FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Arizona 86-0411215
- ------------------------------ ----------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 967-5146
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Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock, $.01 Par Value
-------------------------------
(Title of Class)
4,220,606 Shares
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Outstanding as of June 30, 1998
<PAGE>
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and September 30, 1997.............................. 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 1998 and 1997................ 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997.......................... 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 9
Results of Operations........................................ 9
Financial Condition and Working Capital .................... 13
Liquidity and Capital Resources..............................13
FORWARD-LOOKING STATEMENTS.................................. 14
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings...........................................15
Item 4. Submission of Matters to a Vote of Security Holders.........15
Item 6. Exhibits and Reports on Form 8-K............................15
SIGNATURES...................................................................15
2
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1998 1997
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,683,346 $1,395,849
Short-term investments -- 579,191
Accounts receivable, net 2,923,544 2,983,573
Inventories 2,749,227 2,062,052
Deferred income taxes 293,000 273,000
Prepaid expenses & refundable income taxes 167,075 85,820
---------- ----------
Total current assets 7,816,192 7,379,485
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land, building and leasehold improvements 647,526 629,604
Equipment and machinery 934,801 785,142
Furniture and fixtures 786,241 726,365
---------- ----------
2,368,568 2,141,111
Less: accumulated depreciation 957,877 781,078
---------- ----------
1,410,691 1,360,033
---------- ----------
PURCHASE PRICE IN EXCESS OF NET ASSETS
ACQUIRED, at amortized cost 567,532 561,238
---------- ----------
OTHER ASSETS, net of accumulated amortization 75,075 54,336
---------- ----------
$9,869,490 $9,355,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,048,025 $ 935,338
Accrued liabilities:
Compensation and related taxes 578,482 471,604
Warranty and installation expenses 305,941 369,868
Other accrued liabilities 594,422 208,355
Income taxes payable -- 123,000
---------- ----------
Total current liabilities 2,526,870 2,108,165
---------- ----------
LONG-TERM OBLIGATIONS 305,180 318,721
---------- ----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $.01 par value; 100,000,000 shares
authorized; 4,220,606 shares issued and
outstanding at June 30, 1998 and 4,185,106
at September 30, 1997 42,206 41,850
Additional paid-in capital 7,361,967 7,345,187
Cumulative foreign currency translation adjustment (309,075) (284,453)
Accumulated deficit (57,658) (174,378)
---------- ----------
Total stockholders' equity 7,037,440 6,928,206
---------- ----------
$9,869,490 $9,355,092
========== ==========
See accompanying notes to Condensed Financial Statements.
3
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For The Three and Nine Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue $ 3,687,135 $ 2,805,830 $ 12,486,482 $ 7,396,157
Cost of product sales 2,741,317 1,851,029 8,639,811 5,071,545
----------- ----------- ------------ -----------
Gross profit 945,818 954,801 3,846,671 2,324,612
Selling and general 1,162,420 932,831 3,394,990 2,140,633
Gain on disposition of Korean joint venture -- -- -- (115,487)
Research and development 97,834 60,517 264,543 191,411
----------- ----------- ------------ -----------
Operating profit (loss) (314,436) (38,547) 187,138 108,055
Interest income-net 14,871 39,248 50,582 133,397
----------- ----------- ------------ -----------
Net income (loss) before income taxes (299,565) 701 237,720 241,452
Income tax provision (benefit) (115,000) -- 121,000 75,000
----------- ----------- ------------ -----------
NET INCOME (LOSS) $ (184,565) $ 701 $ 116,720 $ 166,452
=========== =========== ============ ===========
EARNINGS (LOSS) PER SHARE (Note 4):
Basic $ (.04) $ -- $ .03 $ .04
Diluted $ (.04) $ -- $ .03 $ .04
Weighted average outstanding shares 4,220,606 4,165,703 4,211,082 4,149,778
Weighted average common and
common equivalent shares outstanding 4,220,606 4,461,860 4,263,588 4,722,868
</TABLE>
See accompanying notes to Condensed Financial Statements.
