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


                                    FORM 10-K


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

     For the fiscal year ended: September 30, 2001

                                       OR

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

     For the transition period from ________________ to ________________

                         Commission File Number: 0-11412


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


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


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


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


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


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

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

                            Redeemable Public Warrant
                                (Title of Class)
<PAGE>
     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

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

     As of December 31, 2001, the aggregate market value of voting stock held by
non-affiliates  of the registrant  was  approximately  $16,500,000  based on the
average of the high and low  prices of Common  Stock as  reported  on the NASDAQ
National Market on such date. Shares of Common Stock held by officers, directors
and holders of more than 5% of the  outstanding  Common stock have been excluded
from this calculation because such persons may be deemed to be affiliates.  This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

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

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

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of Common Stock, as of the latest practicable date:  2,649,171 shares of
Common Stock, $.01 par value, outstanding as of December 31, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement  related to the  registrant's  2002 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, 2001, are incorporated by reference
into Part III of this Form 10-K.
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page

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

         BACKGROUND.......................................................     1

         INDUSTRY BACKGROUND..............................................     2

         FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS....................     3

         BUSINESS OVERVIEW................................................     3

         GROWTH STRATEGY..................................................     4

         PRINCIPAL PRODUCTS...............................................     5

         PROPOSED NEW PRODUCTS............................................     9

         MANUFACTURING AND SUPPLIERS......................................     9

         ORDER BACKLOG....................................................    10

         RESEARCH, DEVELOPMENT AND ENGINEERING............................    10

         PATENTS .........................................................    11

         SALES AND MARKETING..............................................    12

         COMPETITION......................................................    13

         EMPLOYEES........................................................    14

         FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
           AND EXPORT SALES ..............................................    15

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

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

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............    16

ITEM 5   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDERS' MATTERS .........................................    16

         MARKET INFORMATION...............................................    16

         HOLDERS .........................................................    17

         DIVIDENDS........................................................    17

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

ITEM 7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS .....................................    19

         STRATEGY FOR EXPANSION AND CAPITAL RESOURCES.....................    19

         RESULTS OF OPERATIONS............................................    19

         FISCAL 2001 COMPARED TO FISCAL 2000..............................    20

         CHANGE IN ACCOUNTING PRINCIPLE...................................    22

         RECENT ACCOUNTING PRONOUNCEMENTS.................................    23

                                       i
<PAGE>
         FISCAL 2000 COMPARED TO FISCAL 1999..............................    23

         LIQUIDITY AND CAPITAL RESOURCES..................................    25

         ADDITIONAL FACTORS THAT MAY AFFECT OUR FUTURE RESULTS............    26

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
           RISK...........................................................    33

         FORWARD-LOOKING STATEMENTS.......................................    34

ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX................    36

ITEM 9   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............    37

ITEM 10  EXECUTIVE COMPENSATION...........................................    37

ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...    37

ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................    37

ITEM 13  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8-K.......................................................    37

SIGNATURES................................................................    40

POWER OF ATTORNEY.........................................................    40

                                       ii
<PAGE>
                                     PART I

ITEM 1. BUSINESS

BACKGROUND

     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.  The Company also  conducts  operations
through  two  wholly-owned   subsidiaries,   Tempress  Systems,  Inc.,  a  Texas
corporation with all its operations in the Netherlands ("Tempress Systems"), and
P.R. Hoffman Machine Products,  Inc., an Arizona  corporation based in Carlisle,
Pennsylvania ("P.R. Hoffman").

     The Company's initial business was the manufacture of quartzware implements
for sale to and use by  manufacturers of  semiconductor  chips.  Since 1987, the
Company has been engaged in the manufacture  and marketing of capital  equipment
used by  customers  in the  manufacture  of  semiconductors,  two of  which  are
patented.  The  Company's  Processing/Robotic  product line  (Atmoscan(R),  IBAL
Automation  and load  stations) is designed to enable its  customers to increase
the degree of control over their  semiconductor chip manufacturing  environment,
to reduce  exposure  to  contaminants  by  limiting  human  contact  during  the
manufacturing process and to improve employee safety.

     In fiscal 1995, the Company began the  complementary  business of producing
and selling horizontal diffusion furnaces for use in semiconductor  fabrication,
through its  wholly-owned  subsidiary,  Tempress  Systems.  In fiscal 1998,  the
Company's  Tempress  Systems  operation  began  producing  and selling  conveyor
diffusion  furnaces for use in precision thermal processing of electronic parts.
In fiscal 2000, the Company  started  producing high  temperature and ultra high
temperature diffusion furnaces for use in the manufacture of optical components,
a new market for the Company's products. The Company's  semiconductor  equipment
segment is comprised of the  Processing/Robotic and horizontal diffusion furnace
product lines.

     In July 1997, the Company acquired  substantially all of the assets of P.R.
Hoffman  Machine  Products  Corporation  and  began  developing,  manufacturing,
marketing  and selling  polishing  supplies,  i.e.  carriers  and  semiconductor
polishing templates,  double-sided  precision lapping and polishing machines and
replacement  parts through its  wholly-owned  subsidiary,  P.R.  Hoffman.  These
products  are  used  for  high  throughput   precision  surface   processing  of
semiconductor wafers,  precision optics and other thin wafer materials,  such as
computer  disk  media and  ceramic  components  for  wireless  telecommunication
devices.  The polishing  supplies segment of the Company's business is conducted
through the Company's P.R. Hoffman subsidiary.

     In  the  fourth   quarter  of  fiscal  1997,  the  Company  began  offering
manufacturing  support  services  to  one of its  Texas-based  customers.  These
services  consist of wet and dry cleaning of  semiconductor  machine  processing
parts.  The Company  intends to offer  manufacturing  support  services to other
customers and third parties as such opportunities become available.  For segment
reporting  purposes,  the results of operation  and assets of the  manufacturing
support services operation have been aggregated with the semiconductor equipment
segment.

     In fiscal 1994, the Company added  research and product  development of new
technologies   to  its  on-going   development   of  new  products  and  product
improvements based on existing technologies. From fiscal 1994 through the end of
fiscal 1998,  the  Company's  research and  development  efforts were  primarily
focused on photo-assisted CVD (chemical vapor deposition)  research conducted by
and in conjunction  with the University of California at Santa Cruz ("Santa Cruz
University").  Santa  Cruz  University  studied  several  generations  of higher
intensity  light  sources,  none of which yielded  results that would enable the
Company to produce a  commercially  viable  product.  While  this  research  was
partially  successful,  it was suspended  indefinitely  effective  September 30,

                                       1
<PAGE>
1998, and won't be resumed until such time as reliable  higher  intensity  lamps
are available and the Company determines that success appears more probable.

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

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

INDUSTRY BACKGROUND

     The  semiconductor  industry has 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,  which has led to an increased number of
semiconductor  devices  in  electronic  and  other  consumer  products,  such as
automobiles.

     While experiencing significant growth, the semiconductor market is cyclical
by nature,  characterized  by short-term  periods of either under or over supply
for  both  memory  and  logic  devices.  When  demand  decreases,  semiconductor
manufacturers typically slow their purchasing of capital equipment.  Conversely,
when demand increases,  so does the manufacturer's capital spending.  During the
first  half of fiscal  2001 the  semiconductor  industry  began  experiencing  a
downturn,  which  resulted  in more than a 30%  decline in revenue for both chip
fabricators and semiconductor equipment  manufacturers.  Such industry downturns
have and will in the  future  adversely  affect  the  sales,  gross  profit  and
operating  results of suppliers that serve the industry,  including the Company.
The   semiconductor   industry  is  also   experiencing  the   consolidation  of
semiconductor  manufacturing  operations  through mergers and the subcontracting
out of the production of semiconductors to foundries.  The Company believes that
growth in its sales and  profitability  will continue to depend  primarily  upon
increased demand for semiconductors,  for optical components and solar cells and
its success in developing or acquiring products that fill the present and future
requirements of those industries.

     To  create  increased  demand  for  semiconductor  devices,   semiconductor
manufacturers  have sought to enhance the  performance  or speed,  decrease  the
size,  and  lower  the cost of  semiconductor  devices.  These  goals  are being
achieved by shrinking  the size of the  circuitry  on a chip and  reducing  line
widths,  increasing  wafer size and introducing new materials and  technologies.
When chips  decrease in size,  circuits  can  operate  more  quickly.  With size
reduction,  more chips can be produced on a given wafer size, and the yield from
production increases. New equipment featuring the latest technological advances,
however,  must often be purchased to manufacture the smaller-sized  chips and in
many cases is retrofitted into existing manufacturing facilities.

     To achieve  improved yield,  semiconductor  devices must be manufactured in
environments  with very low  levels  of  contaminants.  Semiconductor  equipment
manufacturers,  such as the  Company,  have  responded  to this  requirement  by
offering equipment that isolates, within a controlled mini-environment,  several
chambers  corresponding  to different steps of the  semiconductor  manufacturing
process and by developing factory automation that reduces human involvement.

                                       2
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     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.  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 are aggregated in the semiconductor  equipment  segment.  The polishing
supplies  segment  designs,  manufactures  and markets  carriers,  templates and
equipment used in the lapping and polishing of wafer thin  materials,  including
silicon  wafers  used  in  the  production  of  semiconductors.   For  financial
information  about  industry  segments see Note 9 of the Notes to the  Financial
Statements included herein.

BUSINESS OVERVIEW

     The Company is engaged primarily in the design, manufacture,  marketing and
servicing of several  items of capital  equipment  and related  consumables  and
spare parts primarily used by customers in the manufacture of silicon wafers and
the fabrication of  semiconductors,  optical  components of telecom networks and
solar  cells.  Our  manufacturing  facilities  are  located  in Tempe,  Arizona;
Carlisle, Pennsylvania and The Netherlands.

     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.

     The manufacture of semiconductors and optical components  involves a number
of complex and repetitive  processing  steps applied to a silicon  wafer.  These
processing steps generally consist of deposition,  photolithography and etching.
Deposition  is a process in which a film of either  electrically  insulating  or
electrically  conductive  material is deposited  on the surface of a wafer.  The
three  principal  methods  of  this  film  deposition  are CVD  (chemical  vapor
deposition),  which can be used to deposit both insulating and conductive films;
PVD  (physical  vapor  deposition),  which  is  used  primarily  for  sputtering
conductive materials onto the wafer surface;  and electroplating,  a process for
depositing metal films via an electrically charged aqueous solution.

     The Company's  products  currently address deposition steps and the surface
finishing  steps in the  production of silicon  wafers.  The Company's  products
within the deposition area perform oxidation/diffusion,  low-pressure deposition
("LPCVD")  steps and certain high and ultra-high  temperature  processes used in
the   manufacture  of  optical   components.   LPCVD  performs  CVD  under  high
temperature,  low-pressure conditions to deposit insulting or conductive layers.
During these steps silicon wafers (the  substrates  from which chips and optical
components  are made) are  inserted in a diffusion  furnace and  subjected  to a
precise flow of gases under very intense heat.

     The  Company  manufactures  and sells  horizontal  and  conveyor  diffusion
furnaces through its wholly owned subsidiary, Tempress Systems. In addition, the
Company  manufactures  and sells a  processing/robotic  product line designed to
enable customers using horizontal diffusion furnaces to increase their degree of
control over the manufacturing  environment,  to reduce exposure to contaminants
by reducing the amount of human contact during the manufacturing  process and to
improve  employee  safety.  Following an industry trend,  the size of individual
semiconductor  chips has tended to  decrease  while the size of the wafers  from

                                       3
<PAGE>
which  chips are made has  tended to  increase.  As a result,  the value of each
wafer has increased  because each is the source of an increased number of chips.
As the value of wafers increase,  so too does the importance of control over the
manufacturing environment.

     The  Company's  target  market for its lapping and  polishing  machines and
related  consumables  and spare parts are producers of silicon  wafers,  certain
semiconductor  fabricators  that  perform some silicon  wafer  processing  steps
in-house and producers of thin wafers made of other  materials,  such as quartz,
ceramics and metals used in the  manufacture of optics,  computer  storage disks
and components for wireless  telecommunication devices. The long-term demand for
silicon wafer lapping and polishing  machines and related products has also been
fueled by the inherent need of semiconductor device manufacturers to continually
meet the growing demand for such semiconductors  caused by the rapid increase in
the uses for such devices.  In order to produce  today's  higher  density chips,
semiconductor manufacturers must maintain tighter tolerances with respect to the
surface finish,  flatness and planerization of the bare silicon wafer,  which in
turn is requiring more polishing steps and thus more surface processing supplies
and  equipment.  A similar  trend is occurring in the computer  disk industry as
manufacturers  strive to produce  higher  density drives in order to satisfy end
user demand for greater storage capacity and reduced size.

