UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

(Mark One)



[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2017~~March 31, 2018



[ ]	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: 0-11412

AMTECH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



Arizona	86-0411215
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

131 South Clark Drive, Tempe, Arizona	85281
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 480-967-5146

Indicate by a 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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ X ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer [ ]	Accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller Reporting Company [ ]
	Emerging Growth Company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Shares of Common Stock outstanding as of ~~August~~May 4, ~~2017: 13,337,689~~2018: 14,896,004

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets ~~June 30, 2017~~March 31, 2018 (Unaudited) and September 30, ~~2016~~2017	3
Condensed Consolidated Statements of Operations (Unaudited) Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	4
Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited) Three and ~~Nine~~Six Months Ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	5
Condensed Consolidated Statements of Cash Flows (Unaudited) ~~Nine~~ Six Months Ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements	1813
Overview	1814
Results of Operations	1814
Liquidity and Capital Resources	2117
Off-Balance Sheet Arrangements	2218
Contractual Obligations	2218
Critical Accounting Policies	2218
Impact of Recently Issued Accounting Pronouncements	2218
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2219
Item 4. Controls and Procedures	2319
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2420
Item 1A. Risk Factors	2420
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2520
Item 3. Defaults Upon Senior Securities	2520
Item 4. Mine Safety Disclosures	2521
Item 5. Other Information	2521
Item 6. Exhibits	2521
SIGNATURES	2622

PART I. FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	June 30, 2017			September 30, 2016			March 31, 2018			September 30, 2017
Assets	(Unaudited)						(Unaudited)
Current Assets
Cash and cash equivalents	$	39,160		$	27,655		$	50,495		$	51,121
Restricted cash	4,671			893			9,662			24,640
Accounts receivable
Trade (less allowance for doubtful accounts of $1,522 and $3,730 at June 30, 2017, and September 30, 2016, respectively)	24,685			17,642
Trade (less allowance for doubtful accounts of $1,499 and $866 at March 31, 2018, and September 30, 2017, respectively)							22,719			22,519
Unbilled and other	12,157			8,634			18,651			14,275
Inventories	23,186			23,223			29,043			30,210
Refundable income taxes	—			260
Vendor deposits	7,626			1,962			3,034			11,806
Other	2,954			2,655			2,633			2,542
Total current assets	114,439			82,924			136,237			157,113
Property, Plant and Equipment - Net	15,080			15,960			16,083			15,792
Intangible Assets - Net							3,289			3,495
Goodwill - Net							11,646			11,405
Investments							2,616			2,615
Deferred Income Taxes - Long-Term	200			200			200			200
Other Assets - Long-Term	1,026			1,095			946			1,003
Investments	2,831			3,032
Intangible Assets - Net	3,643			4,100
Goodwill - Net	11,220			11,119
Total Assets	$	148,439		$	118,430		$	171,017		$	191,623
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	22,484		$	15,397		$	19,129		$	21,555
Current maturities of long-term debt	817			1,134
Accrued compensation and related taxes	6,450			5,710			6,865			7,592
Accrued warranty expense	853			795			1,495			1,254
Other accrued liabilities							3,262			2,056
Customer deposits							18,260			48,784
Current maturities of long-term debt							369			361
Deferred profit	5,449			4,709			5,085			4,081
Customer deposits	25,180			7,055
Other accrued liabilities	1,863			2,164
Income taxes payable	996			1,100			1,933			286
Total current liabilities	64,092			38,064			56,398			85,969
Long-Term Debt	9,732			9,097			8,217			8,134
Income Taxes Payable - Long-Term	6,520			5,930			3,490			7,037
Total Liabilities	80,344			53,091			68,105			101,140
Commitments and Contingencies
Stockholders’ Equity
Preferred stock; 100,000,000 shares authorized; none issued	—			—			—			—
Common stock; $0.01 par value; 100,000,000 shares authorized; shares issued and outstanding: 13,328,656 and 13,179,355 at June 30, 2017 and September 30, 2016, respectively	133			132
Common stock; $0.01 par value; 100,000,000 shares authorized; shares issued and outstanding: 14,896,004 and 14,710,591 at March 31, 2018 and September 30, 2017, respectively							149			147
Additional paid-in capital	113,501			111,631			127,367			125,564
Accumulated other comprehensive loss	(8,834		)	(8,876		)	(7,192		)	(8,529		)
Retained deficit	(34,018		)	(35,830		)	(17,412		)	(26,699		)
Total stockholders’ equity	70,782			67,057			102,912			90,483
Noncontrolling interest	(2,687		)	(1,718		)
Total equity	68,095			65,339
Total Liabilities and Stockholders’ Equity	$	148,439		$	118,430		$	171,017		$	191,623

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues, net of returns and allowances	$	47,760		$	33,342		$	109,839		$	77,899		$	32,783		$	32,944		$	106,394		$	62,079
Cost of sales	32,258			23,711			77,499			56,312			21,058			24,549			74,332			45,241
Gross profit	15,502			9,631			32,340			21,587			11,725			8,395			32,062			16,838

Selling, general and administrative	10,108			8,665			25,366			23,709			9,478			8,260			20,058			15,258
Research, development and engineering	1,423			1,568			4,586			6,015			2,182			1,535			4,173			3,163
Operating income (loss)	3,971			(602		)	2,388			(8,137		)	65			(1,400		)	7,831			(1,583		)
Gain on sale of other assets	—			—			—			2,576
(Loss) income from equity method investment	(110		)	(444		)	(200		)	227
Income (loss) from equity method investment													28			52			2			(91		)
Interest expense and other income, net	(34		)	(265		)	(151		)	(434		)	(38		)	(197		)	(86		)	(116		)
Income (loss) before income taxes	3,827			(1,311		)	2,037			(5,768		)	55			(1,545		)	7,747			(1,790		)
Income tax provision	986			70			1,270			2,040
Income tax (benefit) provision													(2,780		)	194			(1,540		)	284
Net income (loss)	2,841			(1,381		)	767			(7,808		)	2,835			(1,739		)	9,287			(2,074		)

Add: net loss attributable to noncontrolling interest	446			172			1,045			1,086			—			319			—			599
Net income (loss) attributable to Amtech Systems, Inc.	$	3,287		$	(1,209	)	$	1,812		$	(6,722	)	$	2,835		$	(1,420	)	$	9,287		$	(1,475	)

Income (Loss) Per Share:

Basic income (loss) per share attributable to Amtech shareholders	$	0.25		$	(0.09	)	$	0.14		$	(0.51	)	$	0.19		$(0.11)			$	0.63		$	(0.11	)
Weighted average shares outstanding	13,242			13,173			13,203			13,165			14,891			13,188			14,835			13,184
Diluted income (loss) per share attributable to Amtech shareholders	$	0.25		$	(0.09	)	$	0.14		$	(0.51	)	$	0.19		$(0.11)			$	0.61		$	(0.11	)
Weighted average shares outstanding	13,398			13,173			13,288			13,165			15,154			13,188			15,223			13,184

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended March 31,					Six Months Ended March 31,
	2017		2016			2017		2016			2018		2017			2018		2017
Net income (loss)	$	2,841	$	(1,381	)	$	767	$	(7,808	)	$	2,835	$	(1,739	)	$	9,287	$	(2,074	)
Foreign currency translation adjustment	740		(299		)	118		(217		)	796		318			1,337		(623		)
Comprehensive income (loss)	3,581		(1,680		)	885		(8,025		)	3,631		(1,421		)	10,624		(2,697		)

Comprehensive loss attributable to noncontrolling interest	302		197			969		1,084			—		293			—		668
Comprehensive income (loss) attributable to Amtech Systems, Inc.	$	3,883	$	(1,483	)	$	1,854	$	(6,941	)	$	3,631	$	(1,128	)	$	10,624	$	(2,029	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Nine Months Ended June 30,						Six Months Ended March 31,
	2017			2016			2018			2017
Operating Activities
Net income (loss)	$	767		$	(7,808	)	$	9,287		$	(2,074	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	1,871			2,559			916			1,255
Write-down of inventory	448			116			126			51
Capitalized interest	307			—			143			204
Deferred income taxes	(10		)	6			(23		)	24
Non-cash share based compensation expense	978			1,059			463			624
Loss on sale of property, plant and equipment	107			—
Gain on sale of other assets	—			(2,576		)
Loss (gain) from equity method investment	200			(227		)
Reversal of allowance for doubtful accounts, net of provision	(898		)	(143		)
(Gain) loss on sale of property, plant and equipment							(57		)	9
(Gain) loss from equity method investment							(2		)	91
Provision for (reversal of) allowance for doubtful accounts, net							48			(1,217		)
Changes in operating assets and liabilities:
Restricted cash	(3,576		)	26			15,710			(1,703		)
Accounts receivable	(8,997		)	(3,538		)	(3,642		)	(2,002		)
Inventories	(245		)	(4,794		)	1,644			1,840
Accrued income taxes	742			1,617			(1,899		)	169
Vendor deposits and other assets	(5,521		)	(644		)	9,097			(5,557		)
Accounts payable	6,616			2,842			(2,954		)	1,823
Accrued liabilities and customer deposits	17,526			2,695
Customer deposits and accrued liabilities							(31,481		)	17,531
Deferred profit	626			(828		)	819			520
Net cash provided by (used in) operating activities	10,941			(9,638		)
Net cash (used in) provided by operating activities							(1,805		)	11,588
Investing Activities
Purchases of property, plant and equipment	(355		)	(442		)	(686		)	(210		)
Proceeds from sale of property, plant and equipment	39			—			68			34
Proceeds from partial sale of subsidiary	—			7,012
Proceeds from sale of other assets	—			4,884
Net cash (used in) provided by investing activities	(316		)	11,454
Net cash used in investing activities							(618		)	(176		)
Financing Activities
Proceeds from the exercise of stock options	894			34			1,340			94
Payments on long-term debt	(485		)	(549		)	(183		)	(319		)
Borrowings on long-term debt	384			1,145			—			137
Net cash provided by financing activities	793			630
Net cash provided by (used in) financing activities							1,157			(88		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	87			(8		)	640			(119		)
Net Increase in Cash and Cash Equivalents	11,505			2,438
Net (Decrease) Increase in Cash and Cash Equivalents							(626		)	11,205
Cash and Cash Equivalents, Beginning of Period	27,655			25,852			51,121			27,655
Cash and Cash Equivalents, End of Period	$	39,160		$	28,290		$	50,495		$	38,860

Supplemental Cash Flow Information:
Cash paid for interest	$	202		$	257
Income tax refunds	$	262		$	—
Income tax payments	$	116		$	112
Transfer capital equipment to inventory	$	22		$	521

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMTECH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(UNAUDITED)


1.	~~Summary of Significant Accounting Policies~~

1. Basis of Presentation and Significant Accounting Policies

Nature of Operations and Basis of Presentation – Amtech Systems, Inc. (the “Company”, “Amtech”, ~~“we”~~��we”, ~~“us”~~“our” or ~~“our”~~“us”) is a global manufacturer of capital equipment, ~~atomic layer deposition (“ALD”)~~ including thermal processing, silicon wafer handling automation, and related consumables used in fabricating solar cells, LED and semiconductor devices. We sell these products to solar cell and semiconductor manufacturers worldwide, particularly in Asia, the United States and Europe.

We serve niche markets in industries that are experiencing rapid technological advances and which historically have been very cyclical. Therefore, future profitability and growth depend on our ability to develop or acquire and market profitable new products and on our ability to adapt to cyclical trends.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, ~~2016.~~2017.

The consolidated results of operations for the three and ~~nine~~six months ended ~~June 30, 2017,~~March 31, 2018, are not necessarily indicative of the results to be expected for the full fiscal year.

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and ~~its~~our wholly-owned subsidiaries and subsidiaries in which ~~it has~~we have a controlling interest. ~~The Company reports noncontrolling~~We report non-controlling interests in consolidated entities as a component of equity separate from ~~the Company’s~~our equity. The equity method of accounting is used for investments over which ~~the Company has~~we have a significant influence but not a controlling financial interest. All material intercompany accounts and transactions have been eliminated in consolidation. Effective July 1, 2017, we purchased the non-controlling interest in SoLayTec B.V. (“SoLayTec”), pursuant to which SoLayTec became a wholly-owned subsidiary of Amtech. Beginning July 1, 2017, the non-controlling interest will no longer be reported. Prior amounts have not been restated.

Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition – We review product and service sales contracts with multiple deliverables to determine if separate units of accounting are present. Where separate units of accounting exist, revenue allocated to delivered items is the lower of the relative selling price of the delivered items in the sales arrangement or the portion of the selling price that is not contingent upon performance of the service.

We recognize revenue when persuasive evidence of an arrangement exists; the product has been delivered and title has transferred, or services have been rendered; and the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. For us, this policy generally results in revenue recognition at the following points:

For our equipment business, transactions where legal title passes to the customer upon shipment, we recognize revenue ~~is recognized~~ upon shipment for those products where the customer’s defined specifications have been met with at least two similarly configured systems and processes for a comparably situated customer. ~~Selling~~Our selling prices may include both equipment and services, i.e., installation and start-up services performed by our service technicians. The equipment and services are multiple deliverables. Certain equipment that has a positive track record of successful installation and customer acceptance are considered to be routine systems. ~~Revenue~~Our recognition of revenue upon delivery of such equipment that has been routinely installed and accepted is equal to the total selling price minus the relative selling price of the undelivered services.

Where ~~there have been~~the installation and acceptance of more than two similarly configured items of equipment ~~but installation and acceptance~~ have not become routine, recognition of revenue upon delivery of equipment is limited to the

lesser of (i) the total selling price minus the relative selling price of the undelivered services or (ii) the non-contingent amount. Since we defer only those costs directly related to installation, or another unit of accounting not yet delivered, and the portion of the contract price is often considerably greater than the relative selling price of those items, our policy at times will result in deferral of profit that is disproportionate in relation to the deferred revenue. When this is the case, the gross margin recognized in one period will be lower and the gross margin reported in a subsequent period will improve.

For products where the customer’s defined specifications have not been met with at least two similarly configured systems and processes, the revenue and directly related costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criterion has been met. OnWe have, on occasion, ~~we have~~ experienced longer than expected delays in receiving cash from certain customers pending final installation or system acceptance. If some customers refuse to pay the final payment, or otherwise delay final acceptance or installation, the deferred revenue would not be recognized, adversely affecting future cash flows and operating results.


3.	Sales of certain equipment, spare parts and consumables are recognized upon shipment, as there are no post shipment obligations other than standard warranties.

Service revenue is recognized upon performance of the services requested by the customer. ~~Revenue related to service contracts~~Service contract revenue is recognized ~~ratably~~as services are performed over the term of the contract, which generally results in ratable recognition over the period of the ~~contract or in accordance with the terms of the contract, which generally coincides with the performance of the services requested by the customer.~~contract.

Deferred Profit – Revenue deferred pursuant to our revenue ~~recognition~~ policy, net of the related deferred costs, if any, is recorded as deferred profit in current liabilities. The components of deferred profit are as ~~follows:~~follows, in thousands:


	June 30, 2017		September 30, 2016
	(dollars in thousands)				March 31, 2018		September 30, 2017
Deferred revenues	$	10,024	$	7,029	$	7,793	$	6,822
Deferred costs	4,575		2,320		2,708		2,741
Deferred profit	$	5,449	$	4,709	$	5,085	$	4,081

~~Cash~~Shipping Expense – Shipping expenses of $0.7 million and ~~Cash Equivalents~~ ~~– We consider all highly liquid investments with a maturity of~~$0.5 million for the three months ~~or less when purchased to be cash equivalents. Cash~~ended March 31, 2018 and ~~cash equivalents consist~~2017, respectively, are included in selling, general and administrative expenses. Shipping expenses of ~~amounts invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts.~~

~~Restricted Cash~~ ~~– Restricted cash of $4.7~~$1.9 million and $0.9 million ~~as of~~ ~~June 30,~~for the six months ended March 31, 2018 and 2017,, respectively, are included in selling, general and September 30, 2016, respectively, includes collateral for bank guarantees required by certain customers from whom deposits have been received in advance of shipment. Restricted cash as of June 30, 2017 and September 30, 2016 includes $0.2 million relating our proportional responsibility, assumed in connection with the BTU International Inc. (“BTU”) acquisition, for clean-up costs at a Superfund site. Refer to Note 8 to Condensed Consolidated Financial Statements, Commitments and Contingencies, for more detail regarding our proportional liability related to the Superfund site.administrative expenses.

~~Accounts Receivable~~Research, Development and ~~Allowance for Doubtful Accounts~~ Engineering Expense– ~~Accounts receivable are recorded at the~~The table below shows gross sales price of products sold to customers on trade credit terms. Accounts receivable are considered past due when payment has not been received from the customer within the normal credit terms extended to that customer. A valuation allowance is established for accounts when collection is no longer probable. Accounts are written off against the allowance when the probability of collection is remote.research and development expenses and grants earned, in thousands:



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Research, development and engineering	$	2,528		$	1,943		$	4,818		$	3,773
Grants earned	(346		)	(408		)	(645		)	(610		)
Net research, development and engineering	$	2,182		$	1,535		$	4,173		$	3,163

~~Accounts Receivable - Unbilled~~Foreign Currency Transactions and ~~Other~~Translation – ~~Unbilled~~We use the U.S. dollar as our reporting currency. Our operations in Europe, China and other ~~accounts receivable consist mainly~~countries are primarily conducted in their functional currencies, the Euro, Renminbi, or the local country currency, respectively. Accordingly, assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the average exchange rate for each month within the year. The resulting translation adjustments are recorded directly in accumulated other comprehensive income (loss), net of tax - foreign currency translation adjustments as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including transaction gains/losses on intercompany balances that are not of a ~~contingent portion~~long-term investment nature and non-functional currency cash balances, are reported as a separate component of ~~the sales price that is not collectible until successful installation~~non-operating (income) expense in our consolidated statements of ~~the product. These amounts are generally billed upon final customer acceptance. Accounts receivable also includes Value-added tax receivable.~~operations.

Concentrations of Credit Risk – Our customers consist of solar cell and semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable. ~~Our customers consist of solar cell and semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace.~~ Credit risk is managed by performing ongoing credit evaluations of ~~our~~the customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile. ~~Reserves for potentially uncollectible receivables are maintained based on an assessment~~

As of ~~collectability.~~

March 31, 2018, one customer individually represented 41% of accounts receivable. As of September 30, 2017, two customers individually represented 24% and 11% of accounts receivable.

We maintain our cash, cash equivalents and restricted cash in multiple financial institutions. AsBalances in the United States, which account for approximately 64% and 45% of ~~June~~total cash balances as of March 31, 2018 and September 30, 2017, ~~approximately 48% of our total cash balances~~respectively, are primarily invested in U.S. Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”). The remainder of our cash is maintained with financial institutions with reputable credit ratings in The Netherlands, France, China, the United Kingdom, Singapore and ~~China.~~Malaysia.

~~As of June 30, 2017, one customer individually represented 32% of accounts receivable. As of September 30, 2016, one customer individually represented 11% of accounts receivable.~~

Refer to Note 69 to Condensed Consolidated Financial Statements ~~Major Customers and Foreign Sales,~~ for information regarding major customers, foreign sales and revenue in other countries subject to fluctuation in foreign currency exchange rates.

~~Inventories~~ – We value our inventory at the lower of cost or net realizable value. Costs for approximately 50% of inventory is valued on an average cost basis with the remainder determined on a first-in, first-out (FIFO) basis. The components of inventories are as follows:

June 30,
2017 September 30,
2016
(dollars in thousands)
Purchased parts and raw materials $ 13,587
$ 12,435
Work-in-process 6,711
7,044
Finished goods 2,888
3,744
$ 23,186
$ 23,223

~~Property, Plant and Equipment~~ – Property, plant and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the applicable accounts when disposition occurs and any gain or loss is recognized. Depreciation and amortization is computed using the straight-line method. Useful lives for equipment, machinery and leasehold improvements range from three to seven years; for furniture and fixtures from five to ten years; and for buildings from 20 to 30 years.

~~The following is a summary of property, plant and equipment:~~

June 30,
2017 September 30,
2016
(dollars in thousands)
Land, building and leasehold improvements $ 18,343
$ 18,255
Equipment and machinery 8,631
9,056
Furniture and fixtures 5,338
5,426
32,312
32,737
Accumulated depreciation and amortization (17,232 ) (16,777 )
$ 15,080
$ 15,960

~~Goodwill~~ – Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment when it is determined that it is more likely than not that the fair value of a reporting unit or the indefinite-lived intangible asset is less than its carrying amount, typically at the end of the fiscal year, or more frequently if circumstances dictate.

~~The following is a summary of activity in goodwill:~~

Solar Semiconductor Polishing Total
(dollars in thousands)
   Goodwill $ 6,597
$ 5,063
$ 728
$ 12,388
   Accumulated impairment losses (1,269 ) —
—
(1,269 )
Carrying value at September 30, 2016 5,328
5,063
728
11,119
Net foreign exchange differences 101
—
—
101
Carrying value at June 30, 2017 $ 5,429
$ 5,063
$ 728
$ 11,220

   Goodwill $ 6,726
$ 5,063
$ 728
$ 12,517
   Accumulated impairment losses (1,297 ) —
—
(1,297 )
Carrying value at June 30, 2017 $ 5,429
$ 5,063
$ 728
$ 11,220

~~Intangibles~~ ~~– Intangible assets are capitalized and amortized on a straight-line basis over their useful lives if the life is determinable. If the life is not determinable, amortization is not recorded.~~

~~The following is a summary of intangibles:~~

Useful Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
June 30, 2017 September 30, 2016
(dollars in thousands)
Customer lists 6-10 years $ 2,446
$ (1,406 ) $ 1,040
$ 2,432
$ (1,164 ) $ 1,268
Technology 5-10 years 3,274
(1,876 ) 1,398
3,214
(1,678 ) 1,536
Trade names 10-15 years 1,460
(257 ) 1,203
1,455
(219 ) 1,236
Other 2-10 years 283
(281 ) 2
277
(217 ) 60
$ 7,463
$ (3,820 ) $ 3,643
$ 7,378
$ (3,278 ) $ 4,100

~~Long-lived assets~~ –~~Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.~~

~~Warranty~~ – A limited warranty is provided free of charge, generally for periods of 12 to 24 months, for all purchases of our new products and systems. Accruals are recorded for estimated warranty costs at the time revenue is recognized. Estimates are based on past experience and take into account the nature of the products under warranty. The following is a summary of activity in accrued warranty expense:

Nine Months Ended June 30,
2017 2016
(dollars in thousands)
Beginning balance $ 795
$ 793
Additions for warranties issued during the period 899
691
Reductions for payments made under the warranty (269 ) (624 )
Changes related to pre-existing warranties (582 ) (121 )
Currency translation adjustment 10
6
Ending balance $ 853
$ 745

~~Stock-Based Compensation~~ – We measure compensation costs relating to share-based payment transactions based upon the grant date fair value of the award. Those costs are recognized as expense over the requisite service period, which is generally the vesting period. The benefits of tax deductions in excess of recognized compensation cost are credited to additional paid-in capital and reported as cash flow from financing activities.

Stock-based compensation expense of $0.4 million in each of the three months ended June 30, 2017 and 2016, and $1.0 million and $1.1 million for the nine months ended June 30, 2017 and 2016, respectively, is included in selling, general and administrative expenses.

Stock options issued under the terms of our option plans have, or will have, an exercise price equal to the fair market value of the common stock at the close of trading on the NASDAQ Stock Market the trading day prior to the date of the option grant and expire no later than ~~10 years~~ from the date of grant, with the most recent option grant expiring in 2027. Options issued by us generally vest over six months to four years, subject to our board of directors’ (the “Board”) discretion pursuant to our share-based compensation plans.