4
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended June 30, 1998 and 1997
Nine Months Ended
------------------------
1998 1997
---- ----
(Unaduited) (Unaduited)
OPERATING ACTIVITIES:
Net income $ 116,720 $ 166,452
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 254,045 159,725
Inventory and accounts receivable write-offs 37,902 46,123
Gain on disposition of Korean joint venture -- (115,487)
Gain on sale of assets (2,241) --
Deferred tax benefit (20,000) (133,000)
Decreases (increases) in operating assets:
Accounts receivable 34,752 (2,202,755)
Inventories, prepaids and other assets (711,189) (453,152)
Increases (decreases) in operating liabilities:
Accounts payable 121,577 670,384
Accrued liabilities 491,941 412,820
Income taxes payable (219,493) 147,000
---------- -----------
Net cash Provided by (Used In) Operating Activities 104,014 (1,301,890)
---------- -----------
INVESTING ACTIVITIES:
Maturities of short-term investments - net 579,191 1,284,631
Proceeds from disposition of
unconsolidated Korean joint venture -- 475,047
Proceeds from sale of assets 2,241 --
Purchases of property, plant and equipment (262,569) (186,170)
---------- -----------
Net Cash Provided by Investing Activities 318,863 1,573,508
---------- -----------
FINANCING ACTIVITIES:
Stock repurchases less proceeds from stock
options exercised (24,775) 35,201
Payments on mortgage loan (9,017) (10,169)
---------- -----------
Net Cash Provided by (Used in) Financing
Activities (33,792) 25,032
---------- -----------
EFFECT OF EXCHANGE RATE CHANGES (101,588) 9,039
---------- -----------
CASH AND EQUIVALENTS
Net increase 287,497 305,689
Beginning of year 1,395,849 1,994,217
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END OF QUARTER CASH AND EQUIVALENTS $1,683,346 $ 2,299,906
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,858 $ 12,347
Income taxes, net of refunds 360,000 60,000
See accompanying notes to Condensed Financial Statements.
5
<PAGE>
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 1998
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
Tempress Systems, Inc., based in Heerde, The Netherlands, and P. R.
Hoffman Machine Products, Inc., formed July 1, 1997 (collectively, the
"Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"), and are unaudited. In the opinion of
management these financial statements include all adjustments which are
necessary for a fair presentation of the consolidated financial
position of the Company as of June 30, 1998 and September 30, 1997 and
the consolidated results of its operations for the three and nine
months ended June 30, 1998 and 1997, and its consolidated cash flows
for the nine months ended June 30, 1998 and 1997.
Certain information and footnote disclosures normally included
in financial statements have been condensed or omitted pursuant to the
rules and regulations of the Commission. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1997, which are
incorporated herein by reference.
The consolidated results of operations for the three and nine
months ended June 30, 1998, are not necessarily indicative of the
results to be expected for the full year.
(2) INVENTORIES
The components of inventories are as follows:
June 30, September 30,
1998 1997
---- ----
Purchased parts and
raw material $ 1,222,876 $ 995,850
Work-in-process 1,049,386 618,295
Finished goods 476,965 447,907
----------- ----------
Totals $ 2,749,227 $2,062,052
=========== ==========
6
<PAGE>
(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
During the first quarter of 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 joint
venturers' plan was to operate a silicon test wafer reclaiming business
through Seil Semicon, Inc. During the fourth quarter of fiscal 1996, it
was determined that the joint venture required significantly more
capital than originally anticipated. In the first quarter of fiscal
1997, the Company disposed of its interest in the joint venture because
management believed that raising the Company's commitment to $3
million, without obtaining majority control, was more risk than was
appropriate for the Company. The Company received $475,000 during
December 1996, in exchange for its interest in the joint venture,
thereby recovering its investment and related expenses. Because the
Company disposed of its interest in the joint venture and recovered its
equity in the first year start-up losses and certain expenses related
to that venture incurred during fiscal 1996, a $115,000 gain was
recorded in the first quarter of fiscal 1997.
