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
April 30, 1998.
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 June 10, 1998 was 7,930,815.
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited) as of
April 30, 1998 and October 31, 1997 ................. 3
Consolidated Statements of Operations (unaudited)for
the Three and Six months ended April 30, 1998
and 1997 ............................................ 5
Consolidated Statements of Cash Flows (unaudited)
for the Six months ended April 30, 1998 and 1997..... 6
Notes to Consolidated Financial Statements .......... 7
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 .................. 15
Signatures ........................................ 16
Exhibit Index ..................................... 17
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
April 30, October 31,
ASSETS 1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 20,908 $ 26,865
Short-term investments 20,952 19,316
Accounts receivable 23,197 33,392
Inventories 18,331 16,081
Prepaid expenses and other 3,085 1,709
Deferred income taxes 1,423 1,371
--------- ---------
Total current assets 87,896 98,734
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 540 540
Building and improvements 4,944 3,782
Machinery and equipment 9,389 8,106
Furniture and fixtures 1,388 1,337
--------- ---------
16,261 13,765
Less - Accumulated depreciation
and amortization (4,921) (3,562)
--------- ---------
Net property, plant and equipment 11,340 10,203
--------- ---------
OTHER ASSETS 442 559
--------- ---------
$ 99,678 $ 109,496
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
April 30, October 31,
1998 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 660 $ 617
Accounts payable 3,240 7,709
Accrued expenses 7,051 8,612
--------- ---------
Total current liabilities 10,951 16,938
--------- ---------
LONG-TERM DEBT 2,526 2,571
--------- ---------
DEFERRED INCOME TAXES 136 119
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 authorized shares; no shares
issued or outstanding -- --
Common stock, no par value; 30,000,000
authorized shares; 7,930,815 and
7,913,588 shares issued and outstanding 80,814 80,762
Deferred compensation (59) (235)
Retained earnings 5,310 9,341
--------- ---------
Total shareholders' equity 86,065 89,868
--------- ---------
$ 99,678 $ 109,496
========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
----------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 8,320 $ 20,148 $ 23,824 $ 34,940
COST OF SALES 5,683 10,774 14,337 18,742
-------- -------- -------- --------
Gross profit 2,637 9,374 9,487 16,198
-------- -------- -------- --------
OPERATING EXPENSES:
Research, development and engineering 3,441 2,216 6,263 4,197
Selling, general and administrative 4,320 4,850 9,925 7,706
-------- -------- -------- --------
Total operating expenses 7,761 7,066 16,188 11,903
-------- -------- -------- --------
Operating income (LOSS) (5,124) 2,308 (6,701) 4,295
INTEREST (INCOME) EXPENSE, NET (437) (616) (942) (711)
-------- -------- -------- --------
Income (LOSS) before income taxes (4,687) 2,924 (5,759) 5,006
INCOME TAXES (1,406) 944 (1,728) 1,652
-------- -------- -------- --------
NET INCOME(LOSS) $ (3,281) $ 1,980 $ (4,031) $ 3,354
======== ======== ======== ========
NET INCOME(LOSS) PER COMMON SHARE:
Basic $ (0.41) $ 0.27 $ (0.51) $ 0.50
-------- -------- -------- --------
Diluted $ (0.41) $ 0.25 $ (0.51) $ 0.47
======== ======== ======== ========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE:
Basic 7,920 7,460 7,917 6,745
-------- -------- -------- --------
Diluted 7,920 7,964 7,917 7,174
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (4,031) $ 3,354
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Depreciation and amortization 1,393 913
Deferred compensation 12 41
Deferred income tax benefit (35) (342)
(Increase) decrease in -
Accounts receivable 10,195 (8,219)
Inventories (2,250) (2,885)
Prepaid expenses and other current assets (1,376) 12
Other assets 83 6
Increase (decrease) in -
Accounts payable (4,469) 1,181
Accrued expenses (1,561) 2,577
------ -----
Net cash used in operating
activities (2,039) (3,362)
------ ------
INVESTING ACTIVITIES:
Purchases of short-term investments (10,977) (74,173)
Proceeds from short-term investments 9,341 67,055
Purchases of property, plant and equipment (2,009) (1,728)
------ ------
Net cash used in investing
activities (3,645) (8,846)
------ ------
FINANCING ACTIVITIES:
Payments on long-term debt (489) (272)
Proceeds from sale of common stock, net 210 49,288
Proceeds from exercise of stock options 6 157
Tax benefits from exercise of stock options -- 339
------ ------
Net cash (used in) provided by financing
activities (273) 49,512
------ ------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (5,957) 37,304
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,865 9,308
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,908 $ 46,612
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ 77 $ 136
Cash received for interest income 1,195 576
Cash paid for income taxes 105 1,072
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Machinery acquired under capital leases $ 487 $ 750
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 Annual Report on Form 10-K for the fiscal year ended
October 31, 1997. The results of operations for the interim periods presented
are not necessarily indicative of the results for the full year.
