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<SEC-DOCUMENT>0001193125-05-200457.txt : 20060803
<SEC-HEADER>0001193125-05-200457.hdr.sgml : 20060803
<ACCEPTANCE-DATETIME>20051012190756
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-05-200457
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20051012

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMTECH SYSTEMS INC
		CENTRAL INDEX KEY:			0000720500
		STANDARD INDUSTRIAL CLASSIFICATION:	SPECIAL INDUSTRY MACHINERY, NEC [3559]
		IRS NUMBER:				860411215
		STATE OF INCORPORATION:			AZ
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		131 S CLARK DR
		CITY:			TEMPE
		STATE:			AZ
		ZIP:			85281
		BUSINESS PHONE:		6029675146

	MAIL ADDRESS:	
		STREET 1:		131 SOUTH CLARK DRIVE
		CITY:			TEMPE
		STATE:			AZ
		ZIP:			85281

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	QUARTZ ENGINEERING & MATERIALS INC
		DATE OF NAME CHANGE:	19870715
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML><HEAD>
<TITLE>Response Letter</TITLE>
</HEAD>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October&nbsp;11, 2005 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">100 F Street, N.E. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Washington, D.C. 20549 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Re:</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Amtech Systems, Inc. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">Annual Report on Form 10-K for
fiscal year ended September&nbsp;30, 2004 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT FACE="Times New Roman" SIZE="2">File No. 0-11412 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Ladies and Gentlemen: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Below, in question and answer format, please find our responses to your follow-up questions and comments dated September&nbsp;19, 2005.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Form 10-K or the Fiscal Year Ended
September&nbsp;30, 2004 </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Consolidated
Financial Statements </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Note. 1. Summary
of Significant Accounting Policies, page 41 </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2"><U>Revenue Recognition, page 41 </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">We note your response to prior comment 17 in our letter dated June&nbsp;30, 2005. You explain that the gross margin of deferred items has significantly increased because it is
related to &#147;holdbacks&#148;, i.e. payments contingent upon the completion of installation <I>and acceptance</I>. We see that deferred gross margin is 100% at March&nbsp;31, 2005 and decreases to 40% at June&nbsp;30, 2004 [2005]. Please explain
the circumstances contributing to the decrease in deferred gross margin. Clarify why you would not defer a consistent amount of revenue and costs for sales that have not met the revenue recognition criteria. Clarify how you determine the amount of
product costs to be deferred for the holdback related to products that have not been accepted by the customer. Future filings should also clearly disclose the underlying reasons for changes in the amount of revenue and costs deferred.
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">R.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The decrease in gross margin was partially caused by the fact that during the quarter ended June&nbsp;30, 2005, we completed the installation unit of accounting and obtained
customer sign-off on thirteen orders on which we had previously deferred $693,000 of revenue and gross profit. Those orders also included both an equipment unit of accounting and an installation unit of accounting, requiring us to allocate the
selling </FONT></TD></TR></TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">price between the two units of accounting. The portion of the selling price allocated to the
installation unit of accounting is the portion of the selling price that is contingent upon completion of the installation, i.e. the holdback. As a result, the revenue associated with the installation unit of accounting is generally significantly
greater than the fair value and cost of the installation unit of accounting. Depending on the timing of the installation work, the costs incurred can range from zero, at the date of shipment to the date installation commences, to generally between
five and twenty percent of the total deferred revenue. Often, all of the costs and activities of installation for equipment sales occur in the same period that the installation unit of accounting meets the criteria for revenue recognition. For these
reasons, we believe the cumulative cost of installation on deferred installation units of accounting is not material and therefore we do not separately track them by project. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Also contributing to the decline in the deferred gross margin as of June&nbsp;30, 2005 was the deferral of all the revenue
attributable to a new product delivered during that quarter with a $0.7&nbsp;million selling price. That order shipped near the end of June 2005 and the related equipment and installation units of accounting did not meet the criteria for revenue
recognition as of the end of the quarter. Therefore, all of the revenue (both product and installation) and all related direct costs incurred for that system were deferred. Because this order had no profit in it, the deferred costs equaled the
