What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-11-19 compared with 2019-11-21 · 146 added, 101 removed, 228 unchanged (52% of the section changed)

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Risk Factors” for a description of our risk factors.

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) and silicon power chips, electronic assemblies and light-emitting diodes (LEDs).

We sell these products to semiconductor and automotive component manufacturers worldwide, particularly in Asia, North America and Europe.

We operate in three reportable business segments, based primarily on the industry they serve:

(i) Semiconductor, (ii) SiC/LED, and (iii) Automation.

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) and silicon power devices, analog and discrete devices, electronic assemblies and 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 business segments, based primarily on the industry they serve:

(i) Semiconductor and (ii) SiC/LED.

In our Semiconductor segment, we supply thermal processing equipment, including solder reflow ovens, diffusion furnaces, and customer high-temp belt furnaces for use by semiconductor and electronics assembly manufacturers.

In our SiC/LED segment, we produce substrate consumables and machinery 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 carbide wafers, for power device applications.

In our Automation segment, we supply semiconductor and solar automation with in-house design and manufacturing capabilities and offer a full array of single wafer transfer tools as well as batch transfer tools and stocker options.

Our semiconductor customers are primarily manufacturers of integrated circuits, optoelectronic, sensors and discrete (O-S-D) components used in analog, power and radio frequency (RF) devices and photovoltaic solar cells.

Our semiconductor customers are primarily manufacturers of integrated circuits and optoelectronic sensors and discrete (O-S-D) components used in analog, power and radio frequency (RF).

The semiconductor industry is cyclical and historically has experienced fluctuations.

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Although semiconductor demand for our products may have reached its cyclical peak in our fiscal year ended September 30, 2018, we believe that continued technological advances and emerging industries, such as silicon carbide power devices, will sustain our long-term performance.

As we pivot from our Solar business and refocus on our Semiconductor and SiC/LED businesses, we have focused on our plans to profitably grow our business and have developed a strategic growth plan and a capital allocation plan that support our growth objectives.

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 support our growth objectives.

Our strategic growth plan calls for profitable growth as the semi industry recovers, with the following areas of focus:

Emerging opportunities in the SiC industry – We are well-positioned to take part in this significant growth area.

Emerging opportunities in the SiC industry – We believe we are well-positioned to take part in this significant growth area.

We are working closely with our customers to understand their SiC growth plans and opportunities.

We are investing in our capacity, next generation product development, and investing in our people.

We are investing in our capacity, next generation product development, and in our people.

We believe these investments will help fuel our growth in the SiC industry.

300mm Silicon Horizontal Thermal Reactor – We have a highly successful and proven 300mm solution for growing power semiconductor applications.

We have a strong foundation with a key customer, and, in the second half of fiscal 2019, we announced an order to another industry-leading manufacturer.

We believe we have a strong opportunity to expand our customer base and future revenue growth.

As a major revenue contributor, BTU will continue to track semi industry growth for our semi-packaging and SMT products.

We believe that through investments in product innovation, BTU has an opportunity to grow further.

We anticipate that the required investments to achieve our revenue growth targets will be in the range of $ 6 .0 - $ 8 .0 million in research and developme nt and capital expenditures per year.

We may also need to make investments in other areas of our business, such as IT systems and capacity expansions at other existing facilities.

Additionally, as a capital equipment manufacturer, we will need working cap ital to support and fuel our future growth.

We have a strong foundation with a key customer, and, in fiscal 2019, we announced an order to another industry-leading manufacturer.

In February 2020, we announced another order from a top-tier global power semiconductor customer in Asia, and in August 2020, we announced a repeat order for our 300mm solution.

We believe we have a strong opportunity to continue expanding our customer base and grow revenue with our 300mm solution.

As a major revenue contributor to our organization, BTU will continue to track semi industry growth cycles for our advanced semi-packaging and SMT products, in addition to specialized custom belt furnaces used in automotive and other specialized industrial applications.

We believe that through investments in product innovation, BTU has an opportunity to grow further, especially in high growth applications of electric vehicles (EV) and 5G communications.

We anticipate that the required investments to achieve our revenue growth targets will be in the range of $6.0 - $8.0 million in research and development and capital expenditures.

We may also need to make investments in other

areas of our business, such as management information systems and capacity expansions at other existing manufacturing facilities.

Additionally, as a capital equipment manufacturer, we will need working capital to support and fuel our future growth.

