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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

For the quarterly period ended June 30, 2003

OR

For the transition period from___________to___________

Commission File number 000-22430

ASYST TECHNOLOGIES, INC.

48761 Kato Road, Fremont, California 94538
(Address of principal executive offices, including zip code)

(510) 661-5000
(Registrant’s telephone number, including area code)

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.

Yes [X]   No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]   No [   ]

The number of shares of the registrant’s Common Stock, no par value, outstanding as of July 31, 2003 was 39,245,636.

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ASYST TECHNOLOGIES, INC.
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Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

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

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ASYST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts)

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

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ASYST TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

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

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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. ORGANIZATION OF THE COMPANY:

     The accompanying condensed consolidated financial statements include the accounts of Asyst Technologies, Inc., Asyst, which was incorporated in California on May 31, 1984, our subsidiaries and our majority-owned joint venture. We develop, manufacture, sell and support integrated automation systems, primarily for the semiconductor and secondarily for the flat panel display, or FPD, manufacturing industries. Our systems are designed to enable semiconductor and FPD manufacturers to increase their manufacturing productivity and protect their investment in fragile materials and work-in-process.

     In April 2003, our majority-owned joint venture, Asyst Shinko, Inc., or ASI, acquired the portion of Shinko Technologies, Inc. that provides ongoing support to ASI’s North American Automated Material Handling Systems, or AMHS, customers from Shinko Electric, Inc. ASI renamed this subsidiary Asyst Shinko America, or ASAM.

     In October 2002, we purchased a 51 percent interest in ASI, a Japanese corporation.

     In May 2002, Asyst Connectivity Technologies, Inc., or ACT, our wholly-owned subsidiary, purchased substantially all of the assets of domainLogix Corporation, or DLC, a Delaware corporation.

     The above transactions were accounted for using the purchase method of accounting. Accordingly, our Condensed Consolidated Statements of Operations and of Cash Flows for the periods ended June 30, 2003 and June 30, 2002 include the results of these acquired entities for the periods subsequent to their respective acquisitions, as applicable. We consolidate fully the financial position and results of operations of ASI and account for the minority interest in the condensed consolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES:

     Basis of Preparation

     While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting of normal recurring accruals) which we consider necessary for the fair presentation of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. All significant intercompany accounts and transactions have been eliminated. Minority shareholder’s interest represents the minority shareholder’s proportionate share of the net assets and results of operations of our majority-owned joint venture, ASI. Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the quarter ended June 30, 2003. We close our books on the last Saturday of each quarter and thus the actual date of the quarter-end, June 28, 2003, is different from the month-end dates used throughout this Form 10-Q report. The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in connection with our consolidated financial statements for the year ended March 31, 2003 included in our Annual Report on Form 10-K. The Advanced Machine Programming, Inc., or AMP, and SemiFab, Inc., or SemiFab, businesses were sold in March 2003 and were accounted for as discontinued operations and therefore, the results of operations and cash flows have been removed from our results of continuing operations for all periods presented.

     New Accounting Standards

     In November 2002 the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF Issue No. 00-21). EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are currently assessing the impact of

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EITF Issue No. 00-21 on our consolidated financial statements.

     In January 2003 the Financial Accounting Standards Board, or FASB, issued FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, or FIN No. 46. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN No. 46 to date has not had a significant impact on our consolidated financial statements.

     In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, or SFAS No. 150. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first fiscal period beginning after June 15, 2003. SFAS No. 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. We believe that the adoption of this standard will have no material impact on our consolidated financial statements.

     Restricted Cash

     Restricted cash represents amounts that are restricted as to its use in accordance with Japanese debt agreements.

     Inventories

     Inventories consist of the following (in thousands):

     During the year ended March 31, 2003, we outsourced the majority of our remaining manufacturing to Solectron Corporation, or Solectron. As part of the arrangement, Solectron purchased $20 million of inventory from us. No revenue was recorded for the sale of this inventory to Solectron. In October 2003, we may be obligated to repurchase any of this inventory that is not used by Solectron in manufacturing our products. On an on-going basis, we may be obligated to acquire inventory purchased by Solectron based on our forecasts and not used timely under terms of the outsourcing agreement. As of June 30, 2003, our best estimate of the inventory expenses for our obligation to repurchase inventory at Solectron has been accrued.

