UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0411215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 480-967-5146
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12(b)(2). [ ] Yes [X] No
As of December 13, 2002, the aggregate market value of voting stock held by
non-affiliates of the registrant was approximately $8,500,000 based on the
average of the high and low prices of Common Stock as reported on the NASDAQ
National Market on such date. Shares of Common Stock held by officers, directors
and holders of more than 5% of the outstanding Common stock have been excluded
from this calculation because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of December 13, 2002, the registrant had outstanding 2,689,571 shares of
Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement related to the registrant's
2003 Annual Meeting of Shareholders, which Proxy Statement will be filed under
the Securities Exchange Act of 1934, as amended, within 120 days of the end of
the registrant's fiscal year ended September 30, 2002, are incorporated by
reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Page
PART 1
ITEM 1 BUSINESS.............................................................3
ITEM 2 PROPERTIES..........................................................12
ITEM 3 LEGAL PROCEEDINGS...................................................13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................13
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS.............................................13
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA................................14
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................15
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........28
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................29
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..........................................49
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................49
ITEM 11 EXECUTIVE COMPENSATION..............................................49
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.....................................49
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................49
ITEM 14 CONTROLS AND PROCEDURES.............................................49
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....50
SIGNATURES..........................................................52
POWER OF ATTORNEY...................................................52
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FORWARD-LOOKING STATEMENTS
Certain information contained or incorporated by reference in this Annual
Report on Form 10-K is forward-looking in nature. All statements included or
incorporated by reference in this Annual Report on Form 10-K or made by
management of Amtech Systems, Inc. and its subsidiaries ("Amtech"), other than
statements of historical fact, are hereby identified as "forward-looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Examples of forward-looking statements include statements
regarding Amtech's future financial results, operating results, business
strategies, projected costs, products under development, competitive positions
and plans and objectives of management for future operations. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "would," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology. Any expectations based on these forward-looking
statements are subject to risks and uncertainties and other important factors,
including those discussed in the section entitled "Item 7: Management's
Discussion and Analysis - Trends, Risks and Uncertainties." 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. Unless noted otherwise, all references to a year apply to Amtech's
fiscal year, which ends on September 30th.
All references to "we," "our," "us," or "Amtech" refer to Amtech Systems,
Inc. and its subsidiaries.
PART I
ITEM 1. BUSINESS
Amtech Systems, Inc. ("Amtech" or the "Company") was incorporated in
Arizona in October 1981, under the name Quartz Engineering & Materials, Inc.,
and changed to its present name in 1987. Amtech also conducts operations through
two wholly owned subsidiaries, Tempress Systems, Inc., a Texas corporation with
all its operations in the Netherlands ("Tempress Systems"), and P.R. Hoffman
Machine Products, Inc., an Arizona corporation based in Carlisle, Pennsylvania
("P.R. Hoffman").
Amtech develops, manufactures, markets and services wafer and semiconductor
fabrication equipment and related spare parts for the worldwide semiconductor
industry. Customers for our products include semiconductor wafer manufacturers
and semiconductor integrated circuit (or chip) manufacturers, who either use the
chips they manufacture in their own products or sell them to other companies.
These chips are key components in most electronic products for
telecommunications (especially wireless communications), computers and consumer
electronics and are also used to add functionality or improve the performance of
a wide range of existing products, such as automobiles. Other customers include
manufacturers of optical components and solar cells and research and development
facilities.
The Company's business is divided into two segments, semiconductor
equipment and polishing supplies. The semiconductor equipment segment
manufactures and sells horizontal diffusion furnaces, processing/robotic
equipment for such diffusion furnaces and related spare parts and consumables
used in certain processes of fabricating integrated circuits, or chips, on
silicon wafers. In addition, the semiconductor equipment segment provides
manufacturing support services, wet and dry cleaning of semiconductor machine
processing parts, to one of its Texas-based customers. The polishing supplies
segment produces and sells carriers and templates that are consumed in the final
steps of fabricating silicon wafers, the raw material used in the production of
semiconductors, double-sided precision lapping and polishing machines and
related spare parts. For information regarding revenue, operating profit or loss
and identifiable assets attributable to each of Amtech's industry segments see
Note 9 of the Notes to Consolidated Financial Statements included herein and
Item 7 of this annual report.
GROWTH STRATEGY
Amtech's strategy for growing revenue and operating profit is to develop
new products and services that serve the Company's targeted markets, to further
penetrate these and new markets with existing and new products, and to acquire
additional products through strategic acquisitions. We categorize these growth
strategies as internal growth and acquisition growth.
3
ACQUISITION GROWTH. In fiscal 1995, Amtech conducted a secondary offering
of its common stock to raise $3.6 million for acquisitions. That year the
Company acquired certain assets of the former Tempress, B.V. and hired Tempress,
B.V.'s former engineers to develop the Company's first models of the Tempress(R)
horizontal diffusion furnaces and production in The Netherlands. On July 1,
1997, the Company acquired substantially all of the assets of P.R. Hoffman
Machine Products Corporation, enabling Amtech to offer new products, including
lapping and polishing carriers, polishing templates and lapping and polishing
machines and related consumable and spare parts, to its existing and targeted
new customers. In September 2000, Amtech raised net proceeds of $4.6 million
through a private placement of common stock in order to fund its acquisition
strategy. While the Company has had difficulty identifying suitable acquisition
candidates that are not over-valued based on the Company's analysis, it
continues to pursue acquisition candidates that will either increase its
existing market share or expand the number of front-end semiconductor processes
addressed by its products.
INTERNAL GROWTH. Amtech's strategy for internal growth, sometimes referred
to as organic growth, includes adding new markets, new products and new
services. The Company began providing a new service, contract semiconductor
manufacturing support, in the fourth quarter of fiscal 1997. In fiscal 2000, the
Company obtained orders for semiconductor production equipment from
manufacturers of optical components, which proved to be a significant new market
in fiscal years 2000 and 2001. In addition, one of the first new markets added
by the Company's semiconductor equipment segment was manufacturers of solar
cells, which continues to be a source of potential growth for the Company.
New products have included the July 2000 introduction of the S-300 and
E-300 models of automation, which have been a significant source of sales in
fiscal 2001 and 2002. Other new products, which Amtech began shipping in fiscal
2002, include 300mm diffusion furnaces and related automation and S-300 models
with cassette-to-cassette capability, a SECS II Gem (semiconductor equipment
communications standard with level II documentation and incorporating the
general equipment model) interface to the customer's factory automation and an
interface to third party SMIF (standard mechanical interface) pod openers. The
introduction of new products in 2002 helped the Company's semiconductor
equipment segment avoid the severe revenue decline experienced by most of its
peers in 2002. The Company expects these new products to generate increased
sales and profits during the next industry upturn.
INDUSTRY
The semiconductor industry has experienced significant growth since the
early 1990s. This growth is primarily attributable to increased demand for
personal computers and the growth of the Internet, the expansion of the
telecommunications industry (especially wireless communications), and the
emergence of new applications in consumer electronics. Further fueling this
growth is the rapidly expanding end-user demand for smaller, less-expensive and
better-performing electronic products and traditional products with more
"intelligence," which has led to an increased number of semiconductor devices in
electronic and other consumer products, such as automobiles.
While experiencing significant growth over the past decade, the
semiconductor market is cyclical by nature, characterized by short-term periods
of either under or over supply for most semiconductors, including
microprocessors, memory, power management chips, DSP (digital signal processing)
chips, and other logic devices. When demand decreases, semiconductor
manufacturers typically slow their purchasing of capital equipment. Conversely,
when demand increases, so does capital spending. Starting in the first half of
fiscal 2001 and continuing through 2002, the semiconductor industry began
experiencing a downturn, which has resulted in a severe decline in revenue for
both chip fabricators and most semiconductor equipment manufacturers.
Semiconductors control and amplify electrical signals and are used in a
broad range of electronic products, including consumer electronic products,
computers, wireless telecommunication devices, communications equipment,
automotive electronic products, major home appliances, industrial automation and
control systems, robotics, aircraft, space vehicles, automatic controls and
high-speed switches for broadband fiber optic telecommunication networks.
Semiconductors, or semiconductor "chips," and optical components are fabricated
on a silicon wafer substrate and are part of the circuitry or electronic
components of many of the aforementioned products.
Most semiconductor chips are built on a base of silicon, called a wafer,
and include multiple layers of wiring that connect a variety of circuit
components, such as transistors and other structures. To build a chip, the
4
transistors, capacitors and other circuit components are first created on the
surface of the wafer by performing a series of processes to deposit and remove
selected film layers, including insulators. Similar processes are then used to
build the layers of wiring structures on the wafer. These are all referred to as
"front-end" processes. A simplified sequence of front-end processes for
fabricating typical chips involves (1) pulling molten silicon to form an ingot;
(2) slicing the silicon ingot into wafers of uniform thickness with a wire saw;
(3) lapping and polishing the silicon wafer to a mirror-like finish; (4)
cleaning the wafer; (5) forming a thin film layer of silicon dioxide on the
wafers in a diffusion furnace where oxygen or water vapor is introduced to cause
a chemical reaction, oxidation, with the silicon wafer's surface; (6) insulating
or conducting layers are deposited on the wafer surface, which sometimes is
accomplished in a diffusion furnace via a chemical reaction called chemical
vapor deposition ("CVD"); (7) a photosensitive material, called photoresist, is
spread over and then baked on the wafer; (8) the wafer is then exposed to light
directed through a mask with circuit patterns; (9) the wafer is then placed in a
chemical solution that removes the soluble portion of the photoresist, leaving
only the desired pattern; (10) reactive gases then etch away the exposed areas
to create a dimensional pattern on the wafer surface; (11) ions are driven into
the exposed areas of the patterned wafer to create electrically charged
conductive regions; and (12) the wafer then goes through a high temperature
annealing process to relieve stress and drive the implanted ions deeper into the
wafer.
The silicon wafer may be cycled several times through these
wafer-processing steps, starting each time at step (5) or (6) to form a number
of chips on the wafer. The front-end process steps are followed by a number of
back-end steps in which the wafers are sliced into individual chips that are
then packaged to add connectors that are compatible with whatever end product
the chip is going into. Depending on the device, Amtech's polishing supplies
products may be used in step (3) and its semiconductor equipment segment
products may be used in steps (5), (6) and (12).
SEMICONDUCTOR EQUIPMENT SEGMENT PRODUCTS
The semiconductor manufacturing equipment products, used in the oxidation,
CVD, POLC3 and annealing steps of fabricating integrated circuits on silicon
wafers, are manufactured at Amtech's Arizona and Netherlands operations. The
following paragraphs describe the products that comprise the semiconductor
equipment segment:
DIFFUSION FURNACES
Through Tempress Systems, Amtech produces and sells horizontal and conveyor
diffusion furnace systems, which generally include a Tempress(R) load station.
Amtech's diffusion furnaces currently address several deposition steps in the
semiconductor manufacturing process, including oxidation/diffusion and
low-pressure chemical vapor deposition ("LPCVD"), POLC3 doping and annealing.
The LPCVD step consists of performing CVD under high temperature, low-pressure
conditions to deposit insulating or conductive layers, primarily on wafers up to
200mm in size. Diffusion furnaces also are used in certain high and ultra-high
temperature processes in the manufacture of optical components of high-speed
switches used in broadband fiber optic telecommunications networks.
Amtech's diffusion furnaces generally consist of three large modules ---
the load station where the loading of the wafers occurs; the furnace section,
which is comprised of one to four reactor chambers; and the gas distribution
cabinet where the flow of gases into the reactor chambers is controlled and are
often customized to meet the requirements of a customers' particular processes.
The horizontal diffusion furnaces utilize existing industry technology and are
sold primarily to customers who do not require the advanced automation of, or
can not justify the significantly higher expense of, vertical diffusion furnaces
for some or all of their diffusion processes. In fiscal 2002, Amtech began
shipping models of the Tempress(R) diffusion furnace capable of processing 300mm
wafers, with the initial customer being a semiconductor wafer manufacturer, and
now has models capable of processing all currently existing wafer sizes.
Tempress Systems also produces conveyor diffusion furnace systems used to
produce thick films for the electronics industry. Conveyor furnace systems
provide for precision thermal processing of electronic parts for thick film
applications, anneal, sealing, soldering, silvering, curling, brazing, alloying,
gloss-metal sealing and component packaging.
5
PROCESSING/ROBOTIC EQUIPMENT
Our processing and robotic equipment consists of several products that
either automate the loading of horizontal diffusion furnaces or improve the
processing characteristics of such furnaces. Wherever possible Amtech's
processing and robotic products are sold in various combinations with the
Company's Tempress(R) diffusion furnaces in order to expand the market for such
furnaces. These products also are sold to customers that have chosen another
brand of diffusion furnace and as retrofits to most all brands of horizontal
diffusion furnaces.
AUTOMATION PRODUCTS
Use of Amtech's automation products reduces human handling and, therefore,
reduces exposure of wafers to contaminants during the loading and unloading of
the process tubes. Since the top reactor chamber of a horizontal furnace is as
much as nine feet from the floor on which the operator stands when manually
loading wafer boats, and typical boats of 200mm or 300mm wafers weigh four to
six pounds, automating the wafer loading and unloading of a diffusion furnace
improves employee safety and ergonomics in semiconductor and solar cell
manufacturing facilities.
E-300. Amtech's most cost effective robotic product is the E-300. This
product is most suitable for lower cost semiconductor devices, such as diodes
and power management chips. The E-300 operates like an elevator and generally is
used to raise boats loaded with up to 300 wafers to one or both of the upper two
reactor chambers of a diffusion furnace. There the operator uses a hand held
tool to lift the wafer boat off the E-300 and to either place them directly on a
cantilever paddle system, into an Amtech Atmoscan(R), or onto an IBAL Trolley,
which then places the wafers on the paddle or Atmoscan(R). The E-300 can be used
in conjunction with all wafer sizes including 300mm wafers.
S-300. The S-300 model provides a very efficient method of automatically
transporting a full batch of up to 300 wafers to the designated tube level and
automatically placing them directly onto the cantilever loader of a diffusion
furnace at one time. This product is suitable for the production of nearly all
semiconductors fabricated in a horizontal furnace, but is not compatible with
furnace reactor chambers where the process requires an Atmoscan(R). During
fiscal 2002, Amtech began shipping S-300 models for 300mm wafers and other
models with cassette-to-cassette capability, a SECS II Gem interface to the
customer's factory automation and an interface to third party SMIF pod openers.
Amtech believes that customers will view the SECS II Gem interface to their
factory automation as a means to reduce scrap that is sometimes caused by an
operator loading wafers into the wrong process chamber. The S-300 can now be
used in conjunction with all wafer sizes including 300mm wafers.
IBAL. IBAL is an acronym for "Individual Boats with Automated Loading."
Amtech's IBAL automation system is a patented integrated automation system
composed of four modules comprised of hardware and software. The IBAL Shuttle
transfers wafers between wafer transfer machines manufactured by third parties
and the IBAL Queue, providing customers with the option of complete
cassette-to-cassette wafer handling. The IBAL Queue provides a convenient
staging area for the operator, IBAL Shuttle, to place boats on a load station
and automates the loading of those boats onto the IBAL Butler. The IBAL Butler
automatically transfers wafer carriers onto the IBAL Trolley of the appropriate
furnace tube level for loading. The IBAL Trolley automatically places the quartz
trays that hold silicon wafers ("boats") on a cantilever paddle system or into
an Amtech Atmoscan(R) that then are inserted in the diffusion furnace. This
sequence is reversed for unloading the furnace after the particular process step
has been completed.
The IBAL automation products described above are offered and sometimes sold
as a complete system, mounted on a device called a "load station," which also
includes an ultra-clean environment for wafer loading by filtering and
controlling the flow of air. Selling the IBAL in conjunction with a load station
makes the retrofitting of existing furnaces with such automation more efficient,
since no further modifications are required at the customer's site.
ATMOSCAN(R) AND OTHER CANTILEVERED PROCESSING SYSTEMS
Atmoscan(R) is a patented controlled environment wafer processing system
that includes a cantilever tube used to load silicon wafers into a horizontal
diffusion furnace and through which a purging inert gas flows during the process
6
of loading and unloading the reactor chamber. Among the major advantages
afforded by the Atmoscan(R) product are increased control of the environment of
the wafers during the gaseous and heating process, thereby increasing yields and
decreasing manufacturing costs; a decreased need for the cleaning of diffusion
furnace tubes, which ordinarily involves substantial expense and equipment down
time; and significant economies in the manufacturing process.
Amtech also has designed and sells an open cantilever paddle system, the
type of loader which remains the most commonly used in the semiconductor
industry for loading wafers into horizontal furnaces. Similar systems have been
used by the industry since prior to the introduction of the Atmoscan(R),
Amtech's alternative to the open cantilevered processing system.
POLISHING SUPPLIES SEGMENT PRODUCTS
The products of the Company's polishing supplies segment are used primarily
for lapping and polishing raw silicon wafers to a mirror-like finish. Depending
on the cycle of the semiconductor industry, between approximately 55% and 65% of
this segment's products are sold to either semiconductor wafer manufacturers or
semiconductor fabricators. Most of the products of Amtech's polishing supplies
segment are also sold to fabricators of optics, quartz, ceramics and metal
parts, and to manufacturers of components medical equipment and computer disks.
These products are manufactured at the Company's P.R. Hoffman operations in
Pennsylvania and are described below.
