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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
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(Exact name of Registrant as Specified in its Charter)
Arizona 86-0411215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 602-967-5146
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
common stock, $.01 Par Value
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(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] Yes
State the aggregate market value of voting stock held by non-affiliates
of the registrant: $2,848,000 as of December 22, 1998
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: 4,232,632 shares of
common stock, $.01 par value, outstanding as of December 3, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
PART III (Items 10-13) is incorporated by reference to the registrant's
proxy statement for the Registrant's Annual Meeting of Shareholders to be held
on or about February 26, 1999.
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TABLE OF CONTENTS
Page
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ITEM 1. BUSINESS............................................................3
Background.........................................................3
Operating Strategy and Industry Overview...........................4
Products...........................................................6
Proposed New Products.............................................10
Manufacturing and Suppliers.......................................11
Order Backlog.....................................................11
Research, Development and Engineering.............................11
Patents...........................................................12
Sales and Marketing...............................................13
Competition.......................................................15
Employees.........................................................16
Financial Information About Foreign and Domestic Operations
and Export Sales.................................................16
ITEM 2. PROPERTIES.........................................................17
ITEM 3. LEGAL PROCEEDINGS..................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS'MATTERS...............................................17
Market Information................................................17
Holders...........................................................18
Dividends.........................................................18
ITEM 6. SELECTED FINANCIAL DATA............................................19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................20
Plans For Expansion And Capital Resources.........................20
Results of Operations.............................................22
Fiscal 1998 Compared to Fiscal 1997...............................22
Fiscal 1997 Compared to Fiscal 1996...............................25
Liquidity And Financial Condition.................................26
Year 2000 Compliance..............................................27
Euro Conversion...................................................27
Forward-Looking Statements........................................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................29
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................30
ITEM 10. EXECUTIVE COMPENSATION.............................................30
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....30
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................30
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...31
SIGNATURES..................................................................34
POWER OF ATTORNEY...........................................................34
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PART I
ITEM 1. BUSINESS
BACKGROUND
Amtech Systems, Inc. (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
(2) wholly owned subsidiaries, Tempress Systems, Inc. ("Tempress Systems") and
P.R. Hoffman Machine Products, Inc. ("P.R. Hoffman").
The Company's initial business was the manufacture of quartzware
implements for sale to and use by manufacturers of semiconductor chips. The
Company is currently, and has been since 1987, engaged in the manufacture and
marketing of several items 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 and load stations) is
designed to enable its customers to increase the degree of control over their
semiconductor chip manufacturing environment and to reduce exposure to
contaminants by limiting human contact during the manufacturing process. IBAL
also reduces certain ergonomic risks to equipment operators and wafers during
the manufacturing process. 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, through its Tempress operations, began
producing and selling conveyor diffusion furnaces for use in precision thermal
processing of electronic parts.
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 double sided precision lapping and polishing machines,
replacement parts and related products including carriers and semiconductor
polishing templates through its wholly owned subsidiary, P.R. Hoffman. These
products are high throughput precision surface processing systems used in the
manufacture of semiconductor wafers, precision optics and other thin wafer
materials, such as computer disk media and ceramic components for wireless
communication devices.
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.
In 1994, the Company commenced efforts to develop a new photo chemical
vapor deposition ("CVD") product for use in semiconductor manufacturing
facilities, which product would be based upon the Company's existing U.S. patent
on such technology. The Company engaged the University of California, Santa Cruz
(the "University") to conduct a study to determine the feasibility of developing
a CVD product. This study has proven that the Company's patented method solves
the problem inherent in photo CVD processing, i.e. materials being deposited
obstruct the ultra-violet light used for activating the desired chemical
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reactions. However, the study has not yet developed a photo-assisted machine
that produces a commercially viable rate of deposition. In this regard, the
University's study has produced several generations of higher intensity light
sources, none of which have yielded results that would enable the Company to
produce a commercially viable product. As of September 30, 1998, the Company
indefinitely suspended funding of the CVD research and development efforts as a
result of the slow down in the semiconductor industry and the slow progress
being made. See "Operating Strategy and Industry Overview."
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 (602) 967-5146.
OPERATING STRATEGY AND INDUSTRY OVERVIEW
The Company is engaged primarily in the manufacture and marketing of
several items of capital equipment and related consumables and spare parts used
by customers in the manufacture and fabrication of semiconductors.
Semiconductors, or semiconductor "chips," are made of silicon and are part of
the circuitry of electronic computers. The manufacture of semiconductors
involves many complex processing steps during which silicon wafers (the
substrates from which chips are made) are inserted in a diffusion furnace and
subjected to the 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 and to reduce exposure to
contaminants by reducing the amount of human contact during the manufacturing
process. Following an industry trend, the size of individual semiconductor chips
has tended to decrease while the size of the wafers from 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.
There also is a trend in the semiconductor industry, related to the
trend to smaller chips, toward the use in semiconductor manufacturing facilities
of newer technology, 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, however, such
furnaces are significantly more expensive to purchase than horizontal diffusion
furnaces. The Company's Processing/Robotic product line is useable with
horizontal diffusion furnaces only.
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The July 1997 addition of P.R. Hoffman's product line of double sided
precision lapping and polishing machines and related products has broadened and
expanded the markets served by the Company, which now include fabricators of
semiconductor devices to the producers of the silicon wafers used by those
fabricators. Following the P.R. Hoffman acquisition, the Company began marketing
the P.R. Hoffman product line through its larger and more established
distribution network. Similarly, the Company began marketing its existing
products to the markets being served by P.R. Hoffman.
The Company's target market for its Processing/Robotic product line
consists of customers who wish to increase the efficiency and safety (or
ergonomics) of their existing semiconductor manufacturing facilities equipped
with horizontal diffusion systems. Through its Tempress System operations, the
Company also provides its customers with efficient integrated horizontal
diffusion furnace systems for use in semiconductor fabrication, and, to a lesser
extent, conveyor diffusion furnace systems for use in precision thermal
processing of electronic parts. The Company's target market also includes
customers whose operations do not require or otherwise want the higher priced
vertical diffusion furnace systems. Based on market information obtained through
customer and market contacts, the Company believes that a majority of worldwide
semiconductor manufacturing facilities is equipped with horizontal diffusion
furnaces, as compared with vertical diffusion furnaces. While the Company
estimates that each year the percentage of facilities in the world equipped with
vertical systems will become closer to and eventually surpass that of horizontal
systems, it believes that a significant demand for its present product line will
continue to exist, although there can be no assurance in that regard. The
Company plans to increase its share of the diffusion furnace market by expanding
its manufacture and sales of horizontal diffusion furnaces. In 1996, Tempress
Systems acquired a modern, high-tech manufacturing facility in Heerde, The
Netherlands, for its European operations, and moved its operations into this new
facility.
The Company's target market for its lapping and polishing machines and
related consumables and spare parts are producers of silicon wafers,
manufacturers that use silicon wafers in the fabrication of semiconductors 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 ceramic
components for wireless communication products. Sales to customers processing
optics and ceramics were 13% of consolidated sales in fiscal 1998. The long-term
demand for silicon wafer lapping and polishing machines and related products has
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 equipment and supplies. 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.
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INDUSTRY CYCLES AND TRENDS. Sales of the Company's products depend in
large part upon the capital equipment expenditures and/or operating levels of
semiconductor manufacturers, which depend on current and/or anticipated market
demand for integrated circuits and products utilizing integrated circuits. The
semiconductor industry is highly cyclical and has historically experienced
periodic downturns, which often have had a severe adverse effect on capital and
operating expenditures by semiconductor manufacturers. Semiconductor industry
downturns have and currently are adversely affecting the sales, gross profit and
operating results of suppliers that serve the industry, including the Company.
The 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 a return to profitability will depend upon increased demand for
semiconductors. A continued downturn in the industry and further consolidation
of semiconductor manufacturing operations may have a material adverse effect on
the Company's business and results of operations.
BACKLOG. In recent years, the Company has experienced a significantly
greater order backlog than prior periods. Those increases in backlog were due
primarily to the continuing expansion of Tempress Systems, a large multi-year
order and the July 1, 1997 acquisition of the P.R. Hoffman operations. In fiscal
1998, as a result of the turmoil in the Asian financial markets, equipment sales
into that region have significantly declined. This decline, however, was
partially offset by re-focusing sales and marketing efforts on other regions of
the world, including, specifically, the U.S., Spain and Australia.
PRODUCTS
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.
These furnaces utilize existing industry technology for sale to customers who do
not require the advanced automation of, or want to incur the major expense of,
acquiring vertical diffusion furnaces. 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. While industry
forecasts indicate that overall market demand for horizontal diffusion furnaces
will decline, the Company believes that a significant niche market will persist.
The Company started the horizontal diffusion furnace business utilizing
certain acquired assets previously owned by a bankrupt company, Tempress B.V.,
located in The Netherlands, including the right to use the trade name
"Tempress(R)" in connection with such furnaces. Tempress B.V. was involved in
the development, manufacture and sale of a number of different products,
including a horizontal diffusion furnace. The right to use the trade name
"Tempress" is also held by three subsidiaries of the former Tempress B.V. in
connection with the sale of other Tempress products and services unrelated to
the horizontal diffusion furnace. The Company believes, and sales volume would
appear to support, that the diffusion furnace products it designs and sells
under the "Tempress" name are gaining acceptance by the Company's targeted
market.
6
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.
PROCESSING/ROBOTIC EQUIPMENT
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 nitrogen
controlled environment. The technology protected by the Company's Atmoscan(R)
patents 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 the
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, Digital Equipment Corp., 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.
The Company has designed and sells an open cantilever paddle system,
which remains the most commonly used horizontal wafer loading system in the
semiconductor industry. Similar systems have been used by the industry since the
introduction of the Atmoscan(R), the Company's alternative to the cantilevered
processing system.
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 process.
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IBAL Butler is a robotics device which further automates the loading of
wafers into the diffusion furnace by automatically transferring wafer carriers
onto the IBAL Trolley for loading into the Atmoscan(R) or on the cantilever
paddle system for the appropriate furnace tube. 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. 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. All of the
IBAL modules have been designed by the Company.
LOAD STATIONS
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 Company began shipping such high-end load
stations in fiscal 1992. Those stations are assembled and tested in the
Company's Tempe, Arizona facility. Further, almost all diffusion furnaces,
described below, are sold with either a Tempress(R) load station, manufactured
in The Netherlands, or a high-end load station described in the preceding
sentence.
The Company believes that sales of its processing and robotic product
line are more likely to be negatively impacted by the present industry slowdown
than diffusion furnace sales. This difference is primarily attributable to the
fact that processing and robotic equipment are more likely to be viewed by
potential customers as discretionary items, as opposed to diffusion furnaces
which are integral to a customer's operations.
DOUBLE SIDED PLANETARY LAPPING AND POLISHING MACHINES
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. Double sided lapping and polishing machines are
designed to process wafer type 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 polishing process is used to change the characteristics
of the surface of a semiconductor wafer and a variety of other wafer materials.
Polishing is a complex science, often involving multiple steps, each at a
specified set of process parameters such as polishing speed, pressure, time and
temperature. Polishing improves the flatness (planarity), smoothness and optical
properties of a surface.
8
Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into a polishing liquid
(slurry) which is applied to a cast-iron lapping wheel). Lapping results in
higher removal rates than polishing but produces rougher surface finishes.
Dimensional tolerance, surface finish, quantity of material to be removed along
with production rates required and cost of operation are the primary variables
considered in the determination of the best process for a specific application.
