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, 1997
                            ------------------

                                       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.
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             (Exact name of Registrant as specified in its charter)

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

131 South Clark Drive, Tempe, Arizona                                   85281
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(Address of Principal Executive Offices)                              (Zip Code)

Registrant's telephone number, including area code:  602-967-5146
                                                   -----------------------------

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
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                                (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 

         State the aggregate  market value of voting stock held by nonaffiliates
of the registrant: $9,849,950 as of December 26, 1997

              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:  4,185,106 shares of
Common Stock, $.01 par value, outstanding as of December 26, 1997.

                       DOCUMENTS INCORPORATED BY REFERENCE

         PART III (Items 10-13) 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 27, 1998. 
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<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----


ITEM 1.        BUSINESS......................................................  5

               Background....................................................  5
               Operating Strategy and Industry Overview......................  6
               Products......................................................  8
               Proposed New Products......................................... 12
               Manufacturing and Suppliers................................... 13
               Order Backlog................................................. 14
               Research, Development and Engineering......................... 14
               Patents....................................................... 15
               Sales and Marketing........................................... 15
               Competition................................................... 17
               Employees..................................................... 18

               FINANCIAL INFORMATION ABOUT FOREIGN AND
                 DOMESTIC OPERATIONS AND EXPORT SALES........................ 19

ITEM 2.        PROPERTIES.................................................... 19

ITEM 3.        LEGAL PROCEEDINGS............................................. 20

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                 HOLDERS..................................................... 20

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND
                 RELATED STOCKHOLDERS' MATTERS............................... 21

               Market Information............................................ 21
               Holders....................................................... 21
               Dividends..................................................... 21

ITEM 6.        SELECTED FINANCIAL DATA....................................... 22

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 23

               PLANS FOR EXPANSION AND CAPITAL RESOURCES..................... 23
               RESULTS OF OPERATIONS......................................... 25
                                        3
<PAGE>
                  Fiscal 1997 Compared to Fiscal 1996........................ 25

                           Continuing Operations............................. 25
                           Total Company..................................... 27

                  Fiscal 1996 Compared to Fiscal 1995........................ 28

                           Continuing Operations............................. 28
                           Discontinued Operations........................... 29
                           Total Company..................................... 30

               LIQUIDITY AND FINANCIAL CONDITION............................. 30
               FORWARD-LOOKING STATEMENTS.................................... 30

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 32

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 33

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE
                 REGISTRANT.................................................. 34

ITEM 11.       EXECUTIVE COMPENSATION........................................ 34

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                 AND MANAGEMENT.............................................. 34

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 34

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                 REPORTS ON FORM 8-K......................................... 35

SIGNATURES     .............................................................. 38

POWER OF ATTORNEY............................................................ 38
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<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 during 1987.  The Company also conducts  operations  through
two (2) wholly owned subsidiaries,  Tempress Systems,  Inc. ("Tempress Systems")
and P.R. Hoffman Machine Products, Inc. ("P.R. Hoffman").

         The Company's  initial  business was the  manufacture of low technology
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,  one of which is patented.  The
Company's Processing/Loading product line (Atmoscan(R),  IBAL and load stations)
is designed to permit its customers to increase the degree of control over their
semiconductor  chip   manufacturing   environment  and  to  reduce  exposure  to
contaminants  by limiting human contact during the process.  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.

         On July 1, 1997, the Company, through its wholly owned subsidiary, P.R.
Hoffman,  purchased  substantially  all of the  assets of P.R.  Hoffman  Machine
Products Corporation,  based in Carlisle,  Pennsylvania.  P.R. Hoffman develops,
manufactures,  markets and sells double sided  precision  lapping and  polishing
machines  and  related  products  including  carriers,  semiconductor  polishing
templates and replacement  parts.  These products are high throughput  precision
surface processing  systems used in the manufacture of semiconductor  wafers and
other thin wafer materials,  such as computer disk media and ceramic  components
for wireless communication devices.

         In addition,  the Company has proposed the  development  of a new photo
chemical vapor deposition ("CVD") product for use in semiconductor manufacturing
facilities, which product would be based upon the Company's existing U.S. patent
on such  technology.  In 1994, the Company engaged the University of California,
Santa Cruz to conduct a study to determine the  feasibility  of developing a CVD
product.  While this study has already proven that the Company's patented method
prevents  the  clouding of the window that  separates  the light source from the
photo CVD reactor chamber,  further work is required to determine  whether it is
feasible to develop a commercially viable reactor  incorporating this design. In
this regard,  the second phase of the study involves  testing  higher  intensity
light sources. Although the first of such lamps failed to meet expectations, the
Company  expects to receive a newly  designed  version of the lamp in the second
quarter  of fiscal  1998.  That lamp will be used to  determine  the  commercial
feasibility  of such a product.  If the  results  of the study are  sufficiently
favorable,  the Company intends to commence to design,  manufacture and market a
photo CVD product. See "--Operating Strategy and Industry Overview."
                                        5
<PAGE>
         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 (602) 967-5146.

Operating Strategy and Industry Overview

         The Company is engaged  primarily in the  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 made of silicon and are part of
the  circuitry  of  electronic  computers.  The  manufacture  of  semiconductors
involves many complex  operations  during which 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's
Processing/Loading product line is intended to permit customers using horizontal
diffusion  furnaces to  increase  the degree of control  over the  manufacturing
environment  and to reduce  exposure to  contaminants  by reducing the amount of
human  contact  during the  process.  Following an industry  trend,  the size of
individual  chips has tended to  decrease  and 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.  In  addition  to the  Company's  Processing/Loading
product line, the Company  manufactures and sells horizontal  diffusion furnaces
through its wholly owned subsidiary, Tempress Systems.

         There also is a trend in the industry,  related to the trend to smaller
chips,  toward the use in new  semiconductor  manufacturing  facilities of newer
technology,  vertical diffusion  furnaces,  which are more efficient to use than
the horizontal diffusion furnaces in certain manufacturing  processes of smaller
chips on larger wafers. Vertical diffusion furnaces are, however,  significantly
more expensive to purchase than  horizontal  diffusion  furnaces.  The Company's
Processing/Loading  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  enables the
Company to offer its existing and prospective customers an expanded product line
and a variety of manufacturing solutions for their businesses.  Accordingly, the
P.R.  Hoffman  acquisition  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.  The Company intends to expand
the markets for the P.R.  Hoffman  product  line to the  Company's  existing and
prospective  customers with the aid of the Company's larger and more established
international  distribution  channel. In addition,  through this acquisition the
Company has  obtained  access for its  existing  products  to markets  currently
served by P.R. Hoffman.

         The  Company's  target market for its  Processing/Loading  product line
consists of customers  who wish to increase  the  efficiency  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. The
Company's  target market also includes  customers who build new  facilities  but
whose  operations do not require or otherwise  want the higher  priced  vertical
diffusion furnace systems. Based on 
                                       6
<PAGE>
market  information  obtained through customer and market contacts,  the Company
believes that a majority of worldwide semiconductor manufacturing facilities are
equipped with horizontal diffusion furnaces, as compared with vertical diffusion
furnaces.  While  the  Company  estimates  that in the next  several  years  the
percentage  of  facilities  in the world  equipped with each type of system will
become equal, 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 the new
facility in November 1996.

         The Company's target market for its lapping and polishing  machines and
related  consumables  and  spare  parts  are  original  equipment  manufacturers
("OEMs")  and end  users who  produce  silicon  wafers  for  semiconductor  chip
manufacturers,  as well as,  thin  wafers of other  materials,  such as  quartz,
ceramics and metals used in the  manufacture of computer  storage disks,  optics
and ceramic components for wireless communication  products.  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 virtual  explosion of new
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.  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. Based upon available
industry statistics and analyst data, the following market information  reflects
future prospects for growth for P.R. Hoffman's product line: (i) the markets for
grinding and polishing  equipment  for blank  silicon  wafers and disk media are
projected to increase at a compound  annual  growth rate in excess of 20%;  (ii)
the  semiconductor and memory disk industries have experienced rapid growth as a
result of continued  expansion of the personal computer,  workstation,  network,
and   telecommunications   markets   coupled  with   increased   utilization  of
semiconductors  in products such as  automobiles  and consumer  electronics  and
appliances;  and (iii) United States  demand for silicon  wafers is projected to
increase at a 12% compound annual rate, reaching $3.8 billion by the year 2000.

         Industry   Slowdown.    Semiconductor   manufacturers   currently   are
experiencing a significant  decrease in the prices of semiconductors,  squeezing
manufacturers'  margins.  These factors may affect semiconductor  manufacturers'
decisions to purchase capital equipment such as the Company's products.  Further
price  declines due to increased  supply of  semiconductors  may have a material
adverse effect on the Company's business and results of operations.

         Increased Backlog. During recent periods, the Company has experienced a
significantly greater order backlog than prior periods. This increase in backlog
is due  primarily  to the  continuing  expansion  of Tempress  Systems,  a large
multi-year  order  and  the  July  1,  1997  acquisition  of  the  P.R.  Hoffman
operations.  Further,  the Company  expects that the recent turmoil in the Asian
financial  markets will likely  reduce  equipment  sales into that  region.  The
Company expects to mitigate or offset any such decline by re-focusing  sales and
marketing  efforts on other regions of the world and adjusting  operating costs,
if required. Notwithstanding the foregoing, the recent
                                       7
<PAGE>
acquisition of P.R. Hoffman, which will be included in the results of operations
for all four (4) quarters in fiscal 1998 and  subsequent  years,  is expected to
allow the  Company to continue  its growth in sales and  operating  profits,  at
least through the end of fiscal 1998. The Company continues to seek expansion of
its revenue and operating  profit through the development and acquisition of new
products that complement its own. See "--Order Backlog."

Products

         Processing/Loading 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 technology protected by the Company's  Atmoscan(R)
patents 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,   Digital  Equipment  Corp.,   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 has designed and sells an open  cantilever  paddle  system,
which remains the most commonly used wafer loading system in the industry.  This
product  was  introduced  to the  market  prior to  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 is an 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,  with  a  patent  pending,  is  a  device,   including   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.  
                                       8
<PAGE>
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 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.  All of the IBAL modules have been designed
by the Company.

         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,  which are assembled  and tested in its Tempe,  Arizona  facility,  in
fiscal 1992. Further,  almost all diffusion furnaces,  described below, are sold
with either a Tempress(R) load station, manufactured  in The  Netherlands,  or a
high-end load station described in the preceding sentence.

         Diffusion Furnaces

         Through its wholly  owned  subsidiary,  Tempress  Systems,  the Company
produces and sells horizontal diffusion furnace systems, which generally include
a  Tempress(R)   load  station,   with  the  Tempress(R)   trademark  under  the
Amtech/Tempress  name. These furnaces utilize existing  industry  technology for
sale to  customers  who do not require the  advanced  automation  of, or want to
incur the major expense of, acquiring  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.

         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 are gaining  acceptance  by the  Company's  targeted
market.
                                        9
<PAGE>
         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,
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 or thin film memory disk.  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  includes  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 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
                                       10
<PAGE>
Company's  competitors  tend to feature  more  sophisticated  controls  and user
interfaces,  and  thus in some  applications  can be  operated  by less  skilled
employees.  The Company intends to evaluate  proposed plans to incorporate  more
sophisticated controls into its next line of lapping and polishing machines.

         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
carriers are customized for specific  applications.  The Company produces custom
carriers  in a variety of sizes,  configurations  and  materials.  An  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. 8" and
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 license agreement with
Wacker,  the Company pays Wacker a 5% royalty for  carriers  sold by the Company
based on this design. The Company believes that the licensor,  despite patenting
the design,  is currently  unable to  consistently  manufacture  carriers  which
properly hold the wafer in place and the Company  believes that its  proprietary
manufacturing  process provides a competitive  barrier to entry. The royalty fee
does not apply to sales to the licensor.

