, general and administrative ............ 3,366 1,531 8,041 4,003
------- ------- ------- -------
Total operating expenses ................ 4,247 1,957 11,014 5,240
------- ------- ------- -------
Operating income ........................ 1,008 796 3,301 1,250
INTEREST EXPENSE, NET ................................. 34 46 249 120
------- ------- ------- -------
Income before income taxes .............. 974 750 3,052 1,130
INCOME TAXES .......................................... 341 251 1,068 378
------- ------- ------- -------
NET INCOME ............................................ $ 633 $ 499 $ 1,984 $ 752
======= ======= ======= =======
NET INCOME PER SHARE .................................. $ 0.13 $ 0.12 $ 0.46 $ 0.19
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES .............................. 5,016 3,994 4,339 3,994
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------------------------
1996 1995
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ............................................................. $ 1,984 $ 752
Adjustments to reconcile net income to net cash provided by
(used in) operating activities -
Depreciation and amortization .................................... 509 160
Deferred income tax benefit ...................................... (329) (199)
(Increase) decrease in -
Accounts receivable ........................................ (6,752) 349
Inventories ................................................ (3,770) (522)
Prepaid expenses and other current assets .................. (42) (321)
Other assets ............................................... (31) (10)
Increase (decrease) in -
Accounts payable ........................................... 1,423 135
Accrued expenses ........................................... 1,981 511
Customer deposits .......................................... (53) (649)
-------- --------
Net cash provided by (used in) operating activities .. (5,080) 206
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............................. (2,204) (175)
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt ............................................. (1,462) (212)
Proceeds from long-term debt ........................................... -- 31
Proceeds from sale of common stock ..................................... 20,023 125
-------- --------
Net cash provided by (used in) financing activities .. 18,561 (56)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 11,277 (25)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................ 408 1,286
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................... $ 11,685 $ 1,261
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense ......................................... $ 370 $ 158
Cash paid for income taxes ............................................. 1,449 587
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Machinery acquired under capital leases ................................ $ 976 $ 10
Common stock issued for Partnership interests .......................... -- 3,249
Common stock issued for services ....................................... -- 15
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(1) Basis of Presentation:
The condensed financial statements included herein have been prepared by
CFM Technologies, Inc. without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These statements include all adjustments
that, in the opinion of management, are necessary to provide a fair statement of
the results for the periods covered. These financial statements should be read
in conjunction with the audited financial statements and the notes thereto
included in the Company's prospectus dated June 18, 1996. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the full year.
(2) Initial Public Offering:
The Company's initial public offering was consummated on June 21, 1996. The
net proceeds from the offering of 2,249,661 shares of common stock were
$20,023,000.
(3) Accounts Receivable:
July 31, 1996 October 31, 1995
------------- ----------------
Billed ........................... $11,346,000 $ 7,162,000
Unbilled ......................... 4,292,000 1,724,000
----------- -----------
$15,638,000 $8,886,000
=========== ==========
Unbilled receivables represent final retainage amounts to be billed upon
completion of the installation process.
(4) Inventories:
July 31, 1996 October 31, 1995
------------- ----------------
Raw materials ................................ $4,244,000 $1,979,000
Work in progress ............................. 3,226,000 1,721,000
---------- ----------
$7,470,000 $3,700,000
========== ==========
-7-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
CFM designs, manufactures and markets advanced wet processing equipment
for sale to the worldwide semiconductor and flat panel display manufacturing
industries. The Company was founded in 1984 and began commercial operations
in 1990 following a period of technology and product development, during
which time the Company's patented Full-Flow(TM) enclosed processing and
Direct-Displacement(TM) drying technologies were developed.
The Company has derived substantially all of its revenues from the sale
of a relatively small number of its systems, which typically range in price from
$0.9 million to $2.5 million. The Company sells its systems worldwide and
records a significant portion of its sales to customers outside the United
States. The Company's international sales have occurred in Europe, Japan, Korea
and Israel. The Company anticipates that international sales will continue to
account for a significant portion of net sales, although the percentage of
international sales is expected to fluctuate from period to period.
Results of Operations
The following table sets forth certain financial data for the periods
indicated, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -------------------------------
July 31, 1996 July 31, 1995 July 31, 1996 July 31, 1995
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales ............................... 100.0% 100.0% 100.0% 100.0%
Gross profit ............................ 47.4% 41.7% 46.5% 40.7%
Research, development and engineering ... 7.9% 6.5% 9.7% 7.8%
Selling, general and administrative ..... 30.4% 23.1% 26.1% 25.1%
Operating income ........................ 9.1% 12.1% 10.7% 7.8%
Income before income taxes .............. 8.8% 11.4% 9.9% 7.1%
Net income .............................. 5.7% 7.6% 6.4% 4.7%
</TABLE>
Net Sales. Net sales for the three months ended July 31, 1996 increased
68.1% to $11.1 million from $6.6 million in the three months ended July 31,
1995. Net sales for the nine months ended July 31, 1996 increased 93.3% to $30.8
million from $15.9 million for the nine months ended July 31, 1995. These
increases resulted primarily from increased demand for the Company's Full-Flow
systems by the semiconductor industry as the Company's customers equipped new
facilities or expanded facilities, and also from initial production shipments of
Full-Flow systems for the manufacture of flat panel displays. International
sales represented 70.1% and 52.9% of total net sales in the three and nine
months ended July 31, 1996, respectively, and 65.1% and 54.2% of total net sales
-8-
<PAGE>
in the three and nine months ended July 31, 1995, respectively. The number of
international customers receiving shipments of the Company's systems during
fiscal 1996 has increased. The Company expects international sales to continue
to represent a significant portion of its net sales, supported by the Company's
continuing expansion of its international marketing efforts.
