UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: December 31, 20222023

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

img250509215_0.jpg 

 

AMTECH SYSTEMS, INC.

 

(Exact name of registrant as specified in its charter)

 

Arizona

 

86-0411215

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

131 South Clark Drive, Tempe, Arizona

 

85288

(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:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ASYS

NASDAQ Global Select Market

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. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large Accelerated Filer

 

 

Accelerated Filer

Non-Accelerated Filer

Non-Accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

At February 3, 2023,2, 2024, there were outstanding 14,023,53414,190,977 shares of Common Stock.

 


AMTECH SYSTEMS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

Page

Cautionary Statement Regarding Forward-Looking Statements

3

PART I. FINANCIAL INFORMATION

4

Item 1. Condensed Consolidated Financial Statements

4

Condensed Consolidated Balance Sheets December 31, 20222023 (Unaudited) and September 30, 20222023

4

Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended December 31, 20222023 and 20212022

5

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended December 31, 20222023 and 20212022

6

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Three Months Ended December 31, 20222023 and 20212022

7

Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, 20222023 and 20212022

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

1925

Overview

1925

Results of Operations

2126

Liquidity and Capital Resources

2429

Off-Balance Sheet Arrangements

2532

Contractual Obligations

2532

Critical Accounting Estimates

2532

Impact of Recently Issued Accounting Pronouncements

2632

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2633

Item 4. Controls and Procedures

2633

PART II. OTHER INFORMATION

2734

Item 1. Legal Proceedings

2734

Item 1A. Risk Factors

2734

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

2734

Item 3. Defaults Upon Senior Securities

2735

Item 4. Mine Safety Disclosures

2735

Item 5. Other Information

2735

Item 6. Exhibits

2836

SIGNATURES

3037

 

2


 

Cautionary StatementNote Regarding Forward-Looking Statements

 

Our discussion and analysis in this Quarterly Report on Form 10-Q ("Quarterly Report"), our Annual Report on Form 10-K for the fiscal year ended September 30, 20222023 (the “2022“2023 Form 10-K”), our other reports that we file with the Securities and Exchange Commission (the “SEC”),SEC, our press releases and in public statements of our officers and corporate spokespersons contain “forward-looking” statements within the meaning of Section 27A of the Securities Act, of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our or our officers’ current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current events. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. We have tried, wherever possible, to identify such statements by using words such as “may,” “plan,” “anticipate,” “seek,” “will,” “expect,” “intend,” “estimate,” “believe,” “continue,” “predict,” “potential,” “project,” “should,” “would,” “could,” “likely,” “future,” “target,” “forecast,” “goal,” “observe,” and “strategy” or the negative thereof or variations thereon or similar terminology relating to the uncertainty of future events or outcomes. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors. Some factors that could cause actual results to differ materially from those anticipated include, among others, future economic conditions, including changes in the markets in which we operate; changes in demand for our services and products; our revenue and operating performance; difficulties in successfully executing our growth initiatives; difficulties in executing on our strategic initiatives with respect to our material and substrate business segment; our ability to effectively integrate our acquisition of Entrepix, Inc., which we acquired in January 2023; the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; the cyclical nature of the semiconductor industry; pricing and gross profit pressures; control of costs and expenses; risks associated with new technologies and the impact on our business; legislative, regulatory, and competitive developments in markets in which we operate; possible future claims, litigation or enforcement actions and the results of any such claim, litigation proceeding, or enforcement action; business interruptions, including those related to the COVID-19 pandemic, the potential impacts of the COVID-19 pandemic, including ongoing logistical and supply chain challenges, and any future pandemic on our business operations, financial results and financial position; the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, including any future Chinese government mandated shutdown in Shanghai; risks of future cybersecurity incidents; adverse developments affecting financial institutions, including bank failures; failure to comply with financial and other covenants under our credit agreement with UMB Bank; and other circumstances and risks identified in this Quarterly Report or referenced from time to time in our filings with the SEC. The occurrence of the events described, and the achievement of expected results, depend on many events, some or all of which are not predictable or within our control. These and many other factors could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our or our officers’ current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to certain risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report on Form 10-K will in fact transpire or prove to be accurate. You should not place undue reliance on these forward-looking statements. We cannot guarantee that any forward-looking statement will be realized, although we believe that the expectations reflected in the forward-looking statements, are reasonablewhich speak only as of the date of this Quarterly Report. Achievement of future results is subject to events out of our control, risks, uncertainties and potentially inaccurate assumptions. The 2022 Form 10-K listed various important factors that could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from historical results and expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf. These factors can be found under the heading “Item 1A. Risk Factors” in our 2022 Form 10-K and investors should refer to them as well as the additional risk factors identified in this Quarterly Report. Because it is not possible to predict or identify all such factors, any such list cannot be considered a complete set of all potential risks or uncertainties.they were made.

 

The Company undertakes no obligation to update or publicly revise any forward-looking statement whether as a result of new information, future developments or otherwise.otherwise after the date of this Annual Report on Form 10-K. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph.cautionary statement. You are advised, however, to consult any further disclosures we make on related subjects in our subsequently filed Form 10-Q and Form 8-K reports and our other filings with the SEC. As noted above,Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under “Item 1A. Risk Factors” of our 2022this Annual Report on Form 10-K. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand it is not possible to predict or identify all such factors.

 

Unless the context indicates otherwise, the terms “Amtech,” the “Company,” “we,” “us” and “our” refer to Amtech Systems, Inc., an Arizona corporation, together with its subsidiaries.

3


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

 

December 31,
2022

 

 

September 30,
2022

 

 

December 31,
2023

 

 

September 30,
2023

 

Assets

 

(Unaudited)

 

 

 

 

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,534

 

 

$

46,874

 

 

$

17,033

 

 

$

13,133

 

Accounts receivable (less allowance for doubtful accounts of $147 and $114 at
December 31, 2022 and September 30, 2022, respectively)

 

 

21,785

 

 

 

25,013

 

Accounts receivable (less allowance for credit losses of $83 and $146 at
December 31, 2023 and September 30, 2023, respectively)

 

 

21,403

 

 

 

26,474

 

Inventories

 

 

28,236

 

 

 

25,488

 

 

 

34,030

 

 

 

34,845

 

Income taxes receivable

 

 

664

 

 

 

632

 

Other current assets

 

 

4,890

 

 

 

5,561

 

 

 

5,061

 

 

 

6,105

 

Total current assets

 

 

99,445

 

 

 

102,936

 

 

 

78,191

 

 

 

81,189

 

Property, Plant and Equipment - Net

 

 

6,451

 

 

 

6,552

 

 

 

9,353

 

 

 

9,695

 

Right-of-Use Assets - Net

 

 

10,832

 

 

 

11,258

 

 

 

10,541

 

 

 

11,217

 

Intangible Assets - Net

 

 

733

 

 

 

758

 

 

 

4,526

 

 

 

6,114

 

Goodwill

 

 

11,168

 

 

 

11,168

 

 

 

21,261

 

 

 

27,631

 

Deferred Income Taxes - Net

 

 

114

 

 

 

79

 

 

 

126

 

 

 

101

 

Other Assets

 

 

794

 

 

 

783

 

 

 

1,044

 

 

 

1,074

 

Total Assets

 

$

129,537

 

 

$

133,534

 

 

$

125,042

 

 

$

137,021

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,835

 

 

$

7,301

 

 

$

8,545

 

 

$

10,815

 

Accrued compensation and related taxes

 

 

2,923

 

 

 

4,109

 

 

 

2,652

 

 

 

3,481

 

Accrued warranty expense

 

 

791

 

 

 

965

 

Other accrued liabilities

 

 

2,722

 

 

 

1,771

 

 

 

1,461

 

 

 

1,551

 

Current maturities of finance lease liabilities and long-term debt

 

 

71

 

 

 

107

 

 

 

934

 

 

 

2,265

 

Current portion of long-term operating lease liabilities

 

 

2,134

 

 

 

2,101

 

 

 

2,292

 

 

 

2,623

 

Contract liabilities

 

 

6,955

 

 

 

7,231

 

 

 

9,518

 

 

 

8,018

 

Income taxes payable

 

 

19

 

 

 

6

 

Total current liabilities

 

 

21,659

 

 

 

22,626

 

 

 

26,193

 

 

 

29,718

 

Finance Lease Liabilities and Long-Term Debt

 

 

59

 

 

 

220

 

 

 

9,197

 

 

 

8,422

 

Long-Term Operating Lease Liabilities

 

 

8,937

 

 

 

9,395

 

 

 

8,598

 

 

 

8,894

 

Income Taxes Payable

 

 

2,551

 

 

 

2,849

 

 

 

1,384

 

 

 

1,575

 

Other Long-Term Liabilities

 

 

93

 

 

 

76

 

 

 

49

 

 

 

47

 

Total Liabilities

 

 

33,299

 

 

 

35,166

 

 

 

45,421

 

 

 

48,656

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock; 100,000,000 shares authorized; none issued

 

 

 

 

 

 

 

 

 

 

 

 

Common stock; $0.01 par value; 100,000,000 shares authorized; shares
issued and outstanding:
14,003,029 and 13,994,154 at December 31, 2022
and September 30, 2022, respectively

 

 

140

 

 

 

140

 

Common stock; $0.01 par value; 100,000,000 shares authorized; shares
issued and outstanding:
14,190,977 and 14,185,977 at December 31, 2023
and September 30, 2023, respectively

 

 

142

 

 

 

142

 

Additional paid-in capital

 

 

124,656

 

 

 

124,458

 

 

 

127,308

 

 

 

126,963

 

Accumulated other comprehensive loss

 

 

(1,351

)

 

 

(1,767

)

 

 

(1,426

)

 

 

(1,695

)

Retained deficit

 

 

(27,207

)

 

 

(24,463

)

 

 

(46,403

)

 

 

(37,045

)

Total Shareholders’ Equity

 

 

96,238

 

 

 

98,368

 

 

 

79,621

 

 

 

88,365

 

Total Liabilities and Shareholders’ Equity

 

$

129,537

 

 

$

133,534

 

 

$

125,042

 

 

$

137,021

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Revenues, net

 

$

21,558

 

 

$

26,463

 

 

$

24,920

 

 

$

21,558

 

Cost of sales

 

 

13,255

 

 

 

16,565

 

 

 

15,852

 

 

 

13,255

 

Intangible asset impairment

 

 

849

 

 

 

 

Gross profit

 

 

8,303

 

 

 

9,898

 

 

 

8,219

 

 

 

8,303

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

9,190

 

 

 

7,086

 

 

 

8,567

 

 

 

9,190

 

Research, development and engineering

 

 

1,393

 

 

 

1,572

 

 

 

1,588

 

 

 

1,393

 

Goodwill impairment

 

 

6,370

 

 

 

 

Intangible asset impairment

 

 

430

 

 

 

 

Severance expense

 

 

400

 

 

 

 

 

 

198

 

 

 

400

 

Operating (loss) income

 

 

(2,680

)

 

 

1,240

 

Interest expense and other, net

 

 

(68

)

 

 

(83

)

(Loss) income before income tax provision

 

 

(2,748

)

 

 

1,157

 

Income tax (benefit) provision

 

 

(4

)

 

 

160

 

Net (loss) income

 

$

(2,744

)

 

$

997

 

(Loss) Income Per Share:

 

 

 

 

 

 

Net (loss) income per basic share

 

$

(0.20

)

 

$

0.07

 

Net (loss) income per diluted share

 

$

(0.20

)

 

$

0.07

 

Operating loss

 

 

(8,934

)

 

 

(2,680

)

Interest income

 

 

19

 

 

 

290

 

Interest expense

 

 

(198

)

 

 

(2

)

Foreign currency loss

 

 

(187

)

 

 

(347

)

Other

 

 

-

 

 

 

(9

)

Loss before income tax provision

 

 

(9,300

)

 

 

(2,748

)

Income tax provision (benefit)

 

 

58

 

 

 

(4

)

Net loss

 

$

(9,358

)

 

$

(2,744

)

Loss Per Share:

 

 

 

 

 

 

Net loss per basic share

 

$

(0.66

)

 

$

(0.20

)

Net loss per diluted share

 

$

(0.66

)

 

$

(0.20

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,008

 

 

 

14,254

 

 

 

14,188

 

 

 

14,008

 

Diluted

 

 

14,008

 

 

 

14,485

 

 

 

14,188

 

 

 

14,008

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

 

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

Net (loss) income

 

$

(2,744

)

 

$

997

 

Foreign currency translation adjustment

 

 

416

 

 

 

237

 

Comprehensive (loss) income

 

$

(2,328

)

 

$

1,234

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(9,358

)

 

$

(2,744

)

Foreign currency translation adjustment

 

 

269

 

 

 

416

 

Comprehensive loss

 

$

(9,089

)

 

$

(2,328

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(in thousands)

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Cost

 

 

Additional Paid-
In Capital

 

 

Comprehensive
Income (Loss)

 

 

Retained
 Deficit

 

 

Shareholders'
Equity

 

Balance at September 30, 2021

 

 

14,304

 

 

$

143

 

 

 

 

 

$

 

 

$

126,380

 

 

$

14

 

 

$

(40,903

)

 

$

85,634

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

997

 

 

 

997

 

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

237

 

 

 

 

 

 

237

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

 

 

 

 

 

 

 

103

 

Repurchase of treasury stock

 

 

 

 

 

 

 

 

(291

)

 

 

(2,713

)

 

 

 

 

 

 

 

 

 

 

 

(2,713

)

Retirement of treasury stock

 

 

(291

)

 

 

(3

)

 

 

291

 

 

 

2,713

 

 

 

(2,122

)

 

 

 

 

 

(588

)

 

 

 

Stock options exercised

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Balance at December 31, 2021

 

 

14,025

 

 

$

140

 

 

 

 

 

$

 

 

$

124,430

 

 

$

251

 

 

$

(40,494

)

 

$

84,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional Paid-
In Capital

 

 

Comprehensive
Income (Loss)

 

 

Retained
 Deficit

 

 

Shareholders'
Equity

 

Balance at September 30, 2022

 

 

13,994

 

 

$

140

 

 

 

 

 

$

 

 

