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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 For the quarterly period ended September 25, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 For the transition period from __________to___________ Commission File number: 000-22430 ASYST TECHNOLOGIES, INC. (Exact name of Registrant, as specified in its charter)
 California
    
    94-2942251(State or other jurisdiction
    
    (IRS Employer identification Number)of incorporation or organization)
 48761 Kato Road, Fremont, California 94538
(Address of principal executive offices, including zip code) (510) 661-5000
(Registrants telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes o No þ Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ No o The number of shares of the Registrants Common Stock, no par value,
outstanding as of December 15, 2004 was [47,577,986].




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EXPLANATORY NOTE We filed a Form 12b-25 with the SEC on November 4, 2004, to report that
our filing of this Form 10-Q would be delayed because Asyst Shinko, Inc. (ASI),
the companys 51%-owned joint venture company in Japan, was not able to close
its books in a timely manner. In the process of closing ASIs books, we
identified material accounting errors in ASIs fiscal first quarter results,
which led to our determination to restate those results in a Form 10-Q/A for
our fiscal first quarter ended June 26, 2004, that we have filed on the date we
filed this Form 10-Q. The company also made
adjustments to the fiscal first quarter results reported for ATI, our base
business. The restatement corrects accounting errors at ASI that understated ASIs
costs of goods sold for the fiscal first quarter by $3.6 million and its
operating loss by $3.5 million, and adjusts ATIs first quarter results to
reduce its net sales by $1.7 million and its operating income by $216,000 to
reflect the deferral of certain new product-related revenue that had been
recognized in the quarter and reduce amortization of deferred stock-based
compensation. The principal effects of the restatement adjustments on the
consolidated fiscal first quarter results are to:  
    
    reduce consolidated net sales by $1.5 million, and
increase consolidated cost of sales by $2.3 million;
    
    reduce gross margin at ASI from 10% to 5%, and reduce consolidated gross
margin from 23% to 21%;
    
    increase consolidated net loss from $0.9 million to $2.3 million;
    
    increase consolidated net loss per share from $0.02 to $0.05. Accordingly, the financial statements or information for our fiscal first
quarter that have been included in our Form 10-Q filed on August 5, 2004, or
included in announcements prior to our press release dated December 20, 2004,
should not be relied upon. Information concerning the restatement is contained in Part I to this Form
10-Q in Note 2 to the Condensed Consolidated Financial Statements (Unaudited),
Item 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations, and Item 4, Controls and Procedures. This information should
be read in conjunction with relevant information in the companys Form 10-Q/A
referred to above. Note 2 to the Restated Condensed Consolidated Financial
Statements contained in the Form 10-Q/A also includes a detailed statement of
information as reported and as restated for the fiscal first quarter. The financial information in this Form 10-Q reflects the restated
financial information in the companys Form 10-Q/A for our fiscal first
quarter. 2




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ASYST TECHNOLOGIES, INC. TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets  September 30, 2004 and March 31, 2004
    
    
    4Condensed Consolidated Statements of Operations  Three- and Six-Month Periods Ended
September 30, 2004 and September 30, 2003
    
    
    5Condensed Consolidated Statements of Cash Flows  Six-Month Periods Ended September 30,
2004 and September 30, 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4.Controls and Procedures
    
    
    46PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    49Item 4.Submission of Matters to a Vote of Security Holders
    
    
    49Item 6.Exhibits
    
    
    51Signatures
    
    
    53Exhibit Index
    
    
    54EXHIBIT 10.50EXHIBIT 10.51EXHIBIT 10.52EXHIBIT 10.53EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 3




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Part I  FINANCIAL INFORMATION 
 ITEM 1  FINANCIAL STATEMENTS ASYST TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS  September 30,
    
    March 31,2004
    
    2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    93,913
    
    
    $
    112,907Restricted cash and cash equivalents
    
    
    
    
    
    
    1,904Short-term investments
    
    
    22,190
    
    
    
    4,953Accounts receivable, net of allowance for doubtful accounts
    
    
    100,791
    
    
    
    74,139Unbilled receivables
    
    
    112,352
    
    
    
    73,800Inventories
    
    
    45,348
    
    
    
    27,694Prepaid expenses and other current assets
    
    
    23,251
    
    
    
    14,276Total current assets
    
    
    397,845
    
    
    
    309,673Property and equipment, net
    
    
    21,316
    
    
    
    22,868Goodwill
    
    
    69,100
    
    
    
    71,973Intangible assets, net
    
    
    52,596
    
    
    
    65,778Other assets
    
    
    2,933
    
    
    
    3,317Total assets
    
    $
    543,790
    
    
    $
    473,609LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Short-term loans and notes payable
    
    $
    35,405
    
    
    $
    18,161Current portion of long-term debt and capital leases
    
    
    2,679
    
    
    
    2,775Accounts payable
    
    
    156,302
    
    
    
    92,716Accounts payable  related party
    
    
    9,205
    
    
    
    17,194Accrued liabilities and other
    
    
    57,099
    
    
    
    48,571Deferred revenue
    
    
    6,625
    
    
    
    2,683Total current liabilities
    
    
    267,315
    
    
    
    182,100LONG-TERM LIABILITIES:Long-term debt and capital leases, net of current portion
    
    
    90,227
    
    
    
    91,074Deferred tax liability
    
    
    16,212
    
    
    
    20,704Other long-term liabilities
    
    
    10,736
    
    
    
    12,826Total long-term liabilities
    
    
    117,175
    
    
    
    124,604COMMITMENTS AND CONTINGENCIES (Note 11)MINORITY INTEREST
    
    
    59,667
    
    
    
    63,796SHAREHOLDERS EQUITY:Common stock
    
    
    449,217
    
    
    
    445,981Deferred stock-based compensation
    
    
    (2,367
    )
    
    
    (2,619
    )Accumulated deficit
    
    
    (352,814
    )
    
    
    (348,697
    )Accumulated other comprehensive income
    
    
    5,597
    
    
    
    8,444Total shareholders equity
    
    
    99,633
    
    
    
    103,109Total liabilities, minority interest and shareholders equity
    
    $
    543,790
    
    
    $
    473,609
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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ASYST TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003NET SALES
    
    $
    168,606
    
    
    $
    51,349
    
    
    $
    308,031
    
    
    $
    96,617COST OF SALES
    
    
    136,077
    
    
    
    39,350
    
    
    
    246,438
    
    
    
    80,174Gross profit
    
    
    32,529
    
    
    
    11,999
    
    
    
    61,593
    
    
    
    16,443OPERATING EXPENSES:Research and development
    
    
    9,073
    
    
    
    8,391
    
    
    
    18,752
    
    
    
    18,015Selling, general and administrative
    
    
    19,100
    
    
    
    14,914
    
    
    
    37,919
    
    
    
    32,519Amortization of acquired intangible assets
    
    
    5,040
    
    
    
    4,778
    
    
    
    10,092
    
    
    
    9,563Restructuring and other charges
    
    
    368
    
    
    
    487
    
    
    
    587
    
    
    
    4,850Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,853Total operating expenses
    
    
    33,581
    
    
    
    28,570
    
    
    
    67,350
    
    
    
    71,800Loss from operations
    
    
    (1,052
    )
    
    
    (16,571
    )
    
    
    (5,757
    )
    
    
    (55,357
    )INTEREST AND OTHER INCOME (EXPENSE), NET:Interest income
    
    
    381
    
    
    
    126
    
    
    
    718
    
    
    
    374Interest expense
    
    
    (1,635
    )
    
    
    (1,826
    )
    
    
    (3,262
    )
    
    
    (3,617
    )Other income, net
    
    
    449
    
    
    
    237
    
    
    
    1,183
    
    
    
    855Interest and other expense, net
    
    
    (805
    )
    
    
    (1,463
    )
    
    
    (1,361
    )
    
    
    (2,388
    )Loss before benefit from (provision
for) income taxes and minority
interest
    
    
    (1,857
    )
    
    
    (18,034
    )
    
    
    (7,118
    )
    
    
    (57,745
    )BENEFIT FROM (PROVISION FOR) INCOME TAXES
    
    
    (67
    )
    
    
    1,005
    
    
    
    1,587
    
    
    
    2,385MINORITY INTEREST
    
    
    93
    
    
    
    714
    
    
    
    1,414
    
    
    
    1,669NET LOSS
    
    $
    (1,831
    )
    
    $
    (16,315
    )
    
    $
    (4,117
    )
    
    $
    (53,691
    )BASIC AND DILUTED NET LOSS PER SHARE
    
    $
    (0.04
    )
    
    $
    (0.41
    )
    
    $
    (0.09
    )
    
    $
    (1.38
    )SHARES USED IN THE PER SHARE CALCULATION -Basic and Diluted
    
    
    47,428
    
    
    
    39,517
    
    
    
    47,304
    
    
    
    38,996
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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ASYST TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  Six Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,117
    )
    
    $
    (53,691
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    14,203
    
    
    
    13,738Asset impairment charges
    
    
    
    
    
    
    6,853Minority interest in net loss in consolidated subsidiary
    
    
    (1,414
    )
    
    
    1,669Deferred income tax
    
    
    (3,735
    )
    
    
    Stock-based compensation
    
    
    852
    
    
    
    1,184Loss on disposal of fixed assets
    
    
    151
    
    
    
    Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (71,119
    )
    
    
    (1,287
    )Inventories
    
    
    (18,129
    )
    
    
    5,922Prepaid expenses and other assets
    
    
    (7,996
    )
    
    
    (8,008
    )Accounts payable, accrued and other liabilities and deferred revenue
    
    
    72,407
    
    
    
    (4,751
    )Net cash used in operating activities
    
    
    (18,897
    )
    
    
    (38,371
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of short-term investments
    
    
    (18,452
    )
    
    
    Release of restricted cash and cash equivalents
    
    
    1,904
    
    
    
    Net proceeds from sale of short-term investments
    
    
    1,000
    
    
    
    Net proceeds from sale of land
    
    
    
    
    
    
    12,106Purchases of property and equipment
    
    
    (3,634
    )
    
    
    (1,922
    )Net cash used in acquisitions
    
    
    
    
    
    
    (1,179
    )Net cash provided by (used in) investing activities
    
    
    (19,182
    )
    
    
    9,005CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from line of credit
    
    
    20,141
    
    
    
    Net proceeds from (repayment of) short-term loans
    
    
    (2,508
    )
    
    
    2,017Proceeds from issuance of common stock
    
    
    2,639
    
    
    
    9,825Net cash provided by financing activities
    
    
    20,272
    
    
    
    11,842Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,187
    )
    
    
    (1,246
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (18,994
    )
    
    
    (18,770
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    112,907
    
    
    
    96,214CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    93,913
    
    
    $
    77,444
 The accompanying notes are an integral part of these condensed consolidated financial statements. 6




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ASYST TECHNOLOGIES, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. ORGANIZATION OF THE COMPANY The accompanying condensed consolidated financial statements include the
accounts of Asyst Technologies, Inc., or Asyst, which was incorporated in
California on May 31, 1984, our subsidiaries and our majority-owned joint
venture. We develop, manufacture, sell and support integrated automation
systems, primarily for the semiconductor and the flat panel display, or FPD,
manufacturing industries. In April 2003, our majority-owned joint venture, Asyst Shinko, Inc., or
ASI, acquired the portion of Shinko Technologies, Inc. that provides ongoing
support to ASIs North American Automated Material Handling Systems, or AMHS,
customers from Shinko Electric, Co., Ltd., or Shinko. ASI renamed this
subsidiary Asyst Shinko America, or ASAM. In October 2002, we purchased a 51.0 percent interest in ASI, a Japanese
corporation. The above transactions, which were unrelated, were accounted for using the
purchase method of accounting. Accordingly, our Condensed Consolidated
Statements of Operations for the three- and six-month periods ended September
30, 2004 and 2003, and of Cash Flows for the six-month periods ended September
30, 2004 and 2003, respectively, include the results of these acquired entities
for the periods subsequent to their respective acquisitions, as applicable. We
consolidate fully the financial position and results of operations of ASI and
account for the minority interest in the condensed consolidated financial
statements. 2. RESTATEMENT OF FINANCIAL STATEMENTS AND RELATED MATTERS Background. In a press release issued November 3, 2004, and Form 12b-25
filed on November 4, 2004, we announced that we would not timely file the Form
10-Q for our fiscal second quarter ending September 25, 2004, because:  
    
    As a result of a conversion in the fiscal first quarter to a new ERP
information system within ASI, ASI was unable to provide timely
reconciliation and reporting of inventory and cost information, which
prevented us from completing our consolidated financial closing process
for the fiscal second quarter on a timely basis.  
    
    ASI was in a contract dispute with a customer relating to three
contracts for a large flat panel display project. The dispute concerned
allegations that ASI and a customer employee had an arrangement by which
competitive information was shared, and an agreement was made,
allegedly, for a future payment of money to the customer employee. This customer has since reaffirmed the flat panel display contracts with
ASI, and has paid all amounts currently due under the three contracts to ASI.
The three contracts had an aggregate original value of $137.0 million at the
time the contracts were booked. In conjunction with reaffirming the three
contracts, certain terms were renegotiated, including an aggregate price
reduction to the customer of approximately $7.0 million under the three
contracts at the exchange rate as of September 30, 2004. Audit Committee Investigation.Upon notification by Asyst management of
the customer dispute referred to above, the Audit Committee of our Board of
Directors promptly initiated an independent legal and forensic investigation of
this matter in October 2004, which has been completed. The Audit Committee
concluded that Asyst management had prevented the payment to the customer
employee, no evidence of other improper payments was discovered, and Asyst
management was not involved in the improper conduct. Closing Process and Restatement. Asyst believes that the ERP system
conversion issues that led to inventory reconciliation difficulties at ASI have
been addressed and that the system will support the timely preparation and
submission of its consolidated financial statements in future reporting
periods. In the process of closing ASIs books, we identified material accounting
errors in ASIs fiscal first quarter results, which led to our determination to
restate those results in the Form 10-Q/A filed on the same date that we have
filed this Form 10-Q for our fiscal second quarter. Additionally, the company
made adjustments to the fiscal first quarter results reported for ATI, our base
business. 7




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Summary of Restatement. All applicable financial information contained
in this Form 10-Q reflects the restatement described above. The financial
statements or information for the fiscal first quarter included in our Form
10-Q filed on August 5, 2004, or included in announcements prior to our press
release dated December 20, 2004, should not be relied upon. The restatement corrects accounting errors at Asyst Shinko, Inc. (ASI),
our 51%-owned joint venture company in Japan, that understated ASIs costs of
goods sold for the fiscal first quarter by $3.6 million and its operating loss
by $3.5 million, and adjusts ATIs first quarter results to
reduce its net sales by $1.7 million and
its operating income by $216,000 to reflect the deferral of certain new
product-related revenue that had been recognized in the quarter and reduce
amortization of deferred stock-based compensation. The principal effects of
the restatement adjustments on the consolidated fiscal first quarter results
are to:  
    
    reduce consolidated net sales by $1.5 million, and increase consolidated cost of sales by $2.3 million;  
    
    reduce gross margin at ASI from 10% to 5%, and reduce consolidated gross margin from 23% to 21%;  
    
    increase consolidated net loss from $0.9 million to $2.3 million;  
    
    increase consolidated net loss per share from $0.02 to $0.05. The information contained in these Condensed Consolidated Financial
Statements (Unaudited) should be read in conjunction with the relevant
information contained in the Form 10-Q/A we have filed for our fiscal first
quarter on the date we filed this Form 10-Q. Note 2 to the Restated Condensed
Consolidated Financial Statements contained in the Form 10-Q/A also includes a
detailed statement of information as reported and as restated for the
fiscal first quarter. Nasdaq Notification. We previously announced that Asyst received a letter
from the Nasdaq Listing Qualifications Department indicating that, because of
the companys delay in timely filing its Quarterly Report on Form 10-Q for its
fiscal second quarter ended September 25, 2004, Asyst is not in compliance with
the filing requirements for continued listing on Nasdaq as set forth in Nasdaq
Marketplace Rule 4310(c)(14). As a result, Asysts common shares are subject to
delisting from the Nasdaq National Market, and the trading symbol for Asysts
common stock was changed from ASYT to ASYTE at the opening of business on
November 18, 2004. We appeared before a Nasdaq Listing Qualifications Panel on December 15,
2004, to discuss our filing delay relating to this Form 10-Q for the second
fiscal quarter. The panel took no action on that date, and the matter remains
open. Although we are hopeful that the panel will accept our submission and
our filing of this report and our fiscal first quarter Form 10-Q/A in December
2004 as a basis to continue the listing of our common stock on the Nasdaq
National Market, we cannot predict the panels decision. If we are delisted,
it could severely impact our ability to raise future capital and may have an
adverse impact on our overall future liquidity. Material Weaknesses. In connection with the matters described above, our
companys management identified and reported to our Audit Committee the following control deficiencies each of which
constitutes a material weakness in our internal control over financial
reporting as of September 30, 2004:  
    
    inability to provide timely reconciliation and reporting of inventory
and cost information at ASI as a result of conversion to a new ERP
system, which in turn prevented the company from completing its
consolidated financial closing process for the fiscal second quarter
on a timely basis.  
    
    internal information from ASI indicating that an improper payment was
offered by ASI to a customer employee, which in turn created a risk
that the customer in the dispute referenced above could claim a right
to cancel the contracts.  
    
    accounting errors at ASI and ATI that led to the restatement of our
fiscal first quarter results, primarily relating to errors at ASI
that understated ASIs costs of goods sold for the fiscal first
quarter by $3.6 million and its operating loss by
$3.5 million, and adjusts ATIs first quarter results to
reduce its net sales by $1.7 million and its operating income by $216,000
to reflect the deferral of certain new product-related revenue that
had been recognized in the quarter and reduce amortization of deferred
stock-based compensation. 8




