FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(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, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
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(exact name of Registrant as specified in its charter)
Arizona 86-0411215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 602-967-5146
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Redeemable Public Warrant
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(Title of Class)
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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 twelve (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 ninety (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.
[ ] Yes [X] No
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within sixty (60) days prior to the
date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
$14,128,442 as of December 18, 1996
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
4,109,668 shares of Common Stock, $.01 par value, as of December 17,
1996. There is only one class of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder the following documents if incorporated by reference
and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (i) any annual report to security holders; (ii) any
proxy or information statement; and (iii) any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended September 30, 1996).
PART III (Items 10-13) is incorporated by reference to the Registrant's
proxy statement for the Registrant's Annual Meeting of Shareholders to be held
on or about February 28, 1997.
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TABLE OF CONTENTS
Page
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ITEM 1. BUSINESS....................................................... 5
Background..................................................... 5
Operating Strategy and Industry Overview....................... 5
Existing Products.............................................. 6
Proposed New Products.......................................... 9
Manufacturing.................................................. 10
Order Backlog.................................................. 11
Engineering - Research and Development......................... 11
Patents........................................................ 11
Sales and Marketing............................................ 12
Competition.................................................... 13
Employees...................................................... 14
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES................................ 14
ITEM 2. PROPERTIES..................................................... 15
ITEM 3. LEGAL PROCEEDINGS.............................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS........................................................ 15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS.......................................... 16
Market Information............................................. 16
Holders........................................................ 16
Dividends...................................................... 16
ITEM 6. SELECTED FINANCIAL DATA........................................ 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 18
LIQUIDITY AND CAPITAL RESOURCES................................ 18
RESULTS OF OPERATIONS.......................................... 20
Fiscal 1996 compared to Fiscal 1995............................ 20
Continuing Operations...................................... 20
Discontinued Operations.................................... 22
Total Company ......................................... 23
Fiscal 1995 compared to Fiscal 1994............................ 23
Continuing Operations...................................... 23
Income From Continuing Operations.......................... 24
Discontinued Operations.................................... 24
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Total Company ......................................... 25
FORWARD-LOOKING STATEMENTS..................................... 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 27
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................................... 28
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 29
ITEM 11. MANAGEMENT REMUNERATION........................................ 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................... 30
SIGNATURES................................................................... 33
POWER OF ATTORNEY............................................................ 33
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PART I
ITEM 1. BUSINESS
Background
Amtech Systems, Inc. (hereinafter the "Company" or the "Registrant")
was incorporated in Arizona in October, 1981, under the name Quartz Engineering
& Materials, Inc., and changed to its present name during 1987. At its inception
the Company's business was the manufacture of low technology quartzware
implements for sale to and use by manufacturers of semiconductor chips. The
Company is currently, and has been since 1987, engaged primarily in the
manufacture and marketing of several items of capital equipment used by
customers in the manufacture of semiconductors, one of which is patented. The
Company's Processing/Automation product line (Atmoscan(R), IBAL and load
stations) is designed to permit its customers to increase the degree of control
over their semiconductor chip manufacturing environment and to reduce exposure
to contaminants by limiting human contact during the process. The Company's
wholly-owned subsidiary, Tempress Systems, Inc., is engaged in the complementary
business of producing and selling horizontal diffusion furnace systems for the
semiconductor industry. In addition, the Company recently obtained a U.S. patent
on technology on which it expects to base a proposed new photo chemical vapor
deposition ("CVD") product for use in semiconductor manufacturing facilities.
The Company has engaged the University of California, Santa Cruz, to conduct a
study to determine the feasibility of such a product. If the results of the
study are favorable, the Company intends to commence to design, manufacture and
market a photo CVD product. See "Operating Strategy and Industry Overview"
below.
Until recently, the Company also had a 45% ownership interest and 50%
voting interest in Seil Semicon, Inc., a South Korean start-up joint venture
that plans to develop and operate a silicon test wafer reclaiming business. In
December 1996, the Company disposed of its interest in Seil Semicon in order to
allow the Company to focus on its core semiconductor equipment business. See
"RECENT EVENTS--Sale of Seil Semicon" below.
The Company is dependent for its management and important business
relationships on the active participation of its President, Mr. J. S. Whang.
Operating Strategy and Industry Overview
The Company is engaged primarily in the manufacture and marketing of
several items of capital equipment used by customers in the manufacture of
semiconductors. Semiconductors, or semiconductor "chips," are made of silicon
and are part of the circuitry of electronic computers. The manufacture of
semiconductors involves many complex operations during which silicon wafers (the
substrates from which chips are made) are inserted in a diffusion furnace and
subjected to the precise flow of gases under very intense heat. The Company's
Processing/Automation product line is intended to permit customers using
horizontal diffusion furnaces to increase the degree of control over the
manufacturing environment and to reduce exposure to contaminants by reducing the
amount of human contact during the process. Following an industry trend, the
size of individual chips has tended to decrease and the size of
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the wafers from which chips are made has tended to increase. As a result, the
value of each wafer has increased because each is the source of an increased
number of chips. As the value of wafers increase, so too does the importance of
control over the manufacturing environment. In addition to the Company's
Processing/Automation product line, through its wholly-owned subsidiary,
Tempress Systems, Inc., the Company manufactures and sells horizontal diffusion
furnace systems.
There is also a trend in the industry, related to the trend to smaller
chips, to the use in new semiconductor manufacturing facilities of newer
technology, vertical diffusion furnaces, which are more efficient to use than
older technology horizontal diffusion furnaces in certain manufacturing
processes of smaller chips on larger wafers. Vertical diffusion furnaces are,
however, significantly more expensive to purchase than horizontal diffusion
furnaces. The Company's Processing/Automation product line is useable with
horizontal diffusion furnaces only. The Company's target market consists of
customers who wish to increase the efficiency of their existing semiconductor
manufacturing facilities equipped with horizontal diffusion systems. With the
addition of Tempress' operations, the Company also can provide its customers
with efficient integrated horizontal diffusion furnace systems. The Company's
target market also includes customers who build new facilities but whose
operations do not require the higher priced vertical diffusion furnace systems.
Based on market information obtained through customer and market contacts, the
Company believes that a majority of worldwide semiconductor manufacturing
facilities are equipped with horizontal diffusion furnaces, as compared with
vertical diffusion furnaces. While the Company estimates that in the next
several years the percentage of facilities in the world equipped with each type
of system will become equal, it believes that a significant demand for its
present product line will continue to exist, although there can be no assurance
in that regard. The Company plans to increase its share of the market by
expanding its manufacture and sales of horizontal diffusion furnaces. Tempress
recently acquired a 9,900 square foot facility in Heerde, The Netherlands, for
its European operations. Tempress moved its operations into the new facility in
November 1996.
Industry Slowdown. Semiconductor manufacturers currently are
experiencing a significant decrease in order bookings. In addition, the prices
for semiconductors have declined dramatically, squeezing manufacturers' margins.
These factors may affect semiconductor manufacturers' decisions to purchase
capital equipment such as the Company's products. Further price declines due to
increased supply of semiconductors may have a material adverse effect on the
Company's business and results of operations.
Existing Products
Processing/Automation Equipment
Atmoscan(R)
The Company's "Atmoscan(R)" is a patented controlled environment wafer
processing system for use with horizontal diffusion furnaces. It is comprised of
a flanged quartz tube and several metal parts. When in use, the flanged tube is
loaded with wafers and inserted into the diffusion furnace under a nitrogen
controlled environment. The technology protected by the Company's Atmoscan(R)
patents is a processing method that includes a cantilever tube that carries
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wafers and through which a purging inert gas flows during the loading and
unloading of wafers into and out of the diffusion furnace.
The Company believes that 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, and a decreased need for the cleaning of diffusion furnace
tubes, which ordinarily involves substantial expense and equipment down time.
The Company has manufactured and sold Atmoscan(R) units to major
semiconductor manufacturers in the United States, the Pacific Rim and Europe,
including at various times to International Business Machines, Intel
Corporation, Samsung, Digital Equipment Corp., Motorola, SGS-Thompson and
others. During fiscal 1996, Atmoscan(R) units were sold in a price range of
approximately $26,000 (for simpler models without accessories or ancillary
items) to approximately $70,000 (for more complex models). Sales of Atmoscan(R)
have declined from their peak in 1989, due to an industry trend toward use of
vertical diffusion furnaces.
The Company has designed and sells an open cantilever paddle system as
an alternative to the closed processing method of the Atmoscan(R). The per unit
price is approximately $13,000- $34,000, depending upon the customer's
specifications.
IBAL
"IBAL" is an acronym for "Individual Boats with Automated Loading."
Boats are quartz trays that hold silicon wafers while they are being processed
in diffusion furnaces. IBAL Trolley is a device, including software, which
automatically places boats into Atmoscan(R) tubes or on open cantilever paddle
systems before they are inserted in the diffusion furnace and automatically
removes the trays after completion of the process. The Company has sold units of
the IBAL Trolley for approximately $18,000 to $30,000 each, not including the
price of the Atmoscan(R) or open cantilever paddle system. Use of the IBAL
products reduces human handling and, therefore, reduces exposure of wafers to
contaminants during the loading and unloading of the process tubes.
The IBAL Butler is a robotics device which further automates the
loading of wafers into the diffusion furnace by automatically transferring wafer
carriers onto the IBAL Trolley for loading into the Atmoscan(R) or on the
cantilever paddle system for the appropriate furnace tube. IBAL Butlers have
been sold at prices between $35,000 and $50,000.
The IBAL Queue provides a convenient staging area for the operator to
place boats on a load station and automates the loading of those boats onto the
IBAL Butler. IBAL Queue was first developed and offered for sale in the fourth
quarter of 1993 and the first unit was shipped during the second quarter of
fiscal 1994. The unit prices for the IBAL Queue range from $18,000 to $27,000.
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Load Stations
The 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. The Company began shipping load stations in fiscal
1992. The price for the load station alone (in addition to the price for the
component systems described above) is approximately $60,000, depending upon the
complexity of a customer's requirements. Depending on configuration, which
varies from order to order, complete load stations with loaders and IBAL
automation have been sold at prices between $150,000 and $320,000.
Diffusion Furnaces
Through its wholly-owned subsidiary, Tempress Systems, Inc., the
Company produces and sells horizontal diffusion furnace systems, which generally
include a Tempress(R) load station, with the Tempress(R) trademark under the
Amtech/Tempress name. These furnaces utilize existing industry technology for
sale to customers who do not require the advanced automation of, or cannot incur
the major expense of acquiring, vertical diffusion furnaces. While the major
advantage of vertical diffusion furnaces is their susceptibility to increased
automation, which decreases the degree of human intervention in the
manufacturing process, the use of horizontal diffusion furnaces, with less
automation, is more economical for larger size chips on smaller size silicon
wafers. While industry forecasts indicate that overall market demand for
horizontal diffusion furnaces will decline, the Company believes that a niche
market will persist. Tempress(R) diffusion furnaces equipped with automation and
one or more Atmoscans(R) have been sold in the range of $900,000.
The Company has transitioned from being a distributor of horizontal
diffusion furnaces substantially assembled by suppliers to being a manufacturer.
The Company continues to acquire substantially all of the parts for furnaces
from suppliers. This transition has resulted in an increase in both the number
and variety of products offered by the Company and is part of a plan to expand
its sales, marketing and manufacturing capabilities. The Company has expended
substantial sums to acquire assets and to fund the start-up and operation of the
horizontal diffusion furnace business. The Company acquired certain assets
previously owned by a bankrupt company, Tempress B.V., located in The
Netherlands. That business involved the development, manufacture and sale of a
number of different products, including a horizontal diffusion furnace. The
Company also acquired from the bankrupt estate the right to use the trade name
"Tempress" in connection with such furnaces. The right to use the trade name
"Tempress" is also held by three subsidiaries of the former Tempress B.V. in
connection with the sale of other Tempress products and services unrelated to
the horizontal diffusion furnace. The Company has hired a number of former
Tempress technical and sales personnel to design, manufacture and sell its own
furnace products under the "Tempress" name. The Company believes that the causes
of the Tempress bankruptcy were related to the fact that Tempress was
undercapitalized and that large expenditures were incurred in the development of
other products, and was not related to the quality or reputation of the Tempress
products. Accordingly, the Company believes that the diffusion furnace products
designed by former Tempress product engineers and sold under the "Tempress" name
are gaining acceptance in the Company's targeted market.
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There is, of course, no assurance of success in the Company's efforts
to design and market horizontal diffusion furnace products. If the Company's
efforts do not succeed, the Company may suffer significant losses. The Company's
ability to carry out its plan is subject to risk, arising in part from the
cyclical nature of the business. There is a further risk that, as is estimated
by at least one market research firm, the installation of new horizontal
diffusion furnaces will decrease at a faster rate than is estimated by the
Company. In that case, the demand for and sales of the Company's horizontal
diffusion furnaces may be below the Company's estimates, its revenue and
possible earnings may not increase as expected and The Netherlands operation may
incur significant losses.
Proposed New Products
CVD Technology
The Company has patented a certain invention relating to an improvement
to the photo- assisted CVD process used in the manufacture of certain
semiconductors. Management believes the invention may be of importance to the
semiconductor manufacturing industry, and the Company is now having a research
study conducted to determine the feasibility of developing semiconductor
manufacturing equipment using this invention. A photo-assisted CVD process uses
ultraviolet light to activate the deposition reactions rather than thermal heat
or plasma energy, which are presently the common means in commercial CVD
processing. Photo-assisted CVD processing is currently used for very expensive,
low yield semiconductor applications for aerospace and other high cost uses.