CARRIERS
Carriers are work holders into which silicon wafers or other materials are
inserted for the purpose of holding them securely in place during lapping and
polishing processes. Amtech produces carriers for its line of lapping and
polishing machines and those sold by its competitors. Substantially all of the
carriers produced by the Company are customized for specific applications. A
very significant category of Amtech's steel carriers, referred to as insert
carriers, contain plastic inserts molded onto the inside edge of the work-holes
of the carrier, which hold the wafers in place during processing. Although
standard steel carriers are preferred in many applications because of their
durability, rigidity and precise dimensions, they are typically not suited for
applications involving softer materials or when metal contamination is an issue.
Insert carriers, however, are well suited for such materials, because they
provide the advantages of steel carriers while reducing the potential for damage
to the edges of sensitive materials such as large semiconductor wafers, which
are becoming more standard in the industry.
SEMICONDUCTOR POLISHING TEMPLATES
Amtech's templates are used to securely hold silicon wafers in place during
single-sided polishing processes. Polishing templates are customized for
specific applications and are manufactured to exacting tolerances.
DOUBLE-SIDED PLANETARY LAPPING AND POLISHING MACHINES
Double-sided lapping and polishing machines are designed to process thin
and fragile materials, such as semiconductor silicon wafers, precision optics,
computer disk media and ceramic components for wireless communication devices,
to exact tolerances of thickness, flatness, parallelism and surface finish. On
average, Amtech's surface processing systems are priced lower than competing
systems offered by its competitors and target the semiconductor, optics, quartz,
ceramics, medical, computer disk and metal working markets.
Lapping machines process parts using an abrasive slurry and cast iron
plates. The material to be processed is positioned in carriers, which are then
driven with a planetary motion between the top and bottom plates. The planetary
action of the lapping machines simultaneously removes equal amounts of material
from both sides of the material being processed. While polishing machines are
similar to the lapping machines, polishing is achieved by using a finer free
abrasive slurry and plates equipped with a polishing pad material. Depending on
the process, the wafers are held in place in the pockets of a carrier, for
double-sided processing, or templates for or a wax mounting for single-sided
processing. The Company does not manufacture or sell single-sided polishing
machine or wax mountings. The polishing process is used to improve the
characteristics of the surfaces of silicon wafers and similar materials. Amtech
also manufactures and sells repair parts for its line of lapping and polishing
machines.
7
PLATES, GEARS, WEAR ITEMS AND OTHER PARTS
Since lapping machinery involves abrasive slurries, the plates, gears and
carriers are often exposed to a high degree of abrasion and wear. Therefore,
Amtech produces a wide assortment of plates, gears, parts and wear items for its
own machines as well as for machines manufactured by its competitors. In
addition to producing standard off-the-shelf parts, Amtech has the ability to
produce highly customized parts.
MANUFACTURING, RAW MATERIALS AND SUPPLIERS
Amtech's manufacturing activities consist primarily of assembling various
commercial and proprietary components into finished systems in Heerde, The
Netherlands (diffusion furnaces), Tempe, Arizona (processing and robotic
systems) and Carlisle, Pennsylvania (lapping and polishing machines). Polishing
consumables, including carriers, templates, gears, wear items and spare parts,
are fabricated from various materials in Carlisle, Pennsylvania, from raw
materials manufactured to Amtech's specification by its suppliers. Many of the
items, such as proprietary components for systems and lapping plates, are also
purchased from suppliers who manufacture these items to Amtech's specifications.
In addition, certain parts for Amtech's automation products are fabricated in
Amtech's machine shop. All final assembly and system tests are performed within
Amtech's manufacturing facilities. Quality control is maintained through
inspection of incoming materials and components, in-process inspection during
equipment assembly, testing of assemblies and final inspection and, when
practical, operation of manufactured equipment prior to shipment. Since the
majority of the products in the polishing supplies segment are designed to
specific customers' specifications, this segment's facility is equipped to
perform a significantly higher percentage of the fabrication processes required
in the manufacturer of its products and certain of the manufacturing processes
are subcontracted out to various third parties. In addition, this segment relies
on key suppliers for certain materials, including two steel mills, an injection
molder, pad supplier (sole sourced from a Japanese company), and an adhesive
manufacturer. To minimize the risk of production and service interruptions
and/or shortages of key parts, Amtech maintains appropriate inventories of key
raw materials and parts. If for any reason the Company were unable obtain a
sufficient quantity of parts in a timely and cost-effective manner to meet its
production requirements, its results of operations would be materially and
adversely affected.
BACKLOG
Amtech's order backlog decreased to approximately $7.9 million as of
September 30, 2002, from approximately $14.0 million at the same date of the
previous year. The orders included in Amtech's backlog are generally credit
approved customer purchase orders usually scheduled to ship in the next twelve
months. The backlog also includes revenue deferred pursuant to Amtech's revenue
recognition policy derived from orders that have already been shipped. Amtech
schedules production of its systems based on order backlog and customer
commitments. However, customers may delay delivery of products or cancel orders
suddenly and without sufficient notice, subject to possible cancellation
penalties. Due to possible customer changes in delivery schedules and
cancellations of orders, Amtech's backlog at any particular date is not
necessarily indicative of actual sales for any succeeding period. Delays in
delivery schedules and/or a reduction of backlog during any particular reporting
period could have a material adverse effect on Amtech's business and results of
operations. In addition, a backlog does not provide any assurance that Amtech
will realize a profit from those orders or indicate in which period revenue will
be recognized. See the disclosure under the caption "Results of Operations -
Revenues" in Item 7 of this report for a breakdown of the backlog by segment.
RESEARCH, DEVELOPMENT AND ENGINEERING
The markets served by the Company are characterized by evolving industry
standards and rapid technological change. To compete effectively in its markets,
the Company must continually keep up with the pace of such change by improving
its products and its process technologies and developing new technologies and
products that compete effectively on the basis of price and performance and that
adequately address current and future customer requirements. Historically,
Amtech's product development has been accomplished primarily through cooperative
efforts with two key customers. While there can be no assurance that such
relationships will continue or that others will be developed, such cooperative
efforts are expected to continue to be a significant element in Amtech's future
development projects. Generally, Amtech's relationships in such projects are
substantially dependent on the personal relations established by its President,
Mr. Jong S. Whang.
8
From time to time Amtech adds functionality to its products or develops new
products during engineering and manufacturing to fulfill specifications in a
customer's order, in which case the cost of development, along with other costs
of the order, are charged to cost of sales. Amtech periodically receives small
research grants for research and development of products in The Netherlands,
which are netted against research and development costs. The Company's approach
to such expenditures has allowed it to produce a number of new products while
spending amounts that are generally modest in relation to most semiconductor
equipment manufacturers. Amtech's expenditures that have been accounted for as
research and development were approximately $.3 million or 1.7% of revenue in
2002, $.4 million or 1.7% of revenue in 2001, and $.5 million or 2.5% of revenue
in 2000. However, Amtech estimates that it spends approximately 3% of the
revenues on its total research and development efforts, including those incurred
in connection with customer orders or supported by government grants.
During fiscal 1999, Amtech began investigating an alternative to the energy
sources currently used in the ashing process in semiconductor manufacturing.
Ashers use an energy source, usually plasma, to remove photoresist materials
from silicon wafers after each lithography step. While stripping the photoresist
material from the wafers, plasma causes damage to the silicon substrate, which
the industry does not believe will be acceptable as the line-width of the
circuitry is reduced in future generations of leading-edge semiconductors. In
fiscal 2000, Amtech reached an agreement with PSK Tech Inc., a South Korean firm
listed on the Korean stock market, regarding the joint development of a new
ashing machine, using Amtech's damage-free ashing technology (a "New Asher").
Amtech and PSK Tech believe that, if successful, the New Asher under development
will be damage free and thus will receive strong demand from the high-end
semiconductor manufacturers. Ashing equipment manufactured by PSK Tech using
existing technology is currently being selected almost exclusively by two of the
world's top semiconductor memory chip producers for their ashing processes.
Preparations for the feasibility stage of the New Asher development project
began in fiscal 2000. Testing during this stage started to produce meaningful
results in fiscal 2001. The results of the feasibility work on the New Asher
with PSK Tech are encouraging. The next step will be to develop a prototype of a
300mm asher, using Amtech's damage free technology, and a similar machine for a
Beta site at one of Amtech's customers. Amtech and PSK Tech have agreed to time
the procurement, assembly and testing of both machines in order to match a
customer's advanced technology schedule, which Amtech understands calls for
testing to begin in approximately November 2004. The combined cost of those two
machines is estimated to be approximately $1.5 million, but the relative
contributions of Amtech and PSK Tech to that stage of the project have not been
established. However, Amtech's contribution to the project could cause its
research and development expenses to increase significantly starting as early as
approximately November 2003. Already reflected in this schedule is the fact that
certain improvements to existing ashing processes have delayed the time frame in
which the semiconductor industry is expected to need Amtech's ashing technology.
There can be no assurances that the development of other new technologies or
process improvements by third parties will not further delay this schedule or
provide competition to or make obsolete Amtech's ashing technology.
The joint product development agreement with PSK Tech provides that Amtech
will provide its patent pending, damage-free ashing technology and know-how and
PSK Tech will provide its expertise in the design and manufacture of ashers and
asher processes. The two companies will jointly own any resulting technology.
Under the agreement, Amtech will have exclusive selling and marketing rights to
the resulting New Asher for all of North America and Europe and PSK Tech will
have exclusive selling and marketing rights for all of Asia. Each company has
agreed to pay to the other a license fee of between two and five percent (2%-5%)
of its New Asher sales. Amtech has also agreed to sell the energy source
assemblies to PSK Tech for PSK's New Asher sales into Asia. Amtech will purchase
from PSK Tech ashers without the energy source assembly, for the platform of its
New Asher to be sold in the United States and Europe. The assemblies that each
company sells to the other will be at a price to be mutually agreed upon, but
shall not exceed 1.334 times its cost of manufacturing.
9
PATENTS
The following table shows the patents granted and the expiration date
thereof and the material patents pending for Amtech's products in each of the
countries listed below:
EXPIRATION DATE OR
PRODUCT COUNTRY PENDING APPROVAL
- ------- ------- ----------------
Atmoscan(R) United States August 30, 2005
Atmoscan(R) United States September 24, 2002
IBAL Cantilever Trolley United States July 10, 2015
IBAL Cantilever Trolley United States June 12, 2018
Photo CVD United States June 1, 2010
Photo CVD United States November 15, 2011
Proposed Damage-free Asher United States September 8, 2018
IBAL Model S-300 United States July 7, 2019
IBAL Model E-300 France, Germany, Pending Approval
The Netherlands, Italy,
United Kingdom
IBAL Model E-300 United States Pending Approval
There can be no assurance that Amtech's pending patent applications will be
allowed or that the issued or pending patents will not be challenged or
circumvented by competitors. There can be no assurance that any of these rights
held by Amtech will not be challenged, invalidated or circumvented, or that such
rights will provide competitive advantages to Amtech.
There are no pending lawsuits against Amtech regarding infringement of any
existing patents or other intellectual property rights or any unresolved claims
made by third parties that Amtech is infringing intellectual property rights of
such third parties. There can be no assurance that third parties will not assert
infringement claims in the future. There also can be no assurance in the event
of successful claims of infringement that Amtech will be able to obtain licenses
on reasonable terms, if at all. Amtech's involvement in any patent dispute or
other intellectual property dispute of action could have a material adverse
effect on Amtech's business. Adverse determinations in any litigation relating
to intellectual property could possibly subject Amtech to significant
liabilities to third parties, require Amtech to seek licenses form third parties
and prevent Amtech from manufacturing and selling one or more of its products.
Any of these events could have a material adverse effect on Amtech.
SALES AND MARKETING
Because of the highly technical nature of its products Amtech markets its
products by direct customer contact through Amtech sales personnel and through a
network of domestic and international independent sales representatives and
distributors that specialize in semiconductor equipment and supplies. Amtech's
promotional activities include direct sales contacts, an internet website,
advertising in trade magazines and the distribution of product brochures. Amtech
also participates in trade shows, including Semicon West, Semicon Europa,
Diskcon and one large optics show each year. Amtech' sales and marketing
activities in Asia are largely dependent on its President, Jong S. Whang, and
its sales are enhanced by his active involvement with the accounts of certain
other key customers.
In fiscal 2002, shipments as a percent of total shipments in each region
were: North America 47%, Asia 20% and Europe 33%. During fiscal 2001, one
customer accounted for 14% or more of total sales; for fiscal 2000 and 2002, no
single customer accounted for more than 10% of sales. For a more complete
analysis of significant customers and sales to customers by geographic region,
see Note 8 of the Notes to Consolidated Financial Statements included herein
(the "Financial Statements") and Item 7 of this annual report. For information
regarding revenue, operating profit or loss and identifiable assets attributable
to each of Amtech's industry segments and financial information about foreign
and domestic operations, see Note 9 of the Notes to Consolidated Financial
Statements included herein and Item 7 of this annual report.
10
The Company's business is not seasonal in nature, but is cyclical based on
the capital equipment investment patterns of semiconductor manufacturers. These
expenditure patterns are based on many factors, including anticipated market
demand for integrated circuits, the development of new technologies and global
and regional economic conditions.
COMPETITION
Amtech competes in several distinct markets, including the semiconductor
devices equipment market, the semiconductor wafer market, the solar cell and
optical component equipment markets, and the market for general industrial
lapping and polishing machines and supplies. Each of the markets in which Amtech
competes is highly competitive. Amtech's ability to compete depends on its
ability to continually improve its products, processes and services, as well as
its ability to develop new products that meet constantly evolving customer
requirements. Significant competitive factors for succeeding in the
semiconductor manufacturing equipment market include the equipment's technical
capability, productivity and cost-effectiveness, overall reliability, ease of
use and maintenance, contamination and defect control, and the level of
technical service and support provided by the vendor. The importance of each of
these factors varies depending on the specific customer's needs and criteria,
including considerations such as the customer's process application, product
requirements, timing of the purchase and particular circumstances of the
purchasing decision.
Amtech's diffusion furnaces, robotic/processing equipment and double-side
lapping and polishing machines primarily compete with those produced by other
domestic and foreign original equipment manufacturers, several of which are
well-established firms that are larger and have greater resources than Amtech.
To a much lesser extent the Company's diffusion furnaces compete against
vertical furnaces on the high-end of the price spectrum. Amtech's furnaces and
lapping and polishing machines also face to a limited extent competition from
used equipment on the low-end of the price spectrum. Amtech intends to maintain
or improve its competitive position for orders for its diffusion furnaces and
automation products by focusing its sales and marketing efforts on the very
large and growing middle market, its willingness to design products to meet the
customer's specific process requirements, providing competitive prices and
product support services levels.
The Company believes its automation products are generally superior to
those of its primary competitors. Amtech believes that patents on the key
features of its automation products provide a competitive advantage. Amtech
expects its automation product competitors to improve the design and performance
of their products. There can be no assurance that Amtech's automation
competitors will not develop enhancements or acquire new technologies that will
offer price or performance features superior to those offered by the Company.
Amtech believes that its S-300 and E-300 automation products require less of the
expensive clean room floor space, are generally less expensive and easier to
operate than those of the competition. The target market for IBAL automation
products includes those customers who do not require the sophistication of the
more complex competing systems or do not have or are not willing to provide
additional clean room space. Amtech does not know of any products comparable to
its IBAL automation that are capable of loading Atmoscan(R) systems, thus
providing it a competitive advantage.
Amtech is not aware of any significant product that directly competes with
the Atmoscan(R); however, there are several processing systems and various
configurations of existing manufacturing products that provide advantages
similar to those that Amtech believes the Atmoscan(R) provides to semiconductor
manufacturers. Notwithstanding this competition, Amtech believes that
Atmoscan(R) provides better results in terms of more uniform wafer temperature
and dispersion of heated gases in the semiconductor manufacturing process, less
exposure of semiconductor wafers to contaminants, and other technical advantages
that afford to its users a higher yield.
While the industry trend is toward the use of vertical diffusion furnaces
that are not compatible with Amtech's processing/robotic products and compete
with the Company's diffusion furnaces, Amtech believes that a number of
customers are, and will continue to be, willing to buy horizontal diffusion
furnaces and related processing and robotic equipment. Vertical diffusion
furnaces are more efficient to use than the horizontal diffusion furnaces in
certain manufacturing processes of smaller chips on larger wafers. However, such
furnaces are significantly more expensive to purchase than horizontal diffusion
furnaces. The products comprising Amtech's semiconductor equipment segment
consist of, or are only useable with, horizontal diffusion furnaces.
11
Despite this trend, Amtech believes there are a number of factors that will
allow it to maintain or even increase its revenue in the semiconductor segment.
These factors include (i) the fact that the producers of vertical furnaces used
to be the largest competitors for Amtech's horizontal diffusion furnaces, but
are now beginning to exit from their horizontal diffusion furnace production in
order to focus on their higher priced products; (ii) the fact that as the most
advanced semiconductors migrate toward 300mm wafers, other chip designs will
transition from 100mm - 150mm wafer sizes to larger wafers, generally 200mm and
smaller, served by Amtech's products; (iii) concerns over scrap caused when an
operator either drops a boat load of wafers or loads them into the wrong process
chamber may significantly increase the demand for the Company's automation
products; (iv) the trend for governmental legislation and regulation over
ergonomic and employee safety issues may also contribute to the demand for
Amtech's automation products; (v) the potential for significant orders from
emerging markets, such as those secured from manufacturers of optical components
in calendar year 2000, (vi) some semiconductor fabricators are finding that
rather than continuing to exclusively use the more expensive vertical furnaces,
it can be more cost effective to use horizontal diffusion furnaces for some of
the less demanding process steps, such as producing thick oxide layers, POCL3
doping and annealing; and (vii) the fact that horizontal diffusion furnaces,
with up to four process chambers, are often much more cost efficient for
fabricators of a large number of different chip designs than similarly or higher
priced verticals, which generally have only one process chamber.