Gross Profit. Gross profit as a percentage of net sales increased from
41.7% in the three months ended July 31, 1995 to 47.4% for the same period in
fiscal 1996. For the nine months ended July 31, 1996, gross profit as a
percentage of net sales increased to 46.5% from 40.7% for the corresponding
prior year period. These increases were attributable to higher sales prices,
changes in product mix, changes in the mix of geographic distribution and
manufacturing efficiencies resulting from the expansion of the Company's
manufacturing facilities.
Research, Development and Engineering. Research, development and
engineering expenses for the three months ended July 31, 1996 increased by
106.8% to $0.9 million from $0.4 million recorded in the same period during
fiscal 1995. Expenses for the nine months ended July 31, 1996 increased
by 140.3% to $3.0 million from $1.2 million for the corresponding in 1995.
These increases were predominantly due to a higher level of spending on
recently introduced products, including a system capable of processing up to
100 semiconductor wafers in each vessel and a Full-Flow system capable of
processing 370mm X 470mm flat panel display substrates. These expenses have
been reported net of funding from the United States Display Consortium of $0.4
million and $0.8 million in the three months and nine months ended July 31,
1996, respectively.
Selling, General and Administrative. Selling, general and
administrative expenses increased from $1.5 million or 23.1% of net sales in the
quarter ended July 31, 1995 to $3.4 million or 30.4% of net sales in the three
months ended July 31, 1996. For the nine months ended July 31, 1996, selling,
general and administrative expenses increased to $8.0 million or 26.1% of net
sales from $4.0 million or 25.1% of net sales for the nine months ended July 31,
1995. The increase for both the three month and nine month periods were
primarily attributable to (i) higher sales and marketing costs resulting from
expansion of the sales and marketing staff in Europe and Asia, (ii) a
continuation of the expansion of the Company's customer service function,
(iii) an increase in shipments to Korea where substantial sales commission
expenses are incurred and (iv) increased spending for legal expenses related
to litigation undertaken by the Company to protect certain of the Company's
patents. The Company believes that selling, general and administrative
expenses, including legal expenses related to the patent litigation, will
continue to increase in the remainder of fiscal 1996 and beyond, as increased
personnel and sales and support expenses are expected in connection with the
Company's efforts to increase its net sales.
Interest Expense, Net. Interest expense, net of interest income,
decreased slightly from $46,000 in the three months ended July 31, 1995 to
$34,000 in the quarter ended July 31, 1996. This reduction in 1996 was the
result of significant interest expense for borrowings under the Company's
revolving line of credit during the first half of the period, more than fully
offset by substantial interest income earned by the Company from investment of
funds raised in the Company's initial public offering of Common Stock completed
on June 21, 1996. Interest expense, net of interest income, for the nine months
ended July 31, 1996 increased to $249,000 or 0.8% of net sales from $120,000 or
0.8% of net sales during the nine months ended July 31, 1995. This increase in
net interest expense resulted from increased borrowings on the Company's line of
credit during the period prior to completion of the Company's initial public
offering to support increased working capital requirements.
-9-
<PAGE>
Income Taxes. The Company's effective tax rate was 33.5% during the
three and nine months ended July 31, 1995. The Company recorded income tax
expense at an effective rate of 35.0% for the three and nine months ended July
31, 1996. The rate for fiscal 1996 reflects the estimated impact of cancellation
of the research and development tax credit during 1995.
Backlog
As of July 31, 1996, the Company's backlog of orders was $17.2 million,
compared to $15.7 million as of April 30, 1996 and $7.1 million as of July 31,
1995. The majority of these orders were received during the preceding six month
period and are anticipated to ship within the coming six month period. During
the current fiscal year, the Company has experienced two order cancellations and
a general decrease in the lead times following order placement by customers.
Accordingly, the Company's backlog at a particular date may not necessarily be
indicative of actual sales during any particular future period.
