UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


(Mark One)
[X]       ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended:  September 30, 1999

                                       OR

[ ]       TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number:  0-11412


                              AMTECH SYSTEMS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


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


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

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

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


                          Common Stock, $.01 Par Value
                          ----------------------------
                                (Title of Class)


                            Redeemable Public Warrant
                            -------------------------
                                (Title of Class)
<PAGE>
     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. [X] Yes [ ] No

     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. [X] Yes

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant: $6,665,000 as of December 16, 1999

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. [ ] Yes [ ] No

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of Common Stock, as of the latest practicable date:  2,108,679 shares of
Common Stock, $.01 par value, outstanding as of December 16, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

     PART III (Items 9-13) is  incorporated  by  reference  to the  registrant's
proxy statement for the  registrant's  Annual Meeting of Shareholders to be held
on or about February 25, 2000.

                                        2
<PAGE>
                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
ITEM 1.   BUSINESS.............................................................4
            Background.........................................................4
            Financial Information About Industry Segments......................4
            Operating Strategy and Industry Overview...........................5
            Products...........................................................6
            Proposed New Products..............................................9
            Manufacturing and Suppliers.......................................10
            Order Backlog.....................................................10
            Research, Development and Engineering.............................10
            Patents...........................................................11
            Sales and Marketing...............................................12
            Competition.......................................................13
            Employees.........................................................14
            Financial Information About Foreign And Domestic
              Operations and Export Sales.....................................14

ITEM 2.   PROPERTIES..........................................................14

ITEM 3.   LEGAL PROCEEDINGS...................................................14

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDERS' MATTERS..............................................15
            Market Information................................................15
            Holders...........................................................15
            Dividends.........................................................15

ITEM 6.   SELECTED FINANCIAL DATA.............................................16

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS..........................................17
            Plans For Expansion And Capital Resources.........................17
            Results of Operations.............................................18
            Fiscal 1999 Compared to Fiscal 1998...............................18
            Fiscal 1998 Compared to Fiscal 1997...............................20
            Liquidity And Capital Resources...................................21
            Year 2000 Compliance..............................................21
            Quantitative And Qualitative Disclosures About Market Risk........22
            Forward-Looking Statements........................................22

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................24

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................25

ITEM 10.  EXECUTIVE COMPENSATION..............................................25

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......25

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................25

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....25

SIGNATURES....................................................................28

POWER OF ATTORNEY.............................................................28

                                        3
<PAGE>
                                     PART I

ITEM 1. BUSINESS

BACKGROUND

     Amtech Systems, Inc. (the "Company") was incorporated in Arizona in October
1981,  under the name Quartz  Engineering & Materials,  Inc., and changed to its
present name in 1987.  The Company also conducts  operations  through two wholly
owned  subsidiaries,  Tempress  Systems,  Inc., a Texas corporation with all its
operations in the Netherlands  ("Tempress  Systems"),  and P.R.  Hoffman Machine
Products, Inc., an Arizona corporation ("P.R. Hoffman").

     The Company's initial business was the manufacture of quartzware implements
for sale to and use by  manufacturers  of  semiconductor  chips.  The Company is
currently,  and has been since 1987, engaged in the manufacture and marketing of
several  items of capital  equipment  used by  customers in the  manufacture  of
semiconductors,  two of which are  patented.  The  Company's  Processing/Robotic
product  line  (Atmoscan(R),  IBAL and load  stations) is designed to enable its
customers  to  increase  the degree of control  over  their  semiconductor  chip
manufacturing environment,  to reduce exposure to contaminants by limiting human
contact during the manufacturing  process and improve employee safety. In fiscal
1995,  the Company  began the  complementary  business of producing  and selling
horizontal diffusion furnaces for use in semiconductor fabrication,  through its
wholly owned subsidiary,  Tempress Systems. In fiscal 1998, the Company, through
its Tempress operations, began producing and selling conveyor diffusion furnaces
for use in precision thermal processing of electronic parts.

     In fiscal 1994, the Company added  research and product  development of new
technologies   to  its  on-going   development   of  new  products  and  product
improvements based on existing technologies. From fiscal 1994 through the end of
fiscal 1998, the new technology under investigation  consisted of photo-assisted
CVD (chemical vapor  deposition)  research  conducted by and in conjunction with
the University of California at Santa Cruz (the  "University").  In this regard,
the University  studied several  generations of higher  intensity light sources,
none of which have  yielded  results  that would enable the Company to produce a
commercially viable product.  While this research was partially  successful,  it
was suspended  indefinitely  effective  September  30, 1998,  until such time as
reliable higher intensity lamps are available and success appears more probable.

     In July 1997, the Company acquired  substantially all of the assets of P.R.
Hoffman  Machine  Products  Corporation  and  began  developing,  manufacturing,
marketing and selling  double sided  precision  lapping and polishing  machines,
replacement  parts and related  products  including  carriers and  semiconductor
polishing  templates  through its wholly owned subsidiary,  P.R. Hoffman.  These
products are high throughput  precision surface  processing  systems used in the
manufacture  of  semiconductor  wafers,  precision  optics  and other thin wafer
materials,  such as computer  disk media and  ceramic  components  for  wireless
communication devices.

     In  the  fourth   quarter  of  fiscal  1997,  the  Company  began  offering
manufacturing  support  services  to  one of its  Texas-based  customers.  These
services  consist of wet and dry cleaning of  semiconductor  machine  processing
parts.  The Company  intends to offer  manufacturing  support  services to other
customers and third parties as such opportunities become available.

     Beginning in fiscal 1999,  the Company began  research on a new  technology
asher.  In November  1999,  the Company  announced a joint  product  development
agreement with PSK Tech,  Inc. to develop a new technology  ashing machine using
the Company's  damage-free  technology and PSK Tech's expertise in the design of
ashers and asher processes.

     Unless the  context  otherwise  requires,  the  "Company"  refers to Amtech
Systems,  Inc., an Arizona corporation,  and its wholly owned subsidiaries.  The
Company's  principal  executive  offices are  located at 131 South Clark  Drive,
Tempe, Arizona 85281 and its telephone number is (480) 967-5146.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     For  information  about  industry  segments  see Note 7 of the Notes to the
Financial Statements included herein.

                                       4
<PAGE>
OPERATING STRATEGY AND INDUSTRY OVERVIEW

     The Company is engaged  primarily in the design,  manufacture and marketing
of several items of capital  equipment and related  consumables  and spare parts
used  by  customers  in  the  manufacture  and  fabrication  of  semiconductors.
Semiconductors,  or  semiconductor  "chips," are  fabricated  on a silicon wafer
substrate  and are  part  of the  circuitry  or  electronic  components  of many
products,  including computers,  telecommunication systems, automotive products,
consumer goods and industrial automation and control systems. The manufacture of
semiconductors  involves  repeating  a  complex  series  of  process  steps to a
semiconductor  wafer.  The three broad  categories of wafer processing steps are
deposition,  photolithography  and etching.  The  Company's  products  currently
address  deposition steps, the fabrication of silicon wafers, and the reclaiming
of semiconductor test wafers.  See proposed new product regarding ashers,  which
perform a step within the broad  category  of  photolithography.  The  Company's
products within the deposition area perform oxidation/diffusion and low-pressure
deposition  ("LPCVD")  steps.  During these steps silicon wafers (the substrates
from which chips are made) are inserted in a diffusion  furnace and subjected to
the precise flow of gases under very intense heat.

     The  Company  manufactures  and sells  horizontal  and  conveyor  diffusion
furnaces through its wholly owned subsidiary, Tempress Systems. In addition, the
Company  manufactures  and sells a  Processing/Robotic  product line designed to
enable customers using horizontal diffusion furnaces to increase their degree of
control over the manufacturing  environment,  to reduce exposure to contaminants
by reducing the amount of human contact during the manufacturing  process and to
improve  employee  safety.  Following an industry trend,  the size of individual
semiconductor  chips has tended to  decrease  while the size of the wafers  from
which  chips are made has  tended to  increase.  As a result,  the value of each
wafer has increased  because each is the source of an increased number of chips.
As the value of wafers increase,  so too does the importance of control over the
manufacturing environment.

     There also is a trend in the semiconductor  industry,  related to the trend
to  produce  smaller  chips,  toward  the  use  in  semiconductor  manufacturing
facilities of newer technology,  vertical diffusion furnaces. Vertical diffusion
furnaces are more  efficient to use than the  horizontal  diffusion  furnaces in
certain manufacturing processes of smaller chips on larger wafers, however, such
furnaces are significantly more expensive to purchase than horizontal  diffusion
furnaces.  The  Company's   Processing/Robotic  product  line  is  useable  with
horizontal diffusion furnaces only.

     The July 1997  addition  of P.R.  Hoffman's  product  line of double  sided
precision lapping and polishing  machines and related products has broadened and
expanded the markets  served by the Company,  which now include  fabricators  of
semiconductor  devices to the  producers  of the  silicon  wafers  used by those
fabricators. Following the P.R. Hoffman acquisition, the Company began marketing
the P.R.  Hoffman product line through the Company's larger and more established
distribution  network.  Similarly,  the Company  began  marketing  its  existing
products to the markets being served by P.R. Hoffman.

     The  Company's  target  market  for  its  Processing/Robotic  product  line
consists  of  customers  who wish to  increase  the  efficiency  and  safety (or
ergonomics) of their existing  semiconductor  manufacturing  facilities equipped
with horizontal diffusion systems.  Through its Tempress System operations,  the
Company  also  provides  its  customers  with  efficient  integrated  horizontal
diffusion furnace systems for use in semiconductor fabrication, and, to a lesser
extent,  conveyor  diffusion  furnace  systems  for  use  in  precision  thermal
processing  of  electronic  parts.  The  Company's  target  market also includes
customers  who do not  require  or cannot  justify  the higher  priced  vertical
diffusion furnace systems. Based on market information obtained through customer
and  market  contacts,  the  Company  believes  that  a  majority  of  worldwide
semiconductor  manufacturing  facilities is equipped with  horizontal  diffusion
furnaces,  as  compared  with  vertical  diffusion  furnaces.  While the Company
estimates that each year the percentage of facilities in the world equipped with
vertical systems will become closer to and eventually surpass that of horizontal
systems, it believes that a significant demand for its present product line will
continue  to exist,  although  there can be no  assurance  in that  regard.  The
Company plans to increase its share of the diffusion furnace market by expanding
its manufacture and sales of horizontal  diffusion  furnaces.  In 1996, Tempress
Systems  acquired a modern,  high-tech  manufacturing  facility  in Heerde,  The
Netherlands, for its European operations, and moved its operations into this new
facility.

                                       5
<PAGE>
     The  Company's  target  market for its lapping and  polishing  machines and
related  consumables  and spare parts are producers of silicon  wafers,  silicon
test wafer reclaiming  businesses,  manufacturers that use silicon wafers in the
fabrication  of  semiconductors  and  producers  of thin  wafers  made of  other
materials,  such as quartz,  ceramics  and  metals  used in the  manufacture  of
optics, computer storage disks and ceramic components for wireless communication
products.  Sales  to  customers  processing  optics  and  ceramics  were  13% of
consolidated  sales in fiscal 1998 and in fiscal 1999. The long-term  demand for
silicon  wafer  lapping and  polishing  machines  and related  products has been
fueled by the inherent need of semiconductor device manufacturers to continually
meet the growing demand for such semiconductors  caused by the rapid increase in
the uses for such devices.  In order to produce  today's  higher  density chips,
semiconductor manufacturers must maintain tighter tolerances with respect to the
surface finish,  flatness and planerization of the bare silicon wafer,  which in
turn is  requiring  more  polishing  steps  and  thus  more  surface  processing
equipment  and  supplies.  A similar  trend is occurring  in the  computer  disk
industry as  manufacturers  strive to produce  higher density drives in order to
satisfy end user demand for greater storage capacity and reduced size.

     INDUSTRY CYCLES AND TRENDS. Sales of the Company's products depend in large
part  upon  the  capital  equipment  expenditures  and/or  operating  levels  of
semiconductor  manufacturers,  which depend on current and/or anticipated market
demand for integrated circuits and products utilizing integrated  circuits.  The
semiconductor  industry  is highly  cyclical  and has  historically  experienced
periodic  downturns,  which often have had a material  adverse effect on capital
and  operating  expenditures  by  semiconductor   manufacturers.   Semiconductor
industry downturns have and will in the future adversely affect the sales, gross
profit and operating results of suppliers that serve the industry, including the
Company.  The industry is also  experiencing the  consolidation of semiconductor
manufacturing  operations  through  mergers  and the  subcontracting  out of the
production of semiconductors  to foundries.  The Company believes that growth in
its  sales  and   profitability   will   depend   upon   increased   demand  for
semiconductors.  During  the  second  half of fiscal  1998 and the first half of
fiscal 1999, the Company experienced lower sales volume and profitability,  as a
result  of  an  industry  slowdown.   The  industry  and  the  Company  are  now
experiencing a period of cyclical recovery.

PRODUCTS

     DIFFUSION FURNACES

     Through its wholly owned subsidiary, Tempress Systems, the Company produces
and sells horizontal and conveyor  diffusion  furnace  systems,  which generally
include a  Tempress(R)  load  station,  with the  Tempress(R)  trademark.  These
furnaces utilize existing  industry  technology for sale to customers who do not
require the advanced automation of, or can not justify the significantly  higher
expense of, vertical diffusion  furnaces.  While the major advantage of vertical
diffusion  furnaces  is their  susceptibility  to  increased  automation,  which
decreases the degree of human intervention in the manufacturing process, the use
of horizontal diffusion furnaces,  with less automation,  is more economical for
larger size chips and multi-model  semiconductor  manufacturing.  While industry
forecasts indicate that overall market demand for horizontal  diffusion furnaces
will decline,  the Company believes that a significant niche market will persist
for such furnaces.

     The Company started the horizontal  diffusion  furnace  business  utilizing
certain acquired assets previously owned by a bankrupt  company,  Tempress B.V.,
located  in  The  Netherlands,  including  the  right  to  use  the  trade  name
"Tempress(R)"  in connection  with such furnaces.  Tempress B.V. was involved in
the  development,  manufacture  and  sale of a  number  of  different  products,
including  a  horizontal  diffusion  furnace.  The right to use the  trade  name
"Tempress"  is also held by three  subsidiaries  of the former  Tempress B.V. in
connection  with the sale of other Tempress  products and services  unrelated to
the horizontal diffusion furnace.  The Company believes,  and sales volume would
appear to  support,  that the  diffusion  furnace  products it designs and sells
under the  "Tempress"  name have gained  acceptance  by the  Company's  targeted
market.

     In fiscal 1998, the Company began producing and selling conveyor  diffusion
furnace  systems  used to  produce  thick  films for the  electronics  industry.
Conveyor furnace systems provide for precision thermal  processing of electronic
parts  for thick  film  applications,  anneal,  sealing,  soldering,  silvering,
curling, brazing, alloying, gloss-metal sealing and component packaging.

                                       6
<PAGE>
     PROCESSING/ROBOTIC EQUIPMENT

     ATMOSCAN(R)

     The Company's  "Atmoscan(R)"  is a patented  controlled  environment  wafer
processing system for use with horizontal diffusion furnaces. When in use, it is
loaded  with  wafers  and  inserted   into  the   diffusion   furnace   under  a
nitrogen-controlled  environment.  The  Atmoscan(R)  technology  is a processing
method  that  includes a  cantilever  tube used to load  silicon  wafers  into a
diffusion furnace and through which a purging inert gas flows during the loading
and unloading processes.

     The  Company  believes  that  among the major  advantages  afforded  by the
Atmoscan(R)  product  are  increased  control of the  environment  of the wafers
during the gaseous and heating process, thereby increasing yields and decreasing
manufacturing  costs, and a decreased need for the cleaning of diffusion furnace
tubes, which ordinarily  involves  substantial  expense and equipment down time.
Additional  significant economies in the manufacturing process are also believed
to result.

     The  Company  has  manufactured   and  sold  Atmoscan(R)   units  to  major
semiconductor  manufacturers  in the United States,  the Pacific Rim and Europe,
including  at  various  times  to   International   Business   Machines,   Intel
Corporation,  Samsung, Motorola, SGS-Thompson,  SVG-Thermco and others. Sales of
Atmoscan(R)  have  declined  from their peak in 1989,  due to an industry  trend
toward use of vertical diffusion furnaces.