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Under the Public Company Accounting Oversight Board Accounting Standard
No. 2, a material weakness is a significant deficiency, or a combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected. We intend to strengthen our controls over
financial reporting to address the above-noted material weaknesses by strengthening timely reviews and analysis
of operations and financial results and increasing the level of staffing in critical functional areas,
including cost accounting and internal audit. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation While the financial information furnished is unaudited, the condensed
consolidated financial statements included in this report reflect all
adjustments (consisting of normal recurring accruals) which we consider
necessary for the fair presentation of the results of operations for the
interim periods covered, and of our financial condition at the date of the
interim balance sheets. Certain information and footnote disclosures included
in the financial statements, prepared in accordance with generally accepted
accounting principles, have been omitted in these interim statements, as
allowed by the Securities and Exchange Commission, or SEC, rules and
regulations. However, we believe that the disclosures are adequate to make the
information presented not misleading. All significant intercompany accounts and
transactions have been eliminated. Minority shareholders interest represents
the minority shareholders proportionate share of the net assets and results of
operations of our majority-owned joint venture, ASI, and our majority-owned
subsidiary Asyst Japan, Inc., or AJI. Certain prior-year amounts in the
condensed consolidated financial statements and the notes thereto have been
reclassified where necessary to conform to the current presentations. We close
our books on the last Saturday of each quarter and thus the actual dates of the
quarter-end, September 25, 2004 and September 27, 2003, are different from the
month-end dates used for reference throughout this Quarterly Report on Form
10-Q. This presentation is for convenience purposes. The results for interim
periods are not necessarily indicative of the results for the entire year. The
year-end condensed consolidated data was derived from audited financial
statements but does not include all disclosures required by accounting
principles generally accepted in the United States of America. As such, these
condensed consolidated financial statements should be read in connection with
our consolidated financial statements for the year ended March 31, 2004
included in our Annual Report on Form 10-K. Recent Accounting Pronouncements At its March 2004 meeting, the Emerging Issues Task Force, or EITF,
reached a consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the meaning of
other-than-temporary impairment and its application to investments classified
as either available-for-sale or held-to-maturity under Statement of Financial
Accounting Standards, or SFAS, No. 115 and investments accounted for under the
cost method or the equity method. The recognition and measurement guidance for
which the consensus was reached in the March 2004 meeting is to be applied to
other-than-temporary impairment evaluations in reporting periods effective at
the beginning of the first interim period beginning after June 15, 2004. We do
not believe that this consensus on the recognition and measurement guidance
will have a significant impact on our consolidated results of operations. In November 2004, the EITF issued EITF Issue No. 04-8, The Effect of
Contingently Convertible Debt on Diluted Earnings per Share,which addressed
the issue of when the dilutive effect of contingently convertible debt
instruments, or Co-Cos, should be included in diluted earnings per share
computations regardless of whether the market price trigger has been met. The
provisions of this EITF are effective with fiscal periods ending after December
15, 2004. We do not believe this consensus will have a significant impact on
our reported earnings per share. In November 2004, the FASB issued FASB Statement No. 151, Inventory Costs
- an Amendment of ARB No. 43, Chapter 4(SFAS No. 151). SFAS No. 151 amends
ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized
as current-period charges. In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this Statement are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The adoption of the provisions of SFAS No. 151 is not expected to
have a material impact on our financial position or results of operations. In December 2004, the Financial Accounting Standards Board issued its
final standard on accounting for share-based payments (SBP), FASB Statement No.
123R (revised 2004), that requires companies to
expense the value of employee stock options and similar awards. The standard
is effective for public companies for interim and annual periods beginning
after June 15, 2005, and applies to all outstanding and unvested SBP awards at
a companys 9




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) adoption date. We are still evaluating the impact of the adoption of the
provisions of SFAS No. 123R, but believe it may have a significant adverse
impact on our results from operations. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents at March 31, 2004 primarily
represents amounts that were restricted as to their use in accordance with
Japanese debt agreements. The debt was fully paid in the first quarter of
fiscal 2005, and there was no longer such a requirement. Accounts Receivable, net of allowance for doubtful accounts Accounts receivable, net of allowance for doubtful accounts were as
follows (in thousands): September 30,
    
    March 31,2004
    
    2004Trade receivables
    
    $
    102,427
    
    
    $
    74,846Unbilled receivables
    
    
    112,352
    
    
    
    73,800Other
    
    
    1,683
    
    
    
    3,901Less: Allowance for doubtful accounts
    
    
    (3,319
    )
    
    
    (4,608
    )Total
    
    $
    213,143
    
    
    $
    147,939
 We estimate our allowance for doubtful accounts based on a combination of
specifically identified amounts and an additional reserve calculated based on
the aging of receivables. The additional reserve is provided for the
remaining accounts receivable after specific allowances at a range of
percentages from 1.25 percent to 50.0 percent based on the aging of
receivables. If circumstances change (such as an unexpected material adverse
change in a major customers ability to meet its financial obligations to us or
its payment trends), we may adjust our estimates of the recoverability of
amounts due to us. Included in the allowance for doubtful accounts are specific
allowances of $0.7 million and $2.8 million at September 30, 2004 and March 31,
2004, respectively. During the three-month period ended September 30, 2004, we
wrote off $1.5 million of accounts receivable which we determined to be
uncollectible and for which we had recorded specific reserves in previous
quarters. We do not record interest on outstanding and overdue accounts
receivable. We offer both open accounts and letters of credit to our customer base.
Our standard open accounts are net 30 days; however, the customary local
industry practices may differ and prevail where applicable. As of September 30,
2004, our gross accounts receivable aging, before allowance for doubtful
accounts, was as follows (in thousands): September 30,20040 to 30 days
    
    $
    45,02031 to 60 days
    
    
    34,76261 to 90 days
    
    
    11,769Over 90 days
    
    
    10,876Total
    
    $
    102,427
 Our Japan subsidiary, AJI, and ASI have agreements with certain Japanese
banking institutions to sell some of our trade receivables. For the six-month
period September 30, 2004, AJI and ASI sold approximately $0.1 million and
$10.1 million, respectively, of accounts receivable without recourse. Inventories Inventories consist of the following (in thousands): September 30,
    
    March 31,2004
    
    2004Raw materials
    
    $
    18,030
    
    
    $
    16,241Work-in-process and finished goods
    
    
    27,318
    
    
    
    11,453Total
    
    $
    45,348
    
    
    $
    27,694
 10




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) During the fiscal year ended March 31, 2003, we began to transition
substantially all of our U.S. manufacturing to Solectron Corporation, or
Solectron. As part of the arrangement, Solectron purchased $20.0 million of
inventory from us. No revenue was recorded for the sale of this inventory to
Solectron. On an on-going basis, we may be obligated to acquire inventory
purchased by Solectron if the inventory is not used over a certain specified
period of time per the terms of our agreement. As of September 30, 2004, we
have total inventory reserves of approximately $15.3 million of which $5.5
million is for our obligation to repurchase inventory at Solectron. Goodwill and Other Intangible Assets, net Goodwill In accordance with SFAS No. 142, we expect to complete a periodic goodwill
impairment test in the third quarter of fiscal 2005. During the third quarter
of fiscal 2004, we completed an annual goodwill impairment test and concluded
that there was no impairment of goodwill and intangible assets. Goodwill balances and the changes in the carrying amount of goodwill
during the six-month period ended September 30, 2004 were as follows (in
thousands): Fab Automation
    
    AMHS
    
    TotalBalance at March 31, 2004
    
    $
    4,750
    
    
    $
    67,223
    
    
    $
    71,973Foreign currency translation
    
    
    
    
    
    
    (2,873
    )
    
    
    (2,873
    )Balance at September 30, 2004
    
    $
    4,750
    
    
    $
    64,350
    
    
    $
    69,100
 Intangible assets Intangible assets were as follows (in thousands): September 30, 2004
    
    March 31, 2004Gross Carrying
    
    Accumulated
    
    
    
    
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    NetAmortizable intangible assets:Developed technology
    
    $
    62,113
    
    
    $
    27,598
    
    
    $
    34,515
    
    
    $
    64,317
    
    
    $
    21,778
    
    
    $
    42,539Customer base and other
intangible assets
    
    
    34,745
    
    
    
    21,066
    
    
    
    13,679
    
    
    
    35,676
    
    
    
    17,394
    
    
    
    18,282Licenses and patents
    
    
    7,181
    
    
    
    2,779
    
    
    
    4,402
    
    
    
    7,440
    
    
    
    2,483
    
    
    
    4,957Total
    
    $
    104,039
    
    
    $
    51,443
    
    
    $
    52,596
    
    
    $
    107,433
    
    
    $
    41,655
    
    
    $
    65,778
 Amortization expense totaled $5.0 million and $4.8 million for the
three-month periods ended September 30, 2004 and 2003, respectively.
Amortization expense totaled $10.1 million and $9.6 million for the six-month
periods ended September 30, 2004 and 2003, respectively. Expected future intangible amortization expense, based on current
balances, for the remainder of fiscal 2005 and subsequent fiscal years, is as
follows (in thousands): Fiscal Years:Remainder of 2005
    
    $
    10,3042006
    
    
    18,8282007
    
    
    13,6632008
    
    
    7,8352009 and beyond
    
    
    1,966Total
    
    $
    52,596
 11




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Warranty Reserve We provide for the estimated cost of product warranties at the time
revenue is recognized. The following table presents the activity in our
warranty reserve (in thousands): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Balance at beginning of period
    
    $
    9,322
    
    
    $
    6,819
    
    
    $
    8,185
    
    
    $
    7,561Accruals for warranties issued during the period
    
    
    4,527
    
    
    
    1,406
    
    
    
    7,096
    
    
    
    1,812Settlements made (in cash or in kind)
    
    
    (1,714
    )
    
    
    (924
    )
    
    
    (3,090
    )
    
    
    (2,072
    )Foreign currency translation
    
    
    (201
    )
    
    
    640
    
    
    
    (257
    )
    
    
    640Balance at end of period
    
    $
    11,934
    
    
    $
    7,941
    
    
    $
    11,934
    
    
    $
    7,941
 The warranty reserve balance at the end of the period is reflected in
accrued liabilities and other. Revenue Recognition We recognize revenue when persuasive evidence of an arrangement exists,
product delivery has occurred or service has been rendered, the sellers price
is fixed or determinable, and collectibility is reasonably assured. Some of our
products are large volume consumables that are tested to industry and/or
customer acceptance criteria prior to shipment and delivery. Our primary
shipping terms are FOB shipping point. Therefore, revenue for these types of
products is recognized when title transfers. Certain of our product sales are
accounted for as multiple-element arrangements. If we have met defined customer
acceptance experience levels with both the customer and the specific type of
equipment, we recognize the product revenue at the time of shipment and
transfer of title, with the remainder when the other elements, primarily
installation, have been completed. Some of our other products are highly
customized systems and cannot be completed or adequately tested to customer
specifications prior to shipment from the factory. We do not recognize revenue
for these products until formal acceptance by the customer. Revenue for spare
parts sales is recognized at the time of shipment and the transfer of title.
Deferred revenue consists primarily of product shipments creating legally
enforceable receivables that did not meet our revenue recognition policy.
Revenue related to maintenance and service contracts is recognized ratably over
the duration of the contracts. Unearned maintenance and service contract
revenue is not significant and is included in accrued liabilities and other. We recognize revenue for long-term contracts at ASI in accordance with the
American Institute of Certified Public Accountants, or AICPA, Statement of
Position 81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts.We use the percentage-of-completion method to
calculate revenue and related costs of these contracts because they are
long-term in nature and estimates of cost to complete and extent of progress
toward completion of long-term contracts are available and reasonably
dependable. We record revenue each period based on the percentage of completion
to date on each contract, measured by costs incurred to date relative to the
total estimated costs of each contract. We treat contracts as substantially
complete when we receive technical acceptance of our work by the customer. We
disclose material changes in our financial results that result from changes in
estimates. We account for software revenue in accordance with the AICPA Statement of
Position 97-2, Software Revenue Recognition.Revenue for integration software
work is recognized on a percentage-of-completion basis. Software license
revenue, which is not material to the consolidated financial statements, is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the selling price is fixed or
determinable, and collectibility is probable. Contract Loss Reserve We routinely evaluate the contractual commitments with our customers and
suppliers to determine if a probable loss exists that can be estimated in
fulfillment of the contractual commitment. If so, a loss reserve is recorded
and included in accrued liabilities and other. We had a loss reserve of
approximately $4.0 million and $4.8 million at September 30, 2004 and March 31,
2004, respectively. The balance at September 30, 2004 primarily relates to four
AMHS contracts entered into by ASI and one contract entered into by ATI during
the fiscal year ended March 31, 2004 and one contract entered into by ASI
during the six-month period ended September 30, 2004. 12




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Comprehensive Loss Comprehensive income (loss) is defined as the change in equity of a
company during a period from transactions and other events and circumstances,
excluding transactions resulting from investments by owners and distributions
to owners, and is to include unrealized gains and losses that have historically
been excluded from net income and loss and reflected instead in equity. The
following table presents our comprehensive loss items (in thousands): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss, as reported
    
    $
    (1,831
    )
    
    $
    (16,315
    )
    
    $
    (4,117
    )
    
    $
    (53,691
    )Foreign currency translation adjustments
    
    
    (2,017
    )
    
    
    738
    
    
    
    (2,777
    )
    
    
    (303
    )Unrealized gains (losses) on investments
    
    
    30
    
    
    
    
    
    
    
    (70
    )
    
    
    Comprehensive loss
    
    $
    (3,818
    )
    
    $
    (15,577
    )
    
    $
    (6,964
    )
    
    $
    (53,994
    )
 Earnings (Loss) Per Share Basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding, while diluted net income (loss) per share
is computed using the sum of the weighted-average number of common and common
equivalent shares outstanding. Common equivalent shares used in the computation
of diluted earnings per share result from the assumed exercise of stock options
and warrants, using the treasury stock method. For periods in which there is a
net loss, the numbers of shares used in the computation of diluted net income
(loss) per share are the same as those used for the computation of basic net
income (loss) per share, as the inclusion of dilutive securities would be
anti-dilutive. The following table summarizes securities outstanding which were not
included in the calculation of diluted net loss per share reported in the
statement of operations, nor in the table presented in the Stock-Based
Compensation section below, as to do so would be anti-dilutive (in thousands): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Restricted stock options
    
    
    62
    
    
    
    44
    
    
    
    64
    
    
    
    44Restricted stock awards
    
    
    40
    
    
    
    
    
    
    
    20
    
    
    
    Stock options
    
    
    8,235
    
    
    
    8,622
    
    
    
    8,439
    
    
    
    9,312Convertible notes
    
    
    5,682
    
    
    
    5,682
    
    
    
    5,682
    
    
    
    5,682Total
    
    
    14,019
    
    
    
    14,348
    
    
    
    14,205
    
    
    
    15,038
 13




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Stock-Based Compensation Had compensation expense for our stock options, employee stock purchase
plan and the restricted stock issuances to employees been determined based on
the fair value at the grant or issuance date, consistent with the provision of
SFAS No. 123 and SFAS No. 148, our net losses for the three and six-month
periods ended September 30, 2004 and 2003, respectively, would have increased
as indicated below (in thousands, except per share amounts): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss  as reported
    
    $
    (1,831
    )
    
    $
    (16,315
    )
    
    $
    (4,117
    )
    
    $
    (53,691
    )Add: employee
stock-based
compensation expense
included in reported
net loss, net of tax
    
    
    431
    
    
    
    589
    
    
    
    756
    
    
    
    1,015Less: total employee
stock-based
compensation expense
determined under fair
value, net of tax
    
    
    (2,486
    )
    
    
    (3,144
    )
    
    
    (5,239
    )
    
    
    (7,397
    )As adjusted net loss
    
    $
    (3,886
    )
    
    $
    (18,870
    )
    
    $
    (8,600
    )
    
    $
    (60,073
    )Basic and diluted net
loss per share  As
reported
    
    $
    (0.04
    )
    
    $
    (0.41
    )
    
    $
    (0.09
    )
    
    $
    (1.38
    )Basic and diluted net
loss per share  As
adjusted
    
    $
    (0.08
    )
    
    $
    (0.48
    )
    
    $
    (0.18
    )
    
    $
    (1.54
    )Shares used in
computing As Reported
and As Adjusted net
loss per share
    
    
    47,428
    
    
    
    39,517
    
    
    
    47,304
    
    
    
    38,996
 4. RESTRUCTURING CHARGES Restructuring charges and related utilization for the three-month periods
ended June 30 and September 30, 2004 were (in thousands): Severance andBenefits
    
    Excess Facilities
    
    TotalBalance, March 31, 2004
    
    $
    64
    
    
    $
    2,190
    
    
    $
    2,254Additional accruals
    
    
    6
    
    
    
    213
    
    
    
    219Amounts paid in cash
    
    
    (37
    )
    
    
    (385
    )
    
    
    (422
    )Foreign currency translation adjustment
    
    
    
    
    
    
    4
    
    
    
    4Balance, June 30, 2004
    
    
    33
    
    
    
    2,022
    
    
    
    2,055Additional (reduction of) accruals
    
    
    482
    
    
    
    (114
    )
    
    
    368Non-cash utilization
    
    
    
    
    
    
    73
    
    
    
    73Amounts paid in cash
    
    
    (461
    )
    
    
    (279
    )
    
    
    (740
    )Foreign currency translation adjustment
    
    
    (1
    )
    
    
    (7
    )
    
    
    (8
    )Balance, September 30, 2004
    
    $
    53
    
    
    $
    1,695
    
    
    $
    1,748
 We
incurred restructuring charges of $0.4 million and $0.2 million for the
three-month periods ended September 30 and June 30, 2004, respectively,
consisting primarily of severance costs resulting from a reduction in
workforce. We terminated the employment of approximately 6 employees,
including 5 in manufacturing, and 1 in selling, general and administration,
from our international operations as a result of these restructuring
activities. The outstanding reserve amount at September 30, 2004 consists primarily of
future lease obligations on vacated facilities in excess of estimated future
sublease proceeds which will be paid over the next four quarters. All
remaining accrual balances are expected to be settled in cash. Restructuring charges and related utilization for the three-month periods
ended June 30 and September 30, 2003 were (in thousands): 14




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Severanceand
    
    Excess
    
    Fixed AssetBenefits
    
    Facilities
    
    Impairment
    
    TotalBalance, March 31, 2003
    
    $
    291
    
    
    $
    3,617
    
    
    $
    192
    
    
    $
    4,100Additional accruals
    
    
    3,448
    
    
    
    869
    
    
    
    46
    
    
    
    4,363Non-cash related utilization
    
    
    
    
    
    
    (29
    )
    
    
    (205
    )
    
    
    (234
    )Amounts paid in cash
    
    
    (3,269
    )
    
    
    (250
    )
    
    
    (33
    )
    
    
    (3,552
    )Balance, June 30, 2003
    
    
    470
    
    
    
    4,207
    
    
    
    
    
    
    
    4,677Additional accruals
    
    
    160
    
    
    
    327
    
    
    
    
    
    
    
    487Non-cash related utilization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amounts paid in cash
    
    
    (305
    )
    
    
    (957
    )
    
    
    
    
    
    
    (1,262
    )Balance, September 30, 2003.
    