GROWTH STRATEGY

     The  Company's  objective is to increase its revenue and  operating  profit
through the  development  of new products and services  that serve the Company's
targeted  markets,  to further penetrate these and new markets with existing and
new products, and to acquire new products through strategic acquisitions.

     NEW MARKETS.  In the fourth  quarter of fiscal 2000,  the Company  obtained
large  semiconductor  production  equipment orders from manufacturers of optical
components, a significant new market for the Company. Sales into this new market
accounted  for $8  million of revenue in fiscal  2001.  The  Company  also sells
production equipment to the manufacturers of solar cells, another new market for
the Company's products.

     NEW PRODUCTS.  During July 2000, we launched two new  automation  products,
the S-300 and E-300,  in order to expand and further  penetrate  the markets for
its  products.  Shipment of these new  products  totaled  $1.6 million in fiscal
2001. The Company is continuing work that began in the first half of fiscal 2001
to provide  full  cassette to cassette  functionality  as an option on the S-300
product, and to develop a 12 inch (300mm) version of the S-300.

     NEW SERVICES.  During the fourth  quarter of fiscal 1997, the Company began
providing  contract  semiconductor  manufacturing  support  services,  which  is
included in the  semiconductor  production  equipment  (and  services)  segment.
Although the Company is currently  providing such services to only one customer,
its fiscal 2001 revenue  attributable  to such  services was $.5 million and the
operation is continuing to make a positive contribution to operating profit.

     ACQUISITIONS.  Another  important  element  of our growth  strategy  is the
acquisition of new complementary businesses or products. During fiscal 2001, the
Company reviewed and considered carefully a number of acquisition opportunities,
but did not conclude any transactions under consideration. The Company continues
to evaluate  those and other  potential  product or business  acquisitions  that
might  complement  its existing  business and  contribute  to the success of its
growth  strategy.  Based  upon  the  Company's  acquisition  criteria,  such  an
acquisition  could  require  more  capital  resources  than used to acquire P.R.
Hoffman. The determination of the appropriateness of a potential  acquisition is
expected  to take into  consideration  many  factors,  including  the status and
potential  capital  requirements  for  developing a new  technology  asher,  the
economic terms of the acquisition under review, and the potential synergy of the
business opportunity with the Company's existing business.

                                       4
<PAGE>
     During fiscal 1995, the Company hired  engineers that had been employees of
the  former  Tempress,  B.V.,  developed  its first  models  of the  Tempress(R)
diffusion  furnace  product  and  started  Tempress  Systems  operations  in The
Netherlands. That operation has grown significantly,  particularly during fiscal
2000,  and now is a major  contributor  to the  Company's  revenues  and profit.
Similarly,  on July 1, 1997 the Company acquired substantially all of the assets
and related  liabilities of P.R. Hoffman Machine Products  Corporation,  thereby
enabling the Company to offer new products,  lapping and polishing  machines and
related consumables and spare parts, to its existing and targeted customers.

PRINCIPAL PRODUCTS

SEMICONDUCTOR (PRODUCTION) EQUIPMENT SEGMENT

     Diffusion Furnaces

     Through its wholly-owned subsidiary, Tempress Systems, the Company produces
and sells horizontal and conveyor  diffusion  furnace  systems,  which generally
include  a  Tempress(R)  load  station,  with  the  Tempress(R)  trademark.  The
Company's   diffusion  furnaces  currently  address  several  deposition  steps,
including oxidation/diffusion, LPCVD steps used by semiconductor fabricators and
certain high and ultra-high  temperature  processes  used in the  manufacture of
optical components. During these steps silicon wafers (the substrates from which
chips and optical  components are made) are inserted in a diffusion  furnace and
subjected  to a precise  flow of gases under very intense  heat.  The  Company's
Tempress(R)  diffusion furnaces are manufactured at the Company's  facilities in
The Netherlands.

     These furnaces utilize existing industry  technology and are sold primarily
to customers who do not require the advanced  automation  of, or can not justify
the significantly higher expense of, vertical diffusion furnaces for some or all
of their diffusion  processes.  While the major advantage of vertical  diffusion
furnaces is their  susceptibility to increased  automation,  which decreases the
degree of human intervention in the manufacturing process, the use of horizontal
diffusion  furnaces,  with less  automation,  is more economical for larger size
chips and  multi-model  semiconductor  manufacturing.  The Company has also sold
these furnaces to manufacturers of solar cells. The Company's diffusion furnaces
are often  customized  to meet the  requirements  of the  customers'  particular
processes  and whenever  possible  sold in various  combinations  with the other
products of the semiconductor equipment segment.

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

     Starting in the fourth quarter of fiscal 2000, the Company secured and made
initial  shipments  against  significant  orders  for its  horizontal  diffusion
furnace systems from manufacturers of optical components of high-speed  switches
used in broadband fiber optic telecommunications networks. These systems include
standard diffusion furnaces used to produce thick oxide layers on silicon wafers
and  ultra-high   temperature  furnaces  used  for  certain  of  the  customers'
proprietary  processes.  While these  products  are similar in many  respects to
those  sold to the  semiconductor  industry,  they are  being  sold into the new
optical component market for the Company and therefore account for a significant
portion of the $8 million of sales into that optical market.

                                       5
<PAGE>
     Processing/Robotic Equipment

          IBAL Automation

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

     IBAL Butler is a robotics  device  that  further  automates  the loading of
wafers into a diffusion furnace. The IBAL Butler  automatically  transfers wafer
carriers  onto the IBAL  Trolley of the  appropriate  furnace  tube  level,  for
loading into the  Atmoscan(R)  or on the cantilever  paddle  system.  IBAL Queue
provides a  convenient  staging  area for the  operator to place boats on a load
station and automates the loading of those boats onto the IBAL Butler. The first
IBAL Queue unit was shipped  during the second  quarter of fiscal 1994. The IBAL
Shuttle  transfers  wafers  between the IBAL Queue and wafer  transfer  machines
manufactured   by   third   parties,    providing    customers   with   complete
cassette-to-cassette  wafer  handling.  The first IBAL Shuttle modules were sold
and shipped during fiscal 2000.

     During fiscal 2000, the Company  introduced two new robotic  products,  the
S-300 and E-300. The S-300 model automatically  transports a full batch of up to
300 wafers to the  designated  tube level and  places  them onto the  cantilever
loader of a diffusion  furnace at one time. The operator gives  instructions  to
the S-300 through a simple touch screen control panel. The Company  demonstrated
the S-300 system during the Semicon West 2000 tradeshow in San Francisco in July
2000. The S-300 can load  cantilever  paddles but not the Company's  Atmoscan(R)
product.  At Semicon West, the Company also displayed and operated its new E-300
Full Batch  Elevator,  which  transports up to 300 wafers to the designated tube
level, but does not load or unload the cantilever paddle.  While the E-300 model
offers less  functionality  than the S-300, it proved to be extremely  reliable.
Since the E-300 does not perform  the actual  loading,  it can be used,  with or
without the IBAL trolley, in connection with the Company's  Atmoscan(R) product.
In line with the  Company's  growth  strategy,  these  products  are designed to
capture additional diffusion equipment market share.

     Use of the IBAL products  reduces human  handling and,  therefore,  reduces
exposure  of wafers to  contaminants  during the loading  and  unloading  of the
process  tubes and improves  employee  safety and  ergonomics  in  semiconductor
manufacturing   facilities.   The  Company  has  also  sold  IBAL   products  to
manufacturers  of solar  cells.  The Company  has not yet sold IBAL  products to
manufacturers of optical components,  because most of the processes involve very
long  production  cycles,  reducing  the  frequency  of loading  and  unloading.
However,  the Company  intends to address  that  market  with its IBAL  products
whenever it is  appropriate.  All of the IBAL modules have been  designed by the
Company.

     The IBAL automation products described above are offered and sometimes sold
as a complete  system,  mounted on a device called a "load  station," which also
includes  an  ultra-clean   environment  for  wafer  loading  by  filtering  and
controlling  the flow of air. The load  stations  sold with an  integrated  IBAL
package are the high-end loan stations.  Further,  the IBAL automation  products
are at times sold as part of fully integrated  Tempress(R)  diffusion  furnaces,
described above.

          Atmoscan(R)

     The Company's  "Atmoscan(R)"  is a patented  controlled  environment  wafer
processing system for use with horizontal diffusion furnaces. When in use, it is
loaded  with  wafers  and  inserted   into  the   diffusion   furnace   under  a

                                       6
<PAGE>
nitrogen-controlled  environment.  The  Atmoscan(R)  technology  is a processing
method  that  includes a  cantilever  tube used to load  silicon  wafers  into a
diffusion furnace and through which a purging inert gas flows during the loading
and unloading processes.

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

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

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

     There is a trend in the  semiconductor  industry toward the use of vertical
furnaces in semiconductor manufacturing facilities with newer technology,  which
trend is  directly  related  to the trend to  produce  smaller  chips.  Vertical
diffusion  furnaces  are more  efficient  to use than the  horizontal  diffusion
furnaces in certain  manufacturing  processes of smaller chips on larger wafers,
however,  such  furnaces  are  significantly  more  expensive  to purchase  than
horizontal  diffusion  furnaces.  The  products of the  semiconductor  equipment
segment consist of or are only useable with horizontal  diffusion furnaces.  The
Company had expected  this trend to cause a decline in that  segment's  sales of
existing  products.  We believe  this trend has not  adversely  affected  us yet
because of (i) significant  orders from new markets,  such as  manufacturers  of
optical  components,  (ii)  increased  demand  from  existing  markets,  such as
manufacturers of wireless  telecommunication  devices and micro-controllers used
in a number of consumer  applications  and companies that are  increasing  their
semiconductor  manufacturing capacity by upgrading their production lines to use
200mm wafers,  where some or all of the processes do not require the use of more
expensive  vertical  furnaces,  and  (iii)  improvements  in the  automation  of
horizontal diffusion furnaces, such as our robotic product line, have given us a
competitive advantage for certain processes relative to vertical furnaces,  than
previously.

POLISHING SUPPLIES (AND EQUIPMENT) SEGMENT

     Through its wholly-owned  subsidiary,  P.R. Hoffman,  the Company develops,
manufactures,  markets and sells  double-sided  precision  lapping and polishing
machines and complementary products including carriers,  semiconductor polishing
templates  and parts,  and is  sometimes  referred  as the  Company's  polishing
supplies segment.

     Carriers

     Carriers are  workholders  where  wafers are nested  during the lapping and
polishing processes. Carriers are produced for the Company's line of lapping and
polishing machines as well as for competitors' systems. Substantially all of the
carriers are customized for specific  applications.  The Company produces custom
carriers in a variety of sizes,  configurations and materials. A significant and
expanding  category of the Company's  steel  carriers  contain  plastic  inserts
molded  into  the  work-holes  of the  carrier  and are  referred  to as  insert

                                       7
<PAGE>
carriers.  Although  standard steel carriers are preferred in many  applications
because of their durability, rigidity and precise dimensions, they are typically
not  suited  for   applications   involving   softer  materials  or  when  metal
contamination  is an issue.  Insert  carriers  provide the  advantages  of steel
carriers  while  reducing  the  potential  for damage to the edges of  sensitive
materials such as large semiconductor wafers.

     Semiconductor Polishing Templates

     The Company's  single-sided  polishing templates are used to polish silicon
wafers.  Since the Company does not manufacture  surface processing machines for
single-sided  applications,   templates  are  designed  to  work  with  machines
manufactured by other suppliers in this market segment.  Polishing templates are
customized  for  specific   applications   and  are   manufactured  to  exacting
tolerances.

     Double-sided Planetary Lapping and Polishing Machines

     Double-sided  lapping and  polishing  machines are designed to process thin
and fragile products such as  semiconductor  silicon wafers,  precision  optics,
computer disk media and ceramic components for wireless communication devices to
exact tolerances of thickness, flatness, parallelism and surface finish.