deferred revenue, i.e. had 0% deferred gross margin, greatly reducing the overall deferred gross margin. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">In EITF 00-21 the task force agreed not to provide guidance on Issue 4, accounting for direct costs in an arrangement with multiple deliverables. In SAB
Topic 13 we also find no guidance that indicates that we should defer a consistent amount of revenue and costs for sales that have not met the revenue recognition criteria. The remainder of our response to this comment No.&nbsp;1 is devoted to
describing how we apply the existing guidance to the recognition of revenues and how we are complying with Staff Accounting Bulletin 104. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Approximately fifty percent of our revenue is comprised of equipment (furnaces, automated loaders and lapping/polishing machines) sales and the remainder
is derived from the sale of parts, upgrades and services. Multiple deliverables, installation services and equipment, are included in nearly all our equipment sales contracts. In accordance with Staff Accounting Bulletin Topic 13.1, we first make a
&#147;determination of the units of accounting within our arrangements by reference to the applicable accounting literature&#148;, EITF 00-21, prior to the application of the guidance in SAB Topic 13. Our equipment sales and the related installation
meet the criteria for separate units of accounting in paragraph 9 of EITF 00-21, as follows: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">a.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The delivered equipment has value to the customer on a standalone basis, because (1)&nbsp;similar equipment with the same functionality is sold separately by other vendors and
(2)&nbsp;the customer could resell the delivered equipment on a standalone basis and this often occurs when the customer has excess capacity and there are brokers and other businesses that facilitate the resale of such equipment.
</FONT></TD></TR></TABLE>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There is objective and reliable evidence of the fair value of the undelivered item(s). This is the going market rate for service engineers with experience in our product categories.
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">c.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Furthermore, our arrangements for the sale of equipment and installation do not include a general right of return. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Next, we allocate the total contract price to the equipment and installation
units of accounting, according to paragraph 12 of EITF 00-21, which is based upon the relative fair value of the two units of accounting. However, in accordance with paragraph 14 of EITF 00-21, the amount allocable to the delivered equipment is
lesser of the amount otherwise allocable and the non-contingent amount. For us, this means that the delivered equipment is allocated the contract price less the holdback, i.e. the amount contingent upon installation. This has the effect of
allocating the contingent amount entirely to the installation unit of accounting. Since the contingent portion of the selling price allocated to the installation unit of accounting is 10-30% of the contract price, the revenue of that unit of
accounting is significantly higher than the related fair value and costs. Furthermore, since many of our equipment orders ship near the end of the quarter or the customer is not immediately ready for installation to take place, there often are no or
very little costs of installation incurred before the end of the period in which the equipment is delivered. Under these circumstances, there are no costs incurred related to the deferred revenue attributed to the installation unit of accounting to
defer, resulting in deferred gross margin of up to 100%. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman"
SIZE="2">Next, we make a determination of whether the delivered equipment meets the criteria for revenue recognition, as follows. Section A.1. of Staff Accounting Bulletins Topic 13: Revenue Recognition states, &#147;The staff believes that revenue
generally is realized or realizable and earned when all of the following criteria are met: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Persuasive evidence of an arrangement exists</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Persuasive evidence of an arrangement exists in the form of the customer&#146;s purchase order.</FONT></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delivery has occurred or services have been rendered</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Delivery has occurred, as our terms are F.O.B. our plant, or the equivalent, and title transfers upon shipment. See below regarding customer acceptance provisions.</FONT></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The seller&#146;s price to the buyer is fixed or determinable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">The price is fixed and determinable by reference to the customer&#146;s purchase order.</FONT></TD></TR>
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<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collectibility is reasonably assured&#148;</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Collectibility is reasonably assured because most of our customers are large and well established. Where that is not the case, we require a deposit, and we generally will have received
