##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended: September 30,
    2004                                           
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 0-11412

AMTECH SYSTEMS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                  |  |                                         
|--------------------------------------------------------------------------------- |  | ----------------------------------------
|Arizona                                                                           |  | 86-0411215                              
|(State or other jurisdiction of
    incorporation or organization)                |  | (I.R.S. Employer
    Identification No.)
|                                                                                 
|131 South Clark Drive, Tempe, Arizona(Address of principal executive
    offices) |  | 85281(Zip Code)                         

Registrants telephone number, including
area code:

480-967-5146


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

None


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

Common Stock, $.01 Par Value


(Title of Class)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     þ Yes          o 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.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12(b)(2).     o Yes          þ No

As of
March 31, 2004, the aggregate market value of the voting
stock held by non-affiliates of the registrant was approximately
$12,805,000, based upon the closing sales price reported by the
NASDAQ National Market® on that date.

As of
January 12, 2005, the registrant had outstanding
2,705,121 shares of Common Stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Definitive Proxy Statement related to the registrants 2005
Annual Meeting of Shareholders, which Proxy Statement will be
filed under the Securities Exchange Act of 1934, as amended,
within 120 days of the end of the registrants fiscal
year ended September 30, 2004, are incorporated by
reference into Part III of this Form 10-K.



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TABLE OF CONTENTS

|                  |  |                                                                                                        |    |      |    | 
|----------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                  |  |                                                                                                        |    | Page |   
|                  |  |                                                                                                        |    |      |   
|Part I           
|ITEM 1.           |  | BUSINESS                                                                                               |    |      | 3  | 
|ITEM 2.           |  | PROPERTIES                                                                                             |    |      | 14 | 
|ITEM 3.           |  | LEGAL PROCEEDINGS                                                                                      |    |      | 14 | 
|ITEM 4.           |  | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                                |    |      | 14 | 
|                 
|                 
|Part II          
|ITEM 5.           |  | MARKET FOR REGISTRANTS
    COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                              |    |      | 15 | 
|ITEM 6.           |  | SELECTED FINANCIAL DATA                                                                                |    |      | 16 | 
|ITEM 7            |  | MANAGEMENTS DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS              |    |      | 17 | 
|ITEM 7A.          |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                         |    |      | 33 | 
|ITEM 8            |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                        |    |      | 35 | 
|ITEM 9.           |  | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE               |    |      | 57 | 
|ITEM 9A.          |  | CONTROLS AND PROCEDURES                                                                                |    |      | 57 | 
|ITEM 9B.          |  | OTHER INFORMATION                                                                                      |    |      | 57 | 
|                 
|                 
|Part III         
|ITEM 10.          |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT                                                 |    |      | 57 | 
|ITEM 11.          |  | EXECUTIVE COMPENSATION                                                                                 |    |      | 57 | 
|ITEM 12.          |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS |    |      | 57 | 
|ITEM 13.          |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                     |    |      | 57 | 
|ITEM 14.          |  | PRINCIPAL ACCOUNTING FEES
    AND SERVICES                                                             |    |      | 57 | 
|                 
|                 
|Part IV          
|ITEM 15.          |  | EXHIBITS AND FINANCIAL
    STATEMENT SCHEDULES                                                         |    |      | 58 | 
|SIGNATURES        |  |                                                                                                        | 60 |     
|POWER OF ATTORNEY |  |                                                                                                        | 60 |     
|EX-21            
|EX-23            
|EX-31.1          
|EX-31.2          
|EX-32.1          
|EX-32.2          



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FORWARD-LOOKING STATEMENTS

Certain information contained or incorporated by
reference in this Annual Report on Form 10-K is
forward-looking in nature. All statements included or
incorporated by reference in this Annual Report on
Form 10-K, or made by management of Amtech Systems, Inc.
and its subsidiaries (Amtech), other than statements
of historical fact, are hereby identified as
forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended). Examples of forward-looking statements include
statements regarding Amtechs future financial results,
operating results, business strategies, projected costs,
products under development, competitive positions and plans and
objectives of the Company and its management for future
operations. In some cases, forward-looking statements can be
identified by terminology such as may,
will, should, would,
expects, plans, anticipates,
believes, estimates,
predicts, potential,
continue, or the negative of these terms or other
comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and
uncertainties and other important factors, including those
discussed in the section entitled Item 7.
Managements Discussion and Analysis  Trends,
Risks and Uncertainties. These and many other factors
could affect Amtechs future operating results and
financial condition, and could cause actual results to differ
materially from expectations based on forward-looking statements
made in this document or elsewhere by Amtech or on its behalf.
Unless noted otherwise, all references to a year apply to
Amtechs fiscal year, which ends on September 30th.

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




PART I






|        |         
|------- | --------
|ITEM 1. | BUSINESS

Amtech Systems, Inc. (Amtech or the
Company) was incorporated in Arizona in October
1981, under the name Quartz Engineering & Materials,
Inc., and changed to its present name in 1987. Amtech also
conducts operations through three wholly-owned subsidiaries,
Tempress Systems, Inc., a Texas corporation with all of its
operations in the Netherlands (Tempress Systems or
Tempress), P.R. Hoffman Machine Products, Inc., an
Arizona corporation based in Carlisle, Pennsylvania (P.R.
Hoffman) and Bruce Technologies, Inc., a Massachusetts
corporation based in Billerica, Massachusetts (Bruce
Technologies).

We develop, manufacture, market and service wafer
and semiconductor fabrication equipment and related spare parts
for the global semiconductor industry. Customers for our
products include semiconductor wafer manufacturers and
semiconductor integrated circuit (or chip) manufacturers, who
either use the chips they manufacture in their own products or
sell them to other companies. These chips are key components in
most electronic products for telecommunications (especially
wireless communications), computers and consumer electronics and
are also used to add functionality to, or improve the
performance of, a wide range of existing products, such as
automobiles. Other customers for our products include
manufacturers of optical components and solar cells and research
and development facilities.

Our business is divided into two business
segments, semiconductor equipment and polishing supplies. The
semiconductor equipment segment manufactures and sells
horizontal diffusion furnaces; processing/robotic equipment and
host systems for such diffusion furnaces. This includes related
spare parts, consumables and services used in certain processes
of fabricating integrated circuits, or chips, on silicon wafers.
In addition, our semiconductor equipment segment provides
manufacturing support services, including wet and dry cleaning
of semiconductor machine processing parts, to one of our
Texas-based customers. Our polishing supplies segment produces
and sells carriers and templates that are consumed in the final
steps of manufacturing silicon wafers (the raw material used in
the production of semiconductors), double-sided precision
lapping and polishing machines and related spare parts. For
information regarding revenue, operating profit or loss and
identifiable assets attributable to each of these two business
segments, see Note 9 of the Notes to Consolidated Financial
Statements included herein and Item 7 of this annual report.

We serve a niche market in an industry that
experiences on going technological advances, and which is very
cyclical. As a result, our future profitability and growth
depends on our ability to develop or acquire and market
profitable improved or new products, and on our ability to adapt
to cyclical trends.

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GROWTH STRATEGY

Our strategy for growing revenue and operating
profit is to develop improved or new products and services that
satisfy our targeted markets, to further penetrate these and new
markets with existing and new products and to acquire additional
products through strategic acquisitions. We categorize these
growth strategies as internal growth and acquisition growth.

Internal Growth.Our
strategy for internal growth, sometimes referred to as organic
growth, includes adding new markets, new or improved products
and new services. We began providing a new service, contract
semiconductor manufacturing support, in the fourth quarter of
1997, and in 2004 expanded the services provided and revenues
generated by these services. Service revenues were 5% of sales
in 2004. In 2000, we began obtaining orders for semiconductor
production equipment from manufacturers of MEMS
(microelectromechanical system) using nanotechnology. While MEMS
manufacturers are currently experiencing a downturn, this proved
to be a significant new market for us in 2000 and 2001 and we
expanded our position in this market with the 2004 acquisition
of Bruce Technologies from Kokusai Semiconductor Corporation
(Kokusai). In addition, one of the first new markets
added by our semiconductor equipment segment was manufacturers
of solar cells.

Our new products have included the July 2000
introduction of the S-300 and E-300 models of automation, which
were a significant source of sales in 2001 and 2002. Other new
products, which we began shipping in 2002, include 300mm
diffusion furnaces sold to wafer manufacturers and related
automation and S-300 models with cassette-to-cassette
capability, a SECS II Gem (semiconductor equipment
communications standard with level II documentation and
incorporating the general equipment model) interface to a
customers factory automation and an interface to third
party SMIF (standard mechanical interface) pod openers. The
introduction of new products in 2002 helped our semiconductor
equipment segment avoid the severe revenue decline experienced
by most of our peers in 2002. We expect these new products to
generate increased sales and profits during the next industry
upturn.

During 2003, our polishing supplies segment
received a customer order for a double-sided lapping and
polishing machine with a larger capacity than our previous
machines. This machine is driven by servo motors, rather than
the hydraulics used in our then existing largest machine. P.R.
Hoffman completed the design and manufacture of this machine,
Model 5400 Servo, in 2003, and it was shipped and accepted by
the customer in 2004. The Model 5400 is our first lapping and
polishing machine capable of processing parts up to
19.5 inches in diameter; has higher capacities for smaller
parts; and is equipped with a WindowsTM touch-screen
interface to a programmable controller for flexible multi-step
control of speeds and pressure, optional thickness control, and
crash protection. The Model 5400 offers very high precision for
a large double-sided planetary machine and is especially suited
to thin and fragile substrates. This design uses servo motors to
precisely control the smooth, quiet, three-way planetary motions
as well as precise, completely variable control of downward
force ranging from as little as 24 pounds to as much as 1 1/2
tons.

During 2003, after considerable consultation with
a customer, our semiconductor equipment segment received an
order for a new small batch vertical furnace, which is subject
to customer acceptance. The specifications for this furnace
include a two-tube vertical furnace for wafer sizes of up to
200mm, with each tube having a small flat zone capable of
processing 25-50 wafers per run. This system is expected to have
the same process capability of other vertical furnaces in the
marketplace, but with less complex automation and a lower cost
than that of our competitors. The market for vertical furnaces
is much larger than any of the other markets we currently serve.
However, we intend to target research and development and other
niche applications first, since the competition in vertical
furnaces is fierce and our competitors are much larger with
substantially greater financial resources, processing knowledge
and advanced technology than Amtech. The development of this
small batch vertical furnace is presently moving from the
sub-assembly stage to the final assembly phase. Delivery is now
expected to be in March, 2005. There can be no assurance that
when completed the customer will accept this small batch
vertical furnace.

The large installed customer base of Bruce
Technologies, Inc., which was acquired in 2004, increases the
market to which the Company can sell its new or existing
automation products and its proposed small batch vertical
furnace.

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Acquisition Growth.In 1995, we completed a secondary offering of our common stock,
yielding proceeds of $3.6 million to be used to fund our
acquisition strategy. That year, we acquired certain assets of
the former Tempress, B.V. and hired Tempress, B.V.s former
engineers to develop our first models of the Tempress®
horizontal diffusion furnaces for production in The Netherlands.
On July 1, 1997, we acquired substantially all of the
assets of P.R. Hoffman Machine Products Corporation. This
acquisition enabled us to offer new products, including lapping
and polishing carriers, polishing templates, lapping and
polishing machines and related consumable and spare parts to our
existing customer base and to target new customers. In September
2000, we raised an additional $4.6 million through a
private placement of our common stock to further fund our
acquisition strategy. On July 1, 2004, we acquired certain
semiconductor horizontal diffusion furnace operations, product
line and other assets from Kokusai and its affiliate Kokusai
Electric Europe, GmbH, which will be marketed under the name,
Bruce Technologies. Bruce Technologies has a large installed
base, including several large semiconductor fabricators. While
we have had some difficulty identifying fairly-valued suitable
acquisition candidates, we continue to pursue acquisition
candidates that will either increase our existing market share
or expand the number of front-end semiconductor processes
addressed by our products.

INDUSTRY

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

Although the semiconductor market has experienced
significant growth over the past decade, it remains cyclical by
nature, characterized by periods of either under or over supply
for most semiconductors, including microprocessors, memory,
power management chips, discrete chips and other logic devices.
When demand decreases, semiconductor manufacturers typically
slow their purchasing of capital equipment. Conversely, when
demand increases, so does capital spending. After historical
peaks in 2000, the semiconductor industry experienced one of its
most severe down turns in 2001, 2002 and the first half of 2003
which resulted in a decline in revenue for both chip fabricators
and most semiconductor equipment manufacturers. The industry
began to rebound from this downturn during the later part of
2003. As this industry rebound developed in 2004, it became
clear that most of the increased spending was by new
semiconductors fabs utilizing 300mm technologies, a market not
served by the Company. Our 300mm products, including a diffusion
furnace, automation, and insert carriers, are only used by wafer
manufacturers. As a result, we have not benefited from the 2004
rebound, i.e. our 2004 orders were slightly lower than in 2003.

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

Most semiconductor chips are built on a base of
silicon, called a wafer, and include multiple layers of wiring
that connect a variety of circuit components, such as
transistors and other structures. To build a chip, the
transistors, capacitors and other circuit components are first
created on the surface of the wafer by performing a series of
processes to deposit and remove selected film layers, including
insulators. Similar processes are then used to build the layers
of wiring structures on the wafer. These are all referred to as
front-end processes. A simplified sequence of
front-end processes for fabricating typical chips involves:
(1) pulling molten silicon to form an ingot;
(2) slicing the silicon ingot into wafers of uniform
thickness with a wire saw; (3) lapping and polishing the
silicon wafer to a mirror-like finish; (4) cleaning the
wafer; (5) forming a thin film layer of silicon dioxide on
the wafer in a diffusion furnace where oxygen, hydrogen or a
combination of the two is introduced to cause a chemical
reaction (oxidation) with the silicon wafers surface;
(6) insulating or conducting layers are deposited on the
wafer surface, which sometimes is accomplished in a diffusion
furnace

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via a chemical reaction called chemical vapor
deposition (CVD); (7) a photosensitive
material, called photoresist, is spread over and then baked on
the wafer; (8) the wafer is then exposed to light directed
through a mask with circuit patterns; (9) the wafer is then
placed in a chemical solution that removes the soluble portion
of the photoresist, leaving only the desired pattern;
(10) reactive gases then etch away the exposed areas to
create a dimensional pattern on the wafer surface;
(11) ions are driven into the exposed areas of the
patterned wafer to create electrically charged conductive
regions; and (12) the wafer then goes through a high
temperature annealing process to relieve stress and drive the
implanted ions deeper into the wafer.


The silicon wafer may be cycled ten to twenty
times through these wafer-processing steps, starting each time
at step (5) or (6) to form a number of chips on the
wafer. The front-end process steps are followed by a number of
back-end steps in which the wafers are sliced into individual
chips that are then packaged to add connectors that are
compatible with the end product in which the chip will be used.
Depending on the device, our polishing supplies segments
products may be used in step (3) and our semiconductor
equipment segments products may be used in steps (5),
(6) and (12). A part of the Companys growth strategy
is to increase the number of process steps it can serve by
acquiring additional product lines.

SEMICONDUCTOR EQUIPMENT SEGMENT
PRODUCTS

The semiconductor manufacturing equipment
products, used in the oxidation, CVD, POLC3 doping
and annealing steps of fabricating integrated circuits on
silicon wafers, are manufactured by our Arizona, Massachusetts
and Netherlands operations. The following paragraphs describe
the products that comprise our semiconductor equipment segment:



| |                              
| | -----------------------------
| | Horizontal Diffusion Furnaces

Through our subsidiaries, Tempress Systems and
Bruce Technologies, we produce and sell horizontal diffusion and
conveyor furnace systems, which generally include a load
station. Our diffusion furnaces currently address several
deposition steps in the semiconductor manufacturing process,
including oxidation/diffusion and low-pressure chemical vapor
deposition (LPCVD), POLC3 doping and
annealing. The LPCVD step consists of performing CVD under high
temperature, low-pressure conditions to deposit insulating or
conductive layers, primarily on wafers up to 200mm in size.
Diffusion furnaces also are used in certain high and ultra-high
temperature processes in the manufacture of optical components
of high-speed switches used in broadband fiber optic
telecommunications networks.

Our diffusion furnaces generally consist of three
large modules: the load station where the loading of the wafers
occurs; the furnace section, which is comprised of one to four
reactor chambers; and the gas distribution cabinet where the
flow of gases into the reactor chambers is controlled and are
often customized to meet the requirements of a customers
particular processes. The horizontal diffusion furnaces utilize
existing industry technology and are sold primarily to customers
who do not require the advanced automation of, or cannot justify
the significantly higher expense of, vertical diffusion furnaces
for some or all of their diffusion processes. In 2002, we began
shipping models of the Tempress® diffusion furnace capable
of processing 300mm wafers, with the initial customer being a
semiconductor wafer manufacturer, and we now have models capable
of processing all currently existing wafer sizes.

Tempress Systems also produces conveyor furnace
systems used to produce thick films for the electronics
industry. Conveyor furnace systems provide for precision thermal
processing of electronic parts for thick film applications,
including annealing, sealing, soldering, silvering, curling,
brazing, alloying, gloss-metal sealing and component packaging.



| |                                              
| | ---------------------------------------------
| | Proposed New Small Batch Vertical
    Furnace

During 2003, after considerable consultation with
a customer, our semiconductor equipment segment received an
order for a new small batch vertical furnace, which is subject
to customer acceptance. The specifications for this furnace
include a two-tube vertical furnace for wafer sizes of up to
200mm, with each tube having a small flat zone capable of
processing 25-50 wafers per run. This system is expected to have
the same process capability of other vertical furnaces in the
marketplace, but with less complex automation and a lower cost
than that of our competitors. The market for vertical furnaces
is much larger than any of the other markets we currently serve.
However, we intend to target research and development and other
niche

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applications first, since the competition in
vertical furnaces is fierce and our competitors are much larger
and have substantially greater financial resources, processing
knowledge and advanced technology than Amtech.




| |                             
| | ----------------------------
| | Processing/Robotic Equipment

Our processing and robotic equipment consist of
several products that either automate the loading of horizontal
diffusion furnaces or improve the processing characteristics of
such furnaces. Wherever possible, our processing and robotic
products are sold in various combinations of our Tempress®
and Bruce Technologies® diffusion furnaces in order to
maximize sales of these products and expand the market for our
diffusion furnaces. These products also are sold to customers as
retrofits to most all brands of horizontal diffusion furnaces.



| |                    
| | -------------------
| | Automation Products

Use of our automation products reduces human
handling and, therefore, reduces exposure of wafers to particle
sources during the loading and unloading of the process tubes
and protects operators from heat and chemical fumes. Since the
top reactor chamber of a horizontal furnace is as much as eight
feet from the floor on which the operator stands when manually
loading wafer boats, and typical boats of 150mm to 300mm wafers
weigh three to six pounds, automating the wafer loading and
unloading of a diffusion furnace improves employee safety and
ergonomics in silicon wafer, semiconductor and solar cell
manufacturing facilities. The following paragraphs describe our
automation products.

E-300.Our most cost
effective robotic product is the E-300. This product is most
suitable for the lowest cost semiconductor devices, such as
diodes and power management chips. The E-300 operates like an
elevator and generally is used to raise boats loaded with up to
300 wafers to one or both of the upper two reactor chambers of a
diffusion furnace. There the operator uses a hand held tool to
lift the wafer boat off the E-300 and to either place them
directly on a cantilever paddle system, into an Amtech
Atmoscan®, or onto an IBAL Trolley, which then places the
wafers on the paddle or Atmoscan®. The E-300 can be used in
conjunction with all wafer sizes, including 300mm wafers.

S-300.The patented
S-300 model provides a very efficient method of automatically
transporting a full batch of up to 300 wafers to the designated
tube level and automatically placing them directly onto the
cantilever loader of a diffusion furnace at one time. This
product is suitable for the production of nearly all
semiconductors fabricated in a horizontal furnace, but is not
compatible with furnace reactor chambers where the process
requires an Atmoscan®. During 2002, we began shipping S-300
models for 300mm wafers and other models with
cassette-to-cassette capability, a SECS II Gem interface to
the customers factory automation and an interface to third
party SMIF pod openers. We believe that customers will view the
SECS II Gem interface to their factory automation as a
means to reduce scrap that is sometimes caused by an operator
loading wafers into the wrong process chamber. The S-300 can now
be used in conjunction with all wafer sizes, including 300mm
wafers.

IBAL.Our Individual
Boats with Automated Loading. (IBAL) automation
system is a patented integrated automation system composed of
four modules comprised of hardware and software. The IBAL
Shuttle transfers wafers between wafer transfer machines
manufactured by third parties and the IBAL Queue, providing
customers with the option of complete cassette-to-cassette wafer
handling. The IBAL Queue provides a convenient staging area for
the operator or the IBAL Shuttle to place boats on a load
station and automates the loading of those boats onto the IBAL
Butler. The IBAL Butler automatically transfers wafer carriers
onto the IBAL Trolley of the appropriate furnace tube level for
loading. The IBAL Trolley automatically places the quartz trays
that hold silicon wafers (boats) on a cantilever
paddle system or into an Amtech Atmoscan® that then are
inserted in the diffusion furnace. This sequence is reversed for
unloading the furnace after the particular process step has been
completed.

The automation products described above are
sometimes sold as a complete system in conjunction with a load
station module, which also includes an ultra-clean environment
for wafer loading by filtering and controlling the flow of air.

7



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| |                                                        
| | -------------------------------------------------------
| | Atmoscan® and Other Cantilevered
    Processing Systems

Atmoscan® is a patented controlled
environment wafer processing system that includes a cantilever
tube used to load silicon wafers into a horizontal diffusion
furnace and through which a purging inert gas flows during the
process of loading and unloading the reactor chamber. Among the
major advantages afforded by the Atmoscan® product are
increased control of the environment of the wafers during the
gaseous and heating process, thereby increasing yields and
decreasing manufacturing costs; a decreased need for the
cleaning of diffusion furnace tubes, which ordinarily involves
substantial expense and equipment down time; and significant
economies in the manufacturing process.

We also designed and sell an open cantilever
paddle system, the type of loader which remains the most
commonly used in the semiconductor industry for loading wafers
into horizontal furnaces. Prior to the introduction of the
Atmoscan®, our alternative to the open cantilevered
processing system, similar systems were used by the industry.

POLISHING SUPPLIES SEGMENT PRODUCTS

The products of our polishing supplies segment
are used primarily for lapping and polishing raw silicon wafers
to a mirror-like finish. Depending on the cycle of the
semiconductor industry, between 55% and 65% of this
segments products are sold to either semiconductor wafer
manufacturers or specialty semiconductor fabricators. The
products of our polishing supplies segment are also sold to
fabricators of optics, quartz, ceramics and metal parts, and to
manufacturers of medical equipment components and computer
disks. These products are manufactured by our P.R. Hoffman
operation in Pennsylvania and are described below.



| |         
| | --------
| | Carriers

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



| |                                      
| | -------------------------------------
| | Semiconductor Polishing
    Templates

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



| |                                                          
| | ---------------------------------------------------------
| | Double-sided Planetary Lapping and
    Polishing Machines

Double-sided lapping and polishing machines are
designed to process thin and fragile materials, such as
semiconductor silicon wafers, precision optics, computer disk
media and ceramic components for wireless communication devices,
to exact tolerances of thickness, flatness, parallelism and
surface finish. On average, our surface processing systems are
priced lower than competing systems offered by our competitors
and target the semiconductor, optics, quartz, ceramics, medical,
computer disk and metal working markets.

Lapping machines process parts using an abrasive
slurry and cast iron plates. The material to be processed is
positioned in carriers, which are then driven with a planetary
motion between the top and bottom plates. The planetary action
of the lapping machines simultaneously removes equal amounts of
material from both sides of the material being processed. While
polishing machines are similar to the lapping machines,

8



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##### Table of Contents



polishing is achieved by using finer free
abrasive slurry and plates equipped with a polishing pad
material. Depending on the process, the wafers are held in place
in the pockets of a carrier, for double-sided processing, or
templates or wax mountings for single-sided processing. We do
not manufacture or sell single-sided polishing machines or wax
mountings. The polishing process is used to improve the
characteristics of the surfaces of silicon wafers and other
materials. We also manufacture and sell repair parts for our
line of lapping and polishing machines.




| |                                                                      
| | ---------------------------------------------------------------------
| | New Large Capacity Servo Series of Lapping
    and Polishing Machines

During 2003, our polishing supplies segment
received a customer order for a double-sided lapping and
polishing machine with a larger capacity, compared to our
previous machines, and driven by servo motors, rather than the
hydraulics used in our then existing largest machine. P.R.
Hoffman completed the design and manufacture of this machine,
Model 5400 Servo, in 2003, and it was shipped and accepted by
the customer in 2004. The Model 5400 is our first lapping and
polishing machine capable of processing parts up to
19.5 inches in diameter, including 300mm wafers; has higher
capacities for smaller parts; and is equipped with a
WindowsTM Touch-screen interface to a programmable
controller for flexible multi-step control of speeds and
pressure, optional thickness control, and crash protection. The
5400 model offers very high precision for a large double-sided
planetary machine and is especially suited to thin and fragile
substrates. This design uses servo motors to precisely control
the smooth, quiet, three-way planetary motions as well as
precise, completely variable control of downward force ranging
from as little as 24 pounds to as much as 1 1/2 tons.



| |                                              
| | ---------------------------------------------
| | Plates, Gears, Wear Items and Other
    Parts

Since lapping machinery involves abrasive
slurries, the plates, gears and carriers are often exposed to a
high degree of abrasion and wear. Accordingly, we produce a wide
assortment of plates, gears, parts and wear items for our own
machines as well as for machines manufactured by our
competitors. In addition to producing standard off-the-shelf
parts, we have the ability to produce highly customized parts.