     The Company also has designed and sells an open  cantilever  paddle system,
which  remains the most  commonly used  horizontal  wafer loading  system in the
semiconductor industry. Similar systems have been used by the industry since the
introduction of the Atmoscan(R),  the Company's  alternative to the cantilevered
processing system.

     IBAL AUTOMATION

     "IBAL" is an acronym for  "Individual  Boats with  Automated  Loading." The
Company's IBAL  automation  system is a patented  integrated  automation  system
composed of several  modules,  with the base module  being  called  simply IBAL.
Boats are quartz trays that hold silicon  wafers while they are being  processed
in diffusion furnaces. IBAL Trolley is comprised of hardware and software, which
automatically  places boats into Atmoscan(R)  tubes or onto a cantilever  paddle
system  before they are  inserted  in the  diffusion  furnace and  automatically
removes the trays after completion of the process.

     IBAL Butler is a robotics  device which  further  automates  the loading of
wafers into the diffusion furnace by automatically  transferring  wafer carriers
onto the IBAL  Trolley for loading  into the  Atmoscan(R)  or on the  cantilever
paddle system for the appropriate furnace tube. IBAL Queue provides a convenient
staging area for the operator to place boats on a load station and automates the
loading  of those  boats  onto the IBAL  Butler.  The first  IBAL Queue unit was
shipped  during the  second  quarter of fiscal  1994.  Use of the IBAL  products
reduces  human  handling  and,   therefore,   reduces   exposure  of  wafers  to
contaminants  during the loading and unloading of the process tubes and improves
safety in manufacturing  facilities.  All of the IBAL modules have been designed
by the Company.

     The Company  continues to develop  automation  solutions  for robotic wafer
handling in connection with horizontal  diffusion furnaces.  It has received its
first  orders for IBAL Shuttle for  delivery in January  2000.  The IBAL Shuttle
transfers wafers between the IBAL Queue and wafer transfer machines manufactured
by third parties,  providing customers with complete  cassette-to-cassette wafer
handling.

     LOAD STATIONS

     The IBAL automation products described above are offered and sometimes sold
as a complete  system,  mounted on a device called a "load  station," which also
includes  an  ultra-clean   environment  for  wafer  loading  by  filtering  and
controlling  the flow of air. The Company  began  shipping  such  high-end  load
stations  in  fiscal  1992.  Those  stations  are  assembled  and  tested in the
Company's  Tempe,  Arizona  facility.  Further,  almost all diffusion  furnaces,

                                       7
<PAGE>
described above,  are sold with either a Tempress(R) load station,  manufactured
in The  Netherlands,  or a high-end  load  station  described  in the  preceding
sentence.

     Sales volume of the Company's  robotic product line is affected more by the
semiconductor  industry cycles,  both favorably and unfavorably,  than diffusion
furnace  sales.  The reason for the  greater  affect of the  industry  cycles is
primarily  attributable  to the fact that the wafer  handling  performed by this
robotic equipment can be performed  manually,  as opposed to diffusion  furnaces
for which there are no practical lower cost alternatives.

     DOUBLE SIDED PLANETARY LAPPING AND POLISHING MACHINES

     Through its wholly owned subsidiary,  P.R.  Hoffman,  the Company develops,
manufactures,  markets and sells double sided  precision  lapping and  polishing
machines and complementary products including carriers,  semiconductor polishing
templates and parts. Double sided lapping and polishing machines are designed to
process wafer type  products 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.  The  polishing  process  is used to change the  characteristics  of the
surface  of a  semiconductor  wafer  and a  variety  of other  wafer  materials.
Polishing  is a complex  science,  often  involving  multiple  steps,  each at a
specified set of process parameters such as polishing speed, pressure,  time and
temperature. Polishing improves the flatness (planarity), smoothness and optical
properties of a surface.

     Processes  similar  to  polishing  include  lapping  (a  process  where  no
polishing  pad is used and the  workpiece  is pressed  into a  polishing  liquid
(slurry)  which is applied to a cast-iron  lapping  wheel).  Lapping  results in
higher  removal rates than  polishing  but produces  rougher  surface  finishes.
Dimensional tolerance,  surface finish, quantity of material to be removed along
with production  rates required and cost of operation are the primary  variables
considered in the determination of the best process for a specific  application.
Polishing and other  surface  treatment  processes  are typically  followed by a
cleaning process.

     The following  table  summarizes the various  models of surface  processing
machines produced by the Company and the markets for each of these products:

                   DOUBLE SIDED LAPPING AND POLISHING MACHINES

       MODEL      YEAR INTRODUCED                     MARKETS
       -----      ---------------                     -------
       PR-1             1938              Quartz
       PR-2             1940              Quartz
       1500             1990              Quartz, ceramics, medical
       1900             1992              Ceramics, optics, computer disks
       3100           1995/96             Computer disks, optics, metal working,
                                            ceramics
       4800             1981              Silicon semiconductor, optics, metal
                                            working, ceramics

     On average,  the Company's surface processing systems are priced lower than
competing  systems offered by SpeedFam,  Peter Wolters of America and Lapmaster.
The  systems  offered  by  the  Company's   competitors  tend  to  feature  more
sophisticated controls and user interfaces, and thus in some applications can be
operated by less skilled employees.

     CARRIERS

     Carriers are  workholders  where  wafers are nested  during the lapping and
polishing processes. Carriers are produced for the Company's line of lapping and
polishing machines as well as for competitors' systems. Substantially all of the

                                       8
<PAGE>
carriers are customized for specific  applications.  The Company produces custom
carriers in a variety of sizes,  configurations and materials. A significant and
expanding  category of the Company's  steel  carriers  contain  plastic  inserts
molded  into  the  work-holes  of the  carrier  and are  referred  to as  insert
carriers.  Although  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.  Steel carriers can cause damage (edge  chipping) to
delicate parts (i.e. larger semiconductor  wafers).  Insert carriers provide the
advantages of steel carriers while reducing the potential of damage to the edges
of sensitive materials.

     The Company  licenses the design for its steel carrier with plastic inserts
from Wacker GmbH in Germany ("Wacker").  Under a non-exclusive license agreement
with  Wacker,  the Company  pays Wacker a 5% royalty  for  carriers  sold by the
Company  based on this  design.  The  royalty fee does not apply to sales to the
licensor. The Company believes that the licensor,  despite patenting the design,
is currently  unable to consistently  manufacture  insert carriers that properly
hold the wafer in place and that the Company's proprietary manufacturing process
provides a competitive barrier to entry.

     SEMICONDUCTOR POLISHING TEMPLATES

     The Company's  single sided polishing  templates are used to polish silicon
wafers.  Since the Company does not manufacture  surface processing machines for
single  sided  applications,  templates  are  designed  to  work  with  machines
manufactured by leading suppliers in this market segment such as SpeedFam, IPEC,
Gigamet  and  Strasbaugh.   Polishing  templates  are  customized  for  specific
applications and are manufactured to such exacting tolerances that even a change
in humidity of 10% can result in unacceptable  mechanical  defects,  performance
and durability.

     PLATES, GEARS, WEAR ITEMS AND OTHER PARTS

     The Company  produces a wide  assortment of plates,  gears,  parts and wear
items  for  both  its own as  well as for  competitors'  machines.  The  Company
manufactures  approximately  eighty  percent (80%) of the parts that are used in
its machines. In addition to producing standard off-the-shelf parts, the Company
has the ability to produce highly customized parts.

PROPOSED NEW PRODUCTS

     During fiscal 1999, the Company began  investigating  an alternative to the
energy  sources  currently  used in  ashing  processes.  Ashers  are used by the
semiconductor industry to remove photoresist materials from silicon wafers after
each lithography  step.  Plasma is the most common energy source used in current
ashers. While stripping the photoresist material from the wafers,  plasma causes
damage to the silicon  substrate,  which the  industry  does not believe will be
acceptable as the  line-width of the circuitry is reduced in future  generations
of  leading-edge   semiconductors.   In  November  1999,  Amtech  Systems,  Inc.
("Amtech")  announced  that it had  reached  an  agreement  with PSK  Tech  Inc.
regarding  the  joint  development  of a  new  ashing  machine,  using  Amtech's
damage-free ashing technology (a "New Asher"). Amtech and PSK Tech believe that,
if successful, the New Asher under development will be damage free and thus will
receive strong demand from the high-end semiconductor manufacturers.

     The joint product  development  agreement provides that Amtech will provide
its patent pending, damage-free ashing technology and know-how and PSK Tech Inc.
will  provide its  expertise in the design and  manufacture  of ashers and asher
processes.  The two companies will jointly own any resulting  technology.  Under
the agreement,  Amtech will have exclusive  selling and marketing  rights to the
resulting  New Asher for all of North  America and Europe and PSK Tech will have
exclusive  selling and marketing rights for all of Asia. Each company has agreed
to pay to the other a license fee of between two and five percent (2%-5%) of its
New Asher sales.  Amtech has also agreed to sell the energy source assemblies to
PSK Tech for PSK's New Asher sales into Asia. Amtech will purchase from PSK Tech
ashers without the energy source assembly,  for the platform of its New Asher to
be sold in the United States and Europe.  The assemblies that each company sells
to the other will be at a price to be mutually agreed upon, but shall not exceed
1.334 times its cost of  manufacturing.  Development work has begun,  with first
shipments projected to occur in fiscal year 2001.

                                       9
<PAGE>
     Ashing  equipment  manufactured  by PSK Tech is  currently  being  selected
almost exclusively by the world's present #1 semiconductor memory chip producers
for their  ashing  processes.  PSK Tech,  located near Seoul,  South  Korea,  is
publicly owned and listed on the Korean stock market.

MANUFACTURING AND SUPPLIERS

     The Company  assembles  its  equipment  and  systems  from  components  and
fabricated parts manufactured and supplied by others, including quartz and metal
components. Certain parts are fabricated in the Company's machine shops. Certain
of the items  manufactured  by others are made to the Company's  specifications.
All  final  assembly  and  system  tests  are  performed  within  the  Company's
manufacturing/assembly   facilities.   Quality  control  is  maintained  through
incoming  inspection of materials and components,  in-process  inspection during
equipment assembly and final inspection and operation of manufactured  equipment
prior to shipment. The Company's Processing/Robotic product line is manufactured
at  its  Tempe,   Arizona  plant.  The  Company  conducts  similar  engineering,
purchasing and assembly  operations in the manufacture of its diffusion  furnace
line in a building owned and located in Heerde, The Netherlands.

     The Company's operations in Carlisle,  Pennsylvania are equipped to perform
a high percentage of its manufacturing processes. Manufacturing at this facility
includes the following: metal stamping, milling, painting, assembling,  welding,
punching,  cutting,  heat  treating,  machining  and  laminating.  Manufacturing
processes that are typically  subcontracted out by this location include plastic
injection,  laser cutting and wire EDM machining, and complex electrical wiring.
Key suppliers include two steel mills capable of holding the type and tolerances
the Company requires, an injection molder that provides plastic insets for steel
carriers,  a pad  supplier  that  produces  a  unique  material  used to  attach
semiconductor  wafers to the  polishing  template  (sole sourced from a Japanese
company),  and adhesive manufacturer that supplies the critical glue used in the
production of the semiconductor polishing templates.

ORDER BACKLOG

     As of November 30, 1999,  the  Company's  order  backlog for  semiconductor
equipment was approximately $4,124,000,  compared to approximately $4,800,000 at
the same date in the  previous  year.  The  Company  includes in its backlog all
credit approved customer purchase orders.  Orders in the backlog may be canceled
by the customer upon payment of mutually acceptable  cancellation  charges.  The
Company  anticipates  that  substantially  all of its  current  backlog  will be
shipped in fiscal 2000.  Orders generally are shipped within three to six months
of receipt. Accordingly, the backlog may not be a valid measure of revenue for a
future  period.  In addition,  a backlog does not provide any assurance that the
Company will realize a profit from the order.

RESEARCH, DEVELOPMENT AND ENGINEERING

     The markets served by the Company are  characterized  by evolving  industry
standards and rapid technological change. To compete effectively in its markets,
the Company must continually  improve its products and its process  technologies
and develop new technologies and products that compete  effectively on the basis
of price and performance and that adequately address current and future customer
requirements.  The Company's research and development expenditures during fiscal
1997,  1998  and  1999  were  approximately  $280,000,  $438,000  and  $268,000,
respectively.  Due to the suspension of the  photo-assisted  CVD project and the
general slowdown in the semiconductor industry, the Company reduced its research
and  development  expenditures in fiscal 1999. With the research and development
work on a new technology  asher and the current industry  recovery,  the Company
expects to expend approximately $409,000 in fiscal year 2000.

     The Atmoscan(R) was acquired in 1983 through a licensing  arrangement  with
its inventor,  who was not employed by the Company. The Company's other products
(excluding the Company's products acquired in the P.R. Hoffman acquisition) were
developed  by Company  personnel.  The Company  presently  employs at its Tempe,
Arizona plant, three engineers,  including one with a Ph.D. and one in the sales
department, and six technicians.  The Company presently employs eight engineers,
one with a Ph.D.,  and seven  technicians in its  Netherlands  operation.  These
employees  design and  support the  horizontal  diffusion  furnace and  conveyor

                                       10
<PAGE>
furnace  product lines  manufactured in The  Netherlands.  Two engineers and one
technician are employed in the Company's Carlisle,  Pennsylvania operation. They
design wafer  lapping  machines and carriers to meet the  customers'  processing
requirements.

     Historically,  the  Company's  product  development  has been  accomplished
through  cooperative  efforts  with two key  customers.  While  there  can be no
assurance that such relationships will continue, such cooperation is expected to
continue  to be a  significant  element  in  the  Company's  future  development
efforts. The Company's relationship with one of these customers is substantially
dependent on the personal relations established by the Company's President,  Mr.
Jong S. Whang.

PATENTS

     Generally,  the  effect of a patent is that the  courts  will  grant to the
patent  holder the right to prevent  others from  making,  using and selling the
combination  of  elements or  combination  of steps  covered by the patent.  The
Company  has several  United  States  patents on the  Atmoscan(R)  system,  each
reflecting an improvement to or  modification  of the previous  patent.  The two
Japanese  patents on the Atmoscan(R)  cover the first two U.S. patents listed in
the table below.

     The Company has two United States patents on its photo-assisted CVD method,
the second being an improvement on the first, and the Japanese patent is pending
on the  photo-assisted  CVD method. In 1998, the Company was granted a patent on
it's  IBAL  Cantilever  Trolley  and has a  second  patent  pending  which is an
improvement on the first. The cantilever,  itself, load stations,  the diffusion
furnaces,  lapping and polishing machines,  carriers and semiconductor polishing
templates are not protected by patents.

     The  following  table shows the patents  granted  and the  expiration  date
thereof and the material  patents pending for the Company's  products in each of
the countries listed below:

                                                             EXPIRATION DATE OR
PRODUCT                      COUNTRY                         PENDING APPROVAL
-------                      -------                         ----------------
Atmoscan(R)                  United States                   July 10, 2001
Atmoscan(R)                  United States                   July 2, 2002
Atmoscan(R)                  United States                   August 30, 2005
Atmoscan(R)                  Japan                           June 1, 2004
Atmoscan(R)                  Japan                           July 18, 2005
Atmoscan(R)                  European Patent Community
                             - France                        July 18, 2004
                             - Germany                       July 18, 2004
                             - United Kingdom                July 18, 2004
                             - Italy                         July 18, 2004
                             - Netherlands                   July 18, 2004
IBAL Cantilever Trolley      United States                   July 10, 2015
IBAL Cantilever Trolley      United States                   June 12, 2018
Photo CVD                    United States                   June 1, 2010
Photo CVD                    United States                   November 15, 2011
Photo CVD                    Japan                           Pending Approval
IBAL Model S-300             United States                   Pending Approval
Proposed damage-free asher   United States                   Pending Approval

     The Company's  ability to compete may be enhanced by its ability to protect
its proprietary  information,  including the issuance of patents and trademarks.
While no  intellectual  property  right of the Company has been  invalidated  or
declared  unenforceable,  there can be no  assurance  that such  rights  will be
upheld in the future.  There can be no  assurance  that in the future  products,
processes  or  technologies  owned by others,  necessary  to the  conduct of the
Company's business, can be licensed on commercially reasonable terms.