$

124,458

 

 

$

(1,767

)

 

$

(24,463

)

 

$

98,368

 

 

 

13,994

 

 

$

140

 

 

$

124,458

 

 

$

(1,767

)

 

$

(24,463

)

 

$

98,368

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,744

)

 

 

(2,744

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,744

)

 

 

(2,744

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

 

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164

 

 

 

 

 

 

 

 

 

164

 

 

 

 

 

 

 

 

 

164

 

 

 

 

 

 

 

 

 

164

 

Stock options exercised

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

 

 

9

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

Balance at December 31, 2022

 

 

14,003

 

 

$

140

 

 

 

 

 

$

 

 

$

124,656

 

 

$

(1,351

)

 

$

(27,207

)

 

$

96,238

 

 

 

14,003

 

 

$

140

 

 

$

124,656

 

 

$

(1,351

)

 

$

(27,207

)

 

$

96,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

 

14,186

 

 

$

142

 

 

$

126,963

 

 

$

(1,695

)

 

$

(37,045

)

 

$

88,365

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,358

)

 

 

(9,358

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

269

 

 

 

 

 

 

269

 

Stock compensation expense

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

317

 

Stock options exercised

 

 

5

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Balance at December 31, 2023

 

 

14,191

 

 

$

142

 

 

$

127,308

 

 

$

(1,426

)

 

$

(46,403

)

 

$

79,621

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,744

)

 

$

997

 

Adjustments to reconcile net income to net cash (used in) provided by
operating activities:

 

 

 

 

 

Net loss

 

$

(9,358

)

 

$

(2,744

)

Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:

 

 

 

 

 

Depreciation and amortization

 

 

388

 

 

 

430

 

 

 

852

 

 

 

388

 

Write-down of inventory

 

 

48

 

 

 

120

 

 

 

572

 

 

 

48

 

Goodwill impairment

 

 

6,370

 

 

 

 

Intangible asset impairment

 

 

1,279

 

 

 

 

Deferred income taxes

 

 

(35

)

 

 

 

 

 

(25

)

 

 

(35

)

Non-cash stock compensation expense

 

 

164

 

 

 

103

 

Provision for (reversal of) allowance for doubtful accounts

 

 

35

 

 

 

(19

)

Non-cash share-based compensation expense

 

 

317

 

 

 

164

 

Loss on sale of property, plant and equipment

 

 

20

 

 

 

 

(Reversal of) provision for allowance for credit losses

 

 

(42

)

 

 

35

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,194

 

 

 

(2,683

)

 

 

5,114

 

 

 

3,194

 

Inventories

 

 

(2,796

)

 

 

(2,161

)

 

 

223

 

 

 

(2,796

)

Other assets

 

 

1,106

 

 

 

(207

)

 

 

1,783

 

 

 

1,106

 

Accounts payable

 

 

(643

)

 

 

1,979

 

 

 

(1,661

)

 

 

(643

)

Accrued income taxes

 

 

(284

)

 

 

968

 

 

 

(222

)

 

 

(284

)

Accrued and other liabilities

 

 

(665

)

 

 

140

 

 

 

(1,751

)

 

 

(665

)

Contract liabilities

 

 

(276

)

 

 

2,822

 

 

 

1,500

 

 

 

(276

)

Net cash (used in) provided by operating activities

 

 

(2,508

)

 

 

2,489

 

Net cash provided by (used in) operating activities

 

 

4,971

 

 

 

(2,508

)

Investing Activities

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(224

)

 

 

(45

)

 

 

(756

)

 

 

(224

)

Net cash used in investing activities

 

 

(224

)

 

 

(45

)

 

 

(756

)

 

 

(224

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

34

 

 

 

69

 

 

 

28

 

 

 

34

 

Repurchase of common stock

 

 

 

 

 

(2,713

)

Payments on long-term debt

 

 

(14

)

 

 

(97

)

 

 

(556

)

 

 

(14

)

Net cash provided by (used in) financing activities

 

 

20

 

 

 

(2,741

)

Effect of Exchange Rate Changes on Cash, Cash Equivalents and
Restricted Cash

 

 

372

 

 

 

175

 

Net Decrease in Cash, Cash Equivalents and Restricted Cash

 

 

(2,340

)

 

 

(122

)

Net cash (used in) provided by financing activities

 

 

(528

)

 

 

20

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

213

 

 

 

372

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

3,900

 

 

 

(2,340

)

Cash and Cash Equivalents, Beginning of Period

 

 

46,874

 

 

 

32,836

 

 

 

13,133

 

 

 

46,874

 

Cash, Cash Equivalents and Restricted Cash, End of Period

 

$

44,534

 

 

$

32,714

 

Cash and Cash Equivalents, End of Period

 

$

17,033

 

 

$

44,534

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

 

Income tax payments, net

 

$

378

 

 

$

629

 

 

$

280

 

 

$

378

 

Interest paid

 

$

2

 

 

$

75

 

 

$

195

 

 

$

2

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


 

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 20222023 AND 20212022

(UNAUDITED)

 

1. Basis of Presentation and Significant Accounting Policies

 

Nature of Operations and Basis of Presentation – Amtech Systems, Inc. (the “Company,” “Amtech,” “we,” “our” or “us”) is a leading, global manufacturer of capital equipment, including thermal processing, and wafer polishing and cleaning, and related consumables used in fabricating semiconductor devices, such as silicon carbide (“SiC”("SiC") and silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes (“LEDs”("LEDs"). We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.

 

We serve niche markets in industries that are experiencing technological advances, and which historically have been very cyclical. Therefore, our future profitability and growth depend on our ability to develop or acquire and market profitable new products and on our ability to adapt to cyclical trends.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. The condensed consolidated balance sheet at September 30, 2022,2023, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.2023.

 

Our fiscal year is from October 1 to September 30. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending or ended September 30, and the associated quarters, months, and periods of those fiscal years.

 

The consolidated results of operations for the three months ended December 31, 2022,2023, are not necessarily indicative of the results to be expected for the full fiscal year.

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak became increasingly widespread, including in all of the markets in which we operate. We continue to monitor the impact of COVID-19 on all aspects of our business. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with foreign government, state and local orders to date, we have continued to operate across our footprint throughout the COVID-19 pandemic. There remain many unknowns and we continue to monitor the expected trends and related demand for our products and services and have and will continue to adjust our operations accordingly.

On March 28, 2022, the Chinese government issued a mandatory shutdown in Shanghai, the location of one of our manufacturing facilities. The factory was allowed to partially reopen in May 2022 and was fully reopened on June 1, 2022. Upon reopening on June 1, 2022, the factory was able to operate at near full capacity for the entire month of June. We were able to make up the shipments missed in the fourth quarter of fiscal 2022 and are now operating at normal capacity levels. Additionally, given the uncertainty surrounding the COVID-19 pandemic and the emergence of variations thereof, there can be no assurance that this facility will be allowed to remain open on a consistent basis in the future.

9


 

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates – The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Accounts Receivable and Allowance for Credit Losses – Accounts receivable are recorded at the sales price of products sold to customers on trade credit terms. We establish a valuation allowance to reflect our best estimate of expected losses inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the receivables, historical write-offs, the current economic environment and communications with the customer. We write off individual accounts against the allowance when we no longer believe that it is probable that we will collect the receivable because we become aware of a customer’s inability to meet its financial obligations.

Intangible Assets Intangible assets acquired in business combinations are capitalized and subsequently amortized on a straight-line basis over their estimated useful life. We regularly perform reviews to determine if facts and circumstances exist which indicate that the useful lives of our intangible assets are shorter than originally estimated

9


or the carrying amount of these assets may not be recoverable. When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group is determined not to be recoverable, the Company performs an analysis of the fair value of the individual long-lived assets and will recognize an impairment loss when the fair value is less than the carrying value of such long-lived assets. Patent costs consist primarily of legal and filing fees incurred to file patents on proprietary methods and technology we developed. Patent costs are expensed when incurred, as they are insignificant. Additional information on impairment testing of intangible assets can be found in Notes 1 and 9 of our Annual Report on Form 10-K for the year ended September 30, 2023.

In the first quarter of fiscal year 2024, we recorded an impairment of definite lived intangible assets in our Material and Substrate segment. See Note 7 for a description of the facts and circumstances leading to the intangible asset impairment.

Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is not subject to amortization but is tested for impairment annually or when it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is concluded that there is impairment, we would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss would not exceed the total amount of goodwill allocated to the reporting unit). Additional information on impairment testing of goodwill can be found in Notes 1 and 10 of our Annual Report on Form 10-K for the year ended September 30, 2023.

In the first quarter of fiscal year 2024, we recorded an impairment of goodwill in our Material and Substrate segment. See Note 7 for a description of the facts and circumstances leading to goodwill impairment.

Contract Liabilities – Contract liabilities are reflected in current liabilities on the Condensed Consolidated Balance Sheets as all performance obligations are expected to be satisfied within the next 12 months. Contract liabilities relate to payments invoiced or received in advance of completion of performance obligations under a contract. Contract liabilities are recognized as revenue upon the fulfillment of performance obligations. Contract liabilities consist of customer deposits and deferred revenue as of December 31, 20222023 and September 30, 2022. Of the2023.

The following is a summary of activity for contract liabilities, in thousands:

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Beginning balance

 

$

8,018

 

 

$

7,231

 

New deposits

 

 

2,823

 

 

 

727

 

Deferred revenue

 

 

3

 

 

 

 

Revenue recognized

 

 

(1,326

)

 

 

(568

)

Adjustment

 

 

 

 

 

(435

)

Ending balance

 

$

9,518

 

 

$

6,955

 

As of December 31, 2023, we had approximately $7.250.0 million of remaining performance obligations, which included recognized contract liabilities recorded atas well as amounts to be invoiced and recognized in future periods. As of September 30, 2022,2023, we had approximately $0.651.8 million was recorded as revenue forof remaining performance obligations. The orders included in our remaining performance obligations are expected to ship within the three months ended December 31, 2022.next twelve months.

 

Warranty A limited warranty is provided free of charge, generally for periods of 12 to 36 months to all purchasers of our new products and systems. Accruals are recorded for estimated warranty costs at the time revenue is recognized, generally upon shipment or acceptance, as determined under the revenue recognition policy above. On occasion, we have been required and may be required in the future to provide additional warranty coverage to ensure that the systems are ultimately accepted or to maintain customer goodwill.recognized. While our warranty costs have historically been within our expectations and we believe that the amounts accrued for warranty expenditures are sufficient for all systems sold through December 31, 2022,2023, we cannot guarantee that we will continue to experience a similar level of predictability with regard toregarding warranty costs. In addition, technological changes or previously unknown defects in raw materials or components may result in more extensive and frequent warranty service than anticipated, which could result in an increase in our warranty expense. Our accrued warranty expense is less thanwas $0.8 million at December 31, 2023 and $1.0 million at September 30, 2023.

10


The following is a summary of activity in all periods presented and is includedaccrued warranty expense, in other accrued liabilities on the Condensed Consolidated Balance Sheets.thousands:

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Beginning balance

 

$

965

 

 

$

871

 

Additions for warranties issued during the period

 

 

22

 

 

 

50

 

Costs incurred during the period

 

 

(8

)

 

 

(28

)

Changes related to pre-existing warranties

 

 

(188

)

 

 

(60

)

Ending balance

 

$

791

 

 

$

833

 

 

Shipping Expense – Shipping and handling fees associated with outbound freight are expensed as incurred and included in selling, general and administrative expenses. Shipping expense was $0.60.5 million and $1.20.6 million for the three months ended December 31, 20222023 and 2021,2022, respectively.

 

Concentrations of Credit Risk – Our customers consistare primarily manufacturers of semiconductor manufacturers worldwide, as well as the lappingsubstrates and polishing marketplace.devices and electronic assemblies. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable. Credit risk is managed by performing ongoing credit evaluations of the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile.

 

As of December 31, 2022, one2023, two Semiconductor segment customercustomers individually represented 1415% and 13% of accounts receivable. As of September 30, 2022, one2023, two Semiconductor segment customercustomers individually represented 1217% and 17% of accounts receivable.

 

We maintain our cash and cash equivalents in multiple financial institutions. Balances in the United States, which account for approximately 8380% and 8456% of total cash balances as of December 31, 20222023 and September 30, 2022,2023, respectively, are primarily invested in AAA-rated U.S Treasury and U.S. Government Agency repo money market mutual funds, which have a constant net asset value and consist of direct U.S. Treasuries and/or U.S. Government Agencies with repurchase agreements backed by U.S. Treasury or U.S. Government Agency collateral only, or are in financial institutions insured by the FDIC.FDIC as well as a money market account. The remainder of our cash is maintained with financial institutions with reputable credit in China, the United Kingdom, Singapore, and Malaysia. We maintain cash in bank accounts in amounts which at times may exceed federally insured limits. We have not experienced any losses on such accounts.

 

Refer to Note 912 to Condensed Consolidated Financial Statements for information regarding major customers, foreign sales and revenue in other countries subject to fluctuation in foreign currency exchange rates.

10


Fair Value of Financial Instruments – We group our financial assets and liabilities measured at fair value on a recurring basis into three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

 

Level 1 – Valuation is based upon quoted market price for identical instruments traded in active markets.

Level 2 – Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.

It is our policy to use observable inputs whenever reasonably practicable in order to minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect current or future valuations.

11


Cash, Cash Equivalents and Restricted Cash – Included in cash and cash equivalents and restricted cash in the Consolidated Balance Sheets are money market funds and time deposit accounts. Cash equivalents are classified as Level 1 in the fair value hierarchy.

Receivables and Payables – The recorded amounts of these financial instruments, including accounts receivable and accounts payable, approximate their fair value because of the short maturities of these instruments.

Debt – The carrying value of debt under our amended Loan Agreement is based on a floating per annum rate of interest equal to the Prime Rate, adjusted daily, plus a margin. At December 31, 2023, the carrying value of the Company's total debt was $10.0 million, which approximates fair value. The fair value for the amended Loan Agreement was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and is therefore classified as Level 2 in the fair value hierarchy.