payment of 70 &#150; 90% by the time our financial statements are finalized.</FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Delivery and Performance </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Customer Acceptance </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">After delivery of a product or performance of a service, if uncertainty exists about customer acceptance, revenue should not be recognized until
acceptance occurs. When such contractual customer acceptance provisions exist, the staff generally believes that the seller should not recognize revenue until customer acceptance occurs or the acceptance provisions lapse. However, the interpretive
response to Question 1, states that formal customer sign-off is not always necessary to recognize revenue provided that the seller objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Interpretative response (a)&nbsp;to Question 1 of SAB Topic 13A3.b, Customer
Acceptance, concludes that &#147;in arrangements where products are delivered for trial or evaluation purposes, revenue should not be recognized until the earlier of when acceptance occurs or the acceptance provisions lapse&#148;. <B>In the rare
situations that we enter into an arrangement that is for a trial or evaluation unit, we defer all revenue and costs unless and until we obtain an unconditional purchase order for the unit, generally at the end of the trial period or the contingency
has been resolved.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">That interpretative response continues
that, &#147;In contrast, other arrangements do not purport to be for trial or evaluation purposes. In these instances, the seller delivers a specified product pursuant to a customer&#146;s order, establishes payment terms, and transfers title to the
delivered product to the customer. However, customer acceptance provisions may be included in the arrangement to give the purchaser the ability to ensure the delivered product meets the criteria set forth in its order.&#148; <B>The latter describes
the arrangements that we have with our customers. Customer contract provisions are included to ensure our customers that we will complete the installation. These acceptance provisions are evaluated in accordance with (b), (c)&nbsp;and (d),
below.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#147;(b) Acceptance provisions that grant a right of return or exchange on the basis of subjective matters.&#148;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">This criteria does not apply, because no right of return or exchange is granted in our arrangements.</FONT></TD></TR>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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<TD WIDTH="46%"></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#147;(c) Acceptance provisions based on seller-specified objective criteria. An example of such a provision is one that gives the customer a right of return or replacement if the delivered
product is defective or fails to meet the vendor&#146;s published specifications for the product.&#148;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">We do not grant a right of return, so this is not applicable.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&#147;(d) Acceptance provisions based on customer-specified objective criteria. These provisions are referred to in this document <I>(SAB Topic 13)</I> as &#147;customer-specific acceptance
provisions&#148; against which substantial completion and contract fulfillment must be evaluated. While formal customer sign-off provides the best evidence that these acceptance criteria have been met, <U>revenue recognition also would be
appropriate, presuming all other revenue recognition criteria have been met, if the seller reliably demonstrates that the delivered products or services meet all of the specified criteria prior to customer acceptance</U>. (<U>Emphasis added</U>).
For example, if a seller reliably demonstrates that a delivered product meets the customer-specified objective criteria set forth in the arrangement, the delivery criterion would generally be satisfied when title and the risks and rewards of
ownership transfers unless product performance may reasonably be different under the customer&#146;s testing conditions specified by the acceptance provisions. Further, the seller should consider whether it would be successful in enforcing a claim
for payment even in the absence of formal sign-off. Whether the vendor has fulfilled the terms of the contract before customer acceptance is a matter of contract law, and depending on the facts and circumstances, an opinion of counsel may be
necessary to reach a conclusion.&#148;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">When we sell equipment where the customer&#146;s specifications have not been previously met with at least two similarly configured systems with similar process specifications, we defer all
revenue (both product and installation) and the directly related incurred costs at the time of shipment. These deferred revenues and costs are later recognized in income at the time of customer acceptance. Conversely, when we have previously
completed at least two or more prior installations and obtained customer acceptance of similarly configured equipment, with similar acceptance criterion, we have effectively demonstrated that the delivered equipment meets the customer-specific
acceptance provisions, and we recognize the revenue allocated to the delivered equipment unit of accounting unless product performance may reasonably be different under the customer&#146;s testing conditions specified by the acceptance provisions.