                                       11
<PAGE>
     In the normal  course of business,  the Company from time to time  receives
and makes inquiries with regard to possible patent infringement. In dealing with
such inquiries,  it may become necessary or useful for the Company to obtain and
grant  licenses or other rights.  However,  there can be no assurance  that such
license  rights  will be  available  to the Company on  commercially  reasonable
terms.  Although there can be no assurance  about the outcome of such inquiries,
the Company  believes  that it is  unlikely  that their  resolution  will have a
material adverse effect on its results of operations or financial condition.

SALES AND MARKETING

     The market  for the  Company's  Processing/Robotic  and  diffusion  furnace
product  line  consists of  semiconductor  manufacturers  in the United  States,
Korea, Western Europe, Taiwan, Japan, India, Australia and the People's Republic
of China.  This market is comprised  of two major  segments,  customers  who are
installing new semiconductor  manufacturing facilities and customers who wish to
install new equipment  systems in existing  facilities.  The Company's  products
have been sold in both market segments. The Company has increased and intends to
continue to increase its share of that market by expanding  sales of  horizontal
diffusion furnaces  manufactured by the Company in its Netherlands  facility and
increasing its sales,  marketing and manufacturing  capabilities in Europe. This
plan has and is  expected to increase  revenue not only  through  added sales of
horizontal furnaces or Processing/Robotic  products,  but also by making each of
the products more  competitive by offering them as part of a broader  complement
of diffusion  products  with  greater  capabilities.  For  example,  the Company
expects to generate  increased  sales of  diffusion  furnaces  by offering  them
together with Atmoscan(R) and IBAL products.  One element of this strategy is to
sell these products  under the  Amtech/Tempress  name,  where  appropriate.  The
Company also expects to obtain orders for its new horizontal  diffusion  furnace
from former  Tempress  customers as well as customers  in the United  States,  a
large  market  that had not been  effectively  penetrated  by Tempress in recent
years.

     The Company has  historically  marketed its polishing  machines and related
parts and expendables to manufacturers  of silicon wafers for the  semiconductor
industry,  equipment  with  optical  components,  disk  media  for the  computer
industry,  and ceramic  components  for  wireless  communication  products.  The
Company also sells diffusion furnace and processing/robotic  products to some of
these customers,  as it did prior to the P.R. Hoffman acquisition.  Further, the
Company  believes the process of sales lead  generation  will be enhanced by the
sharing of leads among its increased  number of product lines,  including  those
acquired in the P.R. Hoffman acquisition transaction.

     The  Company's  installed  base  of  customers  (facilities  at  which  the
Company's  products  are  installed  and  operating)   includes  Intel,   Lucent
Technologies,  Motorola,  Texas  Instruments,  Phillips,  SGS-Thomson,  Samsung,
Hyundai,  ITT Night Vision, UMC and BP Solar. Of these  corporations,  Motorola,
Intel  Corporation,  SGS-Thomson  and Samsung have been customers of the Company
for approximately 15 years.

     The Company markets its products by direct customer contact through Company
sales  personnel,  which  consists of eight persons based in the United  States,
including the President,  three other outside  salespersons  and an inside sales
and  marketing  staff of four  persons.  The  Company  employs  five  sales  and
marketing  personnel in The  Netherlands.  The Company also markets its products
through   a  network   of   domestic   and   international   independent   sales
representatives  and  distributors.  The Company's  promotional  activities have
consisted of  advertising  in trade  magazines and the  distribution  of product
brochures. The Company also participates in trade shows, including Semicon West,
Semicon  Europa,  Diskcon and one large  optical  show per year.  The Company is
dependent  on its  President,  Jong  S.  Whang,  for  its  sales  and  marketing
activities in Asia and its sales are enhanced by his active involvement with the
accounts of certain other key customers.

     During fiscal 1999, one customer accounted for 14% of sales from continuing
operations.  No other customers  accounted for 10% or more of sales.  For a more
complete analysis of significant equipment customers, see Note 6 of the Notes to
Consolidated Financial Statements included herein (the "Financial Statements").

                                       12
<PAGE>
     There  are  presently  18  independent  sales   representatives  and  seven
international  distributors,  each covering a specified  geographical area on an
exclusive  basis. The areas now covered by  representatives  are the New England
area,  Pennsylvania,  Texas,  Washington,  Oregon,  the United Kingdom,  Central
Europe (including Germany, Switzerland and Austria), India, Italy, Japan, Korea,
Singapore,  Malaysia,  Taiwan,  Thailand  and the  People's  Republic  of China.
Representatives  are paid a  commission  as  specified  from time to time in the
Company's commission schedule, which at present is generally higher for complete
systems and lower for spare parts and accessories.  Further, a discount has been
granted to a customer who is a manufacturer of diffusion furnaces.

     Semiconductor equipment sales generally fluctuate with the level of capital
spending in the semiconductor industry. The semiconductor business is cyclical.

COMPETITION

     The Company is not aware of any significant  product that directly competes
with the Atmoscan(R);  however, there are several processing systems and various
configurations  of  existing  manufacturing  products  that  provide  advantages
similar  to  those  that  the  Company  believes  the  Atmoscan(R)  provides  to
semiconductor  manufacturers.  Notwithstanding  this  competition,  the  Company
believes that Atmoscan(R) provides 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 which afford to its users a higher yield and, therefore,  a
lower per item cost in the  manufacture  of  semiconductors.  While the industry
trend is toward the use of vertical  diffusion  furnaces (with which Atmoscan(R)
is not  useable),  the Company  believes that a number of customers are and will
continue  to be  willing  to buy  Atmoscan(R)  units  and  horizontal  diffusion
furnaces  because  for all but very large  production  runs of smaller  geometry
chips there is a higher  productivity with horizontal  furnaces and because many
applications  do not involve the processing of smaller devices on larger silicon
wafers and thus do not require the much more expensive vertical furnaces.

     The Company  believes  that there are  several  products in the market that
perform the same functions as the IBAL  automation  products,  IBAL  Atmoscan(R)
Trolley,  IBAL Cantilever  Trolley,  IBAL Butler and IBAL Queue,  however,  such
products  require more  expensive  clean room floor space and are generally more
expensive.  The IBAL  products are intended for customers who do not have or can
not justify the additional clean room space required for competing, more complex
systems.  Load stations are sold to customers that are upgrading  their existing
facilities  with other products of the Company or as part of a larger  equipment
package to customers  starting-up new facilities.  These load stations provide a
cleaner environment than those they replace and the higher-end models can reduce
the  down-time  for the  upgrade or  installation  as these load  stations  were
specifically  designed  to  accept  the  Company's  Processing/Robotic  products
without  further  modification.  Products  competitive  with the Company's  load
station are sold by several well-established firms, larger than the Company. The
cantilever  paddle  system is designed  for easy  assembly  and  disassembly  to
minimize downtime during maintenance. The Company expects to sell its horizontal
diffusion  furnaces to customers who purchase them in small  quantities and that
it will  maintain  a  competitive  position  through  its  policy  of  providing
competitive  prices and product  support  services  designed for the  customer's
specific requirements.

     There  are  competitors  for the  carriers,  wafer  lapping  and  polishing
machines and related  replacement  parts and semiconductor  polishing  templates
that are  larger  than the  Company.  The  Company  believes  that it is able to
effectively compete with other manufacturers of carriers by continually updating
its  product  line to  keep  pace  with  the  rapid  changes  in its  customers'
requirements.  The Company is able to capture a small share of the semiconductor
polishing template market primarily by meeting the industry's perceived need for
a second  source so as avoid  continued  dependence  upon the dominant  industry
leader. The Company believes that its ability to compete for sales of all of its
products,  including machines, is enhanced by the reputation of its double sided
planetary  lapping  and  polishing  machines,  which  are  highly  regarded  for
applications involving delicate and thin (approximately 100 microns) wafers made
of various  materials.  The Company believes these products compare favorably to
the competition with respect to the following factors:  durability,  maintaining
close thickness  tolerances of wafers and other parts and quality,  reliability,
performance and price.

                                       13
<PAGE>
EMPLOYEES

     At November 30, 1999, the Company employed 92 people  (including  corporate
officers); 53 in manufacturing,  15 in engineering,  10 in administration and 14
in sales. Of these employees, 20 are based at the Company's offices and plant in
Tempe, Arizona, 29 are employed at its facility in Carlisle, Pennsylvania, 33 at
its  facility  in Heerde,  The  Netherlands,  and 10 in the  Company's  contract
semiconductor  manufacturing support services business located in Austin, Texas.
Of the 29 people employed at the Company's Carlisle,  Pennsylvania  facility, 16
are  represented  by the United Auto Workers Union - Local 1443. The Company has
never experienced a work stoppage or strike.  The Company considers its employee
relations to be good.

                       FINANCIAL INFORMATION ABOUT FOREIGN
                    AND DOMESTIC OPERATIONS AND EXPORT SALES

     The  following  table  shows the  amounts  of revenue  attributable  to the
Company's  foreign sales for the past three fiscal years (the sales to customers
in the United  States are included in the table for  comparison  purposes).  All
foreign sales were associated with non-affiliates.

                          1999                 1998                 1997
                   ------------------   ------------------   ------------------
United States (1)  $ 8,728,000     59%  $ 9,029,000     55%  $ 4,227,000     38%
Far East (2)           754,000      5     1,228,000      8     3,044,000     27
Europe (3)           4,216,000     29     5,030,000     31     3,840,000     35
Australia            1,068,000      7       927,000      6            --     --
                   -----------  -----   -----------  -----   -----------  -----
TOTAL              $14,766,000    100%  $16,214,000    100%  $11,111,000    100%
                   ===========  =====   ===========  =====   ===========  =====

----------
(1)  Includes sales in Canada and less than 1% in Central and South America.
(2)  Includes Korea,  Singapore,  Taiwan, Japan, the People's Republic of China,
     Hong Kong, Indonesia, India and Malaysia.
(3)  Includes sales in Israel and Africa, which are not material.

     For a further  description of foreign sales, see Note 6 of the Notes to the
Financial Statements included herein.

ITEM 2. PROPERTIES

     The Company's  semiconductor  equipment  business and corporate offices are
located in 9,000 square feet of office and manufacturing  space at its principal
address. These facilities are leased at a current rate of $4,400 per month, on a
triple net basis, for a term to expire on August 31, 2001. Manufacturing support
is performed in customer facilities.

     The Company also owns a 9,900 square foot building  located in Heerde,  The
Netherlands.  This  facility  is  expected  to  provide  adequate  space for the
Company's assembly operations for its furnace line for the foreseeable future.

     The Company  subleases a 21,740 square foot  building  located in Carlisle,
Pennsylvania from John R. Krieger, the former owner of that business and current
Director of Corporate  Development for the Company.  These facilities are leased
at a current rate of $9,860, on a triple net basis, for a term to expire on June
30,  2004.  The  Company  has the option to renew the lease for five  successive
terms of one year each.

     The Company  considers the above  facilities  suitable and adequate to meet
the Company's requirements.

ITEM 3. LEGAL PROCEEDINGS

     None.

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

     None.

                                       14
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS

MARKET INFORMATION

     The  Company's  common stock,  par value $.01 per share (Common  Stock") is
traded in the  over-the-counter  market and is quoted under the symbol "ASYS" in
the automated quotation system of the National Association of Securities Dealers
Small Cap Market ("NASDAQ").

     The following  table sets forth the range of the high and low bid price for
the shares of the  Company's  Common Stock for each quarter of fiscal years 1999
and 1998 as reported by the NASDAQ Small Cap Market.

                  QUARTER ENDED                         HIGH          LOW
                  -------------                         ----          ---
     Fiscal 1999:

          December 31, 1998                            $ 2.13        $ 1.00
          March 31, 1999                                 1.75           .94
          June 30, 1999                                  3.06          1.25
          September 30, 1999                             3.00          1.69

     Fiscal 1998:

          December 31, 1997                            $ 7.63        $ 4.00
          March 31, 1998                                 6.00          3.25
          June 30, 1998                                  5.25          2.25
          September 30, 1998                             2.69          1.00

     In order to  maintain  listing of its Common  Stock on the Nasdaq  SmallCap
Market, the Company is required to satisfy certain  quantitative and qualitative
requirements.  Effective with the close of business on March 15, 1999,  each two
shares of the  Company's  Common Stock were combined and  reclassified  into one
share of the Common  Stock.  All shares and per share amounts have been restated
to give effect to this one for two reverse stock split.  Any  fractional  shares
resulting from the reverse split were rounded to the next highest whole number.

HOLDERS

     As of December 16, 1999,  there were  approximately  1,466  shareholders of
record of the Company's Common Stock.

DIVIDENDS

     The Company has never paid  dividends.  Its present policy is to apply cash
to investment in product development, acquisition or expansion; consequently, it
does not expect to pay dividends within the foreseeable future.

                                       15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The  selected  financial  data set  forth  with  respect  to the  Company's
operations  for each of the years in the three year period ended  September  30,
1999 and with respect to the balance  sheets at September  30, 1999 and 1998 are
derived  from  audited  financial  statements  that have been  audited by Arthur
Andersen LLP,  independent public  accountants,  which are included elsewhere in
this Report and are qualified by reference to such  financial  statements.  Data
from the statements of operations for the fiscal years ended  September 30, 1996
and 1995 and the balance  sheet data at September  30,  1997,  1996 and 1995 are
derived from  financial  statements  not  included in this Report.  The selected
financial  data  should  be  read in  conjunction  with  Item  7,  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
the  Company's  financial  statements  (including  the  related  notes  thereto)
contained elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                   FISCAL YEARS ENDED SEPTEMBER 30,
                                                ------------------------------------------------------------------------
                                                    1999           1998           1997           1996           1995
                                                ------------   ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>            <C>
OPERATING DATA:
From Continuing Operations:
  Revenues                                      $ 14,766,075   $ 16,213,904   $ 11,111,142   $  8,414,005   $  6,864,068
  Operating Profit (Loss)(1)(5)                      567,776       (904,334)       215,420        120,813         39,582
  Income (Loss) from
    Continuing Operations(1)(5)                      362,307       (589,887)       237,709        197,591        171,053
Net Income (Loss)(1)(4)(5)                      $    362,307   $   (589,887)  $    237,709   $    508,683   $    226,568
Diluted Earnings (Loss) Per Share: (1)(2)(5)
  Continuing Operations (Loss)                  $        .17   $       (.28)  $        .10   $        .07   $        .09
  Net Income (Loss) (4)                         $        .17   $       (.28)  $        .10   $        .19   $        .12

BALANCE SHEET DATA:
Cash and Short-Term Investments                 $  1,124,685   $  1,351,542   $  1,975,040   $  4,458,337   $  4,505,389
Working Capital                                    5,374,231      4,993,455      5,271,320      5,480,452      6,163,304
Total Assets                                       8,744,558      9,325,479      9,355,092      8,458,614      8,365,519
Total Current Liabilities                          1,747,513      2,530,723      2,108,165      1,568,994      1,363,291
Long-Term Obligations                                286,828        347,667        318,721        265,355             --
Accumulated Deficit                                 (401,958)      (764,265)      (174,378)      (412,087)      (920,770)
Shareholders' Equity(3)                            6,710,217      6,447,089      6,928,206      6,624,265      7,002,228
</TABLE>

----------
(1)  The results for the fiscal years 1998, 1997, and 1996 include approximately
     $170,000, $85,000, and $132,000, respectively, expensed for amounts paid or
     payable to the University under the Research Agreement  described elsewhere
     herein.  In addition,  in fiscal 1998 the Company took a charge of $184,000
     for the write-off of certain long-lived assets.
(2)  The results  shown have been  restated to reflect the  one-for-two  reverse
     split of Common Stock which was effective March 15, 1999.
(3)  The decline in  Shareholders'  Equity in 1996  resulted  from the Company's
     receipt of 98,017 shares of its Common Stock upon  disposition of the stock
     of Echelon Services Company.
(4)  The results for fiscal 1996 include $311,092 of income from and gain on the
     disposal of discontinued operations.
(5)  Income from continuing  operations for fiscal 1997 includes a $115,487 gain
     from the  disposition  of the Company's  interest in the Seil Semicon joint
     venture.  Income from  continuing  operations  for fiscal 1996 includes the
     Company's $65,063 equity in the losses of the Seil Semicon joint venture.

