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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 30, 1997
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period from to
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Commission File Number: 0-19507
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SUBMICRON SYSTEMS CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3607944
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6330 Hedgewood Dr., #150, Allentown, Pennsylvania 18106
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code (610) 391-9200
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6620 Grant Way, Allentown, PA 18106
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(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
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
( X ) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 17,537,963 shares of Common stock outstanding, $.0001 par value, as
of November 12, 1997.
1
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SUBMICRON SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1: Financial Statements Page
<S> <C>
Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the three months ended September 30, 1997
and September 30, 1996 4
Consolidated Statements of Operations
for the nine months ended September 30, 1997
and September 30, 1996 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and
September 30, 1996. 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
Part II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
Item 6: Exhibits and Reports on Form 8-K
</TABLE>
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 864 $ 5,426
Accounts receivable, net 11,460 47,574
Inventories, net 21,417 34,951
Prepaids and other 4,155 7,307
Deferred income taxes - 2,423
--------------- ----------
Total current assets 37,896 97,681
Property and equipment, net 16,528 21,082
Goodwill, net 1,514 1,684
Intangibles and other, net 1,241 5,487
--------------- ----------
$ 57,179 $ 125,934
=============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 8,588 $ 28,100
Current portion of long-term debt 2,697 2,294
Accounts payable 10,746 21,741
Accrued expenses and other 13,996 16,823
Deferred revenues 1,167 3,105
--------------- ----------
Total current liabilities 37,194 72,063
--------------- ----------
Long-term debt 19,080 25,195
--------------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, stated value, 5,000 shares
authorized, 1,203 shares issued
and outstanding 9,415 -
Common stock, $.0001 par value, 100,000,000
shares authorized, 17,174,663 and 16,801,120
shares issued and outstanding 2 2
Additional paid-in capital 41,648 41,680
Accumulated deficit (50,160) (13,006)
-------------- ---------
Total stockholders' equity 905 28,676
--------------- ----------
$ 57,179 $ 125,934
=============== ==========
</TABLE>
See accompanying notes.
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
---------------- ---------------
<S> <C> <C>
System sales, net $ 16,507 $ 24,929
Service and other sales 6,058 8,027
---------------- ---------------
Total net sales 22,565 32,956
---------------- ---------------
Cost of system sales 14,696 33,976
Cost of service and other sales 3,838 7,898
---------------- ---------------
Total cost of sales 18,534 41,874
---------------- ---------------
Gross profit (loss) 4,031 (8,918)
Selling, general and administrative 7,412 11,596
Research and development 2,110 2,997
Restructuring charges 1,563 -
---------------- ---------------
Operating loss (7,054) (23,511)
---------------- ---------------
Other income (expense):
Interest income 33 73
Interest expense (907) (1,413)
Other, net 3,758 (15)
---------------- ---------------
Total other income (expense), net 2,884 (1,355)
---------------- ---------------
Loss before income taxes (4,170) (24,866)
Income tax provision (benefit) 2,459 (8,728)
---------------- ---------------
Net loss $ (6,629) $ (16,138)
=============== ===============
Net loss per Common share $ (.39) $ (.96)
=============== ===============
Weighted average number of
shares of Common stock outstanding 17,171 16,801
================ ===============
</TABLE>
See accompanying notes.
4
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---------------- ---------------
<S> <C> <C>
System sales, net $ 59,209 $ 102,173
Service and other sales 19,821 22,703
---------------- ---------------
Total net sales 79,030 124,876
---------------- ---------------
Cost of system sales 52,681 88,072
Cost of service and other sales 18,625 19,368
---------------- ---------------
Total cost of sales 71,306 107,440
---------------- ---------------
Gross profit 7,724 17,436
Selling, general and administrative 25,999 30,016
Research and development 7,001 7,020
Restructuring charges 5,355 -
---------------- ---------------
Operating loss (30,631) (19,600)
---------------- ---------------
Other income (expense):
Interest income 126 327
Interest expense (3,749) (3,674)
Other, net 3,728 47
---------------- ---------------
Total other income (expense) 105 (3,300)
---------------- ---------------
Loss before income taxes (30,526) (22,900)
Income tax provision (benefit) 5,459 (8,015)
---------------- ---------------
Loss before extraordinary item (35,985) (14,885)
Extraordinary charge (1,169) -
---------------- ---------------
Net loss $ (37,154) $ (14,885)
=============== ===============
Net loss per Common share $ (2.16) $ (.89)
=============== ===============
Weighted average number of
shares of Common stock outstanding 17,162 16,801
================ ===============
</TABLE>
See accompanying notes.
