UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
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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
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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: 480-967-5146
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] Yes
The aggregate market value of voting stock held by non-affiliates of the
registrant: $6,665,000 as of December 16, 1999
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: 2,108,679 shares of
Common Stock, $.01 par value, outstanding as of December 16, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
PART III (Items 9-13) 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 25, 2000.
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TABLE OF CONTENTS
Page
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ITEM 1. BUSINESS.............................................................4
Background.........................................................4
Financial Information About Industry Segments......................4
Operating Strategy and Industry Overview...........................5
Products...........................................................6
Proposed New Products..............................................9
Manufacturing and Suppliers.......................................10
Order Backlog.....................................................10
Research, Development and Engineering.............................10
Patents...........................................................11
Sales and Marketing...............................................12
Competition.......................................................13
Employees.........................................................14
Financial Information About Foreign And Domestic
Operations and Export Sales.....................................14
ITEM 2. PROPERTIES..........................................................14
ITEM 3. LEGAL PROCEEDINGS...................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS..............................................15
Market Information................................................15
Holders...........................................................15
Dividends.........................................................15
ITEM 6. SELECTED FINANCIAL DATA.............................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................17
Plans For Expansion And Capital Resources.........................17
Results of Operations.............................................18
Fiscal 1999 Compared to Fiscal 1998...............................18
Fiscal 1998 Compared to Fiscal 1997...............................20
Liquidity And Capital Resources...................................21
Year 2000 Compliance..............................................21
Quantitative And Qualitative Disclosures About Market Risk........22
Forward-Looking Statements........................................22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................24
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................25
ITEM 10. EXECUTIVE COMPENSATION..............................................25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................25
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....25
SIGNATURES....................................................................28
POWER OF ATTORNEY.............................................................28
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PART I
ITEM 1. BUSINESS
BACKGROUND
Amtech Systems, Inc. (the "Company") was incorporated in Arizona in October
1981, under the name Quartz Engineering & Materials, Inc., and changed to its
present name in 1987. The Company also conducts operations through two wholly
owned subsidiaries, Tempress Systems, Inc., a Texas corporation with all its
operations in the Netherlands ("Tempress Systems"), and P.R. Hoffman Machine
Products, Inc., an Arizona corporation ("P.R. Hoffman").
The Company's initial business was the manufacture of quartzware implements
for sale to and use by manufacturers of semiconductor chips. The Company is
currently, and has been since 1987, engaged in the manufacture and marketing of
several items of capital equipment used by customers in the manufacture of
semiconductors, two of which are patented. The Company's Processing/Robotic
product line (Atmoscan(R), IBAL and load stations) is designed to enable its
customers to increase the degree of control over their semiconductor chip
manufacturing environment, to reduce exposure to contaminants by limiting human
contact during the manufacturing process and improve employee safety. In fiscal
1995, the Company began the complementary business of producing and selling
horizontal diffusion furnaces for use in semiconductor fabrication, through its
wholly owned subsidiary, Tempress Systems. In fiscal 1998, the Company, through
its Tempress operations, began producing and selling conveyor diffusion furnaces
for use in precision thermal processing of electronic parts.
In fiscal 1994, the Company added research and product development of new
technologies to its on-going development of new products and product
improvements based on existing technologies. From fiscal 1994 through the end of
fiscal 1998, the new technology under investigation consisted of photo-assisted
CVD (chemical vapor deposition) research conducted by and in conjunction with
the University of California at Santa Cruz (the "University"). In this regard,
the University studied several generations of higher intensity light sources,
none of which have yielded results that would enable the Company to produce a
commercially viable product. While this research was partially successful, it
was suspended indefinitely effective September 30, 1998, until such time as
reliable higher intensity lamps are available and success appears more probable.
In July 1997, the Company acquired substantially all of the assets of P.R.
Hoffman Machine Products Corporation and began developing, manufacturing,
marketing and selling double sided precision lapping and polishing machines,
replacement parts and related products including carriers and semiconductor
polishing templates through its wholly owned subsidiary, P.R. Hoffman. These
products are high throughput precision surface processing systems used in the
manufacture of semiconductor wafers, precision optics and other thin wafer
materials, such as computer disk media and ceramic components for wireless
communication devices.
In the fourth quarter of fiscal 1997, the Company began offering
manufacturing support services to one of its Texas-based customers. These
services consist of wet and dry cleaning of semiconductor machine processing
parts. The Company intends to offer manufacturing support services to other
customers and third parties as such opportunities become available.
Beginning in fiscal 1999, the Company began research on a new technology
asher. In November 1999, the Company announced a joint product development
agreement with PSK Tech, Inc. to develop a new technology ashing machine using
the Company's damage-free technology and PSK Tech's expertise in the design of
ashers and asher processes.
Unless the context otherwise requires, the "Company" refers to Amtech
Systems, Inc., an Arizona corporation, and its wholly owned subsidiaries. The
Company's principal executive offices are located at 131 South Clark Drive,
Tempe, Arizona 85281 and its telephone number is (480) 967-5146.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For information about industry segments see Note 7 of the Notes to the
Financial Statements included herein.
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OPERATING STRATEGY AND INDUSTRY OVERVIEW
The Company is engaged primarily in the design, manufacture and marketing
of several items of capital equipment and related consumables and spare parts
used by customers in the manufacture and fabrication of semiconductors.
Semiconductors, or semiconductor "chips," are fabricated on a silicon wafer
substrate and are part of the circuitry or electronic components of many
products, including computers, telecommunication systems, automotive products,
consumer goods and industrial automation and control systems. The manufacture of
semiconductors involves repeating a complex series of process steps to a
semiconductor wafer. The three broad categories of wafer processing steps are
deposition, photolithography and etching. The Company's products currently
address deposition steps, the fabrication of silicon wafers, and the reclaiming
of semiconductor test wafers. See proposed new product regarding ashers, which
perform a step within the broad category of photolithography. The Company's
products within the deposition area perform oxidation/diffusion and low-pressure
deposition ("LPCVD") steps. During these steps 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 manufactures and sells horizontal and conveyor diffusion
furnaces through its wholly owned subsidiary, Tempress Systems. In addition, the
Company manufactures and sells a Processing/Robotic product line designed to
enable customers using horizontal diffusion furnaces to increase their degree of
control over the manufacturing environment, to reduce exposure to contaminants
by reducing the amount of human contact during the manufacturing process and to
improve employee safety. Following an industry trend, the size of individual
semiconductor chips has tended to decrease while the size of 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.
There also is a trend in the semiconductor industry, related to the trend
to produce smaller chips, toward the use in semiconductor manufacturing
facilities of newer technology, vertical diffusion furnaces. Vertical diffusion
furnaces are more efficient to use than the horizontal diffusion furnaces in
certain manufacturing processes of smaller chips on larger wafers, however, such
furnaces are significantly more expensive to purchase than horizontal diffusion
furnaces. The Company's Processing/Robotic product line is useable with
horizontal diffusion furnaces only.
The July 1997 addition of P.R. Hoffman's product line of double sided
precision lapping and polishing machines and related products has broadened and
expanded the markets served by the Company, which now include fabricators of
semiconductor devices to the producers of the silicon wafers used by those
fabricators. Following the P.R. Hoffman acquisition, the Company began marketing
the P.R. Hoffman product line through the Company's larger and more established
distribution network. Similarly, the Company began marketing its existing
products to the markets being served by P.R. Hoffman.
The Company's target market for its Processing/Robotic product line
consists of customers who wish to increase the efficiency and safety (or
ergonomics) of their existing semiconductor manufacturing facilities equipped
with horizontal diffusion systems. Through its Tempress System operations, the
Company also provides its customers with efficient integrated horizontal
diffusion furnace systems for use in semiconductor fabrication, and, to a lesser
extent, conveyor diffusion furnace systems for use in precision thermal
processing of electronic parts. The Company's target market also includes
customers who do not require or cannot justify 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 is equipped with horizontal diffusion
furnaces, as compared with vertical diffusion furnaces. While the Company
estimates that each year the percentage of facilities in the world equipped with
vertical systems will become closer to and eventually surpass that of horizontal
systems, 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 diffusion furnace market by expanding
its manufacture and sales of horizontal diffusion furnaces. In 1996, Tempress
Systems acquired a modern, high-tech manufacturing facility in Heerde, The
Netherlands, for its European operations, and moved its operations into this new
facility.
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The Company's target market for its lapping and polishing machines and
related consumables and spare parts are producers of silicon wafers, silicon
test wafer reclaiming businesses, manufacturers that use silicon wafers in the
fabrication of semiconductors and producers of thin wafers made of other
materials, such as quartz, ceramics and metals used in the manufacture of
optics, computer storage disks and ceramic components for wireless communication
products. Sales to customers processing optics and ceramics were 13% of
consolidated sales in fiscal 1998 and in fiscal 1999. The long-term demand for
silicon wafer lapping and polishing machines and related products has been
fueled by the inherent need of semiconductor device manufacturers to continually
meet the growing demand for such semiconductors caused by the rapid increase in
the uses for such devices. In order to produce today's higher density chips,
semiconductor manufacturers must maintain tighter tolerances with respect to the
surface finish, flatness and planerization of the bare silicon wafer, which in
turn is requiring more polishing steps and thus more surface processing
equipment and supplies. A similar trend is occurring in the computer disk
industry as manufacturers strive to produce higher density drives in order to
satisfy end user demand for greater storage capacity and reduced size.
INDUSTRY CYCLES AND TRENDS. Sales of the Company's products depend in large
part upon the capital equipment expenditures and/or operating levels of
semiconductor manufacturers, which depend on current and/or anticipated market
demand for integrated circuits and products utilizing integrated circuits. The
semiconductor industry is highly cyclical and has historically experienced
periodic downturns, which often have had a material adverse effect on capital
and operating expenditures by semiconductor manufacturers. Semiconductor
industry downturns have and will in the future adversely affect the sales, gross
profit and operating results of suppliers that serve the industry, including the
Company. The industry is also experiencing the consolidation of semiconductor
manufacturing operations through mergers and the subcontracting out of the
production of semiconductors to foundries. The Company believes that growth in
its sales and profitability will depend upon increased demand for
semiconductors. During the second half of fiscal 1998 and the first half of
fiscal 1999, the Company experienced lower sales volume and profitability, as a
result of an industry slowdown. The industry and the Company are now
experiencing a period of cyclical recovery.
PRODUCTS
DIFFUSION FURNACES
Through its wholly owned subsidiary, Tempress Systems, the Company produces
and sells horizontal and conveyor diffusion furnace systems, which generally
include a Tempress(R) load station, with the Tempress(R) trademark. These
furnaces utilize existing industry technology for sale to customers who do not
require the advanced automation of, or can not justify the significantly higher
expense of, 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 and multi-model semiconductor manufacturing. While industry
forecasts indicate that overall market demand for horizontal diffusion furnaces
will decline, the Company believes that a significant niche market will persist
for such furnaces.
The Company started the horizontal diffusion furnace business utilizing
certain acquired assets previously owned by a bankrupt company, Tempress B.V.,
located in The Netherlands, including the right to use the trade name
"Tempress(R)" in connection with such furnaces. Tempress B.V. was involved in
the development, manufacture and sale of a number of different products,
including a horizontal diffusion furnace. 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 believes, and sales volume would
appear to support, that the diffusion furnace products it designs and sells
under the "Tempress" name have gained acceptance by the Company's targeted
market.
In fiscal 1998, the Company began producing and selling conveyor diffusion
furnace systems used to produce thick films for the electronics industry.
Conveyor furnace systems provide for precision thermal processing of electronic
parts for thick film applications, anneal, sealing, soldering, silvering,
curling, brazing, alloying, gloss-metal sealing and component packaging.
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PROCESSING/ROBOTIC EQUIPMENT
ATMOSCAN(R)
The Company's "Atmoscan(R)" is a patented controlled environment wafer
processing system for use with horizontal diffusion furnaces. When in use, it is
loaded with wafers and inserted into the diffusion furnace under a
nitrogen-controlled environment. The Atmoscan(R) technology is a processing
method that includes a cantilever tube used to load silicon wafers into a
diffusion furnace and through which a purging inert gas flows during the loading
and unloading processes.
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.
Additional significant economies in the manufacturing process are also believed
to result.
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, Motorola, SGS-Thompson, SVG-Thermco and others. Sales of
Atmoscan(R) have declined from their peak in 1989, due to an industry trend
toward use of vertical diffusion furnaces.
The Company also has designed and sells an open cantilever paddle system,
which remains the most commonly used horizontal wafer loading system in the
semiconductor industry. Similar systems have been used by the industry since the
introduction of the Atmoscan(R), the Company's alternative to the cantilevered
processing system.
IBAL AUTOMATION
"IBAL" is an acronym for "Individual Boats with Automated Loading." The
Company's IBAL automation system is a patented integrated automation system
composed of several modules, with the base module being called simply IBAL.
Boats are quartz trays that hold silicon wafers while they are being processed
in diffusion furnaces. IBAL Trolley is comprised of hardware and software, which
automatically places boats into Atmoscan(R) tubes or onto a cantilever paddle
system before they are inserted in the diffusion furnace and automatically
removes the trays after completion of the process.
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 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. The first IBAL Queue unit was
shipped during the second quarter of fiscal 1994. 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 and improves
safety in manufacturing facilities. All of the IBAL modules have been designed
by the Company.
The Company continues to develop automation solutions for robotic wafer
handling in connection with horizontal diffusion furnaces. It has received its
first orders for IBAL Shuttle for delivery in January 2000. The IBAL Shuttle
transfers wafers between the IBAL Queue and wafer transfer machines manufactured
by third parties, providing customers with complete cassette-to-cassette wafer
handling.
LOAD STATIONS
The IBAL automation products described above are offered and sometimes sold
as a complete system, mounted on a device called a "load station," which also
includes an ultra-clean environment for wafer loading by filtering and
controlling the flow of air. The Company began shipping such high-end load
stations in fiscal 1992. Those stations are assembled and tested in the
Company's Tempe, Arizona facility. Further, almost all diffusion furnaces,
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described above, are sold with either a Tempress(R) load station, manufactured
in The Netherlands, or a high-end load station described in the preceding
sentence.
Sales volume of the Company's robotic product line is affected more by the
semiconductor industry cycles, both favorably and unfavorably, than diffusion
furnace sales. The reason for the greater affect of the industry cycles is
primarily attributable to the fact that the wafer handling performed by this
robotic equipment can be performed manually, as opposed to diffusion furnaces
for which there are no practical lower cost alternatives.
DOUBLE SIDED PLANETARY LAPPING AND POLISHING MACHINES
Through its wholly owned subsidiary, P.R. Hoffman, the Company develops,
manufactures, markets and sells double sided precision lapping and polishing
machines and complementary products including carriers, semiconductor polishing
templates and parts. Double sided lapping and polishing machines are designed to
process wafer type products such as semiconductor silicon wafers, precision
optics, computer disk media and ceramic components for wireless communication
devices to exact tolerances of thickness, flatness, parallelism and surface
finish. The polishing process is used to change the characteristics of the
surface of a semiconductor wafer and a variety of other wafer materials.
Polishing is a complex science, often involving multiple steps, each at a
specified set of process parameters such as polishing speed, pressure, time and
temperature. Polishing improves the flatness (planarity), smoothness and optical
properties of a surface.
Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into a polishing liquid
(slurry) which is applied to a cast-iron lapping wheel). Lapping results in
higher removal rates than polishing but produces rougher surface finishes.
Dimensional tolerance, surface finish, quantity of material to be removed along
with production rates required and cost of operation are the primary variables
considered in the determination of the best process for a specific application.
Polishing and other surface treatment processes are typically followed by a
cleaning process.
The following table summarizes the various models of surface processing
machines produced by the Company and the markets for each of these products:
DOUBLE SIDED LAPPING AND POLISHING MACHINES
MODEL YEAR INTRODUCED MARKETS
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PR-1 1938 Quartz
PR-2 1940 Quartz
1500 1990 Quartz, ceramics, medical
1900 1992 Ceramics, optics, computer disks
3100 1995/96 Computer disks, optics, metal working,
ceramics
4800 1981 Silicon semiconductor, optics, metal
working, ceramics
On average, the Company's surface processing systems are priced lower than
competing systems offered by SpeedFam, Peter Wolters of America and Lapmaster.
The systems offered by the Company's competitors tend to feature more
sophisticated controls and user interfaces, and thus in some applications can be
operated by less skilled employees.
CARRIERS
Carriers are workholders where wafers are nested during the lapping and
polishing processes. Carriers are produced for the Company's line of lapping and
polishing machines as well as for competitors' systems. Substantially all of the
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carriers are customized for specific applications. The Company produces custom
carriers in a variety of sizes, configurations and materials. A significant and
expanding category of the Company's steel carriers contain plastic inserts
molded into the work-holes of the carrier and are referred to as insert
carriers. Although standard steel carriers are preferred in many applications
because of their durability, rigidity and precise dimensions, they are typically
not suited for applications involving softer materials or when metal
contamination is an issue. Steel carriers can cause damage (edge chipping) to
delicate parts (i.e. larger semiconductor wafers). Insert carriers provide the
advantages of steel carriers while reducing the potential of damage to the edges
of sensitive materials.