     The lapping  machines  process parts using an abrasive slurry and cast iron
plates.  The material to be processed is positioned in carriers  (work-holders),
which are 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  workpiece.  Dimensional  tolerances,  surface
finish, quantity of material to be removed along with production rates required,
and cost of operation are the primary  variables  considered in determining  the
best process for a specific application.

     The polishing  machines are similar to the lapping  machines.  Polishing is
achieved  by  using a finer  free  abrasive  slurry  and  plates  equipped  with
polishing  pad  material.   The  polishing   process  is  used  to  improve  the
characteristics of the surfaces of silicon wafers and similar materials.

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

DOUBLE-SIDED LAPPING AND POLISHING MACHINES

Model   Year Introduced                          Markets
-----   ---------------   ------------------------------------------------------
PR-1          1938        Quartz
PR-2          1940        Quartz
1500          1990        Quartz, ceramics, medical
1900          1992        Ceramics, optics, computer disks
3100          1995        Computer disks, optics, metal working, ceramics
4800          1981        Silicon semiconductor, optics, metal working, ceramics

     On average,  the Company's surface processing systems are priced lower than
competing systems offered by the Company's competitors.

     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. Therefore, the
Company  produces a wide assortment of plates,  gears,  parts and wear items for

                                       8
<PAGE>
its own machines as well as for machines  manufactured  by its  competitors.  In
addition to producing standard  off-the-shelf parts, the Company has the ability
to produce highly customized parts.

PROPOSED NEW PRODUCTS

     During fiscal 1999, the Company began  investigating  an alternative to the
energy  sources  currently  used in  ashing  processes.  Ashers  are used by the
semiconductor industry to remove photoresist materials from silicon wafers after
each lithography  step.  Plasma is the most common energy source used in current
ashers. While stripping the photoresist material from the wafers,  plasma causes
damage to the silicon  substrate,  which the  industry  does not believe will be
acceptable as the  line-width of the circuitry is reduced in future  generations
of leading-edge semiconductors.  In November 1999, the Company announced that it
had reached an agreement with PSK Tech Inc. regarding the joint development of a
new  ashing  machine,  using  Amtech's  damage-free  ashing  technology  (a "New
Asher").  Amtech and PSK Tech believe that, if  successful,  the New Asher under
development  will be damage free and thus will  receive  strong  demand from the
high-end semiconductor manufacturers.  Ashing equipment manufactured by PSK Tech
is  currently  being  selected  almost  exclusively  by two of the  world's  top
semiconductor  memory  chip  producers  for their  ashing  processes.  PSK Tech,
located  near Seoul,  South  Korea,  is publicly  owned and listed on the Korean
stock market.

     The joint product development  agreement with PSK Tech provides that Amtech
will provide its patent pending,  damage-free ashing technology and know-how and
PSK Tech will provide its expertise in the design and  manufacture of ashers and
asher  processes.  The two companies will jointly own any resulting  technology.
Under the agreement,  Amtech will have exclusive selling and marketing rights to
the  resulting  New Asher for all of North  America and Europe and PSK Tech will
have exclusive  selling and marketing  rights for all of Asia.  Each company has
agreed to pay to the other a license fee of between two and five percent (2%-5%)
of its New  Asher  sales.  Amtech  has also  agreed  to sell the  energy  source
assemblies to PSK Tech for PSK's New Asher sales into Asia. Amtech will purchase
from PSK Tech ashers without the energy source assembly, for the platform of its
New Asher to be sold in the United States and Europe.  The assemblies  that each
company  sells to the other will be at a price to be mutually  agreed upon,  but
shall not exceed  1.334 times its cost of  manufacturing.  Development  work has
begun on a prototype for the New Asher.  The Company is reviewing the results of
the  feasibility  work  on the new  200mm  technology  asher  with  PSK  Tech to
determine the next step and each partner's  contribution to the related cost. If
the next step is to develop a prototype of a 200mm or 300mm asher, the Company's
contribution to the project could cause its research and development expenses to
increase significantly.

MANUFACTURING AND SUPPLIERS

     The Company  assembles  its  equipment  and  systems  from  components  and
fabricated parts manufactured and supplied by others, including quartz and metal
components. Certain parts are fabricated in the Company's machine shops. Many of
the  items   purchased  from  suppliers  are   manufactured   to  the  Company's
specifications.   The  Company  designs  some  of  its  products  to  customers'
specification or to meet customers' process requirements. All final assembly and
system  tests  are  performed   within  the   Company's   manufacturing/assembly
facilities.  Quality  control  is  maintained  through  incoming  inspection  of
materials and  components,  in-process  inspection  during  equipment  assembly,
testing of assemblies and final inspection and,  generally in regard to its IBAL
automation products,  operation of manufactured equipment prior to shipment. The
Company's  Processing/Robotic product line is manufactured at its Tempe, Arizona
plant.  In December 2000, the Company  expanded by 74% the square footage of its
leased  office  and  manufacturing  space in Tempe in order to  accommodate  the
increased demand for its products.

                                       9
<PAGE>
     The Company conducts similar engineering,  purchasing and assembly and test
operations  in the  manufacture  of its diffusion  furnaces in The  Netherlands.
Initially,  these operations were conducted in rented  facilities.  In 1996, the
Company  acquired a modern,  high-tech  manufacturing  facility  in Heerde,  The
Netherlands,  for its  European  operations,  and  moved  its  Tempress  Systems
operations into this new facility. During fiscal 2000, the Company began renting
additional  manufacturing space for the production of its diffusion furnaces due
to increased demand from manufacturers of optical components.

     The Company's  polishing  supplies segment  operations are conducted in its
Carlisle,  Pennsylvania  plant.  The  Products  produced  by  this  segment  are
generally  designed to 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.  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.

ORDER BACKLOG

     As of November 30, 2001,  the  Company's  order  backlog for  semiconductor
equipment  was  approximately  $9.1  million,  compared to  approximately  $15.9
million at the same date in the  previous  year.  The  Company  includes  in its
backlog all credit approved customer  purchase orders.  Pursuant to SAB 101, the
Company has deferred $4.5 million of revenue, which net of related deferred cost
resulted in deferred  profit of $1.8  million.  Depending  on whether or not the
amount of that  deferred  revenue  that was  realized  in the two  months  ended
November 30, 2001, exceeded the amount of revenue that was deferred on shipments
during that period,  the Company may have had as much as $13.6 million of future
revenue under contract as of that date. Orders in the backlog may be canceled by
the  customer,  generally  upon  payment  of  mutually  acceptable  cancellation
charges.  Substantially all of these orders are currently scheduled for shipment
in fiscal  2002.  Two  customers  representing  18.6% of the  November  30, 2001
backlog  have  opened  discussions  regarding  the  cancellation  of the  orders
currently in the backlog.  Because of possible order  cancellations  or customer
requested  delays in shipment  the  backlog  might not be a valid  indicator  of
revenue in future periods. In addition, a backlog does not provide any assurance
that the Company  will  realize a profit from those  orders or indicate in which
period revenue will be recognized.

RESEARCH, DEVELOPMENT AND ENGINEERING

     The markets served by the Company are  characterized  by evolving  industry
standards and rapid technological change. To compete effectively in its markets,
the Company must continually  improve its products and its process  technologies
and develop new technologies and products that compete  effectively on the basis
of price and performance and that adequately address current and future customer
requirements.  The Company's research and development expenditures during fiscal
1999, 2000 and 2001 were approximately $.3 million, $.5 million and $.4 million,
respectively.  Due to the suspension of the  photo-assisted  CVD project and the
general slowdown in the semiconductor industry, the Company reduced its research
and  development   expenditures  during  fiscal  1999.  With  the  research  and
development  work  on  a  new  technology  asher,  the  Company  increased  such
expenditures in fiscal 2000 and fiscal 2001.

     The Company presently employs at its Tempe, Arizona plant, three engineers,
including  one  with a  Ph.D.  and  one  in  the  sales  department,  and  eight
technicians.  The Company presently employs six engineers, one with a Ph.D., and
twelve  technicians in its Netherlands  operation.  These  employees  design and
support the  horizontal  diffusion  furnace and conveyor  furnace  product lines
manufactured in The  Netherlands.  Two engineers and one technician are employed
in the Company's  Carlisle,  Pennsylvania  operation.  They design wafer lapping
machines and carriers to meet the customers' processing requirements.

                                       10
<PAGE>
     Historically,  the  Company's  product  development  has been  accomplished
through  cooperative  efforts  with two key  customers.  While  there  can be no
assurance  that  such  relationships  will  continue  or  that  others  will  be
developed, such cooperative efforts are expected to continue to be a significant
element in the Company's future development  projects.  Although PSK Tech is not
currently a customer, the joint New Asher development project is another example
of the  type of  research  and  development  cooperation  the  Company  tries to
cultivate.   The  Company's   relationships   in  such  projects  are  generally
substantially  dependent on the personal relations  established by the Company's
President, Mr. Jong S. Whang.

PATENTS

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

     The Company has two United States patents on its photo-assisted CVD method,
the second being an improvement on the first.  In 1998 and 1999, the Company was
granted  patents  on its  IBAL  Cantilever  Trolley  the  second  of which is an
improvement on the first. The Company has filed patent applications for the E300
and S-300 IBAL systems, which are pending approval.

     The cantilever itself, load stations,  the diffusion furnaces,  lapping and
polishing machines,  semiconductor polishing templates, and carriers, except for
insert  carriers  manufactured  under a license with the patent holder,  are not
protected by patents.

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

<TABLE>
<CAPTION>
                                                                              EXPIRATION DATE OR
     PRODUCT                         COUNTRY                                  PENDING APPROVAL
     -------                         -------                                  ----------------
<S>                                  <C>                                      <C>
     Atmoscan(R)                     United States                            July 2, 2002
     Atmoscan(R)                     United States                            August 30, 2005
     Atmoscan(R)                     United States                            September 24, 2002
     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, France, Germany, The
                                     Netherlands, Italy, United Kingdom       Pending Approval
     IBAL Model E-300                United States                            Pending Approval
</TABLE>

     The Company's  ability to compete may be enhanced by its ability to protect
its proprietary  information,  including the issuance of patents and trademarks.
While no  intellectual  property  right of the Company has been  invalidated  or
declared  unenforceable to date, there can be no assurance that such rights will
be upheld in the future.  There can be no assurance that in the future products,
processes  or  technologies  owned by others,  necessary  to the  conduct of the
Company's  business,  can be  licensed on  commercially  reasonable  terms.  Our
inability to obtain such licensing  rights could have a material  adverse effect
on our results of operations or financial condition.

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

SALES AND MARKETING

     The market for the Company's  semiconductor equipment product line consists
of  semiconductor  manufacturers  in the United States,  Korea,  Western Europe,
Taiwan,  Japan,  India,  Australia and the People's  Republic of China,  optical
component  manufacturers  in the United Kingdom and United States and solar cell
manufacturers in Spain and India. This market is comprised of two major types of
customers,  those who are installing new semiconductor  manufacturing facilities
and  customers who wish to install new  equipment  systems or upgrade  equipment
already in use in existing  facilities.  The Company's products are sold to meet
both of those  customer  situations.  The Company has  increased  and intends to
continue  to increase  its share of the market for  semiconductor  equipment  by
expanding sales of horizontal diffusion furnaces  manufactured by the Company in
its Netherlands  facility and increasing its sales,  marketing and manufacturing
capabilities  in Europe.  This plan has and is expected to increase  revenue not
only through added sales of horizontal furnaces or Processing/Robotic  products,
but also by making each of the products  more  competitive  by offering  them as
part of a broader  complement of diffusion  products with greater  capabilities.
For  example,  the Company  expects to  generate  increased  sales of  diffusion
furnaces by offering them  together  with  Atmoscan(R)  and IBAL  products.  One
element of this  strategy is to sell these  products  under the  Amtech/Tempress
name,  where  appropriate.  The Company  also  expects to obtain  orders for its
horizontal  diffusion  furnaces  from  former  Tempress,  B.V.  customers.   The
Company's diffusion furnaces have not captured a significant share of the market
in the United States,  one of the largest markets for such  equipment.  However,
orders from optical component  manufacturers based in the United States and to a
limited  extent  other  components  of that  market  have  helped  increase  the
Company's  share of that  market  in fiscal  2001.  European  optical  component
manufacturers  with  requirements  for  diffusion  furnaces  are  currently  the
Company's  largest  single source of new orders.  Based upon the order  backlog,
which is not  necessarily a good  indicator of future sales,  Amtech's  sales to
optical  component  manufacturers  worldwide grew from 6% in fiscal 2000 to more
than 36% of  consolidated  revenues in fiscal  2001.  While we expect sales into
this market to decline in fiscal 2002 because the optical  component  market and
the telecom industry it serves are having  significant  financial  difficulties,
this  market  is  projected  to again  make a  significant  contribution  to the
Company's revenue starting in fiscal 2003.

