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UNITED
STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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FORM 10-K

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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
      incorporation or organization) |  | (I.R.S. Employer 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

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

|Common Stock, $0.01 Par
      Value
      (Title of Class)
|----------------------------------------------------------

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.  Yes o   No  x



Indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act.  Yes   o   No  x



Indicate by
check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x   No o

Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrants knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):

|Large accelerated
      filer o | Accelerated
      filer o | Non- accelerated
      filer x
|------------------------------- | ------------------------- | ------------------------------

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).  Yes   oNox



As of March
31, 2007, the aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $47,431,000, based upon the closing sales
price reported by the NASDAQ Global Market on that date.

As of
December 6, 2007, the registrant had outstanding 9,053,923 shares of Common
Stock, $0.01 par value.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions of
the Definitive Proxy Statement related to the registrants 2008 Annual Meeting of
Shareholders, which Proxy Statement will be filed under the Securities Exchange
Act of 1934, as amended, within 120 days of the end of the registrants fiscal
year ended September 30, 2007, are incorporated by reference into Items 10-14 of
Part III of this Form 10-K.



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AMTECH SYSTEMS, INC. AND
SUBSIDIARIESTable of Contents

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FORWARD-LOOKING STATEMENTS

Certain information contained or
incorporated by reference in this Annual Report on Form 10-K is forward-looking
in nature. All statements included or incorporated by reference in this Annual
Report on Form 10-K, or made by management of Amtech Systems, Inc. and its
subsidiaries (Amtech), 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). 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. Any expectations based on these forward-looking statements are
subject to risks and uncertainties and other important factors, including those
discussed in the section entitled ITEM 1A. RISK FACTORS. 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.

All references to we, our, us, or
Amtech refer to Amtech Systems, Inc. and its subsidiaries.

PART I

ITEM 1.
BUSINESS

Amtech was incorporated in Arizona in
October 1981, under the name Quartz Engineering & Materials, Inc. We changed
to our present name in 1987. We conduct operations through four wholly-owned
subsidiaries: Tempress Systems, Inc., a Texas corporation with all of its
operations in The Netherlands, acquired in 1994, also referred to herein as
Tempress Systems or Tempress; P.R. Hoffman Machine Products, Inc., an Arizona
corporation based in Carlisle, Pennsylvania, acquired in July 1997, or PR
Hoffman; and Bruce Technologies, Inc., a Massachusetts corporation based in
Billerica, Massachusetts, acquired in July 2004, or Bruce Technologies; and R2D
Ingenierie SAS, or R2D, a French corporation located near Montpellier, France,
acquired in October 2007. See Exhibit 21 Subsidiaries for a complete list of our
subsidiaries.

We are a leading supplier of horizontal
diffusion furnace systems used for solar (photovoltaic) cell and semiconductor
manufacturing, and are recognized in the markets we serve for our technology and
our brands. We operate in two business segments: (i) semiconductor and solar
equipment and (ii) polishing supplies. Our semiconductor and solar equipment is
sold under the well-known and respected brand names of Tempress Systems and
Bruce Technologies, which have customers in both the semiconductor industry and
the solar industry. Within the semiconductor industry, we provide equipment to
manufacturers of analog, power, automotive and microcontroller chips with
geometries greater than 0.3 micron, denoted as μ, a strategy we believe
minimizes direct competition with significantly larger suppliers of
semiconductor equipment. Within the solar industry, we provide diffusion and
automation equipment to solar cell manufacturers. Under the PR Hoffman brand, we
believe we are also a leading supplier of insert carriers to manufacturers of
silicon wafers, and we provide lapping and polishing consumable products as well
as equipment used in various industries.

We have been providing manufacturing
solutions to the semiconductor industry for over 30 years and are leveraging our
semiconductor technology and industry presence in an effort to capitalize on
growth opportunities in the solar industry. Our customers use our furnaces to
manufacture semiconductors, solar cells, silicon wafers and
microelectromechanical systems, or MEMS, which are used in end markets such as
telecommunications, consumer electronics, computers, automotive, hand-held
devices and solar industry products. To complement our research and development
efforts, we also sell our furnaces to research institutes and
universities.

For fiscal 2007, we recognized net revenue
of $46.0 million, which included $12.5 million of solar revenue or approximately
27% of our total revenue. These results compare to $40.4 million of net revenue
for fiscal 2006, which included $2.8 million of solar revenue or approximately
7% of our total revenue. Our order backlog as of September 30, 2007 and 2006 was
$23.2 million and $13.6 million, respectively, a 71% increase. Our backlog as of
September 30, 2007 included approximately $17.4 million of orders from our solar
industry customers compared to $7.6 million of orders from our solar industry
customers as of September 30, 2006. Because our orders are typically subject to

1

cancellation or delay by the customer, our backlog at any particular point in
time is not necessarily representative of actual sales in subsequent periods,
nor is backlog any assurance that we will realize revenue or profit from
completing these orders.

Orders from the solar industry, which
consist of backlog and shipped orders, totaled $21.4 million during fiscal 2007,
compared to $8.0 million and $3.8 million in fiscal 2006 and 2005,
respectively.

We expect the solar industry to continue
to grow as a result of greater interest in environmentally friendly energy
alternatives, increased costs of fossil fuels and increased global demand for
electricity, as well as the solar industrys efforts to reduce manufacturing
costs and concern over the worlds dependence on oil. We plan to continue
capitalizing on this trend by improving our existing products and expanding the
number of process steps for which we provide manufacturing equipment to the
solar industry. We intend to accomplish this by increasing our solar sales and
marketing activities and by acquiring and developing additional products for
this industry.

For information regarding net revenue,
operating income or loss and identifiable assets attributable to each of our two
business segments, see Note 10 of the Notes to Consolidated Financial Statements
included herein and Item 7 of this Annual Report. For information of the
products of each segment, see Semiconductor and Solar Equipment Segment
Products and Polishing Supplies Segment Products within Item 1.
Business.

RECENT DEVELOPMENTS

Acquisition of Solar Cell Automation
Technology. On October 8, 2007, through our
wholly-owned subsidiary, Tempress Holding B.V., we acquired R2D Ingenierie, or
R2D, a solar cell and semiconductor automation equipment manufacturing company,
located near Montpellier, France. R2D has provided solutions to the solar and
semiconductor industries since 1989 and recognized net revenue of $4.9 million
in 2006. The automation products sold by R2D are used in several steps of the
semiconductor manufacturing processes and for the solar diffusion process. We
believe R2Ds automation know-how provides a significant point of
differentiation from our competitors and provides us the capability to expand
the automation solutions we are able to provide to our current and future solar
industry customers. We believe the acquisition of the technology and business of
R2D enhances our growth strategy by allowing us to increase our sales by
offering an integrated system under the Tempress brand to the solar
industry.

Under the agreement, we acquired all of
the outstanding shares of R2D for a total purchase price of approximately $6.1
million and made a working capital infusion of $1.0 million that was used to
satisfy certain outstanding obligations. The purchase price includes significant
contingent incentive provisions tied to R2Ds successful product improvements,
production and technology delivery. Additionally, R2Ds key personnel have
signed three-year employment agreements.

Partnering to Develop and Market an
Antireflective Coating System for Solar Cells. In April 2007, we entered into a licensing and manufacturing agreement to
develop and market an antireflective coating system for solar cells with PST
Co., LTD., a South Korean producer of vertical thermal processing systems for
high-end memory-chip semiconductor applications. This plasma enhanced chemical
vapor deposition, or PECVD, system is used in high volume solar cell
manufacturing, and is an important step in the solar cell manufacturing process,
as is our diffusion process. The licensing agreement allows us to market PSTs
existing and future PECVD systems to high-volume solar cell manufacturers
throughout the term of the agreement, which we believe will enable us to develop
new customer relationships. The royalty free, 10-year licensing agreement will
enable us to sell this product to our solar customer base through our extensive
global sales and marketing network on an exclusive basis, with the exception of
sales in Korea and to one existing Japanese customer of PST, for which PST
retains exclusive rights.

Expansion of Solar Manufacturing Plant
Capacity. In March 2007, we acquired a 48,000
square foot manufacturing plant located in Vaassen, The Netherlands, near our
existing plant where most of our solar cell and semiconductor equipment is
currently manufactured. This facility, which will replace our current facility,
significantly increases our European manufacturing capacity, and we believe it
will improve the operating efficiencies of both our solar cell and semiconductor
equipment manufacturing in fiscal 2008.

Penetration of the Asia-Pacific
Market.We have continued to
increase our sales into the Asia-Pacific market and we expect further growth in
export opportunities to this region. In fiscal 2007, our sales into the
Asia-Pacific market increased by 44% compared to fiscal 2006, driven primarily
by sales to our solar industry customers. The Asia-Pacific region continues to
be an important and expanding market for us because of the continued migration
of solar cell and semiconductor manufacturing to countries in that
market.

2

Partnering to Manufacture Advanced
Vertical Microwave System. In May 2007, we
entered into a manufacturing agreement with DSG Technologies, a California-based
developer of low temperature, microwave heating and curing systems used in
fabricating integrated circuits. Under this agreement we expect to manufacture a
vertical microwave reactor system that utilizes both our small-batch vertical
furnace platform and DSGs microwave heating technology. This new product is
designed to be used for the curing processes on advanced sub-50nm semiconductor
devices. This technology may open new markets for our small batch vertical
furnace.

COMPETITIVE STRENGTHS

We believe that we are a leader in the
markets we serve as a result of the following competitive strengths:

Leading Market Share and Recognized
Brand Names. The Tempress, Bruce Technologies
and PR Hoffman brands have long been recognized in our industry and identified
with high-quality products, innovative solutions and dependable service. We
believe that our brand recognition and experience will continue to allow us to
capitalize on current and future market opportunities in the solar
industry.

We have been providing horizontal
diffusion furnaces and polishing supplies and equipment to our customers for
over 30 years. We have sold and installed over 900 horizontal furnaces worldwide
and benefit from what we believe to be the largest installed customer base in
the semiconductor industry, which we believe offers an opportunity for
replacement and expansion demand. Customers that have purchased our furnaces can
leverage their investment in training, spare parts inventory and other costs by
acquiring additional equipment from us. We also have an extensive retrofit,
parts and service business, which typically generates higher margins than our
equipment business.

Experienced Management Team.
We are led by a highly experienced management team. Our
CEO has over 34 years of industry experience, including 26 years with our
company. Our four general managers have an average of over 19 years of
semiconductor and solar industry experience and an average of 17 years with our
company (including our predecessor companies).

Established, Diversified Customer
Base. We have long-standing relationships
with many of our top customers, which we believe remain strong. We maintain a
broad base of customers, including leading solar cell manufacturing companies,
as well as semiconductor and wafer manufacturing companies. During fiscal 2007,
our largest customer accounted for approximately 13% of our net revenue and our
top 10 customers collectively represented approximately 52% of our net revenue.
In fiscal 2006, our largest customer accounted for approximately 17% of our net
revenue, and our top 10 customers collectively represented approximately 58% of
our net revenue. In fiscal 2005, no single customer accounted for more than 10%
of our net revenue. Our largest customer has been different in each of the last
three fiscal years.

Proven Acquisition Track
Record. Over the last twelve years we have
developed an acquisition program that has resulted in the acquisition of four
significant businesses. In October 2007, we acquired R2D Ingenierie, a solar and
semiconductor automation company located near Montpellier, France. We believe the
acquisition of the technology and business of R2D enhances our growth strategy
by allowing us to increase our sales by offering an integrated system under the
Tempress brand to the solar industry. In July 2004, we acquired the Bruce
Technologies line of semiconductor horizontal furnace operations, product lines
and other assets from Kokusai, a wholly owned subsidiary of Hitachi, Japan and
its affiliate, Kokusai Electric Europe, GmbH. We continue to market the
horizontal furnace product line under the name Bruce Technologies. Bruce
Technologies has a large installed base, including several large semiconductor
manufacturers. In July 1997, we acquired substantially all of the assets of PR
Hoffman. This acquisition enabled us to offer new consumable products, including
lapping and polishing carriers, polishing templates, lapping and polishing
machines and related consumable and spare parts to our existing customer base as
well as to target new customers. In 1994, we acquired certain assets of Tempress
and hired Tempresss engineers to develop our first models of the Tempress
horizontal diffusion furnaces for production in The Netherlands.

Technical Expertise. We have highly trained and experienced mechanical, chemical,
environmental, electronic, hardware and software engineers and support
personnel. Our engineering group possesses core competencies in product
applications and support systems, automation, sophisticated controls, chemical
vapor deposition, diffusion and pyrogenic processes, robotics, vacuum systems,
ultra clean applications and software driven control packages. We believe this
expertise enables us to design, develop and deliver high-quality,
technically-advanced integrated product solutions for solar cell and
semiconductor manufacturing customers.

3

Leading Technology Solutions and New
Product Development. We pursue a
partnering-based approach, in which our engineering and development teams work
closely with our customers to ensure our products are tailored to meet our
customers specific requirements. We believe this approach enables us to more
closely align ourselves with our customers and provide them with superior
systems. We believe our line of horizontal diffusion furnaces, which allow high
wafer-per-hour throughput, is more technologically advanced and reliable than
most of our competitors equipment. In addition, the processing and temperature
control systems within the furnace provide diverse and proven process
capabilities, which enable the application of high-quality films onto silicon
wafers. We believe our recently acquired R2D solar automation technology will
provide efficiencies in the manufacturing process that will allow our customers
to be more competitive in their respective markets. We developed a small batch
vertical furnace jointly with a major European customer and are currently
developing five different thin film processes for use with this furnace. We
retain full ownership of this technology. We shipped two of these systems in
fiscal 2005 and one in 2006. In addition, in 2007, we shipped a small batch
vertical furnace utilizing DSGs microwave technology to DSG. In 2007, we also
began selling precision thickness wafer carriers. This is an internally
developed product that we expect will increase our sales to the wafer carrier
market.

Geographically Diverse Customer
Base. We believe that our geographically
diverse revenue stream helps to minimize our exposure to fluctuations in any one
market, and to maximize our access to potential customers relative to our
competitors with geographically concentrated operations. The geographic
distribution of our net revenues from fiscal 2005 through 2007 is as
follows:

2007
    
    2006
    
    2005Asia  Pacific
    
    52%
    
    41%
    
    36%North
      America
    
    28%
    
    35%
    
    40%Europe
    
    20%
    
    24%
    
    24%




The figures set forth in the above table
represent percentages of the net revenues for each of the last three fiscal
years as such net revenues are reported in our financial statements at Item
8.

GROWTH STRATEGY

We intend to leverage our competitive
strengths through a combination of internal and external growth
strategies.

Internal Growth.
Our strategy for internal growth includes: capitalizing
on growth opportunities in the solar industry and the Asia-Pacific market;
accelerating new product and technology development; enhancing our sales and
marketing capabilities; and leveraging our installed base.

Capitalizing on Growth Opportunities in
the Solar Industry. We have had recent
success in increasing our sales to the solar industry. Our fiscal 2007 solar
orders, which consist of backlog and shipped orders, totaled $21.4 million,
compared to $8.0 million and $3.8 million in fiscal 2006 and 2005, respectively.
We believe the increase in orders from solar cell manufacturers is due to our
focused product development and marketing efforts, as well as to growing overall
demand from the solar industry. We believe that growth in the solar industry
will be driven by rising energy demand, the increasing scarcity of traditional
energy resources coupled with rising prices, the growing adoption of government
incentives for solar energy due to increasing environmental awareness and
concern about energy independence, the gradually decreasing cost of solar energy
and the changing consumer preferences toward renewable energy
sources.

Capitalizing on Growth Opportunities in
the Asia-Pacific Market. With our extensive
global knowledge and experience, particularly in Asia, we intend to further
leverage our established sales channels in the Asia-Pacific market for current
and future products. The Asia-Pacific region continues to be an important and
expanding market for us, particularly because of the continuing migration of
solar cell and semiconductor manufacturing to countries in that region.
According to Solar Plaza, total solar cell production in China is expected to grow
from 600 MWp in 2005 to 2,200 MWp in 2010 for a CAGR of 30%. For fiscal 2007, we
have increased our sales into the Asia-Pacific market by 44% compared to fiscal
2006 This increase is primarily driven by solar equipment sales.

4

Accelerating New Product and Technology
Development. We are focused on developing new
products across our business in response to customer needs in various
markets.

Small Batch Vertical
Furnace. At $1.5 billion annually, the
vertical furnace market is much larger than the horizontal furnace market that
we have served historically. Our entry product into the vertical furnace market
is a two-tube small batch vertical furnace for wafer sizes of up to 200mm, with
each tube having a small flat zone capable of processing 25-50 wafers per run.
We are targeting small batch niche applications in the vertical furnace market
first, since the competition in the large batch vertical furnace market is
intense and our competitors are much larger and have substantially greater
financial resources, processing knowledge and advanced technology. We believe
our large installed customer base increases the market to which we can sell our
small batch vertical furnaces and other new products.

Precision Thickness Wafer
Carrier. Wafer carriers are work holders into
which silicon wafers or other materials are inserted for the purpose of holding
them securely in place during the lapping and polishing processes. Many
customers thin their wafer carriers to precise tolerances to meet their various
applications. We internally developed and began selling precision thickness
wafer carriers in 2007.

Enhancing our Sales and Marketing
Capabilities. In order to increase sales and
improve customer service globally, we intend to continue integrating our Bruce
Technologies and Tempress sales and marketing teams and transitioning them from
being product oriented to being regionally focused. We also intend to hire
additional senior management to expand our existing solar sales and marketing
efforts.

Leveraging our Installed
Base. We intend to continue leveraging our
relationships with our customers to maximize parts, system, service and retrofit
revenue from the large installed base of Bruce Technologies and Tempress brand
horizontal diffusion furnaces. We intend to accomplish this by meeting these
customers needs for replacement systems and additional capacity, including
equipment and services in connection with any of our customers relocation to,
or expansion efforts in, Asia.

External Growth.
We intend to selectively seek strategic growth
opportunities through acquisitions, joint ventures, geographic expansion and the
development of additional manufacturing capacity.

Pursuing Strategic Acquisitions that
Complement our Strong Platform. Over the last
twelve years, we have developed an acquisition program and have completed the
acquisition of three significant businesses. Based on a disciplined acquisition
strategy, we continue to evaluate potential technology, product and business
acquisitions or joint ventures that are intended to increase our existing market
share in the solar industry and expand the number of front-end semiconductor
processes addressed by our products. In evaluating these opportunities, our
objectives include: enhancing our earnings and cash flows, adding complementary
product offerings, expanding our geographic footprint, improving our production
efficiency and growing our customer base.

SOLAR AND SEMICONDUCTOR INDUSTRIES

We provide products and services primarily
to two industries: the solar industry and the semiconductor industry.

Solar Industry. Solar power has emerged as one of the most rapidly growing
renewable energy sources. To date, various technologies have been developed to
harness solar energy. The most significant technology is the use of
interconnected photovoltaic, or PV, cells to generate electricity directly from
sunlight. Most PV cells are constructed using specially processed silicon,
which, when exposed to sunlight, generates direct current electricity. Solar
energy has many advantages over other existing renewable energy sources and
traditional non-renewable energy sources in the areas of environmental impact,
delivery risk, distributed nature of generation and matching of peak generation
with demand. According to Photon
International published by Solar Verlag GmbH,
an independent solar energy research publication, the global PV market, as
measured by total PV cell production, increased from 1.2 gigawatts, or GW, in
2004 to 2.6 GW in 2006, which represents a compound annual growth rate, or CAGR,
of approximately 36%. During the same period, PV industry revenues grew from
approximately $8.0 billion to approximately $20.0 billion.

5

Photon International projects that total PV cell production, including thin-film
and non-conventional production which our products do not address, will increase
from 4.0GW in 2007 to 20.5GW in 2011, representing a CAGR of approximately 50%.
During the same period, PV industry revenues are projected to grow from
approximately $30 billion to approximately $121 billion. Despite this rapid
growth, solar energy currently accounts for only a small fraction of the worlds
energy output. We believe that growth in the PV industry will be driven by
rising energy demand, the increasing scarcity of traditional energy resources
coupled with rising prices, the growing adoption of government incentives in a
number of countries for solar energy due to increasing environmental awareness
and concern about energy independence, the gradually decreasing cost of solar
energy and the changing consumer preferences toward renewable energy sources. We
believe the anticipated continued growth of the PV industry will result in
increased investment in PV manufacturing equipment. Solar power systems are used
for residential, commercial and industrial applications and for customers who
either have access to or are remote from the electric utility grid. The market
for on-grid applications, where solar power is used to supplement a customers
electricity purchased from the utility network, represents the largest and
fastest growing segment of the market. Off-grid markets, where access to
utility networks is not economical or physically feasible, and consumer markets
both offer additional opportunities for solar technology. Off-grid industrial
applications include road signs, highway call boxes and communications support
along remote pipelines, as well as rural residential applications. Consumer
applications include outdoor lighting and handheld devices such as
calculators.

Semiconductor
Industry. Semiconductors control and
amplify electrical signals and are used in a broad range of electronic products,
including: consumer electronic products, computers, wireless telecommunication
devices, communications equipment, automotive electronic products, major home
appliances, industrial automation and control systems, robotics, aircraft, space
vehicles, automatic controls and high-speed switches for broadband fiber optic
telecommunication networks. Semiconductors, or semiconductor chips, solar
cells and optical components are manufactured primarily on a silicon wafer and
are part of the circuitry or electronic components of many of the products
listed above.

The semiconductor industry has experienced
significant growth since the early 1990s. This growth has been primarily
attributable to an increase in demand for personal computers, the growth of the
internet, the expansion of the telecommunications industry, especially wireless
communications, and the emergence of new applications in consumer electronics.
Further fueling this growth is the rapidly expanding end-user demand for
smaller, less-expensive and better-performing electronic products as well as for
traditional products with more intelligence. This growing demand has led to an
increased number of semiconductor devices in electronic and other consumer
products, including automobiles.

Although the semiconductor market has
experienced significant growth over the past fifteen years, it remains cyclical
by nature. The market is characterized by short-term periods of under or over
supply for most semiconductors, including microprocessors, memory, power
management chips and other logic devices. When demand decreases, semiconductor
manufacturers typically slow their purchasing of capital equipment. Conversely,
when demand increases, so does capital spending. After the historical peak in
2000, the semiconductor industry experienced one of its most severe downturns in
2001 through the first half of 2003, resulting in a decline in revenue for most
manufacturers of semiconductor chips and semiconductor equipment. During the
latter part of 2003, the industry began to improve and has continued to improve
through 2007.