Management hopes that the Company's invention will make photo-assisted CVD
processing practical for general commercial application in the industry. The
photo-assisted CVD process is separate and distinct from the diffusion process
in which the Company's existing products are used and its use is not limited to
facilities equipped with horizontal diffusion furnaces as are the Company's
existing products.
A photo-assisted CVD process is potentially attractive for the
manufacture of semiconductors because it allows a less severe processing
environment. First, photo-assisted CVD processes occur at lower temperatures,
which reduces the risk of defects in the deposited materials. In this process,
ultraviolet light is used as the energy source to effect the deposition of
chemicals on the wafers. The photo-assisted CVD processes also avoid radiation
damage which can occur with currently prevalent processes. Furthermore,
photo-assisted CVD processes based on the Company's patented method may be more
readily adaptable to the use of larger wafers (the silicon substrates from which
semiconductor chips are made) than other CVD processes now in use. The trend in
the industry is to the use of larger size wafers and smaller size chips.
The Company has not determined whether a commercially feasible product
can be developed from this technology. The Company has a Research Agreement with
the Regents of the University of California ("University") whereunder a
feasibility study is being undertaken by the University under the direction of
Roger W. Anderson, Ph.D. It is anticipated that, if the results of the
University study are favorable, the Company will design and develop
specifications for an initial photo-assisted CVD device. The initial device is
expected to have one "chamber,"containing a number of light pipes which are
patented and a pedestal (called a susceptor) to hold wafers and would be sold to
academic and industry research facilities. See
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"Patents." If use by such facilities results in acceptance of the technology by
the industry, the Company will attempt to develop a fully automatic
multi-chamber, multi-wafer product for mass production of semiconductors. The
automation (or robotic) components of the product are expected to be procured
from other manufacturers.
The Company's current plans for developing a saleable model of the
proposed new photo CVD product are conceptual only. Detailed planning is
expected to be done if, as and when the University study demonstrates the
product's commercial feasibility. The development of first a research laboratory
product and then an industrial product is expected to take a period of
approximately two to three years.
The total cost of the photo-assisted CVD product development effort is
expected to be approximately $3,200,000, expended in stages over a two to three
year period. All of the Company's plans and estimates are subject to significant
uncertainties.
Wafer Reclaiming Venture
In November 1995, the Company entered into a joint venture agreement
pursuant to which it acquired a 45% ownership interest and a 50% voting interest
in Seil Semicon, Inc. Seil Semicon, Inc., intends to develop and operate a
silicon test wafer reclaiming business. The Company had invested $425,000 in the
venture. In September 1996, the Company reached an agreement to dispose of its
interest in the joint venture. In accordance with the termination agreement, the
Company received $478,000 as a return of its initial investment and
reimbursement of certain direct and indirect expenses related to establishing
and monitoring the joint venture. The Company estimated that additional costs
during the start-up phase of Seil Semicon, as well as additional equipment
required for operations, increased the total projected capital requirements by
approximately $2.5 million over previously anticipated amounts. Under the
existing ownership structure, the Company was the joint venture's primary source
for these additional funds. Management concluded that increasing the Company's
investment in the joint venture by $2-3 million without obtaining majority
control was more risk than was appropriate for the Company.
Manufacturing
The Company designs and purchases quartz and metal components of its
products from competitive market sources and inspects and assembles them at its
plant in Tempe, Arizona. Certain parts of the system are machined in the
Company's own machine shop. There are currently no procurement problems being
encountered nor are any such problems considered likely. The Company is
conducting similar engineering, purchasing and assembly operations in the
manufacture of its furnace line in a building owned and located in Heerde,
Netherlands. If the proposed photo-assisted CVD product is developed, the
Company plans to continue to do the engineering and purchasing and rely on
suppliers for most parts and to assemble and do a small amount of machining work
internally.
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Order Backlog
As of November 30, 1996, the Company's order backlog for semiconductor
equipment was approximately $3,875,000 compared to approximately $4,980,000 at
the same date in the previous year. The Company includes in its backlog all
credit approved customer purchase orders. The Company anticipates that
approximately $2,875,000 of its current backlog will be shipped in fiscal 1997
and the remaining $1,000,000 will be shipped in fiscal 1998. Orders in the
backlog may be canceled by the customer upon payment of mutually acceptable
cancellation charges. While the current backlog includes the orders of one
customer to be shipped over two fiscal years, orders generally are shipped
within three to six months of receipt. Accordingly, the backlog may not be a
valid measure of revenue for a future period. In addition, a backlog does not
provide any assurance that the Company will realize a profit from the order.
Engineering - Research and Development
The Atmoscan(R), was acquired in 1983 through a licensing arrangement
with its inventor, who was not employed by the Company. The other products were
developed by Company personnel. The patented photo-assisted CVD technology was
invented and patent rights assigned to the Company by an employee. The Company
presently employs at its Tempe, Arizona plant, two engineers and four
technicians. Product development in the past has been accomplished in an
important part through cooperative efforts with a key customer and while there
can be no assurance, such cooperation is expected to continue to be a
significant element in the Company's future development efforts. It is
anticipated that approximately five additional engineers and technicians will be
required for the proposed new photo-assisted CVD product development effort.
The Company presently employs one engineer and six technicians for its
Netherlands operation. These employees design and support the horizontal
diffusion furnace product line manufactured in the Netherlands.
The Company may from time to time seek to develop or acquire new
products other than those described above to the extent that funds may be
available.
Patents
Generally, the effect of a patent is that the courts will grant to the
patent holder the right to prevent others from making, using and selling the
combination of elements or combination of steps covered by the patent.
The Company has several United States patents on the Atmoscan(R)
system, each reflecting an improvement to or modification of the previous
patent. The two Japanese patents on the Atmoscan(R) cover the first two U.S.
patents listed in the table, below.
The Company has two United States patents on its photo-assisted CVD
method, the second being an improvement on the first, and also has a Japanese
patent pending on the photo-assisted CVD method.
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Other than certain patents on the IBAL automation, neither the IBAL,
cantilever, load stations nor the diffusion furnace products are protected by
patents.
The following table shows the patents granted and the expiration date
thereof and the patents pending for the Company's products in each of the
countries listed below:
Expiration Date or
Product Country Pending Approval
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Atmoscan(R) United States July 10, 2001
Atmoscan(R) United States July 2, 2002
Atmoscan(R) United States August 30, 2005
Atmoscan(R) Korea May 30, 1999
Atmoscan(R) Japan June 1, 2004
Atmoscan(R) Japan July 18, 2005
Atmoscan(R) European Patent Community
- France July 18, 2004
- Germany July 18, 2004
- United Kingdom July 18, 2004
- Italy July 18, 2004
- Netherlands July 18, 2004
IBAL Cantilever Trolley United States Pending Approval
Photo CVD United States June 1, 2010
Photo CVD United States November 15, 2011
Photo CVD Japan Pending Approval
The Company's ability to compete may be enhanced by its ability to
protect its proprietary information, including the issuance of patents and
trademarks. While no intellectual property right of the Company has been
invalidated or declared unenforceable, there can be no assurance that such
rights will be upheld in the future. There can be no assurance that in the
future products, processes or technologies owned by others, necessary to the
conduct of the Company's business can be licensed on commercially reasonable
terms.
Sales and Marketing
There are two components of the market for the Company's existing
products, which consists of semiconductor manufacturers in the United States,
Korea, Western Europe, Taiwan, Japan and recently the People's Republic of China
and India. One component consists of customers who are installing new
semiconductor manufacturing facilities. The other component consists of
customers who wish to install new equipment systems in existing facilities. The
Company's products have been sold in both components. The market for the
Company's existing products is as described above. The Company intends to
increase its share of that market by expanding trade of the horizontal diffusion
furnace manufactured by the Company in its Netherlands facility and increasing
its sales, marketing and manufacturing capabilities in Europe. This plan has and
is expected to increase revenue not only through added sales of horizontal
furnaces, but by making the other products more competitive by offering them as
a part of a broader complement of products with greater capabilities. For
example, the Company expects
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to generate increased sales of diffusion furnaces because it will offer them
together with Atmoscan(R) and IBAL products. The Company also expects to obtain
orders for its new horizontal diffusion furnace from former Tempress customers
as well as customers in the United States, a large market that had not been
effectively penetrated by Tempress in recent years.
The Company's installed base of customers (facilities at which the
Company's products are installed and operating) includes IBM Corporation,
Motorola, Digital Equipment, Texas Instruments, Intel Corporation, National
Semiconductor, Rockwell International, Phillips, Northern Telecom, SGS-Thomson,
Mitsubishi, Oki, Samsung, Hyundai, UMC and Wuxi China. Of these corporations,
IBM Corporation, Motorola, Digital Equipment, Intel Corporation, SGS-Thomson and
Samsung have been customers of the Company for approximately 11 years.
The Company markets its products by participation in trade shows, by
direct customer contact by the Company's sales personnel (currently the
President and two salesmen in the United States and two sales and marketing
personnel located in the Netherlands) and through independent sales
representatives and distributors. The Company is dependent on its President,
J.S. Whang, for continuing relationships with certain key customers.
During fiscal 1996, four customers accounted for 17%, 10%, 10% and 10%,
respectively, of sales from continuing operations. No other customers accounted
for 10% or more of sales. For a more complete analysis of significant equipment
customers, see Note 6 of the Notes to Consolidated Financial Statements included
herein (the "Financial Statements").
There are presently eight independent sales representatives, each
covering a specified geographical area on an exclusive basis. The areas now
covered by representatives are the New England area, Northern Europe, Central
Europe (including Germany), France, India, Italy, Korea, Taiwan, and the
People's Republic of China. Representatives are paid a commission as specified
from time to time in the Company's commission schedule, which at present is
higher for complete units and lower for spare parts and accessories.
Furthermore, a discount is allowed to a customer who is a manufacturer of
diffusion furnaces.
Upon the development of the proposed photo-assisted CVD product, the
Company will seek initially to make sales to customers who have assisted and may
continue to assist in further development. Such customers will probably be
allowed a discount from published prices. Although marketing the new product, if
it is successfully developed, will probably result in an increase in the number
of marketing employees and in advertising and other marketing expense, the
amount cannot now be predicted with any degree of accuracy.
Semiconductor equipment sales generally fluctuate with the level of
capital spending in the semiconductor industry. The semiconductor business is
cyclical.
Competition
The Company is not aware of any significant product which directly
competes with the Atmoscan(R), however, there are several processing systems and
various configurations of existing manufacturing products which provide
advantages similar to those that the Company believes the Atmoscan(R) provides
to semiconductor manufacturers. The Company believes that there are
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several products in the market which perform the same functions and which
provide a more complete automation solution, but which are more complex and more
expensive and require more clean room space than the IBAL automation products,
IBAL Trolley, IBAL Butler and IBAL Queue. The IBAL products are intended for
customers who do not require the more complex systems. Load stations are sold to
customers that are upgrading their existing facilities with other products of
the Company or as part of a larger equipment package to customers starting-up
new facilities, as these load stations were specifically designed to accept the
Company's products without further modification. Products competitive with the
Company's load station are sold by several well-established firms, larger than
the Company. The cantilever system is designed for easy assembly and disassembly
to minimize down-time during maintenance. The Company's horizontal diffusion
furnace systems are involved in intense global competition with the products of
several larger, more recognized manufacturers. The Company expects to sell its
horizontal diffusion furnaces to customers and maintain a competitive position
by providing competitive prices and product support services designed for the
customer's specific requirements. In addition, management believes that because
its furnace systems are part of a broad product line, including Atmoscan(R) and
IBAL products, they may have a competitive advantage by reducing customers'
needs to deal with multiple vendors.
Competition to be expected for the proposed photo-assisted CVD product
cannot now be determined. It should be assumed, however, that others in the
industry are in the process of developing new products and improving existing
ones.
Employees
The Company presently employs 48 people (including the corporate
officers and 8 contract employees); 18 in manufacturing, 13 in engineering, 9 in
administration, and 8 in sales positions. Of these, 26 are employed at the
Company's offices and plant in Tempe, Arizona, and 22 at its facility in Heerde,
The Netherlands.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
The following table shows the amounts of revenue attributable to the
Company's foreign sales for the past three fiscal years (the United States
equipment sales being included in the table for comparison purposes). Foreign
sales do not include sales to affiliates.
14
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
United States (1) $3,314,007 (39%) $2,462,852 (36%) $2,472,176 (57%)
Far East (2) 3,014,213 (36%) 3,483,419 (51%) 1,136,432 (26%)
Europe (3) 1,767,803 (21%) 493,786 (7%) 222,376 (5%)
India 317,982 (4%) 424,011 (6%) 500,095 (12%)
---------- ------ --------- ----- --------- ------
Total $8,414,005 (100%) $6,864,068 (100%) $4,331,079 (100%)
========= ==== ========= ==== ========= ====
</TABLE>
- ----------
(1) Includes sales in Canada, which are not material.
(2) Includes Korea, Singapore, Taiwan, Japan and the People's Republic of
China.
(3) Includes sales in Israel, which are not material.