MANUFACTURING, RAW MATERIALS AND
SUPPLIERS

Our manufacturing activities consist primarily of
assembling various commercial and proprietary components into
finished systems in Heerde, The Netherlands (diffusion
furnaces), Tempe, Arizona (processing and robotic systems),
Billerica, Massachusetts (diffusion furnaces) and Carlisle,
Pennsylvania (lapping and polishing machines). Polishing
consumables, including carriers, templates, gears, wear items
and spare parts, are fabricated from various materials in
Carlisle, Pennsylvania, from raw materials manufactured to our
specifications by our suppliers. Many items, such as proprietary
components for systems and lapping plates, are also purchased
from suppliers who manufacture these items to our
specifications. In addition, certain parts for our automation
products are fabricated in our machine shop. All final assembly
and system tests are performed within our manufacturing
facilities. Quality control is maintained through inspection of
incoming materials and components, in-process inspection during
equipment assembly, testing of assemblies and final inspection
and, when practical, operation of manufactured equipment prior
to shipment. Since the majority of the products in the polishing
supplies segment are designed to specific customers
specifications, this segments facility is equipped to
perform a significantly higher percentage of the fabrication
processes required in the manufacturer of its products and
certain of the manufacturing processes are subcontracted out to
various third parties. In addition, this segment relies on key
suppliers for certain materials, including two steel mills, an
injection molder, pad supplier (sole sourced from a Japanese
company) and an adhesive manufacturer. During the fourth quarter
of 2004, the Company purchased a state of the art laser-cutting
tool, to significantly reduce the cost and lead times of
producing steel carriers, particularly insert carriers. To
minimize the risk of production and service interruptions and/or
shortages of key parts, we maintain appropriate inventories of
key raw materials and parts. If for any reason we were unable
obtain a sufficient quantity of parts in a timely and
cost-effective manner to meet our production requirements, our
results of operations would be materially and adversely affected.

Prior to the July 1, 2004 acquisition of the
Bruce Technologies product line, the Bruce Technologies
horizontal diffusion furnaces were manufactured by an outsource
manufacturer. The Company continued to outsource that
manufacturing until the assumed outsourcing contract expired
November 22, 2004. Since that time, we have been
transitioning the order fulfillment and production to facilities
in Billerica, MA and Tempe,

9



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AZ. While it is expected that most spare parts
order fulfillment and the assembly of various commercial and
proprietary components into upgrade kits and complete systems
will be completely transitioned to the Companys facilities
by January 1, 2005, some work will continue to be
outsourced to others, based upon the best cost, delivery and
quality.


BACKLOG

Our order backlog decreased to $7.3 million
as of September 30, 2004, from $7.6 million at the
same date of the previous year. The orders included in our
backlog are generally credit approved customer purchase orders
expected to ship within the next twelve months. The backlog also
includes revenue deferred pursuant to our revenue recognition
policy derived from orders that have already been shipped, but
which have not met the criteria for recognition. We schedule
production of our systems based on order backlog and customer
commitments. However, customers may delay delivery of products
or cancel orders suddenly and without sufficient notice, subject
to possible cancellation penalties. Due to possible customer
changes in delivery schedules and cancellations of orders, our
backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. Delays in delivery
schedules and/or a reduction of backlog during any particular
reporting period could have a material adverse effect on our
business, financial position and results of operations. In
addition, our backlog does not provide any assurance that we
will realize a profit from those orders or indicate in which
period revenue will be recognized. See the disclosure under the
caption Results of Operations  Net
Revenues in Item 7 of this report for a breakdown of
the backlog by segment.

RESEARCH, DEVELOPMENT AND
ENGINEERING

The markets we serve are characterized by
evolving industry standards and rapid technological change. To
compete effectively in our markets, we must continually keep up
with the pace of such change by improving our products and our
process technologies and developing new technologies and
products that compete effectively on the basis of price and
performance and that adequately address current and future
customer requirements. Historically, our early product
development efforts were accomplished primarily through
cooperative efforts with two key customers. We continue to
obtain as much customer cooperation and input as possible to
increase the efficiency and effectiveness of our research and
development efforts. While there can be no assurance that such
relationships will continue or that others will be developed,
such cooperative efforts are expected to continue to be a
significant element in our future development projects.
Generally, our relationships in such projects are substantially
dependent on personal involvement of our President,
Mr. Jong S. Whang, and our division general managers.

During 2003, after considerable consultation with
a customer, our semiconductor equipment segment received an
order for a new small batch vertical furnace, which is subject
to customer acceptance. The specifications for this furnace
include a two-tube vertical furnace for wafer sizes of up to
200mm, with each tube having a small flat zone capable of
processing 25-50 wafers per run. This system is expected to have
the same process capability of other vertical furnaces in the
marketplace, but with less complex automation and a lower cost
than that of our competitors. The development of this small
batch vertical furnace is presently moving from the sub-assembly
stage to the final assembly phase. Delivery is expected in
March, 2005. There can be no assurance that when completed the
customer will accept this small batch vertical furnace.

As previously reported, the results of the
feasibility work on a new technology Asher pursuant to a joint
product development agreement with PSK Tech, Inc. were
encouraging. However, continued improvements in existing
technologies have delayed our customers potential
requirements for this product and thus further development has
been suspended.

During 2003, our polishing supplies segment
received a customer order for a double-sided lapping and
polishing machine with a larger capacity, compared to our
previous machines, and driven by servo motors, rather than the
hydraulics used in our then existing largest machine. P.R.
Hoffman completed the design and manufacture of this machine,
Model 5400 Servo, in 2003, and it was shipped and accepted by
the customer in 2004. The Model 5400 is our first lapping and
polishing machine capable of processing parts up to 19.5 inches
in diameter; has higher capacities for smaller parts; and is
equipped with a WindowsTM Touch-screen interface to a
programmable controller for flexible multi-step control of
speeds and pressure, optional thickness control, and crash
protection. The 5400 model offers very high precision for a
large double-sided planetary machine

10



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##### Table of Contents



and is especially suited to thin and fragile
substrates. This design uses servo motors to precisely control
the smooth, quiet, three-way planetary motions as well as
precise, completely variable control of downward force ranging
from as little as 24 pounds to as much as 1 1/2 tons.


From time to time we add functionality to our
products or develop new products during engineering and
manufacturing to fulfill specifications in a customers
order, in which case the cost of development, along with other
costs of the order, are charged to cost of sales. We
periodically receive small research grants for research and
development of products in The Netherlands, which are netted
against research and development costs. Our approach to such
expenditures has allowed us to produce a number of new products
while spending amounts that are generally modest in relation to
most semiconductor equipment manufacturers. Our expenditures
that have been accounted for as research and development were
$0.5 million (2.6% of revenues) in 2004, $0.7 million
(3.6% of revenues) in 2003 and $0.5 million (2.4% of
revenues) in 2002. These amounts exclude those expenses incurred
in connection with customer orders or supported by government
grants.

PATENTS

The following table shows the patents granted or
licensed and the expiration date thereof, and the material
patents pending, for our products in each of the countries
listed below:

|                                                          |  |         |                                 |                    |                  |  |                   | 
|--------------------------------------------------------- |  | ------- | ------------------------------- | ------------------ | ---------------- |  | ----------------- | 
|                                                          |  |         |                                 | Expiration Date or |                 
|Product                                                   |  | Country |                                 |                    | Pending Approval | 
|                                                          |  |         |                                 |                    |                  | 
|Atmoscan®                                                 |  |         | United States                   |                    |                  |  | August 30, 2005   | 
|IBAL Cantilever Trolley                                   |  |         | United States                   |                    |                  |  | July 10, 2015     | 
|IBAL Cantilever Trolley                                   |  |         | United States                   |                    |                  |  | June 12, 2018     | 
|Photo CVD                                                 |  |         | United States                   |                    |                  |  | June 1, 2010      | 
|Photo CVD                                                 |  |         | United States                   |                    |                  |  | November 15, 2011 | 
|Proposed Damage-free Asher                                |  |         | United States                   |                    |                  |  | September 8, 2018 | 
|IBAL Model S-300                                          |  |         | United States                   |                    |                  |  | July 7, 2019      | 
|IBAL Model S-300                                          |  |         | United States                   |                    |                  |  | July 26, 2019     | 
|IBAL Model E-300                                          |  |         | United States                   |                    |                  |  | July 13, 2021     | 
|IBAL Model S-300                                          |  |         | France, Germany, Italy,         |                    |                  |  | Pending Approval  | 
|                                                          |  |         | The Netherlands, United Kingdom |                    |                  |  |                   | 
|P. R. Hoffman Insert Carriers(*)                          |  |         | United States                   |                    |                  |  | July 2, 2006      | 
|Boat Transfer and Queuing Furnace Elevator and
    Method |  |         | United States                   |                    |                  |  | June 16, 2007     | 
|Wafer Handling Station                                    |  |         | United States                   |                    |                  |  | March 5, 2006     | 
|Cross Flow Diffusion Furnace(**)                          |  |         | United States                   |                    |                  |  | November 2, 2007  | 
|Double Wall Fast Cool-Down Furnace(**)                    |  |         | United States                   |                    |                  |  | January 8, 2007   | 
|Fast, Safe, Pyrogenic External Torch Assembly(*)          |  |         | United States                   |                    |                  |  | December 17, 2011 | 
|Modular V-CVD Diffusion Furnace(**)                       |  |         | Canada                          |                    |                  |  | December 28, 2005 | 
|Movable Core Fast Cool-Down Furnace(**)                   |  |         | United States                   |                    |                  |  | January 8, 2007   | 



---

(*) Patent is licensed from the patent holder or
co-owner on a non-exclusive basis.

(**) Patent is licensed from the patent holder on
an exclusive basis for horizontal furnaces.

There can be no assurance that our pending patent
applications will be allowed or that the issued or pending
patents will not be challenged or circumvented by competitors.
There can be no assurance that any of these rights held by us
will not be challenged, invalidated or circumvented, or that
such rights will provide competitive advantages to us.

11



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There are no pending lawsuits against us
regarding infringement of any existing patents or other
intellectual property rights or any unresolved claims made by
third parties that we are infringing the intellectual property
rights of such third parties. There can be no assurance that
third parties will not assert infringement claims in the future.
Our involvement in any patent dispute or other intellectual
property dispute could have a material adverse effect on our
business. Adverse determinations in any litigation relating to
intellectual property could possibly subject us to significant
liabilities to third parties, require us to seek licenses from
third parties and prevent us from manufacturing and selling one
or more of our products. There also can be no assurance in the
event of successful claims of infringement that we will be able
to obtain licenses on reasonable terms, if at all. Any of these
events could have a material adverse effect on our business,
financial position and results of operations.

SALES AND MARKETING

Because of the highly technical nature of our
products, we market our products primarily by direct customer
contact through our sales personnel and through a network of
domestic and international independent sales representatives and
distributors that specialize in semiconductor equipment and
supplies. Our promotional activities include direct sales
contacts, an internet website, advertising in trade magazines
and the distribution of product brochures. We also participate
in trade shows, including Semicon West, Semicon Europa, Semicon
Japan, Diskcon and one large optics show each year. Our selling
activities in Asia, a fast growing market, are enhanced by the
active involvement of our President, Jong S. Whang, with the
accounts of certain key customers.

In 2004, net revenues were to customers in the
following geographic regions: North America 36%, Asia 33% and
Europe 31%. One customer represented 10% of net revenues during
2004. Two customers represented 15% and 12% of net revenues,
respectively, during 2003. No customer accounted for 10% or more
of net revenues during 2002. For a more complete analysis of
significant customers and sales to customers by geographic
region, see Note 8 of the Notes to Consolidated Financial
Statements included herein and Item 7 of this annual
report. For information regarding revenue, operating profit or
loss and identifiable assets attributable to each of our
industry segments and financial information about foreign and
domestic operations, see Note 9 of the Notes to
Consolidated Financial Statements included herein and
Item 7 of this annual report.

Our business is not seasonal in nature, but is
cyclical based on the capital equipment investment patterns of
semiconductor manufacturers. These expenditure patterns are
based on many factors, including anticipated demand for
integrated circuits, the development of new technologies and
global and regional economic conditions.

COMPETITION

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

The Companys installed base provides some
competitive advantage, as customers with a number of our systems
can minimize training, spares inventory and other costs by
acquiring similar equipment from us and the Company is more
likely to receive greater attention from existing customer
contacts when it offers new products. VSLI Research Data
indicate that the Bruce Technologies product line, acquired by
Amtech in 2004, enjoyed a 42% share of the horizontal diffusion
furnace installed base.

12



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Our diffusion furnaces, robotic/processing
equipment and double-sided lapping and polishing machines
primarily compete with those produced by other domestic and
foreign original equipment manufacturers, some of which are
well-established firms that are larger and have substantially
greater financial resources than Amtech. Our diffusion furnaces
compete against vertical furnaces on the high-end of the price
spectrum. Such competition could intensify in the future, if the
industry trend to produce smaller chips on larger wafers
accelerates, or the newer technology represented by vertical
furnaces results in a material shift in the purchasing habits of
our targeted customers. Our furnaces and lapping and polishing
machines also face, to a limited, but increasing extent,
competition from used equipment on the low-end of the price
spectrum. We intend to maintain or improve our competitive
position for orders for our diffusion furnaces and automation
products by focusing our sales and marketing efforts on the
large and stable middle market, designing products to meet the
customers specific process requirements and providing
competitive prices and product support service levels. With the
addition of the Bruce Technologies product line we expect to
gain marketing synergies and to be more competitive at the upper
end of our targeted market. By purchasing our own brands of used
diffusion furnaces at opportunistic prices, refurbishing them,
and then reselling them with the original manufacturers
warranty, we expect to be able to better defend the lower end of
our targeted market. We have also entered into a memorandum of
understanding with a Chinese manufacturer of low cost horizontal
furnaces in order to determine whether they can become a
supplier and thereby help us to become even more competitive in
the market. See Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Trends, Risks and Uncertainties for a discussion regarding
the impact on our diffusion furnace sales of the industry trend
of producing smaller chips on larger wafers.

We believe our automation products are generally
superior to those of our primary competitors. We believe that
patents on the key features of our automation products provide a
competitive advantage. We expect our automation product
competitors to seek to continually improve the design and
performance of their products. There can be no assurance that
our automation competitors will not develop enhancements or
acquire new technologies that will offer price or performance
features superior to those that we offer. We believe that
our  S-300 and E-300 automation products require less of
the expensive clean room floor space and are generally less
expensive and easier to operate than those of our competitors.
The target market for our automation products is customers who
want to improve employee safety and reduce scrap. The
acquisition of the Bruce Technologies product line has already
provided increased sales opportunities and a new customer for
our automation products through introductions to their installed
based, which tend to be semiconductor fabricators with a large
number of horizontal furnaces. We are not aware of any products
comparable to our IBAL automation products that are capable of
loading Atmoscan® systems, thus providing us with a
competitive advantage.

We are not aware of any significant product that
directly competes with the Atmoscan®; however, there are
several processing systems and various configurations of
existing manufacturing products that provide advantages similar
to those that we believe the Atmoscan® provides to
semiconductor manufacturers. Notwithstanding this competition,
we believe that Atmoscan® provides better results in terms
of more uniform wafer temperature and dispersion of heated gases
in the semiconductor manufacturing process, less exposure of
semiconductor wafers to contaminants and other technical
advantages that afford to its users a higher yield.

We believe that we are much larger and
financially stronger than most of the other domestic
manufacturers of lapping and polishing carriers, which tend to
be family-owned businesses. However, we are currently also
experiencing price competition from carriers produced by foreign
manufacturers, for which there is very little publicly available
information. As a result, we are intensifying our efforts to
reduce the cost of our carriers and will continue to compete
with other manufacturers of carriers by continually updating our
product line to keep pace with the rapid changes in our
customers requirements and by providing a higher level of
customer service. During September 2004, we completed the
installation and began producing steel carriers, including
insert carriers, on a newly acquired state of the art laser
cutting tool, which is expected to significantly reduce costs
and lead times of these products. We have been able to capture a
small yet meaningful share of the semiconductor polishing
template market, which Rodel, a division of Rohm and Haas,
dominates with an estimated 90% market share. Our strategy for
competing for template orders is to seek out niche markets and
to provide the highest level of customer support and reduced
total cost of ownership.

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EMPLOYEES

At September 30, 2004, we employed 132
people. Of these employees, 15 were based at our corporate
offices and manufacturing facility in Tempe, Arizona; 25 were
employed at our manufacturing plant in Carlisle, Pennsylvania;
17 at our manufacturing plant in Billerica, Massachusetts; 54 at
our facilities in and near Heerde, The Netherlands; and 21 in
our contract semiconductor manufacturing support services
business located in Austin, Texas. Of the 25 people employed at
our Carlisle, Pennsylvania facility, 14 were represented by the
United Auto Workers Union  Local 1443. We have never
experienced a work stoppage or strike. We consider our employee
relations to be good.






|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Our semiconductor processing/robotic equipment
business and corporate offices are located in 15,700 square
feet of office and manufacturing space in Tempe, Arizona. These
facilities are leased at a current rate of $8,096 per month, on
a triple net basis, for a term to expire on November 30,
2007. Manufacturing support services are performed in customer
facilities.

Our diffusion furnace business is conducted
primarily in a 9,900 square foot building that we own,
which is located in Heerde, The Netherlands and
12,500 square feet of leased office and warehouse space
located in Billerica, MA, with rental payments of
$7,812 per month through the end of the March 31, 2005
expiration date. In November 2004, the Billerica, MA lease was
renewed for an additional five years on comparable terms. We
also lease an additional 10,000 square feet of
manufacturing space in locations near our Heerde plant. These
additional facilities are leased at a current rate of
$4,700 per month, for varying terms, the last of which
expires on July 31, 2008.

Our polishing supplies business is located in a
21,740 square foot building located in Carlisle,
Pennsylvania. These facilities are leased at a current rate of
$10,860 per month, on a triple net basis, for a term that
expires on June 30, 2005. We have the option to renew the
lease for five successive terms of one year each.

We consider the above facilities suitable and
adequate to meet our current requirements.






|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

In August 2000, a P.R. Hoffman Machine
Products was one of 11 companies named in a legal
action being brought by North Middleton Township in Carlisle,
Pennsylvania, in the Court of Common Pleas, Cumberland County,
Pennsylvania, the owner of a landfill allegedly found to be
contaminated. We acquired the assets of P.R. Hoffman Machine
Products Corporation in an asset transaction consummated on
July 1, 1997. The landfill was closed and has not been used
by P.R. Hoffman since sometime prior to completion of our
acquisition transaction. Therefore, we believe that the named
company was the prior owner of the acquired assets. On
January 7, 2004, this legal action was dismissed due to the
Townships failure to pursue the action within the
statutory time limits.






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

None.

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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY
    AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock, par value $.01 per share
(Common Stock), began trading on the NASDAQ National
Market®, under the symbol ASYS, on
April  18, 2001. Prior to that time, our Common Stock
was traded on the NASDAQ SmallCap Market. The following table
sets forth the high and low bid price at which the shares of our
Common Stock traded for each quarter of 2004 and 2003, as
reported by the NASDAQ National Market®.

|               |  |             |      |  |             |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ----------- | ---- |  | ----------- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  |             |      | 
|               |  | Fiscal 2004 |      |  | Fiscal 2003 |  
|               |  |             |      |  |             |  
|               |  | High        |      |  | Low         |   |      | High |  |   | Low  | 
|               |  |             |      |  |             |   |      |      |  |   |      | 
|First quarter  |  | $           | 7.89 |  |             | $ | 4.85 |      |  | $ | 3.95 |  |  | $ | 2.75 | 
|Second quarter |  |             | 6.61 |  |             |   | 4.91 |      |  |   | 3.25 |  |  |   | 2.95 | 
|Third quarter  |  |             | 5.93 |  |             |   | 4.47 |      |  |   | 4.30 |  |  |   | 2.90 | 
|Fourth quarter |  |             | 5.20 |  |             |   | 4.07 |      |  |   | 5.67 |  |  |   | 3.32 | 

HOLDERS

As of January 11, 2005, there were
989 stockholders of record of our Common Stock. Based upon
a recent survey of brokers, we estimate there were approximately
an additional 2,382 beneficial stockholders who held shares in
brokerage or other investment accounts as of that date.

DIVIDENDS

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

15



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##### Table of Contents








|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

This selected financial data should be read in
conjunction with Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and our consolidated financial statements
(including the related notes thereto) contained elsewhere in
this report. Effective October 1, 2000, we changed our
revenue recognition policy. Since revenue is not reported on a
consistent basis between years, certain data contained in this
report may not be comparable between years.

|                                                                                                     |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ | - |  | - | ------ | 
|                                                                                                     |  |                                      
|                                                                                                     |  | FISCAL YEAR ENDED SEPTEMBER 30,       |       
|                                                                                                     |  |                                       |       
|                                                                                                     |  | 2004                                  |        |   | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                                                                                     |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |       
|                                                                                                     |  |                                      
|                                                                                                     |  | (In thousands, except per share data) |       
|Operating Data:                                                                                      |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Net revenues                                                                                         |  | $                                     | 19,299 |   |      | $ | 19,434 |      |  | $ | 20,533 |  |  | $    | 22,852 |   |  | $ | 19,027 | 
|Operating income (loss)                                                                              |  |                                       | (2,105 | ) |      |   | (245   | )    |  |   | 77     |  |  |      | 1,577  |   |  |   | 1,982  | 
|Income (loss) before cumulative effect of change
    in accounting principle                         |  |                                       | (3,165 | ) |      |   | (100   | )    |  |   | 118    |  |  |      | 1,153  |   |  |   | 1,325  | 
|Cumulative effect of change in accounting
    principle, net of tax(1)                               |  |                                       |       |   |      |   |       |      |  |   |       |  |  |      | (690   | ) |  |   |       | 
|Net income (loss)                                                                                    |  |                                       | (3,165 | ) |      |   | (100   | )    |  |   | 118    |  |  |      | 463    |   |  |   | 1,325  | 
|Earnings (loss) per share:                                                                           |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Basic:                                                                                               |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Income (loss) before cumulative effect of change
    in accounting principle                         |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .43    |   |  | $ | .61    | 
|Cumulative effect of change in accounting
    principle, net of tax(1)                               |  |                                       |       |   |      |   |       |      |  |   |       |  |  |      | (.26   | ) |  |   |       | 
|Basic earnings (loss) per share                                                                      |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .17    |   |  | $ | .61    | 
|Diluted:                                                                                             |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Income (loss) before cumulative effect of change
    in accounting principle                         |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .41    |   |  | $ | .56    | 
|Cumulative effect of change in accounting
    principle, net of tax(1)                               |  |                                       |       |   |      |   |       |      |  |   |       |  |  |      | (.25   | ) |  |   |       | 
|Diluted earnings (loss) per share                                                                    |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .16    |   |  | $ | .56    | 
|Pro forma amounts with the change in
    accounting principle applied retroactively
    (unaudited): |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Net revenues                                                                                         |  | $                                     | 19,299 |   |      | $ | 19,434 |      |  | $ | 20,533 |  |  | $    | 22,852 |   |  | $ | 18,908 | 
|Net income (loss)                                                                                    |  |                                       | (3,165 | ) |      |   | (100   | )    |  |   | 118    |  |  |      | 1,153  |   |  |   | 1,061  | 
|Net income (loss) per share:                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Basic:                                                                                               |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .43    |   |  | $ | .49    | 
|Diluted:                                                                                             |  | $                                     | (1.17  | ) |      | $ | (.04   | )    |  | $ | .04    |  |  | $    | .41    |   |  | $ | .45    | 
|Balance Sheet Data:                                                                                  |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        |   |  |   |        | 
|Cash and cash equivalents                                                                            |  | $                                     | 1,674  |   |      | $ | 7,453  |      |  | $ | 8,046  |  |  | $    | 5,998  |   |  | $ | 5,785  | 
|Working capital                                                                                      |  |                                       | 7,735  |   |      |   | 12,727 |      |  |   | 12,166 |  |  |      | 11,620 |   |  |   | 10,934 | 
|Total assets                                                                                         |  |                                       | 16,660 |   |      |   | 18,399 |      |  |   | 17,393 |  |  |      | 18,571 |   |  |   | 17,483 | 
|Total current liabilities                                                                            |  |                                       | 4,531  |   |      |   | 3,259  |      |  |   | 2,722  |  |  |      | 4,575  |   |  |   | 4,667  | 
|Long-term obligations                                                                                |  |                                       | 474    |   |      |   | 640    |      |  |   | 459    |  |  |      | 411    |   |  |   | 237    | 
|Stockholders equity                                                                                 |  |                                       | 11,655 |   |      |   | 14,499 |      |  |   | 14,212 |  |  |      | 13,584 |   |  |   | 12,580 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount gives effect to a non-cash charge of
    $690,211, after reduction for income tax benefits of $410,000,
    or ($0.26) per basic share, recorded to reflect the cumulative
    effect of the accounting change as of October 1, 2000,
    related to the adoption of Securities and Exchange Commission
    (SEC) Staff Accounting Bulletin No. 101,
    Revenue Recognition in Financial Statements.