The Company licenses the design for its steel carrier with plastic inserts
from Wacker GmbH in Germany ("Wacker"). Under a non-exclusive license agreement
with Wacker, the Company pays Wacker a 5% royalty for carriers sold by the
Company based on this design. The royalty fee does not apply to sales to the
licensor. The Company believes that the licensor, despite patenting the design,
is currently unable to consistently manufacture insert carriers that properly
hold the wafer in place and that the Company's proprietary manufacturing process
provides a competitive barrier to entry.
SEMICONDUCTOR POLISHING TEMPLATES
The Company's single sided polishing templates are used to polish silicon
wafers. Since the Company does not manufacture surface processing machines for
single sided applications, templates are designed to work with machines
manufactured by leading suppliers in this market segment such as SpeedFam, IPEC,
Gigamet and Strasbaugh. Polishing templates are customized for specific
applications and are manufactured to such exacting tolerances that even a change
in humidity of 10% can result in unacceptable mechanical defects, performance
and durability.
PLATES, GEARS, WEAR ITEMS AND OTHER PARTS
The Company produces a wide assortment of plates, gears, parts and wear
items for both its own as well as for competitors' machines. The Company
manufactures approximately eighty percent (80%) of the parts that are used in
its machines. In addition to producing standard off-the-shelf parts, the Company
has the ability to produce highly customized parts.
PROPOSED NEW PRODUCTS
During fiscal 1999, the Company began investigating an alternative to the
energy sources currently used in ashing processes. Ashers are used by the
semiconductor industry to remove photoresist materials from silicon wafers after
each lithography step. Plasma is the most common energy source used in current
ashers. While stripping the photoresist material from the wafers, plasma causes
damage to the silicon substrate, which the industry does not believe will be
acceptable as the line-width of the circuitry is reduced in future generations
of leading-edge semiconductors. In November 1999, Amtech Systems, Inc.
("Amtech") announced that it had reached an agreement with PSK Tech Inc.
regarding the joint development of a new ashing machine, using Amtech's
damage-free ashing technology (a "New Asher"). Amtech and PSK Tech believe that,
if successful, the New Asher under development will be damage free and thus will
receive strong demand from the high-end semiconductor manufacturers.
The joint product development agreement provides that Amtech will provide
its patent pending, damage-free ashing technology and know-how and PSK Tech Inc.
will provide its expertise in the design and manufacture of ashers and asher
processes. The two companies will jointly own any resulting technology. Under
the agreement, Amtech will have exclusive selling and marketing rights to the
resulting New Asher for all of North America and Europe and PSK Tech will have
exclusive selling and marketing rights for all of Asia. Each company has agreed
to pay to the other a license fee of between two and five percent (2%-5%) of its
New Asher sales. Amtech has also agreed to sell the energy source assemblies to
PSK Tech for PSK's New Asher sales into Asia. Amtech will purchase from PSK Tech
ashers without the energy source assembly, for the platform of its New Asher to
be sold in the United States and Europe. The assemblies that each company sells
to the other will be at a price to be mutually agreed upon, but shall not exceed
1.334 times its cost of manufacturing. Development work has begun, with first
shipments projected to occur in fiscal year 2001.
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Ashing equipment manufactured by PSK Tech is currently being selected
almost exclusively by the world's present #1 semiconductor memory chip producers
for their ashing processes. PSK Tech, located near Seoul, South Korea, is
publicly owned and listed on the Korean stock market.
MANUFACTURING AND SUPPLIERS
The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including quartz and metal
components. Certain parts are fabricated in the Company's machine shops. Certain
of the items manufactured by others are made to the Company's specifications.
All final assembly and system tests are performed within the Company's
manufacturing/assembly facilities. Quality control is maintained through
incoming inspection of materials and components, in-process inspection during
equipment assembly and final inspection and operation of manufactured equipment
prior to shipment. The Company's Processing/Robotic product line is manufactured
at its Tempe, Arizona plant. The Company conducts similar engineering,
purchasing and assembly operations in the manufacture of its diffusion furnace
line in a building owned and located in Heerde, The Netherlands.
The Company's operations in Carlisle, Pennsylvania are equipped to perform
a high percentage of its manufacturing processes. Manufacturing at this facility
includes the following: metal stamping, milling, painting, assembling, welding,
punching, cutting, heat treating, machining and laminating. Manufacturing
processes that are typically subcontracted out by this location include plastic
injection, laser cutting and wire EDM machining, and complex electrical wiring.
Key suppliers include two steel mills capable of holding the type and tolerances
the Company requires, an injection molder that provides plastic insets for steel
carriers, a pad supplier that produces a unique material used to attach
semiconductor wafers to the polishing template (sole sourced from a Japanese
company), and adhesive manufacturer that supplies the critical glue used in the
production of the semiconductor polishing templates.
ORDER BACKLOG
As of November 30, 1999, the Company's order backlog for semiconductor
equipment was approximately $4,124,000, compared to approximately $4,800,000 at
the same date in the previous year. The Company includes in its backlog all
credit approved customer purchase orders. Orders in the backlog may be canceled
by the customer upon payment of mutually acceptable cancellation charges. The
Company anticipates that substantially all of its current backlog will be
shipped in fiscal 2000. 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.
RESEARCH, DEVELOPMENT AND ENGINEERING
The markets served by the Company are characterized by evolving industry
standards and rapid technological change. To compete effectively in its markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the basis
of price and performance and that adequately address current and future customer
requirements. The Company's research and development expenditures during fiscal
1997, 1998 and 1999 were approximately $280,000, $438,000 and $268,000,
respectively. Due to the suspension of the photo-assisted CVD project and the
general slowdown in the semiconductor industry, the Company reduced its research
and development expenditures in fiscal 1999. With the research and development
work on a new technology asher and the current industry recovery, the Company
expects to expend approximately $409,000 in fiscal year 2000.
The Atmoscan(R) was acquired in 1983 through a licensing arrangement with
its inventor, who was not employed by the Company. The Company's other products
(excluding the Company's products acquired in the P.R. Hoffman acquisition) were
developed by Company personnel. The Company presently employs at its Tempe,
Arizona plant, three engineers, including one with a Ph.D. and one in the sales
department, and six technicians. The Company presently employs eight engineers,
one with a Ph.D., and seven technicians in its Netherlands operation. These
employees design and support the horizontal diffusion furnace and conveyor
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furnace product lines manufactured in The Netherlands. Two engineers and one
technician are employed in the Company's Carlisle, Pennsylvania operation. They
design wafer lapping machines and carriers to meet the customers' processing
requirements.
Historically, the Company's product development has been accomplished
through cooperative efforts with two key customers. While there can be no
assurance that such relationships will continue, such cooperation is expected to
continue to be a significant element in the Company's future development
efforts. The Company's relationship with one of these customers is substantially
dependent on the personal relations established by the Company's President, Mr.
Jong S. Whang.
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 the Japanese patent is pending
on the photo-assisted CVD method. In 1998, the Company was granted a patent on
it's IBAL Cantilever Trolley and has a second patent pending which is an
improvement on the first. The cantilever, itself, load stations, the diffusion
furnaces, lapping and polishing machines, carriers and semiconductor polishing
templates are not protected by patents.
The following table shows the patents granted and the expiration date
thereof and the material patents pending for the Company's products in each of
the countries listed below:
EXPIRATION DATE OR
PRODUCT COUNTRY PENDING APPROVAL
- ------- ------- ----------------
Atmoscan(R) United States July 10, 2001
Atmoscan(R) United States July 2, 2002
Atmoscan(R) United States August 30, 2005
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 July 10, 2015
IBAL Cantilever Trolley United States June 12, 2018
Photo CVD United States June 1, 2010
Photo CVD United States November 15, 2011
Photo CVD Japan Pending Approval
IBAL Model S-300 United States Pending Approval
Proposed damage-free asher United States 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.
11
<PAGE>
In the normal course of business, the Company from time to time receives
and makes inquiries with regard to possible patent infringement. In dealing with
such inquiries, it may become necessary or useful for the Company to obtain and
grant licenses or other rights. However, there can be no assurance that such
license rights will be available to the Company on commercially reasonable
terms. Although there can be no assurance about the outcome of such inquiries,
the Company believes that it is unlikely that their resolution will have a
material adverse effect on its results of operations or financial condition.
SALES AND MARKETING
The market for the Company's Processing/Robotic and diffusion furnace
product line consists of semiconductor manufacturers in the United States,
Korea, Western Europe, Taiwan, Japan, India, Australia and the People's Republic
of China. This market is comprised of two major segments, customers who are
installing new semiconductor manufacturing facilities and customers who wish to
install new equipment systems in existing facilities. The Company's products
have been sold in both market segments. The Company has increased and intends to
continue to increase its share of that market by expanding sales of horizontal
diffusion furnaces 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 or Processing/Robotic products, but also by making each of
the products more competitive by offering them as part of a broader complement
of diffusion products with greater capabilities. For example, the Company
expects to generate increased sales of diffusion furnaces by offering them
together with Atmoscan(R) and IBAL products. One element of this strategy is to
sell these products under the Amtech/Tempress name, where appropriate. 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 has historically marketed its polishing machines and related
parts and expendables to manufacturers of silicon wafers for the semiconductor
industry, equipment with optical components, disk media for the computer
industry, and ceramic components for wireless communication products. The
Company also sells diffusion furnace and processing/robotic products to some of
these customers, as it did prior to the P.R. Hoffman acquisition. Further, the
Company believes the process of sales lead generation will be enhanced by the
sharing of leads among its increased number of product lines, including those
acquired in the P.R. Hoffman acquisition transaction.
The Company's installed base of customers (facilities at which the
Company's products are installed and operating) includes Intel, Lucent
Technologies, Motorola, Texas Instruments, Phillips, SGS-Thomson, Samsung,
Hyundai, ITT Night Vision, UMC and BP Solar. Of these corporations, Motorola,
Intel Corporation, SGS-Thomson and Samsung have been customers of the Company
for approximately 15 years.
The Company markets its products by direct customer contact through Company
sales personnel, which consists of eight persons based in the United States,
including the President, three other outside salespersons and an inside sales
and marketing staff of four persons. The Company employs five sales and
marketing personnel in The Netherlands. The Company also markets its products
through a network of domestic and international independent sales
representatives and distributors. The Company's promotional activities have
consisted of advertising in trade magazines and the distribution of product
brochures. The Company also participates in trade shows, including Semicon West,
Semicon Europa, Diskcon and one large optical show per year. The Company is
dependent on its President, Jong S. Whang, for its sales and marketing
activities in Asia and its sales are enhanced by his active involvement with the
accounts of certain other key customers.
During fiscal 1999, one customer accounted for 14% 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").
12
<PAGE>
There are presently 18 independent sales representatives and seven
international distributors, each covering a specified geographical area on an
exclusive basis. The areas now covered by representatives are the New England
area, Pennsylvania, Texas, Washington, Oregon, the United Kingdom, Central
Europe (including Germany, Switzerland and Austria), India, Italy, Japan, Korea,
Singapore, Malaysia, Taiwan, Thailand 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 generally higher for complete
systems and lower for spare parts and accessories. Further, a discount has been
granted to a customer who is a manufacturer of diffusion furnaces.
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 that directly competes
with the Atmoscan(R); however, there are several processing systems and various
configurations of existing manufacturing products that provide advantages
similar to those that the Company believes the Atmoscan(R) provides to
semiconductor manufacturers. Notwithstanding this competition, the Company
believes that Atmoscan(R) provides better results in terms of more uniform wafer
temperature and dispersion of heated gases in the semiconductor manufacturing
process, less exposure of semiconductor wafers to contaminants, and other
technical advantages which afford to its users a higher yield and, therefore, a
lower per item cost in the manufacture of semiconductors. While the industry
trend is toward the use of vertical diffusion furnaces (with which Atmoscan(R)
is not useable), the Company believes that a number of customers are and will
continue to be willing to buy Atmoscan(R) units and horizontal diffusion
furnaces because for all but very large production runs of smaller geometry
chips there is a higher productivity with horizontal furnaces and because many
applications do not involve the processing of smaller devices on larger silicon
wafers and thus do not require the much more expensive vertical furnaces.
The Company believes that there are several products in the market that
perform the same functions as the IBAL automation products, IBAL Atmoscan(R)
Trolley, IBAL Cantilever Trolley, IBAL Butler and IBAL Queue, however, such
products require more expensive clean room floor space and are generally more
expensive. The IBAL products are intended for customers who do not have or can
not justify the additional clean room space required for competing, 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. These load stations provide a
cleaner environment than those they replace and the higher-end models can reduce
the down-time for the upgrade or installation as these load stations were
specifically designed to accept the Company's Processing/Robotic 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 paddle system is designed for easy assembly and disassembly to
minimize downtime during maintenance. The Company expects to sell its horizontal
diffusion furnaces to customers who purchase them in small quantities and that
it will maintain a competitive position through its policy of providing
competitive prices and product support services designed for the customer's
specific requirements.
There are competitors for the carriers, wafer lapping and polishing
machines and related replacement parts and semiconductor polishing templates
that are larger than the Company. The Company believes that it is able to
effectively compete with other manufacturers of carriers by continually updating
its product line to keep pace with the rapid changes in its customers'
requirements. The Company is able to capture a small share of the semiconductor
polishing template market primarily by meeting the industry's perceived need for
a second source so as avoid continued dependence upon the dominant industry
leader. The Company believes that its ability to compete for sales of all of its
products, including machines, is enhanced by the reputation of its double sided
planetary lapping and polishing machines, which are highly regarded for
applications involving delicate and thin (approximately 100 microns) wafers made
of various materials. The Company believes these products compare favorably to
the competition with respect to the following factors: durability, maintaining
close thickness tolerances of wafers and other parts and quality, reliability,
performance and price.
13
<PAGE>
EMPLOYEES
At November 30, 1999, the Company employed 92 people (including corporate
officers); 53 in manufacturing, 15 in engineering, 10 in administration and 14
in sales. Of these employees, 20 are based at the Company's offices and plant in
Tempe, Arizona, 29 are employed at its facility in Carlisle, Pennsylvania, 33 at
its facility in Heerde, The Netherlands, and 10 in the Company's contract
semiconductor manufacturing support services business located in Austin, Texas.
Of the 29 people employed at the Company's Carlisle, Pennsylvania facility, 16
are represented by the United Auto Workers Union - Local 1443. The Company has
never experienced a work stoppage or strike. The Company considers its employee
relations to be good.
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 sales to customers
in the United States are included in the table for comparison purposes). All
foreign sales were associated with non-affiliates.
1999 1998 1997
------------------ ------------------ ------------------
United States (1) $ 8,728,000 59% $ 9,029,000 55% $ 4,227,000 38%
Far East (2) 754,000 5 1,228,000 8 3,044,000 27
Europe (3) 4,216,000 29 5,030,000 31 3,840,000 35
Australia 1,068,000 7 927,000 6 -- --
----------- ----- ----------- ----- ----------- -----
TOTAL $14,766,000 100% $16,214,000 100% $11,111,000 100%
=========== ===== =========== ===== =========== =====
- ----------
(1) Includes sales in Canada and less than 1% in Central and South America.
(2) Includes Korea, Singapore, Taiwan, Japan, the People's Republic of China,
Hong Kong, Indonesia, India and Malaysia.
(3) Includes sales in Israel and Africa, 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 $4,400 per month, on a
triple net basis, for a term to expire on August 31, 2001. Manufacturing support
is performed in customer facilities.
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.
The Company subleases a 21,740 square foot building located in Carlisle,
Pennsylvania from John R. Krieger, the former owner of that business and current
Director of Corporate Development for the Company. These facilities are leased
at a current rate of $9,860, on a triple net basis, for a term to expire on June
30, 2004. The Company has the option to renew the lease for five successive
terms of one year each.
The Company considers the above facilities suitable and adequate to meet
the Company's requirements.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
MARKET INFORMATION
The Company's common stock, par value $.01 per share (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
Small Cap Market ("NASDAQ").
The following table sets forth the range of the high and low bid price for
the shares of the Company's Common Stock for each quarter of fiscal years 1999
and 1998 as reported by the NASDAQ Small Cap Market.
QUARTER ENDED HIGH LOW
------------- ---- ---
Fiscal 1999:
December 31, 1998 $ 2.13 $ 1.00
March 31, 1999 1.75 .94
June 30, 1999 3.06 1.25
September 30, 1999 3.00 1.69
Fiscal 1998:
December 31, 1997 $ 7.63 $ 4.00
March 31, 1998 6.00 3.25
June 30, 1998 5.25 2.25
September 30, 1998 2.69 1.00
In order to maintain listing of its Common Stock on the Nasdaq SmallCap
Market, the Company is required to satisfy certain quantitative and qualitative
requirements. Effective with the close of business on March 15, 1999, each two
shares of the Company's Common Stock were combined and reclassified into one
share of the Common Stock. All shares and per share amounts have been restated
to give effect to this one for two reverse stock split. Any fractional shares
resulting from the reverse split were rounded to the next highest whole number.