(2) ACCOUNTS RECEIVABLE:
April 30, October 31,
1998 1997
---- ----
Billed $14,043,000 $21,944,000
Unbilled 9,154,000 11,448,000
=========== ===========
$23,197,000 $33,392,000
=========== ===========
Unbilled receivables represent final retainage amounts to be billed upon
completion of the installation process.
(3) INVENTORIES:
April 30, October 31,
1998 1997
---- ----
Raw materials $10,061,000 $ 8,373,000
Work in progress 8,270,000 7,708,000
=========== ===========
$18,331,000 $16,081,000
=========== ===========
7
<PAGE>
(4) NET INCOME (LOSS) PER COMMON SHARE:
Basic net income (loss) per common share was computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common share for the three
and six month periods ended April 30, 1997 reflects the potential dilution from
the exercise of outstanding stock options into common stock. Inclusion of shares
of common stock potentially issuable upon the exercise of stock options in
calculating diluted net loss per common share for the three and six month
periods ended April 30, 1998 would have been antidilutive, and therefore such
shares were not included in the calculation. In 1997, the Company adopted SFAS
No. 128, "Earnings per Share," effective December 15, 1997. As a result, the
Company's reported earnings per share for the three and six month periods ended
April 30, 1997 were restated.
The weighted average common and common equivalent shares outstanding for
purposes of calculating net income (loss) per common share are computed as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding used for basic net
income (loss) per common share 7,920,000 7,460,000 7,917,000 6,745,000
Dilutive effect of common stock
options outstanding -- 504,000 -- 429,000
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding
used for diluted net income (loss)
per common share 7,920,000 7,964,000 7,917,000 7,174,000
========= ========= ========= =========
</TABLE>
(5) GEOGRAPHIC INFORMATION:
Historically, a significant portion of the Company's sales have been to
Asian companies. Included in accounts receivable as of April 30, 1998, was $8.4
million due from Asian companies. The current economic and currency situation
affecting certain Asian countries, which includes currency devaluation, external
support and economic reorganization programs to reduce growth and credit demand
could have a material adverse effect on the Company's operating results.
(6) STOCK REPURCHASE AUTHORIZATION:
On June 9, 1998, the Board of Directors authorized the Company to
repurchase up to 750,000 shares of the Company's common stock in open market,
privately negotiated or other transactions in conformity with the rules of the
Securities and Exchange Commission.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CFM Technologies, Inc. ("CFM" or the "Company")designs, manufactures and
markets advanced wet processing equipment for sale to the worldwide
semiconductor and flat panel display (FPD) 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-Displace(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 range in price from
approximately $1.2 million to $2.7 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 Korea,
Europe, Taiwan, Japan 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. Because of the current economic and currency situation in Asia, the
Company expects the proportion of its total net sales represented by
international sales to be lower during fiscal 1998, than it has been
historically. Orders from Asian customers accounted for substantially all of the
Company's backlog at April 30, 1998, none of which had firm shipment dates. The
Company's near-term results are likely to continue to be negatively impacted by
the continuing economic difficulties in Asia and certain over-capacity issues
facing the semiconductor industry.
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 Month Period Six Month Period
Ended Ended
April 30, April 30,
---------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross margin 31.7% 46.5% 39.8% 46.4%
Research, development and
engineering 41.4% 11.0% 26.3% 12.0%
Selling, general and
administrative 51.9% 24.1% 41.7% 22.1%
Income (loss) from operations (61.6)% 11.5% (28.1)% 12.3%
Income before income taxes (56.3)% 14.5% (24.2)% 14.3%
Net income (loss) (39.4)% 9.8% (16.9)% 9.6%
</TABLE>
9
<PAGE>
Net Sales. Net sales for the three month period ended April 30, 1998 of
$8.3 million decreased 58.7% from $20.1 million in the corresponding period in
fiscal 1997. International sales represented 26.2% and 62.9% of total net sales
for the three months ended April 30, 1998 and 1997, respectively. Net sales in
the first quarter of fiscal 1998 were $15.5 million. These decreases were due to
the impact of the broad semiconductor industry downturn caused by the Asian
economic and currency situation and general over-capacity in the semiconductor
and FPD manufacturing industries. Based upon current information, the Company
believes that 1998 third quarter net sales will be lower than those recorded in
the second fiscal quarter.
