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31asys:Segmentxbrli:purexbrli:sharesiso4217:USDxbrli:sharesiso4217:USD

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: December 31, 2021

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

img248662173_0.jpg 

 

AMTECH SYSTEMS, INC.

 

(Exact name of registrant as specified in its charter)

 

Arizona

 

86-0411215

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

131 South Clark Drive, Tempe, Arizona

 

85281

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: 480-967-5146

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

ASYS

 

NASDAQ.Global Select Market

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large Accelerated Filer

 

 

Accelerated Filer

Non-Accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

At February 9, 2022, there were outstanding 14,030,192 shares of Common Stock.

 


AMTECH SYSTEMS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

Page

Cautionary Statement Regarding Forward-Looking Statements

3

PART I. FINANCIAL INFORMATION

4

Item 1. Condensed Consolidated Financial Statements

4

Condensed Consolidated Balance Sheets December 31, 2021 (Unaudited) and September 30, 2021

4

Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended December 31, 2021 and 2020

5

Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended December 31, 2021 and 2020

6

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Three Months Ended December 31, 2021 and 2020

7

Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, 2021 and 2020

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Overview

18

Results of Operations

20

Liquidity and Capital Resources

23

Off-Balance Sheet Arrangements

24

Contractual Obligations

24

Critical Accounting Policies

24

Impact of Recently Issued Accounting Pronouncements

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25

Item 4. Controls and Procedures

25

PART II. OTHER INFORMATION

26

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3. Defaults Upon Senior Securities

26

Item 4. Mine Safety Disclosures

27

Item 5. Other Information

27

Item 6. Exhibits

27

SIGNATURES

28

 

2


 

Cautionary Statement Regarding Forward-Looking Statements

 

Unless otherwise indicated, the terms “Amtech,” the “Company,” “we,” “us” and “our” refer to Amtech Systems, Inc. together with its subsidiaries.

 

Our discussion and analysis in this Quarterly Report on Form 10-Q, our 2021 Annual Report on Form 10-K, our other reports that we file with the Securities and Exchange Commission (the “SEC”), our press releases and in public statements of our officers and corporate spokespersons contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our or our officers’ current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current events. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. We have tried, wherever possible, to identify such statements by using words such as “may,” “plan,” “anticipate,” “seek,” “will,” “expect,” “intend,” “estimate,” “believe,” “continue,” “predict,” “potential,” “project,” “should,” “would,” “could,” “likely,” “future,” “target,” “forecast,” “goal,” “observe,” and “strategy” or the negative thereof or variations thereon or similar terminology relating to the uncertainty of future events or outcomes. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors. Some factors that could cause actual results to differ materially from those anticipated include, among others, future economic conditions, including changes in the markets in which we operate; changes in demand for our services and products; our revenue and operating performance; difficulties in successfully executing our growth initiatives; difficulties in executing on our strategic efforts with respect to our material and substrate business segment; the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; the cyclical nature of the semiconductor industry; pricing and gross profit pressures; control of costs and expenses; risks associated with new technologies and the impact on our business; legislative, regulatory, and competitive developments in markets in which we operate; possible future claims, litigation or enforcement actions and the results of any such claim, litigation, or enforcement action; business interruptions, including those related to the COVID-19 pandemic and the cybersecurity incident that occurred in April 2021; the potential impacts of the COVID-19 pandemic, including ongoing logistical and supply chain challenges, and any future pandemic on our business operations, financial results and financial position; the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel; the resolution of our cybersecurity incident and related costs; risks of future cybersecurity incidents; and other circumstances and risks identified in this Quarterly Report or referenced from time to time in our filings with the SEC. The occurrence of the events described, and the achievement of expected results, depend on many events, some or all of which are not predictable or within our control. These and many other factors could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf.

 

You should not place undue reliance on these forward-looking statements. We cannot guarantee that any forward-looking statement will be realized, although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this Quarterly Report. Achievement of future results is subject to events out of our control, risks, uncertainties and potentially inaccurate assumptions. The Annual Report on Form 10-K that we filed with the SEC for the year ended September 30, 2021 listed various important factors that could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from historical results and expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf. These factors can be found under the heading “Item 1A. Risk Factors” in our 2021 Annual Report on Form 10-K and investors should refer to them as well as the additional risk factors identified in this Quarterly Report. Because it is not possible to predict or identify all such factors, any such list cannot be considered a complete set of all potential risks or uncertainties.