Liquidity and Capital Resources
Since its inception, and prior to completion of its initial public
offering of Common Stock, the Company funded its capital requirements through
funding received from two research and development limited partnerships, the
private sale of equity securities and, to a lesser extent, bank borrowings and
equipment leases. On June 21, 1996 the Company sold 2,138,461 shares of Common
Stock in its initial public offering, raising $19.0 million, net of expenses of
$0.9 million. In July 1996 the underwriters in the Company's initial public
offering exercised a portion of their overallottment option, purchasing an
additional 111,200 shares for a total of $1.0 million. As of July 31, 1996 the
Company had $11.7 million in cash and $27.0 million in working capital.
While net cash of $0.2 million was provided by operating activities
during the nine months ended July 31, 1995, net cash of $5.1 million was used in
operating activities during the nine months ended July 31, 1996. Accounts
receivable decreased by $0.3 million and inventories increased by $0.5 million
during the first nine months of fiscal 1995. Accounts receivable and inventories
both increased during the first nine months of fiscal 1996, by $6.8 million and
$3.8 million, respectively. Purchases of property, plant and equipment were $0.2
million and $3.2 million for the nine months ended July 31, 1995 and 1996,
respectively. Fiscal 1996 expenditures were primarily related to facility
improvements and the establishment of the Company's applications laboratory.
The Company has a relationship with a commercial bank which includes a
mortgage on the Company's manufacturing facility in the amount of $1.0 million
and a revolving demand line of credit which increased from $3.0 million to $5.0
million in October 1995 and to $7.5 million in April 1996. The mortgage bears
interest at an annual rate of 8.9%. The line of credit is secured by a first
lien on substantially all of the Company's assets with advances of up to 80% of
qualified accounts receivable and 25% of qualified purchase orders up to a
sub-limit of $2.5 million at an interest rate equal to such bank's prime rate.
As of July 31, 1996, no balance was outstanding under the Company's line of
credit.
The Company also has mortgage notes payable to the Pennsylvania
Industrial Development Authority in the amount of $0.6 million bearing interest
at 2.0% and to the Chester County Development Council in the amount of $0.1
million bearing interest at 5.0%.
-10-
<PAGE>
The Company leased a 38,400 square foot office facility in the same
industrial park as its owned manufacturing facility and has incurred
approximately $0.6 million in expenses to outfit and furnish such facility,
which houses the Company's engineering, customer satisfaction, sales and
marketing and administration functions. During fiscal 1996 the Company has also
incurred approximately $0.6 million in expenses related to the expansion of its
manufacturing facilities and approximately $0.4 million for equipment for use in
the Company's applications laboratory and for computer hardware and software to
support its engineering design functions.
The Company has outstanding accounts receivable of approximately $8.9
million and $15.6 million as of October 31, 1995 and July 31, 1996,
respectively. No allowance for doubtful accounts receivable has been recorded
because the Company believes that all such accounts receivable are fully
realizable.
The Company believes that existing cash balances and its available line
of credit will be sufficient to meet the Company's cash requirements during the
next 12 months. However, depending upon its rate of growth and profitability,
the Company may require additional equity or debt financing to meet its working
capital requirements or capital expenditure needs. There can be no assurance
that additional financing, if needed, will be available when required or, if
available, will be on terms satisfactory to the Company.
-11-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
-12-
<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.
Dated: September 13, 1996
CFM Technologies, Inc.
------------------------------------
(Registrant)
By: \s\ Roger A. Carolin
-------------------------------
Roger A. Carolin
Chief Executive Officer
By: \s\ Lorin J. Randall
-------------------------------
Lorin J. Randall
Chief Financial Officer
-13-
<PAGE>
EXHIBIT INDEX
Exhibit
- - -------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
EXHIBIT 11
CFM TECHNOLOGIES, INC.
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
(Amounts in thousands, except per share - unaudited)
<S> <C> <C> <C> <C>
Net income.................................... $ 633 $ 499 $1,984 $ 752
====== ====== ====== ======
Average number of common shares
outstanding................................. 4,811 3,803 4,143 3,803
Adjustment for assumed conversion of
stock options............................... 180 168 157 168
Adjustment for cheap stock (treasury Method)... 25 46 39 46
------ ------ ------ ------
Average number of common shares................ 5,016 4,017 4,339 4,017
====== ====== ====== ======
Earnings per common share...................... $ 0.13 $ 0.12 $ 0.46 $ 0.19
====== ====== ====== ======
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 11,685
<SECURITIES> 0
<RECEIVABLES> 15,638
<ALLOWANCES> 0
<INVENTORY> 7,470
<CURRENT-ASSETS> 35,881
<PP&E> 7,977
<DEPRECIATION> 901
<TOTAL-ASSETS> 43,330
<CURRENT-LIABILITIES> 8,836
<BONDS> 0
0
0
<COMMON> 29,639
<OTHER-SE> 2,143
<TOTAL-LIABILITY-AND-EQUITY> 43,330
<SALES> 30,793
<TOTAL-REVENUES> 30,793
<CGS> 16,478
<TOTAL-COSTS> 11,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 0
<INCOME-TAX> 1,068
<INCOME-CONTINUING> 1,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,984
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
