SecProbe.io

CORRESP
1
filename1.htm

Correspondence

 July 21, 2005

 Adelaja Heyliger, Esq.

 Division of Corporation Finance

 United States Securities and Exchange
Commission

 100 F Street, N.E.

 Washington, D.C. 20549

Re:
Amtech Systems, Inc.

Annual Report on Form 10-K for fiscal year ended September 30, 2004

File No. 0-11412

 Dear Sir or Madam:

 Below, in question and
answer format, please find our responses to your comments sent under cover dated June 30, 2005.

 Part 1

1.
Note 1 to the financial statements – “Concentrations of Credit Risk” states that one customer accounted for 15% of accounts receivable as of September 30, 2004 and
three customers accounted for 43% of accounts receivable as of September 30, 2003. Please describe in your response and in the appropriate section or sections of future filings such as MD&A and the description of your business, the material
terms of your financing arrangements.

R:
The financial terms of our parts, service and retrofit revenue, which comprise approximately 50% of consolidated revenue, are generally net 30 days from shipment, i.e. Net 30 F.O.B.
Shipping Point or on equivalent terms. The financial terms of equipment or systems sales vary depending on the size of the order and the size, reputation and creditworthiness of the customer. As a result, the financial terms of equipment sales can
range from 90% net 30 days after shipment and 10% net 30 days after acceptance to 30% net 30 days after order placement, 60% net 30 days after shipment and 10% net 30 days after acceptance. Letters of credit are required of certain customers
depending on the size of the order, type of customer or its creditworthiness and its country of domicile. In the future, we will disclose the material aspects of our financing arrangements with customers.

 131 South Clark Dr. Tempe, AZ, 85281, USA

Corporate@AmtechSystems.com

Tel: (480) 967-5146 Fax: (480) 968-3763

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 2 of 14

Item 1.
Business, page 3

 Backlog, page 10

2.
We note your disclosure that your customers may delay delivery of products or cancel orders without sufficient notice. In your response and in future filings, please provide
historical cancellation information and describe your cancellation policies.

R.
We have had no significant cancellations since fiscal 2002. We track new orders net of cancellation and have no formal mechanism to separately track cancellations or related
penalties. However, we know the significant cancellations that occurred during the four-year period ended September 30, 2002. The significant cancellations amounted to $1.2 million, $-0-, $3.5 million, and $1.2 million in fiscal year 1999, 2000,
2001 and 2002, respectively. We received compensation in the form of cancellation penalties or return of volume discounts in the total amount of $.5 million in 1999 and $0.1 million in 2001 related to those order cancellations. These cancellations
gave rise to the disclosure you refer to above. We will disclose summarized historical cancellation information in future filings. When customers cancel orders, we attempt to collect cancellation penalties, to the extent provided in our quotation,
or to recover the costs incurred or committed prior to cancellation, while giving consideration to the potential for other current and future business with the customer. Thus, actual cancellation fees are negotiated on a case-by-case basis. We will
describe our cancellation policies in future filings.

 Patents, page 11

3.
We note your disclosure that you have licensed certain patents in the table on page 11. Tell us whether these licenses are material to your business, and if so, describe the
material terms of the license agreements. Also tell us whether these license agreements have been filed as exhibits to the annual report.

R.
 None of these licenses are considered material to our business and have not been filed as exhibits to the annual report. While the license under which we
manufacture insert carriers resulted in royalty payments of $108,000, $84,000 and $66,000 and revenue of $2.6 million, $2.0 million and $1.7 million in fiscal years 2004, 2003 and 2002, respectively, this license is non-exclusive and expires in
2006, when the underlying patents expire. We believe that the revenue derived from these products is primarily a result of our manufacturing technical know-how, which we independently developed prior to entering into the license agreement and upon
which we continually improve. The other seven (7) licenses listed on page 11 are paid-up, royalty free licenses that were part of the July 1, 2004 acquisition of the horizontal diffusion furnace operations and assets of

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 3 of 14

Kokusai Semiconductor Equipment Corporation and were valued at $102,000 in the acquisition.