16



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##### Table of Contents








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

EXECUTIVE SUMMARY

Introduction.

Managements Discussion and Analysis
(MD&A) is intended to facilitate an understanding of
Amtechs business and results of operations. This MD&A
should be read in conjunction with Amtechs Consolidated
Financial Statements and the accompanying Notes to Consolidated
Financial Statements included elsewhere in this report. MD&A
consists of the following sections:



| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Overview:a summary
    of Amtechs business and opportunities.                                                                                                       
|
| |  | Results of
    Operations:a discussion of operating
    results.                                                                                                     
|
| |  | Financial Condition, Liquidity and Capital
    Resources:an analysis of cash flows,
    sources and uses of cash, contractual obligations and financial
    position.
|
| |  | Contractual
    Obligations:a discussion of future
    commitments.                                                                                                  
|
| |  | Critical Accounting
    Policies:a discussion of critical
    accounting policies that require the exercise of judgments and
    estimates.                          
|
| |  | Impact of Recently Issued Accounting
    Pronouncements:a discussion of the
    impact of recent pronouncements.                                                     
|
| |  | Trends, Risks and
    Uncertainties:a discussion of
    significant risks that could affect Amtechs operating
    results.                                          

Overview

We develop, manufacture, market and service wafer
and semiconductor fabrication equipment and related parts,
supplies and services on a worldwide basis. Customers for our
products include semiconductor wafer manufacturers and
semiconductor integrated circuit (or chip) manufacturers, who
either use the chips they manufacture in their own products or
sell them to other companies. Other customers for our products
include manufacturers of optical components and solar cells and
research and development facilities.

The products offered are grouped into two
business segments: the semiconductor equipment segment, which
offers horizontal diffusion furnaces, processing/robotic
equipment for diffusion furnaces, related spare parts and
manufacturing support services to semiconductor fabricators and
silicon wafer manufacturers; and the polishing supplies segment,
which offers supplies, including carriers and templates, and
equipment for lapping and polishing primarily to silicon wafer
manufacturers.

Since Amtech is a supplier to the
(i) semiconductor industry and (ii) manufacturers of
silicon wafers, which are a key raw material in the fabrication
of integrated circuits, Amtechs results are driven by
worldwide demand for integrated circuits, which in turn depends
on end-user demand for consumer electronics. Demand for our
products can change significantly from period to period as a
result of numerous factors, including, but not limited to,
changes in: 1) global and regional economic conditions;
2) supply and demand for semiconductors and the related
changes in capacity utilization and production volume of
manufacturers of semiconductors, silicon wafers, solar cells and
optical components; 3) the profitability of semiconductor
manufacturers and their silicon wafer suppliers; and 4) the
addition of new product lines, such as the July 1, 2004,
acquisition of the Bruce Technologies diffusion furnace. Since
over 50% of our consolidated revenues are derived from our
operations in The Netherlands, which has the Euro as its
functional currency, changes in the value of the currencies in
which we do business affect our competitiveness.

The global semiconductor industry is volatile.
Demand for semiconductor and silicon wafer manufacturing
equipment and related consumable products has been volatile as a
result of sudden changes in semiconductor supply and demand and
the resulting changes in capacity utilization at our customers.
As a result, our business has historically been subject to those
cyclical industry conditions, and 2004, 2003 and 2002 were no
exception. Customers delivery and installation schedules
on large system orders often add to this volatility. Some of the
factors that are not within our control, but can effect the
timing of delivery and

17



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##### Table of Contents



installation and therefore revenue volatility,
are (i) site preparation, (ii) securing local permits,
(iii) installation of other equipment with which our
systems must interface, and (iv) availability of our
technicians at the time the preceding steps are completed. The
table presented in Results of Operations, Net
Revenues reflects the volatility in our new orders and net
revenues, both within and across years, which are caused by
changes in the industry climate and the factors discussed above.


Within the global semiconductor equipment market,
which is served by both of our business segments, each
geographic region exhibits unique characteristics that can
cause, and in the past have caused, capital equipment investment
patterns to vary significantly from period to period. In 2004,
2003 and 2002, 33%, 44% and 20%, respectively, of our total
revenue was attributable to sales in Asia, principally China,
Korea and Taiwan. While revenue from Asia declined in 2004,
compared to 2003, due to the competitive disadvantage
experienced by our Netherlands operation from the strong Euro,
revenue from that region were second only to the record level
achieved in 2003 and represent the second highest proportion of
net revenues from that region since 1996. The higher sales from
Asia during 2004 and 2003 are partially due to the fact that
Chinas economy has been very strong. Another factor is
that significant portions of the semiconductor industrys
operations have moved to Asia in order to better serve that
rapidly growing semiconductor market in China and to reduce the
costs of operations. This is a trend of increasing importance to
us and to other suppliers to the industry. One example of this
trend is that many semiconductor fabricators have gone fabless,
out-sourcing the manufacturing operations to foundries in Taiwan
or elsewhere in Asia. As a result, silicon wafer manufacturing
in Asia has also increased. For a more complete analysis of
sales to customers by geographic region, see Note 8 of the
accompanying consolidated financial statements.

We serve niche markets in an industry that
experiences on going technological advances. As a result, our
future profitability and growth depends on our ability to
develop or acquire and market profitable improved or new
products and our ability to adapt to industry volatility and
fluctuations in the value of the currencies in which we transact
business. For these and other reasons, our results of operations
for 2004, 2003 and 2002 may not necessarily be indicative of
future operating results. We are focusing our major efforts on
the following areas:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisitions:Acquisitions that will either significantly increase our share
    of the markets we already compete in or that expand the number
    of semiconductor processes our products can address. The
    acquisition of Bruce Technologies dramatically increases our
    share of the horizontal diffusion market and provides us with
    stronger relationships to several large semiconductor fabs. We
    continue to engage in discussions with other potential
    acquisition targets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Expansion of product
    offerings:Since late in 2003,
    after considerable consultation with a customer and receipt of
    an order, we have been designing a new small batch vertical
    furnace, which is subject to customer acceptance. The
    specifications for this furnace include a two-tube vertical
    furnace for wafer sizes of up to 200mm, with each tube having a
    small flat zone capable of processing 25-50 wafers per run. This
    system is expected to have the same process capability of other
    vertical furnaces in the marketplace, but with less complex
    automation and a lower cost than that of our competitors. The
    market for vertical furnaces is much larger than any of the
    other markets we currently serve. However, we intend to target
    research and development and other niche applications first,
    since the competition in vertical furnaces is fierce and our
    competitors are much larger with substantially greater financial
    resources, processing knowledge and advanced technology than
    Amtech. The development of this small batch vertical furnace is
    presently moving from the sub-assembly stage to the final
    assembly phase. Delivery is now expected to be in March 2005.
    There can be no assurance that when completed the customer will
    accept this small batch vertical furnace. The cost of the first
    system is expected to exceed the selling price by
    $0.4 million, with most of the excess charged to cost of
    sales in 2004.
|
| |  | Cost
    reduction:During the fourth
    quarter of 2004, the Company purchased a state of the art
    laser-cutting tool to significantly reduce the cost and lead
    times of producing steel carriers, particularly insert carriers.
    We have and continue to integrate and centralize the payroll,
    accounting, billing, collections, and accounts payable functions
    of Bruce Technologies to gain increased efficiencies. Since the
    end of the year we have begun moving away from the sole-sourced
    outsourced manufacturing and order fulfillment model of Bruce
    Technologies and transitioning that order fulfillment and
    production to facilities in Billerica, MA and Tempe, AZ. While
    it is expected that most spare parts order fulfillment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

18



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and the assembly of various commercial and
    proprietary components into upgrade kits and complete systems
    will be completely transitioned to the Companys facilities
    by January 1, 2005, some work will continue to be
    outsourced, based upon the best cost, delivery and quality.     
|
| |  | Opportunistic
    purchases:We have increased the purchasing of
    our own brands of used diffusion furnaces at opportunistic
    prices, refurbishing them, and then reselling them with the
    original manufacturers warranty in order to better defend
    the lower end of our targeted market.
|
| |  | Ventures:Since the end of 2004, we have entered
    into a memorandum of understanding with a Chinese manufacturer
    of low cost horizontal furnaces in order to determine whether
    they can become a supplier and thereby help us to become more
    competitive in the market.                  

The following discussion and analysis should be
read in conjunction with the Selected Financial Data and the
Consolidated Financial Statements and Notes appearing elsewhere
in this report.

RESULTS OF OPERATIONS

Net Revenues.Our
net revenues for 2004 were $19.3 million, compared to
$19.4 million in 2003 and $20.5 million in 2002,
representing decreases of 1% in 2004 and 5% in 2003. Our
Netherlands operation accounted for approximately 51% of
consolidated net revenues and 73% of the net revenues of the
semiconductor equipment segment. Our Netherlands operation
records all transactions in Euros, its functional currency,
which in turn are translated into United States
(U.S.) dollars, our reporting currency. The Euro
increased in value relative to the U.S. dollar in both 2004
and 2003. As a result of the decline in the value of the
U.S. dollar, consolidated net revenues, and those of the
semiconductor equipment segment, were approximately
$2.4 million and $1.7 million higher in 2004 and 2003,
respectively; than they would have been had the exchange rates
remained the same as the weighted average exchange rates for
2002. However, the increasing value of the Euro made it more
difficult to compete and win orders in Asia, leading to an 11%
decline in that regions percentage contribution to
consolidated net revenue, offsetting approximately
$2.2 million of the 2004 increase in net revenue just
described.

The following table reflects new orders (net of
cancellations), shipments and net revenues for each quarter and
year during the three years in the period ended
September 30, 2004, and the backlog as of the end those
periods, on a consolidated basis, as well as for each of our two
business segments:

|      |                   |                        |   |        |        |       |           |           |  |           |          |        |  |      |   |       |         |  |   |         |  |  |   |        |  |  |   |       | 
|----- | ----------------- | ---------------------- | - | ------ | ------ | ----- | --------- | --------- |  | --------- | -------- | ------ |  | ---- | - | ----- | ------- |  | - | ------- |  |  | - | ------ |  |  | - | ----- | 
|      |                   |                        |   |        |        | Semi- |           |           | 
|      |                   | Fiscal Quarter         |   |        |        |       | conductor |           |  | Polishing |         
|      |                   |                        |   |        | Fiscal |       |           | Equipment |  |           | Supplies |       
|      |                   | First                  |   |        | Second |       |           | Third     |  |           | Fourth   |        |  | Year |   |       | Segment |  |   | Segment | 
|      |                   |                        |   |        |        |       |           |           |  |           |          |        |  |      |   |       |         |  |   |         | 
|      |                   |                       
|      |                   | (Dollars in thousands) |  
|2004: |                   |                        |   |        |        |       |           |           |  |           |          |        |  |      |   |       |         |  |   |         |  |  |   |        |  |  |   |      
|      | New orders(1)(2)  |                        | $ | 3,684  |        |       | $         | 4,038     |  |           | $        | 4,129  |  |      | $ | 7,103 |         |  | $ | 18,954  |  |  | $ | 12,927 |  |  | $ | 6,027 | 
|      | Shipments         |                        |   | 3,744  |        |       |           | 5,697     |  |           |          | 5,232  |  |      |   | 5,136 |         |  |   | 19,809  |  |  |   | 13,725 |  |  |   | 6,084 | 
|      | Net revenues      |                        |   | 3,921  |        |       |           | 5,631     |  |           |          | 4,835  |  |      |   | 4,912 |         |  |   | 19,299  |  |  |   | 13,215 |  |  |   | 6,084 | 
|      | Ending backlog(3) |                        |   | 7,408  |        |       |           | 5,815     |  |           |          | 5,109  |  |      |   | 7,300 |         |  |   | 7,300   |  |  |   | 6,185  |  |  |   | 1,115 | 
|2003: |                   |                        |   |        |        |       |           |           |  |           |          |        |  |      |   |       |         |  |   |         |  |  |   |        |  |  |   |      
|      | New orders(1)     |                        | $ | 2,165  |        |       | $         | 6,477     |  |           | $        | 7,498  |  |      | $ | 3,027 |         |  | $ | 19,167  |  |  | $ | 13,495 |  |  | $ | 5,672 | 
|      | Shipments         |                        |   | 4,165  |        |       |           | 4,785     |  |           |          | 3,396  |  |      |   | 6,267 |         |  |   | 18,613  |  |  |   | 13,313 |  |  |   | 5,300 | 
|      | Net revenues      |                        |   | 4,329  |        |       |           | 5,448     |  |           |          | 3,622  |  |      |   | 6,035 |         |  |   | 19,434  |  |  |   | 14,134 |  |  |   | 5,300 | 
|      | Ending backlog(3) |                        |   | 5,748  |        |       |           | 6,777     |  |           |          | 10,653 |  |      |   | 7,645 |         |  |   | 7,645   |  |  |   | 6,473  |  |  |   | 1,172 | 
|2002: |                   |                        |   |        |        |       |           |           |  |           |          |        |  |      |   |       |         |  |   |         |  |  |   |        |  |  |   |      
|      | New orders(1)     |                        | $ | 2,213  |        |       | $         | 519       |  |           | $        | 6,132  |  |      | $ | 5,626 |         |  | $ | 14,490  |  |  | $ | 9,404  |  |  | $ | 5,086 | 
|      | Shipments         |                        |   | 4,373  |        |       |           | 3,983     |  |           |          | 4,189  |  |      |   | 4,925 |         |  |   | 17,470  |  |  |   | 12,348 |  |  |   | 5,122 | 
|      | Net revenues      |                        |   | 5,457  |        |       |           | 5,577     |  |           |          | 4,447  |  |      |   | 5,052 |         |  |   | 20,533  |  |  |   | 15,411 |  |  |   | 5,122 | 
|      | Ending backlog(3) |                        |   | 10,711 |        |       |           | 5,653     |  |           |          | 7,338  |  |      |   | 7,912 |         |  |   | 7,912   |  |  |   | 7,112  |  |  |   | 800   | 



---



|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | New orders are net of cancellations.                                                                                                                     
|   
|(2) | In the 4th quarter and full fiscal year, new
    orders include approximately $0.4 million of backlog
    acquired in the Bruce Technologies acquisition.

19



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##### Table of Contents





|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The ending backlogs include deferred revenue,
    which amounted to $1.0 million, $0.5 million, and
    $1.4 million as of September 30, 2004, 2003, and 2002,
    respectively.

Shipments increased by $1.2 million in 2004,
compared to 2003, as a result of approximately $1.2 million
of additional sales from the acquired Bruce Technologies product
line acquired in the fourth quarter. Despite this increase in
shipments during 2004, net revenues declined by
$0.1 million or 1% to $19.3 million in 2004 from
$19.4 million in 2003, primarily due to customer caused
delays in completing installations and obtaining acceptances on
a few large systems that shipped in 2002, on which the revenue
was recognized in 2003, and on four systems shipped during 2004
that will not be recognized until 2005. Net revenues of the
polishing supplies segment increased by $0.8 million,
primarily in consumables. While the acquisition of Bruce
Technology increased the semiconductor equipment net revenues by
$1.2 million, the remaining semiconductor equipment net
revenues decreased by $1.4 million.

Semiconductor Equipment
Revenue.Our semiconductor
equipment segment accounted for 68%, 73% and 75% of net revenues
in 2004, 2003 and 2002, respectively. This segment also
accounted for 108% and 79% of the operating loss in 2004 and
2003 and 255% of operating income in 2002. The semiconductor and
optical component industries cycles peaked during 2000 and
reached bottom in 2002. The semiconductor industry again began
to improve during 2003, with new orders (net of cancellations)
from this segment reaching $13.5 million, the second
highest in the history of our semiconductor segment. However,
this segments business began to soften again in 2004, when
new orders, excluding those acquired with the Bruce Technologies
product line, declined by $.03 million, or .1%. Again, the
strong Euro relative to the U.S. dollar caused the cost of
our products manufactured in Europe to be higher than those of
competitors with production in the United States and Asia. Over
50% of our products have been produced in Europe over the past
three years. However, with the acquisition of the Bruce
Technologies product line, we expect that our domestic
operations will account for the majority of production starting
in 2005.

The semiconductor equipment segments net
revenues were $13.2 million, $14.1 million and
$15.4 million in 2004, 2003 and 2002, respectively,
representing revenue declines of 6% and 8% in 2004 and 2003,
respectively. Although shipments increased by $0.4 million
in 2004 to $13.7 million, from $13.3 million in 2003,
revenue declined in 2004 by $0.9 million primarily due the
$0.8 million increase in the amount of revenue deferred as
a result of additional customer caused delays in completing
installations and obtaining acceptances. Certain post-shipment
factors that affect the timing of the recognition of revenue are
discussed above. Also, see Revenue Recognition in
Note 1 of the accompanying consolidated financial
statements for a summary of our revenue recognition policy and
the components of deferred profit. The inclusion of Bruce
Technologies for four quarters in 2005, compared to one quarter
in 2004, is expected to allow us to report higher revenue in
2005.

Polishing Supplies
Revenue.Revenues of the polishing
supplies segment reached a record $8.2 million in 2000, as
the semiconductor industry reached the peak of its business
cycle. This segment reached the bottom of the ensuing cyclical
downturn during 2002, with revenue decreasing dramatically to
$5.1 million, before increasing slightly to
$5.3 million in 2003 and by another 15% to reach
$6.1 million in 2004. Increased revenues in 2004 and 2003
result mainly from increased sales of insert carriers. The
increase in insert carrier revenue accounted for 92% and 252% of
the increase in polishing supplies revenue in 2004 and 2003,
respectively.

The following table sets forth certain
operational data as a percentage of net revenues for each of the
three years in the period ended September 30, 2004:

|                                             |                         |                          |       |       |      |  |       |      |    |  |       |      |  
|-------------------------------------------- | ----------------------- | ------------------------ | ----- | ----- | ---- |  | ----- | ---- | -- |  | ----- | ---- | -
|                                             |                         |                         
|                                             |                         | Year Ended September 30, |      
|                                             |                         |                          |      
|                                             |                         | 2004                     |       |       | 2003 |  |       | 2002 |   
|                                             |                         |                          |       |       |      |  |       |      |   
|Net revenues                                 |                         |                          | 100.0 | %     |      |  | 100.0 | %    |    |  | 100.0 | %   
|Cost of sales                                |                         |                          | 79.5  |       |      |  | 75.1  |      |    |  | 75.7  |     
|                                             |                         |                          |       |       |      |  |       |      |   
|                                             | Gross margin            |                          |       | 20.5  |      |  |       | 24.9 |    |  |       | 24.3 |  
|Selling, general and administrative expenses |                         |                          | 28.6  |       |      |  | 22.8  |      |    |  | 21.5  |     
|Research and development                     |                         |                          | 2.8   |       |      |  | 3.4   |      |    |  | 2.4   |     
|                                             |                         |                          |       |       |      |  |       |      |   
|                                             | Operating income (loss) |                          |       | (10.9 | )%   |  |       | (1.3 | )% |  |       | 0.4  | %
|                                             |                         |                          |       |       |      |  |       |      |   

20



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##### Table of Contents



Gross Margin.Consolidated gross margin for 2004 was $3.9 million,
compared to $4.8 million in 2003 and $5.0 million in
2002, representing a decrease of $0.9 million, or 18%, in
2004, and a decrease of $0.2 million, or 3%, in 2003. In
2004, the gross margin of the semiconductor equipment segment
decreased by $1.2 million, or 33%, primarily due to
non-cash charges represented by a $0.6 million write down
of inventories and $0.5 million increase in the deferral of
profit resulting from unexpected delays by one customer in
completing the facilities for four systems shipped during the
second and third quarters of fiscal 2004. Also contributing to
the decline in 2004 gross margin was the $0.3 million of
estimated future losses on the sale of a small batch vertical
furnace being designed and manufactured under a contract in
cooperation with a significant customer in the electronics
industry. The gross margin of the polishing supplies segment
increased by $0.3 million, or 32%, in 2004 due to the
increased revenue and the improvement in that segments
gross margin percentage, discussed below.

In 2003, the gross margin of the semiconductor
equipment segment decreased by $0.2 million, or 6%,
primarily due to the decline in revenues, described above. On a
consolidated basis, this was only partially offset by the
$0.1 million, or 7%, increase in the 2003 gross margin of
the polishing supplies segment resulting from higher revenues,
compared to 2002.

As a percentage of net revenues, the consolidated
gross margin was 20.5% in 2004 and 24.9% in 2003, compared to
24.3% in 2002. The $0.5 million of gross margins that were
deferred in 2004 on a nearly equal amount of deferred revenue,
compared to the recognition of $0.1 million of deferred net
revenue in 2003 accounts for approximately 1.7% of the 4.4%
decline in gross margins as a percent of revenue. Pursuant to
its inventory valuation accounting policy, Amtech valued Bruce
Technologies inventories acquired from Kokusai
Semiconductor Corporation at $0.3 million less than the
value at which the seller carried those inventories and charged
that amount to cost of sales. As a result, write-downs of excess
or obsolete inventory were $0.3 million higher in 2004,
compared to 2003, and accounted for 1.5% of the decline in gross
margin as a percentage of revenues in 2004 compared to 2003. In
2004 and 2003, development of a small batch vertical furnace
pursuant to a customer purchase order became the most
significant project. However, because this system is being built
to a customer specification and order, the only significant
incremental costs related to this project results from the
$0.3 million of projected costs in excess of the selling
price, which has been accounted for as additional cost of sales,
representing another 1.5% of the decline in our gross margin
percentage. These factors were only partially offset by the
improved margins of the polishing supplies segment, which
resulted from spreading fixed costs over that segments higher
revenue. Inventory write-downs were $0.3 million, or 1.5%
of revenue, and $0.5 million, or 2.4% of revenue, in 2003
and 2002, respectively, with the reduction as a percentage of
revenue more than accounting for the 0.6% improvement in our
gross margin percentage in 2003 compared to 2002. Our gross
margin has significantly fluctuated in the past and will
continue to fluctuate in the future based on several factors
including, but not limited to, the severity and duration of
industry cycles, the timing of revenue recognition under
evolving accounting principles, product mix and overhead
absorption levels.

Selling, General and Administrative
Expenses.Consolidated selling,
general and administrative expenses were $5.5 million in
2004, compared to $4.4 million in 2003 and 2002. The
semiconductor equipment segment accounted for $1.0 million
of the increase in selling, general and administrative expenses,
which is attributable to the addition of Bruce Technology in the
fourth quarter of fiscal 2004 ($0.4 million), and increases
in selling personnel and related costs ($0.2 million),
administrative personnel costs ($0.1 million), other
selling costs, such as advertising and trade shows,
($0.1 million). In addition, the higher selling, general
and administrative expenses in 2004 were caused by
$0.3 million of increases in other general and
administrative expenses, including foreign currency transaction
losses ($0.1 million) and due to the rise in the dollar
value of Euro denominated expenses incurred in The Netherlands
($0.3 million), resulting from the change in the rate used
to translate those costs and to a lesser extent travel and other
costs associated with the due diligence on and integration of
the recent acquisition of Bruce Technologies
($0.1 million), which were partially offset by a
$0.2 million decline in commissions as a result of a
decline in sales through sales representatives, particularly in
China. The remaining increase in selling, general and
administrative costs in 2004 is attributable to the polishing
supplies segment, primarily resulting from commissions and
royalties on higher sales of insert carriers.

In 2003, general and administrative costs
declined by $0.4 million primarily due to a reduction in
provisions for doubtful accounts, but that reduction was offset
by increased selling costs, including commissions
($0.2 million), personnel costs ($0.1 million) and
other costs, such as tradeshows and advertising

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($0.1 million). The increase in commissions
in 2003 compared to 2002 is attributable to increased sales in
territories where we use sales representatives, such as Asia.


Selling, general and administrative expenses as a
percentage of net revenues increased dramatically in 2004 to
28.6% from 22.8% in 2003 and 21.5% in 2002, partially because
Bruce Technologies selling, general and administrative expenses
were approximately 36% of its revenue as a result of certain
transition costs that have since been eliminated through the
centralization of back office functions and because the
increases in expenditures for the other operations described
above did not result in proportionately greater revenue.

Research and Development
Expenses.During 2004, 2003 and 2002,
expenditures accounted for as research and development were
$0.5 million, $0.7 million and $0.5 million,
respectively. The primarily reason for the decline in research
and development from 2003 to 2004 is that the 2003 costs include
certain preliminary conceptual development costs on the small
batch vertical furnace, discussed above, prior to receipt of the
customer order and thus were expensed. During 2002 and 2001, the
most significant projects included in research and development
expenses was the development of a new technology, Asher,
pursuant to a joint product development agreement with PSK Tech
Inc. and development of a new model for our horizontal diffusion
furnace product line. As previously reported, the results of the
feasibility work on this new technology were encouraging.
However, continued improvements in existing technologies have
delayed our customers potential requirements for this
product and thus further development has been suspended.

