UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2003
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
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Shares of Common Stock outstanding as of May 9, 2003: 2,695,321
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Unaudited Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2003 and September 30, 2002......................... 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended March 31, 2003 and 2002............ 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2003 and 2002...................... 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Caution Regarding Forward-Looking Statements.................... 14
Documents to Review In Connection With Management's
Analysis of Financial Condition and Results of Operations..... 14
Results of Operations........................................... 14
Liquidity and Capital Resources................................. 19
Critical Accounting Policies.................................... 19
New Accounting Pronouncements................................... 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 23
Item 4. Controls and Procedures......................................... 24
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings .............................................. 25
Item 4. Submission of Matters to a Vote of Security Holders............. 25
Item 6. Exhibits and Reports on Form 8-K................................ 25
SIGNATURE.................................................................... 26
SARBABES-OXLEY ACT SECTION 302(A) CERTIFICATIONS............................. 27
EXHIBIT INDEX................................................................ 29
EXHIBIT 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002..... 30
EXHIBIT 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002..... 31
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2003 2002
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,089,569 $ 8,045,663
Accounts receivable - net 3,093,087 2,695,323
Inventories 3,074,514 3,020,890
Deferred income taxes 1,076,000 1,044,000
Prepaid expenses 159,779 82,291
Income taxes receivable 551,000 --
------------ ------------
Total current assets 15,043,949 14,888,167
PROPERTY, PLANT AND EQUIPMENT - net 1,541,494 1,642,084
DEFERRED INCOME TAXES -- 88,000
GOODWILL AND OTHER ASSETS - net 770,477 774,849
------------ ------------
TOTAL ASSETS $ 17,355,920 $ 17,393,100
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 784,516 $ 891,640
Accrued compensation and related taxes 645,867 653,045
Accrued warranty expense 260,891 262,573
Deferred profit 627,775 479,964
Customer deposits 161,680 91,417
Income taxes payable -- 37,000
Other accrued liabilities 219,298 306,601
------------ ------------
Total current liabilities 2,700,027 2,722,240
------------ ------------
DEFERRED PROFIT - LONG TERM -- 199,966
LONG-TERM OBLIGATIONS 533,944 259,217
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
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;
2,689,571 and 2,688,571 shares issued and outstanding
as of March 31, 2003 and September 30, 2002, respectively 26,896 26,886
Additional paid-in capital 12,860,831 12,859,715
Accumulated other comprehensive income (loss) -
Cumulative foreign currency translation adjustment 113,839 (179,639)
Retained earnings 1,120,383 1,504,715
------------ ------------
Total stockholders' equity 14,121,949 14,211,677
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,355,920 $ 17,393,100
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 31, 2003 and 2002
(Unaudited)
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net revenues $ 5,447,628 $ 5,577,314 $ 9,776,825 $11,034,230
Cost of sales 4,513,791 4,217,643 7,951,086 8,355,076
----------- ----------- ----------- -----------
Gross margin 933,837 1,359,671 1,825,739 2,679,154
Selling, general and administrative 1,239,154 1,370,612 2,266,850 2,387,115
Research and development 103,637 59,453 161,371 149,384
----------- ----------- ----------- -----------
Operating income (loss) (408,954) (70,394) (602,482) 142,655
Interest income - net 1,190 20,787 15,150 55,600
----------- ----------- ----------- -----------
Income (loss) before income taxes (407,764) (49,607) (587,332) 198,255
Income tax provision (benefit) (140,000) (11,000) (203,000) 70,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (267,764) $ (38,607) $ (384,332) $ 128,255
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share $ (.10) $ (.01) $ (.14) $ .05
Weighted average shares outstanding 2,689,571 2,681,533 2,689,285 2,681,214
Diluted earnings (loss) per share $ (.10) $ (.01) $ (.14) $ .05
Weighted average shares outstanding 2,689,571 2,681,533 2,689,285 2,789,185