         Semiconductor Polishing Templates

         The  Company's  single  sided  polishing  templates  are used to polish
silicon  wafers.  Since the  Company  does not  manufacture  surface  processing
systems  for single  sided  applications,  templates  are  designed to work with
machines manufactured by leading suppliers in this market segment such as Cybeq,
SpeedFam  and  Westech.   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.
                                       11
<PAGE>
Proposed New Products

         CVD Technology

         The  Company  has  patented an  invention  which it believes  may be of
significant  importance to the semiconductor  manufacturing  industry. It is now
having a research  study  conducted to determine the  feasibility  of developing
semiconductor   manufacturing  equipment  using  this  patented  invention.  The
invention  relates to an improvement to the CVD process used in the  manufacture
of certain  semiconductors.  The improvement uses ultraviolet  light to activate
the deposition reactions rather than thermal heat or plasma, which are presently
the common means in commercial CVD processing.  This  photo-assisted CVD process
is separate  and  distinct  from the  diffusion  process in which the  Company's
existing  products  are  used  and its use is not  limited  to  facilities  with
horizontal   diffusion  furnaces,   as  are  the  Company's  existing  products.
Accordingly,  if a commercially viable  photo-assisted CVD machine is developed,
it could be used in facilities that only use vertical furnaces.

         A  photo-assisted  CVD  process  is  potentially   attractive  for  the
manufacture  of  semiconductors  because  it  allows  a less  severe  processing
environment. First, the photo-assisted CVD processes occur at lower temperatures
and the lower temperature reduces the risk of temperature related defects in the
deposited  materials.  In this process,  ultraviolet  or UV light is used as the
energy  source  to  effect  the  deposition  of  chemicals  on the  wafers.  The
photo-assisted  CVD processes also avoid  radiation  damage which can occur with
currently prevalent processes.  Furthermore,  photo-assisted CVD processes based
on the Company's patented method are more readily adaptable to the use of larger
wafers (the silicon  substrates  from which  semiconductor  chips are made) than
other CVD  processes  now in use. The trend in the industry is toward the use of
larger size wafers and smaller size chips.

         The Company has not determined whether a commercially  feasible product
can be developed from this  technology.  The Company has entered into a Research
Agreement  with the  Regents  of the  University  of  California  ("University")
whereunder a feasibility  study is being  undertaken by the University under the
direction of Roger W. Anderson,  Ph.D. It is anticipated that, if the results of
the  University  study are  favorable,  the  Company  will  design  and  develop
specifications  for an initial  photo-assisted CVD device. The initial device is
expected  to have one  "chamber,"  containing  a number of light pipes which are
patented and a pedestal (called a susceptor) to hold wafers and would be sold to
academic  and  industry  research  facilities.  See  "Patents."  If use by  such
facilities results in acceptance of the technology by the industry,  the Company
will attempt to develop a fully automatic multi-chamber, multi-wafer product for
mass production of semiconductors. The automation (or robotic) components of the
product are expected to be procured from other manufacturers.

         The  Company's  current  plans for  developing a saleable  model of the
proposed  new photo CVD  product  are  conceptual  only.  Detailed  planning  is
expected  to be done if,  as and  when the  University  study  demonstrates  the
product's commercial feasibility. The development of first a research laboratory
product  and  then  an  industrial  product  is  expected  to take a  period  of
approximately two to three years.
                                       12
<PAGE>
         The total cost of the photo-assisted CVD product  development effort is
expected to be approximately $3,200,000,  expended in stages over a two to three
year period. All of the Company's plans and estimates are subject to significant
uncertainties.

         Wafer Reclaiming Venture

         In November  1995, 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.  ("Seil  Semicon").  Seil Semicon  intends to develop and
operate a silicon  test wafer  reclaiming  business.  The Company  had  invested
$425,000 in the venture.  In September 1996, the Company reached an agreement to
dispose of its interest in the joint venture. In accordance with the termination
agreement,  the Company received $478,143 as a return of its initial  investment
and   reimbursement   of  certain  direct  and  indirect   expenses  related  to
establishing  and  monitoring  the joint  venture.  The Company  estimated  that
additional  costs  during  the  start-up  phase  of  Seil  Semicon,  as  well as
additional  equipment  required for  operations,  increased the total  projected
capital  requirements by approximately $2.5 million over previously  anticipated
amounts. Under the then existing ownership structure,  the Company was the joint
venture's  primary source for these additional funds. The Company concluded that
it did not want to increase its  investment in the joint venture to $2-3 million
without obtaining majority control.

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  machined in the  Company's  own 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  components,   in-process   inspection  during
equipment assembly and final inspection and operation of manufactured  equipment
prior to shipment. The Company's Processing/Loading 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,  Netherlands.  The  Company's
lapping  and  polishing  machines  and  related  parts are  manufactured  at the
Company's facilities in Carlisle, Pennsylvania.

         If the proposed  photo-assisted  CVD product is developed,  the Company
plans to continue to do the engineering and purchasing and rely on suppliers for
most parts and to assemble and do a small amount of machining work internally.

         The Company's operations in Carlisle, Pennsylvania also are equipped to
perform a high percentage of the  manufacturing  process.  The  manufacturing at
this  facility  includes  the  following:  metal  stamping,  milling,  painting,
assembling, welding, punching, cutting, heat treating, machining and laminating.
Manufacturing  processes which are typically  subcontracted  out include plastic
injection,  laser cutting and wire EDM machining, and complex electrical wiring.
Key  suppliers  include  two (2) 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
                                       13
<PAGE>
(sole sourced from a Japanese company), and adhesive manufacturing that supplies
the  critical  glue  used  in  the  production  of the  semiconductor  polishing
templates.

Order Backlog

         As of November 30, 1997, the Company's order backlog for  semiconductor
equipment was approximately $5,860,000 (including $1,480,000 attributable to the
Company's P.R. Hoffman operations)  compared to approximately  $3,875,000 at the
same date in the previous year.  The Company  includes in its backlog all credit
approved customer purchase orders.  The Company  anticipates that  approximately
$800,000 of its  current  backlog will be shipped in fiscal 1999.  Orders in the
backlog may be  canceled by the  customer  upon  payment of mutually  acceptable
cancellation  charges.  While the  current  backlog  includes  the orders of one
customer  expected to be shipped over two fiscal  years  (fiscal 1998 and 1999),
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 in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. 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,
development and engineering expenditures during fiscal 1995, 1996 and 1997, were
approximately $232,000, $325,000 and $280,000, respectively.

         The Atmoscan(R),  was acquired in 1983 through a licensing  arrangement
with its  inventor,  who was not  employed by the  Company.  The other  products
(excluding the Company's products acquired in the P.R. Hoffman acquisition) were
developed by Company personnel.  The patented  photo-assisted CVD technology was
invented and patent rights  assigned to the Company by an employee.  The Company
presently  employs at its Tempe,  Arizona plant,  four engineers,  including one
with a Ph.D. and one in the sales department and the Corporate  General Manager,
and six technicians.  The Company  presently  employs two engineers,  one with a
Ph.D., and nine technicians in its Netherlands operation. These employees design
and support the horizontal  diffusion  furnace product line  manufactured in The
Netherlands.  One engineer  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. It is anticipated that  approximately  five additional  engineers
and technicians will be required for the proposed new photo-assisted CVD product
development effort.
                                       14
<PAGE>
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. Other than certain patents on the IBAL
automation,  neither  the IBAL,  cantilever,  load  stations  nor the  diffusion
furnace products are protected by patents.

         The following  table shows the patents  granted and the expiration date
thereof  and the  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)                   Korea                           May 30, 1999
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                   Pending Approval
Photo CVD                     United States                   June 1, 2010
Photo CVD                     United States                   November 15, 2011
Photo CVD                     Japan                           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.

Sales and Marketing

         There   are  two   components   of  the   market   for  the   Company's
Processing/Loading  and  diffusion  furnace  product  line,  which  consists  of
semiconductor manufacturers in the United
                                       15
<PAGE>
States, Korea, Western Europe,  Taiwan, Japan and recently the People's Republic
of China and India.  One component  consists of customers who are installing new
semiconductor   manufacturing  facilities.   The  other  component  consists  of
customers who wish to install new equipment systems in existing facilities.  The
Company's products have been sold in both components.  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,  but by making the other products more competitive
by offering them as a part of a broader  complement of product line with greater
capabilities.  For example,  the Company expects to generate  increased sales of
diffusion furnaces because it will offer them together with Atmoscan(R) and IBAL
products.  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 OEMs  fabricating  silicon  wafers  for the
semiconductor  industry,  disk media for the computer  industry,  equipment with
optical components,  and ceramic components for wireless communication products.
The Company also sells diffusion furnace and process/loading 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  IBM  Corporation,
Motorola,  Digital  Equipment,  Texas Instruments,  Intel Corporation,  National
Semiconductor,  Phillips, SGS-Thomson, Matsushita, Oki, Samsung, Sumimoto Sitix,
Mitsubishi,  Hyundai,  ITT Night Vision,  Lucent,  UMC and Wuxi China.  Of these
corporations,  IBM Corporation,  Motorola, Digital Equipment, Intel Corporation,
SGS-Thomson, and Samsung have been customers of the Company for approximately 11
years.

         The Company  markets its  products  by direct  customer  contact by the
Company's sales personnel, which personnel consists of twelve (12) persons based
in the United States,  including the President,  the Corporate  General Manager,
the President of P.R.  Hoffman,  two other outside  salesmen and an inside sales
and  marketing  staff of seven (7) 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 and Diskcon and at least one large  optical  show per year.  The
Company  is  dependent  on  its  President,   Jong  S.  Whang,   for  continuing
relationships with key customers.

         During  fiscal  1997,   two  customers   accounted  for  16%  and  16%,
respectively,  of sales from continuing operations. No other customers accounted
for 10% or more of sales. For a
                                       16
<PAGE>
more complete  analysis of significant  equipment  customers,  see Note 6 of the
Notes to  Consolidated  Financial  Statements  included  herein (the  "Financial
Statements").

         There are  presently ten  independent  sales  representatives  and five
international  distributors,  each covering a specified  geographical area on an
exclusive  basis. The areas now covered by  representatives  are the New England
area, the United Kingdom,  Central Europe (including  Germany),  France,  India,
Italy, 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.

         Upon the development of the proposed  photo-assisted  CVD product,  the
Company will seek  initially to make sales to  customers  who have  assisted and
will continue to assist in further development.  Such customers will probably be
granted a discount from published prices. Although marketing the new product, if
it is successfully developed,  will probably result in an increase in the number
of marketing  employees and in  advertising  and other  marketing  expense,  the
amount cannot now be predicted with any degree of accuracy.