    $
    325
    
    
    $
    3,577
    
    
    $
    
    
    
    $
    3,902
 We incurred restructuring charges of $0.5 million during the three-month
period ended September 30, 2003, consisting primarily of severance costs of
$0.2 million from a reduction in our worldwide workforce and secondarily for
exiting a facility in connection with our restructuring activities. As a
result of these restructuring activities, we terminated the employment of
approximately 49 employees, mainly in manufacturing, from our international
operations. During the six-month period ended September 30, 2003, we incurred
restructuring charges of $4.9 million, consisting primarily of severance costs
from a reduction in workforce in April 2003. Additionally, we incurred a
charge for future lease obligations on a vacated facility in excess of
estimated future sublease proceeds. 5. ASSET IMPAIRMENT CHARGES We completed the sale of land in Fremont, California, in the three-month
period ended September 30, 2003. The net proceeds from the sale were $12.1
million. We had intended to construct corporate headquarters facilities on the
land and subsequently decided not to build these facilities. Initially, we
leased the land from a syndicate of financial institutions pursuant to an
original lease agreement and an amended lease agreement. We purchased the land
on October 22, 2001 for $41.1 million, and paid the syndicate of financial
institutions approximately $2.9 million for engineering costs incurred in
preparation for making leasehold improvements to the land. Based upon market
data at June 30, 2001, and our non-cancelable commitment to purchase the land,
we estimated that the then-market value of the land had been impaired and as
such recorded a $15.0 million write-down to its estimated market value during
the three-month period ended June 30, 2001. We entered into a purchase
agreement in September 2002 to sell the land for $19.0 million, net of selling
expenses. This transaction did not close. As a result, an additional $7.1
million write-down was recorded in the second quarter in fiscal 2003. In the
three-month period ended June 30, 2003, we recorded a $6.9 million write-down
based on our latest estimate of market value as supported by the pending sale
agreement at the time. 6. INCOME TAXES Income
tax provision for the three-month period ended September 30, 2004
was $67,000, primarily due to a tax benefit of $1.7 million from the
amortization of deferred tax liabilities recorded in connection with the ASI
acquisition offset by a $1.5 million tax provision recorded by ASI and tax
provision of $0.3 million recorded by other international subsidiaries,
primarily Japan and Taiwan. Income tax benefit for the six-month period ended
September 30, 2004 was approximately $1.6 million, primarily due to a tax
benefit of $3.3 million from the amortization of deferred tax liabilities
recorded in connection with the ASI acquisition, offset by $1.2 million of
tax provisions recorded by ASI and tax provisions of $0.5 million recorded by
other international subsidiaries, primarily Japan and Taiwan. Income tax
benefit of $1.0 million and $2.4 million was recorded for the three- and
six-month periods ended September 30, 2003, respectively. The
amounts reported were primarily due to amortization of deferred tax liabilities recorded in
connection with the ASI acquisition, offset by tax provisions in our
international subsidiaries, primarily Japan and Taiwan. Deferred tax assets
related to our Japan subsidiary, AJI, and ASI are recognized to the extent
realizable. In fiscal 2003, we established a full valuation allowance for our
domestic net deferred tax assets. 7. REPORTABLE SEGMENTS We have two reportable product segments: Fab Automation and AMHS. The Fab
Automation segment includes interface products, substrate-handling robotics,
wafer and reticle carriers, auto-ID systems, sorters and connectivity software
products. The AMHS segment, which consists principally of the entire ASI
operations, includes automated 15




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) transport and loading systems for semiconductor fabs and flat panel
display manufacturers. We evaluate performance and allocate resources based on revenues and
operating income (loss). Operating income (loss) for each segment includes
selling, general and administrative expenses directly attributable to the
segment. Segment information is summarized as follows (in thousands): Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Fab Automation Products:Net sales
    
    $
    68,817
    
    
    $
    26,037
    
    
    $
    140,572
    
    
    $
    49,505Income (loss) from operations
    
    $
    (592
    )
    
    $
    (14,734
    )
    
    $
    1,561
    
    
    $
    (49,959
    )AMHS:Net sales
    
    $
    99,789
    
    
    $
    25,312
    
    
    $
    167,459
    
    
    $
    47,111Loss from operations
    
    $
    (460
    )
    
    $
    (1,837
    )
    
    $
    (7,318
    )
    
    $
    (5,398
    )Consolidated:Net sales
    
    $
    168,606
    
    
    $
    51,349
    
    
    $
    308,031
    
    
    $
    96,617Loss from operations
    
    $
    (1,052
    )
    
    $
    (16,571
    )
    
    $
    (5,757
    )
    
    $
    (55,357
    )
 Total operating loss is equal to consolidated loss from operations for the
periods presented. We do not allocate other income (expense), net to individual
segments. September 30, 2004
    
    March 31, 2004Fab Automation Products:Total assets
    
    $
    212,776
    
    
    $
    205,002AMHS:Total assets
    
    $
    331,014
    
    
    $
    268,607Consolidated:Total assets
    
    $
    543,790
    
    
    $
    473,609
 One customer accounted for 35.0 percent and 19.0 percent of our net sales
for the three- and six-month periods ended September 30, 2004, respectively. No
other customer accounted for more than 10.0 percent of our net sales for the
three- and six-month periods ended September 30, 2004. 8. DEBT We had $35.4 million and $18.2 million of short-term debt issued by banks
in Japan at September 30 and March 31, 2004, respectively. Approximately $11.0
million and $13.5 million at September 30 and March 31, 2004, respectively, is
owed by our Japanese subsidiary, AJI, and is guaranteed by Asyst in the United
States. The remaining portion, $24.4 million and $4.7 million at September 30
and March 31, 2004, respectively, is owed by ASI. As of September 30, and
March 31, 2004, the interest rate ranged from 1.4 percent to approximately 3.0
percent. Long-term debt and capital leases consisted of the following (in
thousands): September 30,
    
    March 31,2004
    
    2004Convertible subordinated notes
    
    $
    86,250
    
    
    $
    86,250Secured straight bonds
    
    
    5,633
    
    
    
    7,110Capital leases
    
    
    1,023
    
    
    
    489Total long-term debt
    
    
    92,906
    
    
    
    93,849Less: Current portion of long-term debt and capital leases
    
    
    (2,679
    )
    
    
    (2,775
    )Long-term debt and capital leases net of current portion
    
    $
    90,227
    
    
    $
    91,074
 16




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) At September 30, 2004, maturities of all long-term debt and capital leases
are as follows (in thousands): Fiscal Year Ending March 31,
    
    AmountRemaining portion of 2005
    
    $
    1,4142006
    
    
    2,6792007
    
    
    1,4412008
    
    
    8812009
    
    
    86,491$
    92,906
 Convertible Subordinated Notes On July 3, 2001, we completed the sale of $86.3 million of 5 3/4 percent
convertible subordinated notes that resulted in aggregate proceeds of $82.9
million to us, net of issuance costs. The notes are convertible, at the option
of the holder, at any time on or prior to maturity into shares of our common
stock at a conversion price of $15.18 per share, which is equal to a conversion
rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature
on July 3, 2008, pay interest on January 3 and July 3 of each year and are
redeemable at our option after July 3, 2004. Debt issuance costs of $2.9
million, net of amortization, are being amortized over 84 months and are being
charged to other income (expense). Debt amortization costs totaled $0.1 million
during each of the three-month periods ended September 30, 2004 and 2003,
respectively; and $0.2 million during each of the six-month periods ended
September 30, 2004 and 2003, respectively. Secured Straight Bonds We had $5.6 million and $7.1 million of secured straight bonds from a bank
in Japan at September 30, 2004 and March 31, 2004, respectively. The bonds bore
interest at rates ranging from 1.4 percent to 3.0 percent as of September 30
and March 31, 2004, and mature in fiscal year 2008. Certain of our assets in
Japan have been pledged as security for short-term debt and secured straight
bonds. Lines of Credit At September 30, 2004, we had available to us a $25.0 million two-year
revolving line of credit with a commercial bank, as amended during the first
quarter of fiscal year 2005. The amended line of credit requires compliance
with certain financial covenants, including a quarterly net income/loss target,
calculated on an after-tax basis (excluding depreciation, amortization and
other non-cash items), and a requirement that we maintain with the bank during
the term of the line of credit a minimum balance of $5.0 million of cash and
cash equivalents. In addition, the amendment extended the line of credit
through May 15, 2006, changed and expanded the base of assets under which we
qualify for borrowing under the line of credit and reduced certain fees and
interest charges applicable to borrowing under the line of credit. The specific
amount of borrowing available under the line of credit at any time, however,
may change based on the amount of current receivables we have outstanding. The
line of credit was fully paid down during the three-month period ended December
31, 2003. As of September 30, 2004, there was no amount outstanding under the
line of credit, and we were in compliance with the financial covenants. In September 2003, ASI entered into a short-term bank facility with a
Japanese bank under which it may borrow up to approximately 3.0 billion
Japanese Yen, or approximately $27.1 million at the exchange rate as of
September 30, 2004. As of September 30, 2004 and March 31, 2004, respectively,
ASI had outstanding borrowings of 1.4 billion Japanese Yen and 0.5 billion
Japanese Yen, or approximately $12.7 million and $4.7 million, respectively, at
the exchange rate as of September 30, 2004 and March 31, 2004, respectively,
that is recorded in short-term debt. Under terms of the ASI bank facility, ASI
must generate operating profits on a statutory basis. ASI was in compliance
with the loan covenants at September 30, 2004 and at March 31, 2004. On September 21, 2004, ASI established a revolving credit facility, or the
Mizuho facility, with Mizuho Bank of Japan to support its working capital
requirements in its performance of long-term construction-type projects.
During periods of rapid growth in project activity, ASI can require substantial
short-term working capital to support the manufacturing and installation of
systems ahead of invoicing and collection of payments for the systems. The
maximum amount that can be borrowed under the Mizuho facility is 2.0 billion
Japanese Yen, or approximately $18.1 million at the exchange rate as of
September 30, 2004. The Mizuho facility has a term of one year, and all amounts
outstanding under the facility are due and payable on September 20, 2005
(unless the facility is extended). The Mizuho facility requires no 17




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) collateral from AJI or guarantee in the event of ASIs default from Asyst.
It carries a variable interest rate based on the Tokyo Interbank Offered Rate,
or TIBOR (as of September 30, 2004, 0.07 percent), plus a margin of 1.25
percent. Under the Mizuho facility, ASI is required to maintain compliance with
certain financial covenants, including requirements that for its current fiscal
year ASI report positive operating and net income, before extraordinary items
as identified under generally accepted accounting principles in Japan, and
maintain at least 80.0 percent of the equity it reported as of March 27, 2004.
On September 22, 2004, ASI drew an advance of 1.3 billion Japanese Yen, or
approximately $11.7 million at the exchange rate as of September 30, 2004, on
the Mizuho facility, all of which remains outstanding as of September 30, 2004.
ASI was in compliance with the loan covenants at September 30, 2004. On September 17, 2004, AJI borrowed a total of 0.8 billion Japanese Yen,
or approximately $7.1 million at the exchange rate as of September 30, 2004, in
short-term bank loans from a financial institution in Japan. The loans are
repayable on February 28, 2005, and carry interest rates ranging from 1.625
percent to 2.125 percent as of September 30, 2004. In addition, AJI has
entered into arrangements with two financial institutions in Japan to provide
short-term credit facilities, which total 0.5 billion Japanese Yen of available
borrowing, or approximately $4.9 million at the exchange rate as of September
30, 2004. As of September 30, 2004, 0.4 billion Japanese Yen, or approximately
$4.0 million at the exchange rate as of September 30, 2004, was outstanding.
The interest rate was 1.375 percent on such credit facilities as of September
30, 2004. None of these short-term loans and credit facilities requires
collateral from AJI or guarantees from Asyst in the event of ASIs default. We have guaranteed certain lease payments with respect to equipment and
real estate of AJI, our Japanese subsidiary. 9. EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS Employee Stock Option Grants Options to purchase 534,450 shares and 265,500 shares of common stock were
granted to employees during the three-month periods ended September 30, 2004
and 2003, respectively. Options to purchase 1,580,950 and 2,689,908 shares of
common stock were granted to employees for the six-month periods ended
September 30, 2004 and 2003, respectively. At September 30, 2004, options to
purchase 8,235,027 shares of common stock were outstanding, and 1,072,568
shares of common stock were available for issuance under our 2001 and 2003
stock option plans. Employee Stock Purchase Plan As of September 30, 2004, 1,960,814 shares had been purchased and 489,186
shares of common stock were available for issue under the Employee Stock
Purchase Plan. Fair Value Disclosures Information regarding net loss and net loss per share, as adjusted, is
required by SFAS No. 123, which also requires that the information be
determined as if we had accounted for our employee stock options granted under
the fair value method. The fair value for these options was estimated using the
Black-Scholes option pricing model. The per share weighted average estimated
fair value for employee options granted was $3.58 and $8.54 during the
three-month periods September 30, 2004 and 2003, respectively, and $5.19 and
$3.66 during the six-month periods ended September 30, 2004 and 2003,
respectively. The Black-Scholes model was developed for use in estimating the
fair value of traded options that have no restrictions and are fully
transferable and negotiable in a freely traded market. Black-Scholes does not
consider the employment, transfer or vesting restrictions that are inherent in
our employee options. The usage of an option valuation model, as required by
SFAS No. 123, includes highly subjective assumptions based on long-term
predictions, including the expected stock price volatility and average life of
each option grant. Because our employee options have characteristics
significantly different from those of freely traded options, and because
changes in the subjective input assumptions can materially affect our estimate
of the fair value of those options, it is our opinion that the existing
valuation models, including Black-Scholes, are not reliable single measures and
may misstate the fair value of our employee options. 18




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) The following weighted average assumptions are included in the estimated
fair value calculations for stock option grants in the three- and six-month
periods ended September 30, 2004 and 2003, respectively: Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Risk-free interest rate
    
    
    3.21
    %
    
    
    3.00
    %
    
    
    3.28
    %
    
    
    2.80
    %Expected term of options (in years)
    
    
    4.6
    
    
    
    4.7
    
    
    
    4.6
    
    
    
    4.5Expected volatility
    
    
    92.5
    %
    
    
    81.5
    %
    
    
    92.0
    
    
    
    87.8Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Using Black-Scholes, the per share weighted average estimated fair value
of rights to purchase our stock issued under our Employee Stock Purchase Plan
during the three-month periods ended September 30, 2004 and 2003 was $1.69 and
$2.04, respectively, and for the six-month periods ended September 30, 2004 and
2003 was $3.38 and $1.68, respectively, The following weighted average assumptions are included in the estimated
grant date fair value calculations for rights to purchase stock under the
Employee Stock Purchase Plan: Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Risk-free interest rate
    
    
    2.08
    %
    
    
    1.22
    %
    
    
    1.83
    %
    
    
    1.20
    %Expected term of options (in years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Expected volatility
    
    
    90.4
    %
    
    
    80.5
    %
    
    
    85.0
    %
    
    
    84.2
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 10. RELATED PARTY TRANSACTIONS At September 30, 2004 and March 31, 2004, we held notes from two current
non-officer employees totaling $0.3 million and $0.4 million, respectively. One
of the notes receivable is secured by a deed of trust on certain real property.
These notes receivable are included in other assets in the condensed
consolidated balance sheet. Our majority-owned subsidiary, ASI, has certain transactions with the
minority shareholder, Shinko. At September 30, 2004 and March 31, 2004 accounts
payable due to Shinko were $9.2 million and $17.2 million, respectively.
Materials and services purchased from Shinko for the six-month periods ended
September 30, 2004 and 2003 were $8.1 million and $4.5 million, respectively. 11. COMMITMENTS AND CONTINGENCIES Lease Commitments We lease various facilities under non-cancelable capital and operating
leases. At September 30, 2004, the future minimum commitments under these
leases are as follows (in thousands): Fiscal Year Ending March 31,
    
    Capital Lease
    
    Operating Lease
    
    Sublease IncomeRemaining portion of 2005
    
    $
    107
    
    
    $
    3,785
    
    
    $
    (261
    )2006
    
    
    119
    
    
    
    4,998
    
    
    
    (523
    )2007
    
    
    74
    
    
    
    1,598
    
    
    
    (44
    )2008
    
    
    21
    
    
    
    1,356
    
    
    
    2009 and thereafter
    
    
    
    
    
    
    62
    
    
    
    Total
    
    
    321
    
    
    $
    11,799
    
    
    $
    (828
    )Less: interest
    
    
    (19
    )Present value of minimum lease payments
    
    
    302Less: current portion of capital leases
    
    
    (174
    )Capital leases, net of current portion
    
    $
    128
 Rent expense under our operating leases was approximately $1.2 million and
$1.3 million for the three-month periods ended September 30, 2004 and 2003,
respectively; and $2.6 million and $2.8 million for the six-month periods ended 19




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) September 30, 2004 and 2003, respectively. Legal Commitments On October 28, 1996, we filed suit in the United States District Court for
the Northern District of California against Empak, Inc., Emtrak, Inc., Jenoptik
AG, and Jenoptik Infab, Inc., alleging, among other things, that certain
products of these defendants infringe our United States Patents Nos. 5,097,421
(the 421 patent) and 4,974,166 (the 166 patent). Defendants filed answers
and counterclaims asserting various defenses, and the issues subsequently were
narrowed by the parties respective dismissals of various claims, and the
dismissal of defendant Empak pursuant to a settlement agreement. The remaining
patent infringement claims against the remaining parties proceeded to summary
judgment, which was entered against us on June 8, 1999. We thereafter took an
appeal to the United States Court of Appeals for the Federal Circuit. On
October 10, 2001, the Federal Circuit issued a written opinion, Asyst
Technologies, Inc. v. Empak, 268 F.3d 1365 (Fed. Cir. 2001), reversing the
decision of the trial court, and remanding the matter to the trial court for
further proceedings. The case was subsequently narrowed to the 421 patent, and
we sought monetary damages for defendants infringement, equitable relief, and
an award of attorneys fees. On October 9, 2003, the court: (i) granted
defendants motion for summary judgment to the effect that the defendants had
not infringed our patent claims at issue and (ii) directed that judgment be
entered for defendants. We have filed a notice of appeal of both the order and
the entry of judgment against us. The court also denied defendants motion for
judgment as to the invalidity of our asserted patents. Defendants have filed a
notice of appeal as to the courts denial of that motion. From time to time, we are also involved in other legal actions arising in
the ordinary course of business. We have incurred certain costs while defending
these matters. There can be no assurance that third party assertions will be
resolved without costly litigation, in a manner that is not adverse to our
financial position, results of operations or cash flows or without requiring
royalty or other payments in the future which may adversely impact gross
margins. Litigation is inherently unpredictable, and we cannot predict the
outcome of the legal proceedings described above with any certainty. Because of
uncertainties related to both the amount and range of losses in the event of an
unfavorable outcome in the lawsuits listed above or in certain other pending
proceedings for which loss estimates have not been recorded, we are unable to
make a reasonable estimate of the losses that could result from these matters.
As a result, no losses have been accrued for the legal proceedings described
above in our financial statements as of September 30, 2004. Indemnifications We, as permitted under California law and in accordance with our Bylaws,
indemnify our officers, directors and members of our senior management for
certain events or occurrences, subject to certain limits, while they were
serving at our request in such capacity. The maximum amount of potential future
indemnification is unlimited; however, we have a Director and Officer Insurance
Policy that enables us to recover a portion of certain future amounts paid (if
paid, and subject to the terms of the policy). As a result of the insurance
policy coverage, we believe the fair value of these indemnification agreements
is not likely to be material. Our sales agreements indemnify our customers for
certain expenses or liability resulting from claimed infringements of patents,
trademarks or copyrights of third parties. The terms of these indemnification
agreements are generally perpetual any time after execution of the sales
agreement. The maximum amount of potential future indemnification is unlimited.
However, to date, we have not paid any claims or been required to defend any
lawsuits with respect to any claim. Sale of Receivables Our Japan subsidiary, AJI, and ASI have agreements with certain Japanese
banking institutions to sell some of our trade receivables. For the six-month
period ended September 30, 2004, AJI and ASI sold approximately $0.1 million
and $10.1 million, respectively, of accounts receivable without recourse. 12. SUBSEQUENT EVENTS In our press release dated December 9, 2004, we announced plans to move
forward on a restructuring of our ATI operations (our base business, excluding
ASI) with a reduction in worldwide workforce. The action is expected to
provide annual expense savings of approximately $8.0 to $9.0 million and
reflects the continuing transition of our business model. As a result of the workforce action, we expect to incur cash severance and
termination charges of approximately $2.0 million in our third fiscal quarter
ending December 25, 2004. 20




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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) In
our press release dated December 17, 2004, we also announced that
management, in consultation with our Audit Committee, determined to remove from
service and make available for sale certain land and building in Nagoya, Japan
that relates to our wholly-owned Japanese subsidiary Asyst Japan, Inc., or AJI.
As a result, the company expects to record an impairment charge in its third
fiscal quarter in the range of $4.0 million to $5.0 million, based on the
companys most-recent assessment of fair market value. The building has been
underutilized since a prior decision to outsource manufacturing, and has
previously been partially written down. 21