Amtech believes that it is much larger and financially stronger than most
of the other domestic manufacturers of lapping and polishing carriers, which
tend to be family owned businesses. However, the Company is currently also
experiencing price competition from carriers produced by foreign manufacturers,
for which there is very little publicly available information. As a result,
Amtech is intensifying its efforts to reduce the cost of its carriers and will
continue to compete with other manufacturers of carriers by continually updating
its product line to keep pace with the rapid changes in its customers'
requirements and providing a higher level of customer service. Amtech has been
able to capture a small yet meaningful share of the semiconductor polishing
template market, which Rodel, a division of Rohm and Haas, dominates with an
estimated 90% market share. Amtech's strategy for competing for template orders
is to seek out niche markets, provide the highest practical level of customer
support and by meeting the industry's perceived need for a second source to
avoid continued dependence upon the dominant industry leader.
EMPLOYEES
At September 30, 2002, Amtech employed 111 people. Of these employees, 25
are based at Amtech's corporate offices and manufacturing facility in Tempe,
Arizona, 31 are employed at its manufacturing plant in Carlisle, Pennsylvania,
44 at its facility in Heerde, The Netherlands, and 11 in Amtech's contract
semiconductor manufacturing support services business located in Austin, Texas.
Of the 31 people employed at Amtech's Carlisle, Pennsylvania facility, 19 are
represented by the United Auto Workers Union - Local 1443. Amtech has never
experienced a work stoppage or strike. Amtech considers its employee relations
to be good.
ITEM 2. PROPERTIES
Amtech's semiconductor processing/robotic equipment business and corporate
offices are located in 15,700 square feet of office and manufacturing space at
its principal address. These facilities are leased at a current rate of $8,096
per month, on a triple net basis, for a term to expire on August 31, 2003.
Manufacturing support services are performed in customer facilities.
Amtech's diffusion furnace business is conducted primarily in a 9,900
square foot building it owns, which is located in Heerde, The Netherlands.
Amtech also leases an additional 5,500 square feet of manufacturing space in a
location near the Heerde plant. These facilities are leased at a current rate of
approximately $1,484 per month, for varying terms, the last of which expires on
August 1, 2006.
Amtech leases a 21,740 square foot building located in Carlisle,
Pennsylvania from John R. Krieger, the former owner of the Company's polishing
supplies business. These facilities are leased at a current rate of $10,810 per
month, on a triple net basis, for a term that expires on June 30, 2004. Amtech
has the option to renew the lease for five successive terms of one year each.
Amtech considers the above facilities suitable and adequate to meet its
current requirements.
12
ITEM 3. LEGAL PROCEEDINGS
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, in the Court of Common Pleas, Cumberland County,
Pennsylvania, the owner of a landfill allegedly found to be contaminated. No
detailed allegations have been filed as part of this legal action, which appears
to have been filed to preserve the right to file claims for contributions to the
clean up of the landfill at a later date. Amtech acquired the assets of P.R.
Hoffman Machine Products Corporation in an asset transaction consummated on July
1, 1997. The landfill was closed and has not been used by P.R. Hoffman since
sometime prior to completion of Amtech's acquisition. Therefore, Amtech believes
that the named company is the prior owner of the acquired assets. Under the
terms of the Asset Purchase Agreement governing the acquisition, the prior
owner, P.R. Hoffman Machine Products Corporation, is obligated to indemnify
Amtech for any breaches of its representations and warranties in the Asset
Purchase Agreement, including representations relating to environmental matters.
In accordance with the terms of the Asset Purchase Agreement, Amtech has
provided notice to the prior owner of P.R. Hoffman Machine Products Corporation
of Amtech's intent to seek indemnification from such owner for any liabilities
resulting from this legal action. Based on information available to Amtech as of
the date of this report, management believes Amtech's costs, if any, to resolve
this matter will not be material to the its results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
MARKET INFORMATION
Amtech's common stock, par value $.01 per share ("Common Stock"), began
trading on the Nasdaq National Market(R), under the symbol "ASYS," on April 18,
2001. Prior to that time, the Company's Common Stock was traded on the Nasdaq
SmallCap Market. The following table sets forth the high and low bid price at
which the shares of Amtech's Common Stock traded for each quarter of fiscal
years 2002 and 2001, as reported by the NASDAQ National Market.
Quarter Ended High Low
------------- ------ ------
Fiscal 2002:
December 31, 2001 $ 8.90 $ 4.58
March 31, 2002 7.25 5.55
June 30, 2002 7.35 4.15
September 30, 2002 6.05 3.11
Fiscal 2001:
December 31, 2000 $15.25 $ 4.44
March 31, 2001 12.63 5.13
June 30, 2001 14.50 4.06
September 30, 2001 10.00 4.50
HOLDERS
As of December 20, 2002, there were approximately 1,036 stockholders of
record of Amtech's Common Stock. Based upon preliminary quantities of materials
requested by brokers for Amtech's 2003 Annual Meeting of Shareholder, there were
approximately an additional 3,375 beneficial stockholders who held shares in
brokerage or other investment accounts as of that date.
13
DIVIDENDS
Amtech has never paid dividends. Its present policy is to apply cash to
investment in product development, acquisition or expansion; consequently, it
does not expect to pay dividends within the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Amtech's consolidated financial statements (including the
related notes thereto) contained elsewhere in this report. Effective October 1,
2000, Amtech changed its revenue recognition policy. See Note 2 in the Notes to
Consolidated Financial Statements and the pro forma information contain herein.
As revenue is not reported on a consistent basis between years, certain data
contained in this report may not be comparable between years.
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except per share data)
OPERATING DATA:
Net revenues $ 20,533 $ 22,852 $ 19,027 $ 14,766 $ 16,214
Operating income (loss) 77 1,577 1,982 568 (904)
Income (loss) before cumulative effect of a change in
accounting principle 118 1,153 1,325 362 (590)
Cumulative effect of a change in accounting
principle, net of tax(2) -- (690) -- -- --
Net income (loss) $ 118 $ 463 $ 1,325 $ 362 $ (590)
EARNINGS (LOSS) PER SHARE(1):
BASIC:
Income (loss) before cumulative effect of a
change in accounting principle $ .04 $ .43 $ .61 $ .17 $ (.28)
Cumulative effect of a change in accounting
principle, net of tax(2) -- (.26) -- -- --
Basic earnings (loss) per share $ .04 $ .17 $ .61 $ .17 $ (.28)
DILUTED:
Income (loss) before cumulative effect of a change in
accounting principle $ .04 $ .41 $ .56 $ .17 $ (.28)
Cumulative effect of a change in accounting
principle, net of tax(2) -- (.25) -- -- --
Diluted earnings (loss) per share $ .04 $ .16 $ .56 $ .17 $ (.28)
PRO FORMA AMOUNTS WITH THE CHANGE IN ACCOUNTING
PRINCIPLE APPLIED RETROACTIVELY (UNAUDITED):
Total revenue $ 20,533 $ 22,852 $ 18,908 $ 15,678 **
Net income $ 118 $ 1,153 $ 1,061 $ 481 **
Net income per share:
Basic: $ .04 $ .43 $ .49 $ .23 **
Diluted: $ .04 $ .41 $ .45 $ .22 **
BALANCE SHEET DATA:
Cash and cash equivalents $ 8,046 $ 5,998 $ 5,785 $ 1,125 $ 1,352
Working capital 12,166 11,668 10,934 5,374 4,993
Total assets 17,393 18,571 17,483 8,745 9,325
Total current liabilities 2,722 4,575 4,667 1,748 2,531
Long-term obligations 459 411 237 287 348
Retained earnings (accumulated deficit) 1,505 1,387 923 (402) (764)
Stockholders' equity 14,212 13,584 12,580 6,710 6,447
(1) The results shown have been restated to reflect the one-for-two reverse
split of Common Stock that was effective March 15, 1999.
(2) Amtech recorded a non-cash charge of $690,211, after reduction for income
tax benefits of $410,000, or ($0.26) per basic share, to reflect the
cumulative effect of the accounting change as of October 1, 2000, related
to the adoption of Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
** Data is not available to provide pro forma information for this year.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Amtech develops, manufactures, markets and services a range of
semiconductor wafer manufacturing and semiconductor fabrication equipment and
related parts, supplies and services on a worldwide basis. The products offered
are grouped into two segments: the semiconductor equipment segment, which offers
horizontal diffusion furnaces, processing/robotic equipment for diffusion
furnaces and services to semiconductor manufacturers, and the polishing supplies
segment, which offers supplies, including carriers and templates, and equipment
for lapping and polishing, which are some of the last steps in the manufacture
of silicon wafers. Demand for Amtech's products can change significantly from
period to period as a result of numerous factors, including, but not limited to,
changes in: 1) global and regional economic conditions; 2) supply and demand for
semiconductors or, more specifically, capacity utilization and production volume
of manufacturers of semiconductors, silicon wafers, solar cells and optical
components; and 3) the profitability of semiconductor manufacturers. For this
and other reasons, Amtech's results of operations for fiscal 2002, 2001 and 2000
may not necessarily be indicative of future operating results.
The following discussion and analysis should be read in conjunction with
Amtech's consolidated financial data and our Consolidated Financial Statements
and notes appearing elsewhere in this report.
REVENUES. Amtech's total revenue for the fiscal year ended September 30,
2002 was $20.5 million, compared to $22.9 million in fiscal 2001 and $19.0
million in fiscal 2000, representing a decrease of 10% in 2002 and a 20%
increase in 2001. The following table reflects the consolidated new orders, net
of cancellations, shipments, revenues and backlog as of the beginning and end of
the three fiscal years ended September 30, 2002, as well as for Amtech's two
business segments.
Backlog Backlog
at start Net at end
of New SAB 101 Net of
Year(1) Orders(2) Shipments Adjustment Revenue Year(1)
-------- -------- --------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
2002:
Semiconductor Equipment: $ 13,119 $ 9,404 $ 12,348 $ 3,063 $ 15,411 $ 7,112
Polishing Supplies 836 5,086 5,122 -- 5,122 800
-------- -------- -------- -------- -------- --------
Consolidated 13,955 14,490 17,470 3,063 20,533 7,912
======== ======== ======== ======== ======== ========
2001:
Semiconductor Equipment: 16,553 12,012 16,296 (850) 15,446 13,119
Polishing Supplies 1,572 6,670 7,406 -- 7,406 836
-------- -------- -------- -------- -------- --------
Consolidated 18,125 18,682 23,702 (850) 22,852 13,955
======== ======== ======== ======== ======== ========
2000:
Semiconductor Equipment: 2,282 21,504 10,859 -- 10,859 12,927
Polishing Supplies 1,477 8,263 8,168 -- 8,168 1,572
-------- -------- -------- -------- -------- --------
Consolidated $ 3,759 $ 29,767 $ 19,027 $ -- $ 19,027 $ 14,499
======== ======== ======== ======== ======== ========
- ----------
(1) Backlogs in 2001 and 2002 include a positive adjustment to reinstate
backlog for revenue that will be recognized in future periods due to the
implementation of Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." Amounts prior to fiscal 2001 have not
been restated. The deferred revenue included in the cumulative effect of
the change in the revenue recognition accounting policy as of October 1,
2000 was $3.6 million, which accounts for the difference between the
backlog as of the end of 2000 and the beginning of 2001. The backlogs as of
September 30, 2001 and 2002 included deferred revenue of $4.5 million and
$1.4 million, respectively.
(2) New orders are net of cancellations.
Amtech's business was subject to cyclical industry conditions in fiscal
2002, 2001 and 2000. As a result of these conditions, there were significant
fluctuations in Amtech 's quarterly new orders and net sales, both within and
15
across fiscal years. Demand for semiconductor and silicon wafer manufacturing
equipment and related consumable products has historically been volatile as a
result of sudden changes in semiconductor supply and demand and other factors in
both semiconductor devices and wafer fabrication processes. The semiconductor
equipment segment accounted for 75%, 68% and 57% of Amtech's revenues and 255%,
59% and 50% of Amtech's operating income in 2002, 2001 and 2000, respectively.
The semiconductor and optical component industries' cycle peaked during fiscal
2000. As a result of the rapid decline in the demand in 2001 for semiconductor
devices and due to inventory buildups in telecommunications products, slower
than expected personal computer sales and overall slower global economic growth,
many semiconductor manufacturers reevaluated their capital spending plans.
Accordingly, Amtech experienced cancellation of existing orders by customers in
fiscal 2001 and rescheduled deliveries and a significant decline in new orders
during 2001 and 2002.
During the fourth fiscal quarter of 2001, Amtech implemented the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements," retroactively effective to the beginning
of fiscal 2001. See Note 2 of the Notes to Consolidated Financial Statements.
Amounts prior to fiscal 2001 have not been restated. Pursuant to the guidance
provided in SAB 101, at least some portion of each system sale in the
semiconductor equipment segment is deferred. Some of the more significant
factors that can affect the length of time from shipment to full revenue
recognition are customer delays in site preparation, the time it takes for the
customer to obtain local permits, delays by other vendors in the installation of
equipment with which Amtech's products must interface and the availability of
our technicians. Because the selling price of systems generally range between
$125,000 and $1.2 million, these factors significantly affect the timing of
revenue recognition from customer to customer and system to system, which
increases the volatility of revenue. Revenues for the polishing supplies segment
generally are not subject to deferral as there is no customer holdback or
post-shipment obligations, other than warranty.
Revenue of the polishing supplies segment reached a record $8.2 million in
fiscal 2000, as the semiconductor industry reached the peak of the business
cycle. By March 2001, orders in the polishing supplies segment began a steep
decline, reflecting excess supply inventories and capacity of that segment's
customers. The polishing supplies segment suffered a dramatic decrease in
revenues, declining from $8.2 million in fiscal 2000 to $7.4 million in 2001 and
$5.1 million in 2002, representing a decrease of 9% in 2001 and 31% in 2002.
During fiscal 2000, new orders reached a record $30 million as the
semiconductor industry was reaching the peak of the cycle that began in the
previous year. During fiscal 2001, slowing worldwide demand for semiconductors
resulted in a rapid decrease in demand for manufacturing equipment. Inventory
buildups in telecommunication products, slower than expected personal computer
sales and slower global economic growth caused semiconductor companies to
reevaluate their capital spending and reschedule or cancel existing orders. This
decline in demand worsened throughout the remainder of fiscal 2001 and 2002,
resulting in a severe industry downturn due to continued weakness in the
macro-economic climate and consumption of electronic goods, which translated
into further capital spending cutbacks by semiconductor manufacturers.
Revenues of the semiconductor equipment segment increased 42% in 2001 to
$15.4 million from $10.9 million in 2000 and remained at that higher level in
2002. By January 2001, Amtech began to see signs of the downturn, resulting in
the first of several order cancellations in the semiconductor equipment segment.
During 2001 and 2002, new orders in the semiconductor equipment segment declined
by 44% and 22%, respectively, due to the downturn in the industry. However, the
shipments, like the revenues of the semiconductor equipment segment, increased
in fiscal 2001 by 50% despite the decline in orders, as Amtech worked off a part
of the large backlog that had built up in 2000. The $3.6 million of revenue
deferred from prior periods as a part of the cumulative effect adjustment for
the accounting change in revenue recognition further increased the backlog as of
October 1, 2000. In 2002, the semiconductor segment experienced a decrease in
shipments of $3.9 million, or 24%, to $12.3 million. Revenues of the
semiconductor equipment segment remained at $15.4 million in 2002, as the
decline in shipments was offset by the increase in the revenues recognized on
the completion or acceptance of systems, which had previously been deferred due
to customer holdbacks or other contingencies.
Due to the continued weakness in both the optical component market, to
which Amtech had substantial shipments in fiscal 2000 and 2001, but none in
2002, and the much larger semiconductor market, current outlook is for continued
lower revenues in at least the first half of fiscal 2003. However, quarterly
consolidated shipments appear to have stabilized and even recovered slightly
from the $4 million level of the second quarter of fiscal 2002 and the
16
semiconductor equipment segment continues to have a significant backlog, leading
management to believe that revenue for fiscal 2003 may not be any lower than in
fiscal 2002.
In 2002, 2001 and 2000, 53%, 45% and 39%, respectively, of Amtech's total
revenue was attributable to sales outside of the United States. Each region in
the global semiconductor equipment market exhibits unique characteristics that
can cause, and in the past have caused, capital equipment investment patterns to
vary significantly from period to period. For a more complete analysis of sales
to customers by geographic region, see Note 8 of the Notes to Consolidated
Financial Statements included herein.