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ (384,332) $ 128,255
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 266,110 215,338
Provision for doubtful accounts 2,822 18,058
Deferred income taxes 56,000 --
Decrease (increase) in:
Accounts receivable (218,499) 414,657
Inventories 89,193 606,925
Prepaid expenses and other assets (76,687) (38,525)
Increase (decrease) in:
Accounts payable (154,432) 214,227
Accrued liabilities and customer deposits (94,051) (298,506)
Deferred profit (96,426) (547,811)
Income taxes payable (receivable) (595,115) (88,198)
----------- -----------
Net Cash Provided By (Used In) Operating Activities (1,205,417) 624,420
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (83,944) (201,238)
----------- -----------
Net Cash Used In Investing Activities (83,944) (201,238)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from warrant and stock option exercises 1,126 3,283
Borrowing on mortgage loan 244,969 --
----------- -----------
Net Cash Provided By Financing Activities 246,095 3,283
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 87,172 43,689
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (956,094) 470,154
Beginning of period 8,045,663 5,998,120
----------- -----------
END OF PERIOD CASH AND CASH EQUIVALENTS $ 7,089,569 $ 6,468,274
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 21,675 $ 5,278
Income taxes paid $ 329,000 $ 158,198
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries, Tempress
Systems, Inc., based in Heerde, The Netherlands, and P. R. Hoffman Machine
Products, Inc. (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"), and are unaudited. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the SEC. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2002.
The consolidated results of operations for the six months ended March 31, 2003,
are not necessarily indicative of the results expected for the full year.
2. STOCK-BASED COMPENSATION:
The company has five stock-based employee compensation plans, which are
summarized in the table below. Amtech accounts for these plans using the
intrinsic value method and in accordance with the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issues to Employees" and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The Company's stock-based employee compensation plans are as follows:
Shares
Name of Plan Authorized Plan Expiration
- ------------ ---------- ---------------
Director Stock Purchase Agreements (pre-1996) 10,000 90 days after board
member termination
Non-Employee Directors Stock Option Plan 100,000 December 21, 2005
Amended and Restated 1995 Stock Option and
1995 Stock Bonus Plan (one plan) 160,000 October 5, 2005
1998 Employee Stock Option Plan 300,000 January 30, 2008
6
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 in 2013. Options issued in
fiscal years 2003, 2002 and 2001 vest at the rate of 20% - 33% per year. As of
March 31, 2003 and 2002, the Company had 199,258 and 235,908 stock options,
respectively, available for grant under the plans.
The stock option transactions and the options outstanding are summarized as
follows:
Six Months Ended March 31,
----------------------------------------
2003 2002
------------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
Outstanding at beginning of period 434,567 $ 4.78 386,617 $ 4.56
Granted 10,000 3.03 30,000 6.23
Exercised 1,000 1.13 2,450 1.34
-------- --------
Outstanding at end of period 443,567 4.74 414,167 4.70
======== ========
Exercisable at end of period 203,701 $ 3.94 138,318 $ 3.04
Weighted average fair value of
options granted during the period $ .99 $ 3.81
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:
Six Months Ended March 31,
--------------------------
2003 2002
---- ----
Risk free interest rate 4.8% 4.9% to 5.3%
Expected life 4 years 4 to 6 years
Dividend rate 0% 0%
Expected volatility 32% 61%
7
The following table illustrates the effect on net income (loss) and earnings
(loss) per share if the company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation"
to stock-based employee compensation:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss), as reported $ (268,764) $ (38,607) $ (384,332) $ 128,255
Less pro forma compensation
expense, net of tax (51,588) (55,513) (102,817) (109,298)
----------- ----------- ----------- -----------
Pro forma net income (loss) $ (319,352) $ (94,120) $ (487,149) $ 18,957
=========== =========== =========== ===========
Earnings (loss) per share:
Basic - as reported $ (.10) $ (.01) $ (.14) $ .05
Basic - pro forma $ (.12) $ (.04) $ (.18) $ .01
Diluted - as reported $ (.10) $ (.01) $ (.14) $ .05
Diluted - pro forma $ (.12) $ (.04) $ (.18) $ .01
The following table summarizes information about stock options outstanding at