Operating Income
(Loss).Reduced revenues and gross
margins and increased selling, general and administrative costs
in 2004 resulted in an operating loss of $2.1 million,
compared to an operating loss of $0.2 million, or 1% of
revenue, in 2003, and an operating income of $0.1 million,
or less than 1% of revenue, in 2002. The 2004 operating loss is
primarily comprised of increases in selling, general and
administrative expenses, described above, $0.5 million of
operating profit deferred on the four systems that were
delivered to a customer during the second and, third quarters,
but on which installation could not be completed due to customer
delays, $0.6 million of inventory write-downs primarily
related to inventory acquired along with the Bruce Technologies
product line, and $0.3 million of anticipated losses
recorded on a customer contract, representing our investment in
the development of a small batch vertical diffusion furnace that
has the potential to generate significant revenues in the future

Interest Income,
net.Net interest income was less than
$0.1 million in 2004, 2003 and 2002. The decrease in net
interest income in 2004 and 2003 is primarily the result of a
decline in interest rates since 2001 and, to a lesser degree,
fluctuations in excess cash available for investment.

Income Tax
Provision.During 2004 we recorded an
income tax provision of $1.1 million. The provision
includes a charge for $1.8 million resulting from a
valuation allowance for the total deferred tax assets at
September 30, 2004. In 2003, we recorded an income tax
benefit of $0.1 million, respectively, compared to the
income tax provision recorded in 2002 of $0.1 million.
Excluding the 2004 charge of $1.8 million for the valuation
allowance, the effective tax rate as a percentage of income
(loss) before income taxes was 34%, 52% and 30% in 2004, 2003
and 2002, respectively. The lower rate in 2004 compared to 2003
is because permanent differences as a percent of pre-tax loss is
lower in 2004 than 2003. The significantly higher effective tax
rate in 2003 than 2002 is due to the impact of permanent
differences between financial reporting and taxable income,
primarily the extraterritorial income exclusion of 17%. The
significantly lower effective tax rate in 2002 is a result of
the fact that more than all of the consolidated operating profit
was earned in The Netherlands where there are no state income
taxes. In addition, a state income tax benefit arose from
operating losses in the U.S. during 2002.

Statement of Financial Accounting Standards
(SFAS) No. 109 Accounting for Income
Taxes (SFAS 109) requires that a
valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will
not be realized. A review of all available positive and negative
evidence needs to be considered, including a companys
performance, the market environment in which the company
operates and the length of carry back and carryforward periods.
SFAS 109 further states that forming a conclusion that a
valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years.
Therefore, cumulative losses weigh heavily in the overall
assessment. As a result of the review undertaken at
September 30, 2004, we concluded that it was appropriate to
establish a full valuation allowance for net deferred tax assets.

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The valuation allowance will be reversed in
future accounting periods if the Company sustains a sufficient
level of taxable income to be able to utilize the benefits of
the net deferred tax assets.

Our future effective income tax rate depends on
various factors, such as tax legislation, the geographic
composition of pre-tax income, non-tax deductible expenses and
the effectiveness of our tax planning strategies.

Net Income (Loss).As a result of the operating results described above, 2004
resulted in a net loss of $3.2 million, compared to the net
loss of $0.1 million for 2003 and net income reported for
2002 of $0.1 million. Net income (loss) per diluted share
was $(1.17), $(.04) and $.04 in 2004, 2003 and 2002,
respectively. Net income (loss) per diluted share was $(1.17),
$(.04) and $.04 in 2004, 2003 and 2002, respectively.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL
RESOURCES

As of September 30, 2004 and 2003, cash and
cash equivalents were $1.7 million and $7.5 million,
respectively. The $3.6 million cost of the acquisition of
the Bruce Technologies product line and $0.9 million of
cash used to finance receivables directly related to that
operation, but not acquired in that transaction, account for
$4.5 million of the $5.8 million of cash used during
2004. Our ratio of current assets to current liabilities was
2.7:1 and 4.9:1 at September 30, 2004 and 2003,
respectively.

In 2004, net cash used in operating activities
was $1.2 million, compared to cash used by operations of
$0.8 million in 2003 and cash provided by operations of
$2.4 million in 2002. The 2004 net loss
($3.2 million) was offset by $1.1 million of non-cash
adjustments for depreciation ($0.5 million) and the
write-down of inventory ($0.6 million) coupled with an
increase in accounts payable ($0.2 million), decrease in
deferred taxes ($1.1 million), and the addition to deferred
profit ($0.5 million). However, the increase in inventories
($0.3 million), accounts receivable ($0.5 million) and
prepaid expenses ($0.2 million) contributed to the use of
operating cash in 2004.

The 2003 net loss ($0.1 million) was
more than offset by $0.8 million of non-cash adjustments
for depreciation ($0.5 million) and the write-down of
inventory ($0.3 million). However, the increase in
inventories ($0.9 million), accounts receivable
($0.1 million) and income taxes receivable
($0.5 million) resulted in operating activities using
$0.8 million of cash in 2003.

Investing activities consisted of software,
computer and equipment purchases and building improvements,
which totaled $1.1 million, $0.2 million and
$0.5 million in 2004, 2003 and 2002, respectively. In
addition, $3.6 million was invested in the fourth quarter
2004 acquisition of the Bruce Technologies product line, which
consisted primarily of $2.3 million of inventory,
$1.5 million of intangible assets, including non-compete
agreements, trademarks and trade names, customer relationships,
technology, backlog and goodwill, and $0.1 million of
office equipment. This was offset by the assumption of
$0.3 million of liabilities. Because no trade receivables
were acquired in the transaction approximately $0.9 million
and $0.2 million was used to finance receivables generated
during the last quarter of 2004 and the first quarter of 2005,
respectively.

Financing activities used $-0- million in 2004
and provided $0.3 million and $-0- million in 2003 and
2002, respectively. In 2003, financing activities consisted
mainly of the proceeds from an increase in the mortgage on the
building in the Netherlands.

At September 30, 2004, our principal sources
of liquidity consisted of $1.7 million of cash and cash
equivalents and approximately $0.3 million available in a
Euro line of credit. Since the only lien on our assets is a
$0.5 million mortgage loan and a security interest in trade
receivables of the operation in The Netherlands, we believe that
significant amounts of additional liquidity are available from
various financing sources. We believe that we have sufficient
liquidity for our current operations. One element of our growth
strategy is the acquisition of product lines or businesses that
complement our existing product lines and business. Another
element of that strategy is the development of new products,
such as the small batch vertical furnace. Our currently
available cash and cash equivalents are expected to be
sufficient for existing operations, and planned research and
development. However, significant unplanned development of new
products or the completion of additional acquisitions may
require additional capital resources that are expected to be
obtained from one or more sources of financing, such as a
private placement, a public offering, working capital loans or
term loans from banks or other financial institutions, equipment
leasing, mortgage financing and internally generated cash

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flow from operations. There can be no assurance
of the availability or sufficiency of these or any other source
of funding for those purposes.


CONTRACTUAL OBLIGATIONS

Key suppliers include two steel mills, one
domestic and one German, capable of meeting the material
specifications we require. As of September 30, 2004, we had
unconditional commitments to purchase $0.5 million of
steel, with delivery dates to be determined in the future. Due
to minimum order quantities for this steel and long lead time,
we have made purchase commitments that may be in excess of
future production requirements, and it could take several years
to use all of the steel commitments in production of our
products. These purchase commitments are not expected to result
in any significant losses.

We lease buildings, vehicles and equipment under
operating leases. As of September 30, 2004, future minimum
rental commitments under non-cancelable operating leases with
initial or remaining terms of one year or more totaled $519,000.

The following table shows minimum lease payments
due:

|          |       |                  |         |         |           |   |         |           |  |   |        |        |  |   |         |         | 
|--------- | ----- | ---------------- | ------- | ------- | --------- | - | ------- | --------- |  | - | ------ | ------ |  | - | ------- | ------- | 
|          |       | Less than 1 Year |         |         | 1-3 Years |   |         | 3-5 Years |  |   | Total  |       
|          |       |                  |         |         |           |   |         |           |  |   |        |       
|Buildings |       | $                | 120,624 |         |           | $ | 19,070  |           |  | $ | -0-    |        |  | $ | 139,694 |        
|Vehicles  |       |                  | 113,819 |         |           |   | 173,674 |           |  |   | 58,291 |        |  |   | 345,784 |        
|Equipment |       |                  | 11,316  |         |           |   | 18,768  |           |  |   | 3,105  |        |  |   | 33,189  |        
|          |       |                  |         |         |           |   |         |           |  |   |        |       
|          | Total |                  | $       | 245,759 |           |   | $       | 211,512   |  |   | $      | 61,396 |  |   | $       | 518,667 | 
|          |       |                  |         |         |           |   |         |           |  |   |        |       

CRITICAL ACCOUNTING POLICIES

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

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

A critical accounting policy is one that is both
important to the portrayal of our financial position and results
of operations, and also requires managements most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. These uncertainties are discussed in the
section below entitled Trends, Risks and
Uncertainties. We believe the following critical
accounting policies affect the more significant judgments and
estimates used in the preparation of our consolidated financial
statements.

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

We recognize revenue when persuasive evidence of
an arrangement exists; the product has been delivered and title
has transferred, or services have been rendered; the
sellers price to the buyer is fixed or determinable

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and collectibility is reasonably assured. For us,
this policy generally results in revenue recognition at the
following points:




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) For the semiconductor equipment segment,
    transactions where legal title passes to the customer upon
    shipment, we recognize revenue upon shipment for those products
    where the customers defined specifications have been met
    with at least two similarly configured systems and processes for
    a comparably situated customer. However, a portion of the
    revenue associated with certain installation-related tasks,
    equal to the greater of the relative fair value of those tasks
    or the portion of the contract price contingent upon their
    completion, generally 10%-20% of the systems selling price
    (the holdback), and directly related costs, if any,
    are deferred and recognized into income when the tasks are
    completed.
|
| | (2) For products where the customers
    defined specifications have not been met with at least two
    similarly configured systems and processes, the revenue and
    directly related costs are deferred at the time of shipment and
    recognized into income at the time of customer acceptance or
    when this criterion has been met. We have, on occasion,
    experienced longer than expected delays in receiving cash from
    certain customers pending final installation or system
    acceptance. If some of our customers were to refuse to pay the
    remaining holdback, or otherwise delay final acceptance or
    installation, the deferred revenue would not be recognized,
    adversely affecting our future operating results.                               
|
| | (3) Equipment sold by the polishing supplies
    segment does not include process guarantees, acceptance criteria
    or holdbacks; therefore, the related revenue is recorded upon
    shipment. Our shipping terms for both segments are customarily
    FOB our shipping point or equivalent terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (4) For all segments, sales of spare parts
    and consumables are recognized upon shipment, as there are no
    post shipment obligations other than standard warranties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (5) Service revenues are recognized upon
    performance of the services requested by the customer. Revenue
    related to service contracts is recognized ratably over the
    period of the contract or in accordance with the terms of the
    contract, which generally coincides with the performance of the
    services requested by the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                 

Deferred Tax Asset Valuation
Allowance.We currently have
significant net deferred tax assets resulting from expenses not
currently deductible for tax purposes, revenues previously
recognized for tax purposes and net operating loss carryforwards
which will reduce taxable income in future periods. We
established a full valuation allowance for net deferred tax
assets and recognized a $1.8 million charge during 2004.

SFAS No. 109 requires a valuation
allowance be established when it is more likely than
not that all or a portion of deferred tax assets will not
be realized. A review of all available positive and negative
evidence needs to be considered, including a companys
performance, the market environment in which the company
operates and the length of carryback and carryforward periods.
It also states that it is difficult to conclude that a valuation
allowance is not needed when there is negative evidence such as
cumulative losses in recent years. Therefore, the cumulative
losses weigh heavily in the overall assessment.

Inventory Valuation.We value our inventory at the lower of cost (first-in, first-out
method) or net realizable value. We regularly review inventory
quantities and record a write-down for excess and obsolete
inventory. The write-down is primarily based on historical
inventory usage adjusted for expected changes in product demand
and production requirements. However, our industry is
characterized by customers in highly cyclical industries, rapid
technological changes, frequent new product developments and
rapid product obsolescence. During 2001 and 2002 there was a
significant decrease in worldwide demand for semiconductor
capital equipment. Demand for our products has fluctuated
significantly in the past, and may do so in the future, which
could result in an increase in the cost of inventory or an
increase in excess inventory quantities. While inventory
turnover in 2004 remains at a level that is within historic
norms on a consolidated basis, certain portions of the inventory
are at higher levels than what are needed for current operating
activities, a condition that may not change until there is
further improvement in capital spending by our customers. While
the inventories acquired in the Bruce Technologies transaction
will require several years to consume in production and through
spare parts sales, management believes the write-downs taken are
sufficient to protect against future losses, as this product
line is receiving greater attention under its current ownership.
However, there can be no assurance that future developments will
not necessitate further write-downs.

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

Warranty.We provide
a limited warranty, generally for 12 to 24 months, to all
purchasers of our new products and systems. A provision for the
estimated cost of providing warranty coverage is recorded upon
shipment of all systems. On occasion, we have been required and
may be required in the future to provide additional warranty
coverage to ensure that the systems are ultimately accepted or
to maintain customer goodwill. While our warranty costs have
historically been within our expectations and we believe that
the amounts accrued for warranty expenditures are sufficient for
all systems sold through September 30, 2004, we cannot
guarantee that we will continue to experience a similar level of
predictability with regard to warranty costs. In addition,
technological changes or previously unknown defects in raw
materials or components may result in more extensive and
frequent warranty service than anticipated, which could have a
material adverse impact on our operating results for the periods
in which such additional costs materialize.

Impairment of Long-lived
Assets.We evaluate whether events and
circumstances have occurred that indicate the estimated useful
lives of long-lived assets or intangible assets may warrant
revision or that the remaining balance may not be recoverable.
Goodwill is also tested for impairment at least annually. When
factors indicate that an asset should be evaluated for possible
impairment, we use an estimate of the related undiscounted net
cash flows generated by the asset over the remaining estimated
life of the asset in measuring whether the asset is recoverable.
We make judgments and estimates used in establishing the
carrying value of long-lived or intangible assets. Those
judgments and estimates could be modified if adverse changes
occurred in the future resulting in an inability to recover the
carrying value of these assets. We have not experienced any
impairment to long-lived assets during 2004 or 2003. Future
adverse changes could be caused by, among other factors, a
downturn in the semiconductor industry, a general economic
slowdown, reduced demand for our products in the marketplace,
poor operating results, the inability to protect intellectual
property or changing technologies and product obsolescence.

IMPACT OF RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. This Interpretation
addresses the consolidation by business enterprises of variable
interest entities when the equity investors do not have the
characteristics of a controlling financial interest (as defined
in the Interpretation). In December, 2003, the FASB issued
Interpretation No. 46R, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51.
The FASB deferred the effective date for implementation of this
Interpretation until fiscal years ending after March 15,
2004. We believe that we currently have no contractual or other
business relationship with a variable interest entity, and
therefore, the adoption of this Interpretation did not have a
material effect on our financial position or results of
operations.

In November 2004, the FASB issued
SFAS No. 151, Inventory Costs, which
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs and wasted material. This Statement requires that those
items be recognized as current-period charges regardless of
whether they meet the criterion of so abnormal. In
addition, this Statement requires allocation of fixed production
overhead to the costs of conversion be based on the normal
capacity of the production facilities. The company is currently
evaluating the provisions of SFAS No. 151 and will
adopt it on November 1, 2005, as required. We believe the
adoption of this Statement will not have a material effect on
our financial position or results of operations.

In December 2004, the FASB issued
SFAS No. 123R, Share-Based Payments, which
amends SFAS No. 123, Accounting for Stock-based
Compensation. This statement requires companies to expense
the fair value of employee stock options and similar awards, and
is effective for periods beginning after

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June 15, 2005. The company will adopt the
provisions of SFAS No. 123R on July 1, 2005. See
the pro forma in Note 1 of the Consolidated Financial
Statements for the impact of this statement.


TRENDS, RISKS AND UNCERTAINTIES



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If demand for horizontal diffusion furnaces
    and related equipment declines, our financial position and
    results of operations could be materially adversely
    affected.

The revenues of our semiconductor equipment
segment, which accounts for approximately three quarters of our
consolidated revenues, is comprised of sales of horizontal
diffusion furnaces and our processing/robotic product line. Our
processing/robotic product line is useable only with horizontal
diffusion furnaces. There is a trend in the semiconductor
industry, related to the trend to produce smaller chips on
larger wafers, towards the use in semiconductor manufacturing
facilities of newer technology, such as vertical diffusion
furnaces. Vertical diffusion furnaces are more efficient to use
than the horizontal diffusion furnaces in certain manufacturing
processes of smaller chips on larger wafers. Because of this
trend, we had expected that demand for our horizontal diffusion
furnaces would decline. We believe this trend has yet not
adversely affected us to the extent originally expected
primarily because:



| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have experienced continued demand from
    manufacturers that do not require the more expensive vertical
    furnaces, such as from manufacturers of analog, power
    management, discrete and MEMS chips and micro- controllers used
    in a number of consumer applications, including wireless phones;                                                    
|
| |  | Chinas significant investments in its
    semiconductor industry have resulted in increased sales of our
    horizontal furnaces there;                                                                                                                                                                                                                          
|
| |  | certain larger equipment manufacturers have
    decided to de-emphasize their horizontal product line and we
    have acquired the Bruce Technologies product line, thereby
    allowing us to increase our market share;                                                                                                                                         
|
| |  | we are pursuing alternative markets, such as
    solar cell manufacturers and certain research and development
    facilities; and                                                                                                                                                                                                                                
|
| |  | we believe that because of improvements in
    automation for horizontal diffusion furnaces, such as our
    robotic product line, and due to the significantly higher cost
    of vertical furnaces, horizontal diffusion furnaces are becoming
    a more acceptable alternative to the vertical furnaces than they
    previously had been for certain devices.

However, to the extent that the trend to use
vertical diffusion furnaces over horizontal diffusion furnaces
continues, our revenues may decline and our corresponding
ability to generate income may be adversely affected.



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

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

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

During the most recent down cycle, beginning in
the first half of 2001, the semiconductor industry experienced
excess production capacity that caused semiconductor
manufacturers to decrease capital

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spending. We do not have long-term volume
production contracts with our customers and we do not control
the timing or volume of orders placed by our customers. Whether
and to what extent our customers place orders for any specific
products and the mix and quantities of products included in
those orders are factors beyond our control. Insufficient orders
would result in under-utilization of our manufacturing
facilities and infrastructure and will negatively affect our
financial position and results of operations.




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

We are the beneficiary of a life insurance policy
on the life of our President and Chief Executive Officer,
Mr. J.S. Whang, in the amount of $1,000,000, but there is
no assurance that such amount will be sufficient to cover the
cost of finding and hiring a suitable replacement for
Mr. Whang. It may not be feasible for any successor to
maintain the same business relationships that Mr. Whang has
established. If we were to lose the services of Mr. Whang
for any reason, it could have a material adverse affect on our
business.

In addition, historically, our product
development has been accomplished through cooperative efforts
with two key customers. Our relationship with one of these
customers, as well as with our joint development partner for the
new technology Asher, is substantially dependent on personal
relations established by Mr. Whang. While there can be no
assurance that such relationships will continue, such
cooperation is expected to continue to be a significant element
in our future development efforts.

We also depend on the management efforts of our
officers and other key personnel and on our ability to attract
and retain key personnel. Most of our products, other than the
Atmoscan® and products acquired in the P.R. Hoffman and
Bruce Technologies acquisitions were developed by our own
personnel. We presently employ two engineers at our Tempe,
Arizona plant, including one with a Ph.D. One engineer is
employed at our Billerica, Massachusetts plant. We employ ten
engineers, including two with Ph.D.s, at our Netherlands
operation. These employees design and support the horizontal
diffusion furnace and conveyor furnace product lines
manufactured in the Netherlands and the related Process/ Robotic
products manufactured in Tempe. Two engineers are employed at
our Carlisle, Pennsylvania operation. They design wafer lapping
machines and carriers to meet customers processing
requirements. During times of strong economic growth,
competition is intense for highly skilled employees. There can
be no assurance that we will be successful in attracting and
retaining such personnel or that we can avoid increased costs in
order to do so. There can be no assurance that employees will
not leave Amtech or compete against us. Our failure to attract
additional qualified employees, or to retain the services of key
personnel, could negatively impact our financial position and
results of operations.



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

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

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



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

The rapid change in technology in our industry
requires that we continue to make investments in research and
development in order to enhance the performance and
functionality of our products, to keep pace with competitive
products and to satisfy customer demands for improved
performance, features and functionality.

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There can be no assurance that revenues from
future products or enhancements will be sufficient to recover
the development costs associated with such products or
enhancements, or that we will be able to secure the financial
resources necessary to fund future development. Research and
development costs are typically incurred before we confirm the
technical feasibility and commercial viability of a product, and
not all development activities result in commercially viable
products. In addition, we cannot ensure that products or
enhancements will receive market acceptance, or that we will be
able to sell these products at prices that are favorable to us.
Our business could be seriously harmed if we are unable to sell
our products at favorable prices, or if our products are not
accepted by the markets in which we operate.




| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Our current capital structure could delay,
    defer or prevent a change of control.

We are authorized to issue up to
100,000,000 shares of common stock and up to
100,000,000 shares of preferred stock. As of
December 12, 2004, there were 2,705,121 shares of
common stock outstanding. Authorized but unissued common stock
may be issued for such consideration as the board of directors
determines to be adequate. The board of directors may issue
preferred stock with such rights, preferences, privileges and
restrictions as they determine, without shareholder vote.
Although we do not currently intend to issue any shares of our
preferred stock, there can be no assurance that we will not do
so in the future. Shareholders may or may not be given the
opportunity to vote thereon, depending upon the nature of any
such transactions, applicable law, the rules and policies of the
national securities exchange on which the common stock or
preferred stock, as the case may be, is then trading, if any,
and the judgment of the board of directors. Shareholders have no
preemptive rights to subscribe for newly issued shares of our
capital stock.

On May 17, 1999, we declared a dividend
distribution of one preferred share purchase right for each
outstanding share of common stock. The dividend was payable on
June 9, 1999 to stockholders of record as of the close of
business on that date. Each right entitles the registered holder
to purchase one one-hundredth of a share of Series A
Participating Preferred Stock, subject to adjustment, at a price
of $8.50 per one one-hundredth of a share of Preferred
Stock, subject to adjustment. The rights issuance was adopted as
protection against a takeover by a third party.

Mr. Whang and certain other key employees
have severance arrangements that require us to make significant
lump sum payments in the event of a change of control in
ownership.

Having the outstanding rights, and a substantial
number of authorized and unreserved shares of common stock,
preferred stock and severance arrangements with key employees
could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock.
Management could use the additional shares to resist a takeover
effort even if the terms of the takeover offer are favored by a
majority of the independent shareholders. This could delay,
defer or prevent a change in control.



| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If third parties violate our proprietary
    rights, in which we have made significant investments, or accuse
    us of infringing upon their proprietary rights, such events
    could result in a loss of the value of some of our intellectual
    property or costly litigation.

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

While patent, copyright and trademark protection
for our intellectual property is important, we believe our
future success in highly dynamic markets is most dependent upon
the technical competence and creative

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skills of our personnel. We attempt to protect
our trade secrets and other proprietary information through
agreements with our customers, suppliers, employees and
consultants and through other security measures. We also rely on
trade secret protection for our technology, in part through
confidentiality agreements with employees, consultants and third
parties. We also maintain exclusive and non-exclusive licenses
with third parties for the technology used in certain products.
However, these employees, consultants and third parties may
breach these agreements, and we may not have adequate remedies
for wrongdoing. In addition, the laws of certain territories in
which we develop, manufacture or sell our products may not
protect our intellectual property rights to the same extent as
do the laws of the United States.


From time to time, we have received
communications from other parties asserting the existence of
patent rights or other intellectual property rights that they
believe cover certain of our products, processes, technologies
or information. In such cases, we evaluate our position and
consider the available alternatives, which may include seeking
licenses to use the technology in question on commercially
reasonable terms or defending our position. Based on industry
practice and prior experience, we believe that licenses or other
rights, if necessary, will be available on commercially
reasonable terms for existing or future claims. Nevertheless, we
cannot ensure that licenses can be obtained, or if obtained will
be on acceptable terms, or that litigation or other
administrative proceedings will not occur. Defending our
intellectual property rights through litigation could be very
costly. If we are not able to negotiate the necessary licenses
on commercially reasonable terms or successfully defend our
position, our financial position and results of operations could
be materially and adversely affected.