The following table sets forth certain operational data as a percentage of
net revenue for the three fiscal years ended September 30, 2002:
Fiscal Years Ended
September 30,
--------------------------
2002 2001 2000
------ ------ ------
Net revenue 100.0% 100.0% 100.0%
Cost of sales 76.5 69.9 65.2
------ ------ ------
Gross margin 23.5 30.1 34.8
Selling, general and
administrative expenses 21.4 21.5 21.9
Research and development 1.7 1.7 2.5
------ ------ ------
Operating income .4% 6.9% 10.4%
====== ====== ======
GROSS MARGINS. Consolidated gross margin for the fiscal year ended
September 30, 2002 was $4.8 million, compared to $6.9 million in fiscal 2001 and
$6.6 million in fiscal 2000, representing a decrease of $2.1 million, or 30%, in
2002, and an increase of $.3 million, or 5%, in fiscal 2001. In fiscal 2002, the
gross margin of the semiconductor equipment segment decreased by $1.1 million,
or 22%, primarily due to approximately $.5 million in inventory write-offs taken
in response to the continued decline in the semiconductor industry worldwide and
a customer's decision to sell a plant from which future orders had been
expected. Other factors contributing to the 2002 decline in the gross margins of
the semiconductor equipment segment included learning curve and development
costs incurred on customer orders for new products, i.e. 300mm diffusion furnace
and related automation and S-300 models with cassette-to-cassette capability and
interfaces to SMIF pod openers and factory automation with SECS II Gem, and $.2
million in increased labor costs. The gross margin of the polishing supplies
segment declined by $1.0 million, or 49%, in fiscal 2002 due to the 31% decrease
in sales volume and the semi-fixed and fixed nature of labor and overhead costs,
which did not decline at the same rate as revenue.
In fiscal 2001, the gross margin of the semiconductor equipment segment
increased 20%, due to increased sales volume. However, the gross margin of the
polishing supplies segment declined 22%, offsetting approximately two-thirds of
the increase contributed by the semiconductor equipment segment.
As a percentage of revenue, the consolidated gross margin was 23% in fiscal
2002, compared to 30% in fiscal 2001, and 35% in 2000. Write-downs of excess or
obsolete inventory of $.6 million in 2002, compared to $.3 million in 2001 and
$.1 million in 2000 contributed to the decline in gross margins as a percentage
of revenue in 2002 and 2001. Other factors contributing to the decline in gross
margin as a percentage of revenue were product mix in both years and learning
curve costs in 2002 of the semiconductor segment, underabsorption of factory
expenses in the polishing supplies segment and competitive pricing pressure of
both segments. Amtech's gross margin has significantly fluctuated in the past
and will continue to fluctuate based on several factors including the severity
and duration of the current industry downturn, revenue recognition under SAB
101, product mix and overhead absorption levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $4.4 million in fiscal 2002, compared to $4.9
million in 2001 and $4.2 million in 2000. The provision for doubtful accounts
receivable was approximately $.5 million higher in fiscal 2001 than in fiscal
2000 and $.1 million higher than in 2002, primarily due to a major customer in
the optical component industry filing for bankruptcy in 2001. Commissions
17
expense decreased by $.2 million in 2002 due to the decrease in shipments in the
semiconductor equipment segment and by $.1 million in 2001 due to the lower
sales volume in polishing supplies segment. Costs associated with implementing
new data processing systems also contributed to the increase in general and
administrative expenses in 2001 and the decline in such costs in 2001. Cost
cutting measures reduced selling and administrative personnel costs by
approximately $.1 million in 2001 and 2002. Selling, general and administrative
expenses as a percentage of revenue remained relatively constant during the
three-year period, ranging 21.9% in 2000 and declining to 21.5% in fiscal 2002.
RESEARCH AND DEVELOPMENT EXPENSES. During fiscal years 2002, 2001 and 2000
Amtech's expenditures accounted for as research and development were $.3
million, $.4 million and $.5 million, respectively. During all three fiscal
years, the most significant project included in research and development
expenses has been the development of a new technology asher pursuant to a joint
product development agreement with PSK Tech. The cause for the decline in
research and development costs in fiscal 2001 compared to fiscal 2000 is that
most of our equipment contribution to the initial stage of the joint asher
development project were made in fiscal 2000. The decline in 2002 is the result
of reduced spending on new controls for the Tempress(R) diffusion furnace and
research and development grants in the Netherlands. The results of the
feasibility work on the new technology asher with PSK Tech are encouraging. The
next step will be to develop a prototype of a 300mm asher, using Amtech's damage
free technology, and a similar machine for a Beta site at one of Amtech's
customers. Amech and PSK Tech have agreed to time the procurement, assembly and
testing of both machines in order to match a customer's advanced technology
schedule, which Amtech understands calls for testing to begin in approximately
November 2004. The combined cost of those two machines is estimated to be
approximately $1.5 million, but the relative contributions of Amtech and PSK
Tech to that stage of the project have not been established. However, Amtech's
contribution to the project could cause its research and development expenses to
increase significantly starting as early as approximately November 2003.
Significant projects completed in 2000 included the development of two new
models of automation, which were the S-300 and E-300. In 2002, the Company
completed the development of a 300mm diffusion furnace and related automation
and S-300 models with cassette-to-cassette capability and interfaces to SMIF pod
openers and factory automation with SECS II Gem. However, a portion of those
costs are incurred while completing customer orders and are charged, along with
other costs of the order, to cost of sales and therefore not included in the
research and development expenses.
OPERATING INCOME. Operating income for fiscal year 2002 was $.1 million, or
less than 1% of revenue, compared to $1.6 million, or 7% of revenue, in fiscal
2001, and $2.0 million, or 10% of revenue, in 2000. Operating income declined in
2002 due primarily to the decline in revenues and related gross margin in the
polishing supplies segment and the lower gross margin of the semiconductor
equipment segment, as explained above. The decline in operating income in 2001
was due to increased selling, general and administrative expenses, primarily the
$.5 million increase in the provision for doubtful accounts. Operating income as
a percent of revenue declined in 2002 and 2001 primarily as a result of the
decline in gross margins as a percent of sales, discussed above.
INTEREST INCOME-NET. Net interest income was $.1 million in fiscal 2002,
compared to $.2 million in fiscal 2001 and $.1 million in fiscal 2000. The
decrease in net interest income in 2002 is the result of substantially lower
interest rates, while the increase in 2001 was a result of investing the funds
from the September 2000 private placement.
INCOME TAX PROVISION. During fiscal 2002, 2001 and 2000, Amtech recorded
income tax provisions of $.1 million, $.7 million and $.8 million, respectively.
The effective rate stated as a percentage of income before income taxes and
cumulative effect of the change in revenue recognition accounting principle was
30%, 37% and 36% in fiscal years 2002, 2001 and 2000, respectively. The
significantly lower effective tax in fiscal 2002 is a result of the fact that
more than all of the consolidated operating profit was earned in The Netherlands
where there is no state income tax rate. In addition, a state income tax benefit
arose from operating losses in the United States. Amtech's future effective
income tax rate depends on various factors, such as tax legislation, the
geographic composition of the pre-tax income, non-tax deductible expenses and
the effectiveness of its tax planning strategies.
NET INCOME. Net income for fiscal 2002, 2001 and 2000, respectively, was
$.1 million, $.5 million and $1.3 million. Net income per diluted share was
$.04, $.16 and $.56 in fiscal 2002, 2001 and 2000, respectively. On a pro forma
18
basis, with the change in the revenue recognition accounting principle being
applied retroactively, net income per diluted share was $.04, $.41 and $.45 in
fiscal 2002, 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002 and 2001, cash and cash equivalents were $8.0
million and $6.0 million, respectively. Amtech's ratio of current assets to
current liabilities was 5.5:1 and 3.4:1 at September 30, 2002 and 2001,
respectively.
Amtech generated cash from operations in each of the last three fiscal
years as follows: 2002 - $2.4 million, 2001 - $0.4 million and 2000 - $0.2
million.
In each of these fiscal years, investing activities consisted of software,
computers and equipment purchases and building improvements. Financing
activities provided $-0- million, $.4 million and $4.7 million in 2002, 2001 and
2000, respectively. In 2001, financing activities consisted mainly of the
proceeds from stock options exercised and in 2000, the financing income came
from a private placement of common stock.
At September 30, 2002, Amtech's principal sources of liquidity consisted of
$8.0 million of cash and cash equivalents. Since the only lien on the Company's
assets is a $.2 million mortgage loan, management believes that significant
amounts of additional liquidity is available from various financing sources.
Amtech believes that it has sufficient liquidity for current operations and for
at least certain elements of its growth strategy. One element of that strategy
is the development of new products such as the proposed new technology asher.
Another is the acquisition of product lines or businesses that complement the
company's existing business. Amtech's currently available cash and short-term
investments are expected to be sufficient for existing operations, planned
research and development and possibly an acquisition, depending on size.
However, significant unplanned development of new products, or larger
acquisitions may require additional capital resources that are expected to be
obtained from one or more sources of financing, such as a private placement, a
public offering, working capital loans or term loans from banks or other
financial institutions, equipment leasing, mortgage financing and internally
generated cash flow from operations. There can be no assurance of the
availability or sufficiency of these or any other source of funding for those
purposes.
COMMITMENTS
Key suppliers include two steel mills, one domestic and one German, capable
of meeting the material specification the Company requires. As of September 30,
2002, the Company had unconditional commitments to purchase $.5 million of
steel, with delivery dates to be determined in the future. Due to minimum order
quantities for this steel and long lead times, the Company has made purchase
commitments that may be in excess of future production requirements, and it
could take several years to use all of the steel commitments in production of
the Company's products. These purchase commitments are not expected to result in
any significant losses.
The Company leases buildings, vehicles and equipment. As of September 30,
2002, minimum rental commitments under noncancellable operating leases total
$447,000, of which $264,000, $138,000 and $45,000 are payable in fiscal years
2003, 2004 and 2005, respectively.
CHANGE IN ACCOUNTING PRINCIPLE
REVENUE RECOGNITION. During the fourth quarter of fiscal 2001, the Company
changed its revenue recognition policy retroactive to October 1, 2000, based on
guidance provided in Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The
Company recognizes revenue when persuasive evidence of an arrangement exists;
title transfers, generally upon shipment or services have been rendered; the
seller's price is fixed or determinable and collectibility is reasonably
assured. Certain of the Company's product sales are accounted for as
multiple-element arrangements. For the semiconductor equipment segment, if the
Company has met defined customer specifications with similarly situated
customers and the specific equipment and process involved, the Company
recognizes equipment revenue upon shipment and transfer of title, with the
remainder when it becomes due, generally upon acceptance. Product sales that are
shipped but do not meet these criteria are deferred and recognized upon customer
acceptance.
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Equipment sold by the polishing supplies segment does not involve process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
upon shipment. Service revenues are recognized as services are performed.
Revenue related to service contracts is recognized upon performance of the
services requested by the customer.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income taxes of $410,000), or
($0.26) per basic share, to reflect the cumulative effect of the accounting
change as of the beginning of the 2001 fiscal year.
The deferred profit balance as of the beginning of fiscal 2001 was
$1,125,211. This amount is the deferred revenue net of the related cost of sales
for equipment that was shipped and previously recorded as sales but had not been
accepted or did not qualify for multiple-element accounting as of September 30,
2000. Of the $1,125,211 in deferred profit as of the beginning of fiscal 2001,
$122,640 and $936,994 was recognized in 2002 and 2001, respectively. The pro
forma amounts presented on the consolidated statements of operations were
calculated assuming the accounting change was retroactively adopted as of
October 1, 1998.
Prior to fiscal 2001, the Company's revenue recognition policy was to
recognize revenue and accrue the estimated installation costs at the time the
customer took title to the product, generally at the time of shipment because
the Company routinely met its installation obligations and installation costs
represented a small percentage of total costs (approximately 3% - 5%.)
CRITICAL ACCOUNTING POLICIES
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses our consolidated financial statements that have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amount of assets
and liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including
those related to revenue recognition, valuation allowances for inventory and
accounts receivable, warranty and impairment of long-lived assets. We base our
estimates and judgments on historical experience and on various other factors
that we believe to be reasonable under the circumstances. The result of these
estimates and judgments form the basis for making conclusions about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The SEC suggests that all registrants list their most "critical accounting
policies" in Management's Discussion and Analysis of Financial Condition and
Results of Operations. A critical accounting policy is one that is both
important to the portrayal of the Company's financial condition and results and
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. Management believes the following critical accounting
policies affect its more significant judgments and estimates in the preparation
of its consolidated financial statements.
REVENUE RECOGNITION. The Company recognizes revenue when persuasive
evidence of an arrangement exists; title transfers; the seller's price is fixed
or determinable and collectibility is reasonably assured. Certain of the
Company's product sales are accounted for as multiple- element arrangements. For
the semiconductor equipment segment, if the Company has met defined customer
specifications with similarly situated customers, equipment and processes, the
Company recognizes equipment revenue upon shipment and transfer of title, and
the holdback portion of the revenue that is contingent upon installation and
acceptance, generally 10% - 20% of a system's selling price, is deferred until
those activities are completed. Revenues for products that are shipped but do
not meet this criteria are deferred and recognized when the equipment and
processes are proven, generally upon customer acceptance or upon obtaining
customer acceptance on at least two similar systems. Collection of the holdback
portion of a system sale is often based on system acceptance or final
installation. We have, on occasion, experienced longer than expected delays in
receiving cash from certain customers pending system acceptance or final
installation. If some of our customers were to refuse to pay the remaining
20
holdback, or otherwise delay final acceptance or installation, the deferred
revenue would not be recognized, adversely affecting future operating results.
Equipment sold by the polishing supplies segment does not include process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
upon shipment, as there are no post shipment obligations other than standard
warranties. Service revenues are recognized upon performance of the services
requested by the customer. Revenue related to service contracts is recognized as
the services requested by the customer are performed.
INVENTORY VALUATION. We value our inventory at the lower of cost or the
current estimated market value. We regularly review inventory quantities on hand
and record a write-down for excess and obsolete inventory. The provision is
primarily based on our estimated forecast of product demand and production
requirements. However, our industry is characterized by customers in highly
cyclical industries, rapid technological changes, frequent new product
developments and rapid product obsolescence. During 2001 and 2002, there was a
significant decrease in the worldwide demand for semiconductor capital
equipment. Demand for our products has fluctuated significantly and may do so in
the future, which could result in an increase in the cost of inventory or an
increase in excess inventory quantities on hand. The Company's ratio of
inventories to operating levels is above, and is expected to remain above, the
historic norms of our business due to order cancellations and the deferral of
orders by customers. There can be no assurance that future developments will not
necessitate further write-downs.
VALUATION ALLOWANCE FOR ACCOUNTS RECEIVABLE. We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. These allowances are based on historical
experience, credit evaluations and specific customer collection issues we have
identified. Since our accounts receivable are often concentrated in a relatively
few number of customers, a significant change in the liquidity or financial
position of any one of these customers could have a material adverse impact on
the collectibility of our accounts receivable and our future operating results.
WARRANTY. The Company provides a limited warranty, generally twelve to
twenty-four months, to all purchasers of its new products and systems. A
provision for the estimated cost of providing warranty coverage is recorded upon
shipment of all systems. On occasion, we have been required and may be required
in the future to provide additional warranty coverage to ensure that the systems
are ultimately accepted or to maintain customer goodwill. While our warranty
costs have historically been within our expectations and management believes
that the amounts accrued for warranty expenditures are sufficient for all
systems sold through September 30, 2002, we cannot guarantee that we will
continue to experience a similar level of predictability with regard to warranty
costs we have in the past. In addition, technological changes or previously
unknown defects in raw materials or components may result in more extensive and
frequent warranty service than anticipated, which could have a material adverse
impact on our operating results for the periods in which such additional costs
materialize.
IMPAIRMENT OF LONG-LIVED ASSETS. We evaluate whether events and
circumstances have occurred that indicate the estimated useful lives of
long-lived assets or intangible assets may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that an asset
should be evaluated for possible impairment, we use an estimate of the related
undiscounted net cash flows generated by the asset over the remaining estimated
life of the asset in measuring whether the asset is recoverable. We make
judgments and estimates used in establishing the carrying value of long-lived or
intangible assets. Those judgments and estimates could be modified if adverse
changes occurred in the future resulting in an inability to recover the carrying
value of these assets. We have not experienced any impairment to long-lived
assets during fiscal 2001 or fiscal 2002. Future adverse changes could be caused
by, among other factors, a continued downturn in the semiconductor industry, a
general economic slowdown, reduced demand for our products in the market place,
poor operating results, inability to protect intellectual property or changing
technologies and product obsolescence.
ACCOUNTING PROUNOUNCEMENTS NOT YET ADOPTED
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No.
141"), and No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 141 eliminates pooling of interest as a method for accounting for
business combinations. SFAS No. 142 requires the discontinuation of the
amortization of goodwill and intangible assets with indefinite lives and at
21
least an annual assessment of whether there has been an impairment of such
assets that needs to be recognized as an impairment charge. Effective as of
October 1, 2002, Amtech will adopt SFAS Nos. 141 and 142. Since amortization of
goodwill is currently $74,000 per year, the discontinuation of such amortization
will not have a material affect on Amtech's results of operations or financial
condition. Amtech does not expect to incur an impairment charge related to the
$728,000 of goodwill included in its assets as of September 30, 2002.
The FASB recently issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and portions of APB Opinion No. 30,
"Reporting the Results of Operations." SFAS No. 144 provides a single accounting
model for long-lived assets to be disposed of and significantly changes the
criteria that must be met to classify an asset as "held for sale."
Classification as "held for sale" is an important distinction since such assets
are not depreciated and are stated at the lower of fair value and carrying
amount. SFAS No. 144 also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as presently required. The
provisions of SFAS No. 144 are not expected to have a material effect on
Amtech's financial position or operating results.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds the requirement to report gains and losses
from extinguishment of debt as an extraordinary item. Additionally, this
statement amends Statement 13 to require sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of this statement relating to Statement 4 are
applicable in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. The adoption of SFAS No. 145 did not
have an effect on Amtech's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. For purposes of this
Statement, an exit activity includes, but is not limited to a restructuring as
that term is defined in IAS 37, "Provisions, Contingent Liabilities, and
Contingent Assets". The Statement is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected
to have an effect on Amtech's financial statements.