                                       16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following  discussion  should be read in conjunction with the financial
statements and notes thereto set forth elsewhere herein and the "Forward-Looking
Statements" explanation included herein.

PLANS FOR EXPANSION AND CAPITAL RESOURCES

     The  Company is engaged  primarily  in the  manufacture  and  marketing  of
several items of capital equipment,  spare parts and related consumables used in
the  fabrication  of  semiconductor  chips.  The  business is  comprised  of two
segments.  The polishing  supplies and equipment  segment serves  fabricators of
silicon wafers, the raw material used in the manufacture of semiconductors.  The
semiconductor  production  equipment segment supplies equipment to semiconductor
chip  fabricators.  Some of these  products,  amounting to an  estimated  13% of
consolidated  sales in both fiscal  1999 and 1998,  are also sold for use in the
production of optics, wireless  communications,  memory disk media, ceramics and
other products. The Company also provides contract  semiconductor  manufacturing
support services, accounting for an estimated 3% and 6% of consolidated sales in
fiscal 1999 and 1998,  respectively.  The Company  intends to focus on expanding
its  revenue  and  operating  profits  derived  from the  sale of  semiconductor
production  equipment and polishing supplies and equipment sold to semiconductor
fabricators and  manufacturers of silicon wafers used in the fabrication of such
semiconductors,  respectively.  The Company is seeking to expand its revenue and
operating  profits  through the  development  of new  products  that serve these
markets and to further penetrate these markets with existing and new products.

     ACQUISITIONS.  As a part  of  the  above  strategy,  the  Company  acquired
substantially  all of the assets and assumed certain of the related  liabilities
of P.R. Hoffman Machine Products  Corporation on July 1, 1997. The total cost of
the  acquisition,  including  the  liabilities  assumed and related  transaction
costs,  was $3,192,000.  See Note 3 to the  Consolidated  Financial  Statements,
included  herein,  for further details of the acquisition and pro forma revenues
and earnings for fiscal 1997, reflecting the assumption that the acquisition had
occurred at the beginning of such fiscal year.  During fiscal 1999, the acquired
operations  accounted for 40% of  consolidated  revenue and 50% of  consolidated
operating profit, which includes allocated corporate expenses.

     During the fourth  quarter of fiscal  1997,  the  Company  began  providing
contract semiconductor  manufacturing support services, which is included in the
semiconductor production equipment (and services) segment.  Although the Company
is  currently  providing  such  services to only one  customer,  its fiscal 1999
revenue was $435,000  and the  operation  is making a positive  contribution  to
operating profit.

     During  fiscal 1996,  the Company  entered into a joint  venture  agreement
pursuant to which it acquired a 45% ownership interest and a 50% voting interest
in Seil Semicon, Inc. (the "Korean Joint Venture") in return for a commitment to
invest  $500,000 in cash.  The  purpose of the joint  venture was to develop and
operate a silicon test wafer  reclaiming  business.  In fiscal 1997, the Company
sold its interest in the joint venture for $478,000, because the requirements of
continuing in that business, without obtaining majority control, were determined
to involve more risk than was  appropriate  for the Company.  See Note 11 to the
Consolidated  Financial  Statements,  included herein. As a result,  the Company
recorded a gain in fiscal 1997 of  $115,487,  largely  representing  recovery of
related costs and expenses recorded in the previous year.

     The Company  participated in the Korean Joint Venture in calendar year 1996
and acquired P.R. Hoffman on July 1, 1997, but temporarily  shifted its focus to
internal   product   development  in  June  1998,  due  to  a  slowdown  in  the
semiconductor  industry at that time. Presently,  the industry is experiencing a
period of rapid recovery. Accordingly, the Company has returned its focus to the
evaluation  of other  potential  product  or  business  acquisitions  that might
complement its existing business. Based upon the Company's acquisition criteria,
such an  acquisition  could require more capital  resources than used to acquire
P.R.  Hoffman.   The  determination  of  the   appropriateness  of  a  potential
acquisition is expected to take into consideration  many factors,  including the
status and potential capital requirements for developing a new technology asher,
the economic terms of the acquisition under review, and the potential synergy of

                                       17
<PAGE>
the business  opportunity with the Company's existing business.  However,  until
the market price of the Company's common stock equals  management's  estimate of
its intrinsic value,  any acquisitions  will likely be limited to those that can
be financed with debt.

     RESEARCH AND  DEVELOPMENT.  In fiscal 1994,  the Company added research and
development of new technologies to its on-going  development of new products and
product  improvements based on existing  technologies.  From fiscal 1994 through
the end of fiscal 1998,  the new  technology  under  investigation  consisted of
photo-assisted  CVD (chemical  vapor  deposition)  research  conducted by and in
conjunction with the University of California at Santa Cruz (the  "University").
In this regard, the University  studied several  generations of higher intensity
light sources,  none of which have yielded results that would enable the Company
to produce a commercially viable product.  The Company's aggregate  expenditures
on  photo-assisted  CVD development from fiscal 1994 through  September 30, 1998
were $743,000.  While this research was partially  successful,  it was suspended
indefinitely  effective  September 30, 1998,  until such time as reliable higher
intensity  lamps are available  and success  appears more  probable.  Before the
suspension,  fiscal  1998  expenditures  to the  University  were  $170,000,  an
increase of $85,000 over fiscal 1997.

     Beginning in fiscal 1999,  the Company began  research on a new  technology
asher.  In November  1999,  the Company  announced a joint  product  development
agreement with PSK Tech, Inc., to develop a new technology  ashing machine using
Amtech's damage-free technology and PSK Tech's expertise in the design of ashers
and asher processes. The Company expended $268,000 in both fiscal years 1999 and
1998, respectively,  on research and development of new semiconductor production
equipment  products  and  improvement  to  current  products,  based  on new and
existing  technologies.  The  Company  will  continue  to make  these  types  of
expenditures  in the  foreseeable  future.  For fiscal  2000,  the  Company  has
budgeted a total of $409,000 for research and development expenses.  The Company
may  approve  other  projects  of that  nature,  depending  on their  merit  and
anticipated  effect  on  earnings.   Any  expenditure  for  currently  unplanned
development  of  products  and  services,  if any,  will  negatively  impact the
Company's future operating results until such project achieves profitability.

     The Company's  currently  available  cash and  short-term  investments  are
expected to be sufficient to service the inter-period  liquidity requirements of
the already expanded  operations of the Company.  Therefore,  any funds required
for  significant  unplanned  development  of new  products or  acquisitions  are
expected to be obtained from one or more sources of  financing,  such as working
capital  loans  or term  loans  from  banks  or  other  financial  institutions,
equipment leasing,  mortgage  financing and internally  generated cash flow from
operations.  There can be no assurance of the  availability  or  sufficiency  of
these or any other source of funding for those purposes.

RESULTS OF OPERATIONS

FISCAL 1999 COMPARED TO FISCAL 1998

     REVENUES.   Consolidated  revenues  decreased  by  $1,448,000,  or  9%,  to
$14,766,000  in fiscal 1999 from  $16,214,000  in fiscal  1998.  Revenues of the
semiconductor  production equipment segment decreased by $1,413,000,  or 14%, to
$8,853,000 in fiscal 1999 from  $10,266,000 in fiscal 1998. The decline in sales
of capital equipment by the semiconductor production equipment segment accounted
for nearly all of the reduction in  consolidated  revenues and was caused by the
industry  slowdown that began in fiscal 1998. During fiscal years 1999 and 1998,
revenues of the polishing  supplies and equipment  segment were  $5,913,000  and
$5,948,000,  respectively, for a decline of less than 1%. The polishing supplies
and equipment  segment was the first to be effected by the industry slowdown and
the first to benefit from the  recovery the industry is currently  experiencing.
The Company  believes revenue growth will resume in fiscal 2000, as the industry
is now experiencing rapid recovery.

     GROSS  MARGINS.   Despite  a  9%  decline  in  consolidated  revenues,  the
consolidated gross margin increased by $443,000,  or 12%. All of the increase in
gross margin was attributable to the semiconductor production equipment segment.
The gross  margin as a  percentage  of  semiconductor  equipment  product  sales
increased  to 30% in  fiscal  1999,  from 22% in  fiscal  1998,  as a result  of
decreased labor and overhead costs and product mix. In fiscal 1999, the revenues
and gross margin of the  polishing  supplies and equipment  segment  remained at
nearly  the same  levels as in  fiscal  1998.  As a  percentage  of  sales,  the
consolidated  gross margin was 28% of sales in fiscal  1999,  compared to 23% in
fiscal  1998,  which  also is  attributable  to  improved  profitability  of the
semiconductor production equipment segment, discussed above.

                                       18
<PAGE>
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and  administrative  expenses  decreased by $859,000,  or 21%, to  $3,330,000 in
fiscal  1999,  from  $4,189,000  in  fiscal  1998.  The  selling,   general  and
administrative  expenses  of  the  semiconductor  production  equipment  segment
decreased  $648,000 as a result of the following  factors:  (i) the reduction of
personnel  and other costs;  (ii)  reduction of expenses  related to  evaluating
potential  acquisitions;  and  (iii) no fiscal  1999  charge  comparable  to the
$184,000  charge  taken by the  Company in fiscal  1998 for the  write-off  of a
demonstration  unit.  The selling,  general and  administrative  expenses of the
polishing  supplies and equipment segment decreased  $211,000 as a result of the
Company's cost reduction program implemented in the last quarter of fiscal 1998.
As a result of these cost reductions,  consolidated selling and general expenses
declined  to 23% of  revenue  in fiscal  1999 as  compared  to 26% of revenue in
fiscal 1998. Research and development expenses are discussed separately above.

     OPERATING  PROFIT  (LOSS).   The   semiconductor   equipment   industry  is
experiencing a cyclical recovery. As a result of this recovery and other factors
discussed above, the Company had an operating profit of $568,000 in fiscal 1999,
compared to an operating loss of $904,000 in fiscal 1997.  Revenues declined for
both of the Company's  operating  segments in fiscal 1999, but operating  income
increased in both segments due to a cost  reduction  program  implemented by the
Company in the last quarter of fiscal 1998 and the first quarter of fiscal 1999.
Income (loss) from continuing  operations before income taxes includes operating
income (loss), discussed above, and net interest income. Net interest income was
$20,000  lower in fiscal 1999,  as compared to fiscal 1998,  due to a decline in
cash balances  during  fiscal 1999. As a result of the above items,  income from
continuing operations before income taxes increased by $1,452,000 to $602,000 in
fiscal 1999.

     NET INCOME  (LOSS).  The income tax  provision  is $240,000 in fiscal 1999,
compared to an income tax benefit of $260,000  in fiscal  1998,  which  resulted
from the Company's  net loss in 1998.  The effective tax rate for fiscal 1999 is
40%,  which is higher than the 34% statutory rate due to the provision for state
income taxes and items that are not  deductible  for federal  income taxes.  See
Note 10 to the Consolidated  Financial  Statements for further details including
an analysis of the differences between the statutory rate and the effective rate
for  fiscal  1999 and 1998.  After  taking  into  consideration  the  income tax
provision (benefit),  the fiscal 1999 net income is $362,000, or $.17 per share,
compared to a net loss of $590,000, or $(.28) per share, in fiscal 1998.

     TRENDS. As a result of the cyclical recovery in the semiconductor industry,
consolidated  revenue  for the second  half of fiscal  1999,  $15,588,000  on an
annualized  basis, was higher than the $13,944,000 of annualized  revenue in the
first half of the fiscal year. Sales for fiscal 2000 are expected to continue to
recover from the industry downturn experienced in the second half of fiscal 1998
and the first  half of fiscal  1999.  The  Company  believes  that the  cyclical
improvement  in the  industry  will  continue  into  fiscal  2001,  however,  no
assurance can be given regarding how long the current trend will continue.

     During fiscal 1999,  approximately $168,000 of net income was earned in the
second quarter, $28,000 in the third, and $219,000 in the fourth fiscal quarter,
compared to a loss $53,000 in the first  quarter of fiscal 1999. In light of the
rapid recovery currently being experienced by the semiconductor industry and the
Company's trend of improving earnings in fiscal 1999, the Company believes there
will be continued improvement in net income during fiscal 2000.

     The Company's semiconductor  production equipment segment has been and will
continue  to be  affected  by industry  trends.  The use and  installed  base of
vertical  furnaces is increasing  throughout the industry on a worldwide  basis,
particularly for the fabrication of leading edge semiconductor devices, and each
year it is  expected  to increase  in usage to and  eventually  surpass  that of
horizontal  furnaces.  However, the Company believes that there will continue to
be demand for horizontal diffusion furnaces, notwithstanding other advantages of
vertical   systems  (e.g.   the   capability   to  produce  more   sophisticated
semiconductors  more  efficiently  through more  advanced  automation),  because
generally  production runs, other than those for high volume production of small
chips on larger wafers, are more efficiently  produced in horizontal furnaces as
compared to vertical furnaces.

     The Company's  semiconductor  production  equipment products may be used to
upgrade,  retro-fit or replace existing  horizontal  furnaces in order to extend
their useful lives or otherwise  avoid the necessity for the customer to acquire
more expensive vertical furnaces.  Horizontal  furnaces are also sold for use in
new facilities that do not require vertical furnaces for the particular process.
Another important factor is the growth of semiconductor  manufacturing using the

                                       19
<PAGE>
less  capital-intensive  horizontal  diffusion  furnaces in the  manufacturer of
solar cells, and for other less demanding processes, which could further prolong
the commercial life of the Company's existing semiconductor production equipment
products.

     The  market  for the  Company's  products  remains  a small  niche  market.
Accordingly,  future  revenues are and will  continue to be  dependent  upon the
introduction  or  acquisition  of  new  products.   Examples  include  the  IBAL
automation  products  introduced  from fiscal 1991 to fiscal  1993,  or improved
versions  of  products  that  exist  in the  market,  such  as  the  Tempress(R)
horizontal  diffusion  furnaces,  conveyor ovens and "clean room" load stations.
The Company intends to pursue both types of product introductions in the future.
Product or business  acquisitions are also a part of the Company's  strategy for
growth, as evidenced by the acquisition of P.R. Hoffman's product line of double
sided precision lapping and polishing machines and related  consumable  products
in the fourth  quarter  of fiscal  1997.  The  Company  intends to again  pursue
acquisitions  of other  businesses  or products  that  complement  its  existing
product  lines,  but  recognizes  that its ability to do so is dependent  upon a
higher market price for the Company's  Common Stock and/or the  availability  of
other sources of capital.

FISCAL 1998 COMPARED TO FISCAL 1997

     REVENUES.  The consolidated  revenues  increased by $5,103,000,  or 46%, to
$16,214,000 in fiscal 1998,  from  $11,111,000  in fiscal 1997.  During the same
period, operating income decreased by $1,119,000 from $215,000 in fiscal 1997 to
an  operating  loss of $904,000  in fiscal  1998.  The  polishing  supplies  and
equipment segment,  comprised of the P.R. Hoffman operations,  and the Company's
new manufacturing  support services were included in the consolidated results of
operations  for four  quarters in fiscal 1998 versus one quarter in fiscal 1997.
As a result,  these products and services accounted for substantially all of the
increase in consolidated revenue and produced $554,000 greater operating profit,
before corporate  allocations,  in fiscal 1998 compared to the fourth quarter of
fiscal 1997.