     The Company has historically  marketed its polishing  supplies and machines
and  related  parts to  manufacturers  of silicon  wafers for the  semiconductor
industry,  products that have optical  components but are not related to telecom
industry,  disk media for the  computer  industry,  and ceramic  components  for
wireless  communication  products.  The Company also sells diffusion furnace and
processing/robotic  products to some of these customers,  as it did prior to the
P.R.  Hoffman  acquisition.  Further,  the Company believes the process of sales
lead  generation  will be enhanced  by the sharing of leads among its  increased
number  of  product  lines,   including  those  acquired  in  the  P.R.  Hoffman
acquisition transaction.

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

                                       12
<PAGE>
     The Company markets its products by direct customer contact through Company
sales  personnel,  which  consists of eight persons based in the United  States,
including the President,  three other outside  salespersons  and an inside sales
and  marketing  staff of four  persons.  The  Company  employs  seven  sales and
marketing  personnel in The  Netherlands.  The Company also markets its products
through   a  network   of   domestic   and   international   independent   sales
representatives  and  distributors.  The Company's  promotional  activities have
consisted of direct sales contacts,  an internet  website,  advertising in trade
magazines  and  the  distribution  of  product   brochures.   The  Company  also
participates in trade shows, including Semicon West, Semicon Europa, Diskcon and
one large  optics show each year.  The  Company is  primarily  dependent  on its
President, Jong S. Whang, for its sales and marketing activities in Asia and its
sales are enhanced by his active  involvement with the accounts of certain other
key customers.

     During fiscal 2001, one customer  accounted for 10% or more of sales. For a
more  complete  analysis of  significant  customers,  see Note 8 of the Notes to
Consolidated Financial Statements included herein (the "Financial Statements").

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

COMPETITION

     Products  competitive  with the Company's load stations are sold by several
well-established  firms larger than the Company. The Company is not aware of any
significant product that directly competes with the Atmoscan(R);  however, there
are  several   processing   systems  and  various   configurations  of  existing
manufacturing products that provide advantages similar to those that the Company
believes   the   Atmoscan(R)    provides   to    semiconductor    manufacturers.
Notwithstanding this competition, the Company believes that Atmoscan(R) provides
better  results in terms of more uniform  wafer  temperature  and  dispersion of
heated  gases in the  semiconductor  manufacturing  process,  less  exposure  of
semiconductor  wafers to  contaminants,  and other  technical  advantages  which
afford to its users a higher yield and, therefore,  a lower per item cost in the
manufacture  of  semiconductors.  While the industry  trend is toward the use of
vertical diffusion furnaces (with which Atmoscan(R) is not useable), the Company
believes  that a number of customers  are and will continue to be willing to buy
Atmoscan(R)  units  and  horizontal  diffusion  furnaces  because  for  all  but
production  runs of smaller  geometry chips on larger wafers,  there is a higher
productivity  with  horizontal  furnaces  and because many  applications  do not
involve the  processing of smaller  devices on larger silicon wafers and thus do
not require the much more expensive vertical furnaces.

     The Company is aware of several  products  in the market  that  perform the
same or similar  functions as the IBAL  automation  product line.  However,  the
Company  does not know of any  similar  products  that are  capable  of  loading
Atmoscan(R) systems, a competitive advantage of the IBAL automation. The Company
believes that the IBAL automation  products  require less of the expensive clean
room floor space,  are generally less expensive and easier to operate than those
of the  competition.  The Company's two new models of automation,  the S-300 and
E-300,  introduced  during  fiscal 2000,  are believed to benefit even more from

                                       13
<PAGE>
these competitive advantages. The target market for our IBAL automation products
includes  those  customers  who do not  require the  sophistication  of the more
complex  competing  systems  or do  not  have  or are  not  willing  to  provide
additional  clean room  space.  Load  stations  are sold to  customers  that are
purchasing  Tempress(R)  furnaces,  upgrading their existing  diffusion  furnace
equipment or as part of a larger equipment package to customers  starting-up new
or expanding  existing  facilities.  Certain  models of load stations  provide a
cleaner environment than those they replace and the higher-end models can reduce
the   down-time   for   the   upgrade   or   installation   of   the   Company's
Processing/Robotic  products,  since they are  specifically  designed  to accept
those automation products without further modification. Several well-established
firms,  larger than the Company,  sell products  competitive  with the Company's
load  station.  The  cantilever  paddle system is designed for easy assembly and
disassembly to minimize downtime during  maintenance.  The Company has generally
sold its horizontal  diffusion  furnaces to customers who purchase them in small
quantities.  While it is expected  that sales of these  diffusion  furnaces will
most likely continue to be sold in small quantities,  the Company skipped 10% of
these large systems to 3 customers, in quantities of 2 to 5 systems each, during
fiscal 2001.  Amtech intends to maintain or improve its competitive  position by
its  willingness  to design  products to meet the  customer's  specific  process
requirements,  providing  competitive prices and product support services levels
and  targeting  customers  with  significant  numbers  of  Tempress(R)  furnaces
manufactured by the former Tempress B.V.

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

EMPLOYEES

     At September 30, 2001, the Company employed 111 people (including corporate
officers): 64 in manufacturing,  21 in engineering,  11 in administration and 15
in sales. Of these employees,  24 are based at the Company's  corporate  offices
and  manufacturing   facility  in  Tempe,   Arizona,  31  are  employed  at  its
manufacturing plant in Carlisle, Pennsylvania, 44 at its facility in Heerde, The
Netherlands,  and  12 in  the  Company's  contract  semiconductor  manufacturing
support services business located in Austin, Texas. Of the 31 people employed at
the Company's Carlisle,  Pennsylvania facility, 19 are represented by the United
Auto  Workers  Union - Local  1443.  The Company  has never  experienced  a work
stoppage or strike. The Company considers its employee relations to be good.

                                       14
<PAGE>
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

     The  following  table  shows the  amounts  of revenue  attributable  to the
Company's  foreign sales for the past three fiscal years (the sales to customers
in the United  States are included in the table for  comparison  purposes).  All
revenues shown in the table represent sales to customers not affiliated with the
Company.

<TABLE>
<CAPTION>
                        2001 (1)                  2000                    1999
                  -------------------     --------------------     -------------------
<S>               <C>             <C>     <C>              <C>     <C>             <C>
United States     $12,176,000     53%     $11,522,000      60%     $ 8,669,000     59%
Canada                431,000      2           93,000       1           59,000      0
Asia (2)            1,742,000      8        3,581,000      19          754,000      5
Europe (3)          8,505,000     37        3,781,000      20        4,216,000     29
Australia              46,000      0           50,000       0        1,068,000      7
                  -----------    ---      -----------     ---      -----------    ---
TOTAL             $22,900,000    100%     $19,027,000     100%     $14,766,000    100%
                  ===========    ===      ===========     ===      ===========    ===
</TABLE>

(1)  Effective  October 1, 2000,  the Company  changed  its revenue  recognition
     policy.  See Note 2 of the Notes to Consolidated  Financial  Statements and
     the pro forma information contained herein. As revenue is not reported on a
     consistent  basis between years,  certain data contained in this report may
     not be comparable between years.

(2)  Includes Korea,  Singapore,  Taiwan, Japan, the People's Republic of China,
     Hong Kong, Indonesia, India and Malaysia.

(3)  Includes sales in Israel and Africa, which are not material.


     For a further  description  of  foreign  sales,  see Note 8 of the Notes to
Consolidated Financial Statements included herein.

ITEM 2. PROPERTIES

     The Company's  semiconductor  equipment  business and corporate offices are
located in 15,700 square feet of office and manufacturing space at its principal
address. These facilities are leased at a current rate of $8,096 per month, on a
triple net basis, for a term to expire on August 31, 2003. Manufacturing support
services are performed in customer facilities.

     The  Company  owns a 9,900  square  foot  building  located in Heerde,  The
Netherlands.  The  Company  also  leases an  additional  10,000  square  feet of
manufacturing space in the area of the Heerde plant. These facilities are leased
at a current rate of  approximately  $910 per month, for varying terms, the last
of which expires on August 1, 2006.  The Company has begun  searching for larger
alternative  facilities in The Netherlands,  so that its Dutch operations can be
combined into a single location.

     The Company  leases a 21,740  square  foot  building  located in  Carlisle,
Pennsylvania  from John R.  Krieger,  the former owner of that  business.  These
facilities  are leased at a current  rate of $10,700 per month,  on a triple net

                                       15
<PAGE>
basis,  for a term that expires on June 30, 2004.  The Company has the option to
renew the lease for five successive terms of one year each.

     The Company  considers the above  facilities  suitable and adequate to meet
its current requirements.

ITEM 3. LEGAL PROCEEDINGS

     On or about August 31, 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,  the  owner  of a  landfill  allegedly  found to be
contaminated.  No  detailed  allegations  have been  filed as part of this legal
action,  which  appears to have been filed to preserve  the right to file claims
for  contribution  to the clean-up of the landfill at a later date.  The Company
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 the Company's
acquisition. Therefore, the Company believes that the named company is the prior
owner of the acquired  assets.  Under the terms of the Asset Purchase  Agreement
governing  the  acquisition,  the prior owner,  P.R.  Hoffman  Machine  Products
Corporation,  is  obligated  to  indemnify  the Company for any breaches of P.R.
Hoffman's  representations  and  warranties  in the  Asset  Purchase  Agreement,
including  representations relating to environmental matters. In accordance with
the terms of the Asset Purchase  Agreement,  the Company has provided  notice to
the prior owner of P.R.  Hoffman Machine  Products  Corporation of the Company's
intent to seek  indemnification  from such owner for any  liabilities  resulting
from this legal action. Based on information  available to the Company as of the
date of this report, management believes the Company's costs, if any, to resolve
this matter will not be material to the its results of  operations  or financial
position.

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

     NONE.

                                     PART II

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

MARKET INFORMATION

     The Company's  common  stock,  par value $.01 per share  ("Common  Stock"),
began  trading on The Nasdaq  National  Market(R),  under the symbol  "ASYS," on
April 18, 2001. Prior to that time, the Company's Common Stock was traded on the
Nasdaq SmallCap Market.

     The following  table sets forth the range of the high and low bid price for
the shares of the  Company's  Common Stock for each quarter of fiscal years 2001
and 2000 as reported by the NASDAQ National Market.

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

Fiscal 2001:

     December 31, 2000          $ 15.25                $4.44
     March 31, 2001               12.63                 5.13
     June 30, 2001                14.50                 4.06
     September 30, 2001           10.00                 4.50

                                       16
<PAGE>
Fiscal 2000:

     December 31, 1999           $ 5.75                $1.88
     March 31, 2000                8.00                 3.50
     June 30, 2000                 5.09                 2.00
     September 30, 2000           26.50                 3.72

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

HOLDERS

     As of December 15, 2001,  there were  approximately  1,066  shareholders of
record of the Company's  Common  Stock.  In addition,  there were  approximately
4,250  beneficial  stockholders who held shares in brokerage or other investment
accounts as of that date.

DIVIDENDS

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

ITEM 6. SELECTED FINANCIAL DATA

     The  selected  financial  data set  forth  with  respect  to the  Company's
operations  for each of the years in the three year period ended  September  30,
2001 and with respect to the balance  sheets at September  30, 2001 and 2000 are
derived  from  audited  financial  statements  that have been  audited by Arthur
Andersen LLP,  independent public  accountants,  which are included elsewhere in
this Report and are qualified by reference to such  financial  statements.  Data
from the statements of operations for the fiscal years ended  September 30, 1997
and 1996 and the balance  sheet data at September  30,  1998,  1997 and 1996 are
derived from  financial  statements  not  included in this Report.  The selected
financial  data  should  be  read in  conjunction  with  Item  7,  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
the  Company's  financial  statements  (including  the  related  notes  thereto)
contained elsewhere in this Report.

