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
January 31, 2000.
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)
150 OAKLANDS BLVD., EXTON, PENNSYLVANIA, 19341
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 280-8300
___________________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 March 10, 2000 was 7,834,417.
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CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited)
January 31, 2000 and October 31, 1999 ............. 3
Consolidated Statements of Operations (unaudited)
Three months ended January 31, 2000 and 1999 ...... 5
Consolidated Statements of Cash Flows (unaudited)
Three months ended January 31, 2000 and 1999 ...... 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 4. Submission of Matters to a Vote of
Security Holders ............................... 15
Item 5. Other Information ............................... 15
Item 6. Exhibits and Reports on Form 8-K ................ 15
Signatures ..................................... 16
Exhibit Index .................................. 17
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
January 31, October 31,
ASSETS 2000 1999
---- ----
CURRENT ASSETS:
Cash and cash equivalents .......... $ 6,645 $ 13,967
Short-term investments ............. 10,635 10,249
Accounts receivable ................ 17,246 14,826
Inventories ........................ 18,766 17,039
Prepaid expenses and other ......... 919 796
Deferred income taxes .............. 2,240 1,958
-------- --------
Total current assets .......... 56,451 58,835
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land ............................... 540 540
Building and improvements .......... 5,946 5,932
Machinery and equipment ............ 14,624 14,239
Furniture and fixtures ............. 1,562 1,565
-------- --------
22,672 22,276
Less - Accumulated depreciation
and amortization................. (9,408) (8,739)
-------- --------
Net property, plant and equipment 13,264 13,537
-------- --------
OTHER ASSETS .......................... 10,510 9,714
-------- --------
$ 80,225 $ 82,086
======== ========
The accompanying notes are an integral part of these financial statements.
3
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CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
January 31, October 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
---- -----
CURRENT LIABILITIES:
Current portion of long-term debt ....... $ 586 $ 589
Accounts payable ........................ 3,842 3,930
Accrued expenses ........................ 9,749 9,246
-------- --------
Total current liabilities ...... 14,177 13,765
-------- --------
LONG-TERM DEBT ............................. 1,498 1,628
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; 8,057,517 and
8,035,328 shares issued ................ 81,771 81,495
Treasury stock, 223,100 and 223,100 common
shares at cost ......................... (1,858) (1,858)
Deferred compensation .................... (149) (23)
Retained deficit ......................... (15,214) (12,921)
-------- --------
Total shareholders' equity ..... 64,550 66,693
-------- --------
$ 80,225 $ 82,086
======== ========
The accompanying notes are an integral part of these financial statements.
4
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CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
January 31,
--------------------------
2000 1999
---- ----
NET SALES ................................ $ 12,706 $ 6,052
COST OF SALES ............................ 7,780 4,837
-------- --------
Gross profit ........................ 4,926 1,215
-------- --------
OPERATING EXPENSES:
Research, development and engineering 2,497 2,471
Selling, general and administrative . 6,169 3,552
-------- --------
Total operating expenses ...... 8,666 6,023
-------- --------
Operating loss ................ (3,740) (4,808)
INTEREST (INCOME) EXPENSE, NET ........... (266) (426)
-------- --------
Loss before income taxes ........... (3,474) (4,382)
INCOME TAX BENEFIT ....................... (1,181) (1,490)
-------- --------
NET LOSS ................................. $ (2,293) $ (2,892)
======== ========
NET LOSS PER COMMON SHARE:
Basic .............................. $ (0.29) $ (0.37)
======== ========
Diluted ............................ $ (0.29) $ (0.37)
======== ========
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE:
Basic .............................. 7,816 7,860
======== ========
Diluted ............................ 7,816 7,860
======== ========
The accompanying notes are an integral part of these financial statements.