TRENDS, RISKS AND UNCERTAINTIES
IF DEMAND FOR HORIZONTAL DIFFUSION FURNACES AND RELATED EQUIPMENT DECLINES,
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY
AFFECTED.
The revenue of our semiconductor equipment segment, which accounts for
approximately three quarters of consolidated revenues, is comprised of sales of
horizontal diffusion furnaces and our processing/robotic product line. Our
processing/robotic product line is useable only with horizontal diffusion
furnaces. There is a trend in the semiconductor industry, related to the trend
to produce smaller chips, toward the use in semiconductor manufacturing
facilities of newer technology, such as vertical diffusion furnaces. Vertical
diffusion furnaces are more efficient to use than the horizontal diffusion
furnaces in certain manufacturing processes of smaller chips on larger wafers.
Because of this trend, we had expected that demand for our horizontal diffusion
furnaces would decline. We believe this trend has not adversely affected us yet
primarily because:
* we have experienced increased demand from manufacturers that do not
require the more expensive vertical furnaces, such as from
manufacturers of wireless communication chips and micro-controllers
used in a number of consumer applications; and
* we believe that because of improvements in automation for horizontal
diffusion furnaces, such as our robotic product line, horizontal
diffusion furnaces may be becoming a more favorable alternative to the
vertical furnaces than they previously had been; and
22
* we are pursuing alternative markets, such as solar cell manufacturers
and research and development facilities, which accounted for $1.7
million and $.5, respectively, of revenues in 2002.
However, to the extent that the trend to use vertical diffusion furnaces
over horizontal diffusion furnaces continues, our revenues may decline and our
corresponding ability to generate income may be adversely affected.
THE ONGOING VOLATILITY OF THE SEMICONDUCTOR EQUIPMENT INDUSTRY MAY NEGATIVELY
IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS AND OUR CORRESPONDING ABILITY TO
EFFICIENTLY BUDGET OUR EXPENSES.
The semiconductor equipment industry is highly cyclical. The purchasing
decisions of our customers are highly dependent on the economies of both their
domestic markets and the semiconductor industry worldwide. The timing, length
and severity of the up-and-down cycles in the semiconductor equipment industry
are difficult to predict. This cyclical nature of our marketplace affects our
ability to accurately budget our expense levels, which are based in part on our
projections of future revenues.
When cyclical fluctuations result in lower than expected revenue levels,
operating results may be adversely affected and cost reduction measures may be
necessary in order for us to remain competitive and financially sound. During a
down cycle, we must be able to make timely adjustments to our cost and expense
structure to correspond to the prevailing market conditions. In addition, during
periods of rapid growth, we must be able to increase manufacturing capacity and
personnel to meet customer demand. We can provide no assurance that these
objectives can be met in a timely manner in response to industry cycles. If we
fail to respond to industry cycles, our business could be seriously harmed.
During the most recent down cycle, beginning in the first half of fiscal
2001, the semiconductor industry experienced excess production capacity that
caused semiconductor manufacturers to decrease capital spending. We do not have
long-term volume production contracts with our customers and we do not control
the timing or volume of orders placed by our customers. Whether and to what
extent our customers place orders for any specific products and the mix and
quantities of products included in those orders are factors beyond our control.
Insufficient orders will result in under-utilization of our manufacturing
facilities and infrastructure and will negatively affect our results of
operations and financial condition.
WE ARE DEPENDENT ON KEY PERSONNEL FOR OUR BUSINESS DEVELOPMENT, PRODUCT
DEVELOPMENT AND SALES, AND ANY LOSS OF OUR KEY PERSONNEL TO COMPETITORS OR OTHER
INDUSTRIES COULD DRAMATICALLY IMPACT OUR ABILITY TO CONTINUE OPERATIONS.
Amtech is the beneficiary of a life insurance policy on the life of Mr.
Whang in the amount of $1,000,000, but there is no assurance that such amount
will be sufficient to cover the cost of finding and hiring a suitable
replacement for Mr. Whang. It may not be feasible for any successor to maintain
the same business relationships that Mr. Whang has established. If we were to
lose the services of Mr. Whang for any reason, it could have a material adverse
affect on our business.
In addition, historically, our product development has been accomplished
through cooperative efforts with two key customers. Our relationship with one of
these customers as well as with our joint development partner for the new
technology asher, are substantially dependent on the personal relations
established by Mr. Whang. While there can be no assurance that such
relationships will continue, such cooperation is expected to continue to be a
significant element in our future development efforts.
We also depend on the management efforts of our officers and other key
personnel and on the ability to attract new key personnel and retain existing
key personnel. Most of our products, other than the Atmoscan(R) and products
acquired in the P.R. Hoffman acquisition, were developed by our own personnel.
We presently employ three engineers, including one with a Ph.D., and one in the
sales department at our Tempe, Arizona plant. We employ six engineers, including
one with a Ph.D., in our Netherlands operation. These employees design and
support the horizontal diffusion furnace and conveyor furnace product lines
manufactured in the Netherlands and the related Process/Robotic products
manufactured in Tempe. Two engineers are employed in our Carlisle, Pennsylvania
operation. They design wafer lapping machines and carriers to meet customers'
processing requirements. Competition is intense for highly skilled employees.
There can be no assurance that we will be successful in attracting and retaining
23
such personnel or that we can avoid increased costs in order to do so. There can
be no assurance that employees will not leave Amtech or compete against us. Our
failure to attract additional qualified employees or to retain the services of
key personnel could negatively impact our operating results and financial
condition.
WE MAY NOT BE ABLE TO KEEP PACE WITH THE RAPID CHANGE IN THE TECHNOLOGY WE USE
IN OUR PRODUCTS.
Success in the semiconductor equipment industry depends, in part, on
continual improvement of existing technologies and rapid innovation of new
solutions. For example, the semiconductor industry continues to shrink the size
of semiconductor devices. These and other evolving customer needs require us to
respond with continued development programs.
Technical innovations are inherently complex and require long development
cycles and appropriate professional staffing. Our future business success
depends on our ability to develop and introduce new products or uses for
existing products that successfully address changing customer needs, win market
acceptance of these new products or uses and manufacture any new products in a
timely and cost-effective manner. If we do not develop and introduce new
products, technologies or uses for existing products in a timely manner in
response to changing market conditions or customer requirements, our business
could be seriously harmed.
OUR RESULTS OF OPERATIONS MAY BE MATERIALLY HARMED IF WE ARE UNABLE TO RECOUP
OUR INVESTMENT IN RESEARCH AND DEVELOPMENT.
The rapid change in technology in our industry requires that we continue to
make investments in research and development in order to enhance the performance
and functionality of our products and to keep pace with competitive products and
satisfy customer demands for improved performance, features and functionality.
There can be no assurance that revenues from future products or product
enhancements will be sufficient to recover the development costs associated with
such products or enhancements or that we will be able to secure the financial
resources necessary to fund future development. Research and development costs
typically are incurred before we confirm the technical feasibility and
commercial viability of a product, and not all development activities result in
commercially viable products. In addition, we cannot ensure that these products
or enhancements will receive market acceptance or that we will be able to sell
these products at prices that are favorable to us. Our business could be
seriously harmed if we are unable to sell our products at favorable prices or if
our products are not accepted by the market in which we operate.
OUR CURRENT CAPITALIZATION COULD DELAY, DEFER OR PREVENT A CHANGE OF CONTROL.
We are authorized to issue up to 100,000,000 shares of common stock and up
to 100,000,000 shares of preferred stock. As of December 13, 2002, there were
2,689,571 shares outstanding. Authorized but unissued common stock may be issued
for such consideration as the board of directors determines to be adequate. The
board of directors may issue preferred stock with such rights and preferences as
they determine, without shareholder vote. Although we do not currently intend to
issue any shares of our preferred stock there can be no assurance that we will
not do so in the future. Shareholders may or may not be given the opportunity to
vote thereon, depending upon the nature of any such transactions, applicable
law, the rules and policies of the national securities exchange on which the
common stock is then trading, if any, and the judgment of the board of
directors. Shareholders have no preemptive rights to subscribe for newly issued
shares of our capital stock.
On May 17, 1999, we declared a dividend distribution of one preferred share
purchase right for each outstanding share of common stock. The dividend was
payable on June 9, 1999, to stockholders of record as of the close of business
on that date. Each right entitles the registered holder to purchase one
one-hundredth of a share of Series A Participating Preferred Stock, subject to
adjustment, at a price $8.50 per one one-hundredth of a share of Preferred
Stock, subject to adjustment. The rights issuance was adopted as protection
against a takeover by a third party.
Mr. Whang and certain other key employees have severance arrangements that
require Amtech to make significant lump sum payments in the event of a change of
control in ownership.
24
Having the outstanding rights, and a substantial number of authorized and
unreserved shares of common stock, preferred stock and severance arrangements
with key employees could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock. Management could
use the additional shares to resist a takeover effort even if the terms of the
takeover offer are favored by a majority of the independent shareholders. This
could delay, defer, or prevent a change in control.
IF THIRD PARTIES VIOLATE OUR PROPRIETARY RIGHTS, IN WHICH WE HAVE MADE
SIGNIFICANT INVESTMENT, OR ACCUSE US OF INFRINGING UPON THEIR PROPRIETARY
RIGHTS, SUCH EVENTS COULD RESULT IN LOSS OF THE VALUE OF SOME OF OUR
INTELLECTUAL PROPERTY OR COSTLY LITIGATION.
Our success is dependent in part on our technology and other proprietary
rights. We own various United States and international patents and have
additional pending patent applications relating to some of our products and
technologies. The process of seeking patent protection is lengthy and expensive,
and we cannot be certain that pending or future applications will actually
result in issued patents, or that, issued patents will be of sufficient scope or
strength to provide meaningful protection or commercial advantage to us. Other
companies and individuals, including our larger competitors, may develop
technologies that are similar or superior to our technology or design around the
patents we own. We also maintain trademarks on certain of our products and claim
copyright protection for certain proprietary software and documentation.
However, we can give no assurance that our trademarks and copyrights will be
upheld or successfully deter infringement by third parties.
While patent, copyright and trademark protection for our intellectual
property is important, we believe our future success in highly dynamic markets
is most dependent upon the technical competence and creative skills of our
personnel. We attempt to protect our trade secrets and other proprietary
information through agreements with our customers, suppliers, employees and
consultants and through other security measures. We also rely on trade secret
protection for our technology, in part through confidentiality agreements with
our employees, consultants and third parties. We also maintain exclusive and
non-exclusive licenses with third parties for the technology used in certain
products. However, these employees, consultants and third parties may breach
these agreements, and we may not have adequate remedies for wrongdoing. In
addition, the laws of certain territories in which we develop, manufacture or
sell our products may not protect our intellectual property rights to the same
extent as do the laws of the United States.
From time to time we have received communications from other parties
asserting the existence of patent rights or other intellectual property rights
that they believe cover certain of our products, processes, technologies or
information. In such cases, we evaluate our position and consider the available
alternatives, which may include seeking licenses to use the technology in
question on commercially reasonable terms or defending our position. Based on
industry practice and prior experience, we believe that licenses or other
rights, if necessary, will be available on commercially reasonable terms for
existing or future claims. Nevertheless, we cannot ensure that licenses can be
obtained, or if obtained will be on acceptable terms or that litigation or other
administrative proceedings will not occur. Defending our intellectual property
rights through litigation could be very costly. If we are not able to negotiate
the necessary licenses on commercially reasonable terms or successfully defend
our position, our financial condition and results of operations could be
materially and adversely affected.
OUR RELIANCE ON SALES TO A FEW MAJOR CUSTOMERS AND GRANTING CREDIT TO THOSE
CUSTOMERS PLACES US AT FINANCIAL RISK.
As of September 30, 2002, receivables from two customers comprised 34% of
accounts receivable. A concentration of our receivables from a small number of
customers places us at risk. If any one or more of our major customers is unable
to pay us it could adversely affect our results of operation and financial
condition. Amtech attempts to manage this credit risk by performing credit
checks, requiring significant partial payments prior to shipment where
appropriate, and actively monitoring collections.
OUR BUSINESS MIGHT BE ADVERSELY AFFECTED BY OUR DEPENDENCE ON FOREIGN BUSINESS.
During the fiscal year ended September 30, 2002, 53% of our sales were made
to customers outside the United States as follows:
25
* Asia (including Singapore, Indonesia, Malaysia and India) - 20%
* Europe (including Israel and Africa) - 33%
Because of our significant dependence on international revenues, our
operating results could be negatively affected by a continued or additional
decline in the economies of any of the countries or regions in which we do
business. Each region in the global semiconductor equipment market exhibits
unique characteristics that can cause capital equipment investment patterns to
vary significantly from period to period. Periodic local or international
economic downturns, trade balance issues, political instability and fluctuations
in interest and currency exchange rates could negatively affect our business and
results of operations.
We recorded a gain of $.2 million and a charge of $.1 million during fiscal
2002 and fiscal 2001, respectively, as a result of foreign currency
transactions. While our business has not been materially affected in the past by
foreign business or currency fluctuations, there is a risk that it may be
materially adversely affected in the future. Such risk includes possible losses
on account of currency exchange rate fluctuations, possible future prohibitions
against repatriation of earnings, or proceeds from disposition of investments,
and from possible social and military instability in the case of India, South
Korea, Taiwan and possibly elsewhere. Our wholly owned subsidiary, Tempress
Systems, has conducted its operations in the Netherlands since fiscal 1995. As a
result, such operations are subject to the taxation policies, employment and
labor laws, transportation regulations, import and export regulations and
tariffs, possible foreign exchange restrictions, international monetary
fluctuations, and other political, economic and legal policies of that nation,
the European Economic Union and the other European nations in which it conducts
business. Consequently, we might encounter unforeseen or unfamiliar difficulties
in conducting our European operations. Changes in such laws and regulations may
have a material adverse effect on our revenue and costs.
THE SEMICONDUCTOR EQUIPMENT INDUSTRY IS COMPETITIVE AND WE ARE RELATIVELY SMALL
IN SIZE AND HAVE FEWER RESOURCES IN COMPARISON WITH OUR COMPETITORS.
Our industry includes large manufacturers with substantial resources to
support customers worldwide. Our future performance depends, in part, upon our
ability to continue to compete successfully worldwide. Some of our competitors
are diversified companies with greater financial resources and more extensive
research, engineering, manufacturing, marketing and customer service and support
capabilities than we can provide. We face competition from companies whose
strategy is to provide a broad array of products, some of which compete with the
products and services that we offer. These competitors may bundle their products
in a manner that may discourage customers from purchasing our products. In
addition, we face competition from smaller emerging semiconductor equipment
companies whose strategy is to provide a portion of the products and services
that we offer, using innovative technology to sell products into specialized
markets. Loss of competitive position could impair our prices, customer orders,
revenues, gross margins, and market share, any of which would negatively affect
our operating results and financial condition. Our failure to compete
successfully with these other companies would seriously harm our business. There
is risk that larger, better-financed competitors will develop and market more
advanced products than those that we currently offer, or that competitors with
greater financial resources may decrease prices thereby putting us under
financial pressure. The occurrence of any of these events could have a negative
impact on our revenues.
IF WE MAKE ADDITIONAL ACQUISITIONS IT COULD RESULT IN AN INCREASE IN OUR COSTS
OF OPERATIONS, DIVERT MANAGEMENT'S ATTENTION AWAY FROM OTHER OPERATIONAL
MATTERS, AND EXPOSE US TO OTHER RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.
We continually evaluate potential acquisitions. We might make acquisitions
of, or significant investments in, other businesses with synergistic products,
services and technologies. Acquisitions involve numerous risks, including, but
not limited to:
* difficulties and increased costs in connection with integration of the
personnel, operations, technologies and products of acquired
companies;
* diversion of management's attention from other operational matters;
* the potential loss of key employees of acquired companies;
* lack of synergy, or inability to realize expected synergies, resulting
from the acquisition;
26
* the risk that the issuance of Amtech common stock in an acquisition or
merger could be dilutive to Amtech stockholders if anticipated
synergies are not realized; and
* acquired assets becoming impaired as a result of technological
advancements or worse-than-expected performance of the acquired
company.
IF OUR CRITICAL SUPPLIERS FAIL TO DELIVER SUFFICIENT QUANTITIES OF PRODUCT IN A
TIMELY AND COST-EFFECTIVE MANNER IT COULD NEGATIVELY AFFECT OUR BUSINESS.
We use a wide range of materials and services in the production of our
products including custom electronic and mechanical components, and we use
numerous suppliers to supply materials. We generally do not have guaranteed
supply arrangements with our suppliers. Because of the variability and
uniqueness of customers' orders, we do not maintain an extensive inventory of
materials for manufacturing. Key suppliers include two steel mills capable of
holding the type and tolerances that we require, an injection molder that
provides plastic insets for steel carriers, an adhesive manufacturer that
supplies the critical glue used in the production of the semiconductor polishing
templates, and a pad supplier that produces a unique material used to attach
semiconductor wafers to the polishing template. We also rely on third parties
for laser cutting, machined parts, steel frames and metal panels and other
components used particularly in the assembly of semiconductor production
equipment.