 

Impact of Recently Issued Accounting Pronouncements

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. Adjustments to the annual disclosure of income taxes include: a tabular rate reconciliation comprised of eight specific categories. Incomes taxes paid, disaggregated between significant federal, state, and foreign jurisdictions. Eliminating requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made. Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign. The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024, with early adoption permitted. The amendments in ASU 2023-09 should be applied on a prospective basis. Retrospective application is permitted. This ASU is not expected to have a material effect on our financial condition or results of operations.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, and for interim reporting periods within fiscal years beginning after December 15, 2024. Early adoption permitted. The amendments in ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

There were no other new accounting pronouncements issued or effective as of December 31, 20222023 that had or are expected to have a material impact on our consolidated financial statements.

 

Correction2. Long-Term Debt

Our finance lease liabilities and long-term debt consists of Immaterial Misstatementsthe following, in thousands:

 

 

December 31,
2023

 

 

September 30,
2023

 

Revolving credit facility

 

$

5,613

 

 

$

 

Term loan

 

 

4,423

 

 

 

10,573

 

Finance leases

 

 

95

 

 

 

114

 

Total

 

 

10,131

 

 

 

10,687

 

Less: current portion of finance lease liabilities
    and long-term debt

 

 

(934

)

 

 

(2,265

)

Finance Lease Liabilities and Long-Term Debt

 

$

9,197

 

 

$

8,422

 

12


Interest expense on finance lease liabilities and long-term debt was $0.2 million and less than $0.1 million for the three months ended December 31, 2023 and 2022, respectively.

 

DuringLoan and Security Agreement

On January 17, 2023, we entered into a Loan and Security Agreement (the “Loan Agreement”) among Amtech, its U.S. based wholly owned subsidiaries Bruce Technologies, Inc., a Massachusetts corporation, BTU International, Inc., a Delaware corporation, Intersurface Dynamics, Incorporated, a Connecticut corporation, P.R. Hoffman Machine Products, Inc., an Arizona corporation, and Entrepix, Inc., (collectively the preparation“Borrowers”) and UMB Bank, N.A., national banking association (the “Lender”). The Loan Agreement provides for (i) a term loan (the “Term Loan”) in the amount of $12.0 million maturing January 17, 2028, and (ii) a revolving loan facility (the “Revolver”) with an availability of $8.0 million maturing January 17, 2024. The recorded amount of the Term Loan has an interest rate of 6.38%. The Revolver has a floating per annum rate of interest equal to the Prime Rate, adjusted daily. Under the Loan Agreement, we are required to pay a non-utilization fee equal to 0.125% of any unused portion of the Revolver in excess of any letter of credit obligations.

The Term Loan and Revolver are secured by a first priority lien on substantially all of the Borrowers’ assets (other than certain customary excluded assets) and the Loan Agreement contains customary events of default, representations and warranties, and covenants that restrict the Borrowers’ ability to, among other things, incur additional indebtedness, other than permitted indebtedness, enter into mergers or acquisitions, sell or otherwise dispose of assets, or pay dividends, subject to customary exceptions.

The Loan Agreement additionally contains financial covenants such that, as of the end of each of their fiscal quarters, beginning March 31, 2023, the Borrowers must maintain (i) a ratio of consolidated debt owed to Lender to consolidated EBITDA (as defined in the Loan Agreement) for such fiscal quarter, of not greater than 1.50 to 1.00, through December 31, 2024, based on a building four quarters (as described in the Loan Agreement), and then 1.00 to 1.00 each fiscal quarter thereafter, (ii) a ratio of (a) the total for such fiscal quarter of EBITDAR (as defined in the Loan Agreement) minus the sum of all income taxes paid in cash plus cash dividends/distributions plus maintenance Capital Expenditures (as defined in the Loan Agreement) plus management fees paid in cash, to (b) the sum for such fiscal quarter of (1) Interest Charges (as defined in the Loan Agreement) plus (2) required payments of principal on Debt (as defined in the Loan Agreement) (including the Term Loan, but excluding the Revolver) plus (3) operating lease/rent expense, of not less than 1.30 to 1.00 based on a building four quarters (as described in the Loan Agreement), and (iii) a consolidated working capital of current assets (excluding related party receivables and prepaid expenses) minus current liabilities of at least $35.0 million.

At September 30, 2023, we were not in compliance with the Debt to EBITDA and Fixed Charge Coverage Ratio financial covenants under our Loan Agreement. On December 5, 2023, we entered into a Forbearance & Modification Agreement (the “Forbearance Agreement”) with UMB Bank related to such non-compliance, pursuant to which UMB Bank agreed to forbear from exercising its rights and remedies available to it as a result of such defaults. We will be operating under the terms of such Forbearance Agreement through January 17, 2025 (the “Forbearance Period”).

The Forbearance Agreement also amends the Loan Agreement to, among other things, (i) increase the availability under the revolving line of credit from $8.0 million to $14.0 million (the "Revolver"), and (ii) reduce the term loan commitment from $12.0 million to $4.4 million (the “Term Loan”). The Revolver maturity date was extended one year to January 17, 2025 and the Term Loan maturity date was extended one year to January 17, 2029. Both the Revolver and the Term Loan have a floating per annum rate of interest equal to the Prime Rate, adjusted daily, plus the Applicable Margin (as such terms are defined in the Loan Agreement). We are required to pay a non-utilization fee equal to 0.125% of any unused portion of the Revolver in excess of any letter of credit obligations. As of September 30, 2023, no amounts were borrowed against the Revolver and there were no letters of credit outstanding. As of the effective date of the Forbearance Agreement, $10.0 million will be drawn under the Loan Agreement, which includes $4.4 million under the Term Loan and $5.6 million under the Revolver. As of December 31, 2023, $5.6 million was

13


borrowed against the Revolver, and there was an outstanding letter of credit in the amount of $0.3 million. In January 2024, we made a $2.0 million principal payment on the Revolver.

Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended Loan Agreement.

Under the amended Loan Agreement, the Company is required to comply with the following financial covenants:

Maintaining, on a consolidated basis, a minimum EBITDA (as defined in the Loan Agreement) through the fiscal year ending September 30, 2024, measured on a quarterly basis (the “Minimum EBITDA Covenant”). The Minimum EBITDA Covenant amount increases each quarter during such period. At December 31, 2023, we were in compliance with the Minimum EBITDA Covenant for such period (not less than negative EBITDA of $1.2 million), with actual positive EBITDA of $0.2 million for such period. The Minimum EBITDA Covenant replaced the Senior Debt to EBITDA covenant set forth in the original Loan Agreement.
As of the end of each of the Company’s fiscal years, commencing for the fiscal year ending September 30, 2024, the Company must maintain a ratio of (a) the total for such fiscal year of EBITDAR (as defined in the Loan Agreement) minus the sum of all income taxes paid in cash plus cash dividends/distributions plus maintenance Capital Expenditures (as defined in the Loan Agreement) plus management fees paid in cash, to (b) the sum for such fiscal quarter of (1) Interest Charges (as defined in the Loan Agreement) plus (2) required payments of principal on Debt (as defined in the Loan Agreement) (including the Term Loan, but excluding the Revolver) plus (3) operating lease/rent expense, of not less than 1.30 to 1.00 based on a trailing four (4) quarter basis (the “Fixed Charge Coverage Ratio Covenant”). Prior to entering into the Forbearance Agreement, this covenant was measured as of the end of each of the Company’s fiscal quarters, beginning March 31, 2023.
As of the end of each of the Company’s fiscal quarters, commencing March 31, 2023, the Company must maintain a consolidated working capital of current assets (excluding related party receivables and prepaid expenses) minus current liabilities of at least $35.0 million. This financial covenant is unchanged in the Forbearance Agreement.

If the Lender does not extend the Forbearance Period or otherwise grant a waiver in the future for the covenant defaults described above, an event of default under the Loan Agreement would exist. To the extent the Lender so elects, the outstanding indebtedness under the Loan Agreement could be accelerated following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. In addition, should the Company default in its obligation to comply with any of the covenants described immediately above during the Forbearance Period, an event of default would then exist, and, absent a further forbearance agreement or waiver granted by the Lender, the Lender would have the right to accelerate the indebtedness following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. Both of the foregoing events would also result in the termination of all commitments to extend further credit under the Loan Agreement. There is no guarantee we will have sufficient liquidity to repay our outstanding debt under the Loan Agreement in full if such debt were accelerated. As of December 31, 2023, we had $17.0 million in cash and cash equivalents, and $10.0 million in debt under the Loan Agreement. If we are unable to pay such debt as it comes due, or obtain waivers for such payments, our Lender could foreclose on the assets securing such debt. These events could materially adversely affect our business, results of operations and financial condition.

Finance Lease Obligations

Our finance lease obligations totaled $0.1 million as of December 31, 2023 and September 30, 2023.

The current and long-term portions of our finance leases are included in the current and long-term portions of finance lease liabilities and long-term debt in the table above and in our Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023. Further, see Note 6 for additional information.

14


3. Acquisition

Entrepix Merger

On January 17, 2023 (the “Closing Date”), the Company acquired 100% of the issued and outstanding shares of capital stock of Entrepix, Inc., an Arizona corporation (“Entrepix”), which primarily manufactures chemical mechanical polishing (“CMP”) technology, through a reverse triangular merger. Entrepix’s CMP technology portfolio and water cleaning equipment will complement our existing substrate polishing and wet process chemical offerings. Pursuant to the terms and conditions of the Agreement and Plan of Merger dated January 17, 2023 (the “Merger Agreement”), Emerald Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), merged with and into Entrepix (the “Merger”), resulting in Entrepix surviving the Merger and becoming a wholly-owned subsidiary of the Company (the “Acquisition” or “Transaction”).

On the Closing Date, in connection with the Merger Agreement and in contemplation of the Transaction, the Company entered into a Loan and Security Agreement with UMB Bank, N.A., under which the Lender provided the Company with (i) a $12.0 million term loan maturing January 17, 2028, and (ii) an $8.0 million revolving loan facility maturing January 17, 2024 (see Note 2). The proceeds of the Term Loan were used to partially fund the Transaction.

The Acquisition is accounted for using the acquisition method of accounting for business combinations under FASB Accounting Standard Codification Topic No. 805, Business Combinations (“ASC 805”), with Amtech representing the accounting acquirer under this guidance. The Company elected to apply pushdown accounting per ASC 805-50-50-5.

Summary of Consideration Transferred

The total consideration for the Acquisition was $39.2 million, consisting of $35.2 million cash consideration to the sellers and $4.0 million cash paid for debt and Entrepix transaction costs.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Such assets include synergies the Company expects to achieve, such as deeper penetration into an overlapping customer base, complementary product offerings, and cost redundancy reductions. In accordance with the measurement principles in FASB Accounting Standard Codification Topic No. 820, Fair Value Measurement, the purchase consideration for the Acquisition has been allocated under the acquisition method of accounting to the estimated fair market value of the net assets acquired, including a residual amount of goodwill, none of which is deductible for tax purposes. Amtech’s acquisition costs incurred were $2.5 million as of the year ended September 30, 2023, and were recorded as “Selling, general and administrative expenses” in the accompanying Condensed

15


Consolidated Statements of Operations. The following table summarizes the provisional fair values assigned to identifiable assets acquired and liabilities assumed, in thousands:

 

 

January 17, 2023

 

Measurement Period Adjustments

 

September 30, 2023

 

Fair value of total cash consideration transferred

 

$

39,787

 

$

(560

)

$

39,227

 

Estimated fair value of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

 

 

  Cash and cash equivalents

 

$

4,289

 

$

 

$

4,289

 

  Accounts receivable, net

 

 

5,681

 

 

203

 

 

5,884

 

  Inventories

 

 

5,683

 

 

 

 

5,683

 

  Other current assets

 

 

179

 

 

 

 

179

 

  Property, plant, and equipment

 

 

2,051

 

 

(11

)

 

2,040

 

  Right-of-use assets

 

 

2,246

 

 

 

 

2,246

 

  Intangible assets

 

 

12,800

 

 

800

 

 

13,600

 

  Goodwill

 

 

18,089

 

 

(1,626

)

 

16,463

 

  Other assets

 

 

31

 

 

49

 

 

80

 

Total assets acquired

 

 

51,049

 

 

(585

)

 

50,464

 

  Accounts payable

 

 

1,574

 

 

 

 

1,574

 

  Other accrued liabilities

 

 

1,170

 

 

824

 

 

1,994

 

  Contract liabilities

 

 

1,662

 

 

287

 

 

1,949

 

  Income taxes payable

 

 

1,447

 

 

(462

)

 

985

 

  Current portion of long-term operating lease liabilities

 

 

515

 

 

 

 

515

 

  Long-term operating lease liabilities

 

 

1,730

 

 

 

 

1,730

 

  Deferred tax liability

 

 

3,164

 

 

(674

)

 

2,490

 

Total liabilities assumed

 

 

11,262

 

 

(25

)

 

11,237

 

Net assets acquired

 

$

39,787

 

$

(560

)

$

39,227

 

The establishment of the allocation to goodwill requires the extensive use of accounting estimates and management judgment. In accordance with ASC 805, the Company has up to one year from the acquisition date (referred to as the measurement period) to account for changes in the fair values of the identifiable assets acquired and the liabilities assumed in the acquired entity. As of the issuance of the condensed consolidated financial statements for the period ended June 30, 2022, the Company identified certain immaterial misstatements related to the classification of sales discounts to distributors within our semiconductor reportable segment.  The Company previously presented these sales discounts as part of selling, general and administrative expenses instead of as a reduction of revenues in its unaudited condensed consolidated statements of operations for the three-month periodquarter ended December 31, 2021,2023, the Company has not finalized its calculation of deferred tax assets or liabilities, income taxes payable, and the three and six-month periods ended March 31, 2022, which resultedresulting adjustments to goodwill. The tax-related items will be finalized pending a consolidated analysis of the combined tax attributes of the Acquisition. If a change in overstatementsany of revenue and selling, general and administrative expenses for those periods.