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     Goodwill and Intangible Assets, net

     Intangible assets subject to amortization are being amortized over the following estimated useful lives using the straight-line method: purchased technology, four to eight years; customer lists and other intangible assets, five to ten years; and licenses and patents, ten years. No changes were made to the useful lives of amortizable intangible assets in connection with the adoption of SFAS No. 142. For the ASI acquisition in October 2002, a goodwill of $62.6 million was recorded. In connection with the ASAM acquisition in April 2003, ASI recorded goodwill of $0.4 million.

     We completed an annual goodwill impairment test in third quarter of fiscal 2003. The first step of the test identifies when impairment may have occurred, while the second step of the test measures the amount of the impairment, if any. As a result of the test, a goodwill impairment expense of $2.1 million was recognized. To determine the amount of the impairment, we estimated the fair value of our reporting segments that contained goodwill (based primarily on expected future cash flows), reduced the amount by the fair value of identifiable intangible assets other than goodwill (also based primarily on expected future cash flows), and then compared the unallocated fair value of the business to the carrying value of goodwill. To the extent goodwill exceeded the unallocated fair value of the business, an impairment expense was recognized. In connection with the annual impairment analysis for goodwill, we assessed the recoverability of the intangible assets subject to amortization in accordance with SFAS No. 144. During fiscal 2003, an impairment expense of $6.2 million was recognized for acquired technology and $0.1 million was recognized for customer base, based upon our projection of significantly reduced future cash flows of ACT.

     Goodwill and intangible assets were as follows (in thousands):

     Amortization expense was $4.8 million for the quarter ended June 30, 2003 and $1.7 million for the quarter ended June 30, 2002.

     Expected future intangible amortization expense, based on current balances, for the remainder of fiscal 2004 and for the following fiscal years is as follows (in thousands):

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     The changes in the carrying amount of goodwill for the quarter ended June 30, 2003 are as follows (in thousands):

     Warranty Reserve

     We provide for the estimated cost of product warranties at the time revenue is recognized. The following table presents the activity in our warranty accrual (in thousands):

     Revenue Recognition

     We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured. Some of our products are large volume consumables that are tested to industry and/or customer acceptance criteria prior to shipment. Our primary shipping terms are FOB shipping point. Therefore, revenue for these types of products is recognized when title transfers. Certain of our product sales are accounted for as multiple-element arrangements. If we have met defined customer acceptance experience levels with both the customer and the specific type of equipment, we recognize the product revenue at the time of shipment and transfer of title, with the remainder when the other elements, primarily installation, have been completed. Some of our other products are highly customized systems and cannot be completed or adequately tested to customer specifications prior to shipment from the factory. We do not recognize revenue for these products until formal acceptance by the customer. Revenue for spare parts sales is recognized on shipment. Deferred revenue consists primarily of product shipments creating legally enforceable receivables that did not meet our revenue recognition policy in compliance with SAB 101. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is not significant and is included in accrued liabilities and other.

     We recognize revenue for long-term contracts at ASI in accordance with the American Institute of Certified Public Accountants’ Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We use the percentage of completion method to calculate revenue and related costs of these contracts because they are long-term in nature and estimates of cost to complete and extent of progress toward completion of long-term contracts are available and reasonably dependable. We record revenue each period based on the percentage of completion to date on each contract, measured by costs incurred to date relative to the total estimated costs of each contract. We treat contracts as substantially complete when we receive technical acceptance of our work by the customer. We intend to disclose material changes in our financial results that result from changes in estimates. Under this accounting policy, we are obligated to recognize revenues on work-in-process inventory prior to invoicing, and in some instances prior to shipment to the customer. Receivable balances that have not yet been invoiced to the customer, but where revenue has been recognized, were $25.6 million and $17.4 million at June 30, 2003 and March 31, 2003, respectively, and are included in accounts receivable on the condensed consolidated balance sheets.

     We account for software revenue in accordance with the American Institute of Certified Public Accountants’ Statement of Position 97-2, “Software Revenue Recognition.” Revenue for integration software work is recognized on a percentage of completion basis. Software license revenue, which is not material to the consolidated financial

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statements, is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

     Contract Loss Reserve

     We routinely evaluate the contractual commitments with our customers and suppliers to determine if it is probable that a loss exists that can be estimated in fulfillment of the contractual commitment. If so, a loss reserve is recorded and included in accrued liabilities and other. We recorded loss reserves from ASI totaling approximately $2.0 million for contracts entered into prior to the acquisition date. These loss reserves are included in the purchase accounting for ASI. We had a loss reserve of approximately $2.0 million both at June 30, 2003 and March 31, 2003.