6

Industry Manufacturing
Processes

Solar
Cell Manufacturing Process Flow Chart



A part of our growth strategy involves
evaluating opportunities to increase the number of process steps we serve in
both the solar cell and semiconductor manufacturing processes by acquiring
additional product lines. The solar industry uses many of the same process steps
used in semiconductor manufacturing in the high-volume production of solar cells
including:

| | (1)  |  | inspecting for
      resistivity and mechanical integrity and splitting
  wafers;                                                  
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------
| |     
| | (2)  |  | etching away saw
      damage with sodium hydroxide and rinsing the wafer with water and
      concentrated sulphuric acid;        
| |     
| | (3)  |  | diffusing oxygen and
      nitrogen to form a thin-film layer of phosphorous oxychloride on the
      wafer;                       
| |     
| | (4)  |  | etching the wafer with
      fluoric acid to remove the undiffused, phosphorus-silica-glass
      layer;                           
| |     
| | (5)  |  | coating an
      antireflective layer through a chemical vapor deposition (CVD) or plasma
      enhanced CVD process;              
| |     
| | (6)  |  | printing rear side
      contacts;                                                                                                 
| |     
| | (7)  |  | drying to prevent
      condensation in the wafer area;                                                                            
| |     
| | (8)  |  | printing aluminum and
      silver paste on the back surface field to prevent recombination of
      generated electrons and holes;
| |     
| | (9)  |  | drying;                                                                                                                            
| |     
| | (10) |  | printing front side
      contacts;                                                                                                
| |     
| | (11) |  | drying and then
      sintering the contact to form electrical conductive contacts;
  and                                          
| |      |  |                                                                                                                                    
| | (12) |  | testing and sorting
      the solar cells into electrical efficiency
categories.                                                   

Most solar cell manufacturers sell their
products to manufacturers of solar modules or solar panels. Others are
vertically integrated and use their cells in the production of solar modules and
panels. Solar cells are the critical component of solar modules and solar
panels, which are sold to the end user and used in residential homes, industrial
applications, remote pumping, lighting and heating uses and central power
stations.

7

Semiconductor Front End Manufacturing
Process Flow ChartCreating the Wafer



____________________(*)Manufacturing process steps
which involve the use of our products.

Most semiconductor chips are built on a
base of silicon, called a wafer, and include multiple layers of circuitry that
connect a variety of circuit components, such as transistors, capacitors and
other components. To build a chip, the transistors, capacitors and other circuit
components are first created on the surface of the wafer by performing a series of processes to deposit and remove
selected film layers, including insulators. Similar processes are then used to
build the layers of wiring structures on the wafer. These are all referred to as
front-end processes. A simplified sequence of front-end processes for
fabricating typical chips involves:

| | (1)  |  | forming an ingot by
      pulling molten silicon;                                                                                                                                                                                             
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     
| | (2)  |  | slicing the silicon
      ingot into wafers of uniform thickness with a wire saw;                                                                                                                                                             
| |     
| | (3)  |  | lapping and polishing
      the silicon wafer to a mirror-like finish;                                                                                                                                                                        
| |     
| | (4)  |  | cleaning the
      wafer;                                                                                                                                                                                                                     
| |     
| | (5)  |  | forming a thin film
      layer of silicon dioxide on the wafer in a diffusion furnace where oxygen,
      hydrogen or a combination of the two is introduced to cause a chemical
      reaction (oxidation) with the silicon wafers surface;
| |      |  |                                                                                                                                                                                                                                               
| | (6)  |  | diffusing impurities (doping) in
      order to change the wafers electrical properties;                                                                                                                                                     
| |     
| | (7)  |  | depositing insulating or
      conducting layers on the wafer surface, which sometimes is accomplished in
      a diffusion furnace via a chemical reaction called chemical vapor
      deposition;                                           
| |     
| | (8)  |  | coating and baking a
      photosensitive material, called photoresist, on the wafer;                                                                                                                                                         
| |     
| | (9)  |  | creating circuit patterns by
      exposing the wafer to light directed through a mask with circuit
      patterns;                                                                                                                           
| |     
| | (10) |  | removing the soluble portion of
      the photoresist by placing the wafer in a chemical solution, leaving only
      the desired pattern;                                                                                                    
| |     
| | (11) |  | etching away the exposed areas to
      create a dimensional pattern on the wafer surface;                                                                                                                                                    

8

| | (12) |  | creating electrically charged
      conductive regions by driving ions into the exposed areas of the patterned
      wafer; and         
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------
| |     
| | (13) |  | annealing the wafer through a
      high temperature process to relieve stress and drive the implanted ions
      deeper into the wafer.

The silicon wafer may be cycled ten to
twenty-five times through these wafer-processing steps, starting each time at
step (5) or (7) to form a number of chips on the wafer. The front-end process
steps are followed by a number of back-end steps in which the wafers are sliced
into individual chips that are then packaged to add connectors that are
compatible with the end product in which the chip will be used.

Depending on the device, our polishing
supplies segments products may be used in lapping and polishing (step 3) and
our semiconductor and solar equipment segments products may be used in forming
silicon dioxide films (step 5), doping (step 6), depositing insulating and
conducting layers (step 7) and the annealing processes (step 13).

SEMICONDUCTOR AND SOLAR EQUIPMENT SEGMENT PRODUCTS

Our furnace and automation equipment is
manufactured in our facilities in Massachusetts and The Netherlands. The
following paragraphs describe the products that comprise our semiconductor and
solar equipment segment:

Horizontal Diffusion
Furnaces. Through our subsidiaries,
Tempress and Bruce Technologies, we produce and sell horizontal diffusion
furnaces. Our horizontal furnaces currently address several steps in the
semiconductor manufacturing process, including diffusion (step 5 in the
semiconductor manufacturing process previously described), phosphorus
tetrachloride doping, or POCl3 (step 6), low-pressure chemical vapor deposition, or LPCVD,
(step 7), and annealing (step 13). Our horizontal furnaces also currently
address diffusion and applying antireflective coating in the solar cell
manufacturing process (steps 3 and 5).

Our horizontal furnaces generally consist
of three large modules: the load station where the loading of the wafers occurs;
the furnace section, which is comprised of one to four reactor chambers; and the
gas distribution cabinet where the flow of gases into the reactor chambers is
controlled, and often customized to meet the requirements of a customers
particular processes. The horizontal furnaces utilize existing industry
technology and are sold primarily to customers who do not require the advanced
automation of, or cannot justify the higher expense of, vertical furnaces for
some or all of their diffusion processes. Our models are capable of processing
all currently existing wafer sizes.

Small Batch Vertical
Furnace. Our small batch, two-tube vertical furnace was developed
internally with the active support from a large semiconductor manufacturer and
long-term customer. The specifications for this furnace include a two-tube
vertical furnace for wafer sizes of up to 200mm, with each tube having a small
flat zone capable of processing 25-50 wafers per run. The market for vertical
furnaces is much larger than the total of all the other markets we currently
serve. We are initially targeting niche applications, including research and
development, while we continue to develop additional processes, since the
competition in the large batch vertical furnace market is intense and our
competitors are much larger and have substantially greater financial resources,
processing knowledge and advanced technology.

Conveyor Furnace.
We produce conveyor furnaces used to manufacture thick
films for the electronics industry. Conveyor furnaces provide for precision
thermal processing of electronic parts for thick film applications, including
annealing, sealing, soldering, silvering, curling, brazing, alloying,
glass-metal sealing and component packaging.

Etch Systems. We manufacture and sell two models of etch systems. Our P2000
series is a fully automated single wafer plasma etch and deposition production
system for front- and back-end processing of wafers up to 200mm. The system is
used for semiconductor production applications. Etching of silicon, nitrides,
oxides, polymers and metals is accomplished safely and reliably in this cost
efficient, high performance system. Our PM2000 is a manually loaded small
laboratory model that provides fast etch rates using solid state 600 watt
generators and a unique chamber design. We acquired this product and process
technology in 2004 for a nominal amount. We sold our first two etch systems in
2006.

Automation Products 
Semiconductor. Use of our automation
products reduces human handling and, therefore, reduces exposure of wafers to
particle sources during the loading and unloading of the process tubes and
protects operators from heat and chemical fumes. Since the top reactor chamber
of a horizontal furnace is as much as eight

9

feet from the floor on which the operator stands when manually loading wafer boats, and typical boats of 150mm to
300mm wafers weigh three to six pounds, automating the wafer loading and
unloading of a diffusion furnace improves employee safety and ergonomics in
silicon wafer, solar cell and semiconductor manufacturing facilities.

E-300. Our most cost effective automation product is the E-300. This product is
most suitable for the lower cost semiconductor devices, such as diodes and power
management chips. The E-300 operates like an elevator and generally is used to
raise wafer boats loaded with up to 300 wafers to one or both of the upper two
reactor chambers of a diffusion furnace.

S-300. Our patented S-300 model provides a very efficient method of
automatically transporting a full batch of up to 300 wafers to the designated
tube level and automatically placing them directly onto the cantilever loader of
a diffusion furnace at one time. This product is suitable for the production of
nearly all semiconductors manufactured using a horizontal furnace. The S-300 can
be used in conjunction with all current wafer sizes and is particularly well
suited for manufacturers of 300mm wafers.

Automation Products 
Solar. Our automation technology products
are used in several of the semiconductor manufacturing steps and the diffusion
processing step in solar cell manufacturing. Our automation equipment includes
mass wafer transfer systems, sorters, long-boat transfer systems, load station
elevators, buffers and conveyers. We use a vacuum technology for our solar wafer
transfer systems designed to ensure high throughput.

Atmoscan and Other Cantilevered
Processing Systems. Our Atmoscan product is a controlled environment wafer
processing system that includes a cantilever tube used to load silicon wafers
into a horizontal diffusion furnace and through which a purging inert gas flows
during the process of loading and unloading the reactor chamber. Among the major
advantages afforded by the Atmoscan product is increased control of the
environment surrounding the wafers during the gaseous and heating /cooling
process, resulting in increased yields, decreased manufacturing costs and other
economies in the manufacturing process.

POLISHING SUPPLIES SEGMENT PRODUCTS

The products of our polishing supplies
segment are used primarily for lapping and polishing raw silicon wafers to a
mirror-like finish. Depending on the cycle of the semiconductor industry,
approximately two-thirds of this segments products are sold to either
semiconductor wafer manufacturers or specialty semiconductor fabricators. The
products of our polishing supplies segment are also sold to fabricators of
optics, quartz, ceramics and metal parts, and to manufacturers of medical
equipment components and computer disks. We manufacture the products described
below in Pennsylvania and sell them under our PR Hoffman brand name.

Wafer Carriers. Carriers are
work holders into which silicon wafers or other materials are inserted for the
purpose of holding them securely in place during the lapping and polishing
processes. We produce carriers for our line of lapping and polishing machines,
as well as for those machines sold by our competitors. Substantially all of the
carriers we produce are customized for specific applications. Insert carriers,
our most significant category of carriers, contain plastic inserts molded onto
the inside edge of the work-holes of the carrier, which hold the wafers in place
during processing. Although our standard steel carriers are preferred in many
applications because of their durability, rigidity and precise dimensions, they
are typically not suited for applications involving softer materials or when
metal contamination is an issue. Insert carriers, however, are well suited for
processing large semiconductor wafers, up to 300mm in diameter, and other
fragile materials or where contamination is an issue, because they provide the
advantages of steel carriers while reducing the potential for damage to the
edges of such sensitive materials. Our insert carriers are used for double-sided
lapping or polishing of semiconductor wafers up to 300mm in diameter. We
internally developed and began selling precision thickness wafer carriers in
2007.

Semiconductor Polishing
Templates. Our polishing templates are used to securely hold silicon wafers in place
during single-sided polishing processes. Polishing templates are customized for
specific applications and are manufactured to exacting tolerances. We
manufacture polishing templates for most brands of tools and various processes.
In addition to silicon wafers, these products are used in polishing silicon
carbide wafers and sapphire crystals used in LEDs.

Double-Sided Planetary Lapping and
Polishing Machines. Double-sided lapping and polishing machines are designed to
process thin and fragile materials, such as semiconductor silicon wafers,
precision optics, computer disk media and ceramic components for wireless
communication devices, to exact tolerances of thickness, flatness, parallelism
and surface finish. On average, we believe that we offer our surface processing
systems at a lower price

10

than systems offered by our competitors and target the
semiconductor, optics, quartz, ceramics, medical, computer disk and metal
working markets. During fiscal 2004, we introduced and delivered our first Model
5400 lapping and polishing machine, capable of processing parts up to 19.5
inches in diameter, including 300mm wafers and higher capacities of smaller
parts. This new machine is our largest and is superior to our previous model,
because it uses servo motors rather than hydraulics and is equipped with a
Windows touch-screen interface, for better control of speeds and pressure,
optional thickness control, and crash protection. We believe our 5400 model is
especially well suited for thin and fragile materials. We also produce and sell
a wide assortment of plates, gears, parts and wear items for our own machines
and those sold by many of our competitors.

MANUFACTURING, RAW MATERIALS AND SUPPLIES

Our semiconductor and solar equipment
manufacturing activities consist primarily of engineering design, procurement
and assembly of various commercial and proprietary components into finished
diffusion furnace systems in Heerde, The Netherlands, and Billerica,
Massachusetts. In March 2007, through our subsidiary, Tempress Holding B.V., we
purchased a 48,000 square foot manufacturing facility located in Vaassen, The
Netherlands near our existing plant, where we currently manufacture the majority
of our solar cell and semiconductor equipment. This purchase will replace our
existing facility in Heerde and should alleviate our prior capacity constraints
in The Netherlands by adding significant manufacturing space for future growth
and should facilitate more efficient production of our product lines for both
the solar and semiconductor industries. In 2006, we transferred the production
of processing and automation systems to Billerica, Massachusetts from our Tempe,
Arizona location to improve efficiencies.

Nearly all of our fabricated parts for the
semiconductor and solar equipment segment are purchased from local suppliers.
Our manufacturing activities in the polishing supplies and equipment segment
include laser-cutting and other fabrication steps in producing lapping and
polishing consumables, including carriers, templates, gears, wear items and
spare parts in Carlisle, Pennsylvania, from raw materials manufactured to our
specifications by our suppliers. Many items, such as proprietary components for
our semiconductor and solar equipment and lapping plates, are also purchased
from suppliers who manufacture these items to our specifications.

All final assembly and tests of our
equipment and machines are performed within our manufacturing facilities.
Quality control is maintained through inspection of incoming materials and
components, in-process inspection during equipment assembly, testing of
assemblies and final inspection and, when practical, operation of manufactured
equipment prior to shipment.

Since much of our polishing supplies
segments know-how relates to the manufacture of its products, this segments
facility is equipped to perform a significantly higher percentage of the
fabrication steps required in the production of its products. However, injection
molding for our insert carriers and the manufacture of raw cast iron plates are
subcontracted out to various third parties. Our polishing supplies segment
relies on key suppliers for certain materials, including two steel mills in
Germany and Japan, an injection molder, a single-sourced pad supplier from Japan
and an adhesive manufacturer. Prior to the fourth quarter of fiscal 2004, we
subcontracted the lasercutting of carriers to third parties. Since then we have
purchased an advanced laser-cutting tool which has increased our ability to
compete based upon price, delivery lead-times and quality. To minimize the risk
of production and service interruptions and/or shortages of key parts, we
maintain appropriate inventories of key raw materials and parts. If for any
reason we were unable to obtain a sufficient quantity of parts in a timely and
cost-effective manner to meet our production requirements, our results of
operations would be materially and adversely affected.

BACKLOG

Our backlog as of September 30, 2007 and
2006 was $23.2 million and $13.6 million, respectively, a 71% increase. Our
backlog as of September 30, 2007 included approximately $17.4 million of orders
from our solar industry customers compared to $7.6 million in orders from solar
industry customers as of September 30, 2006. The orders included in our backlog
are generally credit approved customer purchase orders 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 revenue or profit from completing
these orders. Our backlog also includes revenue

11

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. The backlog as of
September 30, 2007 and 2006 included $0.9 million of open orders or deferred
revenue on which we anticipate no gross margin.

RESEARCH, DEVELOPMENT AND ENGINEERING

The markets we serve are characterized by
evolving industry standards and rapid technological change. To compete
effectively in our markets, we must continually keep up with the pace of such
change by improving our products and our process technologies and developing new
technologies and products that compete effectively on the basis of price and
performance and that adequately address current and future customer
requirements. We continue to obtain as much customer cooperation and input as
possible to increase the efficiency and effectiveness of our research and
development efforts. While there can be no assurance that such relationships
will continue or that others will be developed, such cooperative efforts are
expected to remain a significant element in our future product and technology
development projects.

In April 2007, we entered into a licensing
and manufacturing agreement to develop and market an antireflective coating
system for solar cells with PST Co., LTD., a South Korean producer of vertical
thermal processing systems for high-end semiconductor applications. This PECVD
system is used in high-volume, solar cell manufacturing and is an important step
in the solar cell manufacturing process. The licensing agreement allows us to
market PSTs existing PECVD system, and for PST to develop and manufacture a new
PECVD model for us to market to high-volume solar cell manufacturers.

The royalty free, 10-year licensing
agreement will enable us to sell this product to our solar customer base through
our extensive global sales and marketing network on an exclusive basis, with the
exception of sales in Korea and to one existing customer of PST, for which PST
retains exclusive rights. Additionally, we believe this product will enable us
develop new customer relationships.

Additionally, in May 2007, we entered into
a manufacturing agreement with DSG Technologies, a California based developer of
low temperature, microwave heating and curing systems used in the fabricating of
integrated circuits. Under this agreement we will manufacture a vertical
microwave reactor system that utilizes both our small-batch vertical furnace
platform and DSGs heating technology. This new product will be used for the
curing processes on advanced sub-50nm semiconductor devices.

We believe that as the industry approaches
the sub-50nm technology era, curing applications will require precise
low-temperature control. With DSGs heating technology, uniform temperature
control can be achieved because, unlike external heating, microwave heating is
volumetric throughout the material. Microwave energy can also effectively couple with molecular
bonds in the films, which significantly reduces the moisture content, a function
not currently possible with conventional heating. The system is also expected to
reduce curing temperatures, lower operational costs, improve film quality and
significantly improve cycle time.

From time to time we add functionality to
our products or develop new products during engineering and manufacturing to
fulfill specifications in a customers order, in which case the cost of
development, along with other costs of the order, are charged to cost of sales.
We periodically receive small research grants for research and development of
products in The Netherlands, which are netted against our research and
development costs. Our approach to such expenditures has allowed us to produce a
number of new products while spending amounts that we believe are generally
modest in relation to most semiconductor equipment manufacturers. Our
expenditures that have been accounted for as research and development were $0.6
(1.2% of net revenue) for fiscal 2007, $0.4 million (1.1% of net revenue) in
fiscal 2006, and $0.6 million (2.2% of net revenue) in 2005. These amounts
exclude those expenses incurred in connection with customer orders or supported
by government grants.

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PATENTS

The following table shows our material
patents, the patents licensed by us, and the expiration date of each patent and
license:

|Product                                |  |                                 | Country |                         | Expiration Date or Pending
      Approval
|-------------------------------------- |  | ------------------------------- | ------- | ----------------------- | -----------------------------------------
|IBAL Model S-300                       |  | France, Germany, Italy,         |         | Pending                
|                                       |  | The Netherlands, United Kingdom |         |                        
|Atmospheric Pressure Control for Solar |  | Europe                          |         | Pending                
|Furnace                                |  |                                 |         |                        
|Small Batch Furnace (SBVF)             |  | Europe                          |         | Pending                
|Dual
      Cylinder Loadport for SBVF  |  | Europe                          |         | Pending                
|Heating Element Wire Spacer            |  | Europe                          |         | Pending                
|Photo
      CVD                        |  | United
      States             |         | November 15,
      2011
|Potential Damage-free Asher            |  | United States                   |         | September 8, 2018      
|IBAL
      Model S-300                 |  | United
      States             |         | July 7,
      2019     
|IBAL Model S-300                       |  | United States                   |         | July 26, 2019          
|IBAL
      Model E-300                 |  | United
      States             |         | July 13,
      2021    
|Fast, Safe, Pyrogenic External         |  | United States                   |         | December 17, 2011      
|Torch
      Assembly (*)               |  |                                 |         |                        

To the best of our knowledge, there are no
pending lawsuits against us regarding infringement of any existing patents or
other intellectual property rights or any unresolved claims made by third
parties that we are infringing the intellectual property rights of such third
parties.

SALES AND MARKETING

Because of the highly technical nature of
our products, we market our products primarily by direct customer contact
through our sales personnel, and through a network of domestic and international
independent sales representatives and distributors that specialize in
semiconductor equipment and supplies. Our promotional activities include direct
sales contacts, participation in trade shows, an internet website, advertising
in trade magazines and the distribution of product brochures.

In order to increase sales and improve
customer service globally, we intend to integrate our Bruce Technologies and
Tempress sales and marketing teams and transition them from being product
oriented to regionally focused. Additionally, we intend to hire additional
senior management to expand our existing solar sales and marketing efforts.

Sales to distributors of both segments are
generally on terms comparable to sales to end user customers, as our
distributors generally quote their customers after first obtaining a quote from
us and have an order from the end-user before placing an order with us. Our
sales to distributors are not contingent on their future sales and do not
include a general right of return. Historically, returns have been rare. Distributors of our semiconductor and solar equipment
segment products do not stock a significant amount of our products, as the
inventory they do hold is primarily limited to parts needed to provide timely
repairs to the customer.

Payment terms of our parts, service and
retrofit sales, which usually comprise approximately 50-60% of consolidated net
revenue, are generally net 30 days, F.O.B. shipping point or equivalent terms.
The payment terms of equipment or systems sales vary depending on the size of
the order and the size, reputation and creditworthiness of the customer. As a
result, the financial terms of equipment sales can range from 80% due 30 days
after shipment and 20% due 30 days after acceptance, to requiring a 30% customer
deposit 30 days after order placement, 60% due 30 days after shipment and 10%
net due 30 days after acceptance. Letters of credit are required of certain
customers depending on the size of the order, creditworthiness of the customer
and its country of domicile.

During fiscal 2007, 72% of our net revenue
came from customers outside of North America. This group represented 65% of
revenues in fiscal 2006. In fiscal 2007, net revenue was distributed among
customers in different geographic regions as follows: North America 28% (all of
which is in the United States), Asia 52% (including 18% to

13

China and 18% to
Taiwan) and Europe 20%. During fiscal 2007 and 2006, one customer accounted for
approximately 13% and 17% of our net revenue, respectively. No customer
represented greater than 10% of net revenue during fiscal 2005. Our largest
customer has been different in each of the last three fiscal years. Our business
is not seasonal in nature, but is cyclical based on the capital equipment
investment patterns of solar cell and semiconductor manufacturers. These
expenditure patterns are based on many factors, including anticipated demand for
integrated circuits, the development of new technologies and global and regional
economic conditions.

COMPETITION

We compete in several distinct markets
including semiconductor devices, semiconductor wafer, solar cell, MEMS and the
market for general industrial lapping and polishing machines and supplies. Each
of these markets is highly competitive. Our ability to compete depends on our
ability to continually improve our products, processes and services, as well as
our ability to develop new products that meet constantly evolving customer
requirements. Significant competitive factors for succeeding in the
semiconductor manufacturing equipment market include the equipments technical
capability, productivity and cost-effectiveness, overall reliability, ease of
use and maintenance, contamination and defect control and the level of technical
service and support provided by the vendor. The importance of each of these
factors varies depending on the specific customers needs and criteria,
including considerations such as the customers process application, product
requirements, timing of the purchase and particular circumstances of the
purchasing decision.

The Semiconductor Devices,
Semiconductor Wafer, Solar Cell and MEMS Markets.We believe our large installed base of horizontal diffusion furnaces
provides a competitive advantage. We have sold and installed over 900 horizontal
furnaces worldwide and, in our experience, our large installed customer base has
led to significant replacement and expansion demand. Customers that have
purchased our furnaces can leverage their investment in training, spare parts
inventory and other costs by acquiring additional equipment from us.