     GROSS MARGINS.  Revenues of the semiconductor  production equipment segment
increased by $778,000, or 8%, to $10,266,000,  while the gross margin from these
products and services decreased by $371,000, or 14%. As a result of the cyclical
downturn,  the  anticipated  increase  in  sales  of  semiconductor   production
equipment did not materialize. The gross margin as a percentage of semiconductor
production  equipment segment revenue declined to 22% in fiscal 1998 from 27% in
fiscal  1997,  as  a  result  of  increased  labor  and  overhead  costs,  price
competition and product mix. The increases in labor and overhead costs were made
in anticipation of increased sales of semiconductor production equipment,  which
did not  materialize.  The industry  slowdown also increased the amount of price
competition  experienced during fiscal 1998.  Finally,  the addition of conveyor
furnaces to the Company's semiconductor production equipment segment resulted in
higher costs because of the short delivery  schedule for such products,  as well
as  higher  re-work  costs  associated  with  adding a  product  not  previously
manufactured.  Overall,  the gross margin from  consolidated  sales increased by
$646,000,  or 21%, as a result of the polishing  supplies and equipment  segment
and manufacturing  support services  contributing to all four quarters of fiscal
1998,  compared to one quarter's gross margin in fiscal 1997. As a percentage of
sales, the consolidated  gross margin was 23% of sales in fiscal 1998,  compared
to 28% in fiscal  1997.  The  operations  that were new in fiscal 1997 had lower
gross  margins as a percent of sales in fiscal 1998 as compared to fiscal  1997,
contributing   further  to  the  decline  in  the   consolidated   gross  margin
percentages.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative  expenses  increased by $1,492,000,  or 55%, to $4,189,000 in
fiscal  1998,  from  $2,697,000  in  fiscal  1997.  The  selling,   general  and
administrative  expenses of the  polishing  supplies and  equipment  segment and
manufacturing support services directly contributed $1,173,000 of that increase.
That portion of the increase in selling, general and administrative expenses was
caused by those operations being included in the consolidated  operating results
for four  quarters in fiscal 1998  compared to one quarter in fiscal  1997.  The
selling,  general and  administrative  expenses of the semiconductor  production
equipment segment,  excluding manufacturing support services and total corporate
expenses,  increased  $319,000  as a result of the  following  factors:  (i) the
addition of personnel and other costs in anticipation of higher  revenues;  (ii)
incurrence  of  expenses  related  to  investigating  and  evaluating  potential
acquisitions, particularly before the industry slowdown affected operations; and
(iii)  a  charge  of  $184,000  taken  by the  Company  for the  write-off  of a
demonstration  unit  that is no longer  suitable  for  tradeshows.  As a result,
consolidated  selling and general expenses increased to 26% of revenue in fiscal
1998 from 24% of revenue in fiscal 1997.  Research and  development  expenses in

                                       20
<PAGE>
fiscal 1998 were  $158,000  higher  than in fiscal  1997 due to the  increase in
expenditures  to the  University  discussed  above and to increased  development
expenditures  in  an  effort  to  improve  existing   semiconductor   production
equipment.

     OPERATING PROFIT (LOSS).  Primarily as a result of the cyclical downturn in
the  semiconductor  equipment  industry and other factors  discussed  above, the
Company  had an  operating  loss of  $904,000  in fiscal  1998,  compared  to an
operating  profit of  $215,000 in fiscal  1997.  Income  (loss) from  continuing
operations  before income taxes  includes  operating  income  (loss),  discussed
above, and net interest income. Net interest income was $108,000 lower in fiscal
1998,  as compared to fiscal 1997,  due to cash used in the  acquisition  of the
polishing  supplies and  equipment  business and for increased  inventories  and
furniture and equipment purchases associated with the expansion of the Company's
semiconductor  production  equipment  product  line. As a result of these items,
income from continuing operations before income taxes decreased by $1,228,000 to
a loss of $850,000 in fiscal 1998.

     NET INCOME  (LOSS).  As a result of the  Company's  net loss,  the  Company
recognized  an income tax benefit of $260,000  in fiscal  1998,  compared to the
fiscal 1997  provision for income taxes of $140,000.  The effective tax rate for
fiscal  1998 is 31%,  which is  lower  than  the 34%  statutory  rate due to the
provision for state income taxes on the Company's  new  operations  and services
and items that are not deductible  for federal income taxes.  The effective rate
for fiscal  1997 was 37%,  3% higher than the  statutory  rate,  due to the same
items as in fiscal 1998. See Note 10 to the  Consolidated  Financial  Statements
for  further  details  including  an  analysis  of the  differences  between the
statutory  rate and the  effective  rate for fiscal 1998 and 1997.  After taking
into  consideration  the provision for (benefit  from) income taxes,  the fiscal
1998 net loss is  $590,000,  or $(.28)  per  share,  compared  to net  income of
$238,000,  or $.11 basic  earnings  per basic share ($.10  diluted  earnings per
share), in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

     As of  September  30,  1999  and  1998,  cash  and  cash  equivalents  were
$1,125,000 and  $1,352,000,  respectively.  The fiscal 1999 decrease in cash and
cash equivalents of $227,000 was primarily  attributable to $86,000 of cash used
in operations  and $158,000 for purchases of property and  equipment.  While the
Company  expects to invest up to $100,000 in  equipment,  software and furniture
and  fixtures   during  fiscal  2000,  and  up  to  $409,000  for  research  and
development,  the Company  believes there is sufficient  liquidity for these and
current  operations.  However,  see the disclosure  under the caption "Plans for
Expansion and Capital  Resources,"  above,  for an  explanation  of factors that
would give rise to requirements for additional  sources of liquidity and capital
resources, and possible sources of such to meet those needs.

     Working capital  increased by $381,000 to $5,374,000 at September 30, 1999,
from  $4,993,000  as of  September  30,  1998,  an  increase of 8%. The ratio of
current assets to current  liabilities  increased to 4.1:1 from 3.0:1.  Cash and
cash equivalents  comprise 13% of total assets and stockholders' equity accounts
for 77% of total assets. These are measures of financial condition.

YEAR 2000 COMPLIANCE

     Many currently  installed  computer systems and software products are coded
to accept two digit entries in the date code field.  These date code fields will
need to accept four digit  entries to  distinguish  21st century dates from 20th
century dates.  Any programs that have  time-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
the computer shutting down or performing  incorrect  computations.  As a result,
computer  systems and software used by many companies may need to be upgraded to
comply with such "Year 2000"  requirements.  Certain of the  Company's  systems,
including  information  and computer  systems and automated  equipment,  will be
affected by the Year 2000 issue.

     READINESS AND RELATED  RISKS.  The Company  believes it has  identified the
programs,  infrastructure  and products  that could be affected by the Year 2000
issue and has taken  steps to resolve  the  priority  issues on a timely  basis.
Based on a review of the  hardware and  software  components  of its systems and
products,  the Company does not  anticipate  devoting a  considerable  amount of
internal  resources or otherwise hire substantial  external resources to resolve
the key Year 2000 issues.

                                       21
<PAGE>
     COSTS.  The costs  incurred  by the  Company in  connection  with Year 2000
issues combined with the costs yet to be expended on such issues is not expected
to be material, as most of the issues have been resolved through installation of
regular  software  updates  provided by  licensors  under  standard  maintenance
agreements.

     CONTINGENCY  PLANS.  The  production  processes  of the  Company and of its
critical vendors are not significantly  dependent upon hardware or software that
is likely to be affected by Year 2000 problems.  The Company does not anticipate
that any problems  encountered  by suppliers and vendors in connection  with the
Year  2000 will  have a  material  adverse  effect  on the  Company's  financial
condition or results of operations.

ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to  financial  market  risks,  including  changes in
foreign currency exchange rates and interest rates. Its operations in the United
States are conducted in United States  dollars.  The Company's  operation in The
Netherlands,  a component of the  semiconductor  production  equipment  segment,
conducts business primarily in The Netherlands' guilder and, to a lesser extent,
the United States dollar and other European  currencies.  As of January 1, 1999,
the European Union,  of which The  Netherlands is a member,  established a fixed
conversion  rate between their  existing  sovereign  currencies and the Euro and
adopted the Euro as their  common  legal  currency.  Most of the other  European
currencies in which the Company's  Netherlands  operation conducts business also
have fixed exchange rates with the Euro.  Currently,  the functional currency of
the Company's Netherlands operation is The Netherlands guilder. Thus, by the end
of the three year transition period,  the functional  currency of that operation
will be the Euro.

     The  Company   estimates  that  more  than  95%  of  its  transactions  are
denominated  in one of its two  functional  currencies or  currencies  that have
fixed exchange rates with one of its functional currencies.  As of September 30,
1999, the Company did not hold any derivative  securities.  The Company incurred
net  foreign   currency  losses  of  $83,000  and  $11,000  in  1999  and  1998,
respectively,  and gains of $34,000 in 1997.  As of  September  30,  1999, a 10%
change in the foreign  currency  rates  would not have a material  impact on the
Company's financial condition. However, the Company's investment in and advances
to its Netherlands' operation total $1,426,000. A 10% change in the value of The
Netherlands  guilder relative to the United States dollar would cause a $142,600
foreign currency translation  adjustment,  a type of other comprehensive income,
which would be a direct adjustment to stockholders' equity.

     When the value of The Netherlands guilder declines relative to the value of
the United States dollar,  operations in The Netherlands can be more competitive
against the United  States based  equipment  suppliers and the cost of purchases
denominated in United States dollars  become more  expensive.  When the value of
The  Netherlands  guilder  increases  relative to the value of the United States
dollar,  operations in The Netherlands must raise prices to those customers that
normally make purchases in United States dollars,  in order to maintain the same
profit margins.  When this occurs,  this operation attempts to have transactions
denominated in The Netherlands guilder or the Euro and to increase its purchases
denominated  in United States  dollars.  The Company  estimates  that the annual
purchases and sales of this  operation  that are  denominated  in currencies not
linked to its functional  currency,  including  United States  dollars,  British
pounds and Swiss francs, are approximately $600,000 and $800,000,  respectively.
Most of those  purchases and sales are  denominated in United States dollars and
those  purchases  equal  approximately  75% of those sales,  providing a partial
hedge against fluctuations in exchange rates. Because it is difficult to predict
the  volume of dollar  denominated  transactions  arising  from The  Netherlands
operations,  the Company  does not hedge  against  the effects of exchange  rate
changes on future transactions,  such as sales for which the Company has not yet
received a purchase order. The Netherlands  guilder is near its historically low
value relative to the United States dollar, giving the Company's operation based
in The  Netherlands a competitive  advantage over other  suppliers  based in the
United  States.  However,  a  future  increase  in  the  relative  value  of The
Netherlands  guilder could have a materially adverse effect on future results of
the Company's operations.

     The  polishing  supplies and equipment  segment  makes annual  purchases of
approximately $650,000 through direct or indirect sources from Japan or Germany.
While these  purchases are  denominated in United States  dollars,  the price of
materials  purchased  from Japan is  directly  effected  by the value of the yen
relative to the  dollar.  The Company  believes  the price of steel  produced in
Germany is relatively unaffected by fluctuations in the value of German mark, as
the supplier sets the price based on an average exchange rate. However, assuming
the price of German sourced steel also fluctuated with currency  exchange rates,
a 10% change in the value of Japanese  yen and the German  mark  relative to the
United  States  dollar  would  effect the cost of this  segment's  purchases  by
$65,000.

     The  Company  is also  exposed  to  interest  rate risk on its  fixed  debt
obligations. At September 30, 1999, fixed rate debt obligations totaled $197,000
with a fixed  interest  rate of 6.95% through June 2001.  Due to the  relatively
insignificant  principal  balance of  outstanding  debt,  the  Company  does not
actively  manage  the risk  associated  with  these  obligations.  The impact of
interest rate changes would not have a material impact on the Company's  results
of operations.

FORWARD-LOOKING STATEMENTS

     The  statements  contained in this Annual  Report on Form 10-K that are not
historical fact are  forward-looking  statements (as such term is defined in the
Private  Securities  Litigation  Reform Act of 1995).  These  statements  can be

                                       22
<PAGE>
identified  by the  use of  forward  looking  terminology  such  as  "believes,"
"expects," "may," "will," "should," or "anticipates," or the negative thereof or
other written variations thereof or comparable terminology.  The forward-looking
statements  contained  herein are based on current  expectations  that involve a
number  of  risks  and  uncertainties.   Among  others,  these   forward-looking
statements  are  based  on  assumptions  that  (a) the  Company  will not lose a
significant  customer  or  customers,   (b)  the  Company  will  not  experience
significant  further  reductions in demand or rescheduling of customer  purchase
orders,  (c) the Company's products will remain accepted within their respective
markets  and will not be  significantly  further  replaced  by newer  technology
equipment,  (d)  competitive  conditions  within the Company's  markets will not
materially  deteriorate,  (e) the Company's  efforts to improve its products and
maintain its  competitiveness  in the markets in which it competes will continue
to progress and that the savings associated with these  expenditures  and/or the
increased product demand resulting  therefrom  justifies such development costs,
(f) the Company will be able to retain,  and when needed,  add key technical and
management  personnel,  (g) business or product  acquisitions,  if any,  will be
successfully integrated and the results of operations therefrom will support the
acquisition price, (h) that the Company's  forecasts will accurately  anticipate
market demand,  (i) there will be no material  adverse  changes in the Company's
existing operations, (j) the Company will be able to obtain sufficient equity or
debt  funding to increase  its capital  resources  by the amount  needed for new
business  or  product  acquisitions,  if any,  (k) the  semiconductor  equipment
industry will continue to recover from the recent slowdown, (l) the condition in
the Asian  markets  will  continue to improve,  (m) the Company  will be able to
continue  to  control  costs,  (n) the  Company  will not,  either  directly  or
indirectly, incur any material Year 2000 issues and (o) demand for the Company's
products will not be adversely and significantly influenced by trends within the
semiconductor industries, including consolidation of semiconductor manufacturing
operations  through  mergers and the  subcontracting  out of the  production  of
semiconductors  to  foundries.  Assumptions  related  to the  foregoing  involve
judgments with respect to, among other things, future economic,  competitive and
market conditions,  all of which are beyond the control of the Company. Although
the  Company  believes  that  the  assumptions  underlying  the  forward-looking
statements are reasonable,  any of the assumptions  could prove  inaccurate and,
therefore,   there  can  be  no  assurance  that  the  results  contemplated  in
forward-looking  statements  will be  realized.  In  addition,  the business and
operations of the Company are subject to substantial  risks,  which increase the
uncertainty  inherent  in  such  forward-looking  statements.  In  light  of the
significant  uncertainties inherent in the forward-looking  information included
herein,  such  information  should not be  regarded as a  representation  by the
Company,  or any other person, that the objectives or plans for the Company will
be achieved.

                                       23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                      INDEX

                                                                            Page
                                                                            ----
Report of Independent Public Accountants.....................................F-1

Financial Statements -

  Consolidated Balance Sheets
  September 30, 1999 and 1998................................................F-2

  Consolidated Statements of Operations for
  the years ended September 30, 1999, 1998 and 1997..........................F-3

  Consolidated Statements of Stockholders'
  Equity for the years ended September 30,
  1999, 1998 and 1997........................................................F-4

  Consolidated Statements of Cash Flows for
  the years ended September 30, 1999, 1998 and 1997..........................F-5

  Notes to Consolidated Financial Statements
   September 30, 1999, 1998 and 1997.........................................F-7

Financial Statement Schedule for the years ended September 30, 1999,
  1998 and 1997:

  Schedule II - Valuation and Qualifying Accounts............................S-1

         All Schedules, other than the Schedule listed above, are omitted as the
information is not required, is not material or is otherwise furnished.

                                       24
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To AMTECH SYSTEMS, INC.:

We have audited the accompanying  consolidated balance sheets of AMTECH SYSTEMS,
INC. (an Arizona  corporation) and subsidiaries  (the "Company") as of September
30,  1999 and 1998,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended  September  30, 1999.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  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 financial  statements  referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1999 and 1998,  and the results of its operations and its cash flows for each of
the three years in the period ended  September  30,  1999,  in  conformity  with
generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements  and  supplementary  data is  presented  for  purposes  of
complying  with the  Securities  and  Exchange  Commission's  rules and is not a
required  part  of the  basic  financial  statements.  This  schedule  has  been
subjected  to the  auditing  procedures  applied  in  our  audits  of the  basic
financial statements and, in our opinion, fairly states in all material respects
the  financial  data  required to be set forth  therein in relation to the basic
financial statements taken as a whole.


                                        ARTHUR ANDERSEN LLP

Phoenix, Arizona,
  December 15, 1999.

