UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 2001
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
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 480-967-5146
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Redeemable Public Warrant
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant was approximately $16,500,000 based on the
average of the high and low prices of Common Stock as reported on the NASDAQ
National Market on such date. Shares of Common Stock held by officers, directors
and holders of more than 5% of the outstanding Common stock have been excluded
from this calculation because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date: 2,649,171 shares of
Common Stock, $.01 par value, outstanding as of December 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the registrant's 2002 Annual
Meeting of Shareholders, which Proxy Statement will be filed under the
Securities Exchange Act of 1934, as amended, within 120 days of the end of the
registrant's fiscal year ended September 30, 2001, are incorporated by reference
into Part III of this Form 10-K.
TABLE OF CONTENTS
Page
ITEM 1. BUSINESS......................................................... 1
BACKGROUND....................................................... 1
INDUSTRY BACKGROUND.............................................. 2
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.................... 3
BUSINESS OVERVIEW................................................ 3
GROWTH STRATEGY.................................................. 4
PRINCIPAL PRODUCTS............................................... 5
PROPOSED NEW PRODUCTS............................................ 9
MANUFACTURING AND SUPPLIERS...................................... 9
ORDER BACKLOG.................................................... 10
RESEARCH, DEVELOPMENT AND ENGINEERING............................ 10
PATENTS ......................................................... 11
SALES AND MARKETING.............................................. 12
COMPETITION...................................................... 13
EMPLOYEES........................................................ 14
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES .............................................. 15
ITEM 2 PROPERTIES....................................................... 15
ITEM 3 LEGAL PROCEEDINGS................................................ 15
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 16
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS ......................................... 16
MARKET INFORMATION............................................... 16
HOLDERS ......................................................... 17
DIVIDENDS........................................................ 17
ITEM 6 SELECTED FINANCIAL DATA ......................................... 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................... 19
STRATEGY FOR EXPANSION AND CAPITAL RESOURCES..................... 19
RESULTS OF OPERATIONS............................................ 19
FISCAL 2001 COMPARED TO FISCAL 2000.............................. 20
CHANGE IN ACCOUNTING PRINCIPLE................................... 22
RECENT ACCOUNTING PRONOUNCEMENTS................................. 23
i
FISCAL 2000 COMPARED TO FISCAL 1999.............................. 23
LIQUIDITY AND CAPITAL RESOURCES.................................. 25
ADDITIONAL FACTORS THAT MAY AFFECT OUR FUTURE RESULTS............ 26
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................... 33
FORWARD-LOOKING STATEMENTS....................................... 34
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX................ 36
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 37
ITEM 10 EXECUTIVE COMPENSATION........................................... 37
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 37
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 37
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K....................................................... 37
SIGNATURES................................................................ 40
POWER OF ATTORNEY......................................................... 40
ii
PART I
ITEM 1. BUSINESS
BACKGROUND
Amtech Systems, Inc. ("Amtech" or the "Company") was incorporated in
Arizona in October 1981, under the name Quartz Engineering & Materials, Inc.,
and changed to its present name in 1987. The Company also conducts operations
through two wholly-owned subsidiaries, Tempress Systems, Inc., a Texas
corporation with all its operations in the Netherlands ("Tempress Systems"), and
P.R. Hoffman Machine Products, Inc., an Arizona corporation based in Carlisle,
Pennsylvania ("P.R. Hoffman").
The Company's initial business was the manufacture of quartzware implements
for sale to and use by manufacturers of semiconductor chips. Since 1987, the
Company has been engaged in the manufacture and marketing of capital equipment
used by customers in the manufacture of semiconductors, two of which are
patented. The Company's Processing/Robotic product line (Atmoscan(R), IBAL
Automation and load stations) is designed to enable its customers to increase
the degree of control over their semiconductor chip manufacturing environment,
to reduce exposure to contaminants by limiting human contact during the
manufacturing process and to improve employee safety.
In fiscal 1995, the Company began the complementary business of producing
and selling horizontal diffusion furnaces for use in semiconductor fabrication,
through its wholly-owned subsidiary, Tempress Systems. In fiscal 1998, the
Company's Tempress Systems operation began producing and selling conveyor
diffusion furnaces for use in precision thermal processing of electronic parts.
In fiscal 2000, the Company started producing high temperature and ultra high
temperature diffusion furnaces for use in the manufacture of optical components,
a new market for the Company's products. The Company's semiconductor equipment
segment is comprised of the Processing/Robotic and horizontal diffusion furnace
product lines.
In July 1997, the Company acquired substantially all of the assets of P.R.
Hoffman Machine Products Corporation and began developing, manufacturing,
marketing and selling polishing supplies, i.e. carriers and semiconductor
polishing templates, double-sided precision lapping and polishing machines and
replacement parts through its wholly-owned subsidiary, P.R. Hoffman. These
products are used for high throughput precision surface processing of
semiconductor wafers, precision optics and other thin wafer materials, such as
computer disk media and ceramic components for wireless telecommunication
devices. The polishing supplies segment of the Company's business is conducted
through the Company's P.R. Hoffman subsidiary.
In the fourth quarter of fiscal 1997, the Company began offering
manufacturing support services to one of its Texas-based customers. These
services consist of wet and dry cleaning of semiconductor machine processing
parts. The Company intends to offer manufacturing support services to other
customers and third parties as such opportunities become available. For segment
reporting purposes, the results of operation and assets of the manufacturing
support services operation have been aggregated with the semiconductor equipment
segment.
In fiscal 1994, the Company added research and product development of new
technologies to its on-going development of new products and product
improvements based on existing technologies. From fiscal 1994 through the end of
fiscal 1998, the Company's research and development efforts were primarily
focused on photo-assisted CVD (chemical vapor deposition) research conducted by
and in conjunction with the University of California at Santa Cruz ("Santa Cruz
University"). Santa Cruz University studied several generations of higher
intensity light sources, none of which yielded results that would enable the
Company to produce a commercially viable product. While this research was
partially successful, it was suspended indefinitely effective September 30,
1
1998, and won't be resumed until such time as reliable higher intensity lamps
are available and the Company determines that success appears more probable.
Beginning in fiscal 1999, the Company began research on a new technology
asher. In November 1999, the Company announced a joint product development
agreement with PSK Tech, Inc. to develop a new technology ashing machine using
the Company's damage-free technology and PSK Tech's expertise in the design of
ashers and asher processes. These joint product development efforts are ongoing.
Unless the context otherwise requires, the "Company" refers to Amtech
Systems, Inc., an Arizona corporation, and its wholly-owned subsidiaries. The
Company's principal executive offices are located at 131 South Clark Drive,
Tempe, Arizona 85281 and its telephone number is (480) 967-5146. Additional
information about the Company is available on the Company's website at
www.amtechsystems.com.
INDUSTRY BACKGROUND
The semiconductor industry has experienced significant growth since the
early 1990s. This growth is primarily attributable to increased demand for
personal computers and the growth of the Internet, the expansion of the
telecommunications industry (especially wireless communications), and the
emergence of new applications in consumer electronics. Further fueling this
growth is the rapidly expanding end-user demand for smaller, less-expensive and
better-performing electronic products, which has led to an increased number of
semiconductor devices in electronic and other consumer products, such as
automobiles.
While experiencing significant growth, the semiconductor market is cyclical
by nature, characterized by short-term periods of either under or over supply
for both memory and logic devices. When demand decreases, semiconductor
manufacturers typically slow their purchasing of capital equipment. Conversely,
when demand increases, so does the manufacturer's capital spending. During the
first half of fiscal 2001 the semiconductor industry began experiencing a
downturn, which resulted in more than a 30% decline in revenue for both chip
fabricators and semiconductor equipment manufacturers. Such industry downturns
have and will in the future adversely affect the sales, gross profit and
operating results of suppliers that serve the industry, including the Company.
The semiconductor industry is also experiencing the consolidation of
semiconductor manufacturing operations through mergers and the subcontracting
out of the production of semiconductors to foundries. The Company believes that
growth in its sales and profitability will continue to depend primarily upon
increased demand for semiconductors, for optical components and solar cells and
its success in developing or acquiring products that fill the present and future
requirements of those industries.
To create increased demand for semiconductor devices, semiconductor
manufacturers have sought to enhance the performance or speed, decrease the
size, and lower the cost of semiconductor devices. These goals are being
achieved by shrinking the size of the circuitry on a chip and reducing line
widths, increasing wafer size and introducing new materials and technologies.
When chips decrease in size, circuits can operate more quickly. With size
reduction, more chips can be produced on a given wafer size, and the yield from
production increases. New equipment featuring the latest technological advances,
however, must often be purchased to manufacture the smaller-sized chips and in
many cases is retrofitted into existing manufacturing facilities.
To achieve improved yield, semiconductor devices must be manufactured in
environments with very low levels of contaminants. Semiconductor equipment
manufacturers, such as the Company, have responded to this requirement by
offering equipment that isolates, within a controlled mini-environment, several
chambers corresponding to different steps of the semiconductor manufacturing
process and by developing factory automation that reduces human involvement.
2
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company classifies its products into two core business segments. The
semiconductor equipment segment designs, manufactures and markets semiconductor
wafer processing and handling equipment used in the fabrication of integrated
circuits. The manufacturing support service business and any difference between
the planned corporate expenses, which are allocated to the segments based upon
their revenue and the Company's investment in each, and actual corporate
expenses are aggregated in the semiconductor equipment segment. The polishing
supplies segment 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 semiconductors. For financial
information about industry segments see Note 9 of the Notes to the Financial
Statements included herein.
BUSINESS OVERVIEW
The Company is engaged primarily in the design, manufacture, marketing and
servicing of several items of capital equipment and related consumables and
spare parts primarily used by customers in the manufacture of silicon wafers and
the fabrication of semiconductors, optical components of telecom networks and
solar cells. Our manufacturing facilities are located in Tempe, Arizona;
Carlisle, Pennsylvania and The Netherlands.
Semiconductors control and amplify electrical signals and are used in a
broad range of electronic products, including consumer electronic products,
computers, wireless telecommunication devices, communications equipment,
automotive electronic products, major home appliances, industrial automation and
control systems, robotics, aircraft, space vehicles, automatic controls and
high-speed switches for broadband fiber optic telecommunication networks.
Semiconductors, or semiconductor "chips," and optical components are fabricated
on a silicon wafer substrate and are part of the circuitry or electronic
components of many of the aforementioned products.
The manufacture of semiconductors and optical components involves a number
of complex and repetitive processing steps applied to a silicon wafer. These
processing steps generally consist of deposition, photolithography and etching.
Deposition is a process in which a film of either electrically insulating or
electrically conductive material is deposited on the surface of a wafer. The
three principal methods of this film deposition are CVD (chemical vapor
deposition), which can be used to deposit both insulating and conductive films;
PVD (physical vapor deposition), which is used primarily for sputtering
conductive materials onto the wafer surface; and electroplating, a process for
depositing metal films via an electrically charged aqueous solution.
The Company's products currently address deposition steps and the surface
finishing steps in the production of silicon wafers. The Company's products
within the deposition area perform oxidation/diffusion, low-pressure deposition
("LPCVD") steps and certain high and ultra-high temperature processes used in
the manufacture of optical components. LPCVD performs CVD under high
temperature, low-pressure conditions to deposit insulting or conductive layers.
During these steps silicon wafers (the substrates from which chips and optical
components are made) are inserted in a diffusion furnace and subjected to a
precise flow of gases under very intense heat.
The Company manufactures and sells horizontal and conveyor diffusion
furnaces through its wholly owned subsidiary, Tempress Systems. In addition, the
Company manufactures and sells a processing/robotic product line designed to
enable customers using horizontal diffusion furnaces to increase their degree of
control over the manufacturing environment, to reduce exposure to contaminants
by reducing the amount of human contact during the manufacturing process and to
improve employee safety. Following an industry trend, the size of individual
semiconductor chips has tended to decrease while the size of the wafers from
3
which chips are made has tended to increase. As a result, the value of each
wafer has increased because each is the source of an increased number of chips.
As the value of wafers increase, so too does the importance of control over the
manufacturing environment.
The Company's target market for its lapping and polishing machines and
related consumables and spare parts are producers of silicon wafers, certain
semiconductor fabricators that perform some silicon wafer processing steps
in-house and producers of thin wafers made of other materials, such as quartz,
ceramics and metals used in the manufacture of optics, computer storage disks
and components for wireless telecommunication devices. The long-term demand for
silicon wafer lapping and polishing machines and related products has also been
fueled by the inherent need of semiconductor device manufacturers to continually
meet the growing demand for such semiconductors caused by the rapid increase in
the uses for such devices. In order to produce today's higher density chips,
semiconductor manufacturers must maintain tighter tolerances with respect to the
surface finish, flatness and planerization of the bare silicon wafer, which in
turn is requiring more polishing steps and thus more surface processing supplies
and equipment. A similar trend is occurring in the computer disk industry as
manufacturers strive to produce higher density drives in order to satisfy end
user demand for greater storage capacity and reduced size.
GROWTH STRATEGY
The Company's objective is to increase its revenue and operating profit
through the development of new products and services that serve the Company's
targeted markets, to further penetrate these and new markets with existing and
new products, and to acquire new products through strategic acquisitions.
NEW MARKETS. In the fourth quarter of fiscal 2000, the Company obtained
large semiconductor production equipment orders from manufacturers of optical
components, a significant new market for the Company. Sales into this new market
accounted for $8 million of revenue in fiscal 2001. The Company also sells
production equipment to the manufacturers of solar cells, another new market for
the Company's products.
NEW PRODUCTS. During July 2000, we launched two new automation products,
the S-300 and E-300, in order to expand and further penetrate the markets for
its products. Shipment of these new products totaled $1.6 million in fiscal
2001. The Company is continuing work that began in the first half of fiscal 2001
to provide full cassette to cassette functionality as an option on the S-300
product, and to develop a 12 inch (300mm) version of the S-300.
NEW SERVICES. During the fourth quarter of fiscal 1997, the Company began
providing contract semiconductor manufacturing support services, which is
included in the semiconductor production equipment (and services) segment.
Although the Company is currently providing such services to only one customer,
its fiscal 2001 revenue attributable to such services was $.5 million and the
operation is continuing to make a positive contribution to operating profit.
ACQUISITIONS. Another important element of our growth strategy is the
acquisition of new complementary businesses or products. During fiscal 2001, the
Company reviewed and considered carefully a number of acquisition opportunities,
but did not conclude any transactions under consideration. The Company continues
to evaluate those and other potential product or business acquisitions that
might complement its existing business and contribute to the success of its
growth strategy. Based upon the Company's acquisition criteria, such an
acquisition could require more capital resources than used to acquire P.R.
Hoffman. The determination of the appropriateness of a potential acquisition is
expected to take into consideration many factors, including the status and
potential capital requirements for developing a new technology asher, the
economic terms of the acquisition under review, and the potential synergy of the
business opportunity with the Company's existing business.
4
During fiscal 1995, the Company hired engineers that had been employees of
the former Tempress, B.V., developed its first models of the Tempress(R)
diffusion furnace product and started Tempress Systems operations in The
Netherlands. That operation has grown significantly, particularly during fiscal
2000, and now is a major contributor to the Company's revenues and profit.
Similarly, on July 1, 1997 the Company acquired substantially all of the assets
and related liabilities of P.R. Hoffman Machine Products Corporation, thereby
enabling the Company to offer new products, lapping and polishing machines and
related consumables and spare parts, to its existing and targeted customers.
PRINCIPAL PRODUCTS
SEMICONDUCTOR (PRODUCTION) EQUIPMENT SEGMENT
Diffusion Furnaces
Through its wholly-owned subsidiary, Tempress Systems, the Company produces
and sells horizontal and conveyor diffusion furnace systems, which generally
include a Tempress(R) load station, with the Tempress(R) trademark. The
Company's diffusion furnaces currently address several deposition steps,
including oxidation/diffusion, LPCVD steps used by semiconductor fabricators and
certain high and ultra-high temperature processes used in the manufacture of
optical components. During these steps silicon wafers (the substrates from which
chips and optical components are made) are inserted in a diffusion furnace and
subjected to a precise flow of gases under very intense heat. The Company's
Tempress(R) diffusion furnaces are manufactured at the Company's facilities in
The Netherlands.
These furnaces utilize existing industry technology and are sold primarily
to customers who do not require the advanced automation of, or can not justify
the significantly higher expense of, vertical diffusion furnaces for some or all
of their diffusion processes. While the major advantage of vertical diffusion
furnaces is their susceptibility to increased automation, which decreases the
degree of human intervention in the manufacturing process, the use of horizontal
diffusion furnaces, with less automation, is more economical for larger size
chips and multi-model semiconductor manufacturing. The Company has also sold
these furnaces to manufacturers of solar cells. The Company's diffusion furnaces
are often customized to meet the requirements of the customers' particular
processes and whenever possible sold in various combinations with the other
products of the semiconductor equipment segment.
In fiscal 1998, the Company began producing and selling conveyor diffusion
furnace systems used to produce thick films for the electronics industry.
Conveyor furnace systems provide for precision thermal processing of electronic
parts for thick film applications, anneal, sealing, soldering, silvering,
curling, brazing, alloying, gloss-metal sealing and component packaging.
Starting in the fourth quarter of fiscal 2000, the Company secured and made
initial shipments against significant orders for its horizontal diffusion
furnace systems from manufacturers of optical components of high-speed switches
used in broadband fiber optic telecommunications networks. These systems include
standard diffusion furnaces used to produce thick oxide layers on silicon wafers
and ultra-high temperature furnaces used for certain of the customers'
proprietary processes. While these products are similar in many respects to
those sold to the semiconductor industry, they are being sold into the new
optical component market for the Company and therefore account for a significant
portion of the $8 million of sales into that optical market.
5
Processing/Robotic Equipment
IBAL Automation
"IBAL" is an acronym for "Individual Boats with Automated Loading." The
Company's IBAL automation system is a patented integrated automation system
composed of several modules, with the base module being called simply IBAL.