For a further description of foreign sales, see Note 6 of the Notes to
the Financial Statements included herein.
ITEM 2. PROPERTIES
The Company's semiconductor equipment business and corporate offices
are located in 9,000 square feet of office and manufacturing space at its
principal address. These facilities are leased at a current rate of $3,515 per
month, on a triple net basis, for a term to expire on August 31, 1997.
The Company also owns a 9,900 square foot building located in Heerde,
The Netherlands. This facility is expected to provide adequate space for the
Company's assembly operations for its furnace line for the foreseeable future.
If the results of the University study (described above) are favorable
and the Company commences a photo-assisted CVD product development effort, an
additional 2,000 square feet will be required for a laboratory. That laboratory,
together with the Company's existing plant facility will, the Company believes,
be adequate through the first year of the development effort. If and when
commercial production begins, an additional 10,000 square feet of space may be
required. No difficulty is expected in obtaining any additional space at then
prevailing rents. However, at some point it may become more efficient to have
all U.S. operations in one facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal
proceedings that it believes will have a material impact on the Company's
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS
Market Information
The Company's common stock is traded in the over-the-counter market and
is quoted under the symbol "ASYS" in the automated quotation system of the
National Association of Securities Dealers SmallCap Market ("NASDAQ").
The following table sets forth the range of the high and low sales
price for the shares of the Company's common stock for each quarter of fiscal
years 1996 and 1995 as reported by the NASDAQ SmallCap Market.
Quarter Ended High Low
------------- ---- ---
Fiscal 1996:
- ------------
December 31, 1995 $4.44 $3.88
March 31, 1996 4.31 3.50
June 30, 1996 5.63 4.13
September 30, 1996 5.13 3.50
Fiscal 1995:
- ------------
December 31, 1994 2.38 1.69
March 31, 1995 2.19 2.00
June 30, 1995 4.69 2.06
September 30, 1995 4.63 3.63
Holders
As of December 18, 1996, there were 1,463 shareholders of record of the
Company's common stock.
Dividends
The Company has never paid dividends. Its present policy is to apply
cash to investment in product development, acquisitions or expansion;
consequently, it does not expect to pay dividends within the foreseeable future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth with respect to the Company's
operations for each of the years in the three year period ended September 30,
1996 and with respect to the balance sheets at September 30, 1996 and 1995 are
derived from audited financial statements that have been audited by Arthur
Andersen LLP, independent public accountants, which are included elsewhere in
this Report and are qualified by reference to such financial statements. Data
from the statements of operations for the fiscal years ended September 30, 1993
and 1992 and the balance sheet data at September 30, 1994, 1993 and 1992 are
derived from financial statements not included in this Report. 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
the Company's Financial Statements (and the related notes thereto) contained
elsewhere in this Report.
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- ---------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Data
From Continuing Operations:
Revenues $8,414,005 $6,864,068 $4,331,079 $4,087,886 $2,400,777
Operating Profit(1) 120,813 39,582 (172,648) 426,890 (744,814)
Income (Loss) from
Continuing Operations(1) 197,591 171,053 (89,469) 302,390 (911,210)
Net Income (Loss)(1)(5) $508,683 $226,568 $94,004 $508,670 $(1,501,070)
Primary Earnings Per Share:(1)(2)(3)
Continuing Operations (loss) $.05 $.04 $(.05) $.15 $(.44)
Net Income(5) $.10 $.06 $.05 $.26 $(.73)
Balance Sheet Data
Cash and Short-term Investments $4,458,337 $4,505,389 $1,080,976 $1,895,042 $ 631,314
Working Capital 5,480,452 6,163,304 2,244,628 2,722,362 2,334,623
Total Assets 8,458,614 8,365,519 3,974,922 4,119,928 6,397,033
Total Current Liabilities 1,568,994 1,363,291 852,103 1,091,113 3,725,888
Long-Term Debt 265,355 - - - -
Accumulated Deficit (412,087) (920,770) (1,147,338) (1,241,342) (1,750,012)
Shareholders' Equity(2)(4) 6,624,265 7,002,228 3,122,819 3,028,815 2,671,145
</TABLE>
- ----------
(1) The results for the fiscal year 1996 and 1994 include $132,243 and
$355,405, respectively, of expense for the University study described
elsewhere herein.
(2) The results shown have been restated to reflect the two-for-one
combination or "reverse split" of Common Stock which took place on June
4, 1993 and the two-for-one forward split which was effective March 29,
1996.
17
<PAGE>
Earnings per share for 1996 and 1995 reflect the sale of 2,415,000
shares in a secondary public offering completed December 22, 1994.
(3) The results shown would be the same if they were prepared on a
fully-diluted basis, except that the net income per common share for
the fiscal year ended September 30, 1993 would have been $.25.
(4) The decline in Shareholders' Equity in 1996 resulted from the Company's
receipt of 196,034 shares of its Common Stock upon disposition of the
stock of Echelon Services Company.
(5) The results for fiscal 1996 include a $284,335 gain on the disposal of
discontinued operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto set forth elsewhere herein and the
"Forward-Looking Statements" explanation included herein.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996 and 1995, cash and cash equivalents amounted
to $1,994,000 and $834,000, respectively. The fiscal 1996 increase in cash and
cash equivalents of $1,160,000, or 139%, resulted from the $1,207,000 amount by
which maturities of short-term investments exceeded purchases of such
securities. The total of cash and short-term investments, a broader measure of
short-term liquidity, decreased slightly, by $47,000, to $4,458,000 as of
September 30, 1996, from $4,505,000 as of the prior year end.
Working capital decreased by $683,000 to $5,480,000 from $6,163,000, a
decrease of 11%, primarily as a result of the $425,000 investment in the Korean
joint venture and the investment in land and building for the diffusion furnace
operations in The Netherlands. See the Consolidated Statements of Cash Flows
included herein. For the same reasons, the ratio of current assets to current
liabilities decreased to 4.5:1 from 5.5:1. Cash and short-term investments
comprise 52% of total assets and stockholders' equity accounts for 78% of total
assets.
Photo-assisted CVD (chemical vapor deposition) Project. During March
1994, the Company entered into a research and development contract with and paid
$355,000 to the University of California at Santa Cruz (the "University"). The
University has developed designs and specifications for and built a research
model of a machine embodying the Company's patented photo-assisted CVD process
and proven the feasibility of that process. Amtech entered into amendments of
its research and development contract with the University during November 1995
and July 1996, which expand the Company's financial commitment by a total of
$244,000 and extend the contract until the date on which the agreed upon work
has been completed, which is expected to occur in the second or third quarter of
fiscal 1997. As of September 30, 1996, the balance of this commitment was
$112,000. The purpose of the amendments is to demonstrate the potential rate of
deposition using newly developed light sources in various photo-assisted CVD
processes and to investigate alternative process chemistries for the deposition
of silicon oxide, silicon nitride and other materials. This work will assist the
Company in estimating the size of the market before commencing the development
of a model of the photo-assisted CVD reactor for research facilities at Amtech's
plant.
18
<PAGE>
As this study progresses, management will assess the degree of success
achieved and determine how the Company will proceed. If the photo-CVD
feasibility study demonstrates the practical commercial application of the
Company's patent, approximately $3,200,000 of liquidity and capital resources
are expected to be expended over a two to three year period, probably beginning
in the third quarter of fiscal 1997, in order to develop a commercial model of
the photo-assisted CVD reactor at Amtech's facility. This expenditure is
expected to be made in two stages: approximately $1,700,000 for the development
of an initial product suitable for use in research facilities and approximately
$1,500,000 for the development of a product for use in industrial production
facilities. The funds from the cash and short-term investments on hand should be
sufficient for these two stages of development. See --Acquisitions, below.
However, these estimates do not include any amount for the expansion of
facilities for the manufacture of a new photo-assisted CVD product designed for
industrial production facilities or for a marketing campaign. Funds for that
expansion, if any, are expected to be obtained from one or more sources of
financing, such as the possible exercise of the outstanding redeemable common
stock warrants, working capital loans from banks, a secondary public offering
and internally generated cash flow from operations. There is no assurance of the
availability or sufficiency of these or any other source of funding.
In addition to photo-assisted CVD research, the Company expended
$192,000 in fiscal 1996 on research and development for product improvement and
development of complementary products. The Board of Directors has authorized the
expenditure of up to $560,000 for such other research and development in fiscal
1997. These other research and development expenses will affect the Company's
future operating results.
Acquisitions. During fiscal 1996, the Company entered into a joint
venture agreement pursuant to which it acquired a 45% ownership interest and a
50% voting interest in Seil Semicon, Inc. in return for a commitment to invest
$500,000 in cash. The purpose of the joint venture was to develop and operate a
silicon test wafer reclaiming business. After the end of the fiscal year, the
joint venture was dissolved because management determined that increasing the
Company's investment commitment to $3 million, without obtaining majority
control, was more risk than was appropriate for the Company. The Company
received $478,000 during December 1996, pursuant to the termination agreement,
which compensated the Company for its actual investment and expenses.
Although management discontinued its participation in the Korean Joint
Venture, the Company still intends to evaluate potential product or business
acquisitions that may complement the Company's business. Based upon current
acquisition criteria, such an acquisition could require $4 million or more of
capital resources. The determination of the appropriateness of a potential
acquisition would take into consideration many factors including, without
limitation, the prospects for the planned photo-assisted CVD product line and
the capital that would be required and available for that product line, the
economic terms of the acquisition under review, and the potential synergy of the
acquired business with the Company's existing business. There can be no
assurance that the Company would have the capital resources to accomplish a
desired acquisition.
19
<PAGE>
RESULTS OF OPERATIONS
Fiscal 1996 compared to Fiscal 1995
Continuing Operations.
The revenues of the semiconductor equipment business increased
$1,550,000, or 23%, to $8,414,000 in fiscal 1996 from $6,864,000 in fiscal 1995.
The increase in revenues is due primarily to the 85% increase in the sales of
Tempress horizontal diffusion furnaces and related after market parts resulting
from continued growth of the manufacturing operations in The Netherlands. The
net sales of the domestic operations' ATMOSCAN(R) and IBAL automation products
were essentially unchanged in fiscal 1996 from the level achieved in fiscal
1995. Significant synergies have been achieved with the addition of the Tempress
product line, as both the domestic and foreign operations have secured orders by
having a broader line of products to offer, orders that might not otherwise have
been obtainable.
The Company is experiencing a slowdown in bookings due to increased
caution in capital spending by the world's semiconductor producers, caused by
rapidly declining prices for semiconductor chips and an oversupply of capacity
for certain of those products, such as memory chips. As a result, industry
analysts forecast a significant cyclical decline in the revenue of semiconductor
production equipment suppliers in calendar year 1997. One industry survey
indicates that the three (3) month moving average of orders booked by suppliers
of front-end semiconductor production equipment was nearly 26% lower in the
fourth quarter of fiscal 1996 than in the fourth quarter of fiscal 1995.
Management believes that it is likely that the Company's domestic sales may
decline consistent with the industry trend that develops. While The Netherlands
operation may also experience a decline, management believes the significant
number of requests for quotations indicates that the equipment buyers now
consider Tempress as a viable equipment supplier.
Gross profit was $2,897,000 for fiscal 1996 versus $2,305,000 for
fiscal 1995, representing a 26% increase. The $592,000 increase in gross margin
primarily results from the expansion of The Netherlands operations. Gross margin
as a percentage of revenue was 34.4% in fiscal 1996 versus 33.6% in fiscal 1995,
with the improvement being attributed to increased sales from The Netherlands'
operations. Further increases in fixed costs are planned for fiscal 1997 as a
result of expanding manufacturing capacity. Gross margins as a percentage of
revenue are expected to decrease in fiscal 1997, because fixed manufacturing
costs are anticipated to be higher and the Company's products facing the
greatest price competition are expected to account for a greater percentage of
consolidated revenue. Gross margins in absolute terms may be slightly higher,
but only if revenues from the Tempress operations continue to increase.
The selling, general and administrative costs were $352,000 (17%)
higher in fiscal 1996 than in fiscal 1995. Costs associated directly with the
relatively new operations in The Netherlands grew approximately 29%, thus
accounting for 56% of the total increase. Corporate efforts to further penetrate
the market with the entire product line on a world-wide basis, the development
of new business opportunities and the write-off of certain doubtful accounts
receivable accounted for most of the remaining increase in selling, general and
administrative
20
<PAGE>
expenses. However, these costs declined from approximately 30% of revenues
during fiscal 1995 to 28% in fiscal 1996.
Relative to many technology businesses, the Company had made relatively
small investments in product development prior to fiscal 1994. The Company
increased research and product development expenditures in fiscal 1994 by
$257,000 primarily through the expenditure of $355,000 for photo-assisted CVD
research. During fiscal 1995, research and development costs consisted entirely
of developing the new Tempress line of furnaces, an automated robot to load
cantilever paddle systems, and product improvements. Since the 1994
photo-assisted CVD feasibility study continued through the end of fiscal 1995
without any further financial commitment, total research and development costs
in fiscal 1995 were $180,000 lower than in fiscal 1994. Amtech entered into two
amendments of its research and development contract with the University during
fiscal 1996, which expanded the Company's financial commitment by a total of
$244,000 and extended the contract until the date on which certain agreed upon
work is completed, which is expected to occur in the second or third quarter of
fiscal 1997. Approximately $132,000 of those funds were expended during fiscal
1996, which was the primary cause of the $93,000 increase in total research and
development costs in fiscal 1996 compared to fiscal 1995.