Effective October 1, 2001, the Company changed its revenue  recognition  policy.
See Note 2 in the Notes to Consolidated  Financial  Statements and the pro forma
information  contain  herein.  As revenue is not reported on a consistent  basis
between  years,  certain  data  contained  in this report may not be  comparable
between years.

                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED SEPTEMBER 30,
                                   ---------------------------------------------------------------------------
                                      2001 (4)          2000          1999            1998            1997
                                      --------          ----          ----            ----            ----
<S>                                <C>             <C>            <C>             <C>             <C>
OPERATING DATA:
Net revenues                       $ 22,851,920    $ 19,027,446   $ 14,766,075    $ 16,213,904    $ 11,111,142
Operating income (loss)(1)(3)         1,576,572       1,982,280        567,776        (904,334)        215,420
Income (loss) before cumulative
effect of a change in accounting
principle (1)(3)(4)                   1,153,292       1,325,421        362,307        (589,887)        237,709
Cumulative effect of a change in
accounting principle, net of
tax (4)                                (690,211)             --             --              --              --
Net income (loss)(1)(3)(4)         $    463,081    $  1,325,421   $    362,307    $   (589,887)   $    237,709

Net income (loss) per share:
Basic:
Income (loss) before cumulative
effect of a change in accounting
principle (1)(3)(4)                $        .43    $        .56   $        .17    $       (.28)   $        .10
Cumulative effect of a change in
accounting principle, net of
tax (4)                            $       (.26)   $         --   $         --    $         --    $         --
Net income (loss)(1)(3)(4)         $        .17    $        .56   $        .17    $       (.28)   $        .10
Fully diluted:
Income (loss) before cumulative
effect of a change in accounting
principle , a new market for the
Company's product (1)(3)(4)        $        .41    $        .56   $        .17    $       (.28)   $        .10
Cumulative effect of a change in
accounting principle, net of
tax (4)                            $       (.25)   $         --   $         --    $         --    $         --
Net income (loss)(1)(3)(4)         $        .16    $        .56   $        .17    $       (.28)   $        .10

Pro forma amounts with the
change in accounting
principle applied
retroactively (unaudited):
Total revenue (3)(4)(5)            $ 22,851,920    $ 18,908,378   $ 15,678,058    $ 11,794,690              **
Net income (3)(4)(5)               $    463,081    $  1,060,619   $    480,845    $ (1,133,833)             **
Net income per share:
Basic: (4)(5)                      $        .17    $        .49   $        .23    $       (.54)             **
Diluted: (4)(5)                    $        .16    $        .45   $        .22    $       (.54)             **

BALANCE SHEET DATA:
Cash and cash equivalents          $  5,998,120    $  5,784,500   $  1,124,685    $  1,351,542    $  1,975,040
Working capital                      11,502,535      10,933,683      5,374,231       4,993,455       5,271,320
</TABLE>

                                       18
<PAGE>
<TABLE>
<CAPTION>
<S>                                  <C>             <C>             <C>             <C>             <C>
Total assets                         18,570,570      17,483,260      8,744,558       9,325,479       9,355,092
Total current liabilities             4,740,552       4,666,787      1,747,513       2,530,723       2,108,165
Long-term obligations                   246,184         236,590        286,828         347,667         318,721
Retained earnings
(accumulated deficit)                 1,386,544         923,463       (401,958)       (764,265)       (174,378)
Stockholders' equity                 13,583,834      12,579,883      6,710,217       6,447,089       6,928,206
</TABLE>

     (1)  The results for the fiscal years 1998 and 1997  include  approximately
          $170,000  and  $85,000,  respectively,  of  expenses  related  to  the
          photo-assisted  CVD research and development  project suspended at the
          end of fiscal  1998.  In  addition,  in fiscal 1998 the Company took a
          charge of $184,000 for the write-off of certain long-lived assets.

     (2)  The  results  shown  have been  restated  to reflect  the  one-for-two
          reverse split of Common Stock that was effective March 15, 1999.

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

     (4)  The Company  recorded a non-cash  charge of $690,211,  after reduction
          for income tax  benefits of $410,000,  or ($0.26) per basic share,  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."

     (5)  ** Date is not  available  to provide pro forma  information  for this
          year.

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

     The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of  operations  and  financial  condition.  This  discussion  should  be read in
conjunction with the financial  statements and notes thereto set forth elsewhere
herein and the "Forward-Looking Statements" explanation included herein.

     Effective  October 1, 2001,  the Company  changed  its revenue  recognition
policy. See Note 2 in the Notes to Consolidated Financial Statements and the pro
forma  information  contain  herein.  As revenue is not reported on a consistent
basis between years, certain data contained in this report may not be comparable
between years.

STRATEGY FOR EXPANSION AND CAPITAL RESOURCES

RESULTS OF OPERATIONS

     Amtech  designs,  manufactures  and markets  manufacture  and  marketing of
several items of capital equipment,  spare parts and related consumables used in
two  front-end  stages  of  semiconductor   chip   fabrication,   silicon  wafer
manufacturing  and integrated  circuit  fabrication on silicon wafers.  Amtech's
business is  comprised of two  segments,  polishing  supplies and  semiconductor
equipment. The polishing supplies segment sells polishing supplies and polishing
equipment and related parts to manufacturers of silicon wafers, the raw material
used in the manufacture of semiconductor chips, optical components of high-speed
telecom  switches and solar cells.  The  semiconductor  equipment  segment sells
capital  equipment  used in the  fabrication  of  semiconductor  chips,  optical
components  of telecom  switches  and solar  cells.  Some of the products of the

                                       19
<PAGE>
polishing supplies segment,  comprising  approximately 15% of consolidated sales
in fiscal  2001 and 2000,  are also sold for use in the  production  of  optics,
wireless  communications,  memory disk media,  ceramics and other products.  The
semiconductor   equipment   segment   also   provides   contract   semiconductor
manufacturing  support services,  accounting for an estimated 2% of consolidated
sales for the three fiscal years discussed  below. The Company intends to expand
its revenue and operating  profits derived from these two segments,  selling its
existing products into new markets,  e.g.  manufacturers of optical  components,
developing  new models of existing  products to expand market share,  developing
entirely new products  through  research and  development and the acquisition of
businesses or product lines serving our existing customer base.

     Demand for the  Company's  systems  can vary  significantly  from period to
period as a result of various  factors,  including  but not limited to,  general
economic  conditions,  supply  and  demand for  semiconductor  devices,  optical
components and solar cells,  other factors  contributing  to the cycles of those
three industries,  such as capacity utilization,  substantial competition in the
semiconductor  industry among  suppliers of similar  products and our ability to
acquire or develop  and market  competitive  new  products.  For these and other
reasons,  Amtech's  results of operations for fiscal 2001, 2000 and 1999 may not
necessarily be indicative of future operating results.

     The following table sets forth certain  operational data as a percentage of
net revenue for the three fiscal years ended September 30, 2001:

                                                  Fiscal Years Ended
                                                     September 30,
                                           --------------------------------
                                            2001         2000         1999
                                            ----         ----         ----
     Net revenue                           100.0%       100.0%       100.0%
     Cost of product sales                  69.9         65.2         71.8
                                           -----        -----        -----
     Gross margin                           30.1         34.8         28.2

     Selling, general and
       administrative expenses              21.5         21.9         22.6
     Research and development                1.7          2.5          1.8
                                           -----        -----        -----
     Operating profict (loss)                6.9%        10.4%         3.8%
                                           =====        =====        =====

FISCAL 2001 COMPARED TO FISCAL 2000

     REVENUE.  Amtech's  total  revenue for the fiscal year ended  September 30,
2001, was $22.9  million,  compared to $19.0 million in fiscal 2000, an increase
of 20%.  Total  revenue of $22.9 million in fiscal 2001 reflects the adoption of
SAB 101, discussed below in "Change in Accounting Policy." Fiscal 2000 pro forma
revenue, applying SAB 101, was $18.9 million. The increase in revenue for fiscal
2001  compared to fiscal 2000  reflects the strong  demand for our systems which
was driven by large  orders  from  optical  component  manufacturers  secured in
second half of fiscal 2000 and the first  quarter of fiscal  2001,  which either
shipped  or  otherwise  were  recognized  in revenue  in fiscal  2001.  This was
partially offset by a 9% reduction in sales of the polishing  supplies  segment,
reflecting the downturn in the semiconductor industry.

     By  January  2001,  we began to see signs of a  downturn  resulting  from a
slowing economy and a worldwide decline in demand for semiconductors,  resulting
the first  cancellations  of orders for  semiconductor  equipment  systems.  Our
customers have sharply reduced capital  expenditures due to over capacity in the
semiconductor  industry. By March 2001, orders of the polishing supplies segment
began a steep decline, reflecting excess supply inventories and capacity of that
segment's  customers.  The  decline in the  polishing  segment's  order flow has
continued  during  the first  quarter  of fiscal  2002.  These  trends  were not

                                       20
<PAGE>
reflected  fully in our revenue due to the large  equipment  orders from optical
component  manufacturers received in the three quarters ended December 31, 2000.
With the burst of the technology bubble, many of our optical component customers
have had difficulty obtaining additional funding, resulting in a nearly complete
halt in new system orders from that market.  Therefore,  current  outlook is for
lower  shipments in the first half of fiscal 2002,  which will be only partially
offset by the  recognition  of revenue  deferred  from  fiscal  2001,  under the
accounting  principle for revenue recognition adopted in fiscal 2001,  discussed
below in "Change in Accounting Policy."

     GROSS  MARGINS.  Consolidated  gross  margin  for  the  fiscal  year  ended
September 30, 2001, was $6.9 million in fiscal 2001, compared to $6.6 million in
fiscal  2000,  an  increase  of $.3  million,  or 5%.  The  gross  margin of the
semiconductor  equipment  segment  increased 20%, due to increased sales volume.
However,  the gross  margin of the  polishing  supplies  segment  declined  22%,
offsetting   approximately   two-thirds  of  the  increase  contributed  by  the
semiconductor  equipment segment.  As a percentage of revenue,  the consolidated
gross margin was 30% of revenue in fiscal 2001,  compared to 35% in fiscal 2000,
a 5% decline.  The decline in gross margin as a percentage of revenue was caused
by an increase in write-downs of excess or obsolete inventory,  a greater volume
of  sales  through  distributors  that  receive  lower  prices  instead  of  the
commission that is paid on sales through an independent  sales  representatives,
and product mix.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses increased by $.7 million, or 17%, to $4.9 million in
fiscal  2001,  from $4.2  million in fiscal  2000.  The  provision  of  doubtful
accounts  receivable was approximately $.5 million higher in fiscal 2001 than in
fiscal 2000,  primarily due a customer in the optical component  industry filing
for protection  from  creditors  under Chapter 11 of the U.S.  bankruptcy  code,
while owing the Company  approximately $.8 million.  Before the optical customer
filed for  bankruptcy, the  Company had  collected $.8  million of  the original
$1.6  million  sale.  Internal  costs  associated  with  implementing  new  data
processing systems and added staffing to support the increased sales volume also
contributed  to the  increase  in general  and  administrative  costs.  Selling,
general  and   administrative   expenses  as  a   percentage   of  revenue  were
approximately  22% in fiscal 2001 and fiscal  2000.  Except for the  deferral of
revenue pursuant to SAB 101, selling,  general and administrative expenses would
have declined as a percentage of revenue in fiscal 2001 relative to fiscal 2000.

