UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended: June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Arizona 86-0411215
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 602-967-5146
Common Stock, $.01 Par Value
----------------------------
(Title of Class)
2,108,679 Shares
-------------------------------
Outstanding as of June 30, 1999
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 and September 30, 1998 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 11
Liquidity and Financial Condition 14
Year 2000 Compliance 14
Forward-Looking Statements 15
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Matters 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1999 1998
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 890,729 $ 1,351,542
Accounts receivable - net 2,588,514 2,894,217
Inventories - net 2,792,939 2,393,708
Deferred income taxes 234,000 393,000
Income taxes refundable 358,000 404,000
Prepaid expenses 29,784 87,711
----------- -----------
Total current assets 6,893,966 7,524,178
PROPERTY, PLANT AND EQUIPMENT - net 1,136,559 1,243,016
PURCHASE PRICE IN EXCESS OF NET ASSETS
ACQUIRED AND OTHER ASSETS - net 522,070 558,285
----------- -----------
TOTAL ASSETS $ 8,552,595 $ 9,325,479
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 902,475 $ 1,229,451
Accrued compensation and related taxes 503,407 573,294
Accrued warranty expense 95,602 166,839
Accrued installation expense 130,283 183,909
Customer deposits 10,860 249,795
Other accrued liabilities 145,196 127,435
----------- -----------
Total current liabilities 1,787,823 2,530,723
LONG-TERM OBLIGATIONS 314,523 347,667
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $.01 par value; 100,000,000
shares authorized; 2,108,679 (2,110,303
in 1998) shares issued and outstanding 21,087 21,103
Additional paid-in capital 7,400,152 7,406,589
Accumulated other comprehensive losses
(ie: cumulative foreign currency translation
adjustment) (349,227) (216,338)
Accumulated deficit (621,763) (764,265)
----------- -----------
Total stockholders' equity 6,450,249 6,447,089
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,552,595 $ 9,325,479
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For Three and Nine Months Ended June 30, 1999 and 1998
Three Months Nine Months
Ended June 30 Ended June 30
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $ 3,403,801 $ 3,687,135 $10,375,713 $12,486,482
Cost of product sales 2,448,938 2,864,481 7,487,651 8,938,565
----------- ----------- ----------- -----------
Gross margin 954,863 822,654 2,888,062 3,547,917
Selling, general and administrative 884,902 1,039,256 2,488,522 3,096,236
Research and development 23,084 97,834 187,244 264,543
----------- ----------- ----------- -----------
Operating profit (loss) 46,877 (314,436) 212,296 187,138
Interest income-net 12,121 14,871 32,206 50,582
----------- ----------- ----------- -----------
Income (loss) before income taxes 58,998 (299,565) 244,502 237,720
Income tax provision (benefit) 31,000 (115,000) 102,000 121,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 27,998 $ (184,565) $ 142,502 $ 116,720
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic $ .01 $ (.09) $ .07 $ .05
Weighted average shares outstanding 2,109,736 2,110,303 2,110,198 2,105,541
Diluted $ .01 $ (.09) $ .07 $ .05
Weighted average shares outstanding 2,204,528 2,110,303 2,173,504 2,131,794
See accompanying notes to condensed consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
Accumulated Other
Comprehensive
Income (Losses)
Common Stock (i.e. Foreign
-------------------------- Additional Currency Total
Number of Paid-in Translation Accumulated Stockholders'
Shares Amount Capital Adjustments) Deficit Equity
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT
SEPTEMBER 30, 1997 2,092,553 $ 20,926 $ 7,366,111 $(284,453) $(174,378) $ 6,928,206
Net income -- -- -- -- 116,720 116,720
Translation adjustment -- -- -- (24,622) -- (24,622)
-----------
Comprehensive income 92,098
Employee stock bonus -
net of stock repurchases 17,750 177 16,959 -- -- 17,136
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1998 2,110,303 $ 21,103 $ 7,383,070 $(309,075) $ (57,658) $ 7,037,440
========== ======== =========== ========= ========= ===========
BALANCE AT
SEPTEMBER 30, 1998 2,110,303 $ 21,103 $ 7,406,589 $(216,338) $(764,265) $ 6,447,089
Net income -- -- -- -- 142,502 142,502
Translation adjustment -- -- -- (132,889) -- (132,889)
-----------
Comprehensive income 9,613
Repurchases of Stock
and other items (1,624) (16) (6,437) -- -- (6,453)
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $(349,227) $(621,763) $ 6,450,249
========== ======== =========== ========= ========= ===========
MARCH 31, 1998 2,101,278 $ 21,013 $ 7,366,743 $(348,934) $ 126,907 $ 7,165,729
Net income -- -- -- -- (184,665) (184,565)
Translation adjustment -- -- -- 39,859 -- 39,859
-----------
Comprehensive income (144,706)
Employee stock bonus - net
