UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: DECEMBER 31, 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0411215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 480-967-5146
------------
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Shares of Common Stock outstanding as of December 31, 1999 : 2,108,679
---------
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AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and September 30, 1999................... 3
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1999 and 1998.............. 4
Consolidated Statements of Stockholders' Equity -
Three Months Ended December 31, 1999 and 1998.............. 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1999 and 1998.............. 6
Notes to Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations...................................... 11
Liquidity and Financial Condition ......................... 13
Year 2000 Compliance ...................................... 13
Quantitative and Qualitative Disclosures about
Market Risk.............................................. 14
Forward-Looking Statements................................. 15
PART II. OTHER INFORMATION.
Item 2. Change in Securities and Use of Proceeds................... 17
SIGNATURES.................................................................. 17
2
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 1999
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,125,790 $ 1,124,685
Accounts receivable - net 3,726,023 3,208,488
Inventories 2,171,499 2,259,657
Deferred income taxes 482,000 421,000
Income taxes refundable - 34,000
Prepaid expenses 87,390 73,914
----------- -----------
Total current assets 7,592,702 7,121,744
PROPERTY, PLANT AND EQUIPMENT - net 1,030,522 1,098,313
GOODWILL AND OTHER ASSETS - net 542,630 524,501
----------- -----------
TOTAL ASSETS $ 9,165,854 $ 8,744,558
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 734,572 $ 627,445
Accrued compensation and related taxes 612,838 458,277
Accrued warranty expense 198,476 146,590
Accrued installation expense 206,100 196,349
Customer deposits 134,928 83,242
Other accrued liabilities 175,103 235,610
Income taxes payable 41,000 -
----------- -----------
Total current liabilities 2,103,017 1,747,513
----------- -----------
LONG-TERM OBLIGATIONS 273,247 286,828
----------- -----------
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 shares issued
and outstanding 21,087 21,087
Additional paid-in capital 7,400,152 7,400,152
Accumulated other comprehensive loss -
Cumulative foreign currency translation
adjustment (360,518) (309,064)
Accumulated deficit (271,131) (401,958)
----------- -----------
Total stockholders' equity 6,789,590 6,710,217
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,165,854 $ 8,744,558
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended December 31, 1999 and 1998
Three Months Ended
-------------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
Net product sales $ 3,862,512 $ 3,378,708
Cost of product sales 2,635,918 2,594,795
----------- -----------
Gross margin 1,226,594 783,913
Selling, general and administrative 959,681 791,814
Research and development 53,246 81,958
----------- -----------
Operating profit (loss) 213,667 (89,859)
Interest income, net 9,160 9,837
----------- -----------
Income (loss) before income taxes 222,827 (80,022)
Income tax provision (benefit) 92,000 (27,000)
----------- -----------
NET INCOME (LOSS) $ 130,827 $ (53,022)
=========== ===========
EARNINGS (LOSS) PER SHARE:
Basic $ .06 $ (.03)
Weighted average shares outstanding 2,108,679 2,110,351
Diluted $ .06 $ (.03)
Weighted average shares outstanding 2,222,131 2,110,351
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended December 31, 1999 and 1998
<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, 1998 2,110,303 $ 21,103 $ 7,406,589 $ (216,338) $ (764,265) $ 6,447,089
Net income - - - - (53,022) (53,022)
Translation adjustment - - - 960 - 960
-----------
Comprehensive income (52,062)
-----------
Employee stock bonus -
net of stock repurchases 63 1 (1) - - -
--------- -------- ----------- ---------- ---------- -----------
BALANCE AT
DECEMBER 31, 1998 2,110,366 $ 21,104 $ 7,406,588 $ (215,378) $ (817,287) $ 6,395,027
========= ======== =========== ========== ========== ===========
BALANCE AT
SEPTEMBER 30, 1999 2,108,679 $ 21,087 $ 7,400,152 $ (309,064) $ (401,958) $ 6,710,217
Net income - - - - 130,827 130,827
Translation adjustment - - - (51,454) - (51,454)
-----------
Comprehensive income - - - - - 79,373
--------- -------- ----------- ---------- ---------- -----------
BALANCE AT