Although we make reasonable efforts to ensure that parts are available from
multiple suppliers, this is not always possible; accordingly, some key parts are
being procured from a single supplier or a limited group of suppliers. The
semiconductor industry's recent increase in demand for capital equipment has
resulted in longer lead-times for many important system components, which could
cause delays in meeting shipments to our customers. Because the selling price of
some systems exceeds $1 million, the delay in the shipment of even a single
system could cause significant variation in quarterly revenue, operating results
and the market value of our stock. We have sought, and will continue to seek, to
minimize the risk of production and service interruptions and shortages of key
parts by:
* selecting and qualifying alternative suppliers for key parts;
* monitoring the financial stability of key suppliers; and
* maintaining appropriate inventories of key parts.
There can be no assurance that results of operations will not be materially
and adversely affected if, in the future, we do not receive in a timely and
cost-effective manner a sufficient quantity of parts to meet our production
requirements.
WE MIGHT REQUIRE ADDITIONAL FINANCING TO EXPAND OUR OPERATIONS.
On September 13, 2000, we issued 383,000 shares of common stock, and
warrants to purchase an aggregate of up to 59,300 shares of common stock, in a
private placement pursuant to a Stock and Warrant Purchase Agreement. Net
proceeds to the company, after deducting placement agents', legal, accounting
and registration fees, were approximately $4.6 million. The proceeds will be
used to fund the company's growth initiatives. While we believe that revenues
generated from our operations, as well as the proceeds received from this
private placement, are sufficient to provide adequate working capital for the
foreseeable future and for a limited number of growth initiatives, additional
financing is expected to be required for further implementation of our plans for
expansion. There is no assurance that any additional financing will be available
if and when required, or, even if available, that it would not materially dilute
the ownership percentage of the then existing shareholders.
IF OUR SECURITIES BECOME INELIGIBLE FOR TRADING ON THE NASDAQ SYSTEM, THEY MIGHT
BE SUBJECT TO RULE 15G-9 OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH IMPOSES
ADDITIONAL SALES PRACTICE REQUIREMENTS ON BROKER-DEALERS WHO SELL SUCH
SECURITIES TO PERSONS OTHER THAN ESTABLISHED CUSTOMERS AND ACCREDITED INVESTORS.
While our common stock is now included on the Nasdaq National Market,
continued inclusion will depend on our ability to meet certain eligibility
requirements established for the Nasdaq National Market. Loss of Nasdaq
eligibility could result if we sustain material operating losses or if the
market price of our common stock falls below $1.00 per share. For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and receive the purchaser's written consent to
27
the transaction prior to the sale. The rule may adversely affect the ability of
broker-dealers to sell our securities, and consequently may limit the public
market for and the trading price of our common stock.
TERRORIST ATTACKS AND THREATS OR ACTUAL WAR MAY NEGATIVELY IMPACT ALL ASPECTS OF
OUR OPERATIONS, REVENUES, COSTS AND STOCK PRICE.
Recent terrorist attacks in the United States, as well as future events
occurring in response or connection to them, including, without limitation,
future terrorist attacks against United States targets, rumors or threats of
war, actual conflicts involving the United States or its allies or military or
trade disruptions impacting our domestic or foreign suppliers of parts,
components and subassemblies, may impact our operations, including, among other
things, causing delays or losses in the delivery of supplies to us and decreased
sales of our products. More generally, any of these events could cause consumer
confidence and spending to decrease or result in increased volatility in the
United States and worldwide financial markets and economy. They also could
result in economic recession in the United States or abroad. Any of these
occurrences could have a significant impact on our operating results, revenues
and costs.
WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS AND OUR INABILITY OR FAILURE TO
COMPLY WITH THESE REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
We are subject to environmental regulations in connection with our business
operations, including but not limited to regulations related to manufacturing
and our customers' use of our products. From time to time, we receive notices
regarding these regulations. It is our policy to respond promptly to these
notices and to take any necessary corrective action. Failure or inability to
comply with existing or future environmental regulations could result in
significant remediation liabilities, the imposition of fines and/or the
suspension or termination of development, manufacturing or use of certain of our
products, each of which could damage our financial condition and results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Amtech is exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Its operations in the United States
are conducted in United States dollars. Amtech's operation in The Netherlands, a
component of the semiconductor equipment segment, conducts business primarily in
the Euro and the United States dollar. The functional currency of Amtech's
Netherlands operation is Euro.
Amtech estimates that more than 95% of its transactions are denominated in
one of its two functional currencies or currencies that have fixed exchange
rates with one of its functional currencies. As of September 30, 2002, Amtech
did not hold any stand alone or separate derivative instruments. Amtech incurred
a net foreign currency transaction gain of $.2 million in 2002 and loss of $.1
million in 2001. Amtech's investment in and advances to its Netherlands'
operation totals $3.9 million. A 10% change in the value of the Euro relative to
the United States dollar would cause a $.4 million foreign currency translation
adjustment, a type of other comprehensive income (loss), which would be a direct
adjustment to stockholders' equity.
When the value of the Euro declines relative to the value of the United
States dollar, operations in The Netherlands can be more competitive against the
United States based equipment suppliers and the cost of purchases denominated in
United States dollars become more expensive. When the value of the Euro
increases relative to the value of the United States dollar, operations in The
Netherlands must raise prices to those customers that normally make purchases in
United States dollars, in order to maintain the same profit margins. When this
occurs, this operation attempts to have transactions denominated in the Euro and
to increase its purchases denominated in United States dollars. Amtech estimates
that its fiscal 2002 purchases and sales of this foreign operation that are
denominated in currencies not linked to its functional currency, including
United States dollars, were approximately $.8 million and $.2 million,
respectively. Amtech estimates that its fiscal 2001 purchases and sales of this
foreign operation that are denominated in currencies not linked to its
functional currency, including United States dollars, were approximately $6.5
million and $2.2 million, respectively. Most of those purchases are denominated
in United States dollars and provide a partial hedge against fluctuations in
exchange rates on sales denominated in that currency. Because it is difficult to
28
predict the volume of dollar denominated transactions arising from The
Netherlands operations, Amtech does not hedge against the effects of exchange
rate changes on future transactions. The Euro is at a relatively high value
relative to the United States dollar at the end of fiscal 2002, giving Amtech's
operation based in The Netherlands a competitive disadvantage over other
suppliers based in the United States.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
(a) The following documents are filed as part of this Annual Report
on Form 10-K:
(1) Financial Statements:
Independent Auditors' Reports.......................................30
Consolidated Balance Sheets September 30, 2002 and 2001 ............32
Consolidated Statements of Operations for the years ended
September 30, 2002, 2001 and 2000...................................33
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 2002, 2001 and 2000.......................34
Consolidated Statements of Cash Flows for the years ended
September 30, 2002, 2001 and 2000...................................35
Notes to Consolidated Financial Statements September 30, 2002,
2001 and 2000.......................................................36
29
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Amtech Systems, Inc.:
We have audited the accompanying consolidated balance sheet of AMTECH SYSTEMS,
INC. and subsidiaries as of September 30, 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The consolidated financial
statements and financial statement schedule of Amtech Systems, Inc. and
subsidiaries as of September 30, 2001 and 2000 for each of the years in the
two-year period then ended were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
consolidated financial statements and financial statement schedule in their
report dated January 9, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amtech Systems, Inc.
and subsidiaries as of September 30, 2002 and the results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index of
financial statements, required by the Securities and Exchange Commission's rules
is presented for additional analysis and is not part of the consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the consolidated financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
/s/ KPMG LLP
Phoenix, Arizona
November 27, 2002
30
THE REPORT PRESENTED BELOW IS A COPY OF THE INDEPENDENT AUDITORS' REPORT OF
ARTHUR ANDERSEN LLP, THE FORMER AUDITOR FOR AMTECH SYSTEMS INC., ISSUED ON
JANUARY 9, 2002. ARTHUR ANDERSEN LLP HAS BEEN UNABLE TO ISSUE AN UPDATED REPORT.
ADDITIONALLY, THE OPINION PRESENTED BELOW COVERS THE BALANCE SHEET AS OF
SEPTEMBER 30, 2000 AND THE STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY, AND
CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1999, WHICH STATEMENTS ARE NOT
INCLUDED IN THIS REPORT ON FORM 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amtech Systems, Inc.:
We have audited the accompanying consolidated balance sheets of AMTECH SYSTEMS,
INC. (an Arizona corporation) and subsidiaries (the "Company") as of September
30, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended September
30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 2 to the financial statements, effective October 1, 2000,
the Company changed its method of accounting for revenue recognition.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
January 9, 2002
31
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
---------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,045,663 $ 5,998,120
Accounts receivable (less allowance for doubtful accounts of $152,000 2,695,323 3,829,867
and $630,000, at September 30, 2002 and 2001, respectively)
Inventories 3,020,890 4,804,457
Deferred income taxes 1,044,000 1,477,000
Prepaid expenses 82,291 85,643
------------ ------------
Total current assets 14,888,167 16,195,087
PROPERTY, PLANT AND EQUIPMENT - net 1,642,084 1,484,437
DEFERRED INCOME TAXES 88,000 48,000
GOODWILL AND OTHER ASSETS - net 774,849 843,046
------------ ------------
TOTAL ASSETS $ 17,393,100 $ 18,570,570
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 891,640 $ 880,006
Accrued compensation and related taxes 653,045 671,075
Accrued warranty expense 262,573 304,228
Deferred profit 479,964 1,612,013
Customer deposits 91,417 367,523
Income taxes payable 37,000 135,000
Other accrued liabilities 306,601 605,547
------------ ------------
Total current liabilities 2,722,240 4,575,392
------------ ------------
DEFERRED PROFIT - LONG TERM 199,966 165,160
LONG-TERM OBLIGATIONS 259,217 246,184
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $0.01 par value; 100,000,000 shares authorized;
2,688,571 (2,649,171 in 2001) shares issued and outstanding 26,886 26,492
Additional paid-in capital 12,859,715 12,539,040
Accumulated other comprehensive (loss) -
cumulative foreign currency translation adjustment (179,639) (368,242)
Retained earnings 1,504,715 1,386,544
------------ ------------
Total stockholders' equity 14,211,677 13,583,834
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,393,100 $ 18,570,570
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
32
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Net revenues $ 20,532,768 $ 22,851,920 $ 19,027,446
Cost of sales 15,715,909 15,974,260 12,398,560
------------ ------------ ------------
Gross margin 4,816,859 6,877,660 6,628,886
Selling, general and administrative 4,422,352 4,918,902 4,169,631
Research and development 317,375 382,186 476,975
------------ ------------ ------------
Operating income 77,132 1,576,572 1,982,280
Interest income, net 91,039 246,720 93,141
------------ ------------ ------------
Income before income taxes and cumulative
effect of change in accounting principle 168,171 1,823,292 2,075,421
Income tax provision 50,000 670,000 750,000
------------ ------------ ------------
Income before cumulative effect of change in accounting principle 118,171 1,153,292 1,325,421
Cumulative effect of change in accounting principle, net of tax
benefit of $410,000 -- (690,211) --
------------ ------------ ------------
NET INCOME $ 118,171 $ 463,081 $ 1,325,421
============ ============ ============
EARNINGS PER SHARE:
Basic
Income before cumulative effect of change in accounting principle $ .04 $ .43 $ .61
Cumulative effect of change in accounting principle, net of tax -- (.26) --
------------ ------------ ------------
Basic earnings per share $ .04 $ .17 $ .61
============ ============ ============
Diluted
Income before cumulative effect of change in accounting principle $ .04 $ .41 $ .56
Cumulative effect of change in accounting principle, net of tax -- (0.25) --
------------ ------------ ------------
Diluted earnings per share $ .04 $ .16 $ .56
============ ============ ============
Number of shares used in per share calculations:
Basic 2,683,030 2,661,001 2,158,562
Diluted 2,765,553 2,821,583 2,336,497
PRO FORMA AMOUNTS WITH THE CHANGE IN ACCOUNTING PRINCIPLE RELATED TO REVENUE
RECOGNITION APPLIED RETROACTIVELY (UNAUDITED):
Net revenues $ 20,532,768 $ 22,851,920 $ 18,908,378
Net income $ 118,171 $ 1,153,292 $ 1,060,619
Earnings per share:
Basic $ .04 $ .43 $ .49
Diluted $ .04 $ .41 $ .45
The accompanying notes are an integral part of these
consolidated financial statements.
33
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
COMMON STOCK ACCUMULATED RETAINED
------------------------- ADDITIONAL OTHER EARNINGS TOTAL
NUMBER PAID-IN COMPREHENSIVE (ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL (LOSS) DEFICIT) EQUITY
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $ (309,064) $ (401,958) $ 6,710,217
Net income -- -- -- -- 1,325,421 1,325,421
Translation adjustment -- -- -- (193,292) -- (193,292)
-----------
Comprehensive income 1,132,129
-----------
Issuance of common
stock, net of related expenses 383,000 3,830 4,612,117 -- -- 4,615,947
Stock options exercised and other
including a $59,000 related tax benefit 80,129 801 120,789 -- -- 121,590
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2000 2,571,808 25,718 12,133,058 (502,356) 923,463 12,579,883
Net income -- -- -- -- 463,081 463,081
Translation adjustment -- -- -- 134,114 -- 134,114
-----------
Comprehensive income 597,195
-----------
Warrants and stock options exercised 77,363 774 405,982 -- -- 406,756
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2001 2,649,171 26,492 12,539,040 (368,242) 1,386,544 13,583,834
=========== =========== =========== =========== =========== ===========
Net income -- -- -- -- 118,171 118,171
Translation adjustment -- -- -- 188,603 -- 188,603
-----------
Comprehensive income 306,774
-----------
Common Stock issued persuant to
P.R. Hoffman earn-out 30,600 306 309,523 -- -- 309,829
Stock options exercised 8,800 88 11,152 -- -- 11,240
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 2002 2,688,571 $ 26,886 $12,859,715 $ (179,639) $ 1,504,715 $14,211,677
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
34
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income $ 118,171 $ 463,081 $ 1,325,421
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle, net of tax -- 690,211 --
Depreciation and amortization 447,321 376,308 294,122
Provision for inventory valuation 528,153 336,806 65,272
Provision for accounts receivable 372,058 496,548 11,579
Loss on disposals of long-lived assets -- 1,660 431
Deferred income taxes 393,000 (538,000) (156,000)
(Increase) decrease in:
Accounts receivable 881,332 691,529 (1,973,716)
Inventory 1,382,943 (848,402) (2,265,693)
Prepaid expenses and other assets (14,645) (139,745) (327,954)
Increase (decrease) in:
Accounts payable (24,675) (1,293,612) 1,636,815
Accrued liabilities and customer deposits (556,595) 59,015 846,877
Deferred profit (973,010) 676,962 --
Income taxes payable (114,629) (532,273) 759,672
------------ ------------ ------------
Net Cash Provided By Operating Activities 2,439,424 440,088 216,826
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (464,322) (664,733) (322,292)
------------ ------------ ------------
Net Cash Used In Investing Activities (464,322) (664,733) (322,292)
------------ ------------ ------------
FINANCING ACTIVITIES:
Common Stock issued 11,240 406,757 62,590
Net proceeds from private placement of common stock -- -- 4,615,947
Net payments and borrowings on mortgage loan -- 930 (10,605)
------------ ------------ ------------
Net Cash Provided By Financing Activities 11,240 407,687 4,667,932
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 61,201 30,578 97,349
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,047,543 213,620 4,659,815
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,998,120 5,784,500 1,124,685
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,045,663 $ 5,998,120 $ 5,784,500
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,926 $ 29,816 $ 12,805
Income taxes paid (refunded) (209,000) 1,743,000 143,000
NONCASH ITEMS:
Common stock issued pursuant to PR Hoffman Acquisition $ 309,829 $ -- $ --
The accompanying notes are an integral part of these
consolidated financial statements.
35
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(1) NATURE OF OPERATIONS:
Amtech Systems, Inc. (an Arizona corporation), and its wholly-owned
subsidiaries, P. R. Hoffman Machine Products, Inc. ("P. R. Hoffman") based in
the United States, and Tempress Systems, Inc. ("Tempress") based in The
Netherlands, comprise the "Company." The Company designs, assembles, sells and
installs capital equipment and related consumables used in the manufacture of
wafers of various materials, primarily silicon wafers for the semiconductor
industry, and in certain semiconductor fabrication processes. These products are
sold to manufacturers of silicon wafers and semiconductors worldwide,
particularly in the United States, Asia and northern Europe. In addition, the
Company provides semiconductor manufacturing support services.
The Company serves a niche market in an industry which experiences rapid
technological advances and which in the past has been very cyclical. Therefore,
the Company's future profitability and growth depend on its ability to develop
or acquire and market profitable new products and its ability to adapt to
cyclical trends.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
P. R. Hoffman (see Note 3) and Tempress. All significant intercompany accounts
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION - During its fourth quarter of fiscal 2001, the Company
changed its revenue recognition policy retroactively to effective October 1,
2000, based on guidance provided in Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." The Company recognizes revenue when persuasive evidence of an
arrangement exists; title transfers, generally upon shipment; the seller's price
is fixed or determinable and collectibility is reasonably assured. Certain of
the Company's product sales are accounted for as multiple-element arrangements.
For the semiconductor equipment segment, if the Company has met defined customer
specifications with similarly situated customers and the specific equipment and
process involved, the Company recognizes equipment revenue upon shipment and
transfer of title, and the remainder when it becomes due, generally upon
acceptance. Product sales that are shipped but do not meet this criteria are
deferred and recognized upon customer acceptance.