We are and will continue to closely scrutinize these planned investments, in light of the COVID-19 challenges, and we may defer some of our projects.

However, we intend to continue to invest in our business to support and fuel our future growth.

In addition to these investments in our organic growth, another key aspect of our capital allocation policy is our plan to grow through acquisitions.

We have the skillset and track record to identify strong acquisition targets in the semi and SiC growth environment and to execute transactions and integrations to provide for accretive, profitable growth in both the short-term and long-term.

Solar Developments

We have the expertise and track record to identify strong acquisition targets in the semi and SiC growth environment and to execute transactions and integrations to provide for accretive, profitable growth in both the short-term and long-term.

As of the date of the filing of this Annual Report on Form 10-K, we do not have an agreement to acquire any acquisition target.

On January 30, 2020, the World Health Organization declared an outbreak of COVID-19.

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread, including in all of the markets in which we operate.

The COVID-19 outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses;

“shelter in place” and other governmental regulations;

and reduced spending due to both job losses and other effects attributable to COVID-19.

As noted below, as a key supplier to essential businesses, we have continued to supply our products and services to those businesses deemed essential businesses in the states in which we operate.

However, our business is subject to the general health of the economy and federal and local guidelines and restrictions have significantly curtailed the level of economic activity in affected areas, which include the areas in which we conduct our business.

As we continue to navigate the challenges presented by COVID-19, our first priority is the safety and well-being of our employees.

We began experiencing challenges relating to the COVID-19 virus early-on in calendar year 2020 when our Shanghai facility remained closed beyond the normal Chinese New Year holiday.

This facility reopened in early March and, in a safe and phased approach, we ramped up production while following the Chinese government’s requirements for personal protective equipment, cleaning of the facility, and social distancing, among other measures.

As of the date of this Annual Report, our Shanghai production levels have returned to near-capacity.

Additionally, we continue to closely monitor our supply chain and have increased our safety stock for certain key parts.

Our domestic manufacturing facilities are located in Billerica, Massachusetts and Carlisle, Pennsylvania.

In early March, we began implementing work-from-home options for all of our U.S.

office personnel, including our corporate staff in Tempe, Arizona.

Later in March, the governors of Massachusetts, Pennsylvania and Arizona issued stay-at-home orders for employers that do not provide essential services.

With the assistance of legal counsel, we determined that as key suppliers to essential businesses, we could stay open, however we balanced the right to stay open with the health and safety of our employees.

In Massachusetts, which had a high number of COVID-19 infections, we continued to work on a very limited basis and over time gradually increased factory personnel in a safe and phased approach.

As of the date of this Annual Report on Form 10-K, all domestic manufacturing facilities have returned to normal operations.

Although we do not yet know the full duration and extent the impact of COVID-19 will have on our operations, we currently expect the negative impact to be a temporary trend.

We have implemented procedures to maximize our ability to continue to provide products and services to our customers and to mitigate the effect of the downturn on our results of operations, including minimizing costs where appropriate.

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.

Please see additional information in “Item 1a.

Risk Factors.”

Amtech is in a strong financial position with $45.1 million in cash and cash equivalents as of September 30, 2020 and $5.2 million of mortgage-related debt.

In addition, while we did not utilize the Paycheck Protection Program loan provision of the CARES Act, we are pursuing other relief options available to us, such as deferring social security tax payments, payroll tax credits, and utilizing certain changes in tax loss carryback rules to receive refunds for prior tax years.

We are reviewing and implementing actions to reduce cash outlays and expenses.

result of these efforts and our strong balance sheet, we believe we have enough cash to sustain us for at least the next twelve months.

However, if the recovery takes longer than expected, we believe we have the ability to make additional adjustments as needed.

Solar and Automation Divestitures

On April 3, 2019, we announced that the Board determined that it was in the long-term best interest of the Company to exit the Solar business segment and to focus our strategic efforts on our semiconductor and silicon carbide/polishing business segments in order to more fully realize the opportunities we believe are presented in those areas.

The anticipated divestiture included our Tempress and SoLayTec subsidiaries, which comprised substantially all of our Solar segment.

The Board made its decision after analyzing our past performance, current market conditions and the strategic outlook for our Solar segment, which operates in a highly competitive market among lower cost manufacturers, particularly in China.

Historical fluctuations in the solar cell industry combined with downward pricing pressure has negatively affected the Company’s results of operations in recent years.