Boats are quartz trays that hold silicon wafers while they are being processed
in diffusion furnaces. IBAL Trolley is comprised of hardware and software, which
automatically places boats into Atmoscan(R) tubes or onto a cantilever paddle
system before they are inserted in the diffusion furnace, and automatically
removes the trays after completion of the diffusion process.
IBAL Butler is a robotics device that further automates the loading of
wafers into a diffusion furnace. The IBAL Butler automatically transfers wafer
carriers onto the IBAL Trolley of the appropriate furnace tube level, for
loading into the Atmoscan(R) or on the cantilever paddle system. IBAL Queue
provides a convenient staging area for the operator to place boats on a load
station and automates the loading of those boats onto the IBAL Butler. The first
IBAL Queue unit was shipped during the second quarter of fiscal 1994. The IBAL
Shuttle transfers wafers between the IBAL Queue and wafer transfer machines
manufactured by third parties, providing customers with complete
cassette-to-cassette wafer handling. The first IBAL Shuttle modules were sold
and shipped during fiscal 2000.
During fiscal 2000, the Company introduced two new robotic products, the
S-300 and E-300. The S-300 model automatically transports a full batch of up to
300 wafers to the designated tube level and places them onto the cantilever
loader of a diffusion furnace at one time. The operator gives instructions to
the S-300 through a simple touch screen control panel. The Company demonstrated
the S-300 system during the Semicon West 2000 tradeshow in San Francisco in July
2000. The S-300 can load cantilever paddles but not the Company's Atmoscan(R)
product. At Semicon West, the Company also displayed and operated its new E-300
Full Batch Elevator, which transports up to 300 wafers to the designated tube
level, but does not load or unload the cantilever paddle. While the E-300 model
offers less functionality than the S-300, it proved to be extremely reliable.
Since the E-300 does not perform the actual loading, it can be used, with or
without the IBAL trolley, in connection with the Company's Atmoscan(R) product.
In line with the Company's growth strategy, these products are designed to
capture additional diffusion equipment market share.
Use of the IBAL products reduces human handling and, therefore, reduces
exposure of wafers to contaminants during the loading and unloading of the
process tubes and improves employee safety and ergonomics in semiconductor
manufacturing facilities. The Company has also sold IBAL products to
manufacturers of solar cells. The Company has not yet sold IBAL products to
manufacturers of optical components, because most of the processes involve very
long production cycles, reducing the frequency of loading and unloading.
However, the Company intends to address that market with its IBAL products
whenever it is appropriate. All of the IBAL modules have been designed by the
Company.
The IBAL automation products described above are offered and sometimes sold
as a complete system, mounted on a device called a "load station," which also
includes an ultra-clean environment for wafer loading by filtering and
controlling the flow of air. The load stations sold with an integrated IBAL
package are the high-end loan stations. Further, the IBAL automation products
are at times sold as part of fully integrated Tempress(R) diffusion furnaces,
described above.
Atmoscan(R)
The Company's "Atmoscan(R)" is a patented controlled environment wafer
processing system for use with horizontal diffusion furnaces. When in use, it is
loaded with wafers and inserted into the diffusion furnace under a
6
nitrogen-controlled environment. The Atmoscan(R) technology is a processing
method that includes a cantilever tube used to load silicon wafers into a
diffusion furnace and through which a purging inert gas flows during the loading
and unloading processes.
The Company believes that among the major advantages afforded by its
Atmoscan(R) product are increased control of the environment of the wafers
during the gaseous and heating process, thereby increasing yields and decreasing
manufacturing costs, and a decreased need for the cleaning of diffusion furnace
tubes, which ordinarily involves substantial expense and equipment down time.
Additional significant economies in the manufacturing process are also believed
to result.
The Company has manufactured and sold Atmoscan(R) units to major
semiconductor manufacturers in the United States, the Pacific Rim and Europe,
including at various times to International Business Machines, Intel
Corporation, Samsung, Motorola, SGS-Thompson, SVG-Thermco and others. Sales of
Atmoscan(R) have declined from their peak in 1989, due to an industry trend
toward use of vertical diffusion furnaces for many of the processes previously
performed in horizontal diffusion furnaces.
The Company also has designed and sells an open cantilever paddle system,
which remains the most commonly used wafer loading system for horizontal
furnaces in the semiconductor industry. Similar systems have been used by the
industry since prior to the introduction of the Atmoscan(R), the Company's
alternative to the cantilevered processing system.
There is a trend in the semiconductor industry toward the use of vertical
furnaces in semiconductor manufacturing facilities with newer technology, which
trend is directly related to the trend to produce smaller chips. Vertical
diffusion furnaces are more efficient to use than the horizontal diffusion
furnaces in certain manufacturing processes of smaller chips on larger wafers,
however, such furnaces are significantly more expensive to purchase than
horizontal diffusion furnaces. The products of the semiconductor equipment
segment consist of or are only useable with horizontal diffusion furnaces. The
Company had expected this trend to cause a decline in that segment's sales of
existing products. We believe this trend has not adversely affected us yet
because of (i) significant orders from new markets, such as manufacturers of
optical components, (ii) increased demand from existing markets, such as
manufacturers of wireless telecommunication devices and micro-controllers used
in a number of consumer applications and companies that are increasing their
semiconductor manufacturing capacity by upgrading their production lines to use
200mm wafers, where some or all of the processes do not require the use of more
expensive vertical furnaces, and (iii) improvements in the automation of
horizontal diffusion furnaces, such as our robotic product line, have given us a
competitive advantage for certain processes relative to vertical furnaces, than
previously.
POLISHING SUPPLIES (AND EQUIPMENT) SEGMENT
Through its wholly-owned subsidiary, P.R. Hoffman, the Company develops,
manufactures, markets and sells double-sided precision lapping and polishing
machines and complementary products including carriers, semiconductor polishing
templates and parts, and is sometimes referred as the Company's polishing
supplies segment.
Carriers
Carriers are workholders where wafers are nested during the lapping and
polishing processes. Carriers are produced for the Company's line of lapping and
polishing machines as well as for competitors' systems. Substantially all of the
carriers are customized for specific applications. The Company produces custom
carriers in a variety of sizes, configurations and materials. A significant and
expanding category of the Company's steel carriers contain plastic inserts
molded into the work-holes of the carrier and are referred to as insert
7
carriers. Although standard steel carriers are preferred in many applications
because of their durability, rigidity and precise dimensions, they are typically
not suited for applications involving softer materials or when metal
contamination is an issue. Insert carriers provide the advantages of steel
carriers while reducing the potential for damage to the edges of sensitive
materials such as large semiconductor wafers.
Semiconductor Polishing Templates
The Company's single-sided polishing templates are used to polish silicon
wafers. Since the Company does not manufacture surface processing machines for
single-sided applications, templates are designed to work with machines
manufactured by other suppliers in this market segment. Polishing templates are
customized for specific applications and are manufactured to exacting
tolerances.
Double-sided Planetary Lapping and Polishing Machines
Double-sided lapping and polishing machines are designed to process thin
and fragile products such as semiconductor silicon wafers, precision optics,
computer disk media and ceramic components for wireless communication devices to
exact tolerances of thickness, flatness, parallelism and surface finish.
The lapping machines process parts using an abrasive slurry and cast iron
plates. The material to be processed is positioned in carriers (work-holders),
which are driven with a planetary motion between the top and bottom plates. The
planetary action of the lapping machines simultaneously removes equal amounts of
material from both sides of the workpiece. Dimensional tolerances, surface
finish, quantity of material to be removed along with production rates required,
and cost of operation are the primary variables considered in determining the
best process for a specific application.
The polishing machines are similar to the lapping machines. Polishing is
achieved by using a finer free abrasive slurry and plates equipped with
polishing pad material. The polishing process is used to improve the
characteristics of the surfaces of silicon wafers and similar materials.
The following table summarizes the various models of surface processing
machines produced by the Company and the markets for each of these products:
DOUBLE-SIDED LAPPING AND POLISHING MACHINES
Model Year Introduced Markets
- ----- --------------- ------------------------------------------------------
PR-1 1938 Quartz
PR-2 1940 Quartz
1500 1990 Quartz, ceramics, medical
1900 1992 Ceramics, optics, computer disks
3100 1995 Computer disks, optics, metal working, ceramics
4800 1981 Silicon semiconductor, optics, metal working, ceramics
On average, the Company's surface processing systems are priced lower than
competing systems offered by the Company's competitors.
Plates, Gears, Wear Items and Other Parts
Since lapping machinery involves abrasive slurries, the plates, gears and
carriers are often exposed to a high degree of abrasion and wear. Therefore, the
Company produces a wide assortment of plates, gears, parts and wear items for
8
its own machines as well as for machines manufactured by its competitors. In
addition to producing standard off-the-shelf parts, the Company has the ability
to produce highly customized parts.
PROPOSED NEW PRODUCTS
During fiscal 1999, the Company began investigating an alternative to the
energy sources currently used in ashing processes. Ashers are used by the
semiconductor industry to remove photoresist materials from silicon wafers after
each lithography step. Plasma is the most common energy source used in current
ashers. While stripping the photoresist material from the wafers, plasma causes
damage to the silicon substrate, which the industry does not believe will be
acceptable as the line-width of the circuitry is reduced in future generations
of leading-edge semiconductors. In November 1999, the Company announced that it
had reached an agreement with PSK Tech Inc. regarding the joint development of a
new ashing machine, using Amtech's damage-free ashing technology (a "New
Asher"). Amtech and PSK Tech believe that, if successful, the New Asher under
development will be damage free and thus will receive strong demand from the
high-end semiconductor manufacturers. Ashing equipment manufactured by PSK Tech
is currently being selected almost exclusively by two of the world's top
semiconductor memory chip producers for their ashing processes. PSK Tech,
located near Seoul, South Korea, is publicly owned and listed on the Korean
stock market.
The joint product development agreement with PSK Tech provides that Amtech
will provide its patent pending, damage-free ashing technology and know-how and
PSK Tech will provide its expertise in the design and manufacture of ashers and
asher processes. The two companies will jointly own any resulting technology.
Under the agreement, Amtech will have exclusive selling and marketing rights to
the resulting New Asher for all of North America and Europe and PSK Tech will
have exclusive selling and marketing rights for all of Asia. Each company has
agreed to pay to the other a license fee of between two and five percent (2%-5%)
of its New Asher sales. Amtech has also agreed to sell the energy source
assemblies to PSK Tech for PSK's New Asher sales into Asia. Amtech will purchase
from PSK Tech ashers without the energy source assembly, for the platform of its
New Asher to be sold in the United States and Europe. The assemblies that each
company sells to the other will be at a price to be mutually agreed upon, but
shall not exceed 1.334 times its cost of manufacturing. Development work has
begun on a prototype for the New Asher. The Company is reviewing the results of
the feasibility work on the new 200mm technology asher with PSK Tech to
determine the next step and each partner's contribution to the related cost. If
the next step is to develop a prototype of a 200mm or 300mm asher, the Company's
contribution to the project could cause its research and development expenses to
increase significantly.
MANUFACTURING AND SUPPLIERS
The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including quartz and metal
components. Certain parts are fabricated in the Company's machine shops. Many of
the items purchased from suppliers are manufactured to the Company's
specifications. The Company designs some of its products to customers'
specification or to meet customers' process requirements. All final assembly and
system tests are performed within the Company's manufacturing/assembly
facilities. Quality control is maintained through incoming inspection of
materials and components, in-process inspection during equipment assembly,
testing of assemblies and final inspection and, generally in regard to its IBAL
automation products, operation of manufactured equipment prior to shipment. The
Company's Processing/Robotic product line is manufactured at its Tempe, Arizona
plant. In December 2000, the Company expanded by 74% the square footage of its
leased office and manufacturing space in Tempe in order to accommodate the
increased demand for its products.
9
The Company conducts similar engineering, purchasing and assembly and test
operations in the manufacture of its diffusion furnaces in The Netherlands.
Initially, these operations were conducted in rented facilities. In 1996, the
Company acquired a modern, high-tech manufacturing facility in Heerde, The
Netherlands, for its European operations, and moved its Tempress Systems
operations into this new facility. During fiscal 2000, the Company began renting
additional manufacturing space for the production of its diffusion furnaces due
to increased demand from manufacturers of optical components.
The Company's polishing supplies segment operations are conducted in its
Carlisle, Pennsylvania plant. The Products produced by this segment are
generally designed to customers' specifications. This segment's facility is
equipped to perform a significantly higher percentage of the fabrication
processes required in the manufacturer of its products. Certain of the
manufacturing processes are subcontracted out to various third parties. In
addition, this segment relies on key suppliers for certain materials, including
two steel mills, an injection molder, pad supplier (sole sourced from a Japanese
company), and an adhesive manufacturer.
ORDER BACKLOG
As of November 30, 2001, the Company's order backlog for semiconductor
equipment was approximately $9.1 million, compared to approximately $15.9
million at the same date in the previous year. The Company includes in its
backlog all credit approved customer purchase orders. Pursuant to SAB 101, the
Company has deferred $4.5 million of revenue, which net of related deferred cost
resulted in deferred profit of $1.8 million. Depending on whether or not the
amount of that deferred revenue that was realized in the two months ended
November 30, 2001, exceeded the amount of revenue that was deferred on shipments
during that period, the Company may have had as much as $13.6 million of future
revenue under contract as of that date. Orders in the backlog may be canceled by
the customer, generally upon payment of mutually acceptable cancellation
charges. Substantially all of these orders are currently scheduled for shipment
in fiscal 2002. Two customers representing 18.6% of the November 30, 2001
backlog have opened discussions regarding the cancellation of the orders
currently in the backlog. Because of possible order cancellations or customer
requested delays in shipment the backlog might not be a valid indicator of
revenue in future periods. In addition, a backlog does not provide any assurance
that the Company will realize a profit from those orders or indicate in which
period revenue will be recognized.
RESEARCH, DEVELOPMENT AND ENGINEERING
The markets served by the Company are characterized by evolving industry
standards and rapid technological change. To compete effectively in its markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the basis
of price and performance and that adequately address current and future customer
requirements. The Company's research and development expenditures during fiscal
1999, 2000 and 2001 were approximately $.3 million, $.5 million and $.4 million,
respectively. Due to the suspension of the photo-assisted CVD project and the
general slowdown in the semiconductor industry, the Company reduced its research
and development expenditures during fiscal 1999. With the research and
development work on a new technology asher, the Company increased such
expenditures in fiscal 2000 and fiscal 2001.
The Company presently employs at its Tempe, Arizona plant, three engineers,
including one with a Ph.D. and one in the sales department, and eight
technicians. The Company presently employs six engineers, one with a Ph.D., and
twelve technicians in its Netherlands operation. These employees design and
support the horizontal diffusion furnace and conveyor furnace product lines
manufactured in The Netherlands. Two engineers and one technician are employed
in the Company's Carlisle, Pennsylvania operation. They design wafer lapping
machines and carriers to meet the customers' processing requirements.
10
Historically, the Company's product development has been accomplished
through cooperative efforts with two key customers. While there can be no
assurance that such relationships will continue or that others will be
developed, such cooperative efforts are expected to continue to be a significant
element in the Company's future development projects. Although PSK Tech is not
currently a customer, the joint New Asher development project is another example
of the type of research and development cooperation the Company tries to
cultivate. The Company's relationships in such projects are generally
substantially dependent on the personal relations established by the Company's
President, Mr. Jong S. Whang.
PATENTS
Generally, the effect of a patent is that the courts will grant to the
patent holder the right to prevent others from making, using and selling the
combination of elements or combination of steps covered by the patent. The
Company has several United States patents on the Atmoscan(R) system, each
reflecting an improvement to or modification of the previous patent.
The Company has two United States patents on its photo-assisted CVD method,
the second being an improvement on the first. In 1998 and 1999, the Company was
granted patents on its IBAL Cantilever Trolley the second of which is an
improvement on the first. The Company has filed patent applications for the E300
and S-300 IBAL systems, which are pending approval.
The cantilever itself, load stations, the diffusion furnaces, lapping and
polishing machines, semiconductor polishing templates, and carriers, except for
insert carriers manufactured under a license with the patent holder, are not
protected by patents.
The following table shows the patents granted and the expiration date
thereof and the material patents pending for the Company's products in each of
the countries listed below:
EXPIRATION DATE OR
PRODUCT COUNTRY PENDING APPROVAL
------- ------- ----------------
Atmoscan(R) United States July 2, 2002
Atmoscan(R) United States August 30, 2005
Atmoscan(R) United States September 24, 2002
IBAL Cantilever Trolley United States July 10, 2015
IBAL Cantilever Trolley United States June 12, 2018
Photo CVD United States June 1, 2010
Photo CVD United States November 15, 2011
Proposed Damage-free Asher United States September 8, 2018
IBAL Model S-300 United States, France, Germany, The
Netherlands, Italy, United Kingdom Pending Approval
IBAL Model E-300 United States Pending Approval
The Company's ability to compete may be enhanced by its ability to protect
its proprietary information, including the issuance of patents and trademarks.
While no intellectual property right of the Company has been invalidated or
declared unenforceable to date, there can be no assurance that such rights will
be upheld in the future. There can be no assurance that in the future products,
processes or technologies owned by others, necessary to the conduct of the
Company's business, can be licensed on commercially reasonable terms. Our
inability to obtain such licensing rights could have a material adverse effect
on our results of operations or financial condition.
11
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. In dealing with
such inquiries, it may become necessary or useful for the Company to obtain and
grant licenses or other rights. However, there can be no assurance that mutually
agreeable terms can be negotiated for such license rights. Although there can be
no assurance about the outcome of such inquiries, the Company believes that it
is unlikely that their resolution will have a material adverse effect on its
results of operations or financial condition.