Equipment sold by the polishing supplies segment does not involve process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are recognized
upon shipment, as there are no post shipment obligations other than standard
warranties. Service revenues are recognized as services are performed. Revenue
related to service contracts is recognized upon performance of the services
requested by the customer.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income taxes of $410,000), or
$0.26 per basic share, to reflect the cumulative effect of the accounting change
as of the beginning of the 2001 fiscal year.
The deferred profit balance as of the beginning of fiscal 2001 was
$1,125,211. This amount represents the revenue net of the related cost of sales
for systems that were shipped and that had not been accepted and did not qualify
36
for multiple-element accounting as of September 30, 2000. Of the $1,125,211 in
deferred profit as of the beginning of fiscal 2001, $122,640 and $936,994 was
recognized in 2002 and 2001, respectively. The pro forma amounts presented on
the consolidated statements of operations were calculated assuming the
accounting change was retroactively adopted as of October 1, 1999.
Prior to fiscal 2001, the Company's revenue recognition policy was to
recognize revenue and accrue the estimated installation costs at the time the
customer took title to the product, generally at the time of shipment because
the Company routinely met its installation obligations and installation costs
represented a small percentage of total costs.
As revenue is not reported on a consistent basis between years, certain
data contained in these financial statements may not be comparable between
years.
CASH EQUIVALENTS - Cash equivalents consist of money market mutual funds,
time certificates of deposit and U.S. treasury bills. The Company considers
certificates of deposit and treasury bills to be cash equivalents if their
original maturity is 90 days or less.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market value. The components of inventory are as follows:
September 30,
-----------------------------
2002 2001
---------- ----------
Purchased parts $1,720,728 $2,487,470
Work-in-progress 534,057 1,255,676
Finished goods 766,105 1,061,311
---------- ----------
$3,020,890 $4,804,457
========== ==========
PROPERTY, PLANT AND EQUIPMENT - Maintenance and repairs are charged to
expense as incurred. The costs of additions and improvements are capitalized.
The cost of property retired or sold and the related accumulated depreciation
are removed from the applicable accounts when disposition occurs and any gain or
loss is recognized. Depreciation is computed using the straight-line method.
Useful lives for equipment, machinery and leasehold improvements range from
three to seven years; for furniture and fixtures from five to ten years; and for
buildings twenty years. Depreciation and amortization expense for fiscal years
2002, 2001, and 2000 was approximately $390,000, $296,000, and $241,000
respectively.
Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the undiscounted expected cash flows from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss is recognized.
The following is a summary of property, plant and equipment:
September 30,
----------------------------
2002 2001
------------ ------------
Building and leasehold improvements $ 732,739 $ 691,405
Equipment and machinery 1,622,640 1,435,427
Furniture and fixtures 1,156,932 837,623
------------ ------------
3,512,311 2,964,455
Accumulated depreciation and
amortization (1,870,227) (1,480,018)
------------ ------------
$ 1,642,084 $ 1,484,437
============ ============
37
GOODWILL - The purchase price in excess of net assets acquired, commonly
referred to as goodwill, is $727,837 and $789,250 at September 30, 2002 and
2001, respectively, and is being amortized over fifteen years using the
straight-line method. Amortization expense was approximately $74,000, $67,000
and $37,000 for fiscal years 2002, 2001 and 2000 respectively.
WARRANTY - The Company provides free of charge a limited warranty,
generally twelve to twenty-four months, to all purchasers of its new products
and systems. Warranty expense for fiscal 2002, 2001, and 2000 amounted to
approximately $210,000, $370,000 and $110,000, respectively. Management believes
these amounts and the amounts accrued for future warranty expenditures are
sufficient for all warranty costs on systems sold through September 30, 2002.
RESEARCH AND DEVELOPMENT EXPENSES - The Company expenses product
development costs as they are incurred.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - Financial information
relating to the Company's foreign subsidiary is reported in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." The functional currency of Tempress is the Euro. Net income
includes pretax gains from foreign currency transactions of $157,000 and $25,000
in 2002 and 2000 and a loss of $118,000 in 2001. The gains or losses resulting
from the translation of Tempress' financial statements have been included as
other comprehensive income (loss).
INCOME TAXES - The Company files consolidated federal income tax returns
and computes deferred income tax assets and liabilities based upon cumulative
temporary differences between financial reporting and taxable income,
carryforwards available and enacted tax law. (See Note 12).
STOCK-BASED COMPENSATION - The Company accounts for its employee
stock-based compensation plans under SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 permits companies to record employee stock-based
transactions under Accounting Principles Board Opinion ("APB") No. 25, under
which no compensation cost is recognized and the pro forma effects on earnings
and earnings per share are disclosed as if the fair market value approach had
been adopted. (See Note 14).
CONCENTRATION OF CREDIT RISK AND USE OF ESTIMATES - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
As of September 30, 2002, receivables from two customers comprised 23% and
12%, respectively, of accounts receivable. As of September 30, 2001, receivables
from customers in the optical component industry comprised 51% of total
receivables, of which three accounts comprised 39% of total receivables,
representing a concentration of credit risk as defined by SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk." As of
September 30, 2002, receivables from customers in the optical component industry
comprised only 1% of total receivables.
In July 2001, an optical component customer filed a petition for protection
from creditors under Chapter 11 of the U.S. bankruptcy code. The amount of the
sale was $1,609,000. The customer had made payments of $794,000 before filing in
38
bankruptcy court, leaving an unpaid balance of approximately $815,000. Through
increased reserves at September 30, 2001, the Company had written down this
receivable to an estimated net realizable value of $225,000. As of September 30,
2002, the net realizable value of this receivable had been written down to $0.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of the Company's
current financial instruments approximate fair value due to the short term in
which these instruments mature. The carrying values of the Company's lines of
credit (see Note 4) and long-term debt (see Note 5) approximate fair value
because the variable interest rates approximate the prevailing interest rates
for similar debt instruments.
RECLASSIFICATION - Certain amounts in the 2001 financial statements have
been reclassified to conform with the 2002 financial statement presentation.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In July 2001, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 eliminates pooling of
interest as a method for accounting for business combinations. SFAS No. 142
requires the discontinuation of the amortization of goodwill and intangible
assets with indefinite lives and at least an annual assessment of whether there
has been an impairment of such assets that needs to be recognized as an
impairment charge. The Company must adopt SFAS Nos. 141 and 142 no later than
October 1, 2002. Since amortization of goodwill is currently $74,000 per year,
the discontinuation of such amortization will not have a material affect on the
Company's results of operations or financial condition. The Company does not
expect to incur an impairment charge related to the $728,000 of goodwill
included in its assets as of September 30, 2002.
The FASB recently issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and portions of APB Opinion No. 30,
"Reporting the Results of Operations." SFAS No. 144 provides a single accounting
model for long-lived assets to be disposed of and significantly changes the
criteria that must be met to classify an asset as "held for sale."
Classification as "held for sale" is an important distinction since such assets
are not depreciated and are stated at the lower of fair value and carrying
amount. SFAS No. 144 also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as presently required. The
provisions of SFAS No. 144 are not expected to have a material effect on the
Company's financial position or operating results.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This Statement rescinds the requirement to report gains and losses
from extinguishment of debt as an extraordinary item. Additionally, this
statement amends Statement 13 to require sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of this statement relating to Statement 4 are
applicable in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. The adoption of SFAS No. 145 did not
have an effect on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. For purposes of this
Statement, an exit activity includes, but is not limited to a restructuring as
that term is defined in IAS 37, "Provisions, Contingent Liabilities, and
Contingent Assets". The Statement is effective for exit or disposal activities
39
initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected
to have an effect on the Company's financial statements.
(3) PURCHASE OF P. R. HOFFMAN'S ASSETS:
P.R. Hoffman specializes in the development, manufacture and marketing of
double-sided lapping and polishing machines and related consumables used in the
manufacture of semiconductor silicon wafers. As a result of the July 1, 1997
acquisition of substantially all of the assets and operating liabilities of P.R.
Hoffman, the Company is obligated to make additional payments to the former
owner of P.R. Hoffman equal to 50% of pretax income of the P. R. Hoffman
operation in excess of $800,000 per year for a period of 5 years ending
September 30, 2002, limited to a maximum aggregate amount of $2 million of such
payments. Those payments are payable in cash or the Company's common stock, at
the Company's option, with a minimum of thirty-five percent (35%) of such
payments being either cash or registered shares. No contingent consideration was
earned in fiscal 2002. Contingent consideration of $120,000 and $313,000 was
earned in fiscal 2001 and 2000, respectively. This additional consideration was
treated as part of the purchase price.
As a part of the transaction, the Company subleases a 21,740 square foot
building, located in Carlisle, Pennsylvania, from John R. Krieger, the Company's
Director of Corporate Development and former owner of the P. R. Hoffman
operation. The lease requires monthly payments of $10,810 on a triple net basis,
expires on June 30, 2004 and includes an option to renew the lease for five
successive one-year terms. Monthly lease payments increase to $10,860 on July 1,
2003. The Company also entered into an employment agreement with Mr. Krieger,
which required payments of $150,000 per year and expired on June 30, 2001.
(4) LINE OF CREDIT:
In June 2001, the Company was granted a line of credit in the amount of
Euro 283,613, approximately $249,610 as of September 30, 2002, at an interest
rate of 1.75% over a Netherlands bank's basic interest rate, which was 4.0% as
of September 30, 2002. The line of credit declines by Euro 5,672 per quarter
until it reaches Euro 113,445 on January 1, 2009 and is secured by a lien of
approximately $110,938 on the Company's land and buildings in The Netherlands
and certain accounts receivable, which amounted to approximately $1,167,752 as
of September 30, 2002. As of September 30, 2002 and 2001, there were no
borrowings on this line of credit.
(5) LONG-TERM OBLIGATIONS:
Long-term debt included in long-term obligations includes a fifteen-year
mortgage secured by the Company's land and building located in The Netherlands.
The principal amount of the mortgage was $161,000 and $149,000 as of September
30, 2002 and 2001, respectively. As of September 30, 2002, the collateral has a
carrying value of $440,000. No principal payments are due until June 30, 2016,
when the loan matures. Interest is paid monthly at a variable rate of 1.25% over
a Netherlands bank's basic rate, which was 4.0% as of September 30, 2002. There
is no penalty for prepayment of the loan.
Long-term obligations also include pension liabilities related to the
pension plan for P.R. Hoffman hourly employees in the amount of $98,000 and
$97,000 at September 30, 2002 and 2001, respectively.
(6) STOCKHOLDERS' EQUITY:
On September 8, 2000, the Company issued 383,000 shares of common stock and
warrants to purchase an aggregate amount of up to 59,300 shares of common stock,
40
pursuant to a Stock and Warrant Purchase Agreement and related commitments. One
share and one warrant for one-tenth of a share were sold at a combined price of
$13.75. An additional 21,000 warrants were issued to the placement agents. The
warrants are exercisable at a price per share of $15.12 and expire on September
8, 2005. The Company has registered the resale of the shares issued in the
transaction, including those issuable upon exercise of the warrants. Gross
proceeds in the transaction were $5,266,000. Net proceeds to the company were
approximately $4,616,000.
The Company's stockholder rights plan authorizes the distribution of one
right for each outstanding common share to purchase one one-hundredth of a share
of Series A Participating Preferred Stock, at a purchase price of $8.50, subject
to certain antidilution adjustments. The rights will expire 10 years after
issuance and will be exercisable if (a) a person or group becomes the beneficial
owner of 15% or more of the Company's common stock or (b) a person or group
commences a tender or exchange offer that would result in the offeror
beneficially owning 15% or more of the common stock (a "Stock Acquisition
Date"). If a Stock Acquisition Date occurs, each right, unless redeemed by the
Company at $.01 per right, entitles the holder to purchase an amount of common
stock of the Company, or in certain circumstances a combination of securities
and/or assets or the common stock of the acquirer, having an equivalent market
value of $17.00 per right at a purchase price of $8.50. Rights held by the
acquiring person or group will become void and will not be exercisable.
In fiscal 2001, 67,050 warrants were exercised. These are related to
warrants issued in the fiscal 1997 acquisition of substantially all of the
assets and operating liabilities of P.R. Hoffman.
(7) COMMITMENTS AND CONTINGENCIES:
Key suppliers include two steel mills, one domestic and one German, capable
of meeting the material specification the Company requires. As of September 30,
2002, the Company had unconditional commitments to purchase $.5 million of
steel, with delivery dates to be determined in the future. Due to minimum order
quantities for this steel and long lead times, the Company has made purchase
commitments that may be in excess of future production requirements, and it
could take several years to use all of the steel commitments in production of
the Company's products. These purchase commitments are not expected to result in
any significant losses.
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contributions to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products, Inc. in an asset
transaction consummated on July 1, 1997. (See Note 3.) The landfill was closed
and has not been used by P.R. Hoffman since sometime prior to completion of the
Company's acquisition. Therefore, the Company believes that the named company is
the prior owner of the acquired assets. Under the terms of the Asset Purchase
Agreement governing the acquisition, the prior owner, P.R. Hoffman Machine
Products, Inc. is obligated to indemnify the Company for any breaches of P.R.
Hoffman's representations and warranties in the Asset Purchase Agreement,
including representations relating to environmental matters. In accordance with
the terms of the Asset Purchase Agreement, the Company has provided notice to
the prior owner of P.R. Hoffman Machine Products, Inc. of the Company's intent
to seek indemnification from such owner for any liabilities resulting from this
legal action. Based on information available to the Company as of the date of
this report, management believes the Company's costs, if any, to resolve this
matter will not be material to its results of operations or financial position.
41
(8) MAJOR CUSTOMERS AND FOREIGN SALES:
In fiscal 2002 and 2000, no customer accounted for 10% or more of net revenues.
The Company had one customer that represented 14% of sales for the fiscal year
ended September 30, 2001.
The Company's shipments were to customers in the following geographic
regions:
Year Ended September 30,
------------------------
2002 2001 2000
----- ----- -----
North America 47% 55% 61%
Asia (Korea, People's Republic of China, Taiwan, Japan,
Singapore, Indonesia, Malaysia, Australia and India) 20 8 19
Europe (including 1% or less to Israel and Africa) 33 37 20
----- ----- -----
100% 100% 100%
===== ===== =====
(9) BUSINESS SEGMENT INFORMATION:
The Company classifies its products into two core business segments. The
semiconductor equipment segment designs, manufactures and markets semiconductor
wafer processing and handling equipment used in the fabrication of integrated
circuits. Also aggregated in the semiconductor equipment segment are the
manufacturing support service business and any difference between the planned
corporate expenses, which are allocated to the segments based upon their revenue
and the Company's investment in each, and actual corporate expenses. The
polishing supplies segment designs, manufactures and markets carriers, templates
and equipment used in the lapping and polishing of wafer thin materials,
including silicon wafers used in the production of semiconductors. Information
concerning the Company's business segments is as follows:
Year Ended September 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
NET REVENUES:
Semiconductor equipment $ 15,410,513 $ 15,445,469 $ 10,859,625
Polishing supplies 5,122,255 7,406,451 8,167,821
------------ ------------ ------------
$ 20,532,768 $ 22,851,920 $ 19,027,446
============ ============ ============
OPERATING INCOME (LOSS):
Semiconductor equipment $ 196,509 $ 930,915 $ 985,157
Polishing supplies (119,377) 645,657 997,123
------------ ------------ ------------
Total operating income 77,132 1,576,572 1,982,280
Interest income, net 91,039 246,720 93,141
------------ ------------ ------------
Income before income taxes and cumulative
effect of change in accounting principle $ 168,171 $ 1,823,292 $ 2,075,421
============ ============ ============
CAPITAL EXPENDITURES:
Semiconductor equipment $ 464,322 $ 664,733 $ 206,740
Polishing supplies -- -- 115,552
------------ ------------ ------------
$ 464,322 $ 664,733 $ 322,292
============ ============ ============
DEPRECIATION AND AMORTIZATION EXPENSE:
Semiconductor equipment $ 286,696 $ 218,903 $ 176,526
Polishing supplies 160,625 157,405 117,596
------------ ------------ ------------
$ 447,321 $ 376,308 $ 294,122
============ ============ ============
42
September 30,
----------------------------
2002 2001
------------ ------------
IDENTIFIABLE ASSETS:
- --------------------
Semiconductor equipment $ 15,030,365 $ 15,682,289
Polishing supplies 2,817,735 2,888,281
------------ ------------
$ 17,848,100 $ 18,570,570
============ ============
The Company has manufacturing operations in the United States and The
Netherlands. Revenues, operating income (loss) and identifiable assets by
geographic region of the locations are as follows:
Year Ended September 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
NET REVENUES:
United States $ 9,948,296 $ 11,148,373 $ 13,923,506
The Netherlands 10,584,472 11,703,547 5,103,940
------------ ------------ ------------
$ 20,532,768 $ 22,851,920 $ 19,027,446
============ ============ ============
OPERATING INCOME (LOSS):
United States $ (756,023) $ (76,979) $ 1,474,950
The Netherlands 833,155 1,653,551 507,330
------------ ------------ ------------
$ 77,132 $ 1,576,572 $ 1,982,280
============ ============ ============
IDENTIFIABLE ASSETS:
United States $ 13,400,689 $ 13,654,635
The Netherlands 4,447,411 4,915,935
------------ ------------
$ 17,848,100 $ 18,570,570
============ ============
(10) LEASES:
The Company leases buildings, vehicles and equipment. As of September 30,
2002, minimum rental commitments under noncancellable operating leases total
$447,000, of which $264,000, $138,000 and $45,000 are payable in fiscal years
2003, 2004 and 2005, respectively.