Our position regarding acceptance is supported by the fact that in the twenty years Amtech has been in the equipment business, a customer has returned equipment only once and that was a product that would have been considered a new product,
requiring 100% deferral, under our revenue recognition policy.</FONT></TD></TR>
</TABLE>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"> Page
 6
 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">The above analysis provides a sound foundation for our deferral and recognition of the equipment
revenue. However, the installation and customer sign-off often occur in a period subsequent to the period in which the equipment is delivered. In other words, the installation services have not been delivered or completed. Therefore, revenue
attributable to the installation unit of accounting is always deferred until the installation is complete and accepted, as this is not considered inconsequential or perfunctory in relation to the installation unit of accounting. We have also
considered whether there are any remaining performance obligations that might affect our recognition of revenue, as follows: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><U><B>SAB Topic 13A3.c. Inconsequential or perfunctory performance obligations</B></U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>&#147;Question 1</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Does the failure to complete all activities related to a unit of accounting preclude recognition of revenue for that unit of accounting? </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><I>Interpretive Response:</I> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">No. Assuming all other recognition criteria are met, revenue for the unit of
accounting may be recognized in its entirety if the seller&#146;s remaining obligation is inconsequential or perfunctory.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">&#147;A seller should substantially complete or fulfill the terms specified in the arrangement related to the unit of accounting at issue in order for
delivery or performance to have occurred. <U>When applying the substantially complete notion, the staff believes that only inconsequential or perfunctory actions may remain incomplete such that the failure to complete the actions would not result in
the customer receiving a refund or rejecting the delivered products or services performed to date. (<I>emphasis added</I>)</U> In addition, the seller should have a demonstrated history of completing the remaining tasks in a timely manner and
reliably estimating the remaining costs. If revenue is recognized upon substantial completion of the terms specified in the arrangement related to the unit of accounting at issue, all related costs of performance or delivery should be accrued.&#148;
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>We have no remaining performance requirements related to
the equipment unit of accounting, because we have already demonstrated with the acceptance of at least two similar pieces of equipment that the delivered equipment meets the customer&#146;s acceptance specification. Most of our equipment sales
contracts include a contingent payment for completion of the installation and acceptance, i.e. the holdback. However, that payment is allocated to the installation unit of accounting as explained above. Only the non-contingent portion of the selling
price is allocated to the equipment unit of accounting. Also, the technology on which the equipment and its processes are based is extremely mature. For this reason the contingent portion of the selling price is really to assure the customer of
timely completion of</B> </FONT></P>



<p Style='page-break-before:always'>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"> Page
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 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>a professional installation. This is evidenced by the fact that in the twenty years Amtech has
been in the equipment business, it has had equipment returned only once.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT
FACE="Times New Roman" SIZE="2"><B>Because our arrangements make the last payment by the customer, which is a stated percentage of the contract price, contingent upon completion of the installation, the customer likely would not pay for (i.e. will
reject) any of the installation services performed until completion and acceptance. Therefore, until the requirements for the payment of the holdback are satisfied, failure to complete the installation would generally result in the customer
rejecting any partially performed installation services included in the installation unit of accounting. However, even if the customer were to withhold the final payment, that would have no effect on the non-contingent payments allocated to the
equipment unit of accounting. Nonetheless, all of the revenue allocated to the installation unit of accounting is contingent and therefore not considered inconsequential or perfunctory and is deferred.</B> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">The interpretative response to question 2 of SAB Topic 13A3.c concludes
with, &#147;The staff also considers the following factors, which are not all-inclusive, to be indicators that a remaining performance obligation is substantive rather than inconsequential or perfunctory: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD WIDTH="29%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD WIDTH="28%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>From question 2 of SAB Topic 13A3.c</B></FONT></P><HR WIDTH="216" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Equipment</B></FONT></P><HR WIDTH="60" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Installation</B></FONT></P><HR WIDTH="63" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The seller does not have a demonstrated history of completing the remaining tasks in a timely manner