     Loss Per Share

     Basic earnings per share is computed using the weighted average number of common shares outstanding, while diluted earnings per share is computed using the sum of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and warrants, using the treasury stock method and the conversion of the redeemable convertible preferred stock. For periods for which there is a net loss, the number of shares used in the computation of diluted earnings (loss) per share are the same as those used for the computation of basic earnings (loss) per share as the inclusion of dilutive securities would be anti-dilutive.

     The following table summarizes securities outstanding which were not included in the calculation of diluted net loss per share as to do so would be anti-dilutive (in thousands):

     Comprehensive Loss

Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners and is to include unrealized gains and losses that have historically been excluded from net income (loss) and reflected instead in equity. The following table presents our comprehensive loss items (in thousands):

     Stock-Based Compensation

     We account for employee stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, and Financial Accounting Standards Board Interpretation, or FIN, No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, and comply with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure – an amendment of FAS No. 123. Under APB No. 25, compensation expense is based on

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the difference, if any, on the date of grant, between the estimated fair value of our common stock and the exercise price. SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument.

     We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force (EITF ) 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and value awards using the Black Scholes option pricing model as of the date at which the non-employees performance is complete. We recognize the fair value of the award as a compensation expense as the non-employees interest in the instrument vests.

     Had compensation expense for our stock options, employee stock purchase plan and the restricted stock issuances to employees been determined based on the fair value at the grant date for the awards, our net loss for the three months ended June 30, 2003 and 2002 would have increased as indicated below (in thousands, except per share amounts):

3. RESTRUCTURING CHARGES:

     Restructuring charges and related utilization for the quarter ended June 30, 2003 were (in thousands):

     We incurred restructuring charges of $4.4 million during the quarter ended June 30, 2003, consisting primarily of severance costs from a reduction in workforce in April 2003. As a result of these restructuring activities, we terminated the employment of approximately 196 employees, including 80 in manufacturing, 34 in research and development and 82 in selling, general and administration, from our domestic operations as well as international operations. Additionally, we incurred a charge for future lease obligations on a vacated facility in excess of estimated future sublease proceeds. We anticipate additional restructuring charges during the second and third quarters of fiscal 2004 as we complete the workforce reductions and outsourcing of manufacturing in Japan.

     We expect to utilize the remaining balance, primarily unused leased facilities, over the following three fiscal years. All remaining accrual balances are expected to be settled in cash.

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4. ASSET IMPAIRMENT CHARGES:

     We own land in Fremont, California, which we are currently marketing for sale. We had intended to construct corporate headquarters facilities on the land and subsequently decided not to build these facilities. In the first quarter of fiscal 2004 we recorded a $6.9 million write-down based on our latest estimate of market value as supported by a pending sale agreement. The prospective buyer deposited $1.0 million of the purchase price in July 2003, and these proceeds will be forfeited to us if the purchase is not completed.

5. INCOME TAXES:

     Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”, or SFAS No. 109, requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, the utilization of past tax credits, length of carryback and carryforward periods and existing contracts or sales backlog that will result in future profits. It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. As a result of current losses, difficult industry conditions and revised downward future projections a review was undertaken at September 30, 2002, and we concluded that it was appropriate to establish a full valuation allowance for our domestic net deferred tax assets. In addition, we expect to continue to provide a full valuation allowance on future domestic tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize the assets. Deferred tax assets are recognized to the extent realizable related to our Japanese operations. A tax benefit has been recognized in the three months ended June 30, 2003 as we expect to have net income in Japan for the 12-month period ended March 31, 2004.

6. REPORTABLE SEGMENTS:

We have two reportable segments: Fab Automation and AMHS. Fab Automation products include interface products, substrate-handling robotics, wafer and reticle carriers, auto-ID systems, sorters and connectivity software. AMHS products include automated transport and loading systems for semiconductor fabs and flat panel display manufacturers. We began tracking AMHS as a reportable segment with the acquisition of ASI in the third quarter of fiscal 2003.