                                       F-1
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 1999 AND 1998

                                                         1999          1998
                                                      -----------   -----------
                                     ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                            $ 1,124,685   $ 1,351,542
 Accounts receivable - net                              3,208,488     2,894,217
 Inventories                                            2,259,657     2,393,708
 Deferred income taxes                                    421,000       393,000
 Income taxes refundable                                   34,000       404,000
 Prepaid expenses                                          73,914        87,711
                                                      -----------   -----------
        Total current assets                            7,121,744     7,524,178

PROPERTY, PLANT AND EQUIPMENT - net                     1,098,313     1,243,016

GOODWILL AND OTHER ASSETS -  net                          524,501       558,285
                                                      -----------   -----------
        TOTAL ASSETS                                  $ 8,744,558   $ 9,325,479
                                                      ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                    $   627,445   $ 1,229,451
  Accrued compensation and related taxes                  458,277       573,294
  Accrued warranty expense                                146,590       166,839
  Accrued installation expense                            196,349       183,909
  Customer deposits                                        83,242       249,795
  Other accrued liabilities                               235,610       127,435
                                                      -----------   -----------
        Total current liabilities                       1,747,513     2,530,723
                                                      -----------   -----------
LONG-TERM OBLIGATIONS                                     286,828       347,667
                                                      -----------   -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock; no specified terms;
    100,000,000 shares authorized; none issued                 --            --
  Common stock; $0.01 par value; 100,000,000 shares
    authorized; 2,108,679 (2,110,303 in 1998) shares
    issued and outstanding                                 21,087        21,103
  Additional paid-in capital                            7,400,152     7,406,589
  Accumulated other comprehensive loss -
    Cumulative foreign currency
      translation adjustment                             (309,064)     (216,338)
  Accumulated deficit                                    (401,958)     (764,265)
                                                      -----------   -----------
        Total stockholders' equity                      6,710,217     6,447,089
                                                      -----------   -----------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 8,744,558   $ 9,325,479
                                                      ===========   ===========

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

                                       F-2
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS For
                The Years Ended September 30, 1999, 1998 and 1997

                                           1999          1998          1997
                                        -----------   -----------   -----------

Net product sales                       $14,766,075   $16,213,904   $11,111,142
Cost of product sales                    10,599,708    12,490,631     8,033,653
                                        -----------   -----------   -----------
         Gross margin                     4,166,367     3,723,273     3,077,489

Selling, general and administrative       3,330,348     4,189,387     2,697,060
Equity in (income) of
  Korean joint venture                           --            --      (115,487)
Photo-CVD project                                --       170,306        84,883
Other research and development              268,243       267,914       195,613
                                        -----------   -----------   -----------
        Operating profit (loss)             567,776      (904,334)      215,420

Interest income,net                          34,531        54,447       162,289
                                        -----------   -----------   -----------
Income (loss) before income taxes           602,307      (849,887)      377,709
Income tax provision (benefit)              240,000      (260,000)      140,000
                                        -----------   -----------   -----------
NET INCOME (LOSS)                       $   362,307   $  (589,887)  $   237,709
                                        ===========   ===========   ===========
EARNINGS (LOSS) PER SHARE
  Basic                                 $       .17   $      (.28)  $       .11
  Weighted average shares outstanding     2,109,815     2,106,741     2,084,055

  Diluted                               $       .17   $      (.28)  $       .10
  Weighted average shares outstanding     2,189,201     2,106,741     2,348,971


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

                                       F-3
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                  COMMON STOCK                    ACCUMULATED
                              ---------------------  ADDITIONAL     OTHER                        TOTAL
                                NUMBER                PAID-IN    COMPREHENSIVE  ACCUMULATED   STOCKHOLDERS'
                               OF SHARES     AMOUNT   CAPITAL    INCOME (LOSS)    DEFICIT       EQUITY
                               ---------     ------   -------    -------------    -------       ------
<S>                            <C>         <C>        <C>          <C>           <C>           <C>
BALANCE AT
SEPTEMBER 30, 1996             2,054,834   $ 20,548   $7,064,352   $ (48,548)    $(412,087)    $6,624,265
Net income                            --         --           --          --       237,709        237,709
Translation adjustment                --         --           --    (235,905)                    (235,905)
                                                                                               ----------
   Comprehensive income                                                                             1,804
                                                                                               ----------
Employee stock bonus -
  net of stock repurchases         8,025         80       34,657          --            --         34,737
Stock options exercised           13,500        135       35,065          --            --         35,200
Shares and warrants issued
 in connection with the
 acquisition of  P.R.
 Hoffman assets                   16,194        162      232,038          --            --        232,200
                               ---------   --------   ----------   ---------     ---------     ----------
BALANCE AT
SEPTEMBER 30, 1997             2,092,553     20,925    7,366,112    (284,453)     (174,378)     6,928,206
 Net loss                             --         --           --          --      (589,887)      (589,887)
 Translation adjustment               --         --           --      68,115            --         68,115
                                                                                               ----------
   Comprehensive loss                                                                            (521,772)
                                                                                               ----------
 Stock options exercised           9,000         90       16,160          --            --         16,250
 Employee stock bonus -
  net of stock repurchases         8,750         88       24,317          --            --         24,405
                               ---------   --------   ----------   ---------     ---------     ----------
BALANCE AT
SEPTEMBER 30, 1998             2,110,303     21,103    7,406,589    (216,338)     (764,265)     6,447,089
 Net income                           --         --           --          --       362,307        362,307
 Translation adjustment               --         --           --     (92,726)           --        (92,726)
                                                                                               ----------
    Comprehensive income                                                                          269,581
                                                                                               ----------
 Employee stock bonus -
  net of stock repurchases        (1,624)       (16)      (6,437)         --            --         (6,453)
                               ---------   --------   ----------   ---------     ---------     ----------
BALANCE AT
SEPTEMBER 30, 1999             2,108,679   $ 21,087   $7,400,152   $(309,064)    $(401,958)    $6,710,217
                               =========   ========   ==========   =========     =========     ==========
</TABLE>

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

                                       F-4
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                      1999           1998           1997
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
OPERATING ACTIVITIES:
  Net income (loss)                                $   362,307    $  (589,887)   $   237,709
  Adjustments to reconcile net income (loss)
    to net cash used in operating activities:
      Depreciation and amortization                    312,371        361,046        233,938
      Inventory and accounts receivable write-offs     142,490        135,642         76,123
      Loss on disposals of long-lived assets                --        183,872            592
      Equity in income from Korean joint venture            --             --       (115,487)
      Deferred income taxes                            (28,000)      (120,000)       (50,000)
  (Increase) decrease in:
      Accounts receivable                             (473,383)       160,719       (401,561)
      Inventories, prepaid expenses and other
        assets                                         (60,958)      (429,450)      (421,270)
   Increase (decrease) in:
      Accounts payable                                (542,561)       240,963        191,544
      Accrued liabilities and customer deposits       (155,788)       244,643        188,091
      Income taxes payable/refundable                  364,063       (522,059)       (21,000)
                                                   -----------    -----------    -----------
   Net Cash Used In Operating Activities               (79,459)      (334,511)       (81,321)
                                                   -----------    -----------    -----------
INVESTING ACTIVITIES:
  Maturities of short-term investments - net                --        579,191      1,884,929
  Proceeds from disposition of interest in
    Korean joint venture                                    --             --        475,047
  Purchases of property, plant and equipment          (158,232)      (310,962)      (236,652)
  Cash paid for net assets of P.R. Hoffman
    Machine Products Corporation                            --             --     (2,569,580)
                                                   -----------    -----------    -----------
   Net Cash Provided By (Used In)
    Investing Activities                              (158,232)       268,229       (446,256)
                                                   -----------    -----------    -----------
FINANCING ACTIVITIES:
  Proceeds from stock options exercised                     --         16,250         35,200
  Employee stock bonus - net of stock
    repurchases                                         (6,453)        24,405         34,737
  Payments on mortgage loan                            (12,062)       (12,069)       (19,635)
                                                   -----------    -----------    -----------
   Net Cash Provided By (Used In)
    Financing Activities                              (18,515)        28,586         50,302
                                                   -----------    -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                 29,349         (6,611)      (121,093)
                                                   -----------    -----------    -----------
CASH AND EQUIVALENTS:
  Net decrease                                        (226,857)       (44,307)      (598,368)
  Beginning of year                                  1,351,542      1,395,849      1,994,217
                                                   -----------    -----------    -----------
END OF YEAR CASH AND EQUIVALENTS                   $ 1,124,685    $ 1,351,542    $ 1,395,849
                                                   ===========    ===========    ===========
</TABLE>

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

                                       F-5
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
              For The Years Ended September 30, 1999, 1998 and 1997

                                              1999          1998         1997
                                            ---------     ---------    ---------
SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for:
     Interest                               $  10,169     $  15,731    $  19,855
     Income taxes paid  (refunded)           (102,000)      387,411      216,000

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

                                       F-6
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997

(1) NATURE OF OPERATIONS:

     Amtech  Systems,  Inc.  (an Arizona  corporation),  P. R.  Hoffman  Machine
Products, Inc., a wholly-owned subsidiary formed in July 1997, ("P. R. Hoffman")
both based in the United  States,  and Tempress  Systems,  Inc., a  wholly-owned
subsidiary  formed in September 1994 and based in The Netherlands  ("Tempress"),
comprise  the  "Company".  The Company  designs,  assembles,  sells and installs
capital  equipment and related  consumables used in the manufacture of wafers of
various materials,  primarily silicon wafers for the semiconductor industry, and
in certain  semiconductor  fabrication  processes.  These  products  are sold to
manufacturers of silicon wafers and  semiconductors  worldwide,  particularly in
the United States,  Korea, and Northern Europe.  During fiscal 1997, the Company
began providing semiconductor manufacturing support services. The Company serves
a niche market in an industry which experiences rapid technological advances and
which in the past  has been  very  cyclical.  Therefore,  the  Company's  future
profitability  and growth depend on its ability to develop or acquire and market
profitable new products and its ability to adapt to cyclical trends.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION - The accompanying  consolidated financial statements
include the accounts of Amtech Systems,  Inc. and its wholly owned subsidiaries,
P. R. Hoffman Machine Products, Inc. since its acquisition date (see Note 3) and
Tempress Systems,  Inc. All significant  intercompany  accounts and transactions
have been eliminated in consolidation.  Certain reclassifications have been made
to the  September  30,  1998 and 1997  financial  statements  to  conform to the
September 30, 1999 presentation.

     REVENUE  RECOGNITION  - Revenue is recognized on the accrual basis when the
customer takes title to the product,  generally upon shipment. On occasion,  the
Company will recognize revenue prior to shipment.  When this occurs, the Company
ensures that title has passed,  the customer has  committed to take  delivery of
the goods in a reasonable period of time, there is a legitimate business purpose
requested by the  customer not to ship the product,  the product is complete and
ready for shipment and is segregated  from  existing  inventory and there are no
material  contingencies.  As of September 30, 1999,  the Company had  recognized
$736,000 of revenue for two furnace systems for which shipment had not occurred.
In each case, the Company had received  eighty-five percent (85%) of the selling
price by  September  30,  1999,  and had met the  revenue  recognition  criteria
described above.

     Service revenues are recognized as services are performed.

     CASH EQUIVALENTS - Cash equivalents consist of time certificates of deposit
and U.S.  treasury  bills.  The Company  considers  certificates  of deposit and
treasury bills to be cash  equivalents if their maturity is 90 days or less from
date of purchase. Investments maturing in more than 90 days are considered to be
"available-for-sale"  (as defined by Statement of Financial Accounting Standards
(SFAS) No. 115) and are recorded at fair value,  which  approximates cost. There
were no available for sale securities or short-term investments at September 30,
1999 and 1998.

                                       F-7
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     INVENTORIES  -  Inventories  are  stated  at the  lower of cost  (first-in,
first-out  method) or market.  The  components  of inventory as of September 30,
1999 and 1998 are as follows:

                                                 1999               1998
                                              ----------         ----------
     Purchased parts                          $1,237,348         $1,174,570
     Work-in-progress                            605,769            612,646
     Finished goods                              416,540            606,492
                                              ----------         ----------
                                              $2,259,657         $2,393,708
                                              ==========         ==========

     PROPERTY,  PLANT AND  EQUIPMENT  -  Maintenance  and repairs are charged to
expense as incurred.  The costs of additions and  improvements  are capitalized.
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  expense for fiscal years 1999,  1998 and 1997
was approximately $256,000, $273,000 and $196,000, respectively.

     Depreciation is computed using the straight-line  method.  Useful lives for
equipment,  machinery and leasehold  improvements  are from three to five years;
for  furniture and fixtures  from five to ten years;  and for  buildings  twenty
years.

     Long-lived   assets  are  reviewed  for  impairment   whenever   events  or
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable. If the sum of the undiscounted expected cash flows from an asset to
be held and used in operations is less than the carrying value of the asset,  an
impairment loss is recognized.

     Due to model  changes in 1998,  the Company  reviewed a Tempress  diffusion
furnace built for use at tradeshows and determined that the net present value of
future cash flows it can expect from this  furnace  were less than the  carrying
value of the asset.  Accordingly,  a loss of  $184,000,  the cost of the furnace
less   accumulated   depreciation,   was   included  in  selling,   general  and
administrative expense in fiscal 1998.

     The following is a summary of property, plant and equipment as of September
30, 1999 and 1998:

                                                   1999           1998
                                                -----------    -----------
     Building and leasehold improvements        $   588,324    $   610,507
     Equipment and machinery                      1,046,247        935,280
     Furniture and fixtures                         471,884        498,634
                                                -----------    -----------
                                                  2,106,455      2,044,421
     Accumulated depreciation                    (1,008,142)      (801,405)
                                                -----------    -----------
                                                $ 1,098,313    $ 1,243,016
                                                ===========    ===========

     GOODWILL - The purchase  price in excess of net assets  acquired,  commonly
referred  to as  goodwill,  is being  amortized  over  fifteen  years  using the
straight-line method.  Amortization expense for fiscal years 1999, 1998 and 1997
was approximately $37,000, $37,000, and $9,000, respectively.

                                       F-8
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     WARRANTY  - The  Company  provides  free  of  charge  a  limited  warranty,
generally  twelve  months,  to all  purchasers  of its new products and systems.
Current  liabilities  include  approximately  $147,000  and $167,000 for accrued
warranty  expense as of  September  30,  1999 and 1998,  respectively.  Warranty
expense  for fiscal  1999,  1998 and 1997  amounted to  approximately  $190,000,
$240,000,  and  $267,000,  respectively.  Management  believes  this  amount  is
sufficient for all future  warranty costs on systems sold through  September 30,
1999.

     RESEARCH  AND  DEVELOPMENT   EXPENSES  -  The  Company   expenses   product
development  costs  as they are  incurred.  The  Company  incurred  expenses  of
approximately  $268,000 in 1999, $438,000 in 1998, and $280,000 in 1997, related
to the  development  of a new ashing  machine,  research on  photo-assisted  CVD
(chemical  vapor  deposition)  equipment  and  processes,   the  development  of
diffusion furnaces and the improvement of IBAL and other products.

     FOREIGN  CURRENCY  TRANSACTIONS  AND  TRANSLATION  - Financial  information
relating to the Company's  foreign  subsidiary  is reported in  accordance  with
Statement of Accounting  Financial  Standards ("SFAS") No. 52, "Foreign Currency
Translation".  Income from  continuing  operations  includes a loss from foreign
currency  transactions of $83,000 in 1999,  $11,000 in 1998 and gains of $34,000
in 1997. The functional  currency of Tempress is The  Netherlands  guilder.  The
gains or losses  resulting from the  translation of the financial  statements of
the Company's foreign-based operation have been included as a separate component
of shareholders' equity.

     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 law (see Note 10).

     EARNINGS PER COMMON SHARE - The Company  utilizes  SFAS No. 128,  "Earnings
Per Share" ("EPS") to calculate basic and diluted EPS (see Note 11).

     Effective with the close of business on March 15, 1999,  each two shares of
the $0.01 par value common stock of the Company were converted and  reclassified
into one share.  All shares and per share  amounts  have been  restated  to give
effect for this one-for-two reverse stock split. Any fractional shares resulting
from the reverse split were rounded to the next highest whole number.

     STOCK-BASED   COMPENSATION   -  The  Company   accounts  for  its  employee
stock-based  compensation  plans under SFAS No.123,  "Accounting for Stock-Based
Compensation".  SFAS No. 123 permits  companies to record  employee  stock-based
transactions under Accounting Principles Board Opinion (APB) No. 25, under which
no  compensation  cost is  recognized  and to disclose the pro forma  effects on
earnings and earnings per share as if the fair value  approach had been adopted.
(See Note 12).

     USE OF ESTIMATES - The  preparation  of financial  statements in conformity
with  generally  accepted  accounting  principles  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 revenues  and expenses
during the year. Actual results could differ from those estimates.