~~Stock option transactions and the options outstanding are summarized as follows:~~

Nine Months Ended June 30,
2017 2016
Options
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Outstanding at beginning of period 1,841,567
$ 8.15
1,627,477
$ 9.11
Granted 145,000
5.23
350,075
5.25
Exercised (149,301 ) 5.99
(9,846 ) 3.46
Forfeited (107,480 ) 12.68
(129,430 ) 12.87
Outstanding at end of period 1,729,786
$ 7.82
1,838,276
$ 8.16

Exercisable at end of period 1,191,876
$ 8.38
1,128,320
$ 8.91
Weighted average fair value of options
granted during the period
$ 3.04
$ 3.04

~~The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:~~

Nine Months Ended June 30,
2017 2016
Risk free interest rate 2% 2%
Expected life 6 years 6 years
Dividend rate 0% 0%
Volatility 63% 63%

To estimate expected lives for this valuation, it was assumed that options will be exercised at varying schedules after becoming fully vested. Forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience. Fair value computations are highly sensitive to the volatility factor assumed; the greater the volatility, the higher the computed fair value of the options granted. We use historical stock prices to determine the volatility factor.

We award restricted shares under our existing share-based compensation plans. Our restricted share awards vested in equal annual installments over a two to four year period. The total value of these awards is expensed on a ratable basis over the service period of the employees receiving the grants. The “service period” is the time during which the employees receiving grants must remain employees for the shares granted to fully vest.

~~Restricted stock transactions and awards outstanding are summarized as follows:~~

Nine Months Ended June 30,
2017 2016
Awards
Weighted
Average
Grant Date
Fair Value
Awards
Weighted
Average
Grant Date
Fair Value
Beginning Outstanding —
$ —
13,540
$ 7.98
Released —
—
(13,540 ) 7.98
Ending Outstanding —
$ —
—
$ —

~~Fair Value of Financial Instruments~~ – In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”), we group our financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

~~Level 1 - Valuation is based upon quoted market price for identical instruments traded in active markets.~~

Level 2 - Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.

In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, it is our policy to use observable inputs whenever reasonably practicable in order to minimize the use of unobservable inputs when developing fair value measurements. When available, we use quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying

~~assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.~~

~~Cash, Cash Equivalents and Restricted Cash~~ – Included in Cash and Cash Equivalents and Restricted Cash in the Condensed Consolidated Balance Sheets are money market funds invested in treasury bills, notes and other direct obligations of the U.S. Treasury or are in financial institutions insured by the FDIC and foreign bank operating and time deposit accounts. The fair value of this cash equivalent is based on Level 1 inputs in the fair value hierarchy.

~~Receivables and Payables~~ – The recorded amounts of these financial instruments, including accounts receivable and accounts payable, approximate their fair value because of the short maturities of these instruments. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.

~~Debt~~ –~~The recorded amounts of these financial instruments, including long-term debt and current maturities of long-term debt, approximate fair value and are considered Level 2 in the fair value hierarchy.~~

~~Pensions and Other Benefit Plans~~ – We have retirement plans covering substantially all employees. The principal plans are the multiemployer defined benefit pension plans of our operations in The Netherlands and France and the plan for hourly union employees in Pennsylvania. The multiemployer plans in the United States and France are insignificant to our results of operations and financial condition. Our defined contribution plans cover substantially all of the employees in the United States. We match certain employee funds on a discretionary basis while certain subsidiaries require a minimum match to maintain their safe harbor status.

~~Shipping Expense~~ – Shipping expenses of $0.5 million and $0.8 million for the three months ended June 30, 2017 and 2016, respectively, and $1.4 million and $1.6 million for the nine months ended June 30, 2017 and 2016, respectively, are included in selling, general and administrative expenses.

~~Research, Development and Engineering Expense~~ – Research, development and engineering expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes; materials and supplies used in those activities; and product prototyping. We receive reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met. The table below shows gross research and development expenses and grants earned:

Three Months Ended Nine Months Ended
June 30,
2017 June 30,
2016 June 30,
2017 June 30,
2016
(dollars in thousands)
Research, development and engineering $ 1,774
$ 2,078
$ 5,547
$ 7,217
Grants earned (351 ) (510 ) (961 ) (1,202 )
Net research, development and engineering $ 1,423
$ 1,568
$ 4,586
$ 6,015

Impact of Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The guidance is intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of the reporting unit’s goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We plan to early adopt this guidance in the fourth quarter of fiscal 2017, or with any interim impairment tests during fiscal 2017, and do not expect it to have a significant impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash”. The amendments address diversity in practice that exists in the classification and presentation of changes in restricted cash and require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other than Inventory”. The amendments in this ASU remove the prohibition against the recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. These amendments provide cash flow statement classification guidance for: 1. Debt Prepayment or Debt Extinguishment Costs; 2. Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; 3. Contingent Consideration Payments Made after a Business Combination; 4. Proceeds from the Settlement of Insurance Claims; 5. Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; 6. Distributions Received from Equity Method Investees; 7. Beneficial Interests in Securitization Transactions; and 8. Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted, including adoption in an interim period. We are currently in the process of evaluating the impact of the adoption on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new standard applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions and held-to-maturity debt securities. The new guidance will be effective for us starting in the first quarter of fiscal 2021. Early adoption is permitted starting in the first quarter of fiscal 2020. We are in the process of determining the effects the adoption will have on our consolidated financial statements as well as whether to adopt the new guidance early.

In May 2014, the FASB issued ASU No. 2014-09 regarding ASC Topic 606, “Revenue from Contracts with Customers”. ASU 2014-09 provides principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. ASU 2014-09 will be effective for Amtech’s fiscal year beginning October 1, 2018 unless we elect the earlier date of October 1, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 in March 2016, April 2016, May 2016 and December 2016, respectively, to help provide interpretive clarifications on the new guidance in ASC Topic 606. We have determined that we will not early adopt the standard and are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.

In March 2016, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718).”. ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016 and for the interim periods therein. This new standard increases volatility in the statement of operations by requiring all excess tax benefits and deficiencies to be recognized as discrete income tax benefits or expenses in the statement of operations in the period in which they occur. We ~~are currently assessing~~adopted the ~~impact that adopting~~new standard as of October 1, 2017, and prospectively applied the provisions in this guidance requiring recognition of excess tax benefits and deficits in the statement of operations. Also, as a result of the adoption of the new standard, we made an accounting ~~standard will~~policy election to recognize forfeitures as they occur and no longer estimate expected forfeitures. The provisions in this guidance requiring the use of a modified retrospective transition method would have required us to record a cumulative-effect adjustment in retained earnings as of October 1, 2017. On the basis of immateriality, we recorded such cumulative-effect adjustment as stock-based compensation in the first quarter of 2018 rather than adjusting retained earnings. Lastly, we applied the provisions of this guidance relating to classification on the statement of cash flows retrospectively with no material effect on our ~~consolidated~~cash flows.

There have been no other material changes or additions to the recently issued accounting standards other than those previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K, as amended, for the year ended September 30, 2017 that affect or may affect our financial statements.

2. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In ~~February 2016,~~ the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use-assets. ASU 2016-02 also requires improved disclosures to help userscase of ~~financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. This ASU~~a net loss, diluted earnings per share is ~~effective for fiscal years beginning after December 15, 2018 and early application is permitted. We are currently~~calculated in the ~~process of evaluating~~same manner as basic EPS.

For the ~~impact of this standard on our consolidated financial statements.~~three and six months ended March 31, 2018, options for 422,000 and 296,000 weighted average, respectively, shares were excluded from the diluted EPS calculations because they were anti-dilutive. For the three and six months ended March 31, 2017, options for 1,669,000 and 1,696,000 weighted average shares, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could be dilutive in the future.

~~In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10), Recognition~~The following table outlines basic and ~~Measurement of Financial Assets and Financial Liabilities”, which addresses certain aspects of recognition, measurement, presentation, and~~diluted EPS, in thousands, except per share amounts:

disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017 and early adoption is not permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.



	Three Months Ended March 31,					Six Months Ended March 31,
	2018		2017			2018		2017
Basic Income (Loss) Per Share Computation
Net income (loss) attributable to Amtech Systems, Inc.	$	2,835	$	(1,420	)	$	9,287	$	(1,475	)
Weighted Average Shares Outstanding:
Common stock	14,891		13,188			14,835		13,184
Basic income (loss) per share attributable to Amtech shareholders	$	0.19	$(0.11)			$	0.63	$	(0.11	)
Diluted Income (Loss) Per Share Computation
Net income (loss) attributable to Amtech Systems, Inc.	$	2,835	$	(1,420	)	$	9,287	$	(1,475	)
Weighted Average Shares Outstanding:
Common stock	14,891		13,188			14,835		13,184
Common stock equivalents (1)	263		—			388		—
Diluted shares	15,154		13,188			15,223		13,184
Diluted income (loss) per share attributable to Amtech shareholders	$	0.19	$(0.11)			$	0.61	$	(0.11	)

~~In November 2015,~~(1) The number of common stock equivalents is calculated using the ~~FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. This ASU requires entities to classify deferred tax liabilities~~treasury method and assets as noncurrent in a classified statement of financial position. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the ~~beginning of an interim or annual reporting~~average market price during the period. ~~The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.~~

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We do not expect adoption of this ASU to have a material impact on our consolidated financial position and results of operations.


2.	~~Income Taxes~~

3. Inventory

The components of inventories are as follows, in thousands:



	March 31, 2018		September 30, 2017
Purchased parts and raw materials	$	16,250	$	14,789
Work-in-process	9,639		11,078
Finished goods	3,154		4,343
	$	29,043	$	30,210

4. Equity and Stock-Based Compensation

Stock-based compensation expense was $0.2 million and $0.3 million in the three months ended March 31, 2018 and 2017, respectively, and was $0.5 million and $0.6 million in the six months ended March 31, 2018 and 2017, respectively, and was included in selling, general and administrative expenses.

The following table summarizes our stock option activity during the six months ended March 31, 2018:



	Options			Weighted Average Exercise Price
Outstanding at beginning of period	1,560,441			$	7.95
Granted	—			—
Exercised	(185,413		)	7.07
Forfeited	(35,239		)	17.79
Outstanding at end of period	1,339,789			$	7.81

Exercisable at end of period	1,137,748			$	8.04
Weighted average fair value of options granted during the period	$	—

On March 28, 2018, we announced that our Board of Directors approved a stock repurchase program, pursuant to which we may repurchase up to $4 million of our outstanding common stock, par value $0.01 per share, over a one-year period, commencing on April 2, 2018. Repurchases under the program will be made in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in compliance with the rules and regulations of the Securities and Exchange Commission; however, we have no obligation to repurchase shares and the timing, actual number, and value of shares to be repurchased is subject to management’s discretion and will depend on the Company’s stock price and other market conditions. We may, in the sole discretion of the Board of Directors, terminate the repurchase program at any time while it is in effect. We intend to retire any repurchased shares. There were no shares repurchased during the quarter ended March 31, 2018.

5. Income Taxes

The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are treated separately.

Deferred tax assets and liabilities reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We record a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Our expectations regarding realization of our deferred tax assets is based upon the weight of all available evidence, including such factors as our recent earnings history, expected future taxable income and available tax planning strategies. In prior periods, we established valuation allowances on substantially all net deferred tax assets, after considering all of the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, and determined it is not more likely than not that these assets will be realized.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017, and permanently reduces the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limits the deduction of interest expense for certain companies. The Act is a fundamental change to the taxation of multinational companies, including a shift from a system of worldwide taxation with some deferral elements to a territorial system, current taxation of certain foreign income, a minimum tax on low-tax foreign earnings, and new measures to curtail base erosion and promote U.S. production.

As a result of the Act, the statutory rate applicable to our fiscal year ending September 30, 2018 will be 24.5%, based on a fiscal year blended rate calculation. Accounting Standard Codification (“ASC”) 740 requires filers to record the effect of tax law changes in the period enacted. However, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), that permits filers to record provisional amounts during a measurement period ending no later than one year from the date of enactment. In the first quarter of fiscal 2018, we re-measured the applicable deferred tax assets based on the rates at which they are expected to reverse. We adjusted our gross deferred tax assets and liabilities and recorded a corresponding offset to our full valuation allowance against our net deferred tax assets, which resulted in minimal net effect to our provision for income taxes and effective tax rate. We have not made any other provisional adjustments as a result of the Act.

