UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0411215
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
131 South Clark Drive, Tempe, Arizona 85281
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: 480-967-5146
Indicate by a 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
Shares of Common Stock outstanding as of March 31, 2000: 2,110,729
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and September 30, 1999........................ 3
Consolidated Statements of Operations -
Three and Six Months Ended March 31, 2000 and 1999........... 4
Consolidated Statements of Stockholders' Equity-
Three and Six Months Ended March 31, 2000 and 1999 .......... 5
Consolidated Statements of Cash Flows -
Three and Six Months Ended March 31, 2000 and 1999 .......... 6
Notes to Condensed Consolidated Financial Statements ............ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations............................................ 11
Liquidity and Financial Condition ............................... 14
Accounting Pronouncements Not Yet Adopted........................ 14
Year 2000 Compliance ............................................ 15
Quantitative and Qualitative Disclosures about Market Risk....... 15
Forward-Looking Statements....................................... 17
PART II. OTHER INFORMATION.
Item 2. Change in Securities and Use of Proceeds................. 18
Item 4. Submission of Matters to a Vote of Securities Holders.... 18
SIGNATURES ........................................................... 18
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,869,031 $ 1,124,685
Accounts receivable - net 3,344,076 3,208,488
Inventories 2,591,195 2,259,657
Deferred income taxes 482,000 421,000
Income taxes refundable 9,000 34,000
Prepaid expenses 37,111 73,914
----------- -----------
Total current assets 8,332,413 7,121,744
PROPERTY, PLANT AND EQUIPMENT - net 994,181 1,098,313
GOODWILL AND OTHER ASSETS - net 493,754 524,501
----------- -----------
TOTAL ASSETS $ 9,820,348 $ 8,744,558
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 990,510 $ 627,445
Accrued compensation and related taxes 645,017 458,277
Accrued warranty expense 229,733 146,590
Accrued installation expense 130,356 196,349
Customer deposits 457,181 83,242
Other accrued liabilities 93,650 235,610
----------- -----------
Total current liabilities 2,546,447 1,747,513
----------- -----------
LONG-TERM OBLIGATIONS 262,063 286,828
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $0.01 par value; 100,000,000 shares authorized;
2,110,729 (2,108,679 in 1999) shares issued and outstanding 21,107 21,087
Additional paid-in capital 7,402,572 7,400,152
Accumulated other comprehensive loss -
Cumulative foreign currency translation adjustment (407,880) (309,064)
Accumulated deficit (3,961) (401,958)
----------- -----------
Total stockholders' equity 7,011,838 6,710,217
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,820,348 $ 8,744,558
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Six Months Ended March 31, 2000 and 1999
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $4,549,100 $3,593,204 $8,411,612 $6,971,912
Cost of product sales 2,868,232 2,443,918 5,504,150 5,038,713
---------- ---------- ---------- ----------
Gross margin 1,680,868 1,149,286 2,907,462 1,933,199
Selling, general and administrative 1,080,420 811,806 2,040,101 1,603,620
Research and development 196,336 82,202 249,582 164,160
---------- ---------- ---------- ----------
Operating profit 404,112 255,278 617,779 165,419
Interest income, net 12,058 10,248 21,218 20,085
---------- ---------- ---------- ----------
Income before income taxes 416,170 265,526 638,997 185,504
Income tax provision 149,000 98,000 241,000 71,000
---------- ---------- ---------- ----------
NET INCOME $ 267,170 $ 167,526 $ 397,997 $ 114,504
========== ========== ========== ==========
EARNINGS PER SHARE:
Basic $ .13 $ .08 $ .19 $ .05
Weighted average shares outstanding 2,109,154 2,110,510 2,108,915 2,110,429
Diluted $ .12 $ .08 $ .18 $ .05
Weighted average shares outstanding 2,274,526 2,147,591 2,257,517 2,150,478
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2000 AND 1999
COMMON STOCK ACCUMULATED