SALES AND MARKETING
The market for the Company's semiconductor equipment product line consists
of semiconductor manufacturers in the United States, Korea, Western Europe,
Taiwan, Japan, India, Australia and the People's Republic of China, optical
component manufacturers in the United Kingdom and United States and solar cell
manufacturers in Spain and India. This market is comprised of two major types of
customers, those who are installing new semiconductor manufacturing facilities
and customers who wish to install new equipment systems or upgrade equipment
already in use in existing facilities. The Company's products are sold to meet
both of those customer situations. The Company has increased and intends to
continue to increase its share of the market for semiconductor equipment by
expanding sales of horizontal diffusion furnaces manufactured by the Company in
its Netherlands facility and increasing its sales, marketing and manufacturing
capabilities in Europe. This plan has and is expected to increase revenue not
only through added sales of horizontal furnaces or Processing/Robotic products,
but also by making each of the products more competitive by offering them as
part of a broader complement of diffusion products with greater capabilities.
For example, the Company expects to generate increased sales of diffusion
furnaces by offering them together with Atmoscan(R) and IBAL products. One
element of this strategy is to sell these products under the Amtech/Tempress
name, where appropriate. The Company also expects to obtain orders for its
horizontal diffusion furnaces from former Tempress, B.V. customers. The
Company's diffusion furnaces have not captured a significant share of the market
in the United States, one of the largest markets for such equipment. However,
orders from optical component manufacturers based in the United States and to a
limited extent other components of that market have helped increase the
Company's share of that market in fiscal 2001. European optical component
manufacturers with requirements for diffusion furnaces are currently the
Company's largest single source of new orders. Based upon the order backlog,
which is not necessarily a good indicator of future sales, Amtech's sales to
optical component manufacturers worldwide grew from 6% in fiscal 2000 to more
than 36% of consolidated revenues in fiscal 2001. While we expect sales into
this market to decline in fiscal 2002 because the optical component market and
the telecom industry it serves are having significant financial difficulties,
this market is projected to again make a significant contribution to the
Company's revenue starting in fiscal 2003.
The Company has historically marketed its polishing supplies and machines
and related parts to manufacturers of silicon wafers for the semiconductor
industry, products that have optical components but are not related to telecom
industry, disk media for the computer industry, and ceramic components for
wireless communication products. The Company also sells diffusion furnace and
processing/robotic products to some of these customers, as it did prior to the
P.R. Hoffman acquisition. Further, the Company believes the process of sales
lead generation will be enhanced by the sharing of leads among its increased
number of product lines, including those acquired in the P.R. Hoffman
acquisition transaction.
The Company's installed base of customers (facilities at which the
Company's products are installed and operating) includes Intel, Lucent
Technologies, Motorola, Texas Instruments, Phillips, SGS-Thomson, Samsung,
Hyundai, ITT Night Vision, UMC and BP ("British Petroleum") Amoco Solar. Of
these corporations, Motorola, Intel Corporation, SGS-Thomson and Samsung have
been customers of the Company for approximately 15 years.
12
The Company markets its products by direct customer contact through Company
sales personnel, which consists of eight persons based in the United States,
including the President, three other outside salespersons and an inside sales
and marketing staff of four persons. The Company employs seven sales and
marketing personnel in The Netherlands. The Company also markets its products
through a network of domestic and international independent sales
representatives and distributors. The Company's promotional activities have
consisted of direct sales contacts, an internet website, advertising in trade
magazines and the distribution of product brochures. The Company also
participates in trade shows, including Semicon West, Semicon Europa, Diskcon and
one large optics show each year. The Company is primarily dependent on its
President, Jong S. Whang, for its sales and marketing activities in Asia and its
sales are enhanced by his active involvement with the accounts of certain other
key customers.
During fiscal 2001, one customer accounted for 10% or more of sales. For a
more complete analysis of significant customers, see Note 8 of the Notes to
Consolidated Financial Statements included herein (the "Financial Statements").
The Company has presently twenty-two independent sales representatives and
seven international distributors, each covering a specified geographical area on
an exclusive basis. The areas now covered by representatives are the New England
and Midwest regions, Pennsylvania, Texas, Washington, Oregon, the United
Kingdom, Central Europe (including Germany, Switzerland and Austria), India,
Italy, Japan, Korea, Singapore, Malaysia, Taiwan, Thailand and the People's
Republic of China. Representatives are paid a commission as specified from time
to time in the Company's commission schedule, which at present is generally
higher for complete systems and lower for spare parts and accessories. Further,
a discount has been granted for the Atmoscan(R) to a customer who is a competing
manufacturer of diffusion furnaces.
COMPETITION
Products competitive with the Company's load stations are sold by several
well-established firms larger than the Company. The Company is not aware of any
significant product that directly competes with the Atmoscan(R); however, there
are several processing systems and various configurations of existing
manufacturing products that provide advantages similar to those that the Company
believes the Atmoscan(R) provides to semiconductor manufacturers.
Notwithstanding this competition, the Company believes that Atmoscan(R) provides
better results in terms of more uniform wafer temperature and dispersion of
heated gases in the semiconductor manufacturing process, less exposure of
semiconductor wafers to contaminants, and other technical advantages which
afford to its users a higher yield and, therefore, a lower per item cost in the
manufacture of semiconductors. While the industry trend is toward the use of
vertical diffusion furnaces (with which Atmoscan(R) is not useable), the Company
believes that a number of customers are and will continue to be willing to buy
Atmoscan(R) units and horizontal diffusion furnaces because for all but
production runs of smaller geometry chips on larger wafers, there is a higher
productivity with horizontal furnaces and because many applications do not
involve the processing of smaller devices on larger silicon wafers and thus do
not require the much more expensive vertical furnaces.
The Company is aware of several products in the market that perform the
same or similar functions as the IBAL automation product line. However, the
Company does not know of any similar products that are capable of loading
Atmoscan(R) systems, a competitive advantage of the IBAL automation. The Company
believes that the IBAL automation products require less of the expensive clean
room floor space, are generally less expensive and easier to operate than those
of the competition. The Company's two new models of automation, the S-300 and
E-300, introduced during fiscal 2000, are believed to benefit even more from
13
these competitive advantages. The target market for our IBAL automation products
includes those customers who do not require the sophistication of the more
complex competing systems or do not have or are not willing to provide
additional clean room space. Load stations are sold to customers that are
purchasing Tempress(R) furnaces, upgrading their existing diffusion furnace
equipment or as part of a larger equipment package to customers starting-up new
or expanding existing facilities. Certain models of load stations provide a
cleaner environment than those they replace and the higher-end models can reduce
the down-time for the upgrade or installation of the Company's
Processing/Robotic products, since they are specifically designed to accept
those automation products without further modification. Several well-established
firms, larger than the Company, sell products competitive with the Company's
load station. The cantilever paddle system is designed for easy assembly and
disassembly to minimize downtime during maintenance. The Company has generally
sold its horizontal diffusion furnaces to customers who purchase them in small
quantities. While it is expected that sales of these diffusion furnaces will
most likely continue to be sold in small quantities, the Company skipped 10% of
these large systems to 3 customers, in quantities of 2 to 5 systems each, during
fiscal 2001. Amtech intends to maintain or improve its competitive position by
its willingness to design products to meet the customer's specific process
requirements, providing competitive prices and product support services levels
and targeting customers with significant numbers of Tempress(R) furnaces
manufactured by the former Tempress B.V.
There are competitors for our carriers, wafer lapping and polishing
machines and related replacement parts and semiconductor polishing templates
that are larger than the Company. However, the Company believes that it can
effectively compete with other manufacturers of carriers by continually updating
its product line to keep pace with the rapid changes in its customers'
requirements and higher level of customer service. The Company has been able to
capture a small share of the semiconductor polishing template market primarily
by meeting the industry's perceived need for a second source to avoid continued
dependence upon the dominant industry leader. The Company believes that its
ability to compete for sales of all of its products, including machines, is
enhanced by the reputation of its double-sided planetary lapping and polishing
machines, which are highly regarded for applications involving delicate and thin
(approximately 100 microns) wafers made of various materials. The Company
believes these products compare favorably to the competition with respect to the
following factors: durability, maintaining close thickness tolerances of wafers
and other parts and quality, reliability, performance and price.
EMPLOYEES
At September 30, 2001, the Company employed 111 people (including corporate
officers): 64 in manufacturing, 21 in engineering, 11 in administration and 15
in sales. Of these employees, 24 are based at the Company's corporate offices
and manufacturing facility in Tempe, Arizona, 31 are employed at its
manufacturing plant in Carlisle, Pennsylvania, 44 at its facility in Heerde, The
Netherlands, and 12 in the Company's contract semiconductor manufacturing
support services business located in Austin, Texas. Of the 31 people employed at
the Company's Carlisle, Pennsylvania facility, 19 are represented by the United
Auto Workers Union - Local 1443. The Company has never experienced a work
stoppage or strike. The Company considers its employee relations to be good.
14
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following table shows the amounts of revenue attributable to the
Company's foreign sales for the past three fiscal years (the sales to customers
in the United States are included in the table for comparison purposes). All
revenues shown in the table represent sales to customers not affiliated with the
Company.
2001 (1) 2000 1999
------------------- -------------------- -------------------
United States $12,176,000 53% $11,522,000 60% $ 8,669,000 59%
Canada 431,000 2 93,000 1 59,000 0
Asia (2) 1,742,000 8 3,581,000 19 754,000 5
Europe (3) 8,505,000 37 3,781,000 20 4,216,000 29
Australia 46,000 0 50,000 0 1,068,000 7
----------- --- ----------- --- ----------- ---
TOTAL $22,900,000 100% $19,027,000 100% $14,766,000 100%
=========== === =========== === =========== ===
(1) Effective October 1, 2000, the Company changed its revenue recognition
policy. See Note 2 of the Notes to Consolidated Financial Statements and
the pro forma information contained herein. As revenue is not reported on a
consistent basis between years, certain data contained in this report may
not be comparable between years.
(2) Includes Korea, Singapore, Taiwan, Japan, the People's Republic of China,
Hong Kong, Indonesia, India and Malaysia.
(3) Includes sales in Israel and Africa, which are not material.
For a further description of foreign sales, see Note 8 of the Notes to
Consolidated Financial Statements included herein.
ITEM 2. PROPERTIES
The Company's semiconductor equipment business and corporate offices are
located in 15,700 square feet of office and manufacturing space at its principal
address. These facilities are leased at a current rate of $8,096 per month, on a
triple net basis, for a term to expire on August 31, 2003. Manufacturing support
services are performed in customer facilities.
The Company owns a 9,900 square foot building located in Heerde, The
Netherlands. The Company also leases an additional 10,000 square feet of
manufacturing space in the area of the Heerde plant. These facilities are leased
at a current rate of approximately $910 per month, for varying terms, the last
of which expires on August 1, 2006. The Company has begun searching for larger
alternative facilities in The Netherlands, so that its Dutch operations can be
combined into a single location.
The Company leases a 21,740 square foot building located in Carlisle,
Pennsylvania from John R. Krieger, the former owner of that business. These
facilities are leased at a current rate of $10,700 per month, on a triple net
15
basis, for a term that expires on June 30, 2004. The Company has the option to
renew the lease for five successive terms of one year each.
The Company considers the above facilities suitable and adequate to meet
its current requirements.
ITEM 3. LEGAL PROCEEDINGS
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contribution to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products Corporation in an asset
transaction consummated on July 1, 1997. The landfill was closed and has not
been used by P.R. Hoffman since sometime prior to completion of the Company's
acquisition. Therefore, the Company believes that the named company is the prior
owner of the acquired assets. Under the terms of the Asset Purchase Agreement
governing the acquisition, the prior owner, P.R. Hoffman Machine Products
Corporation, is obligated to indemnify the Company for any breaches of P.R.
Hoffman's representations and warranties in the Asset Purchase Agreement,
including representations relating to environmental matters. In accordance with
the terms of the Asset Purchase Agreement, the Company has provided notice to
the prior owner of P.R. Hoffman Machine Products Corporation of the Company's
intent to seek indemnification from such owner for any liabilities resulting
from this legal action. Based on information available to the Company as of the
date of this report, management believes the Company's costs, if any, to resolve
this matter will not be material to the its results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
MARKET INFORMATION
The Company's common stock, par value $.01 per share ("Common Stock"),
began trading on The Nasdaq National Market(R), under the symbol "ASYS," on
April 18, 2001. Prior to that time, the Company's Common Stock was traded on the
Nasdaq SmallCap Market.
The following table sets forth the range of the high and low bid price for
the shares of the Company's Common Stock for each quarter of fiscal years 2001
and 2000 as reported by the NASDAQ National Market.
Quarter Ended High Low
------------- ---- ---
Fiscal 2001:
December 31, 2000 $ 15.25 $4.44
March 31, 2001 12.63 5.13
June 30, 2001 14.50 4.06
September 30, 2001 10.00 4.50
16
Fiscal 2000:
December 31, 1999 $ 5.75 $1.88
March 31, 2000 8.00 3.50
June 30, 2000 5.09 2.00
September 30, 2000 26.50 3.72
In order to maintain listing of its Common Stock on the Nasdaq National
Market, the Company is required to satisfy certain quantitative and qualitative
requirements. Effective with the close of business on March 15, 1999, each two
shares of the Company's Common Stock were combined and reclassified into one
share of the Common Stock. All shares and per share amounts have been restated
to give effect to this one for two reverse stock split. Any fractional shares
resulting from the reverse split were rounded to the next highest whole number.
HOLDERS
As of December 15, 2001, there were approximately 1,066 shareholders of
record of the Company's Common Stock. In addition, there were approximately
4,250 beneficial stockholders who held shares in brokerage or other investment
accounts as of that date.
DIVIDENDS
The Company has never paid dividends. Its present policy is to apply cash
to investment in product development, acquisition or expansion; consequently, it
does not expect to pay dividends within the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth with respect to the Company's
operations for each of the years in the three year period ended September 30,
2001 and with respect to the balance sheets at September 30, 2001 and 2000 are
derived from audited financial statements that have been audited by Arthur
Andersen LLP, independent public accountants, which are included elsewhere in
this Report and are qualified by reference to such financial statements. Data
from the statements of operations for the fiscal years ended September 30, 1997
and 1996 and the balance sheet data at September 30, 1998, 1997 and 1996 are
derived from financial statements not included in this Report. The selected
financial data should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Company's financial statements (including the related notes thereto)
contained elsewhere in this Report.
Effective October 1, 2001, the Company changed its revenue recognition policy.
See Note 2 in the Notes to Consolidated Financial Statements and the pro forma
information contain herein. As revenue is not reported on a consistent basis
between years, certain data contained in this report may not be comparable
between years.
17
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2001 (4) 2000 1999 1998 1997
-------- ---- ---- ---- ----
OPERATING DATA:
Net revenues $ 22,851,920 $ 19,027,446 $ 14,766,075 $ 16,213,904 $ 11,111,142
Operating income (loss)(1)(3) 1,576,572 1,982,280 567,776 (904,334) 215,420
Income (loss) before cumulative
effect of a change in accounting
principle (1)(3)(4) 1,153,292 1,325,421 362,307 (589,887) 237,709
Cumulative effect of a change in
accounting principle, net of
tax (4) (690,211) -- -- -- --
Net income (loss)(1)(3)(4) $ 463,081 $ 1,325,421 $ 362,307 $ (589,887) $ 237,709
Net income (loss) per share:
Basic:
Income (loss) before cumulative
effect of a change in accounting
principle (1)(3)(4) $ .43 $ .56 $ .17 $ (.28) $ .10
Cumulative effect of a change in
accounting principle, net of
tax (4) $ (.26) $ -- $ -- $ -- $ --
Net income (loss)(1)(3)(4) $ .17 $ .56 $ .17 $ (.28) $ .10
Fully diluted:
Income (loss) before cumulative
effect of a change in accounting
principle , a new market for the
Company's product (1)(3)(4) $ .41 $ .56 $ .17 $ (.28) $ .10
Cumulative effect of a change in
accounting principle, net of
tax (4) $ (.25) $ -- $ -- $ -- $ --
Net income (loss)(1)(3)(4) $ .16 $ .56 $ .17 $ (.28) $ .10
Pro forma amounts with the
change in accounting
principle applied
retroactively (unaudited):
Total revenue (3)(4)(5) $ 22,851,920 $ 18,908,378 $ 15,678,058 $ 11,794,690 **
Net income (3)(4)(5) $ 463,081 $ 1,060,619 $ 480,845 $ (1,133,833) **
Net income per share:
Basic: (4)(5) $ .17 $ .49 $ .23 $ (.54) **
Diluted: (4)(5) $ .16 $ .45 $ .22 $ (.54) **
BALANCE SHEET DATA:
Cash and cash equivalents $ 5,998,120 $ 5,784,500 $ 1,124,685 $ 1,351,542 $ 1,975,040
Working capital 11,502,535 10,933,683 5,374,231 4,993,455 5,271,320
18
Total assets 18,570,570 17,483,260 8,744,558 9,325,479 9,355,092
Total current liabilities 4,740,552 4,666,787 1,747,513 2,530,723 2,108,165
Long-term obligations 246,184 236,590 286,828 347,667 318,721
Retained earnings
(accumulated deficit) 1,386,544 923,463 (401,958) (764,265) (174,378)
Stockholders' equity 13,583,834 12,579,883 6,710,217 6,447,089 6,928,206
(1) The results for the fiscal years 1998 and 1997 include approximately
$170,000 and $85,000, respectively, of expenses related to the
photo-assisted CVD research and development project suspended at the
end of fiscal 1998. In addition, in fiscal 1998 the Company took a
charge of $184,000 for the write-off of certain long-lived assets.
(2) The results shown have been restated to reflect the one-for-two
reverse split of Common Stock that was effective March 15, 1999.
(3) Income from continuing operations for fiscal 1997 includes a $115,487
gain from the disposition of the Company's interest in the Seil
Semicon joint venture.
(4) The Company recorded a non-cash charge of $690,211, after reduction
for income tax benefits of $410,000, or ($0.26) per basic share, to
reflect the cumulative effect of the accounting change as of October
1, 2000, related to the adoption of Securities and Exchange Commission
("SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements."
(5) ** Date is not available to provide pro forma information for this
year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto set forth elsewhere
herein and the "Forward-Looking Statements" explanation included herein.
Effective October 1, 2001, the Company changed its revenue recognition
policy. See Note 2 in the Notes to Consolidated Financial Statements and the pro
forma information contain herein. As revenue is not reported on a consistent
basis between years, certain data contained in this report may not be comparable
between years.