DECEMBER 31, 1999 2,108,679 $ 21,087 $ 7,400,152 $ (360,518) $ (271,131) $ 6,789,590
========= ======== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999 and 1998
Three Months Ended
-------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ 130,827 $ (53,022)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 73,057 114,290
Inventory and accounts receivable write-offs 28,479 19,151
Loss on disposals of long-lived assets 432 -
Deferred income taxes (61,000) 15,000
(Increase) decrease in:
Accounts receivable (582,917) 615,178
Inventories, prepaid expenses and other assets (27,289) 333,431
Increase (decrease) in:
Accounts payable 120,613 (601,790)
Accrued liabilities and customer deposits 240,283 (156,202)
Income taxes payable/refundable 72,985 213,000
---------- ----------
Net Cash (Used In) Provided By Operating Activities (4,530) 499,036
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (20,545) (103,172)
---------- ----------
Net Cash Used In Investing Activities (20,545) (103,172)
---------- ----------
FINANCING ACTIVITIES:
Payments on mortgage loan (2,855) (2,139)
---------- ----------
Net Cash Used In Financing Activities (2,855) (2,139)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 29,035 (2,805)
---------- ----------
CASH AND CASH EQUIVALENTS:
Net increase 1,105 390,920
Beginning of year 1,124,685 1,351,542
---------- ----------
END OF YEAR CASH AND CASH EQUIVALENTS $1,125,790 $1,742,462
========== ==========
Cash paid during the period for:
Interest $ 3,530 $ 2,938
Income taxes paid (refunded) - (209,000)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1999
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
Tempress Systems, Inc., based in Heerde, The Netherlands, and P. R. Hoffman
Machine Products, Inc. (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"), and are unaudited. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations, and cash
flows for the periods presented have been made.
Certain information and footnote disclosure normally included in financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1999, which are
incorporated herein by reference.
The consolidated results of operations for the three months ended December
31, 1999, are not necessarily indicative of the results to be expected for
the full year.
2. 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 December 31, 1999, the
Company had recognized, in previous periods, $533,000 of revenue for a
furnace system for which shipment had not occurred. The Company received
payment in full for this system prior to December 31, 1999, and met the
revenue recognition criteria described above.
7
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3. INVENTORIES
The components of inventories are as follows:
December 31, September 30,
1999 1999
------------ -------------
Purchased parts and
raw material $ 1,169,593 $ 1,237,348
Work-in-process 524,899 605,769
Finished goods 477,007 416,540
----------- -----------
Totals $ 2,171,499 $ 2,259,657
=========== ===========
4. EARNINGS PER SHARE
Earnings per share were calculated as follows:
Three Months Ended
December 31,
-----------------------
1999 1998
---------- ----------
Net income (loss) $ 130,827 $ (53,022)
Pro forma after-tax amortization of
contingent goodwill (3) (4,033) ---
--------- ---------
Income used in
in the calculations $ 126,794 $ (53,022)
========= =========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Common shares 2,108,679 2,110,351
Common equivalents issuable upon
upon exercise of warrants and
stock options (1) 113,452 ---
--------- ---------
2,222,131 2,110,351
========= =========
EARNINGS PER SHARE:
Basic $ .06 $ (.03)
Diluted $ .06 $ (.03)
8
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-------------
(1) Number of shares 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 three months ended December 31, 1999 and 1998, and
therefore did not enter into the calculation. On December 15, 1999 and
January 14, 2000, warrants on 210,000 shares and 1,207,500 shares,
respectively, expired. All options and warrants were excluded from the
calculation for the three months ended December 31, 1998 since they
would have been anti-dilutive.
(2) All share amounts above have been restated to give effect to the one
for two reverse stock split that became effective in March 1999.
(3) Pro forma contingent goodwill arises from the July 1, 1997, purchase
of the assets and operations of P. R. Hoffman Machine Products
Corporation ("P. R. Hoffman"). In addition to the purchase price paid
in fiscal 1997, the Company will pay, in the form of either cash or
Common Stock, an earn-out equal to 50% of Adjusted Income of P. R.