March 31, 2003:
Outstanding Stock Options Exercisable Options
------------------------------------- ----------------------
Weighted Weighted
Number Average Number Average
Outstanding Remaining -------- Exercisable --------
Exercise at March 31, Contractual Exercise at March 31, Exercise
Price 2003 Life Price 2003 Price
----- ---- ---- ----- ---- -----
$1.13 - 1.49 74,767 3.91 $ 1.13 72,767 $ 1.13
1.50 - 1.99 19,500 5.91 1.50 16,000 1.50
2.00 - 3.24 12,300 9.28 2.83 900 2.00
3.25 - 4.24 5,000 7.13 3.25 2,000 3.25
4.25 - 5.49 95,000 8.36 4.42 14,500 4.41
5.50 - 6.49 48,000 7.91 5.83 21,533 5.83
6.50 - 6.99 189,000 8.06 6.56 76,001 6.57
------- -------
443,567 203,701
======= =======
3. DEFERRED PROFIT
The components of deferred profit are as follows:
March 31, 2003 September 30, 2002
------------------------------------ ------------------------------------
Deferred Deferred Deferred Deferred Deferred Deferred
Revenue Costs Profit Revenue Costs Profit
---------- ---------- ---------- ---------- ---------- ----------
Systems awaiting
Installation $ 627,775 -- $ 627,775 $ 992,600 $ 762,285 $ 230,315
Systems awaiting
final acceptance -- -- -- 449,615 -- 449,615
---------- ---------- ---------- ---------- ---------- ----------
Total $ 627,775 -- $ 627,775 $1,442,215 $ 762,285 $ 679,930
========== ========== ========== ========== ========== ==========
8
4. INVENTORIES
The components of inventories are as follows:
March 31, September 30,
2003 2002
---------- ----------
Purchased parts and raw materials $2,075,088 $1,720,728
Work-in-process 537,276 534,057
Finished goods 462,150 766,105
---------- ----------
Totals $3,074,514 $3,020,890
========== ==========
5. COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $(267,764) $ (38,607) $(384,332) $ 128,255
Foreign currency translation
adjustment 136,035 (19,230) 293,478 (91,374)
--------- --------- --------- ---------
Comprehensive income (loss) $(131,729) $ (57,837) $ (90,854) $ 36,881
========= ========= ========= =========
6. EARNINGS (LOSS) PER SHARE
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss) $ (267,764) $ (38,607) $ (384,332) $ 128,255
Weighted average
Shares outstanding:
Common shares 2,689,571 2,681,533 2,689,285 2,681,214
Common equivalents -- -- -- 107,971
----------- ----------- ----------- -----------
2,689,571 2,681,533 2,689,285 2,789,185
=========== =========== =========== ===========
Earnings (Loss) Per Share:
Basic $ (.10) $ (.01) $ (.14) $ .05
Diluted $ (.10) $ (.01) $ (.14) $ .05
9
For the three and six months ended March 31, 2003 and three and six months
ended March 31, 2002, 489,267; 489,267; 481,417 and 60,700 shares,
respectively, were excluded from the earnings (loss) per share calculation.
These options are not classified as common equivalents in the above table
as they are either antidilutive due to the net loss for the period or their
exercise price exceeds the average market price for the period.
7. BUSINESS SEGMENT INFORMATION
The Company classifies its products into two business segments, semiconductor
equipment and polishing supplies. 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:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues
Semiconductor equipment $ 4,123,138 $ 4,403,502 $ 7,239,941 $ 8,788,915
Polishing supplies 1,324,490 1,173,812 2,536,884 2,245,315
------------ ------------ ------------ ------------
$ 5,447,628 $ 5,577,314 $ 9,776,825 $ 11,034,230
============ ============ ============ ============
Operating income (loss)
Semiconductor equipment $ (439,877) $ (53,873) $ (534,090) $ 263,014
Polishing supplies 30,923 (16,521) (68,392) (120,359)
------------ ------------ ------------ ------------
Total operating income (loss) (408,954) (70,394) (602,482) 142,655
Interest income - net 1,190 20,787 15,150 55,600
------------ ------------ ------------ ------------
Income (loss) before income tax $ (407,764) $ (49,607) $ (587,332) $ 198,255
============ ============ ============ ============
8. LEGAL PROCEEDINGS
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of eleven
companies named in a legal action 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 contribution 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. The landfill was closed and has not
been used by P.R. Hoffman since sometime prior to completion of the Company's
10
asset 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 Corporation, is obligated to indemnify the Company 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, the Company has provided notice to the prior
owner of P.R. Hoffman Machine Products Corporation 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 costs, if any, to resolve this matter will
not be material to the Company's business, results of operations or financial
position.