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CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
January 31,
------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net loss ........................................ $ (2,293) $ (2,892)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization ................ 669 740
Deferred compensation ........................ (125) 6
Deferred income tax benefit .................. (1,181) (1,490)
(Increase) decrease in -
Accounts receivable ....................... (2,420) (323)
Inventories ............................... (1,727) (94)
Prepaid expenses and other current assets . (123) 70
Other assets .............................. 103 462
Increase (decrease) in -
Accounts payable .......................... 88 1,180
Accrued expenses .......................... 503 (558)
-------- --------
Net cash used in operating activities ........ (6,506) (2,899)
-------- --------
INVESTING ACTIVITIES:
Purchases of short-term investments .......... (4,682) (23,130)
Proceeds from short-term investments ......... 4,296 7,895
Purchases of property, plant and equipment ... (396) (1,472)
-------- --------
Net cash used in investing activities ........ (782) (16,707)
-------- --------
FINANCING ACTIVITIES:
Payments on long-term debt ................... (133) (165)
Proceeds from exercise of stock options ...... 56 --
Tax benefits from exercise of stock options .. 43 --
Purchase of treasury shares at cost .......... -- (103)
-------- --------
Net cash used in financing activities ........ (34) (268)
-------- --------
NET DECREASE IN CASH ANDCASH EQUIVALENTS ........ (7,322) (19,974)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .. 13,967 31,649
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD ........ $ 6,645 $ 11,775
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense ............... $ 41 $ 55
Cash received for interest income ............ 302 474
Cash paid for income taxes ................... 1 6
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
6
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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 of a normal recurring nature 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, 1999. The results of operations for the
interim periods presented are not necessarily indicative of the results for the
full year.
(2) ACCOUNTS RECEIVABLE:
Accounts receivable are net of allowances for doubtful accounts of $13,000
as of January 31, 2000.
(3) INVENTORIES:
January 31, 2000 October 31, 1999
---------------- ----------------
Raw materials $ 7,840,000 $ 9,282,000
Work in progress 9,108,000 6,813,000
Finished goods 1,818,000 944,000
=========== ===========
$18,766,000 $17,039,000
=========== ===========
Finished goods is comprised of evaluation units at customer sites.
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(4) NET LOSS PER SHARE:
Basic net loss per common share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the period.
Diluted net loss per common share for the three months ended January 31, 2000
and 1999 would have been antidilutive if it reflected the potential dilution
from the exercise of outstanding stock options into common stock, and therefore
was not included in the calculation.
The net loss and weighted average common shares outstanding for purposes of
calculating net loss per common share are computed as follows:
Three Months Ended
January 31,
--------------------------------
2000 1999
---- ----
Net loss used for basic and diluted net
loss per common share ($2,293,000) ($2,892,000)
=========== =============
Weighted average common shares
outstanding used for basic and diluted
net loss per common share 7,816,000 7,860,000
=========== =============
Net loss per common share,
basic and diluted ($0.29) ($0.37)
=========== =============
(5) GEOGRAPHIC INFORMATION:
Historically, a significant portion of the Company's sales have been to
Asian companies. Sales to Asian customers for the quarter ended January 31, 2000
were $6.7 million while $8.3 million was included in accounts receivable due
from Asian customers.
(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. As of January 31, 2000, the Company had
repurchased 223,100 shares of the Company's common stock.
8
<PAGE>
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 manufacturing industry. 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
$1.2 million to over $3.0 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.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated, expressed as a percentage of net sales:
Three Months Ended
January 31,
-----------------------
2000 1999
---- ----
Net sales 100.0% 100.0%
Gross profit 38.8% 20.1%
Research, development
and engineering 19.7% 40.8%
Selling, general and
administrative 48.6% 58.7%
Operating loss (29.4%) (79.4%)
Loss before income
taxes (27.3%) (72.4%)
Net loss (18.0%) (47.8%)
Net Sales. Net sales of $12.7 million for the three month period ended
January 31, 2000 increased 110% from $6.1 million in the first quarter of fiscal
1999. Net sales were $9.2 million in the fourth quarter of fiscal 1999. Sales
results for the first quarter of fiscal 2000 reflects the impact of the overall
semiconductor industry recovery. The Company believes that a continued increase
in capacity utilization and a robust outlook for device sales are driving
customers to accelerate spending plans for new capacity.
International sales represented 69.3% and .4% of total net sales in the
three months ended January 31, 2000 and 1999, respectively. Historically, a
significant portion of the Company's revenues have been derived from
international sales.
Gross Profit. Gross profit as a percentage of net sales increased to 38.8%
to $4.9 million in the three month period ended January 31, 2000 compared to
20.1%, or $1.2 million for the corresponding period in fiscal 1999. The increase
in the gross profit percentage is primarily due to increased manufacturing
production volume.
