UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 0-11412
AMTECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0411215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 South Clark Drive, Tempe, Arizona 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 480-967-5146
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Shares of Common Stock outstanding as of March 31, 2002: 2,651,621
AMTECH SYSTEMS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2002 and September 30, 2001 ........................ 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended March 31, 2002 and 2001 ........... 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2002 and 2001 ..................... 5
Notes to Condensed Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations ......................................... 11
Liquidity and Capital Resources ............................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 15
Forward-Looking Statements .................................... 15
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings ............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders ........... 16
Item 6. Exhibits and Reports on Form 8-K. ............................. 16
SIGNATURE .................................................................. 17
2
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2002 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,468,274 $ 5,998,120
Accounts receivable - net 3,301,664 3,829,867
Inventories 4,343,094 4,804,457
Deferred income taxes 1,525,000 1,525,000
Prepaid expenses 121,628 85,643
------------ ------------
Total current assets 15,759,660 16,243,087
PROPERTY, PLANT AND EQUIPMENT - net 1,486,684 1,484,437
GOODWILL AND OTHER ASSETS - net 799,317 843,046
------------ ------------
TOTAL ASSETS $ 18,045,661 $ 18,570,570
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,067,888 $ 880,006
Accrued compensation and related taxes 567,212 671,075
Accrued warranty expense 411,964 304,228
Deferred Profit 1,045,276 1,777,173
Customer deposits 251,524 367,523
Income taxes payable 115,000 135,000
Other accrued liabilities 581,298 605,547
------------ ------------
Total current liabilities 4,040,162 4,740,552
------------ ------------
LONG-TERM OBLIGATIONS 239,583 246,184
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; no specified terms;
100,000,000 shares authorized; none issued and outstanding -- --
Common stock; $0.01 par value; 100,000,000 shares authorized;
2,651,621 and 2,649,171 shares issued and outstanding
as of March 31 and September 30, respectively 26,516 26,492
Additional paid-in capital 12,542,299 12,539,040
Accumulated other comprehensive loss -
Cumulative foreign currency translation adjustment (459,616) (368,242)
Retained earnings 1,656,717 1,386,544
------------ ------------
Total stockholders' equity 13,765,916 13,583,834
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,045,661 $ 18,570,570
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE AND SIX MONTHS ENDED MARCH 31, 2002 AND 2001
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net product sales $ 5,416,412 $ 6,802,822 $ 10,873,328 $ 10,405,472
Cost of product sales 4,217,643 4,332,918 8,355,076 6,780,723
------------ ------------ ------------ ------------
Gross margin 1,198,769 2,469,904 2,518,252 3,624,749
Selling, general and administrative 995,792 1,297,996 2,012,295 2,493,026
Research and development 59,453 140,004 149,384 246,626
------------ ------------ ------------ ------------
Operating profit 143,524 1,031,904 356,573 885,097
Interest income - net 20,787 78,106 55,600 151,768
------------ ------------ ------------ ------------
Income before income taxes and cumulative
effect of change in accounting principle 164,311 1,110,010 412,173 1,036,865
Income tax provision 61,000 424,705 142,000 378,443
------------ ------------ ------------ ------------
Income before cumulative effect of change in
accounting principle 103,311 685,305 270,173 658,422
Cumulative effect of change in accounting
principle, net of tax benefit of $410,000 -- -- -- (690,211)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 103,311 $ 685,305 $ 270,173 $ (31,789)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share - basic:
Income before cumulative effect of change in accounting principle $ .04 $ .26 $ .10 $ .25
Cumulative effect of change in accounting principle, net of tax -- -- -- (.26)
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ .04 $ .26 $ .10 $ (.01)
============ ============ ============ ============
Weighted average shares outstanding 2,681,533 2,657,886 2,681,214 2,631,302
Earnings (loss) per share - diluted:
Income before cumulative effect of change in accounting principle $ .04 $ .25 $ .10 $ .24
Cumulative effect of change in accounting principle, net of tax -- -- -- (.26)
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ .04 $ .25 $ .10 $ (.01)