If the results of the photo-assisted CVD feasibility study are
sufficiently encouraging, the next phase would be to develop a prototype model
for use by research facilities to develop advanced processes for the manufacture
of semiconductor devices. Depending on the actual timing and results of the
final stage of the feasibility study being conducted by the University, future
earnings may decline sharply due to the Company's intention to expend $3,200,000
on research and development over approximately a three year period in order to
develop a commercial product based upon the Company's patented photo-assisted
CVD technology. The increased research and development expenses anticipated for
this project will affect the Company's future operating results.
In addition to photo-assisted CVD research, the Company expended
$192,000 in fiscal 1996 on research and development for product improvement and
development of complementary products. The Board of Directors has authorized the
expenditure of up to $560,000 for such other research and development in fiscal
1997. These other research and development expenses will affect the Company's
future operating results.
Operating profits were $121,000 in fiscal 1996, or 200% more than the
$40,000 reported in fiscal 1995. The improvement in operating profit in fiscal
1996 reflects the expansion of The Netherlands operations, which has reached its
break-even point.
Income (loss) from continuing operations before income taxes includes
operating income, discussed above, and net interest income, which was $5,000
higher in fiscal 1996, as compared to fiscal 1995. As a result of these items,
the income from continuing operations before income taxes improved by $87,000,
or 33%, to $348,000 in fiscal 1996.
The income from continuing operations is $198,000, $.05 per share, for
fiscal 1996, a 16% improvement over the income of $171,000, or $.04 per share,
in fiscal 1995, after taking into consideration the income tax provision of
$150,000 in fiscal 1996 and $90,000 in fiscal
21
<PAGE>
1995. The effective tax rate for fiscal 1996 is higher than the statutory rate
and the effective rate of the preceding year because the equity in the losses of
the Korean joint venture are not deductible for U.S. income tax purposes. The
income tax provision for fiscal 1995 approximates the statutory rate. See Note 4
to the consolidated financial statements for further details including an
analysis of the differences between the statutory rate and the effective rate
for fiscal 1996 and 1995.
The Company's semiconductor equipment operation has been and will
continue to be affected by industry trends. The use and market share of vertical
furnaces is increasing throughout the industry on a worldwide basis particularly
for the fabrication of leading edge semiconductor devices and is expected to
increase in usage to an estimated 50% over the next several years. However, the
Company believes that there will continue to be demand for horizontal diffusion
furnaces, notwithstanding other advantages of vertical systems (e.g. reduced
contamination and the capability to produce more sophisticated semiconductors
more efficiently), because for all but mass production runs of small chips on
larger wafers there is a higher through-put in horizontal furnaces as compared
to vertical furnaces. Also, the Company's products may be used to upgrade,
retro-fit or replace existing horizontal furnaces in order to extend their
useful lives or otherwise avoid the necessity for the customer to acquire more
expensive vertical furnaces. Horizonal furnaces are also sold for use in new
facilities that do not require vertical furnaces for the particular process.
Another important factor is the growth of semiconductor manufacturing using the
less capital intensive horizontal diffusion furnaces in the Peoples Republic of
China, where the Company made its first sale in fiscal 1994, and other less
developed areas, which could further prolong the commercial life of the
Company's existing products.
However, the market for the Company's products remains a small niche
market. Thus future revenues are and will continue to be dependent upon
continued introduction of new products, such as IBAL automation products, or
improved versions of products that exist in the market, such as the Tempress(R)
horizontal diffusion furnaces and "clean room" load stations. The Company
intends to pursue both types of product introductions. Product or business
acquisitions may also be a part of the Company's strategy for growth. The
Company's long range plans include developing, if feasible, a new product based
on its patented photo-assisted CVD technology.
Discontinued Operations
In October 1995, the Board of Directors decided to concentrate on the
Company's core semiconductor equipment operations and discontinue the technical
contract personnel business. That discontinued operation produced income before
income taxes of $52,000 and $86,000 for fiscal 1996 and fiscal 1995,
respectively. Income taxes for fiscal 1996 and fiscal 1995 were $25,000 and
$30,000, respectively, resulting in income from discontinued operations of
$27,000 in fiscal 1996 and $56,000 in fiscal 1995. The decline in income is due
to the fact that Amtech System, Inc. owned this operation for one quarter of
fiscal 1996, compared to a full year in fiscal 1995. The effective tax rate in
fiscal 1996 is higher than the statutory rate because of state income taxes,
including the settlement of disputed taxes related to prior years.
22
<PAGE>
Effective December 29, 1995, the Company exchanged all of its ownership
interest in the common stock of Echelon Service Company ("Echelon"), the only
remaining operation in the technical contract personnel line of business, for
196,034 shares of the Company's outstanding Common Stock previously owned by
Eugene R. Hartman, then an officer and director of the Company. The transaction
was preceded by a dividend from Echelon to the Company in order to equalize the
values. The transaction was structured to be a tax-free reorganization and, as
such, no provision was made for income taxes. As a result of the transaction,
the Company recognized a gain of $284,000.
Total Company
As a result of the gain on the disposal of discontinued operations, net
income increased $282,000 to $509,000, or $.10 per share, in fiscal 1996 from
$227,000, or $.06 per share, in fiscal 1995.
As of November 30, 1996 , the Company's order backlog for semiconductor
equipment was approximately $3,875,000 compared to $4,980,000 as of the same
date of the previous year. The decrease in the order backlog is primarily due to
the slowdown in bookings due to heightened caution in capital spending by
semiconductor producers. Also, while there are exceptions, orders generally are
shipped within six months of receipt. Therefore, growth in equipment sales and
income from continuing operations will largely depend on the timing of the
receipt of new orders. Another factor that could significantly affect
profitability is the amount of research and development expenses incurred for
the development of improvements to existing products, new products and a model
of the photo-assisted CVD product designed for use in research facilities.
Fiscal 1995 compared to Fiscal 1994
Continuing Operations.
The revenues of the semiconductor equipment business increased
$2,533,000, or 58%, to $6,864,000 in fiscal 1995 from $4,331,000 in fiscal 1994.
The improvement in revenues was due primarily to the $1,811,000 of fiscal 1995
sales of Tempress horizontal diffusion furnaces and related after market parts
resulting from the start-up of manufacturing in the Netherlands. Net revenues of
the domestic operations were 17% higher in fiscal 1995 than in fiscal 1994, due
to continued expansion in the demand by semiconductor manufacturers for
production equipment and upgrades.
The gross profit of this segment was $2,305,000 for fiscal 1995 versus
$1,561,000 for fiscal 1994, representing a 48% increase. The $744,000 increase
in gross margin primarily results from the start-up of the Netherlands operation
($433,000), volume increases in existing product lines ($260,000), and a
reduction in the material content as a percentage of sales due to a favorable
product mix and increased use of lower cost parts manufactured in-house rather
than purchased from others ($153,000). These increases in gross margin were
partially offset by increases in manufacturing overhead expenses and a decline
in the revenue and earnings derived from the sale of products manufactured by
third-parties. Gross margin as a percentage of revenue was 34% in fiscal 1995
versus 36% in the fiscal 1994, with the decline primarily being attributed
23
<PAGE>
to the higher fixed costs in relation to sales associated with the start-up
operation in the Netherlands.
The selling, general and administrative costs were $712,000 (54%)
higher in fiscal 1995 as compared to fiscal 1994. The higher costs are almost
entirely associated with the new operations in the Netherlands. However,
selling, general and administrative costs remained at approximately 30% of
revenues during both fiscal 1994 and 1995.
The Company increased research and product development expenditures in
fiscal 1994 as compared to fiscal 1993 by $257,000 primarily through the
expenditure of $355,405 for the University study to demonstrate the practical
application of the Company's patented photo- assisted chemical vapor deposition
("CVD") process. During fiscal 1995, research and development costs consisted
entirely of developing the new Tempress line of furnaces, an automated robot to
load cantilever paddle systems, and product improvements. Since the 1994
feasibility study continued through the end of fiscal 1995 without any further
financial commitment required, total research and development costs in fiscal
1995 were $180,000 lower than in fiscal 1994.
Operating profits were $40,000 in fiscal 1995, as compared to an
operating loss of $173,000 in fiscal 1994, an improvement of $213,000. During
1994 and 1995 the Company committed significant capital to the future growth of
this segment; $336,000 in the start-up losses of the Netherlands operation in
fiscal 1995 and $355,405 for the photo-assisted CVD feasibility study in fiscal
1994. The improvement of this segment's operating profit for the two years
reflects the expansion of the domestic operations, including increases in
revenue, 17%, gross margin, 19%, and operating profit after excluding the 1994
photo-assisted CVD study, 105%.
Income From Continuing Operations
Income (loss) from continuing operations before income taxes includes
the operating income, discussed above, and net interest income, which increased
in fiscal 1995 by $213,000 and $166,000, respectively, as compared to fiscal
1994. The growth in net interest income is due to the investment of $3,328,000
of the $3,623,000 received from the public offering. As a result of these items,
the income from continuing operations before income taxes improved by $378,000,
to $261,000 in fiscal 1995, from a loss of $117,000 in fiscal 1994.
The income from continuing operations is $171,000 for fiscal 1995, an
improvement of $260,000 from the loss of $89,000 in fiscal 1994, after taking
into consideration the income tax provision of $90,000 in fiscal 1995 and the
income tax benefit of $28,000 in fiscal 1994. The income tax provision for
fiscal 1995 approximates the statutory rate. See Note 3 to the consolidated
financial statements for further details, including an analysis of the
differences between the statutory rate and the actual effective rate for fiscal
1994.
Discontinued Operations.
Discontinued operations produced income before income taxes of $86,000
and $223,000 for fiscal 1995 and fiscal 1994, respectively. Income taxes for
fiscal 1995 and fiscal 1994 were $30,000 and $40,000, respectively, resulting in
income from discontinued operations of $56,000
24
<PAGE>
in fiscal 1995 and $183,000 in fiscal 1994. The decline in the income from
discontinued operations resulted from reductions in requirements of technical
contract personnel by the largest customer of those discontinued operations.
Although the income tax provision associated with this segment approximates the
statutory rate in fiscal 1995, it is substantially lower in fiscal 1994 due to
the resolution of previous uncertainties.
Total Company
As a result of all of the above factors, net income for fiscal 1995 was
$227,000, or $.06 per share, including $.04 per share from continuing
operations, as compared to $94,000, or $.05 per share, net of a loss of $.05 per
share from continuing operations, in fiscal 1994.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking
statements. The forward-looking statements contained herein are based on current
expectations that involve a number of risks and uncertainties. Among others,
these forward-looking statements are based on assumptions that (a) the Company
will not lose a significant customer or customers, (b) the Company will not
experience significant further reductions in demand or rescheduling of customer
purchase orders that have occurred recently due to equipment buyers' caution
resulting from declining prices for semiconductor chips, (c) that the Company's
products will remain accepted within their respective markets and will not be
significantly further replaced by newer technology equipment, (d) that
competitive conditions within the Company's markets will not change materially
or adversely, (e) that the Company efforts to integrate its Tempress subsidiary
in The Netherlands will continue to progress, (f) that the costs of developing
the diffusion furnace controller will not materially exceed estimates and that
there will be sufficient cost saving and product demand to justify the
development costs, (g) that the Company will retain and when needed add to its
ranks key technical and management personnel, (h) that business or product
acquisitions, if any, will be successfully integrated and the results of
operations therefrom will support the acquisition price, (i) that the Company's
forecasts will accurately anticipate market demand, (j) that there will be no
material adverse changes in the Company's existing operations or business, (k)
that the cost and time necessary to complete its photo-assisted CVD feasibility
study will not again significantly exceed the Company's projections, and that
should the Company proceed to the product development stage, the cost of
development will not significantly exceed the Company's projections, (l) the
Company will be able to obtain sufficient funding to increase its capital
resources by the amount used in business or product acquisitions, if any, and to
expand its manufacturing facilities and production capacity in order to produce
and ship photo-assisted CVD products, and (m) the post-development start-up
losses of a photo-assisted CVD product line, if any, will be manageable, and
there will be sufficient demand for the photo-assisted CVD products to recover
the related development and start-up costs. Assumptions related to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
25
<PAGE>
addition, the business and operations of the Company are subject to substantial
risks which increase the uncertainty inherent in such forward-looking
statements. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company, or any other person,
that the objectives or plans for the Company will be achieved.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Report of Independent Public Accountants.................................... F-1
Financial Statements -
Consolidated Balance Sheets
September 30, 1996 and 1995.............................................. F-2
Consolidated Statements of Operations for
the years ended September 30, 1996, 1995 and 1994........................ F-3
Consolidated Statements of Stockholders'
Investment for the years ended September 30,
1996, 1995 and 1994...................................................... F-4
Consolidated Statements of Cash Flows for
the years ended September 30, 1996, 1995 and 1994........................ F-5
Notes to Consolidated Financial Statements
- September 30, 1996, 1995 and 1994...................................... F-7
Financial Statement Schedule for the years ended
September 30, 1996, 1995 and 1994:
Schedule II - Valuation and Qualifying Accounts.......................... S-1
All Schedules, other than the Schedule listed above, are omitted as the
information is not required, is not material or is otherwise furnished.