5
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended September 30,
1997 1996
----------------- ----------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (37,154) $ (14,885)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 4,562 4,555
Extraordinary loss on debt extinguishment 1,169 -
Gain on sale of SCI assets and PRIMAXX license (3,800) -
Provision for valuation allowances and
loss contingencies 1,858 5,440
Deferred tax provision 5,459 (3,418)
Amortization of deferred compensation - 224
Amortization of note discount 314 866
Changes in assets and liabilities:
Decrease in accounts receivable 23,111 5,739
Decrease (increase) in inventories 5,337 (22,039)
Decrease (increase) in prepaid expenses and other 2,427 (6,953)
Decrease in other assets 280 506
Decrease in accounts payable (7,478) (2,369)
Increase in accrued expenses and other 422 8,167
Increase in deferred revenues 49 3,662
---------------- --------------
Net cash used in operating activities (3,444) (20,505)
--------------- -------------
Cash flows provided by (used in) investing activities:
Capital expenditures (974) (5,438)
Net proceeds from sale of SCI assets 15,840 -
Purchase of intangible assets - (124)
---------------- -------------
Net cash provided by (used in) investing activities 14,866 (5,562)
---------------- -------------
Cash flows (used in) provided by financing activities:
Net (payments) borrowings under line of
credit agreement (19,512) 11,850
Proceeds from long-term debt 5,000 -
Proceeds from exercise of stock options and warrants - 1,797
Collection on notes receivable - 36
Principal payments under capital lease obligations
and long-term debt (1,472) (1,032)
--------------- -------------
Net cash (used in) provided by financing activities (15,984) 12,651
--------------- --------------
Net decrease in cash and cash equivalents (4,562) (13,416)
Cash and cash equivalents at beginning of period 5,426 16,010
================ ==============
Cash and cash equivalents at end of period $ 864 $ 2,594
================ ==============
</TABLE>
See accompanying notes.
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SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. The interim
financial information, while unaudited, reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the interim financial statements. The results for the three
and nine month periods ended September 30, 1997 are not necessarily indicative
of results expected for the full year. These financial statements should be
read in conjunction with the audited financial statements and the notes thereto
included in the SubMicron Systems Corporation Annual Report on Form 10-K for
the year ended December 31, 1996.
1. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. DISPOSITIONS:
On August 7, 1997, the Company completed the sale of the net assets of its
Systems Chemistry (SCI) subsidiary to The BOC Group for $20.8 million, which
amount includes a non-interest bearing loan of $5 million due in three years.
The Company applied the proceeds of $18.5 million, after transaction costs and
bank fees, to reduce the amount borrowed under the credit facility. The
Company recorded a gain on the sale of approximately $2.5 million in the third
quarter of 1997 subject to a post-closing adjustment which is in the process of
being finalized. Results for the third quarter of 1997 reflect the results of
operations of SCI through August 7, 1997.
On September 8, 1997, the Company signed a licensing agreement with AG
Associates (Israel) for its PRIMAXX dry cleaning technology in a specific field
of use. This agreement resulted in a gain of $1.25 million with additional
royalties of up to $2.5 million, based upon the number of units sold, over a
multiyear period. The Company recorded a gain on the licensing agreement of
$1.25 million in its statement of operations for the three months ended
September 30, 1997.
4. RESTRUCTURING CHARGES:
In response to significant losses from operations in each of the five quarters
ended September 30, 1997, the Company implemented a worldwide restructuring
plan. The plan is to refocus the Company on its core technology and will
involve, among other things, restructuring the Company's corporate organization
and selling certain non-strategic assets to generate liquidity. Results for
the nine months ended September 30, 1997, include restructuring charges of
approximately $5.4 million primarily related to severance costs, and lease
termination costs associated with vacating of the Company's corporate office.
The Company expects to incur additional charges related to the continuation of
the restructuring plan of up to $2.0 million through the first quarter of 1998.
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5. INVENTORIES:
Inventories are stated at the lower of cost (first in, first out) or market and
consist of the following, (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- -------------
<S> <C> <C> <C>
Raw materials $ 15,516 $ 23,007
Work-in-process 9,608 14,669
----------------- ------------
25,124 37,676
Excess and obsolescence reserve (3,707) (2,725)
----------------- ------------
$ 21,417 $ 34,951
================= ============
</TABLE>
6. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 64% and 34% of
total sales for the three and nine months ended September 30, 1997,
respectively, and sales to two different customers accounted for 22% of total
sales for nine months ended September 30, 1996. Accounts receivable for the
three largest customers represents 63% of consolidated receivables as of
September 30, 1997.