     RESEARCH AND  DEVELOPMENT.  During  fiscal years 2001,  2000 and 1999,  the
Company expended on research and development a total of $.4 million, $.5 million
and $.3 million,  respectively.  During fiscal 2001 and fiscal 2000, the primary
research  and  development  projects  have  included  the  development  of a new
technology  asher  pursuant to a joint product  development  agreement  with PSK
Tech.  Another major area has been the  development of new automation  models in
order to better serve a larger  spectrum of the market for horizontal  diffusion
furnace  automation.  This resulted in the introduction of two new models during
fiscal 2000,  which were the S-300 and E-300  models.  The Company is continuing
work that began in the first half of fiscal  2001 to provide  full  cassette  to
cassette  functionality  as an option on the S-300 product,  and to develop a 12
inch (300mm) version of the S-300.  During fiscal 2001, we also continued making
improvements to the horizontal  diffusion furnace product line,  including those
made to the host  controller  system.  The cause for the decline in research and
development  costs in fiscal  2001  compared  to fiscal 2000 is that most of our
equipment  contribution  to the  initial  stage of the joint  asher  development
project were made in fiscal 2000,  causing such hard costs to be lower in fiscal
2001.  The Company is reviewing the results of the  feasibility  work on the new
200mm  technology  asher  with PSK  Tech to  determine  the  next  step and each
partner's  contribution  to the related  cost.  If the next step is to develop a
prototype of a 200mm or 300mm asher, using Amtech's damage free technology,  the
Company's  contribution  to the project could cause its research and development
expenses to increase significantly.

                                       21
<PAGE>
     OPERATING INCOME. For fiscal year 2001,  operating income was $1.6 million,
or 6.9% of  revenue,  compared  to $2.0  million,  or 10.4% of revenue in fiscal
2000.  The reason  operating  income  declined  in  fiscal  2001  is primarily a
$.5 million increase in bad debt expense resulting from credit losses within the
optical  component  market,  a new  market for  the  Company's  products,  and a
$.3 million  increase in charges for obsolete and excess  inventories  caused by
order cancellations.

     INTEREST  INCOME-NET.  Net interest  income was $.2 million in fiscal 2001,
compared to $.1 million in fiscal 2000.  The increase in interest  income is the
result of a higher  average cash balance in fiscal  2001,  primarily  due to the
private placement in September 2001.

     INCOME TAX PROVISION.  During fiscal 2001,  the Company  recorded an income
tax  provision  of $.7  million,  which  was 36.7% of  income  before  taxes and
cumulative effect of the change in accounting  principle.  For fiscal year 2000,
we recorded an income tax  provision of $.8  million,  which was 36.1% of income
before taxes.  The fiscal 2000 rate  reflected the benefit of a reduction in the
valuation  allowance on deferred  state tax assets,  as realization of state net
operating  losses  became  relatively  certain in fiscal 2000.  At September 30,
2001,  we  had  deferred  tax  assets  arising  from  non-deductible   temporary
differences  of $1.5 million.  Approximately  42% of the tax assets results from
the deferred profit related to the adoption of SAB 101, and which is expected to
reverse in fiscal  2002.  Realization  of the  majority of the net  deferred tax
assets is dependent on our ability to generate future taxable income. We believe
that it is more  likely  than not  that the  assets  will be  realized  based on
forecasted  income.  However,  there can be no  assurance  that we will meet our
expectations  of future income.  We will continue to evaluate the probability of
realizing the deferred tax assets and assess the need for  additional  valuation
allowance.

     NET  INCOME.  Net  income  in  fiscal  2001  was  $.5  million,  after  the
$.7 million  charge for the  cumulative  effect of adopting SAB 101, or $.16 per
diluted share. Net income for fiscal 2000 was $1.3 million,  or $.56 per diluted
share.  Fiscal  2001  pro  forma  net  income,  retroactively  applying  SAB 101
effective October 1, 1998, was $1.2 million, or $.41 per diluted share, compared
to pro forma net income in Fiscal 2000 of $1.1 million,  or $.45 per share.  The
pro forma net income  appropriately  provides the same  accounting  treatment to
revenue recognition in both fiscal years, and is more reflective of the trend of
the past two fiscal years.

CHANGE IN ACCOUNTING PRINCIPLE

     REVENUE RECOGNITION.  During its fourth fiscal quarter, the Company changed
its revenue recognition policy retroactive to October 1, 2000, based on guidance
provided in Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial  Statements." The Company
recognizes  revenue when  persuasive  evidence of an arrangement  exists;  title
transfers,  generally upon shipment or services have been rendered; the seller's
price is fixed or determinable and collectibility is reasonably assured. Certain
of  the  Company's   product   sales  are  accounted  for  as   multiple-element
arrangements.  For the semiconductor  equipment segment,  if the Company has met
defined  customer  specifications  with  similarly  situated  customers  and the
specific  equipment  and  process  involved,  the Company  recognizes  equipment
revenue upon shipment and transfer of title,  with the remainder when it becomes
due,  generally upon acceptance.  Product sales that are shipped but do not meet
these criteria are deferred and recognized upon customer acceptance.

     Equipment sold by the polishing  supplies  segment does not involve process
guarantees  or  acceptance  criteria,  so the related  revenue is recorded  upon
shipment. For all segments,  sales of spare parts and consumables are recognized

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<PAGE>
upon  shipment.  Service  revenues are  recognized  as services  are  performed.
Revenue  related to service  contracts is  recognized  upon  performance  of the
services requested by the customer.

     In  accordance  with guidance  provided in SAB 101, the Company  recorded a
non-cash charge of $690,211 (after  reduction for income taxes of $410,000),  or
($0.26) per basic  share,  to reflect the  cumulative  effect of the  accounting
change as of the beginning of the 2001 fiscal year.

     The  deferred  profit  balance  as of the  beginning  of  fiscal  2001  was
$1,125,211.  This amount  includes  both revenue and cost of sales for equipment
that was shipped and  previously  recorded as sales but had not been accepted or
did not qualify for multiple-element accounting as of September 30, 2000. Of the
$1,125,211 in deferred  profit as of the beginning of fiscal 2001,  $936,994 was
recognized  in  2001.  The  pro  forma  amounts  presented  on the  consolidated
statements of operations  were  calculated  assuming the  accounting  change was
retroactively adopted as of October 1, 1998.

     Prior to fiscal  2001,  the  Company's  revenue  recognition  policy was to
recognize  revenue and accrue the estimated  installation  costs at the time the
customer  took title to the product,  generally at the time of shipment  because
the Company  routinely met its installation  obligations and installation  costs
represented a small percentage of total costs (approximately 3% - 5%.)

FISCAL 2000 COMPARED TO FISCAL 1999

     REVENUES.  Consolidated  revenues  were $19.0  million in fiscal  2000,  an
increase of $4.3 million, or 29%, compared to $14.8 million in fiscal 1999. This
is a record for the Company's current  businesses.  The increase in consolidated
revenues in fiscal 2000 was due primarily to increased  capital spending and the
higher  operating  levels by the  semiconductor  industry,  which benefited both
operating segments. Revenues of the semiconductor equipment segment increased by
$2.0  million,  or 23%,  to $10.9  million in fiscal  2000 from $8.9  million in
fiscal 1999. The higher revenues of the semiconductor equipment segment resulted
primarily from revenue growth from the sale of IBAL automation products.  During
fiscal years 2000 and 1999, revenues of the polishing supplies segment were $8.2
million and $5.9 million,  respectively,  an increase of $2.3  million,  or 38%.
Revenues for the fourth quarter ended September 30, 2000 were $5.9 million,  35%
higher than in the fourth  quarter of the previous  fiscal year and a record for
quarterly  revenues.  The first  shipments of the more than $8 million in orders
from  optical   component   manufacturers,   a  new  market  for  the  Company's
semiconductor equipment segment, occurred in the fourth quarter, contributing to
the record revenues for the quarter and fiscal year.

     GROSS MARGINS. Consolidated gross margin was $6.6 million in fiscal 2000 or
$2.5  million,  or 59%,  higher  compared to the gross margin of $4.2 million in
fiscal 1999. As a percentage of sales, the consolidated  gross margin was 35% of
sales in fiscal 2000,  compared to 28% in fiscal 1999,  which is attributable to
improved  profitability  of both  segments,  as discussed  below.  Approximately
one-half of the 59% increase in gross margin  resulted  from the 29% increase in
revenue discussed above.

     While the  semiconductor  equipment segment accounted for 47% of the higher
consolidated  revenues, it contributed 59% of the increase in consolidated gross
margin.  The gross margin of the  semiconductor  segment increased by 54% on 23%
higher  revenues,   primarily  due  to  an  improved   product  mix,   increased
efficiencies and less intense price  competition.  As a result of those factors,
gross margin as a percentage of semiconductor  equipment product sales increased
to 38% in fiscal 2000, from 30% in fiscal 1999.

     The gross margin of the polishing supplies segment was 68% higher in fiscal
2000, compared to the previous year,  partially due to the 38% increase in sales
volume.  The rest of the increase in revenue  resulted from improved margin as a

                                       23
<PAGE>
percentage  of  revenue.  The  gross  margin  as a  percentage  of sales for the
polishing  supplies segment  increased to 31% in fiscal 2000, from 25% in fiscal
1999,  primarily  as a result of lower unit costs of materials  and  subcontract
costs,  improved labor  efficiencies and a more favorable product mix. The lower
material costs is partially due to a change in suppliers.  However,  much of the
unit cost reductions are attributable to larger orders and the cost efficiencies
from longer production runs, which reduces the cost of scrap and set-ups.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses increased by $.8 million, or 25%, to $4.1 million in
fiscal  2000,  from $3.3  million  in fiscal  1999.  The  selling,  general  and
administrative  expenses  attributable to the  semiconductor  equipment  segment
increased  $.5 million as a result of a 29%  increase in  personnel  costs and a
113% increase in commission and royalty expense, which was partially offset by a
1% decrease in other expenses. The selling,  general and administrative expenses
attributable to the polishing supplies segment increased $.3 million as a result
of the 114% increase in commissions and royalties on the increased sales volume,
and  higher  sales  personnel  costs  arising  from  additions  to the sales and
marketing staff.  Commission expense varies based upon the geographic regions in
which the sales  occur,  as some  sales  represent  direct  sales and others are
through sales representatives. Since the rate of growth in consolidated revenues
exceeded   the  rate  of  increase   in   consolidated   selling,   general  and
administrative  costs in fiscal 2000, the total of these expenses decreased as a
percentage  of  consolidated  revenues  to 22% in fiscal 2000 from 23% in fiscal
1999.

     OPERATING  PROFIT.  The  semiconductor  equipment  industry  continued  its
cyclical  recovery  in  fiscal  2000.  As a result  of this  recovery,  customer
acceptance of the Company's new product  offerings,  and other factors discussed
above, the Company earned $2.0 million operating profit in fiscal 2000, compared
to an operating  profit of $.5 million in fiscal 1999, an increase of 249%. Both
segments  contributed  nearly equally to consolidated  operating  profit in both
fiscal years.  For the  semiconductor  equipment  segment  operating profit as a
percentage of revenue  increased to 9% from 3% in the prior fiscal year. For the
polishing supplies segment operating profit as a percentage of revenue increased
to 12% from 5% in the prior year, as a result of the increased  sales volume and
cost reductions discussed above.

     Income before income taxes includes operating income,  discussed above, and
net  interest  income.  Net  interest  income was $.1 million in fiscal 2000 and
fiscal 1999. As a result,  income before income taxes increased to $2.1 million,
or 11% of  consolidated  revenue,  compared to $602,000,  or 4% of  consolidated
revenue, in fiscal 1999.

     NET  INCOME.  The  income tax  provision  is $.8  million  in fiscal  2000,
compared to $.2 million in fiscal 1999. The effective tax rate in fiscal 2000 is
36%,  compared to 40% in fiscal 1999.  In both years the  effective  tax rate is
higher than the 34%  statutory  rate  primarily due to the  differences  between
income for  financial  reporting  and  taxable  income and in fiscal  1999,  the
provision  for state income  taxes.  The reason for the decline in the effective
tax rate in fiscal 2000 is that the Company  reversed the $.1 million  valuation
allowance for deferred state income taxes in the fourth quarter,  based upon its
belief that it is more likely than not that those  deferred  tax  benefits  will
ultimately  be  realized.   After  taking  into  consideration  the  income  tax
provision,  the fiscal  2000 net  income is $1.3  million,  or $.56 per  diluted
share, compared to $.4 million, or $.17 per share, in fiscal 1999.

