<PAGE> 1
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 June 30, 1997
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 Number: 0-19507
SUBMICRON SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3607944
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6330 HEDGEWOOD DR., #150, ALLENTOWN, PENNSYLVANIA 18106
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 391-9200
6620 GRANT WAY, ALLENTOWN, PA 18106
(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 17,155,238 shares of Common stock outstanding, $.0001 par value, as
of August 11, 1997.
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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
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the three months ended June 30, 1997
and June 30, 1996 4
Consolidated Statements of Operations
for the six months ended June 30, 1997
and June 30, 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and
June 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
</TABLE>
Part II - Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
2
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,792 $ 5,426
Accounts receivable, net 27,176 47,574
Inventories, net 33,944 34,951
Prepaids and other 5,498 7,307
Deferred income taxes -- 2,423
--------- ---------
Total current assets 69,410 97,681
Property and equipment, net 18,410 21,082
Goodwill, net 1,571 1,684
Intangibles and other, net 3,654 5,487
--------- ---------
$ 93,045 $ 125,934
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 26,803 $ 28,100
Current portion of long-term debt 2,619 2,294
Accounts payable 14,906 21,741
Accrued expenses and other 20,370 16,823
Deferred revenues 5,100 3,105
--------- ---------
Total current liabilities 69,798 72,063
--------- ---------
Long-term debt 15,943 25,195
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, stated value, 5,000 shares
authorized, 1,211 and zero shares issued
and outstanding 9,415 --
Common stock, $.0001 par value, 100,000,000
shares authorized, 17,066,587 and 16,890,014
shares issued and outstanding 2 2
Additional paid-in capital 41,418 41,680
Accumulated deficit (43,531) (13,006)
--------- ---------
Total stockholders' equity 7,304 28,676
--------- ---------
$ 93,045 $ 125,934
========= =========
</TABLE>
See accompanying notes.
3
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
System sales, net $13,022 $ 37,822
Service and other sales 7,666 9,244
------- --------
Total net sales 20,688 47,066
------- --------
Cost of system sales 15,310 27,660
Cost of service and other sales 8,658 7,357
------- --------
Total cost of sales 23,968 35,017
------- --------
Gross (loss) profit (3,280) 12,049
Selling, general and administrative 9,423 8,965
Research and development 2,390 2,178
Restructuring charges 3,792 --
------- --------
Operating (loss) income (18,885) 906
------- --------
Other income (expense):
Interest income 34 86
Interest expense (1,176) (1,238)
Other, net (41) (19)
------- --------
Total other expense, net (1,183) (1,171)
------- --------
Loss before income taxes (20,068) (265)
Income tax provision (benefit) 2,000 (68)
------- --------
Net loss $(22,068) $ (197)
======== ========
Net loss per Common share $ (1.30) $ (0.01)
======== ========
Weighted average number of
shares of Common stock outstanding 16,945 16,799
======== ========
</TABLE>
See accompanying notes.
4
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
System sales, net $42,702 $77,244
Service and other sales 13,763 14,676
------- --------
Total net sales 56,465 91,920
------- --------
Cost of system sales 37,985 54,096
Cost of service and other sales 14,787 11,470
------- --------
Total cost of sales 52,772 65,566
------- --------
Gross profit 3,693 26,354
Selling, general and administrative 18,587 18,420
Research and development 4,891 4,023
Restructuring charges 3,792 --
------- --------
Operating (loss) income (23,577) 3,911
------- --------
Other income (expense):
Interest income 93 254
Interest expense (2,842) (2,261)
Other, net (30) 62
------- --------
Total other expense (2,779) (1,945)
------- --------
Income (loss) before income taxes (26,356) 1,966
Income tax provision 3,000 713
------- --------
(Loss) income before extraordinary item (29,356) 1,253
Extraordinary charge (1,169) --
------- --------
Net (loss) income $(30,525) $ 1,253
======== ========
Net (loss) income per Common share $ (1.80) $ 0.07
======== ========
Weighted average number of
shares of Common stock outstanding 16,918 17,134
======== ========
</TABLE>
See accompanying notes.