HOLDERS
As of December 16, 1999, there were approximately 1,466 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, acquisition or expansion; consequently, it
does not expect to pay dividends within the foreseeable future.
15
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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,
1999 and with respect to the balance sheets at September 30, 1999 and 1998 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, 1996
and 1995 and the balance sheet data at September 30, 1997, 1996 and 1995 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 (including the related notes thereto)
contained elsewhere in this Report.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
From Continuing Operations:
Revenues $ 14,766,075 $ 16,213,904 $ 11,111,142 $ 8,414,005 $ 6,864,068
Operating Profit (Loss)(1)(5) 567,776 (904,334) 215,420 120,813 39,582
Income (Loss) from
Continuing Operations(1)(5) 362,307 (589,887) 237,709 197,591 171,053
Net Income (Loss)(1)(4)(5) $ 362,307 $ (589,887) $ 237,709 $ 508,683 $ 226,568
Diluted Earnings (Loss) Per Share: (1)(2)(5)
Continuing Operations (Loss) $ .17 $ (.28) $ .10 $ .07 $ .09
Net Income (Loss) (4) $ .17 $ (.28) $ .10 $ .19 $ .12
BALANCE SHEET DATA:
Cash and Short-Term Investments $ 1,124,685 $ 1,351,542 $ 1,975,040 $ 4,458,337 $ 4,505,389
Working Capital 5,374,231 4,993,455 5,271,320 5,480,452 6,163,304
Total Assets 8,744,558 9,325,479 9,355,092 8,458,614 8,365,519
Total Current Liabilities 1,747,513 2,530,723 2,108,165 1,568,994 1,363,291
Long-Term Obligations 286,828 347,667 318,721 265,355 --
Accumulated Deficit (401,958) (764,265) (174,378) (412,087) (920,770)
Shareholders' Equity(3) 6,710,217 6,447,089 6,928,206 6,624,265 7,002,228
</TABLE>
- ----------
(1) The results for the fiscal years 1998, 1997, and 1996 include approximately
$170,000, $85,000, and $132,000, respectively, expensed for amounts paid or
payable to the University under the Research Agreement described elsewhere
herein. In addition, in fiscal 1998 the Company took a charge of $184,000
for the write-off of certain long-lived assets.
(2) The results shown have been restated to reflect the one-for-two reverse
split of Common Stock which was effective March 15, 1999.
(3) The decline in Shareholders' Equity in 1996 resulted from the Company's
receipt of 98,017 shares of its Common Stock upon disposition of the stock
of Echelon Services Company.
(4) The results for fiscal 1996 include $311,092 of income from and gain on the
disposal of discontinued operations.
(5) Income from continuing operations for fiscal 1997 includes a $115,487 gain
from the disposition of the Company's interest in the Seil Semicon joint
venture. Income from continuing operations for fiscal 1996 includes the
Company's $65,063 equity in the losses of the Seil Semicon joint venture.
16
<PAGE>
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.
PLANS FOR EXPANSION AND CAPITAL RESOURCES
The Company is engaged primarily in the manufacture and marketing of
several items of capital equipment, spare parts and related consumables used in
the fabrication of semiconductor chips. The business is comprised of two
segments. The polishing supplies and equipment segment serves fabricators of
silicon wafers, the raw material used in the manufacture of semiconductors. The
semiconductor production equipment segment supplies equipment to semiconductor
chip fabricators. Some of these products, amounting to an estimated 13% of
consolidated sales in both fiscal 1999 and 1998, are also sold for use in the
production of optics, wireless communications, memory disk media, ceramics and
other products. The Company also provides contract semiconductor manufacturing
support services, accounting for an estimated 3% and 6% of consolidated sales in
fiscal 1999 and 1998, respectively. The Company intends to focus on expanding
its revenue and operating profits derived from the sale of semiconductor
production equipment and polishing supplies and equipment sold to semiconductor
fabricators and manufacturers of silicon wafers used in the fabrication of such
semiconductors, respectively. The Company is seeking to expand its revenue and
operating profits through the development of new products that serve these
markets and to further penetrate these markets with existing and new products.
ACQUISITIONS. As a part of the above strategy, the Company acquired
substantially all of the assets and assumed certain of the related liabilities
of P.R. Hoffman Machine Products Corporation on July 1, 1997. The total cost of
the acquisition, including the liabilities assumed and related transaction
costs, was $3,192,000. See Note 3 to the Consolidated Financial Statements,
included herein, for further details of the acquisition and pro forma revenues
and earnings for fiscal 1997, reflecting the assumption that the acquisition had
occurred at the beginning of such fiscal year. During fiscal 1999, the acquired
operations accounted for 40% of consolidated revenue and 50% of consolidated
operating profit, which includes allocated corporate expenses.
During the fourth quarter of fiscal 1997, the Company began providing
contract semiconductor manufacturing support services, which is included in the
semiconductor production equipment (and services) segment. Although the Company
is currently providing such services to only one customer, its fiscal 1999
revenue was $435,000 and the operation is making a positive contribution to
operating profit.
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. (the "Korean Joint Venture") 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. In fiscal 1997, the Company
sold its interest in the joint venture for $478,000, because the requirements of
continuing in that business, without obtaining majority control, were determined
to involve more risk than was appropriate for the Company. See Note 11 to the
Consolidated Financial Statements, included herein. As a result, the Company
recorded a gain in fiscal 1997 of $115,487, largely representing recovery of
related costs and expenses recorded in the previous year.
The Company participated in the Korean Joint Venture in calendar year 1996
and acquired P.R. Hoffman on July 1, 1997, but temporarily shifted its focus to
internal product development in June 1998, due to a slowdown in the
semiconductor industry at that time. Presently, the industry is experiencing a
period of rapid recovery. Accordingly, the Company has returned its focus to the
evaluation of other potential product or business acquisitions that might
complement its existing business. Based upon the Company's acquisition criteria,
such an acquisition could require more capital resources than used to acquire
P.R. Hoffman. The determination of the appropriateness of a potential
acquisition is expected to take into consideration many factors, including the
status and potential capital requirements for developing a new technology asher,
the economic terms of the acquisition under review, and the potential synergy of
17
<PAGE>
the business opportunity with the Company's existing business. However, until
the market price of the Company's common stock equals management's estimate of
its intrinsic value, any acquisitions will likely be limited to those that can
be financed with debt.
RESEARCH AND DEVELOPMENT. In fiscal 1994, the Company added research and
development of new technologies to its on-going development of new products and
product improvements based on existing technologies. From fiscal 1994 through
the end of fiscal 1998, the new technology under investigation consisted of
photo-assisted CVD (chemical vapor deposition) research conducted by and in
conjunction with the University of California at Santa Cruz (the "University").
In this regard, the University studied several generations of higher intensity
light sources, none of which have yielded results that would enable the Company
to produce a commercially viable product. The Company's aggregate expenditures
on photo-assisted CVD development from fiscal 1994 through September 30, 1998
were $743,000. While this research was partially successful, it was suspended
indefinitely effective September 30, 1998, until such time as reliable higher
intensity lamps are available and success appears more probable. Before the
suspension, fiscal 1998 expenditures to the University were $170,000, an
increase of $85,000 over fiscal 1997.
Beginning in fiscal 1999, the Company began research on a new technology
asher. In November 1999, the Company announced a joint product development
agreement with PSK Tech, Inc., to develop a new technology ashing machine using
Amtech's damage-free technology and PSK Tech's expertise in the design of ashers
and asher processes. The Company expended $268,000 in both fiscal years 1999 and
1998, respectively, on research and development of new semiconductor production
equipment products and improvement to current products, based on new and
existing technologies. The Company will continue to make these types of
expenditures in the foreseeable future. For fiscal 2000, the Company has
budgeted a total of $409,000 for research and development expenses. The Company
may approve other projects of that nature, depending on their merit and
anticipated effect on earnings. Any expenditure for currently unplanned
development of products and services, if any, will negatively impact the
Company's future operating results until such project achieves profitability.
The Company's currently available cash and short-term investments are
expected to be sufficient to service the inter-period liquidity requirements of
the already expanded operations of the Company. Therefore, any funds required
for significant unplanned development of new products or acquisitions are
expected to be obtained from one or more sources of financing, such as working
capital loans or term loans from banks or other financial institutions,
equipment leasing, mortgage financing and internally generated cash flow from
operations. There can be no assurance of the availability or sufficiency of
these or any other source of funding for those purposes.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES. Consolidated revenues decreased by $1,448,000, or 9%, to
$14,766,000 in fiscal 1999 from $16,214,000 in fiscal 1998. Revenues of the
semiconductor production equipment segment decreased by $1,413,000, or 14%, to
$8,853,000 in fiscal 1999 from $10,266,000 in fiscal 1998. The decline in sales
of capital equipment by the semiconductor production equipment segment accounted
for nearly all of the reduction in consolidated revenues and was caused by the
industry slowdown that began in fiscal 1998. During fiscal years 1999 and 1998,
revenues of the polishing supplies and equipment segment were $5,913,000 and
$5,948,000, respectively, for a decline of less than 1%. The polishing supplies
and equipment segment was the first to be effected by the industry slowdown and
the first to benefit from the recovery the industry is currently experiencing.
The Company believes revenue growth will resume in fiscal 2000, as the industry
is now experiencing rapid recovery.
GROSS MARGINS. Despite a 9% decline in consolidated revenues, the
consolidated gross margin increased by $443,000, or 12%. All of the increase in
gross margin was attributable to the semiconductor production equipment segment.
The gross margin as a percentage of semiconductor equipment product sales
increased to 30% in fiscal 1999, from 22% in fiscal 1998, as a result of
decreased labor and overhead costs and product mix. In fiscal 1999, the revenues
and gross margin of the polishing supplies and equipment segment remained at
nearly the same levels as in fiscal 1998. As a percentage of sales, the
consolidated gross margin was 28% of sales in fiscal 1999, compared to 23% in
fiscal 1998, which also is attributable to improved profitability of the
semiconductor production equipment segment, discussed above.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses decreased by $859,000, or 21%, to $3,330,000 in
fiscal 1999, from $4,189,000 in fiscal 1998. The selling, general and
administrative expenses of the semiconductor production equipment segment
decreased $648,000 as a result of the following factors: (i) the reduction of
personnel and other costs; (ii) reduction of expenses related to evaluating
potential acquisitions; and (iii) no fiscal 1999 charge comparable to the
$184,000 charge taken by the Company in fiscal 1998 for the write-off of a
demonstration unit. The selling, general and administrative expenses of the
polishing supplies and equipment segment decreased $211,000 as a result of the
Company's cost reduction program implemented in the last quarter of fiscal 1998.
As a result of these cost reductions, consolidated selling and general expenses
declined to 23% of revenue in fiscal 1999 as compared to 26% of revenue in
fiscal 1998. Research and development expenses are discussed separately above.
OPERATING PROFIT (LOSS). The semiconductor equipment industry is
experiencing a cyclical recovery. As a result of this recovery and other factors
discussed above, the Company had an operating profit of $568,000 in fiscal 1999,
compared to an operating loss of $904,000 in fiscal 1997. Revenues declined for
both of the Company's operating segments in fiscal 1999, but operating income
increased in both segments due to a cost reduction program implemented by the
Company in the last quarter of fiscal 1998 and the first quarter of fiscal 1999.
Income (loss) from continuing operations before income taxes includes operating
income (loss), discussed above, and net interest income. Net interest income was
$20,000 lower in fiscal 1999, as compared to fiscal 1998, due to a decline in
cash balances during fiscal 1999. As a result of the above items, income from
continuing operations before income taxes increased by $1,452,000 to $602,000 in
fiscal 1999.
NET INCOME (LOSS). The income tax provision is $240,000 in fiscal 1999,
compared to an income tax benefit of $260,000 in fiscal 1998, which resulted
from the Company's net loss in 1998. The effective tax rate for fiscal 1999 is
40%, which is higher than the 34% statutory rate due to the provision for state
income taxes and items that are not deductible for federal income taxes. See
Note 10 to the Consolidated Financial Statements for further details including
an analysis of the differences between the statutory rate and the effective rate
for fiscal 1999 and 1998. After taking into consideration the income tax
provision (benefit), the fiscal 1999 net income is $362,000, or $.17 per share,
compared to a net loss of $590,000, or $(.28) per share, in fiscal 1998.
TRENDS. As a result of the cyclical recovery in the semiconductor industry,
consolidated revenue for the second half of fiscal 1999, $15,588,000 on an
annualized basis, was higher than the $13,944,000 of annualized revenue in the
first half of the fiscal year. Sales for fiscal 2000 are expected to continue to
recover from the industry downturn experienced in the second half of fiscal 1998
and the first half of fiscal 1999. The Company believes that the cyclical
improvement in the industry will continue into fiscal 2001, however, no
assurance can be given regarding how long the current trend will continue.
During fiscal 1999, approximately $168,000 of net income was earned in the
second quarter, $28,000 in the third, and $219,000 in the fourth fiscal quarter,
compared to a loss $53,000 in the first quarter of fiscal 1999. In light of the
rapid recovery currently being experienced by the semiconductor industry and the
Company's trend of improving earnings in fiscal 1999, the Company believes there
will be continued improvement in net income during fiscal 2000.
The Company's semiconductor production equipment segment has been and will
continue to be affected by industry trends. The use and installed base of
vertical furnaces is increasing throughout the industry on a worldwide basis,
particularly for the fabrication of leading edge semiconductor devices, and each
year it is expected to increase in usage to and eventually surpass that of
horizontal furnaces. However, the Company believes that there will continue to
be demand for horizontal diffusion furnaces, notwithstanding other advantages of
vertical systems (e.g. the capability to produce more sophisticated
semiconductors more efficiently through more advanced automation), because
generally production runs, other than those for high volume production of small
chips on larger wafers, are more efficiently produced in horizontal furnaces as
compared to vertical furnaces.
The Company's semiconductor production equipment 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. Horizontal 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
19
<PAGE>
less capital-intensive horizontal diffusion furnaces in the manufacturer of
solar cells, and for other less demanding processes, which could further prolong
the commercial life of the Company's existing semiconductor production equipment
products.
The market for the Company's products remains a small niche market.
Accordingly, future revenues are and will continue to be dependent upon the
introduction or acquisition of new products. Examples include the IBAL
automation products introduced from fiscal 1991 to fiscal 1993, or improved
versions of products that exist in the market, such as the Tempress(R)
horizontal diffusion furnaces, conveyor ovens and "clean room" load stations.
The Company intends to pursue both types of product introductions in the future.
Product or business acquisitions are also a part of the Company's strategy for
growth, as evidenced by the acquisition of P.R. Hoffman's product line of double
sided precision lapping and polishing machines and related consumable products
in the fourth quarter of fiscal 1997. The Company intends to again pursue
acquisitions of other businesses or products that complement its existing
product lines, but recognizes that its ability to do so is dependent upon a
higher market price for the Company's Common Stock and/or the availability of
other sources of capital.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. The consolidated revenues increased by $5,103,000, or 46%, to
$16,214,000 in fiscal 1998, from $11,111,000 in fiscal 1997. During the same
period, operating income decreased by $1,119,000 from $215,000 in fiscal 1997 to
an operating loss of $904,000 in fiscal 1998. The polishing supplies and
equipment segment, comprised of the P.R. Hoffman operations, and the Company's
new manufacturing support services were included in the consolidated results of
operations for four quarters in fiscal 1998 versus one quarter in fiscal 1997.
As a result, these products and services accounted for substantially all of the
increase in consolidated revenue and produced $554,000 greater operating profit,
before corporate allocations, in fiscal 1998 compared to the fourth quarter of
fiscal 1997.
GROSS MARGINS. Revenues of the semiconductor production equipment segment
increased by $778,000, or 8%, to $10,266,000, while the gross margin from these
products and services decreased by $371,000, or 14%. As a result of the cyclical
downturn, the anticipated increase in sales of semiconductor production
equipment did not materialize. The gross margin as a percentage of semiconductor
production equipment segment revenue declined to 22% in fiscal 1998 from 27% in
fiscal 1997, as a result of increased labor and overhead costs, price
competition and product mix. The increases in labor and overhead costs were made
in anticipation of increased sales of semiconductor production equipment, which
did not materialize. The industry slowdown also increased the amount of price
competition experienced during fiscal 1998. Finally, the addition of conveyor
furnaces to the Company's semiconductor production equipment segment resulted in
higher costs because of the short delivery schedule for such products, as well
as higher re-work costs associated with adding a product not previously
manufactured. Overall, the gross margin from consolidated sales increased by
$646,000, or 21%, as a result of the polishing supplies and equipment segment
and manufacturing support services contributing to all four quarters of fiscal
1998, compared to one quarter's gross margin in fiscal 1997. As a percentage of
sales, the consolidated gross margin was 23% of sales in fiscal 1998, compared
to 28% in fiscal 1997. The operations that were new in fiscal 1997 had lower
gross margins as a percent of sales in fiscal 1998 as compared to fiscal 1997,
contributing further to the decline in the consolidated gross margin
percentages.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses increased by $1,492,000, or 55%, to $4,189,000 in
fiscal 1998, from $2,697,000 in fiscal 1997. The selling, general and
administrative expenses of the polishing supplies and equipment segment and
manufacturing support services directly contributed $1,173,000 of that increase.