         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  which  directly
competes with the Atmoscan(R), however, there are several processing systems and
various   configurations  of  existing   manufacturing  products  which  provide
advantages  similar to those that the Company believes the Atmoscan(R)  provides
to semiconductor manufacturers. Notwithstanding this competition the 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
which  perform  the  same  functions  as  the  IBAL  automation  products,  IBAL
Atmoscan(R),  IBAL  Butler  and IBAL  Queue,  but they  require  more  expensive
cleanroom floor space and are more expensive. The IBAL products are intended for
customers  who do have  or  want to  dedicate  the  additional  cleanroom  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 higer-end models can reduce the
                                       17
<PAGE>
down-time  for  the  upgrade  or   installation  as  these  load  stations  were
specifically  designed  to  accept  the  Company's  Processing/Loading  products
without  further  modification.  Products  competitive  with the Company's  load
station are sold by several well-established firms, larger than the Company. The
Company  believes,  however,  that there is a niche market for its load stations
because they can be packaged  with  Atmoscan(R),  IBAL  products  and/or sold in
conjunction with Tempress(R) diffusion furnaces. The cantilever paddle system is
designed  for  easy  assembly  and  disassembly  to  minimize  down-time  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 a number of  competitors  for the wafer lapping and polishing
machines and related consumables.  However, the Company believes that it is able
to compete  effectively  based upon the reputation of its double sided planetary
lapping and polishing  machines,  which are highly regarded for applications for
applications involving delicate and thin (approximately 100 microns) wafers. 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,  quality,  reliability,  performance  and
price.

         Competition to be expected for the proposed  photo-assisted CVD product
cannot now be  determined.  It should be  assumed,  however,  that others in the
industry are in the process of developing  new products and  improving  existing
ones.

Employees

         At  December  22,  1997 the  Company  employed  121  people  (including
corporate  officers  and  7  contract  employees);  67 in  manufacturing,  21 in
engineering,  16 in  administration,  and 17 in sales. Of these, 32 are based at
the  Company's  offices  and plant in Tempe,  Arizona,  39 are  employed  at its
facility in Carlisle,  Pennsylvania,  31 at its facility in Heerde, Netherlands,
and 19 for the Company's contract  preventative  maintenance business located in
Austin, Texas. Of the 39 people employed at the Company's Carlisle, Pennsylvania
facility,  22 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. 
                                       18
<PAGE>
           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 nonaffiliates.

                          1997               1996                 1995
                    ----------------   -----------------    -----------------
United States (1)   $ 4,227,000  38%   $ 3,314,000   39%    $ 2,463,000   36% 
Far East (2)          3,044,000  27%     3,014,000   36%      3,483,000   51% 
Europe (3)            3,840,000  35%     1,768,000   21%        494,000    7% 
India                      --    --        318,000    4%        424,000    6% 
                    -----------  ---   -----------  ----    -----------  ----
Total               $11,111,000 100%   $ 8,414,000  100%    $ 6,864,000  100% 
                    =========== ====   ===========  ====    ===========  ==== 

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

(1)  Includes sales in Costa Rica in 1997 and Canada in 1996 and 1995.
(2)  Includes Korea,  Singapore,  Taiwan,  Japan, the People's Republic of China
     and Malaysia. 
(3)  Includes sales in Israel, 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 $3,515 per
month,  on a triple  net  basis,  for a term to expire on January 31,  1998.  On
December 24, 1997, the term of the lease was extended to May 31, 1998, at a rate
of $4,950 per month on a triple net basis.

         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 president of P.R. Hoffman and
the former owner of that business. These facilities are leased at a current rate
of $3,515 per month,  on a triple net basis,  for a term to expire on August 31,
1999. The Company has the option to renew the lease for two successive  terms of
one year each.

         If the results of the University study (described  above) are favorable
and the Company commences a photo-assisted  CVD product  development  effort, an
additional  2,000  square feet will be required  for a  laboratory.  The Company
believes  that this  laboratory,  together  with the  Company's  existing  plant
facility,  will be adequate through the first year of the development effort. If
and when commercial production begins, an additional 10,000 square feet of space
may be
                                       19
<PAGE>
required.  No difficulty is expected in obtaining any  additional  space at then
prevailing  rents.  However,  at some point it may become more efficient to have
all U.S. operations in one facility.


ITEM 3.           LEGAL PROCEEDINGS

         None.


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

         None.
                                       20
<PAGE>
                                     PART II

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

Market Information

         The Company's 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 SmallCap 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
1997 and 1996 as reported by the NASDAQ SmallCap Market.

                           Quarter Ended            High        Low
                           -------------          --------    -------

                        Fiscal 1997:

                        December 31, 1996        $  4.75     $  2.38
                        March 31, 1997              4.00        2.00
                        June 30, 1997               3.63        2.00
                        September 30, 1997          3.50        2.50

                        Fiscal 1996:

                        December 31, 1995           4.56        3.88
                        March 31, 1996              4.31        3.50
                        June 30, 1996               5.63        4.13
                        September 30, 1996          5.13        3.50


Holders

         As of December 23, 1997, there were approximately 1,477 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.
                                       21
<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,
1997 and with respect to the balance  sheets at September  30, 1997 and 1996 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, 1994
and 1993 and the balance  sheet data at September  30,  1995,  1994 and 1993 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,
                                       ----------------------------------------------------------------------------

                                           1997            1996            1995            1994            1993
                                       ------------    ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>             <C>         
Operating Data

From Continuing Operations:
  Revenues                             $ 11,111,142    $  8,414,005    $  6,864,068    $  4,331,079    $  4,087,886
  Operating Profit (loss)(1)                215,420         120,813          39,582        (172,648)        426,890
  Income (Loss) from
    Continuing Operations(1)(6)             237,709         197,591         171,053         (89,469)        302,390
Net Income(1)(5)(6)                    $    237,709    $    508,683    $    226,568    $     94,004    $    508,670
Primary Earnings Per Share:(1)(2)(3)
  Continuing Operations (loss)(1)(6)   $        .06    $        .05    $        .04    $       (.05)   $        .15
  Net Income(1)(5)(6)                  $        .06    $        .10    $        .06    $        .05    $        .26

Balance Sheet Data:

Cash and Short-Term Investments        $  1,975,040    $  4,458,337    $  4,505,389    $  1,080,976    $  1,895,042
Working Capital                           5,271,320       5,480,452       6,163,304       2,244,628       2,722,362
Total Assets                              9,355,092       8,458,614       8,365,519       3,974,922       4,119,928
Total Current Liabilities                 2,108,165       1,568,994       1,363,291         852,103       1,091,113
Long-Term Obligations                       318,721         265,355            --              --              --
Accumulated Deficit                        (174,378)       (412,087)       (920,770)     (1,147,338)     (1,241,342)
Shareholders' Equity(2)(4)                6,928,206       6,624,265       7,002,228       3,122,819       3,028,815
</TABLE>

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

(1)  The  results  for the fiscal  years 1997,  1996 and 1994  include  $84,883,
     $132,243 and $355,405,  respectively,  of expense for the University  study
     described elsewhere herein.

(2)  The results shown have been restated to reflect the two-for-one combination
     or "reverse split" of Common Stock which took place on June 4, 1993 and the
     two-for-one  forward split which was effective March 29, 1996. Earnings per
     share for 1997,  1996 and 1995  reflect the sale of  2,415,000  shares in a
     public offering completed December 22, 1994.

(3)  The  results   shown  would  be  the  same  if  they  were  prepared  on  a
     fully-diluted  basis,  except that the net income per common  share for the
     fiscal year ended September 30, 1993 would have been $.25.
                                       22
<PAGE>
(4)  The decline in  Shareholders'  Equity in 1996  resulted  from the Company's
     receipt of 196,034 shares of its Common Stock upon disposition of the stock
     of Echelon  Services  Company,  as  further  detailed  in the  Consolidated
     Statements  of  Stockholders'  Equity,  included  in  the  audit  financial
     statements.

(5)  The  results  for fiscal 1996  include a $284,335  gain on the  disposal of
     discontinued operations.

(6)  Income from  continuing  operations for fiscal 1997 include a $115,487 gain
     from the disposition  of the  Company's  interest in the Seil Semicon joint
     venture.


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 and related  consumables and spare parts used
by customers in the manufacture and fabrication of semiconductors. Some of these
products,  amounting to an estimated 6% of consolidated sales in fiscal 1997 and
up to 15% in fiscal 1998,  are also sold for use in the  production  of wireless
communications,  optics,  memory disk media,  ceramics and other  products.  The
Company  also  provides  contract  preventative   maintenance  services  to  the
semiconductor industry,  accounting for an estimated 1% of consolidated sales in
fiscal 1997 and expected to grow to  approximately  5% of consolidated  sales in
fiscal 1998. The Company intends to focus on expanding its revenue and operating
profits derived from sale of such equipment and related consumable products sold
to  semiconductor  fabricators and  manufacturers  of silicon wafers used in the
fabrication of such semiconductors. The Company is seeking to expand its revenue
and operating  profits  through the  development and acquisition 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 approximately  $3,210,000.  See Note 3 to the Consolidated  Financial
Statements,  included  herein,  for further  details of the  acquisition and pro
forma revenues and earnings for fiscal 1996 and 1997,  reflecting the assumption
that the  acquisition  had  occurred at the  beginning of each such fiscal year.
During the 1996 calendar year, the operations  acquired produced $6.6 million of
revenue and $609,023 of operating profit.

         During the fourth quarter of fiscal 1997,  the Company began  providing
preventative  maintenance service to the semiconductor  industry.  Although this
operation  currently serves only one customer and existed only for the months of
August and  September of fiscal 1997,  it is already  contributing  to operating
profit.
                                       23
<PAGE>
         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.  After the end of fiscal 1996,
the joint venture was dissolved  because  management  determined that increasing
the Company's  investment  commitment to $3 million,  without obtaining majority
control,  was more  risk  than was  appropriate  for the  Company.  The  Company
received $478,000 during December 1996,  pursuant to the termination  agreement,
which  compensated  the Company for its actual  investment  and  expenses.  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.

         Although the Company discontinued its participation in the Korean Joint
Venture  and has since  completed  one other  larger  acquisition,  the  Company
intends to continue to evaluate other potential product or business acquisitions
that may  complement  the  Company's  business.  Based upon current  acquisition
criteria,  such an  acquisition  could  require  $4  million  or more of capital
resources.  The determination of the appropriateness of a potential  acquisition
is  expected  to  take  into  consideration  many  factors  including,   without
limitation,  the prospects and timing of the planned  photo-assisted CVD product
line,  described below, and the capital that would be required and available for
that product line, the economic terms of the acquisition  under review,  and the
potential synergy of the acquired business with the Company's existing business.

         Research and Development;  Photo-assisted CVD Project. Relative to many
technology businesses,  the Company made relatively small investments in product
development  prior to fiscal 1994.  The Company  increased  research and product
development  expenditures  in fiscal  1994 by  $257,000,  primarily  through the
expenditure  of $355,000 for  photo-assisted  CVD research.  During fiscal 1995,
research and development costs consisted entirely of developing the new Tempress
line of  furnaces,  an automated  robot to load  cantilever  paddle  systems and
product  improvements.  The Company  entered into two amendments of its research
and development  contract with the University during fiscal 1996, which expanded
the Company's  financial  commitment by a total of $244,000,  all but $30,000 of
which has been  expended.  The Company  intends to enter into a third  amendment
expanding its  commitment  by an additional  $251,000 and extending the contract
until the date on which certain agreed upon work is completed, which is expected
to occur in the first or second  quarter of fiscal  1999.  If the results of the
photo-assisted  CVD feasibility  study are  sufficiently  encouraging,  the next
phase would be to develop a prototype  model for use by research  facilities  to
develop  advanced  processes  for  the  manufacture  of  semiconductor  devices.
Depending on the actual timing and results of the final stage of the feasibility
study  being  conducted  by the  University,  the  Company  intends to expend an
estimated $3,200,000 on research and development over approximately a three year
period,  possibly  beginning  in fiscal  1999,  in order to develop a commercial
product based upon the Company's patented  photo-assisted  CVD technology.  This
expenditure is expected to be made in two stages:  approximately  $1,700,000 for
the  development of an initial product  suitable for use in research  facilities
and  approximately  $1,500,000  for  the  development  of a  product  for use in
industrial  production  facilities.  These estimates will need to be updated, if
the development project reaches the development stage, do not include any amount
for the expansion of facilities for the manufacture of a new  photo-assisted CVD
product  designed  for  industrial  production  facilities  or  for a  marketing
campaign, and are subject to various assumptions and significant  uncertainties.
The increased research and development expenses anticipated for this project may
thus adversely and significantly affect the Company's future operating results.
                                       24
<PAGE>
         In addition  to  photo-assisted  CVD  research,  the  Company  expended
$196,000 in fiscal 1997 on research and development for product  improvement and
development of diffusion  products.  Management  may consider other  development
projects in the future, but has not approved any significant  projects,  pending
review of the cost and benefits  and their  relationship  to expected  earnings.
These other research and development  expenses will affect the Company's  future
operating  results.  