27
<PAGE>
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 as of September 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
September 30, 1996. 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 generally accepted auditing
standards. 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 AMTECH SYSTEMS, INC. and
subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purposes of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and financial statement schedules 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.
Arthur Andersen LLP
Phoenix, Arizona,
December 9, 1996.
F-1
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents (Note 2) $1,994,217 $ 833,820
Short-term investments (Note 2) 2,464,120 3,671,569
Accounts receivable, less allowance for doubtful
accounts of $90,000 in 1996 and $80,000 in 1995 1,581,973 2,286,743
Inventories (Note 2) 739,201 524,071
Deferred income taxes (Notes 2 and 4) 223,000 165,000
Prepaid expenses 46,935 45,392
---------- ----------
Total current assets 7,049,446 7,526,595
---------- ----------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
Land, building and leasehold improvements (Note 5) 535,104 162,404
Equipment and machinery 432,435 333,971
Furniture and fixtures 608,972 652,607
---------- ----------
1,576,511 1,148,982
Less- Accumulated depreciation and amortization 600,180 499,184
---------- ----------
976,331 649,798
---------- ----------
PURCHASE PRICE IN EXCESS OF NET ASSETS
ACQUIRED, at amortized cost (Notes 2 and 11) - 85,315
---------- ----------
OTHER ASSETS (Note 3) 432,837 103,811
---------- ----------
$8,458,614 $8,365,519
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 652,771 $ 528,322
Accrued liabilities:
Compensation and related taxes 442,785 373,383
Warranty and installation expenses 185,450 116,347
Other accrued liabilities 143,988 120,239
Income taxes payable (Notes 2 and 4) 144,000 225,000
---------- ----------
Total current liabilities 1,568,994 1,363,291
---------- ----------
LONG-TERM DEBT (Note 5) 265,355 -
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8, and 10)
STOCKHOLDERS' INVESTMENT (Notes 9 and 11):
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued - -
Common stock; $.01 par value; 100,000,000 shares authorized;
4,109,668 (4,305,702 in 1995) shares issued and outstanding 41,097 43,057
Additional paid-in capital 7,043,803 7,850,482
Cumulative foreign currency translation adjustment (48,548) 29,459
Accumulated deficit (412,087) (920,770)
---------- ----------
Total stockholders' investment 6,624,265 7,002,228
---------- ----------
$8,458,614 $8,365,519
========== ==========
</TABLE>
The accompanying notes are an integral part of these Balance Sheets.
F-2
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net product sales (Note 6) $ 8,414,005 $ 6,864,068 $ 4,331,079
Cost of product sales 5,516,936 4,558,675 2,770,039
----------- ----------- -----------
Gross margin 2,897,069 2,305,393 1,561,040
Selling and general 2,386,466 2,034,027 1,321,710
Equity in losses of Korean joint venture (Note 3) 65,063 -- --
Photo-CVD project (Notes 2 and 10) 132,243 -- 355,405
Other research and development (Note 2) 192,484 231,784 56,573
----------- ----------- -----------
Operating profit 120,813 39,582 (172,648)
Interest income-net 226,778 221,471 55,179
----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 347,591 261,053 (117,469)
Income tax provision (benefit) (Notes 2 and 4) 150,000 90,000 (28,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 197,591 171,053 (89,469)
----------- ----------- -----------
DISCONTINUED OPERATIONS:
- ------------------------
Income From Discontinued Operations (Note 11) 26,757 55,515 183,473
Gain on Disposal of Echelon (Notes 4 and 11) 284,335 -- --
----------- ----------- -----------
311,092 55,515 183,473
----------- ----------- -----------
NET INCOME $ 508,683 $ 226,568 $ 94,004
=========== =========== ===========
PRIMARY EARNING PER SHARE (Notes 2 and 9):
Income (Loss) From Continuing Operations $ .05 $ .04 $ (.05)
Net Income $ .10 $ .06 $ .05
FULLY DILUTED EARNING PER SHARE (Notes 2 and 9):
Income (Loss) From Continuing Operations $ .05 $ .04 $ (.05)
Net Income $ .10 $ .06 $ .05
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For The Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
--------------------------- Additional Currency Total
Number Paid-In Translation Accumulated Stockholders'
of Shares Amount Capital Adjustment Deficit Investment
---------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1993 1,890,702 $ 18,907 $4,251,250 $ - $(1,241,342) $3,028,815
Net income - - - - 94,004 94,004
---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT
SEPTEMBER 30, 1994 1,890,702 18,907 4,251,250 - (1,147,338) 3,122,819
Net income - - - - 226,568 226,568
Secondary Public
Offering-Note 9 2,415,000 24,150 3,599,232 - - 3,623,382
Translation adjustment - - - 29,459 - 29,459
---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT
SEPTEMBER 30, 1995 4,305,702 43,057 7,850,482 29,459 (920,770) 7,002,228
Net income - - - - 508,683 508,683
Shares returned upon
disposition of Echelon (196,034) (1,960) (806,679) - - (808,639)
Translation adjustment - - - (78,007) - (78,007)
---------- ----------- ---------- ----------- ------------ -----------
BALANCE AT
SEPTEMBER 30, 1996 4,109,668 $ 41,097 $7,043,803 $ (48,548) $ (412,087) $6,624,265
========== =========== ========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 508,683 $ 226,568 $ 94,004
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 179,289 144,085 69,395
Inventory and accounts receivable write-offs 91,085 80,428 34,804
Gain on sale of discontinued operations (284,335) -- --
Loss (gain) on sale or retirement of assets (1,950) 31,398 1,314
Equity in losses of unconsolidated Korean venture 65,063 -- --
Deferred tax benefit (70,000) (36,000) (19,000)
Decreases (increases) in operating assets:
Accounts receivable 212,067 (762,669) 63,525
Inventories, prepaids and other assets (284,872) (73,893) (388,305)
Increases (decreases) in operating liabilities:
Accounts payable 160,152 223,091 (101,387)
Accrued liabilities 254,814 123,063 22,377
Income taxes payable (81,000) 150,000 (160,000)
----------- ----------- -----------
Net Cash Provided (Used) By Operating Activities 748,996 106,071 (383,273)
----------- ----------- -----------
INVESTING ACTIVITIES:
Maturities (purchases) of short-term investments - net 1,207,449 (3,327,577) 549,285
Investment in unconsolidated Korean joint venture (425,000) -- --
Proceeds from sale of assets 28,983 19,591 45,342
Purchases of property, plant and equipment (541,919) (328,257) (476,135)
Cash distributed in disposal of Echelon (109,698) -- --
----------- ----------- -----------
Net Cash Provided (Used) By Investing Activities 159,815 (3,636,243) 118,492
----------- ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from public offering (Note 9) -- 3,623,382 --
Proceeds from a mortgage loan 291,947 -- --
Principal payments on mortgage loan (3,650) -- --
----------- ----------- -----------
Net Cash Provided By Financing Activities 288,297 3,623,382 --
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (36,711) 3,626 --
----------- ----------- -----------
CASH AND EQUIVALENTS (Note 2):
Net increase (decrease) 1,160,397 96,836 (264,781)
Beginning of year 833,820 736,984 1,001,765
----------- ----------- -----------
END OF YEAR CASH AND EQUIVALENTS $ 1,994,217 $ 833,820 $ 736,984
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
-------- ---------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 5,376 $ -- $ --
Income taxes, net of refunds 327,000 6,000 191,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Value received in the form of the
Company's $.01 par value Common
Stock in exchange for the net assets
of Echelon Service Company (Note 11) $808,639 $ -- $ --
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended September 30, 1996, 1995 and 1994
(1) NATURE OF OPERATIONS:
Amtech Systems, Inc., based in the United States, and Tempress Systems, Inc.,
a wholly-owned subsidiary created in September 1994, and based in the
Netherlands, comprise the "Company". The Company engineers, assembles and sells
equipment used in certain thermal processes of manufacturing semiconductors.
This equipment is sold to semiconductor manufacturers world-wide, particularly
in the United States, Korea, and The Netherlands. See Note 11 regarding
discontinued operations.
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 success in adapting to
future 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,
including Echelon Service Company, Note 11, through the date of its disposition.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition - Revenue is recognized on the accrual basis when the
product is shipped and title passes to the customers.
Cash Equivalents and Short-term Investments - Cash equivalents and short-term
investments consist of time certificates of deposit and U.S. treasury bills. The
Company considers certificates of deposit and treasury bills and the cash flows
from them to be cash equivalents if their maturity is 90 days or less from
purchase. Investments maturing in over 90 days are considered to be
"available-for-sale" (as defined by the Statement of Financial Accounting
Standards (SFAS) No. 115) and are recorded at fair value, which approximates
cost.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market. The components of inventory as of September 30, 1996 and 1995
are as follows:
1996 1995
-------- --------
Purchased parts $527,321 $323,215
Work-in-progress 211,880 181,855
Finished goods -- 19,001
-------- --------
$739,201 $524,071
======== ========
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 and any gain or loss is recognized.
Depreciation is computed using the straight-line method. Useful lives for
equipment, machinery, and leasehold improvements are from three to five years;
for furniture and fixtures from five to ten years; and for buildings twenty
years.
F-7
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Property, Plant and Equipment (continued)
In fiscal 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This standard requires that long-lived assets be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of the asset
may not be recoverable. If the sum of the 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. Adoption of this Standard did not have a material
effect on the Company's financial position or results of operations.
Purchase Price in Excess of Net Assets Acquired - The purchase price in excess
of net assets acquired, commonly referred to as goodwill, is being amortized
over periods of five to twenty years using the straight-line method.
Research and Development Expenses - The Company expenses product development
costs as they are incurred. The Company incurred approximately $325,000 in 1996,
$232,000 in 1995, and $412,000 in 1994, of expenses related to research of
photo-assisted CVD (chemical vapor deposition) equipment and process, the
development of diffusion furnaces, and the improvement of Atmoscan (Note 8) and
other products.
Foreign Currency Transactions and Translation - Income from continuing
operations includes gains from foreign currency transactions of $56,000 in 1996
and $11,000 in 1995. There were no material foreign currency transactions prior
to 1995. The functional currency of Tempress Systems, Inc. is the Netherlands
guilder.
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 Notes 4 and 11.
Income (Loss) Per Common Share - Primary and fully diluted earnings per share
in 1996 and 1995 are computed using the modified treasury stock method, because
the number of warrants and options exceed 20% of the common shares outstanding
at year-end. For fiscal 1994, primary earnings per common share are computed
based on weighted average common and common equivalent shares outstanding
determined using the treasury stock method. For fully diluted earnings per
share, the number of common equivalent shares used has been calculated assuming
that dilutive options were outstanding the full year and that based upon the
year-end stock price fewer shares could have been repurchased. The weighted
average shares outstanding for the purposes of calculating primary earnings per
share were 6,341,027, 3,802,853 and 1,929,084 for 1996, 1995 and 1994,
respectively. The average outstanding shares for the calculation of fully
diluted earnings per share were not materially different. The weighted average
shares outstanding for 1996 includes 2,165,299 shares currently issuable upon
exercise of the warrants and stock options because they are dilutive.
Accounting for Stock-Based Compensation - This new accounting pronouncement,
SFAS No. 123, must be adopted by the Company in fiscal 1997. As permitted by
SFAS No. 123, the Company will continue to account for transactions with its
directors and employees pursuant to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Companies which choose this
alternative method are required to disclose the pro forma effects on earnings
and earnings per share as if the effects of stock based compensation had been
accounted for in the financial statements. Management has not yet calculated the
effects of those pro forma adjustments.
F-8
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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.
Fair Value of Financial Instruments - The carrying values of the Company's
current assets and current liabilities approximate fair value due to the short
term in which these instruments mature. The carrying value of the Company's
long-term debt approximates fair value because the interest rate of the mortgage
note payable (Note 5) approximates prevailing interest rates for similar debt
instruments.
Reclassifications - Certain reclassifications have been made to the 1994 and
1995 amounts to conform to the 1996 presentation.
(3) KOREAN JOINT VENTURE:
In the first quarter of fiscal 1996, the Company entered into a joint venture
agreement pursuant to which the Company received a 45% ownership interest and a
50% voting interest in Seil Semicon, Inc. (the "JVC") in return for a commitment
to invest $500,000 in cash. The joint venturers planned to operate a silicon
test wafer reclaiming business in Korea through Seil Semicon, Inc., which
remains in the start-up phase. Pursuant to that agreement, the Company invested
$425,000 and expensed $65,000 of that amount as its share of the start-up
losses. The joint venture succeeded in acquiring real property for construction
of the reclamation facility and in securing $3 million in third party financing.
However, a review during the fourth quarter of fiscal 1996 revealed that the
increases in the JVC's anticipated costs during the start-up phase and the cost
of additional equipment required for the operation had expanded the total
projected capital requirements by $2,500,000. After the end of the fiscal year,
the Company's financial relationship with the joint venture was terminated
because management determined that raising the Company's investment commitment
to $3 million, without obtaining majority control, was more risk than was
appropriate for the Company. The Company received $478,000 during December 1996,
pursuant to the termination agreement, which reimbursed the Company's actual
investment and expenses. As of September 30, 1996, the $360,000 carrying value
of the investment in the JVC was included in other assets.