============ ============ ============ ============
Weighted average shares outstanding 2,779,489 2,792,835 2,789,185 2,767,070
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)
2002 2001
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 270,173 $ (31,789)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax -- 690,211
Depreciation and amortization 215,338 186,973
Provision for write-off of inventory and receivables 57,343 203,236
Deferred income taxes -- (127,000)
Decrease (increase) in:
Accounts receivable 414,657 (299,742)
Inventories, prepaid expenses and other assets 314,115 (1,060,434)
Increase (decrease) in:
Accounts payable 215,309 (632,687)
Accrued liabilities and customer deposits (298,506) 1,003,807
Deferred Profit (547,811) 487,103
Income taxes payable (16,198) 135,557
----------- -----------
Net Cash Provided By Operating Activities 624,420 555,235
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (201,238) (363,068)
----------- -----------
Net Cash Used In Investing Activities (201,238) (363,068)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from warrant and stock option exercises 3,283 329,598
Payments on mortgage loan -- (4,929)
----------- -----------
Net Cash Provided By Financing Activities 3,283 324,669
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 43,689 (20,924)
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase 470,154 495,912
Beginning of period 5,998,120 5,784,500
----------- -----------
END OF PERIOD CASH AND CASH EQUIVALENTS $ 6,468,274 $ 6,280,412
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 5,278 $ 14,908
Income taxes paid 158,198 1,149,000
The accompanying notes are an integral part of these
consolidated financial statements.
5
AMTECH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 2002
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,
Tempress Systems, Inc., based in Heerde, The Netherlands, and P. R. Hoffman
Machine Products, Inc. (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), and are unaudited. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and
regulations of the SEC. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2001.
The consolidated results of operations for the six months ended March 31,
2002, are not necessarily indicative of the results to be expected for the
full year.
2. ADOPTION OF SAB 101 DURING FISCAL YEAR 2001
The fiscal 2001 amounts reflect the Company's adoption of Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," effective October 1, 2000, as
discussed in the Company's Form 10-K for the year ended September 30, 2001.
3. REVENUE RECOGNITION
During the fourth quarter of fiscal 2001, the Company changed its revenue
recognition policy retroactive to October 1, 2000, based on guidance
provided in SAB 101. The Company recognizes revenue when persuasive
evidence of an arrangement exists; title transfers, generally upon shipment
or when services have been rendered; the seller's price is fixed or
determinable and collectibility is reasonably assured. Certain of the
Company's product sales are accounted for as multiple- element
6
arrangements. For the semiconductor equipment segment, if the Company has
met defined customer specifications with similarly situated customers and
the specific equipment and process involved, the Company recognizes
equipment revenue upon shipment and transfer of title, and the portion of
the revenue that is contingent upon installation and acceptance, generally
10% - 20% of a system's selling price, is deferred until those activities
are completed. Product sales that are shipped but do not meet this criteria
are deferred and recognized upon customer acceptance.
Equipment sold by the polishing supplies segment does not involve process
guarantees or acceptance criteria, so the related revenue is recorded upon
shipment. For all segments, sales of spare parts and consumables are
recognized upon shipment, as there are no post shipment obligations other
than standard warranties. Service revenues are recognized as services are
performed. Revenue related to service contracts is recognized upon
performance of the services requested by the customer.
In accordance with guidance provided in SAB 101, the Company recorded a
non-cash charge of $690,211 (after reduction for income taxes of $410,000),
or $0.26 per basic share on October 1, 2000 to reflect the cumulative
effect of the accounting change.
During the three and six months ended March 31, 2002, the Company
recognized revenue of $0 and $499,707, respectively, and related gross
profit of $0 and $122,640, respectively, that were included in the
cumulative effect adjustment as of October 1, 2000. During the three and
six months ended March 31, 2001, the Company recognized revenue of $879,906
and $1,542,268, respectively, and related gross profit of $269,075 and
$482,127, respectively, that were included in the cumulative effect
adjustment as of October 1, 2000.