 

The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. You are advised, however, to consult any further disclosures we make on related subjects in our subsequently filed Form 10-Q and Form 8-K reports and our other filings with the SEC. As noted above, we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under “Item 1A. Risk Factors” of our 2021 Annual Report on Form 10-K. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand it is not possible to predict or identify all such factors.

3


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

December 31,
2021

 

 

September 30,
2021

 

Assets

 

(Unaudited)

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,188

 

 

$

32,836

 

Restricted cash

 

 

526

 

 

 

 

Accounts receivable (less allowance for doubtful accounts of $147 and $188 at
   December 31, 2021, and September 30, 2021, respectively)

 

 

25,204

 

 

 

22,502

 

Inventories

 

 

24,115

 

 

 

22,075

 

Income taxes receivable

 

 

4

 

 

 

1,046

 

Other current assets

 

 

2,721

 

 

 

2,407

 

Total current assets

 

 

84,758

 

 

 

80,866

 

Property, Plant and Equipment - Net

 

 

13,768

 

 

 

14,083

 

Right-of-Use Assets - Net

 

 

8,573

 

 

 

8,646

 

Intangible Assets - Net

 

 

833

 

 

 

858

 

Goodwill

 

 

11,168

 

 

 

11,168

 

Deferred Income Taxes - Net

 

 

671

 

 

 

631

 

Other Assets

 

 

624

 

 

 

661

 

Total Assets

 

$

120,395

 

 

$

116,913

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

10,227

 

 

$

8,229

 

Accrued compensation and related taxes

 

 

3,176

 

 

 

2,881

 

Accrued warranty expense

 

 

717

 

 

 

545

 

Other accrued liabilities

 

 

709

 

 

 

903

 

Current maturities of long-term debt

 

 

401

 

 

 

396

 

Current portion of long-term lease liability

 

 

550

 

 

 

531

 

Contract liabilities

 

 

4,446

 

 

 

1,624

 

Total current liabilities

 

 

20,226

 

 

 

15,109

 

Long-Term Debt

 

 

4,299

 

 

 

4,402

 

Long-Term Lease Liability

 

 

8,300

 

 

 

8,389

 

Income Taxes Payable

 

 

3,203

 

 

 

3,277

 

Other Long-Term Liabilities

 

 

40

 

 

 

102

 

Total Liabilities

 

 

36,068

 

 

 

31,279

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred stock; 100,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock; $0.01 par value; 100,000,000 shares authorized; shares
   issued and outstanding:
14,025,192 and 14,304,492 at December 31, 2021
   and September 30, 2021, respectively

 

 

140

 

 

 

143

 

Additional paid-in capital

 

 

124,430

 

 

 

126,380

 

Accumulated other comprehensive income

 

 

251

 

 

 

14

 

Retained deficit

 

 

(40,494

)

 

 

(40,903

)

Total Shareholders’ Equity

 

 

84,327

 

 

 

85,634

 

Total Liabilities and Shareholders’ Equity

 

$

120,395

 

 

$

116,913

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

Revenues, net

 

$

27,329

 

 

$

17,975

 

Cost of sales

 

 

16,565

 

 

 

10,463

 

Gross profit

 

 

10,764

 

 

 

7,512

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

7,952

 

 

 

5,213

 

Research, development and engineering

 

 

1,572

 

 

 

1,245

 

Operating income

 

 

1,240

 

 

 

1,054

 

Interest expense and other, net

 

 

(83

)

 

 

(255

)

Income before income tax provision

 

 

1,157

 

 

 

799

 

Income tax provision

 

 

160

 

 

 

80

 

Net income

 

$

997

 

 

$

719

 

Income Per Share:

 

 

 

 

 

 

Net income per basic share

 

$

0.07

 

 

$

0.05

 

Net income per diluted share

 

$

0.07

 

 

$

0.05

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

14,254

 

 

 

14,072

 

Diluted

 

 

14,485

 

 

 

14,117

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

Net income

 

$

997

 

 

$

719

 

Foreign currency translation adjustment

 

 

237

 

 

 

595

 

Comprehensive income

 

$

1,234

 

 

$

1,314

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(in thousands)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Cost

 

 

Additional Paid-
In Capital

 

 

Comprehensive
Income (Loss)

 

 

Retained
 Deficit

 

 

Shareholders'
Equity

 

Balance at September 30, 2020

 

 