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements Except for the historical information contained herein, the following
discussion includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, and Section 21E of the Securities Exchange
Act of 1934 that involve risks and uncertainties. We intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and we are including this statement for purposes of
complying with these safe harbor provisions. We have based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions, including those set forth in
this section as well as those under the caption, Risk Factors. Words such as
expect, anticipate, intend, plan, believe, estimate and variations
of such words and similar expressions are intended to identify such
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this document and in our
Annual Report onForm 10-Kmight not occur. The following discussion should be
read in conjunction with the unaudited condensed consolidated financial
statements and related notes included in this report and our audited
consolidated financial statements and related notes as of March 27, 2004 and
March 31, 2003, and for each of the three years in the period ended March 27,
2004 as filed in our Annual ReportForm 10-Kfor the year ended March 27, 2004.
Certain prior period amounts have been reclassified to conform to current
period presentation. Unless expressly stated or the context otherwise requires, the terms we,
our, us and Asyst refer to Asyst Technologies, Inc. and its
subsidiaries. Overview We develop, manufacture, sell and support integrated automation systems
primarily for the worldwide semiconductor and the flat panel display, or FPD
industries. We principally sell directly to the semiconductor and FPD manufacturing
industries. We also sell to other original equipment manufacturers, or OEMs
that make production equipment for sale to semiconductor manufacturers. Our
strategy is to offer integrated automation systems that enable semiconductor
and FPD manufacturers to increase their manufacturing productivity and yield
and to protect their investment in fragile materials during the manufacturing
process. On October 16, 2002, we established a joint venture with Shinko Electric
Co. Ltd or Shinko called Asyst Shinko, Inc, or ASI. The joint venture develops,
manufactures, sells and supports AMHS with principal operations in Tokyo and
Ise, Japan. Under terms of the joint venture agreement, we acquired 51.0
percent of the joint venture for approximately $67.5 million of cash and
transaction costs. Shinko contributed its entire AMHS business, including
intellectual property and other assets, installed customer base and
approximately 250 employees, and acquired the remaining 49.0 percent interest.
We acquired ASI to enhance our presence in the 300mm AMHS and flat panel
display markets. We have two reportable segments: The AMHS segment, which consists principally of the entire ASI operations,
includes automated transport and loading systems, semiconductor and flat panel
display products. The Fab Automation Product segment includes interface products, auto-ID
Systems, Substrate-Handling Robotics, Sorters, Connectivity Software, and
continuous flow technology (CFT). Our net sales for the six-month period ended September 30, 2004 increased
by 218.8 percent compared to the corresponding period of fiscal 2004. The
increase was primarily due to the sale of our AMHS products, which increased
255.45 percent for the six-month period ended September 30, 2004 compared to
the same period of fiscal 2004. In addition, net sales of Fab Automation
Products for the six-month period ended September 30, 2004 increased by 184.0
percent compared to the same period of fiscal 2004. AMHS revenues represented
54.4 percent of our total revenue for the six-month period ended September
2004, compared to 48.8 percent for the six-month period ended September 2003. For the remainder of fiscal 2005, we believe critical success factors include
product quality, customer relationship, and demand. Demand for our products can
change significantly from period to period as a result of numerous factors,
including, 22




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) but not limited to, changes in: (1) global economic conditions; (2)
fluctuations in the semiconductor equipment market; (3) changes in customer
buying patterns due to technological advancement and/or capacity requirements;
(4) the relative competitiveness of our products; and (5) our ability to manage
successfully the outsourcing of our manufacturing activities to meet our
customers demands for our products and services. For this and other reasons,
our results of operations for the three- and six-month periods ended September
30, 2004 may not be indicative of future operating results. We intend the discussion of our financial condition and results of
operations that follow to provide information that will assist in understanding
our financial statements, the changes in certain key items in those financial
statements, the primary factors that resulted in those changes, and how certain
accounting principles, policies and estimates affect our financial statements. Restatement of Financial Statements and Related Matters Background. In a press release issued November 3, 2004, and Form 12b-25
filed on November 4, 2004, we announced that we would not timely file the Form
10-Q for our fiscal second quarter ending September 25, 2004, because:  
    
    As a result of a conversion in the fiscal first quarter to a new ERP
information system within ASI, ASI was unable to provide timely
reconciliation and reporting of inventory and cost information, which
prevented us from completing our consolidated financial closing process
for the fiscal second quarter on a timely basis.  
    
    ASI was in a contract dispute with a customer relating to three
contracts for a large flat panel display project. The dispute concerned
allegations that ASI and a customer employee had an arrangement by which
competitive information was shared, and an agreement was made,
allegedly, for a future payment of money to the customer employee. This customer has since reaffirmed the flat panel display
contracts with ASI, and has paid all amounts currently due under the three
contracts to ASI. The three contracts had an aggregate original value of $137.0
million at the time the contracts were booked. In conjunction with reaffirming
the three contracts, certain terms were renegotiated, including an aggregate
price reduction to the customer of approximately $7.0 million under the three
contracts at the exchange rate as of September 30, 2004. Audit Committee Investigation.Upon notification by Asyst management of
the customer dispute referred to above, the Audit Committee of our Board of
Directors promptly initiated an independent legal and forensic investigation of
this matter in October 2004, which has been completed. The Audit Committee
concluded that Asyst management had prevented the payment to the customer
employee, no evidence of other improper payments was discovered and determined
that Asyst management was not involved in the improper conduct. Closing Process and Restatement. Asyst believes that the ERP system
conversion issues that led to inventory reconciliation difficulties at ASI have
been addressed and that the system will support the timely preparation and
submission of its consolidated financial statements in future reporting
periods. In the process of closing ASIs books, we identified material accounting
errors in ASIs fiscal first quarter results, which led to our determination to
restate those results in this Form 10-Q/A filed on the same date that we have
filed our Form 10-Q for our fiscal second quarter. Additionally, the company
made adjustments to the fiscal first quarter results reported for ATI, our
base business. Summary of Restatement. All applicable financial information contained
in this Form 10-Q gives effect to the restatement described above. The
financial statements or information for the fiscal first quarter included in
our Form 10-Q filed on August 5, 2004, or included in announcements prior to
our press release dated December 20, 2004, should not be relied upon. The restatement corrects accounting errors at Asyst Shinko, Inc. (ASI),
our 51%-owned joint venture company in Japan, that understated ASIs costs of
goods sold for the fiscal first quarter by $3.6 million and its operating loss
from operations by $3.5 million, and adjusts ATIs first quarter results to
reduce its net sales by $1.7 million and its operating income by $216,000
to reflect the deferral of certain new product-related revenue that had been
recognized in the quarter and reduce amortization of deferred stock-based
compensation. The principal effects of the restatement adjustments on the 23




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) consolidated fiscal first quarter results are to:  
    
    reduce consolidated net sales by $1.5 million, and increase consolidated cost of sales by $2.3 million;  
    
    reduce gross margin at ASI from 10% to 5%, and reduce consolidated gross margin from 23% to 21%;  
    
    increase consolidated net loss from $0.9 million to $2.3 million;  
    
    increase consolidated net loss per share $0.02 to $0.05. The information contained in the Condensed Consolidated Financial
Statements (Unaudited) in this report should be read in conjunction with the
relevant information contained in the Form 10-Q/A we have filed for our fiscal
first quarter on the date we filed this Form 10-Q. Note 2 to the Restated
Condensed Consolidated Financial Statements contained in the Form 10-Q/A also
includes a detailed statement of information as reported and as restated
for the fiscal first quarter. See also Part I, Item 4, Disclosure Controls and Procedures for a
discussion of material weaknesses in our internal control over financial
reporting and other information relating to the matters discussed above. Nasdaq Notification. We previously announced that Asyst received a letter
from the Nasdaq Listing Qualifications Department indicating that, because of
the companys delay in timely filing its Quarterly Report on Form 10-Q for its
fiscal second quarter ended September 25, 2004, Asyst is not in compliance with
the filing requirements for continued listing on Nasdaq as set forth in Nasdaq
Marketplace Rule 4310(c)(14). As a result, Asysts common shares are subject to
delisting from the Nasdaq National Market, and the trading symbol for Asysts
common stock was changed from ASYT to ASYTE at the opening of business on
November 18, 2004. We appeared before a Nasdaq Listing Qualifications Panel on December 15,
2004, to discuss our filing delay relating to this Form 10-Q for the second
fiscal quarter. The panel took no action on that date, and the matter remains
open. Although we are hopeful that the panel will accept our submission and
our filing of this report and our fiscal first quarter Form 10-Q/A in December
2004 as a basis to continue the listing of our common stock on the Nasdaq
National Market, we cannot predict the panels decision. If we are delisted,
it could severely impact our ability to raise future capital and may have an
adverse impact on our overall future liquidity. Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of
operations are based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect our consolidated
financials statements. On an on-going basis, we evaluate our estimates and
judgments, including those related to revenue recognition, valuation of
long-lived assets, asset impairments, restructuring charges, goodwill and
intangible assets, income taxes, and commitments and contingencies. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. Management believes there have been no significant changes during the
three- and six-month periods ended September 30, 2004 to the items that we
disclosed as our critical accounting policies and estimates in Management
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the fiscal year ended March 27, 2004. 24




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) Results of Operations The following is a summary of our net sales and income (loss) from operations
by segment and consolidated total for the periods presented below: Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Fab
Automation Products:Net sales
    
    $
    68,817
    
    
    $
    26,037
    
    
    $
    140,572
    
    
    $
    49,505Income (loss) from operations
    
    $
    (592
    )
    
    $
    (14,734
    )
    
    $
    1,561
    
    
    $
    (49,959
    )AMHS:Net sales
    
    $
    99,789
    
    
    $
    25,312
    
    
    $
    167,459
    
    
    $
    47,111Loss from operations
    
    $
    (460
    )
    
    $
    (1,837
    )
    
    $
    (7,318
    )
    
    $
    (5,398
    )Consolidated:Net sales
    
    $
    168,606
    
    
    $
    51,349
    
    
    $
    308,031
    
    
    $
    96,617Loss from operations
    
    $
    (1,052
    )
    
    $
    (16,571
    )
    
    $
    (5,757
    )
    
    $
    (55,357
    )
 The $74.5 million increase in AMHS sales for the three month period ended
September 30, 2004 as compared to the same period of fiscal 2004 was primarily
due to a $66.5 million increase in sales to flat panel display manufacturers,
principally to one customer in Asia, and a $8.0 million increase in sales to
semiconductor fabs, predominantly in North America, Korea, and Japan. The
$120.3 million increase in AMHS sales for the six month period ended September
30, 2004 as compared to the same period of fiscal 2004 was primarily due to an
$82.3 million increase in sales to flat panel display manufacturers,
predominantly in Asia, and a $38.0 million increase in sales to semiconductor
fabs, predominantly in Asia and North America. The $42.8 million increase in Fab Automation sales for the three month period
ended September 30, 2004 as compared to the same period of fiscal 2004 was
primarily due to a $35.2 million increase in revenues for factory interface and
software products. The $91.1 million increase in Fab Automation sales for the
six month period ended September 30, 2004 as compared to the same period of
fiscal 2004 was primarily due to a $79.0 million increase in revenues for
factory interface and software products. 25




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##### Table of Contents





MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued)

Comparison of Expenses, Gross Margin, Interest & Other, and Taxes

The following table sets forth the percentage of net sales represented by
condensed consolidated statements of operations for the three and six-month
periods indicated (unaudited):

Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003NET SALES
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %COST OF SALES
    
    
    80.7
    
    
    
    76.6
    
    
    
    80.0
    
    
    
    83.0Gross profit
    
    
    19.3
    
    
    
    23.4
    
    
    
    20.0
    
    
    
    17.0OPERATING EXPENSES:Research and development
    
    
    5.4
    
    
    
    16.4
    
    
    
    6.1
    
    
    
    18.6Selling, general and administrative
    
    
    11.3
    
    
    
    29.0
    
    
    
    12.3
    
    
    
    33.7Amortization of acquired intangible assets
    
    
    3.0
    
    
    
    9.3
    
    
    
    3.3
    
    
    
    9.9Restructuring and other charges
    
    
    0.2
    
    
    
    1.0
    
    
    
    0.2
    
    
    
    5.0Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.1Total operating expenses
    
    
    19.9
    
    
    
    55.7
    
    
    
    21.9
    
    
    
    74.3Loss from operations
    
    
    (0.6
    )
    
    
    (32.3
    )
    
    
    (1.9
    )
    
    
    (57.3
    )Other expense, net
    
    
    (0.5
    )
    
    
    (2.9
    )
    
    
    (0.4
    )
    
    
    (2.5
    )Loss before benefit from income taxes and minority interest
    
    
    (1.1
    )
    
    
    (35.1
    )
    
    
    (2.3
    )
    
    
    (59.8
    )BENEFIT FROM (PROVISION FOR) INCOME TAXES
    
    
    (0.1
    )
    
    
    2.0
    
    
    
    0.5
    
    
    
    2.5MINORITY INTEREST
    
    
    0.1
    
    
    
    1.4
    
    
    
    0.5
    
    
    
    1.7NET LOSS
    
    
    (1.1
    )%
    
    
    (31.8
    )%
    
    
    (1.3
    )%
    
    
    (55.6
    )%
 Gross Margin Gross
margin decreased to 19.3 percent of net sales for the three-month
period ended September 30, 2004, compared to 23.4 percent of net sales for the
corresponding period of the prior year. The decrease was primarily due to
decreased gross margins in the AMHS segment, which declined to 9.5 percent of
net sales in the current period compared to 21.4 percent of net sales for the
corresponding period of the prior year. This decline was primarily due to an
increase in lower margin flat panel display business in the current quarter
compared with the corresponding period of the prior year. This decline was
partly offset by improved gross margins in the Fab Automation business. The
gross margins improved to 33.5 percent in the current period compared to 25.3
percent in the corresponding period of the prior year. For
the six-month period ended September 30, 2004, gross margin increased
to 20.0 percent of net sales compared to 17.0 percent of net sales for the
corresponding period of the prior year. The increase was primarily due to
the improved gross margins in the Fab Automation business, where gross margins
improved to 33.5 percent in the current period compared to 11.2 percent in the
corresponding period of the prior year. The gross margin improvement was
primarily due to an increase in mix of higher margin 200mm factory interface
products and software products. We expect 300mm product sales to continue to trend higher as new 300mm
AMHS product installations commence, although quarterly fluctuations are
possible. Additionally, 200mm SMIF upgrades or new 200mm fabs may result in
significant mix changes. Our 300mm products are very early in their product
life cycle and currently have lower margins compared with our 200mm products.
Swings in product mix may impact our gross margins on a quarter-over-quarter
basis. Through cost reduction initiatives and our outsourcing strategy, we
expect 300mm gross margins to improve over time. However, we face strong
competition on price and features for these products from existing and new
competitors due to the anticipated size of the emerging 300mm product
market. For the next two quarters of fiscal 2005, the change in product mix is expected
to be primarily driven by our recently announced $120.0 million Generation 6
flat panel display order, which at the end of the current period was
approximately 50.0 percent complete. We expect a decline in our 200 mm
product sales in the next two quarters as sales to our key markets in China and
elsewhere show signs of slowing down. Our gross margin will continue to be
affected by future changes in product mix and net sales volumes, as well as
market competition. Research and Development Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except
percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Research and development
    
    $
    9,073
    
    
    $
    8,391
    
    
    $
    682
    
    
    $
    18,752
    
    
    $
    18,015
    
    
    $
    738Percentage of total net sales
    
    
    5.4
    %
    
    
    16.3
    %
    
    
    
    
    
    
    6.1
    %
    
    
    18.6
    %
 26




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) The research and development expenses increased to $9.1 million for the
three-month period ended September 30, 2004, compared with $8.4 million in the
corresponding period of the prior year. For the six-month period ended
September 30, 2004, research and development expenses increased to $18.8
million from $18.0 million in the comparable period of the prior year. The
increase was primarily due to additional costs incurred for development of our
continuous flow technology, or CFT, product. As a percentage of sales,
research and development expenses declined to 5.4 percent of net sales for the
three-month period ended September 30, 2004, compared with 16.3 percent of net
sales in the corresponding period of the prior year. The decrease as a
percentage of sales is largely due to a larger revenue base in the current
period. Our research and development expenses vary as a percentage of net sales
because we do not manage these expenditures strictly to variations in our level
of net sales. Selling, General and Administrative Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Selling, general and administrative
    
    $
    19,100
    
    
    $
    14,914
    
    
    $
    4,186
    
    
    $
    37,919
    
    
    $
    32,519
    
    
    $
    5,400Percentage of total net sales
    
    
    11.3
    %
    
    
    29.0
    %
    
    
    
    
    
    
    12.3
    %
    
    
    33.7
    %
 The increase in selling, general and administrative, or SG&A, expenses for
the three- and six-month periods ended September 30, 2004, compared with the
same periods of fiscal 2004, was primarily due to increases in accounting and
compliance costs, and legal fees and costs associated with our review,
documentation and testing of internal control over financial reporting required
under SEC rules and accounting standards. Higher expenses also reflect
increased spending on consultants to implement business process improvements
not related to compliance requirements. Our SG&A expenses are expected to
continue to increase in the third fiscal quarter due to an estimated $1.0
million to $2.0 million of accounting, legal and other costs related to the
fiscal second quarter delay in closing ASIs books, delayed filing of this
report and resulting Nasdaq listing qualifications process, and the Audit
Committees investigation and restatement described in this report. Amortization of Acquired Intangible Assets Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Amortization of acquired
intangible assets
    
    $
    5,040
    
    
    $
    4,778
    
    
    $
    262
    
    
    $
    10,092
    
    
    $
    9,563
    
    
    $
    529Percentage of total net sales
    
    
    3.0
    %
    
    
    9.3
    %
    
    
    
    
    
    
    3.3
    %
    
    
    9.9
    %
 The increase in amortization expense for the three- and six-month periods
ended September 30, 2004, compared with the corresponding periods in the prior
year, was due to exchange rate fluctuations as the majority of our intangible
assets are denominated in Yen. Restructuring Charges Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Restructuring and other charges
    
    $
    368
    
    
    $
    487
    
    
    $
    (119
    )
    
    $
    587
    
    
    $
    4,850
    
    
    $
    (4,263
    )Percentage of total net sales
    
    
    0.2
    %
    
    
    0.9
    %
    
    
    
    
    
    
    0.2
    %
    
    
    5.0
    %
 27




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) The following table summarizes the activities in our restructuring accrual
during the three-month periods ended June 30, 2004 and September 30, 2004 (in
thousands): Severance andBenefits
    
    Excess Facilities
    
    TotalBalance, March 31, 2004
    
    $
    64
    
    
    $
    2,190
    
    
    $
    2,254Additional accruals
    
    
    6
    
    
    
    213
    
    
    
    219Amounts paid in cash
    
    
    (37
    )
    
    
    (385
    )
    
    
    (422
    )Foreign currency translation adjustment
    
    
    
    
    
    
    4
    
    
    
    4Balance, June 30, 2004
    
    
    33
    
    
    
    2,022
    
    
    
    2,055Additional (reduction of) accruals
    
    
    482
    
    
    
    (114
    )
    
    
    368Non-cash utilization
    
    
    
    
    
    
    73
    
    
    
    73Amounts paid in cash
    
    
    (461
    )
    
    
    (279
    )
    
    
    (740
    )Foreign currency translation adjustment
    
    
    (1
    )
    
    
    (7
    )
    