 Sales and Marketing, page 12

4.
We note that one customer represented 10% of your net revenues in 2004 and two customers represented 15% and 12% of your net revenues in 2003. To the extent that revenues
attributable to any particular customer accounted for 10% or more of your revenues in any of the periods for which you present financial statements, in future filings please identify that customer and quantify its portion of your revenues.

R.
According to Regulation S-K § 229.101(c)1(vii) the name of the customer is required “if sales to the customer…amount to 10 percent or more of the registrant’s
consolidated revenues and the loss of such customer would have a material adverse effect on the registrant”. The customer that accounted for 10% of consolidated revenue in 2004 was not the same as either of the customers that represented 15%
and 12% of consolidated revenue in 2003. The ranking of our largest customers, most of whom represent less than 10% of consolidated revenue, varies significantly from year to year. Our products/systems are designed to operate for many years; thus,
significant sales to the same customers in consecutive years generally do not occur. Since we do not rely on the same 10% or more customers for recurring revenue of a similar magnitude, we do not believe that the loss of any one of these customers
would have a material adverse effect on future operations or the financial condition of the Company. In future filings, we will disclose the names of 10% or more customers if the conditions set forth in the regulations are met.

Item 2.
Properties, page 14

5.
We note that the lease on your Carlisle, PA facilities expires in June 2005. Please tell us whether you intend to renew this lease, and if so, whether you expect to renew on
comparable terms to the current lease.

R.
As intended, we exercised the option to renew the lease for one year on identical terms, except that the lease payments increased based upon the change in the consumer price index.
We have 3 additional one-year renewal options under the lease. We will disclose any renewal and information about remaining options periods in future filings.

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 4 of 14

 PART II

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 17.

 Results of Operations, page 19

6.
You disclose that your research and development costs decreased from 2003 to 2004 due to costs incurred in development of the small batch vertical furnace prior to the receipt the
customer order. Please tell us how you account for such costs subsequent to the receipt of the customer order.

R.
Our research and development costs decreased in 2004, as the company re-deployed engineers that typically would work on research and development projects to work on the
customer’s order for a small batch vertical furnace. Subsequent to the receipt of the customer’s order, we employed contract accounting and treated the subsequent costs as inventory, which we carried at the lower of cost or market until
the furnace shipped in June 2005. Based on the contract, these inventory costs will be recovered through this sale.

7.
In future filings provide a discussion of the inventory write-downs each period, including the circumstances that lead to the impairments and whether this inventory was disposed of
or sold. The impact of the sales of any inventory written-down on gross profit should also be discussed, if material.

R.
In future filings we will expand the discussion of inventory write-downs each period to include the circumstances that led to the impairments. To the extent it is material we will
also discuss the impact of the subsequent sales of any written-down inventory on gross profit generated during that period.

 Financial Condition, Liquidity and Capital Resources, page 23

8.
In future filings please enhance your discussion of liquidity to more fully discuss your business’ sources and uses of cash and capital expenditures. That analysis should focus
on the drivers of your cash flows. For example, for cash flows from operations, quantify, discuss and explain reasons for changes in cash receipts from sales of goods and services and cash payments for operating and other expenses. Please note that
discussions mirroring the indirect method cash flow statement generally provide insufficient analysis. That is, this discussion should not be a recitation of the line items in your cash flow statement. Your expanded analysis should fully consider
the guidance set forth in FR-72. In addition, clarify the discussion on page 23 that “sufficient amounts of additional liquidity are available from various financing sources.” Provide details of these sources and quantify amounts.

R.
 In future filings, our discussion of liquidity will be written giving full consideration to the guidance set forth in FR-72. In future filings, we will disclose
that we have historically

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 5 of 14

obtained capital from one or more sources of financing, such as private placement of equity, public stock offering, working capital loans or term loans from
banks or other financial institutions, equipment leasing, mortgage financing and internally generated cash flow. It was on this basis we stated “we believe…significant amounts of additional liquidity are available from various financing
sources.” While we have obtained financing at one time or another from nearly all of these sources, quantifying the amounts and describing the terms on which any future financing might be obtained would be speculative. Our disclosure to that
effect states “there can be no assurance of the availability or sufficiency of these or any other source of funding…” When known transactions are consummated, we will disclose the terms of such transactions.

