FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

================================================================================
(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, 1996
                         ------------------------
                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ________________ to ________________

                         Commission File Number: 0-11412



                              AMTECH SYSTEMS, INC.
--------------------------------------------------------------------------------
             (exact name of Registrant as specified in its charter)

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

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

Registrant's telephone number, including area code:      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
--------------------------------------------------------------------------------
                                (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  twelve (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 ninety (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.

                               [  ] Yes   [X] No

         State  the  aggregate   market  value  of  the  voting  stock  held  by
nonaffiliates of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within sixty (60) days prior to the
date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).

                       $14,128,442 as of December 18, 1996

              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.

         4,109,668  shares of Common Stock,  $.01 par value,  as of December 17,
1996. There is only one class of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Listed  hereunder the following  documents if incorporated by reference
and the Part of the Form 10-K  (e.g.,  Part I,  Part II,  etc.)  into  which the
document is incorporated:  (i) any annual report to security  holders;  (ii) any
proxy or information statement;  and (iii) any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed  documents  should be
clearly described for identification  purposes (e.g.,  annual report to security
holders for fiscal year ended September 30, 1996).

         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 28, 1997.
                                        2
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----


ITEM 1.       BUSINESS.......................................................  5
              Background.....................................................  5
              Operating Strategy and Industry Overview.......................  5
              Existing Products..............................................  6
              Proposed New Products..........................................  9
              Manufacturing.................................................. 10
              Order Backlog.................................................. 11
              Engineering - Research and Development......................... 11
              Patents........................................................ 11
              Sales and Marketing............................................ 12
              Competition.................................................... 13
              Employees...................................................... 14
              FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
                  OPERATIONS AND EXPORT SALES................................ 14

ITEM 2.       PROPERTIES..................................................... 15

ITEM 3.       LEGAL PROCEEDINGS.............................................. 15

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY
              HOLDERS........................................................ 15

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDERS' MATTERS.......................................... 16
              Market Information............................................. 16
              Holders........................................................ 16
              Dividends...................................................... 16

ITEM 6.       SELECTED FINANCIAL DATA........................................ 17

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS............................ 18
              LIQUIDITY AND CAPITAL RESOURCES................................ 18
              RESULTS OF OPERATIONS.......................................... 20
              Fiscal 1996 compared to Fiscal 1995............................ 20
                  Continuing Operations...................................... 20
                  Discontinued Operations.................................... 22
                  Total Company     ......................................... 23
              Fiscal 1995 compared to Fiscal 1994............................ 23
                  Continuing Operations...................................... 23
                  Income From Continuing Operations.......................... 24
                  Discontinued Operations.................................... 24
                                        3
<PAGE>
                  Total Company     ......................................... 25
              FORWARD-LOOKING STATEMENTS..................................... 25

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 27

ITEM 9.       DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
              DISCLOSURE..................................................... 28

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 29

ITEM 11.      MANAGEMENT REMUNERATION........................................ 29

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT..................................................... 29

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 29

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
              ON FORM 8-K.................................................... 30

SIGNATURES................................................................... 33

POWER OF ATTORNEY............................................................ 33
                                        4
<PAGE>
                                     PART I


ITEM 1.           BUSINESS

Background

         Amtech Systems,  Inc.  (hereinafter the "Company" or the  "Registrant")
was incorporated in Arizona in October,  1981, under the name Quartz Engineering
& Materials, Inc., and changed to its present name during 1987. At its inception
the  Company's  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  primarily  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/Automation  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.  The Company's
wholly-owned subsidiary, Tempress Systems, Inc., is engaged in the complementary
business of producing and selling  horizontal  diffusion furnace systems for the
semiconductor industry. In addition, the Company recently obtained a U.S. patent
on  technology on which it expects to base a proposed new photo  chemical  vapor
deposition  ("CVD") product for use in semiconductor  manufacturing  facilities.
The Company has engaged the University of  California,  Santa Cruz, to conduct a
study to  determine  the  feasibility  of such a product.  If the results of the
study are favorable, the Company intends to commence to design,  manufacture and
market a photo CVD product.  See  "Operating  Strategy  and  Industry  Overview"
below.

         Until recently,  the Company also had a 45% ownership  interest and 50%
voting  interest in Seil Semicon,  Inc., a South Korean  start-up  joint venture
that plans to develop and operate a silicon test wafer reclaiming  business.  In
December 1996, the Company  disposed of its interest in Seil Semicon in order to
allow the Company to focus on its core  semiconductor  equipment  business.  See
"RECENT EVENTS--Sale of Seil Semicon" below.

         The Company is dependent  for its  management  and  important  business
relationships on the active participation of its President, Mr. J. S. Whang.

Operating Strategy and Industry Overview

         The Company is engaged  primarily in the  manufacture  and marketing of
several  items of capital  equipment  used by  customers in the  manufacture  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/Automation  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
                                        5
<PAGE>
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/Automation   product  line,  through  its  wholly-owned   subsidiary,
Tempress Systems,  Inc., the Company manufactures and sells horizontal diffusion
furnace systems.

         There is also a trend in the industry,  related to the trend to smaller
chips,  to the  use in  new  semiconductor  manufacturing  facilities  of  newer
technology,  vertical diffusion  furnaces,  which are more efficient to use than
older  technology   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/Automation  product  line is useable  with
horizontal  diffusion  furnaces  only. The Company's  target market  consists of
customers who wish to increase the  efficiency of their  existing  semiconductor
manufacturing  facilities equipped with horizontal  diffusion systems.  With the
addition of Tempress'  operations,  the Company  also can provide 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 the higher priced vertical  diffusion furnace systems.
Based on market information  obtained through customer and market contacts,  the
Company  believes  that a  majority  of  worldwide  semiconductor  manufacturing
facilities 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  market by
expanding its manufacture and sales of horizontal  diffusion furnaces.  Tempress
recently acquired a 9,900 square foot facility in Heerde,  The Netherlands,  for
its European operations.  Tempress moved its operations into the new facility in
November 1996.

         Industry   Slowdown.    Semiconductor   manufacturers   currently   are
experiencing a significant decrease in order bookings.  In addition,  the prices
for semiconductors have declined dramatically, 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.

Existing Products

         Processing/Automation Equipment
         Atmoscan(R)

         The Company's  "Atmoscan(R)" is a patented controlled environment wafer
processing system for use with horizontal diffusion furnaces. It is comprised of
a flanged quartz tube and several metal parts.  When in use, the flanged tube 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 that carries
                                        6
<PAGE>
wafers  and  through  which a purging  inert gas flows  during the  loading  and
unloading of wafers into and out of the diffusion furnace.

         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.

         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  and
others.  During  fiscal  1996,  Atmoscan(R)  units were sold in a price range of
approximately  $26,000  (for simpler  models  without  accessories  or ancillary
items) to approximately $70,000 (for more complex models).  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 as
an alternative to the closed processing method of the Atmoscan(R).  The per unit
price  is  approximately   $13,000-  $34,000,   depending  upon  the  customer's
specifications.

         IBAL

         "IBAL" is an acronym for  "Individual  Boats with  Automated  Loading."
Boats are quartz trays that hold silicon  wafers while they are being  processed
in diffusion  furnaces.  IBAL  Trolley is a device,  including  software,  which
automatically  places boats into Atmoscan(R)  tubes or on open cantilever paddle
systems  before they are  inserted in the  diffusion  furnace and  automatically
removes the trays after completion of the process. The Company has sold units of
the IBAL Trolley for  approximately  $18,000 to $30,000 each,  not including the
price of the  Atmoscan(R)  or open  cantilever  paddle  system.  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.