(4) INCOME TAXES:
The provision for (benefit from) income taxes on continuing operations
consists of:
1996 1995 1994
--------- --------- ---------
Current-
Federal $ 212,000 $ 130,000 $ (13,000)
State 8,000 2,000 --
--------- --------- ---------
220,000 132,000 (13,000)
--------- --------- ---------
Deferred-
Federal (70,000) (42,000) (15,000)
State -- -- --
--------- --------- ---------
(70,000) (42,000) (15,000)
--------- --------- ---------
$ 150,000 $ 90,000 $ (28,000)
========= ========= =========
F-9
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) INCOME TAXES - (continued)
The provision for income taxes on continuing operations is different than the
amount which would be computed by applying the United States corporate income
tax rate to the income before income taxes. The differences are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at the statutory rate $ 118,000 $ 89,000 $ (40,000)
Effect of amortization of goodwill and other
expenses not deductible for tax reporting purposes 3,000 13,000 10,000
State tax provision 28,000 54,000 (4,000)
Research & development credit -- -- (27,000)
Change in valuation allowance (20,000) (52,000) 4,000
Other items 21,000 (14,000) 29,000
--------- --------- ---------
Actual tax provision $ 150,000 $ 90,000 $ (28,000)
========= ========= =========
</TABLE>
The components of deferred taxes as of September 30, 1996 and 1995 are as
follows:
1996 1995
--------- ---------
Allowance for doubtful accounts $ 38,000 $ 32,000
Uniform capitalization of inventory costs 43,000 34,000
Inventory write-downs not currently deductible 45,000 38,000
Book vs. tax depreciation (24,000) --
State net operating loss carryforwards 2,000 42,000
Liabilities not currently deductible 177,000 97,000
Valuation allowance (58,000) (78,000)
--------- ---------
$ 223,000 $ 165,000
========= =========
In evaluating the probability of realizing its deferred tax assets, the
Company has limited its recognition of deferred tax assets to an amount equal to
the expected federal income tax rate of 34% applied to the cumulative temporary
differences existing at year end. Deferred tax assets attributable to state net
operating losses and the state tax effect of the temporary differences are fully
offset by the valuation allowance.
See Note 11 regarding the income tax treatment of the gain on the disposal of
discontinued operations.
(5) LONG-TERM DEBT
Long-term debt consists of a twenty (20) year mortgage secured by the
Company's land and building located in The Netherlands and a construction
deposit for remodeling the building. The collateral has a carrying value of
$403,000. Principal is payable in The Netherlands guilder in 240 equal monthly
payments. Principal payments are $14,000 for each of the next five years, with
the payments for 1997 being included with accounts payable as of September 30,
1996. Interest for the first five years is fixed at 6.95%, after which the rate
will be adjusted to the prevailing market rate. During the five year fixed
interest period there is a penalty for prepayment of the loan.
F-10
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) MAJOR CUSTOMERS AND FOREIGN SALES:
The Company had major customers which account for more than 10% of sales as
follows:
1996 1995 1994
----------- ----------- -----------
17% 28% 18%
10% 11% 14%
10% - 11%
10% - -
----------- ----------- -----------
47% 39% 43%
=========== =========== ===========
The individual line items above do not reflect the same customers in each
year. As of September 30, 1996, receivables from three customers comprise 50% of
accounts receivable, representing a concentration of credit risk as defined by
SFAS No. 105.
The Company's sales were to the following geographic regions:
1996 1995 1994
-------- -------- --------
United States (including 1% or less to Canada) 39% 36% 57%
Far East (Korea, People's Republic of China,
Taiwan, Japan, and Singapore) 36% 51% 26%
Europe (including Israel) 21% 7% 5%
India 4% 6% 12%
-------- -------- --------
100% 100% 100%
======== ======== ========
(7) LEASES:
The Company leases buildings, vehicles and equipment. Minimum rental
commitments under noncancellable operating leases, all of which expire in the
next three years, are as follows as of September 30, 1996:
1997 $ 69,000
1998 23,000
1999 10,000
--------
$102,000
========
Rental expense related to continuing operations, net of sublease income, for
1996, 1995 and 1994 was approximately $108,000, $76,000 and $50,000,
respectively.
(8) PROPRIETARY PRODUCT RIGHTS:
The Company acquired the proprietary product rights to Atmoscan in 1983, which
provides an improved method for the automatic loading of silicon wafers into
diffusion furnaces. The Company has agreed to pay the inventor royalties for 17
years until November 22, 2000. From the first quarter of fiscal 1994 through the
year 2000, royalties on sales of complete units of the product are 4% and 2% on
any spare parts. Royalty expense included in cost of product sales of the
semiconductor equipment segment totaled approximately $47,000, $49,000 and
$63,000 in 1996, 1995 and 1994, respectively.
F-11
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) STOCKHOLDERS' INVESTMENT AND STOCK OPTIONS:
Effective with the close of business on March 29, 1996, each share of the $.01
par value common stock of the Company was split into two shares. All shares and
per share amounts have been restated to give effect for this two for one forward
stock split.
On December 22, 1994, the Company completed a secondary public offering of
2,415,000 shares of its $.01 par value common stock and redeemable warrants for
an equal number of shares. The sale was in the form of units which were
comprised of six (6) shares and three (3) redeemable warrants each, and which
were sold to the public at a price of $11.25 per unit. The gross proceeds from
the public sale amounted to $4,528,125. The net proceeds to the Company, after
deducting all expenses of the offering, were $3,623,382.
Each redeemable warrant issued in the offering entitles the holder to acquire
two shares of the Company's $.01 par value common stock at an exercise price of
$2.75 per share at any time prior to the December 15, 1999 expiration date. The
redeemable warrants are subject to the Company's right of redemption, under
certain circumstances, at $.05 each during the period in which they are
exercisable. In connection with the public offering, the Company also sold the
underwriting group a warrant ("underwriter's warrant") entitling the group to
purchase 35,000 units at a per unit price of $13.50 during the four year period
ending December 15, 1999. In summary, the total number of shares of $.01 par
value common stock issuable under the underwriter's warrant and the redeemable
warrants are 210,000 at a per share price of $2.25 and 2,625,000 at a per share
price of $2.75, respectively.
The Board has reserved 93,000 shares of common stock for use by the 1983
Incentive Stock Option Plan, which is now expired, 40,000 shares under Director
Stock Purchase Agreements, 200,000 shares for the Non- Employee Directors Stock
Option Plan and 320,000 shares to be used jointly by the Amended and Restated
1995 Stock Option Plan and the 1995 Stock Bonus Plan, for a total 653,000 shares
so reserved. Incentive 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 the option was granted. Incentive stock option
grants expire no later than 10 years from the date of grant, with the most
recent grant expiring October 15, 2002. Under the terms of the 1995 Stock Option
Plan, nonqualified options may also be issued. As of September 30, 1996, no
options have been granted under the 1995 Stock Option Plan.
The following is a summary of outstanding stock options, 81,000 of which are
exercisable, as of September 30, 1996:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Nature of Options Shares Price Date
------------------- --------- ------------ ----------------
<S> <C> <C> <C>
Directors' options 40,000 $1.06-$2.23 90 days after
termination
Incentive Stock Option Plan-
President 15,000 1.76 1996-1998
Other employees 78,000 .63-1.13 1997-2003
-------
133,000
=======
</TABLE>
The Board of Directors adopted the 1995 Stock Bonus Plan under which grants to
employees for 46,500 shares remain outstanding as of September 30, 1996. Under
the terms of those grants, the employees have or will in fiscal 1996, 1997, 1998
and 1999, vest in regards to 15,100, 14,600, 14,800 and 2,000 shares,
respectively. The grants also provide limited tax protection in the form of a
cash bonus in the amount of 40% of the market value of the shares on the date of
F-12
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) STOCKHOLDERS' INVESTMENT AND STOCK OPTIONS: (continued)
the grant. The shares will be issued and the tax protection paid if the grantee
remains an employee through the date on which he or she becomes vested in those
shares. Compensation expense is being recorded ratably over the vesting period
through the accrual of a liability. Although such shares are not reflected in
the Consolidated Statements of Stockholders' Investment, because the shares have
not been issued, pending vesting and registration, they are included in the
calculation of earnings per share.
(10) COMMITMENTS AND CONTINGENCIES:
During March 1994, the Company entered into a research and development
contract with and paid $355,405 to the University of California at Santa Cruz
(the "University"). That amount was expensed in fiscal 1994. The Company's
purpose for entering into the contract is to attempt to prove the feasibility
and demonstrate the practical application of the Company's patented
photo-assisted chemical vapor deposition ("CVD") process. The University has
developed designs and specifications for a prototype model of a product
embodying the Company's technology and used it to conduct the initial study. In
fiscal 1996, the company amended its contract to extend its term to the later of
October 31, 1996 or the date on which the work is completed, and to increase its
financial commitment. As of September 30, 1996, the remaining commitment on the
contract was $112,000. The purpose of the contract amendment is to determine
whether deposition rates that are satisfactory for commercial applications can
be achieved with the Company's patented method.
Assuming the feasibility of the proposed photo CVD product, the Company
expects to expend approximately $3,200,000 for its development. The expenditure
is expected to be made in two stages: approximately $1,700,000 for the
development of an initial product suitable for use in research facilities and
approximately $1,500,000 for the development of a product for use in industrial
production facilities. These estimates do not include any amount for the
expansion of facilities for the manufacture of a new photo CVD product designed
for industrial production facilities and it is reasonably possible that these
estimates will be revised based upon an analysis of the final study results.
Funds for that expansion, if any, are expected to be obtained from one or more
sources of financing, such as the possible exercise of the outstanding
redeemable common stock warrants, working capital loans from banks, a secondary
public offering and internally generated cash from operations. There is no
assurance of the availability or sufficiency of these or any other source of
financing.
The Company has internal commitments to expend up to $560,000 on developing
new products that are complementary to the horizontal diffusion product line and
improving existing products.
(11) DISCONTINUED TECHNICAL CONTRACT PERSONNEL SEGMENT:
The Company entered the technical contract personnel segment in 1988. On
September 30, 1992, the Company sold substantially all of the operations of the
technical contract personnel segment, with only Echelon Service Company
("Echelon") being retained. Echelon was acquired in 1989, using stock and cash
F-13
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) DISCONTINUED TECHNICAL CONTRACT PERSONNEL SEGMENT - (continued)
at closing as consideration, as well as an incentive arrangement payable in cash
and stock. Since October 1995, when the board of directors approved a plan to
discontinue the technical contract personnel business, those operations have
been designated as discontinued in financial reports of the Company.
Effective December 29, 1995, the Company exchanged all of its ownership
interest in the stock of Echelon for 196,034 shares of the Company's outstanding
$.01 par value Common Stock previously owned by Eugene R. Hartman, then an
officer and director of the Company. The transaction was preceded by a dividend
from Echelon to the Company in order to equalize values. The transaction was
structured to be a tax-free reorganization and, as such, no provision for income
taxes has been made relative to this transaction.
The results of the discontinued operations reflected in the consolidated
statements of operations are those of Echelon through the date of the disposal.
Revenue of the discontinued operations were $1,235,000 for the three months
ended with the December 1995 disposition and $4,549,000 and $6,224,000,
respectively, for the two years in the period ended September 30, 1995. Income
from discontinued operations for fiscal 1996, 1995, and 1994 are net of
applicable income taxes of $25,000, $30,000 and $40,000, respectively. Goodwill
net of accumulated amortization as of September 30, 1995, related to the
acquisition of Echelon, amounted to $85,315 as of that date, and was one of the
assets disposed of in the December 1995 transaction.
F-14
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
Additions
For the Year Balance at Charged
Ended Beginning (Credited) Balance at
September 30, of Year to Expense Write-offs End of Year
------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
1. Allowance for Doubtful Accounts
-------------------------------
1996 $ 80,000 $ 66,249 $56,249 $ 90,000
1995 45,000 35,704 704 80,000
1994 45,000 73,720 73,720 45,000
2. Deferred Tax Asset Valuation Allowance
--------------------------------------
1996 $ 78,000 $(20,000) $ - $ 58,000
1995 150,000 (72,000) - 78,000
1994 150,000 - - 150,000
</TABLE>
S-1
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the Company's Notice of Meeting and Proxy Statement to be filed in connection
with the Company's Annual Meeting of Shareholders anticipated to be held on or
about February 28, 1997.
ITEM 11. MANAGEMENT REMUNERATION
The information required by this Item is incorporated by reference to
the Company's Notice of Meeting and Proxy Statement to be filed in connection
with the Company's Annual Meeting of Shareholders anticipated to be held on or
about February 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Notice of Meeting and Proxy Statement to be filed in connection
with the Company's Annual Meeting of Shareholders anticipated to be held on or
about February 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's Notice of Meeting and Proxy Statement to be filed in connection
with the Company's Annual Meeting of Shareholders anticipated to be held on or
about, February 28, 1997.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements.
The following is a list of all financial statements filed as a part of
this Report:
1. Consolidated Balance Sheets - September 30, 1996 and 1995
2. Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994
3. Consolidated Statements of Stockholders' Investment for the
years ended September 30, 1996, 1995 and 1994
4. Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994
5. Notes to Consolidated Financial Statements - September 30,
1996, 1995 and 1994
(b) Financial Statement Schedules
The following is a list of a financial statement schedule required to
be filed as a part of this Report:
1. Schedule II - Valuation and Qualifying Accounts
All schedules other than the Schedule listed above, are omitted as the
information is not required, is not material or is otherwise furnished.