Polishing and other surface treatment processes are typically followed by a
cleaning process.
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
Computer disks, optics, metal working,
3100 1995/96 ceramics
Silicon semiconductor, optics, metal
4800 1981 working, ceramics
On average, the Company's surface processing systems are priced lower
than competing systems offered by SpeedFam, Peter Wolters of America, and
Lapmaster. The systems offered by the Company's competitors tend to feature more
sophisticated controls and user interfaces, and thus in some applications can be
operated by less skilled employees.
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
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. Steel carriers can cause damage (edge chipping) to
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delicate parts (i.e. larger semiconductor wafers). Insert carriers provide the
advantages of steel carriers while reducing the potential of damage to the edges
of sensitive materials.
The Company licenses the design for its steel carrier with plastic
inserts from Wacker GmbH in Germany ("Wacker"). Under a non-exclusive license
agreement with Wacker, the Company pays Wacker a 5% royalty for carriers sold by
the Company based on this design. The royalty fee does not apply to sales to the
licensor. The Company believes that the licensor, despite patenting the design,
is currently unable to consistently manufacture insert carriers which properly
hold the wafer in place and the Company believes that its proprietary
manufacturing process provides a competitive barrier to entry.
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 leading suppliers in this market segment such as
SpeedFam, IPEC, Gigamet and Strasbaugh. Polishing templates are customized for
specific applications and are manufactured to such exacting tolerances that even
a change in humidity of 10% can result in unacceptable mechanical defects,
performance and durability.
PLATES, GEARS, WEAR ITEMS AND OTHER PARTS
The Company produces a wide assortment of plates, gears, parts and wear
items for both its own as well as for competitors' machines. The Company
manufactures approximately eighty percent (80%) of the parts that are used in
its machines. In addition to producing standard off-the-shelf parts, the Company
has the ability to produce highly customized parts.
PROPOSED NEW PRODUCTS
The Company has patented an invention which it believes may become of
significant importance to the semiconductor manufacturing industry if it can be
developed into a commercially viable product. From 1994 to 1998, the Company
commissioned a research study conducted by the University of California to
determine the feasibility of developing semiconductor manufacturing equipment
using this patented invention. The invention relates to an improvement to the
CVD process used in the manufacture of certain semiconductors. This improved CVD
process uses ultraviolet light to activate the deposition reactions rather than
thermal heat or plasma, which are presently the common means in commercial CVD
processing. This photo-assisted CVD process is separate and distinct from the
diffusion process in which the Company's existing products are used and its use
is not limited to facilities with horizontal diffusion furnaces, as are the
Company's existing diffusion products. In September 1998, the Company elected to
indefinitely suspend funding of the University's CVD research and development
efforts until such time as the Company determines its prospects for producing a
commercially viable product have improved and the general downturn in the
semiconductor industry has shown signs of recovery.
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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. Certain
of the items manufactured by others are made to the Company's specifications.
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 and final inspection and operation of manufactured equipment
prior to shipment. The Company's Processing/Robotic product line is manufactured
at its Tempe, Arizona plant. The Company conducts similar engineering,
purchasing and assembly operations in the manufacture of its diffusion furnace
line in a building owned and located in Heerde, The Netherlands.
The Company's operations in Carlisle, Pennsylvania are equipped to
perform a high percentage of its manufacturing processes. Manufacturing at this
facility includes the following: metal stamping, milling, painting, assembling,
welding, punching, cutting, heat treating, machining and laminating.
Manufacturing processes which are typically subcontracted out by this location
include plastic injection, laser cutting and wire EDM machining, and complex
electrical wiring. Key suppliers include two (2) steel mills capable of holding
the type and tolerances the Company requires, an injection molder that provides
plastic insets for steel carriers, a pad supplier that produces a unique
material used to attach semiconductor wafers to the polishing template (sole
sourced from a Japanese company), and adhesive manufacturer that supplies the
critical glue used in the production of the semiconductor polishing templates.
ORDER BACKLOG
As of November 30, 1998, the Company's order backlog for semiconductor
equipment was approximately $4,800,000 compared to approximately $5,860,000 at
the same date in the previous year. The Company includes in its backlog all
credit approved customer purchase orders. Orders in the backlog may be canceled
by the customer upon payment of mutually acceptable cancellation charges. The
Company anticipates that substantially all of its current backlog will be
shipped in fiscal 1999. Orders generally are shipped within three to six months
of receipt. Accordingly, the backlog may not be a valid measure of revenue for a
future period. In addition, a backlog does not provide any assurance that the
Company will realize a profit from the order.
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
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expenditures during fiscal 1996, 1997 and 1998 were approximately $325,000,
$280,000 and $438,000, respectively. Due to the suspension of the photo-assisted
CVD project and the general slowdown in the semiconductor industry, the Company
has reduced its fiscal 1999 budget for research and development to approximately
$190,000. The Company intends to develop new products in the future that are
complementary to the Company's existing product line to the extent that
resources are available to do so.
The Atmoscan(R) was acquired in 1983 through a licensing arrangement
with its inventor, who was not employed by the Company. The Company's other
products (excluding the Company's products acquired in the P.R. Hoffman
acquisition) were developed by Company personnel. The patented photo-assisted
CVD technology was invented and patent rights were assigned to the Company by an
employee. The Company presently employs at its Tempe, Arizona plant, three
engineers, including one with a Ph.D. and one in the sales department, and three
technicians. The Company presently employs eight engineers, one with a Ph.D.,
and eight 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.
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, such cooperation is expected to
continue to be a significant element in the Company's future development
efforts. The Company's relationship with one of these customers is 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 two
Japanese patents on the Atmoscan(R) cover the first two U.S. patents listed in
the table, below.
The Company has two United States patents on its photo-assisted CVD
method, the second being an improvement on the first, and the Japanese patent is
pending on the photo-assisted CVD method. In 1998, the Company was granted a
patent on it's IBAL Cantilever Trolley and has a second patent pending which is
an improvement on the first. The cantilever, itself, load stations, the
diffusion furnaces, lapping and polishing machines, carriers and semiconductor
polishing templates are not protected by patents.
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The following table shows the patents granted and the expiration date
thereof and the 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 10, 2001
Atmoscan(R) United States July 2, 2002
Atmoscan(R) United States August 30, 2005
Atmoscan(R) Korea May 30, 1999
Atmoscan(R) Japan June 1, 2004
Atmoscan(R) Japan July 18, 2005
Atmoscan(R) European Patent Community
- France July 18, 2004
- Germany July 18, 2004
- United Kingdom July 18, 2004
- Italy July 18, 2004
- Netherlands July 18, 2004
IBAL Cantilever Trolley United States July 10, 2015
IBAL Cantilever Trolley United States Pending Approval
Photo CVD United States June 1, 2010
Photo CVD United States November 15, 2011
Photo CVD Japan 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, 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.
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 such license rights will be available to the Company on commercially
reasonable terms. 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
There are two components of the market for the Company's
Processing/Robotic and diffusion furnace product line, which consists of
semiconductor manufacturers in the United States, Korea, Western Europe, Taiwan,
13
Japan, India, Australia and the People's Republic of China. One component
consists of customers who are installing new semiconductor manufacturing
facilities. The other component consists of customers who wish to install new
equipment systems in existing facilities. The Company's products have been sold
in both components. The Company has increased and intends to continue to
increase its share of that market 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 a part of a broader complement of diffusion
products with greater capabilities. For example, the Company expects to generate
increased sales of diffusion furnaces because it will offer them together with
Atmoscan(R) and IBAL products. One aspect of this strategy is to sell these
products under the Amtech/Tempress name, where appropriate. The Company also
expects to obtain orders for its new horizontal diffusion furnace from former
Tempress customers as well as customers in the United States, a large market
that had not been effectively penetrated by Tempress in recent years.
The Company has historically marketed its polishing machines and
related parts and expendables to manufacturers of silicon wafers for the
semiconductor industry, equipment with optical components, disk media for the
computer industry, and ceramic components for wireless communication products.
The Company also sells diffusion furnace and process/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, Digital Equipment, Texas Instruments, National
Semiconductor, Phillips, SGS-Thomson, Matsushita, Oki, Samsung, Sumitomo Sitix,
Mitsubishi, Hyundai, ITT Night Vision, UMC and BP Solar. Of these corporations,
Motorola, Digital Equipment, Intel Corporation, SGS-Thomson, and Samsung have
been customers of the Company for approximately 14 years.
The Company markets its products by direct customer contact by the
Company's sales personnel, which consists of eight persons based in the United
States, including the President, the President of P.R. Hoffman, two other
outside salesmen and an inside sales and marketing staff of four persons. The
Company employs five 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 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 optical show per
year. The Company is dependent on its President, Jong S. Whang, for 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 1998, two customers accounted for 12% and 12% ,
respectively, of sales from continuing operations. No other customers accounted
for 10% or more of sales. For a more complete analysis of significant equipment
14
customers, see Note 6 of the Notes to Consolidated Financial Statements included
herein (the "Financial Statements").
There are presently twelve independent sales representatives and five
international distributors, each covering a specified geographical area on an
exclusive basis. The areas now covered by representatives are the New England
area, Texas, the United Kingdom, Central Europe (including Germany, Switzerland
and Austria), France, India, Italy, 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 to a customer who is a
manufacturer of diffusion furnaces.
Semiconductor equipment sales generally fluctuate with the level of
capital spending in the semiconductor industry. The semiconductor business is
cyclical.
COMPETITION
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 which provide
advantages similar to those that the Company believes the Atmoscan(R) provides
to semiconductor manufacturers. Notwithstanding this competition, the
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
very large production runs of smaller geometry chips 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 believes that there are several products in the market
which perform the same functions as the IBAL automation products, IBAL
Atmoscan(R) Trolley, IBAL Cantilever Trolley, IBAL Butler and IBAL Queue, but
they require more expensive clean room floor space and are more expensive. The
IBAL products are intended for customers who do not have or want to dedicate the
additional clean room space required for competing, more complex systems. Load
stations are sold to customers that are upgrading their existing facilities with
other products of the Company or as part of a larger equipment package to
customers starting-up new facilities. These 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 as these load stations were
specifically designed to accept the Company's Processing/Robotic products
without further modification. Products competitive with the Company's load
station are sold by several well-established firms, larger than the Company. The
Company believes, however, that there is a niche market for its load stations
because they can be packaged with Atmoscan(R), IBAL products and/or sold in
conjunction with Tempress(R) diffusion furnaces. The cantilever paddle system is
15
designed for easy assembly and disassembly to minimize down-time during
maintenance. The Company expects to sell its horizontal diffusion furnaces to
customers who purchase them in small quantities and that it will maintain a
competitive position through its policy of providing competitive prices and
product support services designed for the customer's specific requirements.
There are competitors for the carriers, wafer lapping and polishing
machines and related replacement parts and semiconductor polishing templates
that are larger than the Company. The Company believes that it is able to
effectively compete with other manufacturers of carriers by continually updating
its product line to keep pace with the rapid changes in its customers'
requirements. The Company is able to capture a small share of the semiconductor
polishing template market primarily by meeting the industry's perceived need for
a second source so as 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 December 4, 1998 the Company employed 89 people (including corporate
officers and 6 contract employees); 48 in manufacturing, 18 in engineering, 10
in administration, and 13 in sales. Of these, 14 are based at the Company's
offices and plant in Tempe, Arizona, 24 are employed at its facility in
Carlisle, Pennsylvania, 41 at its facility in Heerde, Netherlands, and 10 for
the Company's contract semiconductor manufacturing support services business
located in Austin, Texas. Of the 24 people employed at the Company's Carlisle,
Pennsylvania facility, 14 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.