Hoffman in excess of $800,000 per year, during the five (5) fiscal
years ending September 30, 2002. Adjusted Income is defined as pre-tax
income, before amortization of goodwill, other expenses arising from
the application of purchase accounting and before allocations of
corporate expenses. The maximum earn-out payable under the purchase
agreement is $2 million. No contingent purchase price was earned
during the first two years since the acquisition. If earned, the
additional purchase price will be treated as part of the purchase
price and amortized over the remainder of the period ending June 30,
2012. During the first quarter of fiscal 2000, the annualized Adjusted
Income of this operation exceeded $800,000 by approximately $250,000.
If Adjusted Income for fiscal 2000 equals the annualized Adjusted
Income for the period ending December 31, 1999, the contingent
purchase price to be paid for the current fiscal year will be
$125,000. Based on these estimates of income for the year, all
earnings per share amounts for fiscal 2000 include the pro forma
after-tax amortization of the total projected contingent consideration
of $375,000 (three times the $125,000 projected for fiscal 2000, as
there are three years remaining in the earn-out period).
5. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 133 to the Company's quarter ending December 31, 2000. The Company
does not expect the adoption of SFAS 133 and 137 to have a material impact
on its future results of operations or financial position.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition." The SEC Staff addresses several issues in
SAB No. 101, including the timing for recognizing revenue derived from
9
<PAGE>
selling arrangements that involve contractual customer acceptance
provisions and installation of the product occurs after shipment and
transfer of title. The Company's existing revenue recognition policy is to
recognize revenue at the time the customer takes title to the product,
generally at the time of shipment, because the Company has routinely met
its installation obligations and obtained customer acceptance. Applying the
requirements of SAB No. 101 to the present selling arrangements used in the
Company's semiconductor production equipment segment would result in a
change in the Company's accounting policy for revenue recognition and the
deferral of the recognition of revenue from such equipment sales until
installation is complete and accepted by the customer. The effect of the
change , if any, must be recognized as a cumulative effect of a change in
accounting no later than the Company's first quarter of its fiscal year
ending on September 30, 2001. To the extent SAB No. 101 is relevant to its
future equipment sales arrangements, the Company intends to adopt the new
accounting on October 1, 2000. At the current time, it is not possible to
determine the effect this change will have on the results of operations of
the Company. However, management believes the effects on liquidity, cash
flow and financial position will not be material. The Company is also
considering potential changes to its standard contracts for equipment sales
that could mitigate the impact of SAB No. 101.
6. 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
fiscal years 2000 and 1999 is as follows:
Three Months Ended
December 31,
-------------------------
1999 1998
---------- ----------
Revenues
Semiconductor production
equipment $2,165,474 $2,410,656
Polishing supplies and equipment 1,697,038 968,052
---------- ----------
$3,862,512 $3,378,708
========== ==========
Operating profit (loss)
Semiconductor production
equipment $ 65,176 $ (37,415)
Polishing supplies and equipment 148,491 (52,444)
Total operating profit (loss) 213,667 (89,859)
Interest income - net 9,160 9,837
---------- ----------
Income (loss) before income taxes $ 222,827 $ (80,022)
========== ==========
10
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AMTECH SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
Three Months Ended
December 31,
-------------------------
1999 1998
---------- ----------
Net revenue 100.0% 100.0%
Cost of product sales (68.2) (76.8)
----- -----
Gross profit 31.8 23.2
Selling, general and
administrative expenses (24.9) (23.5)
Research and development ( 1.4) ( 2.4)
----- -----
Operating profit (loss) 5.5% ( 2.7)%
===== =====
NET REVENUE. The Company's net revenue for the three months ended December
31, 1999 (first quarter fiscal 2000), was $3,863,000, an increase of $484,000,
or 14%, compared to net revenue of $3,379,000 for the first quarter of the
previous fiscal year. The increase in revenue for the quarter ended December 31,
1999, was due to an increase of $729,000, or 75%, in revenues of the polishing
supplies and equipment segment. Sales of semiconductor production equipment and
related service revenue declined by $245,000, or 10%, as a $499,000, or 114%,
increase in sales of IBAL Automation and Atmoscan(R) processing equipment was
more than offset by a decline in the sales of diffusion furnaces.
GROSS PROFIT. The Company's gross profit increased by approximately
$443,000 to $1,227,000, for the three months ended December 31, 1999, from
$784,000 during the comparable period of the previous fiscal year. The polishing
supplies and equipment segment accounted for $265,000 of the increase in
consolidated gross profit due to the increase in sales volume discussed above.