For the first half of fiscal 1998 ended April 30, 1998, net sales of $23.8
million decreased 31.8% from $34.9 million during the first half of fiscal 1997.
International sales represented 28.2% and 61.1% of total net sales for the six
months ended April 30, 1998 and 1997, respectively. Asian sales during the
six-month period ended April 30, 1998 also reflect the broad semiconductor
industry downturn caused by the Asian economic and currency situation and
general over-capacity in the semiconductor and FPD manufacturing industries.
International orders accounted for substantially all of the Company's backlog at
April 30, 1998 none of which had firm shipment dates.
Gross Profit. Gross profit as a percentage of net sales decreased from
46.5% in the three-month period ended April 30, 1997 to 31.7% for the same
corresponding in fiscal 1998. The gross margin reported in the second quarter of
fiscal 1998 declined over the corresponding period in fiscal 1997 primarily due
to approximately $1.1 million of adjustments to warranty reserves, additional
allowances for inventory obsolescence and system reconfiguration costs. The
gross profit was 44.2% in the first quarter of fiscal 1998.
During the first half of fiscal 1998, gross margins decreased to 39.8% from
46.4% reported for the first half of fiscal 1997, predominantly as a result of
the $1.1 million adjustments recorded in the second quarter of fiscal 1998, as
noted above. The Company's gross margins have varied significantly from quarter
to quarter and will continue to be affected by a variety of factors, including
sales volumes, the mix and average selling prices of systems, sales of OEM
automation equipment which yield relatively lower gross margins, the cost of
reconfiguration of systems prepared in anticipation of orders not subsequently
placed and the customization of systems.
Research, Development and Engineering. Research, development and
engineering expenses for the quarter ended April 30, 1998 increased by 55.3 % to
$3.4 million from $2.2 million recorded in the corresponding period during
fiscal 1997. Research, development and engineering expenses were $2.8 million in
the first quarter of 1998. During the second quarter of fiscal 1998, initial
development work on the Company's 300mm Full-Flow system was completed and the
first production unit was shipped to Semiconductor 300 (a joint venture of
Siemens and Motorola) in Dresden, Germany. As part of a joint development
program, Semiconductor 300 and the Company will qualify the CFM system's
performance for a broad spectrum of production processes during the next twelve
months. In connection with this program, support modules and related equipment
costing approximately $0.5 million were contributed by CFM in the second quarter
of fiscal 1998. The Company anticipates that research, development and
engineering spending in the coming quarters will return to a level similar to
that of the first quarter of fiscal 1998.
10
<PAGE>
Research, development and engineering expenses for the six months ended
April 30, 1998 increased by 49.2% to $6.3 million, or 26.3.0% of net sales, from
$4.2 million, or 12.0% of net sales, for the corresponding period during fiscal
1997. In addition to the development work and equipment contribution to the
300mm project at Semiconductor 300 discussed above, the Company continues to
develop new processes for existing and new equipment and to invest in its
applications laboratory, which is used for process development and
demonstrations.
Selling, General and Administrative. Selling, general and administrative
expenses decreased from $4.9 million or 24.1% of net sales in the quarter ended
April 30, 1997 to $4.3 million or 51.9% of net sales in the quarter ended April
30, 1998. Selling, general and administrative expenses were $5.6 million for the
first quarter of 1998. Selling, general and administrative expenses for the
second quarter of fiscal 1998 reflect lower commission costs due to reduced
sales, somewhat offset by an increase in direct selling costs. Sales in the
second quarter of fiscal 1997 were predominantly into East Asia where commission
expenses are significantly higher than on sales into Europe or the United
States.
For the six months ended April 30, 1998, selling, general and
administrative expenses increased to $9.9 million, or 41.7% of net sales, from
$7.7 million, or 22.1% of net sales, for the six months ended April 30, 1997.
During the first half of fiscal 1998, the increase in these expenses resulted
from increased customer support, increased selling activity and legal expenses
related to litigation undertaken to enforce one of the Company's patents. During
the first quarter of fiscal 1998, a jury in the United States District Court for
the District of Delaware found one of the Company's patents to be valid and
enforceable on all asserted claims and found the defendant to have willfully
infringed on all asserted claims. Costs related to the trial portion of this
litigation were approximately $1.0 million. The Company believes that selling,
general and administrative expenses, including ongoing legal expenses related to
patent litigation, will decrease during the second half of fiscal 1998.