                                       F-9
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     FAIR VALUE OF FINANCIAL  INSTRUMENTS - The carrying values of the Company's
current  assets  and  current  liabilities  approximate  fair  value  due to the
short-term  in  which  these  instruments  mature.  The  carrying  value  of the
Company's  long-term debt  approximates  fair value because the interest rate of
the mortgage note payable (see Note 4)  approximates  prevailing  interest rates
for similar debt instruments.

     ACCOUNTING  PRONOUNCEMENTS  NOT YET ADOPTED - In June 1998,  the  Financial
Accounting  Standards  Board  ("FASB")  issued  SFAS No. 133 -  "Accounting  for
Derivative  Instruments  and Hedging  Activities".  This  statement  establishes
accounting  and  reporting  standards  for  derivative  instruments,   including
derivative instruments embedded in other contracts,  and for hedging activities.
In  June  1999,  the  FASB  issued  SFAS  No.  137  "Accounting  for  Derivative
Instruments and Hedging  Activities - Deferral of the Effective Date of SFAS No.
133". This statement  defers the effective date of SFAS No. 133 to the Company's
quarter  ending  December 31, 2000.  The Company does not expect the adoption of
SFAS  Nos.  133 and 137 to have a  material  impact  on its  future  results  of
operations or financial position.

(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS:

     On July 1, 1997, the Company acquired  substantially  all of the assets and
operating  liabilities  of P. R. Hoffman  Machine  Products  Corporation.  P. R.
Hoffman   specializes  in  the   development,   manufacture   and  marketing  of
double-sided  lapping and polishing machines and related consumables used in the
manufacture of semiconductor  silicon wafers. This acquisition was accounted for
under the purchase method of accounting;  therefore, the accompanying statements
include  the  results  of the  operations  of P. R.  Hoffman  since  the date of
acquisition.

     The cost of the acquisition is summarized as follows:
          Cash                                                   $2,308,000
          Liabilities assumed                                       382,000
          Acquisition transaction costs                             270,000
          Issuance of 16,194 shares of common stock                  65,000
          Issuance of 75,000 warrants (see Notes 11 and 12)         167,000
                                                                 ----------
               Total cost of acquisition                         $3,192,000
                                                                 ==========

     The cost of the acquisition was allocated as follows:
          Accounts receivable                                    $1,122,000
          Inventory                                               1,060,000
          Property                                                  421,000
          Other assets and liabilities                               35,000
          Goodwill                                                  554,000
                                                                 ----------
               Total                                             $3,192,000
                                                                 ==========

     The  valuation  of  the  common  stock  issued  in  connection   with  this
transaction was determined based on the fair market value of the common stock on
the  date  of  issuance,  taking  into  account  the  illiquidity  arising  from
restrictions  on the sale of the stock.  The  goodwill is being  amortized  on a
straight-line basis over a period of 15 years.

                                      F-10
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS' ASSETS - (CONTINUED)

     In addition to the above purchase price,  the former owner of P. R. Hoffman
Machine Products  Corporation is entitled to additional payments equal to 50% of
pretax income of the P. R. Hoffman  operation in excess of $800,000 per year for
a period of 5 years ending September 30, 2002, limited to a maximum aggregate of
$2 million of such payments.  The additional  contingent purchase price of up to
$2 million is payable in a combination of cash and  unregistered  and registered
common stock of the Company,  as defined in the Asset Purchase  Agreement.  This
additional  consideration  will be treated as part of the purchase  price to the
extent  earned and will be  amortized  over the  remainder  of the  fifteen-year
period  that  began  on  the  July  1,  1997  acquisition  date.  No  contingent
consideration was earned in fiscal 1999, 1998 or 1997.

     As a part of the  transaction,  the Company  subleases a 21,740 square foot
building, located in Carlisle, Pennsylvania, from John R. Krieger, the Company's
Director  of  Corporate  Development  and  former  owner  of the P.  R.  Hoffman
operation.  The lease requires monthly payments of $9,860 on a triple net basis,
expires on June 30,  2004,  and  includes  an option to renew the lease for five
successive one-year terms. Monthly lease payments increase to $10,300,  $10,700,
$10,810  and $10,860 on July 1, 2000,  2001,  2002 and 2003,  respectively.  The
Company  also entered  into an  employment  agreement  with Mr.  Krieger,  which
requires payments of $150,000 per year and expires on June 30, 2001.

     The following  unaudited  consolidated pro forma financial  information was
prepared  assuming that the  acquisition had occurred at the beginning of fiscal
1997.  This unaudited pro forma  information  does not  necessarily  reflect the
results of operations that would have occurred had the  acquisition  taken place
at the beginning of the fiscal year and is not necessarily indicative of results
that may be obtained in the future.

                                                                    1997
                                                                -----------
     Revenues                                                   $16,121,577
     Income from continuing operations                              575,069
     Net income                                                     575,069

     Earnings per share:
          Income from continuing operations                     $       .22
          Net income                                            $       .22

     For purposes of the above unaudited pro forma presentation,  the historical
revenues  and  earnings  of P.R.  Hoffman  for the  twelve  month  period  ended
September  30, 1997 have been  combined  with the  revenues  and earnings of the
Company for the year ended September 30, 1997.

                                      F-11
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(4) LONG-TERM OBLIGATIONS:

     Long-term  debt  included in long-term  obligations  includes a twenty year
mortgage  secured by the Company's land and building located in The Netherlands.
The  non-current  portion of the long-term  debt was $185,000 and $215,000 as of
September  30,  1999 and 1998,  respectively.  As of  September  30,  1999,  the
collateral has a carrying value of $348,000.  Principal  payments of $13,000 per
year are payable in The Netherlands guilder in 240 equal monthly payments,  with
the payments for fiscal 2000  included in accounts  payable as of September  30,
1999. Interest is fixed at 6.95% through June 2001, after which the rate will be
adjusted to the prevailing market rate. There is a penalty for prepayment of the
loan prior to June 2001.

     In October 1998,  the Company was granted a line of credit in the amount of
approximately  $375,000,  the equivalent of 750,000 of The Netherlands' guilders
at an interest rate of 2% over a Netherlands bank's basic interest rate, 3.5% as
of September 30, 1999.  The line of credit is secured by a $125,000  second lien
on the  Company's  land and building in the  Netherlands,  and certain  accounts
receivable, which amounted to $819,000 as of September 30, 1999.

(5) COMMITMENTS AND CONTINGENCIES:

     Key  suppliers  include two (2) steel  mills,  one domestic and one German,
capable of meeting the material specification the Company requires; an injection
molder that  provides  plastic  insets for steel  carriers;  a pad supplier that
produces a unique material used to attach  semiconductor wafers to the polishing
template (sole sourced from a Japanese  company);  and an adhesive  manufacturer
that  supplies the critical  glue used in the  production  of the  semiconductor
polishing  templates.  As of September 30, 1999,  the Company has  unconditional
commitments  to purchase  $190,000  of steel.  Due to long  lead-times,  certain
minimum order quantities and quantities of similar steel in inventory,  it could
take several  years to use all of the steel  commitments  in  production  of the
Company's  products.  However,  these purchase  commitments  are not expected to
result in any significant losses.

     The Company has engaged an  investment  banker to assist it in  identifying
potential acquisition candidates and to assist with financing transactions. Upon
closing any  transaction(s)  initiated  prior to August 17,  2000 with  proceeds
and/or  aggregate  consideration  equal  to $1  million  or  more in  which  the
investment  banker has earned a  contingent  fee,  the Company will issue to the
investment  banker  100,000 five year warrants to purchase the Company's  common
stock at an exercise  price of $2.625 per share  exercisable on the later of the
date of issuance or August 16, 2000.

(6) MAJOR CUSTOMERS AND FOREIGN SALES:

     The  Company  had major  customers  accounting  for more than 10% of sales,
which were different in each of the three years presented, as follows:

                                            1999         1998         1997
                                            ----         ----         ----
     Customer 1                               --           --           16%
     Customer 2                               --           --           16%
     Customer 3                               --           12%          --
     Customer 4                               --           12%          --
     Customer 5                               14%          --           --
                                            ----         ----         ----
                                              14%          24%          32%
                                            ====         ====         ====

                                      F-12
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(6) MAJOR CUSTOMERS AND FOREIGN SALES - (CONTINUED)

     Receivables  from the one customer  comprise 16% of accounts  receivable at
September 30, 1999.  Receivables from three customers  comprised 43% of accounts
receivable at September 30, 1998, representing a concentration of credit risk as
defined by SFAS No. 105, "Disclosure of Information about Financial  Instruments
with  Off-Balance-Sheet  Risk and Financial  Instruments with  Concentrations of
Credit Risk".

     The Company's sales were to customers in the following geographic regions:

                                                         1999    1998    1997
                                                         ----    ----    ----
     United States & Canada (including 1%                  59%     55%     38%
        or less to Central and South America)
     Far East (Korea, People's Republic of China,           5       8      27
        Taiwan, Japan, Singapore, Indonesia,
         Malaysia and India)
     Europe (including 1% or less to Israel and Africa)    29      31      35
     Australia                                              7       6      --
                                                         ----    ----    ----
                                                          100%    100%    100%
                                                         ====    ====    ====

(7) BUSINESS SEGMENT INFORMATION:

     The Company  classifies its products into two core business  segments:  (1)
the semiconductor  production equipment segment which designs,  manufactures and
markets  semiconductor  wafer  processing  equipment used in the  fabrication of
integrated circuits, and (2) the polishing supplies and equipment segment, which
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 the Company's business
segments in 1999, 1998, and 1997 is as follows:

                                             1999         1998         1997
                                          -----------  -----------  -----------
    Revenues
      Semiconductor production equipment  $ 8,852,590  $10,266,265  $ 9,488,530
      Polishing supplies and equipment      5,913,485    5,947,639    1,622,612
                                          -----------  -----------  -----------
                                          $14,766,075  $16,213,904  $11,111,142
                                          ===========  ===========  ===========
    Operating profit (loss)
      Semiconductor production equipment  $   281,789  $  (985,614) $   (22,712)
      Polishing supplies and equipment        285,987       81,280      238,132
                                          -----------  -----------  -----------
    Total segment operating profit            567,776     (904,334)     215,420
      Interest income - net                    34,531       54,447      162,289
                                          -----------  -----------  -----------
    Income (loss) before income taxes     $   602,307  $  (849,887) $   377,709
                                          ===========  ===========  ===========

                                      F-13
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(7)  BUSINESS SEGMENT INFORMATION - (CONTINUED)

                                               1999         1998         1997
                                            ----------   ----------   ----------
    Identifiable assets
      Semiconductor production equipment    $5,236,460   $6,319,875
      Polishing supplies and equipment       3,508,098    3,005,604
                                            ----------   ----------
                                            $8,744,558   $9,325,479
                                            ==========   ==========
    Capital expenditures
      Semiconductor production equipment    $   90,036   $  255,478   $  236,652
      Polishing supplies and equipment          68,196       55,484           --
                                            ----------   ----------   ----------
                                            $  158,232   $  310,962   $  236,652
                                            ==========   ==========   ==========
    Depreciation and amortization expense
      Semiconductor production equipment    $  201,785   $  259,117   $  212,887
      Polishing supplies and equipment         110,586      101,929       21,051
                                            ----------   ----------   ----------
                                            $  312,371   $  361,046   $  233,938
                                            ==========   ==========   ==========

        The Company has  manufacturing  operations  in the United States and The
Netherlands.  Revenues,  operating  profit  (loss)  and  identifiable  assets by
geographic  region of the  locations  for the fiscal years ended 1999,  1998 and
1997 are as follows:

                                   1999            1998            1997
                               ------------    ------------    ------------
     Revenues
       United States           $  9,307,085    $ 10,481,408    $  5,321,240
       The Netherlands            5,458,990       5,732,496       5,789,902
                               ------------    ------------    ------------
                               $ 14,766,075    $ 16,213,904    $ 11,111,142
                               ============    ============    ============
     Operating profit (loss)
       United States           $    610,381    $   (376,754)   $   (146,742)
       The Netherlands              (42,605)       (527,580)        362,162
                               ------------    ------------    ------------
                               $    567,776    $   (904,334)   $    215,420
                               ============    ============    ============
     Identifiable assets
       United States           $  6,528,205    $  5,855,188
       The Netherlands            2,216,353       3,470,291
                               ------------    ------------
                               $  8,744,558    $  9,325,479
                               ============    ============

(8) LEASES:

     The Company leases buildings,  vehicles and equipment.  As of September 30,
1999 minimum rental  commitments  under  noncancellable  operating  leases total
$735,000,  of which  $193,000,  $180,000,  $134,000,  $130,000  and  $98,000 are
payable in fiscal years 2000, 2001, 2002, 2003 and 2004, respectively.

     Rental expense related to continuing  operations,  net of sublease  income,
for  1999,  1998 and 1997 was  approximately  $231,000,  $234,000  and  $98,000,
respectively.

(9) PROPRIETARY PRODUCT RIGHTS:

     The Company  acquired the  proprietary  product rights to Atmoscan in 1983,
which  provides an improved  method for the automatic  loading of silicon wafers
into diffusion  furnaces.  The Company has agreed to pay the inventor  royalties
for 17 years until  November  22,  2000.  Royalties  are 4% on sales of complete
Atmoscan systems and 2% on any related spare parts.

                                      F-14
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Through the acquisition of the net assets of P. R. Hoffman Machine Products
Corporation (see Note 3), 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 Machine Products Corporation licensed the patent rights from
Wacker  Siltronics.  Royalties  are 5% on net sales of insert  carriers to third
parties.

     Royalty  expense  included in cost of product sales  totaled  approximately
$73,000, $82,000 and $44,000 in 1999, 1998 and 1997, respectively.

(10) INCOME TAXES:

     The  provision  for (benefit  from) income taxes on  continuing  operations
consists of:

                                                1999        1998        1997
                                              ---------   ---------   ---------
     Current
       Domestic federal                       $ 250,000   $ (28,000)  $ (32,000)
       Foreign                                  (25,000)   (133,000)    202,000
       Domestic State                            43,000      21,000      20,000
                                              ---------   ---------   ---------
                                                268,000    (140,000)    190,000
                                              ---------   ---------   ---------
     Deferred
       Domestic federal                         (31,000)    (70,000)   (125,000)
       Foreign                                   13,000     (45,000)     77,000
       Domestic State                           (10,000)     (5,000)     (2,000)
                                              ---------   ---------   ---------
                                                (28,000)   (120,000)    (50,000)
                                              ---------   ---------   ---------
                                              $ 240,000   $(260,000)  $ 140,000
                                              =========   =========   =========

     The provision for income taxes on continuing  operations is different  from
the amount that would be computed by applying the United States corporate income
tax rate to the income (loss) from  continuing  operations  before income taxes.
The differences as of September 30 are summarized as follows:

                                                1999        1998        1997
                                              ---------   ---------   ---------
   Provision (benefit) at the federal rate    $ 205,000   $(289,000)  $ 128,000
   Effect of expenses not deductible for tax     15,000      19,000      19,000
   State tax provision                           42,000     (38,000)     23,000
   Effect of losses of Korean joint venture          --          --     (22,000)
   Change in valuation allowance                (22,000)     54,000       3,000
   Other items                                       --      (6,000)    (11,000)
                                              ---------   ---------   ---------
   Income tax provision (benefit)             $ 240,000   $(260,000)  $ 140,000
                                              =========   =========   =========

                                      F-15
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

10) INCOME TAXES - (CONTINUED)

     The tax assets  (liabilities)  comprising  the net deferred tax asset as of
September 30, 1999 and 1998 are as follows:

                                                           1999         1998
                                                         ---------    ---------

     Allowance for doubtful accounts                     $  56,000    $  54,000
     Uniform capitalization of inventory costs              58,000       50,000
     Inventory write-downs not currently deductible        125,000       71,000
     Book vs. tax depreciation                               7,000      (27,000)
     Unrealized currency losses (gains)                     (4,000)      35,000
     State net operating loss carryforwards                 50,000       72,000
     Liabilities not currently deductible                  222,000      253,000
     Valuation allowance                                   (93,000)    (115,000)
                                                         ---------    ---------
                                                         $ 421,000    $ 393,000
                                                         =========    =========

        In evaluating the probability of realizing its deferred tax assets,  the
Company has limited its  recognition  of deferred tax assets to those tax assets
which management believes are more likely than not to be realized. The remaining
deferred tax assets have been offset by the valuation allowance.