STRATEGY FOR EXPANSION AND CAPITAL RESOURCES
RESULTS OF OPERATIONS
Amtech designs, manufactures and markets manufacture and marketing of
several items of capital equipment, spare parts and related consumables used in
two front-end stages of semiconductor chip fabrication, silicon wafer
manufacturing and integrated circuit fabrication on silicon wafers. Amtech's
business is comprised of two segments, polishing supplies and semiconductor
equipment. The polishing supplies segment sells polishing supplies and polishing
equipment and related parts to manufacturers of silicon wafers, the raw material
used in the manufacture of semiconductor chips, optical components of high-speed
telecom switches and solar cells. The semiconductor equipment segment sells
capital equipment used in the fabrication of semiconductor chips, optical
components of telecom switches and solar cells. Some of the products of the
19
polishing supplies segment, comprising approximately 15% of consolidated sales
in fiscal 2001 and 2000, are also sold for use in the production of optics,
wireless communications, memory disk media, ceramics and other products. The
semiconductor equipment segment also provides contract semiconductor
manufacturing support services, accounting for an estimated 2% of consolidated
sales for the three fiscal years discussed below. The Company intends to expand
its revenue and operating profits derived from these two segments, selling its
existing products into new markets, e.g. manufacturers of optical components,
developing new models of existing products to expand market share, developing
entirely new products through research and development and the acquisition of
businesses or product lines serving our existing customer base.
Demand for the Company's systems can vary significantly from period to
period as a result of various factors, including but not limited to, general
economic conditions, supply and demand for semiconductor devices, optical
components and solar cells, other factors contributing to the cycles of those
three industries, such as capacity utilization, substantial competition in the
semiconductor industry among suppliers of similar products and our ability to
acquire or develop and market competitive new products. For these and other
reasons, Amtech's results of operations for fiscal 2001, 2000 and 1999 may not
necessarily be indicative of future operating results.
The following table sets forth certain operational data as a percentage of
net revenue for the three fiscal years ended September 30, 2001:
Fiscal Years Ended
September 30,
--------------------------------
2001 2000 1999
---- ---- ----
Net revenue 100.0% 100.0% 100.0%
Cost of product sales 69.9 65.2 71.8
----- ----- -----
Gross margin 30.1 34.8 28.2
Selling, general and
administrative expenses 21.5 21.9 22.6
Research and development 1.7 2.5 1.8
----- ----- -----
Operating profict (loss) 6.9% 10.4% 3.8%
===== ===== =====
FISCAL 2001 COMPARED TO FISCAL 2000
REVENUE. Amtech's total revenue for the fiscal year ended September 30,
2001, was $22.9 million, compared to $19.0 million in fiscal 2000, an increase
of 20%. Total revenue of $22.9 million in fiscal 2001 reflects the adoption of
SAB 101, discussed below in "Change in Accounting Policy." Fiscal 2000 pro forma
revenue, applying SAB 101, was $18.9 million. The increase in revenue for fiscal
2001 compared to fiscal 2000 reflects the strong demand for our systems which
was driven by large orders from optical component manufacturers secured in
second half of fiscal 2000 and the first quarter of fiscal 2001, which either
shipped or otherwise were recognized in revenue in fiscal 2001. This was
partially offset by a 9% reduction in sales of the polishing supplies segment,
reflecting the downturn in the semiconductor industry.
By January 2001, we began to see signs of a downturn resulting from a
slowing economy and a worldwide decline in demand for semiconductors, resulting
the first cancellations of orders for semiconductor equipment systems. Our
customers have sharply reduced capital expenditures due to over capacity in the
semiconductor industry. By March 2001, orders of the polishing supplies segment
began a steep decline, reflecting excess supply inventories and capacity of that
segment's customers. The decline in the polishing segment's order flow has
continued during the first quarter of fiscal 2002. These trends were not
20
reflected fully in our revenue due to the large equipment orders from optical
component manufacturers received in the three quarters ended December 31, 2000.
With the burst of the technology bubble, many of our optical component customers
have had difficulty obtaining additional funding, resulting in a nearly complete
halt in new system orders from that market. Therefore, current outlook is for
lower shipments in the first half of fiscal 2002, which will be only partially
offset by the recognition of revenue deferred from fiscal 2001, under the
accounting principle for revenue recognition adopted in fiscal 2001, discussed
below in "Change in Accounting Policy."
GROSS MARGINS. Consolidated gross margin for the fiscal year ended
September 30, 2001, was $6.9 million in fiscal 2001, compared to $6.6 million in
fiscal 2000, an increase of $.3 million, or 5%. The gross margin of the
semiconductor equipment segment increased 20%, due to increased sales volume.
However, the gross margin of the polishing supplies segment declined 22%,
offsetting approximately two-thirds of the increase contributed by the
semiconductor equipment segment. As a percentage of revenue, the consolidated
gross margin was 30% of revenue in fiscal 2001, compared to 35% in fiscal 2000,
a 5% decline. The decline in gross margin as a percentage of revenue was caused
by an increase in write-downs of excess or obsolete inventory, a greater volume
of sales through distributors that receive lower prices instead of the
commission that is paid on sales through an independent sales representatives,
and product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses increased by $.7 million, or 17%, to $4.9 million in
fiscal 2001, from $4.2 million in fiscal 2000. The provision of doubtful
accounts receivable was approximately $.5 million higher in fiscal 2001 than in
fiscal 2000, primarily due a customer in the optical component industry filing
for protection from creditors under Chapter 11 of the U.S. bankruptcy code,
while owing the Company approximately $.8 million. Before the optical customer
filed for bankruptcy, the Company had collected $.8 million of the original
$1.6 million sale. Internal costs associated with implementing new data
processing systems and added staffing to support the increased sales volume also
contributed to the increase in general and administrative costs. Selling,
general and administrative expenses as a percentage of revenue were
approximately 22% in fiscal 2001 and fiscal 2000. Except for the deferral of
revenue pursuant to SAB 101, selling, general and administrative expenses would
have declined as a percentage of revenue in fiscal 2001 relative to fiscal 2000.
RESEARCH AND DEVELOPMENT. During fiscal years 2001, 2000 and 1999, the
Company expended on research and development a total of $.4 million, $.5 million
and $.3 million, respectively. During fiscal 2001 and fiscal 2000, the primary
research and development projects have included the development of a new
technology asher pursuant to a joint product development agreement with PSK
Tech. Another major area has been the development of new automation models in
order to better serve a larger spectrum of the market for horizontal diffusion
furnace automation. This resulted in the introduction of two new models during
fiscal 2000, which were the S-300 and E-300 models. The Company is continuing
work that began in the first half of fiscal 2001 to provide full cassette to
cassette functionality as an option on the S-300 product, and to develop a 12
inch (300mm) version of the S-300. During fiscal 2001, we also continued making
improvements to the horizontal diffusion furnace product line, including those
made to the host controller system. The cause for the decline in research and
development costs in fiscal 2001 compared to fiscal 2000 is that most of our
equipment contribution to the initial stage of the joint asher development
project were made in fiscal 2000, causing such hard costs to be lower in fiscal
2001. The Company is reviewing the results of the feasibility work on the new
200mm technology asher with PSK Tech to determine the next step and each
partner's contribution to the related cost. If the next step is to develop a
prototype of a 200mm or 300mm asher, using Amtech's damage free technology, the
Company's contribution to the project could cause its research and development
expenses to increase significantly.
21
OPERATING INCOME. For fiscal year 2001, operating income was $1.6 million,
or 6.9% of revenue, compared to $2.0 million, or 10.4% of revenue in fiscal
2000. The reason operating income declined in fiscal 2001 is primarily a
$.5 million increase in bad debt expense resulting from credit losses within the
optical component market, a new market for the Company's products, and a
$.3 million increase in charges for obsolete and excess inventories caused by
order cancellations.
INTEREST INCOME-NET. Net interest income was $.2 million in fiscal 2001,
compared to $.1 million in fiscal 2000. The increase in interest income is the
result of a higher average cash balance in fiscal 2001, primarily due to the
private placement in September 2001.
INCOME TAX PROVISION. During fiscal 2001, the Company recorded an income
tax provision of $.7 million, which was 36.7% of income before taxes and
cumulative effect of the change in accounting principle. For fiscal year 2000,
we recorded an income tax provision of $.8 million, which was 36.1% of income
before taxes. The fiscal 2000 rate reflected the benefit of a reduction in the
valuation allowance on deferred state tax assets, as realization of state net
operating losses became relatively certain in fiscal 2000. At September 30,
2001, we had deferred tax assets arising from non-deductible temporary
differences of $1.5 million. Approximately 42% of the tax assets results from
the deferred profit related to the adoption of SAB 101, and which is expected to
reverse in fiscal 2002. Realization of the majority of the net deferred tax
assets is dependent on our ability to generate future taxable income. We believe
that it is more likely than not that the assets will be realized based on
forecasted income. However, there can be no assurance that we will meet our
expectations of future income. We will continue to evaluate the probability of
realizing the deferred tax assets and assess the need for additional valuation
allowance.
NET INCOME. Net income in fiscal 2001 was $.5 million, after the
$.7 million charge for the cumulative effect of adopting SAB 101, or $.16 per
diluted share. Net income for fiscal 2000 was $1.3 million, or $.56 per diluted
share. Fiscal 2001 pro forma net income, retroactively applying SAB 101
effective October 1, 1998, was $1.2 million, or $.41 per diluted share, compared
to pro forma net income in Fiscal 2000 of $1.1 million, or $.45 per share. The
pro forma net income appropriately provides the same accounting treatment to
revenue recognition in both fiscal years, and is more reflective of the trend of
the past two fiscal years.
CHANGE IN ACCOUNTING PRINCIPLE
REVENUE RECOGNITION. During its fourth fiscal quarter, the Company changed
its revenue recognition policy retroactive to October 1, 2000, based on guidance
provided in Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The Company
recognizes revenue when persuasive evidence of an arrangement exists; title
transfers, generally upon shipment or services have been rendered; the seller's
price is fixed or determinable and collectibility is reasonably assured. Certain
of the Company's product sales are accounted for as multiple-element
arrangements. For the semiconductor equipment segment, if the Company has met
defined customer specifications with similarly situated customers and the
specific equipment and process involved, the Company recognizes equipment
revenue upon shipment and transfer of title, with the remainder when it becomes
due, generally upon acceptance. Product sales that are shipped but do not meet
these criteria are deferred and recognized upon customer acceptance.
Equipment sold by the polishing supplies segment does not involve process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
22
upon shipment. Service revenues are recognized as services are performed.
Revenue related to service contracts is recognized upon performance of the
services requested by the customer.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income taxes of $410,000), or
($0.26) per basic share, to reflect the cumulative effect of the accounting
change as of the beginning of the 2001 fiscal year.
The deferred profit balance as of the beginning of fiscal 2001 was
$1,125,211. This amount includes both revenue and cost of sales for equipment
that was shipped and previously recorded as sales but had not been accepted or
did not qualify for multiple-element accounting as of September 30, 2000. Of the
$1,125,211 in deferred profit as of the beginning of fiscal 2001, $936,994 was
recognized in 2001. The pro forma amounts presented on the consolidated
statements of operations were calculated assuming the accounting change was
retroactively adopted as of October 1, 1998.
Prior to fiscal 2001, the Company's revenue recognition policy was to
recognize revenue and accrue the estimated installation costs at the time the
customer took title to the product, generally at the time of shipment because
the Company routinely met its installation obligations and installation costs
represented a small percentage of total costs (approximately 3% - 5%.)
FISCAL 2000 COMPARED TO FISCAL 1999
REVENUES. Consolidated revenues were $19.0 million in fiscal 2000, an
increase of $4.3 million, or 29%, compared to $14.8 million in fiscal 1999. This
is a record for the Company's current businesses. The increase in consolidated
revenues in fiscal 2000 was due primarily to increased capital spending and the
higher operating levels by the semiconductor industry, which benefited both
operating segments. Revenues of the semiconductor equipment segment increased by
$2.0 million, or 23%, to $10.9 million in fiscal 2000 from $8.9 million in
fiscal 1999. The higher revenues of the semiconductor equipment segment resulted
primarily from revenue growth from the sale of IBAL automation products. During
fiscal years 2000 and 1999, revenues of the polishing supplies segment were $8.2
million and $5.9 million, respectively, an increase of $2.3 million, or 38%.
Revenues for the fourth quarter ended September 30, 2000 were $5.9 million, 35%
higher than in the fourth quarter of the previous fiscal year and a record for
quarterly revenues. The first shipments of the more than $8 million in orders
from optical component manufacturers, a new market for the Company's
semiconductor equipment segment, occurred in the fourth quarter, contributing to
the record revenues for the quarter and fiscal year.
GROSS MARGINS. Consolidated gross margin was $6.6 million in fiscal 2000 or
$2.5 million, or 59%, higher compared to the gross margin of $4.2 million in
fiscal 1999. As a percentage of sales, the consolidated gross margin was 35% of
sales in fiscal 2000, compared to 28% in fiscal 1999, which is attributable to
improved profitability of both segments, as discussed below. Approximately
one-half of the 59% increase in gross margin resulted from the 29% increase in
revenue discussed above.
While the semiconductor equipment segment accounted for 47% of the higher
consolidated revenues, it contributed 59% of the increase in consolidated gross
margin. The gross margin of the semiconductor segment increased by 54% on 23%
higher revenues, primarily due to an improved product mix, increased
efficiencies and less intense price competition. As a result of those factors,
gross margin as a percentage of semiconductor equipment product sales increased
to 38% in fiscal 2000, from 30% in fiscal 1999.
The gross margin of the polishing supplies segment was 68% higher in fiscal
2000, compared to the previous year, partially due to the 38% increase in sales
volume. The rest of the increase in revenue resulted from improved margin as a
23
percentage of revenue. The gross margin as a percentage of sales for the
polishing supplies segment increased to 31% in fiscal 2000, from 25% in fiscal
1999, primarily as a result of lower unit costs of materials and subcontract
costs, improved labor efficiencies and a more favorable product mix. The lower
material costs is partially due to a change in suppliers. However, much of the
unit cost reductions are attributable to larger orders and the cost efficiencies
from longer production runs, which reduces the cost of scrap and set-ups.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses increased by $.8 million, or 25%, to $4.1 million in
fiscal 2000, from $3.3 million in fiscal 1999. The selling, general and
administrative expenses attributable to the semiconductor equipment segment
increased $.5 million as a result of a 29% increase in personnel costs and a
113% increase in commission and royalty expense, which was partially offset by a
1% decrease in other expenses. The selling, general and administrative expenses
attributable to the polishing supplies segment increased $.3 million as a result
of the 114% increase in commissions and royalties on the increased sales volume,
and higher sales personnel costs arising from additions to the sales and
marketing staff. Commission expense varies based upon the geographic regions in
which the sales occur, as some sales represent direct sales and others are
through sales representatives. Since the rate of growth in consolidated revenues
exceeded the rate of increase in consolidated selling, general and
administrative costs in fiscal 2000, the total of these expenses decreased as a
percentage of consolidated revenues to 22% in fiscal 2000 from 23% in fiscal
1999.
OPERATING PROFIT. The semiconductor equipment industry continued its
cyclical recovery in fiscal 2000. As a result of this recovery, customer
acceptance of the Company's new product offerings, and other factors discussed
above, the Company earned $2.0 million operating profit in fiscal 2000, compared
to an operating profit of $.5 million in fiscal 1999, an increase of 249%. Both
segments contributed nearly equally to consolidated operating profit in both
fiscal years. For the semiconductor equipment segment operating profit as a
percentage of revenue increased to 9% from 3% in the prior fiscal year. For the
polishing supplies segment operating profit as a percentage of revenue increased
to 12% from 5% in the prior year, as a result of the increased sales volume and
cost reductions discussed above.
Income before income taxes includes operating income, discussed above, and
net interest income. Net interest income was $.1 million in fiscal 2000 and
fiscal 1999. As a result, income before income taxes increased to $2.1 million,
or 11% of consolidated revenue, compared to $602,000, or 4% of consolidated
revenue, in fiscal 1999.
NET INCOME. The income tax provision is $.8 million in fiscal 2000,
compared to $.2 million in fiscal 1999. The effective tax rate in fiscal 2000 is
36%, compared to 40% in fiscal 1999. In both years the effective tax rate is
higher than the 34% statutory rate primarily due to the differences between
income for financial reporting and taxable income and in fiscal 1999, the
provision for state income taxes. The reason for the decline in the effective
tax rate in fiscal 2000 is that the Company reversed the $.1 million valuation
allowance for deferred state income taxes in the fourth quarter, based upon its
belief that it is more likely than not that those deferred tax benefits will
ultimately be realized. After taking into consideration the income tax
provision, the fiscal 2000 net income is $1.3 million, or $.56 per diluted
share, compared to $.4 million, or $.17 per share, in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001 and 2000, cash and cash equivalents were
$6.0 million and $5.8 million, respectively. The fiscal 2001 increase in cash
and cash equivalents of $.2 million was primarily attributable to the net cash
provided by operating activities of $.4 million and $.4 million of cash provided
by the exercise of warrants and stock options, which were partially offset by
$.7 million invested in property, plant and equipment, including new data
processing hardware and software that is currently being implemented.
24
The $.4 million of net cash provided by operating activities included net
income, the add back of $1.4 million of non-cash charges, including the
cumulative effect of the change in accounting principle ($.7 million), the
provisions for the write-off of inventory and doubtful accounts receivable
($.7 million) and depreciation and amortization ($.4 million), less the non-cash
deferred tax benefit of $.5 million. Other significant items that contributed to
the positive cash flow from operating activities were the reduction of accounts
receivable ($.8 million) and the increase of deferred profit and other accrued
liabilities of $.7 million. These items were only partially offset by cash use
reflected in the increased investment in gross inventories before the
$.3 million increase in the allowance for obsolescence ($.9 million), the
reductions in accounts payable ($1.3 million) and income taxes payable
($.5 million).