Our diffusion furnaces and automation
processing equipment primarily compete with those produced by other domestic and
foreign original equipment manufacturers, some of which are well-established
firms that are much larger and have substantially greater financial resources
than us. Some of our competitors have a diversified product line, making it
difficult to quantify their sales of products that compete directly with our
products. Competitors of our horizontal diffusion furnaces include Centrotherm
GmbH, Koyo Systems Co. Ltd., MRL Industries, Inc., a subsidiary of Sandvik AB,
CVD Equipment, Inc., Semco Engineering S.A., Expertech, Inc. and Tystar
Corporation. Competitors of our lapping and polishing machines and supplies
include Lapmaster International, LLC, Hamai Co., Ltd., Speedfam Co., Ltd., Onse,
Inc. and Eminess Technologies, Inc. Such competition could intensify in the
future, if the industry trend to produce smaller chips on larger wafers
accelerates, or the newer technology represented by vertical furnaces results in
a material shift in the purchasing habits of our targeted customers. Our
furnaces and lapping and polishing machines also face, to a limited, but
increasing extent, competition from used equipment on the low-end of the price
spectrum.

We intend to maintain or improve our
competitive position for orders for our diffusion furnaces and automation
products by leveraging our established brands. We also intend to expand our
sales to the solar industry by focusing our sales and marketing efforts on the
very large and stable middle semiconductor market, designing products
to meet the customers specific process
requirements and providing competitive prices and product support service
levels. With the addition of the Bruce Technologies product line we gained
marketing synergies and believe we are more competitive at the upper end of our
targeted market. We make purchases of our own brands of used diffusion furnaces
at opportunistic prices, refurbish them, and then resell them with the original
manufacturers warranty in an effort to better defend the lower end of our
targeted market.

We believe our semiconductor automation
products compete favorably with those of our primary competitors, which include
Mactronics and Koyo Thermo Systems Co. Ltd. In this market, we believe that our
S-300 and E-300 automation products require less of the expensive clean room
floor space and are generally less expensive and easier to operate than those of
our competitors. We believe that patents on the key features of our
semiconductor automation products provide us with a competitive advantage. We
expect our semiconductor automation product competitors to seek to continually
improve the design and performance of their products, and we can make no
assurance that our semiconductor automation competitors will not develop
enhancements or acquire new technologies that will offer price or performance
features superior to those that we offer. Our semiconductor automation products
are designed to

14

target customers who want to improve employee safety and reduce
scrap. The acquisition of the Bruce Technologies product line has provided
increased sales opportunities and new customers for our semiconductor automation
products through introductions to the installed based of the users of the Bruce
Technologies line of furnaces.

Despite competition from existing
manufacturing products, we believe that our Atmoscan products provide better
results in terms of more uniform wafer temperature and dispersion of heated
gases in the semiconductor manufacturing process, less exposure of semiconductor
wafers to contaminants and other technical advantages, all of which afford a
higher yield to its users. However, vertical furnaces provide the same benefits
as our Atmoscan product to manufacturers that can justify the higher price.

We have provided automation solutions to
the semiconductor industry since 1989 and more recently to the solar industry.
We use a vacuum technology for our solar wafer transfer systems designed to
ensure high throughput, which we believe provides us with a significant point of
differentiation from our competitors. We believe our automation solutions enable
us to increase our share of the rapidly growing solar market and become a
multi-product provider to solar cell manufacturers.

General Industrial Lapping and
Polishing Machines and Supplies Market.We
experience price competition for wafer carriers produced by foreign
manufacturers for which there is very little publicly available information. As
a result, we are intensifying our efforts to reduce the cost of our carriers and
will continue to compete with other manufacturers of carriers by continuing to
update our product line to keep pace with the rapid changes in our customers
requirements and by providing a high level of quality and customer service.
During September 2004, we completed the installation and began producing steel
carriers, including insert carriers, on a newly acquired advanced laser-cutting
tool, which has reduced the costs and lead times of these products and increased
our control over quality. Competitors of our lapping and polishing machines and
carriers, other than insert carriers, include Speedfam-PW, a division of
Novellus, among others. We have been able to capture a small share of the
semiconductor polishing template market, which we believe to be dominated by
Rodel, a division of Rohm and Haas. Our strategy to enhance our sales of wafer
carriers includes developing additional niche markets for templates and
providing a high level of customer support and products at a lower cost than our
competitors.

EMPLOYEES

As of September 30, 2007, we employed
approximately 165 people. Of these employees, approximately 15 were based at our
corporate offices in Tempe, Arizona, 30 at our manufacturing plant in Carlisle,
Pennsylvania, 30 at our manufacturing plant in Billerica, Massachusetts, 60 at
our facilities in and near Heerde, The Netherlands, and 30 in our contract
semiconductor manufacturing support services business located in Austin, Texas.
Of the approximately 30 people employed at our Carlisle, Pennsylvania facility,
about 20 were represented by the United Auto Workers Union - Local 1443. We have
never experienced a work stoppage or strike. We consider our employee relations
to be good.

ITEM 1A. RISK
FACTORS

Because of the following factors, as
well as other variables affecting our operating results and financial condition,
past performance may not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or trends in future
periods.

Risks Related to our Business and
Industry.

If demand declines for horizontal
diffusion furnaces and related equipment, or for solar industry products, our
financial position and results of operations could be materially and adversely
affected.

The revenue of our semiconductor and solar
equipment segment, which accounted for approximately 82% of our consolidated net
revenue as of September 30, 2007, is comprised primarily of sales of horizontal
diffusion furnaces and our automation products. Our automation products are
useable only with horizontal diffusion furnaces. There is a trend in the
semiconductor industry, related to the trend to produce smaller chips on larger
wafers, towards the use in semiconductor manufacturing facilities of newer
technology, such as vertical diffusion furnaces. Vertical diffusion furnaces are
more efficient than the horizontal diffusion furnaces in certain manufacturing
processes for smaller chips on larger wafers. As early as 1994, we had expected
that demand for our horizontal diffusion furnaces would decline as a result of
this trend. We believe this trend has not yet adversely affected us to the
extent originally expected. However, to

15

the extent that the trend to use
vertical diffusion furnaces over horizontal diffusion furnaces continues, our
revenue may decline and our corresponding ability to generate income may be
adversely affected. A significant part of our growth strategy involves expanding
our sales to the solar industry. The solar industry is subject to risks relating
to industry shortages of polysilicon, (which we discuss further below), the
continuation of government incentives, the availability of specialized capital
equipment, global energy prices and rapidly changing technologies offering
alternative energy sources. If the demand for solar industry products declines,
the demand by the solar industry for our products would also decline and our
financial position and results of operations would be harmed.

We may not be able to increase or
sustain our recent growth rate, and we may not be able to manage our future
growth effectively.

We may be unable to continue to expand our
business or manage future growth. Our recent expansion has placed, and our
planned expansion and any other future expansion will continue to place, a
significant strain on our management, personnel, systems and resources. We have
recently purchased additional equipment and real estate to significantly expand
our manufacturing capacity and expect to hire additional employees to support an
increase in manufacturing, research and development and sales and marketing
efforts. To successfully manage our growth, we believe we must effectively:

- hire, train, integrate and manage additional field
  service engineers, sales and marketing personnel, and financial and information technology personnel;
- retain key management and augment our management
  team, particularly if we lose key members;
- continue to enhance our customer resource
  management and manufacturing management systems;
- implement and improve additional and existing
  administrative, financial and operations systems, procedures and controls;
- expand and upgrade our technological capabilities;
  and
- manage multiple relationships with our customers,
  suppliers and other third parties.

We may encounter difficulties in
effectively managing the budgeting, forecasting and other process control issues
presented by rapid growth. If we are unable to manage our growth effectively, we
may not be able to take advantage of market opportunities, develop new solar
cells and other products, satisfy customer requirements, execute our business
plan or respond to competitive pressures.

The ongoing volatility of the
semiconductor equipment industry may negatively impact our business and results
of operations and our corresponding ability to efficiently budget our expenses.

The semiconductor equipment industry is
highly cyclical. As such, demand for and the profitability of our products can
change significantly from period to period as a result of numerous factors,
including, but not limited to, changes in:

- global and regional economic
  conditions;
- changes in capacity utilization and production
  volume of manufacturers of semiconductors, silicon wafers, solar cells and MEMS;
- the shift of semiconductor production to Asia,
  where there often is increased price competition; and
- the profitability and capital resources of those
  manufacturers.

For these and other reasons, our results
of operations for past periods may not necessarily be indicative of future
operating results.

Since our business has historically been
subject to cyclical industry conditions, we have experienced significant
fluctuations in our quarterly new orders and net revenue, both within and across
years. Demand for semiconductor and silicon wafer manufacturing equipment and
related consumable products has also been volatile as a result of sudden changes
in semiconductor supply and demand and other factors in both semiconductor
devices and wafer fabrication processes. Our orders tend to be more volatile
than our revenue, as any change in demand is reflected immediately in orders
booked, which are net of cancellations, while revenue tends to be recognized
over multiple

16

quarters as a result of procurement and production lead times and
the deferral of certain revenue under our revenue recognition policies. Customer
delivery schedules on large system orders can also add to this volatility since
we generally recognize revenue for new product sales on the date of customer
acceptance or the date the contractual customer acceptance provisions lapse. As
a result, the fiscal period in which we are able to recognize new products
revenue is typically subject to the length of time that our customers require to
evaluate the performance of our equipment after shipment and installation, which
could cause our quarterly operating results to fluctuate.

The purchasing decisions of our customers
are highly dependent on the economies of both their domestic markets and the
worldwide semiconductor industry. The timing, length and severity of the
up-and-down cycles in the semiconductor equipment industry are difficult to
predict. The cyclical nature of our marketplace affects our ability to
accurately budget our expense levels, which are based in part on our projections
of future revenue.

When cyclical fluctuations result in lower
than expected revenue levels, operating results may be adversely affected and
cost reduction measures may be necessary in order for us to remain competitive
and financially sound. During a down cycle, we must be able to make timely
adjustments to our cost and expense structure to correspond to the prevailing
market conditions. In addition, during periods of rapid growth, we must be able
to increase manufacturing capacity and personnel to meet customer demand, which
may require additional liquidity. We can provide no assurance that these
objectives can be met in a timely manner in response to changes within the
industry cycles. If we fail to respond to these cyclical changes, our business
could be seriously harmed.

During the most recent down cycle,
beginning in the first half of 2001, the semiconductor industry experienced
excess production capacity that caused semiconductor manufacturers to decrease
capital spending. We do not have long-term volume production contracts with our
customers and we do not control the timing or volume of orders placed by our
customers. Whether and to what extent our customers place orders for any
specific products and the mix and quantities of products included in those
orders are factors beyond our control. Insufficient orders would result in
under-utilization of our manufacturing facilities and infrastructure and will
negatively affect our financial position and results of operations.

The semiconductor equipment industry
is competitive and we are relatively small in size and have fewer resources in
comparison with our competitors.

Our industry includes large manufacturers
with substantial resources to support customers worldwide. Our future
performance depends, in part, upon our ability to continue to compete
successfully worldwide. Some of our competitors are diversified companies having
substantially greater financial resources and more extensive research,
engineering, manufacturing, marketing and customer service and support
capabilities than we can provide. We face competition from companies whose
strategy is to provide a broad array of products, some of which compete with the
products and services that we offer. These competitors may bundle their products
in a manner that may discourage customers from purchasing our products. In
addition, we face competition from smaller emerging semiconductor equipment
companies whose strategy is to provide a portion of the products and services
that we offer at often a lower price than ours, using innovative technology to
sell products into specialized markets. Loss of competitive position could
impair our prices, customer orders, revenue, gross margin and market share, any
of which would negatively affect our financial position and results of
operations. Our failure to compete successfully with these other companies would
seriously harm our business. There is a risk that larger, better-financed
competitors will develop and market more advanced products than
those that we currently offer, or that competitors with greater financial
resources may decrease prices thereby putting us under financial pressure. The
occurrence of any of these events could have a negative impact on our revenue.

We are dependent on key personnel
for our business and product development and sales, and any loss of our key
personnel to competitors or other industries could dramatically impact our
ability to continue operations.

Historically, our product development has
been accomplished through cooperative efforts with key customers. Our
relationship with some customers is substantially dependent on personal
relations established by our President and Chief Executive Officer. Furthermore,
our relationship with a major European customer that has been instrumental in
the development of our small batch vertical furnace is substantially dependent
upon our European General Manager. We are also dependent upon our Technical
Director of R2D for the development of our automation

17

technology. While there
can be no assurance that such relationships will continue, such cooperation is
expected to continue to be a significant element in our future development
efforts thereby continuing our reliance on certain of our key personnel.

We are the beneficiary of life insurance
policies on the life of our President and Chief Executive Officer, Mr. J. S.
Whang, in the amount of $2,000,000, but there is no assurance that such amount
will be sufficient to cover the cost of finding and hiring a suitable
replacement for Mr. Whang. It may not be feasible for any successor to maintain
the same business relationships that Mr. Whang has established. If we were to
lose the services of Mr. Whang for any reason, it could have a material adverse
affect on our business.

We also depend on the management efforts
of our officers and other key personnel and on our ability to attract and retain
key personnel. During times of strong economic growth, competition is intense
for highly skilled employees. There can be no assurance that we will be
successful in attracting and retaining such personnel or that we can avoid
increased costs in order to do so. There can be no assurance that employees will
not leave Amtech or compete against us. Our failure to attract additional
qualified employees, or to retain the services of key personnel, could
negatively impact our financial position and results of operations.

We may not be able to keep pace with
the rapid change in the technology we use in our products.

Success in the semiconductor equipment
industry depends, in part, on continual improvement of existing technologies and
rapid innovation of new solutions. For example, the semiconductor industry
continues to shrink the size of semiconductor devices. These and other evolving
customer needs require us to respond with continued development programs.

Technical innovations are inherently
complex and require long development cycles and appropriate professional
staffing. Our future business success depends on our ability to develop and
introduce new products, or new uses for existing products, that successfully
address changing customer needs, win market acceptance of these new products or
uses and manufacture any new products in a timely and cost-effective manner. If
we do not develop and introduce new products, technologies or uses for existing
products in a timely manner and continually find ways of reducing the cost to
produce them in response to changing market conditions or customer requirements,
our business could be seriously harmed.

Acquisitions can result in an
increase in our operating costs, divert managements attention away from other
operational matters and expose us to other risks associated with acquisitions.

We continually evaluate potential
acquisitions and consider acquisitions an important part of our future growth
strategy. In the past, we have made acquisitions of, or significant investments
in, other businesses with synergistic products, services and technologies and
plan to continue to do so in the future. Acquisitions, including our recent
acquisition of R2D, involve numerous risks, including, but not limited to:

- difficulties and increased costs in connection
  with integration of geographically diverse personnel, operations, technologies and products of acquired
  companies;
- diversion of managements attention from other
  operational matters;
- the potential loss of key employees of acquired
  companies;
- lack of synergy, or inability to realize expected
  synergies, resulting from the acquisition;
- the risk that the issuance of our common stock, if
  any, in an acquisition or merger could be dilutive to our shareholders, if anticipated synergies are not realized;
  and
- acquired assets becoming impaired as a result of
  technological advancements or worse-than-expected performance of the acquired company.

Our financial position and results
of operations may be materially harmed if we are unable to recoup our investment
in research and development.

The rapid change in technology in our
industry requires that we continue to make investments in research and
development in order to enhance the performance and functionality of our
products, to keep pace with competitive products and to satisfy customer demands
for improved performance, features and functionality. There can be no

18

assurance
that revenue from future products or enhancements will be sufficient to recover
the development costs associated with such products or enhancements, or that we
will be able to secure the financial resources necessary to fund future
development. Research and development costs are typically incurred before we
confirm the technical feasibility and commercial viability of a product, and not
all development activities result in commercially viable products. In addition,
we cannot ensure that products or enhancements will receive market acceptance,
or that we will be able to sell these products at prices that are favorable to
us. Our business could be seriously harmed if we are unable to sell our products
at favorable prices, or if our products are not accepted by the markets in which
we operate.

If third parties violate our
proprietary rights, in which we have made significant investments, such events
could result in a loss of value of some of our intellectual property or costly
litigation.

Our success is dependent in part on our
technology and other proprietary rights. We own various United States and
international patents and have additional pending patent applications relating
to some of our products and technologies. The process of seeking patent
protection is lengthy and expensive, and we cannot be certain that pending or
future applications will actually result in issued patents, or that issued
patents will be of sufficient scope or strength to provide meaningful protection
or commercial advantage to us. Other companies and individuals, including our
larger competitors, may develop technologies that are similar or superior to our
technology or design around the patents we own or license. We also maintain
trademarks on certain of our products and claim copyright protection for certain
proprietary software and documentation. However, we can give no assurance that
our trademarks and copyrights will be upheld or successfully deter infringement
by third parties. Recently, the patent covering technology that we license and
use in our manufacture of insert carriers has expired, which may have the effect
of diminishing or eliminating any competitive advantage we may have with respect
to this manufacturing process.

While patent, copyright and trademark
protection for our intellectual property is important, we believe our future
success in highly dynamic markets is most dependent upon the technical
competence and creative skills of our personnel. We attempt to protect our trade
secrets and other proprietary information through confidentiality agreements
with our customers, suppliers, employees and consultants and through other
security measures. We also maintain exclusive and non-exclusive licenses with
third parties for the technology used in certain products. However, these
employees, consultants and third parties may breach these agreements, and we may
not have adequate remedies for wrongdoing. In addition, the laws of certain
territories in which we develop, manufacture or sell our products may not
protect our intellectual property rights to the same extent as do the laws of
the United States.

We may face intellectual property
infringement claims that could be time-consuming and costly to defend and could
result in our loss of significant rights and the assessment of treble damages.

From time to time, we have received
communications from other parties asserting the existence of patent rights or
other intellectual property rights that they believe cover certain of our
products, processes, technologies or information. In such cases, we evaluate our
position and consider the available alternatives, which may include seeking
licenses to use the technology in question on commercially reasonable terms or
defending our position. We cannot ensure that licenses can be obtained, or if
obtained will be on acceptable terms, or that litigation or other administrative
proceedings will not occur.

Some of these claims may lead to
litigation. We cannot assure you that we will prevail in these actions, or that
other actions alleging misappropriation or misuse by us of third-party trade
secrets, infringement by us of third-party patents and trademarks or the
validity of our patents, will not be asserted or prosecuted against us.
Intellectual property litigation, regardless of
outcome, is expensive and time-consuming, could divert managements attention
from our business and have a material negative effect on our business, operating
results or financial condition. If there is a successful claim of infringement
against us, we may be required to pay substantial damages (including treble
damages if we were to be found to have willfully infringed a third partys
patent) to the party claiming infringement, develop non-infringing technology,
stop selling or using technology that contains the allegedly infringing
intellectual property or enter into royalty or license agreements that may not
be available on acceptable or commercially practical terms, if at all. Our
failure to develop non-infringing technologies or license the proprietary rights
on a timely basis could harm our business. Parties making infringement claims on
future issued patents may be able to obtain an injunction that would prevent us
from selling or using our technology that contains the allegedly infringing
intellectual property, which could harm our business.

19

Our reliance on sales to a few major
customers and granting credit to those customers places us at financial risk.

We currently sell to a relatively small
number of customers, and we expect our operating results will likely continue to
depend on sales to a relatively small number of customers for the foreseeable
future, as well as the ability of these customers to sell products that require
our products in their manufacture. During fiscal 2007 we had one customer that
individually represented 13%, of revenue. Many of our customer relationships
have been developed over a short period of time and certain customers are in
their preliminary stages of development. The loss of sales to any of these
customers would have a significant negative impact on our business. Our
agreements with these customers may be cancelled if we fail to meet certain
product specifications, materially breach the agreement or in the event of
bankruptcy, and our customers may seek to renegotiate the terms of current
agreements or renewals. We cannot be certain that these customers will generate
significant revenue for us in the future nor that these customer relationships
will continue to develop. If our relationships with our other customers do not
continue to develop, we may not be able to expand our customer base or maintain
or increase our revenue.

As of September 30, 2007, accounts
receivable from three customers each exceeded 10% of accounts receivable; these
three customers accounted for 10%, 13% and 22% of total accounts receivable,
respectively. A concentration of our receivables from one or a small number of
customers places us at risk. If any one or more of our major customers does not
pay us it could adversely affect our financial position and results of
operations. We attempt to manage this credit risk by performing credit checks,
by requiring significant partial payments prior to shipment where appropriate
and by actively monitoring collections. We also require letters of credit of
certain customers depending on the size of the order, type of customer or its
creditworthiness and its country of domicile.

If any of our customers cancels or
fails to accept a large system order, our financial position and results of
operations could be materially and adversely affected.

Our backlog includes orders for large
systems, such as our diffusion furnaces, with system prices of up to and in
excess of $1.0 million depending on the system configuration, options included
and any special requirements of the customer. 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 revenue or profit
from completing these orders. Our financial position and results of operations
could be materially and adversely affected should any large systems order be
cancelled prior to shipment, or not be accepted by the customer. We have
experienced significant cancellations in the past, including $1.2 million in
fiscal 1999, $3.5 million in 2001, and $1.2 million in 2002. We have not
experienced any significant cancellations since 2002. Likewise, a significant
change in the liquidity or financial position of any of our customers that
purchase large systems could have a material impact on the collectibility of our
accounts receivable and our future operating results. Our backlog does not
provide any assurance that we will realize revenue or profit from those orders
or indicate in which period net revenue will be recognized, if ever.

Our business might be adversely
affected by a decline in our sales to foreign customers.

During fiscal 2006, 65% of our net revenue
came from customers outside of North America. During fiscal 2007, 72% of our net
revenue came from customers outside of North America as follows:

- Asia (including Korea, Peoples Republic of China,
  Taiwan, Japan, Singapore, Malaysia, Australia and India)  52% (includes 18%
  to China and 18% to Taiwan); and
- Europe  20%.

Because of our significant dependence on
revenue from international customers, our operating results could be negatively
affected by a decline in the economies of any of the countries or regions in
which we do business. Each region in the global semiconductor equipment market
exhibits unique characteristics that can cause capital equipment investment
patterns to vary significantly from period to period. Periodic local or
international economic downturns, trade balance issues, political instability
and fluctuations in interest and currency exchange rates could negatively affect
our business and results of operations.

We recorded foreign currency transaction
losses of $0.01 million during fiscal 2007, losses of $0.1 million in 2006, and
gains of $0.1 million in 2005. While our business has not been materially
affected in the past by currency fluctuations, there is a risk that it may be
materially adversely affected in the future. Such risk includes possible losses
due to currency exchange rate fluctuations, possible future prohibitions against
repatriation of earnings, or proceeds

20

from disposition of investments, and from
possible social and military instability in the case of India, South Korea,
Taiwan and possibly elsewhere. Our wholly-owned subsidiary, Tempress Systems,
has conducted its operations in The Netherlands since 1995 and during 2005 we
established a subsidiary in Germany to conduct the European sales of our Bruce
Technologies product line. In October 2007 we completed our acquisition of R2D,
a French company. As a result, such operations are subject to the taxation
policies, employment and labor laws, transportation regulations, import and
export regulations and tariffs, possible foreign exchange restrictions,
international monetary fluctuations, and other political, economic and legal
policies of that nation, the European Economic Union and the other European
nations in which it conducts business. Consequently, we might encounter
unforeseen or unfamiliar difficulties in conducting our European operations.
Changes in such laws and regulations may have a material adverse effect on our
revenue and costs.

If our critical suppliers fail to
deliver sufficient quantities of quality product in a timely and cost-effective
manner, it could negatively affect our business.