The Act includes a one-time mandatory repatriation transition tax on certain net accumulated earnings and profits of our foreign subsidiaries. We are still in the process of analyzing the earnings and profits and tax pools of our foreign subsidiaries to reasonably estimate the effects of the one-time transition tax and, therefore, have not recorded a provisional impact. The tax expense impact of the one-time transition tax to be determined may be partially or fully offset by a release of valuation allowance for the utilization of existing net operating losses and tax credits that may reduce the amount of related taxes payable. We expect the accounting for this aspect of the Act to be complete by the end of fiscal 2018. As of ~~June 30,~~March 31, 2018, consistent with historical conclusions, our cash balances held in foreign locations are expected to be permanently reinvested outside the United States as the impact of the Act on our current position is not yet fully understood and is still under evaluation.

We are assessing the applicability of the other provisions in the Act and expect to complete this analysis by the end of fiscal 2018.

For the three and six months ended March 31, 2018, we recorded an income tax benefit of $2.8 million and $1.5 million, respectively. Over the last several months, we have undertaken an effort to resolve an uncertain tax position in specific tax jurisdictions. We have worked with tax experts in the local jurisdictions and in the U.S. to review the transactions and tax laws that resulted in this uncertain tax position, as well as the related interest and penalties. At the conclusion of this review, we determined that the Company is not liable for withholding taxes nor the associated interest and penalties in one of the jurisdictions. Therefore, during the second quarter of fiscal 2018 we reversed the accrued tax, interest and penalties relating to this jurisdiction, which total $3.1 million, which was partially offset by income tax expense relating to our consolidated pre-tax income.

The difference in our effective tax rate from the U.S. statutory rate primarily reflects the impact of the resolution of the uncertain tax position discussed above, as well as a mix of domestic and international pre-tax income and valuation allowance. In 2017 and in fiscal 2018, we reversed a portion of the valuation allowance related to net operating loss carryforwards which we have determined will be utilized against net operating income in the current year.

We classify all of our uncertain tax positions as income taxes payable long-term. At ~~June 30, 2017~~March 31, 2018 and September 30, ~~2016,~~2017, the total amount of unrecognized tax benefits was approximately ~~$3.9 million. If recognized, these amounts would favorably impact the effective tax rate.~~$1.2 million and $4.2 million, respectively. Income taxes payable long-term ~~primarily~~ includes ~~among~~ other items, primarily withholding taxes that are not due until the related intercompany service fees are paid.

We classify interest and penalties related to unrecognized tax benefits as income tax expense. As of ~~June 30, 2017~~March 31, 2018 and September 30, ~~2016,~~2017, we had an accrual for potential interest and penalties of approximately ~~$2.6~~$0.6 million and ~~$2.3~~$2.6 million, respectively, classified with income taxes payable long-term.

WeAmtech and one or more of our subsidiaries file income tax returns in The Netherlands, Germany, France, China ~~Singapore, Malaysia, Hong Kong,~~ and ~~Germany,~~other foreign jurisdictions, as well as in the U.S. and various states in the U.S. ~~The Company and its subsidiaries~~We have anot signed any agreements with the Internal Revenue Service, any state or foreign jurisdiction to the extend the statute of limitations for any fiscal year. As such, the number of open ~~tax~~years is the number of years dictated by statute in each of ~~their~~the respective taxing jurisdictions, ~~but~~which generally it is from 3 to 5 ~~years~~years.

6. Commitments and Contingencies

Purchase Obligations – As of March 31, 2018, we had unrecorded purchase obligations in the ~~jurisdictions~~amount of $19.3 million compared to $34.4 million as of September 30, 2017. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less in the event that any agreements are renegotiated, canceled or terminated.

Development Projects – In fiscal 2014, our wholly owned subsidiary, Tempress Systems, Inc. (“Tempress”), entered into an agreement with the Energy Research Centre of the Netherlands (“ECN”), a Netherlands government-sponsored research institute, for a joint research and development project. Under the terms of the agreement, Tempress sold an ion implanter (“Equipment”) to ECN for $1.4 million. Both Tempress and ECN are performing research and development projects utilizing the Equipment at the ECN facilities. Each party to the agreement will have 100% rights to the results of the projects developed separately by the individual parties. Any results co-developed will be jointly owned. Tempress met its requirement to contribute $1.4 million to the project in the form of installation of the Equipment, acceptance testing, project meeting attendance, training, parts, and service, including keeping the Equipment in good condition and repair for the first two years of the agreement prior to fiscal 2017.

EPA Accrual – As a result of the BTU International, Inc. (“BTU”) acquisition, we assumed BTU’s proportional responsibility for clean-up costs at a Superfund site. As an equipment manufacturer, BTU generated and disposed of small quantities of solid waste that were considered hazardous under Environment Protection Agency (“EPA”) regulations. Because BTU historically used a waste disposal firm that disposed of the solid waste at a site that the EPA designated as a Superfund site, BTU was named by the EPA as one of the entities responsible for a portion of the expected clean-up costs. Based on our proportional responsibility, as negotiated with and agreed to by the EPA, our liability related to this matter is less than $0.1 million, which is included in Other Accrued Liabilities in the Condensed Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017. In accordance with the agreement, BTU established a letter of credit for $0.2 million to the benefit of the EPA for potential cash payments as settlements for our proportional liability, which is included in Restricted Cash in the Condensed Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017.

Legal Proceedings – We are defendants from time to time in actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings in which we ~~file tax returns.~~


3.	~~Earnings Per Share~~

~~Basic earnings per share (“EPS”)~~are involved to assess whether a loss is ~~computed by dividing net income (loss)~~probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In the caseresolution of a ~~net loss, diluted earnings per share is calculated in the same manner~~legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as ~~basic EPS.~~

~~For the three and nine months ended~~ ~~June 30, 2017, options for 1,152,000 and 1,649,000 weighted average shares, respectively, are excluded from the diluted EPS calculations because they are anti-dilutive. For the three and nine months ended~~ ~~June 30, 2016, options for 1,840,000 weighted average shares were excluded from the diluted EPS calculations because they were anti-dilutive. These shares could be dilutive in the future.~~incurred.

~~The following table outlines basic~~Employment Contracts – We have employment contracts with, and ~~diluted EPS:~~severance plans covering, certain officers and management employees under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from twelve to thirty-six months of salary.

Three Months Ended June 30, Nine Months Ended June 30,
2017 2016 2017 2016
(in thousands, except per share amounts)
Basic Income (Loss) Per Share Computation
Net income (loss) attributable to Amtech Systems, Inc. $ 3,287
$ (1,209 ) $ 1,812
$ (6,722 )
Weighted Average Shares Outstanding:
Common stock 13,242
13,173
13,203
13,165
Basic income (loss) per share attributable to Amtech shareholders $ 0.25
$ (0.09 ) $ 0.14
$ (0.51 )
Diluted Income (Loss) Per Share Computation
Net income (loss) attributable to Amtech Systems, Inc. $ 3,287
$ (1,209 ) $ 1,812
$ (6,722 )
Weighted Average Shares Outstanding:
Common stock 13,242
13,173
13,203
13,165
Common stock equivalents (1) 156
—
85
—
Diluted shares 13,398
13,173
13,288
13,165
Diluted income (loss) per share attributable to Amtech shareholders $ 0.25
$ (0.09 ) $ 0.14
$ (0.51 )
7. Shareholder Rights Plan

~~(1) The number of common stock equivalents is calculated using the treasury method and the average market price during the period.~~

~~4. Stockholders’ Equity~~

~~Shareholder Rights Plan~~ ~~– On~~In December ~~15,~~ 2008, Amtech and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agent”), entered into an Amended and Restated Rights Agreement (the “Restated Rights Agreement”) which amended and restated the terms governing the previously authorized shareholder rights (each a “Right”) to purchase fractional shares of our Series A Participating Preferred Stock (“Series A Preferred”) currently attached to each of our outstanding ~~Common Shares,~~shares of common stock, par value $0.01 per ~~share (“Common Shares”).~~share. As amended, each Right entitles the registered holder to purchase from us one one-thousandth of a share of Series A Preferred at an exercise price of $51.60 (the “Exercise Price”), subject to adjustment. The Rights will expire 10 years after issuance and will be exercisable if (a) a person or group becomes the beneficial owner of 15% or more of our common stock or (b) a person or group commences a tender or exchange offer that would result in the offeror beneficially owning 15% or more of our common stock. The Final Expiration Date (as defined in the Restated Rights Agreement) is December 14, 2018.

In October 1, 2015, we entered into a Second Amended and Restated Rights Agreement (the “Second Restated Rights Agreement”) with the Rights Agent, which expands the definition of Exempted Person in the Restated Rights Agreement to include any person that ~~the~~our Board of Directors (the “Board”), in its sole and absolute discretion, exempts from becoming an Acquiring Person (as defined in the Restated Rights Agreement) under the Second Restated Rights Agreement. A person deemed an Exempted Person under the Second Restated Rights Agreement cannot trigger any of the Rights provided therein so long as such Exempted Person complies with the terms and conditions by which the Board approved such exemption from the Restated Rights Agreement.

As previously disclosed, onin October 8, 2015, we entered into a Letter Agreement (the “Agreement”) by and between Amtech and certain shareholders of Amtech who jointly file (the “Joint Filers”) under Section 13 of the Securities Exchange Act of 1934, as amended. One of the Joint Filers became a member of our Board after the Agreement was approved by the Board. The Agreement permits the Joint Filers, pursuant to the Second Restated Rights Agreement, to individually acquire shares of common stock of Amtech that would, in the aggregate, bring the Joint Filers’ collective ownership to no more than 19.9% of our issued and outstanding common stock at any time. In the event the Joint Filers’ collective ownership at any time exceeds 19.9% of our issued and outstanding shares of common stock, we are entitled to specific performance and all other remedies entitled to us at law or equity, among others. Our Board approved the Agreement and transactions contemplated thereunder, and has the sole authority to terminate the Agreement at any time.


5.8.	Business Segment Information

Our three reportable segments are as follows:

Solar – We are a leading supplier of thermal processing systems, ~~ALD,~~including related automation, parts and services, to the solar/photovoltaic industry and also offer PECVD (plasma-enhanced chemical vapor deposition) equipment to the global solar market.

Semiconductor – ~~In our Semiconductor segment, we~~We design, manufacture, sell and service thermal processing equipment and related controls ~~and parts~~ for use by leading semiconductor manufacturers, and in electronics, automotive and other industries.

Polishing – ~~In our Polishing segment, we~~We produce consumables and machinery for lapping (fine abrading) and polishing of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystal materials, ceramics and metal components.

Information concerning our business segments is as ~~follows:~~follows, in thousands:


	Three Months Ended June 30,						Nine Months Ended June 30,
	2017			2016			2017			2016			Three Months Ended March 31,						Six Months Ended March 31,
	(dollars in thousands)												2018			2017			2018			2017
Net Revenues:
Solar *	$	28,981		$	19,001		$	56,960		$	38,346		$	12,598		$	16,555		$	61,795		$	27,979
Semiconductor	15,951			12,200			45,097			33,406			16,582			13,443			37,473			29,146
Polishing	2,828			2,141			7,782			6,147			3,603			2,946			7,126			4,954
	$	47,760		$	33,342		$	109,839		$	77,899		$	32,783		$	32,944		$	106,394		$	62,079
Operating income (loss):
Solar *	$	2,991		$	(402	)	$	90		$	(4,532	)	$	(1,903	)	$	(1,878	)	$	3,449		$	(2,901	)
Semiconductor	2,250			1,056			6,013			777			2,257			1,403			5,261			3,763
Polishing	738			343			1,705			899			1,111			503			2,215			967
Non-segment related	(2,008		)	(1,599		)	(5,420		)	(5,281		)	(1,400		)	(1,428		)	(3,094		)	(3,412		)
	$	3,971		$	(602	)	$	2,388		$	(8,137	)	$	65		$	(1,400	)	$	7,831		$	(1,583	)

* The ~~revenue and operating income~~financial statement of business units included in the Solar segment include some sales of equipment and parts to the semiconductor, silicon wafer and MEMS industries, comprising less than 25% of the Solar segment revenue.