This pricing pressure has contributed to the losses incurred by our Solar segment and overshadowed the revenue growth and profitability of our semiconductor and silicon carbide/polishing segments.

While we have in the past and are currently taking actions to reduce headcount and lower our cost structure, the process involved in the Netherlands to accomplish these actions takes significant time, during which losses and cash burn are likely to continue.

The divestiture included our Tempress and SoLayTec subsidiaries, which comprised substantially all of our Solar segment.

The Board made its decision after analyzing our past performance, current market conditions and the strategic outlook for our Solar segment, which operated in a highly competitive market among lower cost manufacturers, particularly in China.

Historical fluctuations in the solar cell industry combined with downward pricing pressure had negatively affected the Company’s results of operations in recent years.

This pricing pressure had contributed to the losses incurred by our Solar segment and overshadowed the revenue growth and profitability of our semiconductor and silicon carbide/polishing segments.

As previously disclosed in our periodic reports, we had been pursuing strategic alternatives for the continued operations of the Solar segment.

After further assessment, however (including input from management of the Solar segment and our professional advisors), the Board determined that the investment required to return our Solar business to profitability would be better utilized to pursue strategic opportunities in the Semiconductor and SiC/LED segments.

On June 7, 2019 (“Sale Date”), we completed the sale of our subsidiary, SoLayTec, to a third party located in the Netherlands.

On June 7, 2019 (“Sale Date”), we completed the sale of SoLayTec to a third party located in the Netherlands.

Upon the Sale Date, we recognized a gain of approximately $1.6 million, which we included in loss from discontinued operations reported in our Consolidated Statements of Operations for the year ended September 30, 2019.

Also, effective on the Sale Date, SoLayTec is longer included in our consolidated financial statements.

SoLayTec is not material to Amtech’s results of operations or financial position.

We have engaged an investment advisory firm located in the Netherlands to provide advice with respect to and assist us with our efforts to divest Tempress.

The advisory firm is actively engaged in conversations with both private equity and strategic buyers.

No assurance can be given as to whether we will be able to secure a buyer for Tempress or, if we do so, it will be at a price that is favorable to us, and we expect to incur a loss on disposal.

This division carries a significant balance of Accumulated Other Comprehensive Loss, which will also contribute to the loss realized on disposal.

The portion of our Solar segment not included in discontinued operations is our Automation division, R2D.

R2D has historically sold automation products to both solar and semiconductor customers.

In November 2019, we completed the sale of our subsidiary, R2D, to certain members of R2D’s management team.

We will recognize a loss of approximately $3.0 million in the first quarter of 2020 and R2D will no longer be included in our consolidated financial statements.

Effective January 22, 2020 (“Tempress Sale Date”), we completed the sale of Tempress for nominal consideration to a third party located in the Netherlands.

In connection with this sale transaction, we provided an unsecured term loan to Tempress in the principal sum of $2.25 million, to be used to fund Tempress’ working capital requirements and to facilitate the restructuring of Tempress’ operations.

We forgave $0.5 million of the loan in accordance with the terms of the loan agreement.

The balance of the loan was paid in full during fiscal 2020.

We recorded a pre-tax loss on sale of approximately $10.9 million, of which approximately $7.2 million was the recognition of previously recorded accumulated foreign currency translation losses.

The total pre-tax loss did not have a material effect on our cash balances at our continuing operations.

We also recognized a significant tax benefit relating to this loss, which can be carried over to future years.

Effective on the Tempress Sale Date, Tempress is no longer included in our consolidated financial statements.

The portion of our Solar segment not included in discontinued operations is our previously reported Automation division, R2D.

R2D had historically sold automation products to both solar and semiconductor customers.

On December 13, 2019 (“R2D Sale Date”), we finalized the sale of R2D to certain members of R2D’s management team.

Upon the sale, we recognized a loss of approximately $2.8 million, which we reported as loss on sale of subsidiary in our Consolidated Statements of Operations for year ended September 30, 2020.

Effective on the R2D Sale Date, R2D is no longer included in our consolidated financial statements.

Segment Reporting Changes

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Beginning with the second quarter of fiscal 2019, we made changes to our reportable segments.

With the divestiture of our Automation segment in the first quarter of fiscal 2020, we further evaluated our organization structure and concluded that we have two reportable business segments following the divestiture.

Prior period amounts have been revised to conform to the current period segment reporting structure.