In accordance with Staff Accounting Bulletin No. 99, “Materiality,”these items is identified during the measurement period, the Company evaluatedwill record the misstatements and determined that the relatedcumulative impact was not material to the Company’s financial statements for any interim period. Accordingly, the Company revised the unaudited condensed consolidated statements of operations for the periods ended December 31, 2021 and March 31, 2022, including the related notes presented herein, as applicable. The misstatements did not impact operating income or net incomemeasurement period adjustments in the condensed consolidated statements of operations, orperiod the condensed consolidated balance sheets or the condensed consolidated statements of cash flows for any of those periods.adjustment is identified.

 

A summaryThe fair value associated with acquired intangible assets and their associated weighted-average amortization periods consist of the corrections to previously reported condensed consolidated statements of operations is as follows:following, in thousands:

 

 

 

Six Months Ended March 31, 2022

 

 

 

As Reported

 

 

Adjustment

 

 

As Corrected

 

Revenues, net

 

$

55,908

 

 

$

(1,889

)

 

$

54,019

 

Gross profit

 

$

22,947

 

 

$

(1,889

)

 

$

21,058

 

Selling, general and administrative

 

$

15,740

 

 

$

(1,889

)

 

$

13,851

 

 

 

Classification of Amortization

 

Amount

 

 

Weighted-Average
Amortization Period

Developed technology

 

Cost of sales

 

$

6,700

 

 

5.0 years

Customer relationships

 

Selling, general and administrative

 

 

2,800

 

 

10.0 years

Backlog

 

Selling, general and administrative

 

 

2,100

 

 

1.0 year

Trade names

 

Selling, general and administrative

 

 

1,800

 

 

10.0 years

Noncompetition agreements

 

Selling, general and administrative

 

 

200

 

 

5.0 years

Total intangible assets

 

 

 

$

13,600

 

 

6.1 years

 

 

 

Three Months Ended March 31, 2022

 

 

 

As Reported

 

 

Adjustment

 

 

As Corrected

 

Revenues, net

 

$

28,579

 

 

$

(1,023

)

 

$

27,556

 

Gross profit

 

$

12,183

 

 

$

(1,023

)

 

$

11,160

 

Selling, general and administrative

 

$

7,788

 

 

$

(1,023

)

 

$

6,765

 

Unaudited Pro Forma Financial Information

 

 

 

Three Months Ended December 31, 2021

 

 

 

As Reported

 

 

Adjustment

 

 

As Corrected

 

Revenues, net

 

$

27,329

 

 

$

(866

)

 

$

26,463

 

Gross profit

 

$

10,764

 

 

$

(866

)

 

$

9,898

 

Selling, general and administrative

 

$

7,952

 

 

$

(866

)

 

$

7,086

 

The following unaudited pro forma financial information presents the combined results of operations of Amtech and Entrepix, in thousands, as if the acquisition occurred on October 1, 2021. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on the date indicated or of results that may occur in the future.

16


 

 

Three Months Ended December 31,

 

 

 

2022

 

Revenues, Net

 

$

29,155

 

Net Loss

 

$

(3,136

)

The unaudited pro forma financial information presented above include the following adjustments:

3 Months Ended December 31, 2022

incremental amortization expense on intangible assets acquired of $1.4 million for the three months ended December 31, 2022; and
incremental interest expense on the Term Loan of $0.1 million for the three months ended December 31, 2022.

 

The unaudited pro forma financial information includes adjustments to align accounting policies, which were materially similar to the Company’s accounting policies. Any differences in accounting policies were adjusted to reflect the accounting policies of the Company in the unaudited pro forma financial information presented.

 

2.4. Earnings Per Share

 

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. Dilutive potential common shares include outstanding restricted stock units (“RSUs”) and stock options. In the case of a net loss, diluted earnings per share is calculated in the same manner as basic EPS.

 

For the three months ended December 31, 20222023 and 2021,2022, options for 259,000489,000 and 47,000259,000 weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could become dilutive in the future.

11


 

A reconciliation of the components of the basic and diluted EPS calculations follows, in thousands, except per share amounts:

 

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

Net (loss) income

 

$

(2,744

)

 

$

997

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted-average shares used to compute basic EPS

 

 

14,008

 

 

 

14,254

 

Common stock equivalents (1)

 

 

 

 

 

231

 

Weighted-average shares used to compute diluted EPS

 

 

14,008

 

 

 

14,485

 

 

 

 

 

 

 

 

(Loss) income per share:

 

 

 

 

 

 

Net (loss) income per basic share

 

$

(0.20

)

 

$

0.07

 

Net (loss) income per diluted share

 

$

(0.20

)

 

$

0.07

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(9,358

)

 

$

(2,744

)

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted-average shares used to compute basic EPS

 

 

14,188

 

 

 

14,008

 

Dilutive potential common shares due to stock
    options (1)

 

 

 

 

 

 

Dilutive potential common shares due to RSUs (1)

 

 

 

 

 

 

Weighted-average shares used to compute diluted EPS

 

 

14,188

 

 

 

14,008

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

Net loss per basic share

 

$

(0.66

)

 

$

(0.20

)

Net loss per diluted share

 

$

(0.66

)

 

$

(0.20

)

 

(1)
The number of common stock equivalents is calculated using the treasury method and the average market price during the period.

 

17


3.5. Inventories

 

The components of inventories are as follows, in thousands:

 

 

December 31,
2022

 

 

September 30,
2022

 

 

December 31,
2023

 

 

September 30,
2023

 

Purchased parts and raw materials

 

$

15,918

 

 

$

15,377

 

 

$

22,083

 

 

$

22,627

 

Work-in-process

 

 

8,065

 

 

 

6,146

 

 

 

9,848

 

 

 

7,774

 

Finished goods

 

 

4,253

 

 

 

3,965

 

 

 

2,099

 

 

 

4,444

 

 

$

28,236

 

 

$

25,488

 

 

$

34,030

 

 

$

34,845

 

 

4.6. Leases

 

The following table provides information about the financial statement classification of our lease balances reported within the Condensed Consolidated Balance Sheets, in thousands:

 

 

December 31,
2022

 

 

September 30,
2022

 

 

December 31,
2023

 

 

September 30,
2023

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets - operating

 

$

10,832

 

 

$

11,258

 

 

$

10,541

 

 

$

11,217

 

Right-of-use assets - finance

 

 

131

 

 

 

149

 

 

 

110

 

 

 

123

 

Total right-of-use assets

 

$

10,963

 

 

$

11,407

 

 

$

10,651

 

 

$

11,340

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities

 

$

2,134

 

 

$

2,101

 

 

$

2,292

 

 

$

2,623

 

Finance lease liabilities

 

 

71

 

 

 

71

 

 

 

49

 

 

 

64

 

Total current portion of long-term lease liabilities

 

 

2,205

 

 

 

2,172

 

 

 

2,341

 

 

 

2,687

 

Long-term

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities

 

 

8,937

 

 

 

9,395

 

 

 

8,598

 

 

 

8,894

 

Finance lease liabilities

 

 

59

 

 

 

76

 

 

 

46

 

 

 

50

 

Total long-term lease liabilities

 

 

8,996

 

 

 

9,471

 

 

 

8,644

 

 

 

8,944

 

Total lease liabilities

 

$

11,201

 

 

$

11,643

 

 

$

10,985

 

 

$

11,631

 

12


 

The following table provides information about the financial statement classification of our lease expenses reported in the Condensed Consolidated Statements of Operations, in thousands:

 

 

 

Three Months Ended December 31,

 

 

 

Three Months Ended December 31,

 

Lease cost

 

Classification

 

2022

 

 

2021

 

 

Classification

 

2023

 

 

2022

 

Operating lease cost

 

Cost of sales

 

$

461

 

 

$

197

 

 

Cost of sales

 

$

745

 

 

$

461

 

Operating lease cost

 

Selling, general and administrative

 

 

177

 

 

 

84

 

 

Selling, general and administrative

 

 

204

 

 

 

177

 

Operating lease cost

 

Research, development and engineering

 

 

3

 

 

 

 

 

Research, development and engineering

 

 

3

 

 

 

3

 

Finance lease cost

 

Cost of sales

 

 

1

 

 

 

1

 

 

Cost of sales

 

 

1

 

 

 

1

 

Finance lease cost

 

Selling, general and administrative

 

 

18

 

 

 

16

 

 

Selling, general and administrative

 

 

20

 

 

 

18

 

Short-term lease cost

 

Cost of sales

 

 

8

 

 

 

 

 

Cost of sales

 

 

 

 

 

8

 

Total lease cost

 

 

$

668

 

 

$

298

 

 

 

$

973

 

 

$

668

 

18


 

Future minimum lease payments under non-cancelable leases as of December 31, 2022,2023 are as follows, in thousands:

 

 

Operating Leases

 

 

Finance Leases

 

 

Total

 

 

Operating Leases

 

 

Finance Leases

 

 

Total

 

Remainder of 2023

 

$

1,917

 

 

$

57

 

 

$

1,974

 

2024

 

 

2,158

 

 

 

57

 

 

 

2,215

 

Remainder of 2024

 

$

2,317

 

 

$

47

 

 

$

2,364

 

2025

 

 

997

 

 

 

9

 

 

 

1,006

 

 

 

2,060

 

 

 

21

 

 

 

2,081

 

2026

 

 

871

 

 

 

9

 

 

 

880

 

 

 

1,726

 

 

 

21

 

 

 

1,747

 

2027

 

 

782

 

 

 

3

 

 

 

785

 

 

 

1,107

 

 

 

11

 

 

 

1,118

 

2028

 

 

1,115

 

 

 

2

 

 

 

1,117

 

Thereafter

 

 

7,892

 

 

 

 

 

 

7,892

 

 

 

5,146

 

 

 

 

 

 

5,146

 

Total lease payments

 

 

14,617

 

 

 

135

 

 

 

14,752

 

 

 

13,471

 

 

 

102

 

 

 

13,573

 

Less: Interest

 

 

3,546

 

 

 

5

 

 

 

3,551

 

 

 

2,581

 

 

 

7

 

 

 

2,588

 

Present value of lease liabilities

 

$

11,071

 

 

$

130

 

 

$

11,201

 

 

$

10,890

 

 

$

95

 

 

$

10,985

 

 

Operating lease payments include $6.32.3 million related to optionaloptions to extend lease extension periods for multiple leasesterms that are not yet exercisable but are reasonably certain of being exercised.

The following table provides information about the remaining lease terms and discount rates applied:

 

 

December 31,
2022

 

 

September 30,
2022

 

 

December 31,
2023

 

 

September 30,
2023

 

Weighted average remaining lease term

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

12.77 years

 

 

12.65 years

 

 

7.37 years

 

 

7.31 years

 

Finance leases

 

2.25 years

 

 

2.45 years

 

 

2.53 years

 

 

2.54 years

 

Weighted average discount rate

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

4.17

%

 

 

4.17

%

 

 

5.55

%

 

 

5.50

%

Finance leases

 

 

4.17

%

 

 

4.17

%

 

 

5.03

%

 

 

4.91

%

During the fourth quarter of fiscal 2023, we entered into a lease, which has not yet commenced. We expect to record $7.1 million of ROU asset and lease liability upon the commencement of this new lease in the third quarter of fiscal 2024.

 

5.7. Goodwill and Intangible Assets

The Company accounts for goodwill at acquisition-date fair value and other intangible assets at acquisition-date fair value less accumulated amortization. See Note 1 for a summary of the Company’s policies relating to goodwill and intangible assets.

19


Intangible Assets

The Company’s intangible assets, net consists of the following, in thousands:

 

 

 

 

December 31,

 

 

September 30,

 

 

 

Amortization Period

 

2023

 

 

2023

 

Backlog

 

1 year

 

$

2,100

 

 

$

2,100

 

Customer relationships

 

6-10 years

 

 

4,409

 

 

 

4,409

 

Developed technology

 

5 years

 

 

6,700

 

 

 

6,700

 

Noncompetition agreements

 

5 years

 

 

200

 

 

 

200

 

Trade names

 

3-15 years

 

 

2,679

 

 

 

2,679

 

 

 

 

 

 

16,088

 

 

 

16,088

 

Accumulated amortization

 

 

 

 

(5,094

)

 

 

(4,785

)

Less asset impairments:

 

 

 

 

 

 

 

 

   Backlog

 

 

 

 

(425

)

 

 

(425

)

   Customer relationships

 

 

 

 

(169

)

 

 

(119

)

   Developed technology

 

 

 

 

(5,494

)

 

 

(4,645

)

Noncompetition agreements

 

 

 

 

(160

)

 

 

 

Trade names

 

 

 

 

(220

)

 

 

 

Intangible assets, net

 

 

$

4,526

 

 

$

6,114

 

The estimated aggregate amortization expense for each of the five succeeding fiscal years as of December 31, 2023 is as follows, thousands:

Year ending September 30:

 

Amount

 

2024

 

$

410

 

2025

 

 

546

 

2026

 

 

546

 

2027

 

 

546

 

2028

 

 

519

 

Thereafter

 

 

1,959

 

Total

 

$

4,526

 

The aggregate amortization expense during the three months ended December 31, 2023 and 2022 were $0.3 million and less than $0.1 million, respectively.

During each fiscal year, we periodically assess whether any indicators of impairment existed related to our intangible assets. At the end of December 2023, we identified a triggering event. As a result of the decline in our stock price as of December 31, 2023, our book value materially exceeded our market value. This triggering event indicated we should test the related long-lived assets for impairment in our Material and Substrate segment. We tested each identified asset group within our Material and Substrate segment by first performing a recoverability test, comparing projected undiscounted cash flows from the use and eventual disposition of each asset group to its carrying value. This test indicated that the undiscounted cash flows were not sufficient to recover the carrying value of certain asset groups. We then compared the carrying value of the individual long-lived assets within those asset groups against their fair value in order to determine if impairment existed. Determining the fair value of those asset groups involves the use of significant estimates and assumptions, including projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends, and estimated discount rates based on the asset group's weighted average return on assets, as derived from various methods. The fair value of the intangible assets were estimated using various valuation methodologies, including the multi-period excess earnings method, the relief from royalty method and the distributor method. These fair value measurements fall under Level 3 of the fair value hierarchy. As a result, we recorded a total impairment charge for intangible assets in our Materials and Substrate

20


segment of $1.3 million during the quarter ended December 31, 2023. This impairment charge relates to developed technology, trade name, customer relationships and non-competition agreements at Entrepix.