Interest (income) expense, net. Interest income, net of interest expense,
was $616,000 and $437,000 in the quarters ended April 30, 1997 and 1998,
respectively. Such interest income was earned by the Company from investment of
funds not immediately needed to support the Company's operations.
Interest income, net of interest expense, for the six months ended April
30, 1997 and 1998 was $711,000 and $942,000, respectively. The net interest
income recorded during these periods was the result of interest income earned by
the Company from investment of funds not immediately needed to support the
Company's operations. These funds were raised in the Company's initial public
offering completed on June 21, 1996 and in a follow-on public offering completed
on February 19, 1997. The Company anticipates that the investment of these funds
will continue to generate interest income, net of interest expense, during the
remainder of fiscal 1998.
Income Taxes. The Company's effective tax rate was 30% for the three and
six-month periods ended April 30, 1998. The rate is consistent with the
effective rate for fiscal 1997.
11
<PAGE>
BACKLOG
As of April 30, 1998, the Company's backlog of orders was $10.1 million,
compared to $25.3 million as of April 30, 1997. Customer orders for the second
quarter of fiscal 1998, net of one cancellation, were $2.3 million, contributing
to orders for the first half of fiscal 1998 of $12.1 million. All of the orders
recorded during the second quarter of fiscal 1998 were for semiconductor
systems, and substantially all of the orders were from customers in the United
States. No FPD orders were received during the second quarter of fiscal 1998 or
1997. Substantially all of the orders in backlog at April 30, 1998 were from
customers located in Asia and none of those orders have firm scheduled shipment
dates. It has been the experience of the Company that neither reported backlog
at a particular date nor the pattern of receipt of orders is necessarily
indicative of future orders or revenues.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, the Company had $20.9 million in cash and cash
equivalents, $21.0 million in short-term investments and $76.9 million in
working capital. At October 31, 1997 the Company had $26.9 million in cash and
cash equivalents, $19.3 million in short-term investments and $81.8 million in
working capital.
Approximately $2.0 million was used in operating activities during the six
months ended April 30, 1998, as compared with $3.4 million used in operating
activities during the six months ended April 30, 1997. The cash used in
operating activities during the six months ended April 30, 1998 was primarily
the result of a decrease in accounts payable and accrued expenses of $6.0
million, the net loss of $4.0 million and a increase in inventories of $2.2
million offset by a decrease in accounts receivable of $10.2 million. While
inventory balances are at an historically high level, the Company believes that
this inventory will be utilized through fulfillment of future orders for the
Company's products; however, there can be no assurance that such orders will be
received and failure to receive such orders could have a material adverse impact
on the operations of the Company. As of April 30, 1998, the Company had accounts
receivable of $8.4 million due from Asian companies. Acquisitions of property,
plant and equipment were $2.0 million for the first six months of fiscal 1998
and $1.7 million for the first six months of fiscal 1997. Fiscal 1998
acquisitions included improvements to leased facilities under construction and
improvements and additions to the Company's applications laboratory to support
development work on systems to process 300mm wafers.
The Company has a relationship with a commercial bank which includes a
mortgage on one of the Company's manufacturing facilities in the amount of $0.9
million and a $7.5 million unsecured revolving demand line of credit with an
interest rate equal to the bank's overnight borrowing rate plus 1/4%. The
mortgage bears interest at an annual rate of 8.9%. As of April 30, 1998, 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 $0.5 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%. In addition, the Company has outstanding capital lease
obligations in the amount of $1.6 million bearing interest at rates ranging from
7% to 12% per annum.
The Company had outstanding accounts receivable of approximately $33.4
million and $23.2 million as of October 31, 1997 and April 30, 1998,
respectively. The Company sells its systems under terms which require billing
for a portion of each sale upon completion of certain events related to
installation and process validation. These unbilled amounts have decreased from
$11.4 million at October 31, 1997 to $9.2 million at April 30, 1998. 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, cash equivalents and short-term
investment balances and its available line of credit will be sufficient to meet
the Company's cash requirements during the next 12 months. The board of
directors has authorized the
12
<PAGE>
repurchase of up to 750,000 shares of the company's stock (see note 6 of the
notes to Consolidated Financial Statements). The repurchase of stock is not
expected to have a material adverse affect on the Company's ability to meet its
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.