         The IBAL  Butler is a  robotics  device  which  further  automates  the
loading of wafers into the diffusion furnace by automatically transferring wafer
carriers  onto the IBAL  Trolley  for  loading  into the  Atmoscan(R)  or on the
cantilever  paddle system for the  appropriate  furnace tube.  IBAL Butlers have
been sold at prices between $35,000 and $50,000.

         The 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.  IBAL Queue was first  developed and offered for sale in the fourth
quarter of 1993 and the first  unit was  shipped  during  the second  quarter of
fiscal 1994. The unit prices for the IBAL Queue range from $18,000 to $27,000.
                                        7
<PAGE>
         Load Stations

         The  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 load stations in fiscal
1992.  The price for the load  station  alone (in  addition to the price for the
component systems described above) is approximately $60,000,  depending upon the
complexity  of a  customer's  requirements.  Depending on  configuration,  which
varies  from  order to order,  complete  load  stations  with  loaders  and IBAL
automation have been sold at prices between $150,000 and $320,000.

         Diffusion Furnaces

         Through  its  wholly-owned  subsidiary,  Tempress  Systems,  Inc.,  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 cannot 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 on smaller  size silicon
wafers.  While  industry  forecasts  indicate  that  overall  market  demand for
horizontal  diffusion  furnaces will decline,  the Company believes that a niche
market will persist. Tempress(R) diffusion furnaces equipped with automation and
one or more Atmoscans(R) have been sold in the range of $900,000.

         The Company has  transitioned  from being a  distributor  of horizontal
diffusion furnaces substantially assembled by suppliers to being a manufacturer.
The Company  continues  to acquire  substantially  all of the parts for furnaces
from  suppliers.  This transition has resulted in an increase in both the number
and variety of  products  offered by the Company and is part of a plan to expand
its sales,  marketing and manufacturing  capabilities.  The Company has expended
substantial sums to acquire assets and to fund the start-up and operation of the
horizontal  diffusion  furnace  business.  The Company  acquired  certain assets
previously  owned  by  a  bankrupt  company,   Tempress  B.V.,  located  in  The
Netherlands.  That business involved the development,  manufacture and sale of a
number of different  products,  including a horizontal  diffusion  furnace.  The
Company also acquired  from the bankrupt  estate the right to use the trade name
"Tempress" in  connection  with such  furnaces.  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  has hired a number of former
Tempress  technical and sales personnel to design,  manufacture and sell its own
furnace products under the "Tempress" name. The Company believes that the causes
of  the  Tempress  bankruptcy  were  related  to  the  fact  that  Tempress  was
undercapitalized and that large expenditures were incurred in the development of
other products, and was not related to the quality or reputation of the Tempress
products.  Accordingly, the Company believes that the diffusion furnace products
designed by former Tempress product engineers and sold under the "Tempress" name
are gaining acceptance in the Company's targeted market.
                                        8
<PAGE>
         There is, of course,  no assurance of success in the Company's  efforts
to design and market horizontal  diffusion  furnace  products.  If the Company's
efforts do not succeed, the Company may suffer significant losses. The Company's
ability  to carry  out its plan is  subject  to risk,  arising  in part from the
cyclical  nature of the business.  There is a further risk that, as is estimated
by at least  one  market  research  firm,  the  installation  of new  horizontal
diffusion  furnaces  will  decrease  at a faster rate than is  estimated  by the
Company.  In that case,  the demand  for and sales of the  Company's  horizontal
diffusion  furnaces  may be below  the  Company's  estimates,  its  revenue  and
possible earnings may not increase as expected and The Netherlands operation may
incur significant losses.

Proposed New Products

         CVD Technology

         The Company has patented a certain invention relating to an improvement
to  the  photo-  assisted  CVD  process  used  in  the  manufacture  of  certain
semiconductors.  Management  believes the  invention may be of importance to the
semiconductor  manufacturing  industry, and the Company is now having a research
study  conducted  to  determine  the  feasibility  of  developing  semiconductor
manufacturing  equipment using this invention. A photo-assisted CVD process uses
ultraviolet light to activate the deposition  reactions rather than thermal heat
or plasma  energy,  which are  presently  the  common  means in  commercial  CVD
processing.  Photo-assisted CVD processing is currently used for very expensive,
low yield  semiconductor  applications  for  aerospace and other high cost uses.
Management  hopes that the  Company's  invention  will make  photo-assisted  CVD
processing  practical for general  commercial  application in the industry.  The
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  equipped  with  horizontal  diffusion  furnaces as are the Company's
existing products.

         A  photo-assisted  CVD  process  is  potentially   attractive  for  the
manufacture  of  semiconductors  because  it  allows  a less  severe  processing
environment.  First,  photo-assisted CVD processes occur at lower  temperatures,
which reduces the risk of defects in the deposited  materials.  In this process,
ultraviolet  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 may be 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 to 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 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
                                        9
<PAGE>
"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.

         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,  Inc.,  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   $478,000  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
existing ownership structure, the Company was the joint venture's primary source
for these additional funds.  Management  concluded that increasing the Company's
investment  in the joint  venture by $2-3  million  without  obtaining  majority
control was more risk than was appropriate for the Company.

Manufacturing

         The Company  designs and purchases  quartz and metal  components of its
products from competitive  market sources and inspects and assembles them at its
plant in  Tempe,  Arizona.  Certain  parts of the  system  are  machined  in the
Company's own machine shop.  There are currently no  procurement  problems being
encountered  nor are  any  such  problems  considered  likely.  The  Company  is
conducting  similar  engineering,  purchasing  and  assembly  operations  in the
manufacture  of its  furnace  line in a  building  owned and  located in Heerde,
Netherlands.  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.
                                       10
<PAGE>
Order Backlog

         As of November 30, 1996, the Company's order backlog for  semiconductor
equipment was approximately  $3,875,000 compared to approximately  $4,980,000 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  $2,875,000 of its current  backlog will be shipped in fiscal 1997
and the  remaining  $1,000,000  will be  shipped in fiscal  1998.  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  to be shipped  over two fiscal  years,  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.

Engineering - Research and Development

         The Atmoscan(R),  was acquired in 1983 through a licensing  arrangement
with its inventor,  who was not employed by the Company. The other products 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,  two  engineers  and  four
technicians.  Product  development  in the  past  has  been  accomplished  in an
important part through  cooperative  efforts with a key customer and while there
can  be  no  assurance,  such  cooperation  is  expected  to  continue  to  be a
significant  element  in  the  Company's  future  development   efforts.  It  is
anticipated that approximately five additional engineers and technicians will be
required for the proposed new photo-assisted CVD product development effort.

         The Company  presently employs one engineer and six technicians for its
Netherlands  operation.  These  employees  design  and  support  the  horizontal
diffusion furnace product line manufactured in the Netherlands.

         The  Company  may from  time to time seek to  develop  or  acquire  new
products  other  than  those  described  above to the  extent  that funds may be
available.

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 also has a Japanese
patent pending on the photo-assisted CVD method.
                                       11
<PAGE>
         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  existing
products,  which consists of  semiconductor  manufacturers in the United 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  market  for the
Company's  existing  products is as  described  above.  The  Company  intends to
increase its share of that market by expanding trade of the horizontal diffusion
furnace  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  products  with  greater  capabilities.  For
example, the Company expects
                                       12
<PAGE>
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'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, Rockwell International,  Phillips, Northern Telecom, SGS-Thomson,
Mitsubishi,  Oki, Samsung,  Hyundai,  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  participation  in trade shows, by
direct  customer  contact  by  the  Company's  sales  personnel  (currently  the
President  and two  salesmen  in the United  States and two sales and  marketing
personnel   located  in  the   Netherlands)   and  through   independent   sales
representatives  and  distributors.  The Company is dependent on its  President,
J.S. Whang, for continuing relationships with certain key customers.

         During fiscal 1996, four customers accounted for 17%, 10%, 10% and 10%,
respectively,  of sales from continuing operations. No other customers accounted
for 10% or more of sales. For a more complete analysis of significant  equipment
customers, see Note 6 of the Notes to Consolidated Financial Statements included
herein (the "Financial Statements").

         There are  presently  eight  independent  sales  representatives,  each
covering a specified  geographical  area on an  exclusive  basis.  The areas now
covered by representatives  are the New England area,  Northern Europe,  Central
Europe  (including  Germany),  France,  India,  Italy,  Korea,  Taiwan,  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
higher  for  complete   units  and  lower  for  spare  parts  and   accessories.
Furthermore,  a  discount  is allowed 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 may
continue  to assist in further  development.  Such  customers  will  probably be
allowed 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. The Company believes that there are
                                       13
<PAGE>
several  products  in the market  which  perform  the same  functions  and which
provide a more complete automation solution, but which are more complex and more
expensive and require more clean room space than the IBAL  automation  products,
IBAL  Trolley,  IBAL Butler and IBAL Queue.  The IBAL  products are intended for
customers who do not require the 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,  as these load stations were specifically designed to accept the
Company's products without further  modification.  Products competitive with the
Company's load station are sold by several  well-established  firms, larger than
the Company. The cantilever system is designed for easy assembly and disassembly
to minimize down-time during  maintenance.  The Company's  horizontal  diffusion
furnace systems are involved in intense global  competition with the products of
several larger, more recognized  manufacturers.  The Company expects to sell its
horizontal  diffusion furnaces to customers and maintain a competitive  position
by providing  competitive  prices and product support services  designed for the
customer's specific requirements.  In addition, management believes that because
its furnace systems are part of a broad product line, including  Atmoscan(R) and
IBAL  products,  they may have a  competitive  advantage by reducing  customers'
needs to deal with multiple vendors.

         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

         The  Company  presently  employs  48 people  (including  the  corporate
officers and 8 contract employees); 18 in manufacturing, 13 in engineering, 9 in
administration,  and 8 in sales  positions.  Of these,  26 are  employed  at the
Company's offices and plant in Tempe, Arizona, and 22 at its facility in Heerde,
The Netherlands.


           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  United  States
equipment  sales being included in the table for comparison  purposes).  Foreign
sales do not include sales to affiliates.
                                       14
<PAGE>
<TABLE>
<CAPTION>
                             1996                     1995                     1994
                     ---------------------   ---------------------   --------------------
<S>                   <C>           <C>       <C>           <C>       <C>          <C>  
United States (1)     $3,314,007     (39%)    $2,462,852     (36%)    $2,472,176    (57%)
Far East (2)           3,014,213     (36%)     3,483,419     (51%)     1,136,432    (26%)
Europe (3)             1,767,803     (21%)       493,786      (7%)       222,376     (5%)
India                    317,982      (4%)       424,011      (6%)       500,095    (12%)
                      ----------    ------     ---------     -----     ---------   ------
Total                 $8,414,005    (100%)    $6,864,068    (100%)    $4,331,079   (100%)
                       =========     ====      =========     ====      =========    ====
</TABLE>
----------

(1)  Includes sales in Canada, which are not material.
(2)  Includes  Korea,  Singapore,  Taiwan,  Japan and the  People's  Republic of
     China.
(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 August 31, 1997.

         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.

         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. That laboratory,
together with the Company's  existing plant facility will, the Company believes,
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
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

         The  Company  is  not a  party  to  any  pending  or  threatened  legal
proceedings  that it  believes  will have a  material  impact  on the  Company's
business.


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

         None.
                                       15
<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 sales
price for the shares of the  Company's  common  stock for each quarter of fiscal
years 1996 and 1995 as reported by the NASDAQ SmallCap Market.

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

Fiscal 1996:
------------

         December 31, 1995                              $4.44        $3.88
         March 31, 1996                                  4.31         3.50
         June 30, 1996                                   5.63         4.13
         September 30, 1996                              5.13         3.50

Fiscal 1995:
------------

         December 31, 1994                               2.38         1.69
         March 31, 1995                                  2.19         2.00
         June 30, 1995                                   4.69         2.06
         September 30, 1995                              4.63         3.63


Holders

         As of December 18, 1996, there were 1,463 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,   acquisitions   or  expansion;
consequently, it does not expect to pay dividends within the foreseeable future.
                                       16
<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,
1996 and with respect to the balance  sheets at September  30, 1996 and 1995 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, 1993
and 1992 and the balance  sheet data at September  30,  1994,  1993 and 1992 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  (and the related notes thereto)  contained
elsewhere in this Report.
<TABLE>
<CAPTION>
                                                                       Fiscal Years Ended September 30,
                                          -------------------------------------------------------------------------------------
                                               1996               1995              1994               1993            1992
                                          ---------------   ----------------  -----------------  ----------------  ------------
<S>                                            <C>              <C>              <C>               <C>               <C>       
Operating Data

From Continuing Operations:

 Revenues                                      $8,414,005       $6,864,068       $4,331,079        $4,087,886        $2,400,777

 Operating Profit(1)                              120,813           39,582        (172,648)           426,890         (744,814)

 Income (Loss) from
   Continuing Operations(1)                       197,591          171,053         (89,469)           302,390         (911,210)

Net Income (Loss)(1)(5)                          $508,683         $226,568          $94,004          $508,670      $(1,501,070)

Primary Earnings Per Share:(1)(2)(3)

  Continuing Operations (loss)                       $.05             $.04           $(.05)              $.15            $(.44)

  Net Income(5)                                      $.10             $.06             $.05              $.26            $(.73)

Balance Sheet Data

Cash and Short-term Investments                $4,458,337       $4,505,389       $1,080,976        $1,895,042        $  631,314

Working Capital                                 5,480,452        6,163,304        2,244,628         2,722,362         2,334,623

Total Assets                                    8,458,614        8,365,519        3,974,922         4,119,928         6,397,033

Total Current Liabilities                       1,568,994        1,363,291          852,103         1,091,113         3,725,888

Long-Term Debt                                    265,355                -                -                 -                 -

Accumulated Deficit                             (412,087)        (920,770)      (1,147,338)       (1,241,342)       (1,750,012)

Shareholders' Equity(2)(4)                      6,624,265        7,002,228        3,122,819         3,028,815         2,671,145

</TABLE>
----------
(1)      The  results  for  the  fiscal  year 1996 and 1994 include $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.
                                       17
<PAGE>
         Earnings  per share  for 1996 and 1995  reflect  the sale of  2,415,000
         shares in a secondary 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.
(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.
(5)      The results for fiscal 1996 include a $284,335 gain on the  disposal of
         discontinued operations.


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.

LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 1996 and 1995, cash and cash  equivalents  amounted
to $1,994,000 and $834,000,  respectively.  The fiscal 1996 increase in cash and
cash equivalents of $1,160,000,  or 139%, resulted from the $1,207,000 amount by
which  maturities  of  short-term   investments   exceeded   purchases  of  such
securities.  The total of cash and short-term investments,  a broader measure of
short-term  liquidity,  decreased  slightly,  by $47,000,  to  $4,458,000  as of
September 30, 1996, from $4,505,000 as of the prior year end.

         Working capital decreased by $683,000 to $5,480,000 from $6,163,000,  a
decrease of 11%, primarily as a result of the $425,000  investment in the Korean
joint venture and the investment in land and building for the diffusion  furnace
operations in The  Netherlands.  See the  Consolidated  Statements of Cash Flows
included  herein.  For the same reasons,  the ratio of current assets to current
liabilities  decreased  to 4.5:1 from  5.5:1.  Cash and  short-term  investments
comprise 52% of total assets and stockholders'  equity accounts for 78% of total
assets.

         Photo-assisted  CVD (chemical vapor deposition)  Project.  During March
1994, the Company entered into a research and development contract with and paid
$355,000 to the University of California at Santa Cruz (the  "University").  The
University  has developed  designs and  specifications  for and built a research
model of a machine embodying the Company's  patented  photo-assisted CVD process
and proven the  feasibility of that process.  Amtech entered into  amendments of
its research and development  contract with the University  during November 1995
and July 1996,  which expand the  Company's  financial  commitment by a total of
$244,000  and extend the  contract  until the date on which the agreed upon work
has been completed, which is expected to occur in the second or third quarter of
fiscal  1997.  As of  September  30, 1996,  the balance of this  commitment  was
$112,000.  The purpose of the amendments is to demonstrate the potential rate of
deposition  using newly  developed light sources in various  photo-assisted  CVD
processes and to investigate  alternative process chemistries for the deposition
of silicon oxide, silicon nitride and other materials. This work will assist the
Company in estimating the size of the market before  commencing the  development
of a model of the photo-assisted CVD reactor for research facilities at Amtech's
plant.
                                       18
<PAGE>
         As this study progresses,  management will assess the degree of success
achieved  and  determine  how  the  Company  will  proceed.   If  the  photo-CVD
feasibility  study  demonstrates  the practical  commercial  application  of the
Company's  patent,  approximately  $3,200,000 of liquidity and capital resources
are expected to be expended over a two to three year period,  probably beginning
in the third quarter of fiscal 1997,  in order to develop a commercial  model of
the  photo-assisted  CVD  reactor at  Amtech's  facility.  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. The funds from the cash and short-term investments on hand should be
sufficient  for these two  stages of  development.  See  --Acquisitions,  below.
However,  these  estimates  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.  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
and internally generated cash flow from operations. There is no assurance of the
availability or sufficiency of these or any other source of funding.

         In addition  to  photo-assisted  CVD  research,  the  Company  expended
$192,000 in fiscal 1996 on research and development for product  improvement and
development of complementary products. The Board of Directors has authorized the
expenditure of up to $560,000 for such other research and  development in fiscal
1997.  These other research and  development  expenses will affect the Company's
future operating results.

         Acquisitions.  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. 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 the fiscal year, 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.

         Although management  discontinued its participation in the Korean Joint
Venture,  the Company  still intends to evaluate  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  would  take into  consideration  many  factors  including,  without
limitation,  the prospects for the planned  photo-assisted  CVD product line 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.  There  can  be no
assurance  that the Company  would have the capital  resources  to  accomplish a
desired acquisition.
                                       19
<PAGE>
RESULTS OF OPERATIONS

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.

         The Company is  experiencing  a slowdown in bookings  due to  increased
caution in capital spending by the world's  semiconductor  producers,  caused by
rapidly declining prices for  semiconductor  chips and an oversupply of capacity
for  certain of those  products,  such as memory  chips.  As a result,  industry
analysts forecast a significant cyclical decline in the revenue of semiconductor
production  equipment  suppliers  in calendar  year 1997.  One  industry  survey
indicates  that the three (3) month moving average of orders booked by suppliers
of  front-end  semiconductor  production  equipment  was nearly 26% lower in the
fourth  quarter  of  fiscal  1996 than in the  fourth  quarter  of fiscal  1995.
Management  believes  that it is likely that the  Company's  domestic  sales may
decline consistent with the industry trend that develops.  While The Netherlands
operation may also  experience a decline,  management  believes the  significant
number of  requests  for  quotations  indicates  that the  equipment  buyers now
consider Tempress as a viable equipment supplier.

         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.  Further  increases  in fixed costs are planned for fiscal 1997 as a
result of expanding  manufacturing  capacity.  Gross  margins as a percentage of
revenue are expected to decrease in fiscal  1997,  because  fixed  manufacturing
costs are  anticipated  to be  higher  and the  Company's  products  facing  the
greatest price  competition are expected to account for a greater  percentage of
consolidated  revenue.  Gross margins in absolute terms may be slightly  higher,
but only if revenues from the Tempress operations continue to increase.

         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
                                       20
<PAGE>
expenses.  However,  these costs  declined  from  approximately  30% of revenues
during fiscal 1995 to 28% in fiscal 1996.

         Relative to many technology businesses, the Company had 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.   Since  the  1994
photo-assisted  CVD feasibility  study continued  through the end of fiscal 1995
without any further financial  commitment,  total research and development costs
in fiscal 1995 were $180,000 lower than in fiscal 1994.  Amtech 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 and extended the contract  until the date on which certain  agreed upon
work is completed,  which is expected to occur in the second or third quarter of
fiscal 1997.  Approximately  $132,000 of those funds were expended during fiscal
1996,  which was the primary cause of the $93,000 increase in total research and
development costs in fiscal 1996 compared to fiscal 1995.

         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,  future
earnings may decline sharply due to the Company's intention to expend $3,200,000
on research and development  over  approximately a three year period in order to
develop a commercial  product based upon the Company's  patented  photo-assisted
CVD technology.  The increased research and development expenses anticipated for
this project will affect the Company's future operating results.

         In addition  to  photo-assisted  CVD  research,  the  Company  expended
$192,000 in fiscal 1996 on research and development for product  improvement and
development of complementary products. The Board of Directors has authorized the
expenditure of up to $560,000 for such other research and  development in fiscal
1997.  These other research and  development  expenses will affect the Company's
future operating results.

         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 has reached its
break-even point.

         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
                                       21
<PAGE>
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.

         The  Company's  semiconductor  equipment  operation  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  through-put 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.  Horizonal  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,  where the  Company  made its first sale in fiscal  1994,  and other less
developed  areas,  which  could  further  prolong  the  commercial  life  of the
Company's existing products.

         However,  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 of new products,  such as IBAL automation  products,  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.  Product or  business
acquisitions  may  also be a part of the  Company's  strategy  for  growth.  The
Company's long range plans include developing,  if feasible, a new product based
on its patented photo-assisted CVD technology.

Discontinued Operations

         In October 1995,  the 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 Amtech  System,  Inc.  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.
                                       22
<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.

         As of November 30, 1996 , the Company's order backlog for semiconductor
equipment  was  approximately  $3,875,000  compared to $4,980,000 as of the same
date of the previous year. The decrease in the order backlog is primarily due to
the  slowdown  in  bookings  due to  heightened  caution in capital  spending by
semiconductor producers. Also, while there are exceptions,  orders generally are
shipped within six months of receipt.  Therefore,  growth in equipment sales and
income  from  continuing  operations  will  largely  depend on the timing of the
receipt  of  new  orders.   Another  factor  that  could  significantly   affect
profitability  is the amount of research and development  expenses  incurred for
the development of improvements to existing  products,  new products and a model
of the photo-assisted CVD product designed for use in research facilities.

Fiscal 1995 compared to Fiscal 1994

Continuing Operations.

         The  revenues  of  the  semiconductor   equipment   business  increased
$2,533,000, or 58%, to $6,864,000 in fiscal 1995 from $4,331,000 in fiscal 1994.
The  improvement  in revenues was due primarily to the $1,811,000 of fiscal 1995
sales of Tempress  horizontal  diffusion furnaces and related after market parts
resulting from the start-up of manufacturing in the Netherlands. Net revenues of
the domestic  operations were 17% higher in fiscal 1995 than in fiscal 1994, due
to  continued  expansion  in  the  demand  by  semiconductor  manufacturers  for
production equipment and upgrades.

         The gross profit of this segment was  $2,305,000 for fiscal 1995 versus
$1,561,000 for fiscal 1994,  representing a 48% increase.  The $744,000 increase
in gross margin primarily results from the start-up of the Netherlands operation
($433,000),  volume  increases  in  existing  product  lines  ($260,000),  and a
reduction  in the material  content as a percentage  of sales due to a favorable
product mix and increased use of lower cost parts  manufactured  in-house rather
than  purchased  from others  ($153,000).  These  increases in gross margin were
partially offset by increases in manufacturing  overhead  expenses and a decline
in the revenue and earnings  derived from the sale of products  manufactured  by
third-parties.  Gross margin as a  percentage  of revenue was 34% in fiscal 1995
versus 36% in the fiscal 1994, with the decline primarily being attributed
                                       23
<PAGE>
to the higher  fixed  costs in relation to sales  associated  with the  start-up
operation in the Netherlands.

         The  selling,  general and  administrative  costs were  $712,000  (54%)
higher in fiscal 1995 as compared to fiscal  1994.  The higher  costs are almost
entirely  associated  with  the  new  operations  in the  Netherlands.  However,
selling,  general and  administrative  costs  remained at  approximately  30% of
revenues during both fiscal 1994 and 1995.

         The Company increased research and product development  expenditures in
fiscal  1994 as  compared  to fiscal  1993 by  $257,000  primarily  through  the
expenditure  of $355,405 for the University  study to demonstrate  the practical
application of the Company's  patented photo- assisted chemical vapor deposition
("CVD") process.  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.  Since  the 1994
feasibility  study continued  through the end of fiscal 1995 without any further
financial  commitment  required,  total research and development costs in fiscal
1995 were $180,000 lower than in fiscal 1994.

         Operating  profits  were  $40,000 in fiscal  1995,  as  compared  to an
operating loss of $173,000 in fiscal 1994, an  improvement  of $213,000.  During
1994 and 1995 the Company committed  significant capital to the future growth of
this segment;  $336,000 in the start-up losses of the  Netherlands  operation in
fiscal 1995 and $355,405 for the  photo-assisted CVD feasibility study in fiscal
1994.  The  improvement  of this  segment's  operating  profit for the two years
reflects  the  expansion  of the  domestic  operations,  including  increases in
revenue,  17%, gross margin,  19%, and operating profit after excluding the 1994
photo-assisted CVD study, 105%.

Income From Continuing Operations

         Income (loss) from continuing  operations  before income taxes includes
the operating income,  discussed above, and net interest income, which increased
in fiscal 1995 by $213,000  and  $166,000,  respectively,  as compared to fiscal
1994.  The growth in net interest  income is due to the investment of $3,328,000
of the $3,623,000 received from the public offering. As a result of these items,
the income from continuing  operations before income taxes improved by $378,000,
to $261,000 in fiscal 1995, from a loss of $117,000 in fiscal 1994.

         The income from  continuing  operations is $171,000 for fiscal 1995, an
improvement  of $260,000  from the loss of $89,000 in fiscal 1994,  after taking
into  consideration  the income tax  provision of $90,000 in fiscal 1995 and the
income  tax  benefit of $28,000 in fiscal  1994.  The income tax  provision  for
fiscal 1995  approximates  the statutory  rate.  See Note 3 to the  consolidated
financial  statements  for  further  details,   including  an  analysis  of  the
differences  between the statutory rate and the actual effective rate for fiscal
1994.

Discontinued Operations.

         Discontinued  operations produced income before income taxes of $86,000
and  $223,000 for fiscal 1995 and fiscal  1994,  respectively.  Income taxes for
fiscal 1995 and fiscal 1994 were $30,000 and $40,000, respectively, resulting in
income from discontinued operations of $56,000
                                       24
<PAGE>
in fiscal  1995 and  $183,000  in fiscal  1994.  The  decline in the income from
discontinued  operations  resulted from  reductions in requirements of technical
contract personnel by the largest customer of those discontinued operations.

Although the income tax provision  associated with this segment approximates the
statutory rate in fiscal 1995, it is  substantially  lower in fiscal 1994 due to
the resolution of previous uncertainties.

Total Company

         As a result of all of the above factors, net income for fiscal 1995 was
$227,000,  or  $.06  per  share,   including  $.04  per  share  from  continuing
operations, as compared to $94,000, or $.05 per share, net of a loss of $.05 per
share from continuing operations, in fiscal 1994.

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 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 Tempress subsidiary
in The Netherlands  will continue to progress,  (f) that the costs of developing
the diffusion  furnace  controller will not materially exceed estimates and that
there  will be  sufficient  cost  saving  and  product  demand  to  justify  the
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 to
expand its manufacturing  facilities and production capacity in order to produce
and ship  photo-assisted  CVD products,  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. 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
                                       25
<PAGE>
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.
                                       26
<PAGE>
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                      INDEX

                                                                            Page
                                                                            ----

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

Financial Statements -


   Consolidated Balance Sheets
   September 30, 1996 and 1995.............................................. F-2

   Consolidated Statements of Operations for
   the years ended September 30, 1996, 1995 and 1994........................ F-3

   Consolidated Statements of Stockholders'
   Investment for the years ended September 30,
   1996, 1995 and 1994...................................................... F-4

   Consolidated Statements of Cash Flows for
   the years ended September 30, 1996, 1995 and 1994........................ F-5

   Notes to Consolidated Financial Statements
   - September 30, 1996, 1995 and 1994...................................... F-7

   Financial Statement Schedule for the years ended 
     September 30, 1996, 1995 and 1994:

   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.
                                       27
<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, 1996 and
1995,  and the related  consolidated  statements  of  operations,  stockholders'
investment  and cash  flows  for each of the  three  years in the  period  ended
September  30,  1996.   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,  1996 and  1995,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1996, 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 financial statement schedules 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.

                                              Arthur Andersen LLP


Phoenix, Arizona,
 December 9, 1996.
                                       F-1
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 1996 and 1995
<TABLE>
<CAPTION>
                                                                                         1996                      1995
                                                                                       ----------              ----------
                                                          ASSETS
                                                          ------
<S>                                                                                    <C>                     <C>       
CURRENT ASSETS:
  Cash and equivalents (Note 2)                                                        $1,994,217              $  833,820
  Short-term investments (Note 2)                                                       2,464,120               3,671,569
  Accounts receivable, less allowance for doubtful
    accounts of $90,000 in 1996 and $80,000 in 1995                                     1,581,973               2,286,743
  Inventories (Note 2)                                                                    739,201                 524,071
  Deferred income taxes (Notes 2 and 4)                                                   223,000                 165,000
  Prepaid expenses                                                                         46,935                  45,392
                                                                                       ----------              ----------
          Total current assets                                                          7,049,446               7,526,595
                                                                                       ----------              ----------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
  Land, building and leasehold improvements (Note 5)                                      535,104                 162,404
  Equipment and machinery                                                                 432,435                 333,971
  Furniture and fixtures                                                                  608,972                 652,607
                                                                                       ----------              ----------
                                                                                        1,576,511               1,148,982
  Less- Accumulated depreciation and amortization                                         600,180                 499,184
                                                                                       ----------              ----------
                                                                                          976,331                 649,798
                                                                                       ----------              ----------
PURCHASE PRICE IN EXCESS OF NET ASSETS
  ACQUIRED, at amortized cost (Notes 2 and 11)                                              -                      85,315
                                                                                       ----------              ----------
OTHER ASSETS (Note 3)                                                                     432,837                 103,811
                                                                                       ----------              ----------
                                                                                       $8,458,614              $8,365,519
                                                                                       ==========              ==========