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Our quarterly and annual operating results have been and will continue to be impacted by the timing of large system orders.

Further, the semiconductor equipment industry is highly cyclical, and the conditions of this industry remains volatile.

Further, the semiconductor equipment industry is highly cyclical, and the conditions of this industry remain volatile.

Therefore, our order flow fluctuates quarter to quarter.

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Research, development and engineering

Impairment charges

Restructuring charges

Operating income

Gain on sale of other assets

Income (loss) from equity method investment

Interest and other expense, net

Income from continuing operations before income

Operating (loss) income

Loss on sale of subsidiary

Interest income and other, net

(Loss) income from continuing operations before

Income tax provision

Income from continuing operations, net of tax

(Loss) income from continuing operations, net of

Loss from discontinued operations, net of tax

Net (loss) income

Fiscal 2020 compared to Fiscal 2019

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

Our net revenue by ope rating segment for the years ended September 30, 2019 and 2018 were as follows (dollars in thousands):

Our net revenue by operating segment for the years ended September 30, 2020 and 2019 were as follows (dollars in thousands):

Years Ended September 30,

Semiconductor

Non-segment related

Total net revenue

Net revenue for the years ended September 30, 2020 and 2019 were $65.5 million and $85.0 million, respectively, a decrease of $19.6 million or 23%.

Revenue from the Semiconductor segment decreased $13.7 million, or 17%, primarily due to market demand peaking in fiscal 2018 and economic and trade challenges facing the semiconductor industry.

Revenue from the SiC/LED segment was relatively flat.

Our Automation segment revenues decreased $1.2 million, or 20%, primarily due to lower automation shipments to solar customers.

Revenue from the Semiconductor segment decreased $11.9 million, or 18%.

Our semiconductor and SiC/LED revenues are dependent on our customers’ expansions, and our results have been negatively impacted by the uncertainty in the global economy due primarily to the impact of the COVID-19 virus, as well as lingering trade tensions between the U.S.

We believe the impact from the COVID-19 virus in both our China and U.S.

operations are temporary trends, as we experienced a return to near-capacity in our China factory during the third fiscal quarter of 2020.

However, we also believe that we will continue to experience some level of volatility in our bookings and shipments as various states and countries experience resurgences of the virus.

Despite the uncertainty caused by the COVID-19 virus, we believe there remains significant potential in the SiC industry and long-term growth in power semiconductor.

Non-segment related revenues relate to R2D, the automation division that we divested in December 2019 .

Backlog and Orders

For comparison purposes, we have removed the Automation segment, which was sold effective December 13, 2019, from the tables below.

Our backlog, including deferred revenue, as of September 30, 2020 and 2019 were as follows (dollars in thousands):

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Total new orders

At the end of 2019, one customer individually accounted for 13% of our total backlog.

No other customer accounted for 10% or more of our backlog as of September 30, 2019.

At the end of 2020, two customers individually accounted for 20% and 11% of our total backlog.

Four customers accounted for 50% of our backlog as of September 30, 2020 .

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.

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Semiconductor

Non-segment related

Total gross profit

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Gross margin for 2020 and 2019 was 37% and 39%, respectively.

Gross margin for the Semiconductor segment increased to 41% in 2019, compared to 38% in 2018, due primarily to product mix, with 2019 bringing in an increased mix of higher margin parts and upgrades.

In the SiC/LED segment, gross margin increased slightly to 39% in 2019, compared to 38% in 2018.

Gross margin from our Automation segment decreased to 13% from 18% primarily due to fixed costs being spread over reduced sales volumes in fiscal 2019 compared to fiscal 2018.

Gross margin for the Semiconductor segment decreased to 39% in 2020, compared to 41% in 2019, due primarily to product mix, with 2019 bringing in an increased mix of higher margin parts and upgrades.

In the SiC/LED segment, gross margin decreased to 31% in 2020, compared to 39% in 2019 primarily due to additional overhead costs related to the move to a new facility and increased inventory reserve costs.

Selling, General and Administrative Expenses

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Total SG&A expenses for the years ended September 30, 2020 and 2019 were $21.4 million and $24.3 million, respectively.

In 2019, SG&A de creased by $1.5 million primarily due to lower employee-related expenses and lower commissions on lower sales, partially offset by increased tariff charges and freight.