7. CREDIT FACILITY:
In February 1996, the Company entered into a $30.0 million credit facility with
a banking group. The Company used the proceeds from the credit facility to
refinance its previous lines of credit and to provide working capital.
Borrowings under the credit facility are secured by substantially all of the
assets of the Company. The Company is not in compliance with certain
requirements of the credit facility. The banking group has separately agreed
to extend the due date of the credit facility from its maturity date of August
18, 1997 to November 14, 1997, and, upon completion of certain conditions
currently pending, to December 8, 1997. Although there can be no assurances,
the Company believes it has satisfied such conditions for extension. On August
7, 1997, the Company applied the net proceeds generated from the sale of
certain net assets of its wholly owned subsidiary, SCI (see Note 3), against
its outstanding borrowings. Borrowings under the extended agreement are
permitted up to $9.3 million, with the interest rate continued at prime, as
defined, plus 4.0%, effective June 1, 1997. Borrowings under the extended
credit facility were $8.6 million at September 30, 1997. The agreement also
restricts the Company's ability to pay dividends.
8. LONG TERM DEBT:
In December 1995, the Company issued $19.0 million principal amount of 9%
convertible subordinated notes with warrants to purchase 1,140,000 shares of
Common stock. The notes were recorded at $16.5 million, net of the estimated
fair value ascribed to the warrants of $2.5 million.
In March 1997, the Company issued shares of its Series A Convertible
Non-Redeemable Preferred Stock (Preferred Stock) convertible into approximately
2.6 million shares of Common stock and approximately $8.7 million principal
amount of its 8% Convertible Subordinated Notes (New Notes) due March 26, 2002
to previous holders of $18,350,000 of its 9% convertible subordinated notes due
December 1997 and associated warrants. The New Notes are convertible into
shares of Common stock at $3.70 per share, subject to adjustment. The Company
has outstanding $650,000 of its 9% convertible subordinated notes which mature
on December 15, 1997. On November 12, 1997 the Company filed a Form S-4 to
Exchange the New Notes for publicly registered notes with the same provisions.
The proceeds from the sale of the net assets of SCI also included a
non-interest bearing loan of $5.0 million due in August 2000 (see Note 3). The
loan was recorded at $3.7 million, net of the discount associated with the
imputed interest. The discount is being accreted over the five year term of
the loan.
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9. INCOME TAXES:
The income tax provision for the three and nine month periods ended September
30, 1997 included non-cash charges of $2.5 million and $5.5 million,
respectively, related to increases to the Company's valuation allowance against
its net deferred tax assets. Such allowance will be available to offset future
income tax expense when it becomes more likely than not that such deferred tax
asset will be realized.
10. EARNINGS PER SHARE:
Earnings per share is based on the weighted average number of shares of Common
stock outstanding during the period.
In February 1997, the Financial Accounting Standard Board issued Statement No.
128, Earnings per Share, which is required to be adopted for periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The impact is
not expected to have a material effect on earnings per share Diluted earnings
per share will reflect the potential dilution that could occur if common stock
equivalents or convertible securities were converted into common stock.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
SubMicron's results of operations have varied significantly from quarter to
quarter. These fluctuations, which are likely to continue, are a result of
several factors including, in particular, the relatively high prices of
SubMicron's products in relation to quarterly sales and the lead time to
manufacture such products. Accordingly, quarterly results are likely to
fluctuate and the results for any fiscal quarter may not be indicative of the
results for future fiscal quarters.
Net Sales
Net sales decreased in the third quarter of 1997 by $10.4 million, or 32% of
total net sales, compared to the third quarter of 1996. Sales for the nine
months ended September 30, 1997 were $79.0 million, a decrease of 37% as
compared to net sales $124.9 million for the nine months ended September 30,
1996. Net sales for the three months ended September 30, 1997, included one
month of SCI sales versus three months of SCI sales in the comparable 1996
quarter. SCI recognized $9.2 million of sales in August and September of 1996.
Additionally, sales for the third quarter of 1997 were negatively impacted by
the continuing soft market conditions.