         The funds from the cash and  short-term  investments  on hand should be
sufficient  for the  $281,000 of  commitments  made and planned to complete  the
research phase of the photo-assisted CVD project.  The currently  available cash
and short-term  investments are sufficient to service the inter-period liquidity
requirement  of  already  expanded  and  growing   operations  of  the  Company.
Therefore,  any funds required for future acquisitions or for the development of
a commercial model of the  photo-assisted  CVD reactor and the related expansion
and  marketing  campaign are expected to be obtained from one or more sources of
financing,  such as the possible  exercise of the outstanding  redeemable common
stock  warrants,  working capital loans from banks, a public offering of debt or
equity  securities,   equipment  leasing,   mortgage  financing  and  internally
generated cash flow from  operations.  There is no assurance of the availability
or sufficiency of these or any other source of funding.


RESULTS OF OPERATIONS

Fiscal 1997 Compared to Fiscal 1996

Continuing Operations

         The  consolidated  revenues  of the  semiconductor  equipment  business
increased $2,697,000, or thirty-two percent (32%), to $11,111,000 in fiscal 1997
from  $8,414,000  in fiscal  1996.  During  the same  period,  operating  income
increased  seventy-eight percent (78%), or $94,000, from $121,000 in fiscal 1996
to $215,000 in fiscal 1997. The acquisition and start-up businesses discussed in
the previous  section  accounted for sixty-six  percent (66%) of the increase in
revenue and more than all of the increase in  operating  profit,  despite  their
inclusion for only the fourth quarter of fiscal 1997.

         Revenue  from  the  sale  of  existing   diffusion  products  increased
$923,000, or eleven percent (11%), to $9,337,000,  and accounted for thirty-four
percent  (34%) of the  increase in  consolidated  revenue.  Growth in  diffusion
product revenue resulted primarily from continued  expansion  of The Netherlands
operation, where the Tempress(R) diffusion furnaces are manufactured. The growth
in gross margins  resulting from the increase in diffusion product sales was not
yet sufficient to offset the $435,000  increase in the related selling,  general
and administrative  expenses.  Further,  expanded furnace sales, which typically
produce  a lower  gross  margin,  were  partially  offset  by a  decline  in the
typically more profitable automation products,  thereby producing an unfavorable
mix.  The gain on the  disposal of the Korean  Joint  Venture  described  above,
partially compensated for the decrease in consolidated  operating profit for the
diffusion product line.
                                       25
<PAGE>
         Income (loss) from continuing  operations  before income taxes includes
operating income,  discussed above, and net interest income. Net interest income
was $64,000 lower in fiscal 1997,  as compared to fiscal 1996,  due to cash used
in the acquisition of P.R. Hoffman and for increased inventories and receivables
associated  with the  expansion of the  diffusion  product  line. As a result of
these items, the income from continuing  operations before income taxes improved
by $30,000, or 9%, to $378,000 in fiscal 1997.

         The income tax  provision  is $140,000  in fiscal 1997 and  $150,000 in
fiscal 1996. The effective tax rate for fiscal 1996 is higher than the statutory
rate and the effective rate of fiscal 1997,  because the equity in the losses of
the Korean Joint  Venture were not  deductible  for U.S.  income tax purposes in
fiscal  1996,  when  incurred,  but were  deductible  upon  disposition  of that
investment.  See Note 4 to the  consolidated  financial  statements  for further
details including an analysis of the differences  between the statutory rate and
the effective rate for fiscal 1997 and 1996. After taking into consideration the
provision for income taxes, income from continuing operations is $238,000,  $.06
per share,  for fiscal 1997, a 20% improvement  over the income of $198,000,  or
$.05 per share, in fiscal 1996.
                                       26
<PAGE>
Total Company

         For  fiscal  1997,  net  income  is equal  to  income  from  continuing
operations,  $238,000,  or $.06 per share.  The  non-recurring  $284,000 gain in
fiscal 1996 from the disposal of  discontinued  operations and $27,000 of income
before  disposition  of that  operation,  brought  net income for fiscal 1996 to
$509,000, or $.10 per share.

         Trends. The historical and expected  profitability of the Company's new
subsidiary,  P.R. Hoffman, and its inclusion in the consolidated  operations for
four (4)  quarters in fiscal  1998,  as compared to only one (1) in fiscal 1997,
will likely lead to  substantially  higher  consolidated  revenue and  operating
income in fiscal  1998 and later  years,  compared  to fiscal  1997.  Management
believes that the diffusion operation in The Netherlands has not yet reached its
full  potential.  The  resources  deployed  to acquire  P.R.  Hoffman  detracted
significantly from the sale of the higher margin automation products.  While the
Company  intends to pursue  other  acquisitions  in the future,  which may cause
management resources to be less focused on existing operations,  the Company has
sought to  alleviate  this  concern by hiring a high level  sales and  marketing
person  with  significant  experience  in  diffusion  products,   including  the
Company's  automation product line. In light of these trends,  both existing and
expected,  the Company believes that it can achieve  significantly  higher sales
and operating  profit.  However,  no assurance can be given that such  increased
sales  or  profitability  will  occur  or that the  Company's  measures  will be
effective.

         The Company's  diffusion  product line has been and will continue to be
affected by industry  trends.  The use and market share of vertical  furnaces is
increasing  throughout the industry on a worldwide  basis,  particularly for the
fabrication of leading edge semiconductor  devices,  and is expected to increase
in usage to an estimated 50% over the next several years.  However,  the Company
believes  that  there  will  continue  to be  demand  for  horizontal  diffusion
furnaces,  notwithstanding  other advantages of vertical  systems (e.g.  reduced
contamination  and the capability to produce more  sophisticated  semiconductors
more  efficiently),  because for all but mass  production runs of small chips on
larger wafers there is a higher  productivity in horizontal furnaces as compared
to vertical  furnaces.  Also,  the  Company's  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
less capital intensive  horizontal diffusion furnaces in the Peoples Republic of
China,  and  other  less  developed  areas,  which  could  further  prolong  the
commercial life of the Company's  diffusion  products.  The Company also has and
expects  to  continue  to  benefit  from a growth  trend  within  the solar cell
industry, which uses the Company's diffusion products.

         The market for the  Company's  products  remains a small niche  market.
Thus future  revenues  are and will  continue  to be  dependent  upon  continued
introduction  or acquisition of new products.  For example,  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  and "clean  room" load  stations.  The Company  intends to pursue both
types of product  introductions in the future.  Product or business acquisitions
is also a part  of the  Company's  strategy  for  growth,  as  evidenced  by the
acquisition of P.R. Hoffman's product line 
                                       27
<PAGE>
of double sided precision lapping and polishing  machines and related consumable
products in the fourth  quarter of fiscal  1997.  The Company  intends to pursue
acquisitions  of other  businesses  or products  that  complement  its  existing
product lines.  Furthermore,  the Company's long range plans include developing,
if feasible, a new product based on its patented photo-assisted CVD technology.

         As of  the  date  of  this  filing,  memory  device  manufacturers  are
continuing to  experience  falling  prices  resulting  from the excess  capacity
discussed   above,  yet  their  order  backlogs  and  shipments  have  increased
significantly.  Turmoil in the Asian financial  markets is expected to eliminate
most, if not all, capital equipment sales into that region. Sales into the Asian
market  accounted  for 35% of the  Company's  total sales in fiscal 1997.  These
negative  factors  are  expected  to have a greater  impact  on the high  margin
domestic diffusion product line, as the ATMOSCAN(R) and IBAL automation products
are believed to improve the customers  yields and  efficiencies,  but are not an
absolute  necessity,  and  therefore  are the first types of equipment to be cut
from a customer's capital budget. The sale of spares,  replacement parts and the
consumable  products  associated with the lapping and polishing product line are
expected  to  continue  to be sold  even in Asia,  with  little  or no  decline.
Further,  prospective  customers  outside of Asia are  expected  to  continue to
require  the  horizontal   diffusion   furnace  products   manufactured  in  The
Netherlands.  In addition, the Company's products are sold on a world-wide basis
and therefore,  the Company will attempt to offset the sales declines  caused by
the above factors by focusing more attention on other regions. Again, because of
the acquisition of P.R. Hoffman,  the Company expects that the net result of all
of these variables will be a substantial increase in revenue in fiscal 1998.

         In addition  to  photo-assisted  CVD  research,  the  Company  expended
$196,000 in fiscal 1997 on research and development for product  improvement and
development of diffusion  products.  Management  may consider other  development
projects in the future, but has not approved any significant  projects,  pending
review of the cost and benefits  and their  relationship  to expected  earnings.
These other  research  and  development  expenses may  significantly  offset the
Company's future operating results.


Fiscal 1996 Compared to Fiscal 1995

Continuing Operations

         The  revenues  of  the  semiconductor   equipment   business  increased
$1,550,000, or 23%, to $8,414,000 in fiscal 1996 from $6,864,000 in fiscal 1995.
The  increase in revenues is due  primarily  to the 85% increase in the sales of
Tempress horizontal  diffusion furnaces and related after market parts resulting
from continued growth of the  manufacturing  operations in The Netherlands.  The
net sales of the domestic  operations'  ATMOSCAN(R) and IBAL automation products
were  essentially  unchanged  in fiscal  1996 from the level  achieved in fiscal
1995. Significant synergies have been achieved with the addition of the Tempress
product line, as both the domestic and foreign operations have secured orders by
having a broader line of products to offer, orders that might not otherwise have
been obtainable.
                                       28
<PAGE>
         Gross  profit was  $2,897,000  for fiscal  1996 versus  $2,305,000  for
fiscal 1995,  representing a 26% increase. The $592,000 increase in gross margin
primarily results from the expansion of The Netherlands operations. Gross margin
as a percentage of revenue was 34.4% in fiscal 1996 versus 33.6% in fiscal 1995,
with the improvement  being  attributed to increased sales from The Netherlands'
operations.

         The  selling,  general and  administrative  costs were  $352,000  (17%)
higher in fiscal 1996 than in fiscal 1995.  Costs  associated  directly with the
relatively  new  operations  in The  Netherlands  grew  approximately  29%, thus
accounting for 56% of the total increase. Corporate efforts to further penetrate
the market with the entire product line on a world-wide  basis,  the development
of new business  opportunities  and the write-off of certain  doubtful  accounts
receivable accounted for most of the remaining increase in selling,  general and
administrative expenses. However, these costs declined from approximately 30% of
revenues during fiscal 1995 to 28% in fiscal 1996.

         Operating  profits were  $121,000 in fiscal 1996, or 200% more than the
$40,000  reported in fiscal 1995. The improvement in operating  profit in fiscal
1996 reflects the expansion of The  Netherlands'  operations,  which reached its
break-even point in fiscal 1996.