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
foreign sales were associated with non-affiliates.
1998 1997 1996
------------------ ------------------ -----------------
United States (1) $ 9,029,000 55% $ 4,227,000 38% $3,314,000 39%
Far East (2) 1,228,000 8% 3,044,000 27% 3,332,000 40%
Europe (3) 5,030,000 31% 3,840,000 35% 1,768,000 21%
Australia 927,000 6% -- -- -- --
----------- --- ----------- --- ---------- ---
TOTAL $16,214,000 100% $11,111,000 100% $8,414,000 100%
=========== === =========== === ========== ===
- ----------
(1) Includes sales in Canada and in Costa Rica in 1998 and 1997.
(2) Includes Korea, Singapore, Taiwan, Japan, the People's Republic of China,
Singapore, Indonesia, India and Malaysia.
(3) Includes sales in Israel and Africa, which are not material.
16
For a further description of foreign sales, see Note 6 of the Notes to
the Financial Statements included herein.
ITEM 2. PROPERTIES
The Company's semiconductor equipment business and corporate offices
are located in 9,000 square feet of office and manufacturing space at its
principal address. These facilities are leased at a current rate of $4,400 per
month, on a triple net basis, for a term to expire on August 31, 2001.
Manufacturing support is performed in customer facilities.
The Company also owns a 9,900 square foot building located in Heerde,
The Netherlands. This facility is expected to provide adequate space for the
Company's assembly operations for its furnace line for the foreseeable future.
The Company subleases a 21,740 square foot building located in
Carlisle, Pennsylvania from John R. Krieger, the president of P.R. Hoffman and
the former owner of that business. These facilities are leased at a current rate
of $10,755 per month, on a triple net basis, for a term to expire on August 31,
1999. The Company has the option to renew the lease for two successive terms of
one year each.
The Company considers the above facilities suitable and adequate to
meet the Company's requirements.
ITEM 3. LEGAL PROCEEDINGS
None.
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 is traded in the over-the-counter market and
is quoted under the symbol "ASYS" in the automated quotation system of the
National Association of Securities Dealers Small Cap Market ("NASDAQ").
17
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
1998 and 1997 as reported by the NASDAQ Small Cap Market.
QUARTER ENDED HIGH LOW
------------- ---- ---
Fiscal 1998:
December 31, 1997 $ 3.81 $ 2.00
March 31, 1998 3.00 1.63
June 30, 1998 2.63 1.13
September 30, 1998 1.34 .50
Fiscal 1997:
December 31, 1996 $ 4.75 $ 2.38
March 31, 1997 4.00 2.00
June 30, 1997 3.63 2.00
September 30, 1997 3.50 2.50
In order to maintain listing of its common stock on the Nasdaq SmallCap
Market, the Company is required to satisfy certain quantitative and qualitative
requirements. On September 22, 1998, the Nasdaq Stock Market, Inc. notified the
Company that it was out of compliance with the requirement to maintain a minimum
bid price of its common stock of $1.00 per share. The Company has requested a
written hearing in order to seek an extension of time for meeting this
requirement. If approved by the Company's shareholders at its 1999 Annual
Meeting of Shareholders, the Company intends to effect a reverse stock split of
its outstanding shares of common stock in order to, among other things, increase
the minimum per share bid price of its common stock sufficiently to satisfy the
$1.00 requirement. If, however, the Nasdaq does not grant an extension or the
Company's common stock fails to satisfy the minimum bid requirement for ten or
more consecutive trading days prior to the extended date, the common stock will
be delisted from the Nasdaq SmallCap Market.
HOLDERS
As of December 3, 1998, there were approximately 1,479 shareholders of
record of the Company's common stock.
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.
18
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,
1998 and with respect to the balance sheets at September 30, 1998 and 1997 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, 1995
and 1994 and the balance sheet data at September 30, 1996, 1995 and 1994 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.
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
OPERATING DATA:
From Continuing Operations:
Revenues $16,213,904 $11,111,142 $8,414,005 $6,864,068 $ 4,331,079
Operating Profit (Loss)(1)(6) (904,334) 215,420 120,813 39,582 (172,648)
Income (Loss) from
Continuing Operations(1)(6) (589,887) 237,709 197,591 171,053 (89,469)
Net Income (Loss)(1)(5)(6) $ (589,887) $ 237,709 $ 508,683 $ 226,568 $ 94,004
Basic Earnings (Loss) Per
Share: (1)(2)(3)(6)
Continuing Operations (Loss) $ (.14) $ .06 $ .05 $ .04 $ (.05)
Net Income (Loss) (5) $ (.14) $ .06 $ .12 $ .06 $ .05
BALANCE SHEET DATA:
Cash and Short-Term Investments $ 1,351,542 $ 1,975,040 $4,458,337 $4,505,389 $ 1,080,976
Working Capital 4,993,455 5,271,320 5,480,452 6,163,304 2,244,628
Total Assets 9,325,479 9,355,092 8,458,614 8,365,519 3,974,922
Total Current Liabilities 2,530,723 2,108,165 1,568,994 1,363,291 852,103
Long-Term Obligations 347,667 318,721 265,355 -- --
Accumulated Deficit (764,265) (174,378) (412,087) (920,770) (1,147,338)
Shareholders' Equity(2)(4) 6,447,089 6,928,206 6,624,265 7,002,228 3,122,819
- ----------
(1) The results for the fiscal years 1998, 1997, 1996 and 1994 include
approximately $170,000, $85,000, $132,000 and $355,000, respectively,
expensed for amounts paid or payable to the university under the Research
Agreement described elsewhere herein. 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 two-for-one forward
split of common stock which was effective March 29, 1996. Earnings per
share for 1998, 1997, 1996 and 1995 reflect the sale of 2,415,000 shares in
a public offering completed December 22, 1994.
(3) The results shown would be the same if they were prepared on a diluted
basis, except that the net income per common share would have been $.05 for
the fiscal year ended September 30, 1997 and $.10 for the fiscal year ended
September 30, 1996.
19
(4) The decline in Shareholders' Equity in 1996 resulted from the Company's
receipt of 196,034 shares of its common stock upon disposition of the stock
of Echelon Services Company, as further detailed in the Consolidated
Statements of Stockholders' Equity, included in the consolidated financial
statements.
(5) The results for fiscal 1996 include a $284,335 gain on the disposal of
discontinued operations.
(6) Income from continuing operations for fiscal 1997 include a $115,487 gain
from the disposition of the Company's interest in the Seil Semicon joint
venture.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following 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.
PLANS FOR EXPANSION AND CAPITAL RESOURCES
The Company is engaged primarily in the manufacture and marketing of
several items of capital equipment, spare parts and related consumables used by
customers in the fabrication of semiconductor chips and semiconductor silicon
wafers from which such chips are made. Some of these products, amounting to an
estimated 13% of consolidated sales in fiscal 1998 and 6% in fiscal 1997, are
also sold for use in the production of optics, wireless communications, memory
disk media, ceramics and other products. The Company also provides contract
semiconductor manufacturing support services, accounting for an estimated 6% and
1% of consolidated sales in fiscal 1998 and 1997, respectively. The Company
intends to focus on expanding its revenue and operating profits derived from
sale of such equipment and related consumable products sold to semiconductor
fabricators and manufacturers of silicon wafers used in the fabrication of such
semiconductors. The Company is seeking to expand its revenue and operating
profits through the development of new products that serve these markets and to
further penetrate these markets with existing and new products. The Company has
temporarily placed a lower priority on the addition of new products or services
through acquisitions as a result of the depressed market price for the Company's
common stock and the lack of available funds sufficient to complete a
significant acquisition. That was not the case in fiscal 1997 and the first half
of fiscal 1998.
ACQUISITIONS. As a part of the above strategy, the Company acquired
substantially all of the assets and assumed certain of the related liabilities
of P.R. Hoffman Machine Products Corporation on July 1, 1997. The total cost of
the acquisition, including the liabilities assumed and related transaction
costs, was $3,192,000. See Note 3 to the Consolidated Financial Statements,
included herein, for further details of the acquisition and pro forma revenues
and earnings for fiscal 1996 and 1997, reflecting the assumption that the
acquisition had occurred at the beginning of each such fiscal year. During
calendar year 1996, the operations acquired produced $6.6 million of revenue and
$609,023 of operating profit. Due to the slow-down in the semiconductor
industry, fiscal 1998 revenue and operating profit (before corporate allocation)
derived from the P.R. Hoffman operations, declined to $5,948,000 and $469,000,
respectively.
20
During the fourth quarter of fiscal 1997, the Company began providing
contract semiconductor manufacturing support services. Although this operation
currently serves only one customer, its fiscal 1998 revenue is $906,000 and it
is making a positive contribution to operating profit. In the event the Company
does not obtain new customers for these services in fiscal 1999, the Company
expects revenue from these services to decline due to a decrease in the contract
services to be provided to the sole customer.
During fiscal 1996, the Company entered into a joint venture agreement
pursuant to which it acquired a 45% ownership interest and a 50% voting interest
in Seil Semicon, Inc. (the "Korean Joint Venture") in return for a commitment to
invest $500,000 in cash. The purpose of the joint venture was to develop and
operate a silicon test wafer reclaiming business. After the end of fiscal 1996,
the Company sold its interest in the joint venture for $478,000, because
management determined that increasing the Company's investment commitment to $3
million, without obtaining majority control, was more risk than was appropriate
for the Company. See Note 11 to the Consolidated Financial Statements, included
herein. As a result, the Company recorded a gain in fiscal 1997 of $115,487,
largely representing recovery of related costs and expenses recorded in the
previous year.
While the Company participated in the Korean Joint Venture in calendar
year 1996 and acquired P.R. Hoffman on July 1, 1997, the Company shifted its
focus to internal product development in June 1998. The Company intends to again
emphasize acquisitions if and when the market for the Company's common stock has
recovered or it has other capital resources in excess of its operating
requirements. Should the Company return to its acquisition strategy, it will
evaluate potential product or business acquisitions that may complement the
Company's existing business. Based upon the Company's acquisition criteria, such
an acquisition could require $4 million or more of capital resources. 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 resuming the photo-assisted CVD research project (described
below), the economic terms of the acquisition under review, and the potential
synergy of the acquired business with the Company's existing business. However,
due to the slowdown in the semiconductor industry, the amount of time it takes
to bring new products to the market, and the low market price of the Company's
common stock, the Company believes sales will decline slightly in fiscal 1999,
with a pattern of new growth commencing in fiscal 2000.
RESEARCH AND DEVELOPMENT. Prior to fiscal 1994, the Company generally
made small investments in product development, relative to most technology
businesses. The Company increased research and product development expenditures
in fiscal 1994 by $257,000, primarily through the expenditure of $355,000 for
photo-assisted CVD research conducted by the University of California at Santa
Cruz (the "University"). The Company's aggregate expenditures on photo-assisted
CVD development from fiscal 1994 through September 30, 1998 were $743,000. This
research has proven that the Company's patented method solves the problem of
deposited materials obstructing the ultra-violet ("UV") light source used for
activating the desired chemical reactions. However, this project has not
resulted in the development of a photo-assisted CVD machine with a commercially
acceptable rate of deposition, because lamps with sufficient intensity of UV
light are not yet available. The latter problem coupled with the general
21
slowdown in the semiconductor industry has resulted in the Company indefinitely
suspending work on the project effective September 30, 1998, until such time as
success appears more certain. Before the suspension, fiscal 1998 expenditures to
the University were $170,000, an increase of $85,000 over fiscal 1997.
During fiscal 1996, research and development costs consisted of
developing the new Tempress line of furnaces, an automated robot to load
cantilever paddle systems and product improvements. In addition, the Company
expended $268,000 and $196,000 in fiscal 1998 and 1997, respectively, on
research and development for the improvement and development of diffusion
products and will continue to make these types of expenditures in the
foreseeable future. The Company has budgeted $158,000 for development of new
products and improvements to existing products in fiscal 1999. The Company may
approve other projects of that nature, depending on their merit and its
anticipated effect on earnings. Any expenditure on the development of
non-diffusion products and services, if any, will also negatively impact the
Company's future operating results until the project achieves profitability.
The Company's currently available cash and short-term investments are
expected to be sufficient to service the inter-period liquidity requirements of
the already expanded operations of the Company. Therefore, any funds required
for significant unplanned development of new products and services being
considered are expected to be obtained from one or more sources of financing,
such as working capital or term loans from banks or other financial
institutions, equipment leasing, mortgage financing and internally generated
cash flow from operations. There is no assurance of the availability or
sufficiency of these or any other source of funding.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. The consolidated revenues increased by $5,103,000, or
forty-six percent (46%), to $16,214,000 in fiscal 1998 from $11,111,000 in
fiscal 1997. During the same period, operating income decreased by $1,119,000
from $215,000 in fiscal 1997 to an operating loss of $904,000 in fiscal 1998.
Revenue derived from the P.R. Hoffman operations and the Company's new
manufacturing support services accounted for substantially all of the increase
in consolidated revenue and resulted in a $554,000 increase in operating profit,
before corporate allocations, compared to the fourth quarter of fiscal 1997.
GROSS MARGINS. Revenue from the sale of existing diffusion products
increased by $23,000, or less than one percent, to $9,361,000, while the gross
margin from these products decreased by $813,000, or 28%. As a result of the
cyclical downturn the anticipated increase in sales from diffusion products did
not materialize. The gross margin as a percentage of diffusion product sales
declined to 23% in fiscal 1998 from 31% in fiscal 1997, as a result of increased
labor and overhead costs, price competition and product mix. The increases in
labor and overhead costs were made in anticipation of increased sales of
diffusion products, which did not materialize. The industry slowdown also
increased the amount of price competition experienced during fiscal 1998.
22
Finally, the addition of conveyor furnaces to the Company's diffusion product
line resulted in higher costs because of the short delivery schedule for such
products, as well as higher re-work costs associated with adding a product not
previously manufactured. Overall, the gross margin from consolidated sales
increased by $624,000, or 18%, as a result of the P.R. Hoffman operations and
manufacturing support services contributing to all four quarters of fiscal 1998,
compared to one quarter's gross margin in fiscal 1997. As a percentage of sales,
the consolidated gross margin was 26% of sales in fiscal 1998, compared to 32%
in fiscal 1997. The operations that were new in fiscal 1997 had lower gross
margins as a percent of sales in fiscal 1998 as compared to fiscal 1997,
contributing further to the decline in the consolidated gross margin
percentages.
SELLING AND GENERAL EXPENSES. Consolidated expenses increased by
$1,471,000, or 47%, to $4,610,000 in fiscal 1998, from $3,139,000 in fiscal
1997. Expenses attributable to the P.R. Hoffman operations and manufacturing
support services directly contributed $884,000 of that increase. That portion of
the increase in selling and general expenses was related to those operations
being included in the consolidated operating results for four quarters in fiscal
1998 compared to one quarter in fiscal 1997. The selling and general expenses of
the diffusion operation and corporate expenses increased $587,000 as a result of
the following factors: (i) the addition of personnel and other costs in
anticipation of higher revenues; (ii) incurrence of expenses related to
acquisition research activities, particularly before the industry slowdown
affected operations; and (iii) a charge of $184,000 taken by the Company for the
write-off of a demonstration unit that is no longer suitable for tradeshows.
Despite these increases, consolidated selling and general expenses remained a
constant 28% of revenue. Research and development expenses are discussed
separately above.
OPERATING PROFIT (LOSS). Primarily as a result of the cyclical downturn
in the semiconductor equipment industry and other factors discussed above, the
Company had an operating loss of $904,000 in fiscal 1998 compared to an
operating profit of $215,000 in fiscal 1997. Income (loss) from continuing
operations before income taxes includes operating income (loss), discussed
above, and net interest income. Net interest income was $108,000 lower in fiscal
1998, as compared to fiscal 1997, due to cash used in the acquisition of P.R.
Hoffman and for increased inventories and furniture and equipment purchases
associated with the expansion of the Company's diffusion furnace product line.
As a result of these items, income from continuing operations before income
taxes decreased by $1,228,000 to a loss of $850,000 in fiscal 1998.
NET INCOME (LOSS). As a result of the Company's net loss, the Company
recognized an income tax benefit of $260,000 in fiscal 1998, compared to the
fiscal 1997 provision for income taxes of $140,000. The effective tax rate for
fiscal 1998 is 31%, which is lower than the 34% statutory rate due to the
provision for state income taxes on the Company's new operations and services
and items that are not deductible for federal income taxes. The effective rate
for fiscal 1997 was 37%, 3% higher than the statutory rate, due to the same
items as in fiscal 1998. See Note 4 to the Consolidated Financial Statements for
further details including an analysis of the differences between the statutory
rate and the effective rate for fiscal 1998 and 1997. After taking into
consideration the provision for (benefit from) income taxes, the fiscal 1998 net
loss is $590,000, or $(.14) per share, compared to net income of $238,000, or
$.06 per share, in fiscal 1997.
23
TRENDS. As a result of the industry slowdown, consolidated revenue for
the second half of fiscal 1998, $14,829,000 on an annualized basis, was
substantially lower than the $17,599,000 of annualized revenue in the first half
of the fiscal year. Sales for fiscal 1999 are not expected to recover from the
industry downturn experienced in the second half of fiscal 1998. The Company
believes that there are no significant signs of improvement in the industry.
Furthermore, even if the Company is successful in adding new products, it will
not occur soon enough to have a significant effect on the full year results.
The fiscal 1998 net losses were all incurred in the third ($185,000)
and fourth ($707,000) fiscal quarters. In addition, the Company's sole customer
for semiconductor manufacturing support services has requirements for fiscal
1999 that are approximately 50% less than in fiscal 1998. However, as a result
of reductions in the number of employees at all three of the Company's
operations based in the United States and other cost reducing actions taken
during the fourth quarter of fiscal 1998, the consolidated net loss for the
first quarter of fiscal 1999 is expected to be somewhere between the net losses
of the two preceding quarters. During the first quarter of fiscal 1999, the
Company cut costs further in order to reach a cash-flow break-even in the last
three quarters of fiscal 1999, although no assurance can be made that such
measures will prove effective.
The Company's diffusion product line has been and will continue to be
affected by industry trends. The use and installed base of vertical furnaces is
increasing throughout the industry on a worldwide basis, particularly for the
fabrication of leading edge semiconductor devices, and each year it is expected
to increase in usage to and eventually surpass that of horizontal furnaces.
However, the Company believes that there will continue to be demand for
horizontal diffusion furnaces, notwithstanding other advantages of vertical
systems (e.g. the capability to produce more sophisticated semiconductors more
efficiently through more advanced automation), because generally production
runs, other than those for high volume production of small chips on larger
wafers, are more efficiently produced in horizontal furnaces as compared to
vertical furnaces. Due to the industry slowdown, manufacturers of vertical
furnaces have more aggressively pursued the sale of their horizontal furnaces,
which compete with those of the company, resulting in the erosion of selling
prices and gross margins.
The Company's products may be used to upgrade, retro-fit or replace
existing horizontal furnaces in order to extend their useful lives or otherwise
avoid the necessity for the customer to acquire more expensive vertical
furnaces. Horizontal furnaces are also sold for use in new facilities that do
not require vertical furnaces for the particular process. Another important
factor is the growth of semiconductor manufacturing using the less
capital-intensive horizontal diffusion furnaces in the manufacturer of solar
cells, and for other less demanding processes, which could further prolong the
commercial life of the Company's diffusion products.
The market for the Company's products remains a small niche market.
Thus future revenues are and will continue to be dependent upon the introduction
or acquisition of new products. Examples include the IBAL automation products
introduced from fiscal 1991 to fiscal 1993, or improved versions of products
that exist in the market, such as the Tempress(R) horizontal diffusion furnaces,
conveyor ovens and "clean room" load stations. The Company intends to pursue
both types of product introductions in the future. Product or business
24
acquisitions are also a part of the Company's strategy for growth, as evidenced
by the acquisition of P.R. Hoffman's product line of double sided precision
lapping and polishing machines and related consumable products in the fourth
quarter of fiscal 1997. The Company intends to again pursue acquisitions of
other businesses or products that complement its existing product lines, but
recognizes that its ability to do so is dependent upon a higher market price for
the Company's common stock and/or the availability of other sources of capital.
As of December 15, 1998, memory device manufacturers are experiencing
stability and even increases in the price for their products. However, since
there remains ample capacity for the manufacture of all semiconductors, this has
not translated into an improvement for the semiconductor production equipment
market in which the Company competes. Management currently believes that the lag
between the improvement in the market for semiconductors and that for
semiconductor equipment is approximately one year. However, it is anticipated
that improvement in the sales of the Company's consumable and replacement parts
will precede the improvement in equipment sales. Turmoil in the Asian financial
markets is expected to continue to significantly depress capital equipment sales
into that region. As expected, sales into the Asian market declined to 8% of the
Company's total sales in fiscal 1998, down from 27% in fiscal 1997. These
negative factors have a greater impact on the higher margin Atmoscan(R) and IBAL
automation products than on diffusion furnace sales. The reason for the
difference is that the Atmoscan and IBAL products are more likely to be viewed
as discretionary as opposed to diffusion furnaces which are integral to a
customer's operations. The Company's products are sold on a worldwide basis and
therefore, the Company will attempt to offset the sales declines caused by the
above factors by focusing more attention on other regions of the world.
FISCAL 1997 COMPARED TO FISCAL 1996
The consolidated revenues of the semiconductor equipment business
increased $2,697,000, or thirty-two percent (32%), to $11,111,000 in fiscal 1997
from $8,414,000 in fiscal 1996. During the same period, operating income
increased seventy-eight percent (78%), or $94,000, from $121,000 in fiscal 1996
to $215,000 in fiscal 1997. The acquisition and start-up businesses discussed
above accounted for sixty-six percent (66%) of the increase in revenue and more
than all of the increase in operating profit, despite their inclusion for only
the fourth quarter of fiscal 1997.
Revenue from the sale of existing diffusion products increased
$923,000, or eleven percent (11%), to $9,337,000, and accounted for thirty-four
percent (34%) of the increase in consolidated revenue. Growth in diffusion
product revenue resulted primarily from continued expansion of The Netherlands
operation, where the Tempress(R) diffusion furnaces are manufactured. The growth
in gross margins resulting from the increase in diffusion product sales was not
sufficient to offset the $435,000 increase in the related selling, general and
administrative expenses. Further, expanded furnace sales, which typically
produce a lower gross margin, were partially offset by a decline in the
typically more profitable automation products, thereby producing an unfavorable
mix. The gain on the disposal of the Korean Joint Venture described above
partially compensated for the decrease in consolidated operating profit for the
diffusion product line.