9. 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.
10. NEW ACCOUNTING PRONOUNCEMENTS
On October 1, 2002, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other
Intangible Assets." Under this accounting standard, goodwill and intangible
assets with indefinite lives are no longer subject to amortization but are
tested for impairment at least annually. SFAS No. 142 also requires the
completion of the transitional impairment test of the recorded goodwill as of
the date this accounting standard is adopted. The Company completed the first
step of the transitional impairment test during the quarter ended March 31,
2003, noting no indication of impairment associated with the recorded goodwill
balance of $728,000 as of October 1, 2002.
For comparative purposes, pro forma net income (loss) assuming SFAS No. 142 had
been adopted in fiscal 2002 is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss), as reported $(267,764) $ (38,607) $(384,332) $ 128,255
Amortization expense, net of tax -- 11,433 -- 22,866
--------- --------- --------- ---------
Net income (loss), pro forma $(267,764) $ (27,174) $(384,332) $ 151,121
========= ========= ========= =========
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
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." SFAS No. 144
11
also requires expected future operating losses from discontinued operations to
be recorded in the period(s) in which the losses are incurred, rather than as of
the measurement date as presently required. Effective as of October 1, 2002,
Amtech adopted SFAS No. 144. The adoption of SFAS 144 did not have an effect on
Amtech's financial position or operating results.
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. Effective October 1, 2002, Amtech adopted SFAS No. 146. The
adoption of SFAS No. 146 did not have an effect on Amtech's financial position
or operating results.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" amends SFAS No. 123, "Accounting for Stock - Based Compensation" and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock - based employee compensation. SFAS
No. 148 also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in financial statements about the effects of
stock - based compensation. Effective January 1, 2003, Amtech adopted SFAS No.
148. The adoption of SFAS No. 148 did not have an effect on Amtech's financial
position or operating results.
In November 2002, the EITF reached a consensus on issue 00-21, "Multiple -
Deliverable Revenue Arrangements" (EITF 00-21). EITF 00-21 addresses how to
account for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both which are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes." Amtech does not believe the adoption of EITF 00-21
will have a material impact on its financial position or results of operations.
12
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities obtained after
January 31, 2003. For public enterprises with a variable interest in a variable
interest entity created before February 1, 2003, the Interpretation is applied
to the enterprise no later than the beginning of the first interim or annual
reporting period beginning after June 15, 2003. The Interpretation requires
certain disclosures in financial statements issued after January 31, 2003 if it
is reasonably possible that a Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.
Amtech currently has no contractual relationship or other business relationship
with a variable interest entity and therefore the adoption of this
interpretation did not have a material effect on Amtech's financial position or
operating results.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained or incorporated by reference in this
Quarterly Report on Form 10 Q is forward-looking in nature. All statements
included or incorporated by reference in this Quarterly Report on Form 10 Q 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," "might," "will," "should," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "possible," "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" in
Amtech's Annual Report on Form 10-K for the fiscal year ended September 30,
2002, which is incorporated herein by reference. 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. All references to "we," "our," "us," or "Amtech" refer to Amtech
Systems, Inc. and its subsidiaries.
DOCUMENTS TO REVIEW IN CONNECTION WITH MANAGEMENT'S ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes presented in this Form 10-Q and the
Financial Statements and Notes and the section entitled "Item 7: Management's
Discussion and Analysis - Trends, Risks and Uncertainties" in our last filed
Annual Report on Form 10- K for a more complete understanding of our financial
position and results of operations for the three and six month period ended
March 31, 2003.