Cost of Sales
Cost of sales for the third quarter of 1997 was $18.5 million, or 82% of sales,
versus $41.9 million, or 127% of sales, for the third quarter of 1996. Cost of
sales for the nine months ended September 30, 1997 was $71.3 million, or 9.8%
of sales, versus $107.4 million, or 14.0% of sales, for the nine months ended
September 30, 1996. Third quarter 1997 cost of sales includes an increase in
the allowance for excess and obsolete inventory of $1.4 million. The third
quarter 1996 cost of sales was significantly affected by an inventory write-off
and increases to several reserve accounts in the amount of $11 million.
Excluding these charges, cost of sales for the third quarter of 1997 was $17.1
million, or 76% of sales, versus $30.9 million, or 94% of sales in the
comparable 1996 quarter. This decrease in the cost of sales was primarily the
result of lower sales volume, two months less SCI activity and cost reduction
programs.
Selling, General and Administrative
Selling, general and administrative expenses were $7.4 million, or 33% of
sales, for the third quarter of 1997, compared to $11.6 million, or 35% of
sales, for the third quarter of 1996. Selling, general and administrative
expenses were $26.0 million, or 33% of sales, for the nine months ended
September 30, 1997 versus $30.0 million, or 24% of sales, for the nine months
ended September 30, 1996. This reduction in expenses was primarily due to two
months less SCI activity, cost reduction programs and decreased commissions due
to lower revenues.
Restructuring Charges
Results for the third quarter of 1997 include restructuring charges of $1.6
million which primarily consist of consulting fees and other costs associates
with the Company's restructuring plan. The Company plans to incur additional
charges of this nature of up to $2.0 million through the first quarter of 1998.
Research and Development
Research and development expenses declined to $2.1 million, or 9.3% of sales,
for the third quarter of 1997 from $3.0 million, or 9.1% of sales, for the
comparable prior year period. Research and development expenses were $7.0
million for the nine months ended September 30, 1996 and 1997. Research and
development spending has decreased temporarily as the Company reorganizes its
engineering department. However, research and development expenses are
anticipated to increase rapidly as the Company's product development function
is expanded and upgraded, and the Company aggressively pursues new tool
designs.
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Other Income (Expense), Net
Other income, net was approximately $2.9 million for the three months ended
September 30, 1997 as compared to other expense, net of approximately $1.4
million for the comparable prior year period. For the 1997 period, other
income includes a $2.5 million gain on the sale of the net assets of SCI and a
$1.3 million gain associated with a licensing agreement of the Company's
PRIMAXX cleaning technology in a specific field of use. These gains were
partially offset by interest expense of approximately $900,000. Other expense
for the three months ended September 30, 1996 consists primarily of interest
charges associated with the Company's convertible debt and borrowings under the
Company's line of credit.
Income Taxes
The income tax provision for the three month and nine month periods ended
September 30, 1997 included non-cash charges of approximately $2.5 million and
$5.5 million, respectively, related increases the to Company's valuation
allowance against its net deferred tax assets. Such allowance will be
available to offset future income tax expense when it becomes more likely than
not that such deferred tax asset will be realized.
Extraordinary Charge
Results for the nine months ended September 30, 1997 include an extraordinary
loss for debt extinguishment of $1.2 million, or $.07 per share, in connection
with the Company's issuance of its 8% percent subordinated convertible notes
and Preferred Stock (defined below).
Net Losses
The Company reported a net loss of approximately $6.6 million for the three
month period ended September 30, 1997, as compared to a net loss of
approximately $16.1 for the prior year comparable period. Net loss for the
nine months ended September 30, 1997 was approximately $37.2 million as
compared to a net loss of approximately $14.9 million for the nine months ended
September 30, 1996.
Future Operating Results
The Company's future results will depend on its ability to generate sales
growth of its existing products and to successfully introduce new products to
its customers in the semiconductor industry. Due to the inherent risk in the
timing of the development and testing of new products, the Company's operating
results may fluctuate, especially when measured on a quarterly basis. The
Company's results will also be affected by the condition of the semiconductor
industry, as well as the general economy.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by approximately $4.6 million during the
nine month period ended September 30, 1997, to approximately $864,000____.
Cash used in operations totaled approximately $3.4 million for the nine months
ended September 30, 1997, primarily due to the net loss recognized during the
first nine months of 1997 offset by collections of accounts receivable,
depreciation and amortization and the non-cash extraordinary loss on debt
extinguishment. Accounts receivable decreased approximately $36.1 million from
$47.6 million at December 31, 1996 to $11.5 million at September 30, 1997.