In 2020, SG&A decreased by $2.9 million compared to the prior year due primarily to payroll tax credits that were part of the CARES Act, no longer having R2D SG&A included for the full year in our results, and lower travel due to the COVID-19 pandemic.

SG&A expense includes $0.3 million and $0.6 million of stock-based compensation expense for 2020 and 2019, respectively.

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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 years ended September 30, 2019 and 2018 were $3.1 million and $2.9 million, respectively, an increase of $0.2 million, due primarily to increased R&D spending in our Semiconductor segment, partially offset by lower R&D spending in our Automation segment.

Impairment Charges

Impairment charges at our continuing operations for the year ended September 30, 2018 were $2.2 million.

These charges were recorded in our Automation segment.

There were no impairment charges at our continuing operations in fiscal 2019.

We conducted our periodic assessment of long-lived assets in the fourth quarter of fiscal 2018.

As a result of the decline in demand for our solar technology, management determined that the carrying values of the related assets were not fully recoverable.

As a result, we recorded impairment charges related to goodwill and intangible assets in our former Solar segment, part of which is now our Automation segment (see Note 9).

RD&E expense, net of grants earned, for the years ended September 30, 2020 and 2019 were $3.3 million and $3.1 million, respectively, an increase of $0.2 million.

This increase is due to increased spending in fiscal 2020 related to the development of new products at our SiC/LED segment and product improvement projects at our Semiconductor segment.

Restructuring Charges

We recorded restructuring charges of $0.2 million in 2020.

These one-time charges were the result of staff reductions at our Massachusetts operations as we evaluated staffing across our Semiconductor operations.

We recorded restructuring charges of $1.1 million in 2019 related to the departure of our former Chief Executive Officer and the consolidation of our satellite offices in Asia.

There were no restructuring charges in the corresponding prior-year period.

Gain on Sale of Other Assets

For the year ended September 30, 2018, we recognized a gain of $2.9 million on the sale of our investment in Kingstone Technology Hong Kong Limited, with no comparable items in the 2019 period.

Our effective tax rate at our continuing operations was (25.4)% and 45.6% in fiscal 2020 and 2019, respectively.

The effective tax rate is the ratio of total income tax expense to pre-tax income.

The effective tax rates for 2019 and 2018 were higher than the U.S.

statutory rate, due primarily to higher taxes on income in foreign jurisdictions as well as state income taxes.

The effective tax rates for 2020 and 2019 were lower and higher than the U.S.

statutory rate, respectively, due primarily to higher taxes on income in foreign jurisdictions as well as state income taxes in 2020 and 2019.

In 2020 and 2019, we recorded income tax expense at our continuing operations of $0.8 million and $2.6 million, respectively.

In 2020 and 2019, we recorded income tax benefit of $47,000 and $1.2 million, respectively, in our discontinued operations.

The tax benefit in the prior year is due to the tax treatment relating to the sale of SoLayTec.

The income tax provisions are based upon estimates of annual income, annual permanent differences and statutory tax rates in the various jurisdictions in which we operate, except that certain loss jurisdictions and discrete items are treated separately.

Generally accepted accounting principles 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.

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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.

Therefore, in 2019, cumulative losses in the Solar segment weighed heavily in the overall assessment.

As a result of the review, it was determined that it was appropriate to maintain a full valuation allowance for all net deferred tax assets in the foreign jurisdictions in which the Solar segment has operations, and for the carryforwards of U.S.

net operating losses and foreign tax credits, acquired in the merger with BTU, for which there are limitations on their utilization.

We continue to monitor our cumulative income and loss positions in the U.S.

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.

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Our liquidity plans are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses.

We also consider our capital allocation and growth objectives, including investing in research and development, capital expenditures (including capacity assessments and IT systems) and debt payments.

We also take into consideration our capital allocation and growth objectives, including investing in research and development, capital expenditures (including capacity assessments and IT systems) and debt payments.

See information below regarding payments we expect to make as a result of contractual obligations.

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However, once the above priorities have been met, we will evaluate the returning of capital to shareholders, as we have done in the past.

The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfact ory to management.

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, and cash generated from operations.

There can be no assurance that we can rais e such additional capital resources when needed or on satisfactory terms.

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.

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Fiscal Years Ended September 30,

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash, cash equivalents and restricted

Net decrease in cash, cash equivalents and restricted

Cash, cash equivalents and restricted cash, beginning of year*

Cash, cash equivalents and restricted cash, end of year*

Includes Cash, Cash Equivalents and Restricted Cash that are included in Held-For-Sale Assets on the Consolidated Balance Sheets.