5
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SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows used in operating activities:
Net (loss) income $(30,525) $ 1,253
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities
Depreciation and amortization 3,095 3,448
Extraordinary loss on debt extinguishment 1,169 --
Provision for valuation allowances and
loss contingencies 84 547
Deferred tax provision 3,000 --
Amortization of deferred compensation -- 168
Amortization of note discount 314 552
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 20,524 (1,100)
Decrease (increase) in inventories 807 (20,401)
Decrease (increase) in prepaid expenses and other 1,809 (654)
Decrease (increase) in other assets 1,083 (153)
(Decrease) increase in accounts payable (6,835) 1,380
Increase in accrued expenses and other 3,547 952
Increase in deferred revenues 1,995 1,873
Increase in income taxes payable -- 491
-------- --------
Net cash provided by (used in) operating activities 67 (11,644)
-------- --------
Cash flows used in investing activities:
Capital expenditures (423) (5,032)
Purchase of intangible assets -- (103)
-------- --------
Net cash used in investing activities (423) (5,135)
-------- --------
Cash flows provided by financing activities:
Net (payments) borrowings under line of
credit agreement (1,297) 8,350
Proceeds from exercise of stock options and warrants -- 1,272
Collection on notes receivable -- 36
Principal payments under capital lease obligations
and long-term debt (981) (593)
-------- --------
Net cash (used in) provided by financing activities (2,278) 9,065
-------- --------
Net decrease in cash and cash equivalents (2,634) (7,714)
Cash and cash equivalents at beginning of period 5,426 16,010
-------- --------
Cash and cash equivalents at end of period $ 2,792 $ 8,296
======== ========
</TABLE>
See accompanying notes.
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SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited 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
six month periods ended June 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.
2. RESTRUCTURING CHARGES:
In response to significant losses from operations in each of the three month
periods ended September 30, 1996, December 31, 1996, March 31, 1997 and June 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 second quarter
include restructuring charges of approximately $3.8 million primarily related to
severance costs, and lease termination costs associated with the vacancy of the
Company's corporate office. The Company expects to incur additional charges
related to the continuation of the restructuring plan of approximately $1.5
million and $1.0 million in the third and fourth quarters of 1997, respectively.
3. INVENTORIES:
Inventories are stated at the lower of cost (first in, first out) or market and
consist of the following, (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 21,413 $ 23,007
Work-in-process 15,456 14,669
-------- --------
36,869 37,676
Excess and obsolescence reserve (2,925) (2,725)
-------- --------
$ 33,944 $ 34,951
======== ========
</TABLE>
4. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 48% and 43% of
total sales for the three and six months ended June 30, 1997, respectively, and
sales to three different customers accounted for 30% of total sales for the both
three and six months ended June 30, 1996. Accounts receivable for the three
largest customers represents 14% of consolidated receivables as of June 30,
1997.
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5. 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 bore interest at prime, as
defined, plus 3.0%, and 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 September
15, 1997, and, upon certain conditions currently pending to October 31, 1997.
Subsequent to June 30, 1997, the Company has applied the net proceeds generated
from the sale of certain net assets of its wholly owned subsidiary, Systems
Chemistry Incorporated (see Note 9) against its outstanding borrowings.
Borrowings under the extended agreement are permitted up to $9.6 million, with
the interest rate continued at prime, as defined, plus 4.0%, effective
June 1, 1997. Borrowings under the extended credit facility were
$26.8 million at June 30, 1997. The agreement also restricts the Company's
ability to pay dividends.
6. 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. Under the agreement
pursuant to which the Preferred Stock and the New Notes were issued, the Company
is required to undertake certain registration obligations of the New Notes. If
such obligations are not fulfilled by January 31, 1998, the New Notes will
become due as of such date.
7. INCOME TAXES:
The income tax provision for the three month and six month periods ended June
30, 1997 included non-cash charges of $2.0 million and 3.0 million,
respectively, related to additional charges to increase the Company's valuation
allowance against its net deferred tax asset.
8. EARNINGS PER SHARE:
Earnings per share is based on the weighted average number of shares of Common
stock and Common stock equivalents (dilutive stock options and warrants using
the treasury stock method) 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 on December 31, 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 primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to have an effect on
primary earnings per share for the three and six month periods ended June 30,
1997 or June 30, 1996. The Company has not yet determined what the impact of
Statement 128 will be on the calculation of fully diluted earnings per share.
8
<PAGE> 9
9. SUBSEQUENT EVENTS:
On August 7, 1997, the Company completed the sale of certain assets,
net of liabilities assumed, of its wholly owned subsidiary, Systems Chemistry
Incorporated, for $17.3 million. The Company received $15.8 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received the proceeds
from a $5.0 million subordinated, non-interest bearing note due in August 2000.