	June 30, 2017		September 30, 2016
	(dollars in thousands)				March 31, 2018		September 30, 2017
Identifiable Assets:
Solar	$	69,935	$	42,962	$	71,147	$	97,999
Semiconductor	56,208		51,985		59,761		57,177
Polishing	4,510		4,819		6,814		5,078
Non-segment related	17,786		18,664		33,295		31,369
	$	148,439	$	118,430	$	171,017	$	191,623

Non-segment related assets include cash, property and other assets. We review our long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Additional information on impairment testing of long-lived assets, intangible assets and goodwill can be found in Note 1 of our Annual Report on Form 10-K, as amended, for the year ended September 30, 2017.

6.9. Major Customers and Foreign Sales

During the ~~nine~~six months ended ~~June 30, 2017, two customers~~March 31, 2018, one customer individually represented ~~18% and 11%~~38% of our net revenues. No other customer represented greater than 10% of net revenues. During the ~~nine~~six months ended ~~June 30, 2016,~~March 31, 2017, one customer individually represented ~~14%~~19% of our net revenues.

~~We have operations in The Netherlands, United States, France, and China.~~ Our net revenues were to customers in the following geographic regions:


	Nine Months Ended June 30,				Six Months Ended March 31,
	2017		2016		2018		2017
United States	13	%	20	%	10	%	16	%
Other	1	%	2	%	1	%	2	%
Total North America	14	%	22	%	11	%	18	%
China	43	%	24	%	64	%	29	%
Malaysia	11	%	22	%	3	%	18	%
Taiwan	10	%	13	%	5	%	13	%
Other	8	%	6	%	3	%	8	%
Total Asia	72	%	65	%	75	%	68	%
Germany	5	%	2	%	6	%	5	%
Other	9	%	11	%	8	%	9	%
Total Europe	14	%	13	%	14	%	14	%
	100	%	100	%	100	%	100	%

~~7. Long-Term Debt~~

We hold debt in the form of a mortgage note secured by our real property in Billerica, Massachusetts that has a remaining balance of $6.3 million as of June 30, 2017. The debt has an interest rate of 4.11% through September 26, 2021, at which time the interest rate will be adjusted to a per annum fixed rate equal to the aggregate of the Federal Home Loan Board Five Year Classic Advance Rate plus two hundred forty basis points. The maturity date of the debt is September 26, 2023.

SoLayTec B.V. (“SoLayTec”), a division of our Solar segment, holds long-term debt with a remaining balance of $4.2 million. During the nine months ended June 30, 2017, SoLayTec borrowed approximately $0.4 million. The debt has interest rates ranging from 4.5% to 12.5% and maturity dates ranging from fiscal 2017 to fiscal 2021. See Note 11 for details on subsequent events related to outstanding SoLayTec loans payable.

~~8. Commitments and Contingencies~~

~~Purchase Obligations~~ ~~– As of~~ ~~June 30, 2017, we had unrecorded purchase obligations in the amount of $44.5 million compared to~~ ~~$11.3 million~~ as of September 30, 2016. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less if any agreements are renegotiated, canceled or terminated.

~~Development Projects~~ – In fiscal 2014, our wholly owned subsidiary, Tempress Systems, Inc. (“Tempress”), entered into an agreement with the Energy Research Centre of the Netherlands (“ECN”), a Netherlands government-sponsored research institute, for a joint research and development project. Under the terms of the agreement, Tempress sold an ion implanter (“Equipment”) to ECN for $1.4 million. Both Tempress and ECN are performing research and development projects utilizing the Equipment at the ECN facilities. Each party to the agreement will have 100% rights to the results of the projects developed separately by the individual parties. Any results co-developed will be jointly owned. Tempress met its requirement to contribute $1.4 million to the project in the form of installation of the equipment, acceptance testing, project meeting attendance, training, parts, and service, including keeping the equipment in good condition and repair for the first two years of the agreement prior to fiscal 2017.

~~EPA Accrual~~ – As a result of the BTU acquisition, we assumed BTU’s proportional responsibility for clean-up costs at a Superfund site. As an equipment manufacturer, BTU generated and disposed of small quantities of solid waste that were considered hazardous under Environment Protection Agency (“EPA”) regulations. Because BTU historically used a waste disposal firm that disposed of the solid waste at a site that the EPA designated as a Superfund site, BTU was named by the EPA as one of the entities responsible for a portion of the expected clean-up costs. Based on our proportional responsibility, as negotiated with and agreed to by the EPA, our liability related to this matter is less than $0.1 million, which is included in Other Accrued Liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2017 and September 30, 2016. In accordance with the agreement, we established a letter of credit for $0.2 million to the benefit of the EPA for potential cash payments as settlements for our proportional liability.

~~Legal Proceedings~~ – The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. We do not believe that any matters or proceedings presently pending will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

As previously disclosed in our filings with the SEC, shortly after we entered into the merger agreement with BTU, two separate putative stockholder class action complaints (together, the “Stockholder Actions”) were filed in the Court of Chancery of the State of Delaware (the “Delaware Court”). The first was filed on November 4, 2014 and the second on November 17, 2014, on behalf of BTU’s public stockholders, against BTU, members of the BTU board of directors, Amtech and the special purpose merger subsidiary. The Stockholder Actions were consolidated on December 4, 2014. The complaints generally alleged that, in connection with entering into the merger agreement, the BTU board of directors breached certain fiduciary duties owed to BTU’s stockholders. The complaints sought various forms of declaratory and injunctive relief, as well as compensatory damages.

On February 18, 2016, the Delaware Court entered the Order approving the Amended Stipulation of Settlement. As a result, the Released Claims were dismissed with prejudice and without any admission of wrongdoing by any of the parties to the Stockholder Actions. Pursuant to the Amended Stipulation of Settlement, BTU, its insurer(s), or its successor(s) in interest are responsible for payment of fees and expenses in the amount of $325,000 which were paid in full on April 1, 2016.

The Released Claims are limited solely to claims related to any disclosures (or lack thereof) to BTU’s stockholders concerning the merger and any fiduciary claims concerning the decision to enter into the merger. While we are currently unaware of any other pending or threatened litigation related to additional claims arising from the Stockholder Actions, any future claims are uncertain, so additional harm could potentially result from this litigation, which may cause us to incur substantial costs and divert management’s attention from operational matters.

~~9. Investments~~

Our long-term investment consists of a 15% interest in Kingstone Technology Hong Kong Limited (“Kingstone”). We recognize our portion of net income or losses on a one-quarter lag. The carrying value of the equity method investment in Kingstone was $2.8 million and $3.0 million as of June 30, 2017 and September 30, 2016, respectively. For the three and nine months ended June 30, 2017 we recognized investment loss of $0.1 million and $0.2 million, respectively. For the three and nine months ended June 30, 2016, we recognized investment loss of $0.4 million and investment income of $0.2 million, respectively.

~~10. Related Party Transactions~~

As of June 30, 2017, SoLayTec has borrowed approximately $1.8 million from its shareholder, TNO Technostarters B.V. The loans have varying interest rates from 9.5% to 12.5% and mature in 2021. See Note 11 for details on subsequent events related to outstanding SoLayTec loans payable.

~~11. Subsequent Event~~

On July 31, 2017, Tempress entered into an Exit Agreement (the “Agreement”) with the two minority owners of SoLayTec (“Minority Owners”) to acquire their shares of SoLayTec, resulting in Tempress becoming the sole owner of SoLayTec. The terms of the Agreement, which is effective as of July 1, 2017, state that the Minority Owners will sell all of their SoLayTec shares to Tempress for a nominal fee and waive all right to future repayment of principal and interest on loans payable to the Minority Owners. As a result of the effectiveness of the Agreement, SoLayTec will have no further liability under the loans. The principal balance of these loans at June 30, 2017 is approximately $2.3 million, which management expects to record as a capital contribution, with no impact on the Consolidated Statement of Operations.


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our ~~condensed consolidated financial statements and the related notes included in Item 1,~~ “Condensed Consolidated Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”) and our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data” in our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, ~~2016.~~2017.

Cautionary Statement Regarding Forward-Looking Statements

Certain information contained or incorporated by reference in this Quarterly Report is forward-looking in nature. All statements included or incorporated by reference in this Quarterly Report or made by management of Amtech Systems, Inc. and its subsidiaries ~~(“Company”,~~(the “Company” or “Amtech”~~, “we” or “our”~~), other than statements of historical fact, are hereby identified as “forward-looking statements” (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended (the “Exchange Act”))~~amended). The forward-looking statements in this Quarterly Report relate only to events or information as of the date on which the statements are made in this Quarterly Report. Examples of forward-looking statements include statements regarding Amtech’s future financial results, operating results, business strategies, projected costs, products under development, competitive positions and plans and objectives of the Company and its management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. ~~Examples~~Some factors that could cause actual results to differ materially from those anticipated include, among others, future economic conditions, including changes in the markets in which we operate; changes in demand for our services and products; our ability to successfully complete the turnkey orders and the associated costs and risks related thereto; difficulties in successfully executing our growth initiatives; the effects of ~~forward-looking statements include statements regarding Amtech’s~~competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; control of costs and expenses; risks associated with new technologies and the impact on our business; legislative, regulatory, and competitive developments in markets in which we operate; possible future ~~financial~~claims, litigation or enforcement actions and the results ~~operating results, business strategies, projected costs, products under development, competitive positions~~of any such claim, litigation proceeding, or enforcement action; and ~~plans~~other circumstances and ~~objectives of~~risks identified in this Quarterly Report or referenced from time to time in our filings with the ~~Company~~United States Securities and ~~its management for future operations.~~Exchange Commission. These and many other factors could affect Amtech’s future operating results and financial condition, and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf.

You should not place undue reliance on these forward-looking statements. We cannot guarantee that any forward-looking statement will be realized, although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this Quarterly Report. Achievement of future results is subject to events out of our control, risks, uncertainties and potentially inaccurate assumptions. The Annual Report on Form 10-K, as amended, that we filed with the Securities and Exchange Commission for the year-ended September 30, ~~2016~~2017 listed various important factors that could affect Amtech’s future operating results and financial condition and could cause actual results to differ materially from historical results and expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf. These factors can be found under the heading ~~“Risk~~“Item 1A. Risk Factors” in the Annual Report on Form 10-K, as amended, and investors should refer to them as well as the additional risk factors identified in this Quarterly Report. Because it is not possible to predict or identify all such factors, any such list cannot be considered a complete set of all potential risks or uncertainties. Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

Introduction

Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of our business and results of operations. MD&A consists of the following sections:

Overview

Results of Operations

Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Contractual Obligations

Critical Accounting Policies

Impact of Recently Issued Accounting Pronouncements

Overview

We operate in three reportable business segments: (i) ~~solar,~~Solar, (ii) ~~semiconductor~~Semiconductor and (iii) ~~polishing.~~Polishing. In our ~~solar~~Solar segment, we are a leading global supplier of thermal processing systems, including diffusion, plasma-enhanced chemical vapor deposition (“PECVD”), atomic layer deposition (“ALD”), and related automation, parts and services, to the ~~solar/~~solar photovoltaic industry. In our ~~semiconductor~~Semiconductor segment, we supply thermal processing equipment, including solder reflow equipment and related controls and diffusion for use by leading semiconductor manufacturers, and in electronics assembly for automotive and other industries. In our ~~polishing~~Polishing segment, we produce consumables and machinery for lapping (fine abrading) and polishing of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystalline materials, ceramics and metal components.

Our customers are primarily manufacturers of solar cells and integrated circuits. The solar cell and semiconductor industries are cyclical and historically have experienced significant fluctuations. Our revenue is impacted by these broad industry trends. ~~Since 2012, the~~The solar cell industry has experienced a structural imbalance between supply and demand. This imbalance has increased competitive pressure on selling prices and negatively impacted our results of operations. ~~We believe that at least several solar cell manufacturers are now producing at near practical capacity, which is consistent with recently announced cell capacity expansion plans within the industry.~~ Our high throughput equipment platforms, technologies for higher cell efficiency, ~~and~~ greater knowledge of the complete cell manufacturing process and advanced automation have contributed significantly to our success in securing the large orders for the first two phases of a multi-phase turnkey ~~orders~~project announced in January and April of 2017 from a new solar cell manufacturer in China. For ~~individual~~ equipment orders that are not part of turnkey projects, we compete with Chinese equipment manufacturers that offer lower prices, ~~coupled with~~ liberal payment ~~terms. Thus, we~~terms and have a more substantial local presence. We are finding it more difficult to participate in the capacity expansions of those Chinese companies that already have significant experience with all facets of producing solar cells and at least some prior experience working with the local equipment vendors. While we will continue to focus on developing advanced products and technologies, we plan to seek further cost reductions to address the competition from Chinese equipment vendors. We are investigating various aspects of outsourcing some of our key solar products to China in order to lower the cost of our products and expand our presence in that market.