25
Income (loss) from continuing operations before income taxes includes
operating income (loss), discussed above, and net interest income. Net interest
income was $64,000 lower in fiscal 1997, as compared to fiscal 1996, due to cash
used in the acquisition of P.R. Hoffman and for increased inventories and
receivables associated with the expansion of the diffusion product line. As a
result of these items, the income from continuing operations before income taxes
improved by $30,000, or 9%, to $378,000 in fiscal 1997.
The income tax provision is $140,000 in fiscal 1997 and $150,000 in
fiscal 1996. The effective tax rate for fiscal 1996 is higher than the statutory
rate and the effective rate of fiscal 1997, because the equity in the losses of
the Korean Joint Venture were not deductible for U.S. income tax purposes in
fiscal 1996, when incurred, but were deductible upon disposition of that
investment. See Note 4 to the consolidated financial statements for further
details including an analysis of the differences between the statutory rate and
the effective rate for fiscal 1997 and 1996. After taking into consideration the
provision for income taxes, income from continuing operations is $238,000, $.06
per share, for fiscal 1997, a 20% improvement over the income of $198,000, or
$.05 per share, in fiscal 1996.
For fiscal 1997, net income is equal to income from continuing
operations, $238,000, or $.06 per share. The non-recurring $284,000 gain in
fiscal 1996 from the disposal of discontinued operations and $27,000 of income
before disposition of that operation, brought net income for fiscal 1996 to
$509,000, or $.10 per share.
LIQUIDITY AND FINANCIAL CONDITION
As of September 30, 1998 and 1997, cash, cash equivalents and
short-term investments amounted to $1,352,000 and $1,975,000, respectively. The
fiscal 1998 decrease in cash and cash equivalents of $623,000, resulted from the
$310,000 of cash used in operations, primarily for the financing of inventories
and $313,000 for purchases of property and equipment. While the Company expects
to make up to $270,000 of capital expenditures during fiscal 1999, and up to
$190,000 for research and development, actual expenditures will be made in light
of the expected benefits and the existing operating climate. As a result of the
above, the Company believes there is sufficient liquidity for current
operations. However, see "Plans for Expansion and Capital Resources," above, for
an explanation of factors that would give rise to requirements for additional
sources of liquidity and capital resources, and possible sources of such to meet
those needs.
Working capital decreased by $278,000 to $4,993,000 at September 30,
1998, from $5,271,000, a decrease of 5%, primarily as a result of expending
working capital on the purchase of property and equipment. For the same reasons,
the ratio of current assets to current liabilities increased to 3.0:1 from
3.5:1. Cash and short-term investments comprise 14% of total assets and
stockholders' equity accounts for 69% of total assets. These are measures of
financial condition. The Company believes that despite the recent losses, it
continues to posses the financially strength to plan future growth while
surviving the current industry slowdown.
26
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Any programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in the computer shutting down or performing incorrect computations. As a result,
in a little over one year, computer systems and software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements. Certain of
the Company's systems, including information and computer systems and automated
equipment, will be affected by the Year 2000 issue.
The Company is in the process of identifying the programs,
infrastructure, and products that could be affected by the Year 2000 issue and
is developing an implementation plan to resolve the problem on a timely basis.
Based on a preliminary, informal review of the hardware and software components
of its systems and products, the Company anticipates that the plan will not
require it to devote a considerable amount of internal resources or otherwise
hire substantial external resources to assist with the implementation of such
plan. The Company expects that the costs to be incurred by it to deal with this
issue will be not be material, as many of the issues were resolved before the
end of fiscal 1998, through installation of regular software updates provided by
licensors under standard maintenance agreements. The Company does not anticipate
that any problems encountered by suppliers and vendors in connection with the
Year 2000 will have a material adverse effect on the Company's financial
condition and results of operations.
EURO CONVERSION
Effective January 1, 1999, the European Monetary Union (the "Union") will result
in the issuance of a single currency (the "euro") for use in participating
countries, including The Netherlands, where one of the Company's operations is
based. See Note 7 to the Consolidated Financial Statements. The Company has
assessed the effects of the change to a single currency within the Union,
including the need to modify certain computer systems. The Company's
expenditures for Euro conversion projects were immaterial in fiscal 1998 and are
expected to be immaterial in fiscal years 1999 and 2000.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking
statements. The forward-looking statements contained herein are based on current
expectations that involve a number of risks and uncertainties. Among others,
these forward-looking statements are based on assumptions that (a) the Company
will not lose a significant customer or customers, (b) the Company will not
experience significant further reductions in demand or rescheduling of customer
purchase orders that have occurred recently due to equipment buyers' caution
resulting from over-capacity for the production of semiconductor chips, (c) that
the Company's products will remain accepted within their respective markets and
will not be significantly further replaced by newer technology equipment, (d)
that competitive conditions within the Company's markets will not materially
deteriorate further, (e) that the Company efforts to integrate its P.R. Hoffman
subsidiary will continue to progress, (f) that the Company's efforts to improve
its products and maintain its competitiveness in the markets it competes will
continue to progress and that the savings associated with these expenditures
and/or the increased product demand resulting therefrom justifies these
27
development costs, (g) that the Company will be able to retain, and when needed,
add key technical and management personnel, (h) that business or product
acquisitions, if any, will be successfully integrated and the results of
operations therefrom will support the acquisition price, (i) that the Company's
forecasts will accurately anticipate market demand, (j) that there will be no
material adverse changes in the Company's exiting operations, (k) that the
Company's plan for a reverse stock split will be approved by shareholders and
will enable the Company to avoid the de-listing of its common stock by the
NASDAQ Small-Cap Market, (l) 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, (m) the semiconductor
equipment industry will recover from the current slowdown, (n) the turmoil in
the Asian markets will not spread to other geographic regions or further
deteriorate, (o) the Company has or will be able to reduce costs sufficiently to
avoid using a substantial portion of its current liquidity to fund losses, (p)
there will be no material Year 2000 issues and (q) that demand for the Company's
products will not be adversely and significantly influenced by trends within the
semiconductor industries, including consolidation of semiconductor manufacturing
operations through mergers and the subcontracting out of the production of
semiconductors to foundries. Assumptions related to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, 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, the inclusion of 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.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Report of Independent Public Accountants..................................F-1
Financial Statements -
Consolidated Balance Sheets
September 30, 1998 and 1997............................................F-2
Consolidated Statements of Operations for
the years ended September 30, 1998, 1997 and 1996......................F-3
Consolidated Statements of Stockholders'
Equity for the years ended September 30,
1998, 1997 and 1996....................................................F-4
Consolidated Statements of Cash Flows for
the years ended September 30, 1998, 1997 and 1996......................F-5
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996.....................................F-7
Financial Statement Schedule for the years ended
September 30, 1998, 1997 and 1996:
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.
29
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 as of September 30, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1998. 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 generally accepted auditing
standards. 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 AMTECH SYSTEMS, INC. and
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
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 and supplementary data is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our 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.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
December 14, 1998.
F-1
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and equivalents (Note 2) $1,351,542 $1,395,849
Short-term investments (Note 2) -- 579,191
Accounts receivable, less allowance for
doubtful accounts of $143,000 in 1998
and $130,000 in 1997 (Note 6) 2,894,217 2,983,573
Inventories (Note 2) 2,393,708 2,062,052
Deferred income taxes (Notes 2 and 10) 393,000 273,000
Income taxes refundable (Notes 2 and 10) 404,000 --
Prepaid expenses 87,711 85,820
---------- ----------
Total current assets 7,524,178 7,379,485
---------- ----------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
Land, building and leasehold improvements (Note 4) 610,507 629,604
Equipment and machinery 935,280 785,142
Furniture and fixtures 498,634 726,365
---------- ----------
2,044,421 2,141,111
Less accumulated depreciation and
amortization (801,405) (781,078)
---------- ----------
1,243,016 1,360,033
---------- ----------
PURCHASE PRICE IN EXCESS OF NET ASSETS
ACQUIRED AND OTHER ASSETS, net of
accumulated amortization of $237,000 in 1998
and $200,000 in 1997 (Notes 2 and 3) 558,285 615,574
---------- ----------
$9,325,479 $9,355,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,229,451 $ 935,338
Accrued compensation and related taxes 573,294 541,916
Accrued warranty expense (Note 2) 166,839 200,670
Accrued installation expense 183,909 169,199
Customer deposits 249,795 --
Other accrued liabilities 127,435 138,042
Income taxes payable (Notes 2 and 10) -- 123,000
---------- ----------
Total current liabilities 2,530,723 2,108,165
---------- ----------
LONG-TERM OBLIGATIONS (Note 4) 347,667 318,721
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, 8 and 9)
STOCKHOLDERS' EQUITY (Notes 2 and 12):
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $.01 par value; 100,000,000 shares
authorized; 4,220,606 (4,185,106 in 1997) shares
issued and outstanding 42,206 41,850
Additional paid-in capital 7,385,486 7,345,187
Cumulative foreign currency translation adjustment (216,338) (284,453)
Accumulated deficit (764,265) (174,378)
---------- ----------
Total stockholders' equity 6,447,089 6,928,206
---------- ----------
$9,325,479 $9,355,092
========== ==========
The accompanying notes are an integral part
of these consolidated balance sheets.
F-2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
----------- ----------- ----------
Net product sales (Note 6) $16,213,904 $11,111,142 $8,414,005
Cost of product sales 12,069,780 7,591,347 5,516,936
----------- ----------- ----------
Gross margin 4,144,124 3,519,795 2,897,069
Selling, general and administrative (Note 2) 4,610,238 3,139,366 2,386,466
Equity in (income) losses of Korean
joint venture (Note 13) -- (115,487) 65,063
Photo-CVD project (Notes 2 and 5) 170,306 84,883 132,243
Other research and development (Notes 2 and 5) 267,914 195,613 192,484
----------- ----------- ----------
Operating profit (loss) (904,334) 215,420 120,813
Interest income-net 54,447 162,289 226,778
----------- ----------- ----------
Income (loss) from continuing
operations before income taxes (849,887) 377,709 347,591
Income tax provision (benefit) (Notes 2 and 10) (260,000) 140,000 150,000
----------- ----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (589,887) 237,709 197,591
----------- ----------- ----------
DISCONTINUED OPERATIONS:
Income From Discontinued Operations (Note 14) -- -- 26,757
Gain on Disposal of Echelon (Notes 10 and 14) -- -- 284,335
----------- ----------- ----------
-- -- 311,092
----------- ----------- ----------
NET INCOME (LOSS) $ (589,887) $ 237,709 $ 508,683
=========== =========== ==========
BASIC EARNINGS (LOSS) PER SHARE (Notes 2, 11 and 12):
Income (Loss) From Continuing Operations $ (.14) $ .06 $ .05
Net Income (Loss) $ (.14) $ .06 $ .12
Weighted average shares outstanding 4,213,482 4,168,111 4,175,728
DILUTED EARNINGS (LOSS) PER SHARE (Notes 2, 11 and 12):
Income (Loss) From Continuing Operations $ (.14) $ .05 $ .04
Net Income (Loss) $ (.14) $ .05 $ .10
Weighted average shares outstanding 4,213,482 4,697,942 5,343,606
The accompanying notes are an integral part of these consolidated statements.