That portion of the increase in selling, general and administrative expenses was
caused by those operations being included in the consolidated operating results
for four quarters in fiscal 1998 compared to one quarter in fiscal 1997. The
selling, general and administrative expenses of the semiconductor production
equipment segment, excluding manufacturing support services and total corporate
expenses, increased $319,000 as a result of the following factors: (i) the
addition of personnel and other costs in anticipation of higher revenues; (ii)
incurrence of expenses related to investigating and evaluating potential
acquisitions, particularly before the industry slowdown affected operations; and
(iii) a charge of $184,000 taken by the Company for the write-off of a
demonstration unit that is no longer suitable for tradeshows. As a result,
consolidated selling and general expenses increased to 26% of revenue in fiscal
1998 from 24% of revenue in fiscal 1997. Research and development expenses in
20
<PAGE>
fiscal 1998 were $158,000 higher than in fiscal 1997 due to the increase in
expenditures to the University discussed above and to increased development
expenditures in an effort to improve existing semiconductor production
equipment.
OPERATING PROFIT (LOSS). Primarily as a result of the cyclical downturn in
the semiconductor equipment industry and other factors discussed above, the
Company had an operating loss of $904,000 in fiscal 1998, compared to an
operating profit of $215,000 in fiscal 1997. Income (loss) from continuing
operations before income taxes includes operating income (loss), discussed
above, and net interest income. Net interest income was $108,000 lower in fiscal
1998, as compared to fiscal 1997, due to cash used in the acquisition of the
polishing supplies and equipment business and for increased inventories and
furniture and equipment purchases associated with the expansion of the Company's
semiconductor production equipment product line. As a result of these items,
income from continuing operations before income taxes decreased by $1,228,000 to
a loss of $850,000 in fiscal 1998.
NET INCOME (LOSS). As a result of the Company's net loss, the Company
recognized an income tax benefit of $260,000 in fiscal 1998, compared to the
fiscal 1997 provision for income taxes of $140,000. The effective tax rate for
fiscal 1998 is 31%, which is lower than the 34% statutory rate due to the
provision for state income taxes on the Company's new operations and services
and items that are not deductible for federal income taxes. The effective rate
for fiscal 1997 was 37%, 3% higher than the statutory rate, due to the same
items as in fiscal 1998. See Note 10 to the Consolidated Financial Statements
for further details including an analysis of the differences between the
statutory rate and the effective rate for fiscal 1998 and 1997. After taking
into consideration the provision for (benefit from) income taxes, the fiscal
1998 net loss is $590,000, or $(.28) per share, compared to net income of
$238,000, or $.11 basic earnings per basic share ($.10 diluted earnings per
share), in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 and 1998, cash and cash equivalents were
$1,125,000 and $1,352,000, respectively. The fiscal 1999 decrease in cash and
cash equivalents of $227,000 was primarily attributable to $86,000 of cash used
in operations and $158,000 for purchases of property and equipment. While the
Company expects to invest up to $100,000 in equipment, software and furniture
and fixtures during fiscal 2000, and up to $409,000 for research and
development, the Company believes there is sufficient liquidity for these and
current operations. However, see the disclosure under the caption "Plans for
Expansion and Capital Resources," above, for an explanation of factors that
would give rise to requirements for additional sources of liquidity and capital
resources, and possible sources of such to meet those needs.
Working capital increased by $381,000 to $5,374,000 at September 30, 1999,
from $4,993,000 as of September 30, 1998, an increase of 8%. The ratio of
current assets to current liabilities increased to 4.1:1 from 3.0:1. Cash and
cash equivalents comprise 13% of total assets and stockholders' equity accounts
for 77% of total assets. These are measures of financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept two digit entries in the date code field. These date code fields will
need to accept four digit entries to distinguish 21st century dates from 20th
century dates. Any programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
the computer shutting down or performing incorrect computations. As a result,
computer systems and software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements. Certain of the Company's systems,
including information and computer systems and automated equipment, will be
affected by the Year 2000 issue.
READINESS AND RELATED RISKS. The Company believes it has identified the
programs, infrastructure and products that could be affected by the Year 2000
issue and has taken steps to resolve the priority issues on a timely basis.
Based on a review of the hardware and software components of its systems and
products, the Company does not anticipate devoting a considerable amount of
internal resources or otherwise hire substantial external resources to resolve
the key Year 2000 issues.
21
<PAGE>
COSTS. The costs incurred by the Company in connection with Year 2000
issues combined with the costs yet to be expended on such issues is not expected
to be material, as most of the issues have been resolved through installation of
regular software updates provided by licensors under standard maintenance
agreements.
CONTINGENCY PLANS. The production processes of the Company and of its
critical vendors are not significantly dependent upon hardware or software that
is likely to be affected by Year 2000 problems. The Company does not anticipate
that any problems encountered by suppliers and vendors in connection with the
Year 2000 will have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in
foreign currency exchange rates and interest rates. Its operations in the United
States are conducted in United States dollars. The Company's operation in The
Netherlands, a component of the semiconductor production equipment segment,
conducts business primarily in The Netherlands' guilder and, to a lesser extent,
the United States dollar and other European currencies. As of January 1, 1999,
the European Union, of which The Netherlands is a member, established a fixed
conversion rate between their existing sovereign currencies and the Euro and
adopted the Euro as their common legal currency. Most of the other European
currencies in which the Company's Netherlands operation conducts business also
have fixed exchange rates with the Euro. Currently, the functional currency of
the Company's Netherlands operation is The Netherlands guilder. Thus, by the end
of the three year transition period, the functional currency of that operation
will be the Euro.
The Company estimates that more than 95% of its transactions are
denominated in one of its two functional currencies or currencies that have
fixed exchange rates with one of its functional currencies. As of September 30,
1999, the Company did not hold any derivative securities. The Company incurred
net foreign currency losses of $83,000 and $11,000 in 1999 and 1998,
respectively, and gains of $34,000 in 1997. As of September 30, 1999, a 10%
change in the foreign currency rates would not have a material impact on the
Company's financial condition. However, the Company's investment in and advances
to its Netherlands' operation total $1,426,000. A 10% change in the value of The
Netherlands guilder relative to the United States dollar would cause a $142,600
foreign currency translation adjustment, a type of other comprehensive income,
which would be a direct adjustment to stockholders' equity.
When the value of The Netherlands guilder declines relative to the value of
the United States dollar, operations in The Netherlands can be more competitive
against the United States based equipment suppliers and the cost of purchases
denominated in United States dollars become more expensive. When the value of
The Netherlands guilder increases relative to the value of the United States
dollar, operations in The Netherlands must raise prices to those customers that
normally make purchases in United States dollars, in order to maintain the same
profit margins. When this occurs, this operation attempts to have transactions
denominated in The Netherlands guilder or the Euro and to increase its purchases
denominated in United States dollars. The Company estimates that the annual
purchases and sales of this operation that are denominated in currencies not
linked to its functional currency, including United States dollars, British
pounds and Swiss francs, are approximately $600,000 and $800,000, respectively.
Most of those purchases and sales are denominated in United States dollars and
those purchases equal approximately 75% of those sales, providing a partial
hedge against fluctuations in exchange rates. Because it is difficult to predict
the volume of dollar denominated transactions arising from The Netherlands
operations, the Company does not hedge against the effects of exchange rate
changes on future transactions, such as sales for which the Company has not yet
received a purchase order. The Netherlands guilder is near its historically low
value relative to the United States dollar, giving the Company's operation based
in The Netherlands a competitive advantage over other suppliers based in the
United States. However, a future increase in the relative value of The
Netherlands guilder could have a materially adverse effect on future results of
the Company's operations.
The polishing supplies and equipment segment makes annual purchases of
approximately $650,000 through direct or indirect sources from Japan or Germany.
While these purchases are denominated in United States dollars, the price of
materials purchased from Japan is directly effected by the value of the yen
relative to the dollar. The Company believes the price of steel produced in
Germany is relatively unaffected by fluctuations in the value of German mark, as
the supplier sets the price based on an average exchange rate. However, assuming
the price of German sourced steel also fluctuated with currency exchange rates,
a 10% change in the value of Japanese yen and the German mark relative to the
United States dollar would effect the cost of this segment's purchases by
$65,000.
The Company is also exposed to interest rate risk on its fixed debt
obligations. At September 30, 1999, fixed rate debt obligations totaled $197,000
with a fixed interest rate of 6.95% through June 2001. Due to the relatively
insignificant principal balance of outstanding debt, the Company does not
actively manage the risk associated with these obligations. The impact of
interest rate changes would not have a material impact on the Company's results
of operations.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
22
<PAGE>
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates," or the negative thereof or
other written variations thereof or comparable terminology. 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, (c) the Company's products will remain accepted within their respective
markets and will not be significantly further replaced by newer technology
equipment, (d) competitive conditions within the Company's markets will not
materially deteriorate, (e) the Company's efforts to improve its products and
maintain its competitiveness in the markets in which it competes will continue
to progress and that the savings associated with these expenditures and/or the
increased product demand resulting therefrom justifies such development costs,
(f) the Company will be able to retain, and when needed, add key technical and
management personnel, (g) business or product acquisitions, if any, will be
successfully integrated and the results of operations therefrom will support the
acquisition price, (h) that the Company's forecasts will accurately anticipate
market demand, (i) there will be no material adverse changes in the Company's
existing operations, (j) the Company will be able to obtain sufficient equity or
debt funding to increase its capital resources by the amount needed for new
business or product acquisitions, if any, (k) the semiconductor equipment
industry will continue to recover from the recent slowdown, (l) the condition in
the Asian markets will continue to improve, (m) the Company will be able to
continue to control costs, (n) the Company will not, either directly or
indirectly, incur any material Year 2000 issues and (o) demand for the Company's
products will not be adversely and significantly influenced by trends within the
semiconductor industries, including consolidation of semiconductor manufacturing
operations through mergers and the subcontracting out of the production of
semiconductors to foundries. Assumptions related to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, 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 the forward-looking information included
herein, 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.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Report of Independent Public Accountants.....................................F-1
Financial Statements -
Consolidated Balance Sheets
September 30, 1999 and 1998................................................F-2
Consolidated Statements of Operations for
the years ended September 30, 1999, 1998 and 1997..........................F-3
Consolidated Statements of Stockholders'
Equity for the years ended September 30,
1999, 1998 and 1997........................................................F-4
Consolidated Statements of Cash Flows for
the years ended September 30, 1999, 1998 and 1997..........................F-5
Notes to Consolidated Financial Statements
September 30, 1999, 1998 and 1997.........................................F-7
Financial Statement Schedule for the years ended September 30, 1999,
1998 and 1997:
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.
24
<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 (the "Company") as of September
30, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1999. 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 the Company as of September 30,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and supplementary data is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our 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 15, 1999.
F-1
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,124,685 $ 1,351,542
Accounts receivable - net 3,208,488 2,894,217
Inventories 2,259,657 2,393,708
Deferred income taxes 421,000 393,000
Income taxes refundable 34,000 404,000
Prepaid expenses 73,914 87,711
----------- -----------
Total current assets 7,121,744 7,524,178
PROPERTY, PLANT AND EQUIPMENT - net 1,098,313 1,243,016
GOODWILL AND OTHER ASSETS - net 524,501 558,285
----------- -----------
TOTAL ASSETS $ 8,744,558 $ 9,325,479
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 627,445 $ 1,229,451
Accrued compensation and related taxes 458,277 573,294
Accrued warranty expense 146,590 166,839
Accrued installation expense 196,349 183,909
Customer deposits 83,242 249,795
Other accrued liabilities 235,610 127,435
----------- -----------
Total current liabilities 1,747,513 2,530,723
----------- -----------
LONG-TERM OBLIGATIONS 286,828 347,667
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued -- --
Common stock; $0.01 par value; 100,000,000 shares
authorized; 2,108,679 (2,110,303 in 1998) shares
issued and outstanding 21,087 21,103
Additional paid-in capital 7,400,152 7,406,589
Accumulated other comprehensive loss -
Cumulative foreign currency
translation adjustment (309,064) (216,338)
Accumulated deficit (401,958) (764,265)
----------- -----------
Total stockholders' equity 6,710,217 6,447,089
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,744,558 $ 9,325,479
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For
The Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Net product sales $14,766,075 $16,213,904 $11,111,142
Cost of product sales 10,599,708 12,490,631 8,033,653
----------- ----------- -----------
Gross margin 4,166,367 3,723,273 3,077,489
Selling, general and administrative 3,330,348 4,189,387 2,697,060
Equity in (income) of
Korean joint venture -- -- (115,487)
Photo-CVD project -- 170,306 84,883
Other research and development 268,243 267,914 195,613
----------- ----------- -----------
Operating profit (loss) 567,776 (904,334) 215,420
Interest income,net 34,531 54,447 162,289
----------- ----------- -----------
Income (loss) before income taxes 602,307 (849,887) 377,709
Income tax provision (benefit) 240,000 (260,000) 140,000
----------- ----------- -----------
NET INCOME (LOSS) $ 362,307 $ (589,887) $ 237,709
=========== =========== ===========
EARNINGS (LOSS) PER SHARE
Basic $ .17 $ (.28) $ .11
Weighted average shares outstanding 2,109,815 2,106,741 2,084,055
Diluted $ .17 $ (.28) $ .10
Weighted average shares outstanding 2,189,201 2,106,741 2,348,971
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
--------------------- ADDITIONAL OTHER TOTAL
NUMBER PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT EQUITY
--------- ------ ------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1996 2,054,834 $ 20,548 $7,064,352 $ (48,548) $(412,087) $6,624,265
Net income -- -- -- -- 237,709 237,709
Translation adjustment -- -- -- (235,905) (235,905)
----------
Comprehensive income 1,804
----------
Employee stock bonus -
net of stock repurchases 8,025 80 34,657 -- -- 34,737
Stock options exercised 13,500 135 35,065 -- -- 35,200
Shares and warrants issued
in connection with the
acquisition of P.R.
Hoffman assets 16,194 162 232,038 -- -- 232,200
--------- -------- ---------- --------- --------- ----------
BALANCE AT
SEPTEMBER 30, 1997 2,092,553 20,925 7,366,112 (284,453) (174,378) 6,928,206
Net loss -- -- -- -- (589,887) (589,887)
Translation adjustment -- -- -- 68,115 -- 68,115
----------
Comprehensive loss (521,772)
----------
Stock options exercised 9,000 90 16,160 -- -- 16,250
Employee stock bonus -
net of stock repurchases 8,750 88 24,317 -- -- 24,405
--------- -------- ---------- --------- --------- ----------
BALANCE AT
SEPTEMBER 30, 1998 2,110,303 21,103 7,406,589 (216,338) (764,265) 6,447,089
Net income -- -- -- -- 362,307 362,307
Translation adjustment -- -- -- (92,726) -- (92,726)
----------
Comprehensive income 269,581
----------
Employee stock bonus -
net of stock repurchases (1,624) (16) (6,437) -- -- (6,453)
--------- -------- ---------- --------- --------- ----------
BALANCE AT
SEPTEMBER 30, 1999 2,108,679 $ 21,087 $7,400,152 $(309,064) $(401,958) $6,710,217
========= ======== ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 362,307 $ (589,887) $ 237,709
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 312,371 361,046 233,938
Inventory and accounts receivable write-offs 142,490 135,642 76,123
Loss on disposals of long-lived assets -- 183,872 592
Equity in income from Korean joint venture -- -- (115,487)
Deferred income taxes (28,000) (120,000) (50,000)
(Increase) decrease in:
Accounts receivable (473,383) 160,719 (401,561)
Inventories, prepaid expenses and other
assets (60,958) (429,450) (421,270)
Increase (decrease) in:
Accounts payable (542,561) 240,963 191,544
Accrued liabilities and customer deposits (155,788) 244,643 188,091
Income taxes payable/refundable 364,063 (522,059) (21,000)
----------- ----------- -----------
Net Cash Used In Operating Activities (79,459) (334,511) (81,321)
----------- ----------- -----------
INVESTING ACTIVITIES:
Maturities of short-term investments - net -- 579,191 1,884,929
Proceeds from disposition of interest in
Korean joint venture -- -- 475,047
Purchases of property, plant and equipment (158,232) (310,962) (236,652)
Cash paid for net assets of P.R. Hoffman
Machine Products Corporation -- -- (2,569,580)
----------- ----------- -----------
Net Cash Provided By (Used In)
Investing Activities (158,232) 268,229 (446,256)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from stock options exercised -- 16,250 35,200
Employee stock bonus - net of stock
repurchases (6,453) 24,405 34,737
Payments on mortgage loan (12,062) (12,069) (19,635)
----------- ----------- -----------
Net Cash Provided By (Used In)
Financing Activities (18,515) 28,586 50,302
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 29,349 (6,611) (121,093)
----------- ----------- -----------
CASH AND EQUIVALENTS:
Net decrease (226,857) (44,307) (598,368)
Beginning of year 1,351,542 1,395,849 1,994,217
----------- ----------- -----------
END OF YEAR CASH AND EQUIVALENTS $ 1,124,685 $ 1,351,542 $ 1,395,849
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For The Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 10,169 $ 15,731 $ 19,855
Income taxes paid (refunded) (102,000) 387,411 216,000
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
(1) NATURE OF OPERATIONS:
Amtech Systems, Inc. (an Arizona corporation), P. R. Hoffman Machine
Products, Inc., a wholly-owned subsidiary formed in July 1997, ("P. R. Hoffman")
both based in the United States, and Tempress Systems, Inc., a wholly-owned
subsidiary formed in September 1994 and based in The Netherlands ("Tempress"),
comprise the "Company". The Company designs, assembles, sells and installs
capital equipment and related consumables used in the manufacture of wafers of
various materials, primarily silicon wafers for the semiconductor industry, and
in certain semiconductor fabrication processes. These products are sold to
manufacturers of silicon wafers and semiconductors worldwide, particularly in
the United States, Korea, and Northern Europe. During fiscal 1997, the Company
began providing semiconductor manufacturing support services. The Company serves
a niche market in an industry which experiences rapid technological advances and
which in the past has been very cyclical. Therefore, the Company's future
profitability and growth depend on its ability to develop or acquire and market
profitable new products and its ability to adapt to cyclical trends.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Amtech Systems, Inc. and its wholly owned subsidiaries,
P. R. Hoffman Machine Products, Inc. since its acquisition date (see Note 3) and
Tempress Systems, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain reclassifications have been made
to the September 30, 1998 and 1997 financial statements to conform to the
September 30, 1999 presentation.