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

As of September 30, 2004, receivables from
one customer comprised 15% of our accounts receivable. A
concentration of our receivables from a small number of
customers places us at risk. If any one or more of our major
customers is unable to pay us it could adversely affect our
financial position and results of operations. We attempt to
manage this credit risk by performing credit checks, by
requiring significant partial payments prior to shipment where
appropriate and by actively monitoring collections.



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

Our backlog includes orders for large systems,
such as our diffusion furnaces, with system prices of up to
$1.0 million depending on the system configuration, options
included and any special requirements of the customer. In light
of the significant dollars associated with larger system sales,
should any of these orders be cancelled prior to shipment, or
not be accepted by the customer, our financial position and
results of operations could be materially adversely affected.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Our business might be adversely affected by
    our dependence on foreign business.

During 2004, 64% of our sales were made to
customers outside of North America as follows:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Asia (including Korea, Peoples Republic of
    China, Taiwan, Japan, Singapore, Indonesia, Malaysia, Australia
    and India)  33%
|
| |  | Europe (including 1% or less to Israel and
    Africa)  31%                                                                        

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

We recorded a loss of $0.1 million during
2004 and gains of $0.1 million and $0.2 million during
2003 and 2002, respectively, as a result of foreign currency
transactions. While our business has not been materially
affected in the past by currency fluctuations, there is a risk
that it may be materially adversely affected in the future. Such
risk includes possible losses due to currency exchange rate
fluctuations, possible future

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prohibitions against repatriation of earnings, or
proceeds from disposition of investments, and from possible
social and military instability in the case of India, South
Korea, Taiwan and possibly elsewhere. Our wholly-owned
subsidiary, Tempress Systems, has conducted its operations in
the Netherlands since 1995. As a result, such operations are
subject to the taxation policies, employment and labor laws,
transportation regulations, import and export regulations and
tariffs, possible foreign exchange restrictions, international
monetary fluctuations, and other political, economic and legal
policies of that nation, the European Economic Union and the
other European nations in which it conducts business.
Consequently, we might encounter unforeseen or unfamiliar
difficulties in conducting our European operations. Changes in
such laws and regulations may have a material adverse effect on
our revenues and costs.




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

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



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

We continually evaluate potential acquisitions.
We make acquisitions of, or significant investments in, other
businesses with synergistic products, services and technologies.
Acquisitions involve numerous risks, including, but not limited
to:



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



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

We use a wide range of materials and services in
the production of our products including custom electronic and
mechanical components, and we use numerous suppliers to supply
materials. We generally do not have guaranteed supply
arrangements with our suppliers. Because of the variability and
uniqueness of customer orders, we try to avoid maintaining an
extensive inventory of materials for manufacturing. Key

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suppliers include two steel mills capable of
producing the types of steel needed for carriers to the
tolerances that we require, an injection molder that molds
plastic inserts into our steel carriers, an adhesive
manufacturer that supplies the critical glue used in the
production of the semiconductor polishing templates and a pad
supplier that produces a unique material used to attach
semiconductor wafers to the polishing template. We also rely on
third parties for laser cutting, machined parts, steel frames
and metal panels and other components used particularly in the
assembly of semiconductor production equipment.


Although we make reasonable efforts to ensure
that parts are available from multiple suppliers, this is not
always practical or even possible; accordingly, some key parts
are being procured from a single supplier or a limited group of
suppliers. During the semiconductor industry peak years,
increases in demand for capital equipment has resulted in longer
lead-times for many important system components, which could
cause delays in meeting shipments to our customers. Because the
selling price of some systems exceeds $1 million, the delay
in the shipment of even a single system could cause significant
variations in quarterly revenues, operating results and the
market value of our common stock. We have sought, and will
continue to seek, to minimize the risk of production and service
interruptions and shortages of key parts by:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | selecting and qualifying alternative suppliers
    for key parts;
|
| |  | monitoring the financial stability of key
    suppliers; and     
|
| |  | maintaining appropriate inventories of key parts.                

There can be no assurance that our financial
position and results of operations will not be materially and
adversely affected if, in the future, we do not receive in a
timely and cost-effective manner a sufficient quantity and
quality of parts to meet our production requirements.



| |                                                                    
| | -------------------------------------------------------------------
| | We might require additional financing to
    expand our operations.

On September 13, 2000, we issued
383,000 shares of common stock, and warrants to purchase an
aggregate of up to 59,300 shares of common stock, in a
private placement pursuant to a Stock and Warrant Purchase
Agreement. We received net proceeds of $4.6 million, after
deducting placement agents, legal, accounting and
registration fees. Those proceeds have been used to fund our
growth initiatives. While we believe that current cash balances,
the small line of credit and cash flows generated from our
operations provide adequate working capital for the foreseeable
future, additional financing is expected to be required for
further implementation of our growth plans. There is no
assurance that any additional financing will be available if and
when required, or, even if available, that it would not
materially dilute the ownership percentage of the then existing
shareholders.



| |                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our securities become ineligible for
    trading on the NASDAQ system, they might be subject to
    Rule 15g-9 of the Securities Exchange Act of 1934, which
    imposes additional sales practice requirements on broker-dealers
    who sell such securities to persons other than established
    customers and accredited investors.

While our common stock is now included on the
NASDAQ National Market®, continued listing on NASDAQ will
depend on our ability to meet certain eligibility requirements
established from time to time by the NASDAQ National
Market® or the NASDAQ SmallCap Market. Loss of NASDAQ
eligibility could result from material operating losses, or if
the market price of our common stock falls below $1.00 per
share. For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser
and receive the purchasers written consent to the
transaction prior to the sale. The rule may adversely affect the
ability of broker-dealers to sell our securities, and
consequently may limit the public market for, and the trading
price of, our common stock.



| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cost of Compliance with Section 404 of
    the Sarbanes Oxley Act could adversely affect future operating
    results, the trading price of our common stock and failure to
    comply could result in loss of our listing on NASDAQ, civil
    penalties and other liabilities.

Section 404 of the Sarbanes Oxley Act
requires management to certify that it has tested and found the
Companys internal controls to be effective. It is also
required that the Companys independent auditors attest
that such management representations are reasonably founded. The
adequacy of internal controls generally

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takes into consideration that the anticipated
benefits of a control should outweigh the cost of that control.
Interpretations of the Public Company Accounting Oversight Board
(PCAOB) of the internal control requirements of
Section 404 of the Sarbanes Oxley Act will significantly
increase the cost and time needed to comply with the
requirements of Section 404. Based upon the existing
deadlines, we must fully comply with all requirements of
Section 404 as they are interpreted by the PCAOB no later
than September 30, 2005. Estimates of complying with these
requirements approximate $0.5 million in the first year and
fifty percent of that amount in each ensuing year. Failure to
comply could result in civil penalties, loss of our listing on
NASDAQ, and the cost of possible litigation. Because of the
complexities and limited time available, there can be no
assurance of meeting the compliance deadline.




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

Recent terrorist attacks in the United States, as
well as events occurring in response or connection to them,
including, without limitation, future terrorist attacks against
United States targets, rumors or threats of war, actual
conflicts involving the United States or its allies or military
or trade disruptions impacting our domestic or foreign suppliers
of parts, components and subassemblies, may impact our
operations, including, among other things, by causing delays or
losses in the delivery of supplies and decreased sales of our
products. More generally, any of these events could cause
consumer confidence and spending to decrease or result in
increased volatility in the United States and worldwide
financial markets and economy. They could also result in
economic recession in the United States or abroad. Any of these
occurrences could have a significant adverse impact on our
financial position and results of operations.



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to environmental
    regulations, and our inability or failure to comply with these
    regulations could adversely affect our business.

We are subject to environmental regulations in
connection with our business operations, including, but not
limited to, regulations related to manufacturing and our
customers use of our products. From time to time, we
receive notices regarding these regulations. It is our policy to
respond promptly to these notices and to take any necessary
corrective action. Our failure or inability to comply with
existing or future environmental regulations could result in
significant remediation liabilities, the imposition of fines
and/or the suspension or termination of development,
manufacturing or use of certain of our products, each of which
could damage our financial position and results of operations.






|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK

We are exposed to financial market risks,
including changes in foreign currency exchange rates and
interest rates. Our operations in the United States are
conducted in U.S. dollars. Our operation in The
Netherlands, a component of the semiconductor equipment segment,
conducts business primarily in the Euro and the
U.S. dollar. The functional currency of our Netherlands
operation is the Euro. The functional currency for all other
operating units is the U.S. dollar.

During 2004, approximately $3.4 million, or
18% of our net revenues, were transacted in a currency other
than the functional currency of the operating unit generating
that revenue. That exposure to the risk of changing foreign
currency exchange rates was partially offset by transacting
purchases during the year equal to approximately
$1.2 million, or 8% of our cost of sales, in a currency
other than the functional currency of the operating unit making
the purchase. As of September 30, 2004, we did not hold any
stand-alone or separate derivative instruments. We recorded a
loss of $0.1 million during 2004 and gains of
$0.1 million and $0.2 million during 2003 and 2002,
respectively, as a result of foreign currency transactions. Our
investment in and advances to our Netherlands operation totals
$2.6 million. A 10% change in the value of the Euro
relative to the U.S. dollar would cause a $0.3 million
foreign currency translation adjustment, a type of other
comprehensive income (loss), which would be a direct adjustment
to our stockholders equity.

When the value of the Euro increases relative to
the value of the U.S. dollar, our operation in The
Netherlands becomes less competitive outside the European
market, as it must raise prices to those customers that normally
make purchases in U.S. dollars in order to maintain the
same profit margins. This was the situation in 2004, which
contributed to the $2.2 million decrease in revenues from
Asia to $6.4 million in 2004

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as compared to $8.6 million in 2003. When
this occurs, this operation attempts to have transactions
denominated in the Euro and to increase its purchases
denominated in U.S. dollars, which become less expensive,
but there are practical limits to the effectiveness of these
strategies. When the value of the Euro declines relative to the
value of the U.S. dollar, our operation in The Netherlands
can be more competitive against United States based equipment
suppliers, as the cost of purchases denominated in
U.S. dollars becomes more expensive. In 2004, the purchases
and sales of this foreign operation that were denominated in
currencies not linked to its functional currency, including
U.S. dollars, were approximately $3.4 million and
$1.2 million, respectively. In 2003, the purchases and
sales of this foreign operation that were denominated in
currencies not linked to its functional currency, including
U.S. dollars, were approximately $3.2 million and
$1.6 million, respectively. Most of those purchases were
denominated in U.S. dollars and provide a partial hedge
against fluctuations in exchange rates on sales denominated in
that currency. Because it is difficult to predict the volume of
U.S. dollar denominated transactions arising from our
Netherlands operation, we do not hedge against the effects of
exchange rate changes on future transactions. The Euro was at a
relatively high value relative to the U.S. dollar at the
end of 2004, leaving our Netherlands operation at a competitive
disadvantage compared to other suppliers based in the United
States.


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|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

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

|                                                                                                                                       |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                       |  | Page |   
|                                                                                                                                       |  |      |   
|(1) Financial Statements:                                                                                                              |  |      |    | 
|Report of Independent Registered Public
    Accounting Firm                                                                            |  |      | 36 | 
|Consolidated Balance Sheets: September 30,
    2004 and 2003                                                                           |  |      | 37 | 
|Consolidated Statements of Operations: Years
    ended September 30, 2004, 2003 and 2002                                               |  |      | 38 | 
|Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss):
    Years ended September 30, 2004, 2003 and 2002 |  |      | 39 | 
|Consolidated Statements of Cash Flows: Years
    ended September 30, 2004, 2003 and 2002                                               |  |      | 40 | 
|Notes to Consolidated Financial Statements                                                                                             |  |      | 41 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

Amtech Systems, Inc.:


We have audited the accompanying consolidated
balance sheets of Amtech Systems, Inc. and subsidiaries (the
Company) as of September 30, 2004 and 2003, and the related
consolidated statements of operations, stockholders equity
and comprehensive income (loss) and cash flows for each of the
years in the three-year period ended September 30, 2004.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Amtech Systems, Inc. and
subsidiaries as of September 30, 2004 and 2003, and the
results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 2004, in
conformity with accounting principles generally accepted in the
United States of America.



| |             
| | ------------
| | /s/ KPMG LLP

Phoenix, Arizona

January 10, 2005


36



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                  |                                                                                                                                                                              |                                            |           |            |            |  |           |            |            | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ---------- | ---------- |  | --------- | ---------- | ---------- | 
|                                                  |                                                                                                                                                                              |                                           
|                                                  |                                                                                                                                                                              | September 30,                              |          
|                                                  |                                                                                                                                                                              |                                            |          
|                                                  |                                                                                                                                                                              | 2004                                       |           |            | 2003       | 
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|ASSETS                                           
|CURRENT ASSETS:                                   |                                                                                                                                                                              |                                            |           |            |            |  |           |           
|                                                  | Cash and cash equivalents                                                                                                                                                    |                                            | $         | 1,674,352  |            |  | $         | 7,453,069  |           
|                                                  | Accounts receivable (less allowance for doubtful
    accounts of $188,000 and $176,000, at September 30, 2004
    and 2003, respectively)                                    |                                            |           | 3,629,177  |            |  |           | 3,005,128  |           
|                                                  | Inventories                                                                                                                                                                  |                                            |           | 5,993,837  |            |  |           | 3,893,886  |           
|                                                  | Deferred income taxes                                                                                                                                                        |                                            |           |           |            |  |           | 980,000    |           
|                                                  | Income taxes receivable                                                                                                                                                      |                                            |           | 611,333    |            |  |           | 460,000    |           
|                                                  | Prepaid expenses                                                                                                                                                             |                                            |           | 357,475    |            |  |           | 193,615    |           
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | Total current assets                       |           |            | 12,266,174 |  |           |            | 15,985,698 | 
|PROPERTY, PLANT AND EQUIPMENT  net               |                                                                                                                                                                              |                                            | 2,220,172 |            |            |  | 1,503,074 |           
|DEFERRED INCOME TAXES  long term                 |                                                                                                                                                                              |                                            |          |            |            |  | 150,000   |           
|INTANGIBLE ASSETS  net                           |                                                                                                                                                                              |                                            | 1,343,171 |            |            |  | 31,728    |           
|GOODWILL  net                                    |                                                                                                                                                                              |                                            | 816,639   |            |            |  | 727,837   |           
|OTHER ASSETS                                      |                                                                                                                                                                              |                                            | 13,374    |            |            |  | 705       |           
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | TOTAL ASSETS                               |           | $          | 16,659,530 |  |           | $          | 18,399,042 | 
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                 
|LIABILITIES AND STOCKHOLDERS
    EQUITY         
|CURRENT LIABILITIES:                              |                                                                                                                                                                              |                                            |           |            |            |  |           |           
|                                                  | Accounts payable                                                                                                                                                             |                                            | $         | 1,459,197  |            |  | $         | 1,221,327  |           
|                                                  | Current maturities of long term debt                                                                                                                                         |                                            |           | 19,730     |            |  |           |           |           
|                                                  | Accrued compensation and related taxes                                                                                                                                       |                                            |           | 743,600    |            |  |           | 626,426    |           
|                                                  | Accrued warranty expense                                                                                                                                                     |                                            |           | 260,332    |            |  |           | 321,300    |           
|                                                  | Deferred profit                                                                                                                                                              |                                            |           | 1,031,441  |            |  |           | 534,082    |           
|                                                  | Customer deposits                                                                                                                                                            |                                            |           | 210,803    |            |  |           | 226,959    |           
|                                                  | Accrued loss on contract                                                                                                                                                     |                                            |           | 363,862    |            |  |           | 41,633     |           
|                                                  | Other accrued liabilities                                                                                                                                                    |                                            |           | 441,979    |            |  |           | 287,428    |           
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | Total current liabilities                  |           |            | 4,530,944  |  |           |            | 3,259,155  | 
|LONG-TERM OBLIGATIONS                             |                                                                                                                                                                              |                                            | 473,510   |            |            |  | 640,490   |           
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | Total liabilities                          |           |            | 5,004,454  |  |           |            | 3,899,645  | 
|COMMITMENTS AND CONTINGENCIES (Notes 4 and
    7) |                                                                                                                                                                              |                                            |           |            |            |  |           |           
|STOCKHOLDERS EQUITY:                             |                                                                                                                                                                              |                                            |           |            |            |  |           |           
|                                                  | Preferred stock; no specified terms;
    100,000,000 shares authorized;
    none issued                                                                                      |                                            |           |           |            |  |           |           |           
|                                                  | Common stock; $0.01 par value;
    100,000,000 shares authorized; shares issued and
    outstanding: 2,705,121 at September 30, 2004 and 2,698,421
    at September 30, 2003 |                                            |           | 27,051     |            |  |           | 26,984     |           
|                                                  | Additional paid-in capital                                                                                                                                                   |                                            |           | 12,887,986 |            |  |           | 12,873,039 |           
|                                                  | Accumulated other comprehensive income                                                                                                                                       |                                            |           | 500,275    |            |  |           | 194,338    |           
|                                                  | Retained earnings (Accumulated deficit)                                                                                                                                      |                                            |           | (1,760,236 | )          |  |           | 1,405,036  |           
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | Total stockholders equity                 |           |            | 11,655,076 |  |           |            | 14,499,397 | 
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 
|                                                  |                                                                                                                                                                              | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |           | $          | 16,659,530 |  |           | $          | 18,399,042 | 
|                                                  |                                                                                                                                                                              |                                            |           |            |            | 

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

37



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                        |                                                  |                                   |            |            |           |   |            |           |           |   |            |           |           | 
|--------------------------------------- | ------------------------------------------------ | --------------------------------- | ---------- | ---------- | --------- | - | ---------- | --------- | --------- | - | ---------- | --------- | --------- | 
|                                        |                                                  |                                  
|                                        |                                                  | Year Ended September 30,          |           
|                                        |                                                  |                                   |           
|                                        |                                                  | 2004                              |            |            | 2003      |   |            | 2002      |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|Revenues, net of returns and allowances |                                                  | $                                 | 19,298,897 |            |           | $ | 19,433,534 |           |           | $ | 20,532,768 |          
|Cost of sales                           |                                                  |                                   | 15,350,214 |            |           |   | 14,598,488 |           |           |   | 15,536,264 |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | Gross margin                                     |                                   |            | 3,948,683  |           |   |            | 4,835,046 |           |   |            | 4,996,504 |          
|Selling, general and administrative     |                                                  |                                   | 5,521,771  |            |           |   | 4,430,418  |           |           |   | 4,422,352  |          
|Research and development                |                                                  |                                   | 531,609    |            |           |   | 650,051    |           |           |   | 497,020    |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | Operating income (loss)                          |                                   |            | (2,104,697 | )         |   |            | (245,423  | )         |   |            | 77,132    |          
|Interest income, net                    |                                                  |                                   | 3,425      |            |           |   | 35,744     |           |           |   | 91,039     |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | Income (loss) before income taxes                |                                   |            | (2,101,272 | )         |   |            | (209,679  | )         |   |            | 168,171   |          
|Income tax provision (benefit)          |                                                  |                                   | 1,064,000  |            |           |   | (110,000   | )         |           |   | 50,000     |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | NET INCOME (LOSS)                                |                                   | $          | (3,165,272 | )         |   | $          | (99,679   | )         |   | $          | 118,171   |          
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|EARNINGS (LOSS) PER SHARE:              |                                                  |                                   |            |            |           |   |            |           |           |   |            |          
|                                        | Basic:                                           |                                   |            |            |           |   |            |           |           |   |            |           |          
|                                        |                                                  | Basic earnings (loss) per share   |            | $          | (1.17     | ) |            | $         | (.04      | ) |            | $         | .04       | 
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | Diluted:                                         |                                   |            |            |           |   |            |           |           |   |            |           |          
|                                        |                                                  | Diluted earnings (loss) per share |            | $          | (1.17     | ) |            | $         | (.04      | ) |            | $         | .04       | 
|                                        |                                                  |                                   |            |            |           |   |            |           |          
|                                        | Number of shares used in per share calculations: |                                   |            |            |           |   |            |           |           |   |            |           |          
|                                        |                                                  | Basic                             |            |            | 2,702,060 |   |            |           | 2,692,222 |   |            |           | 2,683,030 | 
|                                        |                                                  | Diluted                           |            |            | 2,702,060 |   |            |           | 2,692,222 |   |            |           | 2,765,553 | 

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

38



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

AND COMPREHENSIVE INCOME (LOSS)


|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |   |            |            |   |   |            |            |            |  
|----------------------------- | --------------------------------------------------------- | -------------------- | --------- | ------ | ---------- | ----------- | ------- | ------------- |  | -------- | ---------- | ------- | ------------ | -------- | -------- | ------------- | ------ | - | ---------- | ---------- | - | - | ---------- | ---------- | ---------- | -
|                              |                                                           |                      |           |        |            | Accumulated |         |               |  |          |           
|                              |                                                           | Common Stock         |           |        |            |             | Other   |               |  | Retained |            |         |             
|                              |                                                           |                      |           |        | Additional |             |         | Comprehensive |  |          | Earnings   |         |              | Total    |         
|                              |                                                           | Number of            |           |        |            |             | Paid-In |               |  | Income   |            |         | (Accumulated |          |          | Stockholders |       
|                              |                                                           | Shares               |           |        | Amount     |             |         | Capital       |  |          | (Loss)     |         |              | Deficit) |          |               | Equity |  
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|BALANCE AT SEPTEMBER 30, 2001 |                                                           |                      | 2,649,171 |        |            | $           | 26,492  |               |  | $        | 12,539,040 |         |              | $        | (368,242 | )             |        | $ | 1,386,544  |            |   | $ | 13,583,834 |           
|                              | Net income                                                |                      |           |       |            |             |         |              |  |          |            |        |              |          |          |              |        |   |            | 118,171    |   |   |            | 118,171    |           
|                              | Translation adjustment                                    |                      |           |       |            |             |         |              |  |          |            |        |              |          |          | 188,603       |        |   |            |           |   |   |            | 188,603    |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              |                                                           | Comprehensive income |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |   |            |            |   |   |            |            | 306,774    |  
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              | Common Stock issued pursuant to P.R. Hoffman
    earn-out |                      |           | 30,600 |            |             |         | 306           |  |          |            | 309,523 |              |          |          |              |        |   |            |           |   |   |            | 309,829    |           
|                              | Stock options exercised                                   |                      |           | 8,800  |            |             |         | 88            |  |          |            | 11,152  |              |          |          |              |        |   |            |           |   |   |            | 11,240     |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|BALANCE AT SEPTEMBER 30, 2002 |                                                           |                      | 2,688,571 |        |            |             | 26,886  |               |  |          | 12,859,715 |         |              |          | (179,639 | )             |        |   | 1,504,715  |            |   |   | 14,211,677 |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              | Net loss                                                  |                      |           |       |            |             |         |              |  |          |            |        |              |          |          |              |        |   |            | (99,679    | ) |   |            | (99,679    | )         
|                              | Translation adjustment                                    |                      |           |       |            |             |         |              |  |          |            |        |              |          |          | 493,963       |        |   |            |           |   |   |            | 493,963    |           
|                              | Minimum pension liability adjustment                      |                      |           |       |            |             |         |              |  |          |            |        |              |          |          | (119,986      | )      |   |            |           |   |   |            | (119,986   | )         
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              |                                                           | Comprehensive income |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |   |            |            |   |   |            |            | 274,298    |  
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              | Stock options exercised                                   |                      |           | 9,850  |            |             |         | 98            |  |          |            | 13,324  |              |          |          |              |        |   |            |           |   |   |            | 13,422     |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|BALANCE AT SEPTEMBER 30, 2003 |                                                           |                      | 2,698,421 |        |            |             | 26,984  |               |  |          | 12,873,039 |         |              |          | 194,338  |               |        |   | 1,405,036  |            |   |   | 14,499,397 |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              | Net loss                                                  |                      |           |       |            |             |         |              |  |          |            |        |              |          |          |              |        |   |            | (3,165,272 | ) |   |            | (3,165,272 | )         
|                              | Translation adjustment                                    |                      |           |       |            |             |         |              |  |          |            |        |              |          |          | 185,951       |        |   |            |           |   |   |            | 185,951    |           
|                              | Minimum pension liability adjustment                      |                      |           |       |            |             |         |              |  |          |            |        |              |          |          | 119,986       |        |   |            |           |   |   |            | 119,986    |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              |                                                           | Comprehensive loss   |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |   |            |            |   |   |            |            | (2,859,335 | )
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|                              | Stock options exercised                                   |                      |           | 6,700  |            |             |         | 67            |  |          |            | 14,947  |              |          |          |              |        |   |            |           |   |   |            | 15,014     |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  
|BALANCE AT SEPTEMBER 30, 2004 |                                                           |                      | 2,705,121 |        |            | $           | 27,051  |               |  | $        | 12,887,986 |         |              | $        | 500,275  |               |        | $ | (1,760,236 | )          |   | $ | 11,655,076 |           
|                              |                                                           |                      |           |        |            |             |         |               |  |          |            |         |              |          |          |               |        |  