F-3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended September 30, 1998, 1997 and 1996
Cumulative
Common Stock Foreign
------------------- Additional Currency Total
Number of Paid-In Translation Accumulated Stockholders'
Shares Amount Capital Adjustment Deficit Equity
--------- ------- ---------- ----------- ----------- ------------
BALANCE AT
SEPTEMBER 30, 1995 4,305,702 $43,057 $7,850,482 $ 29,459 $(920,770) $ 7,002,228
Net Income -- -- -- -- 508,683 508,683
Shares returned upon
disposition of Echelon (196,034) (1,960) (806,679) -- -- (808,639)
Translation adjustment -- -- -- (78,007) -- (78,007)
--------- ------- ---------- --------- --------- -----------
BALANCE AT
SEPTEMBER 30, 1996 4,109,668 41,097 7,043,803 (48,548) (412,087) 6,624,265
Net income -- -- -- -- 237,709 237,709
Employee stock bonus 16,050 160 34,577 -- -- 34,737
Stock options exercised 27,000 270 34,930 -- -- 35,200
Shares and warrants issued
in connection with the
acquisition ofP.R. Hoffman
assets (Note 3) 32,388 323 231,877 -- -- 232,200
Translation adjustment -- -- -- (235,905) -- (235,905)
--------- ------- ---------- --------- --------- -----------
BALANCE AT
SEPTEMBER 30, 1997 4,185,106 41,850 7,345,187 (284,453) (174,378) 6,928,206
Net loss -- -- -- -- (589,887) (589,887)
Employee stock bonus 17,500 176 24,229 -- -- 24,405
Stock options exercised 18,000 180 16,070 -- -- 16,250
Translation adjustment -- -- -- 68,115 -- 68,115
--------- ------- ---------- --------- --------- -----------
BALANCE AT
SEPTEMBER 30, 1998 4,220,606 $42,206 $7,385,486 $(216,338) $(764,265) $ 6,447,089
========= ======= ========== ========= ========= ===========
The accompanying notes are an integral part of these consolidated statements.
F-4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30. 1998, 1997 and 1996
1998 1997 1996
---------- ----------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ (589,887) $ 237,709 $ 508,683
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 361,046 233,938 179,289
Inventory and accounts receivable write-offs 135,642 76,123 91,085
Gain on disposal of discontinued operations -- -- (284,335)
Loss (gain) on disposals of long-lived assets 183,872 592 (1,950)
Equity in (income) losses of Korean joint venture -- (115,487) 65,063
Deferred income taxes (120,000) (50,000) (70,000)
(Increase) decrease in:
Accounts receivable 160,719 (401,561) 212,067
Inventories, prepaids and other assets (429,450) (421,270) (284,872)
Increase (decrease) in:
Accounts payable 240,963 191,544 160,152
Accrued liabilities 269,048 222,828 254,814
Income taxes payable/refundable (522,059) (21,000) (81,000)
---------- ----------- ----------
Net cash Provided by (Used In) Operating Activities (310,106) (46,584) 748,996
---------- ----------- ----------
INVESTING ACTIVITIES:
Maturities of short-term investments - net 579,191 1,884,929 1,207,449
Proceeds from disposition of (investment in)
unconsolidated Korean joint venture -- 475,047 (425,000)
Proceeds from sale of assets 2,241 200 28,983
Purchases of property, plant and equipment (313,203) (236,852) (541,919)
Cash paid for net assets of P. R. Hoffman
Machine Products Corporation -- (2,569,580) --
Cash distributed in disposal of Echelon -- -- (109,698)
---------- ----------- ----------
Net Cash Provided by (Used in) Investing Activities 268,229 (446,256) 159,815
---------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised (Note 12) 16,250 35,200 --
Proceeds from (Payments on) mortgage loan (12,069) (19,635) 288,297
---------- ----------- ----------
Net Cash Provided By Financing Activities 4,181 15,565 288,297
---------- ----------- ----------
EFFECT OF EXCHANGE RATE CHANGES (6,611) (121,093) (36,711)
---------- ----------- ----------
CASH AND EQUIVALENTS (Note 2):
Net increase (decrease) (44,307) (598,368) 1,160,397
Beginning of year 1,395,849 1,994,217 833,820
---------- ----------- ----------
END OF YEAR CASH AND EQUIVALENTS $1,351,542 $ 1,395,849 $1,994,217
========== =========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For The Years Ended September 30. 1998, 1997 and 1996
1998 1997 1996
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 15,731 $ 19,855 $ 5,376
Income taxes, net of refunds 387,411 216,000 327,000
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Value received in the form of the
Company's $.01 par value common
stock in exchange for the net assets
of Echelon Service Company (Note 14) -- -- 808,639
The accompanying notes are an integral part of these consolidated statements.
F-6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(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, 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. See Note 14 regarding discontinued
operations.
One of the requirements for maintaining the listing of the Company's
common stock on the NASDAQ Small-Cap Stock Market is that the bid price be at
least $1.00 per share. The price of the Company's common stock has been trading
below that price for several months. The Company has received notice from NASDAQ
that the Company must respond to the notice or its stock will be de-listed. The
Company has requested a hearing at which it will request time to remedy the
situation. If necessary, the Company intends to effect a reverse split of the
stock. While this strategy did remedy a similar situation in fiscal 1993, there
can be no assurance that this strategy will again restore the market price to
$1.00 or more or that such price will be maintained. The loss of it's NASDAQ
Small-Cap listing could result in further deterioration of the market for the
Company's common stock.
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, including Echelon Service Company through the date of its
disposition (Note 14), P. R. Hoffman Machine Products, Inc. since its
acquisition date (Note 3) and Tempress Systems, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION - Revenue is recognized on the accrual basis when
the product is shipped and title passes to the customer.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash equivalents and
short-term investments consist of time certificates of deposit and U.S. treasury
bills. The Company considers certificates of deposit and treasury bills to be
cash equivalents if their maturity is 90 days or less from date of purchase.
Investments maturing in more than 90 days are
F-7
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
considered to be "available-for-sale" (as defined by Statement of Financial
Accounting Standards (SFAS) No. 115) and are recorded at fair value, which
approximates cost.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market. The components of inventory as of September 30,
1998 and 1997 are as follows:
1998 1997
---------- ----------
Purchased parts $1,174,570 $ 995,850
Work-in-progress 612,646 618,295
Finished Goods 606,492 447,907
---------- ----------
$2,393,708 $2,062,052
========== ==========
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 and any gain or loss is recognized.
Depreciation expense for fiscal years 1998, 1997 and 1996 was approximately
$273,000, $196,000 and $152,000, respectively.
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.
The Company has adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard
requires that long-lived assets be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the 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. Adoption of this standard did not have a material effect on
the Company's financial position or results of operation.
Due to model changes, the Company has reviewed a Tempress diffusion
furnace built for use at tradeshows and determined that the net present value of
future cash flows it can expect from this furnace is less than the carrying
value of the asset. Accordingly, a loss of $184,028, the cost of the furnace
less accumulated depreciation, is included in selling, general and
administrative expense in fiscal 1998.
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED - 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 for fiscal years 1998, 1997 and 1996 was approximately $44,000, $9,000
and $0, respectively.
F-8
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
WARRANTY - The Company generally provides free of charge a limited
twelve-month warranty to all purchasers of its new products and systems. Current
liabilities include approximately $167,000 and $201,000 for accrued warranty
expense as of September 30, 1998 and 1997, respectively. Warranty expense for
fiscal 1998, 1997 and 1996 amounted to approximately $240,000, $267,000 and
$135,000, respectively. Management believes this amount is sufficient for all
future warranty costs on systems sold through September 30, 1998.
RESEARCH AND DEVELOPMENT EXPENSES - The Company expenses product
development costs as they are incurred. The Company incurred expenses of
approximately $438,000 in 1998, $280,000 in 1997, and $325,000 in 1996, related
to research of photo-assisted CVD (chemical vapor deposition) equipment and
processes, the development of diffusion furnaces, and the improvement of IBAL
and other products.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - Financial information
relating to the Company's foreign subsidiary is reported in accordance with SFAS
No. 52, "Foreign Currency Translation". Income from continuing operations
includes a loss from foreign currency transactions of $11,000 in 1998 and gains
of $34,000 in 1997 and $56,000 in 1996. The functional currency of Tempress
Systems, Inc. is The Netherlands guilder. The gains or losses resulting from the
translation of the financial statements of the Company's foreign subsidiary have
been included as a separate component of shareholders' 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 Notes 10 and 14.
EARNINGS PER COMMON SHARE - The Company has adopted SFAS No. 128,
"Earnings Per Share." The new statement modifies the calculation of primary and
fully diluted EPS and replaces them with basic and diluted EPS. All prior year
earnings per share (EPS) data presented have been restated as required by SFAS
No. 128. See Note 11.
STOCK-BASED COMPENSATION - The Company accounts for its stock-based
compensation plans under Accounting Principles Board Opinion APB No. 25, under
which no compensation cost is recognized. In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No.123, "Accounting for
Stock-Based Compensation." SFAS No.123 requires companies that account for
stock-based compensation as prescribed by APB No. 25 to disclose the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted
and certain other information with respect to stock compensation and the
assumptions used to determine the pro forma effects of SFAS No. 123. See Note
12.
F-9
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of the
Company's current assets and current liabilities approximate fair value due to
the short-term in which these instruments mature. The carrying value of the
Company's long-term debt approximates fair value because the interest rate of
the mortgage note payable (Note 4) approximates prevailing interest rates for
similar debt instruments.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying of all changes in equity
that result from transactions and other economic events occurring during the
period, other than transactions with owners ("comprehensive income"), and
requires companies to retroactively display the cumulative total of
comprehensive income, other than net income for the period, as a separate
component of equity in both interim and annual financial statements. SFAS No.
131 establishes a new model for interim and annual segment reporting, taking
into consideration the way management organizes segments for making operating
decisions and assessing segment performance. The Company is required to adopt
these standards in fiscal 1999. Management has not assessed the effect of these
standards on future disclosures.
(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS:
On July 1, 1997, the Company acquired substantially all of the assets
and operating liabilities of P. R. Hoffman Machine Products Corporation. 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. The purchase method of accounting
is being used for this acquisition, and therefore, the accompanying statements
include the results of the operations of P. R. Hoffman since the date of
acquisition.
The cost of the acquisition is summarized as follows:
Cash $2,308,000
Liabilities assumed 382,000
Acquisition transaction costs 270,000
Issuance of 32,388 shares of common stock 65,000
Issuance of 150,000 warrants (Notes 11 and 12) 167,000
----------
Total cost of acquisition $3,192,000
==========
F-10
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS - (CONTINUED)
The cost of the acquisition was allocated as follows:
Accounts Receivable $1,122,000
Inventory 1,060,000
Property 421,000
Other assets and liabilities 35,000
Purchase price in excess of net assets acquired 554,000
----------
Total $3,192,000
==========
The valuation of the common stock issued in connection with these
transactions was determined based on the fair market value of the common stock
on the date of issuance, taking into account the illiquidity arising from
restrictions on the sale of the stock. The purchase price in excess of net
assets acquired commonly referred to as "goodwill" is being amortized on a
straight-line basis over a period of 15 years.
In addition to the above purchase price, the former owner of P. R.
Hoffman Machine Products Corporation is entitled to additional payments 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 after the year ended September 30, 1997, limited to
a maximum aggregate of $2 million of such payments. The additional contingent
purchase price of up to $2 million is payable in a combination of cash and
unregistered and registered common stock of Amtech Systems, Inc. as defined in
the Asset Purchase Agreement. This additional consideration will be treated as
part of the purchase price to the extent earned and will be amortized over the
remainder of the fifteen year period that began on the July 1, 1997 acquisition
date. No contingent consideration was earned in fiscal 1998 or 1997.