    
    (8
    )Balance, September 30, 2004
    
    $
    53
    
    
    $
    1,695
    
    
    $
    1,748
 For fiscal 2005, we incurred restructuring charges of $0.4 million and
$0.6 million during the three- and six-month periods ended September 30, 2004,
respectively, primarily related to excess facility costs. The outstanding
reserve amount at September 30, 2004 consists primarily of future lease
obligations on vacated facilities in excess of estimated future sublease
proceeds which will be paid over the next four quarters. All remaining accrual
balances are expected to be settled in cash. In our press release dated December 9, 2004, we announced plans to move
forward on a restructuring of our ATI operations (our base business, excluding
ASI) with a reduction in worldwide workforce. As a result of the workforce
action, we expect to incur cash severance and termination charges of
approximately $2.0 million in our third fiscal quarter ending December 25,
2004. Asset Impairment Charges Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Asset impairment charges
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,853
    
    
    $
    (6,853
    )Percentage of total net sales
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    7.1
    %
 We completed the sale of land in Fremont, California, in the fiscal year
ended March 31, 2004. The net proceeds from the sale were $12.1 million. We had
intended to construct corporate headquarters facilities on the land and
subsequently decided not to build these facilities. In the first quarter of
fiscal 2004, we recorded a $6.9 million write-down based on our then-estimate
of market value as supported by the pending sale agreement at the time. In our press release dated December 17, 2004, we announced that
management, in consultation with our Audit Committee, determined to remove from
service and make available for sale certain land and building in Nagoya, Japan
that relates to our wholly-owned Japanese subsidiary Asyst Japan, Inc., or AJI.
As a result, the company expects to record an impairment charge in its third
fiscal quarter in the range of $4.0 million to $5.0 million, based on the
companys most-recent assessment of fair market value. The building has been
underutilized since a prior decision to outsource
manufacturing, and has previously been partially written down. 28




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) Interest Income, Interest Expense and Other Income, Net Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Interest income
    
    $
    381
    
    
    $
    126
    
    
    $
    255
    
    
    $
    718
    
    
    $
    374
    
    
    $
    344Interest expense
    
    $
    1,635
    
    
    $
    1,826
    
    
    $
    (191
    )
    
    $
    3,262
    
    
    $
    3,617
    
    
    $
    (355
    )Other income (expense), net
    
    $
    449
    
    
    $
    237
    
    
    $
    212
    
    
    $
    1,183
    
    
    $
    855
    
    
    $
    328
 Interest income for the three- and six-month periods ended September 30,
2004 was higher than the comparable periods in fiscal 2004 due largely to
higher average cash and investment balances. Interest expense was lower primarily due to a reduction in outstanding
debt balances for the three- and six-month periods ended September 30, 2004 as
compared to the same periods of fiscal 2004. Other income, net was higher primarily due to an increase in royalty
income for the three- and six-month periods ended September 30, 2004 as
compared to the same periods of fiscal 2004. Income Taxes Three Months Ended
    
    
    
    Six Months EndedSeptember 30,
    
    Change
    
    September 30,
    
    Change(in thousands, except percentage)
    
    2004
    
    2003
    
    Increase(decrease)
    
    2004
    
    2003
    
    Increase(decrease)Benefit from (provision for)
income taxes
    
    $
    (67
    )
    
    $
    1,005
    
    
    $
    (1,072
    )
    
    $
    1,587
    
    
    $
    2,385
    
    
    $
    (798
    )Percentage of total net sales
    
    
    0.0
    %
    
    
    2.0
    %
    
    
    
    
    
    
    0.6
    %
    
    
    2.5
    %
 Income tax provision for the three months ended September 2004 was
primarily due to a tax benefit recorded on the amortization of deferred tax
liabilities recorded in connection with the ASI acquisition, offset by tax
provisions in ASI and other international subsidiaries, primarily Japan and
Taiwan. The benefit for the six-month period ended September 30, 2004 was
primarily due to amortization of deferred tax liabilities recorded in
connection with the ASI acquisition, offset by tax provisions in international
subsidiaries, primarily Japan and Taiwan. The benefits recorded for the three-
and six-month periods ended September 30, 2003 were primarily due to
amortization of deferred tax liabilities recorded in connection with the ASI
acquisition, offset by tax provisions in international subsidiaries, primarily
Japan and Taiwan. Deferred tax assets related to our Japan subsidiary, AJI, and
ASI are recognized to the extent realizable. In fiscal 2003, we determined that under applicable accounting principles,
based on our history of consecutive losses since the fourth quarter of fiscal
year 2001, it was more likely than not that we would not realize any value for
our net deferred tax assets. Accordingly, we established a valuation allowance
equal to 100.0 percent of the amount of these assets. If we determine in the
future that we would be able to realize our deferred tax in excess of the net
amount recorded, we would record an adjustment to the deferred tax asset,
increasing income in the period such determination was made. Liquidity and Capital Resources Since inception, we have funded our operations primarily through the
private sale of equity securities and public stock offerings, customer
pre-payments, bank borrowings, long-term debt and cash generated from
operations. See also Risk Factors  We face additional risks and costs as a
result of the delayed filing of this quarterly report on Form 10-Q  for
additional information on our ability to raise funds. As of September 30, 2004, we had approximately $116.1 million in cash,
cash equivalents and short-term investments, $130.5 million in working capital
and $90.2 million in long-term debt and capital leases, net of current portion. 29




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) The table below, for the periods indicated, provides selected condensed
consolidated cash flow information: Six Months EndedSeptember 30,(in thousands)
    
    2004
    
    2003Net cash used in operating activities
    
    $
    (18.9
    )
    
    $
    (38.4
    )Net cash provided by (used in) investing activities
    
    
    (19.2
    )
    
    
    9.0Net cash provided by financing activities
    
    $
    20.3
    
    
    $
    11.8
 Cash Flows from Operating Activities Net
cash of $18.9 million was used to fund our operating activities for
the six-month period ended September 30, 2004, primarily due to a net loss of
$4.1 million and $24.8 million increase in working capital, primarily accounts
receivable, partially offset by various non-cash charges of $10.0 million,
including depreciation and amortization. Net cash of $38.4 million was used in
fund our operating activities for the six-month period ended September 30,
2003, primarily due to a net loss of $53.7 million and $9.8 million increase in
working capital, partially offset by non-cash charges of $13.7 million,
including depreciation and amortization, and restructuring charges and
write-down of land. We continue to improve our days sales outstanding, or DSO, which have
decreased to 114 days at September 30, 2004, from 174 days at March 31, 2004.
At September 30, 2003, our DSO was 135 days. However, unbilled receivables
grew due to the increase in revenues recognized by ASI under the
percentage-of-completion method. Unbilled receivables are excluded from our
DSO calculation. The significant increase in accounts payable and accrued
liabilities at September 30, 2004 over those of March 31, 2004 was mainly
attributable to larger balances at ASI due to its higher revenue levels. Our
inventory turns were 11.5 times on an annualized basis for the six-month period
ended September 30, 2004, compared to 8.9 times for the same period of fiscal
2004, primarily due to increased demand for our products and improving
efficiencies from our outsourcing transition. We expect that cash used in or provided by operating activities may
fluctuate in future periods as a result of a number of factors including
fluctuations in our operating results, collection of accounts receivable,
timing of payments, and inventory levels. Cash Flows from Investing Activities Net cash used in investing activities was $19.2 million for the six-month
period ended September 30, 2004, due to $18.5 million in purchases of
short-term investments and $3.6 million in purchases of property and equipment,
primarily fixed assets for research and development and customer demonstration
units, partially offset by $1.0 million in proceeds from the release of
restricted cash and cash equivalents. Net cash of $9.0 million provided by investing activities for the
six-month period ended September 30, 2003 primarily consisted of net proceeds
of $12.1 million from the sale of land, partially offset by purchases of
property and equipment of $1.9 million and net cash of $1.2 million used in
ASIs acquisition of Shinko Technologies, Inc., the American subsidiary of
Shinko. Cash Flows from Financing Activities Net
cash provided by financing activities was $20.3 million for the
six-month period ended September 30, 2004, due to $20.1 million in proceeds
from our line of credit and $2.6 million in proceeds from the issuance of
common stock under our employee stock programs, partially offset by pay downs
against borrowings. Net cash provided by financing activities was $11.8 million for the
six-month period ended September 30, 2003, including total loan proceeds of
$7.5 million from short-term borrowing and additional long-term debt in our
Japanese subsidiary, offset by $5.4 million of loan repayments in the first
half of the year. Additionally, $9.8 million was provided from issuance of
common stock under our employee stock programs in the six-month period ended
September 30, 2003, primarily due to exercises of stock options by terminated
employees prior to the expiration of their stock options. We had $35.4 million and $18.2 million of short-term debt issued by banks
in Japan at September 30 and March 31, 2004, respectively. Approximately $11.0
million and $13.5 million at September 30 and March 31, 2004, respectively, is
owed by our Japanese subsidiary, AJI, and is guaranteed by Asyst in the
United States. The remaining portion, $24.4 30




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) million and $4.7 million at
September 30 and March 31, 2004, respectively, is owed by ASI. As of September
30, and March 31, 2004, the interest rate ranged from
1.4 percent to approximately
3.0 percent. On July 3, 2001, we completed the sale of $86.3 million of 5 3/4 percent
convertible subordinated notes that resulted in aggregate proceeds of $82.9
million to us, net of issuance costs. The notes are convertible, at the option
of the holder, at any time on or prior to maturity into shares of our common
stock at a conversion price of $15.18 per share, which is equal to a conversion
rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature
on July 3, 2008, pay interest on January 3 and July 3 of each year, and are
redeemable at our option after July 3, 2004. Debt issuance costs of $2.9
million, net of amortization, are being amortized over 84 months and are being
charged to other income (expense), net. Debt amortization costs totaled $0.1
million during each of the three-month periods ended September 30, 2004 and
2003, respectively, and $0.2 million during each of the six-month periods ended
September 30, 2004 and 2003, respectively. We had $5.6 million and $7.1 million of secured straight bonds from a bank
in Japan at September 30, 2004 and March 31, 2004, respectively. The bonds bore
interest at rates ranging from 1.4 percent to 3.0 percent as of September 30
and March 31, 2004, and mature in fiscal year 2008. Certain of our assets in
Japan have been pledged as security for short-term debt and secured straight
bonds. At September 30, 2004, we had a $25.0 million two-year revolving line of
credit with a commercial bank available to us, as amended during the first
quarter of fiscal year 2005. The amended agreement requires compliance with
certain financial covenants, including a quarterly net income/loss target,
calculated on an after-tax basis (excluding depreciation, amortization and
other non-cash items), and a requirement that we maintain with the bank during
the term of the line of credit a minimum balance of $5.0 million of cash and
cash equivalents. In addition, the amendment extended the line of credit
through May 15, 2006, changed and expanded the base of assets under which we
qualify for borrowing under the line of credit and reduced certain fees and
interest charges applicable to borrowing under the credit line. The specific
amount of the credit line available at any time, however, may change based on
the amount of current receivables we have outstanding. The line of credit was
fully paid down during the three-month period ended December 31, 2003. As of
September 30, 2004, there was no amount outstanding under the line of credit,
and we were in compliance with the financial covenants. We may be unable to meet certain financial covenants required under the
line of credit with the bank in subsequent quarters. Specifically, we may be
unable to meet the maximum loss covenant or the minimum liquidity covenant in
future quarters. As such, we can make no assurance that the bank will grant
waivers and amend the covenants, or that the bank will not terminate the line
of credit, preclude further borrowings or require repayment of the outstanding
borrowings, if any. In September 2003, ASI entered into a short-term bank facility with a
Japanese bank under which it may borrow up to approximately 3.0 billion
Japanese Yen, or approximately $27.1 million at the exchange rate as of
September 30, 2004. As of September 30, 2004 and March 31, 2004, respectively,
ASI had outstanding borrowings of 1.4 billion Japanese Yen and 0.5 billion
Japanese Yen, or approximately $12.7 million and $4.7 million, respectively, at
the exchange rate as of September 30, 2004 that is recorded in short-term debt.
Under terms of the ASI bank facility, ASI must generate operating profits on a
statutory basis. ASI was in compliance with the loan covenants at September 30,
2004 and at March 31, 2004. On September 21, 2004, ASI established a short-term revolving credit
facility, or the Mizuho facility, with Mizuho Bank of Japan to support its
working capital requirements in its performance of long-term construction-type
projects. During periods of rapid growth in project activity ASI can require
substantial short-term working capital to support the manufacturing and
installation of systems ahead of invoicing and collection of payments for the
systems. The maximum amount that can be borrowed under the Mizuho facility is
2.0 billion Japanese Yen, or approximately $18.1 million at the exchange rate
as of September 30, 2004. The Mizuho facility has a term of one year, and all
amounts outstanding under the facility are due and payable on September 20,
2005 (unless the facility is extended). The Mizuho facility requires no
collateral from AJI or guarantee in the event of ASIs default from Asyst. It
carries a variable interest rate based on the Tokyo Interbank Offered Rate, or
TIBOR (as of September 30, 2004, 0.07 percent), plus a margin of 1.25 percent.
Under the Mizuho facility, ASI is required to maintain compliance with certain
financial covenants, including requirements that for its current fiscal year
ASI report positive operating and net income, before extraordinary items as
identified under generally accepted accounting principles in Japan, and
maintain at least 80.0 percent of the equity it reported as of March 27, 2004.
On September 22, 2004, ASI drew an advance of 1.3 billion Japanese Yen, or
approximately $11.7 million at the exchange rate as of September 30, 2004, on
the Mizuho facility, all of which remains outstanding as of September 30, 2004.
ASI was in compliance with the loan covenants at September 30, 2004. 31




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) On September 17, 2004, AJI borrowed under several short-term bank loans
from a financial institution in Japan. Such short-term loans total 0.8 billion
Japanese Yen, or approximately $7.1 million at the exchange rate as of
September 30, 2004. The loans are repayable on February 28, 2005, and carry
interest rates ranging from 1.625 percent to 2.125 percent as of September 30,
2004. In addition, AJI has entered into arrangements with two financial
institutions in Japan to provide short-term credit facilities, which total 0.5
billion Japanese Yen, or approximately $4.9 million at the exchange rate as of
September 30, 2004. As of September 30, 2004, 4.0 billion Japanese Yen, or
approximately $4.0 million at the exchange rate as of September 30, 2004 was
outstanding. The interest rate was 1.375 percent on such credit facilities as
of September 30, 2004. None of these short-term loans and credit facilities
requires collateral from AJI or guarantees from Asyst in the event of ASIs
default. Continued operating losses may constitute a material use of our cash
resources. The cyclical nature of the semiconductor industry makes it very
difficult for us to predict future liquidity requirements with certainty. Any
upturn in the semiconductor industry may result in short-term uses of cash in
operations as cash may be used to finance additional working capital
requirements such as accounts receivable. We believe, however, our available
cash and cash equivalents will be sufficient to meet our working capital and
operating expense requirements through September 30, 2005. At some point in the future we may require additional funds to support our
working capital and operating expense requirements or for other purposes. We
may seek to raise these additional funds through public or private debt or
equity financings, or the sale of assets. These financings may not be available
to us on a timely basis if at all, or, if available, on terms acceptable to us
or not dilutive to our shareholders. If we fail to obtain acceptable additional
financing, we may be required to reduce planned expenditures or forego
investments, which could reduce our revenues, increase our losses, and harm our
business. As a result of our delayed filing of this Form 10-Q, we will be
ineligible to register our securities on Form S-3 for sale by us or resale by
others until we have timely filed all periodic reports under the Securities
Exchange Act of 1934 for one year. The inability use Form S-3 could adversely
affect our ability to raise capital during this period. If we are
delisted, it could severely impact our ability to raise future
capital and may have an adverse impact on our overall future
liquidity. Recent Accounting Pronouncements At its March 2004 meeting, the EITF reached a consensus on recognition and
measurement guidance previously discussed under EITF 03-01. The consensus
clarifies the meaning of other-than-temporary impairment and its application to
investments classified as either available-for-sale or held-to-maturity under
SFAS No. 115 and investments accounted for under the cost method or the equity
method. The recognition and measurement guidance for which the consensus was
reached in the March 2004 meeting is to be applied to other-than-temporary
impairment evaluations in reporting periods beginning after June 15, 2004. We
do not believe that this consensus on the recognition and measurement guidance
will have a significant impact on our consolidated results of operations. In November 2004, the EITF issued EITF Issue No. 04-8, The Effect of
Contingently Convertible Debt on Diluted Earnings per Share,which addressed
the issue of when the dilutive effect of contingently convertible debt
instruments, or Co-Cos, should be included in diluted earnings per share
computations regardless of whether the market price trigger has been met. The
provisions of this EITF are effective with fiscal periods ending after December
15, 2004. We do not believe this consensus will have a significant impact on
our reported earnings per share. In November 2004, the FASB issued FASB Statement No. 151, Inventory Costs
- an Amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 amends ARB 43,
Chapter 4, to clarify those abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as
current-period charges. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this Statement are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The adoption of the provisions of FAS 151 is not expected to have a
material impact on our financial position or results of operations. In December 2004, the Financial Accounting Standards Board issued its
final standard on accounting for share-based payments (SBP), FASB Statement No.
123R (revised 2004), that requires companies to
expense the value of employee stock options and similar awards. The effective
date for public companies is interim and annual periods beginning after June
15, 2005, and applies to all outstanding and unvested SBP awards at a companys
adoption date. We are still evaluating the impact of the adoption of the
provisions of SFAS No. 123R, but believe it may have a significant adverse
impact on our results from operations. 32




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) Risk Factors This Quarterly Report onForm 10-Qcontains forward-looking statements
that involve risks and uncertainties, including statements about our future
plans, objectives, intentions and expectations. Many factors, including those
described below, could cause actual results to differ materially from those
discussed in any forward-looking statements. Risks Related to Our Business We have a history of significant losses. We have a history of significant losses. In the last five fiscal years, we
were profitable in only fiscal years 2000 and 2001. For the year ended March
31, 2004, our net loss and accumulated deficit was $83.4 million and $348.7
million, respectively. We may also continue to experience losses in the
future. Internal control deficiencies, and our recently announced restatement of fiscal
first quarter results, create risks for our consolidated enterprise. We were unable to file this Form 10-Q on time due to our inability to
complete the financial closing process at ASI on a timely basis, primarily
relating to ASIs inability to provide timely reconciliation and reporting of
inventory and cost information, and a customer dispute which arose from
internal information alleging that an improper payment was offered by ASI to a
customer employee. In the process of closing ASIs books, we identified material
accounting errors in ASIs fiscal first quarter results, which led to our
determination to restate those results in a Form 10-Q/A filed on the same date
that we have filed this Form 10-Q for our fiscal second quarter.
Additionally, the company made adjustments to the fiscal first quarter
results reported for ATI, our base business, to reflect the deferral of certain
new product-related revenue that had been recognized in the quarter and reduce
amortization of deferred stock-based compensation. Additional information concerning these matters is set forth in the
Explanatory Note at the beginning of this report, Note 2 to the Condensed
Consolidated Financial Statements in this report, the introduction to this Part
I, Item 2, and in Part I, Item 4. We have determined that the reasons underlying the delay and restatement
constitute material weaknesses in our internal control over financial
reporting, as discussed in more detail under Part I, Item 4, of this Form 10-Q
and elsewhere in this Form 10-Q. In addition, during our recent efforts to document and test internal
control over financial reporting in preparation for the internal control
reports in the Form 10-K for our fiscal year ending on March 31, 2005, we have
encountered significantly greater difficulties in documenting and testing
internal control at ASI as compared to our other operations. Although we are beginning to implement what we believe to be appropriate
remedial measures to address the above matters within our consolidated
operations, we cannot assure that we will be able to achieve the goals of these
remedial measures or to avoid recurrence of the problems referred to above or
other difficulties in establishing effective internal control. In addition, while we hold majority ownership of ASI, certain major
operational decisions require the approval and support of our joint venture
partner, Shinko Electric Co., Ltd., or Shinko, and the future success of ASI
depends in significant part on the strength of our relationship with Shinko,
our ability to coordinate with Shinko changes and improvements in ASIs
operating and business process, and Shinkos willingness to support changes and
improvements (including changes which may impact benefits to Shinko as an
existing and significant supplier of component parts to ASI). It is possible that governmental agencies within or outside the U.S. could
investigate the matters summarized above and seek legal sanctions against us or
some of our employees. We may also become subject to private lawsuits filed
against us and/or our management as a result of these matters. Our current and
future results of operations may be adversely affected by significant costs
related to our investigation of and remedial measures relating to these matters
and, if applicable, any governmental investigations or actions or private
lawsuits that may arise. In addition, ASIs operations, and business and 33