4. INVENTORIES
The components of inventories are as follows:
March 31, September 30,
2002 2001
------------ ------------
Purchased parts and
raw materials $ 1,814,144 $ 2,487,470
Work-in-process 1,426,761 1,255,676
Finished goods 1,102,189 1,061,311
------------ ------------
Totals $ 4,343,094 $ 4,804,457
============ ============
7
5. EARNINGS (LOSS) PER SHARE
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income (loss) $ 103,311 $ 685,305 $ 270,173 $ (31,789)
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Common shares 2,681,533 2,657,886 2,681,214 2,631,302
Common equivalents 97,956 34,949 107,971 135,768
---------- ---------- ---------- ----------
2,779,489 2,792,835 2,789,185 2,767,070
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ .04 $ .26 $ .10 $ (.01)
Diluted $ .04 $ .25 $ .10 $ (.01)
6. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"), and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 141 eliminates pooling of interest as a
method for accounting for business combinations. SFAS No. 142 requires the
discontinuation of the amortization of goodwill and intangible assets with
indefinite lives and at least an annual assessment of whether there has
been an impairment of such assets that needs to be recognized as an
impairment charge. The Company must adopt SFAS Nos. 141 and 142 no later
than October 1, 2002. Since amortization of goodwill is currently an
estimated $.1 million per year, the discontinuation of such amortization
will not have a material affect on the Company's net income or financial
condition. Management does not expect to incur an impairment charge related
to its recorded goodwill, approximately $.8 million as of March 31, 2002.
7. COMPREHENSIVE INCOME (LOSS)
Comprehensive income for the three months ended March 31, 2002 and 2001 was
$84,081 and $566,687, respectively. Comprehensive income (loss) for the six
months ended March 31, 2002 and 2001 was $178,799 and ($40,134),
respectively.
8
8. BUSINESS SEGMENT INFORMATION
The Company classifies its products into two core business segments: (1)
the semiconductor equipment segment which designs, manufactures and markets
semiconductor wafer processing equipment used in the fabrication of
integrated circuits, and (2) the polishing supplies segment, which designs,
manufactures and markets carriers, templates and equipment used in the
lapping and polishing of wafer thin materials, including silicon wafers
used in the production of semiconductors. Information concerning the
Company's business segments in fiscal years 2002 and 2001 is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues
Semiconductor equipment $ 4,242,600 $ 4,475,818 $ 8,628,013 $ 5,909,425
Polishing supplies 1,173,812 2,327,004 2,245,315 4,496,047
------------ ------------ ------------ ------------
$ 5,416,412 $ 6,802,822 $ 10,873,328 $ 10,405,472
============ ============ ============ ============
Operating profit (loss)
Semiconductor equipment $ 160,045 $ 697,176 $ 476,932 $ 257,890
Polishing supplies (16,521) 334,728 (120,359) 627,207
------------ ------------ ------------ ------------
Total operating profit 143,524 1,031,904 356,573 885,097
Interest income - net 20,787 78,106 55,600 151,768
------------ ------------ ------------ ------------
Income before income taxes
and cumulative effect of
change in accounting
principle $ 164,311 $ 1,110,010 $ 412,173 $ 1,036,865
============ ============ ============ ============
9. LEGAL PROCEEDINGS
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
eleven companies named in a legal action being brought by North Middleton
Township in Carlisle, Pennsylvania, the owner of a landfill allegedly found
to be contaminated. No detailed allegations have been filed as part of this
legal action, which appears to have been filed to preserve the right to
file claims for contribution to the clean-up of the landfill at a later
date. The Company acquired the assets of P.R. Hoffman Machine Products
Corporation in an asset transaction consummated on July 1, 1997. The
landfill was closed and has not been used by P.R. Hoffman since sometime
prior to completion of the Company's acquisition. Therefore, the Company
believes that the named company is the prior owner of the acquired assets.