As a part of the transaction, the Company subleases a 21,740 square foot
building, located in Carlisle, Pennsylvania, from John R. Krieger, the president
and former owner of the P.R. Hoffman operation. The lease requires monthly
payments of $10,755, on a triple net basis, expires on June 30, 1999, and
includes an option to renew the lease for two consecutive one-year terms. The
Company also entered into an employment agreement with Mr. Krieger, which
requires payments of $150,000 per year and expires on June 30, 2001.
The following consolidated pro forma financial information was prepared
assuming that the acquisition had occurred at the beginning of each fiscal year.
This pro forma information does not necessarily reflect the results of
operations that would have occurred had the acquisition taken place at the
beginning of each fiscal year and is not necessarily indicative of results that
may be obtained in the future (unaudited):
F-11
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS - (CONTINUED)
1997 1996
----------- -----------
Revenues $16,121,577 $15,028,672
Income from continuing operations 575,069 355,643
Net income 575,069 666,735
Earnings per share:
Income from continuing operations $ .11 $ .08
Net income $ .11 $ .13
For purposes of the above pro forma presentation, the historical
revenues and earnings of P. R. Hoffman for the twelve month period ended
September 30, 1997 and the year ended December 31, 1996 have been combined with
the revenues and earnings of the Company for the years ended September 30, 1997
and 1996, respectively. Therefore, both columns include the operating results of
P. R. Hoffman for the three months ended December 31, 1996, including $1,332,814
of revenues and $227,591 of operating losses.
(4) LONG-TERM OBLIGATIONS:
Long-term debt included in long-term obligations includes a twenty year
mortgage secured by the Company's land and building located in The Netherlands.
The long-term debt portion of this debt was $215,000 and $216,000 as of
September 30, 1998 and 1997, respectively. As of September 30, 1998, the
collateral has a carrying value of $406,000. Principal is payable in The
Netherlands guilder in 240 equal monthly payments. Principal payments are
$13,000 for each of the next four years, with the payments for 1999 and 1998
included with accounts payable as of September 30, 1998 and 1997. Interest is
fixed at 6.95% through June 2001, after which the rate will be adjusted to the
prevailing market rate. There is a penalty for prepayment of the loan prior to
June 2001.
In October 1998, the Company was granted a line of credit in the amount
of approximately $375,000, the equivalent of 750,000 of The Netherlands'
guilders at an interest rate of 2% over a Netherlands bank's basic interest
rate, 3.75% as of October 31, 1998. The line of credit is secured by a $125,000
second mortgage on the Company's land and building in the Netherlands and
certain accounts receivable, which amounted to $1,754,000 as of September 30,
1998.
F-12
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES:
During March 1994, the Company entered into a research and development
contract (the "Research Agreement") with and paid $355,405 to the University of
California at Santa Cruz (the "University"). That amount was expensed in fiscal
1994. The Company's purpose for entering into the contract was to determine the
feasibility and demonstrate the practical application of the Company's patented
photo-assisted chemical vapor deposition ("CVD") process. The University has
developed designs and specifications for a prototype model of a product
embodying the Company's technology and used it to conduct the initial study. The
University has also proven that Amtech's patented method solves the problem of
deposited materials obstructing the ultra-violet light used to activate the
desired chemical reactions. However, the study has not developed a
photo-assisted machine that produces a commercially viable rate of deposition.
Due to economic circumstances and delays in achieving the goals of the research
project, the Company has suspended work, until success appears to be more
certain. There can be no assurance that the tools required to increase the
prospects of success will become available in time to make further study
economically attractive. Costs of the Research Agreement are reflected
separately in the Consolidated Statement of Operations. Other research and
development includes the cost of internal personnel and related expenses
incurred on several projects, including the photo-assisted CVD project.
Key suppliers include two (2) steel mills, one domestic and one German,
capable of meeting the material specifications the Company requires, an
injection molder that provides plastic insets for steel carriers; a pad supplier
that produces a unique material used to attach semiconductor wafers to the
polishing template (sole sourced from a Japanese company); and an adhesive
manufacturer that supplies the critical glue used in the production of the
semiconductor polishing templates. The Company has unconditional commitments to
purchase $386,000 of German steel, all of which the Company is required to take
or pay for in fiscal 1999. Due to long lead times, certain minimum order
quantities, the slow-down in the semiconductor industry and quantities of
similar steel in inventory it could take several years to use all of the steel
commitments in production of the Company's products. However, these purchase
commitments are not expected to result in any significant losses.
F-13
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(6) MAJOR CUSTOMERS AND FOREIGN SALES:
The Company had major customers accounting for more than 10% of sales,
which were different in each of the three years presented, as follows:
1998 1997 1996
---- ---- ----
Customer 1 -- -- 17%
Customer 2 -- -- 10%
Customer 3 -- -- 10%
Customer 4 -- -- 10%
Customer 5 -- 16% --
Customer 6 -- 16% --
Customer 7 12% -- --
Customer 8 12% -- --
--- --- ---
24% 32% 47%
=== === ===
As of September 30, 1998 and 1997, receivables from three customers
comprise 43% and 55% of accounts receivable, respectively, 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 Concentrations of Credit Risk".
The Company's sales were to customers in the following geographic
regions:
1998 1997 1996
---- ---- ----
United States & Canada 55% 38% 39%
(including 1% or less to Costa Rica)
Far East (Korea, People's Republic of China, 8% 27% 40%
Taiwan, Japan, Singapore, Indonesia,
Malaysia and India)
Europe (including 1% or less to Africa) 31% 35% 21%
Australia 6% -- --
--- --- ---
100% 100% 100%
=== === ===
F-14
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION:
The Company has manufacturing operations in the United States and The
Netherlands. Revenues, operating profit (loss) and identifiable assets by
geographic region of the locations for the fiscal years ended 1998, 1997 and
1996 are as follows:
1998 1997 1996
----------- ----------- ----------
Revenues
United States $10,481,408 $ 5,321,240 $3,369,915
The Netherlands 5,732,496 5,789,902 5,044,090
----------- ----------- ----------
$16,213,904 $11,111,142 $8,414,005
=========== =========== ==========
Operating profit (loss)
United States $ (376,754) $ (146,742) $ 89,893
The Netherlands (527,580) 362,162 30,920
----------- ----------- ----------
$ (904,334) $ 215,420 $ 120,813
=========== =========== ==========
Identifiable Assets
United States $ 5,855,188 $ 7,173,662 $6,006,169
The Netherlands 3,470,291 2,181,430 2,452,445
----------- ----------- ----------
$ 9,325,479 $ 9,355,092 $8,458,614
=========== =========== ==========
(8) LEASES:
The Company leases buildings, vehicles and equipment. As of September
30, 1998 minimum rental commitments under noncancellable operating leases total
$281,000, of which $156,000, $69,000, $52,000 and $4,000 are payable in fiscal
1999, 2000, 2001 and 2002, respectively.
Rental expense related to continuing operations, net of sublease income,
for 1998, 1997 and 1996 was approximately $234,000, $98,000 and $108,000,
respectively.
(9) 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 has agreed to pay the inventor royalties
for 17 years until November 22, 2000. From the first quarter of fiscal 1994
through the year 2000, royalties are 4% on sales of complete Atmoscan systems
and 2% on any related spare parts.
Through the acquisition of the net assets of P. R. Hoffman Machine
Products Corporation (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 licensed
F-15
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(9) PROPRIETARY PRODUCT RIGHTS - (CONTINUED)
the patent rights from Wacker Siltronics. Royalties are 5% on net sales of
insert carriers to third parties.
Royalty expense included in cost of product sales totaled approximately
$82,000, $44,000 and $47,000 in 1998, 1997 and 1996, respectively.
(10) INCOME TAXES:
The provision for (benefit from) income taxes on continuing operations
consists of:
1998 1997 1996
--------- --------- --------
Current
Domestic federal $ (28,000) $ (32,000) $158,000
Foreign (133,000) 202,000 54,000
Domestic State 21,000 20,000 8,000
--------- --------- --------
(140,000) 190,000 220,000
--------- --------- --------
Deferred
Domestic federal (70,000) (125,000) (16,000)
Foreign (45,000) 77,000 (54,000)
Domestic State (5,000) (2,000) --
--------- --------- --------
(120,000) (50,000) (70,000)
--------- --------- --------
$(260,000) $ 140,000 $150,000
========= ========= ========
The provision for income taxes on continuing operations is different
from the amount that would be computed by applying the United States corporate
income tax rate to the income (loss) from continuing operations before income
taxes. The differences as of September 30 are summarized as follows:
1998 1997 1996
--------- -------- --------
Tax provision (benefit) at the
federal statutory rate $(289,000) $128,000 $118,000
Effect of expenses not deductible
for tax 19,000 19,000 3,000
State tax provision (38,000) 23,000 28,000
Effect of losses of Korean joint
venture -- (22,000) 22,000
Change in valuation allowance 54,000 3,000 (20,000)
Other items (6,000) (11,000) (1,000)
--------- -------- --------
Income tax provision (benefit) $(260,000) $140,000 $150,000
========= ======== ========
F-16
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(10) INCOME TAXES - (CONTINUED)
The tax assets (liabilities) comprising the net deferred tax asset as of
September 30, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Allowance for doubtful accounts $ 54,000 $ 40,000
Uniform capitalization of inventory costs 50,000 48,000
Inventory write-downs not currently deductible 71,000 23,000
Book vs. tax depreciation (27,000) (19,000)
Unrealized currency losses/(gains) 35,000 (24,000)
State net operating loss carryforwards 72,000 63,000
Liabilities not currently deductible 253,000 203,000
Valuation allowance (115,000) (61,000)
--------- ---------
$ 393,000 $ 273,000
========= =========
In evaluating the probability of realizing its deferred tax assets, the
Company has limited its recognition of deferred tax assets to those tax assets
which management believes are more likely than not to be realized. The remaining
deferred tax assets have been offset by the valuation allowance.
See Note 14 regarding the income tax treatment of the gain on the
disposal of discontinued operations.
F-17
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(11) EARNINGS (LOSS) PER COMMON SHARE:
All prior year earnings per share (EPS) data presented have been
restated as required by SFAS No. 128. EPS were calculated as follows:
1998 1997 1996
---------- ---------- ----------
Net income (loss) $ (589,887) $ 237,709 $ 508,683
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Common stock 4,213,482 4,168,111 4,175,728
Common stock equivalents
issuable upon exercise
of warrants and stock
options (1) -- 529,831 1,167,878
---------- ---------- ----------
4,213,482 4,697,942 5,343,606
========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ (.14) $ .06 $ .12
========== ========== ==========
Diluted $ (.14) $ .05 $ .10
========== ========== ==========
----------
1. Number of common stock equivalents calculated using the treasury stock
method and the average market price during the period. In fiscal 1998
all options and warrants, totaling 3,371,584, were anti-dilutive due
to the net loss and therefore did not enter into the EPS calculation.
Of these options and warrants, 3,291,584 had an exercise price greater
than the average market price during the period.
(12) STOCK BASED COMPENSATION:
The Company accounts for its stock-based compensation prior to October
1995, under APB No. 25, under which no compensation expense has been recognized,
as all options and warrants granted have an exercise price equal to or in excess
of the fair market value of the Company's common stock on the date of grant.