and reliably estimating their costs.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">NA. We do have such a demonstrated history.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">NA. We do have such a demonstrated history.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost or time to perform the remaining obligations for similar contracts historically has varied
significantly from one instance to another.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">NA. There is no substantive remaining obligations related to the equipment</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Once the customer&#146;s facilities are ready and installation begins there are generally no significant variances.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The skills or equipment required to complete the remaining activity are specialized or are not
readily available in the marketplace.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Not applicable.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">NA. There are many competitors and independent service engineers in the marketplace that could complete the remaining work.</FONT></TD></TR>
</TABLE>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"> Page
 8
 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="35%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD WIDTH="29%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD WIDTH="28%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>From question 2 of SAB Topic 13A3.c</B></FONT></P><HR WIDTH="216" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Equipment</B></FONT></P><HR WIDTH="60" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Installation</B></FONT></P><HR WIDTH="63" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of completing the obligation, or the fair value of that obligation, is more than
insignificant in relation to such items as the contract fee, gross profit, and operating income allocable to the unit of accounting.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Not applicable.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">YES. The cost of completing the remaining obligations is more than insignificant in relation to the gross profit and operating income allocable to the installation unit of
accounting.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The period before the remaining obligation will be extinguished is lengthy. Registrants should
consider whether reasonably possible variations in the period to complete performance affect the certainty that the remaining obligations will be completed successfully and on budget.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Not applicable.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The period before the remaining obligation will be extinguished is not lengthy, i.e. generally one to six months.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.60em; text-indent:-1.60em"><FONT FACE="Times New Roman" SIZE="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The timing of payment of a portion of the sales price is coincident with completing performance of
the remaining activity.<B> </B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The timing of the payment of the portion of the selling price allocated to the equipment is not coincident with completing performance of the remaining activity.</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Yes. The holdback is paid at the time installation is completed.</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman"
SIZE="2">&#147;Registrants&#146; determinations of whether remaining obligations are inconsequential or perfunctory should be consistently applied.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>Because the timing of payment of a portion of the sales price, generally equal to the 10-30% of the contract price that is allocated to the
installation unit of accounting in accordance with paragraphs 12 and 14 of EITF 00-21, is coincident with completing the installation, we defer that amount until completion and acceptance. Our determinations of whether the remaining obligations are
inconsequential or perfunctory are consistently applied. </B></FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"> Page
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 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>The interpretive response to SAB Topic 13A3.c Question 3 indicates that even if our equipment and
installation service were determined to be one unit of accounting, the accounting result would be the same, i.e. deferral of the contingent portion of the selling price.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><I>&#147;Facts:</I> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Consider a unit of accounting that includes both equipment and installation because the two deliverables do not meet the separation criteria under
00-21EITF Issue 00-21. This may be because the equipment does not have value to the customer on a standalone basis, there is no objective and reliable evidence of fair value for the installation or there is a general right of return when the
installation is not considered probable and in control of the vendor. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman"
SIZE="2"><I>Question:</I> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">In this situation, must all revenue
be deferred until installation is performed? </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><I>Interpretive