The equipment for the large follow-on turnkey order announced in April 2017 (“Phase II”) shipped in the first quarter of fiscal 2018 and we continue to recognize revenue from the associated installation, integration and start-up services for Phase I. Our quarterly and annual operating results have been and will continue to be impacted by the timing of large system orders. Further, the solar and semiconductor equipment industries are highly cyclical and the conditions of the industries we operate in are volatile. Therefore, our order flow fluctuates quarter to quarter. For additional information regarding the risks related to our business and industry, please refer to Item 1A. Risk Factors in our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2017.

Results of Operations

The following table sets forth certain operational data as a percentage of net revenue for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016		March 31, 2018		March 31, 2017		March 31, 2018		March 31, 2017
Net revenue	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Cost of sales	68	%	71	%	71	%	72	%	64	%	75	%	70	%	73	%
Gross margin	32	%	29	%	29	%	28	%	36	%	25	%	30	%	27	%
Selling, general and administrative	21	%	26	%	23	%	30	%	29	%	25	%	19	%	25	%
Research, development and engineering	3	%	5	%	4	%	8	%	7	%	5	%	4	%	5	%
Operating income (loss)	8	%	(2	)%	2	%	(10	)%	0	%	(5	)%	7	%	(3	)%
Gain on sale of other assets	0	%	0	%	0	%	3	%
Income (loss) from equity method investment	0	%	(1	)%	0	%	0	%	1	%	0	%	0	%	0	%
Interest expense and other income, net	0	%	(1	)%	0	%	0	%	0	%	0	%	0	%	0	%
Income (loss) before income taxes	8	%	(4	)%	2	%	(7	)%	1	%	(5	)%	7	%	(3	)%
Income taxes provision	2	%	0	%	1	%	3	%
Income tax (benefit) provision									(8	)%	0	%	(2	)%	0	%
Net income (loss)	6	%	(4	)%	1	%	(10	)%	9	%	(5	)%	9	%	(3	)%
Add: net loss attributable to noncontrolling interest	1	%	0	%	1	%	1	%	0	%	1	%	0	%	1	%
Net income (loss) attributable to Amtech Systems, Inc.	7	%	(4	)%	2	%	(9	)%	9	%	(4	)%	9	%	(2	)%

Net Revenue

Net revenue consists of revenue recognized upon shipment or installation of equipment, with the exception of products using new technology, for which revenue is recognized upon customer acceptance. Spare parts sales are recognized upon shipment and service revenue is recognized upon completion of the service activity, ~~or ratably~~which is generally ratable over the term of the service contract. Since the majority of our revenue is generated from large system sales, revenue and operating income can be significantly impacted by the timing of system shipments, and recognition of revenue based on customer acceptances. The revenue of business units included in the Solar segment include some sales of equipment and parts to the semiconductor, silicon wafer and microelectromechanical (“MEMS”) industries, comprising less than 25% of the Solar segment revenue. Our net revenue by operating segment was as follows (dollars in thousands):


	Three Months Ended June 30,							Nine Months Ended June 30,							Three Months Ended March 31,								Six Months Ended March 31,
Segment	2017		2016		Incr (Decr)		% Change	2017		2016		Incr (Decr)		% Change	2018		2017		Incr (Decr)			% Change	2018		2017		Incr (Decr)		% Change
	(dollars in thousands)
Solar	$	28,981	$	19,001	$	9,980	53%	$	56,960	$	38,346	$	18,614	49%	$	12,598	$	16,555	$	(3,957	)	(24)%	$	61,795	$	27,979	$	33,816	121%
Semiconductor	15,951		12,200		3,751		31%	45,097		33,406		11,691		35%	16,582		13,443		3,139			23%	37,473		29,146		8,327		29%
Polishing	2,828		2,141		687		32%	7,782		6,147		1,635		27%	3,603		2,946		657			22%	7,126		4,954		2,172		44%
Total net revenue	$	47,760	$	33,342	$	14,418	43%	$	109,839	$	77,899	$	31,940	41%	$	32,783	$	32,944	$	(161	)	—%	$	106,394	$	62,079	$	44,315	71%

~~Net~~Total net revenue for the quarters ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$47.8~~$32.8 million and ~~$33.3~~$32.9 million, respectively, ~~an increase~~a decrease of ~~$14.4~~approximately $0.2 million or ~~43%~~less than 1%. Revenue from the Solar segment decreased 24% compared to the prior year quarter due to lower shipments of our solar equipment. We are operating in a challenging competitive environment due to lower prices and liberal payment terms that are offered from Chinese equipment manufacturers. These competitive pricing pressures are making it increasingly difficult for us to participate in our customers’ solar expansions. Revenue from our Semiconductor segment increased ~~53%~~23% compared to the prior year quarter due primarily to ~~shipments relating to the large turn-key order, previously announced on January 24, 2017, slightly offset by lower sales of~~favorable market conditions and strong customer demand for our ALD equipment. The turn-key order shipments in the third quarter of fiscal 2017 included a higher mix of our PECVD equipment compared to the third quarter of fiscal 2016. Also contributing to the increase was a lower net deferral of revenue in the third quarter of fiscal 2017, compared to the third quarter of fiscal 2016.thermal processing systems. Revenue from the ~~semiconductor~~Polishing segment increased ~~31%~~22% compared to the prior year quarter due primarily to strong customer demand leading to increased sales of polishing templates and equipment.

Total net revenue for the six months ended March 31, 2018 and 2017 was $106.4 million and $62.1 million, respectively, an increase of $44.3 million or 71%. Revenue from the Solar segment increased 121% compared to the prior year period due primarily to shipments relating to Phase II of the previously announced turnkey order. Revenue from the Semiconductor segment increased 29% compared to the prior year period due primarily to strong customer demand for our thermal processing systems and diffusion furnaces. Revenue from the ~~polishing~~Polishing segment increased ~~32%~~44% compared to the prior year ~~quarter~~period due primarily to strong customer demand leading to increased ~~sales~~shipments of polishing templates and equipment.

Net revenue for the nine months ended June 30, 2017 and 2016 was $109.8 million and $77.9 million, respectively, an increase of $31.9 million or 41%. Revenue from the solar segment increased 49% compared to the first nine months of 2016 due primarily to increases in shipments of our solar equipment, which includes a higher mix of our PECVD equipment, and includes shipments relating to the large turn-key order, previously announced on January 24, 2017. The increase was partially offset by a net deferral of revenue in the first nine months of fiscal 2017 compared to net recognition of previously-deferred revenue in the first nine months of fiscal 2016. Revenue from the semiconductor segment increased 35% compared to the first nine months of 2016 for the same reasons discussed above. Revenue from the polishing segment increased 27% compared to the first nine months of 2016 primarily due to increased sales as discussed above.

Backlog and Orders

Our ~~order~~ backlog as of ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$125.7~~$63.1 million and ~~$63.8~~$87.4 million, respectively, ~~an increase~~a decrease of ~~$61.9~~$24.3 million or ~~97%~~28%. Our backlog as of ~~June 30, 2017~~March 31, 2018 includes approximately ~~$98.2~~$35.0 million of orders and deferred revenue from our ~~solar industry~~Solar segment customers compared to ~~$45.3~~$66.9 million at ~~June 30, 2016.~~March 31, 2017, with the decrease primarily due to the shipment of the Phase I and Phase II equipment. New orders booked in the quarter ended ~~June 30, 2017~~March 31, 2018 were ~~$79.9~~$28.8 million ($~~54.2~~7.0 million ~~solar)~~Solar segment) compared to ~~$30.0~~$68.2 million ($~~13.2~~46.9 million ~~solar)~~Solar segment) of customer orders in the quarter ended ~~June 30, 2016.~~March 31, 2017. The backlog of business units included in the Solar segment include some sales of equipment and parts to the semiconductor, silicon wafer and MEMS industries, comprising less than 25% of the Solar segment backlog.

As of ~~June 30, 2017, one customer~~March 31, 2018, two customers individually accounted for ~~53%~~14% and 12% of our backlog, primarily related to the n-type bi-facial turnkey order discussed in the January 24, 2017 order announcement as well as the follow-on turnkey order announced in April 2017. The large turnkey order announced in January 2017 (“Phase I”) began shipping in the third quarter of this fiscal year, with continued shipments in the fourth quarter of this fiscal year. A meaningful portion of the revenue from Phase I will be recognized upon installation and acceptance, which is expected in fiscal 2018. The large follow-on turnkey order announced in April 2017 (“Phase II”) is also included in the backlog as of June 30, 2017 and is expected to ship in the first half of fiscal 2018, with a deferral of revenue similar to Phase I.backlog. The orders included in our backlog are generally credit approved customer purchase orders believed to be firm and are generally expected to ship within the next twelve months. Because our orders are typically subject to cancellation or delay by the customer, our backlog at any particular point in time is not necessarily representative of actual sales for succeeding periods, nor is backlog any assurance that we will realize profit from completing these orders. Our backlog also includes revenue deferred pursuant to our revenue recognition policy, derived from orders that have already been shipped, but which have not met the criteria for revenue recognition.

Gross Profit and Gross Margin

Gross profit is the difference between net revenue and cost of goods sold. Cost of goods sold consists of purchased material, labor and overhead to manufacture equipment and spare parts and the cost of service and support to customers for installation, warranty and paid service calls. Gross margin is gross profit as a percent of net revenue.

Our gross profit and gross margin by operating segment were as follows (dollars in thousands):


	Three Months Ended June 30,								Nine Months Ended June 30,								Three Months Ended March 31,								Six Months Ended March 31,
Segment	2017		Gross Margin	2016		Gross Margin	Incr (Decr)		2017		Gross Margin	2016		Gross Margin	Incr (Decr)		2018		Gross Margin	2017		Gross Margin	Incr (Decr)		2018		Gross Margin	2017		Gross Margin	Incr (Decr)

Solar	$	7,948	27%	$	4,241	22%	$	3,707	$	11,506	20%	$	7,409	19%	$	4,097	$	3,110	25%	$	1,947	12%	$	1,163	$	14,423	23%	$	3,558	13%	$	10,865
Semiconductor	6,428		40%	4,764		39%	1,664		18,151		40%	12,388		37%	5,763		7,075		43%	5,628		42%	1,447		14,563		39%	11,723		40%	2,840
Polishing	1,126		40%	626		29%	500		2,683		34%	1,790		29%	893		1,540		43%	820		28%	720		3,076		43%	1,557		31%	1,519
Total gross profit	$	15,502	32%	$	9,631	29%	$	5,871	$	32,340	29%	$	21,587	28%	$	10,753	$	11,725	36%	$	8,395	25%	$	3,330	$	32,062	30%	$	16,838	27%	$	15,224

Gross profit for the three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$15.5~~$11.7 million ~~(32%~~(36% of net revenue) and ~~$9.6~~$8.4 million ~~(29%~~(25% of net revenue), respectively, an increase of ~~$5.9~~$3.3 million. Gross margin on products from our ~~solar~~Solar segment increased compared to the three months ended ~~June 30, 2016,~~March 31, 2017, due primarily to ~~higher~~higher-margin product mix and recognition of previously deferred revenue. Gross profit on products from our Semiconductor segment increased compared to the three months ended March 31, 2017, due primarily to increased sales ~~volumes~~volume in the second quarter of 2018. Gross profit and gross margin on products from our Polishing segment increased from the prior year period, primarily due to increased sales volume and product ~~mix, slightly offset by less usage~~mix. For the three months ended March 31, 2018, we recognized previously deferred gross profit of ~~previously reserved inventory during~~$0.8 million. For the ~~third quarter~~three months ended March 31, 2017, we deferred gross profit of ~~fiscal 2017.~~$1.2 million.