9
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Research, Development and Engineering. Research, development and
engineering expenses remained at $2.5 million for the three month periods ended
both January 31, 2000 and 1999. The Company continues to invest in new process
applications and functionality for its Full-Flow platform, including the version
of this platform designed to process 300mm wafers, which is expected to be the
next standard wafer size in wet processing equipment. The Company expects
research, development and engineering expenses in the remainder of fiscal 2000
to continue at approximately this same level.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $6.2 million or 48.6% of net sales in the quarter ended
January 31, 2000 from $3.6 million or 58.7% of net sales in the quarter ended
January 31, 1999. Expenses for the quarter increased due to patent litigation
costs of approximately $1.5 million. These costs are anticipated to remain at
that level through the third quarter of 2000. Sales commissions to sales agents
in East Asia and investments in service and support infrastructure also
increased during the quarter.
Interest (Income) Expense, Net. Interest income, net of interest expense,
was $266,000 and $426,000 in the quarters ended January 31, 2000 and 1999,
respectively. Net interest income was the result of interest income earned by
the Company from investment of funds not immediately needed to support the
Company's operations.
Income Taxes. The Company's effective tax rate was 34% during the three
months ended January 31, 2000 and 1999. The income tax benefit recorded during
the quarter ended January 31, 2000 has been recorded as a deferred income tax
asset. Based on an assessment of the Company's taxable earnings history and
expected future taxable income, management has determined that it is more likely
than not that the net deferred tax assets will be realized in future periods.
The Company may be required to provide a valuation allowance for this asset in
the future if it does not generate sufficient taxable income as planned.
Additionally, the ultimate realization of this asset could be negatively
impacted by market conditions and other variables not known or anticipated at
this time.
BACKLOG
As of January 31, 2000, the Company's backlog of orders was $12.2 million,
compared to $4.4 million as of January 31, 1999. Orders from Asia accounted for
72% of total orders received during the three months ending January 31, 2000,
with the balance coming from the U.S. (25%) and Europe (3%). 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 January 31, 2000, the Company had $6.7 million in cash and cash
equivalents, $10.6 million in short-term investments and $42.3 million in
working capital. At October 31, 1999 the Company had $14.0 million in cash and
cash equivalents, $10.2 million in short-term investments and $45.1 million in
working capital.
Net cash of $6.5 million was used by operating activities during the first
quarter of fiscal 2000 compared to $2.9 million used by operating activities
during the first quarter of fiscal 1999. The net cash used in operating
activities in the first quarter of 2000 was primarily a result of the net loss
of $2.3 million, the income tax benefit of $1.2 million, an increase in accounts
receivable of $2.4 million and an increase in inventories of $1.7 million. The
net cash used in operating activities in the first quarter of 1999 was primarily
the result of the net loss of $2.9 million, income tax benefit of $1.5 million
and increase in accounts receivable of $0.3 million.
10
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Acquisitions of property, plant and equipment were $0.4 million for the
first quarter of fiscal 2000 compared to $1.5 million for the quarter of fiscal
1999. Acquisitions during the first quarter of fiscal 2000 were primarily for
the purchase of systems control software while acquisitions in the first quarter
of 1999 were related to the acquisition of leasehold improvements for the
Company's production and administrative facilities.
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 $0.7
million and a $7.5 million unsecured revolving demand line of credit with an
interest rate equal to the bank's overnight borrowing rate. The mortgage bears
interest at an annual rate of 8.3%. As of January 31, 2000, 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 $0.9 million bearing interest at rates ranging from
7% to 12% per annum.
The Company had outstanding accounts receivable of approximately $17.2
million and $14.8 million as of January 31, 2000 and October 31, 1999,
respectively. As of January 31, 2000 the Company had accounts receivable of $8.3
million from companies located in Asia. The Company recorded an allowance for
doubtful accounts of $13,000 in the first quarter of fiscal 2000. Management
believes that no additional allowance for doubtful accounts receivable is needed
at this time as the Company believes that such accounts receivable are fully
realizable. Management performs an ongoing evaluation of the status of accounts
receivable balances in order to determine if any additional allowances or any
write-offs are necessary. The Company may be required to record significant
additional allowances in future periods should it determine that any of its
accounts receivable become uncollectable.
The Company believes that existing cash 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. 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.
YEAR 2000
The Company expended significant efforts commencing in 1997 to prepare for
potential problems as a result of the Year 2000 date recognition problem. No
material disruptions of product operations, Company operations, or supplier or
service provider operations have been encountered, through the date of this
report.