(4) EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128 in the quarter ended December 31,
1997. SFAS No. 128 establishes new standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion No.
15. SFAS No. 128 replaces primary EPS with basic EPS and fully diluted
EPS with diluted EPS and requires dual presentation of basic and
diluted EPS. SFAS No. 128 is effective for annual and interim periods
ending after December 15, 1997. Earlier adoption was not permitted. All
prior period EPS data have been restated to conform to SFAS No. 128.
Basic EPS was the same as primary EPS for the third quarter and the
first nine months of fiscal 1997. Diluted EPS was the same as fully
diluted EPS reported for the third quarter and the first nine months of
fiscal 1997. EPS were calculated as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Net income (loss) $(184,565) $ 701 $116,720 $166,452
After-tax amortization
of contingent goodwill -- -- (5,936) --
--------- ------- -------- --------
Income (loss) used in
the calculations $(184,565) $ 701 $110,784 $166,452
========= ======= ======== ========
7
<PAGE>
Weighted average
Shares outstanding:
Common shares 4,220,606 4,165,703 4,211,082 4,149,778
Common equivalents
issuable upon
exercise of warrants
and stock options(1) -- 296,157 52,507 573,090
--------- --------- --------- ---------
4,220,606 4,461,860 4,263,588 4,722,868
========= ========== ========= =========
EARNINGS (LOSS) PER SHARE:
Basic ($ .04) $ -- $ .03 $ .04
========= ========== ========= =========
Diluted ($ .04) $ $ .03 $ .04
========= ========== ========= =========
-------------
(1) Number of shares calculated using the treasury stock method
and the average market price during the period. Options and
warrants with an exercise price greater than the average
market price during the period did not enter into the
calculation. Additionally, anti-dilutive options and warrants
did not enter into the calculation.
(5) ACQUISITION OF P. R. HOFFMAN
On July 1, 1997, the Company purchased substantially all of
the assets of P. R. Hoffman Machine Products Corporation, an "S"
corporation based in Carlisle, Pennsylvania ("P.R. Hoffman"). In
addition to the purchase price paid in fiscal 1997, the Company will
pay in either cash or stock an earn-out equal to 50% of the pre-tax
income of P. R. Hoffman, before amortization of goodwill, other expense
arising from the application of purchase accounting and allocations of
corporate expense ("Adjusted Income") in excess of $800,000 per year,
during the five (5) fiscal years ending September 30, 2002. The maximum
earn-out payable under the purchase agreement is $2 million. This
additional purchase price will be treated as part of the purchase price
to the extent earned and amortized over the remainder of the period
ending June 30, 2012. During the first nine months of fiscal 1998, the
annualized Adjusted Income of this operation has exceeded $800,000 by
approximately $85,000. If Adjusted Income for fiscal 1998 equals the
annualized Adjusted Income for the period ending June 30, 1998, the
contingent purchase price to be paid for the first year of the earn-out
will be $42,500. Three-fourths of that amount, $32,000, has been
recorded as additional goodwill during the first nine months of fiscal
1998. Earnings per share amounts for the first nine months of fiscal
1998 include the estimated after-tax amortization of the total
projected contingent consideration of $212,000 (five times the $42,500
projected for fiscal 1998). For the three months ended June 30, 1998,
their effects were not considered because their effects would have been
anti-dilutive.