Response:</I> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Yes, if installation is essential to the
functionality of the equipment. Examples of indicators that installation is essential to the functionality of equipment include: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The installation involves significant changes to the features or capabilities of the equipment or building complex interfaces or connections; <B>(Installation of our equipment does
not significantly change the features or functionality of the equipment or require building complex interfaces or connections).</B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The installation services are unavailable from other vendors. <B>(Installation services are available from other vendors.)</B> </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">Conversely, examples of indicators that installation is not essential to the
functionality of the equipment include: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The equipment is a standard product; <B>(Our equipment is a standard product once we have previously completed at least two or more prior installations and obtained customer
acceptance of similarly configured equipment, with similar processes and with similar acceptance criterion.)</B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Installation does not significantly alter the equipment&#146;s capabilities; <B>(This is correct.)</B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Other companies are available to perform the installation. <B></B><B>(Yes.)</B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">&#147;If it is determined that the undelivered service is not essential to the functionality of the delivered product but a
portion of the contract fee is not payable until the undelivered service is delivered, the staff would not consider that obligation to be inconsequential or perfunctory. Generally, the portion of the contract price that is withheld or refundable
should be deferred until the outstanding service is delivered because that portion would not be realized or realizable.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>While the equipment and installation are separate units of accounting, as indicated above, the staff&#146;s position as stated above indicates that
the</B> </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2"><B>accounting for revenue recognition would be the same even if the equipment and installation
services were one unit of accounting, which is to defer the contingent portion of the contract price.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">In future filings we will clearly disclose the underlying reasons for changes in the amount of revenue and costs deferred. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Controls and Procedures, page 57 </U></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
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<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">We note your responses to prior comments 23, 26 and 27. Please file the amendments to your Form 10-K, as well as your Form 10-Q for the quarter ended December&nbsp;31, 2004, as
requested. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">R.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">We will file the amendments to our Form 10-K for fiscal year 2004 and to our report on Form&nbsp;10-Q for the quarter ended December&nbsp;31, 2004. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Form 8-K dated September&nbsp;27, 2004 </U></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Unaudited Pro Forma Condensed Combined Financial
Information </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">We note your response to prior comment 22 and 29 in our letter dated June&nbsp;30, 2005 that you will account for contingent payments made for inventory in excess of the amount
originally paid to the seller similar to any other inventory purchase. It appears, based upon the guidance in paragraph 37(c) of SFAS 141, that inventory should be recorded initially at estimated selling prices. Tell us how you originally valued the
inventory acquired and whether the acquired inventory was originally recorded at fair value. Additionally, contingent payments should be recorded as additional cost of the acquired entity. Refer to paragraph 27 of SFAS 141. Please support your
accounting basis for recording contingent payments as inventory rather than additional purchase price. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">R.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">According to the asset purchase agreement, the purchase price was: </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">1.3</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Purchase Price. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="13%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">General. The purchase price for all of the Purchased Assets (the &#147;Purchase Price&#148;) shall be as follows: </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(i)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">three million two hundred twenty-six thousand three hundred sixty one dollars ($3,226,361.00) in cash paid at the Closing by wire transfer of immediately available funds to an
account designated by the Seller (the &#147;Closing Cash Amount&#148;), subject to adjustment as provided in Sections 1.3(c) and (d); </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(ii)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">up to Nine hundred seventy thousand dollars ($970,000.00) paid in accordance with Section&nbsp;1.3(b) (the &#147;Inventory Cap&#148;); and </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="17%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(iii)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the assumption by the Buyer of the Assumed Liabilities (as defined in Section&nbsp;1.4). </FONT></TD></TR></TABLE>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">We allocated the $3.2&nbsp;million cash purchase price plus the value of the small amount of assumed