Under the terms of the Asset Purchase Agreement governing the acquisition,
the prior owner, P.R. Hoffman Machine Products Corporation, is obligated to
indemnify the Company for any breaches of P.R. Hoffman's representations
and warranties in the Asset Purchase Agreement, including representations
relating to environmental matters. In accordance with the terms of the
9
Asset Purchase Agreement, the Company has provided notice to the prior
owner of P.R. Hoffman Machine Products Corporation of the Company's intent
to seek indemnification from such owner for any liabilities resulting from
this legal action. Based on information available to the Company as of the
date of this report, management believes the costs, if any, to resolve this
matter will not be material to the Company's results of operations or
financial position.
10. CONCENTRATION OF CREDIT RISK AND USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
As of September 30, 2001, receivables from customers in the optical
component industry comprised 51% of total receivables, of which three
accounts comprised 39% of total receivables, representing a concentration
of credit risk as defined by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments
with Concentration of Credit Risk." As of March 31, 2002, receivables from
customers in the optical component industry comprised 3% of total
receivables.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of
net revenue for the periods indicated:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
Net revenue 100% 100% 100% 100%
Cost of product sales (78) (64) (77) (65)
---- ---- ---- ----
Gross margin 22 36 23 35
Selling, general and
administrative expenses (18) (19) (19) (24)
Research and development (1) (2) (1) (2)
---- ---- ---- ----
Operating profit 3% 15% 3% 9%
==== ==== ==== ====
NET REVENUE. The Company's net revenue for the three months ended March 31,
2002 was $5.4 million, a decrease of $1.4 million, or 21%, compared to net
revenue of $6.8 million for the second quarter of fiscal 2001. Revenue for the
three months ended March 31, 2002 and 2001 included $0 and $.9 million,
respectively, of revenue that was included in the cumulative effect adjustment
as of October 1, 2000, arising from the Company's adoption of SAB 101. During
the quarter ended March 31, 2001, a portion of the systems sales were new
products or products that otherwise had not yet been demonstrated to meet the
customers' specifications, leading to a net deferral of $.2 million of systems
shipped during that quarter. Conversely, during the quarter ended March 31,
2002, the value of the systems that were demonstrated to meet the customers'
specifications exceeded the value of shipments by $1.4 million.
Net revenue for the six months ended March 31, 2002 was $10.9 million, an
increase of $.5 million, or 5%, compared to net revenue of $10.4 million for the
same period of fiscal 2001. Revenue for the six months ended March 31, 2002 and
2001 included $.5 million and $1.5 million, respectively, of revenue that was
included in the cumulative effect adjustment as of October 1, 2000, arising from
the Company's adoption of SAB 101. During the six months ended March 31, 2001, a
portion of the systems sales were new products or products that otherwise had
not yet been demonstrated to meet the customers' specifications, leading to a
net deferral of $3.5 million of systems shipped during those six months.
Conversely, during the six months ended March 31, 2002, the value of the systems
that were demonstrated to meet the customers' specifications exceeded the value
of shipments by $2.5 million.
With the change in revenue recognition pursuant to the guidance provided in
SAB 101, at least some portion of system sales in the semiconductor equipment
segment is deferred generally until it has been installed, demonstrated to meet
the customer's specifications and accepted by the customer. Some of the factors
that can affect the length of time from shipment to full revenue recognition are
customer delays in site preparation, availability of our technicians and the
time it takes for the customer to obtain local permits. Because the selling
price of systems generally range between $150,000 for automation products and
$1.2 million on a fully loaded automated diffusion furnace, these factors
11
significantly affect the timing of revenue recognition from customer to customer
and system to system, which will increase the volatility in revenue.
GROSS MARGIN. The Company's gross margin decreased by approximately $1.3
million, or 52%, to $1.2 million for the three months ended March 31, 2002, from
$2.5 million during the comparable period of the previous fiscal year. The
decrease in gross margin resulted from the 21% decline in revenue discussed
above and a significant change in product mix. Gross margin was 22% in the
second quarter of fiscal 2002, compared to 36% in the second quarter of fiscal
2001. This decrease resulted from the spreading of fixed and semi-fixed costs
over the lower sales volume, competitive pricing pressure and a change in the
mix of products on which revenue was recognized. Also contributing to the lower
margins in absolute terms and relative to revenue, the average gross profit
percentage on the deferred revenue recognized during the period is only 23%
compared to the 57% average gross profit percentage on current period shipments
deferred into future periods.