The Company applied $18.5 million, after transaction costs and bank fees, to
reduce the outstanding balance on its line of credit. The Company estimates a
gain on the sale of approximately $2.0 million to be recorded in the third
quarter of 1997.
Pro forma results presented below reflect the results of operations of the
Company as if the disposition had occurred on January 1, 1997. The pro forma
financial information presented is not necessarily indicative of the results of
operations that the Company would have obtained had such events occurred at the
beginning of the period. Pro forma information is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
As reported Pro Forma
For the three months ended For the three months ended
June 30, 1997 June 30, 1997
--------------------------------- --------------------------
<S> <C> <C>
Net sales $20,688 $12,967
Net loss ($22,068) ($18,181)
Net loss per share ($1.30) ($1.07)
</TABLE>
<TABLE>
<CAPTION>
As reported Pro Forma
For the six months ended For the six months ended
June 30, 1997 June 30, 1997
--------------------------------- ---------------------------
<S> <C> <C>
Net sales $56,465 $34,186
Loss before extraordinary item ($29,356) ($24,596)
Loss per share extraordinary item per share ($1.74) ($1.45)
</TABLE>
9
<PAGE> 10
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 56% and 39% for the three and six month periods ended June
30, 1997, respectively, as compared to the same periods in the prior year. The
decrease in sales is primarily attributable to continued soft market conditions
and the rescheduling of the delivery of five systems that were expected to ship
in the second quarter of 1997. The sales value of the five systems is
approximately $9.3 million. These systems were shipped in July 1997.
Gross Profit (Loss)
Gross profit (loss) was (16%) and 7% of sales for the three and six months ended
June 30, 1997, respectively, as compared to gross profit of 26% and 29% for the
comparable periods in the prior year. The decreases in gross margin as compared
to the prior year periods were primarily due to the shipment of several low
margin customized systems. The second quarter of 1997 also included a writedown
of $1.8 million of certain inventory associated with a specific customer order.
Gross margins may vary significantly from quarter to quarter based upon product
mix.
Selling, General and Administrative
Selling, general and administrative expenses were 46% and 33% of net sales for
the three and six month periods ended June 30, 1997, respectively, as compared
to 19% and 20% for the comparable periods in the prior year. The increase in
selling, general and administrative expenses, as a percentage of sales, is the
result of the significant decrease in sales volume in comparison to the
Company's high proportion of fixed costs included in selling, general and
administrative expenses. Second quarter 1997 selling, general and administration
expenses also include a $700,000 charge related to a prepaid royalty that
management determined has no future value to the Company.
Restructuring Charges
Results for the second quarter include restructuring charges of approximately
$3.8 million primarily related to severance costs, and lease termination costs
associated with the vacancy of the Company's corporate office. These
restructuring charges were incurred as a result of a plan to restructure the
corporate organization and to refocus the Company on its core technology.
Research and Development
Research and development expenses were 12% and 9% of net sales for the three and
six month periods ended June 30, 1997, respectively, as compared to 5% and 4% of
net sales for the prior year comparable periods. The increase, as a percentage
of sales, is primarily attributable to the significant decrease in sales volume.
Research and development expense increased to approximately $2.4 million and
$4.9 million for the three and six month periods ended June 30, 1997 as compared
to the $2.2 million and $4.0 million for the respective periods in the prior
year primarily as a result of the Company's continued development of its 300MM
wet bench systems and Primaxx(TM) product lines.
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<PAGE> 11
Other Income (Expense), Net
Other expense, net was approximately $1.2 million and $2.8 million for the three
and six month periods ended June 30, 1997, respectively, as compared to other
expense of approximately $1.2 million and $1.9 million for the prior year
comparable periods. Other expense for the three and six months ended June 30,
1997 and 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 six month periods ended June
30, 1997 included non-cash charges of $2.0 million and 3.0 million,
respectively, related to additional charges to increase the Company's valuation
allowance against its net deferred tax asset.
Extraordinary Charge
Results for the six months ended June 30, 1997 include an extraordinary loss for
debt extinguishment of $1.2 million or $0.07 per share, in connection with the
Company's issuance of its 8.0 percent subordinated convertible notes and
Convertible Preferred Stock.