         Income (loss) from continuing  operations  before income taxes includes
operating  income,  discussed above,  and net interest income,  which was $5,000
higher in fiscal 1996,  as compared to fiscal 1995.  As a result of these items,
the income from continuing  operations  before income taxes improved by $87,000,
or 33%, to $348,000 in fiscal 1996.

         The income from continuing operations is $198,000,  $.05 per share, for
fiscal 1996, a 16% improvement  over the income of $171,000,  or $.04 per share,
in fiscal 1995,  after  taking into  consideration  the income tax  provision of
$150,000 in fiscal 1996 and $90,000 in fiscal 1995.  The  effective tax rate for
fiscal  1996 is higher than the  statutory  rate and the  effective  rate of the
preceding  year because the equity in the losses of the Korean Joint Venture are
not deductible for U.S. income tax purposes. The income tax provision for fiscal
1995  approximates the statutory rate. See Note 4 to the consolidated  financial
statements for further details including an analysis of the differences  between
the statutory rate and the effective rate for fiscal 1996 and 1995.

Discontinued Operations

         In  October  1995,  the  Company's   Board  of  Directors   decided  to
concentrate  on  the  Company's  core  semiconductor  equipment  operations  and
discontinue  the  technical  contract  personnel  business.   That  discontinued
operation  produced income before income taxes of $52,000 and $86,000 for fiscal
1996 and fiscal 1995, respectively. Income taxes for fiscal 1996 and fiscal 1995
were $25,000 and $30,000,  respectively,  resulting in income from  discontinued
operations of $27,000 in fiscal 1996 and $56,000 in fiscal 1995.  The decline in
income is due to the fact that the Company owned this  operation for one quarter
of fiscal 1996,  compared to a full year in fiscal 1995.  The effective tax rate
in fiscal 1996 is higher than the statutory  rate because of state income taxes,
including the settlement of disputed taxes related to prior years.
                                       29
<PAGE>
         Effective December 29, 1995, the Company exchanged all of its ownership
interest in the common stock of Echelon  Service Company  ("Echelon"),  the only
remaining  operation in the technical contract  personnel line of business,  for
196,034 shares of the Company's  outstanding  Common Stock  previously  owned by
Eugene R. Hartman,  then an officer and director of the Company. The transaction
was preceded by a dividend  from Echelon to the Company in order to equalize the
values. The transaction was structured to be a tax-free  reorganization  and, as
such, no provision was made for income  taxes.  As a result of the  transaction,
the Company recognized a gain of $284,000.

Total Company

         As a result of the gain on the disposal of discontinued operations, net
income  increased  $282,000 to $509,000,  or $.10 per share, in fiscal 1996 from
$227,000, or $.06 per share, in fiscal 1995.


LIQUIDITY AND FINANCIAL CONDITION

         As  of  September  30,  1997  and  1996,  cash,  cash  equivalents  and
short-term investments amounted to $1,975,000 and $4,458,000,  respectively. The
fiscal 1997 decrease in cash and cash  equivalents of $2,483,000,  resulted from
the  $2,564,000  cash expended on the  acquisition  of P.R.  Hoffman,  including
transaction  costs.  While the Company expects to make up to $340,000 of capital
expenditures   during  fiscal  1998,   and  up  to  $610,000  for  research  and
development, actual expenditures will be made in light of the existing operating
climate.  Furthermore,  substantial  cash flows are  expected to be generated by
P.R.  Hoffman,  while cash  required for working  capital will be  controlled by
maintaining  the level of  receivable  and inventory  turns.  As a result of the
above,  the  Company   believes  there  is  sufficient   liquidity  for  current
operations. However, see "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 decreased by $209,000 to $5,271,000 from $5,480,000,  a
decrease of 4%, primarily as a result of the $577,000 investment in the goodwill
of P.R.  Hoffman.  See the Consolidated  Financial  Statements and related notes
included  herein.  For the same reasons,  the ratio of current assets to current
liabilities  decreased  to 3.5:1 from  4.5:1.  Cash and  short-term  investments
comprise 21% of total assets and stockholders'  equity accounts for 74% of total
assets. These are measures of financial condition.  The Company believes that it
continues to be financially strong.


FORWARD-LOOKING STATEMENTS

         This  Annual  Report  on Form  10-K  contains  certain  forward-looking
statements. 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
                                       30
<PAGE>
customer  purchase orders that have occurred  recently due to equipment  buyers'
caution  resulting from declining prices for  semiconductor  chips, (c) that the
Company's products will remain accepted within their respective markets and will
not be significantly  further replaced by newer technology  equipment,  (d) that
competitive  conditions  within the Company's markets will not change materially
or  adversely,  (e) that the  Company  efforts  to  integrate  its P.R.  Hoffman
subsidiary will continue to progress,  (f) that the Company's efforts to improve
its products and maintain its  competitiveness  in the markets it competes  will
continue to progress  and that the savings  associated  with these  expenditures
and/or  the  increased  product  demand  resulting   therefrom  justifies  these
development  costs.  (g) that the Company will retain and when needed add to its
ranks key  technical  and  management  personnel,  (h) that  business or product
acquisitions,  if any,  will be  successfully  integrated  and  the  results  of
operations  therefrom will support the acquisition price, (i) that the Company's
forecasts will accurately  anticipate  market demand,  (j) that there will be no
material adverse changes in the Company's existing  operations or business,  (k)
that the cost and time necessary to complete its  photo-assisted CVD feasibility
study will not again significantly  exceed the Company's  projections,  and that
should  the  Company  proceed  to the  product  development  stage,  the cost of
development will not  significantly  exceed the Company's  projections,  (l) the
Company  will be able to obtain  sufficient  funding  to  increase  its  capital
resources  by the amount used in business or product  acquisitions,  if any, and
(m) the  post-development  start-up losses of a photo-assisted CVD product line,
if  any,  will be  manageable,  and  there  will be  sufficient  demand  for the
photo-assisted  CVD  products to recover the related  development  and  start-up
costs, and to (n) expand its manufacturing facilities and production capacity in
order to produce and ship photo-assisted CVD products,  the turmoil in the Asian
markets will not spread to other geographic regions.  Assumptions related to the
foregoing  involve  judgments  with  respect  to,  among  other  things,  future
economic,  competitive and market conditions, and future business decisions, 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,  the  inclusion  of 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. 
                                       31
<PAGE>
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                      INDEX

                                                                            Page
                                                                            ----

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

Financial Statements -


   Consolidated Balance Sheets
   September 30, 1997 and 1996...............................................F-2

   Consolidated Statements of Operations for
   the years ended September 30, 1997, 1996 and 1995.........................F-3

   Consolidated Statements of Stockholders'
   Equity for the years ended September 30,
   1997, 1996 and 1995.......................................................F-4

   Consolidated Statements of Cash Flows for
   the years ended September 30, 1997, 1996 and 1995.........................F-5

   Notes to Consolidated Financial Statements
   - September 30, 1997, 1996 and 1995.......................................F-7

Financial  Statement  Schedule for the years ended  
   September 30, 1997, 1996 and 1995:

   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.
                                       32
<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  as of September  30, 1997 and
1996,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for each of the three years in the period ended  September
30, 1997. 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 AMTECH  SYSTEMS,  INC. and
subsidiaries  as of  September  30,  1997 and  1996,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.

Our  audits  were made for the  purposes  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 part of
the basic financial statements. This schedule has been subjected to the auditing
procedures  applied in the 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.




                                             /s/ Arthur Andersen LLP


Phoenix, Arizona,
December 12, 1997.
                                      F-1
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 1997 and 1996
                                                         1997           1996
                                                     -----------    -----------
                                     ASSETS
                                     ------
CURRENT ASSETS:
 Cash and equivalents (Note 2)                       $ 1,395,849    $ 1,994,217
 Short-term investments (Note 2)                         579,191      2,464,120
 Accounts receivable, less allowance
   for doubtful accounts of $130,000 in
   1997 and $90,000 in 1996                            2,983,573      1,581,973
 Inventories (Note 2)                                  2,062,052        739,201
 Deferred income taxes (Notes 2 and 4)                   273,000        223,000
 Prepaid expenses                                         85,820         46,935
                                                     -----------    -----------
          Total current assets                         7,379,485      7,049,446
                                                     -----------    -----------

PROPERTY, PLANT AND EQUIPMENT (Note 2):
   Land, building and leasehold
     improvements (Note 5)                               629,604        535,104
   Equipment and machinery                               785,142        432,435
   Furniture and fixtures                                726,365        608,972
                                                     -----------    -----------
                                                       2,141,111      1,576,511
Less accumulated depreciation and
  amortization                                           781,078        600,180
                                                     -----------    -----------
                                                       1,360,033        976,331
                                                     -----------    -----------
PURCHASE PRICE IN EXCESS OF NET ASSETS
  ACQUIRED, at amortized cost
    (Notes 2 and 3)                                      561,238           --

OTHER ASSETS (Note 11)                                    54,336        432,837
                                                     -----------    -----------
                                                     $ 9,355,092    $ 8,458,614
                                                     ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
  Accounts payable                                   $   935,338    $   652,771
  Accrued liabilities:
    Compensation and related taxes                       471,604        442,785
    Warranty and installation expenses                   369,868        185,450
    Other accrued liabilities                            208,355        143,988
  Income taxes payable (Notes 2 and 4)                   123,000        144,000
                                                     -----------    -----------
          Total current liabilities                    2,108,165      1,568,994
                                                     -----------    -----------

LONG-TERM OBLIGATIONS (Note 5)                           318,721        265,355
                                                     -----------    -----------

COMMITMENTS AND CONTINGENCIES
  (Notes 3, 7, 8, and 10)

STOCKHOLDERS' EQUITY (Notes 2, 9 and 12):
  Preferred stock; no specified terms;
    100,000,000 shares authorized; none issued              --             --
  Common stock; $.01 par value; 100,000,000
    shares authorized; 4,185,106 (4,109,668
    in 1996) shares issued and outstanding                41,850         41,097
  Additional paid-in capital                           7,345,187      7,043,803
  Cumulative foreign currency translation
    adjustment                                          (284,453)       (48,548)
  Accumulated deficit                                   (174,378)      (412,087)
                                                     -----------    -----------
          Total stockholders' equity                   6,928,206      6,624,265
                                                     -----------    -----------
                                                     $ 9,355,092    $ 8,458,614
                                                     ===========    ===========

              The accompanying notes are an integral part of these
                          consolidated balance sheets.
                                      F-2
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For The Years Ended September 30, 1997, 1996 and 1995


                                         1997            1996           1995
                                     ------------    ------------   ------------

Net product sales (Note 6)           $ 11,111,142    $  8,414,005   $  6,864,068
Cost of product sales                   7,591,347       5,516,936      4,558,675
                                     ------------    ------------   ------------
         Gross margin                   3,519,795       2,897,069      2,305,393

Selling and general                     3,139,366       2,386,466      2,034,027
Equity in (income) losses
  of Korean joint venture
  (Note 11)                              (115,487)         65,063           --
Photo-CVD project
  (Notes 2 and 10)                         84,883         132,243           --
Other research and development
  (Note 2)                                195,613         192,484        231,784
                                     ------------    ------------   ------------
        Operating profit                  215,420         120,813         39,582

Interest income-net                       162,289         226,778        221,471
                                     ------------    ------------   ------------
Income from continuing
  operations before
  income taxes                            377,709         347,591        261,053
Income tax provision
  (Notes 2 and 4)                         140,000         150,000         90,000
                                     ------------    ------------   ------------

INCOME FROM CONTINUING
  OPERATIONS                              237,709         197,591        171,053
                                     ------------    ------------   ------------