of stock repurchases 9,025 90 16,327 -- -- 16,417
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1998 2,110,303 $ 21,103 $ 7,383,070 $(309,075) $ (57,658) $ 7,037,440
========== ======== =========== ========= ========= ===========
BALANCE AT
MARCH 31, 1999 2,111,279 $ 21,113 $ 7,406,579 $(302,293) $(649,761) $ 6,475,638
Net income -- -- -- -- 27,998 27,998
Translation adjustment -- -- -- (46,934) -- (46,934)
-----------
Comprehensive income (18,936)
-----------
Repurchase of stock
and other items (2,600) (26) (6,427) -- -- (6,453)
---------- -------- ----------- --------- --------- -----------
BALANCE AT
JUNE 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $(349,227) $(621,763) $ 6,450,249
========== ======== =========== ========= ========= ===========
The accompanying notes are an integral part of these
condensed consolidated statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
Nine Months Ended
--------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 142,502 $ 116,720
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 241,545 254,045
Inventory and accounts receivable write-offs 69,239 37,902
Gain on disposals of long-lived assets -- (2,241)
Deferred income taxes 159,000 (20,000)
(Increase) decrease in:
Accounts receivable 90,164 34,752
Inventories, prepaids and other assets (512,816) (711,189)
Increase (decrease) in:
Accounts payable (251,136) 121,577
Accrued liabilities (349,750) 491,941
Income taxes payable/refundable 39,598 (219,493)
----------- -----------
Net Cash Provided By (Used In) Operating
Activities (371,654) 104,014
----------- -----------
INVESTING ACTIVITIES:
Maturities of short-term investments - net -- 579,191
Proceeds from sale of assets -- 2,241
Purchases of property, plant and equipment (154,311) (262,569)
----------- -----------
Net Cash Provided By (Used In) Investing
Activities (154,311) 318,863
----------- -----------
FINANCING ACTIVITIES:
Stock repurchases (6,453) (24,775)
Payments on mortgage loan (9,184) (9,017)
----------- -----------
Net Cash Used In Financing Activities (15,637) (33,792)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 80,789 (101,588)
----------- -----------
CASH AND EQUIVALENTS:
Net increase (decrease) (460,813) 287,497
Beginning of year 1,351,542 1,395,849
----------- -----------
END OF YEAR CASH AND EQUIVALENTS $ 890,729 $ 1,683,346
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,425 $ 11,858
Income taxes, net of refunds (52,503) 360,000
See accompanying notes to condensed consolidated financial statements.
6
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Amtech Systems, Inc. and its wholly-owned subsidiaries, Tempress Systems,
Inc., based in Heerde, The Netherlands, and P. R. Hoffman Machine Products,
Inc. formed July 1, 1997 (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"), and are unaudited. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented have been made.
Certain information and footnote disclosure normally included in financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998, which are
incorporated herein by reference.
The consolidated results of operations for the three and nine months ended
June 30, 1999, are not necessarily indicative of the results to be expected
for the full year.
2. INVENTORIES
The components of inventories are as follows:
June 30, September 30,
1999 1998
---------- ------------
Purchased parts and
raw material $1,286,068 $1,174,570
Work-in-process 911,758 612,646
Finished goods 595,113 606,492
---------- ----------
Totals $2,792,939 $2,393,708
========== ==========
7
3. EARNINGS PER SHARE
Earnings per share were calculated as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income $ 27,998 $ (184,565) $ 142,502 $ 116,720
After-tax
amortization of
contingent goodwill -- -- -- (5,936)
----------- ----------- ----------- -----------
Income used in
in the calculations $ 27,998 $ (184,565) $ 142,502 $ 110,784
=========== =========== =========== ===========
Weighted average
Shares outstanding:
Common shares 2,109,736 2,110,303 2,110,198 2,105,541
Common equivalents
issuable upon
exercise of
warrants and
stock options(1) 94,792 -- 63,306 26,253
----------- ----------- ----------- -----------
2,204,528 2,110,303 2,173,504 2,131,794
=========== =========== =========== ===========
Earnings Per Share:
Basic $ .01 $ (.09) $ .07 $ .05
=========== =========== =========== ===========
Diluted $ .01 $ (.09) $ .07 $ .05
=========== =========== =========== ===========
----------
(1) Number of shares calculated using the treasury stock method and the
average market price during the period. Options and warrants on
1,492,500 shares and 1,642,792 shares had an exercise price greater
than the average market price during the three months ended June 30,
1999 and 1998, respectively, and therefore did not enter into the
calculation. Options and warrants on 1,492,500 shares and 1,527,792
shares were excluded from the calculation for the nine months ended
June 30, 1999 and 1998, respectively.
(2) All share amounts above have been restated to give effect to the one
for two reverse stock split that became effective in March 1999. See
Note 4, regarding the reverse stock split.
8
4. REVERSE STOCK SPLIT
Effective as of the close of business on March 15, 1999, each two shares of
the $.01 par value common stock ("Common Stock") of the Company were
combined and reclassified into one share of the Common Stock. All shares
and per share amounts have been restated to give effect to this one for two
reverse stock split. Any fractional shares resulting from the reverse split
were rounded to the next highest whole number.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for reporting and displaying of
comprehensive income and its components. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive
income. Comprehensive income and components of accumulated other
comprehensive income are presented in the Condensed Consolidated Statements
of Stockholders' Equity.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 133 - "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, the FASB issued Statement of Financial Accounting
Standards 137 - "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133".
This statement defers the effective date of SFAS 133 to the Company's
quarter ending December 31, 2000. The Company does not expect the adoption
of SFAS 133 and SFAS 137 to have a material impact on its future results of
operations or financial position.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Startup
Activities". SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The new statement is
effective for fiscal years beginning after December 15, 1998. The Company
will adopt this statement effective October 1, 1999. Initial application of
this standard will not have a material impact on the Company's financial
position or results of operations.
9
6. SHAREHOLDER RIGHTS PLAN
During May 1999, the Company's Board of Directors adopted a shareholder
rights plan, which authorized the distribution of one right to purchase one
one-hundredth of a share of Series A Participating Preferred Stock, at a
purchase price of $8.50, subject to certain antidilution adjustments. The
rights will expire 10 years after issuance and will be exercisable if (a) a
person or group becomes the beneficial owner of 15% or more of the
Company's common stock or (b) a person or group commences a tender or
exchange offer that would result in the offeror beneficially owning 15% or
more of the common stock (a "Stock Acquisition Date"). If a Stock
Acquisition Date occurs, each right, unless redeemed by the Company,
entitles the holder to purchase an amount of common stock of the Company,
or in certain circumstances a combination of securities and/or assets or
the common stock of the acquirer, having a market value of twice the
exercise price of the right. Rights held by the acquiring person will
become void and will not be exercisable to purchase shares at the
discounted purchase price.
7. RECLASSIFICATIONS
Certain costs of field service and installation in the amount of $123,164
and $298,754 for the three and nine months ended June 30, 1998,
respectively, have been reclassified from selling, general and
administrative expense to cost of product sales to conform to the 1999
presentation.
10
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
----- ----- ----- -----
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales (71.9) (77.7) (72.2) (71.6)
----- ----- ----- -----
Gross profit 28.1 22.3 27.8 28.4
Selling, general and
administrative expenses (26.0) (28.1) (24.0) (24.8)
Research and development (.7) (2.7) (1.8) (2.1)
----- ----- ----- -----
Operating profit (loss) 1.4% (8.5)% 2.0% 1.5%
===== ===== ===== =====
NET REVENUE. The Company's net revenue for the three months ended June 30,
1999 was $3,404,000, a decline of $283,000, or 8%, from net revenue of
$3,687,000 for the corresponding period of the previous fiscal year. The decline
in revenue for quarter ended June 30, 1999 was caused by the continuing effects
of the slowdown in the semiconductor industry, which began to affect operations
during the latter part of fiscal 1998. During the most recently completed
quarter, the industry slowdown adversely effected the revenue of all operations
when compared to the prior year, with the only exception being revenue from the
sale of P.R. Hoffman products, primarily consumable items. While sales of P.R.
Hoffman products did not increase significantly during the third quarter
compared to the same quarter in last fiscal year, they were 12% higher than in
the second quarter of this fiscal year and increased 57% compared to the first
quarter of the fiscal year, which was the lowest point in that operation's
revenue since the beginning of the industry slowdown. Because the sales and
production cycles for consumable products generally are much shorter than those
for capital equipment, management believes that the improvement in the
operations of P.R. Hoffman may be a leading indicator for the other operations
of the Company.
Revenue for the first nine months of fiscal 1999 was $10,376,000, a decline
of $2,111,000, or 17%, from the corresponding period in fiscal 1998. The decline
in revenue for the nine months ended June 30, 1999 was caused by the continuing
effects of the slowdown in the semiconductor industry, which began to affect
operations during the latter part of fiscal 1998. The industry slowdown
adversely affected the revenue of all major product categories.
11
GROSS PROFIT. The Company's gross profit increased by approximately
$132,000 to $955,000, for the three months ended June 30, 1999, from $823,000
during the comparable period of the previous fiscal year. Gross profit as a
percentage of sales was 28% for the third quarter of fiscal 1999 compared to 22%
for the third quarter of fiscal 1998. The increase in gross profit and the gross
profit percentage during the third quarter resulted from significant reductions
in manufacturing overhead expenses, primarily within the diffusion equipment
operations. Those expense reductions were implemented primarily in the fourth
quarter of last fiscal year and the first quarter of this fiscal year, shortly
after the industry slowdown began to affect the Company's operations.
The Company's gross profit decreased by approximately $660,000, or 19%, to
$2,888,000 for the nine months ended June 30, 1999, from $3,548,000 during the
comparable period of the previous fiscal year. The decline is primarily
attributable to the 17% decline in the sales volume discussed above. Gross
profit as a percentage of revenue was approximately 28% in the first nine months
of fiscal 1999 and fiscal 1998, as manufacturing expenses were reduced in
response to the industry slowdown.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 1999 were reduced by
$154,000, or 15%, compared to those expenses incurred in the third quarter of
fiscal 1998. Expense reductions implemented by the Company in the first quarter
of fiscal 1999 account for most of that decline. The temporary curtailment of
the Company's acquisition activities and the associated expenses also
contributed to the decline. Since the percentage decline in selling, general and
administrative expenses during the quarter was significantly higher than the
percentage decline in consolidated revenue, these expenses as a percentage of
revenue were reduced to 26% in the third quarter of fiscal 1999, compared to 28%
of sales during the third quarter of fiscal year 1998.
For the nine months ended June 30, 1999, the Company reduced selling,
general and administrative expense by $608,000 from $3,096,000, a decrease of
20%. These expenses amounted to approximately 24% and 25% of sales for the nine
months ended June 30, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT. Research and development costs decreased by
$75,000, to $23,000, during the third quarter of fiscal 1999, compared to
$98,000 during the comparable quarter of fiscal 1998. Approximately $46,000 of
the research and development work in the Netherlands was funded by a government
grant, the proceeds of which were received during the third quarter of this
fiscal year and accounted for as a reduction in these expenses. The Company is
currently investigating potential new technologies. This activity is in its
early stages and thus funding is significantly lower than the expenses incurred
during fiscal 1998 on the now suspended photo assisted CVD (chemical vapor
deposition) research project. For the first nine months of fiscal 1999, research
& development costs were $187,000, compared to $265,000 in the first nine months
of fiscal 1998, with the decline occurring in the third quarter, as discussed
above.
12
OPERATING PROFIT (LOSS). Operating profit for the third quarter of fiscal
1998 increased by $361,000 to $47,000 from an operating loss of $314,000 in the
same period of fiscal 1998. This improvement was achieved even though revenue
declined by 8%, as discussed above, as margins were improved significantly and
other expenses, including research and development, were reduced by $229,000.
The improvement in operating profit also reflects the Company's successful
efforts in reducing manufacturing labor and overhead.
For the nine months ended June 30, 1999, operating profit increased
$25,000, or 13%, to $212,000 from $187,000 in the comparable period in fiscal
1998. The improvement in operating profit was achieved despite a 17% decline in
revenues discussed above. This increase is primarily attributable to reductions
in expenses in fiscal 1999, which more than offset the decline in gross profit,
resulting from the lower revenues. Such non-manufacturing expenses, including
research and development, were reduced by $685,000, or 20%, in the first nine
months of fiscal 1999 over the same period in 1998.
NET INCOME. Net income includes operating profit, discussed above, net
interest income and the provision for income taxes. During the third quarter of
fiscal 1999, net interest income was $12,000, or $3,000 lower than the $15,000
of net interest income for the corresponding quarter of fiscal 1998. For the
nine months ended June 30, 1999, net interest income was $32,000, a decrease of
$18,000 compared to $50,000 of net interest income for the corresponding period
of fiscal 1998. The decline in net interest income is attributable to the lower
level of cash and short-term investments during fiscal 1999, as funds were used
to finance increased inventories, as explained below. As a result of the above
factors, income before income taxes for the third quarter of fiscal 1999 was
$59,000, compared to a loss before taxes of $300,000 in the third quarter of
fiscal 1998, an improvement of $359,000.