30
<PAGE>
(c) Exhibits.
<TABLE>
<CAPTION>
Method
Exhibit No. Description of Filing
----------- ----------- ---------
<S> <C> <C>
3.1 Articles of Incorporation A
3.2 Articles of Amendment to Articles of Incorporation, dated A
April 27, 1983
3.3 Articles of Amendment to Articles of Incorporation, dated B
May 19, 1987
3.4 Articles of Amendment to Articles of Incorporation, dated C
May 2, 1988
3.5 Articles of Amendment to Articles of Incorporation, dated G
May 28, 1993
3.6 Amended and Restated Bylaws D
10.1 Amended and Restated 1995 Stock Option Plan J
10.2 1995 Stock Bonus Plan J
10.3 Non-Employee Director Stock Option Plan K
10.4 J.S. Whang Stock Option Agreement A
10.5 Employment Agreement with Robert T. Hass, dated May F
19, 1992
10.6 Registration Rights Agreement with J.S. Whang, dated G
January 24, 1994
10.7 Employment Agreement with J.S. Whang, dated October G
1, 1994
10.8 Contract of Sale (Real Property) dated June 21, 1996 I
between Tempress Systems, Inc. and Orgelmakerij Gedr.
Rell B.V.
10.9 Research Agreement with The Regents of the University H
of California dated March 1, 1994, together with amendments
thereto dated March 1, 1994, March 30, 1994, March 7, 1995,
June 26, 1995, October 16, 1995, November 29, 1995, and
December 4, 1995
10.10 Amendment to Research Agreement with the Regents of I
the University of California dated July 8, 1996
10.11 Joint Venture Termination and Stock Redemption *
Agreement dated September 24, 1996
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Method
Exhibit No. Description of Filing
----------- ----------- ---------
<S> <C> <C>
11 Schedule of Computation of Net Income per Share *
22 Subsidiaries of the Registrant *
23 Consent of Arthur Andersen LLP *
24 Powers of Attorney See Signature
Page
27 Financial Data Schedule *
</TABLE>
- ----------
* Filed herewith.
A Incorporated by reference to the Company's Form S-18 Registration
Statement No. 2-83934-LA
B Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987
C Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1988
D Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1991
E Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992
F Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993
G Incorporated by reference to the Company's Form S-1 Registration
Statement No. 33-77368
H Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995
I Incorporated by reference to the Company's Form S-3 Registration
Statement No. 333-09917
J Incorporated by reference to Company'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 August 8, 1996
K Incorporated by reference to Company'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
(d) Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the fourth
quarter of fiscal year 1996.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMTECH SYSTEMS, INC.
December 30, 1997 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 Form 10-K Annual
Report, 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jong S. Whang Chairman of the Board, December 30, 1997
- -----------------------------------------
Jong S. Whang President (Chief Executive Officer)
/s/ Robert T. Hass Vice President-Finance December 30, 1997
- -----------------------------------------
Robert T. Hass (Chief Financial & Accounting Officer)
/s/ Donald F. Johnston Director December 30, 1997
- -----------------------------------------
Donald F. Johnston
/s/ Alvin Katz Director December 30, 1997
- -----------------------------------------
Alvin Katz
/s/ Bruce R. Thaw Director December 30, 1997
- -----------------------------------------
Bruce R. Thaw
</TABLE>
33
JOINT VENTURE TERMINATION &
STOCK REDEMPTION AGREEMENT
BETWEEN
AMTECH SYSTEMS, INC
AND
INDIVIDUAL INVESTORS
AND
SEIL SEMICON, INC.
DATED: September , 1996
<PAGE>
JOINT VENTURE TERMINATION &
STOCK REDEMPTION AGREEMENT
BETWEEN
AMTECH SYSTEMS, INC
AND
INDIVIDUAL INVESTORS
AND
SEIL SEMICON, INC.
The parties to this Agreement are Amtech Systems, Inc. ("Amtech"), a
corporation duly organized and existing under the laws of the State of Arizona,
United States of America ("USA") having its principal place of business at 131
South Clark Drive, Tempe, Arizona, USA, the INDIVIDUAL INVESTORS, whose
signatures are subscribed hereto, being hereinafter collectively referred to as
the KOREAN INVESTMENT GROUP ("KIG"), and Seil Semicon, Inc., a Korean joint
stock company (chusik hoesa) ("Seil").
The parties have agreed as follows:
1. RECITALS
1.1 Stock Ownership. Amtech is the owner of 45% of the issued and
outstanding capital stock of Seil and has the proxy of A.G. Lee to vote an
additional 5% of the outstanding capital stock of Seil. Furthermore, Amtech is a
joint venture partner in Seil, with the second largest interest in the venture,
through the Joint Venture Agreement dated September 30, 1995, as revised per the
Amendment Agreement dated November 23, 1995, and through which certain benefits
and obligations were to accrue to Amtech (the "JVC AGREEMENT").
1.2 Purpose. The KIG has requested the termination of the JVC Agreement
and has sought mutual agreement for termination pursuant to Article 17.1 of that
agreement. Amtech has agreed to said termination on the condition that mutual
agreement is reached for the disposition of its interest in Seil pursuant to
Article 18.2 of the JVC Agreement. Seil desires to redeem the 45% ownership
interest of Seil owned by Amtech through the purchase from it of all of the
outstanding capital stock of Seil owned by Amtech ("Seil Stock"), in accordance
with the mutual agreement reached between the KIG, Amtech, and Seil. Amtech
desires to sell the Seil Stock to Seil pursuant to the terms and conditions of
this Agreement.
2. THE TRANSACTION
2.1 Redemption of Seil Stock. Subject to all of the terms and
conditions of this Agreement, Amtech agrees to sell and Seil
2
<PAGE>
agrees to redeem, at the Closing (hereinbelow defined), but effective as of
September 30, 1996, unless closed earlier, the Seil Stock, free and clear of all
liens, claims, options, charges and encumbrances whatsoever, for the redemption
price specified below.
2.2 Redemption Price. The redemption price for the Seil Stock shall be
$478,143 and shall be paid on or before September 30, 1996.
2.3 Termination of JVC. When one or more Certificates of Termination in
the same form as Exhibit A, attached, have been signed by Amtech, Seil, and the
KIG, Mr. Seung Kag Hong, Jae-Im Ko, his wife, and A.G. Lee (the "Parties"), the
JVC will terminate and the Parties will no longer have any further rights or
obligations under the JVC Agreement, except as may be provided in the
Certificates of Termination.
2.4 Closing. The delivery of the Seil Stock, the delivery of the
Certificates of Termination, and the payment of the redemption price in the
amount of $478,143 and of any other instruments, certificates and items to be
delivered under this Agreement (the "Closing") shall take place by facsimile
assignment of the Seil Stock, facsimile delivery of the Certificates of
Termination and the wire transfer, with facsimile confirmation, of funds via the
SWIFT system to:
Mellon Bank
Pittsburgh, Pennsylvania, USA
ABA # 0430-0026-1
Credit: Merrill Lynch
For further credit to:
Amtech Systems, Inc.
on or before September 30, 1996, Arizona time (the "closing Date") or at such
other place or time upon which the parties may agree in writing. The Parties
hereby agree that signed assignments, certificates and other instruments
delivered by means of facsimile transmission will be legally binding and treated
the same as if an original. Facsimile transmissions to Amtech should be sent to
1-602-968-3763 and if to any of the other Parties to 82-2-581-4773. The Parties
agree to mail a signed original of each document delivered by facsimile, if
requested by one of the other Parties.
3. REPRESENTATIONS AND WARRANTIES OF AMTECH
3.1. Representations and Warranties. Amtech represents and warrants to
and agrees with Seil that:
(a) Authority. Amtech has all requisite corporate power and
authority to execute, deliver and perform this Agreement
3
<PAGE>
and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and to consummate
the transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered by Amtech, and each document or
instrument executed or to be executed by Amtech pursuant hereto upon
execution and delivery will have been duly executed and delivered, and
this Agreement constitutes the legal, valid and binding obligation of
Amtech, enforceable in accordance with its terms.
(b) No Conflict. The execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby, and the
compliance with the terms and conditions hereof will not, to the
knowledge of Amtech, conflict with, or result in a breach of (1) any
relevant statute, law, ordinance, rule or regulation applicable to
Amtech or its business, or (2) the terms, conditions or provisions of
the corporate charter or the by-laws of Amtech, the conflict or breach
of which would adversely affect Seil's rights hereunder in any material
respect.
(c) Disclosure. To the knowledge of Amtech, no representation
or warranty by Amtech hereunder contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
3.2. Representations and Warranties True on the Closing Date. To the
knowledge of Amtech, all of the representations and warranties of Amtech
contained herein shall be true and correct in all material respects on and as of
the Closing Date, except as consented to by Seil in writing on or before the
Closing Date.
3.3. Survival of Representations and Warranties. The representations
and warranties of Amtech contained herein shall survive the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF SEIL AND KIG
4.1. Representations and Warranties. Seil and the undersigned
Individual Investors represent and warrant to and agree with Amtech that:
(a) Corporate Existence. Seil is a corporation duly organized
and existing under the laws of Korea and has the corporate power and
authority to enter into this Agreement.
(b) Validity of Agreement. Seil has taken such corporate steps
as are necessary to authorize the execution of the Agreement and to
comply in full with the terms thereof
4
<PAGE>
that are to be performed by Seil. This Agreement is a valid obligation
of Seil in accordance with its terms. This Agreement and compliance
with its terms are not inconsistent with Seil's Articles of
Organization, its by-laws or any agreement to which Seil is a party.
This Agreement when signed by the Individual Investors will binding
upon them.
(c) Governmental Interference. Seil and the Individual
Investors do not know or have reasonable grounds to know of any action
before a court or other governmental body pending or threatened by the
government or any agency thereof or by any other third party that might
restrain or prohibit the redemption by Seil of the Seil Stock as herein
contemplated or the termination of the JVC Agreement.
(d) Consents and Approvals. Seil and the Individual Investors
do not know or have reasonable grounds to know of any requirement for
the consents or approvals of third parties, whether they be the
Industrial Bank of Korea, its affiliates, parties to other agreements,
or the government of Korea or its provinces or any agency thereof, in
order to enter into the Agreement and to comply in full with the terms
thereof that are to be performed by them, or that if any such consents
or approvals are so required, they will be obtained by the Closing.
4.2. Representations and Warranties True on Closing Date. All of the
representations and warranties of Seil and the Individual Investors contained
herein shall be true and correct in all respects on and as of the Closing Date,
except as consented to by Amtech on or before the Closing.
5. CONDITIONS TO CLOSING
5.1. Conditions to Closing by the Parties. The obligations of Amtech,
KIG and Seil to consummate the transactions contemplated hereby are, at the
option of each party, subject to the fulfillment of the condition that on the
Closing Date:
(a) there shall not be any injunction, writ, preliminary
restraining order or any order of any nature issued by any court or
governmental agency directing the transaction contemplated by this
Agreement not be consummated, and
(b) there shall not be pending or known to be threatened any
action, proceeding or investigation before any such court or
governmental agency seeking as to any party hereto any such injunction,
writ, or preliminary restraining order.
5
<PAGE>
5.2. Conditions to Closing by Seil and the KIG. The obligations of Seil
and the KIG to consummate the transactions contemplated hereby are, at the
option of Seung Kag Hong, subject to the fulfillment of each of the conditions
that, on or before the Closing Date:
(a) Representations and Warranties True; Obligations
Performed.
(i) The representations and warranties of Amtech
contained in Section 3.1 hereof shall be true and correct in
all material respects at and as of the Closing Date except for
specifically consented to or approved by Seil in writing, with
the same force and effect as if made at and as of the Closing
Date;
(ii) Amtech shall have delivered to Seil an
assignment of the Seil Stock or other documents reflecting the
legal transfer of ownership as may reasonably be requested by
Seil, dated the Closing Date and signed by the President of
Amtech.
(c) Certain Legal Matters. All actions, proceedings,
instruments and documents required to carry out this Agreement, or
incidental thereto, and all other related legal matters, shall be
reasonable satisfactory to the President of or counsel for Seil and
such person shall have received all documents, instruments or copies
thereof, certified if and as may be reasonably requested.
(d) Compliance. Amtech shall have performed and complied in
all material respects with all agreements, covenants and conditions
required by this Agreement to have been performed or complied with
prior to or at the Closing Date.
(e) Other Instruments and Actions. Amtech shall have executed
and delivered to Seil such other instruments and taken such other
action as Seil may reasonably have requested with respect to the
transactions contemplated by this Agreement.
5.3 Conditions to Closing by Amtech. The obligations of Amtech to
consummate the transactions contemplated hereby are, at the option of Amtech,
subject to the fulfillment of each of the conditions that, on or before the
Closing Date:
(a) Representations and Warranties True; Obligations
Performed. (i) The representations and warranties of Seil and the
Individual Investors contained in Section 4.1 hereof shall be true and
correct at and as of the Closing Date except
6
<PAGE>
for specifically consented to or approved by Amtech in writing, with
the same force and effect as if made at and as of the Closing Date.
(b) Compliance. Seil and the KIG shall have performed and
complied with all agreements, covenants and conditions required by this
Agreement to have been performed or complied with prior to or at the
Closing Date.