Gross profit for the six months ended March 31, 2018 and 2017 was $32.1 million (30% of net revenue) and $16.8 million (27% of net revenue), respectively, an increase of $15.2 million. Gross margin on products from our ~~semiconductor~~Solar segment increased ~~slightly~~compared to the six months ended March 31, 2017, due primarily to fixed costs being spread over higher sales volumes ~~offset by a lower~~during the first half of fiscal 2018. Gross profit on products from our Semiconductor segment increased due to increased sales volume in the first half of 2018, with gross margin decreasing due to product mix. Gross profit and gross margin on products from our ~~polishing~~Polishing segment increased from the prior year period, primarily due to higher sales of new products with higher ~~margin products.~~margins. For the ~~three~~six months ended ~~June 30,~~March 31, 2018, we deferred gross profit of $1.3 million. For the six months ended March 31, 2017, we deferred gross profit of ~~$0.2~~$0.9 million. ~~For the three months ended June 30, 2016, we deferred gross profit of $0.6 million. Deferred commissions are included in selling, general and administrative expenses (“SG&A”).~~

Gross profit for the nine months ended June 30, 2017 and 2016 was $32.3 million (29% of net revenue) and $21.6 million (28% of net revenue), respectively, an increase of $10.8 million. Gross margin on products from our solar segment increased compared to the first nine months of fiscal 2016, due primarily to higher sales volumes, offset by a net deferral of profit compared to a net recognition of previously deferred profit, and less usage of previously reserved inventory. In the semiconductor segment, gross profit and gross margin increased primarily due to higher sales volumes, improved product mix, and higher capacity utilization. Gross profit and margin on products from our polishing segment increased primarily due to higher sales volumes and improved product mix. For the nine months ended June 30, 2017, we deferred gross profit of $1.0 million. For the nine months ended June 30, 2016, we recognized previously-deferred gross profit of $0.8 million. Deferred commissions are included in SG&A.

Selling, General and Administrative

Selling, general and administrative expenses (“SG&A&A”) consists of the cost of employees, consultants and contractors, facility costs, sales commissions, shipping costs, promotional marketing expenses, legal and accounting expenses and bad debt expense.

SG&A expenses for the three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ were ~~$10.1~~$9.5 million and ~~$8.7~~$8.3 million, respectively. SG&A increased compared to the prior year quarter due primarily to ~~higher commissions, severance~~increased selling, freight and ~~other~~ employee-related expenses.

SG&A expenses for the ~~nine~~six months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ were ~~$25.4~~$20.1 million and ~~$23.7~~$15.3 million, respectively. Compared to the ~~nine~~six months ended ~~June 30, 2016,~~March 31, 2017, the increase in SG&A was primarily due to higher commissions, freight and other selling expenses related to higher revenues ~~was partially offset~~and higher employee-related expenses. Also, for the six months ended March 31, 2017, SG&A expenses were reduced by the ~~collection~~collections of previously reserved accounts receivable of approximately $1.0 million.

Research, Development and Engineering

Research, development and engineering (“RD&E”) expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials and supplies used in producing prototypes. We receive ~~reimbursements through~~ governmental research and development grants which are netted against these expenses when certain conditions have been met.

Three Months Ended June 30, Nine Months Ended June 30,
2017 2016
Incr.
(Decr.)
% Change 2017 2016
Incr.
(Decr.)
% Change
(dollars in thousands)
Research, development and engineering $ 1,774
$ 2,078
$ (304 ) (15 )% $ 5,547
$ 7,217
$ (1,670 ) (23 )%
Grants earned (351 ) (510 ) $ 159
(31 )% (961 ) (1,202 ) $ 241
(20 )%
Net research, development and engineering $ 1,423
$ 1,568
$ (145 ) (9 )% $ 4,586
$ 6,015
$ (1,429 ) (24 )%

RD&E expense, net of grants earned, for the three months ended ~~June 30,~~March 31, 2018 and 2017 ~~decreased $0.1~~were $2.2 million ~~compared to the three months ended June 30, 2016,~~and $1.5 million, respectively, an increase of $0.6 million, due primarily to ~~the completion of a grant project~~increased R&D spending in ~~a prior quarter.~~our Solar segment. RD&E expense, net of

grants earned, for the ~~nine~~six months ended ~~June 30,~~March 31, 2018 and 2017 ~~decreased $1.4~~were $4.2 million ~~compared to the nine months ended June 30, 2016,~~and $3.2 million, respectively, an increase of $1.0 million, due primarily to ~~reduced~~increased R&D spending ~~on RD&E at~~in our ~~solar segment and the completion of a grant project in a prior quarter.~~

~~Gain on Sale of Other Assets~~

For the nine months ended June 30, 2016, we recognized a gain of $2.6 million on the receipt of sale of our exclusive sales and service rights in the Kingstone Hong Kong Limited (“Kingstone”) solar ion implant equipment, with no comparable items in the fiscal 2017 period.

~~Income (Loss) from Equity Method Investment~~

For the three and nine months ended June 30, 2017 we recognized investment loss of $0.1 million and $0.2 million, respectively, related to our 15% equity investment in Kingstone. For the three and nine months ended June 30, 2016, we recognized investment loss of $0.4 million and investment income of $0.2 million, respectively.Solar segment.

Income Taxes

For the three and ~~nine~~six months ended ~~June 30,~~March 31, 2018 we recorded an income tax benefit of $2.8 million and $1.5 million, respectively. For the three and six months ended March 31, 2017 we recorded income tax expense of ~~$1.0~~$0.2 million and ~~$1.3~~$0.3 million, respectively. ~~For~~During the quarter ended March 31, 2018, we resolved an uncertain tax position and reversed the associated accrued tax, penalties and interest, which total $3.1 million. This reversal resulted in an income tax benefit for the three and ~~nine~~six months ended ~~June 30, 2016 we recorded~~March 31, 2018, which was partially offset by income tax expense ~~of $0.1 million and $2.0 million, respectively.~~on our consolidated pre-tax income. The income tax provisions are based upon estimates of annual income, annual permanent differences and statutory tax rates in the various jurisdictions in which we operate, except that certain loss jurisdictions and discrete items are treated separately. The gain on the Kingstone transaction, described above, was treated as a discrete item and accounted for $1.7 million of the tax expense in the 2016 second fiscal quarter, with the tax calculated utilizing the effective tax rate and other discrete items nearly offsetting each other.

~~We establish~~Generally accepted accounting principles require that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates and the length of carryback and carryforward periods. According to those ~~standards,~~principles, it is difficult to conclude that a valuation allowance is not needed when the negative evidence includes cumulative losses in recent years. Therefore, in fiscal 2017, cumulative losses ~~weigh~~weighed heavily in the overall assessment. As a result of the review, where cumulative losses had been incurred, we ~~concluded in 2015 and 2016 that it was appropriate~~continue to maintain a full valuation allowance for substantially all net deferred tax assets in the U.S. and foreign jurisdictions, ~~and~~including the carryforwards of U.S. net operating losses and foreign tax credits, which were acquired in the merger with BTU International, Inc. ~~Tax planning strategies to reduce sources of future taxable income caused us to conclude~~and net operating losses in ~~the fourth quarter of fiscal 2016 that a valuation allowance should be established on the remaining U.S. deferred tax assets.~~

For the quarter ending June 30, 2017, we determined that a portion of the deferred tax asset previously covered by the valuation allowance would be realized in the current tax period. We have realized the value of the asset, $1.4 million, as a discrete item in the quarter.Europe.

Liquidity and Capital Resources

At ~~June 30, 2017~~March 31, 2018 and September 30, ~~2016,~~2017, cash and cash equivalents were ~~$39.2~~$50.5 million and ~~$27.7~~$51.1 million, respectively, ~~an increase~~a decrease of ~~$11.5 million between periods.~~$0.6 million. Restricted cash ~~increased~~decreased by ~~$3.8~~$15.0 million to ~~$4.7~~$9.7 million at ~~June 30, 2017~~March 31, 2018 from ~~$0.9~~$24.6 million at September 30, ~~2016.~~2017. Our working capital was ~~$50.3~~$79.8 million as of ~~June 30, 2017~~March 31, 2018 and ~~$44.9~~$71.1 million as of September 30, ~~2016.~~

2017.

The ~~increase~~decrease in cash during the first ~~nine~~six months of fiscal ~~2017~~2018 of ~~$11.5~~$0.6 million was primarily due to cash used in operations partially offset by proceeds from the ~~significant customer deposits received in by our Solar segment related to Phase I and Phase II~~exercise of ~~the large turnkey project. The increased cash is facilitating the fulfillment of those orders.~~stock options. We maintain a portion of our cash and cash equivalents in Euros at our Dutch and French operations and in RMB in our Chinese operations; therefore, changes in the exchange rate have an impact on our cash balances. Restricted cash ~~increased~~decreased primarily due to ~~an increase~~the shipments of Phase II of the Solar turnkey order and achievement of the first of three acceptance tests for Phase I, which resulted in ~~customer deposits requiring bank guarantees collateralized by cash.~~the release of restrictions on the downpayments. Our ratio of current assets to current liabilities was ~~1.8:~~2.4:1 as of ~~June 30, 2017,~~March 31, 2018, and ~~2.2:~~1.8:1 as of September 30, ~~2016. We have never paid dividends on our common stock.~~2017.

The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfactory to management. Our sources of capital in the past have included the sale of equity securities, which ~~include~~includes common ~~and preferred~~ stock sold in private transactions and public offerings, long-term debt and customer deposits. There can be no assurance that we can raise such additional capital resources on satisfactory terms. We believe that our principal sources of liquidity discussed above are sufficient to support operations for at least the next twelve months. We have never paid dividends on our common stock.

Cash Flows from Operating Activities

Cash ~~provided by~~used in our operating activities was ~~$10.9~~$1.8 million for the ~~nine~~six months ended ~~June 30, 2017,~~March 31, 2018, compared to ~~$9.6~~cash provided by operations of $11.6 million ~~used in operations~~ for the ~~nine~~six months ended ~~June 30, 2016,~~March 31, 2017, a ~~$20.6 million improvement in cash flow from operations.~~decrease of $13.4 million. During the ~~nine~~six months ended ~~June 30, 2017,~~March 31, 2018, cash was primarily generated through net income adjusted for non-cash items of ~~$3.8~~$10.9 million, ~~and increases in current liabilities, such as customer deposits and accounts payable. These increases were partially~~which was offset by an increase in working capital, primarily related to the turnkey project. A significant portion of the revenue and related cash payments related to the turnkey project remain deferred and restricted, respectively, until completion and acceptance of the integration of the equipment and transfer of the technology. During the six months ended March 31, 2017, cash was provided primarily by an increase in ~~accounts receivable due to the high volumes of shipments during the quarter, and~~customer deposits, partially offset by advances made to ~~to vendors. During the nine months ended June 30, 2016, net loss adjusted for non-cash items resulted~~vendors and an increase in the use of $7.0 million, which was partially offset by $5.5 million provided by increases in accounts payable and accrued liabilities, offset by $8.3 million used in accounts receivable and inventories.restricted cash.

Cash Flows from Investing Activities

~~Our~~For the six months ended March 31, 2018, cash used in investing activities ~~for the nine months ended June 30, 2017 and 2016 included purchases of property, plant and equipment of approximately $0.4~~was $0.6 million compared to $0.2 million in ~~both periods. Additionally, in~~ the ~~nine months ended June 30, 2016, we received cash of $7.0 million from the partial sale of~~prior year period. The increase is primarily related to increased capital expenditures at our ~~equity interest in Kingstone and $4.9 million from the sale of the related sales and service rights.~~ Polishing segment.

Cash Flows from Financing Activities

For the ~~nine~~six months ended ~~June 30, 2017, $0.8~~March 31, 2018, $1.2 million of cash provided by financing activities was ~~primarily~~ comprised of ~~$0.9~~$1.3 million of proceeds received from the exercise of stock options, partially offset by payments on long-term debt of ~~$0.5~~$0.2 million. For the six months ended March 31, 2017, $0.1 million of cash used in financing activities was primarily comprised of payments on long-term debt of $0.3 million net of borrowings of $0.4 million. For the nine months ended June 30, 2016, $0.6 million of cash provided by financing activities was primarily related to borrowings of long-term debt of $1.1 million, net of payments of $0.5$0.1 million.