                                         LIABILITIES AND STOCKHOLDERS' INVESTMENT
                                         ----------------------------------------
CURRENT LIABILITIES:
  Accounts payable                                                                     $  652,771              $  528,322
  Accrued liabilities:
    Compensation and related taxes                                                        442,785                 373,383
    Warranty and installation expenses                                                    185,450                 116,347
    Other accrued liabilities                                                             143,988                 120,239
  Income taxes payable (Notes 2 and 4)                                                    144,000                 225,000
                                                                                       ----------              ----------
          Total current liabilities                                                     1,568,994               1,363,291
                                                                                       ----------              ----------
LONG-TERM DEBT (Note 5)                                                                   265,355                   -
                                                                                       ----------              ----------

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

STOCKHOLDERS' INVESTMENT (Notes 9 and 11):
  Preferred stock; no specified terms;
    100,000,000 shares authorized; none issued                                             -                       -
  Common stock; $.01 par value; 100,000,000 shares authorized;
    4,109,668 (4,305,702 in 1995) shares issued and outstanding                            41,097                  43,057
  Additional paid-in capital                                                            7,043,803               7,850,482
  Cumulative foreign currency translation adjustment                                      (48,548)                 29,459
  Accumulated deficit                                                                    (412,087)               (920,770)
                                                                                       ----------              ----------
          Total stockholders' investment                                                6,624,265               7,002,228
                                                                                       ----------              ----------
                                                                                       $8,458,614              $8,365,519
                                                                                       ==========              ==========
</TABLE>
      The accompanying notes are an integral part of these Balance Sheets.
                                       F-2
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For The Years Ended September 30, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                           1996          1995          1994
                                                       -----------   -----------   -----------
<S>                                                    <C>           <C>           <C>        
Net product sales (Note 6)                             $ 8,414,005   $ 6,864,068   $ 4,331,079
Cost of product sales                                    5,516,936     4,558,675     2,770,039
                                                       -----------   -----------   -----------
       Gross margin                                      2,897,069     2,305,393     1,561,040

Selling and general                                      2,386,466     2,034,027     1,321,710
Equity in losses of Korean joint venture (Note 3)           65,063          --            --
Photo-CVD project (Notes 2 and 10)                         132,243          --         355,405
Other research and development (Note 2)                    192,484       231,784        56,573
                                                       -----------   -----------   -----------
       Operating profit                                    120,813        39,582      (172,648)

Interest income-net                                        226,778       221,471        55,179
                                                       -----------   -----------   -----------
Income (loss) from continuing
   operations before income taxes                          347,591       261,053      (117,469)
Income tax provision (benefit) (Notes 2 and 4)             150,000        90,000       (28,000)
                                                       -----------   -----------   -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                   197,591       171,053       (89,469)
                                                       -----------   -----------   -----------


DISCONTINUED OPERATIONS:
------------------------
Income From Discontinued Operations (Note 11)               26,757        55,515       183,473
Gain on Disposal of Echelon (Notes 4 and 11)               284,335          --            --
                                                       -----------   -----------   -----------
                                                           311,092        55,515       183,473
                                                       -----------   -----------   -----------

NET INCOME                                             $   508,683   $   226,568   $    94,004
                                                       ===========   ===========   ===========




PRIMARY EARNING PER SHARE (Notes 2 and 9):
  Income (Loss) From Continuing Operations             $       .05   $       .04   $      (.05)
  Net Income                                           $       .10   $       .06   $       .05




FULLY DILUTED EARNING PER SHARE (Notes 2 and 9):
  Income (Loss) From Continuing Operations             $       .05   $       .04   $      (.05)
  Net Income                                           $       .10   $       .06   $       .05
</TABLE>
 The accompanying notes are an integral part of these consolidated statements.
                                       F-3
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
              For The Years Ended September 30, 1996, 1995 and 1994




<TABLE>
<CAPTION>
                                                                                  Cumulative
                                        Common Stock                               Foreign
                                ---------------------------     Additional         Currency                               Total
                                  Number                         Paid-In          Translation      Accumulated        Stockholders'
                                 of Shares        Amount         Capital          Adjustment         Deficit            Investment
                                ----------      -----------     -----------       -----------     ------------        -------------
<S>                              <C>            <C>              <C>              <C>              <C>                <C>       
BALANCE AT
 SEPTEMBER 30, 1993              1,890,702      $    18,907      $4,251,250       $   -            $(1,241,342)       $3,028,815
  Net income                       -                -               -                 -                 94,004            94,004
                                ----------      -----------      ----------       -----------     ------------        -----------

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
                                ==========      ===========      ==========       ===========     ============        ==========
</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, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                              1996           1995           1994
                                                           -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>        
OPERATING ACTIVITIES:
  Net income                                               $   508,683    $   226,568    $    94,004
  Adjustments to reconcile net income to net
    cash provided (used) by operating activities:
      Depreciation and amortization                            179,289        144,085         69,395
      Inventory and accounts receivable write-offs              91,085         80,428         34,804
      Gain on sale of discontinued operations                 (284,335)           --             --
      Loss (gain) on sale or retirement of assets               (1,950)        31,398          1,314
      Equity in losses of unconsolidated Korean venture         65,063           --             --
      Deferred tax benefit                                     (70,000)       (36,000)       (19,000)
  Decreases (increases) in operating assets:
      Accounts receivable                                      212,067       (762,669)        63,525
      Inventories, prepaids and other assets                  (284,872)       (73,893)      (388,305)
  Increases (decreases) in operating liabilities:
      Accounts payable                                         160,152        223,091       (101,387)
      Accrued liabilities                                      254,814        123,063         22,377
      Income taxes payable                                     (81,000)       150,000       (160,000)
                                                           -----------    -----------    -----------
  Net Cash Provided (Used) By Operating Activities             748,996        106,071       (383,273)
                                                           -----------    -----------    -----------

INVESTING ACTIVITIES:
  Maturities (purchases) of short-term investments - net     1,207,449     (3,327,577)       549,285
  Investment in unconsolidated Korean joint venture           (425,000)          --             --
  Proceeds from sale of assets                                  28,983         19,591         45,342
  Purchases of property, plant and equipment                  (541,919)      (328,257)      (476,135)
  Cash distributed in disposal of Echelon                     (109,698)          --             --
                                                           -----------    -----------    -----------
    Net Cash Provided (Used) By Investing Activities           159,815     (3,636,243)       118,492
                                                           -----------    -----------    -----------

FINANCING ACTIVITIES:
  Net proceeds from public offering (Note 9)                      --        3,623,382           --
  Proceeds from a mortgage loan                                291,947           --             --
  Principal payments on mortgage loan                           (3,650)          --             --
                                                           -----------    -----------    -----------
    Net Cash Provided By Financing Activities                  288,297      3,623,382           --
                                                           -----------    -----------    -----------

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

CASH AND EQUIVALENTS (Note 2):
  Net increase (decrease)                                    1,160,397         96,836       (264,781)
  Beginning of year                                            833,820        736,984      1,001,765
                                                           -----------    -----------    -----------

END OF YEAR CASH AND EQUIVALENTS                           $ 1,994,217    $   833,820    $   736,984
                                                           ===========    ===========    ===========
</TABLE>
 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


                                                  1996         1995       1994
                                                --------   ----------   --------



SUPPLEMENTAL CASH FLOW INFORMATION:

  Cash paid during the year for:
    Interest                                    $  5,376   $     --     $   --
    Income taxes, net of refunds                 327,000        6,000    191,000







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 11)       $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, 1996, 1995 and 1994


(1)  NATURE OF OPERATIONS:

  Amtech Systems,  Inc., based in the United States, and Tempress Systems, Inc.,
a  wholly-owned   subsidiary  created  in  September  1994,  and  based  in  the
Netherlands,  comprise the "Company". The Company engineers, assembles and sells
equipment used in certain  thermal  processes of  manufacturing  semiconductors.
This equipment is sold to semiconductor  manufacturers world-wide,  particularly
in the  United  States,  Korea,  and The  Netherlands.  See  Note  11  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 11, through the date of its disposition.
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 customers.