Despite the decline in revenue from the semiconductor production equipment
segment, gross profit from that segment increased due to a more favorable
product mix resulting from the increase in sales of IBAL Automation products.
Gross profit as a percentage of sales was 32% for the first quarter of fiscal
2000, an improvement of nine percentage points, compared to 23% for the first
quarter of fiscal 1999. The increase in the gross profit percentage during the
first quarter primarily resulted from the improved product mix and increased
labor efficiencies.
11
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first quarter of fiscal 2000 increased by
$168,000, or 21%, to $960,000, compared to $792,000 incurred in the first
quarter of fiscal 1999. Of this increase, $131,000, or 78% of the total
increase, resulted from higher commission, royalty and incentive compensation
expenses, which are related to the increases in sales volume and profitability.
Commissions increased as a percentage of sales due to the higher volume of sales
derived from territories where the Company utilizes outside sales
representatives.
RESEARCH AND DEVELOPMENT. Research and development costs decreased by
$29,000, to $53,000, during the first quarter of fiscal 2000, compared to
$82,000 during the comparable quarter of fiscal 1999. Approximately $12,000 of
the research and development work in the Netherlands was funded by a government
grant during the first quarter of this fiscal year and contributed to the
reduction in these expenses. As announced in November 1999, the Company is
actively engaged in the joint product development of a new technology asher.
While the Company is actively managing these costs in order to meet its
quarterly and annual profit goals, research and development costs are expected
to peak at approximately $165,000 for the second fiscal quarter ending March 31,
2000.
OPERATING PROFIT (LOSS). Operating profit for the first quarter of fiscal
2000 increased by $304,000 to $214,000, compared to an operating loss of $90,000
in the same period of fiscal 1999. Operating profit for the polishing supplies
and equipment segment increased by $200,000 to $148,000, compared to an
operating loss of $52,000 in the first quarter of fiscal 1999, as a result of
the 75% increase in sales volume, increased productivity and continued
management of expenses. Despite the 10% decline in revenue from the
semiconductor production equipment segment, operating profit increased by
$102,000 to $65,000 compared to an operating loss of $37,000, due to a more
favorable product mix discussed above.
NET INCOME. Net income includes operating profit, discussed above, net
interest income and the provision for income taxes. During the first quarter of
fiscal 2000, net interest income was $9,000, or $1,000 lower than the $10,000 of
net interest income for the corresponding quarter of fiscal 1999. As a result of
the above factors, income before income taxes for the third quarter of fiscal
2000 was $223,000, compared to a loss before taxes of $80,000 in the first
quarter of fiscal 1999, an improvement of $303,000.
Income tax expense of $92,000, recorded at an effective tax rate of 41%,
resulted in net income for the first quarter of fiscal 2000 of $131,000, or $.06
per share. During the first quarter of fiscal 1999, the Company recorded income
tax benefits of $27,000, reflecting a 34% effective tax rate. The lower
effective tax rate in the prior fiscal year is primarily attributable to the
fact that most of the benefit from state loss carryforwards was offset by an
increase in the valuation allowance, while the high percentage of the first
quarter fiscal 2000 earnings were in a jurisdiction where the Company had no
state loss carryforwards. As a result of the above factors, net income in the
first quarter of fiscal 2000 increased by $184,000 to $131,000, or $.06 per
share, from a net loss of $53,000, or $(.03) per share, in the first quarter of
fiscal 1999.
12
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BACKLOG. At December 31, 1999, the order backlog was $4,150,000, a
reduction of 20% from the $5,213,000 backlog at December 31, 1998. The backlog
as of December 31, 1999 was approximately $391,000 higher than at September 30,
1999, an increase of 10%, and a number of large systems orders have been booked
since the end of the quarter. In addition, the backolg as of December 31, 1999
has a product mix with an expected higher gross profit margin than the backlog
of one year earlier. Orders are generally shipped within three to six months of
receipt. Accordingly, the order backlog may not be a valid measure of revenue or
earnings for a future period.