The Company has undertaken a comprehensive approach to identify where Year
2000 problems may occur in its information technology, manufacturing systems,
facilities systems and produced products. The Year 2000 problem is the result of
the early practice in the computer industry of using two digits rather than four
digits to designate the calendar year. This can lead to incorrect results when
computer software performs arithmetic operations, comparisons or data field
sorting involving years later than 1999. The Company plans to modify or replace
its affected systems in a manner that will minimize any detrimental effects on
operations; however, no assurances can be given in this regard. The Company, in
its investigations to date, has found a single component in its produced
products that is not capable of handling dates greater than 1999. The vendor of
this component has assured the Company that a modification to correct this
component will be available before the end of 1998. The Company plans to offer,
for a fee, modifications or component replacements for any produced products
having Year 2000 problems that are discovered and are detrimental to customers.
While it is not possible, at present, to quantify the overall cost of these
modifications or replacements, the Company presently believes that the ultimate
outcome of these modifications or replacements will not have a material effect
on the Company's current financial position, liquidity or results of operations.
However, in any future reporting period such costs could have a material effect
on results of operations.
LITIGATION
The Company has asserted its U.S. Letters Patent No. 4,911,761 for Direct
Displacement(TM) drying against two defendants and is the defendant in a third
litigation where the plaintiff seeks a declaratory judgement of non-infringement
that the patent is invalid.
The United States District Court for the District of Delaware granted
summary judgement of non-infringement in one matter wherein the Company is the
plaintiff. The Company has requested reargument. On December 12, 1997, following
trial in the United States District Court for the District of Delaware, a jury
found all asserted claims of the subject patent valid and enforceable, and found
the defendant to have willfully infringed all asserted claims Post-trial motions
by both parties are being considered by the court at the date of this filing.
Some of the plaintiff's claims in the declaratory judgment action were dismissed
for lack of jurisdiction and subsequently were reinstated following appeal.
Although management believes that the ultimate resolution of these matters
will not have a material adverse impact on the Company's financial position or
results of operations, there can be no assurance in that regard.
Complaints have been filed in the U.K., the Netherlands, and Germany
alleging the invalidity of locally issued patents corresponding to the Company's
U.S. Patent No. 4,911,761. The Company believes that these claims are
substantially without merit and intends to defend its intellectual property
vigorously.
FORWARD LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q including those concerning
the Company's expectations of future sales, gross profits, research, development
and engineering expenses, selling, general and administrative expenses, product
introductions, cash requirements and Year 2000 compliance include certain
forward-looking statements. As such, actual results may vary materially from
such expectations.
13
<PAGE>
Factors which could cause actual results to differ from expectations include
variations in the level of orders which can be affected by general economic
conditions and growth rates in the semiconductor and FPD manufacturing
industries and in the markets served by the Company's customers, the
international economic and political climates, difficulties or delays in product
functionality or performance, the delivery performance of sole source vendors,
the timing of future product releases, failure to respond adequately to either
changes in technology or customer preferences, changes in pricing by the Company
or its competitors, ability to manage growth, risk of nonpayment of accounts
receivable, changes in budgeted costs, ability to evaluate, identify and correct
date recognition problems in software used by the Company, its customers or
suppliers or failure to realize a successful outcome to pending patent
litigation, all of which constitute significant risks. There can be no assurance
that the Company's results of operations will not be adversely affected by one
or more of these factors.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re: computation of earnings per common share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<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: June 11, 1998
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
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
11 Statement re: computation of per share earnings.
27 Financial Data Schedule.
17
EXHIBIT 11
<TABLE>
<CAPTION>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
----------------------- ---------------------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (3,281) $ 1,980 $ (4,031) $ 3,354
========= ======== ========= ========
Weighted average common shares used
for basic net income (loss) per
common share 7,920 7,460 7,917 6,745
Dilutive effect of common stock
options outstanding 504 429
Weighted average common and common
equivalent shares used for diluted net
income (loss) per common share 7,920 7,964 7,917 7,174
========= ======== ======== ========
Net income (loss) per common share:
Basic $ (0.41) $ 0.27 $ (0.51) $ 0.50
--------- ------- --------- -------
Diluted $ (0.41) $ 0.25 $ (0.51) $ 0.47
--------- ------- --------- -------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<CASH> 20908
<SECURITIES> 20952
<RECEIVABLES> 23197
<ALLOWANCES> 0
<INVENTORY> 18331
<CURRENT-ASSETS> 87896
<PP&E> 16261
<DEPRECIATION> (4921)
<TOTAL-ASSETS> 99678
<CURRENT-LIABILITIES> 10951
<BONDS> 0
0
0
<COMMON> 80814
<OTHER-SE> (59)
<TOTAL-LIABILITY-AND-EQUITY> 99678
<SALES> 23824
<TOTAL-REVENUES> 23824
<CGS> 14337
<TOTAL-COSTS> 16188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (942)
<INCOME-PRETAX> (5759)
<INCOME-TAX> (1728)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4031)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