liabilities (1.3(a)(i)&nbsp;and (iii)&nbsp;of the asset purchase agreement, respectively) to all of the assets, excluding only the &#147;consigned inventory&#148; which has its own purchase price, the Inventory Payment as described in 1.3(b) and
capped in 1.3(a)(ii). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">The inventory is primarily comprised of
purchased parts, which is to be valued at <I>replacement cost</I>, according to guidance in paragraph 37(c)(3) of SFAS 141. The purchase price was allocated to the inventory based upon the seller&#146;s cost, which we believe approximates
replacement cost and fair value. We excluded from this allocation $970,000 of the slowest moving inventory, as it is substantively like consignment inventory, because we do not pay for it until and unless we sell it or otherwise consume it in our
operations within five (5)&nbsp;years. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">As would be expected
with consigned inventory, the asset purchase agreement requires that we give a quarterly accounting for the inventory. An excerpt from the asset purchase agreement spells out the terms for the contingent payments, i.e. &#147;Inventory Payment&#148;,
as follows: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;1.3(b) Inventory Payments </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:17%"><FONT FACE="Times New Roman" SIZE="2">(i) On the twentieth day of each February, May, August and November
following the Closing (each a Payment and Accounting Date) and ending on the first Payment and Accounting Date following the five year anniversary of the Closing Date, the Buyer shall deliver to the Seller a detailed accounting in the form attached
hereto as Exhibit 1.3(b) (the Inventory Accounting) of each item of Inventory consumed or otherwise used by the Buyer (the Consumed Inventory) during the immediately preceding calendar quarter and Sellers cost thereof (Sellers Cost of Consumed
Inventory). The Inventory Accounting shall be certified by the Buyers chief financial officer as being true and accurate in all respects. For purposes of calculating Sellers Cost of Consumed Inventory, the unit cost set forth on Schedule 1.1(a)(i)
shall govern. Commencing with the Payment and Accounting Date on which the aggregate Sellers Cost of Consumed Inventory shall have exceeded two million two hundred seventy thousand five hundred forty one dollars ($2,270,541.00), the Buyer shall pay
to the Seller by wire transfer of immediately available funds to an account designated by the Seller an amount equal to the Sellers Cost of Consumed Inventory in excess of the sum of (x)&nbsp;two million two hundred seventy thousand five hundred
forty one dollars ($2,270,541.00) and (y)&nbsp;any amounts previously paid to the Seller, if any, by operation of this Section&nbsp;1.3(b). The aggregate payments pursuant to this Section&nbsp;1.3(b)(i) shall not exceed the Inventory Cap. The Buyer
shall consume an item available in Inventory prior to consuming that same item from another inventory source. To the extent the Buyer shall consume or use any specific item of inventory in lieu of a specific item of Inventory at a time when that
specific item of Inventory is available for consumption and use, the Buyer shall be deemed to have consumed Inventory for purposes of calculating the amounts payable hereunder.&#148; </FONT></P>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">As generally the case with consigned inventory, we do not pay for unusable inventory, as our
agreement includes the following terms: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;1.3(b)(ii)
Should any specific items of Inventory be found to be unusable (Unusable Inventory) through no fault of the Buyer (e.g., design changes following Closing or Buyer breakage), the Buyer shall provide a list of such Unusable Inventory items and
associated costs to the Seller on the next Payment and Accounting Date, and, at the written request of the Seller, deliver at the Sellers cost such items of Unusable Inventory to the Seller together with a written explanation as to why such items
are unusable. To the extent the Seller agrees that such items of Inventory are Unusable Inventory in the exercise of its reasonable judgment, the Sellers cost thereof (based on the unit cost set forth on Schedule 1.1(a)(i)) shall not be included in
the Sellers Cost of Consumed Inventory and shall be applied to reduce the Inventory Cap.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">However, as with consigned inventory, we have agreed to insure the seller&#146;s interest in the inventory, as indicated in the following excerpt from the
agreement: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;(iii) The Buyer shall insure the Inventory
against theft and casualty in amounts at least equal to Sellers cost. Upon the occurrence of any theft of or casualty to the Inventory, the Buyer shall pay to the Seller all insurance proceeds and any deductible related thereto in respect of such
theft or casualty immediately upon receipt of such proceeds.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman"
SIZE="2">Also, the seller has retained the right to inspect the inventory, as is common with consigned inventory, and as provided in the following portion of our agreement: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">(iv) For purposes of verifying the Inventory Accounting and the amounts due and payable pursuant to this