  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 and the cash flows
from  them 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, 1996 and 1995
are as follows:

                                                      1996                1995
                                                    --------            --------
Purchased parts                                     $527,321            $323,215
Work-in-progress                                     211,880             181,855
Finished goods                                          --                19,001
                                                    --------            --------
                                                    $739,201            $524,071
                                                    ========            ========

  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.
                                       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 (continued)
  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 periods of five to twenty years using the straight-line method.

  Research and Development  Expenses - The Company expenses product  development
costs as they are incurred. The Company incurred approximately $325,000 in 1996,
$232,000  in 1995,  and  $412,000 in 1994,  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 $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 11.

  Income (Loss) Per Common Share - Primary and fully diluted  earnings per share
in 1996 and 1995 are computed using the modified treasury stock method,  because
the number of warrants and options  exceed 20% of the common shares  outstanding
at  year-end.  For fiscal 1994,  primary  earnings per common share are computed
based on  weighted  average  common and  common  equivalent  shares  outstanding
determined  using the treasury  stock  method.  For fully  diluted  earnings per
share, the number of common equivalent shares used has been calculated  assuming
that  dilutive  options were  outstanding  the full year and that based upon the
year-end  stock price fewer  shares  could have been  repurchased.  The weighted
average shares outstanding for the purposes of calculating  primary earnings per
share  were  6,341,027,  3,802,853  and  1,929,084  for  1996,  1995  and  1994,
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 includes  2,165,299 shares currently  issuable upon
exercise of the warrants and stock options because they are dilutive.

  Accounting for Stock-Based  Compensation - This new accounting  pronouncement,
SFAS No. 123,  must be adopted by the Company in fiscal  1997.  As  permitted by
SFAS No. 123, the Company  will  continue to account for  transactions  with its
directors and employees pursuant to Accounting  Principles Board Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees".  Companies  which  choose  this
alternative  method are required to disclose  the pro forma  effects on earnings
and  earnings per share as if the effects of stock based  compensation  had been
accounted for in the financial statements. Management has not yet calculated the
effects of those pro forma adjustments. 
                                      F-8
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

  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.

  Reclassifications - Certain  reclassifications  have been made to the 1994 and
1995 amounts to conform to the 1996 presentation.

(3) 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.  After the end of the fiscal year,
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.

(4)  INCOME TAXES:

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

                                  1996               1995                1994
                                ---------          ---------          ---------
Current-
 Federal                        $ 212,000          $ 130,000          $ (13,000)
 State                              8,000              2,000               --
                                ---------          ---------          ---------
                                  220,000            132,000            (13,000)
                                ---------          ---------          ---------
Deferred-
 Federal                          (70,000)           (42,000)           (15,000)
 State                               --                 --                 --
                                ---------          ---------          ---------
                                  (70,000)           (42,000)           (15,000)
                                ---------          ---------          ---------
                                $ 150,000          $  90,000          $ (28,000)
                                =========          =========          =========
                                       F-9
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)




(4)  INCOME TAXES - (continued)

  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:
<TABLE>
<CAPTION>
                                                         1996         1995         1994
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>       
Tax provision at the statutory rate                    $ 118,000    $  89,000    $ (40,000)
Effect of amortization of goodwill and other
  expenses not deductible for tax reporting purposes       3,000       13,000       10,000
State tax provision                                       28,000       54,000       (4,000)
Research & development credit                               --           --        (27,000)
Change in valuation allowance                            (20,000)     (52,000)       4,000
Other items                                               21,000      (14,000)      29,000
                                                       ---------    ---------    ---------
Actual tax provision                                   $ 150,000    $  90,000    $ (28,000)
                                                       =========    =========    =========
</TABLE>


  The  components  of deferred  taxes as of  September  30, 1996 and 1995 are as
follows:

                                                    1996         1995
                                                 ---------    ---------
Allowance for doubtful accounts                  $  38,000    $  32,000
Uniform capitalization of inventory costs           43,000       34,000
Inventory write-downs not currently deductible      45,000       38,000
Book vs. tax depreciation                          (24,000)        --
State net operating loss carryforwards               2,000       42,000
Liabilities not currently deductible               177,000       97,000
Valuation allowance                                (58,000)     (78,000)
                                                 ---------    ---------
                                                 $ 223,000    $ 165,000
                                                 =========    =========


  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 fully
offset by the valuation allowance.

  See Note 11 regarding  the income tax treatment of the gain on the disposal of
discontinued operations.

(5)  LONG-TERM DEBT

  Long-term  debt  consists  of a  twenty  (20)  year  mortgage  secured  by the
Company's  land and  building  located  in The  Netherlands  and a  construction
deposit for  remodeling  the building.  The  collateral  has a carrying value of
$403,000.  Principal is payable in The Netherlands  guilder in 240 equal monthly
payments.  Principal  payments are $14,000 for each of the next five years, with
the payments for 1997 being  included with accounts  payable as of September 30,
1996.  Interest for the first five years is fixed at 6.95%, 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.
                                      F-10
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(6)  MAJOR CUSTOMERS AND FOREIGN SALES:

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

                                        1996             1995           1994    
                                    -----------      -----------    ----------- 
                                        17%              28%            18%     
                                        10%              11%            14%     
                                        10%               -             11%     
                                        10%               -              -      
                                    -----------      -----------    ----------- 
                                        47%              39%            43%     
                                    ===========      ===========    =========== 
                                                            
  The  individual  line items above do not reflect  the same  customers  in each
year. As of September 30, 1996, receivables from three customers comprise 50% of
accounts  receivable,  representing a concentration of credit risk as defined by
SFAS No. 105.

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

                                                   1996       1995       1994
                                                 --------   --------   --------
  United States (including 1% or less to Canada)    39%        36%        57%
  Far East (Korea, People's Republic of China,
   Taiwan, Japan, and Singapore)                    36%        51%        26%
  Europe (including Israel)                         21%         7%         5%
  India                                              4%         6%        12%
                                                 --------   --------   --------
                                                   100%       100%       100%
                                                 ========   ========   ========


(7)  LEASES:

  The  Company  leases  buildings,   vehicles  and  equipment.   Minimum  rental
commitments under  noncancellable  operating leases,  all of which expire in the
next three years, are as follows as of September 30, 1996:

                                                   1997      $ 69,000
                                                   1998        23,000
                                                   1999        10,000
                                                             --------
                                                             $102,000
                                                             ========

  Rental expense related to continuing  operations,  net of sublease income, for
1996,  1995  and  1994  was   approximately   $108,000,   $76,000  and  $50,000,
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 on sales of complete units of the product are 4% and 2% on
any spare  parts.  Royalty  expense  included  in cost of  product  sales of the
semiconductor  equipment  segment  totaled  approximately  $47,000,  $49,000 and
$63,000 in 1996, 1995 and 1994, respectively.
                                      F-11
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)




(9)  STOCKHOLDERS' INVESTMENT 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.