Includes Cash, Cash Equivalents and Restricted Cash that are included in Held-For-Sale Assets on the Consolidated Balance Sheets for periods prior to January 22, 2020.

As of September 30, 2020 and 2019, cash and cash equivalents at our continuing operations were $45.1 million and $53.0 million , respectively.

As of September 30, 2019 and 2018, restricted cash at our continuing operations was $0.1 million and $18,000, respectively.

We had $0.1 million of restricted cash as of September 30, 2019.

We had no restricted cash as of September 30, 2020.

Our working capital was $69.1 million as of September 30, 2020 and $77.6 million as of September 30, 2019.

Our ratio of current assets to current liabilities was 10.2:1 as of September 30, 2020, and 3.5:1 as of September 30, 2019.

Excluding our held-for-sale assets and liabilities, our ratio of current assets to current liabilities was 7.1:1 as of September 30, 2019, and 5.4:1 as of September 30, 2018.

The $3.4 million decrease in consolidated cash during 2019 was primarily due to $0.1 million of net loss adjusted for non-cash items, offset by $0.7 million used for capital expenditures and a $1.1 million decrease as a result of the sale of SoLayTec.

Excluding our held-for-sale assets and liabilities, our ratio of current assets to current liabilities was 7.1:1 as of September 30, 2019.

The $14.1 million decrease in consolidated cash during 2020 was primarily due to a $9.9 million decrease as a result of the sales of R2D and Tempress, $2.7 million used for capital expenditures and $2.0 million used for stock repurchases.

We maintain cash accounts denominated in currencies other than our reporting currency, which expose us to foreign exchange rate fluctuations.

Cash Flows from Operating Activities

Cash provided by operating activities was $0.2 million in 2019 compared to cash used in operating activities of $13.8 million in 2018 and cash provided by operations of $34.1 million in fiscal year 2017.

During 2019, cash was primarily generated through net loss adjusted for non-cash items of $0.1 million.

During 2018, cash was primarily generated through net income adjusted for non-cash items of $12.8 million and increases in current liabilities, such as customer deposits and accounts payable.

Cash used in operating activities was $1.7 million in 2020 compared to cash provided by operating activities of $0.2 million in 2019 and cash used in operations of $13.8 million in fiscal year 2018.

During 2020, cash was used in operations primarily as a result of changes in operating assets and liabilities .

During 2020, we increased our inventory balances to mitigate risks in our supply chain resulting from the COVID-19 pandemic, as well as in preparation for a large shipment expected in the first quarter of fiscal year 2021.

During 2019, cash was primarily generated through net income adjusted for non-cash items of $0.1 million.

During 2018, cash was primarily generated through net income adjusted for non-cash items of $12.8 million and increases in current liabilities, such as customer deposits for our solar customers and accounts payable.

These increases were partially offset by a decrease in accounts receivable.

During 2017, cash was primarily generated through net income adjusted for non-cash items of $12.3 million and increases in current liabilities, such as customer deposits and accounts payable.

These increases were partially offset by an increase in accounts receivable due to the high volumes of shipments during the fourth quarter of 2017 and advances made to vendors.

Cash Flows from Investing Activities

Cash used in investing activities was $12.6 million in 2020, primarily related to divestiture of our solar business and capital expenditures for our new SiC/LED building in Pennsylvania.

Cash used in investing activities was $1.8 million in 2019, primarily related to the sale of SoLayTec.

Cash provided by investing activities was $4.4 million in 2018, primarily related to the sale of our ownership interest in Kingstone Hong Kong of $5.7 million.

Cash used in investing activities was $1.2 million in 2017.

Investing activities in 2020, 2019 and 2018 included capital expenditures of $2.7 million, $0.7 million and $1.5 million, respectively.

Cash Flows from Financing Activities

In 2020, cash used in financing activities was $1.5 million, primarily consisting of $0.9 million of proceeds received from the exercise of stock options, which was fully offset by $2.0 million used for stock repurchases and

payments on long-term debt of $0.

In 2019 , cash used in financing activities was $ 0.2 million, primarily consisting of $0.2 million in proceeds from the exercise of stock options offset by payments on long-term debt of $0.4 million .

In 2018 , cash used in financing activities was $ 2.5 million, primarily consisting of $4.0 million used for stock repurchases, partially offset by $1.9 million in proceeds from the exercise of stock options .