8
<PAGE>
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a
percentage of net revenue for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of product sales (74.3) (66.0) (69.2) (68.6)
----- ----- ----- -----
Gross profit 25.7 34.0 30.8 31.4
Selling, general and
administrative expenses (31.5) (33.2) (27.2) (28.9)
Research and development (2.7) (2.2) (2.1) (2.6)
Gain on joint venture -- -- -- 1.6
----- ----- ----- -----
Operating profit (8.5)% (1.4)% 1.5% 1.5%
===== ===== ===== =====
Net Revenue. The Company's net revenue for the quarter ended June 30,
1998 was $3,687,000, an increase of $881,000, or 31%, over net revenue of
$2,806,000 for the corresponding quarter of the previous fiscal year. P. R.
Hoffman, which was acquired in the fourth quarter of fiscal 1997, and
manufacturing support services, which began operations in the fourth quarter of
fiscal 1997, contributed $1,750,000 to consolidated revenue of the third quarter
of fiscal 1998. The increase in revenue contributed by these new operations was
partially offset by a decrease of $868,000, or 31%, in revenue from the sale of
existing diffusion equipment and related replacement parts. Consolidated revenue
in the third quarter of fiscal 1998 was lower than that of the first and second
quarters of fiscal 1998 by 9% and 22%, respectively, primarily due to the
decline in sales of diffusion products. Customer change orders delayed the
shipment of two large system orders totaling approximately $700,000 from their
anticipated ship date of June 1998 until the fourth quarter, accounting for most
of the decline in diffusion product sales.
The Company's revenue for the nine months ended June 30, 1998 was
$12,486,000, an increase of $5,090,000, or 69%, over revenue of $7,396,000 for
the corresponding period of the previous fiscal year. P. R. Hoffman and
manufacturing support services contributed $5,571,000 to the consolidated
revenue for the nine months ended June 30, 1998. The increase in revenue
contributed by those new operations was partially offset by a year-to-date
decline of $481,000, or 7%, in revenue from the sale of existing diffusion
equipment and related replacement parts. See the preceding paragraph for an
explanation of the reduction in third quarter diffusion product sales.
9
<PAGE>
Gross Profit. The Company's gross profit decreased approximately
$9,000 to $946,000 for the three months ended June 30, 1998, from $955,000
during the comparable period of the previous fiscal year. The $478,000 of gross
profit produced by the P.R. Hoffman and manufacturing support service operations
during the third quarter of fiscal 1998 was more than offset by the $487,000
decline in gross profit derived from the sale of diffusion products for the
comparable period of the previous fiscal year. Approximately 63% of the
reduction in gross profit from existing products was due to lower sales volume
of such products, as discussed above. Gross profit as a percentage of revenue
was 26% in the third quarter of fiscal 1998, compared to 34% in the third
quarter of fiscal 1997 and 33% in each of the first two quarters of fiscal 1998.
The gross profit percentage for all products was lower in the most recent
quarter than in the comparable period last year and the first two quarters of
this year. The reduction in the gross profit percentage on new products and
services is due to increased price competition and customer discounts granted as
a result of the general slowdown in the semiconductor industry. During the third
quarter of fiscal 1998, the Company incurred $111,000 more in manufacturing
labor and overhead costs in its diffusion operations, as compared to the
comparable quarter of fiscal 1997, in order to increase capacity, quality and
customer service. However, due to the delay in shipments discussed above, these
higher costs were spread over a lower sales volume further contributing to the
decline in the gross profit percentage.
Gross profit for the nine months ended June 30, 1998 increased 65% to
$3,847,000, from $2,325,000 in the first nine months of fiscal 1997. The
year-to-date gross profit for both fiscal years was 31% of sales. The sale of
new products and services contributed $ 1,828,000 of the gross profit, or 33% of
the related sales, for the nine months ended June 30, 1998 and is the source of
the year-to-date increase in gross profit. The gross profit on diffusion
products declined $306,000, or 13%, during the first nine months of fiscal 1998
from the same period in fiscal 1997, partially offsetting the increased margins
resulting from new products. However, the diffusion product sales contributed
$2,019,000, or 52%, of consolidated gross profit. As a percentage of sales, the
gross profit derived from diffusion product sales was 29% for the first nine
months of fiscal 1998 versus 31% for the comparable period of fiscal 1997. The
decline in the gross profit percentage for diffusion products is attributable
entirely to increases in manufacturing overhead costs incurred to improve
product quality, customer service and in anticipation of higher diffusion sales,
which have not been achieved due to the delay in shipments as explained above.
Selling, general and administrative expenses. The Company's selling,
general and administrative expenses for the third quarter of fiscal 1998 were
$230,000 higher than in the comparable period of fiscal 1997. New operations
(i.e. P. R. Hoffman and manufacturing support services) incurred approximately
$320,000 of such expenses and thus were the sole cause of the increase during
the quarter. The selling, general and administrative expenses of existing
diffusion operations for the third quarter of fiscal 1998 declined approximately
$91,000 due to a significant decrease in sales and related commissions generated
by independent sales representatives. Commission expense of the diffusion
business in particular can vary significantly from quarter to quarter depending
on the source of the orders shipped. During the most recently completed quarter
there was a significant decline in commissions, which was partially offset by
increases in internal sales and marketing, general and administrative expenses.
The increase in offsetting expenses primarily resulted from additional personnel
hired to increase the depth of management and costs associated with identifying
and reviewing potential acquisitions. Selling, general and administrative
10
<PAGE>
expenses grew at approximately the same rate of increase as consolidated revenue
when compared to the same quarter last year, and amounted to 32% and 33% of
sales during the third quarter of fiscal years 1998 and 1997, respectively.
However, in the third quarter of fiscal 1998 such expenses were higher in both
absolute dollars and as a percentage of sales than in the first and second
quarters of the current fiscal year when such expenses were 27% and 24% of
sales, respectively, due to spreading those costs over higher sales achieved in
those earlier quarters.
For the nine months ended June 30, 1998, selling, general and
administrative expenses increased by $1,254,000, or 59%, compared to the same
period in fiscal 1997. The new operations accounted for $936,000 of that
increase. However, because of increased sales volume, particularly in the first
two quarters of fiscal 1998, such expenses decreased as a percentage of sales to
27%, from 29%, in the comparable period in fiscal 1997.
Research and development. Research and development costs increased by
$37,000 during the third quarter of fiscal 1998 over the comparable quarter of
fiscal 1997, as work on the modified lamps for the Company's photo-assisted CVD
project continued. For the same reason, such expenses increased $73,000 during
the nine months ended June 30, 1998, over the comparable period in the preceding
fiscal year.
Operating profit (loss). As noted above, gross profit of the new
operations merely offset the decline in the gross profit of the diffusion
operations during the third quarter of fiscal 1998 compared to the third quarter
of fiscal 1997. Therefore, the increase in selling, administrative and research
costs resulted in an operating loss of $314,000 for the three months ended June
30, 1998, compared to an operating loss of $39,000 in the third quarter of
fiscal 1997.
Year-to-date as of June 30, 1998, the new operations of P.R. Hoffman
and manufacturing support services produced $891,000 of operating profit, before
allocation of general corporate expenses. However, this was largely offset by
the decline in gross profit of the diffusion operations, caused by the delayed
shipments, discussed above, and the increased expenses of those operations. The
operating profit of the new operations was also offset by the fact that the
current fiscal year's operating profit does not include an item comparable to
the $115,000 gain from the disposition of the Korean joint venture recorded
during the first nine months of last fiscal year. Therefore, operating profit
for the first nine months of fiscal 1998 was $187,000, or 2% of revenue,
compared to $108,000, or 2% of revenue for the first nine months of fiscal 1997.
Excluding that gain, operating profit for the first nine months of fiscal 1998
was $187,000 compared to an operating loss of $7,000 for the first nine months
of the last fiscal year.
Net income includes the operating profit (loss) discussed above, net
interest income and the provision for income taxes. During the third quarter of
fiscal 1998, net interest income was $15,000, a decrease of $24,000 from the
$39,000 of net interest income for the corresponding quarter of the preceding
year. The decrease in net interest income is primarily attributable to the
Company's use of cash in its investment in the acquisition of P. R. Hoffman. As
a result, the loss before income taxes for the third quarter of fiscal 1998 was
$300,000, compared to net income of $1,000 in the third quarter of fiscal 1997.
Income before income taxes for the nine months ended June 30, 1998, after
deducting the loss for the quarter from the before tax earnings of the first six
months, was $238,000, a decline of $4,000 from the comparable period in fiscal
1997.
11
<PAGE>
Net income (loss). An income tax benefit of $115,000, recorded at an
effective tax rate of 38%, reduced the net loss for the third quarter of fiscal
1998 to $185,000, or $.04 per share, compared to net income of $1,000 during the
third quarter of fiscal 1997. For the nine months ended June 30, 1998, income
tax expense was $121,000, representing an effective tax rate of 51%, compared to
income tax expense of $75,000, for an effective tax rate of 31%, during the
comparable period of fiscal 1997. The current year increase in the effective tax
rate is primarily due to the relatively high state income taxes of PR Hoffman,
with no offsetting state income benefit from the operating loss of the diffusion
business. As a result, net income of $117,000, or $.03 per share, was earned in
the first nine months of the current fiscal year, compared to $166,000, or $.04
per share, during the same period in fiscal 1997.
As of June 30, 1998, the order backlog was $5,150,000, compared to
$4,675,000 as of June 30, 1997, and $5,300,000 as of December 31, 1997. The year
to year increase in the order backlog reflects the $1,150,000 order backlog of
P. R. Hoffman. The $150,000 decrease in the backlog since December 31, 1997 is
due primarily to the decline in the semiconductor industry offset by the delay
in shipment of certain customer orders into the fourth quarter, as discussed
above. While orders are ordinarily filled within three to nine months of
receipt, the current backlog includes a multi-year order with four systems
valued at approximately $900,000, of which $380,000 will be shipped in fiscal
1999.
Several countries, predominantly in Asia, have recently experienced
economic difficulties including high rates of loan defaults, business failures
and currency devaluations. During fiscal 1997, the Company derived 27% of its
sales from these countries. The turmoil in the Asian financial markets is
expected to eliminate most, if not all, of the Company's sales of capital
equipment into that region during fiscal 1998 and probably for most of 1999, as
well. These adverse conditions are expected to have the greatest impact on the
high margin U.S. based portion of the Company's diffusion product line, as the
ATMOSCAN(R) and IBAL Automation products are believed to improve the customer's
yields and efficiencies, but may not be viewed as absolutely necessary, and
therefore are the first types of equipment to be eliminated from customers'
capital budgets. Indeed, prior to the intervention of the International Monetary
Fund ("IMF"), the Company was expecting to receive a $1 million order from that
region, which now will not be received in the foreseeable future. In addition,
one domestic customer has informed the Company that a $1 million planned order
would not be placed during the current fiscal year, as originally had been
expected, due to reduced demand for this customer's products in the pacific rim.
Recently, orders for P.R. Hoffman's consumable products, IBAL Automation and the
ATMOSCAN(R) have declined significantly as a result of direct and indirect,
adverse effects of the Asian financial crisis. This turmoil has resulted in a
general slowdown in the semiconductor industry and many of the Company's
domestic and European semiconductor customers are experiencing a reduction in
orders, especially from their customers in Japan and Asia. The Company's
products are sold on a worldwide basis. Accordingly, the Company will attempt to
offset any sales declines caused by the above factors by focusing more attention
on other geographic regions as well as expanding its sales to customers outside
the semiconductor industry. While the Company expects that the delayed shipments
from the third quarter will positively impact its fourth quarter results, there
can be no assurance that the Company can achieve break-even financial results in
fiscal 1999. The Company has taken several steps to reduce operating costs and
continues to evaluate other actions to minimize losses that would otherwise
occur during this industry slowdown.
12
<PAGE>
FINANCIAL CONDITION AND WORKING CAPITAL.
As of June 30, 1998, the Company had $1,683,000 of readily available
liquidity in the form of cash and cash equivalents, compared to cash, cash
equivalents and short-term investments of $1,975,000, as of the end of the
previous fiscal year. Working capital has remained constant during the current
fiscal year and was $5,289,000 as of June 30, 1998. As in the past, the Company
maintained a current ratio in excess of 3:1 during the first nine months of
fiscal 1998. Cash and short-term investments comprise 17% of total assets and
stockholders' equity is 71% of total capitalization.
LIQUIDITY AND CAPITAL RESOURCES.
Management expects that the operations will continue to use cash, as
it is possible that the Company will incur operating losses in 1999. If the
slowdown in the semiconductor industry is relatively short-lived, of which there
is no assurance, liquidity will be required to finance growth-related increases
in inventories and accounts receivable. Such growth could also require
additional investments to increase capacity and improve efficiencies. While
there can be no assurance, the Company believes that its cash is sufficient to
meet the requirements of current operations and has implemented cost reductions
in order to conserve the Company's liquidity. The Company is continuing to
perform research on high intensity lamps to be used in conjunction with its
patented photo-assisted CVD technology before making a decision regarding
development of a commercial product incorporating that technology. See the
discussion under the caption "Management's Discussion and Analysis of Financial
Position and Results of Operations" included in the Company's 1997 annual report
on Form 10-K for further information regarding the Company's strategy for
acquisitions and development of a product based upon the Company's CVD
technology and the related potential requirements for additional liquidity and
capital resources. The Company continues to evaluate potential product or
business acquisitions that may complement its business, as well as the
development of additional products within its existing businesses. However, such
activities have slowed significantly as management is now giving its highest
priority to making the Company's existing businesses profitable. The Company
will attempt to meet any potential shortfall in liquidity, whether it results
from operating losses or investments in photo-CVD or in growth related capital
expenditures, through one or more sources of financing, such as possible working
capital loans from banks or long-term debt or equipment leasing. There can be no
assurance that the actions taken by the company will sufficiently conserve
existing working capital. While the Company has very little debt in relation to
its available collateral, there can be no assurance that other sources of
financing will be available or sufficient when needed.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements. The
forward-looking statements contained herein are based upon current expectations
that involve a number of risks and uncertainties. The forward-looking statements
are based upon a number of assumptions, including, without limitation, those
enumerated in the related section of the Management's Discussion and Analysis
included in the Company's 1997 annual report on Form 10-K, which are hereby
13
<PAGE>
incorporated by reference. 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
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 such
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.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER MATTERS.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
None.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /S/ Robert T. Hass
----------------------------------
Robert T. Hass, Vice-President and
Chief Financial Officer
DATED: August 14, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1998, AND THE STATEMENT OF OPERATION AND THE STATEMENT OF
CASH FLOW FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,683,346
<SECURITIES> 0
<RECEIVABLES> 3,060,544
<ALLOWANCES> 137,000
<INVENTORY> 2,749,227
<CURRENT-ASSETS> 7,816,192
<PP&E> 2,368,568
<DEPRECIATION> 957,877
<TOTAL-ASSETS> 9,869,490
<CURRENT-LIABILITIES> 2,526,870
<BONDS> 305,180
0
0
<COMMON> 42,206
<OTHER-SE> 6,995,234
<TOTAL-LIABILITY-AND-EQUITY> 9,869,490
<SALES> 12,486,482
<TOTAL-REVENUES> 12,486,482
<CGS> 8,639,811
<TOTAL-COSTS> 8,639,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 37,902
<INTEREST-EXPENSE> 11,858
<INCOME-PRETAX> 237,720
<INCOME-TAX> 121,000
<INCOME-CONTINUING> 116,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,720
<EPS-PRIMARY> .03
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