(11) EARNINGS (LOSS) PER SHARE:

     All EPS data  presented have been restated as required by SFAS No. 128. EPS
were calculated as follows:

                                             1999          1998          1997
                                          ----------   -----------    ----------
     Net income (loss)                    $  362,307   $  (589,887)   $  237,709

     Weighted average
     Shares outstanding:
      Common stock                         2,109,815     2,106,741     2,084,055
      Common stock equivalents issuable
        Upon exercise of warrants
        And stock options (1)                 79,386            --       264,916
                                          ----------   -----------    ----------
                                           2,189,201     2,106,741     2,348,971
                                          ==========   ===========    ==========
     Earnings (Loss) Per Share:
      Basic                               $      .17   $      (.28)   $      .11
                                          ==========   ===========    ==========
      Diluted                             $      .17   $      (.28)   $      .10
                                          ==========   ===========    ==========

----------
(1)  Number of common stock  equivalents  calculated  using the  treasury  stock
     method and the average market price during the period. Options and warrants
     on 1,492,500  shares had an exercise  price greater than the average market
     price during the year ended  September 30, 1999 and therefore did not enter
     into the EPS calculation. In fiscal 1998 all options and warrants, totaling
     1,685,792,  were  anti-dilutive  due to the net loss and  therefore did not
     enter into the EPS  calculation.  Of these options and warrants,  1,645,792
     had an exercise  price greater than the average  market price during fiscal
     1998.

                                      F-16
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(12) STOCK BASED COMPENSATION:

     STOCK  WARRANTS  - In fiscal  1995,  the  Company  issued an  aggregate  of
1,312,500  redeemable  warrants to the public  (1,207,500)  and the  underwriter
(105,000) in connection with a secondary public offering, which have an exercise
price of $5.50  per share  and  expire on  December  15,  1999.  The  redeemable
warrants  are  subject  to the  Company's  right of  redemption,  under  certain
circumstances,  at $.05 each during the period in which they are exercisable. On
December 15, 1999, the Company's Board of Directors extended the expiration date
of the publicly traded redeemable warrants to January 14, 2000.

     In  connection  with the  acquisition  of the net  assets  of P.R.  Hoffman
Machine  Products  Corporation  during  fiscal 1997,  the Company  issued 75,000
warrants  to  purchase  one share each of $.01 par value  common  stock at a per
share exercise price of $6.00. These warrants have been valued at $167,000 using
the  Black-Scholes  valuation  method.  The  primary  assumptions  used  in  the
valuation of these  warrants were a risk free rate of 6.29%,  expected  dividend
yield of 0%, average holding period of 2.5 years, and 69% volatility.  The value
of these warrants has been included in the acquisition  cost associated with the
purchase of the P. R. Hoffman net assets.

     STOCK OPTION PLANS - The board of directors  has reserved  25,000 shares of
common stock for issuance upon  exercise of the  outstanding  options  issued to
employees  under the 1983  Incentive  Stock Option Plan,  which expired in 1993.
Another  15,000  shares of common  stock are  reserved for the exercise of stock
purchase  rights granted to directors  under Director Stock Purchase  Agreements
prior to 1996. The Non-Employee  Directors Stock Option Plan was approved by the
stockholders in 1996 for the issuance of up to 100,000 shares of common stock to
directors.  The Amended and  Restated  1995 Stock Option Plan and the 1995 Stock
Bonus Plan were also  approved  by  stockholders  in 1996 under which a combined
total of 160,000  shares were  authorized.  The 1998 Employee Stock Option Plan,
under which 50,000  shares may be granted,  was adopted by the board of director
on January 31, 1998 and approved by  shareholders  on March 20, 1998. All of the
plans with the exception of the 1983 Incentive Stock Option Plan expire in 2006.
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 10 years from the
date of grant,  with the most recent grant expiring February 28, 2008. Under the
terms of the 1995 Stock  Option  Plan,  nonqualified  stock  options may also be
issued.  Options issued in fiscal years 1999,  1998 and 1997 vest at the rate of
20% - 33% per year.  Shares  granted  under the 1995 Stock  Bonus  Plan  totaled
25,000 in 1995 and 4,250 in 1996,  of which 6,000 were  forfeited in 1996. As of
September 30, 1999, the Company had 100,500 options available for issuance under
the plans.

                                      F-17
<PAGE>
(12) STOCK BASED COMPENSATION - (CONTINUED)

     The stock option  transactions  and the options  outstanding  for the three
years ended September 30, 1999, are summarized as follows:

                                                   Number of    Weighted-Average
                                                    Options      Exercise Price
                                                    -------      --------------
     Outstanding at September 30,1996                66,500          $2.64
            Granted                                 141,042           5.00
            Exercised                               (13,500)          2.14
            Expired                                  (3,000)          3.26
                                                   --------
     Outstanding at September 30,1997               191,042           4.34
            Granted                                  27,000           4.66
            Exercised                                (9,000)          1.80
            Expired or forfeited                    (16,750)          4.46
                                                   --------
     Outstanding at September 30,1998               192,292           4.52
            Granted                                  41,500           1.38
            Exercised                                    --             --
            Expired or forfeited                     (6,500)          1.13
                                                   --------
     Outstanding at September 30,1999               227,292           1.17
                                                   ========
     Outstanding options exercisable as of:
            September 30, 1997                       25,000           2.90
            September 30, 1998                       49,000           4.74
            September 30, 1999                       72,000           1.13

     In fiscal 1999,  1998 and 1997 the number of incentive stock options issued
to employees,  net of forfeitures,  were 26,000, 3,500 and 132,000 respectively,
and they were valued at $54,000,  $17,000 and $440,000  respectively,  using the
Black-Scholes  valuation  method. On October 14, 1998, the Company re-priced all
stock options  outstanding  as of that date to the closing  market price on that
date  of  $1.13  per  share.  Vesting  schedules  and  expiration  dates  remain
unchanged.  In  accordance  with APB No.  25,  "Accounting  for Stock  Issued to
Employees",  the Company is not required to record compensation  expense related
to this  re-pricing  and no such  expense has been  recorded in these  financial
statements.  The  incremental  value  attributed to the  re-pricing of the stock
options was  $58,000.  The primary  assumptions  used in the  valuations  were a
weighted  average risk free rates of 4.33% to 6.23%, an expected  dividend yield
of 0%, holding  periods of three to eight years and volatility of 63% to 86%. No
adjustment has been made for the  non-transferability  of the options or for the
risk of forfeiture at the time of issuance.  Forfeitures are instead recorded as
incurred.

                                      F-18
<PAGE>
(12) STOCK BASED COMPENSATION - (CONTINUED)

     Had the  effects of  stock-based  compensation  been  accounted  for in the
financial   statements   for  fiscal  1999,  the  net  income  would  have  been
approximately  $232,000 and the basic and diluted  earnings per share would have
been $.11. Had the effects of stock-based compensation been accounted for in the
financial statements for fiscal 1998, the net loss would have been approximately
$681,000 and the basic and diluted loss per share would have been $.32.  Had the
effects  of  stock-based  compensation  been  accounted  for  in  the  financial
statements  for  fiscal  1997,  the net  income  would  have been  approximately
$187,000 and the basic and diluted earnings per share would have been $.08.

     As of September 30, 1999 the Company's  227,292  outstanding  stock options
had a weighted  average  remaining  contractual life of 7.1 years and a range of
exercise  prices of $1.13 to $1.50.  In addition,  as of September  30, 1999 the
Company  had  72,000  of  exercisable  stock  options  with a  weighted  average
remaining contractual life of 7.1 years all at an exercise price of $1.13.

(13) KOREAN JOINT VENTURE:

     In the first  quarter of fiscal  1996,  the  Company  entered  into a joint
venture  agreement  pursuant  to which  the  Company  received  a 45%  ownership
interest and a 50% voting interest in Seil Semicon, Inc., (the "JVC"), in return
for a commitment  to invest  $500,000 in cash.  The joint  venturers  planned to
operate a silicon test wafer reclaiming  business in Korea through Seil Semicon,
Inc.,  which  remains in the start-up  phase.  Pursuant to that  agreement,  the
Company  invested  $425,000 and expensed  $65,000 of that amount as its share of
the start-up losses.  The joint venture succeeded in acquiring real property for
construction  of the  reclamation  facility  and in securing $3 million in third
party financing.  However, a review during the fourth quarter of fiscal 1996 led
the Company to  negotiate  the sale of its  interest in the joint  venture.  The
Company  received  $478,000  during  December 1996,  pursuant to the termination
agreement, which reimbursed the Company's actual investment and expenses.

(14) SHAREHOLDER RIGHTS PLAN:

     During May 1999,  the  Company's  Board of Directors  adopted a shareholder
rights plan, which authorized the distribution of one right for each outstanding
common share to purchase one  one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50,  subject to certain  antidilution
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 common stock (a "Stock  Acquisition  Date").  If a Stock Acquisition Date
occurs, each right,  unless redeemed by the Company at $.01 per right,  entitles
the holder to purchase an amount of common stock of the  Company,  or in certain
circumstances  a combination of securities  and/or 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.

                                      F-19
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                       For the Year  Balance at    Charged
                          Ended       Beginning   (credited)                Balance at
                      September 30,    of Year    to Expense   Write-offs   End of Year
                      -------------    -------    ----------   ----------   -----------
<S>                       <C>         <C>          <C>           <C>          <C>
1. Allowance for
     Doubtful Accounts:
                          1999        $143,000     $ 29,144      $32,144      $140,000

                          1998         130,000       25,198       12,198       143,000

                          1997          90,000       42,960        2,960       130,000

2. Deferred Tax
     Valuation Allowance
                          1999        $115,000     $(22,000)     $    --       $93,000

                          1998          61,000       54,000           --       115,000

                          1997          58,000        3,000           --        61,000
</TABLE>

                                       S-1
<PAGE>
                                    PART III

     Pursuant  to  Paragraph  G(3) of the  General  Instructions  to Form  10-K,
portions of the information  required by Part III of Form 10-K are  incorporated
by reference from the Company's  Proxy Statement to be filed with the Securities
and  Exchange   Commission  in  connection  with  the  2000  Annual  Meeting  of
Stockholders (the "Proxy Statement").

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by this item is incorporated by reference to the
Company's Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

     The  information  required by this item is incorporated by reference to the
Company's Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this item is incorporated by reference to the
Company's Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this item is incorporated by reference to the
Company's Proxy Statement.

                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS.

     The following is a list of all financial statements filed as a part of this
Report:

     1.   Consolidated Balance Sheets - September 30, 1999 and 1998

     2.   Consolidated  Statements of Operations  for the years ended  September
          30, 1999, 1998 and 1997

     3.   Consolidated  Statements of  Stockholders'  Equity for the years ended
          September 30, 1999, 1998 and 1997

     4.   Consolidated  Statements  of Cash Flows for the years ended  September
          30, 1999, 1998 and 1997

     5.   Notes to Consolidated  Financial Statements - September 30, 1999, 1998
          and 1997

(b) FINANCIAL STATEMENT SCHEDULES

     The following is a list of a financial  statement  schedule  required to be
filed as a part of this Report:

     1.   Schedule II - Valuation and Qualifying Accounts

     All  schedules  other than the  Schedule  listed  above are  omitted as the
     information is not required, is not material or is otherwise furnished.

                                       25
<PAGE>
(c) EXHIBITS.

                                                                       Method of
    Exhibit No.   Description                                           Filing
    -----------   -----------                                           ------
        3.1       Articles of Incorporation                                A

        3.2       Articles of Amendment to Articles of Incorporation,
                  dated April 27, 1983                                     A

        3.3       Articles of Amendment to Articles of Incorporation,
                  dated May 19, 1987                                       B

        3.4       Articles of Amendment to Articles of Incorporation,
                  dated May 2, 1988                                        C

        3.5       Articles of Amendment to Articles of Incorporation,
                  dated May 28, 1993                                       F

        3.6       Amended and Restated Bylaws                              D

        4.1       Rights Agreement dated May 17, 1999                      M

       10.1       Amended and Restated 1995 Stock Option Plan              H

       10.2       1995 Stock Bonus Plan                                    H

       10.3       Non-Employee Director Stock Option Plan                  I

       10.4       Employment Agreement with Robert T. Hass,
                  dated May 19, 1992                                       E

       10.5       Registration Rights Agreement with J.S. Whang,
                  dated January 24, 1994                                   F

       10.6       Employment Agreement with J.S. Whang, dated
                  February 28, 1997                                        K

       10.7       Contract of Sale (Real Property) dated June 21,
                  1996 between Tempress Systems, Inc. and
                  Orgelmakerij Gedr. Rell B.V.                             G

       10.8       Employment Agreement, dated July 1, 1997, between
                  the Registrant and John R. Krieger                       J

       10.9       Registration Rights Agreement, dated July 1, 1997,
                  between the Registrant and John R. Krieger               J

       10.10      Asset Purchase Agreement, dated July 1, 1997, among
                  the Registrant, P.R. Hoffman Machines Corporation
                  and John R. Krieger                                      J

       10.11      1998 Employee Stock Option Plan                          L

       10.12      Amendment to Employment Agreement, dated 1999,
                  between the Registrant and John R. Krieger               *

       10.13      Sublease Agreement, dated July 1, 1999, between
                  the Registrant and John R. Krieger                       *

                                       26
<PAGE>
                                                                       Method of
    Exhibit No.   Description                                           Filing
    -----------   -----------                                           ------
       21         Subsidiaries of the Registrant                           N

       23         Consent of Independent Public Accountant                 *

       24         Powers of Attorney                          See Signature Page

       27         Financial Data Schedule                                  *

----------
*    Filed herewith.

A    Incorporated by reference to the Company's Form S-18 Registration Statement
     No. 2-83934-LA.

B    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1987.

C    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1988.

D    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1991.

E    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1993.

F    Incorporated by reference to the Company's Form S-1 Registration  Statement
     No. 33-77368.

G    Incorporated by reference to the Company's Form S-3 Registration  Statement
     No. 333-09917.

H    Incorporated  by  reference to Company's  Form S-8  Registration  Statement
     relating to the Amended and  Restated  1995 Stock  Option Plan and the 1995
     Stock  Bonus Plan filed with the  Securities  and  Exchange  Commission  on
     September 9, 1997.

I    Incorporated  by  reference to Company's  Form S-8  Registration  Statement
     relating to the  Non-Employee  Directors  Stock  Option Plan filed with the
     Securities and Exchange Commission on August 8, 1996.

J    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     dated July 1, 1997.

K    Incorporated  by reference to the Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997.

L    Incorporated by reference to the Company's Proxy Statement for shareholders
     meeting held on March 20, 1998.

M    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     dated May 17,1999.

N    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1997.

(d) Reports on Form 8-K

     The Company filed a Form 8-K on May 28, 1999,  disclosing the adoption of a
     rights  agreement  dated May 17, 1999,  between  Amtech  Systems,  Inc. and
     American Securities Transfer & Trust, Inc.

                                       27
<PAGE>
                                   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 23, 1999                       By: /s/ Jong S. Whang
                                            ------------------------------------
                                            Jong S. Whang, President

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints  JONG S. WHANG and ROBERT T. HASS,  and each of
them,  his true and  lawful  attorneys-in-fact  and  agents,  with full power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all capacities,  to sign any and all amendments to this Form 10-K Annual
Report, and to file the same, with all exhibits thereto,  and other documents in
connection therewith with the Securities and Exchange Commission,  granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing  requisite  and necessary to be done
in and about the premises,  as fully and to all intents and purposes as he might
or  could  do  in  person  hereby   ratifying  and   confirming  all  that  said
attorneys-in-fact and agents, or his substitute or substitutes,  may lawfully do
or cause to be done by virtue hereof.

     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
       ---------                       -----                          ----

/s/  Jong S. Whang          Chairman of the Board, President   December 23, 1999
-------------------------   (Chief Executive Officer)
Jong S. Whang

/s/  Robert T. Hass         Vice President-Finance             December 23, 1999
-------------------------   (Chief Financial & Accounting
Robert T. Hass               Officer)

/s/  Donald F. Johnston     Director                           December 23, 1999
-------------------------
Donald F. Johnston

/s/  Alvin Katz             Director                           December 23, 1999
-------------------------
Alvin Katz

/s/  Bruce R. Thaw          Director                           December 23, 1999
-------------------------
Bruce R. Thaw


                                       28