Inventory balances of $21.4 million at September 30, 1997 decreased
approximately $13.5 million as compared with inventory balances at December 31,
1996 of $35.0 million. Accounts payable decreased approximately $11.0 million
to $10.7 million at September 30, 1997 from $21.7 million at December 31, 1996.
The decreases in accounts receivable, inventory and accounts payable are due in
part to the sale of the net assets of SCI. SCI account balances related to
accounts receivable, inventory and accounts payable as of the August 7, 1997
sale date were at $13.0 million, $7.2 million and $3.5 million, respectively.
Investing activities provided cash of approximately $14.9 million, primarily as
a result of the sale of SCI. Financing activities utilized approximately $16.0
million of cash to repay borrowings on the Company's line of credit with the
proceeds of the SCI sale and to pay down long-term debt and capitalized lease
obligations. The Company's working
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capital decreased approximately $24.9 million to $702,000 at September 30,
1997, from $25.6 million at December 31, 1996, primarily due to significant
operating losses for the nine months ended September 30, 1997.
In February 1996, the Company entered into a $30.0 million credit facility with
a banking group. The Company used the proceeds from the credit facility to
refinance its previous lines of credit and to provide working capital.
Borrowings under the credit facility are secured by substantially all of the
assets of the Company. The Company is not in compliance with certain
requirements of the credit facility. The banking group has separately agreed
to extend the due date of the credit facility from its maturity date of August
18, 1997 to November 14, 1997, and, upon completion of certain conditions
currently pending, to December 8, 1997. Although there can be no assurances,
the Compnay believes it has satisfied such conditions for extension. On August
7, 1997, the Company applied the net proceeds generated from the sale of
certain net assets of its wholly owned subsidiary, Systems Chemistry
Incorporated (see Note 3 to consolidated financial statements) against its
outstanding borrowings. Borrowings under the extended agreement are permitted
up to $9.3 million, with the interest rate continued at prime, as defined,
plus 4.0%, effective June 1, 1997. Borrowings under the extended credit
facility were $8.6 million at September 30, 1997.
In March 1997, the Company issued shares of its Series A Convertible
Non-Redeemable Preferred Stock (Preferred Stock) convertible into approximately
2.6 million shares of Common Stock and approximately $8.7 million principal
amount of its 8% Convertible Subordinated Notes (New Notes) due March 26, 2002
to the previous holders of $18,350,000 of its 9% convertible subordinated notes
due December 1997 and associated warrants. The New Notes are convertible into
shares of Common stock at $3.70 per share, subject to adjustment. The Company
has outstanding $650,000 of its 9% convertible subordinated notes that mature
on December 15, 1997.
On August 7, 1997, the Company completed the sale of the net assets of its
Systems Chemistry (SCI) subsidiary to The BOC Group for $20.8 million, which
amount includes a non-interest bearing loan of $5 million due in three years
from the closing. The Company applied the proceeds of $18.5 million, after
transaction costs and bank fees, to reduce the amount borrowed under the credit
facility. The Company recorded a gain on the SCI sale of approximately $2.5
million in the third quarter of 1997 subject to a post-closing adjustment which
is in the process of being finalized.
In response to significant losses from operations in each of the five quarters
ended September 30, 1997, the Company implemented a worldwide restructuring
plan. The plan is to refocus the Company on its core technology and will
involve, among other things, restructuring the Company's corporate organization
and selling certain non-strategic assets to generate liquidity. Results for
the nine months ended September 30, 1997, include restructuring charges of
approximately $5.4 million primarily related to severance costs, and lease
termination costs associated with vacating the Company's corporate office. The
Company expects to incur additional charges related to the continuation of the
restructuring plan of up to $2.0 million through the first quarter of 1998.
Additionally, management has temporarily curtailed spending on capital
equipment.
In recent years, the Company has been substantially dependent upon borrowings
to finance its operations. Management's plans to fund operating, investing and
financing activities by replacing its present credit facility. Without the
availability of a sufficient credit facility, the Company is susceptible to
severe cash shortages which may impact its ability to operate. To provide for
the Company's cash and working capital requirements, management is pursuing
additional funding arrangements and believes it can improve the Company's
operating performance and cash flows sufficiently as follows:
- In response to the problems associated with the Company's rapid
growth and the semiconductor industry slowdown which negatively
impacted the Company's operations, management has instituted programs
designed to reduce costs and improve performance. Management is
pursuing an improvement in gross margins through the implementation of
enhanced quality systems, controlled operations resulting from the
reduction in the direct labor workforce and increased management
review of all contract bidding. Additionally, the Company has altered
its strategy from revenue growth to operating efficiency and
management is focusing its resources on the application of the
Company's core technology.