REVENUE RECOGNITION - Revenue is recognized on the accrual basis when the
customer takes title to the product, generally upon shipment. On occasion, the
Company will recognize revenue prior to shipment. When this occurs, the Company
ensures that title has passed, the customer has committed to take delivery of
the goods in a reasonable period of time, there is a legitimate business purpose
requested by the customer not to ship the product, the product is complete and
ready for shipment and is segregated from existing inventory and there are no
material contingencies. As of September 30, 1999, the Company had recognized
$736,000 of revenue for two furnace systems for which shipment had not occurred.
In each case, the Company had received eighty-five percent (85%) of the selling
price by September 30, 1999, and had met the revenue recognition criteria
described above.
Service revenues are recognized as services are performed.
CASH EQUIVALENTS - Cash equivalents consist of time certificates of deposit
and U.S. treasury bills. The Company considers certificates of deposit and
treasury bills to be cash equivalents if their maturity is 90 days or less from
date of purchase. Investments maturing in more than 90 days are considered to be
"available-for-sale" (as defined by Statement of Financial Accounting Standards
(SFAS) No. 115) and are recorded at fair value, which approximates cost. There
were no available for sale securities or short-term investments at September 30,
1999 and 1998.
F-7
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method) or market. The components of inventory as of September 30,
1999 and 1998 are as follows:
1999 1998
---------- ----------
Purchased parts $1,237,348 $1,174,570
Work-in-progress 605,769 612,646
Finished goods 416,540 606,492
---------- ----------
$2,259,657 $2,393,708
========== ==========
PROPERTY, PLANT AND EQUIPMENT - Maintenance and repairs are charged to
expense as incurred. The costs of additions and improvements are capitalized.
The cost of property retired or sold and the related accumulated depreciation
are removed from the applicable accounts when disposition occurs and any gain or
loss is recognized. Depreciation expense for fiscal years 1999, 1998 and 1997
was approximately $256,000, $273,000 and $196,000, respectively.
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.
Long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the undiscounted expected cash flows from an asset to
be held and used in operations is less than the carrying value of the asset, an
impairment loss is recognized.
Due to model changes in 1998, the Company reviewed a Tempress diffusion
furnace built for use at tradeshows and determined that the net present value of
future cash flows it can expect from this furnace were less than the carrying
value of the asset. Accordingly, a loss of $184,000, the cost of the furnace
less accumulated depreciation, was included in selling, general and
administrative expense in fiscal 1998.
The following is a summary of property, plant and equipment as of September
30, 1999 and 1998:
1999 1998
----------- -----------
Building and leasehold improvements $ 588,324 $ 610,507
Equipment and machinery 1,046,247 935,280
Furniture and fixtures 471,884 498,634
----------- -----------
2,106,455 2,044,421
Accumulated depreciation (1,008,142) (801,405)
----------- -----------
$ 1,098,313 $ 1,243,016
=========== ===========
GOODWILL - The purchase price in excess of net assets acquired, commonly
referred to as goodwill, is being amortized over fifteen years using the
straight-line method. Amortization expense for fiscal years 1999, 1998 and 1997
was approximately $37,000, $37,000, and $9,000, respectively.
F-8
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
WARRANTY - The Company provides free of charge a limited warranty,
generally twelve months, to all purchasers of its new products and systems.
Current liabilities include approximately $147,000 and $167,000 for accrued
warranty expense as of September 30, 1999 and 1998, respectively. Warranty
expense for fiscal 1999, 1998 and 1997 amounted to approximately $190,000,
$240,000, and $267,000, respectively. Management believes this amount is
sufficient for all future warranty costs on systems sold through September 30,
1999.
RESEARCH AND DEVELOPMENT EXPENSES - The Company expenses product
development costs as they are incurred. The Company incurred expenses of
approximately $268,000 in 1999, $438,000 in 1998, and $280,000 in 1997, related
to the development of a new ashing machine, research on photo-assisted CVD
(chemical vapor deposition) equipment and processes, the development of
diffusion furnaces and the improvement of IBAL and other products.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - Financial information
relating to the Company's foreign subsidiary is reported in accordance with
Statement of Accounting Financial Standards ("SFAS") No. 52, "Foreign Currency
Translation". Income from continuing operations includes a loss from foreign
currency transactions of $83,000 in 1999, $11,000 in 1998 and gains of $34,000
in 1997. The functional currency of Tempress is The Netherlands guilder. The
gains or losses resulting from the translation of the financial statements of
the Company's foreign-based operation have been included as a separate component
of shareholders' equity.
INCOME TAXES - The Company files consolidated federal income tax returns
and computes deferred income tax assets and liabilities based upon cumulative
temporary differences between financial reporting and taxable income,
carryforwards available and enacted tax law (see Note 10).
EARNINGS PER COMMON SHARE - The Company utilizes SFAS No. 128, "Earnings
Per Share" ("EPS") to calculate basic and diluted EPS (see Note 11).
Effective with the close of business on March 15, 1999, each two shares of
the $0.01 par value common stock of the Company were converted and reclassified
into one share. All shares and per share amounts have been restated to give
effect for this one-for-two reverse stock split. Any fractional shares resulting
from the reverse split were rounded to the next highest whole number.
STOCK-BASED COMPENSATION - The Company accounts for its employee
stock-based compensation plans under SFAS No.123, "Accounting for Stock-Based
Compensation". SFAS No. 123 permits companies to record employee stock-based
transactions under Accounting Principles Board Opinion (APB) No. 25, under which
no compensation cost is recognized and to disclose the pro forma effects on
earnings and earnings per share as if the fair value approach had been adopted.
(See Note 12).
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.
F-9
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 (see Note 4) approximates prevailing interest rates
for similar debt instruments.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED - In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133 - "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133". This statement defers the effective date of SFAS No. 133 to the Company's
quarter ending December 31, 2000. The Company does not expect the adoption of
SFAS Nos. 133 and 137 to have a material impact on its future results of
operations or financial position.
(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS:
On July 1, 1997, the Company acquired substantially all of the assets and
operating liabilities of P. R. Hoffman Machine Products Corporation. P. R.
Hoffman specializes in the development, manufacture and marketing of
double-sided lapping and polishing machines and related consumables used in the
manufacture of semiconductor silicon wafers. This acquisition was accounted for
under the purchase method of accounting; therefore, the accompanying statements
include the results of the operations of P. R. Hoffman since the date of
acquisition.
The cost of the acquisition is summarized as follows:
Cash $2,308,000
Liabilities assumed 382,000
Acquisition transaction costs 270,000
Issuance of 16,194 shares of common stock 65,000
Issuance of 75,000 warrants (see Notes 11 and 12) 167,000
----------
Total cost of acquisition $3,192,000
==========
The cost of the acquisition was allocated as follows:
Accounts receivable $1,122,000
Inventory 1,060,000
Property 421,000
Other assets and liabilities 35,000
Goodwill 554,000
----------
Total $3,192,000
==========
The valuation of the common stock issued in connection with this
transaction was determined based on the fair market value of the common stock on
the date of issuance, taking into account the illiquidity arising from
restrictions on the sale of the stock. The goodwill is being amortized on a
straight-line basis over a period of 15 years.
F-10
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS - (CONTINUED)
In addition to the above purchase price, the former owner of P. R. Hoffman
Machine Products Corporation is entitled to additional payments equal to 50% of
pretax income of the P. R. Hoffman operation in excess of $800,000 per year for
a period of 5 years ending September 30, 2002, limited to a maximum aggregate of
$2 million of such payments. The additional contingent purchase price of up to
$2 million is payable in a combination of cash and unregistered and registered
common stock of the Company, as defined in the Asset Purchase Agreement. This
additional consideration will be treated as part of the purchase price to the
extent earned and will be amortized over the remainder of the fifteen-year
period that began on the July 1, 1997 acquisition date. No contingent
consideration was earned in fiscal 1999, 1998 or 1997.
As a part of the transaction, the Company subleases a 21,740 square foot
building, located in Carlisle, Pennsylvania, from John R. Krieger, the Company's
Director of Corporate Development and former owner of the P. R. Hoffman
operation. The lease requires monthly payments of $9,860 on a triple net basis,
expires on June 30, 2004, and includes an option to renew the lease for five
successive one-year terms. Monthly lease payments increase to $10,300, $10,700,
$10,810 and $10,860 on July 1, 2000, 2001, 2002 and 2003, respectively. The
Company also entered into an employment agreement with Mr. Krieger, which
requires payments of $150,000 per year and expires on June 30, 2001.
The following unaudited consolidated pro forma financial information was
prepared assuming that the acquisition had occurred at the beginning of fiscal
1997. This unaudited pro forma information does not necessarily reflect the
results of operations that would have occurred had the acquisition taken place
at the beginning of the fiscal year and is not necessarily indicative of results
that may be obtained in the future.
1997
-----------
Revenues $16,121,577
Income from continuing operations 575,069
Net income 575,069
Earnings per share:
Income from continuing operations $ .22
Net income $ .22
For purposes of the above unaudited pro forma presentation, the historical
revenues and earnings of P.R. Hoffman for the twelve month period ended
September 30, 1997 have been combined with the revenues and earnings of the
Company for the year ended September 30, 1997.
F-11
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) LONG-TERM OBLIGATIONS:
Long-term debt included in long-term obligations includes a twenty year
mortgage secured by the Company's land and building located in The Netherlands.
The non-current portion of the long-term debt was $185,000 and $215,000 as of
September 30, 1999 and 1998, respectively. As of September 30, 1999, the
collateral has a carrying value of $348,000. Principal payments of $13,000 per
year are payable in The Netherlands guilder in 240 equal monthly payments, with
the payments for fiscal 2000 included in accounts payable as of September 30,
1999. Interest is fixed at 6.95% through June 2001, after which the rate will be
adjusted to the prevailing market rate. There is a penalty for prepayment of the
loan prior to June 2001.
In October 1998, the Company was granted a line of credit in the amount of
approximately $375,000, the equivalent of 750,000 of The Netherlands' guilders
at an interest rate of 2% over a Netherlands bank's basic interest rate, 3.5% as
of September 30, 1999. The line of credit is secured by a $125,000 second lien
on the Company's land and building in the Netherlands, and certain accounts
receivable, which amounted to $819,000 as of September 30, 1999.
(5) COMMITMENTS AND CONTINGENCIES:
Key suppliers include two (2) steel mills, one domestic and one German,
capable of meeting the material specification the Company requires; an injection
molder that provides plastic insets for steel carriers; a pad supplier that
produces a unique material used to attach semiconductor wafers to the polishing
template (sole sourced from a Japanese company); and an adhesive manufacturer
that supplies the critical glue used in the production of the semiconductor
polishing templates. As of September 30, 1999, the Company has unconditional
commitments to purchase $190,000 of steel. Due to long lead-times, certain
minimum order quantities and quantities of similar steel in inventory, it could
take several years to use all of the steel commitments in production of the
Company's products. However, these purchase commitments are not expected to
result in any significant losses.
The Company has engaged an investment banker to assist it in identifying
potential acquisition candidates and to assist with financing transactions. Upon
closing any transaction(s) initiated prior to August 17, 2000 with proceeds
and/or aggregate consideration equal to $1 million or more in which the
investment banker has earned a contingent fee, the Company will issue to the
investment banker 100,000 five year warrants to purchase the Company's common
stock at an exercise price of $2.625 per share exercisable on the later of the
date of issuance or August 16, 2000.
(6) MAJOR CUSTOMERS AND FOREIGN SALES:
The Company had major customers accounting for more than 10% of sales,
which were different in each of the three years presented, as follows:
1999 1998 1997
---- ---- ----
Customer 1 -- -- 16%
Customer 2 -- -- 16%
Customer 3 -- 12% --
Customer 4 -- 12% --
Customer 5 14% -- --
---- ---- ----
14% 24% 32%
==== ==== ====
F-12
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(6) MAJOR CUSTOMERS AND FOREIGN SALES - (CONTINUED)
Receivables from the one customer comprise 16% of accounts receivable at
September 30, 1999. Receivables from three customers comprised 43% of accounts
receivable at September 30, 1998, representing a concentration of credit risk as
defined by SFAS No. 105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk".
The Company's sales were to customers in the following geographic regions:
1999 1998 1997
---- ---- ----
United States & Canada (including 1% 59% 55% 38%
or less to Central and South America)
Far East (Korea, People's Republic of China, 5 8 27
Taiwan, Japan, Singapore, Indonesia,
Malaysia and India)
Europe (including 1% or less to Israel and Africa) 29 31 35
Australia 7 6 --
---- ---- ----
100% 100% 100%
==== ==== ====
(7) BUSINESS SEGMENT INFORMATION:
The Company classifies its products into two core business segments: (1)
the semiconductor production equipment segment which designs, manufactures and
markets semiconductor wafer processing equipment used in the fabrication of
integrated circuits, and (2) the polishing supplies and equipment segment, which
designs, manufactures and markets carriers, templates, and equipment used in the
lapping and polishing of wafer thin materials, including silicon wafers used in
the production of semiconductors. Information concerning the Company's business
segments in 1999, 1998, and 1997 is as follows:
1999 1998 1997
----------- ----------- -----------
Revenues
Semiconductor production equipment $ 8,852,590 $10,266,265 $ 9,488,530
Polishing supplies and equipment 5,913,485 5,947,639 1,622,612
----------- ----------- -----------
$14,766,075 $16,213,904 $11,111,142
=========== =========== ===========
Operating profit (loss)
Semiconductor production equipment $ 281,789 $ (985,614) $ (22,712)
Polishing supplies and equipment 285,987 81,280 238,132
----------- ----------- -----------
Total segment operating profit 567,776 (904,334) 215,420
Interest income - net 34,531 54,447 162,289
----------- ----------- -----------
Income (loss) before income taxes $ 602,307 $ (849,887) $ 377,709
=========== =========== ===========
F-13
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) BUSINESS SEGMENT INFORMATION - (CONTINUED)
1999 1998 1997
---------- ---------- ----------
Identifiable assets
Semiconductor production equipment $5,236,460 $6,319,875
Polishing supplies and equipment 3,508,098 3,005,604
---------- ----------
$8,744,558 $9,325,479
========== ==========
Capital expenditures
Semiconductor production equipment $ 90,036 $ 255,478 $ 236,652
Polishing supplies and equipment 68,196 55,484 --
---------- ---------- ----------
$ 158,232 $ 310,962 $ 236,652
========== ========== ==========
Depreciation and amortization expense
Semiconductor production equipment $ 201,785 $ 259,117 $ 212,887
Polishing supplies and equipment 110,586 101,929 21,051
---------- ---------- ----------
$ 312,371 $ 361,046 $ 233,938
========== ========== ==========
The Company has manufacturing operations in the United States and The
Netherlands. Revenues, operating profit (loss) and identifiable assets by
geographic region of the locations for the fiscal years ended 1999, 1998 and
1997 are as follows:
1999 1998 1997
------------ ------------ ------------
Revenues
United States $ 9,307,085 $ 10,481,408 $ 5,321,240
The Netherlands 5,458,990 5,732,496 5,789,902
------------ ------------ ------------
$ 14,766,075 $ 16,213,904 $ 11,111,142
============ ============ ============
Operating profit (loss)
United States $ 610,381 $ (376,754) $ (146,742)
The Netherlands (42,605) (527,580) 362,162
------------ ------------ ------------
$ 567,776 $ (904,334) $ 215,420
============ ============ ============
Identifiable assets
United States $ 6,528,205 $ 5,855,188
The Netherlands 2,216,353 3,470,291
------------ ------------
$ 8,744,558 $ 9,325,479
============ ============
(8) LEASES:
The Company leases buildings, vehicles and equipment. As of September 30,
1999 minimum rental commitments under noncancellable operating leases total
$735,000, of which $193,000, $180,000, $134,000, $130,000 and $98,000 are
payable in fiscal years 2000, 2001, 2002, 2003 and 2004, respectively.