Section&nbsp;1.3(c), the Seller and its representatives shall have the right to inspect the Inventory and the Buyers books and records related thereto, including sales records, upon reasonable prior notice. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">As indicated in section 1.3(b)(i) of the agreement, our last &#147;Inventory
Payment&#148; will be due in August 2010, i.e. &#147;following the five year anniversary of the Closing Date&#148;. Thereafter, we have no further obligation to make Inventory Payments, the assumption being that any inventory that could not be sold
or consumed in production during that time it is of no value. This is the same as having a right to return the inventory, if we are unable to use it within five years from the close of the transaction. For the above reasons, we believe contingent
payments made, if any, should be treated as payment for the purchase of consigned inventory. This accounting treatment is in &#147;sync&#148; or complements the Staff&#146;s position in Staff Accounting Bulletin Topic 13A2 in its interpretive
response to Question 2 related to there being persuasive evidence of an arrangement, which states in part: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">&#147;The staff believes that the presence of one or more of the following characteristics in a transaction precludes revenue recognition even if title to
the product has passed to the buyer: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">1. The buyer has the
right to return the product and: <B>(Which we do.)</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the buyer does not pay the seller at the time of sale, and the buyer is not obligated to pay the seller at a specified date or dates. <B>(This is true.)</B>
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="5%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the buyer does not pay the seller at the time of sale but rather is obligated to pay at a specified date or dates, and the buyer&#146;s obligation to pay is contractually or
implicitly excused until the buyer resells the product or subsequently consumes or uses the product,&#148; <B>(This is our situation.)</B> </FONT></TD></TR></TABLE>



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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Mary Beth Breslin, Attorney-Advisor </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2">United States Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">October 11, 2005 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"> Page
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 of 13 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">The transaction with the above characteristics is in essence one of consigned inventory, which is the
accounting treatment we believe is appropriate in our transaction. The existence of the contingent payments, which are based upon our future consumption of the inventory acquired, is analogous to our holding the slowest moving $970,000 of acquired
inventory on a consignment basis. As stated above, we excluded from the purchase price allocation $970,000 of the slowest moving, or &#147;consigned inventory&#148;. So, as with the purchase of consigned inventory, we believe the charge for any
contingent payment(s) should be to inventory purchases (i.e. cost of sales). </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT
FACE="Times New Roman" SIZE="2">Paragraph 27 of SFAS 141 states, &#147;In general, the issuance of additional securities or distribution of other consideration at resolution of contingencies <B><I><U>based upon earnings</U></I></B> shall result in
an additional element of costs of an acquired entity. (emphasis added)&#148; The contingent use of this inventory has no direct relationship to earnings, because the sale of inventory does not always result in profit. The use of such inventory would
not necessarily result in a direct proportionate increase in sales, because mark-ups vary. Also, with or without the seller&#146;s excess inventory, we would expect to have approximately the same revenue and earnings, because we would buy the
inventory items we needed directly from the vendors at approximately the same cost. It is only the seller that gains anything through the sale of this excess inventory. Therefore, we do not believe that purchases of the seller&#146;s excess
inventory, when and as needed, which has essentially been consigned to us, should be treated as an additional element of cost of the acquired entity. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">In any event, we do not expect any contingent Inventory Payments to be made, as evidenced by the fact that in addition to the exclusion of $970,000 of the
inventory from the purchase price allocation, we wrote off an additional $0.3&nbsp;million of inventory during the first quarter following the acquisition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We believe we have responded fully to your comments and questions and will be following up with the reviewer in the next several days after he or she has had an
opportunity to assess our responses. Since we are in the process of closing fiscal 2005, we would appreciate the certainty that you can provide with a timely reply. If you have any questions, please contact the undersigned, cell (602)&nbsp;684-3087
or (480)&nbsp;967-5146 extension 17. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Best
regards, </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Amtech Systems, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Robert T. Hass, CPA </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2">Vice President-Finance/CFO </FONT></P>


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