9.
Please revise future filings to include your contractual obligations table in the format provided in FR-67. In addition, we note that your current discussion does not include debt
obligations.

R.
In future filings, we will disclose our contractual obligations in the table format provided in FR-67 and will include debt obligations.

 Critical Accounting Policies, page 24

10.
Your discussion of revenue practices is essentially identical to the significant accounting policies disclosure from Note 1. While the notes to financial statements should present
the basic accounting policies, critical accounting policy disclosure should address the nature and extent of subjective judgments and uncertainties involved in applying a principle at a given time or the variability that is reasonably likely to
result from its application over time. For example, the disclosure about product sales is basically factual. Please expand future filings to more fully describe subjective judgments and uncertainties and significant estimates associated with its
application. Refer to FR-60 and FR-72.

R.
In future filings, we will expand our discussion of revenue practices to more fully describe subjective judgments and uncertainties and significant estimates associated with its
application in accordance with the guidance provided in your comments and FR-60 and FR-72.

 The ongoing volatility of the semiconductor equipment industry…page 27

11.
We note your disclosure that insufficient orders would result in under-utilization of your manufacturing facilities and negatively impact your financial position and results of
operations. In future filings, please expand your MD&A disclosure to discuss and quantify the effects of any changes in your utilization rates.

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 6 of 14

R.
In future filings, we will expand our MD&A disclosure to discuss and quantify the effects of changes in our utilization rates, if there has been a significant change in the
utilization of the various operating plants, e.g. when there has been a significant change in product demand.

 Our current capital structure could delay, defer or prevent a change of control, page 29

12.
We note your disclosure that certain “key employees” have severance arrangements. In future filings, please discuss the material terms of your severance arrangements with
all directors and named executive officers, and ensure that you have filed as exhibits all employment agreements with directors and named executive officers.

R.
Severance agreements with named executive officers are disclosed in Item 11. Executive Compensation of Part III of our annual report on Form 10-K and the employment agreements of
the named executive officers are filed as exhibits 10.3 and 10.8. No other directors or named executive officers have severance agreements.

 If third parties violate our proprietary rights…, page 29

13.
We note your disclosure that, from time to time, you have received communications from other companies asserting claims of intellectual property infringement. Please tell us whether
you have received any such claims during fiscal 2004 or during the two fiscal quarters since the end of fiscal 2004, or whether you are otherwise aware of any parties currently intending to pursue such claims against you.

R.
We have not received any communications in 2004 or in the nine months ended June 30, 2005, asserting claims of intellectual property infringement, nor are we otherwise aware of any
parties currently intending to pursue such claims against us.

 Consolidated financial statements for the fiscal year ended September 30, 2004

 Note 1. Summary of Significant Accounting Policies, page 41

 Revenue Recognition, page 41

14.
On page 19, you disclose that you have increased the purchasing of your own brands of used diffusion furnaces, refurbish them and then resell them. Please disclose whether there are
any repurchase obligations with your customers in future filings.

R.
 We have no repurchase obligations with our customers and we make no commitment to repurchase equipment at the time we sell it to the customer. Commitments to
purchase

 Adelaja Heyliger, Esquire

 Division of Corporation Finance

 United States Securities and Exchange Commission

 July 21, 2005

 Page 7 of 14

such used equipment are only made when we have made a strategic decision to expand the quantities of low cost equipment we have for sale and we are able to
identify available, well-maintained, used equipment that has been or shortly will be taken out of production. We will expand this discussion in future filings to make our strategy clear. To the extent we take on obligations to repurchase equipment
from customers, we will disclose that information in future filings.

15.
We note from page 12 that you sell to distribut