     Segment information is summarized as follows (in millions):

     Our net sales by geography, including local revenues recorded at our foreign locations, were as follows (in millions):

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7. DISCONTINUED OPERATIONS:

     In August 2002, our Board of Directors approved a plan to discontinue operations of our AMP and SemiFab subsidiaries. Accordingly, these businesses were accounted for as discontinued operations and, therefore, the results of operations and cash flows were reclassified from our results of continuing operations to discontinued operations for all periods presented. We based the decision to discontinue these operations on an evaluation of, and decision to focus on our core business, concluding AMP and SemiFab were not critical to our long-term strategy. We completed the sale of each business in March 2003.

     Summarized selected financial information for discontinued operations in the quarter ended June 30, 2002 is as follows (in thousands):

8. ACQUISITIONS

     ASYST SHINKO AMERICA (ASAM)

     In April 2003, ASI acquired the portion of Shinko Technologies, Inc., a subsidiary of Shinko Electric, Inc., that provided ongoing support to ASI’s North American AMHS customers. Shinko Electric owns 49 percent of ASI. ASI renamed this subsidiary Asyst Shinko America (ASAM). The total purchase price, net of cash acquired, was approximately $1.2 million. A summary of assets acquired and liabilities assumed follows (in thousands):

     ASAM provides ongoing service to customers who installed ASI’s AMHS solution. As such, there is no in-process research and development activity at ASAM. The acquisition was made to provide better support to North American AMHS customers. We believe the purchase price reasonably reflects the fair value of the business based on estimates of future revenues and earnings.

     Comparative pro forma information reflecting the acquisition of ASAM has not been presented because the operations of ASAM were not material to our financial statements.

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     ASYST-SHINKO INC. (ASI)

     On October 16, 2002, we established a joint venture with Shinko Electric Co., Ltd., or Shinko, called ASI. The joint venture develops, manufactures and markets Shinko’s market-leading AMHS with principal operations in Tokyo and Ise, Japan. Under terms of the agreement, Asyst acquired 51 percent of the joint venture for approximately $67.5 million of cash and transaction costs. Shinko contributed its entire AMHS business, including intellectual property and other assets, installed customer base and approximately 250 employees. The consolidated financial statements for the period ended June 30, 2003 include the results of ASI for the quarter. We believe that ASI has a strong presence in the 300mm AMHS and flat panel display markets. We believe that ASI, in addition to Asyst’s FasTrack AMHS solution, provides us an opportunity to benefit from growth opportunities in the 300mm generation of the AMHS business. The acquisition has been accounted for as a purchase transaction in accordance with SFAS No. 141.

     A portion of the excess of purchase price over fair value of net assets acquired was allocated to identifiable intangible assets. We amortize developed technology over a period of five years and the customer base and trademarks over a period of three years, using the straight-line method, with a weighted-average life of 4.4 years. The balance of the excess purchase price was recorded as goodwill. We are completing our final analysis of the acquisition and will record any remaining adjustments in the second quarter of fiscal year 2004. A summary of the transaction is as follows (in thousands):

     The fair values of identifiable intangible assets are based on estimates of future revenues and earnings to determine a discounted cash flow valuation of identifiable intangible assets that meet the separate recognition criteria of SFAS No. 141. The $62.6 million of goodwill arising from the acquisition is not deductible for tax purposes. We expensed $5.8 million of in-process research and development as part of the acquisition in the third quarter of fiscal 2003.

     Minority interest of $56.7 million was recorded at June 30, 2003 representing the minority interest of 49 percent of the fair value of ASI at the time of acquisition and the proportionate share of net income (loss) and cumulative translation adjustment for the periods since acquisition.

          The following table summarizes the estimated fair values of the tangible assets acquired and liabilities assumed at the date of acquisition (in thousands):

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     As part of the acquisition, we assumed pension related obligations. In addition, as certain pension obligations are included in the former owner of ASI’s pension plan, under certain remote circumstances including bankruptcy and inability to pay by Shinko, we may have to assume up to $200 million of pension obligations. No recognition of this amount has been recorded to date as it is considered remote.

9. DEBT

     On July 3, 2001, we completed the sale of $86.3 million of 5-3/4 percent convertible subordinated notes which provided us with aggregate proceeds of $82.9 million net of issuance costs. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share, which is equal to a conversion rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature July 3, 2008, pay interest on January 3 and July 3 of each year and are redeemable at our option after July 3, 2004.