6. BROKERS
Amtech and Seil represent that they have dealt with no broker in
connection with any of the transactions contemplated by this Agreement and that
no broker or other person is entitled to any commission or finder's fee in
connection with any of such transactions.
7. INDEMNIFICATION BY AMTECH
Amtech hereby agrees to indemnify and hold harmless Seil and KIG
(herein referred to as "Seil/KIG"), at all times after the date of this
Agreement, against and in respect of:
(a) Any and all damage or deficiency resulting from any
material inaccuracy of any representation or warranty made by or
non-fulfillment of any agreement on the part of Amtech under this
Agreement, whether or not such inaccuracy, breach, nonfulfillment,
misrepresentation or omission was or should have been known by Seil/KIG
on the date of this Agreement, it being the agreed intention of the
parties that Amtech shall be completely responsible for, and Seil/KIG
shall be conclusively deemed to have relied upon, such representations,
warranties, agreements and instruments.
(b) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses, including without
limitation, reasonable attorneys' fees, incident to any of the
foregoing; provided that no claim for indemnification shall be made
pursuant to this Section 7 unless Seil/KIG has suffered such loss,
damage or expense in a cumulative minimum of $5,000.
(c) Promptly after receipt by Seil/KIG under this Section 7 of
notice of the commencement of any action, Seil/KIG will, if a claim in
respect thereof is to be made against Amtech under this Section 7,
notify Amtech in writing of the commencement thereof, but the omission
to notify Amtech will not relieve Amtech from any liability that it may
have to Seil/KIG otherwise than under this Section 7. In case any such
action is brought against Seil/KIG and it notifies Amtech of the
commencement thereof, Amtech will be entitled to
7
<PAGE>
participate therein and, to the extent that it may elect by written
notice delivered to Seil/KIG promptly after receiving the aforesaid
notice from Seil/KIG, to assume the defense thereof; provided, however,
if the defendants in any such action include both Seil/KIG and Amtech
and either (i) Amtech mutually agrees, or (ii) representation of both
Seil/KIG and Amtech by the same counsel is inappropriate under the
applicable standards of professional conduct due to actual or potential
conflicting interests between them, Seil/KIG shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action. Amtech will not be liable to
Seil/KIG under this Section 7 for any legal or other expenses
subsequently incurred by Seil/KIG in connection with the defense
thereof unless (i) Seil/KIG shall have employed counsel in connection
with the assumption of legal defenses in accordance with the proviso to
the next preceding sentence (it being understood, however, that Amtech
shall not be liable for the expense of more than one separate counsel
approved by Amtech), (ii) Amtech shall not have employed counsel to
represent Seil/KIG within a reasonable time after notice of
commencement of the action, or (iii) Amtech has authorized the
employment of counsel for Seil/KIG at the expense of Amtech. In no
event shall Amtech be liable under this Section 7 for any settlement
effected without its written consent, of any claim or action against
Seil/KIG.
8. INDEMNIFICATION BY SEIL AND KIG
Seil and the KIG (herein referred to as "Seil/KIG") hereby agree to
indemnify and hold harmless Amtech and to accept joint and several liability
therefor, at all times after the date of this Agreement, against and in respect
of:
(a) Any and all damage or deficiency resulting from any
material inaccuracy of any representation or warranty made by or
non-fulfillment of any agreement on the part of Seil/KIG under this
Agreement, whether or not such inaccuracy, breach, nonfulfillment,
misrepresentation or omission was or should have been known by Amtech
on the date of this Agreement, it being the agreed intention of the
parties that Seil/KIG shall be completely responsible for, and Amtech
shall be conclusively deemed to have relied upon, such representations,
warranties, agreements and instruments.
(c) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses, including without
limitation, reasonable attorneys' fees, incident to any of the
foregoing; provided that no claim for indemnification shall be made
pursuant to this Section 8 unless Amtech has suffered such loss, damage
or expense in a cumulative minimum of $5,000.
8
<PAGE>
(d) Promptly after receipt by Amtech under this Section 8 of
notice of the commencement of any action, Amtech will, if a claim in
respect thereof is to be made against Seil/KIG under this Section 8,
notify Seil/KIG in writing of the commencement thereof, but the
omission to notify Seil/KIG will not relieve Seil/KIG from any
liability that it may have to Amtech otherwise than under this Section
8. In case any such action is brought against Amtech and it notifies
Seil/KIG of the commencement thereof, Seil/KIG will be entitled to
participate therein and, to the extent that it may elect by written
notice delivered to Amtech promptly after receiving the aforesaid
notice from Amtech, to assume the defense thereof; provided, however,
if the defendants in any such action include both Amtech and Seil/KIG
and either (i) Seil/KIG mutually agrees, or (ii) representation of both
Seil/KIG and Amtech by the same counsel is inappropriate under the
applicable standards of professional conduct due to actual or potential
conflicting interests between them, Amtech shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action. Seil/KIG will not be liable
to Amtech under this Section 8 for any legal or other expenses
subsequently incurred by Amtech in connection with the defense thereof
unless (i) Amtech shall have employed counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that Seil/KIG shall
not be liable for the expense of more than one separate counsel
approved by Seil/KIG), (ii) Seil/KIG shall not have employed counsel to
represent Amtech within a reasonable time after notice of commencement
of the action, or (iii) Seil/KIG has authorized the employment of
counsel for Amtech at the expense of Seil/KIG. In no event shall
Seil/KIG be liable under this Section 8 for any settlement effected
without its written consent, of any claim or action against Amtech.
9. NOTICE
Any and all notices herein provided for or relating to the transactions
contemplated by this Agreement shall be in writing and shall be deemed to have
been sufficiently given to Amtech if mailed, postage prepaid, by certified mail
with return receipt requested and addressed to, or if delivered, to:
AMTECH SYSTEMS, INC.
131 SOUTH CLARK
TEMPE, ARIZONA 85281
ATTN: J.S. WHANG, PRESIDENT
and to Seil if mailed, postage prepaid, by certified mail with return receipt
requested and addressed to, or delivered, to:
9
<PAGE>
SEIL SEMICON, INC.
SEOUL, SOUTH KOREA
ATTN: SEUNG KAG HONG, PRESIDENT
and to KIG if mailed, postage prepaid, by certified mail with return receipt
requested and addressed to, or delivered, to:
MR. SEUNG KAG HONG AND
JAE-IM-KO
211-1402 LG APT.
JUNG-JA DONG, SUNG-NAM
KYUNG-KI DO, KOREA
or to such other address as either party may specify in writing by notice to the
other.
10. EXPENSES
Amtech and Seil shall each pay their own costs and expenses incurred in
connection with the preparation of this Agreement and the carrying out of the
transactions contemplated hereby. However, transfer taxes on the transfer of the
Seil Stock, if any, shall be born by Seil.
11. ENTIRE AGREEMENT; MODIFICATION OF AGREEMENT
This Agreement contains the entire agreement and understanding of the
parties hereto with respect to Seil's redemption of Seil Stock from Amtech and
supersedes any other oral or written agreements or understandings with respect
thereto, which agreements or understandings, if any, are hereby terminated. This
Agreement may not be altered, modified or changed in any manner whatsoever
except by a writing signed by Amtech, Seil and KIG.
13. SUCCESSORS AND ASSIGNS
The terms of this Agreement shall be binding upon, and the benefits of
this Agreement shall inure to, the successors and assigns of the parties hereto.
Seil shall have the right to assign its rights and obligations under this
Agreement to replacement investor; provided, however, that Seil shall remain
liable with respect to its obligations hereunder.
14. GOVERNING LAW; LEGAL PROCEEDINGS
Notwithstanding the termination of the JVC Agreement at the Closing,
the dispute resolution, arbitration and governing law applicable to this
Agreement shall be as provided in Article 23 of the JVC Agreement as if fully
setforth herein. Furthermore, this
10
<PAGE>
Agreement is written in the English language and executed in three (3)
counterparts, each of which shall be deemed an original. The English language
text of this Agreement shall prevail over any translation thereof. Any provision
or clause hereof which shall be invalidated by virtue of the fact that it is
prohibited by law shall be ineffective to the extent of such illegality;
however, this shall in no way affect the remaining provisions of this Agreement,
and this Agreement shall be interpreted as if such clause or provision were not
contained herein, unless such ineffective provision or clause shall be so
significant as to materially affect the parties' expectations regarding this
Agreement.
15. COUNTERPARTS
This Agreement may be executed and delivered in a number of
counterparts, each of which, when so executed and delivered, shall be an
original and all of such counterparts shall together constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
AMTECH, INC. SEIL SEMICON, INC.
By____________________________ By_________________________
J. S. Whang, President& CEO Seung Kag Hong, President
INDIVIDUAL INVESTORS
By____________________________ By____________________________
Mr. Seung Kag Hong Mr. A.G. Lee
By____________________________
Jae-Im Ko
11
<PAGE>
EXHIBIT 1
CERTIFICATE OF TERMINATION
DATE:
Pursuant to the terms and conditions in the Joint Venture Termination & Stock
Redemption Agreement, each of the undersigned does hereby agree to the
termination of the Joint Venture Agreement dated September 30, 1995, as revised
per the Amendment Agreement dated November 23, 1995, and further agrees that all
rights and obligations arising out of that agreement are terminated. This
Certificate of Termination shall be effective when Amtech Systems, Inc., Seil
Semicon, Inc., Seung Kag Hong, Jae-Im Ko, his wife, and A.G. Lee have all signed
this Certificate of Termination or another one with the same content and Amtech
has received the redemption price.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
AMTECH, INC. SEIL SEMICON, INC.
By____________________________ By_________________________
J. S. Whang, President & CEO Seung Kag Hong, President
INDIVIDUAL INVESTORS
By____________________________
Mr. Seung Kag Hong
By____________________________
Jae-Im Ko
By____________________________
Mr. A.G. Lee
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------
EXHIBIT 11
----------
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
-----------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY
- -------------------------------------
Average number of common shares outstanding 4,175,728 3,802,853 1,890,702
Incremental shares attributable to warrants/options 2,165,299 -- 38,382
----------- ----------- -----------
Total shares used in the calculation 6,341,027 3,802,853 1,929,084
=========== =========== ===========
Income from continuing operations $ 197,591 $ 171,053 $ (89,469)
Interest net of tax assumed to be earned on
additional short-term investments 145,981 -- --
----------- ----------- -----------
Income from continuing operations as adjusted $ 343,572 $ 171,053 $ (89,469)
=========== =========== ===========
Earnings per share - continuing $ .05 $ .04 $ (.05)
Net income $ 508,683 $ 226,568 $ 94,004
Interest net of tax assumed to be earned on
additional short-term investments 145,981 -- --
----------- ----------- -----------
Adjusted net income $ 654,664 $ 226,568 $ 94,004
=========== =========== ===========
Earnings per share $ .10 $ .06 $ .05
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------
EXHIBIT 11 - CONTINUED
----------------------
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
-----------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
FULLY DILUTED
- ------------------------------------
Average number of common shares outstanding 4,175,728 3,802,853 1,929,084
Incremental shares attributable to warrants/options 2,165,299 -- 516
----------- ----------- -----------
Total shares used in the calculation 6,341,027 3,802,853 1,929,600
=========== =========== ===========
Income from continuing operations $ 197,591 $ 171,053 $ (89,469)
Interest net of tax assumed to be earned on
additional short-term investments 134,072 -- --
----------- ----------- -----------
Income from continuing operations as adjusted $ 331,663 $ 171,053 $ (89,469)
=========== =========== ===========
Earnings per share - continuing $ .05 $ .04 $ (.05)
Net income $ 508,683 $ 226,568 $ 94,004
Interest net of tax assumed to be earned on
additional short-term investments 134,072 -- --
----------- ----------- -----------
Adjusted net income $ 642,755 $ 226,568 $ 94,004
=========== =========== ===========
Earnings per share $ .10 $ .06 $ .05
</TABLE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Tempress Systems, Inc. -- Incorporated under the laws of the State of Texas.
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Forms S-3 and Forms S-8 (File Numbers 333-09917,
333-10117, 333-09911 and 333-09909).
ARTHUR ANDERSEN LLP
Phoenix, Arizona
December 9, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE BALANCE SHEETS AS
OF SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995, AND
THE STATEMENTS OF OPERATION AND THE STATEMENTS OF
CASH FLOW FOR THE THREE YEARS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,994,217
<SECURITIES> 2,464,120
<RECEIVABLES> 1,671,973
<ALLOWANCES> 90,000
<INVENTORY> 739,201
<CURRENT-ASSETS> 7,049,446
<PP&E> 1,576,511
<DEPRECIATION> 600,180
<TOTAL-ASSETS> 8,458,614
<CURRENT-LIABILITIES> 1,568,994
<BONDS> 265,355
0
0
<COMMON> 41,097
<OTHER-SE> 6,583,168
<TOTAL-LIABILITY-AND-EQUITY> 8,458,614
<SALES> 8,414,005
<TOTAL-REVENUES> 8,414,005
<CGS> 5,516,936
<TOTAL-COSTS> 5,516,936
<OTHER-EXPENSES> 2,709,171
<LOSS-PROVISION> 67,085
<INTEREST-EXPENSE> 5,376
<INCOME-PRETAX> 347,591
<INCOME-TAX> 150,000
<INCOME-CONTINUING> 197,591
<DISCONTINUED> 311,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508,683
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