We use a wide range of materials and
services in the production of our products including custom electronic and
mechanical components, and we use numerous suppliers of materials. We generally
do not have guaranteed supply arrangements with our suppliers. Because of the
variability and uniqueness of customer orders, we try to avoid maintaining an
extensive inventory of materials for manufacturing. Key suppliers include two
steel mills capable of producing the types of steel to the tolerances needed for
our wafer carriers, an injection molder that molds plastic inserts into our
steel carriers, an adhesive manufacturer that supplies the critical glue used in
the production of the semiconductor polishing templates and a pad supplier that
produces a unique material used to attach semiconductor wafers to the polishing
template. We also rely on third parties for certain machined parts, steel frames
and metal panels and other components used particularly in the assembly of
semiconductor production equipment.

Although we make what we believe are
reasonable efforts to ensure that parts are available from multiple suppliers,
this is not always practical or even possible; accordingly, some key parts are
being procured from a single supplier or a limited group of suppliers. During
the semiconductor industry peak years, increases in demand for capital equipment
resulted in longer lead-times for many important system components. Future
increases in demand could cause delays in meeting shipments to our customers.
Because the selling price of some of our systems exceeds $1.0 million, the delay
in the shipment of even a single system could cause significant variations in
our quarterly revenue. There can be no assurance that our financial position and
results of operations will not be materially and adversely affected if, in the
future, we do not receive in a timely and cost-effective manner a sufficient
quantity and quality of parts to meet our production requirements.

The solar power industry is
currently experiencing an industry-wide shortage of polysilicon. This shortage
poses several risks to our business, including possible constraints on revenue
growth and possible decreases in our gross margins and profitability.

Many of our customers are solar cell
manufacturers. Polysilicon is an essential raw material in the production of
solar cells. There is currently an industry-wide shortage of polysilicon, which
has resulted in significant price increases. We expect that the average spot
price of polysilicon will continue to increase and we expect that polysilicon
demand will continue to outstrip supply throughout 2007 and potentially for a
longer period. The inability of our solar industry customers to obtain
sufficient polysilicon at commercially reasonable prices, or at all, would
adversely affect future customer demand for our products and could cause us to
make fewer shipments and generate lower than anticipated revenue, thereby
seriously harming our business, financial condition and results of operations.

We might require additional
financing to expand our operations.

We believe that current cash balances, our
existing line of credit, cash flows generated from our operations and additional
available financing will provide adequate working capital for at least the next
twelve months. However, we may require additional financing for further
implementation of our growth plans. There is no assurance that any additional
financing will be available if and when required, or, even if available, that it
would not materially dilute the ownership percentage of the then existing
shareholders, result in increased expenses or result in covenants or special
rights that would restrict our operations.

21

We are exposed to risks from
legislation requiring companies to evaluate their internal control over
financial reporting.

Section 404 of the Sarbanes-Oxley Act of
2002 will require our management to report on the effectiveness of our internal
control over financial reporting beginning in fiscal 2008. Our independent
registered public accounting firm will be required to attest to the
effectiveness of our internal control over financial reporting beginning in
fiscal 2008. We have an ongoing program to perform the system and process
evaluation and testing necessary to comply with these requirements. We expect to
incur increased expense and to devote additional management resources to Section
404 compliance. In the event our chief executive officer, chief financial
officer or independent registered public accounting firm determine that our
internal control over financial reporting is not effective as defined under
Section 404, investor perceptions of our company may be adversely affected and
could cause a decline in the market price of our stock.

Terrorist attacks and threats or
actual war may negatively impact all aspects of our operations, revenue, costs
and stock price.

The 2001 terrorist attacks in the United
States, as well as events occurring in response or connection to them, including
future terrorist attacks against United States targets, rumors or threats of
war, actual conflicts involving the United States or its allies or military or
trade disruptions impacting our domestic or foreign suppliers of parts,
components and subassemblies, may impact our operations, including, among other
things, by causing delays or losses in the delivery of supplies or finished
goods and decreased sales of our products. More generally, any of these events
could cause consumer confidence and spending to decrease or result in increased
volatility in the United States and worldwide financial markets and economy.
They could also result in economic recession in the United States or abroad. Any
of these occurrences could have a significant adverse impact on our financial
position and results of operations.

We face the risk of product
liability claims or other litigation, which could be expensive and divert
management from running our business.

The manufacture and sale of our products,
which in operation involve toxic materials, involve the risk of product
liability claims. In addition, a failure of one of our products at a customer
site could interrupt the business operations of our customer. Our existing
insurance coverage limits may not be adequate to protect us from all liabilities
that we might incur in connection with the manufacture and sale of our products
if a successful product liability claim or series of product liability claims
were brought against us. We may also be involved in other legal proceedings or
claims and experience threats of legal action from time to time in the ordinary
course of our business.

Where appropriate, we intend to vigorously
defend all claims. However, any actual or threatened claims, even if not
meritorious or material, could result in the expenditure of significant
financial and managerial resources. The continued defense of these claims and
other types of lawsuits could divert managements attention away from running
our business. In addition, required amounts to be paid in settlement of any
claims, and the legal fees and other costs associated with such settlement,
cannot be estimated and could, individually or in the aggregate, materially harm
our financial condition.

We are subject to environmental
regulations, and our inability or failure to comply with these regulations could
result in significant costs or the suspension of our ability to operate segments
of our business.

We are subject to environmental
regulations in connection with our business operations, including regulations
related to manufacturing and our customers use of our products. From time to
time, we receive notices regarding these regulations. It is our policy to
respond promptly to these notices and to take any necessary corrective
action. Our failure or inability to comply with
existing or future environmental regulations could result in significant
remediation liabilities, the imposition of fines and/or the suspension or
termination of development, manufacturing or use of certain of our products,
each of which could damage our financial position and results of
operations.

22

ITEM 1B. UNRESOLVED
STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We believe that our properties are
adequate for our current needs. In addition, we believe that adequate space can
be obtained to meet our foreseeable business needs. The following chart
identifies the principal properties which we own or lease.

|                                |                                |     |                 |      | Monthly |      | Lease  |           
|------------------------------- | ------------------------------ | --- | --------------- | ---- | ------- | ---- | ------ | ----------
|Location                        |                                | Use |                 | Size |         | Rent |        | Expiration
|Semiconductor Equipment Segment |                                |     |                 |      |         |      |        |           
|Tempe, AZ                       | Corporate                      |     | 15,000
      sf |      |         | $    | 9,000  |           
|Austin,
      TX                | Mfg Support                    |     |                 | (1)  |         |      | (1)    |           
|Billerica,
      MA             | Office,
      Warehouse & Mfg. |     | 30,000 sf       |      |         | $    | 18,000 |           
|Heerde,
      The Netherlands   | Office & Mfg.                  |     | 10,000 sf       |      |         |      | Owned  |           
|Heerde,
      The Netherlands   | Warehouse &
      Mfg.         |     | 10,000 sf       |      |         | $    | 9,000  |           
|Vaassen,
      The Netherlands  | Warehouse & Mfg.               |     | 48,000 sf       |      |         |      | Owned  |           
|Clapiers,
      France          | Office,
      Warehouse & Mfg. |     | 12,000
      sf |      |         | $    | 7,000  |           
|Clapiers,
      France          | Manufacturing                  |     | 3,000 sf        |      |         | $    | 3,000  |           
|Le Crès,
      France           | Manufacturing                  |     | 3,000 sf        |      |         | $    | 2,000  |           
|Polishing Supplies Segment      |                                |     |                 |      |         |      |        |           
|Carlisle,
      PA              | Office &
      Mfg.            |     | 22,000 sf       |      |         | $    | 12,000 |           

|(1) |  | Services are performed in
      customers facilities.                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|(2) |  | We have an option to renew for
      three additional terms of one year each. We intend to exercise our renewal
      options.
|(3) |  | We are currently leasing this property on a month to month basis.                                                             
|(4) |  | This lease can be cancelled by the Company with six months notice beginning October 1, 2010.                                  

ITEM 3. LEGAL
PROCEEDINGS

None.

ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

MARKET INFORMATION

Our common stock, par value $0.01 per
share (Common Stock), began trading on the NASDAQ Global Market (formerly the
NASDAQ National Market), under the symbol ASYS, on April 18, 2001. From 1983
to 2001, our Common Stock was traded on the NASDAQ SmallCap Market. On
December7, 2007,
the closing price of our Common Stock as reported on the NASDAQ Global Market
was $15.07 per
share. The following table sets forth the high and low bid price at which the
shares of our Common Stock traded for each quarter of fiscal 2007 and 2006, as
reported by the NASDAQ Global Market.

Fiscal
      2007
    
    Fiscal 2006High
    
    Low
    
    High
    
    LowFirst quarter
    $
    8.00
    
    $
    5.95
    
    $
    9.05
    
    $
    5.22Second
      quarter
    
    8.10
    
    
    6.65
    
    
    10.31
    
    
    6.26Third quarter
    
    9.21
    
    
    7.25
    
    
    10.02
    
    
    6.05Fourth
      quarter
    
    14.26
    
    
    8.48
    
    
    7.44
    
    
    6.25


23

COMPARISON OF STOCK PERFORMANCE

The following line graph compares
cumulative total shareholder return, assuming reinvestment of dividends, for:
the Companys Common Stock, the NASDAQ Composite Index and the NASDAQ Industrial
Index. Because the Company did not pay dividends on its Common Stock during the
measurement period, the calculation of the cumulative total shareholder return
on the Companys Common Stock did not include dividends. The following graph
assumes that $100 was invested on October 1, 2002.




HOLDERS

As of December 6, 2007, there were 909
shareholders of record of our Common Stock. Based upon a recent survey of
brokers, we estimate there were approximately an additional 2,742 beneficial
shareholders who held shares in brokerage or other investment accounts as of
that date.

DIVIDENDS

We have never paid dividends on our Common
Stock. Our present policy is to apply cash to investment in product development,
acquisition or expansion; consequently, we do not expect to pay dividends on
Common Stock in the foreseeable future.

24

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth certain
information, as of September 30, 2007, concerning outstanding options and rights
to purchase Common Stock granted to participants in all of the Companys equity
compensation plans and the number of shares of Common Stock remaining available
for issuance under such equity compensation plans.

|                                            |                               |         |                            |  |                                 |  | Number of securities   
|------------------------------------------- | ----------------------------- | ------- | -------------------------- |  | ------------------------------- |  | -----------------------
|                                            |                               |         |                            |  |                                 |  | remaining available for
|                                            | Number of securities to       |         | Weighted-average           |  | future issuance under          
|                                            | be
      issued upon exercise |         | exercise
      price of    |  | equity compensation plans      
|                                            | of
      outstanding options, |         | outstanding
      options, |  | (excluding securities reflected
|                                            | warrants and rights           |         | warrants
      and rights  |  | in
      column (a))           
|                                            | (a)                           |         | (b)                        |  | (c)                            
|Plan Category                               |                               |         |                            |  |                                 |  |                        
|Equity
      compensation plans approved by |                               |         |                            |  |                                 |  |                        
|security
      holders (1)                  |                               | 450,303 |                            |  | 6.44                            |  |                        
|Equity compensation plans not approved      |                               |         |                            |  |                                 |  |                        
|by
      security holders                   |                               |        |                            |  |                                 |  |                        
|Total                                       |                               | 450,303 |                            |  |                                 |  |                        

|(1) |  | Represents the 1998 Employee
      Stock Option Plan, the 2007 Employee Stock Incentive Plan and the
      Non-Employee Director Stock Option Plan and any respective amendments
      thereto.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 6. SELECTED
FINANCIAL DATA

This selected financial data should be
read in conjunction with Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and our consolidated financial
statements (including the related notes thereto) contained elsewhere in this
report.

|                                         | Years Ended September30,                                  
|---------------------------------------- | ----------------------------------------------------------
|                                         | 2007                                                      
|                                         | (In thousands, except percentages, per
      share amounts
|                                         | and number of employees)                                  
|Operating Data:                          |                                                           
|Net revenue                              | $                                                         
|Gross profit                             | $                                                         
|Gross profit %                           |                                                           
|Operating income (loss)                  | $                                                         
|Net income (loss)                        | $                                                         
|Dividends on convertible preferred stock | $                                                         
|Net income (loss) attributable to common | $                                                         
|Earnings (loss) per share:               |                                                           
|Basic earnings (loss) per share          | $                                                         
|Diluted earnings (loss) per share        | $                                                         
|Order backlog(2)                         | $                                                         
|Balance Sheet Data:                      |                                                           
|Cash
      and cash equivalents          | $                                                         
|Working capital                          | $                                                         
|Current ratio                            |                                                           
|Total assets                             | $                                                         
|Total current liabilities                | $                                                         
|Long-term obligations                    | $                                                         
|Convertible preferred stock              | $                                                         
|Total stockholders equity               | $                                                         

25

|(1) |  | On July 1, 2004, the Company acquired the Bruce Technologies
      horizontal furnace product line from Kokusai.                                                                                                                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The backlog as of September 30,
      2007, 2006, 2005, 2004 and 2003 includes $0.9 million, $0.9 million, $1.0
      million, $0.7 million and $0.7 million, respectively, of open orders or
      deferred revenue on which we anticipate no gross
  margin.

ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion of our
financial condition and results of operations should be read in conjunction with
our Consolidated Financial Statements and the related notes included in Item 8,
Financial Statements and Supplementary Data in this Annual Report on Form
10-K. This discussion contains forward-looking statements, which involve risk
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors
including, but not limited to, those discussed in Risk Factors and elsewhere
in this Annual Report on Form 10-K.

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: a summary of our business.
- Results of Operations: a discussion of operating
  results.
- Liquidity and Capital Resources: an analysis of cash flows,
  sources and uses of cash and financial position.
- Contractual Obligations and Commercial Commitments
- Critical Accounting Policies: a discussion of critical
  accounting policies that require the exercise of judgments and
  estimates.
- Impact of Recently Issued Accounting Pronouncements: a
  discussion of how we are affected by recent pronouncements.

Overview

We operate in two segments: semiconductor
and solar equipment and polishing supplies. Our semiconductor and solar
equipment segment is a leading supplier of thermal processing systems, including
related automation, parts and services, to the semiconductor,
solar/photovoltaic, silicon wafer and MEMS industries.

Our polishing supplies and equipment
segment is a leading supplier of wafer carriers to manufacturers of silicon
wafers. The polishing segment also manufacturers polishing templates, steel
carriers and double-sided polishing and lapping machines to fabricators of
optics, quartz, ceramics and metal parts, and to manufacturers of medical
equipment components.

Our customers are primarily manufacturers
of integrated circuits and solar cells. The semiconductor and solar cell
industries are cyclical and historically have experienced significant
fluctuations. Our revenue is impacted by these broad industry trends.

In June 2006, we adopted a plan to
consolidate the manufacturing of our automation product line into facilities
already used to manufacture diffusion furnaces. Our automation products are
often sold in conjunction with new diffusion furnaces. As a result of this
decision, we recorded approximately $0.2 million of restructuring charges in
fiscal 2006.

In July 2004, we completed the acquisition
of the Bruce Technologies horizontal diffusion furnace product line from Kokusai
Semiconductor Equipment Corporation , which we believe makes us a leading
manufacturer of horizontal diffusion furnaces.

26

Results of Operations

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

|                                               |  | Years Ended September 30, |      
|---------------------------------------------- |  | ------------------------- | -----
|                                               |  | 2007                      |      
|Net
      revenue                              |  |                           | 100.0
|Cost of sales                                  |  |                           | 72.1 
|Gross margin                                   |  |                           | 27.9 
|Selling, general and
      administrative      |  |                           | 22.9 
|Restucturing charge                            |  |                           |     
|Research and
      development                 |  |                           | 1.2  
|Operating income (loss)                        |  |                           | 3.8  
|Interest and other
      income (expense), net |  |                           | 0.7  
|Income
      (loss) before income taxes        |  |                           | 4.5  
|Income tax provision
      (benefit)           |  |                           | (0.8 
|Net
      income (loss)                        |  |                           | 5.3  

Fiscal 2007 compared to Fiscal 2006

Net Revenue

Net revenue consists of revenue recognized
upon shipment or installation of products using proven technology and upon
acceptance of products using new technology. In addition, spare parts sales are
recognized upon shipment. Service revenue is recognized upon completion of the
service activity or ratably over the term of the service contract. The majority
of our revenue is generated from large furnace systems sales which, depending on
the timing of shipment and installation, can have a
significant impact on our revenue and earnings in any given period.SeeCritical Accounting Policies  Revenue Recognition.

|                                          |  | Years Ended                  |        |      |   |            |  |         
|----------------------------------------- |  | ---------------------------- | ------ | ---- | - | ---------- |  | --------
|                                          |  | September 30,                |        |      |   |            |  |         
|                                          |  |                              |        |      |   |            |  | Increase
|Net
      Revenue                         |  | 2007                         |        | 2006 |   | (Decrease) |  | %       
|                                          |  | (dollars in
      thousands) |        |      |  
|Semiconductor and Solar Equipment Segment |  | $                            | 37,657 |      | $ | 33,363     |  | $       
|Polishing Supplies
      Segment          |  |                              | 8,327  |      |   | 7,082      |  |         
|Total                                     |  | $                            | 45,984 |      | $ | 40,445     |  | $       

Overall growth in net revenue in fiscal
2007 was driven primarily by our increased penetration into the solar market
where revenue increased $9.7 million or more than 300% compared to fiscal 2006.
Within the semiconductor and solar equipment segment, net revenue from the solar
market was $12.5 million and $2.8 million in fiscal 2007 and 2006, respectively,
while net revenue from the semiconductor market was $25.2 million in fiscal 2007
compared to $30.6 million in fiscal 2006. Net revenue within the semiconductor
market in fiscal 2006 was positively impacted by the shipment of a $5.2 million
multi-furnace order for which there was no corresponding order of similar
magnitude in fiscal 2007. Revenue in the polishing supplies segment increased
$1.2 million or 18% due to increased demand for our polishing machines and
polishing templates

27

The following table reflects new orders,
shipments and net revenue for each quarter for fiscal 2007 and 2006, on a
consolidated basis, as well as for each of our two business segments.

|                   |  |                        |        |        |   |        |           |           |           |         |   |             |  |         |        |           | Semi-     |          |  |  
|------------------ |  | ---------------------- | ------ | ------ | - | ------ | --------- | --------- | --------- | ------- | - | ----------- |  | ------- | ------ | --------- | --------- | -------- |  | -
|                   |  |                        |        |        |   |        |           |           |           |         |   |             |  |         |        |           | conductor |          |  |  
|                   |  | FiscalQuarter          |        |        |   |        | and Solar |           | Polishing
|                   |  |                        |        |        |   |        |           |           |           |         |   |             |  | Fiscal  |        | Equipment |           | Supplies
|                   |  | First                  |        | Second |   | Third  |           | Fourth(1) |           | Year(1) |   | Segment (1) |  | Segment
|                   |  | (dollars in thousands)
|2007:              |  |                        |        |        |   |        |           |           |           |         |   |             |  |         |        |           |           |          |  |  
|New orders (2)     |  | $                      | 14,056 |        | $ | 8,527  |           | $         | 17,334    |         | $ | 15,623      |  | $       | 55,540 |           | $         | 47,026   |  | $
|Shipments          |  |                        | 9,967  |        |   | 10,140 |           |           | 13,626    |         |   | 13,472      |  |         | 47,205 |           |           | 38,878   |  |  
|Net revenues       |  |                        | 9,451  |        |   | 10,539 |           |           | 12,874    |         |   | 13,120      |  |         | 45,984 |           |           | 37,657   |  |  
|Ending backlog     |  |                        | 18,205 |        |   | 16,193 |           |           | 20,653    |         |   | 23,156      |  |         | 23,156 |           |           | 21,983   |  |  
|Book-to-bill ratio |  |                        | 1.4:1  |        |   | 0.8:1  |           |           | 1.3:1     |         |   | 1.2:1       |  |         | 1.2:1  |           |           | 1.2:1    |  |  
|                  
|2006:              |  |                        |        |        |   |        |           |           |           |         |   |             |  |         |        |           |           |          |  |  
|New orders (2)     |  | $                      | 11,236 |        | $ | 6,505  |           | $         | 10,506    |         | $ | 11,410      |  | $       | 39,657 |           | $         | 32,577   |  | $
|Shipments          |  |                        | 8,420  |        |   | 11,378 |           |           | 10,899    |         |   | 10,636      |  |         | 41,333 |           |           | 34,251   |  |  
|Net revenues       |  |                        | 7,915  |        |   | 10,892 |           |           | 10,351    |         |   | 11,287      |  |         | 40,445 |           |           | 33,363   |  |  
|Ending backlog     |  |                        | 17,709 |        |   | 13,322 |           |           | 13,477    |         |   | 13,600      |  |         | 13,600 |           |           | 12,614   |  |  
|Book-to-bill ratio |  |                        | 1.3:1  |        |   | 0.6:1  |           |           | 1.0:1     |         |   | 1.1:1       |  |         | 1.0:1  |           |           | 1.0:1    |  |  

|(1) |  | The backlog as of September 30,
      2007 and 2006 includes $0.9 million of open orders or deferred revenue on
      which we anticipate no gross margin.                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Orders are net of cancellations
      and include the change in the U. S. dollar value of orders recorded in
      Euros by our semiconductor and solar equipment
  segment.

Backlog

Our backlog as of September 30, 2007 and
2006 was $23.2 million and $13.6 million, respectively, a 71% increase. Our
backlog as of September 30, 2007 included approximately $17.4 million of orders
from our solar industry customers compared to $7.6 million of orders from solar
industry customers as of September 30, 2006. The orders included in our backlog
are generally credit approved customer purchase orders 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 revenue or 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

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 or spare parts and the
cost of service and support to customers for warranty, installation and paid
service calls. Gross margin is gross profit as a percentage of net
revenue.

|                                          |  | Years Ended                  |        |          |   |            |   |  
|----------------------------------------- |  | ---------------------------- | ------ | -------- | - | ---------- | - | -
|                                          |  | September30,                 |        | Increase |   |            |  
|Gross
      Profit                        |  | 2007                         |        | 2006     |   | (Decrease) |   | %
|                                          |  | (dollars in
      thousands) |        |          |  
|Semiconductor and Solar Equipment Segment |  | $                            | 9,995  |          | $ | 8,461      |   | $
|Polishing Supplies
      Segment          |  |                              | 2,815  |          |   | 2,114      |   |  
|Total                                     |  | $                            | 12,810 |          | $ | 10,575     |   | $
|Gross Margin                              |  |                              | 28     | %        |   | 26         | % |  

Gross profit increased in fiscal 2007 by
$2.2 million, or 21%, over fiscal 2006. The increase was driven by higher
shipments during the year as well as improved margin percentage. Gross margin
was 28% in fiscal 2007 compared to 26% in fiscal 2006. A major factor that
contributed to the increase in margin percentage was improved

28

capacity utilization in both segments.
Additionally, in the semiconductor and solar equipment segment, margins were
negatively impacted in fiscal 2006 by approximately $0.7 million of revenue and
an equal amount of costs related to customer acceptance of one of our first
small batch vertical furnace systems and lower margins on the multi-furnace
order shipped during fiscal 2006.

The timing of revenue recognition can have
a particularly significant effect on gross margin when the equipment revenue of
an order is recognized in one period and the remainder of the revenue attributed
to holdbacks is recognized in a later period. The portion of revenue attributed
to the holdbacks generally comprises 10-20% of an order and has a significantly
higher gross margin percentage.