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- Management is in active negotiations with a number of financing
sources to replace its existing credit facility .
- Management has sold and is currently evaluating alternatives to sell
additional non-strategic assets to generate liquidity.
- Management is in the process of raising additional funds through
equity financing and strategic partnering arrangements.
- Although there can be no assurances, management is confident that
its cost reduction and performance improvement programs, controlled
growth strategy, current negotiations with financing sources, and
pursuit of other alternatives will result in the successful funding of
its working capital and cash requirements for at least the next year;
however, if the financial results during such period do not meet
management's expectations and sufficient additional financings are not
available, management has the ability and intent to reduce certain
expenditures and to minimize additional capital requirements.
The Company believes that future results of operations will be influenced by a
number of factors, including general economic conditions, timely new product
introduction, the volume, mix and timing of orders received and numerous other
factors. Due to the continued weakness in the semiconductor industry and the
Company's current financial condition it has experienced a period of soft
bookings which has created an uncertainty in the expected revenues for 1998.
Inflation has not significantly affected the Company's financial position or
operations. Inflation will have the general effect of increasing the Company's
operating expenses. A substantial portion of the Company's indebtedness bears
interest that fluctuates with the prime rate. No assurance can be given that
the prime rate of interest will not fluctuate significantly, which could have
an adverse effect on operations.
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FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, and is subject to the safe-harbor created by such
sections. Such forward-looking statements concern the Company's operations,
economic performance and financial condition, including in particular sales,
the Company's restructuring of operations and the Company's financing
arrangements. Such statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; changes in customer
preferences; competition; changes in technology; changes in business strategy;
the indebtedness of the Company; quality of management, business abilities and
judgment of the Company's personnel; the availability, terms and deployment of
capital; and various other factors referenced in this Report. The
forward-looking statements are made as of the date of this Report, and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders.
The Company held a special meeting of stockholders on July 24, 1997.
The purpose of the meeting was:
(i) To elect one director to hold office until the Annual Meeting
of Stockholders in 2000.
(ii) To approve an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares issuable
thereunder.
(iii) To approve amendments to the Company's 1991 Amended and
Restated Stock Option Plan, including an increase in the
number of shares issuable thereunder.
(iv) To approve a proposal to amend the Company's Certificate of
Incorporation to increase the authorized number of shares of
Preferred Stock.
(v) To approve the convertibility feature of the Company's 8%
Convertible Subordinated Notes.
(vi) To ratify the appointment of Ernst & Young LLP as the
Company's independent accountants for 1997.
The vote with respect to electing one director to hold office until the Annual
Meeting of Stockholders in 2000 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
15,028,547 5,500 -
The vote with respect to approving an amendment to the Company's Employee Stock
Purchase Plan was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
6,572,986 522,777 50,685
The vote with respect to approving amendments to the Company's 1991 Amended and
Restated Stock Option Plan was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
6,369,944 708,169 68,335
The vote with respect to approving a proposal to amend the Certificate of
Incorporation was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
5,994,249 1,058,243 93,956
The vote with respect to approving convertibility features of the Company's 8%
Convertible Subordinated Notes was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
6,614,834 432,867 98,747
The vote with respect to appointing Ernst & Young LLP as the Company's
independent accountants for 1997 was as follows:
FOR AGAINST ABSTAIN
--- ------- -------
15,208,329 82,516 33,848
15
<PAGE> 16
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) Report on form 8-K
The Company filed a Current Report on form 8-K dated August 7,
1997. The Current Report provides information regarding the sale
of certain assets, net of liabilities assumed, of its wholly owned
subsidiary Systems Chemistry Incorporated on August 7, 1997 and
contains disclosures under Item 2 (Acquisition or Disposition of
Assets) and Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits). As part of Item 7, the Current Report
provides unaudited financial statements of the Company as if the
transaction has occurred at the beginning of the periods presented.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date included.
SUBMICRON SYSTEMS CORPORATION
Dated: November 14, 1997 By: /s/ David J. Ferran
--------------------
David J. Ferran
President & CEO
Dated: November 14, 1997 /s/John W. Kizer
----------------
John W. Kizer
Vice President Finance
Chief Financial Officer
17
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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