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

39



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |          |           |           |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------- | ---------- | --------- | ---------- | --------- | -------- | -------- | -------- | --------- | -------- | --------- | --------- | -
|                                                         |                                                                                                        |                                          
|                                                         |                                                                                                        | Year Ended September 30,                  |                                                        
|                                                         |                                                                                                        |                                           |                                                        
|                                                         |                                                                                                        | 2004                                      |                                                         |            | 2003      |            |           | 2002     |         
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|OPERATING ACTIVITIES                                     |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|                                                         | Net income (loss)                                                                                      |                                           | $                                                       | (3,165,272 | )         |            | $         | (99,679  | )        |          | $         | 118,171  |          
|                                                         | Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                           |                                                         |            |           |            |           |          |          |          |           |          |          
|                                                         |                                                                                                        | Depreciation and amortization             |                                                         |            | 510,271   |            |           |          | 483,997  |          |           |          | 447,321   |          
|                                                         |                                                                                                        | Write-down of inventory                   |                                                         |            | 641,202   |            |           |          | 297,052  |          |           |          | 528,153   |          
|                                                         |                                                                                                        | Provision for doubtful accounts           |                                                         |            | 26,172    |            |           |          | 47,514   |          |           |          | 372,058   |          
|                                                         |                                                                                                        | Loss on disposals of long-lived assets    |                                                         |            |          |            |           |          | 9,029    |          |           |          |          |          
|                                                         |                                                                                                        | Gain from merger of pension plan          |                                                         |            | (54,424   | )          |           |          |         |          |           |          |          |          
|                                                         |                                                                                                        | Deferred income taxes                     |                                                         |            | 1,130,000 |            |           |          | 2,000    |          |           |          | 393,000   |          
|                                                         | Changes in operating assets and liabilities:                                                           |                                           |                                                         |            |           |            |           |          |          |          |           |          |          
|                                                         |                                                                                                        | Accounts receivable                       |                                                         |            | (540,540  | )          |           |          | (78,603  | )        |           |          | 881,332   |          
|                                                         |                                                                                                        | Inventories                               |                                                         |            | (268,494  | )          |           |          | (865,808 | )        |           |          | 1,382,943 |          
|                                                         |                                                                                                        | Prepaid expenses and other assets         |                                                         |            | (156,736  | )          |           |          | (93,740  | )        |           |          | (14,645   | )        
|                                                         |                                                                                                        | Accounts payable                          |                                                         |            | 194,175   |            |           |          | 223,815  |          |           |          | (24,675   | )        
|                                                         |                                                                                                        | Accrued liabilities and customer deposits |                                                         |            | 195,535   |            |           |          | 20,430   |          |           |          | (556,595  | )        
|                                                         |                                                                                                        | Deferred profit                           |                                                         |            | 464,589   |            |           |          | (209,263 | )        |           |          | (973,010  | )        
|                                                         |                                                                                                        | Income taxes receivable                   |                                                         |            | (142,200  | )          |           |          | (508,575 | )        |           |          | (114,629  | )        
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|                                                         |                                                                                                        |                                           | Net cash provided by (used in) operating
    activities |            |           | (1,165,722 | )         |          |          | (771,831 | )         |          |           | 2,439,424 |  
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|INVESTING ACTIVITIES                                     |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|                                                         | Purchases of property, plant and equipment                                                             |                                           |                                                         | (1,079,111 | )         |            |           | (206,307 | )        |          |           | (464,322 | )        
|                                                         | Investment in Bruce Technologies,
    Inc.                                                             |                                           |                                                         | (3,598,911 | )         |            |           |         |          |          |           |         |          
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|                                                         |                                                                                                        |                                           | Net cash used in investing activities                   |            |           | (4,678,022 | )         |          |          | (206,307 | )         |          |           | (464,322  | )
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|FINANCING ACTIVITIES                                     |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|                                                         | Common stock issued                                                                                    |                                           |                                                         | 15,014     |           |            |           | 13,422   |          |          |           | 11,240   |          
|                                                         | Borrowings on mortgage loan                                                                            |                                           |                                                         |           |           |            |           | 255,713  |          |          |           |         |          
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|                                                         |                                                                                                        |                                           | Net cash provided by financing activities               |            |           | 15,014     |           |          |          | 269,135  |           |          |           | 11,240    |  
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                  |                                                                                                        |                                           | 50,013                                                  |            |           |            | 116,409   |          |          |          | 61,201    |         
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                                        |                                           | (5,778,717                                              | )          |           |            | (592,594  | )        |          |          | 2,047,543 |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR             |                                                                                                        |                                           | 7,453,069                                               |            |           |            | 8,045,663 |          |          |          | 5,998,120 |         
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|CASH AND CASH EQUIVALENTS, END OF YEAR                   |                                                                                                        | $                                         | 1,674,352                                               |            |           | $          | 7,453,069 |          |          | $        | 8,045,663 |         
|                                                         |                                                                                                        |                                           |                                                         |            |           |            |           |          |         
|Supplemental Cash Flow Information:                      |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|Cash paid (received) during the year for:                |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|                                                         | Interest expense                                                                                       |                                           | $                                                       | 27,576     |           |            | $         | 34,414   |          |          | $         | 16,926   |          
|                                                         | Income taxes paid (refunded)  net                                                                     |                                           |                                                         | 85,000     |           |            |           | 383,000  |          |          |           | (209,000 | )        
|Non-Cash Items:                                          |                                                                                                        |                                           |                                                         |            |           |            |           |          |          |          |           |         
|                                                         | Common stock issued pursuant to PR Hoffman
    acquisition                                             |                                           | $                                                       |           |           |            | $         |         |          |          | $         | 309,829  |          
|                                                         | Minimum pension liability adjustment                                                                   |                                           |                                                         | 119,986    |           |            |           | (119,986 | )        |          |           |         |          

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

40



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002




|   |                                               
|-- | ----------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

Nature of Operations and Basis of
Presentation Amtech
Systems, Inc., an Arizona corporation (Amtech), and
its wholly-owned subsidiaries; P. R. Hoffman Machine Products,
Inc. (P. R. Hoffman) and Bruce Technologies, Inc.
(Bruce Technologies), based in the United States;
and Tempress Systems, Inc. (Tempress) based in The
Netherlands, comprise the Company. Amtech designs,
assembles, sells and installs capital equipment and related
consumables used in the manufacture of wafers of various
materials, primarily silicon wafers for the semiconductor
industry, and in certain semiconductor fabrication processes.
These products are sold to manufacturers of silicon wafers and
semiconductors worldwide, particularly in the United States,
Asia and northern Europe. In addition, Amtech provides
semiconductor manufacturing support services.

Amtech serves a niche market in an industry that
experiences rapid technological advances, and which in the past
has been very cyclical. Therefore, Amtechs future
profitability and growth depend on its ability to develop or
acquire and market profitable new products, and on its ability
to adapt to cyclical trends.

The accompanying consolidated financial
statements include the accounts of Amtech and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Unless
otherwise noted, all references to a year refer to Amtechs
fiscal year, which ends on September 30th.

Use of
Estimates The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States 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.

Reclassifications
Certain amounts in the 2003 and 2002 consolidated financial
statements have been reclassified to conform to the 2004
presentation.

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

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) For the semiconductor equipment segment,
    transactions where legal title passes to the customer upon
    shipment, we recognize revenue upon shipment for those products
    where the customers defined specifications have been met
    with at least two similarly configured systems and processes for
    a comparably situated customer. However, a portion of the
    revenue associated with certain installation related tasks,
    equal to the greater of the relative fair value of those tasks
    or the portion of the contract price contingent upon their
    completion, generally 10%-20% of the systems selling price
    (the holdback), and directly related costs, if any,
    are deferred and recognized into income when the tasks are
    completed.
|
| | (2) For products where the customers
    defined specifications have not been met with at least two
    similarly configured systems and processes, the revenue and
    directly related costs are deferred at the time of shipment and
    recognized into income at the time of customer acceptance or
    when this criterion has been met. We have, on occasion,
    experienced longer than expected delays in receiving cash from
    certain                                                                                                                                                                                                                                                                                                                                      

41



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | customers pending final installation or system
    acceptance. If some of our customers were to refuse to pay the
    remaining holdback, or otherwise delay final acceptance or
    installation, the deferred revenue would not be recognized,
    adversely affecting our future operating results.                                                   
|
| | (3) Equipment sold by the polishing supplies
    segment does not include process guarantees, acceptance criteria
    or holdbacks; therefore, the related revenue is recorded upon
    shipment. Our shipping terms for both segments are customarily
    FOB our shipping point or equivalent terms.                                                   
|
| | (4) For all segments, sales of spare parts
    and consumables are recognized upon shipment, as there are no
    post shipment obligations other than standard warranties.                                                                                                                                                                               
|
| | (5) Service revenues are recognized upon
    performance of the services requested by the customer. Revenue
    related to service contracts is recognized ratably over the
    period of the contract or in accordance with the terms of the
    contract, which generally coincides with the performance of the
    services requested by the customer.

The components of deferred profit are as follows:

|                  |  |               |           |  |      |   |         |      |  |   |           | 
|----------------- |  | ------------- | --------- |  | ---- | - | ------- | ---- |  | - | --------- | 
|                  |  |              
|                  |  | September 30, |          
|                  |  |               |          
|                  |  | 2004          |           |  | 2003 |   |         | 2002 | 
|                  |  |               |           |  |      |   |         |      | 
|Deferred Revenues |  | $             | 1,130,796 |  |      | $ | 626,265 |      |  | $ | 1,442,215 | 
|Deferred Costs    |  |               | 99,355    |  |      |   | 92,183  |      |  |   | 762,285   | 
|                  |  |               |           |  |      |   |         |      | 
|                  |  | $             | 1,031,441 |  |      | $ | 534,082 |      |  | $ | 679,930   | 
|                  |  |               |           |  |      |   |         |      | 

Equipment sold by the polishing supplies segment
does not include process guarantees or acceptance criteria;
therefore, the related revenue is recorded upon shipment. For
all segments, sales of spare parts and consumables are
recognized upon shipment, as there are no post shipment
obligations other than standard warranties. Service revenues are
recognized as services are performed. Revenue related to service
contracts is recognized ratably over the period of the contract,
which generally coincides with the performance of the services
requested by the customer.

Cash
Equivalents Cash
equivalents consist of money market mutual funds, time
certificates of deposit and U.S. treasury bills. The
Company considers certificates of deposit and treasury bills to
be cash equivalents if their original maturity is 90 days
or less.

Concentrations of Credit
Risk Financial instruments
that potentially subject Amtech to significant concentrations of
credit risk consist principally of cash equivalents and trade
accounts receivable. The Company invests in a variety of
financial instruments with high quality financial institutions,
such as, money market mutual funds, certificates of deposit and
U.S. treasury bills. Amtechs customers consist of
semiconductor manufacturers located throughout the world. The
Company manages credit risk by performing ongoing credit
evaluations of its customers financial condition, by
requiring significant partial payments or letters of credit
prior to shipment where appropriate and by actively monitoring
collections. Amtech maintains a reserve for potentially
uncollectible receivables based on its assessment of
collectibility. In addition, the Company utilizes letters of
credit to mitigate credit risk when appropriate.

42



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


The following is a summary of the activity in the
Companys allowance for doubtful accounts during the years
ended September 30, 2004, 2003 and 2002:

|                             |  |                          |         |   |      |   |         |      |  |   |          |  
|---------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                             |  |                         
|                             |  | Year Ended September 30, |        
|                             |  |                          |        
|                             |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|                             |  |                          |         |   |      |   |         |      | 
|Balance at beginning of year |  | $                        | 176,000 |   |      | $ | 152,000 |      |  | $ | 630,000  |  
|Charged to expense           |  |                          | 26,172  |   |      |   | 47,514  |      |  |   | 372,058  |  
|Recoveries                   |  |                          | (14,172 | ) |      |   | (23,514 | )    |  |   | (850,058 | )
|                             |  |                          |         |   |      |   |         |      | 
|Balance at end of year       |  | $                        | 188,000 |   |      | $ | 176,000 |      |  | $ | 152,000  |  
|                             |  |                          |         |   |      |   |         |      | 

As of September 30, 2004, receivables from
one customer comprised 15% of accounts receivable. As of
September 30, 2003, receivables from three customers
comprised 18%, 15% and 10%, respectively, of accounts
receivable. Management believes the amounts outstanding at
September 30, 2004, from these customers, are fully
collectible. In addition, 57% of the work-in-process inventory
(WIP) at September 30, 2004 is attributable to
a single customer. The systems ordered by that customer are part
of a five-system order, which began shipping during the second
quarter of 2004.

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

|                                  |  |               |           |  |      |   |           | 
|--------------------------------- |  | ------------- | --------- |  | ---- | - | --------- | 
|                                  |  |              
|                                  |  | September 30, |          
|                                  |  |               |          
|                                  |  | 2004          |           |  | 2003 |  
|                                  |  |               |           |  |      |  
|Purchased parts and raw materials |  | $             | 4,161,847 |  |      | $ | 2,391,270 | 
|Work-in-process                   |  |               | 1,185,428 |  |      |   | 1,011,717 | 
|Finished goods                    |  |               | 646,562   |  |      |   | 490,899   | 
|                                  |  |               |           |  |      |  
|                                  |  | $             | 5,993,837 |  |      | $ | 3,893,886 | 
|                                  |  |               |           |  |      |  

Property, Plant and
Equipment Maintenance and
repairs are charged to expense as incurred. The costs of
additions and improvements are capitalized. The cost of property
retired or sold and the related accumulated depreciation are
removed from the applicable accounts when disposition occurs and
any gain or loss is recognized. Depreciation is computed using
the straight-line method. Useful lives for equipment, machinery
and leasehold improvements range from three to seven years; for
furniture and fixtures from five to ten years; and for buildings
twenty years. Depreciation and amortization expense was
$450,000, $467,000 and $361,000 in 2004, 2003 and 2002,
respectively.

In accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets,
long-lived assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the asset may
not be recoverable. If the sum of the undiscounted expected cash
flows from an asset to be held and used in operations is less
than the carrying value of the asset, an impairment loss is
recognized. The Company has not recognized any impairment losses
on its long-lived assets during 2004, 2003 or 2002.

43



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


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

|                                          |  |               |            |   |      |   |            |  
|----------------------------------------- |  | ------------- | ---------- | - | ---- | - | ---------- | -
|                                          |  |              
|                                          |  | September 30, |           
|                                          |  |               |           
|                                          |  | 2004          |            |   | 2003 |  
|                                          |  |               |            |   |      |  
|Building and leasehold improvements       |  | $             | 945,146    |   |      | $ | 817,651    |  
|Equipment and machinery                   |  |               | 1,839,007  |   |      |   | 1,702,913  |  
|Furniture and fixtures                    |  |               | 2,287,264  |   |      |   | 1,428,191  |  
|                                          |  |               |            |   |      |  
|                                          |  |               | 5,071,417  |   |      |   | 3,948,755  |  
|Accumulated depreciation and amortization |  |               | (2,851,245 | ) |      |   | (2,445,681 | )
|                                          |  |               |            |   |      |  
|                                          |  | $             | 2,220,172  |   |      | $ | 1,503,074  |  
|                                          |  |               |            |   |      |  

Goodwill
On October 1, 2002, the Company adopted
SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer subject to
amortization, but are tested for impairment at least annually.
Accordingly, the Company reviews goodwill for impairment on an
annual basis, or more frequently if circumstances dictate. The
Company has completed both the initial impairment testing
required by SFAS No. 142 and its updated annual
impairment testing, noting no indication of impairment
associated with the recorded goodwill balance of $817,000.

For comparative purposes, pro forma net income
(loss) assuming SFAS No. 142 had been adopted in 2002
is as follows:

|                                   |  |                          |            |   |      |   |         |      |  |   |         | 
|---------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ------- | ---- |  | - | ------- | 
|                                   |  |                         
|                                   |  | Year Ended September 30, |           
|                                   |  |                          |           
|                                   |  | 2004                     |            |   | 2003 |   |         | 2002 | 
|                                   |  |                          |            |   |      |   |         |      | 
|Net income (loss), as reported     |  | $                        | (3,165,272 | ) |      | $ | (99,679 | )    |  | $ | 118,171 | 
|Amortization expense, net of tax   |  |                          |           |   |      |   |        |      |  |   | 51,800  | 
|                                   |  |                          |            |   |      |   |         |      | 
|Net income (loss), pro forma       |  | $                        | (3,165,272 | ) |      | $ | (99,679 | )    |  | $ | 169,971 | 
|                                   |  |                          |            |   |      |   |         |      | 
|Basic Earnings (Loss) Per Share:   |  |                          |            |   |      |   |         |      |  |   |         | 
|As reported                        |  | $                        | (1.17      | ) |      | $ | (.04    | )    |  | $ | .04     | 
|Pro forma                          |  |                          | (1.17      | ) |      |   | (.04    | )    |  |   | .06     | 
|Diluted Earnings (Loss) Per Share: |  |                          |            |   |      |   |         |      |  |   |         | 
|As reported                        |  | $                        | (1.17      | ) |      | $ | (.04    | )    |  | $ | .04     | 
|Pro forma                          |  |                          | (1.17      | ) |      |   | (.04    | )    |  |   | .06     | 

The following is a summary of goodwill:

|                             |  |               |         |  |      |   |         |      |  |   |         | 
|---------------------------- |  | ------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                             |  |              
|                             |  | September 30, |        
|                             |  |               |        
|                             |  | 2004          |         |  | 2003 |   |         | 2002 | 
|                             |  |               |         |  |      |   |         |      | 
|Balance at beginning of year |  | $             | 727,837 |  |      | $ | 727,837 |      |  | $ | 801,544 | 
|Additions                    |  |               | 88,802  |  |      |   | -0-     |      |  |   | -0-     | 
|Amortization                 |  |               | -0-     |  |      |   | -0-     |      |  |   | 73,707  | 
|                             |  |               |         |  |      |   |         |      | 
|Balance at end of year       |  | $             | 816,639 |  |      | $ | 727,837 |      |  | $ | 727,837 | 
|                             |  |               |         |  |      |   |         |      | 

Intangibles
Intangible assets are capitalized and amortized over
5-15 years if the life is determinable. If the life is not
determinable, amortization is not recorded. Amortization of
intangibles was $60,000, $17,000 and $13,000 for 2004, 2003 and
2002, respectively. Amortization is expected to be $98,000,
$67,000, $62,000, $55,000 and $36,000 in 2005, 2006, 2007, 2008
and 2009, respectively.

44



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


The following is a summary of intangibles:

|                             |  |               |           |   |      |   |          |       |  |  |            | 
|---------------------------- |  | ------------- | --------- | - | ---- | - | -------- | ----- |  |  | ---------- | 
|                             |  |               |           |  
|                             |  | September 30, |           |   |     
|                             |  |               |           |   |     
|                             |  | 2004          |           |   | 2003 |   |          | Lives | 
|                             |  |               |           |   |      |   |          |       | 
|Patents (owned and licensed) |  | $             | 97,002    |   |      | $ | 222,846  |       |  |  | 7 years    | 
|Trademarks                   |  |               | 592,000   |   |      |   | -0-      |       |  |  | Indefinite | 
|Non-compete agreements       |  |               | 350,000   |   |      |   | -0-      |       |  |  | 10 years   | 
|Customer lists               |  |               | 276,000   |   |      |   | -0-      |       |  |  | 15 years   | 
|Backlog/acquired contracts   |  |               | 50,000    |   |      |   | -0-      |       |  |  | 6 months   | 
|Technology                   |  |               | 102,000   |   |      |   | -0-      |       |  |  | 4 years    | 
|                             |  |               |           |   |      |   |          |       | 
|                             |  |               | 1,467,002 |   |      |   | 222,846  |       |  |  |            | 
|Accumulated amortization     |  |               | (123,831  | ) |      |   | (191,118 | )     |  |  |            | 
|                             |  |               |           |   |      |   |          |       | 
|                             |  | $             | 1,343,171 |   |      | $ | 31,728   |       |  |  |            | 
|                             |  |               |           |   |      |   |          |       | 

Proprietary Product
Rights Through the
acquisition of the net assets of P. R. Hoffman, the Company
acquired the license for the design of its steel carriers with
plastic inserts for abrasive machining of silicon wafers. In
1995, P. R. Hoffman licensed the patent rights from the patent
holder, and pays a royalty to the patent holder for the use of
such patent rights. Royalty expense for all licenses is included
in cost of sales and totaled $108,000, $84,000 and $66,000 in
2004, 2003 and 2002, respectively.

Warranty
The Company provides free of charge a limited warranty,
generally for periods of 12 to 24 months, to all purchasers
of its new products and systems. The Company records accruals
for estimated warranty costs at the time revenue is recognized.
Management believes the amounts accrued for future warranty
expenditures are sufficient for all warranty costs on systems
sold through September 30, 2004.

The following is a summary of activity in accrued
warranty expense:

|                                   |  |               |         |   |      |   |          |  
|---------------------------------- |  | ------------- | ------- | - | ---- | - | -------- | -
|                                   |  |              
|                                   |  | Years ended   |        
|                                   |  | September 30, |        
|                                   |  |               |        
|                                   |  | 2004          |         |   | 2003 |  
|                                   |  |               |         |   |      |  
|Beginning balance                  |  | $             | 321,300 |   |      | $ | 262,573  |  
|Warranty expenditures              |  |               | (75,707 | ) |      |   | (110,409 | )
|Assumed liability from acquisition |  |               | 108,026 |   |      |   | -0-      |  
|Reserve adjustment                 |  |               | (93,287 | ) |      |   | 169,136  |  
|                                   |  |               |         |   |      |  
|Ending balance                     |  | $             | 260,332 |   |      | $ | 321,300  |  
|                                   |  |               |         |   |      |  

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

Foreign Currency Transactions and
Translation Financial
information relating to the Companys foreign subsidiary is
reported in accordance with SFAS No. 52, Foreign
Currency Translation. The functional currency of Tempress
is the Euro. Net income (loss) includes pretax losses from
foreign currency transactions of $70,000 in 2004 and pretax
gains of $55,000 and $157,000 in 2003 and 2002, respectively.
The gains or losses resulting from the translation of
Tempress financial statements have been included in other
comprehensive income (loss).

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

45



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


Statement of Financial Accounting Standards
(SFAS) No. 109 Accounting for Income
Taxes (SFAS 109) requires that a
valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will
not be realized. A review of all available positive and negative
evidence needs to be considered, including a companys
performance, the market environment in which the company
operates and the length of carry back and carryforward periods.
SFAS 109 further states that forming a conclusion that a
valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years.
Therefore, cumulative losses weigh heavily in the overall
assessment. As a result of the review undertaken at
September 30, 2004, we concluded that it was appropriate to
establish a full valuation allowance for net deferred tax
assets. A valuation allowance for deferred tax assets was
recorded in the amount of $1.8 million on
September 30, 2004.

Stock-Based
Compensation The Company
accounts for its employee stock-based compensation plans under
SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 permits companies to
record employee stock-based transactions using the intrinsic
value method in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issues to Employees, under which no compensation
cost is recognized and the pro forma effects on earnings and
earnings per share are disclosed as if the fair value approach
had been adopted.

No compensation expense has been recognized by
the Company, as all options have been granted with an exercise
price equal to, or greater than, the fair value of the common
stock on the date of grant. No adjustment has been made for the
non-transferability of the options, or for the risk of
forfeiture at the time of issuance. Forfeitures of unvested
options are instead recorded as incurred. The fair value of each
option grant has been estimated as of the date of grant using
the Black-Scholes option pricing model with the following
weighted average assumptions:

|                        |  |                          |                |  |      |  |                |      |  |  |              | 
|----------------------- |  | ------------------------ | -------------- |  | ---- |  | -------------- | ---- |  |  | ------------ | 
|                        |  |                         
|                        |  | Year Ended September 30, |               
|                        |  |                          |               
|                        |  | 2004                     |                |  | 2003 |  |                | 2002 | 
|                        |  |                          |                |  |      |  |                |      | 
|Risk free interest rate |  |                          | 3.71% to 4.74% |  |      |  | 3.65% to 3.71% |      |  |  | 4.6% to 5.3% | 
|Expected life           |  |                          | 4 to 6 years   |  |      |  | 4 years        |      |  |  | 4 to 6 years | 
|Dividend rate           |  |                          | 0%             |  |      |  | 0%             |      |  |  | 0%           | 
|Expected volatility     |  |                          | 40% to 53%     |  |      |  | 32% to 44%     |      |  |  | 61%          | 

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

|                                   |  |                          |            |   |      |   |          |      |  |   |         |  
|---------------------------------- |  | ------------------------ | ---------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                   |  |                         
|                                   |  | Year Ended September 30, |           
|                                   |  |                          |           
|                                   |  | 2004                     |            |   | 2003 |   |          | 2002 | 
|                                   |  |                          |            |   |      |   |          |      | 
|Net income (loss), as reported     |  | $                        | (3,165,272 | ) |      | $ | (99,679  | )    |  | $ | 118,171 |  
|Compensation expense, net of tax   |  |                          | 210,339    |   |      |   | 192,205  |      |  |   | 196,171 |  
|                                   |  |                          |            |   |      |   |          |      | 
|Net income (loss), pro forma       |  | $                        | (3,375,611 | ) |      | $ | (291,884 | )    |  | $ | (78,000 | )
|                                   |  |                          |            |   |      |   |          |      | 
|Basic Earnings (Loss) Per Share:   |  |                          |            |   |      |   |          |      |  |   |         |  
|As reported                        |  | $                        | (1.17      | ) |      | $ | (.04     | )    |  | $ | .04     |  
|Pro forma                          |  |                          | (1.25      | ) |      |   | (.11     | )    |  |   | (.03    | )
|Diluted Earnings (Loss) Per Share: |  |                          |            |   |      |   |          |      |  |   |         |  
|As reported                        |  | $                        | (1.17      | ) |      | $ | (.04     | )    |  | $ | .04     |  
|Pro forma                          |  |                          | (1.25      | ) |      |   | (.11     | )    |  |   | (.03    | )

Fair Value of Financial
Instruments The carrying
values of the Companys current financial instruments
approximate fair value due to the short term in which these
instruments mature. The carrying values of

46



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


the Companys line of credit (see
Note 4) and long-term debt (see Note 5) approximate
fair value because their variable interest rates approximate the
prevailing interest rates for similar debt instruments.

