<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 March 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period from to
Commission File Number: 0-19507
SUBMICRON SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3607944
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 391-9200
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 19,556,517 shares of Common stock outstanding, $.0001 par value, as
of May 13, 1998.
<PAGE> 2
SUBMICRON SYSTEMS CORPORATION
INDEX
Part I - Financial Information
Item 1: Financial Statements Page
Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations
for the three months ended March 31, 1998
and March 31, 1997 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and
March 31, 1997. 5
Notes to Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 6: Exhibits
Exhibit 27 - Financial Data Schedule 14
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,402 $ 8,228
Accounts receivable, net 10,953 16,632
Inventories, net 12,128 13,152
Prepaid expenses 3,011 2,288
-------- --------
Total current assets 29,494 40,300
Property and equipment, net 12,603 13,815
Goodwill, net 1,402 1,457
Intangibles and other assets, net 3,981 4,136
-------- --------
$ 47,480 $ 59,708
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit $ 1,801 $ 3,024
Current portion of long-term debt 1,790 1,849
Accounts payable 5,504 6,830
Accrued warranty and installation 5,297 5,691
Accrued expenses and other 8,728 9,926
Deferred revenues 3,425 3,955
-------- --------
Total current liabilities 26,545 31,275
Long-term debt 31,357 31,023
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000 shares
authorized -- --
Preferred stock, Series A Convertible Preferred
Stock, stated value, 273 and 685 shares
issued and outstanding 1,853 4,900
Common stock, $.0001 par value, 100,000,000
shares authorized, 19,201,517 and 18,338,949
shares issued and outstanding 2 2
Additional paid-in capital 56,130 53,067
Accumulated deficit (68,407) (60,559)
-------- --------
Total stockholders' equity (deficit) (10,422) (2,590)
-------- --------
$ 47,480 $ 59,708
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------ --------------
<S> <C> <C>
System sales, net $ 7,430 $29,680
Service and other sales 2,246 6,097
---------- ----------
Total net sales 9,676 35,777
Cost of system sales 8,461 22,675
Cost of service and other sales 1,727 6,129
---------- ----------
Total cost of sales 10,188 28,804
---------- ----------
Gross margin (512) 6,973
Selling, general and administrative expenses 3,623 9,164
Research and development expenses 2,348 2,501
---------- ----------
Operating loss (6,483) (4,692)
Other income (expense):
Interest income 92 59
Interest expense (1,521) (1,666)
Other income, net 64 11
---------- ----------
Total other expense, net (1,365) (1,596)
---------- ----------
Loss before income taxes and
extraordinary item (7,848) (6,288)
Income tax provision -- 1,000
---------- ----------
Loss before extraordinary charge (7,848) (7,288)
Extraordinary charge on debt extinguishment -- (1,169)
---------- ----------
Net loss $(7,848) $(8,457)
========== ==========
Loss per Common share:
Loss before extraordinary charge (0.42) (0.43)
Extraordinary charge -- (0.07)
---------- ----------
Basic and diluted loss per Common share $ (0.42) $ (0.50)
========== ==========
Weighted average number of
shares of Common stock outstanding 18,526,546 16,890,214
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $(7,848) $(8,457)
Adjustments to reconcile net (loss) income to
net cash used in operating activities
Depreciation and amortization 1,483 1,310
Extraordinary loss on debt extinguishment -- 1,169
Provision for valuation allowances 612 144
Deferred tax provision -- 1,021
Accretion of note discount 399 314
Non cash interest expense 300 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 5,430 3,207
Decrease in inventories 661 547
Increase in prepaid expenses and other (723) (571)
Decrease in other assets 110 273
(Decrease) increase in accounts payable (1,326) 407
Decrease in warranty, accrued expenses and other (1,592) (499)
(Decrease) increase in deferred revenues (530) 327
------- -------
Net cash used in operating activities (3,024) (808)
------- -------
Cash flows used in investing activities:
Capital expenditures (171) (227)
------- -------
Net cash used in investing activities (171) (227)
------- -------
Cash flows used in financing activities:
Net payments under line of credit agreement (1,223) (2,125)
Principal payments under capital lease obligations
and long-term debt (408) (493)
------- -------
Net cash used in financing activities (1,631) (2,618)
------- -------
Net decrease in cash and cash equivalents (4,826) (3,653)
Cash and cash equivalents at beginning of period 8,228 5,426
------- -------
Cash and cash equivalents at end of period $ 3,402 $ 1,773
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
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
months ended March 31, 1998 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,
1997.