Selling, General and Administrative
Expenses

Selling, general and administrative
expenses consist of the cost of employees, consultants and contractors, as well
as facility costs, sales commissions, legal and accounting fees and promotional
marketing expenses.

|                                          |  | Years
      Ended            |        |          |   |            |   |  
|----------------------------------------- |  | ---------------------------- | ------ | -------- | - | ---------- | - | -
|                                          |  | September 30,                |        | Increase |   |            |  
|Selling, General and
      Administrative |  | 2007                         |        | 2006     |   | (Decrease) |   | %
|                                          |  | (dollars in
      thousands) |        |          |  
|Semiconductor and Solar Equipment Segment |  | $                            | 9,091  |          | $ | 7,111      |   | $
|Polishing Supplies
      Segment          |  |                              | 1,414  |          |   | 1,202      |   |  
|Total                                     |  | $                            | 10,505 |          | $ | 8,313      |   | $
|Percent of net
      revenue              |  |                              | 23     | %        |   | 21         | % |  

Total selling, general and administrative
expenses increased $2.2 million or 26% in fiscal 2007 from fiscal 2006.
Commissions on sales increased approximately $0.9 million due to increased
revenue generated in geographic regions, primarily Asia, where third-party sales
representatives are utilized. Other selling costs increased $0.2 million in
fiscal 2007 due to increased marketing activities. General and administrative
personnel and consulting costs increased in fiscal 2007 as a result of the need
to (i) improve internal financial and operational reporting, (ii) identify
potential improvements in operational efficiencies, (iii) assist in developing
and executing our growth strategies and (iv) manage the increasing compliance
obligations of a growing multi-national public company. Stock option expense
increased $0.2 million in fiscal 2007.

Restructuring
Charges

In June 2006, we adopted a plan to
consolidate the manufacturing of our automation product line into facilities
already used to manufacture diffusion furnaces. Our automation products are
often sold in conjunction with the sale of new diffusion furnaces. As a result
of this decision, we recorded $0.2 million of restructuring charges in fiscal
2006. We incurred no comparable costs in fiscal 2007.

Research and Development

Research and development expenses consist
of the cost of employees, consultants and contractors who design, engineer and
develop new products and processes; materials used in those processes and
producing prototypes.

|                                          |  | Years
      Ended            |     |          |   |            |   |  
|----------------------------------------- |  | ---------------------------- | --- | -------- | - | ---------- | - | -
|                                          |  | September 30,                |     | Increase |   |            |  
|Research and
      Development            |  | 2007                         |     | 2006     |   | (Decrease) |   | %
|                                          |  | (dollars in
      thousands) |     |          |  
|Semiconductor and Solar Equipment Segment |  | $                            | 564 |          | $ | 437        |   | $
|Polishing Supplies
      Segment          |  |                              |    |          |   |           |   |  
|Total                                     |  | $                            | 564 |          | $ | 437        |   | $
|Percent of net revenue                    |  |                              | 1   | %        |   | 1          | % |  

Increased investment in research and
development resulted mainly from activity in the development of products and
processes to meet the needs of the solar market. Reimbursements of research and
development costs in the form of governmental research and development grants
amounted to $0.1 million in fiscal 2007 and 2006, respectively, and are netted
against these expenses.

29

Income Tax Provision

In fiscal 2004 we recorded a valuation
allowance for the total of our deferred tax assets. The company, at that time,
had incurred substantial book and tax losses and was in a cumulative loss
position as defined under SFAS No. 109. During fiscal years 2004 through 2006,
we recorded additional tax provisions or benefits as deferred tax assets
increased or decreased so that the valuation allowance remained equal to total
deferred tax assets. During fiscal2006, our
deferred tax assets declined by $0.2 million, resulting in a decline in our
valuation allowance and an equal amount of tax benefit. This resulted in an
effective tax rate for fiscal 2006 of 17.5%.

Based upon profitability in fiscal years
2006 and 2007, as well as our strong cash position and strong order backlog, we
believe it is more likely than not that we will realize the future tax benefit
of a significant portion of our deferred tax assets. Therefore, during fiscal
2007 we recorded reductions in the valuation allowance on deferred tax assets of
$1.2 million. Our future effective income tax rate depends on various factors,
such as tax legislation, the geographic composition of our pre-tax income, the
level of expenses that are not deductible for tax purposes, changes in our
deferred tax assets and the effectiveness of our tax planning strategies.

Fiscal 2006 compared to Fiscal
2005

Net Revenue

|                                 |  | Years Ended September 30,    |        |      |   |           |  |  
|-------------------------------- |  | ---------------------------- | ------ | ---- | - | --------- |  | -
|                                 |  | 2006                         |        | 2005 |   | Inc (Dec) |  | %
|                                 |  | (dollars in
      thousands) |        |      |  
|Semiconductor Equipment Segment  |  | $                            | 33,363 |      | $ | 20,668    |  | $
|Polishing Supplies
      Segment |  |                              | 7,082  |      |   | 7,231     |  |  
|Net revenues                     |  | $                            | 40,445 |      | $ | 27,899    |  | $

Overall growth in net revenue in fiscal
2006 was fueled by a beginning backlog of $14.4 million, a robust semiconductor
equipment market, and increasing penetration into the solar market. Net revenue
in fiscal 2006 was positively impacted by the shipment of a $5.2 million
multi-furnace order in the quarter ended March 31, 2006, for which there was no
corresponding order of similar magnitude in fiscal 2005. In addition, net
revenue in fiscal 2006 was positively impacted by revenue related to the solar
industry of approximately $2.8 million versus $1.4 million in fiscal
2005.

The decrease in net revenue of the
polishing supplies segment was due primarily to a decrease in sales of insert
carriers.

The following table reflects new
orders(1), shipments and net revenue for each quarter for fiscal 2006 and 2005, on
a consolidated basis, as well as for each of our two business segments.

|                   |  |                        |        |        |   |           |  |           |        |         |   |             |  |         |        |  | Semi-     |        |           |   |      
|------------------ |  | ---------------------- | ------ | ------ | - | --------- |  | --------- | ------ | ------- | - | ----------- |  | ------- | ------ |  | --------- | ------ | --------- | - | -----
|                   |  |                        |        |        |   |           |  |           |        |         |   |             |  |         |        |  | conductor |        | Polishing |  
|                   |  | FiscalQuarter          |        | Fiscal |   | Equipment |  | Supplies  |       
|                   |  | First                  |        | Second |   | Third     |  | Fourth(2) |        | Year(2) |   | Segment (2) |  | Segment |       
|                   |  | (dollars in thousands) |       
|2006:              |  |                        |        |        |   |           |  |           |        |         |   |             |  |         |        |  |           |        |           |   |      
|New orders (2)     |  | $                      | 11,236 |        | $ | 6,505     |  | $         | 10,506 |         | $ | 11,410      |  | $       | 39,657 |  | $         | 32,577 |           | $ | 7,080
|Shipments          |  |                        | 8,420  |        |   | 11,378    |  |           | 10,899 |         |   | 10,636      |  |         | 41,333 |  |           | 34,251 |           |   | 7,082
|Net revenues       |  |                        | 7,915  |        |   | 10,892    |  |           | 10,351 |         |   | 11,287      |  |         | 40,445 |  |           | 33,363 |           |   | 7,082
|Ending backlog     |  |                        | 17,709 |        |   | 13,322    |  |           | 13,477 |         |   | 13,600      |  |         | 13,600 |  |           | 12,614 |           |   | 986  
|Book-to-bill ratio |  |                        | 1.3:1  |        |   | 0.6:1     |  |           | 1.0:1  |         |   | 1.1:1       |  |         | 1.0:1  |  |           | 1.0:1  |           |   | 1.0:1
|                   | 
|2005:              |  |                        |        |        |   |           |  |           |        |         |   |             |  |         |        |  |           |        |           |   |      
|New orders (2)     |  | $                      | 8,323  |        | $ | 5,079     |  | $         | 7,152  |         | $ | 14,433      |  | $       | 34,987 |  | $         | 27,884 |           | $ | 7,104
|Shipments          |  |                        | 6,952  |        |   | 8,928     |  |           | 5,706  |         |   | 6,888       |  |         | 28,474 |  |           | 21,235 |           |   | 7,239
|Net revenues       |  |                        | 7,172  |        |   | 8,915     |  |           | 5,507  |         |   | 6,305       |  |         | 27,899 |  |           | 20,669 |           |   | 7,231
|Ending backlog     |  |                        | 8,451  |        |   | 4,615     |  |           | 6,260  |         |   | 14,388      |  |         | 14,388 |  |           | 13,400 |           |   | 988  
|Book-to-bill ratio |  |                        | 1.2:1  |        |   | 0.6:1     |  |           | 1.3:1  |         |   | 2.1:1       |  |         | 1.2:1  |  |           | 1.3:1  |           |   | 1.0:1

30

|(1) |  | Orders are net of cancellations
      and include the change in the U. S. dollar value of orders recorded in
      Euros by our semiconductor and solar equipment segment.                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The backlog as of September 30,
      2006 and 2005 includes $0.9 million and $1.0 million, respectively, of
      open orders or deferred revenue on which we anticipate no gross
      margin.

Gross Profit

|                                 |  | Years Ended                  |        |          |   |            |   |  
|-------------------------------- |  | ---------------------------- | ------ | -------- | - | ---------- | - | -
|                                 |  | September30,                 |        | Increase |   |            |  
|Gross
      Profit               |  | 2006                         |        | 2005     |   | (Decrease) |   | %
|                                 |  | (dollars in
      thousands) |        |          |  
|Semiconductor Equipment Segment  |  | $                            | 8,461  |          | $ | 5,509      |   | $
|Polishing Supplies
      Segment |  |                              | 2,114  |          |   | 2,159      |   |  
|Total                            |  | $                            | 10,575 |          | $ | 7,668      |   | $
|Gross Margin                     |  |                              | 26     | %        |   | 27         | % |  

Gross profit increased in fiscal 2006 by
$2.9 million, or 38%, over fiscal 2005. The increase was driven by higher
shipments during the year. Gross margin was 26% in fiscal 2006 compared to 27%
in fiscal 2005. Major factors that contributed to the decrease in margin
percentage were (i) increase in profit deferred in fiscal 2006 compared to 2005,
(ii) recognition of approximately $0.7 million of revenue and an equal amount of
costs related to customer acceptance of our small batch vertical furnace and
(iii) lower margins on the multi-furnace order shipped during fiscal 2006. The
decrease in gross margin was also impacted by a change in product mix, as the
polishing supplies segment (which has higher gross margins) declined as a
percentage of consolidated revenue.

The timing of revenue recognition can have
a particularly significant effect on gross margin when the equipment revenue of
an order is recognized in one period and the remainder of the revenue attributed
to holdbacks is recognized in a later period. The portion of revenue attributed
to the holdbacks generally comprises 10-20% of an order and has a significantly
higher gross margin percentage.

Selling, General and Administrative
Expenses

|                                          |  | Years
      Ended            |       |          |   |            |   |  
|----------------------------------------- |  | ---------------------------- | ----- | -------- | - | ---------- | - | -
|                                          |  | September30,                 |       | Increase |   |            |  
|Selling, General and
      Administrative |  | 2006                         |       | 2005     |   | (Decrease) |   | %
|                                          |  | (dollars in
      thousands) |       |          |  
|Semiconductor Equipment Segment           |  | $                            | 7,111 |          | $ | 5,918      |   | $
|Polishing Supplies
      Segment          |  |                              | 1,202 |          |   | 1,367      |   |  
|Total                                     |  | $                            | 8,313 |          | $ | 7,285      |   | $
|Percent of net revenue                    |  |                              | 21    | %        |   | 26         | % |  

Total selling, general and administrative
expenses as a percentage of net revenue decreased to 21% in fiscal 2006 from 26%
in fiscal 2005, as a result of higher sales. The $1.0 million increase over
fiscal 2005 was due to (i) approximately $0.2 million in increased personnel
costs to support the increase in revenue and the increased regulatory
obligations associated with being a public company, (ii) increased commissions
of approximately $0.2 million resulting from the increased revenue, (iii) $0.2
million in increased non-cash stock-based compensation costs during fiscal 2006
related to the adoption of SFAS 123(R) and (iv) increased legal fees associated
with the restructuring of our legal entities in Europe and consulting costs for
the initial upgrade of the software used to operate and control our operations
in Europe.

Restructuring
Charges

In June 2006, we adopted a plan to
consolidate the manufacturing of our automation product line into facilities
already used to manufacture diffusion furnaces. Our automation products are
often sold in conjunction with the sale of new diffusion furnaces. As a result
of this decision, we recorded $0.2 million of restructuring charges in fiscal
2006. No comparable costs were incurred in fiscal 2005.

31

Research and Development

|                                 |  | Years
      Ended            |     |          |   |            |   |  
|-------------------------------- |  | ---------------------------- | --- | -------- | - | ---------- | - | -
|                                 |  | September 30,                |     | Increase |   |            |  
|Research and
      Development   |  | 2006                         |     | 2005     |   | (Decrease) |   | %
|                                 |  | (dollars in
      thousands) |     |          |  
|Semiconductor Equipment Segment  |  | $                            | 437 |          | $ | 627        |   | $
|Polishing Supplies
      Segment |  |                              |    |          |   |           |   |  
|Total                            |  | $                            | 437 |          | $ | 627        |   | $
|Percent of net revenue           |  |                              | 1   | %        |   | 2          | % |  

Development work on the small batch
vertical furnace product line in fiscal 2005 was the primary factor in the $0.2
million decrease in research and development expenses in fiscal 2006 compared to
the prior year. Reimbursements of research and development costs in the form of
governmental research and development grants amounted to $0.1 million in fiscal
2006 and 2005, and are netted against these expenses.

Income Tax Provision

In fiscal 2004, we recorded a valuation
allowance for the total of our deferred tax assets, including a net operating
loss carryforward. As the deferred tax assets increased or decreased, we
recorded an additional tax provision or recognized a benefit, respectively, so
that the valuation allowance remained equal to the total of our deferred tax
assets. During fiscal 2006, our deferred tax assets declined by $0.2 million,
resulting in a decline in our valuation allowance and an equal amount of tax
benefit. This resulted in an effective tax rate for fiscal 2006 of 17.5%,
compared to a small tax benefit in fiscal 2005. Our future effective income tax
rate depends on various factors, such as tax legislation, the geographic
composition of our pre-tax income, the level of expenses that are not deductible
for tax purposes, changes in our deferred tax assets and the effectiveness of
our tax planning strategies.

Liquidity and Capital Resources

In February 2007, we completed the sale of
approximately 3 million shares of common stock in a public offering for $7.05
per share. The net proceeds of the sale of common stock after offering expenses
and underwriting fees was approximately $19.4 million. We intend to use the
remaining proceeds from this offering for working capital and other general
corporate purposes, including possible future product or business acquisitions
in connection with the planned expansion of our solar and semiconductor
businesses.

As of September 30, 2007, and 2006, cash,
cash equivalents and restricted cash were $18.8 million, and $6.4 million,
respectively. Our working capital increased $18.6 million to $30.5 million as of
September 30, 2007, compared to $11.9 million as of September 30, 2006. Our
ratio of current assets to current liabilities increased to 3.6:1 as of
September 30, 2007 from 2.6:1 as of September 30, 2006. The increase in cash and
working capital resulted primarily from the $19.4 million raised from the public
offering of common stock during February 2007. The increase was partially offset
by $4.2 million of capital expenditures, primarily a building acquired in The
Netherlands, which is expected to increase the capacity of our semiconductor and
solar equipment segment.

As of September 30, 2007, our principal
sources of liquidity consisted of $18.4 million of cash and cash equivalents,
$0.4 million of restricted cash and $2.0 million in available domestic credit
facilities. Restricted cash consists of bank guarantees in excess of our
European overdraft facility. The bank guarantees are required by certain
customers from whom amounts have been received in advance of shipment. Our
revolving line of credit with Silicon Valley Bank contains certain financial and
other covenants. We were in compliance with these covenants and had no
outstanding borrowings under these lines as of September 30, 2007. Effective
June 30, 2007, we terminated the $1.0 million export credit facility at no cost
to us.

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
capital leases, long-term debt and the sale of equity securities, which include
common and preferred stock sold in private transactions and public offerings.
Subsequent to September 30, 2007, we utilized approximately $7.1 million of
cash, $6.1 million to acquire R2D Ingenierie and made a working capital infusion
to R2D of $1.0 million that was used to satisfy certain outstanding obligations.
R2D is a solar cell and semiconductor automation equipment manufacturing company
located near Montpellier, France. Also, subsequent to September 30, 2007, we
completed the sale of 2.5 million shares of common

32

stock in a public offering for $14.41 per
share. The net proceeds of the sale of common stock after offering expenses and
underwriting fees was approximately $33.5 million excluding possible proceeds
from the exercise of the underwriters right to purchase an additional 375,000
shares. The availability of such capital resources in the future depends on the
condition of the relevant debt or equity markets and our long-term and recent
operating performance and financial condition. There can be no assurance that we
can raise such additional capital resources on satisfactory terms. We intend to
use the net proceeds from this offering for working capital and other general
corporate purposes. Pending application of these proceeds, we intend to invest
the net proceeds in short-term, interest bearing investment grade securities.

The table below provides selected
consolidated cash flow information (in thousands) for the periods
indicated:

|                                                          |  | Fiscal Years Ended
      September 30, |       
|--------------------------------------------------------- |  | -------------------------------------- | ------
|                                                          |  | 2007                                   |       
|Net
      cash provided by (used in) operating activities |  | $                                      | (2,276
|Net cash (used in)
      investing activities             |  | $                                      | (4,878
|Net
      cash provided by financing activities           |  | $                                      | 19,554

Cash Flows from Operating
Activities

Cash used in our operating activities was
$2.3 million in fiscal 2007, compared to the $3.3 million of cash provided from
such activities during fiscal 2006. During fiscal 2007, cash was primarily used
to finance business growth, including increases in accounts receivable ($4.7
million), inventory ($2.1 million) and prepaid and other current assets ($0.9
million). This decrease in cash was partially offset by increases in accrued
liabilities and customer deposits of $2.4 million, deferred profit of $0.9
million and accounts payable of $0.2 million.

Cash Flows from Investing
Activities

Our investing activities for fiscal 2007,
2006 and 2005 used $4.9 million, $1.0 million and $0.3 million, respectively.
During fiscal 2007, the most significant investment was approximately $3.7
million for the purchase of and improvements to a 48,000 sq. ft. manufacturing
facility located in Vaassen, The Netherlands. Another significant investment in
fiscal 2007 was $0.3 million paid for a license to certain solar PECVD
technology from the licensor. Other investments in fiscal 2007, 2006 and 2005
consisted primarily of purchases of manufacturing equipment and research and
development equipment and upgrades to information systems.

Cash Flows from Financing
Activities

Cash provided by our financing activities
for fiscal 2007 was $19.6 million, which primarily consists of the $19.4
million, net of expenses, raised in our common stock offering. Other financing
activities during fiscal 2007 include equipment financing of $0.4 million,
payments on debt of $0.3 million and $0.1 million from the exercise of stock
options. Fiscal 2006 cash provided from financing activities consists primarily
of $0.8 million from the exercise of warrants and stock options, $0.1 million of
net short-term bank borrowings and $0.1 million excess tax benefit of stock
options. This was partially offset by $0.1 million of net payments on long-term
obligations and $0.1 million in cash dividends paid on preferred stock. This
compares to $2.3 million of cash provided by financing activities in fiscal
2005, primarily from the issuance of preferred stock and other borrowings.

We currently anticipate that our existing
cash balances, the cash that we expect to generate from our operating activities
and available borrowings under our lines of credit will be sufficient to meet
our anticipated cash needs for current operations for at least the next 12
months.

Off-Balance Sheet
Arrangements

As of September 30, 2007, 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.

33

Contractual Obligations and Commercial
Commitments

We had the following contractual
obligations and commercial commitments as of September 30, 2007:

|                                        |                              |       |   |      | Less         |       |     |       |     |       |        | More
|--------------------------------------- | ---------------------------- | ----- | - | ---- | ------------ | ----- | --- | ----- | --- | ----- | ------ | ----
|                                        |                              |       |   |      | than
      1 |       | 1-3 |       | 3-5 |       | than 5
|Contractual Obligations                 |                              | Total |   | year |              | years |     | years |     | years
|                                        | (dollars in
      thousands)
|Long-term debt
      obligations        | $                            | 968   |   |      | $            | 224   |     |       | $   | 228   |        | $   
|Operating lease
      obligations:      |                              |       |   |      |              |       |     |       |     |       |        |     
|Buildings                               |                              | 1,045 |   |      |              | 406   |     |       |     | 436   |        |     
|Office
      equipment                  |                              | 106   |   |      |              | 23    |     |       |     | 46    |        |     
|Vehicles                                |                              | 184   |   |      |              | 112   |     |       |     | 67    |        |     
|Total operating lease
      obligations |                              | 1,335 |   |      |              | 541   |     |       |     | 549   |        |     
|Purchase
      obligations              |                              | 7,232 |   |      |              | 7,232 |     |       |     |      |        |     
|Total                                   | $                            | 9,535 |   |      | $            | 7,997 |     |       | $   | 777   |        | $   
|Other commerical
      obligations:     |                              |       |   |      |              |       |     |       |     |       |        |     
|Bank guarantees                         | $                            | (800  | ) |      | $            | (800  | )   |       | $   |      |        | $   

As of September 30, 2007, we had $7.2
million in purchase obligations compared to $5.7 million and $2.7 million as of
September 30, 2006 and 2005, respectively. The increase in purchase obligations
is mainly a result of increasing backlog which requires higher inventories and
purchase commitments due to higher volume. We have also increased our volume
purchasing to reduce costs, and we have experienced longer lead-times required
by our suppliers.

Critical Accounting Policies

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

On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue recognition,
inventory valuation, accounts receivable collectibility, 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
ITEM 1A. RISK FACTORS. We believe the following critical accounting policies
affect the more significant judgments and estimates used in the preparation of
our consolidated financial statements.

Revenue
Recognition.We review product and
service sales contracts with multiple deliverables to determine if separate
units of accounting are present in the arrangements. Where separate units of
accounting exist, revenue is allocated to delivered items equal to the total
sales price less the greater of (1) the relative fair value of the undelivered
items, and (2) all contingent portions of the sales arrangement.

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

34

- For the semiconductor and solar
  equipment segment, transactions where legal title passes to the customer upon
  shipment, we recognize revenue 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. However,
  a portion of the revenue associated with certain installation-related tasks,
  equal to the greater of the relative fair value of those tasks or the portion
  of the contract price contingent upon their completion, generally 10%-20% of
  the systems selling price (the holdback), and directly related costs, if
  any, are deferred and recognized into income when the tasks are completed.
  Since we defer only those costs directly related to installation or other unit
  of accounting not yet delivered and the portion of the contract price is often
  considerably greater than the fair market value of those items, our policy at
  times will result in deferral of profit that is disproportionately greater
  than the deferred revenue. When this is the case, the gross profit recognized
  in one period will be lower and the gross profit 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 recognized into income at the time of customer
  acceptance or when this criterion has been met. We have, on occasion,
  experienced longer than expected delays in receiving cash from certain
  customers pending final installation or system acceptance. If some of our
  customers refuse to pay the final payment, or otherwise delay final acceptance
  or installation, the deferred revenue would not be recognized, adversely
  affecting our future operating results.
- Equipment sold by the polishing supplies segment
  does not include process guarantees, acceptance criteria or holdbacks;
  therefore, the related revenue is recorded upon transfer of title which is
  generally at time of shipment. Our shipping terms for both segments are
  customarily FOB our shipping point or equivalent terms.
- For all segments, sales of 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 is recognized ratably 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.