Impact of Recently Issued Accounting
Pronouncements In January,
2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. This Interpretation
addresses the consolidation by business enterprises of variable
interest entities when the equity investors do not have the
characteristics of a controlling financial interest (as defined
in the Interpretation). In October, 2003, the FASB deferred the
effective date for implementation of this Interpretation until
December 31, 2003. Amtech believes it currently has no
contractual or other business relationship with a variable
interest entity, and therefore, does not believe that the
adoption of this Interpretation will have a material effect on
its financial position or results of operations.

In November 2004, the FASB issued
SFAS No. 151, Inventory Costs, which
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs and wasted material. This Statement requires that those
items be recognized as current-period charges regardless of
whether they meet the criterion of so abnormal. In
addition, this Statement requires allocation of fixed production
overhead to the costs of conversion be based on the normal
capacity of the production facilities. The Company is currently
evaluating the provisions of SFAS No. 151 and will
adopt it on November 1, 2005, as required. The Company
believes the adoption of this Statement will not have a material
effect on its financial position or results of operations.

In December 2004, the FASB issued
SFAS No. 123R, Share-Based Payments, which
amends SFAS No. 123, Accounting for Stock-based
Compensation. This statement requires companies to expense
the fair value of employee stock options and similar awards and
is effective for periods beginning after June  15,
2005. The Company will adopt the provisions of
SFAS No. 123R on July 1, 2005. See the pro forma
above for the impact on current and prior year results.



|   |                         
|-- | ------------------------
|2. | STOCK-BASED COMPENSATION

Stock
Warrants On
September 8, 2000 the Company issued 59,300 warrants to
purchase one share each of $.01 par value common stock in
connection with the private placement of 383,000 shares of
common stock. The warrants are exercisable at a price per share
of $15.12 and expire on September 8, 2005. No warrants have
been exercised to date.

Stock Option
Plans The Board of
Directors has reserved 15,000 shares of common stock for
issuance upon exercise of the outstanding options granted to
directors under Director Stock Purchase Agreements prior to
1996. The Non-Employee Directors Stock Option Plan was approved
by the shareholders in 1996 for the issuance of up to
100,000 shares of common stock to Directors. The Amended
and Restated 1995 Stock Option Plan and the 1995 Stock Bonus
Plan were also approved by stockholders in 1996 under which a
combined total of 160,000 shares were authorized. The 1998
Employee Stock Option Plan (the 1998 Plan), under
which 50,000 shares could be granted, was adopted by the
Board of Directors on January 31, 1998 and approved by
shareholders on March 20, 1998. On October 13, 2000,
the Board of Directors authorized an increase in the number of
options available under the 1998 Plan to 300,000. The amendment
was approved by the shareholders at the annual meeting on
March 15, 2001. On December 14, 2001, the Board of
Directors authorized an increase in the number of options
available under the 1998 Plan to 500,000. The amendment was
approved by the shareholders at the annual meeting on
March 29, 2002. All of the plans expire in 2006, except the
1998 Plan, which expires in 2008.

Qualified stock options issued under the terms of
the plans have, or will have, an exercise price equal to, or
greater than, the fair market value of the common stock at the
date of the option grant, and expire no later than 10 years
from the date of grant, with the most recent grant expiring in
2014. Under the terms of the 1995

47



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


Stock Option Plan, nonqualified stock options may
also be issued. Options issued in 2004, 2003 and 2002 vest at
the rate of 20%  33% per year. As of
September 30, 2004, the Company had 188,000 options
available for issuance under the plans.

The stock option transactions and the options
outstanding are summarized as follows:

|                                               |  |                          |         |          |       |   |      |         |          |  |         |   |  |          |      |  |       |  |         |   |  |   |      | 
|---------------------------------------------- |  | ------------------------ | ------- | -------- | ----- | - | ---- | ------- | -------- |  | ------- | - |  | -------- | ---- |  | ----- |  | ------- | - |  | - | ---- | 
|                                               |  |                         
|                                               |  | Year Ended September 30, |        
|                                               |  |                          |        
|                                               |  |                          |         |          |       |  
|                                               |  | 2004                     |         |          | 2003  |   |      | 2002    |         
|                                               |  |                          |         |          |       |   |      |         |         
|                                               |  |                          |         | Weighted |       |   |      |         | Weighted |  |         |   |  | Weighted |     
|                                               |  |                          |         | Average  |       |   |      |         | Average  |  |         |   |  | Average  |     
|                                               |  |                          |         | Exercise |       |   |      |         | Exercise |  |         |   |  | Exercise |     
|                                               |  | Options                  |         |          | Price |   |      | Options |          |  | Price   |   |  | Options  |      |  | Price | 
|                                               |  |                          |         |          |       |   |      |         |          |  |         |   |  |          |      |  |       | 
|Outstanding at beginning of year               |  |                          | 405,217 |          |       | $ | 4.70 |         |          |  | 434,567 |   |  | $        | 4.78 |  |       |  | 386,617 |   |  | $ | 4.56 | 
|Granted                                        |  |                          | 65,000  |          |       |   | 5.70 |         |          |  | 16,000  |   |  |          | 3.11 |  |       |  | 60,000  |   |  |   | 5.64 | 
|Exercised                                      |  |                          | (6,700  | )        |       |   | 2.24 |         |          |  | (9,850  | ) |  |          | 1.36 |  |       |  | (8,800  | ) |  |   | 1.28 | 
|Forfeited                                      |  |                          | (24,500 | )        |       |   | 5.62 |         |          |  | (35,500 | ) |  |          | 5.87 |  |       |  | (3,250  | ) |  |   | 5.10 | 
|                                               |  |                          |         |          |       |   |      |         |          |  |         |   |  |          |      |  |       | 
|Outstanding at end of year                     |  |                          | 439,017 |          |       |   | 4.83 |         |          |  | 405,217 |   |  |          | 4.70 |  |       |  | 434,567 |   |  |   | 4.78 | 
|                                               |  |                          |         |          |       |   |      |         |          |  |         |   |  |          |      |  |       | 
|Exercisable at end of year                     |  |                          | 278,717 |          |       | $ | 4.39 |         |          |  | 202,467 |   |  | $        | 4.01 |  |       |  | 147,568 |   |  | $ | 3.20 | 
|Weighted average fair value of options granted |  |                          |         |          |       | $ | 2.68 |         |          |  |         |   |  | $        | 1.03 |  |       |  |         |   |  | $ | 3.27 | 

The following summarizes information about stock
options outstanding at September 30, 2004:

|                         |  |             |                     |  |             |  |          |          |  |         |             |  |  |          |         |  |  |   |      | 
|------------------------ |  | ----------- | ------------------- |  | ----------- |  | -------- | -------- |  | ------- | ----------- |  |  | -------- | ------- |  |  | - | ---- | 
|                         |  |            
|Options Outstanding      |  |             | Options Exercisable | 
|                         |  |             |                     | 
|                         |  | Weighted    |                     |  |             |  | Weighted |         
|                         |  | Remaining   |                     |  | Average     |  |          |          |  | Average |            
|                         |  | Number      |                     |  | Contractual |  |          | Exercise |  |         | Number      |  |  | Exercise |        
|Range of Exercise Prices |  | Outstanding |                     |  | Life        |  |          | Price    |  |         | Exercisable |  |  | Price    |        
|                         |  |             |                     |  |             |  |          |          |  |         |             |  |  |          |        
|$1.13  1.49             |  |             | 70,017              |  |             |  | 2.35     |          |  | $       | 1.13        |  |  |          | 70,017  |  |  | $ | 1.13 | 
|1.50  1.99              |  |             | 9,000               |  |             |  | 4.40     |          |  |         | 1.50        |  |  |          | 9,000   |  |  |   | 1.50 | 
|2.00  3.24              |  |             | 11,600              |  |             |  | 7.94     |          |  |         | 2.88        |  |  |          | 4,334   |  |  |   | 2.79 | 
|3.25  4.24              |  |             | 8,500               |  |             |  | 7.75     |          |  |         | 3.25        |  |  |          | 4,000   |  |  |   | 3.25 | 
|4.25  5.49              |  |             | 95,900              |  |             |  | 5.57     |          |  |         | 4.48        |  |  |          | 58,900  |  |  |   | 4.42 | 
|5.50  6.49              |  |             | 78,000              |  |             |  | 7.77     |          |  |         | 5.79        |  |  |          | 29,800  |  |  |   | 5.83 | 
|6.50  6.99              |  |             | 166,000             |  |             |  | 6.48     |          |  |         | 6.54        |  |  |          | 102,666 |  |  |   | 6.55 | 
|                         |  |             |                     |  |             |  |          |          |  |         |             |  |  |          |        
|                         |  |             | 439,017             |  |             |  |          |          |  |         |             |  |  |          | 278,717 |  |  |   |      | 
|                         |  |             |                     |  |             |  |          |          |  |         |             |  |  |          |        

48



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)




|   |                          
|-- | -------------------------
|3. | EARNINGS (LOSS) PER SHARE

Earnings (loss) per share (EPS) are
calculated as follows:

|                                     |  |      |            |   |      |   |           |      |  |   |           | 
|------------------------------------ |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | 
|                                     |  | 2004 |            |   | 2003 |   |           | 2002 | 
|                                     |  |      |            |   |      |   |           |      | 
|Net income (loss)                    |  | $    | (3,165,272 | ) |      | $ | (99,679   | )    |  | $ | 118,171   | 
|                                     |  |      |            |   |      |   |           |      | 
|Weighted average shares outstanding: |  |      |            |   |      |   |           |      |  |   |           | 
|Common stock                         |  |      | 2,702,060  |   |      |   | 2,692,222 |      |  |   | 2,683,030 | 
|Common stock equivalents(1)          |  |      |           |   |      |   |          |      |  |   | 82,523    | 
|                                     |  |      |            |   |      |   |           |      | 
|Diluted shares                       |  |      | 2,702,060  |   |      |   | 2,692,222 |      |  |   | 2,765,553 | 
|                                     |  |      |            |   |      |   |           |      | 
|Earnings (Loss) Per Share:           |  |      |            |   |      |   |           |      |  |   |           | 
|Basic                                |  | $    | (1.17      | ) |      | $ | (.04      | )    |  | $ | .04       | 
|Diluted                              |  | $    | (1.17      | ) |      | $ | (.04      | )    |  | $ | .04       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Number of common stock equivalents is calculated
    using the treasury stock method and the average market price
    during the year. Options and warrants of 298,300 shares,
    344,950 shares and 234,700 shares are excluded from
    the EPS calculations as they are either antidilutive due to the
    net loss for the year or had an exercise price greater than the
    average market price during the years ended September 30,
    2004, 2003 and 2002, respectively.



|   |               
|-- | --------------
|4. | LINE OF CREDIT

The Company has a line of credit in the amount of
Euro 250,000 (approximately $308,000) as of September 30,
2004. The line of credit accrues interest at a rate of 1.75%
over a Netherlands banks basic interest rate (2.75% at
September 30, 2004 and 2003). The line of credit has no
fixed expiration date, and requires minimum principal payments
of Euro 4,000 per quarter. The line of credit is secured by
a lien on the Companys land and buildings and on trade
accounts receivable in The Netherlands. As of September 30,
2004 and 2003, there were no borrowings on the line of credit.



|   |                      
|-- | ---------------------
|5. | LONG-TERM OBLIGATIONS

Long-term obligations include a 26-year mortgage,
secured by a lien on the Companys land and buildings and
on trade accounts receivable in The Netherlands. The principal
amount of the mortgage was $493,000 and $466,000 as of
September 30, 2004 and 2003, respectively. The increase in
2004 is due to changes in currency translation rates. The
mortgage matures on July 31, 2029, and no principal
payments are due until October 1, 2004. Interest is paid
monthly at a fixed rate of 4.05% until August 1, 2005, at
which time a new fixed rate will be set based on prevailing
market conditions. There is no penalty for prepayment of the
mortgage, as long as the prepayment is made at the end of a
fixed rate period as defined in the mortgage agreement.

Until May 3, 2004, the Company maintained a
defined benefit pension plan for the hourly employees of P.R.
Hoffman (the Plan). Long-term obligations included
pension liabilities of $174,000 at September 30, 2003. On
May 3, 2004, the Plan merged into the National Integrated
Group Pension Plan (NIGPP) and became a defined
contribution plan; therefore, there is no long-term
pension-related obligation as of September 30, 2004.
Subsequent to the merger, the Company is required to make a
monthly contribution to NIGPP for each hour worked by the
covered employees. In 2004 $8,000 was paid to NIGPP for these
monthly payments. All trustee duties and fiduciary
responsibilities were transferred to NIGPP. When the Plan was
merged, a payment was made to NIGPP to satisfy existing pension
liabilities. The amount of this payment was less than the
recorded pension liability, therefore the Company realized a
$54,000 gain from the merger of the pension plan. In 2003, the
Company recorded a minimum pension liability adjustment of
$120,000, which

49



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


is reflected as a reduction of stockholders
equity (other comprehensive loss). This adjustment was reversed
in 2004 when the Plan was merged into the NIGPP.



|   |                     
|-- | --------------------
|6. | STOCKHOLDERS EQUITY

The Companys stockholder rights plan
authorizes the distribution of one right for each outstanding
common share. Each right entitles the holder to purchase one
one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50, subject to
certain antidilution adjustments. The rights will expire
10 years after issuance and will be exercisable if
(a) a person or group becomes the beneficial owner of 15%
or more of the Companys common stock or (b) a person
or group commences a tender or exchange offer that would result
in the offeror beneficially owning 15% or more of the
Companys common stock (a Stock Acquisition
Date). If a Stock Acquisition Date occurs, each right,
unless redeemed by the Company at $.01 per right,
entitles the holder to purchase an amount of the Companys
common stock, or in certain circumstances a combination of
securities and/or assets or the common stock of the acquirer,
having an equivalent market value of $17.00 per right at a
purchase price of $8.50. Rights held by the acquiring person or
group will become void and will not be exercisable. These rights
have not been distributed as of September 30, 2004.

In 2002, the Company issued 30,600 shares of
common stock as contingent consideration in accordance with the
terms of its 1997 acquisition of substantially all of the assets
and operating liabilities of P.R. Hoffman. This additional
consideration was treated as part of the purchase price.



|   |                              
|-- | -----------------------------
|7. | COMMITMENTS AND CONTINGENCIES

Purchase
Obligations Key suppliers
include two steel mills, one domestic and one German, capable of
meeting the material specifications the Company requires. As of
September 30, 2004, the Company had unconditional
commitments to purchase $0.5 million of steel, with
delivery dates to be determined in the future. Due to minimum
order quantities for this steel and long lead times, the Company
has made purchase commitments that may be in excess of future
production requirements, and it could take several years to use
all of the steel commitments in production of the Companys
products. These purchase commitments are not expected to result
in any significant losses.

Legal
Proceedings In August
2000, a P.R. Hoffman Machine Products was one of
11 companies named in a legal action being brought by North
Middleton Township in Carlisle, Pennsylvania, in the Court of
Common Pleas, Cumberland County, Pennsylvania, the owner of a
landfill allegedly found to be contaminated. We acquired the
assets of P.R. Hoffman Machine Products Corporation in an asset
transaction consummated on July 1, 1997. The landfill was
closed and has not been used by P.R. Hoffman since sometime
prior to completion of our acquisition transaction. Therefore,
we believe that the named company was the prior owner of the
acquired assets. On January 7, 2004, this legal action was
dismissed due to the Townships failure to pursue the
action within the statutory time limits.

Operating
Leases The Company leases
buildings, vehicles and equipment under operating leases. Rental
expense under such operating leases was $497,000, $361,000 and
$308,000 in 2004, 2003 and 2002, respectively. As of
September 30, 2004, future minimum rental commitments under
non-cancelable operating leases with initial or remaining terms
of one year or more totaled $519,000, of which $246,000,
$118,000, $93,000 and $62,000 is payable in 2005, 2006, 2007 and
2008, respectively.

50



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)




|   |                                  
|-- | ---------------------------------
|8. | MAJOR CUSTOMERS AND FOREIGN SALES

One customer represented approximately 10% of net
revenues during 2004. Two customers represented 15% and 12% of
net revenues, respectively, during 2003. No customer accounted
for 10% or more of net revenues during 2002.

The Companys net revenues were to customers
in the following geographic regions:

|                                                                                                                     |  |               |     |   |      |  |     |      |  |  |     |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                                                                                     |  |              
|                                                                                                                     |  | Year Ended    |    
|                                                                                                                     |  | September 30, |    
|                                                                                                                     |  |               |    
|                                                                                                                     |  | 2004          |     |   | 2003 |  |     | 2002 | 
|                                                                                                                     |  |               |     |   |      |  |     |      | 
|North America                                                                                                        |  |               | 36  | % |      |  | 26  | %    |  |  | 47  | %
|Asia (Korea, Peoples Republic of China,
    Taiwan, Japan, Singapore, Indonesia, Malaysia, Australia and
    India) |  |               | 33  |   |      |  | 44  |      |  |  | 20  |  
|Europe (including 1% or less to Israel and Africa)                                                                   |  |               | 31  |   |      |  | 30  |      |  |  | 33  |  
|                                                                                                                     |  |               |     |   |      |  |     |      | 
|                                                                                                                     |  |               | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                                                                                                                     |  |               |     |   |      |  |     |      | 



|   |                             
|-- | ----------------------------
|9. | BUSINESS SEGMENT INFORMATION

The Company classifies its products into two core
business segments. The semiconductor equipment segment designs,
manufactures and markets semiconductor wafer processing and
handling equipment used in the fabrication of integrated
circuits. Also aggregated in the semiconductor equipment segment
are the manufacturing support service business and any
difference between the planned corporate expenses, which are
allocated to the segments based upon their revenue and the
Companys investment in each, and actual corporate
expenses. The polishing supplies segment designs, manufactures
and markets carriers, templates and equipment used in the
lapping and polishing of wafer thin materials, including silicon
wafers used in the production of semiconductors.

51



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


Information concerning the Companys
business segments is as follows:

|                                       |  |                          |            |   |      |   |            |      |  |   |            |  
|-------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                       |  |                         
|                                       |  | Year Ended September 30, |           
|                                       |  |                          |           
|                                       |  | 2004                     |            |   | 2003 |   |            | 2002 | 
|                                       |  |                          |            |   |      |   |            |      | 
|Net revenues:                          |  |                          |            |   |      |   |            |      |  |   |            |  
|                                       |  |                          |            |   |      |   |            |      | 
|Semiconductor equipment                |  | $                        | 13,215,077 |   |      | $ | 14,133,370 |      |  | $ | 15,410,513 |  
|Polishing supplies                     |  |                          | 6,083,820  |   |      |   | 5,300,164  |      |  |   | 5,122,255  |  
|                                       |  |                          |            |   |      |   |            |      | 
|                                       |  | $                        | 19,298,897 |   |      | $ | 19,433,534 |      |  | $ | 20,532,768 |  
|                                       |  |                          |            |   |      |   |            |      | 
|Operating income (loss):               |  |                          |            |   |      |   |            |      |  |   |            |  
|                                       |  |                          |            |   |      |   |            |      | 
|Semiconductor equipment                |  | $                        | (2,253,933 | ) |      | $ | (192,790   | )    |  | $ | 196,509    |  
|Polishing supplies                     |  |                          | 149,236    |   |      |   | (52,633    | )    |  |   | (119,377   | )
|                                       |  |                          |            |   |      |   |            |      | 
|Total operating income (loss)          |  |                          | (2,104,697 | ) |      |   | (245,423   | )    |  |   | 77,132     |  
|Interest income, net                   |  |                          | 3,425      |   |      |   | 35,744     |      |  |   | 91,039     |  
|                                       |  |                          |            |   |      |   |            |      | 
|Income (loss) before taxes             |  | $                        | (2,101,272 | ) |      | $ | (209,679   | )    |  | $ | 168,171    |  
|                                       |  |                          |            |   |      |   |            |      | 
|Capital expenditures:                  |  |                          |            |   |      |   |            |      |  |   |            |  
|                                       |  |                          |            |   |      |   |            |      | 
|Semiconductor equipment                |  | $                        | 328,097    |   |      | $ | 153,735    |      |  | $ | 464,322    |  
|Polishing supplies                     |  |                          | 751,014    |   |      |   | 52,572     |      |  |   |           |  
|                                       |  |                          |            |   |      |   |            |      | 
|                                       |  | $                        | 1,079,111  |   |      | $ | 206,307    |      |  | $ | 464,322    |  
|                                       |  |                          |            |   |      |   |            |      | 
|Depreciation and amortization expense: |  |                          |            |   |      |   |            |      |  |   |            |  
|                                       |  |                          |            |   |      |   |            |      | 
|Semiconductor equipment                |  | $                        | 422,088    |   |      | $ | 398,118    |      |  | $ | 286,696    |  
|Polishing supplies                     |  |                          | 88,183     |   |      |   | 85,879     |      |  |   | 160,625    |  
|                                       |  |                          |            |   |      |   |            |      | 
|                                       |  | $                        | 510,271    |   |      | $ | 483,997    |      |  | $ | 447,321    |  
|                                       |  |                          |            |   |      |   |            |      | 

|                        |  |                     |            |  |      |   |            |  |  |  |  | 
|----------------------- |  | ------------------- | ---------- |  | ---- | - | ---------- |  |  |  |  | 
|                        |  |                     |            | 
|                        |  | As of September 30, |            |  |     
|                        |  |                     |            |  |     
|                        |  | 2004                |            |  | 2003 |   |            | 
|                        |  |                     |            |  |      |   |            | 
|Identifiable assets:    |  |                     |            |  |      |   |            |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 
|Semiconductor equipment |  | $                   | 12,830,102 |  |      | $ | 15,390,632 |  |  |  |  | 
|Polishing supplies      |  |                     | 3,829,428  |  |      |   | 3,008,410  |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 
|                        |  | $                   | 16,659,530 |  |      | $ | 18,399,042 |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 
|Goodwill:               |  |                     |            |  |      |   |            |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 
|Semiconductor equipment |  | $                   | 88,802     |  |      | $ | 0        |  |  |  |  | 
|Polishing supplies      |  |                     | 727,837    |  |      |   | 727,837    |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 
|                        |  | $                   | 816,639    |  |      | $ | 727,837    |  |  |  |  | 
|                        |  |                     |            |  |      |   |            |  | 

52



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AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


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

|                         |  |                          |            |   |      |   |            |      |  |   |            |  
|------------------------ |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                         |  |                         
|                         |  | Year Ended September 30, |           
|                         |  |                          |           
|                         |  | 2004                     |            |   | 2003 |   |            | 2002 | 
|                         |  |                          |            |   |      |   |            |      | 
|Net revenues:            |  |                          |            |   |      |   |            |      |  |   |            |  
|United States            |  | $                        | 9,528,256  |   |      | $ | 8,450,156  |      |  | $ | 9,948,296  |  
|The Netherlands          |  |                          | 9,770,641  |   |      |   | 10,983,378 |      |  |   | 10,584,472 |  
|                         |  |                          |            |   |      |   |            |      | 
|                         |  | $                        | 19,298,897 |   |      | $ | 19,433,534 |      |  | $ | 20,532,768 |  
|                         |  |                          |            |   |      |   |            |      | 
|Operating income (loss): |  |                          |            |   |      |   |            |      |  |   |            |  
|United States            |  | $                        | (885,831   | ) |      | $ | (454,924   | )    |  | $ | (756,023   | )
|The Netherlands          |  |                          | (1,218,866 | ) |      |   | 209,501    |      |  |   | 833,155    |  
|                         |  |                          |            |   |      |   |            |      | 
|                         |  | $                        | (2,104,697 | ) |      | $ | (245,423   | )    |  | $ | 77,132     |  
|                         |  |                          |            |   |      |   |            |      | 

|                     |  |                     |            |  |      |   |            |  |  |  |  | 
|-------------------- |  | ------------------- | ---------- |  | ---- | - | ---------- |  |  |  |  | 
|                     |  |                     |            | 
|                     |  | As of September 30, |            |  |     
|                     |  |                     |            |  |     
|                     |  | 2004                |            |  | 2003 |   |            | 
|                     |  |                     |            |  |      |   |            | 
|Identifiable assets: |  |                     |            |  |      |   |            |  |  |  |  | 
|United States        |  | $                   | 10,817,042 |  |      | $ | 12,060,463 |  |  |  |  | 
|The Netherlands      |  |                     | 5,842,488  |  |      |   | 6,338,579  |  |  |  |  | 
|                     |  |                     |            |  |      |   |            |  | 
|                     |  | $                   | 16,659,530 |  |      | $ | 18,399,042 |  |  |  |  | 
|                     |  |                     |            |  |      |   |            |  | 



|    |             
|--- | ------------
|10. | INCOME TAXES

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

|                 |  |                          |           |   |      |   |          |      |  |   |          |  
|---------------- |  | ------------------------ | --------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                 |  |                         
|                 |  | Year Ended September 30, |          
|                 |  |                          |          
|                 |  | 2004                     |           |   | 2003 |   |          | 2002 | 
|                 |  |                          |           |   |      |   |          |      | 
|Current:         |  |                          |           |   |      |   |          |      |  |   |          |  
|Domestic federal |  | $                        | (79,000   | ) |      | $ | (236,000 | )    |  | $ | (439,000 | )
|Foreign          |  |                          |          |   |      |   | 86,000   |      |  |   | 117,000  |  
|Domestic state   |  |                          | 13,000    |   |      |   | 38,000   |      |  |   | (21,000  | )
|                 |  |                          |           |   |      |   |          |      | 
|                 |  |                          | (66,000   | ) |      |   | (112,000 | )    |  |   | (343,000 | )
|                 |  |                          |           |   |      |   |          |      | 
|Deferred:        |  |                          |           |   |      |   |          |      |  |   |          |  
|Domestic federal |  |                          | 875,000   |   |      |   | 39,000   |      |  |   | 210,000  |  
|Foreign          |  |                          |          |   |      |   |         |      |  |   | 175,000  |  
|Domestic state   |  |                          | 255,000   |   |      |   | (37,000  | )    |  |   | 8,000    |  
|                 |  |                          |           |   |      |   |          |      | 
|                 |  |                          | 1,130,000 |   |      |   | 2,000    |      |  |   | 393,000  |  
|                 |  |                          |           |   |      |   |          |      | 
|                 |  | $                        | 1,064,000 |   |      | $ | (110,000 | )    |  | $ | 50,000   |  
|                 |  |                          |           |   |      |   |          |      | 

The provision for income taxes includes a charge
of $1.8 million to provide a full valuation allowance on
net deferred tax assets as of September 30, 2004.