Goodwill

The Company evaluates goodwill at the reporting unit level, which, for the Company, is at the level of the reportable segments, semiconductor, material and substrate. The changes in carrying amount of goodwill allocated to each of the reporting units for the three months ended December 31, 2023 is as follows, in thousands:

 

 

Semiconductor

 

 

Material and Substrate

 

 

Total Goodwill

 

Goodwill

 

$

5,905

 

 

$

21,726

 

 

$

27,631

 

Accumulated impairment losses

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

 

5,905

 

 

 

21,726

 

 

 

27,631

 

Goodwill acquired

 

 

 

 

 

 

 

 

 

Impairment of goodwill

 

 

 

 

 

(6,370

)

 

 

(6,370

)

Balance at December 31, 2023

 

$

5,905

 

 

$

15,356

 

 

$

21,261

 

Goodwill

 

$

5,905

 

 

$

21,726

 

 

$

27,631

 

Accumulated impairment losses

 

 

 

 

 

(6,370

)

 

 

(6,370

)

Balance at December 31, 2023

 

$

5,905

 

 

$

15,356

 

 

$

21,261

 

During each fiscal year, we periodically assess whether any indicators of impairment exist which would require us to perform an interim impairment review. At the end of December 2023, we identified a triggering event. As a result of the decline in our stock price as of December 31, 2023, our book value materially exceeded our market value. This triggering event indicated we should test goodwill for impairment. The results of the goodwill impairment test indicated that the book value of our Material and Substrate reporting unit was in excess of the fair value, and, thus, was impaired. There was no impairment of goodwill identified for our Semiconductor reporting unit.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Our goodwill impairment test uses a weighting of the income approach and the market approach to estimate a reporting unit’s fair value. The income approach is based on a discounted future cash flow analysis that uses certain assumptions including: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments and working capital requirements to sustain and grow the business; and estimated discount rates based on the reporting unit’s weighted average cost of capital as derived by the Capital Asset Pricing Model and other methods, which includes observable market inputs and other data from identified comparable companies. The same estimates are also used internally for our capital budgeting process, and for long-term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data, and we also perform a reconciliation of our total market capitalization to the estimated fair value of all of our reporting units. The market approach is based on the application of appropriate market-derived multiples selected from (i) comparable publicly-traded companies and/or (ii) the implied transaction multiples derived from identified merger and acquisition activity in the market. Multiples are then selected based on a comparison of the reviewed data to that of the reporting unit and applied to relevant historical and forecasted financial parameters such as levels of revenues, EBITDA, EBIT or other metrics. The calculation of fair value falls under Level 3 of the fair value hierarchy.

If the future performance of these reporting units fall short of our expectations, if there are significant changes in operations due to changes in market conditions or if our stock price continues to decline, we could be required to recognize additional material impairment charges in future periods.

8. Income Taxes

 

Income Tax (Benefit) Provision

 

Our effective tax rate was (0.10.6%) and 13.80.1% for the three months ended December 31, 20222023 and 2021,2022, respectively. The effective tax rate for the three months ended December 31, 20222023 differs from the U.S. statutory tax rate of 21% primarily due to higher state taxes partially offset by lower taxes in foreign jurisdictions.losses for which no tax benefit can be recognized. For the three months ended December 31, 2022 2023

21


and 2021,2022, we recorded income tax expense of $58,000 and an income tax benefit of $4,000 and income tax expense of $0.2 million,, respectively. The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.

 

13


Deferred Income Taxes and Valuation Allowance

 

GAAP requires that a valuation allowance be established when it is “more likely than not” that all or a portionIn assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future income and tax planning strategies in making this assessment. We have established valuation allowances on all net U.S. deferred tax assets, after considering all of the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical objective evidence, and determined it is not more likely than not that these assets will be realized. We have established a partial valuation allowance on certain foreign deferred tax assets that we consider it is more likely than not will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates and the length of carryback and carryforward periods. According to those principles, it is difficult to conclude that a valuation allowance is not needed when the negative evidence includes cumulative losses in recent years. Based on the considerations of all available evidence, we have concluded that we will maintain a full valuation allowance for all net deferred tax assets related to the carryforwards of U.S. net operating losses and foreign tax credits. We will continue to monitor our cumulative income and loss positions in the U.S. and foreign jurisdictions to determine whether full valuation allowances on net deferred tax assets are appropriate.

We expect to pay minimal U.S federal cash taxes for the foreseeable future as a result of our U.S. net operating losses and tax credits that are carried forward.

 

6.9. Equity and Stock-Based Compensation

 

Stock-based compensation expense was $0.20.3 million and $0.10.2 million in the three months ended December 31, 20222023 and 2021,2022, respectively. Stock-based compensation expense is included in selling, general and administrative expenses.

 

The following table summarizes our stock option activity during the three months ended December 31, 2022:2023:

 

 

Options

 

 

Weighted
Average
Exercise Price

 

 

Options

 

 

Weighted
Average
Exercise Price

 

Outstanding at beginning of period

 

 

589,341

 

 

$

8.06

 

 

 

672,924

 

 

$

8.76

 

Granted

 

 

111,500

 

 

 

9.27

 

 

 

6,000

 

 

 

6.72

 

Exercised

 

 

(8,875

)

 

 

3.80

 

 

 

(5,000

)

 

 

5.67

 

Forfeited

 

 

(2,000

)

 

 

9.27

 

 

 

(19,075

)

 

 

10.09

 

Outstanding at end of period

 

 

689,966

 

 

$

8.31

 

 

 

654,849

 

 

$

8.73

 

Exercisable at end of period

 

 

451,221

 

 

$

7.41

 

 

 

428,143

 

 

$

8.53

 

Weighted average fair value of options granted during the period

 

$

4.81

 

 

 

 

 

$

3.50

 

 

 

 

 

The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31, 2022

 

 

Three Months Ended December 31, 2021

 

 

2023

 

 

2022

 

Risk free interest rate

 

 

4

%

 

 

1

%

 

 

4

%

 

 

4

%

Expected term

 

5 years

 

 

5 years

 

 

5 years

 

 

5 years

 

Dividend rate

 

 

%

 

 

%

 

 

%

 

 

%

Volatility

 

 

56

%

 

 

57

%

 

 

56

%

 

 

56

%

22


The following table summarizes our RSU activity during the three months ended December 31, 2023:

 

 

Number

 

 

Weighted
Average
Grant Date
Fair Value

 

Nonvested at beginning of year

 

 

75,977

 

 

$

9.15

 

Granted

 

 

 

 

 

 

Released

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Nonvested at end of period

 

 

75,977

 

 

$

9.15

 

 

20222023 Stock Repurchase Plan

 

On February 10, 2022,7, 2023, our Board of Directors (the “Board”) approved a new stock repurchase program, pursuant to which we may repurchase up to $5 million of our outstanding Common Stock over a one-year period, commencing on February 16, 2022.10, 2023. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the SEC;Securities and Exchange Commission; however, we have no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on our stock price and other market conditions. We may, in the sole discretion of the Board, terminate the repurchase program at any time while it is in effect. Repurchased shares may be retired or kept in treasury for further issuance. During the quarter ended March 31, 2022, we repurchased 143,430 shares of our Common Stock on the open market at a total cost of approximately $1.4 million (an average price of $9.78 per share). All repurchased shares have been retired. There were no repurchases during the quarter ended December 31, 2022, and $3.6 million remains available for repurchases.2023.

 

14


2021 Stock Repurchase Plan

On February 9, 2021, the Board approved a stock repurchase program, pursuant to which we may repurchase up to $4 million of our outstanding Common Stock over a one-year period, commencing on February 16, 2021. Repurchases under the program were to be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the SEC; however, we had no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased was subject to management’s discretion and depended on our stock price and other market conditions. We could have, in the sole discretion of the Board, terminated the repurchase program at any time while it was in effect. Repurchased shares were to be retired or kept in treasury for further issuance. During the quarter ended December 31, 2021, we repurchased 291,383 shares of our Common Stock on the open market at a total cost of approximately $2.7 million (an average price of $9.31 per share). All repurchased shares have been retired. The term of this repurchase program expired during the quarter ended March 31, 2022.

7.10. Commitments and Contingencies

 

Purchase Obligations – As of December 31, 2022,2023, we had unrecorded purchase obligations in the amount of $19.519.7 million. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less in the event that any agreements are renegotiated, canceled or terminated.

 

Legal Proceedings and Other Claims – From time to time, we are a party to claims and actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings and other claims in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although the outcome of claims and litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the resolution of a claim or legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.

 

Employment Contracts – We have employment contracts and change in control agreements with, and severance plans covering, certain officers and management employees under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If severance payments under the current employment contracts or severance plans were to become payable, the severance payments would generally range from six to twelve months of salary.

 

8.11. Reportable Segments

 

Amtech has two operating segments that are structured around the types of product offerings provided to our customers. In addition, the operating segments may be further distinguished by the Company’s respective brands. These two operating segments comprise our two reportable segments discussed below. Our two reportable segments are as follows:

 

Semiconductor We design, manufacture, sell and service thermal processing equipment and related controls for use by leading semiconductor manufacturers, and in electronics, automotive and other industries.

23


 

Material and Substrate We produce consumables and machinery for lapping (fine abrading), polishing and polishingcleaning of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystal materials, ceramics and metal components.

15


 

Information concerning our reportable segments is as follows, in thousands:

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Net Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Semiconductor

 

$

16,887

 

 

$

22,765

 

 

$

17,527

 

 

$

16,887

 

Material and Substrate

 

 

4,671

 

 

 

3,698

 

 

 

7,393

 

 

 

4,671

 

 

$

21,558

 

 

$

26,463

 

 

$

24,920

 

 

$

21,558

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Semiconductor

 

$

869

 

 

$

2,357

 

 

$

1,081

 

 

$

869

 

Material and Substrate

 

 

633

 

 

 

181

 

 

 

(7,844

)

 

 

633

 

Non-segment related

 

 

(4,182

)

 

 

(1,298

)

 

 

(2,171

)

 

 

(4,182

)

 

$

(2,680

)

 

$

1,240

 

 

$

(8,934

)

 

$

(2,680

)

 

 

December 31,
2022

 

 

September 30,
2022

 

 

December 31,
2023

 

 

September 30,
2023

 

Identifiable Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Semiconductor

 

$

73,517

 

 

$

75,622

 

 

$

67,187

 

 

$

72,466

 

Material and Substrate

 

 

21,606

 

 

 

22,032

 

 

 

51,287

 

 

 

61,576

 

Non-segment related*

 

 

34,414

 

 

 

35,880

 

 

 

6,568

 

 

 

2,979

 

 

$

129,537

 

 

$

133,534

 

 

$

125,042

 

 

$

137,021

 

 

* Non-segment related assets include cash, property, and other assets.

Goodwill and other long-lived assets

We review our long-lived assets, including goodwill, for impairment at least annually in our fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Additional information on impairment testing of long-lived assets, intangible assets and goodwill can be found in Notes 1 and 11 of our Annual Report on Form 10-K for the year ended September 30, 2022.

 

9.12. Major Customers and Foreign Sales

 

During the three months ended December 31, 2022, one2023, two Semiconductor segment customercustomers individually represented 1113% and 12% of our net revenues. During the three months ended December 31, 2021,2022, one Semiconductor segment customer individually represented 2011% of our net revenues.

 

Our net revenues were from customers in the following geographic regions:

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

United States

 

 

26

%

 

 

18

%

 

 

43

%

 

 

26

%

Canada

 

 

8

%

 

 

5

%

 

 

1

%

 

 

8

%

Mexico

 

 

6

%

 

 

1

%

 

 

1

%

 

 

6

%

Other

 

 

4

%

 

 

3

%

 

 

1

%

 

 

4

%

Total Americas

 

 

44

%

 

 

27

%

 

 

46

%

 

 

44

%

China

 

 

17

%

 

 

20

%

 

 

32

%

 

 

17

%

Malaysia

 

 

4

%

 

 

9

%

 

 

2

%

 

 

4

%

Taiwan

 

 

6

%

 

 

9

%

 

 

4

%

 

 

6

%

Other

 

 

4

%

 

 

9

%

 

 

3

%

 

 

4

%

Total Asia

 

 

31

%

 

 

47

%

 

 

41

%

 

 

31

%

Germany

 

 

4

%

 

 

10

%

 

 

6

%

 

 

4

%

Austria

 

 

11

%

 

 

8

%

 

 

0

%

 

 

11

%

Other

 

 

10

%

 

 

8

%

 

 

7

%

 

 

10

%

Total Europe

 

 

25

%

 

 

26

%

 

 

13

%

 

 

25

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

16


24

10. Subsequent Events

Merger Agreement

On January 17, 2023, we acquired 100% of the issued and outstanding shares of capital stock of Entrepix, Inc., an Arizona corporation (“Entrepix”), which primarily manufactures chemical mechanical polishing (“CMP”) technology, through a reverse triangular merger resulting in Entrepix becoming a wholly owned subsidiary of Amtech. Entrepix’s CMP technology portfolio and water cleaning equipment will complement our existing substrate polishing and wet process chemical offerings. The acquisition was consummated pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”), dated January 17, 2023, by and among Amtech, Emerald Merger Sub, Inc., an Arizona corporation and wholly owned subsidiary of Amtech (“Merger Sub”), Entrepix, Timothy P. Tobin, solely in his capacity as the shareholders’ representative, and the Key Shareholders (as defined in the Merger Agreement). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with and into Entrepix (the “Merger”), with Entrepix surviving the Merger as a direct, wholly owned subsidiary of Amtech. At the closing of the Merger on January 17, 2023 (the “Closing”), we paid a purchase price of $35.0 million, subject to certain customary purchase price adjustments. We used cash on hand and the net proceeds from the Term Loan (as described below) to pay the purchase price at the Closing. The purchase accounting is not yet finalized.