Rental expense related to continuing operations, net of sublease income,
for 1999, 1998 and 1997 was approximately $231,000, $234,000 and $98,000,
respectively.
(9) 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. Royalties are 4% on sales of complete
Atmoscan systems and 2% on any related spare parts.
F-14
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Through the acquisition of the net assets of P. R. Hoffman Machine Products
Corporation (see Note 3), the Company acquired the license for the design of its
steel carriers with plastic inserts for abrasive machining of silicon wafers. In
1995, P. R. Hoffman Machine Products Corporation licensed the patent rights from
Wacker Siltronics. Royalties are 5% on net sales of insert carriers to third
parties.
Royalty expense included in cost of product sales totaled approximately
$73,000, $82,000 and $44,000 in 1999, 1998 and 1997, respectively.
(10) INCOME TAXES:
The provision for (benefit from) income taxes on continuing operations
consists of:
1999 1998 1997
--------- --------- ---------
Current
Domestic federal $ 250,000 $ (28,000) $ (32,000)
Foreign (25,000) (133,000) 202,000
Domestic State 43,000 21,000 20,000
--------- --------- ---------
268,000 (140,000) 190,000
--------- --------- ---------
Deferred
Domestic federal (31,000) (70,000) (125,000)
Foreign 13,000 (45,000) 77,000
Domestic State (10,000) (5,000) (2,000)
--------- --------- ---------
(28,000) (120,000) (50,000)
--------- --------- ---------
$ 240,000 $(260,000) $ 140,000
========= ========= =========
The provision for income taxes on continuing operations is different from
the amount that would be computed by applying the United States corporate income
tax rate to the income (loss) from continuing operations before income taxes.
The differences as of September 30 are summarized as follows:
1999 1998 1997
--------- --------- ---------
Provision (benefit) at the federal rate $ 205,000 $(289,000) $ 128,000
Effect of expenses not deductible for tax 15,000 19,000 19,000
State tax provision 42,000 (38,000) 23,000
Effect of losses of Korean joint venture -- -- (22,000)
Change in valuation allowance (22,000) 54,000 3,000
Other items -- (6,000) (11,000)
--------- --------- ---------
Income tax provision (benefit) $ 240,000 $(260,000) $ 140,000
========= ========= =========
F-15
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10) INCOME TAXES - (CONTINUED)
The tax assets (liabilities) comprising the net deferred tax asset as of
September 30, 1999 and 1998 are as follows:
1999 1998
--------- ---------
Allowance for doubtful accounts $ 56,000 $ 54,000
Uniform capitalization of inventory costs 58,000 50,000
Inventory write-downs not currently deductible 125,000 71,000
Book vs. tax depreciation 7,000 (27,000)
Unrealized currency losses (gains) (4,000) 35,000
State net operating loss carryforwards 50,000 72,000
Liabilities not currently deductible 222,000 253,000
Valuation allowance (93,000) (115,000)
--------- ---------
$ 421,000 $ 393,000
========= =========
In evaluating the probability of realizing its deferred tax assets, the
Company has limited its recognition of deferred tax assets to those tax assets
which management believes are more likely than not to be realized. The remaining
deferred tax assets have been offset by the valuation allowance.
(11) EARNINGS (LOSS) PER SHARE:
All EPS data presented have been restated as required by SFAS No. 128. EPS
were calculated as follows:
1999 1998 1997
---------- ----------- ----------
Net income (loss) $ 362,307 $ (589,887) $ 237,709
Weighted average
Shares outstanding:
Common stock 2,109,815 2,106,741 2,084,055
Common stock equivalents issuable
Upon exercise of warrants
And stock options (1) 79,386 -- 264,916
---------- ----------- ----------
2,189,201 2,106,741 2,348,971
========== =========== ==========
Earnings (Loss) Per Share:
Basic $ .17 $ (.28) $ .11
========== =========== ==========
Diluted $ .17 $ (.28) $ .10
========== =========== ==========
- ----------
(1) Number of common stock equivalents calculated using the treasury stock
method and the average market price during the period. Options and warrants
on 1,492,500 shares had an exercise price greater than the average market
price during the year ended September 30, 1999 and therefore did not enter
into the EPS calculation. In fiscal 1998 all options and warrants, totaling
1,685,792, were anti-dilutive due to the net loss and therefore did not
enter into the EPS calculation. Of these options and warrants, 1,645,792
had an exercise price greater than the average market price during fiscal
1998.
F-16
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(12) STOCK BASED COMPENSATION:
STOCK WARRANTS - In fiscal 1995, the Company issued an aggregate of
1,312,500 redeemable warrants to the public (1,207,500) and the underwriter
(105,000) in connection with a secondary public offering, which have an exercise
price of $5.50 per share and expire on December 15, 1999. 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. On
December 15, 1999, the Company's Board of Directors extended the expiration date
of the publicly traded redeemable warrants to January 14, 2000.
In connection with the acquisition of the net assets of P.R. Hoffman
Machine Products Corporation during fiscal 1997, the Company issued 75,000
warrants to purchase one share each of $.01 par value common stock at a per
share exercise price of $6.00. These warrants have been valued at $167,000 using
the Black-Scholes valuation method. The primary assumptions used in the
valuation of these warrants were a risk free rate of 6.29%, expected dividend
yield of 0%, average holding period of 2.5 years, and 69% volatility. The value
of these warrants has been included in the acquisition cost associated with the
purchase of the P. R. Hoffman net assets.
STOCK OPTION PLANS - The board of directors has reserved 25,000 shares of
common stock for issuance upon exercise of the outstanding options issued to
employees under the 1983 Incentive Stock Option Plan, which expired in 1993.
Another 15,000 shares of common stock are reserved for the exercise of stock
purchase rights granted to directors under Director Stock Purchase Agreements
prior to 1996. The Non-Employee Directors Stock Option Plan was approved by the
stockholders in 1996 for the issuance of up to 100,000 shares of common stock to
directors. The Amended and Restated 1995 Stock Option Plan and the 1995 Stock
Bonus Plan were also approved by stockholders in 1996 under which a combined
total of 160,000 shares were authorized. The 1998 Employee Stock Option Plan,
under which 50,000 shares may be granted, was adopted by the board of director
on January 31, 1998 and approved by shareholders on March 20, 1998. All of the
plans with the exception of the 1983 Incentive Stock Option Plan expire in 2006.
Qualified stock options issued under the terms of the plans have or will have an
exercise price equal to or greater than the fair market value of the common
stock at the date of the option grant and expire no later than 10 years from the
date of grant, with the most recent grant expiring February 28, 2008. Under the
terms of the 1995 Stock Option Plan, nonqualified stock options may also be
issued. Options issued in fiscal years 1999, 1998 and 1997 vest at the rate of
20% - 33% per year. Shares granted under the 1995 Stock Bonus Plan totaled
25,000 in 1995 and 4,250 in 1996, of which 6,000 were forfeited in 1996. As of
September 30, 1999, the Company had 100,500 options available for issuance under
the plans.
F-17
<PAGE>
(12) STOCK BASED COMPENSATION - (CONTINUED)
The stock option transactions and the options outstanding for the three
years ended September 30, 1999, are summarized as follows:
Number of Weighted-Average
Options Exercise Price
------- --------------
Outstanding at September 30,1996 66,500 $2.64
Granted 141,042 5.00
Exercised (13,500) 2.14
Expired (3,000) 3.26
--------
Outstanding at September 30,1997 191,042 4.34
Granted 27,000 4.66
Exercised (9,000) 1.80
Expired or forfeited (16,750) 4.46
--------
Outstanding at September 30,1998 192,292 4.52
Granted 41,500 1.38
Exercised -- --
Expired or forfeited (6,500) 1.13
--------
Outstanding at September 30,1999 227,292 1.17
========
Outstanding options exercisable as of:
September 30, 1997 25,000 2.90
September 30, 1998 49,000 4.74
September 30, 1999 72,000 1.13
In fiscal 1999, 1998 and 1997 the number of incentive stock options issued
to employees, net of forfeitures, were 26,000, 3,500 and 132,000 respectively,
and they were valued at $54,000, $17,000 and $440,000 respectively, using the
Black-Scholes valuation method. On October 14, 1998, the Company re-priced all
stock options outstanding as of that date to the closing market price on that
date of $1.13 per share. Vesting schedules and expiration dates remain
unchanged. In accordance with APB No. 25, "Accounting for Stock Issued to
Employees", the Company is not required to record compensation expense related
to this re-pricing and no such expense has been recorded in these financial
statements. The incremental value attributed to the re-pricing of the stock
options was $58,000. The primary assumptions used in the valuations were a
weighted average risk free rates of 4.33% to 6.23%, an expected dividend yield
of 0%, holding periods of three to eight years and volatility of 63% to 86%. No
adjustment has been made for the non-transferability of the options or for the
risk of forfeiture at the time of issuance. Forfeitures are instead recorded as
incurred.
F-18
<PAGE>
(12) STOCK BASED COMPENSATION - (CONTINUED)
Had the effects of stock-based compensation been accounted for in the
financial statements for fiscal 1999, the net income would have been
approximately $232,000 and the basic and diluted earnings per share would have
been $.11. Had the effects of stock-based compensation been accounted for in the
financial statements for fiscal 1998, the net loss would have been approximately
$681,000 and the basic and diluted loss per share would have been $.32. Had the
effects of stock-based compensation been accounted for in the financial
statements for fiscal 1997, the net income would have been approximately
$187,000 and the basic and diluted earnings per share would have been $.08.
As of September 30, 1999 the Company's 227,292 outstanding stock options
had a weighted average remaining contractual life of 7.1 years and a range of
exercise prices of $1.13 to $1.50. In addition, as of September 30, 1999 the
Company had 72,000 of exercisable stock options with a weighted average
remaining contractual life of 7.1 years all at an exercise price of $1.13.
(13) 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 led
the Company to negotiate the sale of its interest in the joint venture. The
Company received $478,000 during December 1996, pursuant to the termination
agreement, which reimbursed the Company's actual investment and expenses.
(14) SHAREHOLDER RIGHTS PLAN:
During May 1999, the Company's Board of Directors adopted a shareholder
rights plan, which authorized the distribution of one right for each outstanding
common share to purchase one one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50, subject to certain antidilution
adjustments. The rights will expire 10 years after issuance and will be
exercisable if (a) a person or group becomes the beneficial owner of 15% or more
of the Company's common stock or (b) a person or group commences a tender or
exchange offer that would result in the offeror beneficially owning 15% or more
of the common stock (a "Stock Acquisition Date"). If a Stock Acquisition Date
occurs, each right, unless redeemed by the Company at $.01 per right, entitles
the holder to purchase an amount of common stock of the Company, or in certain
circumstances a combination of securities and/or assets or the common stock of
the acquirer, having an equivalent market value of $17.00 per right at a
purchase price of $8.50. Rights held by the acquiring person or group will
become void and will not be exercisable.
F-19
<PAGE>
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
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:
1999 $143,000 $ 29,144 $32,144 $140,000
1998 130,000 25,198 12,198 143,000
1997 90,000 42,960 2,960 130,000
2. Deferred Tax
Valuation Allowance
1999 $115,000 $(22,000) $ -- $93,000
1998 61,000 54,000 -- 115,000
1997 58,000 3,000 -- 61,000
</TABLE>
S-1
<PAGE>
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the 2000 Annual Meeting of
Stockholders (the "Proxy Statement").
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 13. 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, 1999 and 1998
2. Consolidated Statements of Operations for the years ended September
30, 1999, 1998 and 1997
3. Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998 and 1997
4. Consolidated Statements of Cash Flows for the years ended September
30, 1999, 1998 and 1997
5. Notes to Consolidated Financial Statements - September 30, 1999, 1998
and 1997
(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.
25
<PAGE>
(c) EXHIBITS.
Method of
Exhibit No. Description Filing
----------- ----------- ------
3.1 Articles of Incorporation A
3.2 Articles of Amendment to Articles of Incorporation,
dated April 27, 1983 A
3.3 Articles of Amendment to Articles of Incorporation,
dated May 19, 1987 B
3.4 Articles of Amendment to Articles of Incorporation,
dated May 2, 1988 C
3.5 Articles of Amendment to Articles of Incorporation,
dated May 28, 1993 F
3.6 Amended and Restated Bylaws D
4.1 Rights Agreement dated May 17, 1999 M
10.1 Amended and Restated 1995 Stock Option Plan H
10.2 1995 Stock Bonus Plan H
10.3 Non-Employee Director Stock Option Plan I
10.4 Employment Agreement with Robert T. Hass,
dated May 19, 1992 E
10.5 Registration Rights Agreement with J.S. Whang,
dated January 24, 1994 F
10.6 Employment Agreement with J.S. Whang, dated
February 28, 1997 K
10.7 Contract of Sale (Real Property) dated June 21,
1996 between Tempress Systems, Inc. and
Orgelmakerij Gedr. Rell B.V. G
10.8 Employment Agreement, dated July 1, 1997, between
the Registrant and John R. Krieger J
10.9 Registration Rights Agreement, dated July 1, 1997,
between the Registrant and John R. Krieger J
10.10 Asset Purchase Agreement, dated July 1, 1997, among
the Registrant, P.R. Hoffman Machines Corporation
and John R. Krieger J
10.11 1998 Employee Stock Option Plan L
10.12 Amendment to Employment Agreement, dated 1999,
between the Registrant and John R. Krieger *
10.13 Sublease Agreement, dated July 1, 1999, between
the Registrant and John R. Krieger *
26
<PAGE>
Method of
Exhibit No. Description Filing
----------- ----------- ------
21 Subsidiaries of the Registrant N
23 Consent of Independent Public Accountant *
24 Powers of Attorney See Signature Page
27 Financial Data Schedule *
- ----------
* 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, 1993.
F Incorporated by reference to the Company's Form S-1 Registration Statement
No. 33-77368.
G Incorporated by reference to the Company's Form S-3 Registration Statement
No. 333-09917.
H 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
September 9, 1997.
I 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.
J Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 1, 1997.
K Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
L Incorporated by reference to the Company's Proxy Statement for shareholders
meeting held on March 20, 1998.
M Incorporated by reference to the Company's Current Report on Form 8-K,
dated May 17,1999.
N Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1997.
(d) Reports on Form 8-K
The Company filed a Form 8-K on May 28, 1999, disclosing the adoption of a
rights agreement dated May 17, 1999, between Amtech Systems, Inc. and
American Securities Transfer & Trust, Inc.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMTECH SYSTEMS, INC.
December 23, 1999 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:
Signature Title Date
--------- ----- ----
/s/ Jong S. Whang Chairman of the Board, President December 23, 1999
- ------------------------- (Chief Executive Officer)
Jong S. Whang
/s/ Robert T. Hass Vice President-Finance December 23, 1999
- ------------------------- (Chief Financial & Accounting
Robert T. Hass Officer)
/s/ Donald F. Johnston Director December 23, 1999
- -------------------------
Donald F. Johnston
/s/ Alvin Katz Director December 23, 1999
- -------------------------
Alvin Katz
/s/ Bruce R. Thaw Director December 23, 1999
- -------------------------
Bruce R. Thaw
28
AMENDMENT TO EMPLOYMENT AGREEMENT
Whereas, Amtech Systems, Inc. ("Employer) and John R. Krieger ("Employee")
entered into an Employment Agreement (the "Agreement") dated July 1, 1997; and
Whereas, Employer and Employee now desire to modify the Agreement pursuant
to Paragraph 2.19 thereof, and to enter into this Amendment to Employment
Agreement ("Agreement");
The parties hereto therefore agree to the following modifications to the
Agreement, to be effective as of the date set forth below; with all unmodified
portions of the Agreement to remain in full force and effect as written:
1. Paragraph 2.4 of the Agreement is hereby deleted and replaced by the
following:
2.4 Employee's duties for Employer will be determined based upon the
mutual agreement of Employee and Employer, through its President or the
Chairman of its Board of Directors, as they may agree from time to time.
Employee shall devote his time, attention, skills and energies to complete
the mutually agreed upon assignments in a professional and timely manner
and shall serve Employer faithfully, diligently and to the best of his
ability. Employee's assignments shall be primarily in the areas of
corporate development, and he will not have direct line responsibility for
P.R. Hoffman Machine Products, Inc., but may have responsibility for
specific assignments related to P.R. Hoffman as agreed upon pursuant to
this paragraph. Employee will initially be principally located in
Dillsburg, Pennsylvania, and will transition to residence in Prescott,
Arizona on a schedule to be determined by him. While in Arizona, and
working on assignments for Employer, Employee may be required to report to
Employer's corporate offices in Tempe, Arizona no more than three days per
week. Employee will be responsible for all travel expenses between
Prescott, Arizona and Employer's corporate offices in Tempe, Arizona, and
will not be reimbursed for such expenses. Employer shall not hold the
position of Director of Employer or any of its subsidiaries and agrees
immediately to resign, and hereby does resign, as President and Director of
P.R. Hoffman Machine Products, Inc.