Deferred Tax Asset Valuation
Allowance.We currently have significant
deferred tax assets resulting from expenses not currently deductible for tax
purposes, revenue recognized for tax purposes but deferred for financial
statement purposes and net operating loss carryforwards that will reduce taxable
income in future periods. During fiscal 2004, we established a valuation
allowance for the total of our deferred tax assets. SFAS No. 109 requires 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. It also states that it is
difficult to conclude that a valuation allowance is not needed when there is
negative evidence such as cumulative losses in recent years. Therefore, the
cumulative losses weigh heavily in the overall assessment. Each quarter, we
analyze each deferred tax asset to determine the amount that is more likely than
not to be realized, based upon the weight of available evidence, and adjust the
valuation allowance to the amount of deferred taxes that do not meet the
criteria for recognition under SFAS No. 109.

Inventory Valuation.We value our inventory at the lower of
cost (first-in, first-out method) or net realizable value. We regularly review
inventory quantities and record a write-down for excess and obsolete inventory.
The write-down is primarily based on historical inventory usage adjusted for
expected changes in product demand and production requirements. However, our
industry is characterized by customers in highly cyclical industries, rapid
technological changes, frequent new product developments and rapid product
obsolescence. While the inventories acquired in the Bruce Technologies
transaction will require several years to consume in production and through
spare parts sales, management believes the write-downs taken are sufficient to
protect against future losses, as this product line is receiving greater
attention under its current ownership. Changes in demand for our products and
product mix could result in further write-downs.

35

Allowance for Doubtful Accounts.We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. This allowance is based on historical experience, credit
evaluations, specific customer collection history and any customer-specific
issues we have identified. Since a significant portion of our revenue is derived
from the sale of high-value systems, our accounts receivable are often
concentrated in a relatively few number of customers. A significant change in
the liquidity or financial position of any one of these customers could have a
material adverse impact on the collectibility of our accounts receivable and our
future operating results.

Warranty.We provide a limited warranty, generally for 12 to 24 months,
to our customers. A provision for the estimated cost of providing warranty
coverage is recorded upon shipment of all systems. On occasion, we have been
required and may be required in the future to provide additional warranty
coverage to ensure that the systems are ultimately accepted or to maintain
customer goodwill. While our warranty costs have historically been within our
expectations and we believe that the amounts accrued for warranty expenditures
are sufficient for all systems sold through September 30, 2007, we cannot
guarantee that we will continue to experience a similar level of predictability
with regard to warranty costs. In addition, technological changes or previously
unknown defects in raw materials or components may result in more extensive and
frequent warranty service than anticipated, which could result in an increase in
our warranty expense.

Impairment of Long-lived Assets.We periodically evaluate whether events
and circumstances have occurred that indicate the estimated useful lives of
long-lived assets or intangible assets may warrant revision or that the
remaining balance may not be recoverable. Goodwill is also tested for impairment
at least annually. When factors indicate that an asset should be evaluated for
possible impairment, we use an estimate of the related undiscounted net cash
flows generated by the asset over the remaining estimated life of the asset in
measuring whether the asset is recoverable. We make judgments and estimates used
in establishing the carrying value of long-lived or intangible assets. Those
judgments and estimates could be modified if adverse changes occurred in the
future resulting in an inability to recover the carrying value of these assets.
We have not experienced any impairment to long-lived assets during fiscal 2007
or 2006. Future adverse changes could be caused by, among other factors, a
downturn in the semiconductor industry, a general economic slowdown, reduced
demand for our products in the marketplace, poor operating results, the
inability to protect intellectual property or changing technologies and product
obsolescence.

Stock-Based
Compensation.On October 1, 2005, the Company adopted Statement of Financial
AccountingStandards No. 123(R), Share-Based
Payment (SFAS 123(R)) and Staff Accounting Bulletin 107, Share-Based Payment.
SFAS 123(R) requires the recognition of compensation costs relating to
share-based payment transactions in the financial statements. Prior to the
adoption of SFAS 123(R) the Company elected to account for share-based
compensation plans using the intrinsic value method under Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, under
which no compensation cost is recognized and the pro forma effects on earnings
and earnings per share are disclosed as if the fair value approach had been
adopted. Under the fair value method, the estimated fair value of awards is
charged to income on a straight-line basis over the requisite service period,
which is generally the vesting period. The Company has elected the modified
prospective application method of reporting; therefore, prior periods were not
restated. Under the modified prospective method, this statement was applied to
new awards granted after the time of adoption, as well as to the unvested
portion of previously granted awards for which the requisite service had not
been rendered as of October 1, 2005. SFAS 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as cash
flow from financing activities rather than as cash flow from operating
activities.

Impact of Recently Issued Accounting
Pronouncements

For discussion of the impact of recently
issued accounting pronouncements, see Item 8: Financial Statements and
Supplementary Data under Footnote 1 Summary of Significant Accounting
Policies under Impact of Recently Issued Accounting
Pronouncements.

36

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

We are exposed to foreign currency
exchange rates to the extent sales contracts, purchase contracts, assets or
liabilities of our European operations are denominated in currencies other than
their functional currency, Our operations in Europe, a component of the
semiconductor and solar equipment segment, conduct business primarily in their
functional currency, the Euro, and the U.S. dollar. Nearly all of the
transactions, assets and liabilities of all other operating units are
denominated in the U.S. dollar, their functional currency. In fiscal 2007 the
U.S. dollar weakened relative to the Euro by 8.1% and strengthened relative to
the Euro by 3.3% in 2006. 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.

As of September 30, 2007, we did not hold
any stand-alone or separate derivative instruments. We incurred net foreign
currency transaction losses of $0.1 million in fiscal 2007 and gains of $0.1
million in fiscal 2006. As of September 30, 2007, our foreign subsidiaries had
$14.0 million of assets (cash and receivables) denominated in U.S. dollars,
rather than Euros, which is their functional currency. A 10% change in the value
of the functional currency relative to the non-functional currency would result
in a gain or loss of $1.4 million. As of the end of fiscal 2007 we had $10.9
million of accounts payable, consisting primarily of amounts owed by foreign
subsidiaries to our U.S. companies, denominated in U.S. dollars. Even though the
intercompany accounts are eliminated in consolidation, a 10% change in the value
of the Euro relative to the U.S. dollar would result in a gain or loss of $1.1
million. Our net investment in and long-term advances to our foreign operations
totaled $3.8 million as of September 30, 2007. A 10% change in the value of the
Euro relative to the U.S. dollar would cause an approximately $0.4 million
foreign currency translation adjustment, a type of other comprehensive income
(loss), which would be a direct adjustment to our stockholders equity.

During fiscal 2007 and 2006, U.S. dollar
denominated sales of our European operations were $9.9 million and $9.5 million,
respectively. As of September 30, 2007, sales commitments denominated in a
currency other than the functional currency of our transacting operation totaled
$0.6 million. Our lead-times range between 13 and 20 weeks. A 10% change in the
relevant exchange rates between the time the order was taken and the time of
shipment would cause our gross profit on such orders to be approximately $0.1
million less than expected on the date the order was taken.

All operations become less competitive
relative to foreign suppliers when their functional currency strengthens
relative to that of the foreign supplier. Our European operations are
particularly affected when selling to customers in Asia when such customers
require a purchase price in U.S. dollars. If the value of the U.S. dollar has
strengthened or weakened relative to the Euro our gross margin will be reduced
or increased, respectively, relative to prior transactions unless we are able to
make a commensurate increase or decrease, respectively, in our selling price.

Interest Rate Risk

Our exposure to changes in interest rates
is limited to interest earned on money market accounts and interest expense on
$0.5 million of long term obligations and intermittent short-term borrowings.
This exposure is currently not significant.

37

ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

The following documents are filed as part
of this Annual Report on Form 10-K:

|Financial Statements                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Registered Public Accounting Firm                                                                       
|                                                                                                                              
|Consolidated Balance Sheets: September 30, 2007 and 2006                                                                      
|                                                                                                                              
|Consolidated Statements of Operations: Years ended September 30, 2007, 2006 and 2005                                          
|                                                                                                                              
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss): Years ended September 30, 2007, 2006 and 2005
|                                                                                                                              
|Consolidated Statements of Cash Flows: Years ended September 30, 2007, 2006 and 2005                                          
|                                                                                                                              
|Notes to Consolidated Financial Statements                                                                                    

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders Amtech Systems,
Inc.:

We have audited the accompanying
consolidated balance sheets of Amtech Systems, Inc. and subsidiaries (the
Company) as of September 30, 2007 and 2006 and the related consolidated
statements of operations, stockholders equity and comprehensive income (loss)
and cash flows for each of the years in the three year period ended September
30, 2007. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Amtech Systems, Inc. and subsidiaries as of September 30,
2007 and 2006, and the results of their operations and their cash flows for the
each of the years in the three year period ended September 30, 2007, in
conformity with U.S. generally accepted accounting principles.

|                        |                                    
|----------------------- | -----------------------------------
|                        | /s/ Mayer Hoffman McCann
      P.C.
|                       
|Phoenix,
      Arizona  |                                    
|December 10,
      2007 |                                    

39

PART I FINANCIAL
INFORMATION

AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (in thousands except share data)

|                                                                      | September 30,
|--------------------------------------------------------------------- | -------------
|                                                                      | 2007         
|Assets                                                                |              
|Current
      Assets                                                  |              
|Cash and cash equivalents                                             | $            
|Restricted cash                                                       |              
|Accounts receivable                                                   |              
|Trade (less
      allowance for doubtful accounts of $126 and $223 at |              
|September 30, 2007 and September 30, 2006,
      respectively)        |              
|Unbilled and other                                                    |              
|Inventories                                                           |              
|Deferred income taxes                                                 |              
|Other                                                                 |              
|Total current assets                                                  |              
|Property, Plant and Equipment - Net                                   |              
|Deferred
      Income Taxes - Long Term                               |              
|Intangible Assets - Net                                               |              
|Goodwill                                                              |              
|Total Assets                                                          | $            
|                                                                      |              
|Liabilities and Stockholders
      Equity                            |              
|Current
      Liabilities                                             |              
|Accounts payable                                                      | $            
|Bank loans and current maturities of long-term
      debt             |              
|Accrued compensation and related
      taxes                          |              
|Accrued warranty expense                                              |              
|Deferred profit                                                       |              
|Customer deposits                                                     |              
|Other accrued liabilities                                             |              
|Income taxes payable                                                  |              
|Total current
      liabilities                                       |              
|Other
      Long-Term Obligations                                     |              
|Total
      liabilities                                               |              
|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: 6,517,923 and 3,476,042          |              
|at September 30,
      2007 and September 30, 2006, respectively      |              
|Additional paid-in capital                                            |              
|Accumulated other comprehensive
      income                          |              
|Retained earnings (deficit)                                           |              
|Total
      stockholders equity                                      |              
|Total Liabilities and Stockholders
      Equity                      | $            

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

40

AMTECH SYSTEMS, INC. AND SUBSIDIARIES Consolidated
Statements of Operations (in thousands, except per share data)

|                                               | Years Ended September 30,
|---------------------------------------------- | -------------------------
|                                               | 2007                     
|Revenues, net of returns and allowances        | $                        
|Cost of
      sales                            |                          
|Gross profit                                   |                          
|Selling, general
      and administrative      |                          
|Restructuring charge                           |                          
|Research and
      development                 |                          
|Operating income (loss)                        |                          
|Interest and
      other income (expense), net |                          
|Income (loss) before income taxes              |                          
|Income tax
      provision (benefit)           |                          
|Net income
      (loss)                        | $                        
|                                               |                          
|Income (Loss) Per Share:                       |                          
|Basic income (loss) per share                  | $                        
|Weighted average shares outstanding            |                          
|Diluted income (loss) per share                | $                        
|Weighted average shares outstanding            |                          

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

41

AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity And Comprehensive Income
(Loss)

|                                    |  | Common Stock |        | Preferred Stock |        |  |        |   |  |        | Accumulated |   |         | Retained   |        |               |               |   |         
|----------------------------------- |  | ------------ | ------ | --------------- | ------ |  | ------ | - |  | ------ | ----------- | - | ------- | ---------- | ------ | ------------- | ------------- | - | --------
|                                    |  | Number       |        |                 |        |  | Number |   |  |        |             |   |         | Additional |        |               | Other         |   |         
|                                    |  | of           |        |                 |        |  | of     |   |  |        |             |   |         | Paid-In    |        |               | Comprehensive |   |         
|(in
      thousands)                |  |              | Shares |                 | Amount |  | Shares |   |  | Amount |             |   | Capital |            |        | Income (Loss) |               |   | Deficit)
|Balance at September 30, 2004       |  | 2,705        |        | $               | 27     |  |       |   |  | $      |            |   |         | $          | 12,888 |               |               | $ | 500     
|Net loss                            |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Translation
      adjustment        |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   | (96     
|Comprehensive loss                  |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Issuance of preferred
      stock   |  |              |        |                 |        |  | 540    |   |  |        | 1,859       |   |         |            | 49     |               |               |   |         
|Dividends on preferred
      stock  |  |              |        |                 |        |  |        |   |  |        | 76          |   |         |            | (76    | )             |               |   |         
|Balance at September 30, 2005       |  | 2,705        |        | $               | 27     |  | 540    |   |  | $      | 1,935       |   |         | $          | 12,861 |               |               | $ | 404     
|Net
    income                      |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Translation
      adjustment        |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   | 97      
|Comprehensive income                |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Conversion of preferred
      stock |  | 540          |        |                 | 5      |  | (540   | ) |  |        | (1,859      | ) |         |            | 1,854  |               |               |   |         
|Dividends on preferred
      stock  |  |              |        |                 |        |  |        |   |  |        | 81          |   |         |            | (81    | )             |               |   |         
|Preferred cash
      dividend paid  |  |              |        |                 |        |  |        |   |  |        | (83         | ) |         |            |        |               |               |   |         
|Preferred dividend                  |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|paid in common stock                |  | 9            |        |                 |       |  |        |   |  |        | (74         | ) |         |            | 74     |               |               |   |         
|Warrants
      exercised            |  | 60           |        |                 | 1      |  |        |   |  |        |             |   |         |            | 252    |               |               |   |         
|Tax benefit of stock options        |  |              |        |                 |        |  |        |   |  |        |             |   |         |            | 134    |               |               |   |         
|Stock options
      expense         |  |              |        |                 |        |  |        |   |  |        |             |   |         |            | 176    |               |               |   |         
|Stock options exercised             |  | 162          |        |                 | 2      |  |        |   |  |        |             |   |         |            | 504    |               |               |   |         
|Balance at September 30, 2006       |  | 3,476        |        | $               | 35     |  |       |   |  | $      |            |   |         | $          | 15,774 |               |               | $ | 501     
|Net
    income                      |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Translation
adjustment              |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   | 312     
|Comprehensive income                |  |              |        |                 |        |  |        |   |  |        |             |   |         |            |        |               |               |   |         
|Issuance of common
      stock      |  | 3,019        |        |                 | 30     |  |        |   |  |        |             |   |         |            | 19,380 |               |               |   |         
|Stock options
      expense         |  |              |        |                 |        |  |        |   |  |        |             |   |         |            | 347    |               |               |   |         
|Stock options
      exercised       |  | 23           |        |                 |       |  |        |   |  |        |             |   |         |            | 109    |               |               |   |         
|Balance at September 30, 2007       |  | 6,518        |        | $               | 65     |  |       |   |  | $      |            |   |         | $          | 35,610 |               |               | $ | 813     

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

42

AMTECH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements Of Cash Flows (in thousands)

|                                                                | Year Ended September 30,
|--------------------------------------------------------------- | ------------------------
|                                                                | 2007                    
|Operating Activities                                            |                         
|Net income (loss)                                               | $                       
|Adjustments to reconcile net income
      (loss) to net         |                         
|cash
      provided by (used in) operating activities:          |                         
|Depreciation and amortization                                   |                         
|Write-down of inventory                                         |                         
|Provision for (reversal of) allowance for doubtful
    accounts |                         
|Deferred
      income taxes                                     |                         
|Non-cash share based compensation expense                       |                         
|Other                                                           |                         
|Changes in operating assets and
    liabilities:                |                         
|Accounts receivable                                             |                         
|Inventories                                                     |                         
|Accrued income taxes                                            |                         
|Prepaid expenses and other assets                               |                         
|Accounts payable                                                |                         
|Accrued liabilities and customer deposits                       |                         
|Deferred profit                                                 |                         
|Net cash provided by (used in) operating
      activities       |                         
|Investing Activities                                            |                         
|Purchases of property, plant and
    equipment                  |                         
|Proceeds from the sale of property, plant and
      equiment    |                         
|Increase in restricted cash                                     |                         
|Payment for licensing agreement                                 |                         
|Net cash used in investing activities                           |                         
|Financing Activities                                            |                         
|Proceeds from issuance of common stock,
    net                 |                         
|Proceeds from issuance of preferred stock                       |                         
|Preferred stock cash dividends paid                             |                         
|Payments on long-term
      obligations                         |                         
|Borrowings on long-term obligations                             |                         
|Net short-term borrowings (payments)                            |                         
|Excess tax benefit of stock options                             |                         
|Net cash provided by financing activities                       |                         
|Effect of
      Exchange Rate Changes on Cash                   |                         
|Net Increase in Cash and Cash Equivalents                       |                         
|Cash and Cash
      Equivalents, Beginning of Year              |                         
|Cash and Cash Equivalents, End of Year                          | $                       
|Supplemental
      Cash Flow Information:                       |                         
|Interest paid                                                   | $                       
|Income tax refunds                                              |                         
|Income tax payments                                             |                         
|Supplemental
      Non-cash Financing Activities:               |                         
|Stock issued for preferred stock dividend                       |                         
|Preferred stock dividend accrual                                |                         
|Preferred stock converted to common stock                       |                         
|Warrant issued                                                  |                         

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

43

Notes to Consolidated Financial Statements

For the Years Ended September 30, 2007,
2006 and 2005

1. Summary of
Significant Accounting Policies

Nature of Operations and Basis of
Presentation  Amtech Systems, Inc. (the
Company) designs, assembles, sells and installs capital equipment and related
consumables used in the manufacture of wafers, primarily for the semiconductor
and solar industries. The Company sells these products to manufacturers of
silicon wafers, semiconductors and solar cells worldwide, particularly in the
United States, Asia and northern Europe. In addition, the Company provides
semiconductor manufacturing support services.

The Company serves niche markets in
industries that are experiencing rapid technological advances, and which
historically have been very cyclical. Therefore, future profitability and growth
depend on the Companys ability to develop or acquire and market profitable new
products, and on its ability to adapt to cyclical trends.

Principles of Consolidation
 The consolidated financial statements
include the accounts of Amtech and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.

Use of Estimates  The preparation of 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 financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

Revenue Recognition  Revenue is recognized upon shipment of the Companys proven
technology equal to the sales price less the greater of (i) the fair value of
undelivered services and (ii) the contingent portion of the sales price, which
is generally 10-20% of the total contract price. The entire cost of the
equipment relating to proven technology is recorded upon shipment. The remaining
contractual revenue, deferred costs, and installation costs are recorded upon
successful installation of the product.

For purposes of revenue recognition,
proven technology means that the Company has a history of at least two
successful installations. New technology systems are those systems with respect
to which the Company cannot demonstrate that it can meet the provisions of
customer acceptance at the time of shipment.

Revenue on new technology is deferred
until installation and acceptance at the customers premises is completed, as
these sales do not meet the provisions of customer acceptance at the time of
shipment. Cost of the equipment relating to new technology is recorded against
deferred profit and then recorded in cost of sales upon customer
acceptance.

Revenue from services is recognized as the
services are performed. Revenue from prepaid service contracts is recognized
ratably over the life of the contract. Revenue from spare parts is recorded upon
shipment.

Deferred Profit  Revenue deferred pursuant to our revenue 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:

September 30,2007
    
    2006
    
    2005(dollars in thousands)Deferred revenues
    $
    3,894
    
    $
    2,493
    
    $
    1,662Deferred
      costs
    
    1,750
    
    
    1,422
    
    
    1,038Deferred profit
    $
    2,144
    
    $
    1,071
    
    $
    624


Restricted Cash  Restricted cash of $0.4 million as of September 30, 2007
consists of bank guarantees in excess of our European overdraft facility. The
bank guarantees are required by certain customers from whom amounts have been
received in advance of shipment. There were no restrictions on cash as of
September 30, 2006.

44

Accounts Receivable and Allowance for
Doubtful Accounts  Accounts receivable are
recorded at the 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. Accounts are charged-off against the allowance when the probability of
collection is remote.

The following is a summary of the activity
in the Companys allowance for doubtful accounts:

Years Ended September
      30,2007
    
    
    2006
    
    
    2005(dollars in thousands)Balance at beginning of year
    $
    223
    
    
    $
    223
    
    
    $
    188Provision /
      (adjustment)
    
    (81
    )
    
    
    43
    
    
    
    76Write offs
    
    (16
    )
    
    
    (43
    )
    
    
    (41
    )Balance at end
      of year
    $
    126
    
    
    $
    223
    
    
    $
    223


Accounts Receivable 
Unbilled and Other  Unbilled and other
accounts receivable consist mainly of the contingent portion of the sales price
that is not collectible until successful installation of the product. These
amounts are generally billed upon final acceptance by our customers. The
majority of these amounts are offset by balances included in deferred
profit.

Concentrations of Credit Risk
 Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of trade accounts receivable. The Companys customers consist of
manufacturers of semiconductors, semiconductor wafers, MEMS and solar cells
located throughout the world. Credit risk is managed by performing ongoing
credit evaluations of 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 its country of domicile.
Reserves for potentially uncollectible receivables are maintained based on an
assessment of collectibility.

As of September 30, 2007, receivables from
three customers individually represented 22%, 13% and 10% of accounts
receivable. As of September 30, 2006, receivables from three customers
individually represented 19%, 13%, and 12% of accounts receivable,
respectively.

Refer to Note 10, Business Segment
Information, for information regarding revenue and assets in other countries
subject to foreign currency exchange rates.

Inventories  Inventories are stated at the lower of cost (first-in,
first-out method) or net realizable value. The components of inventories are as
follows:

September 30,
    
    September 30,2007
    
    2006(In thousands)Purchased parts and raw materials
    $
    5,291
    
    $
    3,400Work-in-process
    
    1,456
    
    
    1,159Finished goods
    
    542
    
    
    420$
    7,289
    
    $
    4,979


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 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 twenty years.

45

In March 2007, the Company purchased a
manufacturing facility in The Netherlands for a purchase price of approximately
$3.1 million and has made $0.6 million in improvements. The following is a summary of property, plant and
equipment:

September 30,
    
    
    September 30,2007
    
    
    2006(dollars in thousands)Land, building and leasehold improvements
    $
    5,105
    
    
    $
    1,094Equipment and
      machinery
    
    2,874
    
    
    
    2,676Furniture and fixtures
    
    2,570
    
    
    
    2,51410,549
    
    
    
    6,284Accumulated depreciation and amortization
    
    (4,304
    )
    
    
    (3,902
    )$
    6,245
    
    
    $
    2,382


Goodwill  Goodwill and intangible assets with indefinite lives are not subject to
amortization, but are tested for impairment at least annually. The Company
accounts for goodwill under the provisions of SFAS No. 142. Accordingly,
goodwill is reviewed for impairment on an annual basis, typically at the end of
the fiscal year or more frequently if circumstances dictate. Based on the
Companys analysis, there was no impairment of goodwill for the years ended
September 30, 2007, 2006 and 2005.