Gross margin decreased by approximately $1.1 million, or 31%, to $2.5
million for the six months ended March 31, 2002, from $3.6 million for the
comparable period of the previous fiscal year. This decrease resulted primarily
from competitive pricing pressure and the change in product mix. Gross margin
decreased to 23% of revenue for the first six months of fiscal 2002 from 35% in
the first six months of fiscal 2001 primarily due to the spreading of fixed and
semi-fixed costs over the lower sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 2002 decreased by $.3
million, or 23%, to $1.0 million, compared to $1.3 million for the second
quarter of fiscal 2001. The decrease in selling, general and administrative
expenses is due primarily to cost reduction programs and a decline in
commissions due to decreased sales.
Selling, general and administrative expenses for the six months ended March
31, 2002 decreased by $.5 million, or 20%, to $2.0 million, compared to $2.5
million for the six months ended March 31, 2001. The decrease in selling,
general and administrative expenses is due primarily to cost reduction programs
and a decline in commissions due to decreased sales.
RESEARCH AND DEVELOPMENT. Research and development costs were essentially
the same, $.1 million, for the three months ended March 31, 2002 and 2001.
For the first six months of fiscal 2002, research and development costs
declined by $.1 million, to $.1 million, as compared to $.2 million in the same
period of fiscal 2001. The decrease is due to lower product development activity
during the second quarter of fiscal 2002.
OPERATING PROFIT. Operating profit for the second quarter of fiscal 2002
was $.1 million, a decrease of $.9 million, or 90%, compared to an operating
profit of $1.0 million in the same period of fiscal 2001. The decrease in
operating profit is primarily attributable to the 21% decrease in consolidated
revenue, product mix and competitive pricing. On a consolidated basis, operating
profit declined to 3% of revenue in the second quarter of fiscal 2002, compared
to 15% of revenue in the second quarter of the prior fiscal year, primarily due
to the spreading of fixed costs over lower revenue and the change in deferred
profits described under gross margin above.
12
Operating profit for the six months ended March 31, 2002 was $.4 million, a
decrease of $.5 million, or 56%, compared to an operating profit of $.9 million
in the same period of fiscal 2001. The decrease in operating profit is primarily
attributable to the decline in revenue and competitive pricing pressure within
the polishing supplies segment. On a consolidated basis, operating profits
declined to 3% of revenue in the first six months of fiscal 2002, compared to 9%
of revenue in the same period of the prior fiscal year.
NET INTEREST INCOME. For the three and six months ended March 31, 2002, net
interest income decreased compared to the corresponding quarter of fiscal 2001,
due to a decline in interest rates.
As a result of the foregoing factors, income before income taxes and the
cumulative effect of change in accounting principle for the second quarter of
fiscal 2002 was $.2 million, a decrease of $.9 million, or 82%, compared to $1.1
million in the second quarter of fiscal 2001.
Income before income taxes and the cumulative effect of change in
accounting principle for the six months ended March 31, 2002 was $.4 million, a
decrease of $.6 million, or 60%, compared to $1.0 million for the six months
ended March 31, 2001.
PROVISION FOR INCOME TAXES. Income tax expense of $.1 million, recorded at
an effective tax rate of 37%, resulted in net income for the second quarter of
fiscal 2002 of $.1 million. During the same quarter of fiscal 2001, the Company
recorded income tax expense of $.4 million, reflecting a 36% effective tax rate
and resulting in income before cumulative effect of a change in accounting
principle of $.7 million.
Income tax expense of $.1 million, recorded at an effective tax rate of
34%, resulted in income for the first six months of fiscal 2002 of $.3 million.
During the same period of fiscal 2001, the Company recorded income tax expense
of $.4 million, reflecting a 36% effective tax rate and resulting in income
before cumulative effect of a change in accounting principle of $.7 million.