11
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Management will, in conjunction with its customers, continue to evaluate
currently identified and as yet unforeseen potential Year 2000 issues in its
products that could adversely affect customers' production capabilities.
Management will also continue to evaluate and monitor identified and as yet
unforeseen potential Year 2000 issues with its internal systems, vendors and
service providers.
There can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in technology used in its products or internal systems, which
are comprised predominantly of third-party software and hardware, or by the
inability of third-parties to adequately disclose and correct their Year 2000
issues. While the Company presently believes that the ultimate outcome of its
efforts to be Year 2000 ready will not have a material effect on the Company's
financial position, liquidity or operations, there can be no assurances that
unanticipated increased costs will not have a material effect on the results of
operations.
LITIGATION
The Company has asserted claims of its U.S. Patent No. 4,911,761 (the "`761
patent") against defendants in two actions, CFMT, Inc. and CFM Technologies,
Inc. v. STEAG Microtech, Inc., Civil Action No. 95-CV442 and CFMT, Inc. and CFM
Technologies, Inc. v. YieldUP International Corp., Civil Action No. 95-549-RRM,
alleging infringement, inducement of infringement, and contributory infringement
of the patent. The Company asserted claims of U.S. Patent Nos. 4,778,532 (the
"`532 patent") and 4,917,123 (the "`123 patent") against the second defendant in
a subsequent action, CFMT, Inc and CFM Technologies. v. YieldUP International
Corp., Civil Action No. 98-790-RRM. In addition, the Company is also both a
defendant and a counterclaim plaintiff in a fourth litigation, Dainippon Screen
Manufacturing Co., Ltd. and DNS Electronics, LLC v. CFMT, Inc. and CFM
Technologies, Inc., Civil Action No. 97-20270 JW. In this action, the plaintiff,
seeks a declaratory judgment of non-infringement, invalidity, and
unenforceability of the `761 patent and U.S. Patent No. 4,984,597 (the" `597
patent"). The Company has counterclaimed alleging infringement, inducement of
infringement, and contributory infringement of the `761 patent, the `532 patent,
the `123 patent, and the `597 patent. Dainippon Screen Manufacturing Co., Ltd.
and DNS Electronics, LLC has also filed an antitrust count against the Company.
On July 10, 1995, the Company filed an action against STEAG Microtech, Inc.
("STEAG") in the United States District Court for the District of Delaware. The
Company sought damages and a permanent injunction to prevent further
infringement. STEAG Microtech Inc. denied infringement and has asserted, among
other things, that the `761 patent is invalid and unenforceable. On December 12,
1997, the jury returned a verdict that STEAG Microtech Inc. willfully infringed
the `761 patent and that the patent was not invalid. The jury awarded the
Company damages of $3,105,000. The District Court subsequently upheld the jury's
verdict and entered final judgment and a permanent injunction in the Company's
favor. STEAG appealed the verdict and various rulings by the District Court to
the Court of Appeals for the Federal Circuit ("CAFC"). On May 13, 1999, the CAFC
affirmed the judgment of the District Court in all respects except one. With
respect to infringement, the CAFC vacated the judgment and remanded the case to
the District Court for reconsideration of its holding of literal infringement.
On November 8, 1999 the District Court issued an opinion that upheld the finding
of literal infringement and reinstated the judgement and injunction in favor of
CFM. STEAG appealed this November 8, 1999 decision. All briefing for the appeal
has been filed with the CAFC. No date has been set for the appellate hearing.
12
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On September 11, 1995, the Company brought an action against YieldUP
International Corp. ("YieldUP") in the United States District Court for the
District of Delaware. The Company seeks damages and a permanent injunction to
prevent further infringement. YieldUP has denied infringement and has asserted,
among other things, that the subject patent is invalid and unenforceable. On
October 14, 1997, the District Court issued a decision granting summary judgment
in favor of YieldUP on the grounds that the process used in YieldUP processing
equipment does not infringe the `761 patent. The District Court subsequently
granted the Company's request for reargument of the decision, and the Company
and YieldUP have submitted additional briefs on the issue. The District Court
has not issued a decision on the reargued summary judgment motion.
On December 30, 1998, the Company filed an additional lawsuit in Federal
Court in Wilmington, Delaware charging patent infringement of the '123 and '532
patents against YieldUP. The Company is seeking a permanent injunction
preventing YieldUP from using, making or selling equipment that violates these
patents and requests damages for past infringement. YieldUP amended its answer
to the Company's Complaint, asserting counter claims for alleged tortious
interference with prospective economic advantage and defamation, and seeking
compensatory and punitive damages. Fact discovery in this lawsuit closed on
December 10, 1999. A claims construction hearing for this action is scheduled
for March 15, 2000. Trial is currently scheduled for May 1,2000.