The Merger Agreement includes representations, warranties and covenants of the parties that are customary for a transaction of this nature. The Merger Agreement also contains certain indemnification obligations with respect to breaches of representations and warranties and certain other specified matters. To provide for losses for which we would not otherwise be able to seek indemnification from Entrepix under the Merger Agreement, we purchased a buyer-side representations and warranties insurance policy (the “R&W Policy”), which R&W Policy was issued as of the Closing, and which will be our primary recourse with respect to any breaches of Entrepix’s representations and warranties. The R&W Policy is subject to coverage limitations and certain customary terms, exclusions and deductibles, which limit our ability to make recoveries under the R&W Policy.

Loan and Security Agreement

On January 17, 2023, we entered into a Loan and Security Agreement (the “LSA”) by and among Amtech, its U.S. based wholly owned subsidiaries Bruce Technologies, Inc., a Massachusetts corporation, BTU International, Inc., a Delaware corporation, Intersurface Dynamics, Incorporated, a Connecticut corporation, P.R. Hoffman Machine Products, Inc., an Arizona corporation, and Entrepix, Inc., (collectively the “Borrowers”) and UMB Bank, N.A., national banking association (the “Lender”). The LSA provides for (i) a term loan (the “Term Loan”) in the amount of $12.0 million maturing January 17, 2028, and (ii) a revolving loan facility (the “Revolver”) with an availability of $8.0 million maturing January 17, 2024. As of the date of this filing, no amounts have been borrowed against the Revolver, and the full amount of the Term Loan is outstanding.

The Term Loan and Revolver are secured by a first priority lien on substantially all of the Borrowers’ assets (other than certain customary excluded assets) and the LSA contains customary events of default, representations and warranties, and covenants that restrict the Borrowers’ ability to, among other things, incur additional indebtedness, other than permitted indebtedness, enter into mergers or acquisitions, sell or otherwise dispose of assets, or pay dividends, subject to customary exceptions.

The LSA additionally contains financial covenants such that, as of the end of each of its fiscal quarters, beginning March 31, 2023, the Borrowers must maintain (i) a ratio of consolidated debt owed to Lender to consolidated EBITDA (as defined in the LSA) for such fiscal quarter, of not greater than 1.50 to 1.00, through December 31, 2024, based on a building 4 quarters (as described in the LSA), and then 1.00 to 1.00 each fiscal quarter thereafter, (ii) a ratio of (a) the total for such fiscal quarter of EBITDAR (as defined in the LSA) minus the sum of all income taxes paid in cash plus cash dividends/distributions plus maintenance Capital Expenditures (as defined in the LSA) plus management fees paid in cash, to (b) the sum for such fiscal quarter of (1) Interest Charges (as defined in the LSA) plus (2) required payments of principal on Debt (as defined in the LSA) (including the Term Loan, but excluding the Revolver) plus (3) operating lease/rent expense, of not less than 1.30 to 1.00 based on a building 4 quarters (as described in the LSA), and (iii) a consolidated working capital of current assets (excluding related party receivables and prepaid expenses) minus current liabilities of at least $35.0 million.

17


Stock Repurchase Program

On February 7, 2023, the Board approved a stock repurchase program, pursuant to which we may repurchase up to $5 million of our outstanding Common Stock over a one-year period, commencing on February 10, 2023. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the Securities and Exchange Commission; however, we have no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on our stock price and other market conditions. We may, in the sole discretion of the Board, terminate the repurchase program at any time while it is in effect.

18


 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our “Condensed Consolidated Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”) and our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended September 30, 20222023 (the “2022“2023 Form 10-K”).

 

Overview

 

We are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing and related consumables used in fabricating semiconductor devices, such as silicon carbide (“SiC”("SiC") and silicon power devices, analog and discrete devices, and electronic assemblies, and modules focusing on enabling technologies for electric vehicles (EV) and clean technology (CleanTech) applications.light-emitting diodes ("LEDs"). We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.

 

We operate in two reportable segments, based primarily on the industryindustries they serve: (i) Semiconductor and (ii) Material and Substrate. In our Semiconductor segment, we supply thermal processing equipment, including solder reflow ovens, horizontal diffusion furnaces, and custom high-temp belt furnaces for use by semiconductor, electronics and electro/mechanical assembly manufacturers. Our semiconductor customers are primarily manufacturers of integrated circuits and optoelectronic sensors and discrete (“O-S-D”("O-S-D") components used in analog, power and radio frequency (“RF”("RF"). In our Material and Substrate segment, we produce wafer cleaning equipment as well as substrate consumables chemicals and machinerychemicals for lapping (fine abrading) and polishing of materials, such as silicon wafers for semiconductor products, sapphire wafers for LED applications, and compound substrates, like silicon carbideSiC wafers, for power device applications.

 

The semiconductor industry is cyclical, but not seasonal, and historically has experienced fluctuations. Our revenue is impacted by these broad industry trends.

 

Strategy

 

We continue to focus on our plans to profitably grow our business and have developed a strategic growth plan and a capital allocation plan that we believe will support our growth objectives. Our power semiconductorPower Semiconductor strategic growth plan leverages our experience, products and capabilities in pursuit of growth, profitability and sustainability. Our core focus areas are:

 

Emerging opportunities inAdvanced Mobility - Advanced Mobility encompasses both the SiC industry – We believe we are well-positioned to take part in this significant growth area, specifically as it relates to silicon carbide wafer capacity expansion. We are working closely with our customers to understand their SiC growth plans, needs and opportunities. We are investing in our capacity, next generation product development and in our people. During 2021, we completed the acquisitionadoption of Intersurface Dynamics, Inc. ("Intersurface Dynamics"), which added numerous coolants and chemical products to our existing consumable and machine product lines. We believe these investments will help fuel our growth in the emerging growth SiC industry.

300mm Horizontal Diffusion Furnace – We have a highly successful and proven 300mm horizontal diffusion furnace solution used for power semiconductor device manufacturing applications. We have a strong foundation with the leading 300mm power chip manufacturer. We believe we have a strong opportunity to continue expanding our customer base and grow revenue with our 300mm solution.

As the largest revenue contributor to our organization, we expect our subsidiary, BTU International, Inc. (“BTU”), will continue to track semiconductor industry growth cycles for our advanced semi-packaging and surface-mount technology products, in addition to specialized custom belt furnaces used in automotive and other specialized industrial applications. We believe that our investments in product innovation will provide BTU with opportunities to grow further, especially in high growth applications of consumer and industrial electronics, Internet of Things, electric vehicles and 5G communications.charging infrastructure, including both electric vehicle (EV) and hybrid electric vehicles (HEV), as well as advanced automotive electronics including Advanced Driver Assistance Systems (ADAS), infotainment and telematics. Our products intersect these markets in multiple ways: consumables and wafer cleaning systems for the SiC substrates used in power modules; thermal processing systems for cooling modules and DBC substrate manufacturing; and reflow ovens for ADAS, infotainment and telematics component assemblies.

19


Supply Chain Resiliency - There is a global trend of creating supply chain resiliency by expanding and/or relocating operations outside of mainland China. These factory openings will create demand for new equipment and services in growing regions like Mexico and Southeast Asia.

Artificial Intelligence - With Artificial Intelligence (AI), our reflow oven systems are the favored choice for Outsourced Semiconductor Assembly and Test Services (OSATS) providers who perform advanced packaging of the AI chips.

 

We anticipate future investments will be required to meet the expected demand from theour growing served markets we serve to achieve our revenue growth targets, including investments in research and development as well as capital expenditures, which also includes additionalfurther investments in capacity expansion, talent and management information systems. In June 2022, we completed the sale of the real property where our manufacturing facility in Massachusetts is located. In connection with this sale, we entered into a two-year leaseback of the facility. This sale-leaseback transaction resulted in a net cash inflow of

25


approximately $14.9 million, after repayment of the existing mortgage and settlement of related sale expenses. During the two-year leaseback period,In September 2023, we will conductsigned a searchlease for a new manufacturing facilitylocation more in line with the needs of our Semiconductor product lines. InThe new location has less square footage as we expand our use of contract manufacturers. We expect to complete the fourthmove to this new facility in the third quarter of 2021, we completed the move of our Shanghai facility to a new location. This new location increases our capacity and allows us to streamline our manufacturing processes, thus reducing our lead times.fiscal 2024. In addition, we are evaluating business continuity and resiliency within our operations, our management information systems, and our needs in order to allow for greater efficiencies and to ensure our infrastructure can support our future growth plans. As a capital equipment manufacturer, we will continue to invest in our business to drive future growth.

 

In addition to investments in our organic growth, another key aspect of our capital allocation policy is our plan to grow through acquisitions. We have the expertise and track record to identify complimentary and synergistic acquisition targets in the Semiconductor and SiC growth environments and to execute transactions and integrations to provide for value creating, profitable growth in both the short-term and long-term. On March 3, 2021, we acquired Intersurface Dynamics, a Connecticut-based manufacturer of substrate process chemicals used in various manufacturing processes, including semiconductors, silicon and compound semiconductor wafers, and optics. On January 17, 2023, we acquired Entrepix, an Arizona-based expert in chemical mechanical polishing (CMP) and wafer cleaning. As of the date of the filing of this Quarterly Report, we do not have an agreement to acquire any additional acquisition target.

COVID-19 Update

On March 28, 2022, the Chinese government issued a mandatory shutdown in Shanghai, the location of one of our manufacturing facilities. The factory was allowed to partially reopen in May 2022 and fully reopened on June 1, 2022. After such reopening, the factory was able to operate near full capacity for the entire month of June. We were able to make up the shipments missed in the fourth quarter of fiscal 2022 and are now operating at normal capacity levels. Given the uncertainty surrounding the COVID-19 pandemic, there can be no assurance that our Shanghai facility will be allowed to remain open on a consistent basis.

Cybersecurity Incident

On April 12, 2021, we detected a data incident in which attackers acquired data and disabled some of the technology systems used by one of our subsidiaries. Upon learning of the incident, we immediately engaged external counsel and retained a team of third-party forensic, incident response, and security professionals to investigate and determine the full scope of this incident. We also notified law enforcement officials and confirmed that the incident is covered by our insurance. We have completed the investigation of the data incident with assistance from our outside professionals, and indications were that the unauthorized third-party gained access to certain personal information relating to employees and their beneficiaries for some of our operations. There was no indication of any misuse of this information.

Despite this disruption, production continued in our facilities. Our previously disabled subsidiary network is now back up and running securely. Working alongside our security professionals, we were able to bring our subsidiary’s systems online with enhanced security controls. We have deployed an advanced next generation anti-virus and endpoint detection and response tool, as well as Managed Detection & Response services. We remain committed to protecting the security of the personal information entrusted to us and providing high-quality products and service to our customers.

We recorded approximately $1.1 million of expense related to this incident, which is included in selling, general and administrative expenses, during the third quarter of fiscal 2021. The expense is primarily related to third-party service providers, including security professionals as well as legal and response teams. We may make additional investments in the future to further strengthen our cybersecurity. We filed an insurance claim during the fourth quarter of fiscal

20


2021 related to the incident. During the second quarter of 2022, we signed a final settlement agreement with our insurer resulting in total reimbursement of approximately $0.6 million, which included $0.4 million received during the quarter ended December 31, 2021 and $0.2 million received during the quarter ended March 31, 2022. No portion of the reimbursement remains outstanding as of December 31, 2022.

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,

 

 

Three Months Ended December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Net revenue

 

 

100

%

 

 

100

%

Revenues, net

 

 

100

%

 

 

100

%

Cost of sales

 

 

61

%

 

 

63

%

 

 

64

%

 

 

61

%

Intangible asset impairment

 

 

3

%

 

 

%

Gross margin

 

 

39

%

 

 

37

%

 

 

33

%

 

 

39

%

Selling, general and administrative

 

 

43

%

 

 

26

%

 

 

34

%

 

 

43

%

Research, development and engineering

 

 

6

%

 

 

6

%

 

 

6

%

 

 

6

%

Goodwill impairment

 

 

26

%

 

 

%

Intangible asset impairment

 

 

2

%

 

 

%

Severance expense

 

 

2

%

 

 

%

 

 

1

%

 

 

2

%

Operating (loss) income

 

 

(12

)%

 

 

5

%

Interest expense and other, net

 

 

%

 

 

%

(Loss) income before income taxes

 

 

(12

)%

 

 

5

%

Operating loss

 

 

(36

)%

 

 

(12

)%

Interest income

 

 

%

 

 

1

%

Interest expense

 

 

(1

)%

 

 

%

Foreign currency loss

 

 

(1

)%

 

 

(1

)%

Other

 

 

%

 

 

%

Loss before income taxes

 

 

(38

)%

 

 

(12

)%

Income tax provision

 

 

%

 

 

1

%

 

 

%

 

 

%

Net (loss) income

 

 

(12

)%

 

 

4

%

Net loss

 

 

(38

)%

 

 

(12

)%

 

Net Revenue

 

Net revenue consists of revenue recognized upon shipment or delivery of equipment. Spare parts sales are recognized upon shipment and service revenue is recognized upon completion of the service activity, which is generally ratable over the term of the service contract. Since the majority of our revenue is generated from large system sales, revenue, gross profit and operating income can be significantly impacted by the timing of system shipments.

 

Our net revenue by reportable segment was as follows, dollars in thousands:

 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

Segment

 

2022

 

 

2021

 

 

Change

 

 

% Change

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Semiconductor

 

$

16,887

 

 

$

22,765

 

 

$

(5,878

)

 

 

(26

)%

 

 

17,527

 

 

$

16,887

 

 

$

640

 

 

 

4

%

Material and Substrate

 

 

4,671

 

 

 

3,698

 

 

 

973

 

 

 

26

%

 

 

7,393

 

 

 

4,671

 

 

 

2,722

 

 

 

58

%

Total net revenue

 

$

21,558

 

 

$

26,463

 

 

$

(4,905

)

 

 

(19

)%

 

$

24,920

 

 

$

21,558

 

 

$

3,362

 

 

 

16

%

 

Total net revenue for the three months ended December 31, 2023 and 2022 was $24.9 million and 2021 was $21.6 million, and $26.5 million, respectively, a decreasean increase of approximately $4.9$3.4 million or 19%16%. Our Semiconductor results for the first quarter of fiscal 20232024 reflect a decreaseincreases in production from our Shanghai facility as well as lowerbelt furnace shipments partially offset by decreases in shipments of our horizontal diffusion furnaces.furnaces, surface-mount technology (“SMT”), and packaging equipment. We continue to experience softness in shipments of our advanced packaging and SMT equipment, primarily related to a slowdown in global demand in the consumer markets. Material and Substrate revenue increased due to increased shipmentsthe addition of consumables resulting from capacity expansionEntrepix, effective January 17, 2023, partially offset by a decrease in revenue due to lower sales of our consumable products. Entrepix accounted for

26


approximately $3.8 million of revenue in the Material and production increases by our customers.Substrate segment during the quarter ended December 31, 2023.