2. SALE OF CERTAIN ASSETS
On December 31, 1997, the Company completed the sale of certain net assets of
its subsidiary, Imtec Acculine Inc. (IMTEC). On August 7, 1997, the Company sold
substantially all of the net assets of its subsidiary Systems Chemistry
Incorporated (Systems Chemistry). Pro forma quarterly results presented below
reflect the results of operations of the Company as if the sales of Systems
Chemistry and Imtec 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 date):
<TABLE>
<CAPTION>
Quarter ended March 31, 1997
<S> <C>
Net sales $18,857
=======
Loss before extraordinary charge $(7,114)
=======
Basic and diluted loss before
extraordinary charge per Common share $ (.49)
=======
</TABLE>
3. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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.
4. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which the
Company will be required to adopt for year end 1998 reporting, and 1999 interim
reporting. Under Statement 131's "management approach", the Company will report
financial and descriptive information about its "operating segments". Operating
segments are revenue-producing components for which separate financial
information is produced internally and is subject to evaluation by the chief
operating decision maker in deciding how to allocate resources to segments. The
Company currently has two operating segments. Statement No. 131 will not effect
the Company's results of operations or financial position but may affect the
disclosures of segment information.
6
<PAGE> 7
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources and includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners.
5. INVENTORIES:
Inventories are stated at the lower of cost (first in, first out basis) or
market and consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials, purchased components
and parts $ 11,362 $ 11,856
Work-in-process and finished goods 4,643 4,810
-------- --------
16,005 16,666
Excess and obsolescence reserve (3,877) (3,514)
-------- --------
$ 12,128 $ 13,152
======== ========
</TABLE>
6. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 48% of total
sales for the three months ended March 31, 1998, and sales to three different
customers accounted for 57% of total sales for the three months ended March 31,
1997. An account receivable from a single customer represents 23% of
consolidated receivables as of March 31, 1998.
7. CREDIT FACILITY:
In November 1997, the Company entered into a new credit facility in the amount
of up to $15 million with Greyrock Business Credit (Greyrock), a division of
Nations Credit Commercial Corporation. Borrowings under this facility bear
interest at "LIBOR" plus 5.375% (11.0625% at March 31, 1998) and are secured by
the Company's assets. The facility contains a borrowing base related to the
Company's eligible receivables and inventory. Based on this borrowing base, the
Company's borrowing limit at March 31, 1998 was approximately $4.2 million.
Borrowings under the credit facility were $1.8 million at March 31, 1998. The
facility matures on January 1, 1999, and is renewable upon agreement of both
parties. The terms of the facility limit certain actions of the Company,
including the payment of dividends, and permit Greyrock, in the event of a
material adverse change in the Company's business or financial condition in
Greyrock's good faith judgment, to exercise its rights under a default,
including ceasing making additional funds available under the facility,
declaring all or part of the outstanding balance immediately payable, and
taking possession of the pledged collateral. Consequently, the credit facility
is classified as a current liability at March 31, 1998.
8. LONG TERM DEBT:
The Company's long term debt described below requires the maintenance of
certain financial covenants and limits certain actions of the Company, including
the level of research and development and capital expenditures, issuance of
additional capital stock, and payment of dividends.
In November 1997, the Company completed a $20 million private placement of
securities consisting of $20 million principal amount of 12% Senior Subordinated
Notes due February 1, 2002 (Senior Subordinated Notes), with associated warrants
to purchase 6,616,367 shares of the Company's Common stock at $2.25 per share,
subject to customary adjustment for changes in the capitalization and below
market issuances. The Company used the net proceeds to repay its bank debt, fund
operations and fund its restructuring activities.
7
<PAGE> 8
The Company is in not in compliance with certain provisions under the Senior
Subordinated Notes due to no longer meeting the requirement for continued
quotation by Nasdaq and due to not completing the disposition of certain
assets. In addition, the Company, based on its current projections, anticipates
that it will not be in compliance with certain other requirements under the
Senior Subordinated Notes during 1998. However, the Company has obtained
waivers from the noteholders for the existing defaults through April 1, 1999
as well as certain expected defaults.
Upon certain payment defaults by the Company, senior subordinated noteholders
have the option to purchase $4.0 million of additional Senior Subordinated Notes
with 2.9 million additional warrants and to designate a majority of the Board of
Directors, subject in each case, to stockholder approval so long as such
applicable Nasdaq regulations would require such approval.