The Company's ratio of inventories to operating levels is expected to
remain above its historic norms due to order cancellations and the deferral of
orders by customers. While there can be no assurance, the reserve for obsolete
inventory is expected to sufficiently cover potential losses on obsolete or
excess inventories.
Working capital at September 30, 2001 was $11.5 million, an increase of
$.6 million, compared to the $10.9 million of working capital at September 30,
2000. The ratio of current assets to current liabilities increased to 3.4 from
3.3, as of those same dates. Cash and cash equivalents comprise 32.3% of total
assets and stockholders' equity accounts for 73.1% of total assets at September
30, 2001. These are measures of financial condition, such as liquidity and
financial leverage.
The Company believes that it has sufficient liquidity for current
operations and for at least certain elements of its growth strategy, discussed
elsewhere in this report. One element of that strategy is the development of new
products such as the proposed new technology asher, discussed above. Another is
the acquisition of product lines or businesses that complement the companies
existing business. The Company's currently available cash and short-term
investments are expected to be sufficient for existing operations, planned
research and development and possibly an acquisition, depending on size.
However, significant unplanned development of new products, or larger
acquisitions may require additional capital resources that are expected to be
obtained from one or more sources of financing, such as a private placement, a
public offering, working capital loans or term loans from banks or other
financial institutions, equipment leasing, mortgage financing and internally
generated cash flow from operations. This expectation is based in part upon the
relatively high level of equity compare to total assets and low debt to equity
ratio. There can be no assurance of the availability or sufficiency of these or
any other source of funding for those purposes.
ADDITIONAL FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
IF THE DEMAND FOR HORIZONTAL DIFFUSION FURNACES AND EQUIPMENT USED IN
CONJUNCTION WITH SUCH FURNACES DECLINES, WHICH ACCOUNT FOR MORE THAN ONE-HALF OF
CONSOLIDATED REVENUE, OUR REVENUES MAY DECREASE AND OUR BUSINESS OPERATIONS AND
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
The revenue of our semiconductor production equipment segment, which
accounts for more than one-half of consolidated revenues, is comprised of
horizontal diffusion furnaces and our Processing/Robotic product line. Our
Processing/Robot product line is useable only with horizontal diffusion
furnaces. There is a trend in the semiconductor industry, related to the trend
to produce smaller chips, toward the use in semiconductor manufacturing
facilities of newer technology, such as vertical diffusion furnaces. Vertical
diffusion furnaces are more efficient to use than the horizontal diffusion
furnaces in certain manufacturing processes of smaller chips on larger wafers.
Because of this trend, we had expected that demand for our horizontal diffusion
furnaces would decline. We believe this trend has not adversely affected us yet
primarily because:
25
* we have received significant orders for our horizontal diffusion
furnaces from optical component manufacturers, a new market for us;
* we have experienced increased demand from manufacturers that do not
require the more expensive vertical furnaces, such as from
manufacturers of wireless communication chips and micro-controllers
used in a number of consumer applications; and
* we believe that because of improvements in automation for horizontal
diffusion furnaces, such as our robotic product line, horizontal
diffusion furnaces may be becoming a more favorable alternative to the
vertical furnaces than they previously had been.
However, to the extent that the trend to use vertical diffusion furnaces over
horizontal diffusion furnaces continues, our revenues may decline and our
ability to generate income may be adversely affected.
THE VOLATILITY OF THE SEMICONDUCTOR EQUIPMENT INDUSTRY CAN NEGATIVELY IMPACT OUR
OPERATIONS AND OUR ABILITY TO EFFICIENTLY BUDGET OUR EXPENSES, WHICH CAN HAVE AN
ADVERSE AFFECT ON OUR RESULTS OF OPERATIONS.
The semiconductor equipment industry is highly cyclical. The purchasing
decisions of our customers are highly dependent on the economies of both their
domestic markets and the semiconductor industry worldwide. The timing, length
and severity of the up-and-down cycles in the semiconductor equipment industry
are difficult to predict. For example, demand for our products increased in
fiscal 1998 compared to fiscal 1997, but decreased in fiscal 1999, primarily as
a result of widespread economic difficulties experienced in Japan and other
parts of the Asia Pacific region. This cyclical nature of our marketplace
affects our ability to accurately budget our expense levels, which are based in
part on our projections of future revenues.
When cyclical fluctuations result in lower than expected revenue levels,
operating results may be adversely affected and cost reduction measures may be
necessary in order for us to remain competitive and financially sound. For
example, during the fourth quarter of fiscal 1998 and the first quarter of
fiscal 1999, we implemented a cost reduction plan that required lay-offs within
certain operations. During a down cycle, we must be in a position to adjust our
cost and expense structure to the prevailing market condition and to continue to
motivate and retain our key employees. In addition, during periods of rapid
growth, we must be able to increase manufacturing capacity and personnel to meet
customer demand. We can provide no assurance that these objectives can be met in
a timely manner in response to industry cycles. If we fail to respond to
industry cycles, our business could be seriously harmed.
During the most recent down cycle, beginning in the first half of fiscal
2001, the semiconductor industry experienced excess production capacity that
caused semiconductor manufacturers to decrease capital spending. We do not have
long-term volume production contracts with our customers and we do not control
the timing or volume of orders placed by our customers. Whether and to what
extent our customers place orders for any specific products and the mix and
quantities of products included in those orders are factors beyond our control.
Insufficient orders will result in under-utilization of our manufacturing
facilities and infrastructure and will negatively affect our operating results
and financial condition.
WE ARE DEPENDENT ON THE ACTIVE PARTICIPATION OF MR. JONG S. WHANG, THE PRESIDENT
AND CHIEF EXECUTIVE OFFICER, FOR BUSINESS DEVELOPMENT, AND IMPORTANT BUSINESS
RELATIONSHIPS, AND THE LOSS OF HIS SERVICES WOULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS AND FUTURE PROSPECTS.
Amtech is the beneficiary of a life insurance policy on the life of Mr.
Whang in the amount of $1,000,000, but there is no assurance that such amount
will be sufficient to cover the cost of finding and hiring a suitable
replacement for Mr. Whang. It may not be feasible for any successor to maintain
the same relationships that Mr. Whang has established. If we were to lose the
26
services of Mr. Whang for any reason, it could have a material adverse affect on
our business.
In addition, historically, our product development has been accomplished
through cooperative efforts with two key customers. Our relationship with one of
these customers as well as with our joint development partner for the new
technology asher, are substantially dependent on the personal relations
established by Mr. Whang. While there can be no assurance that such
relationships will continue, such cooperation is expected to continue to be a
significant element in our future development efforts.
WE RELY ON KEY PERSONNEL FOR PRODUCT DEVELOPMENT AND SALES, AND ANY LOSS OF OUR
KEY PERSONNEL TO COMPETITORS OR OTHER INDUSTRIES COULD DRAMATICALLY IMPACT OUR
ABILITY TO CONTINUE OPERATIONS.
We depend to a great extent on the management efforts of our officers and
other key personnel and on the ability to attract new key personnel and retain
existing key personnel. Most of our products, other than the Atmoscan(R) and
products acquired in the P.R. Hoffman acquisition, were developed by our own
personnel. We presently employ three engineers, including one with a Ph.D., and
one in the sales department, and eight technicians at our Tempe, Arizona plant.
We presently employ six engineers, one with a Ph.D., and twelve technicians in
our Netherlands operation. These employees design and support the horizontal
diffusion furnace and conveyor furnace product lines manufactured in the
Netherlands and the related Process/Robotic products manufactured in Tempe. Two
engineers and one technician are employed in our Carlisle, Pennsylvania
operation. They design wafer lapping machines and carriers to meet customers'
processing requirements. Competition is intense for highly skilled employees.
There can be no assurance that we will be successful in attracting and retaining
such personnel or that we can avoid increased costs in order to do so. There can
be no assurance that employees will not leave Amtech or compete against us. Our
failure to attract additional qualified employees or to retain the services of
key personnel could negatively impact our operating results and financial
condition.
THE TECHNOLOGY WE USE IN OUR PRODUCTS IS CHANGING RAPIDLY AND WE MAY NOT BE ABLE
TO TAKE ADVANTAGE OF THESE CHANGES.
Success in the semiconductor equipment industry depends, in part, on
continual improvement of existing technologies and rapid innovation of new
solutions. For example, the semiconductor industry continues to shrink the size
of semiconductor devices. These and other evolving customer needs require us to
respond with continued development programs.
Technical innovations are inherently complex and require long development
cycles and appropriate professional staffing. Our future business success
depends on our ability to develop and introduce new products that successfully
address changing customer needs, win market acceptance of these new products and
manufacture these new products in a timely and cost-effective manner. If we do
not develop and introduce new products and technologies in a timely manner in
response to changing market conditions or customer requirements, our business
could be seriously harmed. In this environment, we must continue to make
investments in research and development in order to enhance the performance and
functionality of our products, to keep pace with competitive products and to
satisfy customer demands for improved performance, features and functionality.
There can be no assurance that revenues from future products or product
enhancements will be sufficient to recover the development costs associated with
such products or enhancements or that we will be able to secure the financial
resources necessary to fund future development. Research and development costs
typically are incurred before we confirm the technical feasibility and
commercial viability of a product, and not all development activities result in
commercially viable products. In addition, we cannot ensure that these products
or enhancements will receive market acceptance or that we will be able to sell
these products at prices that are favorable to us. Our business could be
27
seriously harmed if we are unable to sell our products at favorable prices or if
our products are not accepted by the market in which we operate.
OUR CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A CHANGE OF CONTROL.
We are authorized to issue up to 100,000,000 shares of common stock and up
to 100,000,000 shares of preferred stock. As of December 31, 2001, there were
2,649,171 shares outstanding. Authorized but unissued common stock may be issued
for such consideration as the board of directors determines to be adequate. The
board of directors may issue preferred stock with such rights and preferences as
they determine, without shareholder vote. Although we do not currently intend to
issue any shares of our preferred stock there can be no assurance that we will
not do so in the future. Shareholders may or may not be given the opportunity to
vote thereon, depending upon the nature of any such transactions, applicable
law, the rules and policies of the national securities exchange on which the
common stock is then trading, if any, and the judgment of the board of
directors. Shareholders have no preemptive rights to subscribe for newly issued
shares of our capital stock.
On May 17, 1999, we declared a dividend distribution of one preferred share
purchase right for each outstanding share of common stock. The dividend was
payable on June 9, 1999, to stockholders of record as of the close of business
on that date. Each right entitles the registered holder to purchase one
one-hundredth of a share of Series A Participating Preferred Stock, subject to
adjustment, at a price $8.50 per one one-hundredth of a share of Preferred
Stock, subject to adjustment. The rights issuance was adopted as protection
against a takeover by a third party.
Mr. Whang and certain other key employees have severance arrangements,
which require the Company to make significant lump sum payments in the event of
a change of control in ownership.
Having the outstanding rights, and a substantial number of authorized and
unreserved shares of common stock, preferred stock and severance arrangements
with key employees could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock. Management could
use the additional shares to resist a takeover effort even if the terms of the
takeover offer are favored by a majority of the independent shareholders. This
could delay, defer, or prevent a change in control.
WE ARE DEPENDENT ON THE USE OF INTELLECTUAL PROPERTY RIGHTS, WHICH ARE EXPENSIVE
TO OBTAIN, AND MAINTAIN, AND WE ARE EXPOSED TO THE RISK THAT THIRD PARTIES MAY
VIOLATE OUR PROPRIETARY RIGHTS OR ACCUSE US OF INFRINGING UPON THEIR PROPRIETARY
RIGHTS, WHICH COULD RESULT IN LOSS OF THE VALUE OF SOME OF OUR INTELLECTUAL
PROPERTY OR COSTLY LITIGATION.
Our success is dependent in part on our technology and other proprietary
rights. We own various United States and international patents and have
additional pending patent applications relating to some of our products and
technologies. The process of seeking patent protection is lengthy and expensive,
and we cannot be certain that pending or future applications will actually
result in issued patents, or that, issued patents will be of sufficient scope or
strength to provide meaningful protection or commercial advantage to us. Other
companies and individuals, including our larger competitors, may develop
technologies that are similar or superior to our technology or design around the
patents we own. We also maintain trademarks on certain of our products and claim
copyright protection for certain proprietary software and documentation.
However, we can give no assurance that our trademarks and copyrights will be
upheld or successfully deter infringement by third parties.
While patent, copyright and trademark protection for our intellectual
property is important, we believe our future success in highly dynamic markets
is most dependent upon the technical competence and creative skills of our
personnel. We attempt to protect our trade secrets and other proprietary
information through agreements with our customers, suppliers, employees and
consultants and through other security measures. We also rely on trade secret
protection for our technology, in part through confidentiality agreements with
our employees, consultants and third parties. We also maintain exclusive and
28
non-exclusive licenses with third parties for the technology used in certain
products. However, these employees, consultants and third parties may breach
these agreements, and we may not have adequate remedies for wrongdoing. In
addition, the laws of certain territories in which we develop, manufacture or
sell our products may not protect our intellectual property rights to the same
extent as do the laws of the United States.
As is typical in the semiconductor equipment industry, from time to time we
have received communications from other parties asserting the existence of
patent rights or other intellectual property rights which they believe cover
certain of our products, processes, technologies or information. In such cases,
we evaluate our position and consider the available alternatives, which may
include seeking licenses to use the technology in question on commercially
reasonable terms or defending our position. Based on industry practice and prior
experience, we believe that licenses or other rights, if necessary, will be
available on commercially reasonable terms for existing or future claims.
Nevertheless, we cannot ensure that licenses can be obtained, or if obtained
will be on acceptable terms or that litigation or other administrative
proceedings will not occur. Defending our intellectual property rights through
litigation could be very costly. If we are not able to negotiate the necessary
licenses on commercially reasonable terms or successfully defend our position,
our financial condition and results of operations could be materially and
adversely affected.
OUR RELIANCE ON SALES TO A FEW MAJOR CUSTOMERS AND GRANTING CREDIT TO THOSE
CUSTOMER PLACES US AT FINANCIAL RISK.
As of September 30, 2001, receivables from customers in the optical
component industry comprised 51% of total receivables, of which three accounts
comprised 39% of total receivables, representing a concentration of credit risk
as defined by SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk." As of September 30, 2000, receivables from two
customers comprised 40% of accounts receivable, one of which was from the
optical component industry and accounted for 12% of total receivables. A
concentration of our receivables from such a small number of customers places us
at risk. If any one or more of our major customers is unable to pay us it could
adversely affect our results of operation and financial condition. The Company
attempts to manage this credit risk by performing credit checks, requiring
significant partial payments prior to shipment, where appropriate, and actively
monitoring collections.
In July 2001, one of these optical component customers filed a petition for
protection from creditors under Chapter 11 of the U.S. bankruptcy code and
provides an example of possible problems caused by concentrations of credit
risk. The amount of the sale was $1.6 million. The customer had made payments of
$.8 million before filing in bankruptcy court, leaving an unpaid balance of
approximately $.8 million. Through increased reserves the Company has written
down this receivable to an estimated net realizable value of $.3 million.
Although the Company continues to pursue collection and believes that it can
recover the estimated net realizable value, there can be no assurance as to the
ultimate outcome.
OUR BUSINESS MIGHT BE ADVERSELY AFFECTED BY OUR DEPENDENCE ON FOREIGN BUSINESS.
During our most recent fiscal year, ended on September 30, 2001, 47% of our
sales were made to customers outside the United States as follows:
* Asia (including Singapore, Indonesia, Malaysia and India) - 8%
* Europe (including Israel and Africa) - 37%
* Canada - 2%
29
Because of our significant dependence on international revenues, our
operating results could be negatively affected by a continued or additional
decline in the economies of any of the countries or regions in which we do
business. Each region in the global semiconductor equipment market exhibits
unique characteristics that can cause capital equipment investment patterns to
vary significantly from period to period. Periodic local or international
economic downturns, trade balance issues, political instability and fluctuations
in interest and currency exchange rates could negatively affect our business and
results of operations.
Foreign sales increased significantly in fiscal 2001, because of our
expansion of horizontal diffusion business in Europe and as a result of the sale
of such equipment to new optical component customers located in Europe. We
recorded charges of $.1 million and $.2 million to shareholders' equity during
Fiscal 2001 and Fiscal 2000, respectively, as a result of foreign currency
translation adjustments. We also had losses from foreign currency transactions
of $.1 million in fiscal 2001. While our business has not been materially
affected in the past by foreign business, there is a risk that it may be
materially adversely affected in the future. Such risk includes possible losses
on account of currency exchange rate fluctuations, possible future prohibitions
against repatriation of earnings, or proceeds from disposition of investments,
and from possible social and military instability in the case of India, South
Korea, Taiwan and possibly elsewhere. Our wholly owned subsidiary, Tempress
Systems, has conducted its operations in the Netherlands since fiscal 1995. As a
result, such operations are subject to the taxation policies, employment and
labor laws, transportation regulations, import and export regulations and
tariffs, possible foreign exchange restrictions, international monetary
fluctuations, and other political, economic and legal policies of that nation,
the European Economic Union and the other European nations in which it conducts
business. Consequently, we might encounter unforeseen or unfamiliar difficulties
in conducting our European operations. Changes in such laws and regulations may
have a material adverse effect on our revenue and costs.
THE SEMICONDUCTOR EQUIPMENT INDUSTRY IS COMPETITIVE AND WE ARE RELATIVELY SMALL
IN SIZE AND HAVE FEWER RESOURCES IN COMPARISON WITH OUR COMPETITORS.
Our industry includes large manufacturers with substantial resources to
support customers worldwide. Our future performance depends, in part, upon our
ability to continue to compete successfully worldwide. Some of our competitors
are diversified companies with greater financial resources and more extensive
research, engineering, manufacturing, marketing and customer service and support
capabilities than we can provide. We face competition from companies whose
strategy is to provide a broad array of products, some of which compete with the
products and services that we offer. These competitors may bundle their products
in a manner that may discourage customers from purchasing our products. In
addition, we face competition from smaller emerging semiconductor equipment
companies whose strategy is to provide a portion of the products and services
that we offer, using innovative technology to sell products into specialized
markets. Loss of competitive position could impair our prices, customer orders,
revenues, gross margins, and market share, any of which would negatively affect
our operating results and financial condition. Our failure to compete
successfully with these other companies would seriously harm our business. There
is risk that larger, better-financed competitors will develop and market more
advanced products than those that we currently offer, or that competitors with
greater financial resources may decrease prices thereby putting us under
financial pressure. The occurrence of any of these events could have a negative
impact on our revenues.