DISCONTINUED OPERATIONS:
------------------------
Income From Discontinued
  Operations (Note 12)                       --            26,757         55,515
Gain on Disposal of Echelon
  (Notes 4 and 12)                           --           284,335           --
                                     ------------    ------------   ------------
                                             --           311,092         55,515
                                     ------------    ------------   ------------


NET INCOME                           $    237,709    $    508,683   $    226,568
                                     ============    ============   ============



PRIMARY EARNING PER SHARE
  (Notes 2 and 9):
  Income From Continuing
    Operations                       $       0.06    $       0.05   $       0.04
  Net Income                         $       0.06    $       0.10   $       0.06



FULLY DILUTED EARNING PER SHARE
  (Notes 2 and 9):
  Income From Continuing
    Operations                       $       0.06    $       0.05   $       0.04
  Net Income                         $       0.06    $       0.10   $       0.06

              The accompanying notes are an integral part of these
                            consolidated statements.
                                      F-3
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For The Years Ended September 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                Cumulative
                                           Common Stock                           Foreign
                                   --------------------------     Additional     Currency                       Total
                                    Number of                      Paid-In      Translation    Accumulated   Stockholders'
                                      Shares         Amount        Capital      Adjustment       Deficit        Equity
                                   -----------    -----------    -----------    -----------    -----------    -----------

<S>                                <C>            <C>            <C>            <C>            <C>            <C>        
BALANCE AT
 SEPTEMBER 30, 1994                  1,890,702    $    18,907    $ 4,251,250    $      --      $(1,147,338)   $ 3,122,819
  Net Income                              --             --             --             --          226,568        226,568
  Secondary Public
    Offering  (Note 9)               2,415,000         24,150      3,599,232           --             --        3,623,382
  Translation adjustment                  --             --             --           29,459           --           29,459
                                   -----------    -----------    -----------    -----------    -----------    -----------

BALANCE AT
 SEPTEMBER 30, 1995                  4,305,702         43,057      7,850,482         29,459       (920,770)     7,002,228
  Net Income                              --             --             --             --          508,683        508,683
  Shares returned upon
    disposition of Echelon            (196,034)        (1,960)      (806,679)          --             --         (808,639)
  Translation adjustment                  --             --             --          (78,007)          --          (78,007)
                                   -----------    -----------    -----------    -----------    -----------    -----------

BALANCE AT
 SEPTEMBER 30, 1996                  4,109,668         41,097      7,043,803        (48,548)      (412,087)     6,624,265
  Net Income                              --             --             --             --          237,709        237,709
  Employee stock bonus                  16,050            160         34,577           --             --           34,737
  Stock options exercised               27,000            270         34,930           --             --           35,200
  Shares and warrants issued
    in connection with the
    acquisition of  P.R. Hoffman
    assets (Note 3)                     32,388            323        231,877           --             --          232,200
  Translation adjustment                  --             --             --         (235,905)          --         (235,905)
                                   -----------    -----------    -----------    -----------    -----------    -----------

BALANCE AT
 SEPTEMBER 30, 1997                  4,185,106    $    41,850    $ 7,345,187    $  (284,453)   $  (174,378)   $ 6,928,206
                                   ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>
              The accompanying notes are an integral part of these
                            consolidated statements.
                                      F-4
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For The Years Ended September 30. 1997, 1996 and 1995

                                          1997           1996           1995
                                      -----------    -----------    -----------

OPERATING ACTIVITIES:
  Net income                          $   237,709    $   508,683    $   226,568
  Adjustments to reconcile net
    income to net cash provided
    (used) by operating activities:
      Depreciation and amortization       233,938        179,289        144,085
      Inventory and accounts
        receivable write-offs              76,123         91,085         80,428
      Gain on disposal of
        discontinued operations              --         (284,335)          --
      Loss (gain) on sale or
        retirement of assets                  592         (1,950)        31,398
      Equity in (income) losses of
        Korean joint venture             (115,487)        65,063           --
      Deferred tax benefit                (50,000)       (70,000)       (36,000)
   Decreases (increases) in
     operating assets:
      Accounts receivable                (401,561)       212,067       (762,669)
      Inventories, prepaids and
        other assets                     (421,270)      (284,872)       (73,893)
   Increases (decreases) in
     operating liabilities:
      Accounts payable                    191,544        160,152        223,091
      Accrued liabilities                 222,828        254,814        123,063
      Income taxes payable                (21,000)       (81,000)       150,000
                                      -----------    -----------    -----------
   Net cash Provided by (Used In)
     Operating Activities                 (46,584)       748,996        106,071
                                      -----------    -----------    -----------

INVESTING ACTIVITIES:
  Maturities (purchases) of
    short-term investments - net        1,884,929      1,207,449     (3,327,577)
  Proceeds from disposition of
    (Investment in) unconsolidated
    Korean joint venture                  475,047       (425,000)          --
  Proceeds from sale of assets                200         28,983         19,591
  Purchases of property, plant
    and equipment                        (236,852)      (541,919)      (328,257)
  Cash paid for net assets of
    P. R. Hoffman Machine Products
    Corporation                        (2,569,580)          --             --
  Cash distributed in disposal of
    Echelon                                  --         (109,698)          --
                                      -----------    -----------    -----------
    Net Cash Provided by (Used in)
      Investing Activities               (446,256)       159,815     (3,636,243)
                                      -----------    -----------    -----------

FINANCING ACTIVITIES:
  Net proceeds from public offering
    (Note 9)                                 --             --        3,623,382
  Proceeds from stock options
    exercised (Note 9)                     35,200           --             --
  Proceeds from (Payments on)
    mortgage loan                         (19,635)       288,297           --
                                      -----------    -----------    -----------
    Net Cash Provided By Financing
      Activities                           15,565        288,297      3,623,382
                                      -----------    -----------    -----------

EFFECT OF EXCHANGE RATE CHANGES          (121,093)       (36,711)         3,626
                                      -----------    -----------    -----------

CASH AND EQUIVALENTS (Note 2):
  Net increase (decrease)                (598,368)     1,160,397         96,836
  Beginning of year                     1,994,217        833,820        736,984
                                      -----------    -----------    -----------

END OF YEAR CASH AND EQUIVALENTS      $ 1,395,849    $ 1,994,217    $   833,820
                                      ===========    ===========    ===========

              The accompanying notes are an integral part of these
                            consolidated statements.
                                      F-5
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED



                                                    1997       1996       1995
                                                  --------   --------   --------

SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for:
     Interest                                     $ 19,855   $  5,376   $   --
     Income taxes, net of refunds                  216,000    327,000      6,000




SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:

    Value received in the form of the
      Company's $.01 par value Common
      Stock in exchange for the net assets
      of Echelon Service Company (Note 12)            --      808,639       --

              The accompanying notes are an integral part of these
                            consolidated statements.
                                      F-6
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For The Years Ended September 30, 1997, 1996, and 1995

(1)  NATURE OF OPERATIONS:

         Amtech Systems,  Inc.,  based in the United States,  Tempress  Systems,
Inc.,  a  wholly-owned  subsidiary  formed in September  1994,  and based in The
Netherlands, and P. R. Hoffman Machine Products, Inc., a wholly-owned subsidiary
formed in July 1997, and based in the United States, 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  processes  of
semiconductor  fabrication.  These products are sold to manufacturers of silicon
wafers and semiconductors world-wide,  particularly in the United States, Korea,
and  Northern   Europe.   During  fiscal  1997,  the  Company  began   providing
preventative  maintenance  services to the semiconductor  industry in the United
States. See Note 12 regarding discontinued operations.

         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 success in
adapting to future 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,  including  Echelon  Service Company (Note 12) through the date of
its  disposition,  and P. R. Hoffman Machine  Products,  Inc. (Note 3) since its
acquisition  date. All significant  intercompany  accounts and transactions have
been eliminated in consolidation.

         Revenue  Recognition  - Revenue is recognized on the accrual basis when
the product is shipped and title passes to the customer.

         Cash  Equivalents  and Short-term  Investments - Cash  equivalents  and
short-term investments 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 purchase. Investments
maturing in over 90 days are considered to be  "available-for-sale"  (as defined
by the  Statement  of  Financial  Accounting  Standards  (SFAS) No. 115) and are
recorded at fair value, which approximates cost.

         Inventories  - Inventories  are stated at the lower of cost  (first-in,
first-out  method) or market.  The  components  of inventory as of September 30,
1997 and 1996 are as follows:


                                              1997                1996
                                           ----------          ----------
       Purchased parts                     $  995,850          $  527,321
       Work-in-progress                       618,295             211,880
       Finished Goods                         447,907                --
                                           ----------          ----------
                                           $2,062,052          $  739,201
                                           ==========          ==========
                                      F-7
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

         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 and any gain or loss is recognized.

         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.

         In fiscal 1996, the Company  adopted SFAS No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of."
This  standard  requires  that  long-lived  assets be  reviewed  for  impairment
whenever events or circumstances  indicate that the carrying amount of the asset
may not be  recoverable.  If the sum of the 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. Adoption of this Standard did not have a material
effect on the Company's financial position or results of operations.

         Purchase Price in Excess of Net Assets Acquired - 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.

         Research  and  Development  Expenses  - The  Company  expenses  product
development  costs as they are  incurred.  The  Company  incurred  approximately
$280,000 in 1997, $325,000 in 1996, and $232,000 in 1995, of expenses related to
research  of  photo-assisted  CVD  (chemical  vapor  deposition)  equipment  and
process, the development of diffusion furnaces,  and the improvement of Atmoscan
(Note 8) and other products.

         Foreign Currency  Transactions and Translation - Income from continuing
operations includes gains from foreign currency transactions of $34,000 in 1997,
$56,000 in 1996 and  $11,000 in 1995.  There were no material  foreign  currency
transactions prior to 1995. The functional currency of Tempress Systems, Inc. is
The Netherlands guilder.

         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 Notes 4 and 12. 
                                      F-8
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

         Income Per Common Share - Primary and fully diluted  earnings per share
are computed  using the modified  treasury  stock method,  because the number of
warrants and options exceed 20% of the common shares outstanding as of year-end.
The weighted average shares outstanding for the purposes of calculating  primary
earnings per share were 4,168,111,  6,341,027,  and 3,802,853 for 1997, 1996 and
1995, respectively.  The average outstanding shares for the calculation of fully
diluted earnings per share were not materially  different.  The weighted average
shares outstanding for 1996 include 2,165,299,  shares issuable upon exercise of
the warrants and stock options  because they are dilutive.  Shares issuable upon
the excise of warrants  and stock  options  were not  included  in the  weighted
average  shares  outstanding  used in the  calculation of earnings per share for
fiscal 1997, because they were  anti-dilutive  under the modified treasury stock
method.

         The Financial Accounting Standards Board ("FASB") issued a Statement of
Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  Per Share"  during
fiscal 1997. SFAS No. 128 supersedes  Accounting  Principles Board (APB) Opinion
No. 15, the existing  authoritative guidance effective with financial statements
for both interim and annual periods  ending after December 15, 1997.  After SFAS
No. 128 becomes  effective  for a company,  all prior period  earnings per share
(EPS)  data  presented  must  be  restated.   The  new  statement  modifies  the
calculation  of primary and fully  diluted EPS and replaces  them with basic and
diluted EPS.  Assuming SFAS No. 128 had become  effective on or before September
30, 1997, 1996 and 1995, the pro forma basic and diluted EPS would have been the
same as the  primary  and  fully  diluted  EPS,  respectively,  reported  on the
consolidated Statement of Operations, except that in fiscal 1997 the diluted EPS
would  have  been  $.05 per  share,  and in 1996  diluted  EPS  from  continuing
operations would have been $.04 per share.