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) customer relations and, as a consequence, our consolidated results and
financial condition could be negatively impacted by management and other
changes necessitated by the remediation plan described in Part I, Item 4. If we fail to achieve and maintain effective disclosure controls and procedures
and internal control over financial reporting on a consolidated basis, our
stock price and investor confidence in our company could be materially and
adversely affected. Although we are endeavoring to document and test internal controls with a
goal of reporting effective internal control in our next Form 10-K, we cannot
assure that we will achieve this goal. The control deficiencies we have
recently encountered, described above, have increased the risk that we or our
independent auditors will not be able to conclude that our internal control
over financial reporting is effective by the end of our fiscal year on March
31, 2005. To the extent that ineffective internal controls are part of our
disclosure controls and procedures, there is also a risk that we would conclude
that our disclosure controls and procedures are not effective. We believe it is unlikely under the current circumstances that all
material weaknesses, including those reported in Part 1, Item 4 of this Form
10-Q, will be remedied prior to the end of our current fiscal year, although we
are endeavoring to make significance progress in these matters. Under SEC
rules and current accounting standards, if there is any material weakness
outstanding as of the end of a reporting period, we must report that our
internal control over financial reporting is not effective. We are also
required to maintain both disclosure controls and procedures and internal
control over financial reporting that are effective for the purposes described
in Part 1, Item 4, of this Form 10-Q. If we fail to do so, our business,
results of operations or financial condition, and the value of our stock, could
be materially harmed. We face additional risks and costs as a result of the delayed filing of this
quarterly report on Form 10-Q. As a result of the delayed filing of this Form 10-Q, we have experienced
additional risks and costs. The Audit Committees investigation has been
time-consuming, is requiring us to incur incremental expenses and has affected
managements attention and resources. Further, the measures to strengthen
internal controls being implemented may require greater management time and
company resources to implement and monitor. We incurred approximately $1.0
million in costs associated with the Audit Committee investigation in the third
quarter of fiscal 2005 and may incur significant future costs associated with
the Audit Committee investigation. We previously announced that Asyst received a letter from the Nasdaq
Listing Qualifications Department indicating that, because of the companys
delay in timely filing its Quarterly Report on Form 10-Q for its fiscal second
quarter ended September 25, 2004, Asyst is not in compliance with the filing
requirements for continued listing on Nasdaq as set forth in Nasdaq Marketplace
Rule 4310(c)(14). As a result, Asysts common shares are subject to delisting
from the Nasdaq National Market, and the trading symbol for Asysts common
stock was changed from ASYT to ASYTE at the opening of business on November
18, 2004. We appeared before a Nasdaq Listing Qualifications Panel on December 15,
2004, to discuss our filing delay relating to this Form 10-Q for the second
fiscal quarter. The panel took no action on that date, and the matter remains
open. Although we are hopeful that the panel will accept our submission and
our filing of this report in December 2004 as a basis to continue the listing
of our common stock on the Nasdaq National Market, we cannot predict the
panels decision. If we are delisted, it could severely impact our ability to
raise future capital and may have an adverse impact on our overall future
liquidity. Finally, as a result of our delayed filing of this Form 10-Q, we will be
ineligible to register our securities on Form S-3 for sale by us or resale by
others until we have timely filed all periodic reports under the Securities
Exchange Act of 1934 for one year. The inability to use Form S-3 could
adversely affect our ability to raise capital or complete acquisitions of other
companies during this period. If we fail to effectively manage our ASI joint venture, our sales of Automated
Material Handling Systems could be adversely affected and the sales mix between
AMHS and our other products could affect our overall financial performance. Net sales of Automated Material Handling Systems, or AMHS, accounted for
approximately 59.2 percent and 54.4 34




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) percent of our net sales for the three and six-month periods ended
September 30, 2004, respectively, and are expected to be an important component
of our future sales. Substantially all of our AMHS sales are through our
majority-owned joint venture subsidiary, Asyst Shinko, Inc., or ASI, of which
we acquired 51.0 percent in the third quarter of fiscal year 2003. While we
hold majority ownership of ASI, certain operational decisions require the
approval and support of our joint venture partner, Shinko Electric Co., Ltd.,
or Shinko, and the future success of ASI depends in significant part on the
strength of our relationship with Shinko and ability to coordinate improvements
in ASIs operating and business process with Shinko. Other than a right of
first refusal if Shinko is proposing to sell some or its entire stake in ASI,
or in certain instances constituting a material default by Shinko, we have no
mechanism to acquire the 49.0 percent of ASI that is currently owned by Shinko.
Even if Shinko were to offer to sell its stake in ASI to us, or the shares were
otherwise available to us for purchase by right of first refusal, we may not
have sufficient funds available to facilitate such acquisition or may not elect
to purchase the shares. Further, if we were to determine to sell our stake in
ASI to Shinko (or a third party), we may not recognize proceeds from the sale
equal to our original investment. In addition, we have limited experience
managing operations in Japan, and our failure to manage effectively ASI in
Japan could harm our business. Orders for AMHS are relatively large, often exceeding $20.0 million for a
given project. Because of the size of these orders, our revenues are often
concentrated among a small number of customers in any fiscal period.
Additionally, the manufacture and installation of these systems at our
customers manufacturing facilities can take up to six months. Accordingly, we
recognize revenue and costs for AMHS based on percentage of completion because
the contracts are long-term in nature. Payments under these contracts often
occur well after we incur our manufacturing costs. For example, terms for our

Japanese AMHS customers require payment to be made six months after customer
acceptance of the installation. The consequence of the AMHS payment cycle is
that significant demands can be placed on our working capital, prior to our
receipt of customer payments. Further, gross margins on our AMHS sales are
lower than those for our other products. If we fail to effectively estimate
costs and manage these long-term projects, we could have loss contract exposure
and additional gross margin pressure. At September 30, 2004, we had a loss
contract reserve of $4.0 million related to six AMHS contracts, four of which
were entered into by ASI in fiscal 2004, one of which was entered into by ATI
in fiscal 2004 and one of which was entered into by ASI in the first fiscal
quarter of 2005. Our overall financial performance will therefore be affected
by the sales mix between AMHS and other products and our ability to manage AMHS
projects in a given period. If we are unable to increase our sales of AMHS to FPD manufacturers, or if the
FPD industry enters a cyclical downturn, our growth prospects could be
negatively affected. In recent quarters, ASI has begun to sell AMHS to flat panel display, or
FPD, manufacturers. While we believe sales to the FPD industry present a
significant opportunity for growth, the size of this market opportunity depends
in large part on capital expenditures by FPD manufacturers. The market for FPD
products is highly cyclical and has experienced periods of oversupply,
resulting in unpredictable demand for manufacturing and automation equipment.
If the FPD market enters into a cyclical downturn, demand for AMHS by the FPD
market may be significantly reduced, impacting our growth prospects. As a relatively new entrant to the FPD equipment market, we do not have
the customer relationships our competitors have. Similarly, our relative
inexperience in the FPD industry may cause us to misjudge important trends and
dynamics in this market. If we are unable to anticipate future customer needs
in the FPD market, our growth prospects may be severely affected. The timing of the industrys transition to 300mm technology is uncertain and
competition may be intense, and could adversely affect our revenues. The 300mm market is still relatively new. We have invested, and are
continuing to invest, substantial resources to develop new systems and
technologies to automate the processing of 300mm wafers. The timing of the
industrys transition from the current, widely-used 200mm manufacturing
technology to 300mm manufacturing technology is uncertain, partly as a result
of the recent period of reduced wafer fabrication capacity utilization. Delay
in the adoption of 300mm manufacturing technology could adversely affect our
potential revenue. Manufacturers who are implementing factory automation in
300mm fabs may seek to purchase systems from multiple vendors. Competition,
including price competition, for these 300mm orders is intense. We face
increased competition for our 300mm products from a number of new entrants
because of the development of Semiconductor Equipment and Materials
International, or SEMI, standards for 300mm products. 35




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) Our gross margins on 300mm products may be lower than on 200mm products, which
could adversely affect our ability to become and remain profitable. The gross margins on our 300mm products currently are not as favorable as
on our 200mm products. This is primarily because our 300mm products are early
in their production life, we face increased competition in this production
line, and we sell a greater percentage of our 300mm products to OEMs rather
than directly to semiconductor manufacturers. Manufacturing costs are generally
higher in the early stages of new product introduction and typically decrease
as demand increases, due to better economies of scale and efficiencies
developed in the manufacturing processes. We cannot, however, assure that we
will see such economies of scale and efficiencies in our future manufacturing
of 300mm products, which will be supplied primarily by contract manufacturers.
SEMI standards for 300mm products have enabled more suppliers to enter our
markets, thereby increasing competition and creating pricing pressure. While
semiconductor manufacturers purchased a majority of 200mm tool automation
products, OEMs are purchasing most of the tool automation products for 300mm.
Sales to OEMs typically have lower gross margins. These factors may prevent us from achieving or maintaining similar
relative pricing and gross margin performance on 300mm products as we have
achieved on 200mm products, and could adversely affect our ability to become
and remain profitable. Most of our manufacturing is outsourced and we rely on a single contract
manufacturer for much of our product manufacturing, which could disrupt the
availability of our products and adversely affect our gross margins. We have outsourced the manufacturing of most of our products. Solectron
currently manufactures, under a long-term contract, our products, other than
AMHS and our Japanese robotics products. ASI also subcontracts a significant
portion of its AMHS manufacturing to third parties. In the future, we may
increase our dependence on contract manufacturers. Outsourcing may not yield
the benefits we expect, and instead could result in increased product costs and
product delivery delays. Outsourced manufacturing could create disruptions in the availability of
our products if the timeliness or quality of products delivered does not meet
our requirements or our customers expectations. From time to time, we have
experienced delays in receiving products from Solectron. Problems with quality
or timeliness could be caused by a number of factors including, but not limited
to: manufacturing process flow issues, financial viability of an outsourced
vendor, availability of raw materials or components to the outsourced vendor,
improper product specifications, and the learning curve to commence
manufacturing at a new outsourced site. Our contract with Solectron contains
minimum purchase commitments which, if not met, could result in increased
costs, which would adversely affect our gross margins. We must also provide
Solectron with forecasts and targets based on actual and anticipated demand,
which we may not be able to do effectively or efficiently. If Solectron
purchases inventory based on our forecasts, and that inventory is not used, we
must repurchase the unused inventory, which would adversely affect both our
cash flows and gross margins. If product supply is adversely affected because
of problems in outsourcing, we may lose sales and profits. Our outsourcing agreement with Solectron includes commitments from
Solectron to adjust, up and down, manufacturing volume based on updates to our
forecast demand. Solectron may be unable to meet these commitments however and,
even if it can, may be unable to react efficiently to rapid fluctuations in
demand. If our agreement with Solectron terminates, or if Solectron does not
perform its obligations under our agreement, it could take several months to
establish alternative manufacturing for these products and we may not be able
to fulfill our customers orders for most of our products in a timely manner.
If our agreement with Solectron terminates, we may be unable to find another
suitable outsource manufacturer. Any delays in meeting customer demand or quality problems resulting from
product manufactured at an outsourced location such as Solectron could result
in lost or reduced future sales to key customers and could have a material
negative impact on our net sales, gross profits and results of operations. Shortages of components necessary for product assembly by Solectron or us can
delay shipments to our customers and can lead to increased costs, which may
negatively impact our financial results. When demand for semiconductor manufacturing equipment is strong,
suppliers, both U.S. and international, strain to 36




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) provide components on a timely basis. We have outsourced the manufacturing
of many of our products, and disruption or termination of supply sources to our
contract manufacturers or us could have a serious adverse effect on our
operations. Many of the components and subassemblies used in our products are
obtained from a limited group of suppliers, or in some cases may come from a
single supplier. A prolonged inability to obtain some components could have an
adverse effect on our operating results and could result in damage to our
customer relationships. Shortages of components may also result in price
increases for components and, as a result, could decrease our margins and
negatively impact our financial results. We have significant existing debts; the restrictive covenants under some of our
debt agreements may limit our ability to expand or pursue our business
strategy; if we are forced to prepay some or all of this indebtedness our
financial position would be severely and adversely affected. We have a significant amount of outstanding indebtedness. At September 30,
2004, our long-term debt was $92.9 million, of which $2.7 million represents
current portion of long-term debt recorded under current liabilities, and our
short-term debt was $35.4 million, for an aggregate of $128.3 million. This
includes $86.3 million of 5 3/4 percent convertible subordinated notes
outstanding which are convertible, at the option of the holder, at any time on
or prior to maturity into shares of our common stock at a conversion price of
$15.18 per share. We are required to pay interest on these convertible notes on
January 3 and July 3 of each year. These convertible notes mature July 3, 2008,
and are redeemable at our option after July 3, 2004. As of September 30, 2004,
ASI has entered into short-term facility arrangements with two Japanese banks
under which it may borrow up to 5.0 billion Japanese Yen, or approximately
$45.2 million, and of which 2.7 billion Japanese Yen, or approximately $24.4
million is currently outstanding. We have also guaranteed the loans of our
wholly owned Japanese subsidiary, Asyst Japan, Inc., or AJI, which loans
currently total approximately $16.6 million as of September 30, 2004. Our $25.0 million two-year line of credit with a commercial bank, as
amended during the first quarter of fiscal year 2005, requires us to maintain
compliance with certain financial covenants, including a quarterly net
income/loss target, calculated on an after-tax basis (excluding depreciation,
amortization and other non-cash items), and a requirement that we maintain with
the bank during the term of the line of credit a minimum balance of $5.0
million of cash and cash equivalents. The specific amount of the credit line
available at any time, however, may change based on the amount of current
receivables we have outstanding. The covenants contained in our line of credit
with the bank also restrict our ability to take certain actions, including our
ability to:  
    
    incur additional indebtedness;  
    
    pay dividends and make distributions in respect of our capital stock;  
    
    redeem capital stock;  
    
    make investments or other restricted payments;  
    
    engage in transactions with shareholders and affiliates;  
    
    create liens;  
    
    sell or otherwise dispose of assets;  
    
    make payments on our debt, other than in the ordinary course; and  
    
    engage in mergers and acquisitions. The line of credit has been fully paid down as of the three-month period
ended December 31, 2003. As of the three-month period ended December 31, 2003,
we were not in compliance with certain of these financial covenants but
obtained a waiver of compliance from the bank for these certain covenants. As
of September 30, 2004, there were no amounts outstanding under the line of
credit and we were in compliance with the financial covenants. We entered into
an agreement with the bank, effective as of May 15, 2004, to amend and restate
the terms of our existing line of credit which extended its term through May
15, 2006, changed and expanded the base of assets under which we qualify for
borrowings under the credit facility and reduced certain fees and interest
charges applicable to borrowings under the credit line. While we have 37




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) experienced improvements in our financial results for the six-month period
ended September 30, 2004, we cannot assure you we will meet the financial
covenants contained in our line of credit with the bank in subsequent quarters.
Specifically, we may be unable to meet the maximum loss covenant or the minimum
liquidity covenant in future quarters. If we are unable to meet any covenants,
we cannot assure you the bank will grant waivers and amend the covenants, or
that the bank will not terminate the agreement, preclude further borrowings or
require us to repay the outstanding borrowings. Under terms of the ASI bank facility, ASI must generate operating profits
on a statutory basis. Additionally, upon an event of default, the Japanese
banks may call the loans outstanding at AJI, requiring immediate repayment,
which we have guaranteed. As long as our indebtedness remains outstanding, the restrictive covenants
could impair our ability to expand or pursue our business strategies or obtain
additional funding. Forced prepayment of some or all of our indebtedness would
reduce our available cash balances and have an adverse impact on our operating
and financial performance. We may need additional financing in the future to meet our capital needs; if we
do need to secure financing, it may not be available on favorable terms. We raised capital of $99.0 million by issuing 6.9 million shares of our
common stock in a public offering in November 2003; however, our operations are
currently consuming cash and are expected to continue to do so for the next
several quarters. As a consequence, in the future we may be required to seek
additional financing to meet our working capital needs and to finance capital
expenditures, as well as to fund operations. As a result of our delayed filing
of this Form 10-Q, we will be ineligible to register our securities on Form S-3
for sale by us or resale by others until we have timely filed all periodic
reports under the Securities Exchange Act of 1934 for one year. The inability
to use Form S-3 could adversely affect our ability to raise capital during this
period. Additionally, we may be unable to obtain any required additional
financing on terms favorable to us, if at all, or which is not dilutive to our
shareholders. If adequate funds are not available on acceptable terms, we may
be unable to fund our expansion, successfully develop or enhance products,
respond to competitive pressures or take advantage of acquisition
opportunities, any of which could have a material adverse effect on our
business. If we raise additional funds through the issuance of equity
securities, our shareholders may experience dilution of their ownership
interest, and the newly-issued securities may have rights superior to those of
our common stock. If we raise additional funds by issuing debt, we may be
subject to limitations on our operations. This strain on our capital resources
could adversely affect our business. If our fully integrated tool front-end solutions are not widely accepted, our
growth prospects could be negatively affected. The decision by OEMs to adopt our tool front-end, or portal, solutions for
a large product line involves significant organizational, technological and
financial commitments by the OEMs. OEMs expect the portal solutions to meet
stringent design, reliability and delivery specifications. If we fail to
satisfy these expectations, whether based on limited or expanded sales levels,
OEMs will not adopt our portal solutions. We cannot ensure that these tools
will be widely accepted in the marketplace, that additional OEMs will adopt
them, or that our products will command pricing sufficient to achieve and
maintain profitability. We have invested significant time and expense in the
development of Spartan, our next generation portal offering specifically
designed for the 300mm market. While we believe Spartan may improve our
competitive position and gross margins in the 300mm industry, if the market
acceptance of Spartan is less than our forecast, or if the timing of this
acceptance is delayed, our financial performance could be impacted. Further,
because Spartan is early in its production life, its manufacturing costs may be
higher (and resulting margins may be lower) than those of existing or legacy
products. Notwithstanding our portal solutions, OEMs may purchase components to
assemble or invest in the development of their own comparable portals. If our
solutions are not adopted by OEMs, our prospects will be negatively impacted
and we may not be able to achieve profitability. Because we do not have long-term contracts with our customers, our customers
may cease purchasing our products at any time if we fail to meet their needs on
a timely basis. We do not have long-term contracts with our customers, and our sales are
typically made pursuant to individual purchase orders. Accordingly:  
    
    our customers can cease purchasing our products at any time, without penalty; 38




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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued)  
    
    our customers are free to purchase products from our competitors;  
    
    we are exposed to competitive price pressure on each order; and  
    
    our customers are not required to make minimum purchases. Customer orders are often received with extremely short lead times. If we
are unable to fulfill these orders in a timely manner, we could lose sales and
customers. We depend on large purchases from a few significant customers, and any loss,
cancellation, reduction or delay in purchases by, or failure to collect
receivables from, these customers could harm our business. The markets in which we sell our products comprise a relatively small
number of OEMs and semiconductor manufacturers. Large orders from a relatively
small number of customers account for a significant portion of our revenue and
make our relationship with each customer critical to our business. The sales
cycles to new customers range from six to twelve months from initial inquiry to
placement of an order, depending on the complexity of the project. These
extended sales cycles make the timing of customer orders uneven and difficult
to predict. A significant portion of the net sales in any quarter is typically
derived from a small number of long-term, multi-million dollar customer
projects involving upgrades of existing facilities or the construction of new
facilities. Generally, our customers may cancel or reschedule shipments with
limited or no penalty. Our customers demand for our products is largely driven by the timing of
new fab construction and the upgrading of existing fabs initiated by those
customers. As such, when we complete projects for a customer, business from
that customer will decline substantially unless it undertakes additional
projects incorporating our products. The high cost of building a fab is causing
increasing numbers of semiconductor manufacturers to outsource the
manufacturing of their semiconductors to foundries. This trend toward foundry
outsourcing, combined with increasing consolidation within the semiconductor
industry, could continue to decrease the number of our potential customers and
increase our dependency on our remaining customers. We may not be able to
retain our largest customers or attract additional customers, and our OEM
customers may not be successful in selling the OEM equipment in which our
systems are embedded. Our success will depend on our continued ability to
develop and manage relationships with significant customers. In addition, our
customers have in the past sought price concessions from us and may continue to
do so in the future, particularly during downturns in the semiconductor market.
Further, our current and prospective customers have exerted pressure on us to
shorten delivery times and to customize and improve the capabilities of our
products, thus increasing our manufacturing costs. In addition, some of our
customers may in the future shift their purchases of products from us to our
competitors. Failure to respond adequately to such pressures could result in a
loss of customers or orders and the inability to develop successful
relationships with new customers, which would have a negative impact on our
business. If we are unable to collect a receivable from a large customer, our
financial results will be negatively affected. In addition, since each customer
represents a significant percentage of net sales, the timing of the completion
of an order and the promptness of customer payment can lead to a fluctuation in
our quarterly results. If we are unable to develop and introduce new products and technologies in a
timely manner, our business could be negatively affected. Semiconductor equipment and processes are subject to rapid technological
changes. The development of more complex semiconductors has driven the need for
new facilities, equipment and processes to produce these devices at an
acceptable cost. We believe that our future success will depend in part upon
our ability to continue to enhance our existing products to meet customer needs
and to develop and introduce new products in a timely manner. We often require
long lead times for development of our products, which requires us to expend
significant management effort and to incur material development costs and other
expenses. During development periods we may not realize corresponding revenue
in the same period, or at all. We may not succeed with our product development
efforts and we may not respond effectively to technological change, which could
have a negative impact on our financial condition and results of operations.
The impact could include charges to operating expense, cost overruns on large
projects or the loss of future revenue opportunities. We may be unable to protect our intellectual property rights and we may become
involved in litigation concerning the 39




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) intellectual property rights of others. We rely on a combination of patent, trade secret and copyright protection
to establish and protect our intellectual property. While we intend to take
reasonable steps to protect our patent rights, we cannot assure you our patents
and other intellectual property rights will not be challenged, invalidated or
avoided, or that the rights granted thereunder will provide us with competitive
advantages. We also rely on trade secrets that we seek to protect, in part,
through confidentiality agreements with employees, consultants and other
parties. These agreements may be breached, we may not have adequate remedies
for any breach, or our trade secrets may otherwise become known to, or
independently developed by, others. In addition, enforcement of our rights
could impose significant expense and result in an uncertain or
non-cost-effective determination or confirmation of our rights. Intellectual property rights are uncertain and involve complex legal and
factual questions. We may infringe the intellectual property rights of others,
which could result in significant liability for us. If we do infringe the
intellectual property rights of others, we could be forced to either to seek a
license to intellectual property rights of others or alter our products so that
they no longer infringe the intellectual property rights of others. A license
could be very expensive to obtain or may not be available at all. Similarly,
changing our products or processes to avoid infringing the rights of others may
be costly or impractical, could detract from the value of our product, or could
delay our ability to meet customer demands or opportunities. There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Litigation
may be necessary to enforce our patents, to protect our trade secrets or know
how, to defend us against claimed infringement of the rights of others, or to
determine the scope and validity of the patents or intellectual property rights
of others. Any litigation could result in substantial cost to us and divert the
attention of our management, which by itself could have an adverse material
effect on our financial condition and operating results. Further, adverse
determinations in any litigation could result in our loss of intellectual
property rights, subject us to significant liabilities to third parties,
require us to seek licenses from third parties, or prevent us from
manufacturing or selling our products. Any of these effects could have a
negative impact on our financial condition and results of operations. The intellectual property laws in Asia do not protect our intellectual
property rights to the same extent as do the laws of the United States. It may
be necessary for us to participate in proceedings to determine the validity of
our, or our competitors, intellectual property rights in Asia, which could
result in substantial cost and divert our efforts and attention from other
aspects of our business. If we are unable to defend our intellectual property
rights in Asia, our future business, operating results and financial condition
could be adversely affected. We may not be able to integrate efficiently the operations of our acquisitions,
and may incur substantial losses in the divestiture of assets or operations. We have made and may continue to make additional acquisitions of, or
significant investments in, businesses that offer complementary products,
services, technologies or market access. If we are to realize the anticipated
benefits of past and future acquisitions or investments, the operations of
these companies must be integrated and combined efficiently with our own. The
process of integrating supply and distribution channels, computer and
accounting systems, and other aspects of operations, while managing a larger
entity, has in the past presented and will continue to present a significant
challenge to our management. In addition, it is not certain that we will be
able to incorporate different financial and reporting controls, processes,
systems and technologies into our existing business environment. The
difficulties of integration may increase because of the necessity of combining
personnel with varied business backgrounds and combining different corporate
cultures and objectives. We may incur substantial costs associated with these
activities and we may suffer other material adverse effects from these
integration efforts which could materially reduce our earnings even over the
long-term. We may not succeed with the integration process and we may not fully
realize the anticipated benefits of the business combinations, or we could
decide to divest or discontinue existing or recently acquired assets or
operations. For example, in fiscal 2003, we decided to discontinue operations
of our SemiFab and AMP subsidiaries, both of which we had acquired in February
2001, as these subsidiaries were generating significant operating losses and
were not considered critical to our long-term strategy. These subsidiaries were
sold at the end of fiscal 2003 at a substantial loss. The dedication of
management resources to such integration or divestitures may detract attention
from the day-to-day business, and we may need to hire additional management
personnel to mange our acquisitions or divestitures successfully. As our quarterly and yearly operating results are subject to variability,
comparisons between periods may not be 40




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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) meaningful; this variability in our results could cause our stock price to
decline. Our revenues and operating results can fluctuate substantially from
quarter to quarter and year to year, depending on factors such as:  
    
    general trends in the overall economy, electronics industry and semiconductor manufacturing industry;  
    
    fluctuations in the semiconductor equipment market;  
    
    changes in customer buying patterns;  
    
    the degree of competition we face;  
    
    the size, timing and product mix of customer orders;  
    
    lost sales due to any failure in the outsourcing of our manufacturing;  
    
    the availability of key components;  
    
    the timing of product shipment and acceptance, which are factors in
determining when we recognize revenue; and  
    
    the timely introduction and acceptance of new products. These and other factors increase the risk of unplanned fluctuations in our
net sales. A shortfall in net sales in a quarter or a fiscal year as a result
of these and other factors could negatively impact our operating results for
that period. Given these factors, we expect quarter-to-quarter and year-to-year
performance to fluctuate for the foreseeable future. As a result,
period-to-period comparisons of our performance may not be meaningful, and you
should not rely on them as an indication of our future performance. In one or
more future periods, our operating results may be below the expectations of
public market analysts and investors, which may cause our stock price to
decline. We face significant economic and regulatory risks because a majority of our net
sales are derived from outside the United States. A significant portion of our net sales is attributable to sales outside
the United States, primarily in Taiwan, Japan, China, Korea, Singapore and
Europe. International sales were 80.0 percent of our total net sales for the
six-month period ended September 30, 2004, 79.0 percent for fiscal 2004, 65.0
percent for fiscal 2003 and 55.0 percent for fiscal 2002. We expect that
international sales, particularly to Asia, will continue to represent a
significant portion of our total revenue in the future. Concentration in sales
to customers outside the United States increases our exposure to various risks,
including:  
    
    exposure to currency fluctuations;  
    
    the imposition of governmental controls;  
    
    the laws of certain foreign countries may not protect our
intellectual property to the same extent as do the laws of the United
States;  
    
    the need to comply with a wide variety of foreign and U.S. export laws;  
    
    political and economic instability;  
    
    terrorism and anti-American sentiment;  
    
    trade restrictions;  
    
    slowing economic growth and availability of investment capital and credit; 41




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued)  
    
    changes in tariffs and taxes;  
    
    longer product acceptance and payment cycles;  
    
    the greater difficulty in administering business overseas; and  
    
    inability to enforce payment obligations or recourse to legal
protections accorded creditors to the same extent within the U.S. Any kind of economic instability in parts of Asia where we do business can
have a severe negative impact on our operating results, due to the large
concentration of our sales activities in this region. For example, during 1997
and 1998, several Asian regions, including Taiwan and Japan, experienced severe
currency fluctuation and economic deflation, which negatively affected our
revenues and also negatively affected our ability to collect payments from
customers. The economic situation during this period exacerbated a decline in
selling prices for our products as our competitors reduced product prices to
generate needed cash. Although we invoice a majority of our international sales in United States
dollars, we invoice our sales in Japan in Japanese yen. Future changes in the
exchange rate of the U.S. dollar to the Japanese yen may adversely affect our
future results of operations. We do not currently engage in active currency
hedging transactions. Nonetheless, as we expand our international operations,
we may allow payment in additional foreign currencies and our exposure to
losses due to foreign currency transactions may increase. Moreover, the costs
of doing business abroad may increase as a result of adverse exchange rate
fluctuations. For example, if the United States dollar declined in value
relative to a local currency, we could be required to pay more for our
expenditures in that market, including salaries, commissions, local operations
and marketing expenses, each of which is paid in local currency. In addition,
we may lose customers if exchange rate fluctuations, currency devaluations or
economic crises increase the local currency price of our products and
manufacturing costs or reduce our customers ability to purchase our products. Asian and European courts might not enforce judgments rendered in the
United States. There is doubt as to the enforceability in Asia and Europe of
judgments obtained in any federal or state court in the United States in civil
and commercial matters. The United States does not currently have a treaty with
many Asian and European countries providing for the reciprocal recognition and
enforcement of judgments in civil and commercial matters. Therefore, a final
judgment for the payment of a fixed debt or sum of money rendered by any
federal or state court in the United States would not automatically be
enforceable in many European and Asian countries. Our current and planned operations may strain our resources and increase our
operating expenses. We may expand our operations through both internal growth and
acquisitions. We expect this expansion will strain our systems and operational
and financial controls. In addition, we may incur higher operating costs and be
required to increase substantially our working capital to fund operations as a
result of such an expansion. In addition, during an expansion, we may incur
significantly increased up-front costs of sale and product manufacture well in
advance of receiving revenue for such product sales. To manage our growth
effectively, we must continue to improve and expand our systems and controls.
If we fail to do so, our growth will be limited and our liquidity and ability
to fund our operations could be significantly strained. Our officers have
limited experience in managing large or rapidly growing businesses. Further, consideration for future acquisitions could be in the form of
cash, common stock, rights to purchase stock, or a combination thereof.
Dilution to existing shareholders, and to earnings per share, may result if
shares of our common stock or other rights to purchase common stock are issued
in connection with any future acquisitions. If we lose any of our key personnel or are unable to attract, train or retain
qualified personnel, our business would be harmed. Our success depends, in large part, on the continued contributions of our
key management and other key personnel, many of whom are highly skilled and
would be difficult to replace. In particular, the services of Dr. Stephen
Schwartz, Chairman of our Board of Directors, Chief Executive Officer and
President, who has led our company since August 2002 (and has been Chairman of
our Board of Directors since January 2003), and Mr. Anthony Bonora, Executive
Vice President of Research & Development and Chief Technical Officer, are very
important to our business. Few of our senior 42




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) management, key technical personnel or key sales personnel are bound by
written employment contracts to remain with us for a specified period. In
addition, we do not currently maintain key person life insurance covering our
key personnel. The loss of any of our senior management or key personnel could
harm our business. Our success also depends on our ability to attract, train and retain
highly skilled managerial, engineering, sales, marketing, legal and finance
personnel and on the abilities of new personnel to function effectively, both
individually and as a group. Competition for qualified senior employees can be
intense. If we fail to do this, our business could be harmed. Moreover, some of the individuals on our management team have been in
their current positions for a relatively short period of time. For example, our
Senior Vice President of Worldwide Manufacturing Operations joined us in May
2004, and our Chief Financial Officer joined us in September 2004. Our future
success will depend to a significant extent on the ability of our management
team to work effectively together. There can be no assurance that our
management team will be able to integrate and work together effectively. When we account for employee stock options using the fair value method, it
would significantly impact our results from operations. On December 16, 2004, the Financial Accounting Standards Board issued its
final standard on accounting for share-based payments (SBP), FASB Statement No.
123R (revised 2004), Share-Based Payment (FAS 123R), that requires companies to
expense the value of employee stock options and similar awards, including
purchases made under an Employee Stock Purchase Program. The effective date
for public companies is interim and annual periods beginning after June 15,
2005, and applies to all outstanding and unvested SBP awards at a companys
adoption date. When adopted, we will likely have to record significant and
ongoing accounting charges, which would adversely impact our results from
operations. Risks Related to our Industry The semiconductor manufacturing equipment industry is highly cyclical and is
affected by recurring downturns in the semiconductor industry, and these cycles
can harm our operating results. Our business largely depends upon the capital expenditures of
semiconductor manufacturers. Semiconductor manufacturers are dependent on the
then-current and anticipated market demand for semiconductors. The
semiconductor industry is cyclical and has historically experienced periodic
downturns. These periodic downturns, whether the result of general economic
changes or decreases in demand for semiconductors, are difficult to predict and
often have a severe adverse effect on the semiconductor industrys demand for
semiconductor manufacturing equipment. Sales of equipment to semiconductor
manufacturers may be significantly more cyclical than sales of semiconductors,
as the large capital expenditures required for building new fabs or
facilitating existing fabs is often delayed until semiconductor manufacturers
are confident about increases in future demand. If demand for semiconductor
equipment remains depressed for an extended period, it will seriously harm our
business. Our industry began experiencing a significant downturn in 2000 due to
decreased worldwide demand for semiconductors. During this downturn, most of
our customers reduced capital expenditures, which adversely affected our
business. Excluding sales of ASI, which was acquired during the third quarter
of fiscal 2003, our net sales declined sequentially in the third and fourth
quarter of fiscal 2003 and again in the first quarter of fiscal 2004. Although
our net sales have increased over the last several quarters, we cannot assure
you our sales will recover sufficiently for us to return to profitability in
the near future. As a result of substantial cost reductions in response to the
decrease in net sales and uncertainty over the timing and extent of any
industry recovery, we may be unable to make the investments in marketing,
research and development and engineering that are necessary to maintain our
competitive position, which could seriously harm our long-term business
prospects. We believe that the cyclical nature of the semiconductor and semiconductor
manufacturing equipment industries will continue, leading to periodic industry
downturns, which may seriously harm our business and financial position. We may not effectively compete in a highly competitive semiconductor
manufacturing equipment industry. The markets for our products are highly competitive and subject to rapid
technological change. We currently face direct 43




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS  (Continued) competition with respect to all of our products. A number of competitors
may have greater name recognition, more extensive engineering, research &
development, manufacturing, and marketing capabilities, access to lower cost
components or manufacturing, and substantially greater financial, technical and
personnel resources than those available to us. Brooks Automation, Inc., or Brooks, and TDK Corporation of Japan are our
primary competitors in the area of isolation systems. Our SMART-Traveler System
products face competition from bar code technology as well as from Brooks, and
a number of smaller competitors. We also compete with several companies in the
robotics area, including, but not limited to, Brooks, Newport Corporation,
Rorze Corporation and Yasukawa Super Mectronics Division. In the area of AMHS,
our products face competition from Daifuku Co., Ltd., Murata Co., Ltd., and
Brooks. In our FPD business, we compete with Daifuku and Murata. Our wafer
sorters compete primarily with products from Recif, Inc. and Brooks. In
addition, the industry transition to 300mm wafers is likely to draw new
competitors to the facility automation and AMHS markets. In the 300mm wafer
market, we expect to face intense competition from a number of established
automation companies such as Brooks, as well as new competition from
semiconductor equipment and cleanroom construction companies. We expect that our competitors will continue to develop new products in
direct competition with our systems, improve the design and performance of
their products and introduce new products with enhanced performance
characteristics, and existing products at lower costs. To remain competitive,
we need to continue to improve and expand our product line, which will require
us to maintain a high level of investment in research and development.
Ultimately, we may not be able to make the technological advances and
investments necessary to remain competitive. Companies in the semiconductor capital equipment industry face continued
pressure to reduce costs. Pricing actions by our competitors may require us to
make significant price reductions to avoid losing orders. 44




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has not been a material change in our exposure to interest rate and
foreign currency risks since March 27, 2004, the end of our preceding fiscal
year. Interest Rate Risk.Our exposure to market risk for changes in interest
rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. Our investment portfolio
consists of short-term fixed income securities and by policy we limit the
amount of credit exposure to any one issuer. As stated in our investment
policy, we ensure the safety and preservation of our invested principal funds
by limiting default risk, market risk and reinvestment risk. We mitigate
default risk by investing in safe and high-credit quality securities and by
constantly positioning our portfolio to respond appropriately to a significant
reduction in a credit rating of any investment issuer, guarantor or depository.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity. These securities, like all fixed
income instruments, carry a degree of interest rate risk. Fixed rate securities
have their fair market value adversely affected due to rise in interest rates.
As a result of the relatively short duration of our portfolio, an immediate
hypothetical parallel shift to the yield curve of plus 50 basis points (BPS),
and 100 BPS would result in a reduction of 0.13 percent and 0.26 percent,
respectively, in the market value of our investment portfolio as of September
30, 2004. We also have the ability to keep our fixed income investments fairly
liquid. Therefore, we would not expect our operating results or cash flows to
be affected to any significant degree by a sudden change in market interest
rates on our securities portfolio. Foreign Currency Exchange Risk. We engage in international operations and
transact business in various foreign countries. The primary source of foreign
currency cash flows is Japan and to a lesser extent China, Taiwan, Singapore
and Europe. Although we operate and sell products in various global markets,
substantially all sales are denominated in U.S. dollars, except in Japan,
thereby reducing our foreign currency risk. To date, the foreign currency
transactions and exposure to exchange rate volatility have not been
significant. If the Japanese Yen were to fluctuate by 10.0 percent from the
level at September 30, 2004, our results of operations may improve or
deteriorate in the range of $5.0 to $6.0 million. Although we do not
anticipate any significant fluctuations, there can be no assurance that foreign
currency exchange risk will not have a material impact on our financial
position, results of operations or cash flow in the future. 45




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ITEM 4  CONTROLS AND PROCEDURES Introduction.SEC rules define disclosure controls and procedures as
controls and procedures that are designed to ensure that information required
to be disclosed by public companies in the reports filed or submitted under the
Act is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms (Disclosure Controls). SEC rules define internal control over financial reporting as a process
designed by, or under the supervision of, a public companys principal
executive and principal financial officers, or persons performing similar
functions, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, or GAAP,
including those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements (Internal Controls). We have endeavored to design our Disclosure Controls and Internal Controls
to provide reasonable assurances that their objectives will be met. A control
system, no matter how well designed and operated, can provide only reasonable,
but not absolute, assurance that its objectives will be met. All control
systems are subject to inherent limitations, such as resource constraints, the
possibility of human error, lack of knowledge or awareness, cultural
familiarity with the controls and objectives, and the possibility of
intentional circumvention of these controls. Furthermore, the design of any
control system is based in part upon assumptions about the likelihood of future
events, which assumptions may ultimately prove to be incorrect. As a result, we
cannot assure you our control system will detect every error or instance of
fraudulent conduct, including an error or instance of fraudulent conduct which
could have a material adverse impact on our operations or results. Evaluation of Disclosure Controls and Procedures.Our Chief Executive
Office, or CEO, and our Chief Financial Officer, or CFO, are responsible for
establishing and maintaining our Disclosure Controls. Our CEO and CFO, after
evaluating the effectiveness of our Disclosure Controls as of September 30,
2004, have concluded that our Disclosure Controls were not effective as of that
date to provide reasonable assurances that they will meet their defined
objectives. See also Part I, Item 2, Risk Factors  Internal control
deficiencies, and our recently announced restatement of fiscal first quarter
results, create risks for our consolidated enterprise, and If we fail to
achieve and maintain effective disclosure controls and procedures and internal
control over financial reporting on a consolidated basis, our stock price and
investor confidence in our company could be materially and adversely affected. Changes in Internal Controls. As previously reported in our Form 10-K
filed for fiscal 2004, during the fourth quarter of fiscal 2004, we instituted
procedural changes in our Internal Controls intended to improve the timing and
accuracy of reconciliation of certain accounts. During the second quarter of
fiscal 2005, we continued to implement these procedural changes, including the
development of processes to address inventory reconciliation and costing issues
created by the implementation of a new ERP information system by ASI. Except
as described above, we identified no changes in our Internal Controls that
occurred during the second quarter of fiscal 2005 that has materially affected,
or is reasonably likely to materially affect, our Internal Controls. Discussion of Control Deficiencies: Background. In a press release issued November 3, 2004, we announced that
we would not timely file this Form 10-Q because:  
    
    As a result of a conversion in the fiscal first quarter to a new ERP
information system within ASI, ASI was unable to provide timely
reconciliation and reporting of inventory and cost information, which
prevented us from completing our consolidated financial closing process
for the fiscal second quarter on a timely basis.  
    
    ASI was in a contract dispute with a customer relating to three
contracts for a large flat panel display project. The 46




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dispute concerned allegations that ASI and a customer employee had an
arrangement by which competitive information was shared, and an agreement
was made, allegedly, for a future payment of money to the customer
employee. This customer has since reaffirmed the flat panel display
contracts with ASI, and has paid all amounts currently due under the three
contracts to ASI. The three contracts had an aggregate original value of $137.0
million at the time the contracts were booked. In conjunction with reaffirming
the three contracts, certain terms were renegotiated, including an aggregate
price reduction to the customer of approximately $7.0 million under the three
contracts at the exchange rate as of September 30, 2004. Audit Committee Investigation.Upon notification by Asyst management of
the customer dispute referred to above, the Audit Committee of our Board of
Directors promptly initiated an independent legal and forensic investigation of
this matter in October 2004, which has been completed. The Audit Committee
concluded that Asyst management had prevented the payment to the customer
employee, no evidence of other improper payments was discovered, and Asyst
management was not involved in the improper conduct. Closing Process and Restatement. Asyst believes that the ERP system
conversion issues that led to inventory reconciliation difficulties at ASI have
been addressed and that the system will support the timely preparation and
submission of its consolidated financial statements in future reporting
periods. In the process of closing ASIs books, we identified material accounting
errors in ASIs fiscal first quarter results, which led to our determination to
restate those results in the Form 10-Q/A filed on the same date that we have
filed this Form 10-Q for our fiscal second quarter. Additionally, the company made adjustments to the fiscal first quarter
results reported for ATI, our base business. Summary of Restatement. All applicable financial information contained
in this Form 10-Q gives effect to the restatement described above. The
financial statements or information for the fiscal first quarter included in
our Form 10-Q filed on August 5, 2004, or included in announcements prior to
our press release dated December 20, 2004, should not be relied upon. The restatement primarily corrects accounting errors at Asyst Shinko, Inc.
(ASI), our 51%-owned joint venture company in Japan, that understated ASIs
costs of goods sold for the fiscal first quarter by
$3.6 million and its operating loss by $3.5 million, and
adjusts ATIs first quarter results to reduce its net sales
by $1.7 million and its operating income by $216,000 to reflect the deferral of certain new
product-related revenue that had been recognized in the quarter and reduce
amortization of deferred stock-based compensation. The principal effects of
the restatement adjustments on the consolidated fiscal first quarter results
are to:  
    
    reduce consolidated net sales by $1.5 million, and increase consolidated cost of sales by $2.3 million;  
    
    reduce gross margin at ASI from 10% to 5%, and reduce consolidated gross margin from 23% to 21%;  
    
    increase consolidated net loss from $0.9 million to $2.3 million;  
    
    increase consolidated net loss per share $0.02 to $0.05. The information contained in the Condensed Consolidated Financial
Statements (Unaudited) in this report should be read in conjunction with the
relevant information contained in the Form 10-Q/A we have filed for our fiscal
first quarter on the date we filed this Form 10-Q. Note 2 to the Restated
Condensed Consolidated Financial Statements contained in the Form 10-Q/A also
includes a detailed statement of information as reported and as restated
for the fiscal first quarter. Nasdaq Notification. We previously announced that Asyst received a letter
from the Nasdaq Listing Qualifications Department indicating that, because of
the companys delay in timely filing its Quarterly Report on Form 10-Q for its
fiscal second quarter ended September 25, 2004, Asyst is not in compliance with
the filing requirements for continued listing on Nasdaq as set forth in Nasdaq
Marketplace Rule 4310(c)(14). As a result, Asysts common shares are subject to
delisting from the Nasdaq National Market, and the trading symbol for Asysts
common stock was changed from ASYT to ASYTE at the opening of business on
November 18, 2004. We appeared before a Nasdaq Listing Qualifications Panel on December 15,
2004, to discuss our filing delay relating to this Form 10-Q for the second
fiscal quarter. The panel took no action on that date, and the matter remains
open. Although we are hopeful that the panel will accept our submission and
our filing of this report in December 2004 as a basis to 47




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continue the listing of our common stock on the Nasdaq National Market, we
cannot predict the panels decision. If we are delisted, it could severely
impact our ability to raise future capital and may have an adverse impact on
our overall future liquidity. Material Weaknesses. In connection with the matters described above, our
companys management identified and reported to our Audit Committee the following control deficiencies, each of which
constitutes a material weakness in our internal control over financial
reporting as of September 30, 2004:  
    
    inability to provide timely reconciliation and reporting of inventory
and cost information at ASI as a result of conversion to a new ERP
system, which in turn prevented the company from completing its
consolidated financial closing process for the fiscal second quarter
on a timely basis.  
    
    internal information from ASI indicating that an improper payment was
offered by ASI to a customer employee, which in turn created a risk
that the customer in the dispute referenced above could claim a right
to cancel the contracts.  
    
    accounting errors at ASI and ATI that led to the restatement of our
fiscal first quarter results, primarily relating to errors at ASI that
understated ASIs costs of goods sold for the fiscal first quarter by
$3.6 and its operating loss by $3.5 million, and adjustments to ATIs
first quarter results to reduce its net sales by $1.7 million and its
operating income by $216,000 to reflect the deferral of certain new
product-related revenue that had been recognized in the quarter and
reduce amortization of deferred stock-based compensation. Under the Public Company Accounting Oversight Board Accounting Standard
No. 2, a material weakness is a significant deficiency, or a combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected. We intend to strengthen our controls over
financial reporting to address the above-noted material weaknesses by strengthening timely reviews and analysis
of operations and financial results and increasing the level of staffing in critical functional areas,
including cost accounting and internal audit. ASI Remediation Plan. In conjunction with
its investigation, the Audit Committee also approved managements
proposed remediation program described below, which is intended to be
implemented by ASI over the next several quarters and to improve internal
control over financial reporting at ASI:  
    
    employment actions, including a review of ASIs management structure.  
    
    enhanced policies and procedures to review material customer contracts and to promote proper business practices in
contracting activity.  
    
    improved communication and implementation of business policies within ASI, including proper business practices, ethics and
conduct, and adherence to contract approval policies.  
    
    training of ASI employees and monitoring of management relating to the matters listed above. 48




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PART II  OTHER INFORMATION 
 Item 1  Legal Proceedings On October 28, 1996, we filed suit in the United States District Court for
the Northern District of California against Empak, Inc., Emtrak, Inc., Jenoptik
AG, and Jenoptik Infab, Inc., alleging, among other things, that certain
products of these defendants infringe our United States Patents Nos. 5,097,421
(the 421 patent) and 4,974,166 (the 166 patent). Defendants filed answers
and counterclaims asserting various defenses, and the issues subsequently were
narrowed by the parties respective dismissals of various claims, and the
dismissal of defendant Empak pursuant to a settlement agreement. The remaining
patent infringement claims against the remaining parties proceeded to summary
judgment, which was entered against us on June 8, 1999. We thereafter took an
appeal to the United States Court of Appeals for the Federal Circuit. On
October 10, 2001, the Federal Circuit issued a written opinion, Asyst
Technologies, Inc. v. Empak, 268 F.3d 1365 (Fed. Cir. 2001), reversing the
decision of the trial court, and remanding the matter to the trial court for
further proceedings. The case was subsequently narrowed to the 421 patent, and
we sought monetary damages for defendants infringement, equitable relief, and
an award of attorneys fees. On October 9, 2003, the court: (i) granted
defendants motion for summary judgment to the effect that the defendants had
not infringed our patent claims at issue and (ii) directed that judgment be
entered for defendants. We have filed a notice of appeal of both the order and
the entry of judgment against us. The court also denied defendants motion for
judgment as to the invalidity of our asserted patents. Defendants have filed a
notice of appeal as to the courts denial of that motion. From time to time, we are also involved in other legal actions arising in
the ordinary course of business. We have incurred certain costs while defending
these matters. There can be no assurance that third party assertions will be
resolved without costly litigation, in a manner that is not adverse to our
financial position, results of operations or cash flows or without requiring
royalty or other payments in the future which may adversely impact gross
margins. Litigation is inherently unpredictable, and we cannot predict the
outcome of the legal proceedings described above with any certainty. Because of
uncertainties related to both the amount and range of losses in the event of an
unfavorable outcome in the lawsuits listed above or in certain other pending
proceedings for which loss estimates have not been recorded, we are unable to
make a reasonable estimate of the losses that could result from these matters.
As a result, no losses have been accrued for the legal proceedings described
above in our financial statements as of September 30, 2004. 
 Item 4  Submission of Matters to a Vote of Security Holders Our annual meeting of shareholders was held on September 21, 2004 for the
purpose of: (1) electing directors to serve for the next annual meeting and
until their successors are elected; (2) approving amendments to our 2003 Equity
Incentive Plan; and (3) ratifying the selection of PricewaterhouseCoopers LLP
as our independent registered public accounting firm for the 2005 fiscal year.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and there was no solicitation in
opposition of managements solicitations. Shareholders passed all proposals.
The final vote on the proposals was recorded as follows: Proposal 1: (there were no broker non-votes on this proposal) Director
    
    Votes For
    
    Votes WithheldStephen S. Schwartz, Ph.D.
    
    
    40,715,922
    
    
    
    2,558,294P. Jackson Bell
    
    
    40,419,652
    
    
    
    2,854,564Stanley Grubel
    
    
    40,934,953
    
    
    
    2,339,263Tsuyoshi Kawanishi
    
    
    31,563,865
    
    
    
    11,710,351Robert A. McNamara
    
    
    41,744,918
    
    
    
    1,529,298Anthony E Santelli
    
    
    41,370,356
    
    
    
    1,903,860Walter W. Wilson
    
    
    41,703,466
    
    
    
    1,570,750
 49




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Proposal 2: Amendments to our 2003 Equity Incentive Plan were approved to (a) increase the
aggregate number of shares of our common stock authorized for issuance under
this plan, and available for grant as incentive stock options, from 1,000,000
shares to 1,900,000 shares, (b) increase the percentage of the total shares
authorized that may be granted as restricted stock awards from 10.0 percent to
20.0 percent and (c) limit the terms of future grants to six years under this
plan. The amendment was approved by the following vote: For
    
    Against
    
    Abstain
    
    Broker Non-Votes17,686,032
    
    
    8,676,682
    
    
    
    77,848
    
    
    
    16,833,654
 Proposal 3: The selection of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the 2005 fiscal year was ratified by the following
vote: For
    
    Against
    
    Abstain
    
    Broker Non-Votes42,457,457
    
    
    764,100
    
    
    
    52,659
    
    
    
    -0-
 50




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ITEM 6  EXHIBITS ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and Restated Articles of Incorporation of the Company.3.2(1)
    
    Bylaws of the Company.3.3(2)
    
    Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed September
24, 1999.3.4(3)
    
    Second Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed
October 5, 2000.4.1(4)
    
    Rights Agreement among the Company and Bank of Boston, N.A., as Rights Agent, dated June 25, 1998.4.2(5)
    
    Common Stock Purchase Agreement, dated as of May 26, 1999.4.3(6)
    
    Indenture dated as of July 3, 2001 between the Company, State Street Bank and Trust Company of
California, N.A., as trustee, including therein the forms of the notes.4.4(6)
    
    Registration Rights Agreement dated as of July 3, 2001 between the Company and State Street Bank
and Trust Company of California, N.A.4.5(7)
    
    Amendment to Rights Agreement among the Company and Bank of Boston, N.A. as rights agent, dated
November 30, 2001.10.48(8)
    
    Employment agreement with Mr. Robert J. Nikl as Senior Vice President and Chief Financial Officer
on September 22, 2004.10.49(9)
    
    2003 Equity Incentive Plan (As Amended September 21, 2004)10.50
    
    Forms of Stock Option Award Notice and Stock Option Award Agreement entered into between the
Company and certain employees, directors, and consultants (2003 Equity Incentive Plan).10.51
    
    Form of Restricted Stock Award Agreement entered into between the Company and certain employees,
directors, and consultants (2003 Equity Incentive Plan).10.52
    
    Certificate of Amendment to Option Grants dated August 18, 2004.10.53
    
    Companys 2001 Non-Officer Equity Plan.31.1
    
    Certification of the Chief Executive Officer required by Rule 13a-14(a).31.2
    
    Certification of the Chief Financial Officer required by Rule 13a-14(a).32.1
    
    Combined Certifications of the Chief Executive Officer and Chief Financial Officer required by
Rule 13a-14(b).
   (1)
    
    Previously filed as an Exhibit to our Registration Statement on Form S-1,
as amended, File No. 333-66184, filed with the Securities and Exchange
Commission on July 19, 1993, and incorporated herein by reference.(2)
    
    Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for
the three-month period ended September 30, 1999, filed with the Securities
and Exchange Commission on October 21, 1999, and incorporated herein by
reference. 51




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(3)
    
    Previously filed with our Definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders, filed with the Securities and Exchange Commission
on July 31, 2000, and incorporated herein by reference.(4)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on June 29, 1998, and
incorporated herein by reference.(5)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on June 18, 1999, and
incorporated herein by reference.(6)
    
    Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for
the three-month period ended June 30, 2001, filed with the Securities and
Exchange Commission on August 14, 2001, and incorporated herein by
reference.(7)
    
    Previously filed as an Exhibit to our Annual Report on Form 10-K for the
fiscal year ended March 31, 2002, filed with the Securities and Exchange
Commission on June 28, 2002, and incorporated herein by reference.(8)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on September 24, 2004 and
incorporated herein by reference.(9)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on September 27, 2004, and
incorporated herein by reference. 52




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##### Table of Contents



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. ASYST TECHNOLOGIES, INC.Date: December 29, 2004
    
    By:
    
    /s/ Robert J. NiklRobert J. NiklSenior Vice President andChief Financial Officer
 Signing on behalf of the Registrant and as the principal accounting and
financial officer 53




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EXHIBIT INDEX ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and Restated Articles of Incorporation of the Company.3.2(1)
    
    Bylaws of the Company.3.3(2)
    
    Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed September
24, 1999.3.4(3)
    
    Second Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed
October 5, 2000.4.1(4)
    
    Rights Agreement among the Company and Bank of Boston, N.A., as Rights Agent, dated June 25, 1998.4.2(5)
    
    Common Stock Purchase Agreement, dated as of May 26, 1999.4.3(6)
    
    Indenture dated as of July 3, 2001 between the Company, State Street Bank and Trust Company of
California, N.A., as trustee, including therein the forms of the notes.4.4(6)
    
    Registration Rights Agreement dated as of July 3, 2001 between the Company and State Street Bank
and Trust Company of California, N.A.4.5(7)
    
    Amendment to Rights Agreement among the Company and Bank of Boston, N.A. as rights agent, dated
November 30, 2001.10.48(8)
    
    Employment agreement with Mr. Robert J. Nikl as Senior Vice President and Chief Financial Officer
on September 22, 2004.10.49(9)
    
    2003 Equity Incentive Plan (As Amended September 21, 2004)10.50
    
    Forms of Stock Option Award Notice and Stock Option Award Agreement entered into between the
Company and certain employees, directors, and consultants (2003 Equity Incentive Plan).10.51
    
    Form of Restricted Stock Award Agreement entered into between the Company and certain employees,
directors, and consultants (2003 Equity Incentive Plan).10.52
    
    Certificate of Amendment to Option Grants dated August 18, 2004.10.53
    
    Companys 2001 Non-Officer Equity Plan.31.1
    
    Certification of the Chief Executive Officer required by Rule 13a-14(a).31.2
    
    Certification of the Chief Financial Officer required by Rule 13a-14(a).32.1
    
    Combined Certifications of the Chief Executive Officer and Chief Financial Officer required by
Rule 13a-14(b).
   (1)
    
    Previously filed as an Exhibit to our Registration Statement on Form S-1,
as amended, File No. 333-66184, filed with the Securities and Exchange
Commission on July 19, 1993, and incorporated herein by reference.(2)
    
    Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for
the three-month period ended September 30, 1999, filed with the Securities
and Exchange Commission on October 21, 1999, and incorporated herein by
reference. 54




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(3)
    
    Previously filed with our Definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders, filed with the Securities and Exchange Commission
on July 31, 2000, and incorporated herein by reference.(4)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on June 29, 1998, and
incorporated herein by reference.(5)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on June 18, 1999, and
incorporated herein by reference.(6)
    
    Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for
the three-months ended June 30, 2001, filed with the Securities and
Exchange Commission on August 14, 2001, and incorporated herein by
reference.(7)
    
    Previously filed as an Exhibit to our Annual Report on Form 10-K for the
fiscal year ended March 31, 2002, filed with the Securities and Exchange
Commission on June 28, 2002, and incorporated herein by reference.(8)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on September 24, 2004 and
incorporated herein by reference.(9)
    
    Previously filed as an Exhibit to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on September 27, 2004, and
incorporated herein by reference. 55