Income tax expense of $31,000, recorded at an effective tax rate of 53%,
resulted in net income for the third quarter of fiscal 1999 of $28,000, or $.01
per share. During the third quarter of fiscal 1998, the Company recorded income
tax benefits of $115,000, reflecting a 38% effective tax rate, which resulted in
a net loss of $185,000, or $(.09) per share. The higher effective tax rate in
the current fiscal year is primarily attributable to the fact that a
significantly higher percentage of earnings during the third quarter of fiscal
1999 were in jurisdictions that have higher income tax rates. As a result of the
above factors, net income in the third quarter of fiscal 1999 increased by
$213,000 to $28,000, or $.01 per share, from a net loss of $185,000, or $(.09)
per share, in the third quarter of fiscal 1998.
For the nine months ended June 30, 1999, the Company recorded income tax
expense of $102,000, an effective rate of 42%, resulting in net income of
$143,000, or $.07 per share. For the same period in fiscal 1998, income taxes of
$121,000, an effective rate of 51%, reduced net income to $117,000, or $.05 per
share.
BACKLOG. At June 30, 1999, the order backlog was $4,655,000, a reduction of
10% from the $5,152,000 backlog at June 30, 1998. The backlog as of June 30,
1999 was approximately $536,000 higher than at September 30, 1998, and it was up
$222,000 from the $4,433,000 backlog at March 31, 1999. Orders are generally
shipped within three to six months of receipt. Accordingly, the order backlog
may not be a valid measure of revenue or earnings for a future period.
13
LIQUIDITY AND FINANCIAL CONDITION.
At June 30, 1999, the Company had $891,000 of readily available liquidity
in the form of cash and cash equivalents, compared to cash and equivalents of
$1,352,000 at September 30, 1998, a decrease of approximately $461,000. The
decline in cash and equivalents is primarily due to an increase in inventories
of approximately $560,000, as inventory levels have nearly returned to the same
level as of June 30, 1998. For the first nine months of fiscal 1999, net income
plus amortization and depreciation (i.e. cash flow) was a positive $384,000. The
Company continues to believe that there is sufficient liquidity for existing
operations.
At June 30, 1999, working capital was $5,106,000, up slightly from
$4,993,000, at September 30, 1998. The Company's current ratio, 3.9:1 at the end
of the third quarter of fiscal 1999, improved from 3.0:1 at the beginning of the
year. Also, at the end of the third quarter of fiscal 1999, cash and short-term
investments comprised 10% of total assets and stockholders' equity accounted for
75% of total capitalization. The Company believes that it continues to posses
the financial strength to plan for future growth, while actively managing the
current industry slowdown.
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
less than five months, 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.
READINESS AND RELATED RISKS. 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 and implementing a plan to resolve the priority concerns
on a timely basis. Based on a 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.
COSTS. The Company expects that the costs to be incurred by it to deal with this
issue will not be material, as most of the issues have been resolved through
installation of regular software updates provided by licensors under standard
maintenance agreements.
CONTINGENCY PLANS. The production processes of the Company and of its critical
vendors are not significantly dependent upon hardware or software which is
likely to be affected by "Year 2000" problems. 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.
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FORWARD-LOOKING STATEMENTS
The statements contained in this report on Form 10-Q that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates," or the negative thereof or
other written variations thereof or comparable terminology. The forward-looking
statements contained herein are based on current expectations that involve a
number of risks and uncertainties. Among others, these forward-looking
statements are based on assumptions that (a) the Company will not lose a
significant customer or customers, (b) the Company will not experience
significant further reductions in demand or rescheduling of customer purchase
orders 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'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 development costs,
(f) that the Company will be able to retain, and when needed, add key technical
and management personnel, (g) that business or product acquisitions, if any,
will be successfully integrated and the results of operations therefrom will
support the acquisition price, (h) that the Company's forecasts will accurately
anticipate market demand, (i) that there will be no material adverse changes in
the Company's exiting operations, (j) the Company will be able to obtain
sufficient equity or debt funding to increase its capital resources by the
amount needed for new business or product acquisitions, if any, (k) the
semiconductor equipment industry will recover from the current slowdown, (l) the
turmoil in the Asian markets will not spread to other geographic regions or
further deteriorate, (m) the Company has or will be able to reduce costs
sufficiently to avoid using a substantial portion of its current liquidity to
fund losses, (n) the Company will not, either directly or indirectly, incur any
material Year 2000 issues and (o) 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, 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER MATTERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 28, 1999 disclosing the adoption
of a rights agreement dated May 17, 1999, between Amtech Systems, Inc.
and American Securities Transfer & Trust, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: August 16, 1999
------------------------------------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
16