 

Orders and Backlog

 

New orders booked in the three months ended December 31, 2022 and 2021by reportable segment were as follows, dollars in thousands:

 

 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

Segment

 

2022

 

 

2021

 

 

Change

 

 

% Change

 

Semiconductor

 

$

21,084

 

 

$

27,809

 

 

$

(6,725

)

 

 

(24

)%

Material and Substrate

 

 

4,145

 

 

 

3,828

 

 

 

317

 

 

 

8

%

Total new orders

 

$

25,229

 

 

$

31,637

 

 

$

(6,408

)

 

 

(20

)%

21


 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

Segment

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Semiconductor

 

$

17,129

 

 

$

21,084

 

 

$

(3,955

)

 

 

(19

)%

Material and Substrate

 

 

5,976

 

 

 

4,145

 

 

 

1,831

 

 

 

44

%

Total new orders

 

$

23,105

 

 

$

25,229

 

 

$

(2,124

)

 

 

(8

)%

 

Our backlog as of December 31, 2022 and 2021by reportable segment was as follows, dollars in thousands:

 

 

December 31,

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

Segment

 

2022

 

 

2021

 

 

Change

 

 

% Change

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Semiconductor

 

$

52,209

 

 

$

46,921

 

 

$

5,288

 

 

 

11

%

 

$

44,835

 

 

$

52,209

 

 

$

(7,374

)

 

 

(14

)%

Material and Substrate

 

 

2,243

 

 

 

1,531

 

 

 

712

 

 

 

47

%

 

 

5,144

 

 

 

2,243

 

 

 

2,901

 

 

 

129

%

Total backlog

 

$

54,452

 

 

$

48,452

 

 

$

6,000

 

 

 

12

%

 

$

49,979

 

 

$

54,452

 

 

$

(4,473

)

 

 

(8

)%

 

 

As of December 31, 2022, three2023, one customer of our Semiconductor segment customers individually accounted for 28%, 15%31% of our backlog. Additionally, one customer of both our Semiconductor and 11%Material and Substrate segments accounted for 21% of our backlog. No other customer accounted for more than 10% of our backlog as of December 31, 2022.2023. The orders included in our backlog are generally credit approved customer purchase orders believed to be firm and are generally expected to ship within the next twelve months. Because our orders are typically subject to cancellation or delay by the customer, ourOur backlog at any particular point in time is not necessarily representative of actual sales for futuresucceeding periods, nor is backlog any assurance that we will realize profit from completing these orders.

 

Gross Profit and Gross Margin

 

Gross profit is the difference between net revenue and cost of goods sold. Cost of goods sold consists of purchased material, labor and overhead to manufacture equipment and spare parts and the cost of service and support to customers for installation, warranty and paid service calls. Gross margin is gross profit as a percent of net revenue. Our gross profit and gross margin by business segment were as follows, dollars in thousands:

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

Segment

 

2022

 

 

Gross
Margin

 

 

2021

 

 

Gross
Margin

 

 

Change

 

 

2023

 

 

Gross
Margin

 

 

2022

 

 

Gross
Margin

 

 

Change

 

Semiconductor

 

$

6,172

 

 

 

37

%

 

$

8,662

 

 

 

38

%

 

$

(2,490

)

 

$

6,159

 

 

 

35

%

 

$

6,172

 

 

 

37

%

 

$

(13

)

Material and Substrate

 

 

2,131

 

 

 

46

%

 

 

1,236

 

 

 

33

%

 

 

895

 

 

 

2,060

 

 

 

28

%

 

 

2,131

 

 

 

46

%

 

 

(71

)

Total gross profit

 

$

8,303

 

 

 

39

%

 

$

9,898

 

 

 

37

%

 

$

(1,595

)

 

$

8,219

 

 

 

33

%

 

$

8,303

 

 

 

39

%

 

$

(84

)

 

Gross profit for the three months ended December 31, 2022 and 2021 was $8.3 million (39% of net revenue) and $9.9 million (37% of net revenue), respectively, a decrease of $1.6 million. Our gross margins can be affected by capacity utilization and the type and volume of machines and consumables sold each quarter. Gross profit for the three months ended December 31, 2023 and 2022 was $8.2 million (33% of net revenue) and $8.3 million (39% of net revenue), respectively, a decrease of $0.1 million. Gross margin on products from our Semiconductor segment was consistent between periods.decreased slightly due to changes in our product mix and lower utilization at our Shanghai facility. Gross margin on products from our Material and Substrate segment increaseddecreased compared to the three months ended December 31, 2021,2022, primarily due to an impairment charge of $0.8 million for intangible assets. Additionally, we had higher consumablesequipment sales, primarily at Entrepix, which have higherlower margins than our equipment,consumables, and increased capacity utilization.charges for slow-moving inventory. We are experiencing increased material costs across all of our segments and expect this trend to continue through at least the first half of fiscal 2023.segments. In response to such increased costs, we continually review our pricing plans and supplier agreements, with the objective of passing these increased costs to our customers where possible; however, we continue to experience pricing pressure from our customers. Additionally,We are also exploring partnerships with contract manufacturers, who can leverage their buying power on a larger scale. In the first quarter of fiscal 2024, we have experienced risingbegan making targeted labor costs across our divisions,reductions as a result of the shift to contract manufacturing and we expect this trend to continue, as the labor marketscontinuing slowdown in which we operate remain competitive.the broader semiconductor industry.

27


 

Selling, General and Administrative

 

Selling, general and administrative expenses (“SG&A”) consists of the cost of employees, consultants and contractors, facility costs, sales commissions, shipping costs, promotional marketing expenses, legal and accounting expenses and bad debt expense.

 

SG&A expenses for the three months ended December 31, 2023 and 2022 and 2021 were $9.2$8.6 million and $7.1$9.2 million, respectively. SG&A increased compared tofor the prior year quarter due primarily tothree months ended December 31, 2023 included $1.2 million of additional expense from Entrepix. SG&A for the three months ended December 31, 2022 included $1.4 million of transaction expenses related to the acquisition of Entrepix, Inc., which was completed in the second quarter of fiscal 2023.

22


 

Research, Development and Engineering

 

Research, development and engineering (“RD&E”) expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials and supplies used in producing prototypes. RD&E expenses may vary from period to period depending on the engineering projects in process. Expenses related to engineers working on strategic projects or sustaining engineering projects are recorded in RD&E. However, from time to time we add functionality to our products or develop new products during engineering and manufacturing to fulfill specifications in a customer’s order, in which case the cost of development, along with other costs of the order, are charged to cost of goods sold. Occasionally, we receive reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met.

 

RD&E expense, net of grants earned, for the three months ended December 31, 2023 and 2022 and 2021 were $1.4$1.6 million and $1.6$1.4 million, respectively. The decreaseincrease in RD&E in the three month period is due to the timing of purchases related to specific strategic-development projects at our Semiconductor segment. Grants earned are immaterial in all periods presented.

 

Goodwill Impairment

During the quarter ended December 31, 2023, we recognized impairment of our goodwill of $6.4 million at our Material and Substrate segment as a result of a triggering event identified at the end of the quarter.

Intangible Asset Impairment

During the quarter ended December 31, 2023, we recognized impairment of our definite lived intangible assets of $1.3 million at our Material and Substrate segment. As stated above, $0.8 million of this impairment was recorded in cost of goods sold, and the remainder was recorded within operating expenses in the Condensed Consolidated Statement of Operations.

Severance ExpensesExpense
 

We recorded severance expense of $0.2 million and $0.4 million in the three months ended December 31, 2022. This one-time charge2023 and 2022, respectively. For the three months ended December 31, 2023, the amount relates to staff reductions in our Semiconductor and Material and Substrate segments. For the three months ended December 31, 2022, the amount relates to the retirement of our founder, Mr. J.S. Whang. There was no severance expense recorded in the three months ended December 31, 2021.founder.

 

Income Taxes

 

Our effective tax rate was 0.1%(0.6%) and 13.8%0.1% for the three months ended December 31, 20222023 and 2021,2022, respectively. The effective tax rate for the three months ended December 31, 20222023 differs from the U.S. statutory tax rate of 21% primarily due to higher state taxes partially offset by lower taxes in foreign jurisdictions.losses for which no tax benefit can be recognized. For the three months ended December 31, 20222023 and 2021,2022, we recorded income tax expense of $58,000 and an income tax benefit of $4,000, and income tax expense of $0.2 million, respectively. The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However,

28


losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.

 

Generally accepted accounting principles of the United States ("GAAP"(“GAAP”) require that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates and the length of carryback and carryforward periods. According to those principles, it is difficult to conclude that a valuation allowance is not needed when the negative evidence includes cumulative losses in recent years. Based on the consideration of all available evidence, we have concluded that we will maintain a full valuation allowance for all net deferred tax assets related to the carryforwards of U.S. net operating losses and foreign tax credits. We will continue to monitor our cumulative income and loss positions in the U.S. and foreign jurisdictions to determine whether full valuation allowances on U.S. net deferred tax assets are appropriate.

We expect to pay minimal U.S federal cash taxes for the foreseeable future as a result of our U.S. net operating losses and tax credits that are carried forward.

 

Our future effective income tax rate depends on various factors, such as the amount of income (loss) in each tax jurisdiction, tax regulations governing each region, non-tax deductible expenses incurred as a percent of pre-tax income and the effectiveness of our tax planning strategies.

 

23Liquidity and Capital Resources


 

LiquidityCash and Capital ResourcesCash Flow

 

The following table sets forth for the periods presented certain consolidated cash flow information, in thousands:

 

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

Net cash (used in) provided by operating activities

 

$

(2,508

)

 

$

2,489

 

Net cash used in investing activities

 

 

(224

)

 

 

(45

)

Net cash provided by (used in) financing activities

 

 

20

 

 

 

(2,741

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

372

 

 

 

175

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(2,340

)

 

 

(122

)

Cash and cash equivalents, beginning of period

 

 

46,874

 

 

 

32,836

 

Cash, cash equivalents and restricted cash, end of period

 

$

44,534

 

 

$

32,714

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Net cash provided by (used in) operating activities

 

$

4,971

 

 

$

(2,508

)

Net cash used in investing activities

 

 

(756

)

 

 

(224

)

Net cash (used in) provided by financing activities

 

 

(528

)

 

 

20

 

Effect of exchange rate changes on cash and cash equivalents

 

 

213

 

 

 

372

 

Net increase (decrease) in cash and cash equivalents

 

 

3,900

 

 

 

(2,340

)

Cash and cash equivalents, beginning of period

 

 

13,133

 

 

 

46,874

 

Cash and cash equivalents, end of period

 

$

17,033

 

 

$

44,534

 

 

CashA summary of our cash position as of December 31, 2023 and Cash FlowSeptember 30, 2023, is as follows, in thousands, except working capital ratio:

 

 

December 31, 2023

 

 

September 30, 2023

 

Cash and cash equivalents

 

$

17,033

 

 

$

13,133

 

Restricted cash

 

$

 

 

$

 

Working capital

 

$

51,998

 

 

$

51,471

 

Current ratio (current assets to current liabilities)

 

3:1

 

 

2.7:1

 

 

The decreaseincrease in cash and cash equivalents from September 30, 20222023 of $2.3$3.9 million was primarily due to the net loss in the current year period, as we incurred $1.4 million in acquisition-related expenses.increased customer down payments and collections from customers. We maintain a portion of our cash and cash equivalents in Renminbis, a Chinese currency, at our operations in China; therefore, changes in the exchange rates have an impact on our cash balances. Our working capital was $77.8$52.0 million as of December 31, 20222023 and $80.3$51.5 million as of September 30, 2022.2023. The decreaseincrease in working capital was primarily due to the decreaseincrease in cash as well as a decrease in accounts receivable, as we collected customer payments that were not offset with new receivables. Our ratio of current assets to current liabilities was 4.6:1 as of December 31, 2022, and 4.5:1 as of September 30, 2022.cash.

 

During periods of weakening demand, we typically generate cash from operating activities.activities, which we may decide to reinvest in our business via strategic projects. Conversely, we are more likely to use operating cash flows for working capital requirements during periods of higher growth. The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfactory to management. Our sources of capital in the past have included the sale of equity securities, which includes common stock sold in private transactions and public offerings, the incurrence of long-term debt and customer deposits. Additionally, in January 2023, we entered into the Loan Agreement with UMB

29


Bank, which included a revolving line of credit with availability up to $8.0 million. On December 5, 2023, we amended this credit facility to, among other things, increase the availability under the revolving line of credit to $14.0 million and extend the maturity date one year to January 17, 2025. Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended credit facility. There can be no assurance that we can raise such additional capital resources when needed or on satisfactory terms. We believe that our principal sources of liquidity discussed above are sufficient to support operations for at least the next twelve months. We have never paid dividends on our common stock.

 

Cash Flows from Operating Activities

 

Cash used inprovided by our operating activities was approximately $2.5$5.0 million for the three months ended December 31, 2022,2023, compared to $2.5 million provided byused in operating activities for the three months ended December 31, 2021.2022. During the first quarterthree months of fiscal 2023,2024, our accounts receivable collections exceeded new accounts receivable due to the timing of shipments and collections. Additionally, we received more down payments from customers for future shipments during the quarter. During the three months ended December 31, 2022, our accounts receivable collections exceeded new accounts receivable, primarily due to the slowdown at our Shanghai facility. During the three months ended December 31, 2021, we increased our inventory balances in preparation for shipments scheduled for the second, third and fourth quarters of fiscal 2022. Additionally, our accounts receivable increased during this period as most of our shipments occurred late in the first quarter of fiscal 2022 and our customers generally have payment terms of 60-90 days.