Rental expense for 2002, 2001 and 2000 was approximately $308,000, $277,000
and $220,000, respectively.
43
(11) PROPRIETARY PRODUCT RIGHTS:
Through the acquisition of the net assets of P. R. Hoffman (see Note 3),
the Company acquired the license for the design of its steel carriers with
plastic inserts for abrasive machining of silicon wafers. In 1995, P. R. Hoffman
Machine Products, Inc. licensed the patent rights from the patent holder.
Royalty expense for all licenses included in cost of product sales totaled
approximately $66,000, $74,000 and $108,000 in 2002, 2001 and 2000,
respectively.
(12) INCOME TAXES:
The provision for (benefit from) income taxes consists of:
Year Ended September 30,
---------------------------------------------
2002 2001 2000
----------- ----------- -----------
CURRENT:
Domestic federal $ (439,000) $ 494,000 $ 705,000
Foreign 117,000 606,000 125,000
Domestic state (21,000) 108,000 76,000
----------- ----------- -----------
(343,000) 1,208,000 906,000
----------- ----------- -----------
DEFERRED:
Domestic federal 210,000 (275,000) (89,000)
Foreign 175,000 (187,000) 3,000
Domestic state 8,000 (76,000) (70,000)
----------- ----------- -----------
393,000 (538,000) (156,000)
----------- ----------- -----------
Income tax provision $ 50,000 $ 670,000 $ 750,000
=========== =========== ===========
The provision for income taxes before the cumulative effect of a change in
accounting principle is different from the amount that would be computed by
applying the United States corporate income tax rate to the income from
operations before income taxes. The differences are summarized as follows:
Year Ended September 30,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Provision at the federal rate $ 57,000 $ 620,000 $ 706,000
Effect of expenses not deductible for tax 22,000 13,000 32,000
State tax provision (29,000) 32,000 105,000
Change in valuation allowance -- -- (93,000)
Other items -- 5,000 --
--------- --------- ---------
Income tax provision $ 50,000 $ 670,000 $ 750,000
========= ========= =========
The tax assets (liabilities) comprising the net deferred tax asset are as
follows:
September 30,
--------------------------
2002 2001
----------- -----------
Allowance for doubtful accounts $ 57,000 $ 263,000
Uniform capitalization of inventory costs 100,000 102,000
Inventory write-downs not currently deductible 387,000 202,000
State net operating losses 45,000 --
Book vs. tax depreciation 8,000 (18,000)
Unrealized currency losses (gains) (2,000) 2,000
Deferred profit 267,000 603,000
Liabilities not currently deductible 270,000 371,000
----------- -----------
Deferred income taxes $ 1,132,000 $ 1,525,000
=========== ===========
44
The Company has $640,000 Arizona state net operating loss carryforwards at
September 30, 2002 that expire in 2007. The Company believes that it is more
likely than not that all deferred tax assets will be realized.
(13) EARNINGS PER SHARE:
EPS are calculated as follows:
2002 2001 2000
----------- ----------- -----------
Net income $ 118,171 $ 463,081 $ 1,325,421
Amortization of contingent consideration (Note 3) -- -- (17,155)
----------- ----------- -----------
$ 118,171 $ 463,081 $ 1,308,266
=========== =========== ===========
Weighted average shares outstanding:
Common stock 2,683,030 2,661,001 2,158,562
Common stock equivalents issuable upon exercise
of warrants and stock options (1) 82,523 160,582 144,053
Estimated common shares issuable as contingent
consideration (Note 3) -- -- 33,882
----------- ----------- -----------
Diluted shares 2,765,553 2,821,583 2,336,497
=========== =========== ===========
Earnings Per Share:
Basic $ .04 $ .17 $ .61
Diluted $ .04 $ .16 $ .56
- ----------
(1) Number of common stock equivalents calculated using the treasury stock
method and the average market price during the period. Options and warrants
on 234,700 shares, 45,700 shares and 143,300 shares had an exercise price
greater than the average market price during the years ended September 30,
2002, 2001 and 2000, respectively, and therefore did not enter into the EPS
calculation.
(14) STOCK-BASED COMPENSATION:
STOCK WARRANTS - In connection with the acquisition of the net assets of
P.R. Hoffman Machine Products, Inc. during fiscal 1997, the Company issued
75,000 warrants to purchase one share each of $.01 par value common stock at a
per share exercise price of $6.00. These warrants expired July 1, 2002 and were
valued at $167,000 using the Black-Scholes valuation method. The primary
assumptions used in the valuation of these warrants were a risk free interest
rate of 6.29%, expected dividend yield of 0%, average holding period of 2.5
years, and 69% volatility. The value of these warrants has been included in the
acquisition cost associated with the purchase of the P. R. Hoffman net assets
(see Note 3).
On September 8, 2000 the Company issued 59,300 warrants to purchase one
share each of $.01 par value common stock in connection with the issuance of
383,000 shares of common stock. The warrants are exercisable at a price per
share of $15.12 and expire on September 8, 2005.
STOCK OPTION PLANS - The board of directors has reserved 10,000 shares of
common stock for issuance upon exercise of the outstanding options granted to
directors under Director Stock Purchase Agreements prior to 1996. The
Non-Employee Directors Stock Option Plan was approved by the stockholders in
1996 for the issuance of up to 100,000 shares of common stock to directors. The
Amended and Restated 1995 Stock Option Plan and the 1995 Stock Bonus Plan were
also approved by stockholders in 1996 under which a combined total of 160,000
shares were authorized. The 1998 Employee Stock Option Plan, under which 50,000
45
shares could be granted, was adopted by the board of directors on January 31,
1998 and approved by shareholders on March 20, 1998. On October 13, 2000, the
Board of Directors authorized an increase in the number of options available
under the 1998 Employee Stock Option Plan to 300,000. The amendment was approved
by the shareholders at the annual meeting on March 15, 2001. All of the plans
expire in 2006. Qualified stock options issued under the terms of the plans have
or will have an exercise price equal to or greater than the fair market value of
the common stock at the date of the option grant and expire no later than 10
years from the date of grant, with the most recent grant expiring July 19, 2012.
Under the terms of the 1995 Stock Option Plan, nonqualified stock options may
also be issued. Options issued in fiscal years 2002, 2001 and 2000 vest at the
rate of 20% - 33% per year. As of September 30, 2002, the Company had 209,258
options available for issuance under the plans. The stock option transactions
and the options outstanding are summarized as follows:
Year Ended September 30,
---------------------------------------------------------------------
2002 2001 2000
------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- ------ -------- ------ -------- ------
Outstanding at beginning of year 386,617 $ 4.56 163,017 $ 1.74 227,292 $ 1.17
Granted 60,000 5.64 258,750 5.88 25,000 4.75
Exercised (8,800) 1.28 (9,950) 1.32 (89,275) 1.14
Terminated (3,250) 5.10 (25,200) 1.13 -- --
-------- -------- --------
Outstanding at end of year 434,567 4.78 386,617 4.56 163,017 1.74
======== ======== ========
Exercisable at end of year 147,568 $ 3.20 60,049 $ 1.58 59,544 $ 1.16
Weighted average fair value of
options granted $ 3.27 $ 4.64 $ 3.08
No compensation expense has been recognized, as all options have been
granted with an exercise price equal to the fair value of the common stock upon
date of grant. No adjustment has been made for the non-transferability of the
options or for the risk of forfeiture at the time of issuance. Forfeitures are
instead recorded as incurred. The fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
Year Ended September 30,
---------------------------------------------------
2002 2001 2000
-------------- --------------- --------------
Risk free interest rate 4.6% to 5.3% 4.5% to 5.5% 6.1% to 6.7%
Expected life 4 to 6 years 4 to 6 years 4 to 6 years
Dividend rate 0% 0% 0%
Expected volatility 61% 92.0% to 110.3% 64.6% to 76.0%
Had the effects of stock-based compensation been accounted for in the
financial statements using the Black-Scholes option pricing method, the net
income and the basic and diluted earnings per share would have been
approximately as follows:
46
Year Ended September 30,
-----------------------------------------
2002 2001 2000
---------- ---------- -----------
Net Income:
As reported........................ $ 118,171 $ 463,081 $ 1,325,421
Pro forma.......................... (78,000) 290,000 1,240,000
Basic Earnings per share:
As reported........................ $ .04 $ .17 $ .61
Pro forma.......................... (.03) .11 .57
Diluted Earnings per share:
As reported........................ $ .04 $ .16 $ .56
Pro forma.......................... (.03) .10 .52
The following table summarizes information about stock options outstanding at
September 30, 2002:
Options Outstanding Options Exercisable
- ---------------------------------------------------- -------------------------
Number Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Exercise September 30, Contractual Exercise September 30, Exercise
Price 2002 Life Price 2002 Price
----- -------- ---- ----- -------- -----
$1.13 - 1.49 75,767 4.43 $1.13 70,767 $1.13
1.50 - 1.99 19,500 6.41 1.50 12,500 1.50
2.00 - 3.24 2,300 7.00 2.00 200 2.00
3.25 - 4.24 5,000 7.63 3.25 2,000 3.25
4.25 - 5.49 95,000 8.86 4.42 14,500 4.41
5.50 - 6.49 48,000 8.41 5.83 11,601 5.84
6.50 - 6.99 189,000 8.55 6.56 36,000 6.55
-------- --------
434,567 147,568
======== ========
(15) SELECTED QUARTERLY DATA (UNAUDITED):
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
FISCAL YEAR 2002:
Revenue $ 5,456,916 $ 5,577,314 $ 4,446,385 $ 5,052,153
Gross margin $ 1,319,483 $ 1,359,671 $ 1,267,114 $ 870,591
Net income (loss) $ 166,862 $ (38,607) $ 134,441 $ (144,525)
Net income (loss) per share:
Basic $ .06 $ (.01) $ .05 $ (.05)
Diluted $ .06 $ (.01) $ .05 $ (.05)
FISCAL YEAR 2001:
Revenue $ 3,602,650 $ 6,802,822 $ 8,022,911 $ 4,423,537
Gross margin $ 1,154,845 $ 2,469,904 $ 2,121,635 $ 1,131,276
Net income (loss) $ (717,094) $ 685,305 $ 478,765 $ 16,105
Net income (loss) per share:
Basic $ (.26) $ .26 $ .18 $ .01
Diluted $ (.26) $ .25 $ .17 $ .00
47
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 and 2000
For the Year Balance at Charged
Ended Beginning (credited) Balance at
September 30, of Year to Expense Write-offs End of Year
------------- ---------- ---------- ---------- -----------
1. ALLOWANCE FOR
DOUBTFUL ACCOUNTS
2002 $ 630,000 $ 372,058 $ 850,058 $ 152,000
2001 149,000 496,548 15,548 630,000
2000 140,000 11,579 2,579 149,000
2. DEFERRED TAX
VALUATION ALLOWANCE
2002 $ -- $ -- $ -- $ --
2001 -- -- -- --
2000 93,000 (93,000) -- --
3. RESERVE FOR
OBSOLETE INVENTORY
2002 $ 515,363 $ 528,153 $ 36,686 $1,006,830
2001 370,125 336,806 191,568 515,363
2000 301,439 74,239 5,553 370,125
48
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported in the Company's Current Report on Form 8-K filed on
July 11, 2002, on July 3, 2002 the Company dismissed its independent auditor,
Arthur Andersen LLP ("Arthur Andersen") and appointed KPMG LLP ("KPMG") as its
new independent auditor, effective immediately. These actions were approved by
the Company's Board of Directors upon the recommendation of its Audit Committee.
KPMG audited the consolidated financial statements of the Company for the fiscal
year ending September 30, 2002.
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from Amtech's proxy statement to be filed with the SEC in
connection with the 2003 Annual Meeting of Stockholders.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the information contained under the heading "Information Concerning Directors
and Executive Officers" as set forth in the Company's definitive proxy statement
for its 2003 Annual Meeting of Stockholders.
ITEM 11: EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the information contained under the heading "Executive Compensation" as set
forth in the Company's definitive proxy statement for its 2003 Annual Meeting of
Stockholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" as set forth in the Company's definitive proxy
statement for its 2003 Annual Meeting of Stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the information contained under the heading "Executive Compensation" as set
forth in the Company's definitive proxy statement for its 2003 Annual Meeting of
Stockholders.
ITEM 14: CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, Amtech carried out an
evaluation, under the supervision and with the participation of Amtech's
management, including Amtech's President and Chief Executive Officer along with
Amtech's Chief Financial Officer, of the effectiveness of the design and
operation of Amtech's disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14. Based upon that evaluation, Amtech's President and Chief
Executive Officer along with Amtech's Chief Financial Officer concluded that
Amtech's disclosure controls and procedures are effective in timely alerting
them to material information relating to Amtech (including its consolidated
subsidiaries) required to be included in Amtech's periodic SEC filings. There
have been no significant changes in Amtech's internal controls or in other
factors that would significantly affect internal controls subsequent to the date
Amtech carried out its evaluation.
49
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The consolidated financial statements required by this item are set
forth on the pages indicated at Item 8.
(2) Financial Statement Schedule for the years ended September 30, 2002,
2001 and 2000:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
(3) Exhibits:
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form 10-K.
(b) Amtech did not file a report on Form 8-K during its fourth fiscal
quarter of 2002.
EXHIBIT METHOD
NO. DESCRIPTION OF FILING
--- ----------- ---------
3.1 Articles of Incorporation A
3.2 Articles of Amendment to Articles of Incorporation, dated April 27, 1983 A
3.3 Articles of Amendment to Articles of Incorporation, dated May 19, 1987 B
3.4 Articles of Amendment to Articles of Incorporation, dated May 2, 1988 C
3.5 Articles of Amendment to Articles of Incorporation, dated May 28, 1993 F
3.6 Articles of Amendment to Articles of Incorporation, dated March 14, 1999 O
3.7 Amended and Restated Bylaws D
4.1 Rights Agreement dated May 17, 1999 M
10.1 Amended and Restated 1995 Stock Option Plan H
10.2 Non-Employee Director Stock Option Plan I
10.3 Employment Agreement with Robert T. Hass, dated May 19, 1992 E
10.4 Registration Rights Agreement with J.S. Whang, dated January 24, 1994 F
10.5 Asset Purchase Agreement, dated July 1, 1997, among the Registrant, P.R. Hoffman
Machines Corporation and John R. Krieger J
10.6 1998 Employee Stock Option Plan L
10.7 Sublease Agreement, dated July 1, 1999, between the Registrant and John R. Krieger Q
10.8 Warrant to Purchase Common Stock, dated September 8, 2000 P
10.9 Stock and Warrant Purchase Agreement, dated September 8, 2000 P
10.10 Employment Agreement, dated March 15, 2001, between the Registrant and Jong S. Whang R
21 Subsidiaries of the Registrant N
23 Independent Auditors' Consent *
24 Powers of Attorney See
Signature
Page
99.1 Certification of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.1
99.2 Certification of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.2
- ----------
* Filed herewith.
50
A Incorporated by reference to Amtech's Form S-18 Registration Statement No.
2-83934-LA.
B Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1987.
C Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1988.
D Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991.
E Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
F Incorporated by reference to Amtech's Form S-1 Registration Statement No.
33-77368.
G Incorporated by reference to Amtech's Form S-8 Registration Statement
relating to the Amended and Restated 1995 Stock Option Plan and the 1995
Stock Bonus Plan filed with the Securities and Exchange Commission on
September 9, 1997.
H Incorporated by reference to Amtech's Form S-8 Registration Statement
relating to the Non-Employee Directors Stock Option Plan filed with the
Securities and Exchange Commission on August 8, 1996.
I Incorporated by reference to Amtech's Current Report on Form 8-K dated July
1, 1997.
J Incorporated by reference to Amtech's Proxy Statement for shareholders
meeting held on March 20, 1998.
K Incorporated by reference to Amtech's Current Report on Form 8-K, dated May
17,1999.
L Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997.
M Incorporated by reference to Amtech's Proxy Statement for the annual
shareholders meeting held on February 26, 1999.
N Incorporated by reference to Amtech's Current Report on Form 8-K dated
September 22, 2000.
O Incorporated by reference to Amtech's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999.
P Incorporated by reference to Amtech's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMTECH SYSTEMS, INC.
December 30, 2002 By: /s/ Jong S. Whang
------------------------------------
Jong S. Whang, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JONG S. WHANG and ROBERT T. HASS, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he might or could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jong S. Whang Chairman of the Board, President
- --------------------- (Principal Executive Officer) December 30, 2002
Jong S. Whang
/s/ Robert T. Hass Vice President-Finance and Director December 30, 2002
- --------------------- (Chief Financial & Accounting
Robert T. Hass Officer)
/s/ Alvin Katz Director December 30, 2002
- ---------------------
Alvin Katz
/s/ Bruce R. Thaw Director December 30, 2002
- ---------------------
Bruce R. Thaw
52
CERTIFICATIONS
I, Jong S. Whang, certify that:
1. I have reviewed this annual report on Form 10-K of Amtech Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
December 30, 2002 By: /s/ Jong S. Whang
----------------------------------------
Jong S. Whang, President
CERTIFICATIONS
I, Robert T. Hass, certify that:
1. I have reviewed this annual report on Form 10-K of Amtech Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
December 30, 2002 By: /s/ Robert T. Hass
----------------------------------------
Robert T. Hass, Vice President - Finance