         Accounting for Stock-Based  Compensation - During 1995, the FASB issued
SFAS No. 123,  "Accounting for Stock-Based  Compensation",  which defines a fair
value based method of accounting  for employee  stock options or similar  equity
instruments  and  encourages all entities to adopt that method of accounting for
all of their  employee  stock  compensation  plans.  However,  it also allows an
entity to continue to measure  compensation cost related to stock options issued
to employees under these plans using the method of accounting 
                                      F-9
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

prescribed by APB Opinion No. 25,  "Accounting  for Stock Issued to  Employees".
Entities  electing to continue  using the  accounting in APB Opinion No. 25 must
make pro forma  disclosures of net income and earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.

         The Company has  elected to account  for its  stock-based  compensation
plans under APB Opinion No. 25; therefore, no compensation cost is recognized in
the  accompanying  financial  statements for employee  stock options  granted in
fiscal 1997. Employee stock options granted in fiscal 1996 were not material.

         During fiscal 1997,  the Company issued stock options  exercisable  for
the purchase of approximately  264,000 shares of its $.01 par value common stock
(Note 9). These  options have been valued at $440,000,  using the  Black-Scholes
valuation method. Had the effects of stock-based compensation been accounted for
in the financial  statements,  net income and earnings per share would have been
reduced by $51,000 and $.02,  respectively.  The primary assumptions used in the
valuation were a weighted average risk free rate of 6.23%, an expected  dividend
yield of 0%,  holding  periods  of four to eight  years and 69%  volatility.  No
adjustment has been made for the  non-transferability  of the options or for the
risk of forfeiture.  

         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.

         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 (Note 5)  approximates  prevailing  interest rates for
similar debt instruments.

         Accounting Pronouncements Not Yet Adopted - In June 1997, the Financial
Accounting  Standards  Board  issued  SFAS  No.  130,  "Reporting  Comprehensive
Income," and SFAS No. 131,  "Disclosures  About  Segments of an  Enterprise  and
Related  Information."  SFAS No. 130  establishes  standards  for  reporting and
display  of all  changes  in equity  that  result  from  transactions  and other
economic   events  of  the  period   other   than   transactions   with   owners
("comprehensive  income"),  and requires companies to retroactively  display the
cumulative total of comprehensive income other than net income for the period as
a separate component of equity in both interim and annual financial  statements.
SFAS No. 131 
                                      F-10
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

establishes a new model for interim and annual segment  reporting which is based
on the way  management  organizes  segments for making  operating  decisions and
assessing segment performance.  The Company is required to adopt these standards
in fiscal 1999.  Management  has not  assessed the effect of these  standards on
future disclosures.

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

         Effective July 1, 1997, the Company acquired  substantially  all of the
assets and related  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 a related  consumables
used in the manufacture of semiconductor  silicon wafers. The purchase method of
accounting is being used for this acquisition,  and therefore,  the accompanying
statements  include the results of the operations of P. R. Hoffman for the three
month period beginning July 1, 1997.


The cost of the acquisition is summarized as follows:


   Cash                                                           $2,307,757
   Liabilities assumed                                               382,276
   Acquisition transaction costs                                     261,823
   Issuance of 32,388 shares of common stock                          65,000
   Issuance of 150,000 warrants                                      167,200
                                                                  ----------
        Total cost of acquisition                                 $3,184,056
                                                                  ==========



The cost of the acquisition was allocated as follows:

   Accounts Receivable                                            $1,122,518
   Inventory                                                       1,060,191
   Property                                                          420,923
   Other Assets & Liabilities                                          9,702
   Purchase price in excess of net assets acquired                   570,722
                                                                  ----------
        Total                                                     $3,184,056
                                                                  ==========
                                      F-11
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(3) PURCHASE OF P. R. HOFFMAN MACHINE PRODUCTS: - (continued)

         Valuation  of  the  common  stock  issued  in  connection   with  these
transactions  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 purchase price in excess of net assets acquired  commonly  referred
to as "goodwill" is being amortized on a straight-line basis over a period of 15
years.

         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 in  excess of  $800,000  per year for a period of 5 years,
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 Amtech 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
remaining fifteen year period that began on the July 1, 1997 acquisition date.

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


                                                    1997                 1996
                                                -----------          -----------
Revenues                                        $16,121,577          $15,028,672
Income from continuing operations                   575,069              355,643
Net Income                                          575,069              666,735
Earnings per share:
     Income from continuing operations          $       .11          $       .08
     Net Income                                 $       .11          $       .13


         For  purposes  of the  above  pro forma  presentation,  the  historical
revenues  and  earnings  of P. R.  Hoffman  for the twelve  month  period  ended
September 30, 1997 and the year ended  December 31, 1996 have been combined with
the revenues and earnings of Amtech for the years ended  September  30, 1997 and
1996, respectively.  Therefore, both columns include the operating results of P.
R. Hoffman for the three months ended  December 31, 1996,  including $ 1,332,814
of revenues and $227,591 of operating losses. 
                                      F-12
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(4) INCOME TAXES:

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

                              1997                1996                1995
                           ---------           ---------           ---------
   Current-
    Federal                $ 170,000           $ 212,000           $ 130,000
    State                     20,000               8,000               2,000
                           ---------           ---------           ---------
                             190,000             220,000             132,000
                           ---------           ---------           ---------
   Deferred-
    Federal                  (48,000)            (70,000)            (42,000)
    State                     (2,000)               --                  --
                           ---------           ---------           ---------
                             (50,000)            (70,000)            (42,000)
                           ---------           ---------           ---------
                           $ 140,000           $ 150,000           $  90,000
                           =========           =========           =========


         The provision  for income taxes on  continuing  operations is different
than the amount which would be computed by applying the United States  corporate
income  tax  rate  to the  income  before  income  taxes.  The  differences  are
summarized as follows:

                                            1997         1996         1995
                                         ---------    ---------    ---------
   Tax provision at the
     statutory rate                      $ 128,000    $ 118,000    $  89,000
   Effect of amortization
     of goodwill and other expenses
     not deductible for tax                 19,000        3,000       13,000
   State tax provision                      23,000       28,000       54,000
   Effect of losses of Korean
     joint venture                         (22,000)      22,000         --
   Change in valuation allowance             3,000      (20,000)     (52,000)
   Other items                             (11,000)      (1,000)     (14,000)
                                         ---------    ---------    ---------
         Actual tax provision            $ 140,000    $ 150,000    $  90,000
                                         =========    =========    =========


         The  components of deferred taxes as of September 30, 1997 and 1996 are
as follows:

                                                        1997          1996
                                                     ---------     ---------
      Allowance for doubtful accounts                $  40,000     $  38,000
      Uniform capitalization of inventory
        costs                                           48,000        43,000
      Inventory write-downs not currently
        deductible                                      23,000        45,000
      Book vs. tax depreciation                        (19,000)      (24,000)
      Unrealized currency gains                        (24,000)         --
      State net operating loss carryforwards            63,000         2,000
      Liabilities not currently deductible             203,000       177,000
      Valuation allowance                              (61,000)      (58,000)
                                                     ---------     ---------
                                                     $ 273,000     $ 223,000
                                                     =========     =========
                                      F-13
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(4) INCOME TAXES - (continued)

         In evaluating the probability of realizing its deferred tax assets, the
Company has limited its recognition of deferred tax assets to an amount equal to
the expected federal income tax rate of 34% applied to the cumulative  temporary
differences  existing at year end. Deferred tax assets attributable to state net
operating  losses  and the state tax  effect of the  temporary  differences  are
offset by the valuation allowance.

         See Note 12  regarding  the  income  tax  treatment  of the gain on the
disposal of discontinued operations.

(5) LONG-TERM OBLIGATIONS

         Long-term debt included in long term  obligations  consists of a twenty
(20) year  mortgage  secured by the Company's  land and building  located in The
Netherlands.  The principal  balance of this  long-term debt was $ 216,300 and $
265,355 as of September 30, 1997 and 1996,  respectively.  The  collateral has a
carrying value of $395,000.  Principal is payable in The Netherlands  guilder in
240 equal monthly payments.  Principal payments are $13,000 for each of the next
five years,  with the payments for 1998 being included with accounts  payable as
of September 30, 1997. Interest is fixed at 6.95% through June 2001, after which
the rate will be adjusted to the  prevailing  market rate.  During the five year
fixed interest period there is a penalty for prepayment of the loan.

(6)  MAJOR CUSTOMERS AND FOREIGN SALES:

         The  Company  had major  customers  which  account for more than 10% of
sales as follows:

                                     1997         1996         1995
                                    ------       ------       ------
                  Customer 1          --           17%          28%
                  Customer 2          --           10%          11%
                  Customer 3          --           10%          --
                  Customer 4          --           10%          --
                  Customer 5          16%          --           --
                  Customer 6          16%          --           --
                                    ------       ------       ------

                                      32%          47%          39%
                                    ======       ======       ======


         As of September  30, 1997 and 1996,  receivables  from three  customers
comprise  55% and  50% of  accounts  receivable,  respectively,  representing  a
concentration of credit risk as defined by SFAS No. 105. 
                                      F-14
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

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

                                                       1997      1996      1995
                                                      ------    ------    ------
United States (including 1% or less to 
  Costa Rica)                                           38%       39%       36%
Far East (Korea, People's Republic of China,
 Taiwan, Japan, Singapore, and India)                   27%       40%       57%
Europe (including 1% or less to Africa)                 35%       21%        7%
                                                      ------    ------    ------
                                                       100%      100%      100%
                                                      ======    ======    ======

(7) LEASES:

         The Company leases buildings,  vehicles and equipment.  As of September
30, 1997 minimum rental commitments under  noncancellable  operating leases, all
of which expire in the next two years,  total  $274,000,  of which  $169,000 and
$105,000 are payable in fiscal 1998 and 1999, respectively.

         Rental  expense  related  to  continuing  operations,  net of  sublease
income, for 1997, 1996 and 1995 was approximately $98,000, $108,000 and $76,000,
respectively.

(8)  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. From the first quarter of fiscal
1994  through  the year 2000,  royalties  are 4% on sales of  complete  Atmoscan
systems and 2% on any related spare parts.

         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  licensed the patent rights from Wacker
Siltronincs. Royalties are 5% on net sales of insert carriers to third parties .

         Royalty expense included in cost of product sales totaled approximately
$44,000, $47,000 and $49,000 in 1997, 1996 and 1995, respectively. 
                                      F-15
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(9) STOCKHOLDERS' EQUITY AND STOCK OPTIONS:

         Effective  with the close of business on March 29, 1996,  each share of
the $.01 par value  common  stock of the Company was split into two shares.  All
shares and per share  amounts have been restated to give effect for this two for
one forward stock split.

         The Company issued  2,415,000 shares of its $.01 par value common stock
and redeemable warrants in connection with a secondary public offering completed
December 22,  1994.  Gross  proceeds  from the offering  were  $4,528,125.  Each
redeemable  warrant  issued in the  offering  entitles the holder to acquire two
shares of the  Company's  $.01 par value  common  stock at an exercise  price of
$2.75 per share at any time prior to the December 15, 1999 expiration  date. 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.  In connection with the public offering,  the Company also sold the
underwriting group a warrant  ("underwriter's  warrant")  entitling the group to
purchase  35,000 units at a per unit price of $13.50 until their  expiration  on
December  15,1999.  In  summary,  the  total  number of shares of $.01 par value
common  stock  issuable  under  the  underwriter's  warrant  and the  redeemable
warrants are 210,000 at a per share price of $2.25 and  2,625,000 at a per share
price of $2.75, respectively.