ALTHOUGH ONLY 8% OF OUR REVENUES WERE GENERATED FROM SALES IN ASIA IN FISCAL
2001, IF THE HEALTH OF THE ASIAN ECONOMIES DO NOT CONTINUE TO IMPROVE,
ACHIEVEMENT OF OUR GOALS FOR AGGRESSIVE GROWTH COULD BE ADVERSELY AFFECTED.
30
In the past we have at times generated a significant portion of our revenue
from customers in Asia (SEE Risk Factor - "Our business might be adversely
affected by our dependence on foreign business."). Although Asian economies have
stabilized to some degree since early to mid-fiscal 1998, Amtech remains
cautious about general macroeconomic developments in Asia, particularly in Japan
and Taiwan. The economies of Japan and Taiwan are important to the overall
financial health of the Asian region and, if they do not continue to improve,
the economies of other countries, particularly those in Asia, could also be
negatively affected. Negative economic developments in Asia could have a
material adverse effect on our ability to reach our aggressive goals for growth.
IF WE MAKE ADDITIONAL ACQUISITIONS IT COULD RESULT IN AN INCREASE IN OUR COSTS
OF OPERATIONS, DIVERT MANAGEMENT'S ATTENTION AWAY FROM OTHER OPERATIONAL
MATTERS, AND EXPOSE US TO OTHER RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.
We are currently evaluating potential acquisitions. We might make
acquisitions of, or significant investments in, other businesses with
synergistic products, services and technologies. Acquisitions involve numerous
risks, including, but not limited to:
* difficulties and increased costs in connection with integration of the
personnel, operations, technologies and products of acquired
companies;
* diversion of management's attention from other operational matters;
* the potential loss of key employees of acquired companies;
* lack of synergy, or inability to realize expected synergies, resulting
from the acquisition;
* the risk that the issuance of Amtech common stock in an acquisition or
merger could be dilutive to Amtech stockholders if anticipated
synergies are not realized; and
* acquired assets becoming impaired as a result of technological
advancements or worse-than-expected performance of the acquired
company.
IF OUR CRITICAL SUPPLIERS FAIL TO DELIVER SUFFICIENT QUANTITIES OF PRODUCT IN A
TIMELY AND COST-EFFECTIVE MANNER IT COULD NEGATIVELY AFFECT OUR BUSINESS.
We use a wide range of materials and services in the production of our
products including custom electronic and mechanical components, and we use
numerous suppliers to supply materials. We generally do not have guaranteed
supply arrangements with our suppliers. Because of the variability and
uniqueness of customers' orders, we do not maintain an extensive inventory of
materials for manufacturing. Key suppliers include two steel mills capable of
holding the type and tolerances that we require, an injection molder that
provides plastic insets for steel carriers, an adhesive manufacturer that
supplies the critical glue used in the production of the semiconductor polishing
templates, and a pad supplier that produces a unique material used to attach
semiconductor wafers to the polishing template. We also rely on third parties
for laser cutting, machined parts, steel frames and metal panels and other
components used particularly in the assembly of semiconductor production
equipment.
Although we make reasonable efforts to ensure that parts are available from
multiple suppliers, this is not always possible; accordingly, some key parts are
being procured from a single supplier or a limited group of suppliers. The
semiconductor industry's recent increase in demand for capital equipment has
resulted in longer lead-times for many important system components, which could
cause delays in meeting shipments to our customers. Because the selling price of
some systems exceeds $1 million, the delay in the shipment of even a single
31
system could cause significant variation in quarterly revenue, operating results
and the market value of our stock. We have sought, and will continue to seek, to
minimize the risk of production and service interruptions and shortages of key
parts by:
* selecting and qualifying alternative suppliers for key parts;
* monitoring the financial stability of key suppliers; and
* maintaining appropriate inventories of key parts.
There can be no assurance that results of operations will not be materially and
adversely affected if, in the future, we do not receive in a timely and
cost-effective manner a sufficient quantity of parts to meet our production
requirements.
WE MIGHT REQUIRE ADDITIONAL FINANCING TO EXPAND OUR OPERATIONS.
On September 13, 2000, we issued 383,000 shares of common stock, and
warrants to purchase an aggregate of up to 59,300 shares of common stock, in a
private placement pursuant to a Stock and Warrant Purchase Agreement. Net
proceeds to the company, after deducting placement agents', legal, accounting
and registration fees, were $4,616,000. The proceeds will be used to fund the
company's growth initiatives. While we believe that revenues generated from our
operations, as well as the proceeds received from this private placement, are
sufficient to provide adequate working capital for the foreseeable future and
for a limited number of growth initiatives, additional financing is expected to
be required for further implementation of our plans for expansion. There is no
assurance that any additional financing will be available if and when required,
or, even if available, that it would not materially dilute the ownership
percentage of the then existing shareholders.
IF OUR SECURITIES BECOME INELIGIBLE FOR TRADING ON THE NASDAQ SYSTEM, THEY MIGHT
BE SUBJECT TO RULE 15G-9 OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH IMPOSES
ADDITIONAL SALES PRACTICE REQUIREMENTS ON BROKER-DEALERS WHO SELL SUCH
SECURITIES TO PERSONS OTHER THAN ESTABLISHED CUSTOMERS AND ACCREDITED INVESTORS.
While our common stock is now included on the Nasdaq National Market,
continued inclusion will depend on our ability to meet certain eligibility
requirements established for the Nasdaq National Market. Loss of Nasdaq
eligibility could result if we sustain material operating losses or if the
market price of our common stock falls below $1.00 per share. For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and receive the purchaser's written consent to
the transaction prior to the sale. The rule may adversely affect the ability of
broker-dealers to sell our securities, and consequently may limit the public
market for and the trading price of our common stock.
ITEM 7A. 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 equipment segment, conducts
business primarily in The Netherlands' guilder, the United States dollar and the
British pound. 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. Certain 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. It is anticipated the functional currency of that
operation will be the Euro by the beginning of the second quarter of fiscal
2002.
32
The Company estimates that more than 95% of its transactions are
denominated in one of its two functional currencies or currencies that have
fixed exchange rates with one of its functional currencies. As of September 30,
2001, the Company did not hold any stand alone or separate derivative
instruments. The Company incurred a net foreign currency transaction loss of $.1
million, $0 and $.1 million in fiscal 2001, 2000 and 1999, respectively. The
Company's investment in and advances to its Netherlands' operation total $3.0
million. A 10% change in the value of The Netherlands guilder relative to the
United States dollar would cause a $.3 million foreign currency translation
adjustment, a type of other comprehensive income (loss), which would be a direct
adjustment to stockholders' equity. During fiscal 2001, The Netherlands
operation conducted net transactions, sales in excess of purchases, of
approximately $1.5 million denominated in United States dollars and $2.9 million
denominated in British pounds. A 10% change in both currencies could have
affected before tax income by as much as $.4 million. The exposure to changes in
exchange rates in fiscal 2002 could be greater than indicated above, because The
Netherlands' operation has approximately $1.8 million of backlog orders
denominated in British pounds. A 10% change in exchange rates on this currency
relative to The Netherlands guilder would be expected to affect before tax
operating profit by approximately $.2 million, as a result of the portion of the
backlog denominated in British pounds.
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. The Company estimates that its fiscal 2001
purchases and sales of this foreign operation that are denominated in currencies
not linked to its functional currency, including United States dollars and
British pounds, were approximately $6.5 million and $2.2 million, respectively.
Most of those purchases are denominated in United States dollars and provide a
partial hedge against fluctuations in exchange rates on sales denominated in
that currency. 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. 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 future results of the
Company's operations.
The polishing supplies segment makes annual purchases of approximately
$.6 million 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 affected 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
United States dollar would affect the cost of this segment's purchases by
$.1 million.
33
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K 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," "anticipates," or "possible," 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 reductions in demand or rescheduling or cancellation 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 not enter a period of slowdown
during fiscal 2001, (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, (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, and (p) the effects of adopting SAB No. 101 will largely be offset by
increased sales. 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
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.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page
----
Report of Independent Public Accountants.....................................F-1
Financial Statements -
Consolidated Balance Sheets
September 30, 2001 and 2000..................................................F-2
Consolidated Statements of Operations for
the years ended September 30, 2001, 2000 and 1999............................F-3
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 2001, 2000 and 1999........................F-4
Consolidated Statements of Cash Flows for
the years ended September 30, 2001, 2000 and 1999............................F-5
Notes to Consolidated Financial Statements
September 30, 2001, 2000 and 1999............................................F-6
Financial Statement Schedule for the years ended
September 30, 2001, 2000 and 1999:
Schedule II - Valuation and Qualifying Accounts.........................S-1
All Schedules, other than the Schedule listed above, are omitted as the
information is not required, is not material or is otherwise furnished.
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amtech Systems, Inc.:
We have audited the accompanying consolidated balance sheets of AMTECH SYSTEMS,
INC. (an Arizona corporation) and subsidiaries (the "Company") as of September
30, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended September
30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 2 to the financial statements, effective October 1, 2000,
the Company changed its method of accounting for revenue recognition.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
January 9, 2002
F-1
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
-------------------------------
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,998,120 $ 5,784,500
Accounts receivable (less allowance for doubtful accounts of $630,000 3,829,867 4,929,948
and $149,000, at September 30, 2001 and 2000, respectively)
Inventories 4,804,457 4,229,546
Deferred income taxes 1,525,000 577,000
Prepaid expenses 85,643 79,476
------------ ------------
Total current assets 16,243,087 15,600,470
PROPERTY, PLANT AND EQUIPMENT - net 1,484,437 1,093,707
GOODWILL AND OTHER ASSETS - net 843,046 789,083
------------ ------------
TOTAL ASSETS $ 18,570,570 $ 17,483,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 880,006 $ 2,144,197
Accrued compensation and related taxes 671,075 635,354
Accrued warranty expense 304,228 218,693
Accrued installation expense -- 266,101
Deferred profit 1,777,173 25,000
Customer deposits 367,523 220,663
Income taxes payable 135,000 670,000
Other accrued liabilities 605,547 486,779
------------ ------------
Total current liabilities 4,740,552 4,666,787
------------ ------------
LONG-TERM OBLIGATIONS 246,184 236,590
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
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;
2,649,171 (2,571,808 in 2000) shares issued and outstanding 26,492 25,718
Additional paid-in capital 12,539,040 12,133,058
Accumulated other comprehensive loss -
cumulative foreign currency translation adjustment (368,242) (502,356)
Retained earnings 1,386,544 923,463
------------ ------------
Total stockholders' equity 13,583,834 12,579,883
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,570,570 $ 17,483,260
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net revenues $ 22,851,920 $ 19,027,446 $ 14,766,075
Cost of sales 15,974,260 12,398,560 10,599,708
------------ ------------ ------------
Gross margin 6,877,660 6,628,886 4,166,367
Selling, general and administrative 4,918,902 4,169,631 3,330,348
Research and development 382,186 476,975 268,243
------------ ------------ ------------
Operating income 1,576,572 1,982,280 567,776
Interest income, net 246,720 93,141 34,531
------------ ------------ ------------
Income before income taxes and cumulative effect of
change in accounting principle 1,823,292 2,075,421 602,307
Income tax provision 670,000 750,000 240,000
------------ ------------ ------------
Income before cumulative effect of change in accounting principle 1,153,292 1,325,421 362,307
Cumulative effect of change in accounting principle, net of tax
benefit of $410,000 (690,211) -- --
------------ ------------ ------------
NET INCOME $ 463,081 $ 1,325,421 $ 362,307
============ ============ ============
EARNINGS PER SHARE:
Basic
Income before cumulative effect of change in accounting principle $ .43 $ .61 $ .17
Cumulative effect of change in accounting principle, net of tax (.26) -- --
------------ ------------ ------------
Basic earnings per share $ .17 $ .61 $ .17
============ ============ ============
Diluted
Income before cumulative effect of change in accounting principle $ .41 $ .56 $ .17
Cumulative effect of change in accounting principle, net of tax (.25) -- --
------------ ------------ ------------
Diluted earnings per share $ .16 $ .56 $ .17
============ ============ ============
Number of shares used in per share calculations:
Basic 2,661,001 2,158,562 2,109,815
Diluted 2,821,583 2,336,497 2,189,201
PRO FORMA AMOUNTS WITH THE CHANGE IN ACCOUNTING PRINCIPLE RELATED TO REVENUE
APPLIED RETROACTIVELY:
Net revenues $ 22,851,920 $ 18,908,378 $ 15,678,058
Net income 463,081 1,060,619 480,845
Earnings per share:
Basic $ .17 $ .49 $ .23
Diluted $ .16 $ .45 $ .22
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
Common Stock Accumulated Retained
---------------------- Additional Other Earnings Total
Number Paid-In Comprehensive (Accumulated Stockholders'
of Shares Amount Capital (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 -- -- -- -- 362,307 362,307
Translation adjustment -- -- -- (92,726) -- (92,726)
------------
Comprehensive income 269,581
------------
Employee stock bonus -
net of stock repurchases (1,624) (16) (6,437) -- -- (6,453)
---------- -------- ------------ ---------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1999 2,108,679 21,087 7,400,152 (309,064) (401,958) 6,710,217
Net income -- -- -- -- 1,325,421 1,325,421
Translation adjustment -- -- -- (193,292) -- (193,292)
------------
Comprehensive income 1,132,129
------------
Issuance of common
stock, net of related expenses 383,000 3,830 4,612,117 -- -- 4,615,947
Stock options exercised and other
including a $59,000 related tax benefit 80,129 801 120,789 -- -- 121,590
---------- -------- ------------ ---------- ----------- ------------
BALANCE AT SEPTEMBER 30, 2000 2,571,808 25,718 12,133,058 (502,356) 923,463 12,579,883
Net income -- -- -- -- 463,081 463,081
Translation adjustment -- -- -- 134,114 -- 134,114
------------
Comprehensive income 597,195
------------
Warrants and stock options exercised 77,363 774 405,982 -- -- 406,756
---------- -------- ------------ ---------- ----------- ------------
BALANCE AT SEPTEMBER 30, 2001 2,649,171 $ 26,492 $ 12,539,040 $ (368,242) $ 1,386,544 $ 13,583,834
========== ======== ============ ========== =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income $ 463,081 $ 1,325,421 $ 362,307
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle, net of tax 690,211 -- --
Depreciation and amortization 376,308 294,122 312,371
Provision for inventory and receivable write-offs 833,354 76,851 142,490
Loss on disposals of long-lived assets 1,660 431 --
Deferred income taxes (538,000) (156,000) (28,000)
(Increase) decrease in:
Accounts receivable 691,529 (1,973,716) (473,383)
Inventories, prepaid expenses and other assets (988,147) (2,593,647) (60,958)
Increase (decrease) in:
Accounts payable (1,293,612) 1,636,815 (542,561)
Accrued liabilities and customer deposits 59,015 846,877 (155,788)
Deferred profit 676,962 -- --
Income taxes payable (532,273) 759,672 364,063
----------- ----------- -----------
Net Cash Provided By (Used In) Operating Activities 440,088 216,826 (79,459)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (664,733) (322,292) (158,232)
----------- ----------- -----------
Net Cash Used In Investing Activities (664,733) (322,292) (158,232)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised and other 406,757 62,590 --
Employee stock bonus, net of stock repurchases -- -- (6,453)
Net proceeds from private placement of common stock -- 4,615,947 --
Net payments and borrowings on mortgage loan 930 (10,605) (12,062)
----------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities 407,687 4,667,932 (18,515)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 30,578 97,349 29,349
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 213,620 4,659,815 (226,857)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,784,500 1,124,685 1,351,542
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,998,120 $ 5,784,500 $ 1,124,685
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 29,816 $ 12,805 $ 10,169
Income taxes paid (refunded) 1,743,000 143,000 (102,000)
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(1) NATURE OF OPERATIONS:
Amtech Systems, Inc. (an Arizona corporation), P. R. Hoffman Machine
Products, Inc., a wholly-owned subsidiary formed in July 1997 ("P. R. Hoffman"),
both based in the United States, and Tempress Systems, Inc., a wholly-owned
subsidiary formed in September 1994 and based in The Netherlands ("Tempress"),
comprise the "Company." The Company designs, assembles, sells and installs
capital equipment and related consumables used in the manufacture of wafers of
various materials, primarily silicon wafers for the semiconductor industry, and
in certain semiconductor fabrication processes. These products are sold to
manufacturers of silicon wafers and semiconductors worldwide, particularly in
the United States, Korea and northern Europe. During fiscal 1997, the Company
began providing semiconductor manufacturing support services.
The Company serves a niche market in an industry which experiences rapid
technological advances and which in the past has been very cyclical. Therefore,
the Company's future profitability and growth depend on its ability to develop
or acquire and market profitable new products and its ability to adapt to
cyclical trends.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
P. R. Hoffman (see Note 3) and Tempress. All significant intercompany accounts
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION - During its fourth fiscal quarter, the Company changed
its revenue recognition policy retroactively effective October 1, 2000, based on
guidance provided in Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The
Company recognizes revenue when persuasive evidence of an arrangement exists;
title transfers, generally upon shipment or services have been rendered; the
seller's price is fixed or determinable and collectibility is reasonably
assured. Certain of the Company's product sales are accounted for as
multiple-element arrangements. For the semiconductor equipment segment, if the
Company has met defined customer specifications with similarly situated
customers and the specific equipment and process involved, the Company
recognizes equipment revenue upon shipment and transfer of title, and the
remainder when it becomes due, generally upon acceptance. Product sales that are
shipped, but do not meet this criteria are deferred and recognized upon customer
acceptance.