     Asyst Japan Inc., or AJI, our Japanese subsidiary, had $20.2 and $18.0 million of short-term debt from banks in Japan at June 30, 2003 and March 31, 2003, respectively. The interest rate ranged from 1.4 percent to 2.4 percent as of June 30, 2003. AJI had secured straight bonds from a bank in Japan of $4.0 million at June 30, 2003. The bonds bore interest at rates ranging from 1.5 percent to 2.9 percent as of June 30, 2003 and mature in fiscal year 2008. Certain of AJI’s assets have been pledged as security for these secured straight bonds as well as for short-term debt. As of June 30, 2003, pledged assets consist of land and other property and equipment, net of accumulated depreciation, time deposits and accounts receivable totaling approximately $14.0 million. Additionally Asyst U.S. has provided letters of guarantee to financial institutions in Japan covering substantially all of AJI’s debts.

     We have, and have fully drawn down, a $25 million 2-year revolving credit agreement with a commercial bank and are required under the agreement to maintain compliance with financial covenants, including total liabilities to tangible net worth ratio, tangible net worth and minimum liquidity covenants. We were not in compliance with the minimum consolidated tangible net worth and the total liabilities to tangible net worth covenants at June 30, 2003 as defined in the revolving credit agreement. We received a waiver of default from the lender with respect to compliance with these covenants at June 30, 2003. We are in the process of amending the financial covenants contained in the credit agreement. The amount of the credit line available may change based on the amount of receivables held and changes in the non-formulary piece of the credit line which is subject to periodic review and amendment. Based upon original maturities, this debt will be classified as short-term in October 2003.

10. RELATED PARTY TRANSACTIONS:

     At June 30, 2003, we held notes from two former employees and two current employees totaling $0.5 million. These notes receivable are secured by deeds of trust on certain real property and/or pledged securities of the Company owned by the employees and are included in other assets at June 30, 2003.

     Our majority owned subsidiary, ASI, has certain transactions with the minority shareholder, Shinko. ASI purchased various administrative and IT services from Shinko. At June 30, 2003, significant balances owed (to) from Shinko were (in thousands):

11. LEGAL PROCEEDINGS:

     On October 28, 1996 we filed suit in the United States District Court for the Northern District of California against Empak, Inc., Emtrak, Inc., Jenoptik AG, and Jenoptik Infab, Inc., alleging, among other things, that certain products of these defendants infringe our United States

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Patents Nos. 5,097,421 (“the ‘421 patent”) and 4,974,166 (“the ‘166 patent”). Defendants filed answers and counterclaims asserting various defenses, and the issues subsequently were narrowed by the parties’ respective dismissals of various claims, and the dismissal of defendant Empak pursuant to a settlement agreement. The remaining patent infringement claims against the remaining parties proceeded to summary judgment, which was entered against us on June 8, 1999. We thereafter took an appeal to the United States Court of Appeals for the Federal Circuit. On October 10, 2001, the Federal Circuit issued a written opinion, Asyst Technologies, Inc. v. Empak, 268 F.3d 1365 (Fed. Cir. 2001), reversing the decision of the trial court, and remanding the matter to the trial court for further proceedings. We have since narrowed our case to the ‘421 patent, and we continue to seek monetary damages for defendants’ infringement, equitable relief, and an award of attorneys’ fees. Defendants’ related declaratory judgment claims are also pending. The trial court held a claims construction hearing on September 30, 2002, and issued its claims construction ruling on February 28, 2003. We have filed motions seeking summary judgment of infringement and summary judgment against certain claims of invalidity and unenforceability brought by defendants. Defendants have filed motions seeking summary judgment of non-infringement and patent invalidity. The trial court is scheduled to hear these motions on September 22, 2003. The Court has set a trial date of November 3, 2003 for any matters not resolved by summary judgment. We believe the remaining claims are meritorious and intend to vigorously pursue this matter.