--------------------- ADDITIONAL OTHER TOTAL
NUMBER PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT EQUITY
--------- ------ ------- ------------- ------- ------
BALANCE AT
SEPTEMBER 30, 1998 2,110,303 $21,103 $ 7,406,589 $(216,338) $(764,265) $ 6,447,089
Net Income -- -- -- -- 114,504 114,504
Translation adjustment -- -- -- (85,955) -- (85,955)
-----------
Comprehensive income 28,549
-----------
Employee stock bonus -
net of repurchases 976 10 (10) -- -- --
--------- ------- ----------- --------- --------- -----------
BALANCE AT
MARCH 31, 1999 2,111,279 21,113 7,406,579 (302,293) (649,761) 6,475,638
========= ======= =========== ========= ========= ===========
BALANCE AT
SEPTEMBER 30, 1999 2,108,679 $21,087 $ 7,400,152 $(309,064) $(401,958) $ 6,710,217
Net income -- -- -- -- 397,997 397,997
Translation adjustment -- -- -- (98,816) -- (98,816)
-----------
Comprehensive income 299,181
-----------
Stock Options Exercised 2,050 20 2,420 -- -- 2,440
--------- ------- ----------- --------- --------- -----------
BALANCE AT
MARCH 31, 2000 2,110,729 21,107 7,402,572 (407,880) (3,961) $ 7,011,838
========= ======= =========== ========= ========= ===========
BALANCE AT
DECEMBER 31, 1998 2,110,366 $21,104 $ 7,406,588 $(215,378) $(817,287) $ 6,395,027
Net income -- -- -- -- 167,526 167,526
Translation adjustment -- -- -- (86,915) -- (86,915)
-----------
Comprehensive income 80,611
-----------
Employee stock bonus -
net of repurchases 913 9 (9) -- -- --
--------- ------- ----------- --------- --------- -----------
BALANCE AT
MARCH 31, 1999 2,111,279 21,113 7,406,579 (302,293) (649,761) 6,475,638
========= ======= =========== ========= ========= ===========
BALANCE AT
DECEMBER 31, 1999 2,108,679 $21,087 $ 7,400,152 $(360,518) $(271,131) $ 6,789,590
Net income -- -- -- -- 267,170 267,170
Translation adjustment -- -- -- (47,362) -- (47,362)
-----------
Comprehensive income -- -- -- -- -- 219,808
-----------
Stock Options Exercised 2,050 20 2,420 -- -- 2,440
--------- ------- ----------- --------- --------- -----------
BALANCE AT
MARCH 31, 2000 2,110,729 $21,107 $ 7,402,572 $(407,880) $ (3,961) $ 7,011,838
========= ======= =========== ========= ========= ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
SIX MONTHS ENDED MARCH 31,
---------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 397,997 $ 114,504
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 148,427 156,984
Inventory and accounts receivable write-offs 46,876 49,336
Loss on disposals of long-lived assets 432 --
Deferred income taxes (61,000) 21,000
(Increase) decrease in:
Accounts receivable (249,067) (675,244)
Inventories, prepaid expenses and other assets (412,669) (125,641)
Increase (decrease) in:
Accounts payable 382,859 (347,776)
Accrued liabilities and customer deposits 501,359 433,045
Income taxes payable 21,366 301,309
----------- -----------
Net Cash Provided By (Used In) Operating Activities 776,580 (72,483)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (67,778) (143,275)
----------- -----------
Net Cash Used In Investing Activities (67,778) (143,275)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised 2,440 --
Payments on mortgage loan (5,569) (5,901)
----------- -----------
Net Cash Used In Financing Activities (3,129) (5,901)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 38,673 28,579
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) 744,346 (193,080)
Beginning of year 1,124,685 1,351,542
----------- -----------
END OF YEAR CASH AND CASH EQUIVALENTS $ 1,869,031 $ 1,158,462
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,148 $ 5,806
Income taxes paid (refunded) 280,000 (209,000)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
Tempress Systems, Inc., based in Heerde, The Netherlands, and P. R. Hoffman
Machine Products, Inc. (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"), and are unaudited. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations, and cash
flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1999, which are
incorporated herein by reference.
The consolidated results of operations for the three and six months ended
March 31, 2000, are not necessarily indicative of the results to be
expected for the full year.