Equipment sold by the polishing supplies segment does not involve process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
upon shipment as there are no post shipment obligations other than standard
warranties. Service revenues are recognized as services are performed. Revenue
related to service contracts is recognized upon performance of the services
requested by the customer.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income taxes of $410,000), or
$0.26 per basic share, to reflect the cumulative effect of the accounting change
as of the beginning of the 2001 fiscal year.
F-6
The deferred profit balance as of the beginning of fiscal 2001 was
$1,125,211. This amount represents the revenue net of the related cost of sales
for systems that were shipped and that had not been accepted and did not qualify
for multiple-element accounting as of September 30, 2000. Of the $1,125,211 in
deferred profit as of the beginning of fiscal 2001, $936,994 was recognized in
2001. The pro forma amounts presented on the consolidated statements of
operations were calculated assuming the accounting change was retroactively
adopted as of October 1, 1998.
Prior to fiscal 2001, the Company's revenue recognition policy was to
recognize revenue and accrue the estimated installation costs at the time the
customer took title to the product, generally at the time of shipment because
the Company routinely met its installation obligations and installation costs
represented a small percentage of total costs.
As revenue is not reported on a consistent basis between years, certain
data contained in these financial statements may not be comparable between
years.
CASH EQUIVALENTS - Cash equivalents consist of money market mutual funds,
time certificates of deposit and U.S. treasury bills. The Company considers
certificates of deposit and treasury bills to be cash equivalents if their
original maturity is 90 days or less.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market value. The components of inventory are as follows:
September 30,
-----------------------
2001 2000
---------- ----------
Purchased parts (less allowance for obsolescence) $2,487,470 $1,931,524
Work-in-progress 1,255,676 1,874,818
Finished goods 1,061,311 423,204
---------- ----------
$4,804,457 $4,229,546
========== ==========
PROPERTY, PLANT AND EQUIPMENT - Maintenance and repairs are charged to
expense as incurred. The costs of additions and improvements are capitalized.
The cost of property retired or sold and the related accumulated depreciation
are removed from the applicable accounts when disposition occurs and any gain or
loss is recognized. Depreciation is computed using the straight-line method.
Useful lives for equipment, machinery and leasehold improvements are from three
to five years; for furniture and fixtures from five to ten years; and for
buildings twenty years. Depreciation expense for fiscal years 2001, 2000 and
1999 was approximately $296,000, $241,000 and $256,000, respectively.
Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the undiscounted expected cash flows from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss is recognized.
F-7
The following is a summary of property, plant and equipment:
September 30,
--------------------------
2001 2000
----------- -----------
Building and leasehold improvements $ 691,405 $ 545,633
Equipment and machinery 1,435,427 1,191,298
Furniture and fixtures 837,623 532,677
----------- -----------
2,964,455 2,269,608
Accumulated depreciation (1,480,018) (1,175,901)
----------- -----------
$ 1,484,437 $ 1,093,707
=========== ===========
GOODWILL - The purchase price in excess of net assets acquired, commonly
referred to as goodwill, is being amortized over fifteen years using the
straight-line method. Amortization expense was approximately $67,000, $37,000
and $37,000 for fiscal years 2001, 2000 and 1999, respectively.
WARRANTY - The Company provides free of charge a limited warranty,
generally twelve to twenty-four months, to all purchasers of its new products
and systems. Warranty expense for fiscal 2001, 2000 and 1999 amounted to
approximately $372,000, $109,000 and $190,000, respectively. Management believes
these amounts and the amounts accrued for future warranty expenditures are
sufficient for all future warranty costs on systems sold through September 30,
2001.
RESEARCH AND DEVELOPMENT EXPENSES - The Company expenses product
development costs as they are incurred.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - Financial information
relating to the Company's foreign subsidiary is reported in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Net income includes pretax losses from foreign currency
transactions of $118,000 in 2001, gains of $25,000 in 2000 and losses of $83,000
in 1999. The functional currency of Tempress is the Netherlands guilder. The
gains or losses resulting from the translation of Tempress' financial statements
have been included as a separate component of stockholders' equity.
INCOME TAXES - The Company files consolidated federal income tax returns
and computes deferred income tax assets and liabilities based upon cumulative
temporary differences between financial reporting and taxable income,
carryforwards available and enacted tax law. (See Note 12).
EARNINGS PER COMMON SHARE - The Company calculates basic and diluted
earnings per share ("EPS") in accordance with SFAS No. 128, "Earnings Per
Share". (See Note 13).
Effective with the close of business on March 15, 1999, each two shares of
the $0.01 par value common stock of the Company were converted and reclassified
into one share. All shares and per share amounts have been restated to give
effect for this one-for-two reverse stock split. Any fractional shares resulting
from the reverse split were rounded to the next highest whole number.
STOCK-BASED COMPENSATION - The Company accounts for its employee
stock-based compensation plans under SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 permits companies to record employee stock-based
transactions under Accounting Principles Board Opinion ("APB") No. 25, under
which no compensation cost is recognized and the pro forma effects on earnings
and earnings per share are disclosed as if the fair market value approach had
been adopted. (See Note 14).
F-8
CONCENTRATION OF CREDIT RISK AND USE OF ESTIMATES - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States 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 year. Actual results
could differ from those estimates.
As of September 30, 2001, receivables from customers in the optical
component industry comprised 51% of total receivables, of which three accounts
comprised 39.4% of total receivables, representing a concentration of credit
risk as defined by SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk." As of September 30, 2000, receivables from two
customers comprised 40% of accounts receivable, one of which was from the
optical component industry and accounted for 12% of receivables. A concentration
of receivables from such a small number of customers places the Company at risk.
In July 2001, an optical component customer filed a petition for protection
from creditors under Chapter 11 of the U.S. bankruptcy code, an example of
possible problems caused by concentrations of credit risk. The amount of the
sale was $1,609,000. The customer had made payments of $794,000 before filing in
bankruptcy court, leaving an unpaid balance of approximately $815,000. Through
increased reserves the Company has written down this receivable to an estimated
net realizable value of $225,000. The Company believes this receivable has been
recorded at its net realizeable value at September 30, 2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of the Company's
financial instruments approximate fair value due to the short term in which
these instruments mature. The carrying values of the Company's lines of credit
(see Note 4) and long-term debt (see Note 5) approximate fair value because the
variable interest rates approximate the prevailing interest rates for similar
debt instruments.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - On October
1, 2000, the Company adopted Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 requires the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that do not qualify as hedges must be
adjusted to fair value through income. If the derivative qualifies for hedge
treatment, depending on the nature of the hedge, changes in the fair value of
the derivative are either offset against the change in the fair value of assets,
liabilities, or through earnings (fair value hedges) or recognized in other
comprehensive income until the hedged item is recognized in earnings (cash flow
and foreign currency hedges). The ineffective portion of a derivative's change
in fair value is immediately recognized in earnings. The adoption of SFAS No.
133 did not have a material impact on the Company's consolidated financial
position or operating results.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In July 2001, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 eliminates poolings of
interest as a method for accounting for business combinations. SFAS No. 142
requires the discontinuance of the amortization of goodwill and intangible
assets with indefinite lives and at least an annual assessment of whether there
has been an impairment of such assets that needs to be recognized as an
impairment charge. SFAS Nos. 141 and 142 must be adopted by the Company no later
F-9
than October 1, 2002, with early adoption permitted on October 1, 2001. Since
amortization of goodwill is currently $67,000 per year, the discontinuance of
such amortization will not have a material affect on the Company's results of
operations or financial condition. The Company does not expect to incur an
impairment charge related to the $789,000 of goodwill included in its assets as
of September 30, 2001.
The FASB recently issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and portions of APB Opinion No. 30,
"Reporting the Results of Operations." SFAS No. 144 provides a single accounting
model for long-lived assets to be disposed of and significantly changes the
criteria that must be met to classify an asset as "held for sale."
Classification as "held for sale" is an important distinction since such assets
are not depreciated and are stated at the lower of fair value and carrying
amount. SFAS No. 144 also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as presently required. The
provisions of SFAS No. 144 are not expected to have a material effect on the
Company's financial position or operating results.
(3) PURCHASE OF P. R. HOFFMAN'S ASSETS:
P.R. Hoffman specializes in the development, manufacture and marketing of
double-sided lapping and polishing machines and related consumables used in the
manufacture of semiconductor silicon wafers. As a result of the July 1, 1997
acquisition of substantially all of the assets and operating liabilities of P.R.
Hoffman, the Company is obligated to make additional payments to the former
owner of P.R. Hoffman equal to 50% of pretax income of the P. R. Hoffman
operation in excess of $800,000 per year for a period of 5 years ending
September 30, 2002, limited to a maximum aggregate amount of $2 million of such
payments. Those payments are payable in cash or the Company's common stock, at
the Company's option, with a minimum of thirty-five percent (35%) of such
payments being either cash or registered shares. This additional consideration
will be treated as part of the purchase price to the extent earned. Contingent
consideration of $108,000 and $313,000 was earned in fiscal 2001 and 2000,
respectively. No contingent consideration was earned in fiscal 1999.
As a part of the transaction, the Company subleases a 21,740 square foot
building, located in Carlisle, Pennsylvania, from John R. Krieger, the Company's
Director of Corporate Development and former owner of the P. R. Hoffman
operation. The lease requires monthly payments of $10,700 on a triple net basis,
expires on June 30, 2004 and includes an option to renew the lease for five
successive one-year terms. Monthly lease payments increase to $10,810 and
$10,860 on July 1, 2002 and 2003, respectively. The Company also entered into an
employment agreement with Mr. Krieger, which required payments of $150,000 per
year and expired on June 30, 2001.
(4) LINE OF CREDIT:
In June 2001, the Company was granted a line of credit in the amount of
625,000 Netherlands guilders, approximately $260,000 as of September 30, 2001,
at an interest rate of 1.75% over a Netherlands bank's basic interest rate,
which was 4.5% as of September 30, 2001. The line of credit declines by 12,500
Netherlands guilders per quarter until it reaches 250,000 Netherlands guilders
on January 1, 2004 and is secured by a lien of approximately $105,000 on the
Company's land and buildings in The Netherlands and certain accounts receivable,
which amounted to approximately $2,450,000 as of September 30, 2001. As of
September 30, 2001, there were no borrowings on this line of credit.
F-10
(5) LONG-TERM OBLIGATIONS:
Long-term debt included in long-term obligations includes a fifteen-year
mortgage secured by the Company's land and building located in The Netherlands.
The non-current portion of the long-term debt was $149,000 and $142,000 as of
September 30, 2001 and 2000, respectively. As of September 30, 2001, the
collateral has a carrying value of $410,000. No principal payments are due until
June 30, 2016, when the loan matures. Interest is paid monthly at a variable
rate of 1.25% over a Netherlands bank's basic rate, which was 4.5% as of
September 30, 2001. There is no penalty for prepayment of the loan. The
remaining balance in long-term obligations is comprised of other non-current
liabilities.
(6) STOCKHOLDERS' EQUITY:
On September 8, 2000, the Company issued 383,000 shares of common stock and
warrants to purchase an aggregate amount of up to 59,300 shares of common stock,
pursuant to a Stock and Warrant Purchase Agreement and related commitments. One
share and one warrant for one-tenth of a share were sold at a combined price of
$13.75. An additional 21,000 warrants were issued to the placement agents. The
warrants are exercisable at a price per share of $15.12 and expire on September
8, 2005. The Company has registered the resale of the shares issued in the
transaction, including those issuable upon exercise of the warrants. Gross
proceeds in the transaction were $5,266,000. Net proceeds to the company were
$4,616,000.
During May 1999, the Company's Board of Directors adopted a stockholder
rights plan, which authorized the distribution of one right for each outstanding
common share to purchase one one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50, subject to certain antidilution
adjustments. The rights will expire 10 years after issuance and will be
exercisable if (a) a person or group becomes the beneficial owner of 15% or more
of the Company's common stock or (b) a person or group commences a tender or
exchange offer that would result in the offeror beneficially owning 15% or more
of the common stock (a "Stock Acquisition Date"). If a Stock Acquisition Date
occurs, each right, unless redeemed by the Company at $.01 per right, entitles
the holder to purchase an amount of common stock of the Company, or in certain
circumstances a combination of securities and/or assets or the common stock of
the acquirer, having an equivalent market value of $17.00 per right at a
purchase price of $8.50. Rights held by the acquiring person or group will
become void and will not be exercisable.
In fiscal 2001, 67,050 warrants were exercised. These are related to
warrants issued in the fiscal 1997 acquisition of substantially all of the
assets and operating liabilities of P.R. Hoffman.
(7) COMMITMENTS AND CONTINGENCIES:
Key suppliers include two steel mills, one domestic and one German, capable
of meeting the material specification the Company requires. As of September 30,
2001, the Company had unconditional commitments to purchase $648,000 of steel,
with delivery dates to be determined in the future. Due to minimum order
quantities for this steel and long lead times, the Company has made purchase
commitments that may be in excess of future production requirements, and it
could take several years to use all of the steel commitments in production of
the Company's products. These purchase commitments are not expected to result in
any significant losses.
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contribution to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products, Inc. in an asset
F-11
transaction consummated on July 1, 1997. (See Note 3.) The landfill was closed
and has not been used by P.R. Hoffman since sometime prior to completion of the
Company's acquisition. Therefore, the Company believes that the named company is
the prior owner of the acquired assets. Under the terms of the Asset Purchase
Agreement governing the acquisition, the prior owner, P.R. Hoffman Machine
Products, Inc. is obligated to indemnify the Company for any breaches of P.R.
Hoffman's representations and warranties in the Asset Purchase Agreement,
including representations relating to environmental matters. In accordance with
the terms of the Asset Purchase Agreement, the Company has provided notice to
the prior owner of P.R. Hoffman Machine Products, Inc. of the Company's intent
to seek indemnification from such owner for any liabilities resulting from this
legal action. Based on information available to the Company as of the date of
this report, management believes the Company's costs, if any, to resolve this
matter will not be material to its results of operations or financial position.
(8) MAJOR CUSTOMERS AND FOREIGN SALES:
The Company had one major customer accounting for more than 10% of sales
for the fiscal year ended September 30, 2001. In fiscal 2000, no customer
accounted for more than 10% of sales. In fiscal 1999, one different customer
accounted for 10% or more of sales. The detail of major customers is as follows:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Customer 1 14% --% --%
Customer 2 -- -- 14
---- ---- ----
14% --% 14%
==== ==== ====
The Company's sales were to customers in the following geographic regions:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
United States 53% 60% 59%
Canada 2 1 --
Asia (Korea, People's Republic of China, 8 19 5
Taiwan, Japan, Singapore, Indonesia,
Malaysia and India)
Europe (including 1% or less to Israel
and Africa) 37 20 29
Australia -- -- 7
---- ---- ----
100% 100% 100%
==== ==== ====
F-12
(9) BUSINESS SEGMENT INFORMATION:
The Company classifies its products into two core business segments. The
semiconductor equipment segment designs, manufactures and markets semiconductor
wafer processing and handling equipment used in the fabrication of integrated
circuits. The manufacturing support service business and any difference between
the planned corporate expenses, which are allocated to the segments based upon
their revenue and the Company's investment in each, and actual corporate
expenses are aggregated in the semiconductor equipment segment. The polishing
supplies segment 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 semiconductors. Information concerning
the Company's business segments is as follows:
Year Ended September 30,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
Net revenues
Semiconductor equipment $15,445,469 $10,859,625 $ 8,852,590
Polishing supplies 7,406,451 8,167,821 5,913,485
----------- ----------- -----------
$22,851,920 $19,027,446 $14,766,075
=========== =========== ===========
Operating income
Semiconductor equipment $ 930,915 $ 985,157 $ 281,789
Polishing supplies 645,657 997,123 285,987
----------- ----------- -----------
Total operating income 1,576,572 1,982,280 567,776
Interest income, net 246,720 93,141 34,531
----------- ----------- -----------
Income before income taxes and cumulative
effect of change in accounting principle $ 1,823,292 $ 2,075,421 $ 602,307
=========== =========== ===========
Capital expenditures
Semiconductor equipment $ 664,733 $ 206,740 $ 90,036
Polishing supplies -- 115,552 68,196
----------- ----------- -----------
$ 664,733 $ 322,292 $ 158,232
=========== =========== ===========
Depreciation and amortization expense
Semiconductor equipment $ 218,903 $ 176,526 $ 201,785
Polishing supplies 157,405 117,596 110,586
----------- ----------- -----------
$ 376,308 $ 294,122 $ 312,371
=========== =========== ===========
September 30,
-------------------------
2001 2000
----------- -----------
Identifiable assets
Semiconductor equipment $15,682,289 $13,460,752
Polishing supplies 2,888,281 4,022,508
----------- -----------
$18,570,570 $17,483,260
=========== ===========
F-13
The Company has manufacturing operations in the United States and The
Netherlands. Revenues, operating income (loss) and identifiable assets by
geographic region of the locations are as follows:
Year Ended September 30,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net revenues
United States $ 11,148,373 $ 13,923,506 $ 9,307,085
The Netherlands 11,703,547 5,103,940 5,458,990
------------ ------------ ------------
$ 22,851,920 $ 19,027,446 $ 14,766,075
============ ============ ============
Operating income (loss)
United States $ (76,979) $ 1,474,950 $ 610,381
The Netherlands 1,653,551 507,330 (42,605)
------------ ------------ ------------
$ 1,576,572 $ 1,982,280 $ 567,776
============ ============ ============
Identifiable assets
United States $ 13,654,635 $ 13,952,931
The Netherlands 4,915,935 3,530,329
------------ ------------
$ 18,570,570 $ 17,483,260
============ ============
(10) LEASES:
The Company leases buildings, vehicles and equipment. As of September 30,
2001, minimum rental commitments under noncancellable operating leases total
$589,000, of which $244,000, $230,000 and $115,000 are payable in fiscal years
2002, 2003 and 2004 and beyond, respectively.
Rental expense for 2001, 2000 and 1999 was approximately $277,000, $220,000
and $231,000, respectively.