NET INCOME. Net income for the second quarter of fiscal 2002 was $.1
million, or $.04 per diluted share, a decrease of $.6 million, or 86%, compared
to net income of $.7 million, or $.25 per diluted share, in the second quarter
of fiscal 2001. The decrease in net income is due primarily to decreased
revenues and gross margins caused by a general slowdown in the semiconductor
industry, competitive pricing pressure and a change in the product mix.
Net income for the six months ended March 31, 2002 was $.3 million, or $.10
per diluted share, an increase of $.3 million, or 100%, compared to a slight net
loss for the same period of fiscal 2001. The difference is primarily due to the
after-tax cumulative effect of a change in accounting principle (SAB 101) of $.7
million recorded in the first quarter of fiscal 2001.
BACKLOG. At March 31, 2002, the order backlog was $3.9 million, a decrease
of $3.4 million, or 47%, from the $7.3 million backlog at December 31, 2001. In
addition to the backlog and pursuant to SAB 101, the Company has deferred $1.8
million of revenue, which net of deferred costs represents deferred profit of
$1.0 million as of March 31, 2002. As a result, the Company had a total of $5.7
million of projected future revenue under contract as of that date. During the
13
second and first quarter of fiscal 2002, consolidated new orders were
significantly lower than any quarter during the previous industry slowdown.
However, as of April 30, 2002, the backlog had increased by 43% to $5.5 million,
which suggests that the industry may be experiencing a gradual recovery. The
Company cannot reasonably estimate the future of the industry slowdown or the
extent to which it will adversely affect the Company's future results of
operations.
Due to the possibility of customer changes in delivery schedules, order
cancellations, potential delays in product shipments, delays in obtaining
inventory parts from suppliers, failure to satisfy customer acceptance
requirements and changes in product mix, our backlog as of any point in time may
not be representative of actual sales and profitability in any future period. A
reduction in backlog during any particular fiscal period could have a material
adverse affect on our business prospects, financial condition and results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had $6.5 million of readily available
liquidity in the form of cash and cash equivalents, compared to cash and
equivalents of $6.0 million at September 30, 2001, an increase of approximately
$.5 million. The Company continues to believe that there is sufficient available
liquidity for existing operations and its expansion plans.
CASH FLOW. The $.5 million net increase in cash during the six months ended
March 31, 2002 approximates the cash flow provided by operations. The $.6
million cash flow provided by operations is comprised primarily of $.3 million
of net income adjusted for depreciation and amortization ($.2 million), a
decrease in accounts receivable and inventories, prepaid expenses and other
assets ($.4 million and $.3 million, respectively) and an increase in accounts
payable ($.2 million.) These items were partially offset by a decrease in both
accrued liabilities and customer deposits and in deferred profit ($.3 million
and $.5 million, respectively.) Investing activities consisted of $.2 million in
purchases of property, plant and equipment.
At March 31, 2002, working capital was $11.7 million, an increase of $.2
million from $11.5 million of working capital at September 30, 2001. The
Company's current ratio increased slightly to 3.9:1 at the end of the second
quarter of fiscal 2002 from 3.4:1 at the beginning of the 2002 fiscal year. The
Company believes that its current ratio continues to evidence its strong
financial condition. At the end of the second quarter of fiscal 2002, cash and
cash equivalents comprised 36% of total assets. The Company believes that it
continues to possess the financial strength necessary to achieve continued
growth.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates and foreign
currency exchange rates, refer to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2001. There are no material changes in
reported market risk from September 30, 2001.
FORWARD-LOOKING STATEMENTS
The statements contained in this report on Form 10-Q that are not
historical fact are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These statements can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or "possible," or the
negative thereof or other written variations thereof or comparable terminology.