         The Board has  reserved  70,000  shares of common  stock for use by the
1983  Incentive  Stock Option Plan,  which is now expired,  40,000  shares under
Director  Stock  Purchase  Agreements,   200,000  shares  for  the  Non-Employee
Directors Stock Option Plan and 320,000 shares to be used jointly by the Amended
and Restated  1995 Stock Option Plan and the 1995 Stock Bonus Plan,  for a total
of 630,000 shares so reserved. Incentive 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 the option was granted.  Incentive
stock option grants  expire no later than 10 years from the date of grant,  with
the most recent grant  expiring  February 28, 2007.  Under the terms of the 1995
Stock Option Plan,  nonqualified  options may also be issued.  Options in fiscal
1997 and 1996 vest at the rate of 20% - 25% per year,  for each of the next four
to five years. The stock option transactions and the options outstanding for the
three years ended September 30, 1997, are summarized as follows:

                                                  Number of     Weighted-Average
                                                   Options       Exercise Price
                                                  ---------     ----------------

Outstanding at September 30,1994                   127,000           $1.27

       Granted                                      20,000            2.24
                                                   -------           -----

Outstanding at September 30,1995                   147,000            1.40

       Expired                                     (14,000)           1.08
                                                   -------           -----

Outstanding at September 30,1996                   133,000            1.32
                                      F-16
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(9) STOCKHOLDERS' EQUITY AND STOCK OPTIONS -(continued)

Outstanding at September 30,1996                          133,000          $1.32

       Granted                                            282,084           2.50
       Exercised                                          (27,000)          1.07
       Expired                                             (6,000)          1.63
                                                         --------          -----

Outstanding at September 30,1997                          382,084          $2.17
                                                         ========          =====

Outstanding options exercisable as of:
       September 30, 1995                                  93,000          $1.67
       September 30, 1996                                  81,000          $1.52
       September 30, 1997                                  50,000          $1.45


         In  addition  to the  above  stock  options,  in  connection  with  the
acquisition  of the net assets of P.R.  Hoffman  during fiscal 1997, the Company
issued 150,000 warrants for purchase of one share each of the Company's $.01 par
value  common  stock at $3.00 per  share.  These  warrants  have been  valued at
$167,200  using the  Black-Scholes  valuation  method  discussed  in Note 2. 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
goodwill associated with the purchase of the P. R. Hoffman net assets.


(10) COMMITMENTS AND CONTINGENCIES:

         During March 1994, the Company  entered into a research and development
contract  with and paid  $355,405 to the  University of California at Santa Cruz
(the  "University").  That amount was  expensed in fiscal  1994.  The  Company's
purpose for entering  into the  contract is to attempt to prove the  feasibility
and   demonstrate   the  practical   application   of  the  Company's   patented
photo-assisted  chemical vapor deposition  ("CVD")  process.  The University has
developed  designs  and  specifications  for  a  prototype  model  of a  product
embodying the Company's technology and used it to conduct the initial study. The
study has proven that the Company's  patented  method  minimizes the clouding of
the window that  separates the light source from the reactor  chamber.  However,
further  study is needed to  determine  whether it can develop a  photo-assisted
machine that produces a commercially  viable rate of  deposition.  Subsequent to
September 30, 1997,  the company  opened  negotiations  to amend its contract to
extend its term to the later of December  31, 1998 or the date on which the work
is completed,  and to increase its financial  commitment.  Once the amendment is
accepted by both  parties,  the  remaining  commitment  on the contract  will be
$250,000. The purpose of the
                                      F-17
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(10)  COMMITMENTS AND CONTINGENCIES - (continued)

contract   amendment  is  to  determine   whether   deposition  rates  that  are
satisfactory  for  commercial  applications  can be achieved  with the Company's
patented method.

        Assuming the feasibility of the proposed photo CVD product,  the Company
expects to expend approximately $3,200,000 for its development.  The expenditure
is  expected  to be  made  in  two  stages:  approximately  $1,700,000  for  the
development of an initial  product  suitable for use in research  facilities and
approximately  $1,500,000 for the development of a product for use in industrial
production  facilities.  These  estimates  do not  include  any  amount  for the
expansion of facilities for the manufacture of a new photo CVD product  designed
for industrial  production  facilities and it is reasonably  possible that these
estimates  will be revised  based upon an analysis  of the final study  results.
Funds for that  expansion,  if any, are expected to be obtained from one or more
sources  of  financing,  such  as  the  possible  exercise  of  the  outstanding
redeemable common stock warrants,  working capital loans from banks, a secondary
public offering,  lease financing and internally generated cash from operations.
There is no assurance of the  availability  or sufficiency of these or any other
source of financing.


(11) 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
revealed that the increases in the JVC's  anticipated  costs during the start-up
phase  and the cost of  additional  equipment  required  for the  operation  had
expanded the total  projected  capital  requirements  by $2,500,000.  During the
first quarter of fiscal 1997,  the  Company's  financial  relationship  with the
joint venture was  terminated  because  management  determined  that raising the
Company's  investment  commitment  to $3  million,  without  obtaining  majority
control,  was more  risk  than was  appropriate  for the  Company.  The  Company
received $478,000 during December 1996,  pursuant to the termination  agreement,
which reimbursed the Company's actual  investment and expenses.  As of September
30, 1996, the $360,000  carrying value of the investment in the JVC was included
in other assets.
                                      F-18
<PAGE>
                     AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(12) DISCONTINUED TECHNICAL CONTRACT PERSONNEL SEGMENT:

        The Company entered the technical contract personnel segment in 1988. On
September 30, 1992, the Company sold  substantially all of the operations of the
technical  contract  personnel  segment,   with  only  Echelon  Service  Company
("Echelon")  being retained.  Echelon was acquired in 1989, using stock and cash
at closing as consideration, as well as an incentive arrangement payable in cash
and stock.  Since October 1995,  when the board of directors  approved a plan to
discontinue the technical  contract  personnel  business,  those operations have
been designated as discontinued in financial  reports of the Company.  Effective
December 29, 1995,  the Company  exchanged all of its ownership  interest in the
stock of Echelon for 196,034 shares of the Company's  outstanding $.01 par value
Common Stock previously owned by Eugene R. Hartman, then an officer and director
of the Company.  The  transaction was preceded by a dividend from Echelon to the
Company in order to equalize  values.  The  transaction  was  structured to be a
tax-free  reorganization  and, as such,  no provision  for income taxes has been
made relative to this transaction.

        The results of the discontinued operations reflected in the consolidated
statements of operations are those of Echelon  through the date of the disposal.
Revenue of the  discontinued  operations  were  $1,235,000  for the three months
ended December 1995 and $4,549,000 for the year ended September 30, 1995. Income
from  discontinued  operations  for fiscal  1996 and 1995 are net of  applicable
income taxes of $25,000 and $30,000, respectively.
                                      F-19
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      -------------------------------------


                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                 -----------------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
              -----------------------------------------------------






    For the Year       Balance at       Charged
        Ended          Beginning       (credited)                    Balance at
    September 30,       of Year        to Expense     Write-offs     End of Year
    -------------      ----------      ----------     ----------     -----------
                                      
1. Allowance for Doubtful Accounts    
   -------------------------------
                                      
        1997           $ 90,000         $ 42,960       $  2,960        $130,000
                                      
        1996             80,000           66,249         56,249          90,000
                                      
        1995             45,000           35,704            704          80,000
                                      
                                      
2. Deferred Tax Asset Valuation Allow ance
   ---------------------------------------
                                      
        1997           $ 58,000         $  3,000       $   --          $ 61,000
                                      
        1996             78,000          (20,000)          --            58,000
                                      
        1995            150,000          (72,000)          --            78,000
                                      S-1
<PAGE>
ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         Not applicable.
                                       33
<PAGE>
                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  information  required by this Item is incorporated by reference to
the  Company's  Notice of Meeting and Proxy  Statement to be filed in connection
with the Company's  Annual Meeting of Shareholders  anticipated to be held on or
about February 27, 1998 (the "1998 Proxy Statement").


ITEM 11.          EXECUTIVE COMPENSATION

         The  information  required by this Item is incorporated by reference to
the Company's 1998 Proxy Statement.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The  information  required by this Item is incorporated by reference to
the Company's 1998 Proxy Statement.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this Item is incorporated by reference to
the Company's 1998 Proxy Statement.
                                       34
<PAGE>
                                     PART IV

ITEM 14.          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, 1997 and 1996

         2.       Consolidated  Statements  of  Operations  for the years  ended
                  September 30, 1997, 1996 and 1995

         3.       Consolidated  Statements of Stockholders' Equity for the years
                  ended September 30, 1997, 1996 and 1995

         4.       Consolidated  Statements  of Cash  Flows for the  years  ended
                  September 30, 1997, 1996 and 1995

         5.       Notes to  Consolidated  Financial  Statements - September  30,
                  1997, 1996 and 1995

(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.
                                       35
<PAGE>
(c)      Exhibits.

                                                                        Method
Exhibit No. Description                                                of Filing
----------  -----------                                                ---------

   3.1      Articles of Incorporation                                       A

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

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

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

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

   3.6      Amended and Restated Bylaws                                     D

   10.1     Amended and Restated 1995 Stock Option Plan                     J

   10.2     1995 Stock Bonus Plan                                           J

   10.3     Non-Employee Director Stock Option Plan                         K

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

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

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

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

   10.8     Research  Agreement with The Regents of the University          H
            of  California  dated  March 1,  1994,  together  with
            amendments  thereto  dated  March 1,  1994,  March 30,
            1994, March 7, 1995, June 26, 1995,  October 16, 1995,
            November 29, 1995, and December 4, 1995

   10.9     Amendment  to Research  Agreement  with the Regents of          I
            the University of California dated July 8, 1996

   10.10    Employment Agreement,  dated July 1, 1997, between the          L
            Registrant and John R. Krieger
                                       36
<PAGE>
                                                                        Method
Exhibit No. Description                                                of Filing
----------  -----------                                                ---------

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

   10.12    Sublease  Agreement,  dated July 1, 1997,  between the         L
            Registrant and John R. Krieger

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

   11       Schedule of Computation of Net Income per Share                *

   21       Subsidiaries of the Registrant                                 *

   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, 1992
F    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1993
G    Incorporated by reference to the Company's Form S-1 Registration  Statement
     No. 33-77368
H    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1995
I    Incorporated by reference to the Company's Form S-3 Registration  Statement
     No. 333-09917
J    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.
K    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
L    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     dated July 1, 1997.
M    Incorporated  by reference to the Company's  Quarterly  Report on Form 10-Q
     for the quarter ended June 30, 1997.
                                       37
<PAGE>
(d)      Reports on Form 8-K

         On July 9, 1997,  the Company filed a Current Report on Form 8-K, dated
July 1, 1997,  reporting the Company's  acquisition of substantially  all of the
assets  of P.R.  Hoffman  Machine  Products  Corporation  ("P.R.  Hoffman").  On
September 9, 1997,  the Company  filed a Form 8-K/A,  which  report  amended the
prior  Form 8-K to  include  required  financial  information  relating  to P.R.
Hoffman. 
                                       38
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 934, the  Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         AMTECH SYSTEMS, INC.

December 29, 1997                        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,           December 29, 1997
--------------------------    President
Jong S. Whang                 (Chief Executive Officer)

  /s/ Robert T. Hass          Vice President-Finance           December 29, 1997
--------------------------    (Chief Financial
Robert T. Hass                & Accounting Officer)

  /s/ Donald F. Johnston      Director                         December 29, 1997
--------------------------
Donald F. Johnston

  /s/ Alvin Katz              Director                         December 29, 1997
--------------------------
Alvin Katz

  /s/ Bruce R. Thaw           Director                         December 29, 1997
--------------------------
Bruce R. Thaw
                                       39