Off-Balance Sheet Arrangements

As of ~~June 30, 2017, Amtech~~March 31, 2018, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by the Securities and Exchange ~~Commission.~~Commission that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Contractual Obligations

Unrecorded purchase obligations were ~~$44.5~~$19.3 million as of ~~June 30, 2017,~~March 31, 2018, compared to ~~$11.3~~$34.4 million as of September 30, ~~2016, an increase~~2017, a decrease of ~~$33.2~~$15.1 million due primarily to reduced vendor commitments as we completed shipment of the equipment for Phase II of the large solar ~~orders received in 2017.~~turnkey project. Approximately ~~$7.6~~$3.0 million and $11.8 million of the ~~June~~March 31, 2018 and September 30, 2017 ~~obligation has been~~contractual obligations, respectively, were prepaid as of those dates in the form of advances to vendors.

During the nine months ended June 30, 2017, SoLayTec B.V. borrowed an additional $0.4 million. As of June 30, 2017, the SoLayTec debt has a remaining balance of $4.2 million, with interest capitalized per the agreement bearing interest at rates ranging from 4.5% to 12.5% and maturity dates ranging from fiscal 2017 to fiscal 2021. For discussion of subsequent events related to SoLayTec’s debt, see “Part I, Item 1: Financial Information” under “Note 11. Subsequent Event.”

Refer to Amtech’s Annual Report on Form 10-K, as amended, for the year ended September 30, ~~2016,~~2017 for additional information on our other contractual obligations.

Critical Accounting Policies

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our condensed consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, accounts and notes receivable collectability, warranty and impairment of long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. The results of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy is one that is both important to the presentation of our financial position and results of operations, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These uncertainties are discussed in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year ended September 30, ~~2016.~~2017. We believe our critical accounting policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.

We believe the critical accounting policies discussed in the section entitled “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, ~~2016~~2017 represent the most significant judgments and estimates used in the preparation of our consolidated financial statements. There have been no significant changes in our critical accounting policies during the ~~nine~~six months ended ~~June 30, 2017.~~March 31, 2018.

Impact of Recently Issued Accounting Pronouncements

For discussion of the impact of recently issued accounting pronouncements, see “Part I, Item 1: Financial Information” under “Impact of Recently Issued Accounting Pronouncements.”


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We are exposed to foreign currency exchange rates to the extent sales contracts, purchase contracts, assets or liabilities~~There have been no material changes in our reported market risks, as described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our ~~operations are denominated in currencies other than their functional currency. Our operations in~~Annual Report on Form 10-K, as amended, for the United States are generally conducted in U.S. dollars. Our operations in Europe, China and other countries conduct business primarily in their respective functional currencies, but occasionally we enter into transactions in non-functional currencies. It is highly uncertain how currency exchange rates will fluctuate in the future. Actual changes in foreign exchange rates could adversely affect our operating results or financial condition.

During fiscal 2016 and in the first nine months of fiscal 2017, we did not hold any stand-alone or separate derivative instruments. We incurred net foreign currency transaction losses of less than $0.1 million during both the nine month periodsyear ended ~~June~~September 30, ~~2017 and 2016.~~2017.

We incurred a foreign currency translation gain of $0.1 million and a loss of $0.2 million during the nine months ended June 30, 2017 and 2016, respectively, a type of other comprehensive income (loss), which is a direct adjustment to stockholders’ equity. Our net investment in and advances to our foreign operations totaled $52.3 million as of June 30, 2017. A 10% change in the value of the foreign currencies relative to the U.S. dollar would cause approximately $5.0 million of other comprehensive income (loss).

As of June 30, 2017, sales commitments denominated in a currency other than the functional currency of our transacting operation totaled approximately $15.5 million. Our lead-times to fulfill these commitments generally range between 13 and 26 weeks. A 10% change in the relevant exchange rates between the time the order was taken and the time of shipment cause our gross profit on such orders to be $1.6 million greater or less than expected on the date the order was taken.

As of June 30, 2017, purchase commitments denominated in a currency other than the functional currency of our transacting operation totaled $6.2 million. A 10% change in the relevant exchange rates between the time the purchase order was placed and the time the order is received would not cause our cost of such items to be significantly greater or less than expected on the date the purchase order was placed.


Item 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), has carried out an evaluation of the effectiveness of our disclosure controls and procedures as of ~~June 30, 2017,~~March 31, 2018, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our CEO and CFO have concluded that as of such date, our disclosure controls and procedures in place were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in Amtech’s internal control over financial reporting during the ~~nine~~six months ended ~~June 30, 2017~~March 31, 2018 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

~~The Company~~For discussion of legal proceedings, see “Part I, Item 1: Financial Information” under “Commitments and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. The Company does not believe that any matters or proceedings presently pending will have a material adverse effect on its consolidated financial position, results of operations or liquidity. As previously disclosed in the Company’s filings with the SEC, shortly after the Company entered into the merger agreement with BTU, two separate putative stockholder class action complaints (together, the “Stockholder Actions”) were filed in the Court of Chancery of the State of Delaware (the “Delaware Court”). The first was filed on November 4, 2014 and the second on November 17, 2014, on behalf of BTU’s public stockholders, against BTU, members of the BTU board of directors, Amtech and the special purpose merger subsidiary. The Stockholder Actions were consolidated on December 4, 2014. The complaints generally alleged that, in connection with entering into the merger agreement, the BTU board of directors breached certain fiduciary duties owed to BTU’s stockholders. The complaints sought various forms of declaratory and injunctive relief, as well as compensatory damages.

The Released Claims are limited solely to claims related to any disclosures (or lack thereof) to BTU’s stockholders concerning the merger and any fiduciary claims concerning the decision to enter into the merger. While we are currently unaware of any other pending or threatened litigation related to additional claims arising from the Stockholder Actions, any future claims are uncertain, so additional harm could potentially result to the Company from this litigation, which may cause the Company to incur substantial costs and divert management’s attention from operational matters.Contingencies.”


Item 1A.	Risk Factors

In addition to ~~the risk factors below and~~ the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A ~~(Risk Factors)~~“Risk Factors” of our Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, ~~2016.~~2017. There have been no material changes to the risk factors previously disclosed in our Form 10-K, as amended, for the fiscal year ended September 30, 2017, other than as described in the Overview above, and the supplemental risk factors set forth below:

Recent changes to U.S. tax laws may adversely affect our financial condition or results of operation and create the risk that we may need to adjust our accounting for these changes.

The Tax Cuts and Jobs Act (the “Act”), enacted on December 22, 2017, makes significant changes to U.S. tax laws and includes numerous provisions that affect businesses, including ours. For instance, as a result of lower corporate tax rates, the Act tends to reduce both the value of deferred tax assets and the amount of deferred tax liabilities. It also limits interest rate deductions and the amount of net operating losses that can be used each year and alters the expensing of capital expenditures. Other provisions have international tax consequences for businesses like ours that operate internationally. The Act is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities, and the Act could be subject to amendments and technical corrections, any of which could lessen or increase the adverse (and positive) impacts of the Act. The accounting treatment of these tax law changes is complex, and some of the changes may affect both current and future periods. Others will primarily affect future periods. As discussed elsewhere in this Quarterly Report on Form 10-Q, we believe our analysis and computations of the tax effects of the Act on us is partially, but not entirely, complete. For instance, we are still in the process of analyzing the earnings and profits and tax pools of our foreign subsidiaries to estimate the effects of the one-time repatriation transaction tax on certain net accumulated earnings and profits of our foreign subsidiaries. Consistent with guidance from the Securities and Exchange Commission, our financial statements reflect our estimates of the tax effects of the Act on us as of March 31, 2018, to the extent we have been able to make such preliminary determinations. Although we believe these estimates are reasonable, they are provisional and may be adjusted prior to the end of fiscal 2018. We intend to complete accounting for the Act by the end of fiscal 2018. Any adjustments to our provisional estimates or the effects of currently unknown impacts of the Act on us could affect our current or future financial statements, or both.

~~If the~~The United States ~~were to~~could withdraw from or materially modify certain international trade agreements, or change tax provisions related to the global manufacturing and sales of our ~~products, our financial condition and results of operations could be adversely affected.~~products.

Aportion of our business activities are conducted in foreign countries, including China, Malaysia, Taiwan, France and the Netherlands. Our business benefits from free trade agreements, and we also rely on various U.S. corporate tax provisions related to international commerce as we build, market and sell our products globally. The current presidential administration has made comments suggesting that it is not supportive of certain existing international trade agreements. At this time, it remains unclear what the current presidential administration will do with respect to these international trade agreements and U.S. tax provisions related to international commerce. Any action to withdraw from or materially modify international trade agreements, or change corporate tax policy related to international commerce, could adversely affect our financial condition and results of operations.

The number of turnkey project order opportunities is uncertain and such projects may increase our risks relating to current and future performance, project management, supplier fulfillment, unforeseen site conditions, and the regulatory environment, which could have a material adverse effect on our financial condition and results of operations.

A turnkey project is a complete solar cell manufacturing line, including equipment manufactured by third parties, and the design, delivery, installation, start-up, and qualification of the entire line. While we have successfully participated in turnkey projects in the past, historically, those and other orders have been for shipments of our equipment. The demand for turnkey projects from our customers can fluctuate significantly, and, therefore, the magnitude and frequency of previously announced turnkey orders may not be indicative of future turnkey orders or our financial performance. Additionally, turnkey orders may provide additional risks to us in executing the project, such as:

~~project management, including potentially lower-than-expected revenue due to project delays and cost over-runs;~~

~~organizational stress/burden that could impact order fulfillment of other orders;~~

~~project duration and customer acceptance;~~

~~use of and reliance on subcontractors;~~

~~supplier relationships and constraints;~~

~~pricing and fulfillment;~~

~~turnkey site conditions, such as readiness of customer facilities and access restrictions; and~~

~~local regulations and policies.~~

Such risks could make it difficult or impossible to complete a turnkey order or cause us to incur unforeseen costs and expenses to complete a turnkey order. Failure to complete a turnkey order or unforeseen costs and expenses incurred in completing a turnkey order could have a material adverse effect on our financial condition and results of operations.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~Issuer Purchases of Equity Securities


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


~~Item 6.~~	Item 6. Exhibits



~~31.1~~EXHIBIT		INCORPORATED BY REFERENCE				FILED
NO.	EXHIBIT DESCRIPTION	FORM	FILE NO.	EXHIBIT NO.	FILING DATE	HEREWITH
31.1	Certification ~~of Chief Executive Officer~~ Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended	*
				X
31.2	Certification ~~of Chief Financial Officer~~ Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended	*
				X
32.1	Certification ~~of Chief Executive Officer~~ Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
				X
32.2	Certification ~~of Chief Financial Officer~~ Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
				X
101.INS	XBRL Instance Document	*
			X
101.SCH	XBRL Taxonomy Extension Schema Document	*
			X
101.PRE	Taxonomy Presentation Linkbase Document	*
			X
101.CAL	XBRL Taxonomy Calculation Linkbase Document	*
			X
101.LAB	XBRL Taxonomy Label Linkbase Document	*
			X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	*				X

~~____________________~~


*	~~Filed herewith.~~

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.

AMTECH SYSTEMS, INC.



By	/s/ ~~Robert T. Hass~~Lisa D. Gibbs	Dated:	~~August 9, 2017~~May 10, 2018
	~~Robert T. Hass~~Lisa D. Gibbs
	Vice President – ~~Finance and~~ Chief ~~Financial~~Accounting Officer
	(~~Principal Financial Officer,~~ Principal Accounting Officer and Duly Authorized Officer)

2622



	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		June 30, 2017							September 30, 2016
		(dollars in thousands)
Customer lists	6-10 years	$	2,446	$	(1,406	)	$	1,040	$	2,432	$	(1,164	)	$	1,268
Technology	5-10 years	3,274		(1,876		)	1,398		3,214		(1,678		)	1,536
Trade names	10-15 years	1,460		(257		)	1,203		1,455		(219		)	1,236
Other	2-10 years	283		(281		)	2		277		(217		)	60
		$	7,463	$	(3,820	)	$	3,643	$	7,378	$	(3,278	)	$	4,100