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, 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
14
semiconductors or, more specifically, capacity utilization and production volume
of manufacturers of semiconductors, silicon wafers, solar cells and
microelectrical mechanical systems (MEMS), including optical components; and 3)
the profitability and capital resources of potential customers in these
industries. For this and other reasons, Amtech's results of operations for past
periods may not necessarily be indicative of future operating results.
Amtech's orders tend to be more volatile than its revenue as any change in
demand is reflected immediately in the orders booked, which are net of order
cancellations, while revenues tend to be recognized over multiple quarters as a
result of procurement and production lead times and the deferral of certain
revenue under the Company's accounting policy for revenue recognition.
During the third quarter of fiscal 2000 Amtech's orders reached a
historical high. Beginning in the first fiscal quarter of 2001, slowing
worldwide demand for semiconductors resulted in a rapid decline in net demand
for manufacturing equipment. Inventory buildups in telecommunications products,
slower than expected personal computer sales and slow global economic growth for
electronic products caused many semiconductor manufacturers to reevaluate their
capital spending plans and reduce the placement of new orders, while
rescheduling or canceling existing orders. This decline in demand continued
throughout fiscal 2001 and the first half of fiscal 2002, due to continued
weakness in the macro-economic climate. Amtech believes its order backlog and
revenue reached the lowest point of the cycle during the fiscal quarter ended
March 31, 2002.
During the third and fourth quarters of fiscal 2002, the semiconductor
industry recovered modestly and semiconductor wafer manufacturers continued
spending on equipment for producing 300mm wafers, resulting in increased orders,
shipments and backlog as compared to the second quarter of fiscal 2002. New
orders, shipments, revenue and backlog were volatile during this period and are
shown in the table below:
Fiscal Quarter
------------------------------------------------- Fiscal
First Second Third Fourth Year
-------- -------- -------- -------- --------
2003:
New orders (2) $ 2,165 $ 6,477 -- -- --
Shipments 4,359 4,785 -- -- --
Revenue 4,329 5,448 -- -- --
Ending backlog 5,748 6,777 -- -- --
2002:
New orders (2) 2,213 519 6,132 5,626 14,490
Shipments 4,373 3,983 4,189 4,925 17,470
Revenue 5,457 5,577 4,447 5,052 20,533
Ending backlog $ 10,711 $ 5,653 $ 7,338 $ 7,912 --
15
2001
New orders (2) 4,361 7,783 2,750 3,788 18,682
Shipments 6,882 7,025 6,053 3,742 23,702
Revenue 3,603 6,803 8,023 4,423 22,852
Ending backlog 18,883(1) 19,863 14,590 13,955
2000:
New orders (2) 4,254 4,843 14,400 6,270 29,767
Shipments 3,863 4,549 4,693 5,922 19,027
Revenue 3,863 4,549 4,693 5,922 19,027
Ending backlog $ 4,150 $ 4,444 $ 14,151 $ 14,499
(1) 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 amounts for fiscal 2000 were not
restated.
(2) New orders are net of cancellations.
Interest in the Company's products during the second quarter of fiscal 2003
resulted in $6.5 million in new orders. While interest in the company's products
remains, as evidenced by the quotation activity and the number of specification
meetings with customers, future order levels are expected to remain volatile and
on average are not likely to exceed the $6.5 million per quarter level until
there is clear evidence of improvement in the general economy and the
semiconductor industry. However, as a result of the ongoing economic weakness in
the global semiconductor market and geopolitical uncertainties, there can be no
assurance that the Company will be able to maintain order bookings at the level
experienced in the second quarter of fiscal 2003.
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
Three Months Ended Six Months Ended
March 31, March 31,
--------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
Net revenue 100% 100% 100% 100%
Cost of product sales 83 76 81 76
Gross margin 17 24 19 24
Selling, general and
administrative expenses 23 25 23 22
Research and development 2 1 2 1
---- ---- ---- ----
Operating income (loss) (8)% (1)% (6)% 1%
==== ==== ==== ====
Based upon the current order backlog and estimates of future bookings, we expect
revenue for the second half of fiscal 2003 to approximate the first half of the
year. However, based upon customer delivery schedules, we anticipate 40% of that
revenue will be realized in the third quarter and 60% will be realized in the
fourth quarter of fiscal 2003.