14,063

 

 

$

141

 

 

 

 

 

$

 

 

$

124,435

 

 

$

(646

)

 

$

(42,411

)

 

$

81,519

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

719

 

 

 

719

 

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

595

 

 

 

 

 

 

595

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Stock options exercised

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

135

 

 

 

 

 

 

 

 

 

135

 

Balance at December 31, 2020

 

 

14,091

 

 

$

141

 

 

 

 

 

$

 

 

$

124,635

 

 

$

(51

)

 

$

(41,692

)

 

$

83,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

14,304

 

 

$

143

 

 

 

 

 

$

 

 

$

126,380

 

 

$

14

 

 

$

(40,903

)

 

$

85,634

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

997

 

 

 

997

 

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

237

 

 

 

 

 

 

237

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

 

 

103

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(291

)

 

 

(2,713

)

 

 

 

 

 

 

 

 

 

 

 

(2,713

)

Retirement of treasury stock

 

 

(291

)

 

 

(3

)

 

 

291

 

 

 

2,713

 

 

 

(2,122

)

 

 

 

 

 

(588

)

 

 

 

Stock options exercised

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Balance at December 31, 2021

 

 

14,025

 

 

$

140

 

 

 

 

 

$

 

 

$

124,430

 

 

$

251

 

 

$

(40,494

)

 

$

84,327

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

997

 

 

$

719

 

Adjustments to reconcile net income to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

430

 

 

 

325

 

Write-down of inventory

 

 

120

 

 

 

48

 

Non-cash share-based compensation expense

 

 

103

 

 

 

65

 

(Reversal of) provision for allowance for doubtful accounts

 

 

(19

)

 

 

5

 

Other, net

 

 

 

 

 

3

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,683

)

 

 

(2,702

)

Inventories

 

 

(2,161

)

 

 

613

 

Other assets

 

 

(207

)

 

 

20

 

Accounts payable

 

 

1,979

 

 

 

738

 

Accrued income taxes

 

 

968

 

 

 

34

 

Accrued and other liabilities

 

 

140

 

 

 

304

 

Contract liabilities

 

 

2,822

 

 

 

(68

)

Net cash provided by operating activities

 

 

2,489

 

 

 

104

 

Investing Activities

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(45

)

 

 

(198

)

Net cash used in investing activities

 

 

(45

)

 

 

(198

)

Financing Activities

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

69

 

 

 

135

 

Repurchase of common stock

 

 

(2,713

)

 

 

 

Payments on long-term debt

 

 

(97

)

 

 

(93

)

Net cash (used in) provided by financing activities

 

 

(2,741

)

 

 

42

 

Effect of Exchange Rate Changes on Cash, Cash Equivalents and
   Restricted Cash

 

 

175

 

 

 

596

 

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

 

 

(122

)

 

 

544

 

Cash and Cash Equivalents, Beginning of Period

 

 

32,836

 

 

 

45,070

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

$

32,714

 

 

$

45,614

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

Income tax refunds (payments), net

 

$

629

 

 

$

(142

)

Interest paid, net of capitalized interest

 

$

75

 

 

$

56

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020

(UNAUDITED)

 

1. Basis of Presentation and Significant Accounting Policies

 

Nature of Operations and Basis of Presentation – Amtech Systems, Inc. (the “Company,” “Amtech,” “we,” “our” or “us”) is a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing, and related consumables used in fabricating semiconductor devices, such as silicon carbide (“SiC”) and silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes (“LEDs”). We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.

 

We serve niche markets in industries that are experiencing technological advances, and which historically have been very cyclical. Therefore, future profitability and growth depend on our ability to develop or acquire and market profitable new products and on our ability to adapt to cyclical trends.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. The condensed consolidated balance sheet at September 30, 2021, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

 

Our fiscal year is from October 1 to September 30. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending or ended September 30, and the associated quarters, months, and periods of those fiscal years.

 

The consolidated results of operations for the three months ended December 31, 2021, are not necessarily indicative of the results to be expected for the full fiscal year.

 

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak became increasingly widespread, including in all of the markets in which we operate. We continue to monitor the impact of COVID-19 on all aspects of our business. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with foreign government, state and local orders to date, we have continued to operate across our footprint throughout the COVID-19 pandemic. Following the onset of COVID-19 and its negative effects on our business, most prominently reflected in our second, third and fourth quarter fiscal 2020 results, global economic conditions improved during fiscal 2021, resulting in increased demand for our products and services, which led to our earnings for fiscal 2021 substantially exceeding our fiscal 2020 results. There remain many unknowns and we continue to monitor the expected trends and related demand for our products and services and have and will continue to adjust our operations accordingly.