2. Employer will not furnish Employee with a car or pay any expenses
associated with a leased vehicle.
3. Employer will include Employee in its Pennsylvania payroll until such
time as Employee notifies Employer in writing that he has relocated to Arizona.
Beginning at the time of receipt of such notice, Employer will include Employee
in its Arizona payroll. Employer is entitled to rely upon the notice from
Employee as to the date of change in his state of his residence. Employee will
indemnify, defend, and hold harmless Employer from and against any claims by any
state or local taxing authority arising out of the inclusion of Employee on
either Employer's Pennsylvania payroll or Employer's Arizona payroll.
<PAGE>
4. Paragraph 2.6(b) of the Agreement and the last two sentences of
Paragraph 2.7 of the Agreement are hereby deleted and are replaced by the
following:
2.6(b) Employee shall be entitled to participate in any group benefit,
insurance or pension plan to the same extent as similarly situated
employees in Pennsylvania or, after he designates his relocation, in
Arizona. Employee will not accrue or be entitled to any paid vacation or
holidays and shall not be paid any vacation or holiday pay at any time
regardless of the number of hours worked.
5. Employer will reimburse Employee for long distance telephone charges in
connection with Employer business, including but not limited to charges for
calls between Prescott, Arizona and Tempe, Arizona, subject to his furnishing
appropriate documentation as required by Paragraph 2.7 of the Agreement.
6. Employer will provide Employee with a desktop computer with an
approximate value of $1,500 for Employee's use at his residence in either
Pennsylvania or Arizona, which computer will be owned by Employer and returned
to Employer upon termination of the Agreement.
7. Paragraph 2.21 of the Agreement is amended by substituting "Arizona" for
"Pennsylvania" in the second line thereof.
8. Paragraph 2.18 of the Agreement is amended by inserting "as amended
herein" between "Agreement" and "constitutes" in the first line.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment this
21st day of January, 1999.
Amtech Systems, Inc.
By /s/ Robert T. Hass
-------------------------------------
Its Vice President-Finance
------------------------------------
/s/ John R. Krieger
----------------------------------------
John R. Krieger
LEASE AGREEMENT
THIS LEASE, is made as of this 1ST day JULY , 1999, by and between PRH
PROPERTIES, LP, a Pennsylvania limited partnership (hereinafter "Landlord"), and
P.R. HOFFMAN MACHINE PRODUCTS, INC., an Arizona corporation (hereinafter
"Tenant").
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord that certain real property containing approximately 2.35 acres
(hereinafter "Premises"), together with all improvements located thereon and
appurtenances thereunto belonging, located on Commerce Drive, South Middleton
Township, Cumberland County, Pennsylvania.
2. TERM. The initial term of this Lease shall be for a period of five (5)
years and shall commence on the 1st day of July 1999 (hereinafter "Commencement
Date") and ending June 30, 2004, unless sooner terminated in accordance with
this Lease. Tenant shall have the right and option to renew the term for five
(5) successive, additional periods of one (1) year each; provided however, that
Tenant shall have no right or option to renew the term of this Lease if an event
of default exists upon the date of giving the notice to renew or at any time
thereafter through and including the expiration date of the then-existing term
of this Lease. In order to exercise its right to renew the, Tenant must provide
Landlord written notice of its exercise thereof at least ninety (90) days prior
to the expiration of the then-existing term of this Lease. The maxim term of
this Lease and all renewal terms is ten (10) years from the Commencement Date.
3. USE. The Premises shall be used by Tenant as an office, manufacturing
and warehouse facility and for no other purpose.
4. RENTAL. (a) Tenant shall pay to Landlord during the initial term of this
Lease monthly rent in accordance with the table below. All rent shall be payable
in advance, punctually and without demand, deduction or set off, payable on the
1st day of each month during the term of this Lease at such place as Landlord
may from time to time designate in writing. The amount of
ANNUAL AND MONTHLY RENTAL TABLE FOR INITIAL TERM:
COMMENCING ON: ANNUAL RENT MONTHLY RENT
-------------- ----------- ------------
7/1/1999 $118,200 $ 9,860
7/1/2000 $123,600 $10,300
7/1/2001 $128,400 $10,700
7/1/2002 $129,720 $10,810
7/1/2003 $130,320 $10,860
1
<PAGE>
(b) If notice of renewal has been given in accordance with Section 2 of this
Lease, then at the beginning of each year following the expiration of the
initial and each renewal term (a "Renewal Year"), the monthly rent shall be
adjusted by the index known as the U.S. City Average Consumer Price Index for
Urban Wage Earners and Clerical Workers (revised series; 1982-84=100) issued
from time to time by the Federal Bureau of Labor Statistics, or any successor
agency that shall issue the index, or any other measure hereafter employed by
the Federal Bureau of Labor Statistics or any successor agency in lieu of such
index (the "CPI"). The CPI adjustment to the monthly rent shall be exactly equal
to the change is cost of living as determined by the CPI; PROVIDED, however,
that in no event shall the CPI adjustment to the monthly rent exceed five
percent (5%) for any Renewal Year. To compute such CPI adjustment, the
prevailing CPI will be used. Each such CPI adjustment to the monthly rent shall
be accomplished by multiplying the monthly rent for the lease year terminating
immediately prior to the Renewal Year, for which the adjustment is being
calculated, by a fraction, the numerator of which shall be the most recently
published CPI prior to the first day of the Renewal Year in question and the
denominator of which shall be the CPI used as the numerator in calculation of
the rent adjustment in the previous Renewal Year (but in no event shall the
monthly rent be reduced as a result of such adjustment below the monthly rent
payable immediately prior thereto), and the increased monthly rent resulting
from the CPI adjustment to the monthly rent thereby established shall continue
in effect as the monthly rent until again adjusted as provided herein. In
computing the monthly rent for the first Renewal Year, the denominator of the
fraction described above shall be the most recently published CPI prior to July
1, 2003.
5. LATE CHARGE. If Tenant fails to make any rental or other payment within
ten (10) days of the date it is due hereunder, a late charge equal to five
percent (5%) of the amount of the payment due shall be assessed and shall be
immediately due and collectible as additional rent hereunder.
6. COMPLIANCE WITH LAWS AND CONDITION OF PREMISE. Tenant shall comply with
all laws, ordinances, orders, permits, licenses, regulations of all governmental
authorities (whether federal, state, local or otherwise) and insurance
requirements concerning the Premises and any fixtures, machinery or equipment
therein, and Tenant's use of the Premises, including, without limitation, all
laws regarding public health and welfare, environmental protection, water and
air pollution, composition of products, underground storage tanks, toxic
substances, hazardous wastes, hazardous substances, hazardous materials, waste
or used oil, occupational health and safety and/.or nuisance, trespass and
negligence. Tenant has examined and knows the condition of the Premises and
equipment, and acknowledges that no representations as to the condition and
repair thereof have been made by Landlord or its agents prior to or at the
execution of this Lease Agreement that are not herein expressed, and accepts the
Premises and equipment in an "as is" condition without warranty as to
suitability for any particular use; provided, however, that in no event shall
this Section 6 be construed to contradict Landlord's indemnification obligations
with respect to environmental matters set forth in Section 30 hereof or
Landlord's representations and warranties and indemnification obligations set
forth in that certain Asset Purchase Agreement dated July 1, 1997.
2
<PAGE>
7. UTILITIES. The Premises shall be served by electricity, water, sewer,
telephone and other utilities presently available to the Premises. Tenant shall
pay for all such services consumed on the Premises. Landlord shall not be
responsible for any suspension in such services resulting from causes beyond its
control or for temporary periods during which repairs are being made to the
Premises.
8. REAL ESTATE TAXES AND ASSESSMENTS. Landlord shall provide to Tenant,
within ten (10) business days after receipt, all notices of real estate taxes,
and general and special assessments (including sewer and water rentals and
charges, trash, street lights, and the like) assessed against the Premises.
Tenant agrees to pay, within the applicable discount period, all said real
estate taxes and assessments.
If the Tenant fails to pay such real estate taxes or assessments and other
charges which it is obligated to pay pursuant to this paragraph within the
aforesaid period of ten (10) business days after receipt, the Landlord may, but
shall not be obligated to, pay such real estate taxes, assessments and charges,
as the case may be, together with the interest and penalties thereon, and the
amount so paid shall be considered additional rent due and in arrears.
9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency, all taxes,
assessments, license fees, and other charges that are levied and assessed
against personal property or fixtures installed or located in or on the
Premises, and that are payable during the term of this Lease.
10. MAINTENANCE AND REPAIRS. Tenant, at its own cost, shall maintain the
Premises (including the roof, structural and mechanical components of the
improvements located on the Premises, and the adjoining walks and grounds) and
any fixtures, machinery or equipment thereon in good condition. Tenant shall be
responsible for the cost of any janitorial services needed for the Premises.
Landlord shall not have any responsibility to maintain the Premises. Upon
expiration or termination of the term, Tenant shall return the Premises to the
Landlord in as good condition and repair as existed on the commencement date of
the term, ordinary wear and tear along excepted.
11. GROUND MAINTENANCE. Tenant, at its own cost, shall maintain the grounds
of the Premises, including but not limited to snow and ice removal, landscaping,
mowing and any other maintenance necessary to preserve the ground of the
Premises in the condition as of the Commencement Date. Upon expiration or
termination of the term of this Lease, Tenant shall return the grounds of the
Premises to Landlord in as good condition as existed on the Commencement Date.
12. STRUCTURAL ALTERATIONS. Tenant shall not make any structural or
exterior alterations to the Premises without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed.
3
<PAGE>
13. NONSTRUCTURAL ALTERATIONS AND FIXTURES. Tenant, at its cost, after
obtaining Landlord's prior written consent, which consent may not be
unreasonably withheld or delayed, may make nonstructural alterations to the
interior of improvements located on the Premises and may place and attach such
equipment, machinery and fixtures therein as Tenant requires in order to conduct
its business on the Premises. In making any alterations, etc., Tenant shall
comply with the following:
(a). Unless waived in writing by Landlord, Tenant shall submit
reasonably detailed plans and specifications of the proposed
alterations or placing of fixtures, machinery or equipment to Landlord
at least fifteen (15) days prior to the date it intends to commence
the alterations or fixturing.
(b). The alterations and fixturing, etc., shall be approved by
all appropriate government agencies, and all applicable permits and
authorizations shall be obtained before commencement of the work.
Any alterations made shall remain on and be surrendered with the
Premises on expiration or termination of the term, except that Landlord may
elect to require Tenant, at Tenant's cost, to remove any nonstructural
alterations and fixtures that Tenant has made to the Premises, and Tenant
shall restore the Premises to as good condition as existed at the
commencement of the term, normal wear and tear excepted.
If Tenant is not then in default of any provision of the Lease, Tenant
shall have the right to remove from the Premises immediately prior to the
expiration of the term any and all equipment, machinery and fixtures which
Tenant has placed or attached in or to the Premises (and at Landlord's
option, Landlord may require Tenant to remove same), and such removal shall
be done in a manner that will not cause any structural damage to the
Premises, and Tenant shall promptly restore any damage caused by such
removal.
14. MECHANICS' LIENS. Tenant will not permit any mechanics' claim or lien
to be placed upon the Premises or any building or improvement constituting a
part thereof during the term of this Lease, and in case of the filing of any
such claim or lien, Tenant will promptly discharge same or procure a lien
release bond by a good and sufficient surety corporation in an amount equal to
one and one-half times the amount of the claim or lien. If a default in the
discharge thereof or procuring of a bond shall continue for thirty (30) days
after written notice from Landlord to the Tenant, the Landlord shall have the
right and privilege at Landlord's option of paying the same or any portion
thereof without inquiry as to the validity thereof, and any amounts so paid,
including expenses and interest shall be deemed additional rental due and
payable by Tenant to Landlord.
4
<PAGE>
15. INDEMNITY. Tenant shall indemnity and hold Landlord harmless from all
claims and liability, including reasonable attorneys' fees and related costs and
expenses, arising out of any damage or injury to or death of any person or
property occurring in, on or about the Premises, or resulting from any act or
omission of Tenant, unless such liability arises from the negligence of
Landlord.
16. INSURANCE. Tenant shall, at its sole cost and expense, maintain fire
insurance coverage with all-risk endorsements on the improvements located on the
Premises in an amount equal to the full replacement cost of the said
improvements. In addition, Tenant shall maintain casualty insurance on its
personal property, but in any event, all personal property of any kind or
description of Tenant on the Premises shall be at tenant's sole risk, and
Landlord shall not be liable for any damage done to or loss of such personal
property or damage or loss suffered by the business of Tenant arising out of any
act or neglect of other occupants of the building located on the Premises, or
other parties, or from bursting, overflowing or leaking of water, sewer or steam
pipes or from heating or plumbing fixtures or from electric wires of equipment,
or from gas or odors, or caused in any manner whatsoever except in the case of
the intentional neglect of Landlord.
Tenant shall procure and maintain, throughout the term of this Lease
Agreement, general liability insurance, insuring against injury or death to
persons occurring in or about the Premises and the improvements located thereon.
Tenant agrees to release, indemnify and hold harmless Landlord from and
against any and all costs, losses, damages, claims and liabilities, including
reasonable attorneys' fees, arising out of or attributable to the condition,
use, operation or maintenance of the Premises and any improvements or buildings
located thereon, or arising out of or based upon any injury (including death) to
any person, or damage to any property, occurring in, on or about the Premises,
and any improvements or buildings thereon, or resulting from any act or
admission of the Tenant. The aforesaid general liability insurance, shall, in
addition, insure performance by the Tenant of the indemnity provisions provided
above.
Tenant shall name Landlord and Landlord's mortgagee, if any, on all
policies of insurance obtained regarding the Premises, each as their interest
may appear. Each of the policies shall contain an endorsement that it shall not
be cancelled without at least ten (10) days prior written notice to Landlord and
any such mortgagee. Landlord and its mortgagee, if any, shall be entitled to a
duplicate original of all such insurance policies no later than ten (10) days
prior to the expiration date of the then existing polices, together with
evidence that the premiums have been prepaid for the full term of the policy.
If the Tenant fails to pay the premium for any of the policies of insurance
listed above which it is obligated to pay pursuant to this paragraph, the
Landlord may, but will not be obligated to, pay such insurance premiums for
tenants, and the amount so paid shall be considered rent due and in arrears.
5
<PAGE>
17. MUTUAL RELEASE. Notwithstanding anything in this Lease to the contrary,
Landlord and Tenant hereby waive and release each other of and from any and all
rights of recovery, claims, actions or causes of action against each other,
their agents, officers, representatives, employees, servants, contractors and
invitees for any loss or damage that may occur to the Premises, the building,
improvements or fixtures therein or thereon, or any personal property within the
building from any cause whatsoever which could be insured against under the
terms of an all-risk fire, and extended coverage insurance policy, regardless of
cause or origin, including the negligence of Landlord or Tenant or their agents,
officers, representatives, servants, employees, contractors or invitees.
18. PARTIAL DESTRUCTION OF THE PREMISES. If the Premises are partially
damaged by fire or other cause not in excess of 50% of the area or value of the
Premises, the damage thereto (exclusive of Tenant's property) shall be repaired
or restored promptly by Landlord, at no expense to Tenant. If the damages are
such as to render all or a part of the Premises untenable, the rent shall be
abated to an extent corresponding with the period during which and the extent to
which the Premises have become untenantable. More specifically, until the
Premises are satisfactorily repaired or restored by Landlord as described above,
Tenant's obligation to pay rent apportionable to such period of nonuse shall be
reduced based on a fraction, the numerator of which is the number of square feet
no longer used or usable by Tenant, and the denominator of which shall be the
total square footage leased by Tenant hereunder.
19. TOTAL DESTRUCTION OF THE PREMISES. In the event of total destruction of
the Premises (i.e., greater than or equal to 50% of the area or value of the
Premises), Landlord shall have the option to rebuild, and rent shall abate until
such time as the Premises are available to Tenant (except that Landlord shall
not be responsible for restoring any of Tenant's fixtures or other property of
Tenant), at which time rent shall again commence. In the event, however,
Landlord elects not to rebuild or does not within sixty (60)days after the
destruction commence to rebuild or repair, or does not within one hundred eighty
(180) days make available to Tenant the Premises, this Lease shall thereupon
terminate.
20. CONDEMNATION. In the event the Premises or a portion thereof are taken
or sold pursuant to the exercise of the right of eminent domain, rent shall be
proportionately abated and reduced (in the case of a partial taking) or this
Lease shall be terminated (in the case of a taking of the whole), as the case
may be, but in no event shall Tenant be entitled to receive any part of the
award paid to Landlord in connection therewith, and Tenant hereby assigns to
Landlord all such awards and compensation, except that Tenant shall have the
right to claim any separate award for the value of Tenant's fixtures,
improvements and relocation expenses. If the useable square footage of the
building is reduced by ten percent (10%) or more as a result of such
condemnation, Tenant shall have the right to terminate this lease.