LIQUIDITY AND CAPITAL RESOURCES

     As of  September  30,  2001  and  2000,  cash  and  cash  equivalents  were
$6.0 million and $5.8  million,  respectively.  The fiscal 2001 increase in cash
and cash  equivalents of $.2 million was primarily  attributable to the net cash
provided by operating activities of $.4 million and $.4 million of cash provided
by the exercise of warrants and stock options,  which were  partially  offset by
$.7 million  invested  in  property,  plant and  equipment,  including  new data
processing hardware and software that is currently being implemented.

                                       24
<PAGE>
     The $.4 million of net cash provided by operating  activities  included net
income,  the  add  back of $1.4  million  of  non-cash  charges,  including  the
cumulative  effect of the change in  accounting  principle  ($.7  million),  the
provisions for the  write-off  of  inventory  and  doubtful accounts  receivable
($.7 million) and depreciation and amortization ($.4 million), less the non-cash
deferred tax benefit of $.5 million. Other significant items that contributed to
the positive cash flow from operating  activities were the reduction of accounts
receivable  ($.8 million) and the increase of deferred  profit and other accrued
liabilities of $.7 million.  These items were only partially  offset by cash use
reflected  in   the  increased  investment  in  gross   inventories  before  the
$.3 million  increase in the  allowance  for  obsolescence  ($.9  million),  the
reductions  in  accounts  payable  ($1.3   million)  and  income  taxes  payable
($.5 million).

     The  Company's  ratio of  inventories  to  operating  levels is expected to
remain above its historic norms due to order  cancellations  and the deferral of
orders by customers.  While there can be no assurance,  the reserve for obsolete
inventory  is expected to  sufficiently  cover  potential  losses on obsolete or
excess inventories.

     Working  capital at  September 30,  2001 was $11.5  million, an increase of
$.6 million,  compared to the $10.9 million of working  capital at September 30,
2000. The ratio of current assets to current  liabilities  increased to 3.4 from
3.3, as of those same dates.  Cash and cash equivalents  comprise 32.3% of total
assets and stockholders'  equity accounts for 73.1% of total assets at September
30,  2001.  These are  measures of financial  condition,  such as liquidity  and
financial leverage.

     The  Company  believes  that  it  has  sufficient   liquidity  for  current
operations and for at least certain elements of its growth  strategy,  discussed
elsewhere in this report. One element of that strategy is the development of new
products such as the proposed new technology asher,  discussed above. Another is
the  acquisition  of product lines or businesses  that  complement the companies
existing  business.  The  Company's  currently  available  cash  and  short-term
investments  are  expected to be  sufficient  for existing  operations,  planned
research  and  development  and  possibly  an  acquisition,  depending  on size.
However,   significant   unplanned   development  of  new  products,  or  larger
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 flow from operations.  This expectation is based in part upon the
relatively  high level of equity  compare to total assets and low debt to equity
ratio.  There can be no assurance of the availability or sufficiency of these or
any other source of funding for those purposes.

ADDITIONAL FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

IF  THE  DEMAND  FOR  HORIZONTAL   DIFFUSION  FURNACES  AND  EQUIPMENT  USED  IN
CONJUNCTION WITH SUCH FURNACES DECLINES, WHICH ACCOUNT FOR MORE THAN ONE-HALF OF
CONSOLIDATED  REVENUE, OUR REVENUES MAY DECREASE AND OUR BUSINESS OPERATIONS AND
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.

     The  revenue  of our  semiconductor  production  equipment  segment,  which
accounts  for more than  one-half of  consolidated  revenues,  is  comprised  of
horizontal  diffusion  furnaces and our  Processing/Robotic  product  line.  Our
Processing/Robot   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,  toward  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 not adversely affected us yet
primarily because:

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<PAGE>
     *    we have  received  significant  orders  for our  horizontal  diffusion
          furnaces from optical component manufacturers, a new market for us;

     *    we have experienced  increased demand from  manufacturers  that do not
          require  the  more   expensive   vertical   furnaces,   such  as  from
          manufacturers of wireless  communication  chips and  micro-controllers
          used in a number of consumer applications; and

     *    we believe that because of  improvements  in automation for horizontal
          diffusion  furnaces,  such as our  robotic  product  line,  horizontal
          diffusion furnaces may be becoming a more favorable alternative to the
          vertical furnaces than they previously had been.

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

THE VOLATILITY OF THE SEMICONDUCTOR EQUIPMENT INDUSTRY CAN NEGATIVELY IMPACT OUR
OPERATIONS AND OUR ABILITY TO EFFICIENTLY BUDGET OUR EXPENSES, WHICH CAN HAVE AN
ADVERSE AFFECT ON OUR RESULTS OF OPERATIONS.

     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 semiconductor  industry worldwide.  The timing,  length
and severity of the up-and-down  cycles in the semiconductor  equipment industry
are  difficult  to predict.  For example,  demand for our products  increased in
fiscal 1998 compared to fiscal 1997, but decreased in fiscal 1999,  primarily as
a result of  widespread  economic  difficulties  experienced  in Japan and other
parts of the Asia  Pacific  region.  This  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.  For
example,  during the  fourth  quarter  of fiscal  1998 and the first  quarter of
fiscal 1999, we implemented a cost reduction plan that required  lay-offs within
certain operations.  During a down cycle, we must be in a position to adjust our
cost and expense structure to the prevailing market condition and to continue to
motivate  and retain our key  employees.  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  industry  cycles.  If we fail to  respond  to
industry cycles, our business could be seriously harmed.

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

WE ARE DEPENDENT ON THE ACTIVE PARTICIPATION OF MR. JONG S. WHANG, THE PRESIDENT
AND CHIEF EXECUTIVE OFFICER,  FOR BUSINESS  DEVELOPMENT,  AND IMPORTANT BUSINESS
RELATIONSHIPS,  AND THE LOSS OF HIS  SERVICES  WOULD  MATERIALLY  AND  ADVERSELY
AFFECT OUR BUSINESS AND FUTURE PROSPECTS.

     Amtech is the  beneficiary  of a life  insurance  policy on the life of Mr.
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  relationships  that Mr. Whang has established.  If we were to lose the

                                       26
<PAGE>
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,  are  substantially   dependent  on  the  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 RELY ON KEY PERSONNEL FOR 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 depend to a great extent on the  management  efforts of our officers and
other key  personnel  and on the ability to attract new key personnel and retain
existing key personnel.  Most of our products,  other than the  Atmoscan(R)  and
products  acquired in the P.R.  Hoffman  acquisition,  were developed by our own
personnel. We presently employ three engineers,  including one with a Ph.D., and
one in the sales department,  and eight technicians at our Tempe, Arizona plant.
We presently employ six engineers,  one with a Ph.D., and twelve  technicians in
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  and  one  technician  are  employed  in  our  Carlisle,  Pennsylvania
operation.  They design wafer lapping  machines and carriers to meet  customers'
processing  requirements.  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  operating  results and  financial
condition.

THE TECHNOLOGY WE USE IN OUR PRODUCTS IS CHANGING RAPIDLY AND WE MAY NOT BE ABLE
TO TAKE ADVANTAGE OF THESE CHANGES.

     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 that  successfully
address changing customer needs, win market acceptance of these new products and
manufacture these new products in a timely and  cost-effective  manner. If we do
not develop and  introduce new products and  technologies  in a timely manner in
response to changing market  conditions or customer  requirements,  our business
could  be  seriously  harmed.  In this  environment,  we must  continue  to make
investments in research and  development in order to enhance the performance and
functionality  of our products,  to keep pace with  competitive  products and to
satisfy customer demands for improved  performance,  features and functionality.
There  can be no  assurance  that  revenues  from  future  products  or  product
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
typically  are  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 these 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

                                       27
<PAGE>
seriously harmed if we are unable to sell our products at favorable prices or if
our products are not accepted by the market in which we operate.

OUR CURRENT CAPITALIZATION 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 31, 2001,  there were
2,649,171 shares 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 and preferences 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  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  $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,
which require the Company 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.

WE ARE DEPENDENT ON THE USE OF INTELLECTUAL PROPERTY RIGHTS, WHICH ARE EXPENSIVE
TO OBTAIN,  AND MAINTAIN,  AND WE ARE EXPOSED TO THE RISK THAT THIRD PARTIES MAY
VIOLATE OUR PROPRIETARY RIGHTS OR ACCUSE US OF INFRINGING UPON THEIR PROPRIETARY
RIGHTS,  WHICH  COULD  RESULT IN 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  and  have
additional  pending  patent  applications  relating to some of our  products and
technologies. The process of seeking patent protection is lengthy and expensive,
and we cannot be certain  that  pending  or future  applications  will  actually
result in issued patents, or that, issued patents will be of sufficient scope or
strength to provide meaningful  protection or commercial  advantage to us. Other
companies  and  individuals,  including  our  larger  competitors,  may  develop
technologies that are similar or superior to our technology or design around the
patents we own. 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  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
our employees,  consultants  and third parties.  We also maintain  exclusive and

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<PAGE>
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.

     As is typical in the semiconductor equipment industry, from time to time we
have  received  communications  from other  parties  asserting  the existence of
patent  rights or other  intellectual  property  rights which 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  condition  and results of  operations  could be  materially  and
adversely affected.

OUR  RELIANCE ON SALES TO A FEW MAJOR  CUSTOMERS  AND  GRANTING  CREDIT TO THOSE
CUSTOMER PLACES US AT FINANCIAL RISK.

     As of  September  30,  2001,  receivables  from  customers  in the  optical
component industry  comprised 51% of total receivables,  of which three accounts
comprised 39% of total receivables,  representing a concentration of credit risk
as  defined  by  SFAS  No.  105,  "Disclosure  of  Information  about  Financial
Instruments  with  Off-Balance   Sheet  Risk  and  Financial   Instruments  with
Concentration  of Credit Risk." As of September 30, 2000,  receivables  from two
customers  comprised  40% of  accounts  receivable,  one of  which  was from the
optical  component  industry  and  accounted  for 12% of  total  receivables.  A
concentration of our receivables from such 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 results of operation and financial  condition.  The Company
attempts  to manage  this credit risk by  performing  credit  checks,  requiring
significant partial payments prior to shipment, where appropriate,  and actively
monitoring collections.

     In July 2001, one of these optical component customers filed a petition for
protection  from  creditors  under  Chapter 11 of the U.S.  bankruptcy  code and
provides  an example of possible  problems  caused by  concentrations  of credit
risk. The amount of the sale was $1.6 million. The customer had made payments of
$.8 million  before filing in  bankruptcy  court,  leaving an unpaid  balance of
approximately $.8 million.  Through  increased  reserves the Company has written
down this  receivable  to an  estimated  net  realizable  value of $.3  million.
Although the Company  continues to pursue  collection  and believes  that it can
recover the estimated net realizable value,  there can be no assurance as to the
ultimate outcome.

OUR BUSINESS MIGHT BE ADVERSELY AFFECTED BY OUR DEPENDENCE ON FOREIGN BUSINESS.

     During our most recent fiscal year, ended on September 30, 2001, 47% of our
sales were made to customers outside the United States as follows:

     *    Asia (including Singapore, Indonesia, Malaysia and India) - 8%
     *    Europe (including Israel and Africa) - 37%
     *    Canada - 2%

                                       29
<PAGE>
     Because  of our  significant  dependence  on  international  revenues,  our
operating  results  could be  negatively  affected by a continued or  additional
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.

     Foreign  sales  increased  significantly  in fiscal  2001,  because  of our
expansion of horizontal diffusion business in Europe and as a result of the sale
of such  equipment  to new optical  component  customers  located in Europe.  We
recorded charges of $.1 million and $.2 million to  shareholders'  equity during
Fiscal  2001 and Fiscal  2000,  respectively,  as a result of  foreign  currency
translation  adjustments.  We also had losses from foreign currency transactions
of $.1  million  in fiscal  2001.  While our  business  has not been  materially
affected  in the  past  by  foreign  business,  there  is a risk  that it may be
materially  adversely affected in the future. Such risk includes possible losses
on account of currency exchange rate fluctuations,  possible future 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 fiscal 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 revenue 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 with 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,  using  innovative  technology to sell products into  specialized
markets. Loss of competitive position could impair our prices,  customer orders,
revenues,  gross margins, and market share, any of which would negatively affect
our  operating  results  and  financial   condition.   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.