  On December 22, 1994,  the Company  completed a secondary  public  offering of
2,415,000 shares of its $.01 par value common stock and redeemable  warrants for
an equal  number  of  shares.  The sale  was in the  form of  units  which  were
comprised of six (6) shares and three (3)  redeemable  warrants  each, and which
were sold to the public at a price of $11.25 per unit.  The gross  proceeds from
the public sale amounted to $4,528,125.  The net proceeds to the Company,  after
deducting all expenses of the offering, were $3,623,382.

  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 during the four year period
ending  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  93,000  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 653,000 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 October 15, 2002. Under the terms of the 1995 Stock Option
Plan,  nonqualified  options may also be issued.  As of September  30, 1996,  no
options have been granted under the 1995 Stock Option Plan.

  The following is a summary of outstanding  stock options,  81,000 of which are
exercisable, as of September 30, 1996:
<TABLE>
<CAPTION>
                                        Number of         Exercise           Expiration
  Nature of Options                       Shares           Price                Date
  -------------------                   ---------       ------------       ----------------
<S>                                       <C>            <C>                 <C>          
  Directors' options                      40,000         $1.06-$2.23         90 days after
                                                                              termination
  Incentive Stock Option Plan-
    President                             15,000                1.76            1996-1998
    Other employees                       78,000            .63-1.13            1997-2003
                                         -------
                                         133,000
                                         =======
</TABLE>
  The Board of Directors adopted the 1995 Stock Bonus Plan under which grants to
employees for 46,500 shares remain  outstanding as of September 30, 1996.  Under
the terms of those grants, the employees have or will in fiscal 1996, 1997, 1998
and  1999,  vest  in  regards  to  15,100,  14,600,  14,800  and  2,000  shares,
respectively.  The grants also provide  limited tax  protection in the form of a
cash bonus in the amount of 40% of the market value of the shares on the date of
                                      F-12
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



(9)  STOCKHOLDERS' INVESTMENT AND STOCK OPTIONS:  (continued)

the grant.  The shares will be issued and the tax protection paid if the grantee
remains an employee  through the date on which he or she becomes vested in those
shares.  Compensation  expense is being recorded ratably over the vesting period
through the accrual of a liability.  Although  such shares are not  reflected in
the Consolidated Statements of Stockholders' Investment, because the shares have
not been  issued,  pending  vesting and  registration,  they are included in the
calculation of earnings per share.


(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. In
fiscal 1996, the company amended its contract to extend its term to the later of
October 31, 1996 or the date on which the work is completed, and to increase its
financial commitment.  As of September 30, 1996, the remaining commitment on the
contract was  $112,000.  The purpose of the  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 and  internally  generated  cash from  operations.  There is no
assurance of the  availability  or  sufficiency  of these or any other source of
financing.

  The Company has internal  commitments  to expend up to $560,000 on  developing
new products that are complementary to the horizontal diffusion product line and
improving existing products.

(11)  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
                                      F-13
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)




(11)  DISCONTINUED TECHNICAL CONTRACT PERSONNEL SEGMENT - (continued)

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  with  the  December  1995  disposition  and  $4,549,000  and  $6,224,000,
respectively,  for the two years in the period ended September 30, 1995.  Income
from  discontinued  operations  for  fiscal  1996,  1995,  and  1994  are net of
applicable income taxes of $25,000, $30,000 and $40,000, respectively.  Goodwill
net of  accumulated  amortization  as of  September  30,  1995,  related  to the
acquisition of Echelon,  amounted to $85,315 as of that date, and was one of the
assets disposed of in the December 1995 transaction.
                                      F-14
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      -------------------------------------


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

              FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
              -----------------------------------------------------



<TABLE>
<CAPTION>
                                                                  Additions
              For the Year                 Balance at              Charged
                 Ended                     Beginning              (Credited)                                  Balance at
              September 30,                 of Year               to Expense            Write-offs           End of Year
              -------------                ----------            ------------           ----------           -----------
<S>                 <C>                     <C>                     <C>                   <C>                  <C>     
1.  Allowance for Doubtful Accounts
    -------------------------------


                    1996                    $  80,000               $ 66,249              $56,249              $ 90,000

                    1995                       45,000                 35,704                  704                80,000

                    1994                       45,000                 73,720               73,720                45,000






2.  Deferred Tax Asset Valuation Allowance
    --------------------------------------


                    1996                    $ 78,000                $(20,000)             $  -                 $ 58,000

                    1995                     150,000                 (72,000)                -                   78,000

                    1994                     150,000                   -                     -                  150,000
</TABLE>
                                       S-1
<PAGE>
ITEM 9.           DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         Not Applicable.




                                       28
<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 28, 1997.

ITEM 11.          MANAGEMENT REMUNERATION

         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 28, 1997.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         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 28, 1997.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         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 28, 1997.
                                       29
<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, 1996 and 1995

         2.       Consolidated  Statements  of Operations for  the  years  ended
                  September 30, 1996, 1995 and 1994

         3.       Consolidated Statements  of Stockholders' Investment  for  the
                  years ended September 30, 1996, 1995 and 1994

         4.       Consolidated  Statements  of  Cash  Flows  for the years ended
                  September 30, 1996, 1995 and 1994

         5.       Notes  to  Consolidated  Financial  Statements - September 30,
                  1996, 1995 and 1994

(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.
                                       30
<PAGE>
(c)      Exhibits.
<TABLE>
<CAPTION>
                                                                                                 Method
   Exhibit No.      Description                                                                of Filing
   -----------      -----------                                                                ---------
<S>                 <C>                                                                            <C>              
       3.1          Articles of Incorporation                                                      A

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

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

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

       3.5          Articles of Amendment to Articles of Incorporation, dated                      G
                    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         J.S. Whang Stock Option Agreement                                              A

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

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

       10.7         Employment Agreement with J.S. Whang, dated October                            G
                    1, 1994

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

       10.9         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

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

      10.11         Joint Venture Termination and Stock Redemption                                 *
                    Agreement dated September 24, 1996
</TABLE>
                                       31
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 Method
   Exhibit No.      Description                                                                of Filing
   -----------      -----------                                                                ---------
<S>                 <C>                                                                      <C>              
        11          Schedule of Computation of Net Income per Share                                *

        22          Subsidiaries of the Registrant                                                 *

        23          Consent of Arthur Andersen LLP                                                 *

        24          Powers of Attorney                                                       See Signature
                                                                                                  Page

        27          Financial Data Schedule                                                        *

</TABLE>
----------

*        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 August 8, 1996
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


(d)      Reports on Form 8-K

         The Company did not file a Current Report on Form 8-K during the fourth
quarter of fiscal year 1996.
                                       32
<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 30, 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:

<TABLE>
<CAPTION>
Signature                                                          Title                                   Date
---------                                                          -----                                   ----


<S>                                       <C>                                                      <C> 
  /s/ Jong S. Whang                       Chairman of the Board,                                   December 30, 1997
-----------------------------------------
Jong S. Whang                             President (Chief Executive Officer)

  /s/ Robert T. Hass                      Vice President-Finance                                   December 30, 1997
-----------------------------------------
Robert T. Hass                            (Chief Financial & Accounting Officer)

  /s/ Donald F. Johnston                  Director                                                 December 30, 1997
-----------------------------------------
Donald F. Johnston

  /s/ Alvin Katz                          Director                                                 December 30, 1997
-----------------------------------------
Alvin Katz

  /s/ Bruce R. Thaw                       Director                                                 December 30, 1997
-----------------------------------------
Bruce R. Thaw
</TABLE>
                                       33