In March 1997, the Company issued shares of its Series A Convertible
Non-Redeemable Preferred stock convertible into approximately 2.7 million shares
of Common stock (Convertible Preferred stock) and approximately $8.7 million
principal amount of its 8% Convertible Subordinated Notes due March 26, 2002 to
previous holders 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. Results for the quarter ended March
31, 1997 include an extraordinary charge for debt extinguishment of $1.2
million, or $0.07 per Common share, in connection with the Company's issuance of
its 8% Convertible Subordinated notes and Convertible Preferred stock.
The Company issued a $5 million non-interest bearing note due in August 2000.
This note was issued in connection with the sale of substantially all the net
assets of Systems Chemistry and carries a discount based on imputed interest at
10% of $1,075,000 at March 31, 1998. It is collateralized by foreign accounts
receivable of SubMicron Systems Corporation.
The fair value of the Company's long term debt approximates its carrying value.
9. INCOME TAXES
No income tax benefit has been recorded for the quarter ended March 31, 1998,
principally a result of the Company's recording a valuation allowance against
its deferred tax asset as of March 31, 1998, thereby reducing the benefit
realized on the Company's 1998 net operating loss.
10. EARNINGS PER SHARE:
The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share", on December 31, 1997. Primary earnings per share has been
replaced with basic earnings per share. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options and
convertible securities have been excluded. Diluted earnings per share assumes
the conversion of all potentially dilutive securities. Prior period loss per
share has been restated.
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Comparative results were impacted by the sale of Systems Chemistry in August
1997 and Imtec in December 1997. First quarter 1997 results include results of
operations for both subsidiaries. Without Systems Chemistry and Imtec sales for
the first quarter of 1997, first quarter 1998 sales decreased by $9.2 million as
compared to the first quarter of 1997. Operating losses, excluding Systems
Chemistry and Imtec, were $4.5 million for the three month period ended March
31, 1997.
Net Sales
Net sales decreased in the first quarter of 1998 by $26.1 million, or 73% of
total net sales, compared to the first quarter of 1997. The decrease is
primarily the result of sale of Systems Chemistry in 1997 and a slowdown in the
semiconductor industry. Systems Chemistry Sales accounted for $16.9 million of
the $26.1 decrease.
Cost of Sales
Cost of sales for the first quarter of 1998 was $10.2 million, or 105% of sales,
versus $28.8 million, or 81% of sales, for the first quarter of 1997. The
increase, as a percentage of sales is due primarily to continued high spending
on equipment problems in the field and underabsorbed manufacturing overhead due
the low volume of business during the first quarter of 1998. The Company also
shipped a system in the first quarter of 1998 which has been carried in
inventory since the first quarter of 1997, at no margin to generate positive
cash flow and avoid a potential writeoff. Cost of sales, excluding Systems
Chemistry in the first quarter of 1997 was $14.7 million.
Selling, General and Administrative
Selling, general and administrative expenses were $3.6 million, 37% of sales,
for the first quarter of 1998 as compared to $9.2 million, or 26% of sales, for
the comparable prior period. The decrease of approximately $5.6 million in
selling, general and administrative expenses is due primarily to the sales of
Systems Chemistry and Imtec, a reduction in professional fees, a decrease in
salary and related costs associated with a reduction in staff and lower
commissions due to the reduction in sales. Excluding Systems Chemistry and Imtec
selling, general and administrative expenses incurred in the first quarter of
1997, selling, general and administrative expenses decreased $2.8 million as
compared to the first quarter of 1998.
Research and Development
Research and development expenses were $2.3 million, or 24% of net sales, for
the first quarter of 1998, versus $2.5 million, or 7% of sales, for the first
quarter of 1997. Excluding Systems Chemistry and Imtec, research and development
expenses increased $70,000 in the first quarter of 1998 as compared to the first
quarter of 1997. The Company maintained its research and development spending to
provide new products for future business opportunities.
Other Income (Expense), Net
Other expense was $1.4 million for the first quarter of 1998 as compared to $1.6
million for the first quarter of 1997. Other expense for the three months ended
March 31, 1998 and 1997 consists primarily of interest expense on the Company's
borrowings and capital lease obligations partially offset by interest income on
the Company's cash balances.
9
<PAGE> 10
Tax Provision
No income tax benefit has been recorded for the quarter ended March 31, 1998,
principally a result of the Company's recording a valuation allowance against
its deferred tax asset as of March 31, 1998, thereby reducing the benefit
realized on the Company's 1998 net operating loss.
Income tax expense of $1.0 million for the three months ended March 31, 1997
relates to a non-cash charge to increase the Company's valuation allowance for
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
assets will be realized.
Extraordinary Loss
Results for 1997 include an extraordinary loss for debt extinguishment of $1.2
million primarily related to the write-off of the original issue discount and
unamortized debt issuance costs related to the Company's 9% convertible
subordinated notes that were issued for 8% convertible subordinated notes and
series A convertible non-redeemable preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $4.8 million during the three month period
ended March 31, 1998. Cash used in operations totaled $3.0 million for the
three months ended March 31, 1998 due primarily to the net loss of $5.1 million
before depreciation and other non cash charges for the quarter partially offset
by collections of accounts receivable. Accounts receivable decreased $5.6
million to $11.0 million at March 31, 1998 from $16.6 million at December 31,
1997. Accounts payable and accrued expenses and other decreased $1.6 million
and $1.6 million, respectively. The collections from accounts receivable were
used to reduce accounts payable, accrued expenses and borrowings on the line of
credit. Investing activities utilized cash of approximately $171,000 for
capital equipment purchases. Financing activities utilized cash of $1.6 million
primarily to reduce the Company's balance on its line of credit.
In December 1997, the Company sold substantially all of the assets of its Imtec
subsidiary in exchange for a note of $1.5 million payable through December
2004. Interest is payable semiannually on June 30 and December 31 at the lesser
of 10% or the rate then paid to the Company's principal secured lender.
In November 1997, the Company completed a private placement of securities
consisting of $20 million principal amount of 12% Senior Subordinated Notes due
February 1, 2002 (Senior Subordinated Notes), with associated warrants to
purchase 6,616,367 shares of the Company's Common Stock at $2.25 per share,
subject to customary adjustment for changes in the capitalization and below
market issuances. The Company used the net proceeds to repay its bank debt, fund
operations and fund its restructuring activities. The Company is in default
under the Senior Subordinated Notes due to no longer meeting the requirement for
continued listing by Nasdaq and due to not completing the disposition of certain
assets. Additionally, the Company, based on its current projections, anticipates
that it will not be in compliance with certain other requirements under the
Senior Subordinated Notes during 1998. The Company, however, has obtained
waivers from the noteholders for the existing defaults through April 1, 1999. As
well as certain expected defaults. Upon certain payment defaults by the Company,
investors have the option to purchase incremental Senior Subordinated Notes up
to $4.0 million including up to approximately 2.9 million additional warrants
and to designate a majority of the Board of Directors, subject in each case, to
stockholder approval so long as such applicable Nasdaq regulations would require
such approval.
Also in November 1997, the Company entered into a new credit facility in the
amount of up to $15 million with Greyrock Business Credit, a division of
Nations Credit Commercial Corporation (Greyrock). Borrowings under this
facility bear interest at "LIBOR" plus 5.375% (11.0625% at March 31, 1998) and
are secured by the Company's assets. The facility contains a borrowing base
related to the Company's eligible receivables and inventory. The Company's
borrowing capacity at March 31, 1998, was approximately $4.2 million.
Borrowings under the credit facility were $1.8 million at March 31, 1998.
The facility matures on January 1, 1999, and is renewable upon agreement of
both parties. The terms of the facility limit certain actions of the Company,
including the payment of dividends, and permit Greyrock, in the event of a
material adverse change in the Company's business or financial condition in
Greyrock's good faith judgment, to exercise its rights under a default,
including ceasing making additional funds available under the facility,
declaring all or part of the outstanding balance immediately payable, and
taking possession of the pledged collateral.
10
<PAGE> 11
In August 1997, the Company completed the sale of substantially all of the net
assets of its Systems Chemistry 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 then existing
credit facility.
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.
11
<PAGE> 12
The Company incurred operating losses during the first quarter of 1998, in
fiscal 1997 and 1996, and as of March 31, 1998, had an accumulated deficit of
$68.4 million. Consequently, the Company has been substantially dependent upon
borrowings to finance its operations in recent years. In response to the
significant losses from operations, the Company hired a new management team in
1997 and implemented a worldwide restructuring plan. The restructuring plan was
developed based on an evaluation of the Company's current products, its
available technology, its relationships with its customers and its financial
position. A summary of management's actions completed thus far, as well as
actions initiated that will continue into 1998, include the following:
- - Divested two subsidiaries in 1997 with products inconsistent with the
Company's core business, using the proceeds from one of these divestitures
to significantly reduce its outstanding and maximized line of credit;
- - Refinanced in 1997 its remaining line of credit balance with term debt and
an additional credit facility;
- - Reduced the Company's cash usage through workforce reductions and
reductions in other spending;
- - Initiated improvements in the cost structure and manufacturability through
engineering the Company's core product lines to use less materials while
maintaining process integrity and minimizing costly product refinements and
rework during production;
- - Initiated processes intended to shorten installation time through improving
the quality controls on the product before it leaves the manufacturing
facility and through better coordination with the customer regarding the
timing and prerequisites of the installation which will reduce installation
delays, reduce costs to the Company, increase customer satisfaction and
accelerate payments of receivables;
- - Initiated ongoing reviews of all sales contract bids by the Company's
management to improve margins;
- - Initiated a program to fix system operating problems in the field using a
more focused approach toward customer requirements thereby accelerating the
collection of past due receivables and improving customer satisfaction;
- - Initiated a Product and Cycle Time Excellence program to refocus the
Company's new product development efforts and reduce the number of
development projects to those with strong market and margin potential;
- - Initiated improvements in cash flow through negotiating customer deposits
and extended payment terms with vendors;
- - Developed comprehensive and timely measures for ongoing monitoring of cash
flow to more effectively manage the Company's 1998 cash requirements; and
- - Established a detailed budget to manage 1998 operating activity with
defined timely reporting periods and ongoing monitoring of strict adherence
to budgeted amounts.
The Company also plans to sell its PRIMAXX subsidiary during 1998 to generate
additional liquidity and the solicitation process is underway.
12
<PAGE> 13
Management believes the cash requirements in the next twelve months will be
generated by operations, borrowings on the Company's credit facility, customer
deposits on certain orders and the collection of several past due receivables,
without such, the Company is susceptible to severe cash shortages which may
impact its ability to operate. Management is confident that its plans and
programs will result in the successful funding of its working capital and cash
requirements throughout the next twelve months. However, if financial results
for the upcoming year do not meet management's expectations, management plans to
further reduce discretionary expenditures (such as certain interest payments
which are payable through the issuance of additional debt, research and
development expenditures, and capital expenditures, among others), accelerate
collection of receivables, enter into sales-leaseback transactions, and raise
additional capital through potential private placements of debt or equity
securities or obtain an expanded or replacement credit facility.
The Company believes that future results of operations will be influenced by a
number of factors, including general economic conditions, timely new product
introductions, the volume, mix and timing of orders received and numerous other
factors. Additionally, the semiconductor industry has experienced a softening
demand which could lead to reduced future sales and increased pricing pressures.
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 LIBOR rate. No assurance can be given that the
LIBOR rate of interest will not fluctuate significantly, which could have an
adverse effect on operations.
YEAR 2000
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the "Year 2000 Problem." In
November 1997, the Company initiated a company-wide Year 2000 Project to address
this issue. Utilizing both internal and external resources, the Company is in
the process of defining, assessing and converting, or replacing, various
programs, hardware and instrumentation systems to make them Year 2000
compatible. The Company's Year 2000 project is well under way and the Company
expects to be fully Year 2000 compliant by the end of 1998. The Company
estimates that it has incurred costs of approximately $75,000 to address the
year 2000 issue and it expects additional costs of approximately $40,000.
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 the
Company's financing arrangements and liquidity and capital resources. 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 references 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 coulddiffer from those projected in the forward-
looking statements.
13
<PAGE> 14
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibit 27 Financial Data Schedule
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: May 15, 1998 By: /s/David J. Ferran
---------------------
David J. Ferran
President & CEO
Dated: May 15, 1998 /s/John W. Kizer
----------------------
John W. Kizer
Vice President Finance
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,402
<SECURITIES> 0
<RECEIVABLES> 12,111
<ALLOWANCES> 1,158
<INVENTORY> 12,128
<CURRENT-ASSETS> 29,494
<PP&E> 26,422
<DEPRECIATION> 13,819
<TOTAL-ASSETS> 47,480
<CURRENT-LIABILITIES> 26,545
<BONDS> 31,357
0
1,853
<COMMON> 2
<OTHER-SE> (12,277)
<TOTAL-LIABILITY-AND-EQUITY> 47,480
<SALES> 9,676
<TOTAL-REVENUES> 9,676
<CGS> 10,188
<TOTAL-COSTS> 10,188
<OTHER-EXPENSES> 5,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,521
<INCOME-PRETAX> (7,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,848)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