The forward-looking statements contained herein are based on current
expectations that involve a number of risks and uncertainties. Among others,
these forward-looking statements are based on assumptions that (a) the Company
will not lose a significant customer or customers, (b) the Company will not
experience significant reductions in demand or rescheduling or cancellation of
customer purchase orders, (c) the Company's products will remain accepted within
their respective markets and will not be significantly further replaced by newer
technology equipment, (d) competitive conditions within the Company's markets
will not materially deteriorate, (e) the Company's efforts to improve its
products and maintain its competitiveness in the markets in which it competes
will continue to progress and that the savings associated with these
expenditures and/or the increased product demand resulting therefrom justifies
such development costs, (f) the Company will be able to retain, and when needed,
add key technical and management personnel, (g) business or product
acquisitions, if any, will be successfully integrated and the results of
operations therefrom will support the acquisition price, (h) the Company's
forecasts will accurately anticipate market demand, (i) there will be no
material adverse changes in the Company's existing operations, (j) the Company
will be able to obtain sufficient equity or debt funding to increase its capital
resources by the amount needed for new business or product acquisitions, if any,
(k) the semiconductor equipment industry will recover from the current slowdown,
(l) the condition in the Asian markets will continue to improve, (m) the Company
will be able to continue to control costs, (n) demand for the Company's products
will not be adversely and significantly influenced by trends within the
semiconductor industries, including consolidation of semiconductor manufacturing
operations through mergers and the subcontracting out of the production of
semiconductors to foundries, and (o) the effects of adopting SAB No. 101 will
largely be offset by increased sales. Assumptions related to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, all of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying its
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in forward-looking statements will be realized. In addition, the
business and operations of the Company are subject to substantial risks, which
increase the uncertainty inherent in such forward-looking statements. In light
of the significant uncertainties inherent in the forward-looking information
included herein, such information should not be regarded as a representation by
the Company, or any other person, that the objectives or plans for the Company
will be achieved.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On or about August 31, 2000, a "P.R. Hoffman Machine Products" was one of
11 companies named in a legal action being brought by North Middleton Township
in Carlisle, Pennsylvania, the owner of a landfill allegedly found to be
contaminated. No detailed allegations have been filed as part of this legal
action, which appears to have been filed to preserve the right to file claims
for contribution to the clean-up of the landfill at a later date. The Company
acquired the assets of P.R. Hoffman Machine Products Corporation in an asset
transaction consummated on July 1, 1997. The landfill was closed and has not
been used by P.R. Hoffman since sometime prior to completion of the Company's
acquisition. Therefore, the Company believes that the named company is the prior
owner of the acquired assets. Under the terms of the Asset Purchase Agreement
governing the acquisition, the prior owner, P.R. Hoffman Machine Products
Corporation, is obligated to indemnify the Company for any breaches of P.R.
Hoffman's representations and warranties in the Asset Purchase Agreement,
including representations relating to environmental matters. In accordance with
the terms of the Asset Purchase Agreement, the Company has provided notice to
the prior owner of P.R. Hoffman Machine Products Corporation of the Company's
intent to seek indemnification from such owner for any liabilities resulting
from this legal action. Based on information available to the Company as of the
date of this report, management believes the costs, if any, to resolve this
matter will not be material to the Company's results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 29, 2002, the Company held its annual meeting of shareholders at
which 2,309,443, or 87%, of the 2,650,921 shares outstanding were represented at
the meeting, either by proxy or those persons in attendance at the meeting. The
following persons were elected to the board of directors with shares voted as
follows:
ELECTION OF DIRECTORS FOR WITHHELD
--------------------- --------- --------
Jong S. Whang 2,272,172 37,271
Robert T. Hass 2,272,191 37,271
Donald F. Johnston 2,272,172 27,271
Alvin Katz 2,243,922 65,521
Bruce R. Thaw 2,272,172 37,271
At the annual meeting, the shareholders also approved an amendment to the
Amtech Systems, Inc. 1998 Stock Option Plan to increase the number of shares
available for issuance thereunder by 200,000, from 300,000 to 500,000. Of the
shares voted on this proposal, 524,507, or 72%, voted for, 202,402, or 28%,
voted against and 16,177 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Forms 8-K during the
fiscal quarter ended March 30, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTECH SYSTEMS, INC.
By /s/ Robert T. Hass Dated:
------------------------------------------ ---------------
Robert T. Hass, Vice-President-Finance and
(Chief Financial and Accounting Officer)
17