53



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AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


The provision for (benefit from) income taxes
differs from the amount that would be computed by applying the
U.S. corporate income tax rate of 34% to the income (loss)
before income taxes as follows:

|                                                  |  |                          |           |   |      |   |          |      |  |   |         |  
|------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                  |  |                         
|                                                  |  | Year Ended September 30, |          
|                                                  |  |                          |          
|                                                  |  | 2004                     |           |   | 2003 |   |          | 2002 | 
|                                                  |  |                          |           |   |      |   |          |      | 
|Provision (benefit) at the statutory federal rate |  | $                        | (714,000  | ) |      | $ | (71,000  | )    |  | $ | 57,000  |  
|Effect of permanent book-tax differences          |  |                          | 13,000    |   |      |   | (19,000  | )    |  |   | 22,000  |  
|State tax provision                               |  |                          | 2,000     |   |      |   | (20,000  | )    |  |   | (29,000 | )
|Valuation allowance for net deferred tax assets   |  |                          | 1,768,000 |   |      |   |         |      |  |   |        |  
|Other items                                       |  |                          | (5,000    | ) |      |   |         |      |  |   |        |  
|                                                  |  |                          |           |   |      |   |          |      | 
|                                                  |  | $                        | 1,064,000 |   |      | $ | (110,000 | )    |  | $ | 50,000  |  
|                                                  |  |                          |           |   |      |   |          |      | 

Deferred income taxes reflect the tax effects of
temporary differences between the carrying value of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.

The components of the Companys net deferred
tax asset are as follows:

|                                               |  |               |            |   |      |   |           |  
|---------------------------------------------- |  | ------------- | ---------- | - | ---- | - | --------- | -
|                                               |  |              
|                                               |  | September 30, |           
|                                               |  |               |           
|                                               |  | 2004          |            |   | 2003 |  
|                                               |  |               |            |   |      |  
|Allowance for doubtful accounts                |  | $             | 67,000     |   |      | $ | 63,000    |  
|Uniform capitalization of inventory costs      |  |               | 169,000    |   |      |   | 154,000   |  
|Inventory write-downs not currently deductible |  |               | 651,000    |   |      |   | 340,000   |  
|State net operating losses                     |  |               | 120,000    |   |      |   | 127,000   |  
|Federal net operating losses                   |  |               | 274,000    |   |      |   |          |  
|Book vs. tax depreciation                      |  |               | (68,000    | ) |      |   | (9,000    | )
|Unrealized currency losses (gains)             |  |               | (1,000     | ) |      |   | (1,000    | )
|Deferred profit                                |  |               | 352,000    |   |      |   | 175,000   |  
|Liabilities not currently deductible           |  |               | 204,000    |   |      |   | 281,000   |  
|                                               |  |               |            |   |      |  
|                                               |  |               | 1,768,000  |   |      |   | 1,130,000 |  
|Valuation allowance                            |  |               | (1,768,000 | ) |      |   |          |  
|                                               |  |               |            |   |      |  
|Net deferred tax assets                        |  | $             |           |   |      | $ | 1,130,000 |  
|                                               |  |               |            |   |      |  

The Company has $1,691,000 of Arizona state net
operating loss carryforwards at September 30, 2004 that
begin to expire in 2007. The Company also has $807,000 of
Federal net operating loss carryforwards at September 30,
2004 that begin to expire in 2023.

Statement of Financial Accounting Standards
(SFAS) No. 109 Accounting for Income
Taxes (SFAS 109) requires that a
valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will
not be realized A review of all available positive and negative
evidence needs to be considered, including a companys
performance, the market environment in which the company
operates and the length of carry back and carryforward periods.
SFAS 109 further states that forming a conclusion that a
valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years.
Therefore, cumulative losses weigh heavily in the overall
assessment. As a result of the review undertaken at
September 30, 2004, we concluded that it was appropriate to
establish a full

54



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


valuation allowance for net deferred tax assets.
A valuation allowance for deferred tax assets was recorded in
the amount of $1.8 million on September 30, 2004.



|    |                                    
|--- | -----------------------------------
|11. | SELECTED QUARTERLY DATA (UNAUDITED)

|                  |                              |         |   |           |         |   |   |           |      |   |         |           |      |   |   |            |       |  
|----------------- | ---------------------------- | ------- | - | --------- | ------- | - | - | --------- | ---- | - | ------- | --------- | ---- | - | - | ---------- | ----- | -
|                  |                              | First   |   |           | Second  |   |   | Third     |      |   | Fourth  |          
|                  |                              | Quarter |   |           | Quarter |   |   | Quarter   |      |   | Quarter |          
|                  |                              |         |   |           |         |   |   |           |      |   |         |          
|Fiscal Year 2004: |                              |         |   |           |         |   |   |           |      |   |         |           |      |   |   |           
|                  |                              |         |   |           |         |   |   |           |      |   |         |          
|                  | Revenue                      |         | $ | 3,920,771 |         |   | $ | 5,631,423 |      |   | $       | 4,834,950 |      |   | $ | 4,911,753  |      
|                  | Gross margin                 |         | $ | 1,188,997 |         |   | $ | 1,587,785 |      |   | $       | 1,099,707 |      |   | $ | 72,194     |      
|                  | Net income (loss)            |         | $ | 1,862     |         |   | $ | 97,515    |      |   | $       | (249,560  | )    |   | $ | (3,015,089 | )    
|                  | Net income (loss) per share: |         |   |           |         |   |   |           |      |   |         |           |      |   |   |            |      
|                  |                              | Basic   |   | $         | .00     |   |   | $         | .04  |   |         | $         | (.09 | ) |   | $          | (1.11 | )
|                  |                              | Diluted |   | $         | .00     |   |   | $         | .03  |   |         | $         | (.09 | ) |   | $          | (1.11 | )
|Fiscal Year 2003: |                              |         |   |           |         |   |   |           |      |   |         |           |      |   |   |           
|                  |                              |         |   |           |         |   |   |           |      |   |         |          
|                  | Revenue                      |         | $ | 4,329,197 |         |   | $ | 5,447,628 |      |   | $       | 3,621,596 |      |   | $ | 6,035,113  |      
|                  | Gross margin                 |         | $ | 938,904   |         |   | $ | 984,729   |      |   | $       | 1,028,689 |      |   | $ | 1,882,724  |      
|                  | Net income (loss)            |         | $ | (116,568  | )       |   | $ | (267,764  | )    |   | $       | (120,991  | )    |   | $ | 405,644    |      
|                  | Net income (loss) per share: |         |   |           |         |   |   |           |      |   |         |           |      |   |   |            |      
|                  |                              | Basic   |   | $         | (.04    | ) |   | $         | (.10 | ) |         | $         | (.04 | ) |   | $          | .15   |  
|                  |                              | Diluted |   | $         | (.04    | ) |   | $         | (.10 | ) |         | $         | (.04 | ) |   | $          | .15   |  



|    |            
|--- | -----------
|12. | ACQUISITION

On July 1, 2004, the Company acquired,
through its wholly owned subsidiaries, Bruce Technologies, Inc.
and Tempress Systems, Inc., certain semiconductor horizontal
diffusion furnace operations and assets in the United States and
Europe from Kokusai Semiconductor Equipment Corporation and its
affiliate Kokusai Electric Europe, GmbH. The purpose of this
acquisition was to expand the Companys product and service
offerings and immediately expand its overall market share. The
cost of the acquisition was approximately $3.9 million,
including $3.3 million paid at closing, $0.3 of transaction
costs, and the assumption of approximately $0.3 million of
liabilities. The Company is also required to pay the seller
future payments of up to $1.0 million contingent upon the
consumption of inventories transferred at the closing.

The results of operations of this acquisition
have been included in the consolidated financial statements from
the date of acquisition.

The assets acquired principally consist of
intellectual property and technology, customer lists, customer
contracts, inventories and other tangible property used in
connection with the acquired business. Liabilities assumed
include obligations under certain contracts, and warranty claims
for certain products and services under warranty as of the date
of the acquisition.

The cost of the acquisition is summarized as
follows:

|                              |                           |   |           |           | 
|----------------------------- | ------------------------- | - | --------- | --------- | 
|Cash to seller at closing     |                           | $ | 3,292,000 |          
|Acquisition transaction costs |                           |   | 307,000   |          
|                              |                           |   |          
|                              | Total cost of acquisition |   | $         | 3,599,000 | 
|                              |                           |   |          

The allocation of the purchase price to the fair
value of the assets acquired and liabilities assumed at the date
of acquisition is as follows. Amortizable intangible assets are
considered to have no residual value at the

55



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##### Table of Contents



AMTECH SYSTEMS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2004,
2003 AND 2002  (Continued)


end of their useful lives. The goodwill of
$89,000 belongs entirely to the semiconductor equipment segment
of the business and is expected to be deductible for tax
purposes.

|                     |                               |                            |                          |                           |         |         |           |  |            |  |  | 
|-------------------- | ----------------------------- | -------------------------- | ------------------------ | ------------------------- | ------- | ------- | --------- |  | ---------- |  |  | 
|                     |                               |                            |                          | Useful Life               |        
|                     |                               |                            |                          |                           |        
|Assets Acquired:     |                               |                            |                          |                           |         |         |           | 
|                     | Inventories                   |                            | $                        | 2,346,000                 |         |         |           |  |           
|                     | Intangible assets:            |                            |                          |                           |         |         |           |  |           
|                     |                               | Non-compete agreements     |                          |                           | 350,000 |         |           |  | 10 years   | 
|                     |                               | Customer relationships     |                          |                           | 276,000 |         |           |  | 15 years   | 
|                     |                               | Trademarks and trade names |                          |                           | 592,000 |         |           |  | Indefinite | 
|                     |                               | Backlog/acquired contracts |                          |                           | 50,000  |         |           |  | 6 months   | 
|                     |                               | Technology                 |                          |                           | 102,000 |         |           |  | 4 years    | 
|                     | Property, plant and equipment |                            |                          | 54,000                    |         |         |           |  |           
|                     | Goodwill                      |                            |                          | 89,000                    |         |         |           |  |           
|                     |                               |                            |                          |                           |         |        
|                     |                               |                            |                          | Total assets acquired     |         |         | 3,859,000 |  |            |  |  | 
|                     |                               |                            |                          |                           |         |        
|Liabilities Assumed: |                               |                            |                          |                           |         |         |           | 
|                     |                               |                            | Accrued warranty expense |                           |         | 108,000 |           |  |            |  | 
|                     |                               |                            | Severance liability      |                           |         | 152,000 |           |  |            |  | 
|                     |                               |                            |                          |                           |         |        
|                     |                               |                            |                          | Total liabilities assumed |         |         | 260,000   |  |            |  |  | 
|                     |                               |                            |                          |                           |         |        
|                     |                               |                            |                          | Net assets acquired       |         | $       | 3,599,000 |  |            |  |  | 
|                     |                               |                            |                          |                           |         |        

The weighted average amortization period for
amortizable intangibles is 10.4 years.

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

|                             |         |                    |            |       |      |   |            |      | 
|---------------------------- | ------- | ------------------ | ---------- | ----- | ---- | - | ---------- | ---- | 
|                             |         |                   
|                             |         | For the Year Ended |           
|                             |         | September 30,      |           
|                             |         |                    |           
|                             |         | 2004               |            |       | 2003 |  
|                             |         |                    |            |       |      |  
|Revenues                     |         | $                  | 26,971,000 |       |      | $ | 28,036,000 |     
|Net income (loss)            |         | $                  | (2,478,000 | )     |      | $ | 505,000    |     
|Net income (loss) per share: |         |                    |            |       |      |   |            |     
|                             | Basic   |                    | $          | (0.92 | )    |   | $          | 0.19 | 
|                             | Diluted |                    | $          | (0.92 | )    |   | $          | 0.18 | 

For purposes of the above pro forma presentation,
the historical revenues and earnings of Bruce Technologies for
the years ended September 30, 2004 and 2003 have been
combined with the revenues and earnings of Amtech for the years
ended September 30, 2004 and 2003, respectively.



|    |                 
|--- | ----------------
|13. | SUBSEQUENT EVENT

In December 2004, the Company entered into a
capital lease with US Bancorp to finance the laser cutting
tool purchased in the fourth quarter of fiscal 2004. The amount
financed was $500,000 with an interest rate of 6.55% and with 48
payments due in the amount of $11,869. Future principal payments
will be $84,078, $118,707, $126,719, $135,274 and $35,222 for
2005, 2006, 2007, 2008 and 2009, respectively.

56



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##### Table of Contents








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

None.




ITEM 9A.     CONTROLS AND PROCEDURES

Our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer
(CFO), has carried out an evaluation of the
effectiveness of our disclosure controls and procedures as of
September 30, 2004, pursuant to Exchange Act
Rules 13a-15(e) and 15(d)-15(e). Based upon that
evaluation, our CEO and CFO have concluded that as of such date,
our disclosure controls and procedures in place are adequate to
ensure material information, and other information requiring
disclosure, is identified and communicated on a timely basis.

There have been no significant changes in our
internal controls over financial reporting or in other factors
that have materially affected, or are reasonably likely to
materially affect, those controls subsequent to the date this
evaluation was carried out, including any corrective actions
with regard to significant deficiencies and material weaknesses.

ITEM 9B.     OTHER INFORMATION

None.




PART III

Pursuant to Paragraph G(3) of the General
Instructions to Form 10-K, portions of the information
required by Part III of Form 10-K are incorporated by
reference to Amtechs Definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection
with its 2005 Annual Meeting of Stockholders (the Proxy
Statement).






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT

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






|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

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






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

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






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

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






|         |                                           
|-------- | ------------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND
    SERVICES

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

57



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##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
    AND REPORTS ON FORM 8-K

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

(2) All financial
statement schedules are omitted because they are either not
applicable, or because the required information is shown in the
consolidated financial statements or notes thereto.

(3) Exhibits:

The exhibits listed in the accompanying index to
exhibits are filed or incorporated by reference as part of this
Annual Report on Form 10-K.

|        |    |     |             |                                                                                                                                                    |           |  |    | 
|------- | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | -- | 
|Exhibit |    |     |             |                                                                                                                                                    | Method of | 
|No.     |    |     | Description |                                                                                                                                                    | Filing    | 
|        |    |     |             |                                                                                                                                                    |           | 
|        | 3  | .1  |             | Articles of Incorporation                                                                                                                          |           |  | A  | 
|        | 3  | .2  |             | Articles of Amendment to Articles of
    Incorporation, dated April 27, 1983                                                                       |           |  | A  | 
|        | 3  | .3  |             | Articles of Amendment to Articles of
    Incorporation, dated May 19, 1987                                                                         |           |  | B  | 
|        | 3  | .4  |             | Articles of Amendment to Articles of
    Incorporation, dated May 2, 1988                                                                          |           |  | C  | 
|        | 3  | .5  |             | Articles of Amendment to Articles of
    Incorporation, dated May 28, 1993                                                                         |           |  | D  | 
|        | 3  | .6  |             | Articles of Amendment to Articles of
    Incorporation, dated March 14, 1999                                                                       |           |  | E  | 
|        | 3  | .7  |             | Amended and Restated Bylaws                                                                                                                        |           |  | F  | 
|        | 4  | .1  |             | Rights Agreement dated May 17, 1999                                                                                                                |           |  | G  | 
|        | 10 | .1  |             | Amended and Restated 1995 Stock Option Plan                                                                                                        |           |  | H  | 
|        | 10 | .2  |             | Non-Employee Director Stock Option Plan                                                                                                            |           |  | I  | 
|        | 10 | .3  |             | Employment Agreement with Robert T. Hass, dated
    May 19, 1992                                                                                   |           |  | J  | 
|        | 10 | .4  |             | Registration Rights Agreement with J.S. Whang,
    dated January 24, 1994                                                                          |           |  | D  | 
|        | 10 | .5  |             | 1998 Employee Stock Option Plan (Amended as of
    March 29, 2002)                                                                                 |           |  | K  | 
|        | 10 | .6  |             | Warrant to Purchase Common Stock, dated
    September 8, 2000                                                                                      |           |  | L  | 
|        | 10 | .7  |             | Stock and Warrant Purchase Agreement, dated
    September 8, 2000                                                                                  |           |  | L  | 
|        | 10 | .8  |             | Employment Agreement, dated March 15, 2001,
    between the Registrant and Jong S. Whang                                                           |           |  | M  | 
|        | 10 | .9  |             | Asset Purchase Agreement, dated May 3, 2004,
    by and between Kokusai Semiconductor Equipment Corporation and
    the Company                    |           |  | N  | 
|        | 10 | .10 |             | Amendment, dated June 25, 2004, to the Asset
    Purchase Agreement by and between Kokusai Semiconductor
    Equipment Corporation and the Company |           |  | N  | 
|        | 10 | .11 |             | Amendment, dated July 1, 2004, to the Asset
    Purchase Agreement by and between Kokusai Semiconductor
    Equipment Corporation and the Company  |           |  | N  | 
|        | 10 | .12 |             | Asset Purchase Agreement, dated May 3, 2004,
    by and between Kokusai Electric Europe GmbH and the Company                                       |           |  | N  | 
|        | 10 | .13 |             | Amendment, dated June 25, 2004, to the Asset
    Purchase Agreement by and between Kokusai Electric Europe GmbH
    and the Company                |           |  | N  | 
|        | 21 |     |             | Subsidiaries of the Registrant                                                                                                                     |           |  | *  | 
|        | 23 |     |             | Consent of Independent Registered Public
    Accounting Firm                                                                                       |           |  | *  | 
|        | 24 |     |             | Powers of Attorney                                                                                                                                 |           |  | ** | 
|        | 31 | .1  |             | Certification Pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as Amended                                      |           |  | *  | 
|        | 31 | .2  |             | Certification Pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as Amended                                      |           |  | *  | 

58



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|        |    |    |             |                                                                                                                                |           |  |   | 
|------- | -- | -- | ----------- | ------------------------------------------------------------------------------------------------------------------------------ | --------- |  | - | 
|Exhibit |    |    |             |                                                                                                                                | Method of | 
|No.     |    |    | Description |                                                                                                                                | Filing    | 
|        |    |    |             |                                                                                                                                |           | 
|        | 32 | .1 |             | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |           |  | * | 
|        | 32 | .2 |             | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |           |  | * | 



---



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



|   |                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | See signature page.                                                                                                                                                                                                 
|  
|A  | Incorporated by reference to Amtechs
    Form S-1 Registration Statement No. 2-83934-LA.                                                                                                                           
|  
|B  | Incorporated by reference to Amtechs Annual
    Report on Form 10-K for the year ended September 30,
    1987.                                                                                                     
|  
|C  | Incorporated by reference to Amtechs Annual
    Report on Form 10-K for the year ended September 30,
    1988.                                                                                                     
|  
|D  | Incorporated by reference to Amtechs
    Form S-1 Registration Statement (File No. 33-77368).                                                                                                                      
|  
|E  | Incorporated by reference to Amtechs Annual
    Report on Form 10-K for the year ended September 30,
    1999.                                                                                                     
|  
|F  | Incorporated by reference to Amtechs Annual
    Report on Form 10-K for the year ended September 30,
    1991.                                                                                                     
|  
|G  | Incorporated by reference to Amtechs
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on May 17, 1999.                                                                        
|  
|H  | Incorporated by reference to Amtechs
    Form S-8 Registration Statement (related to the Amended and
    Restated 1995 Stock Option Plan), filed with the Securities and
    Exchange Commission on August 9, 1996.
|  
|I  | Incorporated by reference to Amtechs
    Form S-8 Registration Statement (related to the
    Non-Employee Director Stock Option Plan), filed with the
    Securities and Exchange Commission on August 9, 1996.    
|  
|J  | Incorporated by reference to Amtechs Annual
    Report on Form 10-K for the year ended September 30,
    1993.                                                                                                     
|  
|K  | Incorporated by reference to Amtechs
    Form S-8 Registration Statement (related to the 1998
    Employee Stock Option Plan), filed with the Securities and
    Exchange Commission on February 11, 2003.         
|  
|L  | Incorporated by reference to Amtechs
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on September 22, 2000.                                                                  
|  
|M  | Incorporated by reference to Amtechs
    Quarterly Report on Form 10-Q for the quarterly period
    ended March 31, 2001.                                                                                          
|  
|N  | Incorporated by reference to Amtechs
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on July 15, 2004.                                                                       

59



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                     
| | --------------------
| | AMTECH SYSTEMS, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ JONG S. WHANG

| |                                          
| | -----------------------------------------
| |                                          
| | Jong S. Whang,                           
| | President and Chief Executive
    Officer

January 13, 2005




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
Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully and to all intents and purposes as he might or could do in
person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

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

|                                 |  |                                                                                                                   |  |                  |  | 
|-------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | 
|                                 |  |                                                                                                                   |  |                 
|Signature                        |  | Title                                                                                                             |  | Date            
|                                 |  |                                                                                                                   |  |                 
|                                
|/s/ JONG S. WHANGJong S. Whang   |  | Chairman of the Board, President and Chief
    Executive Officer (Principal Executive Officer)                    |  | January 13, 2005
|                                
|/s/ ROBERT T. HASSRobert T. Hass |  | Vice President  Finance, Chief
    Financial Officer and Director (Principal Financial &
    Accounting Officer) |  | January 13, 2005
|                                
|/s/ ALVIN L. KATZAlvin L. Katz   |  | Director                                                                                                          |  | January 13, 2005
|                                
|/s/ ROBERT F. KINGRobert F. King |  | Director                                                                                                          |  | January 13, 2005
|                                
|/s/ BRUCE R. THAWBruce R. Thaw   |  | Director                                                                                                          |  | January 13, 2005

60



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##### Table of Contents



Exhibit Index

|        |    |    |             |                                                                                                                                |        |  |    | 
|------- | -- | -- | ----------- | ------------------------------------------------------------------------------------------------------------------------------ | ------ |  | -- | 
|        |    |    |             | Method                                                                                                                         |       
|Exhibit |    |    |             |                                                                                                                                | of     | 
|No.     |    |    | Description |                                                                                                                                | Filing | 
|        |    |    |             |                                                                                                                                |        | 
|        | 21 |    |             | Subsidiaries of the Registrant                                                                                                 |        |  | *  | 
|        | 23 |    |             | Consent of Independent Registered Public
    Accounting Firm                                                                   |        |  | *  | 
|        | 24 |    |             | Powers of Attorney                                                                                                             |        |  | ** | 
|        | 31 | .1 |             | Certification Pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as Amended                  |        |  | *  | 
|        | 31 | .2 |             | Certification Pursuant to
    Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
    1934, as Amended                  |        |  | *  | 
|        | 32 | .1 |             | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |        |  | *  | 
|        | 32 | .2 |             | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |        |  | *  | 



---



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



|   |                    
|-- | -------------------
|** | See signature page.

61