 

Cash Flows from Investing Activities

 

Cash used in investing activities was $0.2 million and less than $0.1$0.8 million in the three month periodsmonths ended December 31, 20222023, and 2021, respectively.cash used in investing activities was $0.2 million in the three months ended December 31, 2022. Both periods consist solely of capital expenditures. We expect capital expenditures to increase throughoutin the second and third quarters of fiscal 20232024 as we make targeted investments inrelocate our IT systems.

24


Massachusetts operations to a smaller facility.

 

Cash Flows from Financing Activities

 

For the three months ended December 31, 2023, cash used in financing activities was $0.5 million, comprised of $0.6 million in payments on long-term debt partially offset by less than $0.1 million of proceeds received from the exercise of stock options. For the three months ended December 31, 2022, cash provided by financing activities was less than $0.1 million, comprised of proceeds received from the exercise of stock options partially offset by payments on long-term debt. For the three months ended

Financing Facilities

Our debt balance as of December 31, 2021, $2.72023 was $10.1 million, of cash usedincluding our finance lease obligations. As previously disclosed in financing activities was comprised of $2.7 million of cash usedour Form 10-K for the repurchasefiscal year ended September 30, 2023, at such date we were not in compliance with the Debt to EBITDA and Fixed Charge Coverage Ratio financial covenants under our Loan Agreement. On December 5, 2023, we entered into a Forbearance & Modification Agreement (the “Forbearance Agreement”) with UMB Bank related to such non-compliance, pursuant to which UMB Bank agreed to forbear from exercising its rights and remedies available to it as a result of common stocksuch defaults. We will be operating under the terms of such Forbearance Agreement through January 17, 2025 (the “Forbearance Period”).

The Forbearance Agreement also amends the Loan Agreement to, among other things, (i) increase the availability under the revolving line of credit from $8.0 million to $14.0 million (the "Revolver"), and (ii) reduce the term loan commitment from $12.0 million to $4.4 million (the “Term Loan”). The Revolver maturity date was extended one year to January 17, 2025 and the Term Loan maturity date was extended one year to January 17, 2029. Both the Revolver and the Term Loan have a floating per annum rate of interest equal to the Prime Rate, adjusted daily, plus the Applicable Margin (as such terms are defined in the Loan Agreement). We are required to pay a non-utilization fee equal to 0.125% of any unused portion of the Revolver in excess of any letter of credit obligations. As of September 30, 2023, no amounts were borrowed against the Revolver and there were no letters of credit outstanding. As of the effective date of the Forbearance Agreement, $10.0 million will be drawn under the Loan Agreement, which includes $4.4 million under the Term Loan and $5.6 million under the Revolver. As of December 31, 2023, $5.6 million was

30


borrowed against the Revolver, and there was an outstanding letter of credit in the amount of $0.3 million. In January 2024, we made a $2.0 million principal payment on the Revolver.

Future borrowings, if any, under the Loan Agreement are subject to, among other things, having sufficient unencumbered Eligible Accounts, Eligible Foreign Accounts and Eligible Inventory (as such terms are defined in the Loan Agreement) to meet the borrowing base requirements included in the amended Loan Agreement.

Under the Loan Agreement, as amended by the Forbearance Agreement, the Company is required to comply with the following financial covenants:

Maintaining, on a consolidated basis, a minimum EBITDA (as defined in the Loan Agreement) through the fiscal year ending September 30, 2024, measured on a quarterly basis (the “Minimum EBITDA Covenant”). The Minimum EBITDA Covenant amount increases each quarter during such period. At December 31, 2023, we were in compliance with the Minimum EBITDA Covenant for such period (not less than negative EBITDA of $1.2 million), with actual positive EBITDA of $0.2 million for such period. The Minimum EBITDA Covenant replaced the Senior Debt to EBITDA covenant set forth in the original Loan Agreement.
As of the end of each of the Company’s fiscal years, commencing for the fiscal year ending September 30, 2024, the Company must maintain a ratio of (a) the total for such fiscal year of EBITDAR (as defined in the Loan Agreement) minus the sum of all income taxes paid in cash plus cash dividends/distributions plus maintenance Capital Expenditures (as defined in the Loan Agreement) plus management fees paid in cash, to (b) the sum for such fiscal quarter of (1) Interest Charges (as defined in the Loan Agreement) plus (2) required payments of principal on long-termDebt (as defined in the Loan Agreement) (including the Term Loan, but excluding the Revolver) plus (3) operating lease/rent expense, of not less than 1.30 to 1.00 based on a trailing four (4) quarter basis (the “Fixed Charge Coverage Ratio Covenant”). Prior to entering into the Forbearance Agreement, this covenant was measured as of the end of each of the Company’s fiscal quarters, beginning March 31, 2023.
As of the end of each of the Company’s fiscal quarters, commencing March 31, 2023, the Company must maintain a consolidated working capital of current assets (excluding related party receivables and prepaid expenses) minus current liabilities of at least $35.0 million. This financial covenant is unchanged in the Forbearance Agreement.

If the Lender does not extend the Forbearance Period or otherwise grant a waiver in the future for the covenant defaults described above, an event of default under the Loan Agreement would exist. To the extent the Lender so elects, the outstanding indebtedness under the Loan Agreement could be accelerated following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. In addition, should the Company default in its obligation to comply with any of $97,000, partially offsetthe covenants described immediately above during the Forbearance Period, an event of default would then exist, and, absent a further forbearance agreement or waiver granted by $69,000the Lender, the Lender would have the right to accelerate the indebtedness following the expiration of proceeds received fromany applicable cure periods, causing such debt to be immediately due and payable. Both of the exerciseforegoing events would also result in the termination of stock options.all commitments to extend further credit under the Loan Agreement. There is no guarantee we will have sufficient liquidity to repay our outstanding debt under the Loan Agreement in full if such debt were accelerated. As of December 31, 2023, we had $17.0 million in cash and cash equivalents, and $10.0 million in debt under the Loan Agreement. If we are unable to pay such debt as it comes due, or obtain waivers for such payments, our Lender could

31


foreclose on the assets securing such debt. These events could materially adversely affect our business, results of operations and financial condition.

The Loan Agreement also includes quarterly and annual reporting requirements and other customary affirmative and negative covenants and events of default for facilities of this type. At December 31, 2023, we were in compliance with all such covenants.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2022,2023, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by the SEC that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Contractual Obligations

 

Unrecorded purchase obligations were $19.5$19.7 million as of December 31, 2022,2023, compared to $20.0$24.3 million as of September 30, 2022,2023, a decrease of $0.5$4.6 million.

 

Subsequent to the end of our fiscal quarter ended December 31, 2022, we entered into a Loan and Security Agreement with UMB Bank. SeeOther than as described in Note 10 “Subsequent Events” of our condensed consolidated financial statements for a description of this credit facility. There2, there were no other material changes to the contractual obligations included in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20222023 Form 10-K.

 

Critical Accounting Estimates

 

"Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report discusses our condensed consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

 

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes, inventory valuation, business combination, goodwill, and goodwill.long-lived asset impairment. We base our estimates and judgments on historical experience, expectations regarding the future and on various other factors that we believe to be reasonable under the circumstances. The results of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

A critical accounting estimate is one that is both important to the presentation of our financial position and results of operations, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These uncertainties are discussed in Part I, Item 1A of our 20222023 Form 10-K. We believe our critical accounting estimates relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

We believe the critical accounting estimates discussed in the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our 20222023 Form 10-K represent the most significant judgments and estimates used in the preparation of our consolidated financial statements. There have been no significantmaterial changes in our critical accounting estimates during the three months ended December 31, 2022.2023.

25


 

Impact of Recently Issued Accounting Pronouncements

 

For discussion of the impact of recently issued accounting pronouncements, see “Part I, Item 1. Financial Information” under “Impact of Recently Issued Accounting Pronouncements.”

32


 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and, therefore, are not required to provide the information requested by this Item.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and ProceduresProcedures.

Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has carried out an evaluation of the effectiveness of our disclosureWe maintain “disclosure controls and procedures, as of December 31, 2022, pursuant to Exchange Actdefined in Rules 13a-15(e) and 15(d)-15(e). Disclosure controls and procedures means controls and other procedures15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in the reports it filesthat we file or submitssubmit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is(2) accumulated and communicated to our management, including the principal executiveour Chief Executive Officer and principal financial officer, as appropriate,Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based upon thatthe evaluation, our CEOChief Executive Officer and CFO haveChief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weaknesses previously identified and disclosed in place were effective.our 2023 Annual Report and listed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting (“ICFR”) such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control Overover Financial Reporting

There have not been anyOther than as discussed below, there were no other changes in the Company’sto our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first fiscal quarter to which this report relatesthree months ended December 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan for Existing Material Weaknesses

We are in the process of, and continue to focus on, designing and implementing effective measures to strengthen our ICFR and remediate the material weaknesses disclosed in our 2023 Form 10-K.

In relation to the material weakness identified in the areas of goodwill and intangible assets, we are evaluating the design of internal controls over non-routine and complex transactions, including the preparation and review of the third-party service provider valuation reports. Management has engaged a new valuation firm to perform the impairment assessment for goodwill and intangible assets for the quarter ending December 31, 2023.

With respect to the material weakness related to general information technology controls, our management, under the oversight of our Audit Committee, has begun evaluating the current processes to determine the need for new controls or redesigning existing controls to remediate the control deficiencies giving rise to this material weakness. Remediation efforts will include, but not limited to, the strengthening of user access reviews, enhancing procedures surrounding program change-management, and assessing segregation of duties within the Company’s business processes.

The material weaknesses will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We anticipate that the remediation of this material weakness will be completed during fiscal year 2024. We are committed to continuing to improve our internal control processes, and, as we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of the Company.our remediation measures.

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PART II. OTHER INFORMATION

 

 

For discussion of legal proceedings, see Note 710 to our condensed consolidated financial statements under “Part I, Item 1. Financial Information” under “Commitments and Contingencies” of this Quarterly Report.

 

Item 1A. Risk Factors

 

We refer you to documents filed by us with the SEC, specifically “Item 1A. Risk Factors” in our 20222023 Form 10-K, which identifies important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled “Cautionary Statements Regarding Forward-Looking Statements” immediately preceding “Item 1. Condensed Consolidated Financial Statements” of this Quarterly Report. This Quarterly Report, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our 20222023 Form 10-K and any described herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. ThereExcept as set forth below, there have been no material changes to the risk factors previously disclosed in our 20222023 Form 10-K.

The Company's share price has decreased since the end of its fiscal year ended September 30, 2023, and in the first quarter of fiscal year 2024, the Company recognized impairment of its intangible assets and goodwill. If the share price continues to decline and the decline is sustained, the Company may be required to test for goodwill and/or intangible asset impairment before the performance of its required annual testing and if so, may be at risk of recognizing additional expenses related to goodwill and/or intangible asset impairment.

On September 29, 2023, the Company's share price was $7.62 and has since declined to a share price of $4.08 as of January 31, 2024. Under the accounting standard, ASC 350-20, Goodwill, a Company is required to test for impairment on an annual basis, but in the presence of a triggering event, may need to test during an interim period. Under ASC 350, Goodwill, a sustained decline in share price represents a triggering event which would require the Company to test for impairment. As of December 31, 2023, there was a decline in the Company’s share price, which resulted in its book value materially exceeding its market value. This triggering event indicated the Company should test the related long-lived assets for impairment in the Material and Substrate segment. As a result, expenses related to goodwill and intangible asset impairment was recognized.

If the Company’s share price continues to decline, the Company may again be required to test goodwill and/or intangible assets for impairment. If the Company is required to perform this analysis, there may be a risk that the Company incurs additional expenses related to goodwill and/or intangible asset impairment.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities

 

On February 10, 2022,7, 2023, the Board approved a stock repurchase program, pursuant to which the Company may repurchase up to $5 million of its outstanding Common Stock over a one-year period, commencing on February 16, 2022.10, 2023. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the Securities and Exchange Commission; however, the Company has no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on the Company’s stock price and other market conditions. The Company may, in the sole discretion of the Board, terminate the repurchase program at any time while it is in effect. Repurchased shares may be retired or kept in treasury for further issuance.

 

During the three months ended December 31, 2022,2023, we did not repurchase any of our equity securities nor did we sell any equity securities that were not registered under the Securities Act of 1933, as amended.

34


 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

 

 

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Item 6. Exhibits

 

EXHIBIT

 

 

 

INCORPORATED BY REFERENCE

 

FILED

NO.

 

EXHIBIT DESCRIPTION

 

FORM

 

FILE NO.

 

EXHIBIT NO.

 

FILING DATE

 

HEREWITH

10.1*

Agreement and Plan of Merger, dated January 17, 2023, by and among the Registrant, Emerald Merger Sub, Inc., an Arizona corporation and wholly owned subsidiary of the Registrant, Entrepix, Inc., an Arizona corporation, Timothy P. Tobin, solely in his capacity as the shareholders’ representative, and the Key Shareholders (as defined in the Agreement and Plan of Merger).

X

10.2*

Loan and Security Agreement, dated as of January 17, 2023, by and among the Registrant, its U.S. based wholly owned subsidiaries Bruce Technologies, Inc., a Massachusetts corporation, BTU International, Inc., a Delaware corporation, Intersurface Dynamics, Incorporated, a Connecticut corporation, P.R. Hoffman Machine Products, Inc., an Arizona corporation, and Entrepix, Inc., an Arizona corporation, as borrowers, and UMB Bank, N.A., national banking association, as lender.

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

X

101.PRE

Inline Taxonomy PresentationWith Embedded Linkbase Document

X

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document

X

101.LAB

Inline XBRL Taxonomy Label Linkbase Document

X

28


101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocuments

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

 

 

 

 

X

 

* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission.36

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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/ Lisa D. Gibbs

 

Dated:

 

February 8, 20239, 2024

 

 

Lisa D. Gibbs

 

 

 

 

 

 

Vice President and Chief Financial Officer

 

 

 

 

 

 

(Principal Financial Officer and Duly Authorized Officer)

 

 

 

 

 

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