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 1999, the Company had $1,126,000 of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $1,125,000 at September 30, 1999, an increase of approximately
$1,000. This measure of liquidity would have increased significantly more except
that certain customer payments that ordinarily would have been received before
the end of the quarter were received after December 31, 1999. For the first
three months of fiscal 2000, net income plus amortization and depreciation (i.e.
cash flow) was a positive $204,000 compared to a positive $61,000 for the first
quarter of the prior fiscal year. The Company continues to believe that there is
sufficient liquidity for existing operations.
At December 31, 1999, working capital was $5,490,000, up $115,000 from
$5,374,000, at September 30, 1999. While the Company's current ratio declined to
3.6:1 at the end of the first quarter of fiscal 2000 from 4.1:1 at the beginning
of the year, the Company believes that its current ratio continues to indicate a
strong financial condition. At the end of the first quarter of fiscal 2000, cash
and cash equivalents comprised 12% of total assets and stockholders' equity
accounted for 74% of total capitalization. The Company believes that it
continues to posses the financial strength necessary for future growth.
YEAR 2000 COMPLIANCE
Certain computer systems and software products are coded to accept two
digit entries in the date code field. 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 many companies
may need to upgrade their computer systems and software to comply with such
"Year 2000" requirements. Certain of the Company's systems, including
information and computer systems and automated equipment, may 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. As
of the date of this report, the Company has not experienced any significant Year
2000 problems with the hardware and software components of its systems and
products, and it does not anticipate that the resolution of Year 2000 problems
will require it to devote any material amount of resources.
13
<PAGE>
COSTS. The costs incurred by the Company in connection with Year 2000
issues have not been 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 which
is likely to be affected by "Year 2000" problems. The Company has not
experienced, and does not expect to experience any problems with suppliers and
vendors in connection with the Year 2000 that will have a material adverse
effect on the Company's financial condition and results of operations.
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.
Based upon its fiscal 1999 information, 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 December 31, 1999, the Company did not hold any
derivative securities. The Company incurred net foreign currency losses of
$23,000 and $3,000 in first quarter of fiscal 2000 and 1999, respectively. As of
December 31, 1999, a 10% change in the foreign currency rates would not have a
material impact on the Company's financial condition. However, due to the
Company's investment in and advances to its Netherlands' operation the recent
decline in the value of The Netherlands guilder relative to the United States
dollar caused a negative foreign currency translation adjustment of $51,000, a
component of comprehensive income, which is 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
14
<PAGE>
denominated in The Netherlands guilder or the Euro and to increase its purchases
denominated in United States dollars. Based upon fiscal year 1999 information,
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 the Company's future results of operations.
Based upon fiscal 1999 information, the Company estimates that its
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 affect 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 December 31, 1999, fixed rate debt obligations totaled $182,000
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 report on Form 10-Q 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
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
15
<PAGE>
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) 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.
16
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGE IN SECURITIES.
On December 15, 1999, non-public warrants for the purchase of
210,000 shares expired. On December 15, 1999, the Board of Directors of
the Company elected to extend the expiration date of the 1,207,500
redeemable public warrants from December 15, 1999 to January 14, 2000,
thereby providing the warrant-holders additional time to exercise these
warrants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated: February 15, 2000
-------------------------------------- -----------------
Robert T. Hass, Vice-President-Finance
and (Chief Financial and Accounting
Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1999, AND THE STATEMENT OF OPERATION AND THE STATEMENT
OF CASH FLOW FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<PERIOD-TYPE> 3-MOS
<CASH> 1,125,790
<SECURITIES> 0
<RECEIVABLES> 3,868,023
<ALLOWANCES> 142,000
<INVENTORY> 2,171,499
<CURRENT-ASSETS> 7,592,702
<PP&E> 2,071,005
<DEPRECIATION> 1,040,483
<TOTAL-ASSETS> 9,165,854
<CURRENT-LIABILITIES> 2,103,017
<BONDS> 171,312
<COMMON> 21,087
0
0
<OTHER-SE> 6,768,503
<TOTAL-LIABILITY-AND-EQUITY> 9,165,854
<SALES> 3,862,512
<TOTAL-REVENUES> 3,862,512
<CGS> 2,635,918
<TOTAL-COSTS> 2,635,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,120
<INTEREST-EXPENSE> 3,530
<INCOME-PRETAX> 222,827
<INCOME-TAX> 92,000
<INCOME-CONTINUING> 130,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,827
<EPS-BASIC> .06
<EPS-DILUTED> .06
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