Since the effective date of SFAS No. 123, the Company has applied this method of
accounting for stock-based compensation to grants to employees of the Company.
Effective with the close of business on March 29, 1996, each share of
the $.01 par value common stock of the Company (the "common stock") was split
into two shares. All shares and per share amounts have been restated to give
effect for this two-for-one forward stock split.
F-18
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(12) STOCK BASED COMPENSATION - (CONTINUED)
STOCK WARRANTS - In fiscal 1995, the Company issued an aggregate of
2,625,000 redeemable warrants to the public (2,415,000) and the underwriter
(210,000) in connection with a secondary public offering, which have an exercise
price of $2.75 per share and expire on December 15, 1999. The redeemable
warrants are subject to the Company's right of redemption, under certain
circumstances, at $.05 each during the period in which they are exercisable. In
connection with the public offering, the Company also sold the underwriting
group warrants entitling the group to purchase an additional 210,000 shares at
$2.25 per share anytime prior to December 15,1999.
In connection with the acquisition of the net assets of P.R. Hoffman
during fiscal 1997, the Company issued 150,000 warrants for purchase of one
share each of $.01 par value common stock at a per share exercise price of
$3.00. These warrants have been valued at $167,200 using the Black-Scholes
valuation method discussed in Note 2. The primary assumptions used in the
valuation of these warrants were a risk free 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 goodwill associated with the purchase
of the P. R. Hoffman net assets.
STOCK OPTION PLANS - The board of directors has reserved 50,000 shares
of common stock for issuance upon exercise of the outstanding options issued to
employees under the 1983 Incentive Stock Option Plan, which expired in 1993.
Another 30,000 shares of common stock are reserved for the exercise of stock
purchase rights granted to directors under Director Stock Purchase Agreements
prior to 1995. The Non-Employee Directors Stock Option Plan was approved by the
stockholders in 1996 for the issuance of up to 200,000 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 320,000 shares were authorized. The 1998 Employee Stock Option Plan,
under which 100,000 shares may be optioned, was adopted by the board of director
on January 31, 1998 and approved by shareholders on March 20, 1998. All of the
plans with the exception of the 1983 Incentive Stock Option Plan Incentive
expire in 2006. All 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 February 28,
2008. Under the terms of the 1995 Stock Option Plan, nonqualified stock options
also may be issued. Options issued in fiscal years 1998, 1997 and 1996 vest at
the rate of 20% - 25% per year. Shares granted under the 1995 Stock Bonus Plan
totaled 50,000 in 1995 and 8,500 in 1996, of which 12,000 were forfeited in
1996. As of September 30, 1998, the Company had 269,000 options available for
issuance under the plans.
F-19
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(12) STOCK BASED COMPENSATION - (CONTINUED)
The stock option transactions and the options outstanding for the three
years ended September 30, 1998, are summarized as follows:
Number of Weighted-Average
Options Exercise Price
------- --------------
Outstanding at September 30,1995 147,000 $ 1.40
Expired (14,000) 1.08
-------
Outstanding at September 30,1996 133,000 $ 1.32
Granted 282,084 2.50
Exercised (27,000) 1.07
Expired (6,000) 1.63
-------
Outstanding at September 30,1997 382,084 2.17
Granted 54,000 2.33
Exercised (18,000) .90
Expired or forfeited (33,500) 2.23
-------
Outstanding at September 30,1998 384,584 2.26
=======
Outstanding options exercisable as of:
September 30, 1996 81,000 1.52
September 30, 1997 50,000 1.45
September 30, 1998 98,000 2.37
In fiscal 1998 and 1997 the number of incentive stock options issued to
employees, net of forfeitures, were 7,000 and 264,000, respectively, and they
were valued at $17,000 and $440,000, respectively, using the Black-Scholes
valuation method. Had the effects of stock-based compensation been accounted for
in the financial statements for fiscal 1998, the net (loss) would have been
approximately ($681,000) and the basic and diluted (loss) per share would have
been $.16 per share. Had the effects of stock-based compensation been accounted
for in the financial statements for fiscal 1997, the net income would have been
approximately $187,000 and the basic and diluted per share would have been $.04
per share. The primary assumptions used in the valuation were a weighted average
risk free rate of 6.23%, an expected dividend yield of 0%, holding periods of
four to eight years and 69% volatility. 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.
As of September 30, 1998 the Company's 384,584 outstanding stock options
had a weighted average remaining contractual life of 7.6 years and a range of
exercise prices of $1.03 to $3.31. In addition, as of September 30, 1998 the
Company had 97,917 of exercisable stock options with a weighted average
remaining contractual life of 7.7 years and a range of exercise prices of $1.75
to $2.50.
F-20
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(12) STOCK BASED COMPENSATION - (CONTINUED)
On October 14, 1998, the Company re-priced all stock options outstanding
as of September 30, 1998 to the closing market price of $.56 per share on that
date. 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.
(13) KOREAN JOINT VENTURE:
In the first quarter of fiscal 1996, the Company entered into a joint
venture agreement pursuant to which the Company received a 45% ownership
interest and a 50% voting interest in Seil Semicon, Inc., (the "JVC"), in return
for a commitment to invest $500,000 in cash. The joint venturers planned to
operate a silicon test wafer reclaiming business in Korea through Seil Semicon,
Inc., which remains in the start-up phase. Pursuant to that agreement, the
Company invested $425,000 and expensed $65,000 of that amount as its share of
the start-up losses. The joint venture succeeded in acquiring real property for
construction of the reclamation facility and in securing $3 million in third
party financing. However, a review during the fourth quarter of fiscal 1996
revealed that the increases in the JVC's anticipated costs during the start-up
phase and the cost of additional equipment required for the operation had
expanded the total projected capital requirements by $2,500,000. During the
first quarter of fiscal 1997, the Company's financial relationship with the
joint venture was terminated because management determined that raising the
Company's investment commitment to $3 million, without obtaining majority
control, was more risk than was appropriate for the Company. The Company
received $478,000 during December 1996, pursuant to the termination agreement,
which reimbursed the Company's actual investment and expenses.
(14) DISCONTINUED TECHNICAL CONTRACT PERSONNEL SEGMENT:
The Company entered the technical contract personnel segment in 1988. On
September 30, 1992, the Company sold substantially all of the operations of the
technical contract personnel segment, with only Echelon Service Company
("Echelon") being retained. Echelon was acquired in 1989, using stock and cash
at closing as consideration, as well as an incentive arrangement payable in cash
and stock. Since October 1995, when the board of directors approved a plan to
discontinue the technical contract personnel business, those operations have
been designated as discontinued in financial reports of the Company. Effective
December 29, 1995, the Company exchanged all of its ownership interest in the
stock of Echelon for 196,034 shares of the Company's outstanding $.01 par value
common stock previously owned by Eugene R. Hartman, then an officer and director
of the Company. The transaction was preceded by a dividend from Echelon to the
Company in order to equalize values. The transaction was structured to be a
tax-free reorganization and, as such, no provision for income taxes has been
made relative to this transaction.
The results of the discontinued operations reflected in the consolidated
statements of operations are those of Echelon through the date of the disposal.
Revenue of the discontinued operations were $1,235,000 for the three months
ended December 1995. Income from discontinued operations for fiscal 1996 is net
of applicable income taxes of $25,000. The fiscal 1996 basic and diluted
earnings from discontinued operations, including the gain on disposition, were
$.07 and $.06 per share, respectively.
F-21
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
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:
1998 $130,000 $ 25,198 $ 12,198 $143,000
1997 90,000 42,960 2,960 130,000
1996 80,000 66,249 56,249 90,000
2. Deferred Tax
Valuation Allowance:
1998 $ 61,000 $ 54,000 $ -- $115,000
1997 58,000 3,000 -- 61,000
1996 78,000 (20,000) -- 58,000
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 Commission
in connection with the 1999 Annual Meeting of Stockholders (the "Proxy
Statement").
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the Company
appears in 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.
30
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, 1998 and 1997
2. Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996
3. Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1998, 1997 and 1996
4. Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996
5. Notes to Consolidated Financial Statements - September 30, 1998,
1997 and 1996
(b) FINANCIAL STATEMENT SCHEDULES
The following is a list of a financial statement schedule 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.
31
(c) EXHIBITS.
METHOD OF
EXHIBIT NO. DESCRIPTION FILING
----------- ----------- ------
3.1 Articles of Incorporation A
3.2 Articles of Amendment to Articles of A
Incorporation, dated April 27, 1983
3.3 Articles of Amendment to Articles of B
Incorporation, dated May 19, 1987
3.4 Articles of Amendment to Articles of C
Incorporation, dated May 2, 1988
3.5 Articles of Amendment to Articles of G
Incorporation, dated May 28, 1993
3.6 Amended and Restated Bylaws D
10.1 Amended and Restated 1995 Stock Option Plan J
10.2 1995 Stock Bonus Plan J
10.3 Non-Employee Director Stock Option Plan K
10.4 Employment Agreement with Robert T. Hass, F
dated May 19, 1992
10.5 Registration Rights Agreement with J.S. Whang, G
dated January 24, 1994
10.6 Employment Agreement with J.S. Whang, dated M
February 28, 1997
10.7 Contract of Sale (Real Property) dated June I
21, 1996 between Tempress Systems, Inc. and
Orgelmakerij Gedr. Rell B.V.
10.8 Research Agreement with The Regents of the H
University of California dated March 1, 1994,
together with amendments thereto dated March
1, 1994, March 30, 1994, March 7, 1995, June
26, 1995, October 16, 1995, November 29, 1995,
and December 4, 1995
10.9 Amendment to Research Agreement with the I
Regents of the University of California dated
July 8, 1996
10.10 Employment Agreement, dated July 1, 1997, L
between the Registrant and John R. Krieger
10.11 Registration Rights Agreement, dated July 1, L
1997, between the Registrant and John R.
Krieger
32
METHOD OF
EXHIBIT NO. DESCRIPTION FILING
----------- ----------- ------
10.12 Sublease Agreement, dated July 1, 1997, L
between the Registrant and John R. Krieger
10.13 Asset Purchase Agreement, dated July 1, 1997, L
among the Registrant, P.R. Hoffman Machines
Corporation and John R. Krieger
11 Scheudle of Computation of Net Income per *
Share
21 Subsidiaries of the Registrant *
23 Consent of Independent Public Accountant *
24 Powers of Attorney See Signature
Page
27 Financial Data Schedule *
- -------
* 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, 1992.
F Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
G Incorporated by reference to the Company's Form S-1 Registration Statement
No. 33-77368.
H Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995.
I Incorporated by reference to the Company's Form S-3 Registration Statement
No. 333-09917.
J Incorporated by reference to 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.
K Incorporated by reference to 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.
L Incorporated by reference to the Company's Current Report on Form 8-K, dated
July 1, 1997.
M Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.
(d) Reports on Form 8-K
There have not been any Form 8-K filed during this period.
33
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.
December 23, 1998 By: /s/ John S. Whang
------------------------------------
John 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 Form 10-K Annual
Report, 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 December 23, 1998
Jong S. Whang (Chief Executive Officer)
/s/ Robert T. Hass
- ----------------------- Vice President-Finance December 23, 1998
Robert T. Hass (Chief Financial &
Accounting Officer)
/s/ Donald F. Johnston
- ----------------------- Director December 23, 1998
Donald F. Johnston
/s/ Alvin Katz
- ----------------------- Director December 23, 1998
Alvin Katz
/s/ Bruce R. Thaw
- ----------------------- Director December 23, 1998
Bruce R. Thaw
34