 

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

9


 

Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Contract Liabilities – Contract liabilities are reflected in current liabilities on the Condensed Consolidated Balance Sheets as all performance obligations are expected to be satisfied within the next 12 months. Contract liabilities include customer deposits and deferred profit, if any. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations. Contract liabilities consist of customer deposits as of December 31, 2021 and September 30, 2021. Of the $1.6 million contract liabilities recorded at September 30, 2021, $1.2 million was recorded as revenue for the three months ended December 31, 2021.

 

Shipping Expense – Shipping and handling fees associated with inbound and outbound freight are expensed as incurred and included in selling, general and administrative expenses. Shipping expense was $1.2 million and $0.1 million for the three months ended December 31, 2021 and 2020, respectively.

 

Debt – The recorded amounts of these financial instruments, including long-term debt and current maturities of long-term debt, have an interest rate of 4.11% and are due in September 2023. Due to the relatively short-term nature of the debt, we believe that the carrying value approximates fair value.

 

Concentrations of Credit Risk – Our customers consist of semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable. Credit risk is managed by performing ongoing credit evaluations of the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile.

 

As of December 31, 2021, one Semiconductor segment customer individually represented 23% of accounts receivable. As of September 30, 2021, one Semiconductor customer individually represented 14% of accounts receivable.

 

We maintain our cash and cash equivalents in multiple financial institutions. Balances in the United States, which account for approximately 84% and 83% of total cash balances as of December 31, 2021 and September 30, 2021, respectively, are primarily invested in U.S. Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation. The remainder of our cash is maintained with financial institutions with reputable credit in China, the United Kingdom and Malaysia. We maintain cash in bank accounts in amounts which at times may exceed federally insured limits. We have not experienced any losses on such accounts.

 

Refer to Note 11 to Condensed Consolidated Financial Statements for information regarding major customers, foreign sales and revenue in other countries subject to fluctuation in foreign currency exchange rates.

 

Impact of Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued or effective as of December 31, 2021 that had or are expected to have a material impact on our consolidated financial statements. 

 

2. Acquisition

 

On March 3, 2021, we acquired 100% of the issued and outstanding capital stock of Intersurface Dynamics, Inc. (“Intersurface Dynamics”), a Connecticut-based manufacturer of substrate process chemicals used in various manufacturing processes, including semiconductors, silicon and compound semiconductor wafers, and optics, for a cash purchase price of $5.3 million. The total fair value of net assets acquired was approximately $0.7 million, including $0.4 million of identifiable intangible assets consisting of customer relationships and brand name, which are amortized using the straight-line method over their estimated useful lives of ten and three years, respectively.

10


 

Goodwill acquired approximated $4.5 million, which was recorded in our Material and Substrate segment. Intersurface Dynamics' results of operations are included in our Material and Substrate segment from the date of acquisition. Our historical results would not have been materially affected by the acquisition of Intersurface Dynamics.

 

3. Cybersecurity Incident

 

On April 12, 2021, we detected a data incident in which attackers acquired data and disabled some of the technology systems used by one of our subsidiaries. Upon learning of the incident, we immediately engaged external counsel and retained a team of third-party forensic, incident response, and security professionals to investigate and determine the full scope of this incident. We also notified law enforcement officials and confirmed that the incident is covered by our insurance. We completed the investigation of the data incident with assistance from our outside professionals, and indications were that the unauthorized third-party gained access to certain personal information relating to employees and their beneficiaries for some of our operations. There was no indication of any misuse of this information.

 

Despite this disruption, production continued in our facilities. Our previously disabled subsidiary network is now back up and running securely. Working alongside our security professionals, we were able to bring our subsidiary’s systems online with enhanced security controls. We have deployed an advanced next generation anti-virus and endpoint detection and response tool, as well as Managed Detection & Response services. We remain committed to protecting the security of the personal information entrusted to us and providing high-quality products and service to our customers.