In March, 1997, a third competitor, Dainippon Screen Mfg. Co. Ltd. and DNS
Electronics LLC (collectively "DNS"), filed a suit against the Company in the
United States District Court for the Northern District of California. In this
action, DNS requested the Court to declare that DNS does not infringe the `761
patent and that the patent is invalid and unenforceable. DNS sought monetary
damages and injunctive relief for alleged violations of the Lanham Act, unfair
competition, tortious interference with prospective economic advantage, and
unfair advertising. The Court dismissed this action on the grounds of lack of
personal jurisdiction and absence of an indispensable party. DNS appealed this
ruling and the appellate court reversed the district court decision on April 29,
1998. The causes of action relating to the Lanham Act, unfair competition,
tortious interference with prospective economic advantage, and unfair
advertising have been dismissed. The remainder of the case has been returned to
the district court. The Company answered DNS's Complaint and counterclaimed,
alleging infringement by DNS of the '532, '123, and '761 patents. Discovery is
presently ongoing. A claims construction hearing was held on November 12, 1999,
and an initial Claims Construction Order issued on December 9, 1999. Each party
subsequently submitted papers to the court seeking a review of portions of the
claim construction. DNS is seeking reconsideration of the construction of two
terms, while the Company is seeking clarification of two others. DNS has
recently added two new counts to this litigation: one for antitrust violations
and an additional declaratory judgment count. The antitrust count purports that
the Company knowingly brought causes of action against competitors with a patent
that the Company knew was invalid or unenforceable. In the new declaratory
judgment count, DNS has asked the court to declare that DNS does not infringe
the `597 patent and that this patent is invalid and unenforceable. The Company
counterclaimed asserting infringement, inducement of infringement, and
contributory infringement of the `597 patent. As a result of the addition of the
new counts, the trial schedule is presently undetermined, but the trial will not
occur before at least late September, 2000.
13
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Furthermore, STEAG Microtech Inc. has filed nullification proceedings
against the Company's drying patents in Germany (DE68921757.8), France
(EP428,784), Netherlands (23184), Ireland (66389) and Japan (2,135,270). The
Company is proceeding to defend these patents, but may chose to abandon one or
more based on a cost benefit analysis. These proceedings could result in the
nullification of any or all of the subject patents in the respective countries.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is reviewing these views and assessing whether any of these
interpretations of generally accepted accounting principles may cause the
Company to report a change in accounting principle. In compliance with SAB 101,
the Company is required to and will make such a determination and report the
impact of such a change, if any, no later than the first quarter of fiscal year
2001. While management believes that its revenue recognition policies conform
with the generally accepted accounting principles that have been used
consistently in practice in the capital equipment industry, certain issues
raised in SAB 101, including delivery and performance revenue recognition
criteria, could be interpreted to cause a change in accounting principle by the
Company and many other companies in the capital equipment industry. At this
time, the effect of SAB 101 on the Company's operating results in any future
period cannot be fully determined; however, such a change could materially
adversely affect the Company's financial position and results of operations.
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 and cash requirements, contain certain
forward-looking statements. As such, actual results may vary materially from
such expectations. 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 industry 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on March 9, 2000. The
following are results of the voting on the proposal submitted to the
stockholders at the annual meeting:
Proposal No. 1:
Election of Directors. The following individuals were elected as directors:
NAME FOR WITHHELD
---- --- --------
Christopher F. McConnell 6,945,271 110,177
Roger A. Carolin 6,945,371 110,077
James J. Kim 6,945,271 110,177
Brad S. Mattson* 6,945,271 110,177
John F. Osborne 6,945,271 110,177
Milton S. Stearns, Jr. 6,945,271 110,177
* See Item 5 below.
ITEM 5. OTHER INFORMATION
Mr. Brad S. Mattson resigned his position as a member of the Company's
board of directors, which became effective March 14, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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: March 14, 2000
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
27 Financial Data Schedule.
17
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<PERIOD-END> JAN-31-2000
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<DEPRECIATION> (9408)
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0
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<INCOME-PRETAX> (3747)
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<NET-INCOME> (2293)
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