     On February 25, 2003, Mihir Parikh, our former Chief Executive Officer and Chairman of the Board, filed a demand for arbitration with the American Arbitration Association against us, alleging breach of his employment agreement, wrongful termination in violation of public policy, discrimination based on age, race and national origin, fraud and deceit, defamation and violation of the California Labor Code. On March 4, 2003, Dr. Parikh resigned as a member of our Board of Directors. On June 17, 2003, Dr. Parikh filed an amended demand for arbitration adding as respondents our Chief Executive Officer and Chairman of the Board, Stephen S. Schwartz, and three outside directors, Walter W. Wilson, Stanley J. Grubel and Anthony E. Santelli to all claims other than the breach of contract claim. Dr. Parikh seeks compensatory damages in excess of $5 million plus punitive damages and attorney’s fees. We deny Dr. Parikh’s allegations and intend to defend the action vigorously. The arbitration hearing has not been scheduled but we believe it will be held in the first half of 2004.

     From time to time, we are also involved in other legal actions arising in the ordinary course of business. We have incurred certain costs while defending these matters. There can be no assurance third party assertions will be resolved without costly litigation, in a manner that is not adverse to our financial position, results of operations or cash flows or without requiring royalty payments in the future which may adversely impact gross margins. No estimate can be made of the possible loss or possible range of loss associated with the resolution of these contingencies. As a result, no losses have been accrued in our financial statements as of June 2003.

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

Forward Looking Statements

     Except for the historical information contained herein, the following discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including those set forth in this section as well as those under the caption, “Risk Factors.”

     Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document and in our Annual Report on Form 10-K might not occur. The following discussion of our financial condition and results

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of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this report.

Overview

     We develop, manufacture, sell and support integrated automation systems primarily for the semiconductor, and secondarily for the flat panel display, or FPD, manufacturing industries. Our systems are designed to enable semiconductor and FPD manufacturers to increase their manufacturing productivity and yield and to protect their investment in fragile materials and work-in-process.

     We sell our systems directly to semiconductor and FPD manufacturers, as well as to original equipment manufacturers, or OEMs, that integrate our systems with their equipment for sale to semiconductor manufacturers.

     In response to the industry downturn, we have reduced costs in several areas. We reduced approximately 35 percent of our headcount in April 2003 due to ongoing weakness in our business, our outsourcing of manufacturing, and the sale of two discontinued operations and the wafer carrier business. We also announced plans to outsource our Japanese manufacturing operations. In October 2002, we began transitioning substantially all of our U.S. manufacturing to Solectron Corporation, which we believe will reduce our fixed manufacturing costs and improve our ability to respond to sales fluctuations. The transition was substantially completed in June 2003. Over the past two years, we have reduced our workforce from a peak of approximately 1,800 employees to approximately 550 employees.

     We sell our products principally through a direct sales force worldwide. Our functional currency is the U.S. dollar, except in Japan where our functional currency is the Japanese yen. The costs and expenses of our international subsidiaries are recorded in local currency, and foreign currency translation adjustments are reflected as a component of “Accumulated other comprehensive income” in our Condensed Consolidated Balance Sheets.

Critical Accounting Policies and Estimates

     Information with respect to our critical accounting policies and estimates may be found in our Annual Report on Form 10-K filed for the fiscal year ended March 31, 2003.

Acquisitions

     In April 2003, our 51 percent owned subsidiary, Asyst-Shinko, Inc., or ASI, acquired the portion of Shinko Technologies, Inc. that provides ongoing support to ASI’s North American AMHS customers from Shinko Electric, Inc. ASI renamed this subsidiary Asyst Shinko America (ASAM).

     In October 2002, Asyst Japan, Inc., or AJI, our Japanese subsidiary, purchased a 51 percent interest in ASI, a Japanese corporation.

     In May 2002, Asyst Connectivity Technologies, Inc., or ACT, our wholly-owned subsidiary, purchased substantially all of the assets of domainLogix Corporation, or DLC, a Delaware corporation. The results of operations for the first quarter of fiscal 2003 include the revenues and expenses of ACT from the date of acquisition.

     The above transactions were accounted for using the purchase method of accounting. Accordingly, our Condensed Consolidated Statements of Operations and of Cash Flows for the periods ended June 30, 2003 and June 30, 2002 include the results of these acquired entities for the periods subsequent to their respective acquisitions, as applicable. We consolidate fully the financial position and results of operations of ASI and account for the minority interest in the condensed consolidated financial statements.

Three Months Ended June 30, 2003 and 2002

     The following table sets forth the percentage of net sales represented by condensed consolidated statements of operations data for the periods indicated (unaudited):

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