Net (Loss) Income
The Company reported a net loss of approximately $22.1 million for the three
month period ended June 30, 1997, as compared to a net loss of approximately
$197,000 for the prior year comparable period. Net loss for the six months ended
June 30, 1997 was approximately $30.5 million as compared to net income of
approximately $1.3 million for the six months ended June 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 $2.6 million during the six
month period ended June 30, 1997, to approximately $2.8 million . Cash provided
by operations totaled approximately $67,000 for the six months ended June 30,
1997, which was largely due to the net loss recognized during the first six
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 $20.4 million from $47.6 million at
December 31, 1996 to $27.2 million at June 30, 1997. Inventory balances of $33.9
million at June 30, 1997 were consistent with inventory balances at December 31,
1996 of $35.0 million. Investing activities utilized cash of approximately
$423,000 to purchase equipment. Financing activities utilized approximately $2.3
million of cash to repay borrowings on the Company's line of credit and to pay
down long-term debt and capitalized lease obligations. The Company's working
capital decreased approximately $26.0 million to ($388,000) at June 30, 1997,
from $25.6 million at December 31, 1996 primarily due to the collections of
accounts receivable.
11
<PAGE> 12
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 bore interest at prime, as defined, plus
3.0%, and 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 September 15, 1997,
and, upon certain conditions currently pending to October 31, 1997. Subsequent
to June 30, 1997, the Company has applied the new proceeds generated from the
sale of certain net assets of its wholly owned subsidiary, Systems Chemistry
Incorporated (see Note 9) against its outstanding borrowings. Borrowings under
the extended agreement are permitted up to $9.6 million, with the interest rate
continued at prime, as defined, plus 4.0%, effective June 1, 1997. Borrowings
under the extended credit facility were $26.8 million at June 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. Under the
agreement pursuant to which the Preferred Stock and the New Notes were issued,
the Company is required to undertake certain registration obligations of the New
Notes. If such obligations are not fulfilled by January 31, 1998, the New Notes
will become due as of such date.
On August 7, 1997, the Company completed the sale of certain assets,
net of liabilities assumed, of its wholly owned subsidiary, Systems Chemistry
Incorporated for $17.3 million. The Company received $15.5 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received proceeds from a
$5.0 million subordinated, non-interest bearing note due in August 2000. The
Company applied $18.8 million, after transaction costs and bank fees, to reduce
the outstanding balance on its line of credit. The Company estimates a gain on
the sale of approximately $2.0 million to be recorded in the third quarter of
1997.
Management of SubMicron initially budgeted approximately $3 million for capital
expenditures in 1997 to expand its production facilities. The Company has
currently suspended the expansion of its production facilities and has sharply
curtailed spending on capital equipment.
In response to significant losses from operations in each of the last four
quarters the Company developed a worldwide restructuring plan. The plan is to
refocus the Company on its core technology. The plan will also restructure the
Company's corporate organization and includes the sale of certain non-strategic
assets to generate liquidity. As a result of the restructuring, the Company
recorded a $3.8 million restructuring charge in the second quarter of 1997. The
restructuring charge includes, among other things, substantial employee
severance and lease termination costs. The Company expects to incur additional
charges related to the continuation of the restructuring plan of approximately
$1.5 million and $1.0 million in the third and fourth quarter of 1997,
respectively.
In recent years, the Company has been substantially dependent upon borrowings to
finance its operations. Management's estimates of the cash requirements to fund
operating, investing and financing activities will require replacement of the
funds currently available under the 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:
12
<PAGE> 13
- 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.
- Management is in active negotiations with a number of lending
organizations to replace its existing credit facility .
- Management is evaluating its alternatives and currently plans to sell
certain non-strategic assets to generate liquidity.
- As needs require or market opportunities arise, management, from time
to time, may consider raising additional funds through equity financing
or 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 lending organizations, 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 accelerate collection of receivables 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 the
remainder of 1997.
The Company's future results will depend upon its ability to achieve profitable
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 significantly. The Company's results will also be affected
by the condition of the semiconductor industry, as well as the general economy.
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
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: August 19, 1997 By: /s/ David J. Ferran
---------------------------------
David J. Ferran
President & CEO
Dated: August 19, 1997 /s/John W. Kizer
-------------------------------
John W. Kizer
Vice President Finance
Chief Financial Officer
15
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