Intangibles  Intangible assets are capitalized and amortized over 4 to 15
years if the life is determinable. If the life is not determinable, amortization
is not recorded. Amortization expense related to intangible assets was $80,000,
$84,000 and $117,000 in fiscal 2007, 2006 and 2005, respectively. The aggregate
amortization expense for the intangible assets for each of the five succeeding
fiscal years is estimated to be $88,000, $83,000, $83,000, $83,000, $83,000 and
$942,000 in 2008, 2009, 2010, 2011, 2012 and thereafter,
respectively.

In April 2007, the company entered into a
license agreement with PST Co., LTD (PST) to market, sell, install, service and
manufacture machinery and equipment for the manufacturing of photovoltaic cells
that employs PECVD Technology (Licensed Product) developed by PST. Under the
terms of this agreement the Company paid $0.3 million to PST in April, with an
additional payment due of $0.7 million upon the development of the Licensed
Product. Under the terms of the agreement PST is required to return the original
payment if the development of the Licensed Product is unsuccessful The license
agreement expires in April 2017. These payments will be amortized over the life
of the agreement beginning with the successful development of the Licensed
Product.

The following is a summary of
intangibles:

September 30,
    
    
    September 30,Useful
    Life
    
    2007
    
    
    2006(dollars in
      thousands)Patents
    7 yrs
    
    $
    
    
    
    $
    74Trademarks
    Indefinite
    
    
    592
    
    
    
    592Non-compete agreements
    10 yrs
    
    
    350
    
    
    
    350Customer
      lists
    15
    yrs
    
    
    276
    
    
    
    276Technology
    4 yrs
    
    
    102
    
    
    
    102Licenses
    10
      years
    
    
    300
    
    
    
    1,620
    
    
    
    1,394Accumulated
      amortization
    
    
    
    (256
    )
    
    
    (250
    )$
    1,364
    
    
    $
    1,144


Proprietary Product Rights
 Through the acquisition of the net assets of P.
R. Hoffman in 1997, the Company acquired the license for the design of its steel
carriers with plastic inserts for abrasive machining of silicon wafers. In 1995,
P. R. Hoffman licensed the patent rights from the patent holder, and paid a
royalty to the patent holder for the use of such patent rights. Per the license
agreement, royalties ceased to accrue on July 2, 2006. Royalty expense for all
licenses is included in cost of sales and totaled $26,000, $113,000 and $149,000
in fiscal 2007, 2006 and 2005, respectively.

46

Warranty  A limited warranty is provided free of charge, generally for periods of
12 to 24 months to all purchasers of the Companys new products and systems.
Accruals are recorded for estimated warranty costs at the time revenue is
recognized. The following is a summary of activity in accrued warranty
expense:

Years Ended September
      30,2007
    
    
    2006
    
    
    2005(dollars in thousands)Beginning balance
    $
    289
    
    
    $
    248
    
    
    $
    260Warranty
      expenditures
    
    (84
    )
    
    
    (54
    )
    
    
    (52
    )Reserve Adjustment
    
    51
    
    
    
    95
    
    
    
    40Ending
      balance
    $
    256
    
    
    $
    289
    
    
    $
    248


Research and Development
Expenses  Product development costs
are expensed as incurred.

Foreign Currency Transactions and
Translation  Financial information relating
to the Companys foreign subsidiaries is reported in accordance with SFAS No.
52, Foreign Currency Translation. The functional currency of the Companys
European operations is the Euro. Net income (loss) includes pretax net gains
(losses) from foreign currency transactions of ($125,000), ($62,000), and
$105,000 in fiscal 2007, 2006 and 2005, respectively. The gains or losses
resulting from the translation of Tempress financial statements have been
included in other comprehensive income (loss).

Income Taxes  The Company files consolidated federal income tax returns
and computes deferred income tax assets and liabilities based upon cumulative
temporary differences between financial reporting and taxable income,
carryforwards available and enacted tax laws.

Deferred tax assets 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. SFAS No. 109 Accounting for Income Taxes requires that a valuation
allowance is recognized if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. Each quarter the valuation allowance is re-evaluated. During fiscal
2007, continued improvement in both our earnings history and our prospects for
the future resulted in a $1.2 million lower estimate of the amount of deferred
assets that more likely than not will be unrealizable. Tax payments of $1.3
million were made during 2007. During fiscal 2007, the Company also recorded an
increase of $0.5 million in deferred tax assets for items that meet the more
likely than not criteria for recognition under SFAS No. 109.

Stock-Based Compensation 
On October 1, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R))
and Staff Accounting Bulletin 107, Share-Based Payment. SFAS 123(R) requires
the recognition of compensation costs relating to share-based payment
transactions in the financial statements. Prior to the adoption of SFAS 123(R)
the Company elected to account for share-based compensation plans using the
intrinsic value method under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, under which no compensation cost is
recognized and the pro forma effects on earnings and earnings per share are
disclosed as if the fair value approach had been adopted. Under the fair value
method, the estimated fair value of awards is charged to income on a
straight-line basis over the requisite service period, which is generally the
vesting period. The Company has elected the modified prospective application
method of reporting; therefore, prior periods were not restated. Under the
modified prospective method, this statement was applied to new awards granted
after the time of adoption, as well as to the unvested portion of previously
granted awards for which the requisite service had not been rendered as of
October 1, 2005. SFAS 123(R) also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as cash flow from
financing activities rather than as cash flow from operating
activities.

47

Stock-based compensation expense
recognized under SFAS 123(R) for the fiscal years ended September 30, 2007 and
2006 reduced the Companys results of operations as follows:

Years Ended September
    30,2007
    
    
    2006(dollars in thousands,except per share amounts)Effect on income before income taxes
    $
    (347
    )
    
    $
    (176
    )Effect on net
      income
    $
    (295
    )
    
    $
    (88
    )Effect on basic income per share
    $
    (0.06
    )
    
    $
    (0.03
    )Effect on
      diluted income per share
    $
    (0.06
    )
    
    $
    (0.03
    )


The following table illustrates the
pro-forma effect on net loss and on net loss per share, as if the fair value
recognition provisions of SFAS No. 123 had been applied:

Year Ended September 30,2005(dollars in thousands,except per share amounts)Net loss, as reported
    $
    (259
    )Add: Stock-based
      compensation included in netloss as reported
    
    Less: Stock-based compensation under the fair-value method, net of
      tax
    
    279Net loss, pro
      forma
    $
    (538
    )Basic Loss Per Share:As reported
    $
    (0.12
    )Pro
    forma
    
    (0.23
    )Diluted Loss per Share:As reported
    $
    (0.12
    )Pro
    forma
    
    (0.23
    )


Qualified stock options issued under the
terms of the plans have, or will have, an exercise price equal to, or greater
than, the fair market value of the common stock at the date of the option grant,
and expire no later than ten years from the date of grant, with the most recent
grant expiring in 2017. Options vest over 1 to 5 years. The Company estimates
the fair value of awards on the date of grant using the Black-Scholes option
pricing model using the following assumptions.

Years Ended September 30,2007
    
    2006
    
    2005Risk free interest rate
    4.1% to 4.9%
    
    4.4% to 5.1%
    
    4.0% to 4.2%Expected
      life
    2 to 6
      years
    
    4 to 8
      years
    
    5
    yearsDividend rate
    0%
    
    0%
    
    0%Volatility
    54% to
      69%
    
    63% to
      101%
    
    39% to
      40%Forfeiture rate
    5%
    
    7%
    
    


To estimate expected lives for this
valuation, it was assumed that options will be exercised at varying schedules
after becoming fully vested. In accordance with SFAS 123(R), 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.

48

Fair Value of Financial
Instruments  The carrying values of the
Companys current financial instruments approximate fair value due to the short
term in which these instruments mature. The carrying values of the Companys
line of credit (see Note 5) and long-term debt (see Note 6) approximate fair
value because their variable interest rates approximate the prevailing interest
rates for similar debt instruments.

Impact of Recently Issued Accounting
Pronouncements

In June 2006, the FASB published FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which
clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes. SFAS No. 109 does not prescribe a recognition threshold or
measurement attributable for the financial statement recognition and measurement
of a tax position taken in a tax return. Diversity in practice exists in the
accounting for income taxes. To address that diversity this Interpretation
clarifies the application of SFAS No. 109 by defining a criterion that an
individual tax position must meet for any part of the benefit of that position
to be recognized in an enterprises financial statements. Additionally, this
Interpretation provides guidance on measurement, derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition for such uncertain tax transactions. This Interpretation is effective
for the Companys 2008 fiscal year (beginning October 1, 2007). The Company has
not yet determined the impact, if any, that the adoption of Interpretation No.
48 will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes
a formal framework for measuring fair value and expands disclosures about fair
value measurements. The Company has not yet determined the impact, if any, that
SFAS No. 157 will have on its consolidated financial statements. SFAS No. 157 is
effective for the Companys fiscal year beginning October 1, 2008.

In February 2007, the FASB issued SFAS No.
159, The Fair Value Option for Financial Assets and Financial Liabilities (as
amended). SFAS No. 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. In addition, FAS No. 159 establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. The Company has not yet determined the impact, if
any, that SFAS No. 159 will have on its consolidated financial statements. SFAS
No. 159 is effective for the Companys fiscal year beginning October 1,
2008.

In December 2007, the FASB issued SFAS No.
141(R), Business Combinations. This Statement replaces SFAS No. 141,
Business Combinations. This Statement retains the fundamental requirements in Statement 141
that the acquisition method of accounting (which Statement 141 called the
purchase method)
be used for all business combinations and for an acquirer to be identified for
each business combination. This Statement also establishes principles and
requirements for how the acquirer: a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; b) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase and c)
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS No. 141(R) will apply prospectively to business combinations
for which the acquisition date is on or after Companys fiscal year beginning
October 1, 2009. While the Company has not yet evaluated this statement for the
impact, if any, that SFAS No. 141(R) will have on its consolidated financial
statements, the Company will be required to expense costs related to any
acquisitions after September 30, 2009.

In December 2007, the FASB issued SFAS No.
160, Noncontrolling Interests in Consolidated Financial Statements. This
Statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling (minority) interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The Company has not yet
determined the impact, if any, that SFAS No. 160 will have on its consolidated
financial statements. SFAS No. 160 is effective for the Companys fiscal year
beginning October 1, 2009.

49

2. Stock-Based Compensation

Stock Option Plans The 2007 Employee Stock Option Plan (the 2007 Plan), under
which 500,000 shares could be granted, was adopted by the Board of Directors in April
2007, and approved by the shareholders in May 2007. The 1998 Employee Stock Option Plan (the
1998 Plan), under which 50,000 shares could be granted, was adopted by the
Board of Directors in January 1998, and approved by shareholders in March 1998.
The number of shares available for options under the 1998 Plan has since been
increased to 500,000 shares through authorization by the Board of Directors and
approval of shareholders. The 1998 Plan expires in January of 2008 and we expect
all remaining available shares to be granted prior to expiration. The
Non-Employee Directors Stock Option Plan was approved by the shareholders in
1996 for issuance of up to 100,000 shares of common stock to directors. In July
2005, the Board of Directors authorized, and shareholders approved, an increase
in the number of shares available for options under the Non-Employee Directors
Stock Option Plan to 200,000 shares.

Stock options issued under the terms of
the plans have, or will have, an exercise price equal to or greater than the
fair market value of the common stock at the date of the option grant and expire
no later than 10 years from the date of grant, with the most recent grant
expiring in 2017. Options issued by the Company vest over one to five years. The
Company may also grant restricted stock awards under the 2007 Plan.

Stock-based compensation plans are
summarized in the table below:

Shares
    
    Shares
    
    OptionsName of
    Plan
    
    
    Authorized
    
    Available
    
    Outstanding
    
    Plan
      Expiration2007 Employee Stock Incentive Plan
    
    500,000
    
    500,000
    
    
    
    April 20171998
      Employee Stock Option Plan
    
    500,000
    
    12,187
    
    395,303
    
    January
      2008Non-Employee Directors Stock Option Plan
    
    200,000
    
    78,600
    
    55,000
    
    July 2015590,787
    
    450,303


Stock options were valued using the
Black-Scholes option pricing model. See Note 1 for further discussion. Stock
option transactions and the options outstanding are summarized as
follows:

|                                          | Years Ended September
      30,
|----------------------------------------- | -------------------------------
|                                          | 2007                           
|                                          |                                
|                                          |                                
|                                          |                                
|                                          | Options                        
|Outstanding at beginning of period        |                                
|Granted                                   |                                
|Exercised                                 |                                
|Forfeited/cancelled                       |                                
|Outstanding at end of period              |                                
|                                         
|Exercisable at end of period              |                                
|                                         
|Weighted average grant-date fair value of |                                
|options granted during the
period         | $                              



50

The following tables summarize information
for stock options outstanding and exercisable as of September 30,
2007:

Options OutstandingRemaining
    
    WeightedNumber
    
    Contractual
    
    Average
    
    AggregateRange of Exercise
      Prices
    
    Outstanding
    
    Life
    
    Exercise Price
    
    Intrinsic Value(in
      years)
    
    
    
    (in thousands)$2.00 - 3.00
    1,500
    
    2.0
    
    $
    2.00
    
    $
    163.01 - 4.00
    12,835
    
    6.6
    
    
    3.24
    
    
    1234.01 - 5.00
    42,500
    
    5.0
    
    
    4.60
    
    
    3495.01 - 6.00
    58,218
    
    4.6
    
    
    5.74
    
    
    4126.01 - 7.00
    272,250
    
    6.0
    
    
    6.71
    
    
    1,6647.01 - 8.00
    32,000
    
    9.4
    
    
    7.30
    
    
    1778.01 - 9.00
    21,000
    
    9.1
    
    
    8.38
    
    
    939.01 - 10.00
    10,000
    
    8.4
    
    
    9.05
    
    
    38450,303
    
    6.2
    
    $
    6.44
    
    $
    2,872Vested and expected to vest as of September 30,
      2007
    431,592
    
    6.4
    
    $
    6.07
    
    $
    2,760Options ExercisableRemaining
    
    WeightedNumber
    
    Contractual
    
    Average
    
    AggregateRange of Exercise
      Prices
    
    Exercisable
    
    Life
    
    Exercise Price
    
    Intrinsic Value(in
      years)
    
    
    
    
    (in thousands)$2.00 - 3.00
    1,500
    
    2.00
    
    $
    2.00
    
    $
    163.01 - 4.00
    6,002
    
    5.64
    
    
    3.25
    
    
    574.01 - 5.00
    37,834
    
    4.70
    
    
    4.57
    
    
    3125.01 - 6.00
    47,001
    
    4.36
    
    
    5.72
    
    
    3346.01 - 7.00
    150,250
    
    3.45
    
    
    6.52
    
    
    9467.01 - 8.00
    
    
    
    
    
    
    
    
    8.01 - 9.00
    2,000
    
    8.56
    
    
    8.51
    
    
    99.01 - 10.00
    6,667
    
    8.42
    
    
    9.05
    
    
    25251,254
    
    4.03
    
    $
    6.05
    
    $
    1,699


The aggregate intrinsic value in the
tables above represents the total pretax intrinsic value, based on the Companys
closing stock price of $12.82 per share as of September 28, 2007, which would
have been received by the option holders had all option holders exercised their
options as of that date. The total intrinsic value of stock options exercised
during the fiscal year ended September 30, 2007 was $0.1 million. The total
intrinsic value of stock options exercised during the fiscal years ended
September 30, 2006 and 2005 was $0.8 million and less than $0.1 million,
respectively.

3. Earnings
Per Share

Basic earnings per share is computed by
dividing net income (loss) available to common stockholders (net income less
accrued preferred stock dividends) by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed
similarly to basic earnings per share 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, and the
numerator is based on net income. In the case of a net loss, diluted earnings
per share is calculated in the same manner as basic earnings per share. Options
and warrants of approximately 196,000, 50,000 and 528,000 shares are excluded
from the fiscal 2007, 2006 and 2005 earnings per share calculations as they are
anti-dilutive.

51

|                                         | 2007 |                                                            | 2006 |   | 2005 
|---------------------------------------- | ---- | ---------------------------------------------------------- | ---- | - | -----
|Basic Loss Per Share
      Computation   |      | **(dollars in thousands, except per share
      amounts)**
|Net Income (loss)                        | $    | 2,417                                                      |      | $ | 1,318
|Preferred stock dividends                |      |                                                           |      |   | (81  
|Net income (loss) available to           |      |                                                            |      |   |      
|common stockholders                      | $    | 2,417                                                      |      | $ | 1,237
|Weighted Average Shares Outstanding:     |      |                                                            |      |   |      
|Common stock                             |      | 5,419                                                      |      |   | 3,126
|Basic income (loss) per share            | $    | 0.45                                                       |      | $ | 0.40 
|                                         |      |                                                            |      |   |      
|Diluted Loss Per
      Share Computation |      |                                                            |      |   |      
|Net income (loss)                        | $    | 2,417                                                      |      | $ | 1,318
|Weighted Average Shares Outstanding:     |      |                                                            |      |   |      
|Common stock                             |      | 5,419                                                      |      |   | 3,126
|Common stock
    equivalents             |      | 79                                                         |      |   | 358  
|Diluted shares                           |      | 5,498                                                      |      |   | 3,484
|Diluted income (loss) per share          | $    | 0.44                                                       |      | $ | 0.38 

4. Comprehensive Income (Loss)

Years Ended September
    30,2007
    
    2006
    
    2005(dollars in thousands)Net income (loss), as reported
    $
    2,417
    
    $
    1,318
    
    $
    (259
    )Foreign currency
      translation adjustment
    
    312
    
    
    97
    
    
    (96
    )Comprehensive income (loss)
    $
    2,729
    
    $
    1,415
    
    $
    (355
    )


5. Line of
Credit

On April 7, 2006, the Company entered into
domestic and export revolver loan and security agreements (LSAs) with the
Silicon Valley Bank and a Working Capital Guarantee Program Borrower Agreement
with the Export-Import Bank of the United States, all of which expire April 7,
2008. The Company can borrow a maximum of $2.0 million under the domestic LSA,
subject to the availability of sufficient eligible receivables and inventory, as
defined under the agreement, and subject to certain other restrictions.
Effective June 30, 2007, the Company terminated the $1.0 million export revolver
loan and security agreement (LSA) with the Silicon Valley Bank and the Working
Capital Guarantee Program Borrower Agreement with the Export-Import Bank of the
United States. The termination of the agreements was initiated by the Company as
it was no longer needed and was carried out at no cost to the Company. The $2.0
million domestic LSA remains in force with no changes to its terms. The interest
rate under the agreements is Silicon Valley Banks prime rate plus 1%. The fee
for the unused portion of the loans is equal to twenty-five hundredths percent
(0.25%) per annum of the average unused portion of the revolving line of credit.
In the event of a default by the Company under the LSA, Silicon Valley Bank may
declare all amounts due under the LSA to be immediately due and payable. In
addition, the line of credit is secured by substantially all of the assets of
the Companys United States based operations. The LSA includes a covenant
requiring a minimum tangible net worth of $10.0 million. As of September 30,
2007 and 2006, our tangible net worth as defined in the LSA was $36.0 million
and $13.5 million, respectively. There were no outstanding borrowings under the
LSAs as of September 30, 2007 and 2006.

The Company has a line of credit in the amount of
Euro 250,000 (approximately $350,000) as of September 30, 2007. The line of
credit accrues interest at a rate of 1.75% over a Netherlands banks basic
interest rate (5.2% and 4.0% at September 30, 2007 and 2006, respectively). The
line of credit has no fixed expiration date. The line of credit is secured by a
lien on the Companys land and buildings and on trade accounts receivable in The
Netherlands. As of September 30, 2007 and 2006, there were no borrowings on the line of
credit.

52

6. Long-Term
Obligations

Long-term obligations include a mortgage,
secured by a lien on the Companys land and buildings in Heerde, The Netherlands
and on trade accounts receivable, in The Netherlands. The principal amount of
the mortgage was $503,000 and $467,000 as of September 30, 2007 and 2006,
respectively. The mortgage matures on July 31, 2029. Principal payments of
$5,700 per quarter are due until the mortgage is retired. Interest is paid
monthly at a fixed rate of 4.1% until December 1, 2007, at which time a new
fixed rate will be set based on prevailing market conditions. As of December 12, 2007, the Company is still negotiating the rate that will be in effect retroactive to December 1, 2007. There is no
penalty for prepayment of the mortgage, as long as the prepayment is made at the
end of a fixed rate period as defined in the mortgage agreement.

In December 2004, the Company financed a
laser cutting tool purchased in the fourth quarter of fiscal 2004. The Company
financed $500,000 at an interest rate of 6.55% with 48 equal monthly payments of
$12,000, including principal and interest. The outstanding principal balance of
this loan was $170,500 and $297,000 as of September 30, 2007 and 2006,
respectively.

In October 2006, the Company financed a
wide burring machine purchased in the fourth quarter of fiscal 2006. The Company
financed $355,000 at an interest rate of 7.43% with 60 equal monthly payments of
$7,000, including principal and interest. The outstanding principal balance of
this loan was $294,500 as of September 30, 2007.

Total maturities of long term debt are
$224,000 in 2008, $129,000 in 2009, $99,000 in 2010, $105,000 in 2011, $23,000
in 2012 and $388,000 thereafter.

7. Stockholders Equity

In February 2007, the Company filed
registration statements on Form S-1 with the Securities and Exchange Commission
for the sale of 2,625,000 shares of its common stock in an underwritten public
offering at a price to the public of $7.05 per share. The Company also granted
the underwriters a 30-day option to purchase up to 393,750 additional shares of
common stock to cover over-allotments. Net proceeds to the Company were
approximately $19.4 million including the exercise of the over-allotment, net of
$0.4 million of offering expenses and $1.5 million of underwriting
commissions.

On April 22, 2005, the Company completed a
private placement of 540,000 shares of Series A Convertible Preferred Stock, par
value $0.01 per share (the Preferred Stock). The gross proceeds of this
transaction were $2,160,000. The placement agent received commissions of 8% of
the proceeds, totaling $172,800, and a non-accountable expense allowance of 2%
of the proceeds, totaling $43,200. The agent also received a warrant to purchase
up to 60,000 shares of our Common Stock, $0.01 par value per share (Common
Stock), at a price of $4.67 per share. The warrants were valued at $49,200
using the Black-Scholes pricing model.

The shares of Preferred Stock were
convertible at any time at the option of the holders into shares of Common Stock
based upon the liquidation value, as defined, at a fixed conversion rate of
$4.00 per share. In addition, all outstanding shares of Preferred Stock were to
be automatically converted into shares of Common Stock in the event that the
Common Stock has an average thirty-day trading price of at least $5.50 per
share. The Preferred Stock was automatically converted into 540,000 shares of
the Companys common Stock on March 20, 2006.

Each holder of Preferred Stock was
entitled to receive cumulative dividends at a rate of $0.32 per share per annum
(or 8%) out of our legally available funds or other assets, payable
semi-annually. The first dividend of $83,323 was paid in cash on October 15,
2006. As permitted under the terms of the Preferred Stock agreement, the Company
elected to issue 9,375 shares of Common Stock on March 20, 2006, as payment for
the final dividend of $73,854.