 

We recorded approximately $1.1 million of expense related to this incident, which is included in selling, general and administrative expenses, during the third quarter of 2021. The expense is primarily related to third-party service providers, including security professionals as well as legal and response teams. We may make additional investments in the future to further strengthen our cybersecurity. We filed an insurance claim during the fourth quarter of 2021 related to the incident. Disputes over the extent of insurance coverage for claims are not uncommon, and there is a time lag between the initial incurrence of costs and the receipt of any insurance proceeds. There is no guarantee that we will be fully reimbursed for all expenses incurred. As of December 31, 2021, we have received a reimbursement of approximately $0.4 million, and in January 2022, we received an additional reimbursement of approximately $0.2 million. Reimbursement discussions with our insurance carrier are ongoing.

 

4. Earnings Per Share

 

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In the case of a net loss, diluted earnings per share is calculated in the same manner as basic EPS.

 

For the three months ended December 31, 2021 and 2020, options for 47,000 and 471,000 weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could become dilutive in the future.

 

11


 

A reconciliation of the components of the basic and diluted EPS calculations follows (in thousands, except per share amounts):

 

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

Net income

 

$

997

 

 

$

719

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted-average shares used to compute basic EPS

 

 

14,254

 

 

 

14,072

 

Common stock equivalents (1)

 

 

231

 

 

 

45

 

Weighted-average shares used to compute diluted EPS

 

 

14,485

 

 

 

14,117

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

Net income per basic share

 

$

0.07

 

 

$

0.05

 

Net income per diluted share

 

$

0.07

 

 

$

0.05

 

 

(1)
The number of common stock equivalents is calculated using the treasury method and the average market price during the period.

 

5. Inventories

 

The components of inventories are as follows, in thousands:

 

 

 

December 31,
2021

 

 

September 30,
2021

 

Purchased parts and raw materials

 

$

17,056

 

 

$

16,260

 

Work-in-process

 

 

5,396

 

 

 

4,865

 

Finished goods

 

 

5,793

 

 

 

5,055

 

 

 

 

28,245

 

 

 

26,180

 

Excess and obsolete reserves

 

 

(4,130

)

 

 

(4,105

)

Inventories

 

$

24,115

 

 

$

22,075

 

 

6. Leases

 

The following table provides information about the financial statement classification of our lease balances reported within the Condensed Consolidated Balance Sheets, in thousands:

 

 

 

December 31,
2021

 

 

September 30,
2021

 

Assets

 

 

 

 

 

 

Right-of-use assets - operating

 

$

8,573

 

 

$

8,646

 

Right-of-use assets - finance

 

 

151

 

 

 

174

 

Total right-of-use assets

 

$

8,724

 

 

$

8,820

 

Liabilities

 

 

 

 

 

 

Current

 

 

 

 

 

 

Operating lease liability

 

$

492

 

 

$

470

 

Finance lease liability

 

 

58

 

 

 

61

 

Total current portion of long-term lease liability

 

 

550

 

 

 

531

 

Long-term

 

 

 

 

 

 

Operating lease liability

 

 

8,197

 

 

 

8,279

 

Finance lease liability

 

 

103

 

 

 

110

 

Total long-term lease liability

 

 

8,300

 

 

 

8,389

 

Total lease liability

 

$

8,850

 

 

$

8,920

 

 

12


 

The following table provides information about the financial statement classification of our lease expenses reported in the Condensed Consolidated Statements of Operations, in thousands:

 

 

 

 

 

Three Months Ended December 31,

 

Lease cost

 

Classification

 

2021

 

 

2020

 

Operating lease cost

 

Cost of sales

 

$

197

 

 

$

71

 

Operating lease cost

 

Selling, general and administrative expenses

 

 

84

 

 

 

48

 

Finance lease cost

 

Cost of sales

 

 

1

 

 

 

2

 

Finance lease cost

 

Selling, general and administrative expenses

 

 

16

 

 

 

2

 

Short-term lease cost

 

Cost of sales

 

 

 

 

 

27

 

Total lease cost

 

 

 

$

298

 

 

$

150

 

 

Future minimum lease payments under non-cancelable leases, including leases that are executed but not yet effective, as of December 31, 2021, are as follows, in thousands:

 

 

 

Operating leases

 

 

Finance Leases

 

 

Total

 

Remainder of 2022

 

$

811

 

 

$

56

 

 

$

867

 

2023

 

 

1,062

 

 

 

66

 

 

 

1,128

 

2024

 

 

1,043

 

 

 

47

 

 

 

1,090

 

2025

 

 

1,031

 

 

 

 

 

 

1,031

 

2026

 

 

915