16
REVENUES. Amtech's total revenue for the three and six months ended March
31, 2003 was $5.4 and $9.8 million, respectively, compared to $5.6 and $11.0
million, respectively, for the same periods in fiscal 2002. This represented a
decrease from fiscal 2002 to 2003 of 4% and 11%, respectively. Revenues for the
second quarter of fiscal 2003 were $1.1 million, or 26%, higher than for the
first quarter of fiscal 2003. Revenues in the polishing supplies segment
increased by 13% in the second quarter of fiscal 2003 compared to the second
quarter of fiscal 2002 and also in the first six months of fiscal 2003 compared
to the first six months of fiscal 2002. However, these increases in revenue of
the polishing segment were offset by a 6% and 18% respective decrease in the
semiconductor segment when comparing the second quarter of fiscal 2003 to the
second quarter of fiscal 2002 and the first half of fiscal 2003 to the first
half of fiscal 2002. The higher revenue during the first half of fiscal 2002 was
due to the $14.0 million order backlog at the beginning of that fiscal year. We
continue to believe that for the foreseeable future the order backlog will
remain above the $5.7 million level of March 31, 2002.
Based upon the current order backlog and estimates of future bookings, we
expect revenue for the second half of the current fiscal year to approximate the
first half of the year. However, based upon customer delivery schedules, we
anticipate significantly lower revenues in the third quarter, with a rebound in
the fourth quarter.
GROSS MARGINS. Consolidated gross margin for the three and six months ended
March 31, 2003 was $.9 and $1.8 million, compared to $1.3 million and $2.7
million for the same periods in fiscal 2002, representing decreases of $.4
million and $.9 million, or 31% and 33%, respectively. The decline in gross
margins is primarily due to increased pricing pressure in the semiconductor
segment. In the first quarter and six months of fiscal 2003, the gross margin of
the semiconductor equipment segment decreased to 15% and 19% of sales from 25%
and 26% of sales in the first quarter and six months of 2002, respectively. The
gross margin of the polishing supplies segment remained fairly consistent when
comparing fiscal 2002 to 2003, at approximately 24% and 19% of revenue in the
first quarter and six months of fiscal 2003 compared to 22% and 18% in the
comparable periods of fiscal 2002. Amtech's gross margins and their percentage
of revenue have significantly fluctuated in the past and will continue to
fluctuate based on several factors including the severity and duration of the
current industry downturn, product mix and overhead absorption levels. Mix has a
particularly significant affect on gross margin when the equipment revenue of an
order is recognized in one period and the remainder of the revenue attributed to
installation, generally 10-20% of the order, is recognized in a later period,
because the latter has an effective gross margin of 100%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses for the quarter ended March 31, 2003 declined $.2
million, to $1.2 million compared to $1.4 million in the quarter ended March 31,
2002. This reduction was consistent with the $.1 million decrease in selling,
general and administrative expenses for the six months ended March 31, 2002
which were $2.3 million compared to $2.4 million in the six months ended March
31, 2002. The decrease was due to continuing efforts at cost reductions.
Selling, general and administrative expenses as a percentage of revenue
represented 23% for both the three and six months ended March 31, 2003 compared
to 24% and 22%, respectively, for the comparable periods in fiscal 2002.
RESEARCH AND DEVELOPMENT EXPENSES. During the three and six months ended
March 31, 2003 and 2002, research and development expenses were fairly
consistent, at approximately $.1 million each quarter. During the past few
17
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 results of the feasibility work
on the new technology asher with PSK Tech have been encouraging. However,
continued improvements in existing technologies have delayed our customers'
potential requirements for this product and thus further development is also
being delayed.
OPERATING INCOME (LOSS). Operating income or (loss) for the three and six
months of fiscal 2003 was a loss of $.4 million, or (8)% of revenue, and a loss
of $.6 million, or (6)% of revenue, compared to a loss of $70,000, or (1)% of
revenue, and a profit of $.2 million, or 1% of revenue, for the same periods of
fiscal 2002. Operating profit declined in 2003 due primarily to the decline
gross margin in the semiconductor segment.