In 2017, cash provided by financing activities was $12.7 million, primarily consisting of $10.6 million of net proceeds from issuance of our common stock and $2.0 million of net proceeds from the exercise of stock options.

Off-Balance Sheet Arrangements

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Debt obligations

Operating lease obligations:

Lease obligations:

Office equipment

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Purchase obligations

Other commercial obligations:

Bank guarantees

Our business strategy includes the possible acquisition of or investments in other businesses to expand or complement our operations.

The magnitude, timing and nature of any future acquisitions or investments will depend on a number of factors, including the availability of suitable candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions.

Financing for future transactions would result in the utilization of cash, incurrence of additional debt, issuance of stock or some combination of the foregoing.

Critical Accounting Policies

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The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements, the 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.

On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation and inventory purchase commitments, accounts receivable collectab ility, warranty and impairment of long-lived assets.

On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation and inventory purchase commitments, accounts receivable collectability, income taxes and impairment of long-lived assets.

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.

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Actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy 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.

of the need to make estimates about the effect of matters that are inherently uncertain.

These uncertainties are discussed in “Item 1A.

6 unchanged sentences

The transaction price of a contract is allocated to each distinct performance obligation based upon the relative standalone selling price for each performance obligation and is recognized as revenue upon satisfaction of the performance obligation.

We apply the following five steps:

To achieve the core principle of the standard, we apply the following five steps:

1) Identify the contract with the customer

4 unchanged sentences

If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

Our equipment sales consist of multiple performance obligations, including the system itself and obligations that are not delivered simultaneously with the system, primarily installation services.

Our equipment sales consist of multiple performance obligations, including the system itself and obligations that are not delivered simultaneously with the system, such as installation services and training.

Customers who purchase new systems are provided an assurance-type warranty, generally for periods of 12 to 24 months.

5 unchanged sentences

Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes.

The transaction price for all transactions is based on the price reflected in the indiv idual customer’s purchase order.

The transaction price for all transactions is based on the price reflected in the individual customer’s purchase order.

Variable consideration has not been identified as a significant component of the transaction price for any of our transactions.

1 unchanged sentence

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple distinct performance obligations require an allocation of the transaction price to each distinct performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to each distinct performance obligation or to a distinct service that forms part of a single performance obligation.

Contracts that contain multiple distinct performance obligations require an allocation of the

transaction price to each distinct performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to each distinct performance obligation or to a distinct service that forms part of a single performance obligation.

Where required, the Company determines the SSP for each performance obligation based on consideration of both market and Company specific factors, including the selling price and profit margin for similar products.

13 unchanged sentences

For products where the customer’s defined specifications have not been met with at least two similarly configured systems and processes, the revenue and directly related costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criterion has been met.

For installation services, revenue is recognized at a point in time, once the installation of the tool is complete.

The nature of the installation services are such that the customer does not simultaneously receive and consume the benefits provided by the entity’s performance, nor does performance of installation services create or enhance an asset that the customer controls.

Installation services do not create an asset with an alternative use to the entity, and the entity does not have an enforceable right to payment for performance completed to date.

For installation services, revenue is recognized at a point in time, when the equipment is shipped or delivered, depending on contractual terms.

The nature of the installation services requires minimal effort and are perfunctory in nature.

Therefore, equipment and any related installation are treated as one performance obligation.

Maintenance and service contracts are recognized over time.

6 unchanged sentences

It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

We consider past operating results, future market growth, forecasted earnings, historical and projected taxable income, the mix of earnings in the jurisdictions in which we operate, prudent and feasible tax planning strategies and statutory tax law changes in determining the need for a valuation allowance.

If we were to determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made.

Likewise, if we later determine that it is more likely than not that all or part of the net deferred tax assets would be realized, then all or part of the previously provided valuation allowance would be reversed.

Inventory Valuation and Inventory Purchase Commitments.

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projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends;

expected f uture 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 (CAPM) and other methods, which i ncludes observable market inputs and other data from identified comparable companies.

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 (CAPM) 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 reasonablen ess of the inputs and outcomes of our discounted cash flow analysis against available comparable market data.

We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data.

The market approach is based on the application of appropriate market-derived multiples selected from (a) comparable publicly-traded companies and/or (b) the implied transaction multiples derived from identified merger and acquisition activity in the market.

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis