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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) R
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended December 25, 2004 OR £
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from __________to___________ Commission File number: 000-22430 ASYST TECHNOLOGIES, INC. (Exact name of Registrant, as specified in its charter)
 California
(State or other jurisdiction
of incorporation or organization)
    
    94-2942251
(IRS Employer identification Number)
 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
R  No £ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes
R  No £ The number of shares of the Registrants Common Stock, no par value, outstanding as of January
31, 2005 was 47,583,079.




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ASYST TECHNOLOGIES, INC. 
 TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:
    
    3Condensed Consolidated Balance Sheets  December 31, 2004 and March 31, 2004
    
    3Condensed Consolidated Statements of Operations  Three- and Nine-Month Periods Ended
December 31, 2004 and December 31, 2003
    
    4Condensed Consolidated Statements of Cash Flows  Nine-Month Periods Ended December 31,
2004 and December 31, 2003
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    19Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    41Item 4.Controls and Procedures
    
    42PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    45Item 6.Exhibits
    
    46Signatures
    
    47Exhibit IndexEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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Part I  FINANCIAL INFORMATION 
 ITEM 1  FINANCIAL STATEMENTS ASYST TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands) December 31,
    
    
    March 31,2004
    
    
    2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    105,499
    
    
    $
    112,907Restricted cash and cash equivalents
    
    
    
    
    
    
    1,904Short-term investments
    
    
    25,596
    
    
    
    4,953Accounts receivable, net of allowance for doubtful accounts
    
    
    209,820
    
    
    
    147,939Inventories
    
    
    42,423
    
    
    
    27,694Prepaid expenses and other current assets
    
    
    20,056
    
    
    
    14,276Total current assets
    
    
    403,394
    
    
    
    309,673Property and equipment, net
    
    
    17,379
    
    
    
    22,868Goodwill
    
    
    72,991
    
    
    
    71,973Other assets
    
    
    2,820
    
    
    
    3,317Intangible assets, net
    
    
    50,426
    
    
    
    65,778Total assets
    
    $
    547,010
    
    
    $
    473,609LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Short-term loans and notes payable
    
    $
    36,232
    
    
    $
    18,161Current portion of long-term debt and capital leases
    
    
    2,858
    
    
    
    2,775Accounts payable
    
    
    143,876
    
    
    
    92,716Accounts payable  related party
    
    
    2,112
    
    
    
    17,194Accrued liabilities and other
    
    
    80,738
    
    
    
    48,571Deferred revenue
    
    
    10,366
    
    
    
    2,683Total current liabilities
    
    
    276,182
    
    
    
    182,100LONG-TERM LIABILITIES:Long-term debt and capital leases, net of current portion
    
    
    89,675
    
    
    
    91,074Deferred tax liability
    
    
    15,830
    
    
    
    20,704Other long-term liabilities
    
    
    10,642
    
    
    
    12,826Total long-term liabilities
    
    
    116,147
    
    
    
    124,604COMMITMENTS AND CONTINGENCIES (Note 11)Minority interest
    
    
    62,043
    
    
    
    63,796SHAREHOLDERS EQUITY:Common stock
    
    
    449,007
    
    
    
    445,981Deferred stock-based compensation
    
    
    (1,592
    )
    
    
    (2,619
    )Accumulated deficit
    
    
    (364,458
    )
    
    
    (348,697
    )Accumulated other comprehensive income
    
    
    9,681
    
    
    
    8,444Total shareholders equity
    
    
    92,638
    
    
    
    103,109Total liabilities, minority interest and shareholders equity
    
    $
    547,010
    
    
    $
    473,609
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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ASYST TECHNOLOGIES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts) Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003NET SALES
    
    $
    161,383
    
    
    $
    74,888
    
    
    $
    469,414
    
    
    $
    171,505COST OF SALES
    
    
    132,299
    
    
    
    64,301
    
    
    
    378,737
    
    
    
    144,475Gross profit
    
    
    29,084
    
    
    
    10,587
    
    
    
    90,677
    
    
    
    27,030OPERATING EXPENSES:Research and development
    
    
    8,485
    
    
    
    9,204
    
    
    
    27,237
    
    
    
    27,219Selling, general and administrative
    
    
    24,066
    
    
    
    18,755
    
    
    
    61,985
    
    
    
    51,274Amortization of acquired intangible assets
    
    
    5,086
    
    
    
    5,271
    
    
    
    15,178
    
    
    
    14,834Restructuring and other charges
    
    
    1,116
    
    
    
    1,743
    
    
    
    1,703
    
    
    
    6,593Asset impairment charges
    
    
    4,645
    
    
    
    
    
    
    
    4,645
    
    
    
    6,853Total operating expenses
    
    
    43,398
    
    
    
    34,973
    
    
    
    110,748
    
    
    
    106,773Loss from operations
    
    
    (14,314
    )
    
    
    (24,386
    )
    
    
    (20,071
    )
    
    
    (79,743
    )INTEREST AND OTHER INCOME (EXPENSE), NET:Interest income
    
    
    479
    
    
    
    189
    
    
    
    1,197
    
    
    
    563Interest expense
    
    
    (1,691
    )
    
    
    (1,798
    )
    
    
    (4,953
    )
    
    
    (5,415
    )Other income (expense), net
    
    
    1,509
    
    
    
    (596
    )
    
    
    2,692
    
    
    
    259Interest and other expense, net
    
    
    297
    
    
    
    (2,205
    )
    
    
    (1,064
    )
    
    
    (4,593
    )Loss before benefit from income taxes and minority interest
    
    
    (14,017
    )
    
    
    (26,591
    )
    
    
    (21,135
    )
    
    
    (84,336
    )BENEFIT FROM INCOME TAXES
    
    
    962
    
    
    
    2,117
    
    
    
    2,549
    
    
    
    4,502MINORITY INTEREST
    
    
    1,411
    
    
    
    2,417
    
    
    
    2,825
    
    
    
    4,086NET LOSS
    
    $
    (11,644
    )
    
    $
    (22,057
    )
    
    $
    (15,761
    )
    
    $
    (75,748
    )BASIC AND DILUTED NET LOSS PER SHARE
    
    $
    (0.24
    )
    
    $
    (0.52
    )
    
    $
    (0.33
    )
    
    $
    (1.89
    )SHARES USED IN THE PER SHARE CALCULATION -
Basic and Diluted
    
    
    47,553
    
    
    
    42,206
    
    
    
    47,387
    
    
    
    40,066
 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 CASH FLOWS
(Unaudited; in thousands) Nine Months EndedDecember 31,2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (15,761
    )
    
    $
    (75,748
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    20,261
    
    
    
    21,732Asset impairment charges
    
    
    4,645
    
    
    
    6,853Minority interest in net loss of consolidated subsidiaries
    
    
    (2,825
    )
    
    
    (4,086
    )Deferred income tax
    
    
    (5,502
    )
    
    
    (3,849
    )Stock-based compensation
    
    
    1,057
    
    
    
    1,749Loss on disposal of fixed assets
    
    
    157
    
    
    
    Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (57,274
    )
    
    
    (36,758
    )Inventories
    
    
    (14,700
    )
    
    
    3,690Prepaid expenses and other assets
    
    
    (4,151
    )
    
    
    4,182Accounts payable, accrued and other liabilities and deferred revenue
    
    
    69,410
    
    
    
    12,040Net cash used in operating activities
    
    
    (4,323
    )
    
    
    (70,195
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of short-term investments
    
    
    (22,526
    )
    
    
    Release of restricted cash and cash equivalents
    
    
    1,904Net proceeds from sale of short-term investments
    
    
    1,500
    
    
    
    987Net proceeds from sale of land
    
    
    
    
    
    
    12,106Purchases of property and equipment
    
    
    (3,854
    )
    
    
    (4,097
    )Net cash used in acquisitions
    
    
    
    
    
    
    (1,179
    )Net cash provided by (used in) investing activities
    
    
    (22,976
    )
    
    
    7,817CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from line of credit
    
    
    19,381
    
    
    
    Net proceeds from (repayment of) short-term loans
    
    
    (3,692
    )
    
    
    13,957Proceeds from issuance of common stock
    
    
    2,999
    
    
    
    110,704Net cash provided by financing activities
    
    
    18,688
    
    
    
    91,824Effect of exchange rate changes on cash and cash equivalents
    
    
    1,205
    
    
    
    (3,254
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (7,406
    )
    
    
    26,192CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    112,907
    
    
    
    96,214CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    105,499
    
    
    $
    122,406
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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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
nine-month periods ended December 31, 2004 and 2003, and of Cash Flows for the nine-month periods
ended December 31, 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 ended
September 30, 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. Subsequently, this customer reaffirmed the flat panel display contracts with ASI, and paid
all amounts then 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
then-applicable exchange rate. We filed the Form 10-Q for our fiscal second quarter on December 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 December 30, 2004. Additionally, the company made adjustments to the fiscal first
quarter results reported for ATI, our base business. 6




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Summary of Restatement. The restatement corrected 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 adjusted 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 were 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. See also Part I, Item 2, Risk Factors   We
experienced additional risks and costs as a result of the delayed filing of theForm 10-Qfor our
fiscal second quarterand Item 4  Controls and Procedures. 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
constituted 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
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 are strengthening our controls over financial reporting to address the above-noted material
weaknesses by performing timely reviews and analysis of operations and financial results and are
actively recruiting additional staff to fill critical roles in the
financial organization. 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 the Form 10-Q for the second fiscal quarter. On January 11, 2005, the
panel approved our request to continue the listing of our common stock on the Nasdaq National
Market and removed the fifth character, E, from our trading symbol effective with the opening of
trading on January 12, 2005. While the panel determined that the company now appears to satisfy
Nasdaqs filing requirement, the panel will continue to monitor us to ensure our compliance with
the filing requirement over the long term. The panel also determined to condition the companys
continued listing upon the company timely filing all periodic reports with the SEC and Nasdaq for
all reporting periods ending on or before January 31, 2006. If the company fails to make any
periodic report filing in accordance with this condition, the panel decision stated that a Nasdaq
panel will promptly conduct a hearing with respect to such failure, and the companys securities
may be immediately de-listed from The Nasdaq Stock Market. 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. Such reclassifications did not have an effect
on the prior periods net loss. We close our books on the last Saturday of each quarter and thus the actual
dates of the quarter-end, December 25, 2004 and December 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 In March 2004, the Financial Accounting Standards Board (FASB) approved the consensus reached on
the Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments. EITF 03-1 provides guidance for identifying
impaired investments and new disclosure requirements for investments that are deemed to be
temporarily impaired. On September 30, 2004, the FASB issued a final staff position (FSP) EITF
Issue 03-1-1 that delays the effective date for the measurement and recognition guidance included
in paragraphs 10 through 20 of EITF 03-1. Quantitative and qualitative disclosures required by EITF
03-1 remain unchanged by the staff position. We do not believe the impact of adoption of the
measurement provisions of the EITF will be significant to our overall results of operations or
financial position. In March 2004, the Financial Accounting Standards Boards, or FASBs Emerging Issues Task
Force, or EITF, reached consensus on Issue 03-6. This Issue is intended to clarify what is a
participating security for purposes of applying SFAS 128, Earnings Per Share.The Issue also
provides further guidance on how to apply the two-class method of computing earnings per share, or
EPS, once it is determined that a security is participating, including how to allocate
undistributed earnings to such a security. The guidance in 7




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this Issue was effective for reporting
periods beginning after March 31, 2004 and requires the restatement of previously reported EPS.
We have adopted this Issue and there is no effect on our basic and
diluted EPS for the three- and nine-month periods ended December 31, 2004 and 2003. 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. We
are in the process of evaluating the impact of the adoption of the provisions of SFAS
No. 151 on our financial position and results of
operations. In December 2004, the FASB issued FASB Statement No. 153, Exchange of Nonmonetary Assets  an
amendment of APB Opinion No. 29(SFAS No. 153). SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. The provisions of this Statement are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of the provisions of SFAS No. 153 is not expected to have a material impact on our
financial position or results of operations. In
December 2004, the FASB issued FASB Statement No. 123(R),
Share Based Payment(FAS 123(R)).
FAS 123(R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation and requires
companies to expense the fair value of employee stock options and other forms of stock-based
compensation. The standard is effective for our quarter ending September 30, 2005 and
will apply to our employee stock option and stock purchase plans. We
are
currently evaluating the impact of the adoption of FAS 123(R)
and have not selected a transition
method or valuation model. As such, we are unable to estimate the
expected effect on our
financial statements, but believe it will 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, at which time the restriction lapsed. Accounts Receivable, net of allowance for doubtful accounts Accounts receivable, net of allowance for doubtful accounts were as follows (in thousands): December 31,
    
    
    March 31,2004
    
    
    2004Trade receivables
    
    $
    110,513
    
    
    $
    70,501Unbilled receivables
    
    
    85,662
    
    
    
    73,800Other
    
    
    20,129
    
    
    
    8,246Less: Allowance for doubtful accounts
    
    
    (6,484
    )
    
    
    (4,608
    )Total
    
    $
    209,820
    
    
    $
    147,939
 We estimate our allowance for doubtful accounts based on a combination of specifically
identified amounts and an additional reserve, for some of our operations, 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. During the three-month period
ended December 31, 2004, we wrote off $0.4 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. Other
includes notes receivable from customers in Japan
in settlement of trade accounts receivable balances. 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 December 31, 2004, our billed accounts receivable aging, before
allowance for doubtful accounts, was as follows (in thousands): 8




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December 31,20040 to 30 days
    
    $
    71,07531 to 60 days
    
    
    16,68761 to 90 days
    
    
    7,599Over 90 days
    
    
    15,152Total
    
    $
    110,513
 Our subsidiaries in Japan, AJI, and ASI have agreements with certain Japanese banking
institutions to sell certain trade receivables. For the nine-month period ended December 31,
2004, AJI and ASI sold approximately $9.0 million and $15.7 million, respectively, of accounts
receivable without recourse. Inventories Inventories consist of the following (in thousands): December 31,
    
    
    March 31,2004
    
    
    2004Raw materials
    
    $
    19,512
    
    
    $
    16,241Work-in-process and finished goods
    
    
    22,911
    
    
    
    11,453Total
    
    $
    42,423
    
    
    $
    27,694
 We outsourced a majority of our fab automation product manufacturing to Solectron Corporation,
or Solectron. As part of the arrangement, Solectron purchased 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
December 31, 2004 and March 31, 2004, we had total inventory
reserves of approximately $18.9 million and
$14.7 million, respectively. Goodwill and Other Intangible Assets, net Goodwill In accordance with SFAS No. 142, we completed an annual goodwill impairment test in the third
quarter of fiscal 2005 and there was no goodwill impairment charge
required to be recognized. Goodwill balances and the changes in the carrying amount of goodwill during the nine-month
period ended December 31, 2004 were as follows (in thousands): Fab Automation
    
    
    AMHS
    
    
    TotalBalance at March 31, 2004
    
    $
    4,750
    
    
    $
    67,223
    
    
    $
    71,973Foreign currency translation
    
    
    
    
    
    
    1,018
    
    
    
    1,018Balance at December 31, 2004
    
    $
    4,750
    
    
    $
    68,241
    
    
    $
    72,991
 Intangible assets Intangible assets were as follows (in thousands): December 31, 2004
    
    
    March 31, 2004Gross Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetAmortizable intangible assets:Developed technology
    
    $
    65,098
    
    
    $
    31,365
    
    
    $
    33,733
    
    
    $
    64,317
    
    
    $
    21,778
    
    
    $
    42,539Customer base and other intangible assets
    
    
    36,006
    
    
    
    23,460
    
    
    
    12,546
    
    
    
    35,676
    
    
    
    17,394
    
    
    
    18,282Licenses and patents
    
    
    7,079
    
    
    
    2,932
    
    
    
    4,147
    
    
    
    7,440
    
    
    
    2,483
    
    
    
    4,957Total
    
    $
    108,183
    
    
    $
    57,757
    
    
    $
    50,426
    
    
    $
    107,433
    
    
    $
    41,655
    
    
    $
    65,778
 Amortization expense totaled $5.1 million and $5.3 million for the three-month periods ended
December 31, 2004 and 2003, respectively. Amortization expense totaled $15.2 million and $14.8
million for the nine-month periods ended December 31, 2004 and 2003, respectively. 9




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##### Table of Contents



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
    
    $
    5,3912006
    
    
    19,9192007
    
    
    14,4602008
    
    
    8,7282009 and beyond
    
    
    1,928Total
    
    $
    50,426
 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Balance at beginning of period
    
    $
    11,934
    
    
    $
    7,941
    
    
    $
    8,165
    
    
    $
    7,561Accruals for warranties issued during the period
    
    
    9,085
    
    
    
    1,080
    
    
    
    16,180
    
    
    
    2,892Settlements made (in cash or in kind)
    
    
    (6,649
    )
    
    
    (522
    )
    
    
    (9,721
    )
    
    
    (2,594
    )Foreign currency translation
    
    
    589
    
    
    
    
    
    
    
    335
    
    
    
    640Balance at end of period
    
    $
    14,959
    
    
    $
    8,499
    
    
    $
    14,959
    
    
    $
    8,499
 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. 10




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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 $3.6 million and $4.8 million at December 31, 2004 and March 31,
2004, respectively. The balance at December 31, 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 nine-month period ended December 31, 2004. 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net loss, as reported
    
    $
    (11,664
    )
    
    $
    (22,057
    )
    
    $
    (15,761
    )
    
    $
    (75,748
    )Foreign currency translation adjustments
    
    
    4,144
    
    
    
    3,255
    
    
    
    1,368
    
    
    
    2,952Unrealized
losses on investments
    
    
    (61
    )
    
    
    
    
    
    
    (131
    )
    
    
    Comprehensive loss
    
    $
    (7,561
    )
    
    $
    (18,802
    )
    
    $
    (14,524
    )
    
    $
    (72,796
    )
 11




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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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Restricted stock options
    
    
    62
    
    
    
    44
    
    
    
    64
    
    
    
    44Restricted stock awards
    
    
    40
    
    
    
    
    
    
    
    27
    
    
    
    Stock options
    
    
    7,451
    
    
    
    8,411
    
    
    
    8,067
    
    
    
    8,982Convertible notes
    
    
    5,682
    
    
    
    5,682
    
    
    
    5,682
    
    
    
    5,682Total
    
    
    13,235
    
    
    
    14,137
    
    
    
    13,840
    
    
    
    14,708
 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 provisions of SFAS No. 123 and SFAS No. 148, our net losses for
the three- and nine-month periods ended December 31, 2004 and 2003, respectively, would have
increased as indicated below (in thousands, except per share amounts): Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net loss  as reported
    
    $
    (11,664
    )
    
    $
    (22,057
    )
    
    $
    (15,761
    )
    
    $
    (75,748
    )Add: employee stock-based compensation expense included in reported
net loss, net of tax
    
    
    205
    
    
    
    565
    
    
    
    961
    
    
    
    1,580Less: total employee stock-based compensation expense determined under
fair value, net of tax
    
    
    (2,868
    )
    
    
    (3,914
    )
    
    
    (8,107
    )
    
    
    (11,311
    )As adjusted net loss
    
    $
    (14,307
    )
    
    $
    (25,406
    )
    
    $
    (22,907
    )
    
    $
    (85,479
    )Basic and diluted net loss per share  As reported
    
    $
    (0.24
    )
    
    $
    (0.52
    )
    
    $
    (0.33
    )
    
    $
    (1.89
    )Basic and diluted net loss per share  As adjusted
    
    $
    (0.30
    )
    
    $
    (0.60
    )
    
    $
    (0.48
    )
    
    $
    (2.13
    )Shares used in computing As Reported and As Adjusted net loss per share
    
    
    47,553
    
    
    
    42,206
    
    
    
    47,387
    
    
    
    40,066
 Defined Benefit Pension Plans Our joint venture, ASI, provides a defined benefit pension plan for its employees. The joint
venture deposits funds for this plan with insurance companies, third-party trustees, or into
government-managed accounts, and/or accrues for the unfunded portion of the obligation, in each
case consistent with the requirements of Japanese law. The net periodic benefit cost for the plan for the three- and nine months ended December 31, 2004
was approximately $0.2 million and $0.6 million, respectively. The net periodic benefit cost for
the plan for the three- and nine months ended December 31, 2003 was approximately $0.2 million and
$0.6 million, respectively. 4. RESTRUCTURING CHARGES Restructuring charges and related utilization for the three-month periods ended June 30,
September 30 and December 31, 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 in) accruals
    
    
    482
    
    
    
    (41
    )
    
    
    441Amounts paid in cash
    
    
    (461
    )
    
    
    (279
    )
    
    
    (740
    )Foreign currency translation adjustment
    
    
    (1
    )
    
    
    (7
    )
    
    
    (8
    )Balance, September 30, 2004
    
    
    53
    
    
    
    1,695
    
    
    
    1,748
 12




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##### Table of Contents



Severance andBenefits
    
    
    Excess Facilities
    
    
    TotalAdditional (reduction in) accruals
    
    
    1,182
    
    
    
    (66
    )
    
    
    1,116Amounts paid in cash
    
    
    (522
    )
    
    
    (324
    )
    
    
    (846
    )Foreign currency translation adjustment
    
    
    4
    
    
    
    12
    
    
    
    16Balance, December 31, 2004
    
    $
    717
    
    
    $
    1,317
    
    
    $
    2,034
 We incurred restructuring charges of $1.1 million, $0.4 million and $0.2 million for the
three-month periods ended December 31, September 30 and June 30, 2004, respectively, consisting
primarily of severance costs resulting from a reduction in workforce. In December 2004, we announced a restructuring initiative in our Fab Automation reporting
segment, which involved the termination of employment of approximately 70 employees, including 5 in
manufacturing, 55 in selling, general and administration, and 10 from our international operations.
The total costs of this restructuring are expected to be approximately $1.1 million in one-time
termination benefits, which was expensed in our fiscal third quarter. The restructuring is expected
to provide annual expense savings of approximately $8.0 to $9.0 million. The outstanding accrual balance of $2.0 million at December 31, 2004 consists primarily of future
lease obligations on vacated facilities, in excess of estimated future sublease proceeds of
approximately $0.7 million, which will be paid over the next five quarters and severance payments
relating to the December 2004 restructuring, which are expected to be paid prior to the end of the
fiscal year. All remaining accrual balances are expected to be settled in cash. Restructuring charges and related utilization for the three-month periods ended December 31,
September 30, and June 30, 2003 were (in thousands): 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
    
    
    
    
    
    
    
    3,902Additional accruals
    
    
    1,743
    
    
    
    
    
    
    
    
    
    
    
    1,743Non-cash related utilization
    
    
    70
    
    
    
    (47
    )
    
    
    
    
    
    
    23Amounts paid in cash
    
    
    (2,074
    )
    
    
    (491
    )
    
    
    
    
    
    
    (2,565
    )Balance, December 31, 2003
    
    $
    64
    
    
    $
    3,039
    
    
    $
    
    
    
    $
    3,103
 During
the three-month period ended December 31, 2003, we recorded net severance and other charges of $1.0 million primarily related to the
settlement and release of claims arising from the termination of a former officer. We also incurred
a net $0.7 million of severance expenses mainly from headcount reductions in our Japanese
operations resulting from its outsourcing activities. During the nine-month period ended December 31, 2003, we incurred restructuring charges of
$6.6 million, consisting primarily of severance costs from a reduction in workforce in April 2003
and the claim settlement mentioned above. Additionally, we incurred a charge for future lease
obligations on a vacated facility in excess of estimated future sublease proceeds. 5. ASSET IMPAIRMENT CHARGES During
the three-month period ended December 31, 2004, we removed from
service and made available for sale certain land and a building relating to
our wholly-owned Japanese subsidiary, Asyst Japan, Inc., or AJI. The
building had been underutilized since a prior decision to outsource
the manufacturing of our next-generation robotics products, part of an overall strategy to outsource the manufacture of all our Fab Automation
segment products. The outsourcing transition is substantially
complete and remaining personnel and operations have been
consolidated into other facilities. As
a result, during the three-month period ended December 31, 2004,
we recorded an impairment charge of $4.6 million to write the
assets down to their estimated fair value, based on a market valuation, less cost to sell. The carrying
value of the assets at December 31, 2004 was $2.3 million. We
expect to complete the sale of the land and building within the next
twelve months. 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 13




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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 benefit for the three-month period ended December 31, 2004 was $1.0 million,
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 $0.5 million tax provision recorded by
ASI and tax provision of $0.2 million recorded primarily by other international subsidiaries.
Income tax benefit for the nine-month period ended December 31, 2004 was approximately $2.5
million, primarily due to a tax benefit of $5.0 million from the amortization of deferred tax
liabilities recorded in connection with the ASI acquisition, offset by $1.7 million of tax
provisions recorded by ASI and tax provisions of $0.8 million recorded primarily by other
international subsidiaries. Income tax benefit of $2.1 million and $4.5 million was recorded for
the three- and nine-month periods ended December 31, 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. 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 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Fab Automation Products:Net sales
    
    $
    52,128
    
    
    $
    32,517
    
    
    $
    192,700
    
    
    $
    82,022Loss from operations
    
    $
    (11,557
    )
    
    $
    (18,029
    )
    
    $
    (9,996
    )
    
    $
    (67,988
    )AMHS:Net sales
    
    $
    109,255
    
    
    $
    42,371
    
    
    $
    276,714
    
    
    $
    89,483Loss from operations
    
    $
    (2,757
    )
    
    $
    (6,357
    )
    
    $
    (10,075
    )
    
    $
    (11,755
    )Consolidated:Net sales
    
    $
    161,383
    
    
    $
    74,888
    
    
    $
    469,414
    
    
    $
    171,505Loss from operations
    
    $
    (14,314
    )
    
    $
    (24,386
    )
    
    $
    (20,071
    )
    
    $
    (79,743
    )
 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. December 31, 2004
    
    
    March 31, 2004Fab Automation Products:Total assets
    
    $
    202,501
    
    
    $
    205,002AMHS:Total assets
    
    $
    344,509
    
    
    $
    268,607Consolidated:Total assets
    
    $
    547,010
    
    
    $
    473,609
 For the three-month period ended December 31, 2004, two customers accounted for 35.9 percent
and 11.6 percent of our net sales, respectively, compared to only one customer that accounted for
23.9 percent of our net sales for the corresponding period in fiscal 2004. For the nine-month
periods ended December 31, 2004 and 2003, one customer accounted for 24.6 percent and 12.2 percent
of our net sales, respectively. 14




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##### Table of Contents



8. DEBT We had $36.2 million and $18.2 million of short-term debt issued by banks in Japan at December
31 and March 31, 2004, respectively. Approximately $11.2 million and $13.4 million at December 31
and March 31, 2004, respectively, is owed by our Japanese subsidiary, AJI, and is guaranteed by
Asyst in the United States. The remaining portion, $25.0 million and $4.8 million at December 31
and March 31, 2004, respectively, is owed by ASI. As of December 31, and March 31, 2004, the
interest rate ranged from 1.4 percent to 2.4 percent. 15




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##### Table of Contents



Long-term debt and capital leases consisted of the following (in thousands): December 31,
    
    
    March 31,2004
    
    
    2004Convertible subordinated notes
    
    $
    86,250
    
    
    $
    86,250Secured straight bonds
    
    
    5,309
    
    
    
    7,110Capital leases
    
    
    974
    
    
    
    489Total long-term debt
    
    
    92,533
    
    
    
    93,849Less: Current portion of long-term debt and capital leases
    
    
    (2,858
    )
    
    
    (2,775
    )Long-term debt and capital leases net of current portion
    
    $
    89,675
    
    
    $
    91,074
 At December 31, 2004, maturities of all long-term debt and capital leases are as follows (in
thousands): Fiscal Year Ending March 31,
    
    AmountRemaining portion of 2005
    
    $
    7252006
    
    
    2,8412007
    
    
    1,5282008
    
    
    9342009
    
    
    86,505$
    92,533
 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), net. Debt amortization costs totaled $0.1
million during each of the three-month periods ended December 31, 2004 and 2003, respectively, and
$0.3 million during each of the nine-month periods ended December 31, 2004 and 2003, respectively. Secured Straight Bonds We had $5.3 million and $7.1 million of secured straight bonds from a bank in Japan at
December 31, 2004 and March 31, 2004, respectively. The bonds bore interest at rates ranging from
1.4 percent to 2.4 percent as of December 31 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 December 31, 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 December 31, 2004, there was no amount outstanding under the
line of credit, and we were in compliance with the financial covenants. At December 31, 2004, ASI had three revolving lines of credit with Japanese banks. These
lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $67.1 million
at the exchange rate as of December 31, 2004. As of December 31, 2004 and March 31, 2004,
respectively, ASI had outstanding borrowings of 2.6 billion Japanese Yen and 0.5 billion Japanese
Yen, or approximately $25.0 million and $4.8 million, respectively, at the exchange rate as of
December 31, 2004 and March 31, 2004, respectively, that is recorded in short-term debt. 16




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##### Table of Contents



ASIs lines of credit carry original terms of six months to one year, at variable interest
rates based on the Tokyo Interbank Offered Rate, or TIBOR, which was 0.06 percent at December 31,
2004, plus margins of 1.00 to 1.25 percent. Under terms of these lines of credit, ASI generally is
required to maintain compliance with certain financial covenants, including requirements to report
an annual net profit on a statutory basis and to maintain at least
80.0 percent of the equity reported as
of its prior fiscal year-end. None of these lines require collateral and none of these lines
require guarantees from Asyst or its other subsidiaries in the event of default by ASI. Unless
extended, these lines will expire at various times up to December 2005, at which time all amounts
outstanding will be due and payable. Our Japanese subsidiary, AJI, maintains revolving lines of credit with five Japanese banks.
The lines carry annual interest rates of 1.4 to 2.4 percent and substantially all of these lines
are guaranteed by the company in the United States. As of December 31, 2004 and March 31, 2004,
respectively, AJI had outstanding borrowings of 1.2 billion Japanese Yen and 1.4 billion Japanese
Yen, or approximately $11.2 million and $13.4 million, at exchange rates as of December 31, 2004
and March 31, 2004, respectively, that are recorded as short-term debt. 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 27,500 shares and 32,350 shares of common stock were granted to employees
during the three-month periods ended December 31, 2004 and 2003, respectively. Options to purchase
1,608,450 and 3,033,258 shares of common stock were granted to employees for the nine-month periods
ended December 31, 2004 and 2003, respectively. At December 31, 2004, options to purchase 7,513,216
shares of common stock were outstanding, and 1,237,572 shares of common stock were available for
issuance under our 2001 and 2003 stock option plans. Employee Stock Purchase Plan As of December 31, 2004, 1,960,814 shares had been purchased and 489,186 shares of common
stock were available for issuance 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 $3.15 and $10.40 during the three-month periods December 31, 2004
and 2003, respectively, and $5.16 and $4.42 during the nine-month periods ended December 31, 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. The following weighted average assumptions are included in the estimated fair value
calculations for stock option grants in the three- and nine-month periods ended December 31, 2004
and 2003, respectively: Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    3.27
    %
    
    
    3.00
    %
    
    
    3.30
    %
    
    
    2.70
    %Expected term of options (in years)
    
    
    4.64
    
    
    
    4.60
    
    
    
    4.44
    
    
    
    4.37Expected volatility
    
    
    91.49
    %
    
    
    81.48
    %
    
    
    91.81
    %
    
    
    91.62
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 17




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##### Table of Contents



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
December 31, 2004 and 2003 was $1.51 and $4.06, respectively, and for the nine-month periods ended
December 31, 2004 and 2003 was $2.43 and $1.94, 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    2.31
    %
    
    
    1.29
    %
    
    
    2.08
    %
    
    
    1.21
    %Expected term of options (in years)
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50Expected volatility
    
    
    82.80
    %
    
    
    63.76
    %
    
    
    83.86
    %
    
    
    82.06
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 10. RELATED PARTY TRANSACTIONS At
March 31, 2004, we held a note from a non-officer employee
totaling $0.3 million which was fully paid off as of December 31, 2004. Our majority-owned subsidiary, ASI, has certain transactions with the minority shareholder,
Shinko. At December 31, 2004 and March 31, 2004 accounts payable due to Shinko were $2.1 million
and $17.2 million, respectively. Materials and services purchased from Shinko for the nine-month
periods ended December 31, 2004 and 2003 were $21.3 million and $18.4 million, respectively. 11. COMMITMENTS AND CONTINGENCIES Lease Commitments We lease various facilities under non-cancelable capital and operating leases. At December 31,
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
    
    $
    92
    
    
    $
    2,037
    
    
    $
    (131
    )2006
    
    
    303
    
    
    
    5,198
    
    
    
    (523
    )2007
    
    
    232
    
    
    
    1,917
    
    
    
    (43
    )2008
    
    
    183
    
    
    
    1,501
    
    
    
    2009 and thereafter
    
    
    180
    
    
    
    1
    
    
    
    Total
    
    
    990
    
    
    $
    10,654
    
    
    $
    (697
    )Less: interest
    
    
    (16
    )Present value of minimum lease payments
    
    
    974Less: current portion of capital leases
    
    
    (312
    )Capital leases, net of current portion
    
    $
    662
 Rent expense under our operating leases was approximately $1.5 million and $1.2 million for
the three-month periods ended December 31, 2004 and 2003, respectively; and $4.1 million and $3.6
million for the nine-month periods ended December 31, 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 18




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##### Table of Contents



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 lawsuit 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, $0.4 million has been
accrued for the legal proceedings described above in our financial statements as of December 31,
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. 
 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 Report Form
10-K for the year ended March 27, 2004. Certain prior period amounts have been reclassified to
conform to current period presentation. Such reclassifications did
not have an effect on the prior periods net loss. Unless expressly stated or the context otherwise requires, the terms we, our, us and
Asyst refer to Asyst Technologies, Inc. and its subsidiaries. Overview 19




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We develop, manufacture, sell and support integrated automation systems, primarily for the
worldwide semiconductor and the flat panel display, or FPD, manufacturing 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 Automated Material Handling Systems, or 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 nine-month period ended December 31, 2004 increased by 173.7 percent
compared to the corresponding period of fiscal 2004. The increase was primarily due to the sale of
our AMHS products, which increased 209.2 percent for the nine-month period ended December 31, 2004
compared to the same period of fiscal 2004. In addition, net sales of Fab Automation Products for
the nine-month period ended December 31, 2004 increased by 134.9 percent compared to the same
period of fiscal 2004. AMHS revenues represented 58.9 percent of our total revenue for the
nine-month period ended December 2004, compared to 52.2 percent for the nine-month period ended
December 2003. For
the remainder of fiscal 2005, we believe critical success factors
include manufacturing cost reduction, product quality, customer
relationship, and continued demand for our products.
Demand for our products can change significantly from period to period as a result of numerous
factors, including, 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 nine-month periods ended December 31, 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 30, 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. 20




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##### Table of Contents



Subsequently, this customer reaffirmed the flat panel display contracts with ASI, and paid all
amounts then 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 then-applicable exchange
rate. We filed the Form 10-Q for our fiscal second quarter on December 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 December 30, 2004. Additionally, the company made adjustments to the fiscal first
quarter results reported for ATI, our base business. 21




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##### Table of Contents



Summary of Restatement. The restatement corrected 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 adjusted 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 were 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. See
also Part I, Item 2, Risk Factors  We experienced additional
risks and costs as a result of the delayed filing of the
Form 10-Q for our fiscal second quarter and
Item 4  Controls and Procedures. 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 nine-month
period ended December 31, 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. 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 (in thousands): Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Fab Automation Products:Net sales
    
    $
    52,128
    
    
    $
    32,517
    
    
    $
    192,700
    
    
    $
    82,022Loss from operations
    
    $
    (11,557
    )
    
    $
    (18,029
    )
    
    $
    (9,996
    )
    
    $
    (67,988
    )AMHS:Net sales
    
    $
    109,255
    
    
    $
    42,371
    
    
    $
    276,714
    
    
    $
    89,483Loss from operations
    
    $
    (2,757
    )
    
    $
    (6,357
    )
    
    $
    (10,075
    )
    
    $
    (11,755
    )Consolidated:Net sales
    
    $
    161,383
    
    
    $
    74,888
    
    
    $
    469,414
    
    
    $
    171,505Loss from operations
    
    $
    (14,314
    )
    
    $
    (24,386
    )
    
    $
    (20,071
    )
    
    $
    (79,743
    )
 The $66.9 million increase in AMHS sales for the three-month period ended December 31, 2004 as
compared to the same period of fiscal 2004 was primarily due to a $58.7 million increase in sales
to flat panel display manufacturers, principally to one customer in
Asia, and a $8.2 million
increase in sales to semiconductor fabs, predominantly in North America, Korea, and Japan. The
$187.2 million increase in AMHS sales for the nine-month period ended December 31, 2004 as compared
to the same period of fiscal 2004 was primarily due to an $141.0 million increase in sales to flat
panel display manufacturers, predominantly in Asia, and a $46.2 million increase in sales to
semiconductor fabs, predominantly in Asia and North America. The $19.6 million increase in Fab Automation sales for the three-month period ended December 31,
2004 as compared to the same period of fiscal 2004 was primarily due
to a $16.0 million increase in
revenues for factory interface and software products. The $110.7 million increase in Fab Automation
sales for the nine-month period ended December 31, 2004 as compared to the same period of fiscal
2004 was primarily due to a $95.0 million increase in revenues for factory interface and software
products. 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 nine-month periods indicated (unaudited): 22




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003NET SALES
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %COST OF SALES
    
    
    82.0
    
    
    
    85.9
    
    
    
    80.7
    
    
    
    84.2Gross profit
    
    
    18.0
    
    
    
    14.1
    
    
    
    19.3
    
    
    
    15.8OPERATING EXPENSES:Research and development
    
    
    5.3
    
    
    
    12.3
    
    
    
    5.8
    
    
    
    15.9Selling, general and administrative
    
    
    14.9
    
    
    
    25.0
    
    
    
    13.2
    
    
    
    29.9Amortization of acquired intangible assets
    
    
    3.1
    
    
    
    7.0
    
    
    
    3.2
    
    
    
    8.6Restructuring and other charges
    
    
    0.7
    
    
    
    2.3
    
    
    
    0.4
    
    
    
    3.8Asset impairment charges
    
    
    2.9
    
    
    
    
    
    
    
    1.0
    
    
    
    4.0Total operating expenses
    
    
    26.9
    
    
    
    46.7
    
    
    
    23.6
    
    
    
    62.3Loss from operations
    
    
    (8.9
    )
    
    
    (32.6
    )
    
    
    (4.3
    )
    
    
    (46.5
    )INTEREST AND OTHER INCOME (EXPENSE), NET:Interest income
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3Interest expense
    
    
    (1.0
    )
    
    
    (2.4
    )
    
    
    (1.1
    )
    
    
    (3.2
    )Other income (expense), net
    
    
    0.9
    
    
    
    (0.8
    )
    
    
    0.6
    
    
    
    0.2Interest and other income (expense), net
    
    
    0.2
    
    
    
    (2.9
    )
    
    
    (0.2
    )
    
    
    (2.7
    )Loss before benefit from income taxes
and minority interest
    
    
    (8.7
    )
    
    
    (35.5
    )
    
    
    (4.5
    )
    
    
    (49.2
    )BENEFIT FROM INCOME TAXES
    
    
    0.6
    
    
    
    2.8
    
    
    
    0.5
    
    
    
    2.6MINORITY INTEREST
    
    
    0.9
    
    
    
    3.2
    
    
    
    0.6
    
    
    
    2.4NET LOSS
    
    
    (7.2
    )%
    
    
    (29.5
    )%
    
    
    (3.4
    )%
    
    
    (44.2
    )%
 Gross Margin Gross
margin increased to 18.0 percent of net sales for the
three-month period ended December 31, 2004, compared to 14.1 percent of net sales for the corresponding period of the prior year. The
increase was primarily due to increased gross margins in the AMHS
segment, which increased to 10.0 percent of net sales in the current period compared to 5.2 percent of net sales for the
corresponding period of the prior year. This increase was primarily due to the improvement in
margin from the semiconductor business during the current quarter as compared with the
corresponding period of the prior year. The Fab Automation gross
margins improved to 34.3 percent
in the current period compared to 25.8 percent in the corresponding period of the prior year. The
increase was primarily due to an improvement in mix of higher margin
200mm factory interface and software products, as well as
product cost reductions. For the nine-month period ended December 31, 2004, gross margin increased to 19.3 percent of
net sales compared to 15.8 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 33.7 percent in the current period compared to 17.0 percent in the
corresponding period of the prior year, offset by lower margins in
the flat panel display AMHS business. The gross margin improvement was primarily due to an
improvement in mix of higher margin 200mm factory interface and
software products, and a
reduction in manufacturing overhead expenses. We expect 300mm product sales to continue to increase as a percentage of our sales mix,
although quarterly fluctuations are possible. Our 300mm fab automation products face greater
competition 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,
although we expect price competition to continue. We expect continued decline in our 200mm product
sales in the next quarter as bookings in our key markets in China and elsewhere have slowed 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
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Research and development
    
    $
    8,485
    
    
    $
    9,204
    
    
    $
    (719
    )
    
    $
    27,237
    
    
    $
    27,219
    
    
    $
    18Percentage of total net sales
    
    
    5.3
    %
    
    
    12.3
    %
    
    
    
    
    
    
    5.8
    %
    
    
    15.9
    %
 Research
and development expenses decreased to $8.5 million for the three-month period ended
December 31, 2004, compared with $9.2 million in the corresponding period of the prior year. For
the nine-month period ended December 31, 2004, research and
development expenses of $27.2 million were flat compared to the
same period of the prior year. The decrease in research and
development expenses for the three-month period ended December 31, 2004 was
primarily due to a 23




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##### Table of Contents



reduction in prototype material, as the Spartan Sorter was transferred from research and
development to production, and a decrease in labor expenses associated with headcount reductions.
Research and development expenses declined
to 5.3 percent of net sales
for the three-month period ended December 31, 2004, compared with 12.3 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 and a decrease of $0.7 million in research and
development expense compared to the corresponding period of the prior year. 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
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    

December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Selling, general and administrative
    
    $
    24,066
    
    
    $
    18,755
    
    
    $
    5,311
    
    
    $
    61,985
    
    
    $
    51,274
    
    
    $
    10,711Percentage of total net sales
    
    
    14.9
    %
    
    
    25.0
    %
    
    
    
    
    
    
    13.2
    %
    
    
    29.9
    %
 The increase in selling, general and administrative, or SG&A, expenses for the three- and
nine-month period ended December 31, 2004, compared with the same period of fiscal 2004, was
primarily due to an increase in accounting and compliance costs, legal fees and costs associated
with our review, documentation and testing of internal control over financial reporting required
under SEC rules and accounting standards. The higher expenses were also a result of increased
spending on consultants to implement business process improvements that were not related to
compliance requirements. We also incurred $1.7 million of accounting, legal and other costs related
to the fiscal second quarter delay in closing ASIs books, delayed filing of the Form 10-Q 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
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Amortization of acquired intangible assets
    
    $
    5,086
    
    
    $
    5,271
    
    
    $
    (185
    )
    
    $
    15,178
    
    
    $
    14,834
    
    
    $
    344Percentage of total net sales
    
    
    3.1
    %
    
    
    7.0
    %
    
    
    
    
    
    
    3.2
    %
    
    
    8.6
    %
 The fluctuations in amortization expense for the three- and nine-month periods ended December
31, 2004, compared with the corresponding periods in the prior year, were due to exchange rate
fluctuations as the majority of our intangible assets are denominated in Yen. 24




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##### Table of Contents



Restructuring Charges Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Restructuring and other charges
    
    $
    1,116
    
    
    $
    1,743
    
    
    $
    (627
    )
    
    $
    1,703
    
    
    $
    6,593
    
    
    $
    (4,890
    )Percentage of total net sales
    
    
    0.7
    %
    
    
    2.3
    %
    
    
    
    
    
    
    0.4
    %
    
    
    3.8
    %
 The following table summarizes the activities in our restructuring accrual during the
three-month periods ended June 30, 2004, September 30, and December 31, 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 in) accruals
    
    
    482
    
    
    
    (41
    )
    
    
    441Amounts paid in cash
    
    
    (461
    )
    
    
    (279
    )
    
    
    (740
    )Foreign currency translation adjustment
    
    
    (1
    )
    
    
    (7
    )
    
    
    (8
    )Balance, September 30, 2004
    
    
    53
    
    
    
    1,695
    
    
    
    1,748Additional
(reduction in) accruals
    
    
    1,182
    
    
    
    (66
    )
    
    
    1,116Amounts paid in cash
    
    
    (522
    )
    
    
    (324
    )
    
    
    (846
    )Foreign currency translation adjustment
    
    
    4
    
    
    
    12
    
    
    
    16Balance, December 31, 2004
    
    $
    717
    
    
    $
    1,317
    
    
    $
    2,034
 We
incurred restructuring charges of $1.1 million, $0.4 million and $0.2
million for the three-month periods ended December 31, September 30
and June 30, 2004, respectively, consisting primarily of severance
costs resulting from a reduction in workforce. In
December 2004, we announced a restructuring initiative in our Fab
Automation reporting segment, which involved the termination of
employment of approximately 70 employees, including 5 in
manufacturing, 55 in selling, general and administration, and 10 from
our international operations. The total costs of this restructuring
are expected to be approximately $1.1 million in one-time termination
benefits, which was expensed in our fiscal third quarter. The
restructuring is expected to provide annual expense savings of
approximately $8.0 to $9.0 million. The
outstanding accrual balance of $2.0 million at December 31, 2004
consists primarily of future lease obligations on vacated facilities,
in excess of estimated future sublease proceeds of approximately $0.7
million, which will be paid over the next five quarters and severance
payments relating to the December 2004 restructuring, which are
expected to be paid prior to the end of the fiscal year. All
remaining accrual balances are expected to be settled in cash. Restructuring charges and related utilization for the
three-month periods ended December 31, September 30,
and June 30, 2003 were (in thousands): Severance and
    
    
    
    
    
    Fixed AssetBenefits
    
    
    Excess 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
    
    
    
    
    
    
    
    3,902Additional accruals
    
    
    1,743
    
    
    
    
    
    
    
    
    
    
    
    1,743Non-cash related utilization
    
    
    70
    
    
    
    (47
    )
    
    
    
    
    
    
    23Amounts paid in cash
    
    
    (2,074
    )
    
    
    (491
    )
    
    
    
    
    
    
    (2,565
    )Balance, December 31, 2003
    
    $
    64
    
    
    $
    3,039
    
    
    $
    
    
    
    $
    3,103 During
the three-month period ended December 31, 2003, we recorded net severance and other charges of $1.0 million
primarily related to the settlement and release of claims
arising from the termination of a former officer. We also
incurred a net $0.7 million of severance expenses mainly
from headcount reductions in our Japanese operations resulting
from its outsourcing activities. During the nine-month period ended December 31, 2003, we
incurred restructuring charges of $6.6 million, consisting
primarily of severance costs from a reduction in workforce in
April 2003 and the claim settlement mentioned above.
Additionally, we incurred a charge for future lease obligations
on a vacated facility in excess of estimated future sublease
proceeds. Asset Impairment Charges Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Asset impairment charges
    
    $
    4,645
    
    
    $
    
    
    
    $
    4,645
    
    
    $
    4,645
    
    
    $
    6,853
    
    
    $
    (2,208
    )Percentage of total net sales
    
    
    2.9
    %
    
    
    0.0
    %
    
    
    
    
    
    
    1.0
    %
    
    
    4.0
    %
 During
the three-month period ended December 31, 2004, we removed from
service and made available for sale certain land and a building
relating to our wholly-owned Japanese subsidiary, Asyst Japan, Inc.,
or AJI. The building had been underutilized since a prior decision to
outsource the manufacturing of our next-generation robotics products,
part of an overall strategy to outsource the manufacture of all our
Fab Automation segment products. The outsourcing transition is
substantially complete and remaining personnel and operations have
been consolidated into other facilities. As a result, during the
three-month period ended December 31, 2004, we recorded an
impairment charge of $4.6 million to write the assets down to
their estimated fair value, based on a market valuation, less cost to sell. The carrying value of the
assets at December 31, 2004 was $2.3 million. We expect to complete
the sale of the land and building within the next twelve months. 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. Interest and Other Income (Expense), Net 25




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##### Table of Contents



Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Interest income
    
    $
    479
    
    
    $
    189
    
    
    $
    290
    
    
    $
    1,197
    
    
    $
    563
    
    
    $
    634Interest expense
    
    $
    1,691
    
    
    $
    1,798
    
    
    $
    (107
    )
    
    $
    4,953
    
    
    $
    5,415
    
    
    $
    (462
    )Other income (expense), net
    
    $
    1,509
    
    
    $
    (596
    )
    
    $
    2,105
    
    
    $
    2,692
    
    
    $
    259
    
    
    $
    2,433
 Interest income for the three- and nine-month periods ended December 31, 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 nine-month periods ended December 31, 2004 as compared to the same periods of fiscal
2004. Other income (expense), net was higher primarily due to an increase in royalty income for the
three- and nine-month periods ended December 31, 2004 as compared to the same periods of fiscal
2004. Income Taxes Three Months Ended
    
    
    Change
    
    
    Nine Months Ended
    
    
    ChangeDecember 31,
    
    
    Increase
    
    
    December 31,
    
    
    Increase(in thousands, except percentage)
    
    2004
    
    
    2003
    
    
    (decrease)
    
    
    2004
    
    
    2003
    
    
    (decrease)Benefit from income taxes
    
    $
    962
    
    
    $
    2,117
    
    
    $
    (1,155
    )
    
    $
    2,549
    
    
    $
    4,502
    
    
    $
    (1,953
    )Percentage of total net sales
    
    
    0.6
    %
    
    
    2.8
    %
    
    
    
    
    
    
    0.5
    %
    
    
    2.6
    %
 Income tax benefit for the three months ended December 2004 was due to a tax benefit recorded
on the amortization of deferred tax liabilities recorded in connection with the ASI acquisition,
offset primarily by tax provisions in ASI and other international subsidiaries. The benefit for the
nine-month period ended December 31, 2004 was due to amortization of deferred tax liabilities
recorded in connection with the ASI acquisition, offset by tax provisions primarily in the
international subsidiaries. The benefits recorded for the three- and nine-month periods ended
December 31, 2003 were due to amortization of deferred tax liabilities recorded in connection with
the ASI acquisition, offset primarily by tax provisions in international subsidiaries. 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 in the United States. 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, bank borrowings, long-term debt and cash generated from
operations. See also Risk Factors  We experienced additional risks and costs as a result of the
delayed filing of theForm 10-Qfor our fiscal second quarter for additional information on our
ability to raise funds. As of December 31, 2004, we had approximately $131.1 million in cash, cash equivalents and
short-term investments, $127.2 million in working capital and $89.7 million in long-term debt and
capital leases, net of current portion. The table below, for the periods indicated, provides selected condensed consolidated cash flow
information: Nine Months EndedDecember 31,(in thousands)
    
    2004
    
    
    2003Net cash used in operating activities
    
    $
    (4,323
    )
    
    $
    (70,195
    )Net cash provided by (used in) investing activities
    
    $
    (22,976
    )
    
    $
    7,817Net cash provided by financing activities
    
    $
    18,688
    
    
    $
    91,824
 Cash Flows from Operating Activities 26




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##### Table of Contents



Net
cash of $4.3 million was used to fund our operating activities for the nine-month period
ended December 31, 2004, primarily due to a net loss of
$15.8 million and $6.7 million increase in
working capital, primarily accounts receivable, partially offset by various non-cash net charges of
$17.6 million, including depreciation and amortization, stock-based compensation charges, asset
impairment charges, restructuring charges, movements in deferred taxes and minority interest loss allocations. Net cash of $70.2 million was used in fund
our operating activities for the nine-month period ended December 31, 2003, primarily due to a net
loss of $75.7 million and $16.8 million increase in working capital, partially offset by non-cash
charges of $22.4 million, including depreciation and
amortization, asset impairment charges and restructuring charges. We continue to improve our days sales outstanding, or DSO, which have decreased to 118 days at
December 31, 2004, from 174 days at March 31, 2004. At December 31, 2003, our DSO was 149 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 December 31, 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 12.0 times on an annualized basis for the nine-month period ended December
31, 2004, compared to 13.5 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 $23.0 million for the nine-month period ended
December 31, 2004, due to $22.5 million in purchases of
short-term investments and $3.9 million in
purchases of property and equipment, primarily fixed assets for research and development and
customer demonstration units, partially offset by $1.9 million in proceeds from the release of
restricted cash and cash equivalents, as the restriction lapsed due to the repayment of the related
debt in the first quarter of fiscal 2005. Net cash of $7.8 million provided by investing activities for the nine-month period ended
December 31, 2003 primarily consisted of net proceeds of $12.1 million from the sale of land,
partially offset by purchases of property and equipment of $4.1 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 $18.7 million for the nine-month period ended
December 31, 2004, due to $19.4 million in proceeds from
our line of credit and $3.0 million in
proceeds from the issuance of common stock under our employee stock programs, partially offset by
$3.7 million in pay downs against borrowings. Net cash provided by financing activities was $91.8 million for the nine-month period ended
December 31, 2003, including $99.0 million in net proceeds from the issuance of common stock in a
public offering, and $11.7 million issued under our employee stock programs, primarily due to
exercises of stock options by terminated employees prior to the expiration of their stock options,
and $14.0 million in loan proceeds from short-term borrowing and additional long-term debt in our
Japanese subsidiary, which is partially offset by $32.8 million of loan repayments in the first
nine months of the year. 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 December 31, 2004 and 2003, respectively, and
$0.3 million during each of the nine-month periods ended December 31, 2004 and 2003, respectively. We had $5.3 million and $7.1 million of secured straight bonds from a bank in Japan at
December 31, 2004 and March 31, 2004, respectively. The bonds bore interest at rates ranging from
1.4 percent to 2.4 percent as of December 31, 2004 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. 27




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##### Table of Contents



At December 31, 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 December 31, 2004, there was no amount outstanding under the
line of credit, and we were in compliance with the financial covenants. At December 31, 2004, ASI had three revolving lines of credit with Japanese banks. These
lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $67.1 million
at the exchange rate as of December 31, 2004. As of December 31, 2004 and March 31, 2004,
respectively, ASI had outstanding borrowings of 2.6 billion Japanese Yen and 0.5 billion Japanese
Yen, or approximately $25.0 million and $4.8 million, respectively, at the exchange rate as of
December 31, 2004 and March 31, 2004, respectively, that is recorded in short-term debt. ASIs lines of credit carry original terms of six months to one year, at variable interest
rates based on the Tokyo Interbank Offered Rate, or TIBOR, which was 0.06 percent at December 31,
2004, plus margins of 1.00 to 1.25 percent. Under terms of these lines of credit, ASI generally is
required to maintain compliance with certain financial covenants, including requirements to report
an annual net profit on a statutory basis and to maintain at least
80.0
percent of the equity reported as
of its prior fiscal year-end. None of these lines require collateral and none of these lines
require guarantees from Asyst or its other subsidiaries in the event of default by ASI. Unless
extended, these lines will expire at various times up to December 2005, at which time all amounts
outstanding will be due and payable. Our Japanese subsidiary, AJI, maintains revolving lines of credit with five Japanese banks.
The lines carry annual interest rates of 1.4 to 2.4 percent and substantially all of these lines
are guaranteed by the company in the United States. As of December 31, 2004 and March 31, 2004,
respectively, AJI had outstanding borrowings of 1.2 billion Japanese Yen and 1.4 billion Japanese
Yen, or approximately $11.2 million and $13.4 million, at exchange rates as of December 31, 2004
and March 31, 2004, respectively, that are recorded as short-term debt. 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 December 31,
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 the late filing of the fiscal second
quarter Form 10-Q, we will be ineligible to register our securities on Form S-3 for sale by us or
resale by others for one year. The inability to use Form S-3 could adversely affect our ability to
raise capital during this period. If we failed to timely file a future periodic report with the SEC
and were delisted, it could severely impact our ability to raise future capital and could have an
adverse impact on our overall future liquidity. 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 the Form 10-Q for the
second fiscal quarter. On January 11, 2005, the panel approved our
request to continue the listing of our common stock on the Nasdaq
National Market and removed the fifth character, E, from
our trading symbol effective with the opening of trading on January
12, 2005. While the panel determined that the company now appears to
satisfy Nasdaqs filing requirement, the panel will continue to
monitor us to ensure our compliance with the filing requirement over
the long term. The panel also determined to condition the
companys continued listing upon the company timely filing all
periodic reports with the SEC and Nasdaq for all reporting periods
ending on or before January 31, 2006. If the company fails to make
any periodic report filing in accordance with this condition, the
panel decision stated that a Nasdaq panel will promptly conduct a
hearing with respect to such failure, and the companys
securities may be immediately de-listed from The Nasdaq Stock Market. Recent Accounting Pronouncements 28




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In March 2004, the Financial Accounting Standards Board (FASB) approved the consensus reached on
the Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments. EITF 03-1 provides guidance for identifying
impaired investments and new disclosure requirements for investments that are deemed to be
temporarily impaired. On September 30, 2004, the FASB issued a final staff position (FSP) EITF
Issue 03-1-1 that delays the effective date for the measurement and recognition guidance included
in paragraphs 10 through 20 of EITF 03-1. Quantitative and qualitative disclosures required by EITF
03-1 remain unchanged by the staff position. We do not believe the impact of adoption of the
measurement provisions of the EITF will be significant to our overall results of operations or
financial position. In March 2004, the Financial Accounting Standards Boards, or FASBs Emerging Issues Task
Force, or EITF, reached consensus on Issue 03-6. This Issue is intended to clarify what is a
participating security for purposes of applying SFAS 128, Earnings Per Share.The Issue also
provides further guidance on how to apply the two-class method of computing earnings per share, or
EPS, once it is determined that a security is participating, including how to allocate
undistributed earnings to such a security. The guidance in
this Issue was effective for reporting
periods beginning after March 31, 2004 and requires the restatement of previously reported EPS.
We have adopted this Issue and there is no effect on our basic and
diluted EPS for the three- and nine-month periods ended December 31, 2004 and 2003. 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. We
are in the process of evaluating the impact of the adoption of the provisions of SFAS
No. 151 on our financial position and results of
operations. In December 2004, the FASB issued FASB Statement No. 153, Exchange of Nonmonetary Assets  an
amendment of APB Opinion No. 29(SFAS No. 153). SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. The provisions of this Statement are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of the provisions of SFAS No. 153 is not expected to have a material impact on our
financial position or results of operations. In
December 2004, the FASB issued FASB Statement No. 123(R),
Share Based Payment(FAS 123(R)).
FAS 123(R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation and requires
companies to expense the fair value of employee stock options and other forms of stock-based
compensation. The standard is effective for our quarter ending September 30, 2005 and
will apply to our employee stock option and stock purchase plans. We
are currently evaluating the impact of the adoption of
FAS 123(R) and have not selected a transition
method or valuation model. As such, we are unable to estimate the
expected effect on our
financial statements, but believe it will have a significant adverse impact on our results from
operations. 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 the Form 10-Q on time for our fiscal second quarter 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 December 30, 2004, the same date that we filed the Form 10-Q for our fiscal
second quarter. Additionally, the company made adjustments to the fiscal first quarter results
reported for ATI, our base 29




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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 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 continuing 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 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 believe it is unlikely that we will achieve
this goal. The control deficiencies we have previously encountered,
described above, have made it unlikely that we or our independent auditors will 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, it is unlikely that we would conclude that our disclosure controls and procedures are effective. We
believe it is unlikely under the current circumstances that the material weaknesses 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 significant progress in these matters.
Under SEC rules and current accounting standards, if there is any material weakness outstanding as
of the end of an annual 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. 30




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We experienced additional risks and costs as a result of the delayed filing of the Form 10-Q for
our fiscal second quarter. As a result of the delayed filing of Form 10-Q for our second quarter of fiscal 2005, we
experienced additional risks and costs. The Audit Committees investigation was time-consuming,
required us to incur incremental expenses and 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 $1.7
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 matters underlying 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 was not then 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 were 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 the Form 10-Q for the second fiscal quarter. On January 11, 2005, the
panel approved our request to continue the listing of our common stock on the Nasdaq National
Market and removed the fifth character, E, from our trading symbol effective with the opening of
trading on January 12, 2005. While the panel determined that the company now appears to satisfy
Nasdaqs filing requirement, the panel will continue to monitor us to ensure our compliance with
the filing requirement over the long term. The panel also determined to condition the companys
continued listing upon the company timely filing all periodic reports with the SEC and Nasdaq for
all reporting periods ending on or before January 31, 2006. If the company fails to make any
periodic report filing in accordance with this condition, the panel decision stated that a Nasdaq
panel will promptly conduct a hearing with respect to such failure, and the companys securities
may be immediately de-listed from The Nasdaq Stock Market. Finally, as a result of our delayed filing of the Form 10-Q for fiscal second quarter, 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 67.7
percent and 58.9 percent of our net sales for the three and nine-month periods ended December 31,
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 December 31, 2004, we had a loss contract reserve
of $3.6 million 31




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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. 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 we face increased competition in this product 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 fab automation product manufacturing, which could disrupt the availability of our fab
automation products and adversely affect our gross margins. We
have outsourced the manufacturing of most of our fab automation 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 32




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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 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 December 31, 2004, our long-term
debt was $92.5 million, of which $2.9 million represents current portion of long-term debt recorded
under current liabilities, and our short-term debt was $36.2 million, for an aggregate of $128.7
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 December 31, 2004, ASI has
entered into short-term facility arrangements with three Japanese banks under which it may borrow
up to 7.0 billion Japanese Yen, or approximately $67.1 million, and of which 2.6 billion Japanese
Yen, or approximately $25.0 million was outstanding as of December 31, 2004. We have also
guaranteed substantially all of the loans of our wholly owned Japanese subsidiary, Asyst Japan,
Inc., or AJI, which loans currently total approximately $11.2 million as of December 31, 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 33




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
    engage in mergers and acquisitions. While we have experienced improvements in our financial results for the nine-month period
ended December 31, 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
any outstanding borrowings. Under the terms of its two bank facilities, ASI must generate operating profits on a statutory
basis and must maintain a minimum level of equity. 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 the Form 10-Q for
our second quarter of fiscal 2005, 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; 34




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
    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. 35




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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 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, the filing process is time-consuming and we cannot assure you that we will be able to
timely file our patents and other intellectual property rights. In addition, 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 36




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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 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 80.6
percent of our total net sales for the nine-month period ended December 31, 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; 37




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
    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;
    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. 38




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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 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 will 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 Plan. 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 will 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. 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 competition with respect to all of our products. A number of competitors
may have greater name recognition, more extensive 39




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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 fab 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. 40




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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 0.25 percent, respectively, in the market value of our
investment portfolio as of December 31, 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 December 31, 2004, our results of operations may improve or deteriorate
in the range of $6.4 million to $8.2 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. 41




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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 Officer, 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
December 31, 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 previously 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 third
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
change in our Internal Controls that occurred during the third 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 the Form 10-Q for our fiscal second quarter ended September 30, 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. 42




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Subsequently, this customer reaffirmed the flat panel display contracts
with ASI and paid all amounts then 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
then-applicable exchange rate. We filed the Form 10-Q for our fiscal second quarter on December 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 December 30, 2004. Additionally, the company made adjustments to the fiscal first
quarter results reported for ATI, our base business. Summary of Restatement. The restatement corrected 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 adjusted 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 were 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. See also Part I, Item 2, Risk Factors  We experienced additional risks and
costs as a result of the delayed filing of theForm
10-Qfor our fiscal second quarter. 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
constituted a material weakness in our internal control over financial reporting as of September
30, 2004 and some of which continue to be subject to our remediation plans summarized below:  
    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 have strengthened our controls over financial reporting to address the above-noted material
weaknesses by strengthening timely reviews and analysis of operations and financial results and are
actively recruiting additional staff to fill critical roles in the
financial organization. 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. 43




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
    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. 44




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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 lawsuit 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, $0.4 million has been
accrued for the legal proceedings described above in our financial statements as of December 31,
2004. 45




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##### Table of Contents



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,
2001.31.1
    
    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.(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. 46




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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: February 3, 2005
    
    By:
    
    /s/ Robert J. NiklRobert J. NiklSenior Vice President andChief Financial Officer
 Signing on behalf of the Registrant as the chief financial officer 47




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##### Table of Contents



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,
2001.31.1
    
    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.(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.