2. REVENUE RECOGNITION
Revenue is recognized on the accrual basis when the customer takes title to
the product, generally upon shipment, which usually precedes final customer
acceptance, provided that final customer acceptance and collection of the
related receivable is probable. On occasion, the Company will recognize
revenue prior to shipment. When this occurs, the Company ensures that title
has passed, the customer has committed to take delivery of the goods in a
reasonable period of time, there is a legitimate business purpose that led
the customer to request us not to ship the product, the product is
complete, ready for shipment and is segregated from existing inventory and
there are no material contingencies. As of March 31, 2000, the Company had
recognized $161,000 of revenue for a furnace system for which shipment had
not occurred. The Company met the revenue recognition criteria described
above.
7
3. INVENTORIES
The components of inventories are as follows:
MARCH 31, SEPTEMBER 30,
2000 1999
---------- ----------
Purchased parts and
raw material $1,250,963 $1,237,348
Work-in-process 922,831 605,769
Finished goods 417,401 416,540
---------- ----------
Totals $2,591,195 $2,259,657
========== ==========
4. EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net income $ 267,170 $ 167,526 $ 397,997 $ 114,504
Weighted average
Shares outstanding:
Common shares 2,109,154 2,110,510 2,108,915 2,110,429
Common equivalents
issuable upon exercise
of warrants and stock
options(1)(2) 165,372 37,081 148,602 40,049
---------- ---------- ---------- ----------
2,274,526 2,147,591 2,257,517 2,150,478
========== ========== ========== ==========
Earnings Per Share:
Basic $ .13 $ .08 $ .19 $ .05
========== ========== ========== ==========
Diluted $ .12 $ .08 $ .18 $ .05
========== ========== ========== ==========
- ----------
(1) Number of shares calculated using the treasury stock method and the average
market price during the period. Options and warrants on 84,000 and
1,501,500 shares had an exercise price greater than the average market
price during the three and six months ended March 31, 2000 and 1999,
respectively and therefore did not enter into the calculation. On December
15, 1999 and January 14, 2000, warrants on 210,000 shares and 1,207,500
shares, respectively, expired.
(2) All share amounts above have been restated to give effect to the one for
two reverse stock split that became effective in March 1999.
8
5. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the FASB issued SFAS No. 137 -
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133". This statement defers the effective
date of SFAS 133 to the Company's quarter ending December 31, 2000. The
Company does not expect the adoption of SFAS 133 and 137 to have a material
impact on its future results of operations or financial position.
In December, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition." SAB No. 101 is effective for the Company's
first fiscal quarter ending on December 31, 2000. Based upon the prevailing
interpretations of SAB No. 101, the Company will be required to recognize
sales of its semiconductor production systems based upon installation and
customer acceptance, rather than its current practice of recognizing such
revenue upon transfer of title, generally upon shipment. The Company's
current policy is to recognize revenue at the time the customer takes title
to the product, generally at the time of shipment, because the Company has
routinely met its installation obligations and obtained customer
acceptance. The Company believes its current accounting policies on revenue
recognition are consistent with those generally used in its industry and
have been consistently applied since the inception of the Company.
Therefore, if the Company is required to change its revenue recognition
policies in order to comply with SAB No. 101, it will report a significant
cumulative charge related to a change in an accounting principle on October
1, 2000. At the current time, it is not possible to determine the effect
this change will have on the financial position or results of operations of
the Company. This item will appear as a non-operating item in the Company's
statement of operations. However, management believes the effects on
liquidity and cash flow will not be material. The Company is also
considering potential changes to its standard contracts for equipment sales
that may mitigate the impact of SAB No. 101.
6. BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (1)
the semiconductor production equipment segment which designs, manufactures
and markets semiconductor wafer processing equipment used in the
fabrication of integrated circuits, and (2) the polishing supplies and
equipment segment, which designs, manufactures and markets carriers,
templates and equipment used in the lapping and polishing of wafer thin
materials, including silicon wafers used in the production of
9
semiconductors. Information concerning the Company's business segments in
fiscal years 2000 and 1999 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues
Semiconductor production equipment $2,540,822 $2,232,226 $4,706,296 $4,642,882
Polishing supplies and equipment 2,008,278 1,360,978 3,705,316 2,329,030
---------- ---------- ---------- ----------
$4,549,100 $3,593,204 $ 8,411,612 $ 6,971,912
========== ========== ========== ==========
Operating Profit
Semiconductor production
equipment - see notes (1) and (2) $ 119,753 $ 197,177 $ 184,929 $ 159,762
Polishing supplies and equipment 284,359 58,101 432,850 5,657
---------- ---------- ---------- ----------
Total Operating Profit 404,112 255,278 617,779 165,419
Interest income - net 12,058 10,248 21,218 20,085
---------- ---------- ---------- ----------
Income before income taxes $ 416,170 $ 265,526 $ 638,997 $ 185,504
========== ========== ========== ==========
- ----------
(1) Includes the Company's share of the research and development on the new
technology asher in the amount of $131,000 and $34,000 for the quarters
ended March 31, 2000 and 1999, respectively, and $169,000 and $71,000
incurred during the six month periods ended March 31, 2000 and 1999,
respectively.
(2) The semiconductor production equipment segment also includes $110,000 and
$119,000 of corporate expenses in excess of allocations in the quarter and
six month period ended March 31, 2000, respectively, compared to corporate
allocations in excess of corporate expenses of $6,000 and $25,000 in the
quarter and six month period ended March 31, 1999, respectively.
10
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a
percentage of net revenue for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales 63.1 68.0 65.4 72.3
------ ------ ------ ------
Gross margin 36.9 32.0 34.6 27.7
Selling, general and
administrative expenses 23.7 22.6 24.3 22.9
Research and development 4.3 2.3 3.0 2.4
------ ------ ------ ------
Operating profit 8.9% 7.1% 7.3% 2.4%
====== ====== ====== ======
NET REVENUE. The Company's net revenue for the three months ended
March 31, 2000 was $4,549,000, an increase of $956,000, or 27%, compared to net
revenue of $3,593,000 for the second quarter of the previous fiscal year.
Polishing supplies and equipment segment revenue grew by $647,000, or 48% to
$2,008,000 compared to $1,361,000 for the second quarter of fiscal 1999. A
significant increase in sales volume, particularly in polishing equipment and
related parts, and the raising sales prices to their pre-Asian financial crises
levels contributed to the increased revenue of this segment. Revenues of the
semiconductor production equipment and related services segment increased
$309,000, or 14% to $2,541,000 in the second quarter of fiscal 2000 from
$2,232,000 in the same quarter of 1999. The increase in the semiconductor
production equipment segment revenue was achieved through an 82% increase in the
volume of IBAL Automation sales, approximately one-half of which was offset by
the decline in the sales of diffusion furnaces. The revenue for the second
quarter of fiscal 2000 was $687,000, or 18%, higher than during the first fiscal
quarter as the revenue of both segments increased.
Consolidated revenue for the first six months of fiscal 2000 was
$8,412,000, an increase of $1,440,000, or 21%, compared to $6,972,000 in the
previous fiscal year. The increase in revenue for the six months ended March 31,
2000, was due almost entirely to the higher sales volume and price increases in
the polishing supplies and equipment segment. Within the semiconductor
production equipment and related services a $1,122,000, or 94%, increase in
sales of IBAL Automation and Atmoscan(R) processing equipment was almost
entirely offset by the decline in the sales of diffusion furnaces. In the third
quarter of fiscal 1999, the global semiconductor equipment industry began to
recover as a result of increased sales and profitability of semiconductor
manufacturers. This upturn in the industry was a significant factor contributing
to the increase in sales volume during the quarter and six months ended March
31, 2000.
11
GROSS MARGIN. The Company's gross margin increased by approximately
$532,000, or 46%, to $1,681,000, for the three months ended March 31, 2000, from
$1,149,000 during the comparable period of the previous fiscal year.
Approximately two-thirds of that increase resulted from an increase in revenue
discussed above. Gross margin as a percentage of sales increased to 37% from 32%
in the prior year and accounted for approximately one-third of the increase in
gross margin. The improvement in gross margin as a percentage of revenue is due
primarily to increased labor efficiencies.
For the six months ended March 31, 2000, gross margin increased by
$974,000, or 50%, to $2,907,000 from $1,933,000 in the comparable period of
fiscal 1999. The polishing supplies and equipment segment accounted for $580,000
, or 60% of the increase in consolidated gross margin in the first six months of
fiscal 2000 due to the increase in sales volume discussed above. Despite the
relatively insignificant increase in semiconductor production equipment segment
revenue, gross margin from that segment increased $394,000, or 29%, due to a
more favorable product mix resulting from the increase in sales of IBAL
Automation products and from improved margins on diffusion furnaces. Gross
margin as a percentage of sales was 35% for the first six months of fiscal 2000,
an improvement of seven percentage points, compared to 28% for the first six
months of fiscal 1999. The increase in the gross margin percentage primarily
resulted from the improved product mix and increased labor efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 2000 increased by
$268,000, or 33%, to $1,080,000, compared to $812,000 incurred in the second
quarter of fiscal 1999. Commissions, royalties and incentive compensation, which
vary with changes in sales volume or profitability accounted for $104,000 of
those increases. Other selling expenses, primarily personnel and advertising
costs related to the IBAL Automation product line, increased $120,000.
For the first half of fiscal 2000, selling, general and administrative
expenses increased by $436,000, or 27%, to $2,040,000, compared to $1,604,000
incurred in the first six months of fiscal 1999. Higher commissions, royalties
and incentive compensation, which vary with changes in sales volume or
profitability, accounted for $222,000, or 51%, of the total increase. Other
selling expenses, primarily personnel and advertising, increased $128,000.
Commissions also increased as a percentage of sales due to the higher volume of
sales derived from territories where the Company utilizes outside sales
representatives.
RESEARCH AND DEVELOPMENT. Research and development costs increased by
$114,000, to $196,000, during the second quarter of fiscal 2000 as compared to
the second quarter of fiscal 1999, due to development work on a new technology
asher, which, if successful, will be a new class of products within the
semiconductor production equipment segment. As announced in November 1999, the
Company is actively engaged in the joint development of a new technology asher.
The Company's share of expenses associated with the asher development accounted
for $97,000 of the increase in total research and development.
For the six months ended March 31, 2000, research and development
costs increased by $86,000, to $250,000 compared to $164,000 during the
comparable quarter of fiscal 1999. The increase was related to the asher
development project discussed above.
12
OPERATING PROFIT. Operating profit for the second quarter of fiscal
2000 increased by $149,000, or 58%, to $404,000, compared to an operating profit
of $255,000 in the same period of fiscal 1999. The increase in operating profit
is primarily attributable to the 27% increase in consolidated revenue. Operating
profit for the polishing supplies and equipment segment increased by $226,000 to
$284,000, compared to $58,000 in the second quarter of fiscal 1999, as a result
of the 48% increase in sales volume. In the semiconductor production equipment
segment, operating profit was $120,000, a decrease of $77,000. The decline in
the second quarter operating profit of the semiconductor equipment segment is
due to the $97,000 increase in research and development costs associated with
the asher development, discussed above, and the $116,000 increase in the
unallocated portion of corporate expenses. Excluding the research and
development costs of the new asher product line and the increase in unallocated
corporate expenses, the operating profit the semiconductor production equipment
segment was $361,000 for the second quarter of the current fiscal year, compared
to $225,000 in the comparable period of last fiscal year.
For the six months ended March 31, 2000, operating profit increased
$453,000, or 273%, to $618,000 from $165,000 in fiscal 1999. The increase in the
operating profit is primarily attributable to the polishing supplies and
equipment segment, which achieved a 59% increase in sales volume. The operating
profit of the semiconductor production equipment segment for the first half of
fiscal 2000 increased by $25,000 or 16% on a revenue increase of $63,000.
Excluding the research and development costs of the new asher product line and
the increase in unallocated corporate expenses, the operating profit for the
semiconductor production equipment segment was $472,000 for the first six months
of the current fiscal year, compared to $206,000 in comparable period of last
fiscal year.
NET INCOME. Net income includes operating profit, discussed above, net
interest income and the provision for income taxes. During the second quarter of
fiscal 2000, net interest income was $12,000, or $2,000 higher than the $10,000
of net interest income for the corresponding quarter of fiscal 1999. As a result
of the above factors, income before income taxes for the second quarter of
fiscal 2000 was $416,000, a increase of 57%, compared to $266,000 in the second
quarter of fiscal 1999.
Interest income for the six months ended March 31, 2000 was $21,000,
or $1,000 higher than the same period in fiscal 1999. Income before income taxes
for the first six months of fiscal 2000 increased by $453,000, or 244%, to
$639,000 in fiscal 2000 as compared to $186,000 for the first six months of
fiscal 1999.
Income tax expense of $149,000, recorded at an effective tax rate of
36%, resulted in net income for the second quarter of fiscal 2000 of $267,000,
or $.12 per diluted share. During the second quarter of fiscal 1999, the Company
recorded income tax expense of $98,000, reflecting a 37% effective tax rate,
resulting in net income of $168,000, or $.08 per share.
For the six months ended March 31, 2000, the Company recorded income
tax expense of $241,000, an effective rate of 38%, compared to $71,000, an
effective rate of 38%, for the comparable period in fiscal 1999. The resulting
net income for the first half of fiscal 2000 was $398,000, or $.18 per diluted
share, an increase of 248% compared to the $115,000 of net income, or $.05 per
share, earnings in the first half of the previous year.
13
BACKLOG. At March 31, 2000, the order backlog was $4,444,000, a slight
increase of less than 1% from the $4,433,000 backlog at March 31, 1999. The
backlog as of March 31, 2000 was approximately $294,000 higher than at December
31, 1999, an increase of 7%, and approximately $685,000 higher than at the end
of fiscal 1999, an increase of 18%. In addition, the backlog as of March 31,
2000 has a product mix with an expected higher gross margin than the backlog of
one year earlier. Orders are generally shipped within three to six months of
receipt. Accordingly, the order backlog may not be a valid measure of revenue or
earnings for a future period.
LIQUIDITY AND FINANCIAL CONDITION
At March 31, 2000, the Company had $1,869,000 of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $1,125,000 at September 30, 1999, an increase of approximately
$744,000. The increase in liquidity corresponds to the $777,000 net cash
provided by operating activities as reflected in the condensed consolidated
statements of cash flow for the six months ended March 31, 2000. The Company
continues to believe that there is sufficient liquidity for existing operations.
At March 31, 2000, working capital was $5,786,000, up $412,000 from
$5,374,000, at September 30, 1999. While the Company's current ratio declined to
3.3:1 at the end of the second quarter of fiscal 2000 from 4.1:1 at the
beginning of the year, the Company believes that its current ratio continues to
indicate a strong financial condition. At the end of the second quarter of
fiscal 2000, cash and cash equivalents comprised 19% of total assets and
stockholders' equity accounted for 71% of total capitalization. The Company
believes that it continues to posses the financial strength necessary to achieve
continued growth.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137 - "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133".
This statement defers the effective date of SFAS 133 to the Company's quarter
ending December 31, 2000. The Company does not expect the adoption of SFAS 133
and 137 to have a material impact on its future results of operations or
financial position.
In December, 1999, the SEC staff issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition." SAB No. 101 is effective for the
Company's first fiscal quarter ending on December 31, 2000. Based upon the
prevailing interpretations of SAB No. 101, the Company will be required to
recognize sales of its semiconductor production systems based upon installation
and customer acceptance, rather than its current practice of recognizing such
revenue upon transfer of title, generally upon shipment. The Company's current
policy is to recognize revenue at the time the customer takes title to the
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product, generally at the time of shipment, because the Company has routinely
met its installation obligations and obtained customer acceptance. The Company
believes its current accounting policies on revenue recognition are consistent
with those generally used in its industry and have been consistently applied
since the inception of the Company. Therefore, if the Company is required to
change its revenue recognition policies in order to comply with SAB No. 101, it
will report a significant cumulative charge related to a change in an accounting
principle on October 1, 2000. At the current time, it is not possible to
determine the effect this change will have on the financial position or results
of operations of the Company. This item will appear as a non-operating item in
the Company's statement of operations. However, management believes the effects
on liquidity and cash flow will not be material. The Company is also considering
potential changes to its standard contracts for equipment sales that may
mitigate the impact of SAB No. 101.
YEAR 2000 COMPLIANCE
Certain computer systems and software products are coded to accept two
digit entries in the date code field. Date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. Any
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in the computer
shutting down or performing incorrect computations. As a result, many companies
may need to upgrade their computer systems and software to comply with such
"Year 2000" requirements. Certain of the Company's systems, including
information and computer systems and automated equipment, may be affected by the
Year 2000 issue.
As of the date of this report, the Company has not experienced any
significant Year 2000 problems with the hardware and software components of its
systems and products. While there can be no assurance, the company does not
anticipate that the resolution of Year 2000 problems will require it to devote
any material amount of resources.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in
foreign currency exchange rates and interest rates. Its operations in the United
States are conducted in United States dollars. The Company's operation in The
Netherlands, a component of the semiconductor production equipment segment,
conducts business primarily in The Netherlands' guilder and, to a lesser extent,
the United States dollar and other European currencies. As of January 1, 1999,
the European Union, of which The Netherlands is a member, established a fixed
conversion rate between their existing sovereign currencies and the Euro and
adopted the Euro as their common legal currency. Most of the other European
currencies in which the Company's Netherlands operation conducts business also
have fixed exchange rates with the Euro. Currently, the functional currency of
the Company's Netherlands operation is The Netherlands guilder. Thus, by the end
of the three year transition period, the functional currency of that operation
will be the Euro.
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Based upon its fiscal 1999 information, the Company estimates that more
than 95% of its transactions are denominated in one of its two functional
currencies, the United States dollar and The Netherlands guilder, or currencies
that have fixed exchange rates with The Netherlands guilder. As of March 31,
2000, the Company did not hold any derivative securities. The Company incurred
net foreign currency transaction losses of $14,000 and $45,000 in the first six
months of fiscal 2000 and 1999, respectively. As of March 31, 1999, a 10% change
in the foreign currency rates would not have a material impact on the Company's
financial condition. However, the Company's investment in and advances to its
Netherlands' operation, which total $1,458,000, are recorded in The Netherland
guilder, the currency used to purchase those net assets, and then translated to
United States dollars, the reporting currency, at the end of each accounting
period. As a result, the significant decline in the value of The Netherlands
guilder relative to the United States dollar caused a negative foreign currency
translation adjustment during the first six months of fiscal 2000 of $99,000.
This adjustment is a component of comprehensive income and recorded as a direct
adjustment to stockholders' equity.
When the value of The Netherlands guilder declines relative to the
value of the United States dollar, operations in The Netherlands can be more
competitive against the United States based equipment suppliers and the cost of
purchases denominated in United States dollars become more expensive. When the
value of The Netherlands guilder increases relative to the value of the United
States dollar, operations in The Netherlands must raise prices to those
customers that normally make purchases in United States dollars, in order to
maintain the same profit margins. When this occurs, this operation attempts to
have transactions denominated in The Netherlands guilder or the Euro and to
increase its purchases denominated in United States dollars. Based upon fiscal
year 1999 information, the Company estimates that the annual purchases and sales
of this operation that are denominated in currencies not linked to its
functional currency, including United States dollars, British pounds and Swiss
francs, are approximately $600,000 and $800,000, respectively. Most of those
purchases and sales are denominated in United States dollars and those purchases
equal approximately 75% of those sales, providing a partial hedge against
fluctuations in exchange rates. Because it is difficult to predict the volume of
dollar denominated transactions arising from The Netherlands operations, the
Company does not hedge against the effects of exchange rate changes on future
transactions, such as sales for which the Company has not yet received a
purchase order. The Netherlands guilder is near its historically low value
relative to the United States dollar, giving the Company's operation based in
The Netherlands a competitive advantage over other suppliers based in the United
States. However, a future increase in the relative value of The Netherlands
guilder could have a materially adverse effect on the Company's future results
of operations.
Based upon fiscal 1999 information, the Company estimates that its
polishing supplies and equipment segment makes annual purchases of approximately
$650,000 through direct or indirect sources from Japan or Germany. While these
purchases are denominated in United States dollars, the price of materials
purchased from Japan is directly effected by the value of the yen relative to
the dollar. The Company believes the price of steel produced in Germany is
relatively unaffected by fluctuations in the value of German mark, as the
supplier sets the price based on an average exchange rate. However, assuming the
price of German sourced steel also fluctuated with currency exchange rates, a
10% change in the value of Japanese yen and the German mark relative to the
16
United States dollar would affect the cost of this segment's purchases by
approximately $65,000.
The Company is also exposed to interest rate risk on its fixed debt
obligations. At March 31, 2000, fixed rate debt obligations totaled $171,000
with a fixed interest rate of 6.95% through June 2001. Due to the relatively
insignificant principal balance of outstanding debt, the Company does not
actively manage the risk associated with these obligations. The impact of
interest rate changes would not have a material impact on the Company's results
of operations.
FORWARD-LOOKING STATEMENTS
The statements contained in this report on Form 10-Q that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates," or the negative thereof or
other written variations thereof or comparable terminology. The forward-looking
statements contained herein are based on current expectations that involve a
number of risks and uncertainties. Among others, these forward-looking
statements are based on assumptions that (a) the Company will not lose a
significant customer or customers, (b) the Company will not experience
significant further reductions in demand or rescheduling of customer purchase
orders, (c) the Company's products will remain accepted within their respective
markets and will not be significantly further replaced by newer technology
equipment, (d) competitive conditions within the Company's markets will not
materially deteriorate, (e) the Company's efforts to improve its products and
maintain its competitiveness in the markets in which it competes will continue
to progress and that the savings associated with these expenditures and/or the
increased product demand resulting therefrom justifies such development costs,
(f) the Company will be able to retain, and when needed, add key technical and
management personnel, (g) business or product acquisitions, if any, will be
successfully integrated and the results of operations therefrom will support the
acquisition price, (h) the Company's forecasts will accurately anticipate market
demand, (i) there will be no material adverse changes in the Company's existing
operations, (j) the Company will be able to obtain sufficient equity or debt
funding to increase its capital resources by the amount needed for new business
or product acquisitions, if any, (k) the semiconductor equipment industry will
continue to recover from the recent slowdown, (l) the condition in the Asian
markets will continue to improve, (m) the Company will be able to continue to
control costs, (n) the Company will not, either directly or indirectly, incur
any material Year 2000 issues and (o) demand for the Company's products will not
be adversely and significantly influenced by trends within the semiconductor
industries, including consolidation of semiconductor manufacturing operations
through mergers and the subcontracting out of the production of semiconductors
to foundries. Assumptions related to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions, all of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in forward-looking
statements will be realized. In addition, the business and operations of the
Company are subject to substantial risks, which increase the uncertainty
17
inherent in such forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, such
information should not be regarded as a representation by the Company, or any
other person, that the objectives or plans for the Company will be achieved.
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES.
On December 15, 1999, non-public warrants for the purchase of 210,000
shares expired. On December 15, 1999, the Board of Directors of the Company
elected to extend the expiration date of the 1,207,500 redeemable public
warrants from December 15, 1999 to January 14, 2000, thereby providing the
warrant-holders additional time to exercise these warrants. Such public warrants
expired on January 14, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 25, 2000, the Company held its annual meeting of
shareholders at which 1,835,932, or 87% of the 2,108,679 shares outstanding were
represented by proxy or in person. The following persons where elected to the
board of directors with shares voted as follows:
ELECTION OF DIRECTORS FOR WITHHELD
- --------------------- --- --------
Jong S. Whang 1,831,600 4,332
Robert T. Hass 1,831,626 4,306
Donald F. Johnston 1,830,613 5,319
Alvin Katz 1,828,078 7,854
Bruce R. Thaw 1,831,639 4,293
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: May 15, 2000
--------------------------------------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
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