(11) PROPRIETARY PRODUCT RIGHTS:
The Company acquired the proprietary product rights to Atmoscan in 1983,
which provides an improved method for the automatic loading of silicon wafers
into diffusion furnaces. The Company agreed to pay the inventor royalties for 17
years, which ended November 22, 2000.
Through the acquisition of the net assets of P. R. Hoffman (see Note 3),
the Company acquired the license for the design of its steel carriers with
plastic inserts for abrasive machining of silicon wafers. In 1995, P. R. Hoffman
Machine Products, Inc. licensed the patent rights from the patent holder.
Royalty expense for all licenses included in cost of product sales totaled
approximately $74,000, $108,000 and $73,000 in 2001, 2000 and 1999,
respectively.
F-14
(12) INCOME TAXES:
The provision for (benefit from) income taxes consists of:
Year Ended September 30,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Current
Domestic federal $ 494,000 $ 705,000 $ 250,000
Foreign 606,000 125,000 (25,000)
Domestic state 108,000 76,000 43,000
----------- ----------- -----------
1,208,000 906,000 268,000
----------- ----------- -----------
Deferred
Domestic federal (275,000) (89,000) (31,000)
Foreign (187,000) 3,000 13,000
Domestic state (76,000) (70,000) (10,000)
----------- ----------- -----------
(538,000) (156,000) (28,000)
----------- ----------- -----------
Income tax provision $ 670,000 $ 750,000 $ 240,000
=========== =========== ===========
The provision for income taxes before the cumulative effect of a change in
accounting principle is different from the amount that would be computed by
applying the United States corporate income tax rate to the income from
operations before income taxes. The differences are summarized as follows:
Year Ended September 30,
----------------------------------
2001 2000 1999
--------- --------- ---------
Provision at the federal rate $ 620,000 $ 706,000 $ 205,000
Effect of expenses not deductible for tax purposes 13,000 32,000 15,000
State tax provision 32,000 105,000 42,000
Change in valuation allowance -- (93,000) (22,000)
Other items 5,000 -- --
--------- --------- ---------
Income tax provision $ 670,000 $ 750,000 $ 240,000
========= ========= =========
The tax assets (liabilities) comprising the net deferred tax asset are as
follows:
September 30,
--------------------------
2001 2000
----------- -----------
Allowance for doubtful accounts $ 263,000 $ 59,000
Uniform capitalization of inventory costs 102,000 112,000
Inventory write-downs not currently deductible 202,000 147,000
Book vs. tax depreciation (18,000) (7,000)
Unrealized currency losses (gains) 2,000 (7,000)
State net operating loss carryforwards -- 13,000
Liabilities not currently deductible 974,000 260,000
----------- -----------
Deferred income taxes $ 1,525,000 $ 577,000
=========== ===========
Management believes that it is more likely than not that the Company will
realize all deferred tax assets.
F-15
(13) EARNINGS PER SHARE:
All EPS data presented has been restated as required by SFAS No. 128 for
the March 15, 1999 reverse stock split. EPS were calculated as follows:
2001 2000 1999
----------- ----------- -----------
Net income $ 463,081 $ 1,325,421 $ 362,307
Amortization of contingent consideration (Note 3) -- (17,155) --
----------- ----------- -----------
$ 463,081 $ 1,308,266 $ 362,307
=========== =========== ===========
Weighted average shares outstanding:
Common stock 2,661,001 2,158,562 2,109,815
Common stock equivalents issuable upon exercise
of warrants and stock options (1) 160,582 144,053 79,386
Estimated common shares issuable as contingent
consideration (Note 3) -- 33,882 --
----------- ----------- -----------
Diluted shares 2,821,583 2,336,497 2,189,201
=========== =========== ===========
Earnings Per Share:
Basic $ .17 $ .61 $ .17
Diluted $ .16 $ .56 $ .17
(1) Number of common stock equivalents calculated using the treasury stock
method and the average market price during the period. Options and
warrants on 45,700 shares, 143,300 shares and 1,492,500 shares had an
exercise price greater than the average market price during the years
ended September 30, 2001, 2000 and 1999, respectively, and therefore
did not enter into the EPS calculation.
(14) STOCK-BASED COMPENSATION:
STOCK WARRANTS - In connection with the acquisition of the net assets of
P.R. Hoffman Machine Products, Inc. during fiscal 1997, the Company issued
75,000 warrants to purchase one share each of $.01 par value common stock at a
per share exercise price of $6.00. These warrants expire July 1, 2002 and were
valued at $167,000 using the Black-Scholes valuation method. The primary
assumptions used in the valuation of these warrants were a risk free interest
rate of 6.29%, expected dividend yield of 0%, average holding period of 2.5
years, and 69% volatility. The value of these warrants has been included in the
acquisition cost associated with the purchase of the P. R. Hoffman net assets
(see Note 3).
On September 8, 2000 the Company issued 59,300 warrants to purchase one
share each of $.01 par value common stock in connection with the issuance of
383,000 shares of common stock. The warrants are exercisable at a price per
share of $15.12 and expire on September 8, 2005.
STOCK OPTION PLANS - The board of directors has reserved 10,000 shares of
common stock for issuance upon exercise of the outstanding options granted to
directors under Director Stock Purchase Agreements prior to 1996. The
Non-Employee Directors Stock Option Plan was approved by the stockholders in
1996 for the issuance of up to 100,000 shares of common stock to directors. The
Amended and Restated 1995 Stock Option Plan and the 1995 Stock Bonus Plan were
also approved by stockholders in 1996 under which a combined total of 160,000
shares were authorized. The 1998 Employee Stock Option Plan, under which 50,000
shares could be granted, was adopted by the board of directors on January 31,
1998 and approved by shareholders on March 20, 1998. On October 13, 2000, the
Board of Directors authorized an increase in the number of options available
F-16
under the 1998 Employee Stock Option Plan to 300,000. The amendment was approved
by the shareholders at the annual meeting on March 15, 2001. All of the plans
expire in 2006. Qualified stock options issued under the terms of the plans have
or will have an exercise price equal to or greater than the fair market value of
the common stock at the date of the option grant and expire no later than 10
years from the date of grant, with the most recent grant expiring July 7, 2010.
Under the terms of the 1995 Stock Option Plan, nonqualified stock options may
also be issued. Options issued in fiscal years 2001, 2000 and 1999 vest at the
rate of 20% - 33% per year. As of September 30, 2001, the Company had 65,908
options available for issuance under the plans. The stock option transactions
and the options outstanding are summarized as follows:
Year Ended September 30,
--------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- -------- -------- -------- -------- --------
Outstanding at beginning of year 163,017 $ 1.74 227,292 $ 1.17 192,292 $ 4.52
Granted 258,750 5.88 25,000 4.75 41,500 1.38
Exercised (9,950) 1.32 (89,275) 1.14 -- --
Terminated (25,200) 1.13 -- -- (6,500) 1.13
-------- -------- --------
Outstanding at end of year 386,617 4.56 163,017 1.74 227,292 1.17
======== ======== ========
Exercisable at end of year 60,049 $ 1.58 59,544 $ 1.16 72,117 $ 1.13
Weighted average fair value of
options granted $ 4.64 $ 3.08 $ 1.55
On October 14, 1998, the Company re-priced all stock options outstanding as
of that date to the closing market price on that date of $1.13 per share.
Vesting schedules and expiration dates remain unchanged. In accordance with APB
No. 25, "Accounting for Stock Issued to Employees," the Company is not required
to record compensation expense related to this re-pricing and no such expense
has been recorded in these financial statements.
No compensation expense has been recognized, as all options have been
granted with an exercise price equal to the fair value of the common stock upon
date of grant. No adjustment has been made for the non-transferability of the
options or for the risk of forfeiture at the time of issuance. Forfeitures are
instead recorded as incurred. The fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
Year Ended September 30,
----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Risk free interest rate 4.5% to 5.5% 6.1% to 6.7% 4.3% to 5.4%
Expected life 4 to 6 years 4 to 6 years 4 to 6 years
Dividend rate 0% 0% 0%
Expected volatility 92.0% to 110.3% 64.6% to 76.0% 66.9 to 85.8%
Had the effects of stock-based compensation been accounted for in the
financial statements using the Black-Scholes option pricing method, the net
income and the basic and diluted earnings per share would have been
approximately as follows:
F-17
Year Ended September 30,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Net Income:
As reported $ 463,081 $1,325,421 $ 362,307
Pro forma 290,000 1,240,000 232,000
Basic Earnings per share:
As reported $ .17 $ .61 $ .17
Pro forma .11 .57 .11
Diluted Earnings per share:
As reported $ .16 $ .56 $ .17
Pro forma .10 .52 .11
The following table summarizes information about stock options outstanding
at September 30, 2001:
Options Outstanding Options Exercisable
- ---------------------------------------------------------- --------------------------
Number Number
Outstanding at Exercisable at
Exercise September 30, Remaining Exercise September 30, Exercise
Price 2001 Contractual Life Price 2001 Price
- -------- -------------- ---------------- -------- -------------- --------
$1.13 78,467 5.42 $1.13 45,949 $1.13
1.25 5,000 7.26 1.25 2,000 1.25
1.50 20,000 7.41 1.50 6,500 1.50
2.00 2,900 8.00 2.00 100 2.00
3.25 5,000 8.63 3.25 1,000 3.25
4.36 58,750 9.51 4.36 0 4.36
4.56 7,500 8.77 4.56 1,500 4.56
5.56 10,000 9.16 5.56 0 5.56
5.88 40,000 9.46 5.88 0 5.88
6.50 150,000 9.45 6.50 0 6.50
6.81 9,000 8.41 6.81 3,000 6.81
-------- -------
386,617 60,049
======== =======
(15) SELECTED QUARTERLY FINANCIAL DATA APPLYING SAB 101 (UNAUDITED):
The following unaudited selected quarterly financial data has been included
to demonstrate the effect on fiscal Quarter 1 through Quarter 3, 2001 (as
previously reported in fiscal 2001 10-Q filings) of applying the Company's
revised revenue recognition policy, pursuant to the provisions of SAB 101 (see
Note 2), effective October 1, 2000.
Year Ended September 30, 2001 (unaudited)
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Net revenues
As previously reported (quarters 1 - 3) $ 6,881,731 $ 7,025,583 $ 6,053,533
Effect of change in accounting principle (3,279,081) (222,761) 1,969,378
----------- ----------- -----------
As restated in the first three quarters and
reported in the fourth quarter 3,602,650 6,802,822 8,022,911 4,423,537
=========== =========== =========== ===========
F-18
Gross margin
As previously reported (quarters 1 - 3) 2,126,504 2,539,266 1,991,643
Effect of change in accounting principle (971,659) (69,362) 129,992
----------- ----------- -----------
As restated in the first three quarters and
reported in the fourth quarter 1,154,845 2,469,904 2,121,635 1,131,276
=========== =========== =========== ===========
Income (loss) before change in accounting principle
As previously reported (quarters 1 - 3) 561,514 748,372 401,954
Effect of change in accounting principle (588,397) (63,067) 76,811
----------- ----------- -----------
As restated in the first three quarters and
reported in the fourth quarter (26,883) 685,305 478,765 16,105
Cumulative effect of change in accounting
principle, net of $410,000 tax benefit (690,211) -- -- --
----------- ----------- ----------- -----------
Net income (loss) as restated in first three
quarters and reported in fourth quarter $ (717,094) $ 685,305 $ 478,765 $ 16,105
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share - basic:
Income before cumulative effect of change in
accounting principle
As previously reported (quarters 1 - 3) $ .22 $ .28 $ .15
Effect of change in accounting principle (.22) (.02) .03
----------- ----------- -----------
As restated in the first three quarters and
reported in fourth quarter (.00) .26 .18 .01
Cumulative effect of change in accounting
principle, net of tax (.26) -- -- --
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ (.26) $ .26 $ .18 $ .01
=========== =========== =========== ===========
Earnings (loss) per share - diluted:
Income before cumulative effect of change in
accounting principle
As previously reported (quarters 1 - 3) $ .20 $ .27 $ .14
Effect of change in accounting principle (.21) (.02) .03
----------- ----------- -----------
As restated in the first three quarters and
reported in fourth quarter (.01) .25 .17 .00
Cumulative effect of change in accounting
principle, net of tax (.25) -- -- --
----------- ----------- ----------- -----------
Diluted earnings (loss) per share $ (.26) $ .25 $ .17 $ .00
=========== =========== =========== ===========
F-19
Fiscal Year 2000, as previously reported:
Net product sales $ 3,862,512 $ 4,549,100 $ 4,693,430 $ 5,922,404
Gross Margin 1,226,594 1,680,868 1,672,613 2,048,811
Net Income 130,827 267,170 292,495 634,929
Earnings (loss) per share:
Basic $ .06 $ .13 $ .14 $ .28
Diluted $ .06 $ .12 $ .13 $ .26
F-20
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
For the Year Balance at Charged
Ended Beginning (credited) Balance at
September 30, of Year to Expense Write-offs End of Year
------------- ------- ---------- ---------- -----------
1. Allowance for
Doubtful Accounts
2001 $ 149,000 $ 496,548 $ 15,548 $ 630,000
2000 140,000 11,579 2,579 149,000
1999 143,000 29,144 32,144 140,000
2. Deferred Tax
Valuation Allowance
2001 $ -- $ -- $ -- $ --
2000 93,000 (93,000) -- --
1999 115,000 (22,000) -- 93,000
3. Reserve for
Obsolete Inventory
2001 $ 370,125 $ 336,806 $ 191,568 $ 515,363
2000 301,439 74,239 5,553 370,125
1999 227,400 153,369 79,330 301,439
S-1
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the 2002 Annual Meeting of
Stockholders (the "Proxy Statement").
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS.
The following is a list of all financial statements filed as a part of this
Report:
1. Consolidated Balance Sheets - September 30, 2001 and 2000
2. Consolidated Statements of Operations for the years ended September
30, 2001, 2000 and 1999
3. Consolidated Statements of Stockholders' Equity for the years ended
September 30, 2001, 2000 and 1999
4. Consolidated Statements of Cash Flows for the years ended September
30, 2001, 2000 and 1999
5. Notes to Consolidated Financial Statements - September 30, 2001, 2000
and 1999
36
(b) FINANCIAL STATEMENT SCHEDULES
The following is a list of a financial statement schedules required to be
filed as a part of this Report:
1. Schedule II - Valuation and Qualifying Accounts
All schedules other than the Schedule listed above are omitted as the
information is not required, is not material or is otherwise
furnished.
(c) EXHIBITS.
EXHIBIT METHOD
NO. DESCRIPTION OF FILING
--- ----------- ---------
3.1 Articles of Incorporation A
3.2 Articles of Amendment to Articles of Incorporation, dated April 27, 1983 A
3.3 Articles of Amendment to Articles of Incorporation, dated May 19, 1987 B
3.4 Articles of Amendment to Articles of Incorporation, dated May 2, 1988 C
3.5 Articles of Amendment to Articles of Incorporation, dated May 28, 1993 F
3.6 Articles of Amendment to Articles of Incorporation, dated March 14, 1999 M
3.7 Amended and Restated Bylaws D
4.1 Rights Agreement dated May 17, 1999 K
10.1 Amended and Restated 1995 Stock Option Plan G
10.2 1995 Stock Bonus Plan G
10.3 Non-Employee Director Stock Option Plan H
10.4 Employment Agreement with Robert T. Hass, dated May 19, 1992 E
10.5 Registration Rights Agreement with J.S. Whang, dated January 24, 1994 F
10.6 Asset Purchase Agreement, dated July 1, 1997, among the Registrant,
P.R. Hoffman Machines Corporation and John R. Krieger I
10.7 1998 Employee Stock Option Plan J
10.8 Sublease Agreement, dated July 1, 1999, between the Registrant and John R. Krieger O
10.9 Warrant to Purchase Common Stock, dated September 8, 2000 N
10.10 Stock and Warrant Purchase Agreement, dated September 8, 2000 N
10.11 Employment Agreement, dated March 15, 2001, between the Registrant and Jong S. Whang P
21 Subsidiaries of the Registrant L
23 Consent of Independent Public Accountant *
24 Powers of Attorney See
Signature
Page
37
* Filed herewith.
A Incorporated by reference to the Company's Form S-18 Registration Statement
No. 2-83934-LA.
B Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1987.
C Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1988.
D Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1991.
E Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
F Incorporated by reference to the Company's Form S-1 Registration Statement
No. 33-77368.
G Incorporated by reference to the Company's Form S-8 Registration Statement
relating to the Amended and Restated 1995 Stock Option Plan and the 1995
Stock Bonus Plan filed with the Securities and Exchange Commission on
September 9, 1997.
H Incorporated by reference to the Company's Form S-8 Registration Statement
relating to the Non-Employee Directors Stock Option Plan filed with the
Securities and Exchange Commission on August 8, 1996.
I Incorporated by reference to the Company's Current Report on Form 8-K dated
July 1, 1997.
J Incorporated by reference to the Company's Proxy Statement for shareholders
meeting held on March 20, 1998.
K Incorporated by reference to the Company's Current Report on Form 8-K,
dated May 17,1999.
L Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1997.
M Incorporated by reference to the Company's Proxy Statement for the annual
shareholders meeting held on February 26, 1999.
N Incorporated by reference to the Company's Current Report on Form 8-K dated
September 22, 2000.
O Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1999.
P Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
(d) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the fiscal
quarter ended September 30, 2001.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
January 14, 2002 By: /s/ Jong S. Whang
---------------------------
Jong S. Whang, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JONG S. WHANG and ROBERT T. HASS, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he might or could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jong S. Whang Chairman of the Board, President January 14, 2002
- ------------------------- (Principal Executive Officer)
Jong S. Whang
/s/ Robert T. Hass Vice President-Finance and January 14, 2002
- ------------------------- Director (Chief Financial &
Robert T. Hass Accounting Officer)
/s/ Donald F. Johnston Director January 14, 2002
- -------------------------
Donald F. Johnston
/s/ Alvin Katz Director January 14, 2002
- -------------------------
Alvin Katz
/s/ Bruce R. Thaw Director January 14, 2002
- -------------------------
Bruce R. Thaw
39