INCOME TAX PROVISION. During the first quarter and six months of fiscal
2003, Amtech recorded an income tax benefit of $.1 million and $.2 million,
respectively. The effective rate stated as a percentage of loss before income
taxes was 34% and 35%, respectively for these periods. During the first quarter
and six months of fiscal 2002, Amtech recorded an income tax benefit of less
than $.1 million and a provision of less than $.1 million, respectively. The
effective rate stated as a percentage of income or loss before income taxes was
22% and 35%, respectively for these periods in fiscal 2002. Amtech's future
effective income tax rate depends on various factors, such as tax legislation,
the geographic composition of pre-tax income, non-tax deductible expenses and
the effectiveness of its tax planning strategies.
NET INCOME. The net loss for the first three and six months of fiscal 2003
was $.3 million and $.4 million, respectively. The net loss per diluted share
was ($.10) and ($.14), respectively, for these periods. Net income (loss) for
the first three and six months of fiscal 2002 was a loss of less than $.1
million and income of $.1 million, respectively. Net income (loss) per diluted
share was ($.01) and $.05, respectively, for the periods.
BACKLOG. At March 31, 2003, the order backlog was $6.8 million, an increase
of $1.1 million, or 19%, from the $5.7 million backlog at December 31, 2002. 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 deferred revenue. 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 revenue 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.
18
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had $7.1 million of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $8.0 million at September 30, 2002, a decrease of approximately
$.9 million. The Company continues to believe that there is sufficient available
liquidity and capital resources for its existing operations and expansion plans.
CASH FLOW. The $.9 million net decrease in cash during the six months ended
March 31, 2003 approximates the $1.2 million cash flow used in operations. The
$1.2 million cash flow used in operations primarily resulted from the $.4
million net loss, a $.6 million increase in refundable income taxes and a $.2
million increase in accounts receivable. Investing activities consisted of
capital expenditures of less than $.1 million in the aggregate. Financing
activities consisted of $.2 million in additional borrowings on the existing
mortgage loan.
At March 31, 2003, Amtech's principal source of liquidity consisted of $7.1
million of cash and cash equivalents. Since the only lien on the Company's
assets is a $.5 million mortgage loan, management believes that significant
amounts of additional liquidity are 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,
the costs and timing of which have yet to be determined. 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.
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 are believed 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.
19
The SEC suggests that all registrants list their most "critical accounting
policies" in Management's Discussion and Analysis. A critical accounting policy
is one which 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
critical accounting policies discussed below 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 and related costs 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 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 2003, 2002 and 2001, there has been 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. This could
result in an increase in the cost of inventory or an increase in excess
inventory quantities on hand. In general, the Company's ratio of inventories to
operating levels is above, and is expected to remain above, the historic norms
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.
20
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 warranty 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 March 31,
2003, there can be no assurance that we will continue to experience a similar
level of predictability in 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 discounted 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 were to occur 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 2002 or the first six months
of fiscal 2003. 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.
NEW ACCOUNTING PRONOUNCEMENTS
On October 1, 2002, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and
Other Intangible Assets." Under this accounting standard, goodwill and
intangible assets with indefinite lives are no longer subject to amortization
but are tested for impairment at least annually. SFAS No. 142 also requires the
21
completion of the transitional impairment test of the recorded goodwill as of
the date this accounting standard is adopted. The Company completed the first
step of the transitional impairment test during the year ended September 30,
2003, noting no indication of impairment associated with the recorded goodwill
balance of $728,000 as of October 1, 2002.
For comparative purposes, pro forma net income (loss) assuming SFAS No. 142
had been adopted in fiscal 2002 is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss), as reported $(267,764) $ (38,607) $(384,332) $ 128,255
Amortization expense, net of tax -- 11,433 -- 22,866
--------- --------- --------- ---------
Net income (loss), pro forma $(267,764) $ (27,174) $(384,332) $ 151,121
========= ========= ========= =========
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" 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."