The Companys stockholder rights plan authorizes the
distribution of one right for each outstanding common share. Each right entitles
the holder to purchase one one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50, subject to certain anti-dilution
adjustments. 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 the Companys 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 the Companys common stock (a Stock Acquisition Date). If a Stock
Acquisition Date occurs, each right, unless redeemed by the Company at
$0.01 per right, entitles the
holder to purchase an amount of the Companys common stock, or in certain
circumstances a combination of securities and/or

53

assets or the common stock of the
acquirer, having an equivalent market value of $17.00 per right at a purchase
price of $8.50. Rights held by the acquiring person or group will become void
and will not be exercisable. These rights are not exercisable as of September
30, 2007.

8. Commitments and Contingencies

License Agreements In April 2007, the company entered into a license agreement
with PST Co., LTD (PST) to market, sell, install, service and manufacture
machinery and equipment for the manufacturing of photovoltaic cells that employs
PECVD Technology (Licensed Product) developed by PST. Under the terms of this
agreement the Company paid $0.3 million to PST in April, with an additional
payment due of $0.7 million upon the development of the Licensed Product. Under
the terms of the agreement PST is required to return the original payment if the
development of the Licensed Product is unsuccessful.

Purchase Obligations  As of September 30, 2007, we had unrecorded purchase
obligations in the amount of $7.2 million. 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, cancelled or terminated.

Legal Proceedings  The Company 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.

Operating Leases  The Company leases buildings, vehicles and equipment under
operating leases. Rental expense under such operating leases was $857,000,
$741,000 and $611,000 in fiscal 2007, 2006 and 2005, respectively. As of
September 30, 2007, future minimum rental commitments under non-cancelable
operating leases with initial or remaining terms of one year or more totaled
$1,335,000, of which $541,000, $286,000, $263,000, $231,000 and $14,000 is
payable in fiscal 2007, 2008, 2009, 2010 and 2011 respectively.

9. Major
Customers and Foreign Sales

One customer accounted for 13% of net
revenue during fiscal 2007. One customer accounted for 17% of net revenue during
fiscal 2006. No customer accounted for 10% or more of net revenue during fiscal
2005.

Our net revenues for fiscal 2007, 2006 and
2005 were to customers in the following geographic regions:

Years Ended September
      30,2007
    
    
    2006
    
    
    2005United States
    28
    %
    
    34
    %
    
    36
    %Other
    0
    %
    
    1
    %
    
    4
    %Total North America
    28
    %
    
    35
    %
    
    40
    %Taiwan
    18
    %
    
    9
    %
    
    16
    %China
    18
    %
    
    4
    %
    
    9
    %Malaysia
    5
    %
    
    13
    %
    
    1
    %Other
    11
    %
    
    15
    %
    
    10
    %Total Asia
    52
    %
    
    41
    %
    
    36
    %Germany
    6
    %
    
    13
    %
    
    6
    %Other
    14
    %
    
    11
    %
    
    18
    %Total Europe
    20
    %
    
    24
    %
    
    24
    %100
    %
    
    100
    %
    
    100
    %


54

10. Business
Segment Information

The Companys products are classified into
two core business segments. The semiconductor and solar equipment segment
designs, manufactures and markets semiconductor wafer processing and handling
equipment used in the fabrication of integrated circuits, solar cells and MEMS.
Also included in the semiconductor and solar equipment segment are the
manufacturing support service operations and corporate expenses, except for a
small portion that is allocated to the polishing supplies segment. The polishing
supplies segment designs, manufactures and markets carriers, templates and
equipment used in the lapping and polishing of wafer-thin materials, including
silicon wafers used in the production of semiconductors.

Information concerning our business
segments is as follows:

Years Ended September
    30,2007
    
    2006
    
    2005(dollars in thousands)Net revenue:Semiconductor and solar equipment
    $
    37,657
    
    $
    33,363
    
    
    $
    20,668Polishing supplies
    
    8,327
    
    
    7,082
    
    
    
    7,231$
    45,984
    
    $
    40,445
    
    
    $
    27,899Operating income (loss):Semiconductor and solar equipment
    $
    339
    
    $
    722
    
    
    $
    (1,035
    )Polishing supplies
    
    1,402
    
    
    913
    
    
    
    7911,741
    
    
    1,635
    
    
    
    (244
    )Interest income (expense),
    net
    
    336
    
    
    (37
    )
    
    
    70Income (loss) before income taxes
    $
    2,077
    
    $
    1,598
    
    
    $
    (174
    )Capital expenditures:Semiconductor and solar equipment
    $
    3,858
    
    $
    533
    
    
    $
    250Polishing supplies
    
    303
    
    
    423
    
    
    
    29$
    4,161
    
    $
    956
    
    
    $
    279Depreciation and amortization expense:Semiconductor and solar equipment
    $
    437
    
    $
    466
    
    
    $
    515Polishing supplies
    
    269
    
    
    176
    
    
    
    160$
    706
    
    $
    642
    
    
    $
    675As of September
      30,2007
    
    2006Indentifiable assets:Semiconductor and solar equipment
    
    
    
    $
    46,283
    
    
    $
    19,564Polishing supplies
    
    
    
    
    4,383
    
    
    
    3,999$
    50,666
    
    
    $
    23,563Goodwill:Semiconductor and solar equipment
    
    
    
    $
    89
    
    
    $
    89Polishing supplies
    
    
    
    
    728
    
    
    
    728$
    817
    
    
    $
    817




55

The Company has manufacturing operations
in the United States and The Netherlands. Revenues, operating income (loss) and
identifiable assets by geographic region are as follows:

YearsEnded September
      30,2007
    
    2006
    
    
    2005(dollars in thousands)Net revenue:United States
    
    $
    17,555
    
    $
    24,418
    
    
    $
    16,691The Netherlands
    
    
    28,429
    
    
    16,027
    
    
    
    11,208$
    45,984
    
    $
    40,445
    
    
    $
    27,899Operating income (loss):United States
    
    $
    489
    
    $
    1,786
    
    
    $
    (458
    )The Netherlands
    
    
    1,252
    
    
    (151
    )
    
    
    214$
    1,741
    
    $
    1,635
    
    
    $
    (244
    )


As of September
      30,2007
    
    2006Net Long-lived Assets (excluding intangibles and goodwill)United States
    
    $
    1,349
    
    $
    1,366The Netherlands
    
    
    4,926
    
    
    1,016$
    6,275
    
    $
    2,382


11.Income Taxes

The components of the provision for income
taxes are as follows:

YearEnded September 30,2007
    
    
    2006
    
    
    2005(dollars in thousands)Current:Domestic federal
    
    $
    760
    
    
    $
    411
    
    
    $
    (25
    )Foreign
    
    
    540
    
    
    
    (245
    )
    
    
    Domestic state
    
    
    80
    
    
    
    114
    
    
    
    1101,380
    
    
    
    280
    
    
    
    85Deferred:Domestic federal
    
    
    (1,710
    )
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    Domestic state
    
    
    (10
    )
    
    
    
    
    
    
    (1,720
    )
    
    
    
    
    
    
    $
    (340
    )
    
    $
    280
    
    
    $
    85


56

A reconciliation of actual income taxes to
income taxes at the expected United States federal corporate income tax rate of
34 percent is as follows:

YearEnded September 30,2007
    
    
    2006
    
    
    2005(dollars in thousands)Tax provision (benefit) at the statutory federal rate
    
    $
    706
    
    
    $
    543
    
    
    $
    (59
    )Effect of
      permanent book-tax differences
    
    
    71
    
    
    
    (99
    )
    
    
    30State tax provision
    
    
    44
    
    
    
    75
    
    
    
    44Valuation
      allowance for net deferred tax assets
    
    
    (1,183
    )
    
    
    (222
    )
    
    
    81Other items
    
    
    22
    
    
    
    (17
    )
    
    
    (11
    )$
    (340
    )
    
    $
    280
    
    
    $
    85


Deferred income taxes 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. The tax effects of temporary book-tax differences that give rise to
significant portions of the deferred tax asset and deferred tax liability are as
follows:

Years Ended September302007
    
    
    2006
    
    
    2005(dollars in thousands)Deferred tax assets - current:Capitalized inventory costs
    
    $
    320
    
    
    $
    205
    
    
    $
    121Inventory write-downs
    
    
    460
    
    
    
    412
    
    
    
    586Deferred profit
    
    
    740
    
    
    
    377
    
    
    
    223Accruals and reserves not currently
      deductible
    
    
    570
    
    
    
    467
    
    
    
    3192,090
    
    
    
    1,461
    
    
    
    1,249Valuation allowance
    
    
    (400
    )
    
    
    (1,461
    )
    
    
    (1,249
    )Deferred tax
      assets - current net of valuation allowance
    
    $
    1,690
    
    
    $
    
    
    
    $
    Deferred tax assets (liabilities) - non-current:Stock options expense
    
    $
    70
    
    
    $
    17
    
    
    $
    Federal net operating losses
    
    
    
    
    
    
    
    
    
    
    552State net operating losses
    
    
    180
    
    
    
    172
    
    
    
    136Book vs. tax depreciation and amortization
    
    
    (170
    )
    
    
    (17
    )
    
    
    (82
    )80
    
    
    
    172
    
    
    
    606Valuation allowance
    
    
    (50
    )
    
    
    (172
    )
    
    
    (606
    )Deferred tax
      assets - current net of valuation allowance
    
    $
    30
    
    
    $
    
    
    
    $
    


Changes in the deferred tax valuation
allowance are as follows:

Year Ended September 30,2007
    
    
    2006
    
    
    2005(dollars in thousands)Balance at the beginning of the year
    
    $
    1,633
    
    
    $
    1,855
    
    
    $
    1,768Additions
      (subtractions) to valuation allowance
    
    
    (1,183
    )
    
    
    (222
    )
    
    
    87Balance at the end of the year
    
    $
    450
    
    
    $
    1,633
    
    
    $
    1,855


The Company has approximately $2.6 million
of Arizona state net operating loss carryforwards at September 30, 2007, which
expire in varying amounts between 2008 and 2012. These net operating losses have
been fully reserved.

SFAS No. 109 Accounting for Income Taxes
requires that a valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. Each quarter the valuation allowance is
re-evaluated. During fiscal 2007, continued improvement in both the Companys
earnings history and its prospects for the future resulted in a $1.2 million
lower estimate of the

57

amount of deferred assets that more likely
than not will be unrealizable. Tax payments of $1.3 million were made during
2007. During fiscal 2007, the Company also recorded an increase of $0.5 million
in deferred tax assets for items that meet the more likely than not criteria for
recognition under SFAS No. 109.

12.Restructuring Charge

In June 2006, Amtech adopted a plan to
consolidate the manufacturing of its automation product line into facilities
already used to manufacture diffusion furnaces. Amtechs automation products are
often sold in conjunction with the sale of new diffusion furnaces. As a result
of this decision, the company notified certain personnel of the termination date
and severance and recorded a restructuring charge of $190,000, of which $88,000
had been paid as of September 30, 2006. These charges are presented as a
separate line item on the Consolidated Statements of Operations.

13.Subsequent
Event  Acquisition

On October 8, 2007, the Company acquired,
through its wholly-owned subsidiary, Tempress Holding B.V., 100% of the voting
equity, in R2D Ingenierie, or R2D, a solar cell and semiconductor automation
equipment manufacturing company, located near Montpellier, France. R2D provides
solutions to the solar and semiconductor industries. The purpose of the
acquisition was to expand the Companys automation products which are used in
the semiconductor manufacturing and solar diffusion processes. The acquisition
of the technology and business of R2D enhances the growth strategy by allowing
the Company to increase sales by offering an integrated system under the
Tempress brand to the solar industry.

The aggregate purchase price is based on
the cash consideration paid at closing of $5.5 million plus estimated
acquisition costs of $0.6 million, including cost of legal representation and
due diligence. Cash contingent payments of $1.6 million to be paid to sellers
upon fulfillment of certain requirements have been deposited in an escrow
account. The amount of future contingent payments earned will be allocated
primarily to goodwill. The assets of R2D principally consist of intellectual
property and technology, reseller relationships, customer contracts, trademarks,
non-compete agreements, inventories and other tangible property used in
connection with the acquired business. Liabilities assumed include current
liabilities, loans, obligations under certain contracts, leases, purchase orders
and warranty claims for certain products and services under warranty as of the
date of the acquisition.

The valuation of acquired assets is
preliminary and dependent upon final valuation of assets acquired, including
valuation of intangible assets which was determined with the assistance of an
independent third-party consultant. The fair value of intangible assets was
determined by a valuation approach that estimates the future economic benefit
stream of the asset. This benefit stream was then discounted to present value
with an appropriate risk-adjusted discount rate.

The allocation of the purchase price to
the fair value of the assets acquired and liabilities assumed at the date of
acquisition is as follows (dollars in thousands):

Assets
      Acquired:Current Assets
    
    $
    5,138Property, plant & equipment
    
    
    103Intangible assets
    
    
    2,871Total assets
      acquired
    
    
    8,112Liabilities AssumedCurrent Liabilities
    
    
    1,931Long-term liabilities
    
    
    80Total liabilities assumed
    
    
    2,011Net assets acquired
    
    $
    6,101


58

14.Subsequent
Event  Public Offering

In November 2007, the Company filed
registration statements on Form S-1 with the Securities and Exchange Commission
for the sale of 2,500,000 shares of its common stock in an underwritten public
offering at a price to the public of $14.41 per share. The Company also granted
the underwriters a 30-day option to purchase up to 375,000 additional shares of
common stock to cover over-allotments. Net proceeds to the Company were
approximately $33.5 million, net of approximately $0.4 million of offering
expenses and $2.2 million of underwriting commissions, excluding the possible
exercise of the over-allotments. We intend to use the net proceeds from this
offering for working capital and other general corporate purposes. Pending
application of these proceeds, we intend to invest the net proceeds in
short-term, interest bearing investment grade securities.

15.     
Selected Quarterly Data (Unaudited)

|                             |  | First                                    |       | Second  |   | Third   |  | Fourth 
|---------------------------- |  | ---------------------------------------- | ----- | ------- | - | ------- |  | -------
|                             |  | Quarter                                  |       | Quarter |   | Quarter |  | Quarter
|                             |  | (in thousands, except per share amounts)
|Fiscal Year
      2007:      |  |                                          |       |         |   |         |  |        
|Revenue                      |  | $                                        | 9,451 |         | $ | 10,539  |  | $      
|Gross margin                 |  | $                                        | 2,392 |         | $ | 2,868   |  | $      
|Net income                   |  | $                                        | 6     |         | $ | 262     |  | $      
|Net income per share:        |  |                                          |       |         |   |         |  |        
|Basic                        |  | $                                        | 0.00  |         | $ | 0.05    |  | $      
|Shares used in calculation   |  |                                          | 3,476 |         |   | 5,193   |  |        
|Diluted                      |  | $                                        | 0.00  |         | $ | 0.05    |  | $      
|Shares used in calculation   |  |                                          | 3,511 |         |   | 5,255   |  |        
|                             |  |                                          |       |         |   |         |  |        
|Fiscal Year 2006:            |  |                                          |       |         |   |         |  |        
|Revenue                      |  | $                                        | 7,914 |         | $ | 10,892  |  | $      
|Gross margin                 |  | $                                        | 2,537 |         | $ | 2,737   |  | $      
|Net income (loss)            |  | $                                        | 471   |         | $ | 182     |  | $      
|Net income (loss) per share: |  |                                          |       |         |   |         |  |        
|Basic                        |  | $                                        | 0.16  |         | $ | 0.05    |  | $      
|Shares used in calculation   |  |                                          | 2,708 |         |   | 2,881   |  |        
|Diluted                      |  | $                                        | 0.14  |         | $ | 0.05    |  | $      
|Shares used in calculation   |  |                                          | 3,387 |         |   | 3,481   |  |        

ITEM 9. CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS
AND PROCEDURES

Our management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), has carried out
an evaluation of the effectiveness of our disclosure controls and procedures as
of September 30, 2007, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e).
Based upon that evaluation, our CEO and CFO have concluded that as of such date,
our disclosure controls and procedures in place were effective as of the end of
the period covered by this annual report.

There have been no changes in our internal
controls over financial reporting during the fourth quarter of fiscal 2007 that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.

59

ITEM 9B. OTHER
INFORMATION

None.

PART
III

Pursuant to Paragraph G(3) of the General
Instructions to Form 10-K, the information required by Part III of Form 10_K are
incorporated by reference to Amtechs Definitive Proxy Statement to be filed
with the Securities and Exchange Commission in connection with its 2008 Annual
Meeting of Stockholders (the Proxy Statement).

ITEM 10. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is
incorporated herein by reference the Proxy Statement, which will be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year.

ITEM 11. EXECUTIVE
COMPENSATION

The information required by this item is
incorporated herein by reference the Proxy Statement, which will be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year.

ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

The information required by this item is
incorporated herein by reference the Proxy Statement, which will be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year.

ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is
incorporated herein by reference the Proxy Statement, which will be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year.

ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES

The information required by this item is
incorporated herein by reference the Proxy Statement, which will be filed with
the Securities and Exchange Commission within 120 days of the end of our fiscal
year.

PART
IV

ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES

(a) (1) The consolidated financial statements required
by this item are set forth on the pages indicated at Item 8.

| | (2) |  | All financial
      statement schedules are omitted because they are either not applicable, or
      because the required information is shown in the consolidated financial
      statements or notes thereto.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    
| | (3) |  | Exhibits: The response
      to this section of Item 15 is included in the Exhibit Index of the Annual
      Report and is incorporated herein by reference.                                                   

60

SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) 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.
|--------------------- | --------------------
|                      |                     
|December 12,
    2007 | By:                 
|                      |                     
|                      |                     

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report on Form
10-K has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:

|SIGNATURE                 |  | TITLE                                       |  | DATE                   
|------------------------- |  | ------------------------------------------- |  | -----------------------
|*                         |  | Chairman of the
      Board,                |  | December 12,
      2007
|Jong S. Whang             |  | President and
      Chief Executive Officer |  |                        
|                          |  | (Principal
      Executive Officer)         |  |                        
|                          |  |                                             |  |                        
|/s/ Bradley C. Anderson   |  | Vice President 
      Finance              |  | December 12,
      2007
|Bradley C.
      Anderson |  | and Chief
      Financial Officer           |  |                        
|                          |  | (Principal
      Financial Officer)         |  |                        
|                         
|*                         |  | Chief Accounting
      Officer              |  | December 12,
      2007
|Robert T. Hass            |  | (Principal
      Accounting Officer)        |  |                        
|                         
|*                         |  | Director                                    |  | December 12,
      2007
|Michael
      Garnreiter  |  |                                             |  |                        
|                         
|*                         |  | Director                                    |  | December 12,
      2007
|Robert F.
      King      |  |                                             |  |                        
|                         
|*                         |  | Director                                    |  | December 12,
      2007
|Brian L.
      Hoekstra   |  |                                             |  |                        
|                         
|*                         |  | Director                                    |  | December 12,
      2007
|Alfred W.
      Giese     |  |                                             |  |                        



|*By: |  | /s/ Bradley C. Anderson                      
|---- |  | ---------------------------------------------
|     |  | Bradley C. Anderson,
      Attorney-In-Fact**

61

|EXHIBIT INDEX
|-------------
|Exhibit      
|No.          
|3.1          
|             
|3.2          
|             
|3.3          
|             
|3.4          
|             
|3.5          
|             
|3.6          
|             
|3.7          
|             
|3.8          
|             
|4.1          
|             
|4.2          
|             
|10.1         
|             
|10.2         
|             
|10.3         
|             
|10.4         
|             
|10.5         
|             
|10.6         
|             
|10.7         
|             
|10.8         
|             
|10.9         
|             
|10.10        
|             
|10.11        
|             
|10.12        
|             
|10.13        
|             
|10.14        
|             
|10.15        
|             
|10.16        
|             
|10.17        
|             
|10.18        
|             
|10.19        
|             
|21           
|             
|23.1         
|             
|24           

62

|     |  |  |                                                                                                                              |  |  
|---- |  |  | ---------------------------------------------------------------------------------------------------------------------------- |  | -
|31.1 |  |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as Amended                  |  | *
|     |  |  |                                                                                                                              |  |  
|31.2 |  |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as Amended                  |  | *
|     |  |  |                                                                                                                              |  |  
|32.1 |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | *
|     |  |  |                                                                                                                              |  |  
|32.2 |  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | *

|* |  | Filed
      herewith.                                                                                                                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                           
|A |  | Incorporated
      by reference to Amtechs Form S-1 Registration Statement No.
      2-83934-LA.                                                                                                                         
|  |  |                                                                                                                                                                                                                           
|B |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 1987.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|C |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 1988.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|D |  | Incorporated
      by reference to Amtechs Form S-1 Registration Statement (File No.
      33-77368).                                                                                                                    
|  |  |                                                                                                                                                                                                                           
|E |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 1999.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|F |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 1991.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|G |  | Incorporated
      by reference to Amtechs Current Report on Form 8-A, filed with the
      Securities and Exchange Commission on May 17, 1999.                                                                          
|  |  |                                                                                                                                                                                                                           
|H |  | Incorporated
      by reference to Amtechs Form S-8 Registration Statement (related to the
      Amended and Restated 1995 Stock Option Plan), filed with the Securities
      and Exchange Commission on August 9, 1996.
|  |  |                                                                                                                                                                                                                           
|I |  | Incorporated
      by reference to Amtechs Form S-8 Registration Statement (related to the
      Non-Employee Director Stock Option Plan), filed with the Securities and
      Exchange Commission on August 9, 1996.    
|  |  |                                                                                                                                                                                                                           
|J |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 1993.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|K |  | Incorporated
      by reference to Amtechs Form S-8 Registration Statement (related to the
      1998 Employee Stock Option Plan), filed with the Securities and Exchange
      Commission on February 11, 2003.         
|  |  |                                                                                                                                                                                                                           
|L |  | Incorporated
      by reference to Amtechs Current Report on Form 8-K, filed with the
      Securities and Exchange Commission on July 15, 2004.                                                                         
|  |  |                                                                                                                                                                                                                           
|M |  | Incorporated
      by reference to Amtechs Current Report on Form 8-K filed with the
      Securities and Exchange Commission on April 28, 2005.                                                                         
|  |  |                                                                                                                                                                                                                           
|N |  | Incorporated
      by reference to Amtechs Current Report on Form 8-K filed with the
      Securities and Exchange Commission on May 24, 2005.                                                                           
|  |  |                                                                                                                                                                                                                           
|O |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 2005.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|P |  | Incorporated
      by reference to Amtechs Annual Report on Form 10-K for the year ended
      September 30, 2006.                                                                                                       
|  |  |                                                                                                                                                                                                                           
|Q |  | Incorporated
      by reference to Amtechs Current Report on Form 8-K, filed with the
      Securities and Exchange Commission on April 12, 2006.                                                                        
|  |  |                                                                                                                                                                                                                           
|R |  | Incorporated
      by reference to Amtechs Quarterly Report on Form 10-Q for the quarterly
      period ended June 30, 2006.                                                                                             
|  |  |                                                                                                                                                                                                                           
|S |  | Incorporated
      by reference to Amtechs Proxy Statement for its 2007 Annual Shareholders
      Meeting, filed with the Securities and Exchange Commission on April 24,
      2007.                                   
|  |  |                                                                                                                                                                                                                           
|T |  | Incorporated
      by reference to Amtechs Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2007.                                                                                            
|  |  |                                                                                                                                                                                                                           
|U |  | Incorporated
      by reference to Amtechs Current Report on Form 8-K filed with the
      Securities and Exchange Commission on October 11,
  2007.                                                                     

63