6
<PAGE>
21. ASSIGNMENT AND SUBLETTING. Tenant shall not assign or sublet the
Premises or any part thereof without the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
22. LANDLORD'S MORTGAGES. This Lease is expressly subject to all present
and future mortgages or other security instruments of Landlord encumbering the
Building. Tenant covenants to execute such documents as requested by Landlord to
confirm such subordination, and upon failure to do so, hereby irrevocably
appoints Landlord its agent and attorney-in-fact to execute the same on its
behalf.
23. QUIET ENJOYMENT. Landlord covenants to allow Tenant quietly and
peaceably to enjoy possession of the Premises free from interference or
interruption of Landlord or any other person claiming under or through Landlord,
and Landlord represents to Tenant that it has a sufficient ownership interest in
the Premises to enter into and carry out the provisions of this Lease.
24. SURRENDER. At the expiration or earlier termination of this Lease,
Tenant shall quit and surrender the Premises in the same condition as they were
delivered to Tenant at the Commencement Date, normal wear and tear excepted. All
fixtures, improvements and appurtenances attached to or built into the Premises
by Tenant in such a manner as to become part of the freehold, shall become and
remain a part of and be surrendered with the Premises, except that Landlord may
elect to require Tenant, at Tenant's expense, to remove any or all of such
fixtures, nonstructural improvements and appurtenances, and Tenant shall repair
any damage caused by such removal; provided, however, that in no event shall
this Section 24 be construed to contradict any provisions of Section .13 hereof.
Time is of the essence of each provision of this Lease. Tenant hereby
waives the Notice to Quit requirements of the Pennsylvania Landlord and Tenant
Act of 1951, as amended, 68 P.S. ss.250.101 et seq., or any other applicable
law, and agrees to surrender the Premises without the need for notice at the
expiration of the term, including any renewal or extension thereof or upon
sooner termination of this Lease.
25. SIGNS. Tenant shall provide and maintain, at its expense, a sign on or
about the building located on the Premises, which sign shall be approved by
Landlord prior to it being affixed to the building.
26. ACCESS. Landlord and Landlord's authorized agents shall have the right
from time to time after reasonable prior notice or in the case of an emergency,
no notice, to Tenant to enter the Premises for the purposes of making repairs,
of inspecting the Premises, and of showing the Premises to prospective
purchasers or tenants.
7
<PAGE>
27. DEFAULT BY TENANT.
(a) If Tenant shall default (i) in making any payment of rent or other sums
required to be paid by Tenant in accordance with the terms of this Lease, or
(ii) shall default in the observance or performance of any other provision of
this Lease, or (iii) there shall occur an assignment by Tenant for the benefit
of creditors; an appointment of a receiver of the assets of Tenant; or the
filing for, by or against Tenant of any action under Chapter 7 of the Federal
Bankruptcy Act or comparable federal, state or local legislation that
establishes a plan for the liquidation of the Tenant and such default shall
continue uncured for a period of ten (10) days with respect to a monetary
default or thirty (30) days with respect to a non-monetary default after
Landlord notifies Tenant, an Event of Default shall have occurred; provided,
however, that if the nature of Tenant" default is such that it is not capable of
being cured within such thirty (30) day period, the Event of Default shall not
be deemed to have occurred if Tenant commences such cure within a thirty (30)
day period and thereafter diligently prosecutes such cure to completion, as
determined by Landlord in Landlord's sole and reasonable discretion.
(b) If an Event of Default has occurred, Landlord may declare this Lease
Agreement and Tenant's right to possession of the Premises ended, whereupon
Landlord shall, without this exposition limiting its rights in law or in equity,
have the following remedies:
(i) Landlord may declare the entire rent and other sums reserved
hereunder for the full term of this Lease remaining unpaid
immediately due and payable in full;
(ii) Landlord may terminate this Lease and annul the unexpired
portion of this Lease;
(iii) Landlord may enter upon and repossess the Premises and at
Landlord's option, may relet the Premises, in which case all
expenses of such reletting shall be deemed additional rent
immediately due and payable hereunder, and all rent when
received from the new tenant shall be credited against Tenant's
liability hereunder;
(iv) Landlord may institute legal proceedings to collect all rent and
sums due and payable hereunder and to recover possession of the
Premises.
(V) REMEDIES CUMULATIVE: It is understood and agreed that the
remedies herein given to Landlord shall be cumulative, and the
exercise of any one remedy by Landlord shall not be to the
exclusion of any other remedy. Each and all of said remedies
shall be exercisable repeatedly and as often as may be
necessary.
8
<PAGE>
(VI) NO WAIVER: No delay or omission in the exercise of any right or
remedy of Landlord on any default by Tenant shall impair such a
right or remedy or be construed as a waiver. Any waiver by
Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other
provision of this Lease unless and only to the extent such
additional waiver(s) are specifically provided for in such
written waiver.
28. DEFAULT BY LANDLORD.
(a) In the event Landlord shall default in keeping, observing or performing
any of the terms, provisions, covenants and conditions contained in this Lease,
and such default is not cured (or proper corrective measures to cure such
default commenced) by Landlord within the period specified herein for the curing
of such defaults, Tenant shall have the right, but not the obligation, to remedy
such default after giving written notice thereof to Landlord. Landlord agrees to
promptly send to Tenant a copy of any notice of default received from the
holders of present or future mortgages or other security instruments encumbering
the building.
(b) In the event Landlord shall default in keeping, observing or performing
any of the terms, provisions, covenants and conditions contained in this Lease,
and such default is not cured (or proper corrective measures to cure such
default commenced) by Landlord within ten (10) days of such default, Tenant, at
any time thereafter upon ten (10) days' written notice to Landlord, may declare
this Lease ended, whereupon Tenant shall have the remedies provided at law or in
equity.
29. HOLDOVER. If Tenant holds possession of the Premises after the term of
this Lease and any exercised renewal options Tenant shall become a tenant from
month-to-month upon the terms herein specified, but at a monthly base rent equal
to the monthly base rent payable during the last month of the term multiplied by
110%, which shall be payable monthly in advance, and such tenancy shall continue
on a month-to-month basis until terminated by Landlord or Tenant upon at least
one month's prior written notice to terminate such monthly tenancy.
30. TOXIC MATERIALS.
(a) As used in this Lease.
(i) The term "Hazardous Material(s)" means any oil, flammable items,
explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials including,
without limitation, any substances that pose a hazard to the
Premises or to persons on or about the Premises and any
substances defined as or included in the definition of
"hazardous substance," "hazardous waste," "hazardous material,"
"toxic substance," "extremely hazardous waste," "restricted
hazardous waste" or words of similar import, now or subsequently
9
<PAGE>
regulated in any way under applicable federal, state or local
laws or regulations, including without limitation,
petroleum-based products, paints, solvents, lead, cyanide, DDT,
printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCB's, urea formaldehyde foam
insulation, transformers or other equipment containing
dielectric fluid, levels of polychlorinated biphenyls, or radon
gas, and similar compounds, and including any different products
and materials which are subsequently found have adverse effects
on the environment or the health and safety of persons.
(ii) The term "Environmental Law(s)" means any one or all of the
following: the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund
Amendments and Reauthorization act of 1986 (42 U.S.C.ss.ss.9601
et seq.); the Resource Conservation and Recovery Act as amended
(42 U.S.C.ss.ss.300f et seq); the Clean Water Act as amended (33
U.S.C.ss.ss.1251 et seq.); the Clean Air Act as amended (42
U.S.C.ss.ss.7401 et seq.) the Toxic Substance Control Act as
amended (15 U.S.C.ss.ss.136 et seq.) the Solid Waste Disposal
Act as Amended (42 U.S.C.ss.ss.3251 et seq.) the Hazardous
Materials Transportation Act (49 U.S.C.ss.ss.1801 et seq.); the
regulations promulgated under any of the foregoing: and all
other laws, regulations, ordinances, standards, policies, and
guidelines now in effect or hereinafter enacted by any
governmental entity (whether local, state or federal) having
jurisdiction or regulatory authority over the Premises or over
activities conducted therein and which deal with the regulation
or protection of human health, industrial hygiene or the
environment, including the soil, subsurface soil, ambient air,
groundwater, surface water, and land use.
(iii) The term "Environmental Activity(ies)" means any generation,
manufacture, production, pumping, bringing upon, use, storage,
treatment, release, discharge, escaping, emitting, leaching,
disposal or transportation of Hazardous Materials.
(b) Tenant shall protect, indemnify, defend (with counsel satisfactory to
Landlord) and hold harmless Landlord, his heirs, representatives, employees,
agents, lenders, and ground lessees, if any, and their respective successors and
assigns for, from and against any and all losses, damages, claims, costs,
expenses, penalties, response costs, fines and liabilities of any kind
(including, without limitation, the cost of any investigation, remediation and
cleanup, and reasonable attorneys' fees) which are determined to be attributable
to (i) any Environmental Activity on the Premises undertaken or committed by
Tenant or Tenant's agents or caused by the negligence of such persons during the
Term of this Lease. This indemnity shall survive the termination of this Lease.
Tenant shall have no liability or obligation arising out of any violation of any
10
<PAGE>
Environmental Law or contamination or pollution of, or from, the Premises caused
by (i) conduct or conditions occurring prior to July 1, 1997, or after, Tenant's
occupancy of the Premises or (ii) Landlord's or Landlord's agents use of, or
acts or omissions on, the Premises.
(c) Landlord shall protect, indemnify, defend (with counsel satisfactory to
Tenant) and hold harmless Tenant and its directors, officers, partners,
employees, agents, lenders, and ground lessees, if any, and their respective
successor and assigns for, from and against any and all losses, damages, claims,
costs, expenses, penalties, response costs, fines and liabilities of any kind
(including without limitation, the cost of any investigation, remediation and
cleanup, and reasonable attorneys' fees) which are determined to be attributable
to (i) any Environmental Activity on the Premises undertaken or committed by
Landlord or Landlord's agents or caused by the negligence of such persons at any
time prior to, during or after the Term of this Lease. The indemnity shall
survive the termination of this Lease. Landlord shall have no liability or
obligation arising out of any violation of any Environmental Law or
contamination or pollution of, or from, the Premises caused by Tenant's or
Tenant's agents use of, or acts or omissions on, the Premises.
31. LANDLORD'S LIABILITY. The maximum combined liability of the Landlord
and the principals of Landlord shall limited to the greater of their combined
equity in the leased premises on (i) July 1, 1999 or (ii) the day immediately
preceding that on which the Landlord or one of its principal's receives
notification from the lessee of a claim under this lease against the Landlord or
one of its principals. The interest of the Landlord herein may be assigned, in
which case the Landlord shall advise Tenant of the name of the assignee and
Landlord shall have no liability hereunder from and after the effective date of
any such assignment, except for obligations which may have theretofore accrued.
32. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or by certified or
registered mail, return receipt requested, first-class postage prepaid, properly
addressed to the party to whom such notice is directed, at the address
hereinafter specified, or at such other address as the party receiving notice
designates to the other party in writing and by complying with the terms of this
paragraph.
If to Landlord: PRH Properties, LP
17700 N. Crossroads Ranch Road
Prescott, Arizona 86305
With a copy to: McNees, Wallace & Nurick
100 Pine Street
Post Office Box 1166
Harrisburg, Pennsylvania 17108
Attn: W. Jeffry Jamouneau, Esquire
11
<PAGE>
If to Tenant:
Amtech Systems, Inc.
131 South Clark Drive
Tempe, Arizona 85281
Attn: Robert T. Hass, Vice President-Finance, CFO
With a copy to:
Squire, Sanders & Dempsey
40 N. Central Avenue, Suite #2700
Phoenix, Arizona 85004
Attn: Greg Hall, Esquire
33. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the parties hereto as to the Lease of the Premises and supersedes all prior
discussions, understandings or agreements between the parties hereto. No
modification, amendment, change or addition to this Lease Agreement shall be
binding on the parties unless reduced to writing and signed by their authorized
representatives.
34. MECHANICS' LIENS. The interest of Landlord in the Premises shall not be
subject to liens for materials, services or improvements which have been
furnished by any person at the request of Tenant, and Tenant shall not have the
authority to in any way encumber the interest of Landlord.
35. GOVERNING LAW. This Lease Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania, without regard to choice-of-law provisions,
and jurisdiction and venue for all disputes hereunder shall lie only in the
Court of Common Pleas for Cumberland County, Pennsylvania and/or in the United
States District Court for the Middle District of Pennsylvania.
36. LEGALLY BINDING. Except as herein otherwise specified, this Lease
Agreement shall legally benefit and bind the parties hereto and their respective
successors and assigns. Tenant may not record this Lease Agreement without the
prior written consent of Landlord.
37. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents,
warrants and covenants to and with Tenant that Landlord has the full right and
power to execute and perform this Lease and to grant the estate defined herein
and Tenant, on payment of the rent and performance of a the covenants and
agreements hereof, shall peaceably and quietly have, hold and enjoy the Premises
and all rights, easements, appurtenances and privileges belonging or in any way
appertaining thereto without molestation or hindrance of any person claiming by,
through or under Landlord, subject, however, to the terms of this Lease.
38. MISCELLANEOUS.
(a) If any term or provision or portion thereof of this Lease Agreement,
or application thereof to any person or circumstance, be held invalid,
12
<PAGE>
the remainder of said term or provision and/or of this Lease Agreement
shall not be affected thereby; and, to this end, the parties hereto
agree that the terms and provisions of this Lease Agreement are
severable.
(b) In no event shall this Lease Agreement or anything contained herein be
construed to contradict Krieger's indemnification obligations with
respect to environmental matters set forth in Section 13 of the
Sublease between John R. Krieger, as an individual, and P.R. Hoffman
Machine Products, Inc. dated as of July 1, 1997, as amended by
Amendment #1, or in anyway limit the duration of said indemnification
obligations.
IN WITNESS WHEREOF, the undersigned have caused this Lease to be duly
authorized and executed as of the day and year first above written.
ATTEST: LANDLORD:
PRH PROPERTIES, LP
By: /s/ John R. Krieger
- --------------------------- ------------------------------------
John R. Krieger, Partner
ATTEST TENTANT:
P.R. HOFFMAN MACHINE PRODUCTS, INC.
By: /s/ Robert T. Hass
- --------------------------- ------------------------------------
Robert T. Hass, its Vice President
13
<PAGE>
AMENDMENT #1
TO
SUBLEASE AGREEMENT
Amendment #1 to that certain Sublease dated July 1, 1997, by and between
John R. Krieger, an adult individual, as sublessor ("Krieger") and P. R. Hoffman
Machine Products, Inc., an Arizona corporation, as sublessee ("Hoffman").
WITNESSETH:
In consideration of the mutual covenants set forth in the Sublease and in
Section 38(b) of the lease dated July 1, 1999 and herein e parties hereto agree
to amend the Sublease as follows:
In Sub-section 13(c) on page 7 of the Sublease, the words "Hoffman or
Hoffman's" in line eight (8) thereof are to be and hereby are replaced with the
words "Krieger or Krieger's" in order to reflect the original intent that said
line would mirror, rather than copy, line 8 of Sub-section 13(b) thereof.
Except for the change noted above, all terms of the Sublease remain in
effect and unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment #1 as
of the 1ST day of July 1997.
ATTEST: KRIEGER:
JOHN R. KRIEGER
By: /s/ John R. Krieger
- --------------------------- ------------------------------------
John R. Krieger
ATTEST TENTANT:
P.R. HOFFMAN MACHINE PRODUCTS, INC.
By: /s/ Robert T. Hass
- --------------------------- ------------------------------------
Robert T. Hass, its Vice President
14
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 (File Numbers 333-09917 and 333-10117) and
Forms S-8 (File Numbers 333-09911 and 333-09909).
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
December 22, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF SEPTEMBER 30, 1999 AND 1998, AND THE STATEMENTS OF OPERATION AND
CASH FLOW FOR THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,124,685
<SECURITIES> 0
<RECEIVABLES> 3,348,488
<ALLOWANCES> 140,000
<INVENTORY> 2,259,657
<CURRENT-ASSETS> 7,121,744
<PP&E> 2,106,455
<DEPRECIATION> 1,008,142
<TOTAL-ASSETS> 8,744,558
<CURRENT-LIABILITIES> 1,747,513
<BONDS> 286,828
21,087
0
<COMMON> 0
<OTHER-SE> 6,689,130
<TOTAL-LIABILITY-AND-EQUITY> 8,744,558
<SALES> 14,766,075
<TOTAL-REVENUES> 14,766,075
<CGS> 10,599,708
<TOTAL-COSTS> 10,599,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,144
<INTEREST-EXPENSE> 10,169
<INCOME-PRETAX> 602,307
<INCOME-TAX> 240,000
<INCOME-CONTINUING> 362,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362,307
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