SFAS No. 144 also requires expected future operating losses from discontinued
operations to be recorded in the period(s) in which the losses are incurred,
rather than as of the measurement date as presently required. Effective as of
October 1, 2002, Amtech adopted SFAS No. 144. The adoption of SFAS 144 did not
have an effect on Amtech's financial position or operating results.
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. Effective October 1, 2002, Amtech adopted
SFAS No. 146. The adoption of SFAS No. 146 did not have an effect on Amtech's
financial position or operating results.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" amends SFAS No. 123, "Accounting for Stock - Based Compensation" and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock - based employee compensation. SFAS
No. 148 also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in financial statements about the effects of
stock - based compensation. Effective January 1, 2003, Amtech adopted SFAS No.
148. The adoption of SFAS No. 148 did not have an effect on Amtech's financial
position or operating results.
22
In November 2002, the EITF reached a consensus on issue 00-21, "Multiple -
Deliverable Revenue Arrangements" (EITF 00-21). EITF 00-21 addresses how to
account for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both which are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes." Amtech does not believe the adoption of EITF 00-21
will have a material impact on its financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities obtained after
January 31, 2003. For public enterprises with a variable interest in a variable
interest entity created before February 1, 2003, the Interpretation is applied
to the enterprise no later than the beginning of the first interim or annual
reporting period beginning after June 15, 2003. The Interpretation requires
certain disclosures in financial statements issued after January 31, 2003 if it
is reasonably possible that a Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.
Amtech currently has no contractual relationship or other business relationship
with a variable interest entity and therefore the adoption of this
interpretation did not have a material effect on Amtech's financial position or
operating results.
ITEM 3. 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
23
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 March 31, 2003, Amtech did
not hold any stand alone or separate derivative instruments. Amtech incurred a
net foreign currency transaction gain of $.3 million for the first six months of
fiscal 2003 compared to a loss of $.1 million for the same period in fiscal
2002. Amtech's investment in and advances to its Netherlands' operation totals
$3.1 million as of March 31, 2003. A 10% change in the value of the Euro
relative to the United States dollar would cause a $.3 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. Because it is
difficult to 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 March 31, 2003, giving Amtech's
operation based in The Netherlands a competitive disadvantage over other
suppliers based in the United States.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of a date within 90 days of the filing date of
this report, Amtech's principal executive officer and principal financial
officer have concluded that Amtech's disclosure controls and procedures as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the Exchange Act) are effective to ensure that information required to be
disclosed by Amtech in reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
There were no significant changes in Amtech's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation and up to the filing date of this report. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On or about August 31, 2000, a "P.R. Hoffman Machine Products"
was one of 11 companies named in a legal action 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 contribution 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. 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
Corporation, is obligated to indemnify the Company 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, the Company has provided notice to the prior
owner of P.R. Hoffman Machine Products Corporation 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 costs, if any, to resolve this matter will
not be material to the Company's business, results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 28, 2003, the Company held its annual meeting of shareholders
at which 2,473,560, or 92%, of the 2,689,571 shares outstanding were
represented, either by proxy or those persons in attendance at the meeting. The
following persons were elected to the board of directors with shares voted as
follows:
Election of Directors For Withheld
--------------------- --------- --------
Jong S. Whang 2,458,901 14,899
Robert T. Hass 2,458,835 14,873
Alvin Katz 2,456,123 17,267
Bruce R. Thaw 2,458,544 14,798
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
quarterly period ended March 31, 2003.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: May 15, 2003
------------------------------------------ ------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
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SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATIONS
I, Jong S. Whang, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Amtech Systems,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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.
Date: May 15, 2003 By: /s/ Jong S. Whang
------------------------------------
Jong S. Whang, President
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I, Robert T. Hass, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Amtech Systems,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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.
Date: May 15, 2003 By: /s/ Robert T. Hass
------------------------------------
Robert T. Hass, Vice President -
Finance and Chief Financial Officer
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EXHIBIT INDEX
PAGE OR
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ------ ----------- ------
99.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
99.2 Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
* Filed herewith.
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