ALTHOUGH  ONLY 8% OF OUR REVENUES  WERE  GENERATED  FROM SALES IN ASIA IN FISCAL
2001,  IF THE  HEALTH  OF  THE  ASIAN  ECONOMIES  DO NOT  CONTINUE  TO  IMPROVE,
ACHIEVEMENT OF OUR GOALS FOR AGGRESSIVE GROWTH COULD BE ADVERSELY AFFECTED.

                                       30
<PAGE>
     In the past we have at times generated a significant portion of our revenue
from  customers  in Asia (SEE Risk  Factor - "Our  business  might be  adversely
affected by our dependence on foreign business."). Although Asian economies have
stabilized  to some  degree  since  early to  mid-fiscal  1998,  Amtech  remains
cautious about general macroeconomic developments in Asia, particularly in Japan
and  Taiwan.  The  economies  of Japan and Taiwan are  important  to the overall
financial  health of the Asian  region and, if they do not  continue to improve,
the  economies of other  countries,  particularly  those in Asia,  could also be
negatively  affected.  Negative  economic  developments  in  Asia  could  have a
material adverse effect on our ability to reach our aggressive goals for growth.

IF WE MAKE  ADDITIONAL  ACQUISITIONS IT COULD RESULT IN AN INCREASE IN OUR COSTS
OF  OPERATIONS,  DIVERT  MANAGEMENT'S  ATTENTION  AWAY  FROM  OTHER  OPERATIONAL
MATTERS, AND EXPOSE US TO OTHER RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.

     We  are  currently  evaluating  potential   acquisitions.   We  might  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 Amtech common stock in an acquisition or
          merger  could  be  dilutive  to  Amtech  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 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 customers'  orders,  we do not maintain an extensive  inventory of
materials for  manufacturing.  Key suppliers  include two steel mills capable of
holding  the type and  tolerances  that we  require,  an  injection  molder that
provides  plastic  insets for 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 possible; accordingly, some key parts are
being  procured  from a single  supplier or a limited  group of  suppliers.  The
semiconductor  industry's  recent  increase 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

                                       31
<PAGE>
system could cause significant variation in quarterly revenue, operating results
and the market value of our 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 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  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.  Net
proceeds to the company,  after deducting placement agents',  legal,  accounting
and registration  fees, were  $4,616,000.  The proceeds will be used to fund the
company's growth initiatives.  While we believe that revenues generated from our
operations,  as well as the proceeds received from this private  placement,  are
sufficient to provide  adequate  working capital for the foreseeable  future and
for a limited number of growth initiatives,  additional financing is expected to
be required for further  implementation of our plans for expansion.  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  inclusion  will  depend on our  ability to meet  certain  eligibility
requirements  established  for  the  Nasdaq  National  Market.  Loss  of  Nasdaq
eligibility  could  result if we  sustain  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.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to  financial  market  risks,  including  changes in
foreign currency exchange rates and interest rates. Its operations in the United
States are conducted in United States  dollars.  The Company's  operation in The
Netherlands,  a  component  of the  semiconductor  equipment  segment,  conducts
business primarily in The Netherlands' guilder, the United States dollar and the
British  pound.  As of  January  1,  1999,  the  European  Union,  of which  The
Netherlands  is a member,  established  a fixed  conversion  rate between  their
existing sovereign  currencies and the Euro and adopted the Euro as their common
legal  currency.  Certain  other  European  currencies  in which  the  Company's
Netherlands  operation conducts business also have fixed exchange rates with the
Euro. Currently,  the functional currency of the Company's Netherlands operation
is The Netherlands  guilder.  It is anticipated the functional  currency of that
operation  will be the Euro by the  beginning  of the  second  quarter of fiscal
2002.

                                       32
<PAGE>
     The  Company   estimates  that  more  than  95%  of  its  transactions  are
denominated  in one of its two  functional  currencies or  currencies  that have
fixed exchange rates with one of its functional currencies.  As of September 30,
2001,  the  Company  did  not  hold  any  stand  alone  or  separate  derivative
instruments. The Company incurred a net foreign currency transaction loss of $.1
million,  $0 and $.1 million in fiscal 2001,  2000 and 1999,  respectively.  The
Company's  investment in and advances to its  Netherlands'  operation total $3.0
million.  A 10% change in the value of The Netherlands  guilder  relative to the
United  States  dollar would cause a $.3 million  foreign  currency  translation
adjustment, a type of other comprehensive income (loss), which would be a direct
adjustment  to  stockholders'   equity.  During  fiscal  2001,  The  Netherlands
operation  conducted  net  transactions,   sales  in  excess  of  purchases,  of
approximately $1.5 million denominated in United States dollars and $2.9 million
denominated  in  British  pounds.  A 10%  change in both  currencies  could have
affected before tax income by as much as $.4 million. The exposure to changes in
exchange rates in fiscal 2002 could be greater than indicated above, because The
Netherlands'   operation  has  approximately  $1.8  million  of  backlog  orders
denominated in British  pounds.  A 10% change in exchange rates on this currency
relative to The  Netherlands  guilder  would be  expected  to affect  before tax
operating profit by approximately $.2 million, as a result of the portion of the
backlog denominated in British pounds.

     When the value of The Netherlands guilder declines relative to the value of
the United States dollar,  operations in The Netherlands can be more competitive
against the United  States based  equipment  suppliers and the cost of purchases
denominated in United States dollars  become more  expensive.  When the value of
The  Netherlands  guilder  increases  relative to the value of the United States
dollar,  operations in The Netherlands must raise prices to those customers that
normally make purchases in United States dollars,  in order to maintain the same
profit margins.  When this occurs,  this operation attempts to have transactions
denominated in The Netherlands guilder or the Euro and to increase its purchases
denominated in United States dollars. The Company estimates that its fiscal 2001
purchases and sales of this foreign operation that are denominated in currencies
not linked to its  functional  currency,  including  United  States  dollars and
British pounds, were approximately $6.5 million and $2.2 million,  respectively.
Most of those  purchases are  denominated in United States 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  dollar
denominated  transactions  arising from The  Netherlands  operations the Company
does  not  hedge  against  the  effects  of  exchange  rate  changes  on  future
transactions.  The  Netherlands  guilder  is near  its  historically  low  value
relative to the United States dollar,  giving the Company's  operation  based in
The Netherlands a competitive advantage over other suppliers based in the United
States.  However,  a future  increase in the relative  value of The  Netherlands
guilder  could  have a  materially  adverse  effect  on  future  results  of the
Company's operations.

     The  polishing  supplies  segment  makes annual  purchases of approximately
$.6 million  through  direct or indirect  sources  from Japan or Germany.  While
these purchases are denominated in United States dollars, the price of materials
purchased  from Japan is directly  affected by the value of the yen  relative to
the  dollar.  The  Company  believes  the price of steel  produced in Germany is
relatively  unaffected  by  fluctuations  in the  value of German  mark,  as the
supplier sets the price based on an average exchange rate. However, assuming the
price of German sourced steel also  fluctuated  with currency  exchange rates, a
10% change in the value of  Japanese  yen and the German  mark  relative  to the
United  States  dollar  would  affect  the cost of this  segment's  purchases by
$.1 million.

                                       33
<PAGE>
FORWARD-LOOKING STATEMENTS

     The  statements  contained in this Annual  Report on Form 10-K that are not
historical fact are  forward-looking  statements (as such term is defined in the
Private  Securities  Litigation  Reform Act of 1995).  These  statements  can be
identified  by the  use of  forward  looking  terminology  such  as  "believes,"
"expects,"  "may,"  "will,"  "should,"  "anticipates,"  or  "possible,"  or  the
negative thereof or other written variations thereof or comparable  terminology.
The   forward-looking   statements   contained   herein  are  based  on  current
expectations  that involve a number of risks and  uncertainties.  Among  others,
these  forward-looking  statements are based on assumptions that (a) the Company
will not lose a  significant  customer or  customers,  (b) the Company  will not
experience  significant  reductions in demand or rescheduling or cancellation of
customer purchase orders, (c) the Company's products will remain accepted within
their respective markets and will not be significantly further replaced by newer
technology  equipment,  (d) competitive  conditions within the Company's markets
will not  materially  deteriorate,  (e) the  Company's  efforts to  improve  its
products and maintain  its  competitiveness  in the markets in which it competes
will  continue  to  progress  and  that  the  savings   associated   with  these
expenditures  and/or the increased product demand resulting  therefrom justifies
such development costs, (f) the Company will be able to retain, and when needed,
add  key  technical   and   management   personnel,   (g)  business  or  product
acquisitions,  if any,  will be  successfully  integrated  and  the  results  of
operations  therefrom  will support the  acquisition  price,  (h) the  Company's
forecasts  will  accurately  anticipate  market  demand,  (i)  there  will be no
material adverse changes in the Company's existing  operations,  (j) the Company
will be able to obtain sufficient equity or debt funding to increase its capital
resources by the amount needed for new business or product acquisitions, if any,
(k) the  semiconductor  equipment  industry  will not enter a period of slowdown
during  fiscal 2001,  (l) the  condition in the Asian  markets will  continue to
improve,  (m) the Company  will be able to continue  to control  costs,  (n) the
Company will not,  either  directly or indirectly,  incur any material Year 2000
issues,  (o)  demand  for the  Company's  products  will  not be  adversely  and
significantly   influenced  by  trends  within  the  semiconductor   industries,
including  consolidation  of  semiconductor   manufacturing  operations  through
mergers  and the  subcontracting  out of the  production  of  semiconductors  to
foundries, and (p) the effects of adopting SAB No. 101 will largely be offset by
increased sales.  Assumptions  related to the foregoing  involve  judgments with
respect  to,  among  other  things,  future  economic,  competitive  and  market
conditions,  all of which are beyond the control of the  Company.  Although  the
Company believes that the assumptions underlying the forward-looking  statements
are reasonable,  any of the assumptions  could prove inaccurate and,  therefore,
there can be no  assurance  that the  results  contemplated  in  forward-looking
statements  will be realized.  In addition,  the business and  operations of the
Company  are  subject to  substantial  risks,  which  increase  the  uncertainty
inherent  in  such  forward-looking  statements.  In  light  of the  significant
uncertainties inherent in the forward-looking  information included herein, such
information  should not be regarded as a representation  by the Company,  or any
other person, that the objectives or plans for the Company will be achieved.

                                       34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX


                                                                            Page
                                                                            ----

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

Financial Statements -

Consolidated Balance Sheets
September 30, 2001 and 2000..................................................F-2

Consolidated Statements of Operations for
the years ended September 30, 2001, 2000 and 1999............................F-3

Consolidated Statements of Stockholders' Equity
for the years ended September 30, 2001, 2000 and 1999........................F-4

Consolidated Statements of Cash Flows for
the years ended September 30, 2001, 2000 and 1999............................F-5

Notes to Consolidated Financial Statements
September 30, 2001, 2000 and 1999............................................F-6

Financial Statement Schedule for the years ended
September 30, 2001, 2000 and 1999:

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

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

                                       35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Amtech Systems, Inc.:

We have audited the accompanying  consolidated balance sheets of AMTECH SYSTEMS,
INC. (an Arizona  corporation) and subsidiaries  (the "Company") as of September
30,  2001 and 2000,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for each of the three years ended September
30, 2001. 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 auditing standards generally accepted
in the 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 financial  statements  referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2001 and 2000,  and the results of its operations and its cash flows for each of
the three  years  ended  September  30,  2001,  in  conformity  with  accounting
principles generally accepted in the United States.

As explained in Note 2 to the financial  statements,  effective October 1, 2000,
the Company changed its method of accounting for revenue recognition.

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


                                            /s/ ARTHUR ANDERSEN LLP


Phoenix, Arizona
January 9, 2002

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

<TABLE>
<CAPTION>
                                                                                         September 30,
                                                                                -------------------------------
                                                                                    2001               2000
                                                                                ------------       ------------
<S>                                                                             <C>                <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                     $  5,998,120       $  5,784,500
  Accounts receivable (less allowance for doubtful accounts of $630,000            3,829,867          4,929,948
    and $149,000, at September 30, 2001 and 2000, respectively)
  Inventories                                                                      4,804,457          4,229,546
  Deferred income taxes                                                            1,525,000            577,000
  Prepaid expenses                                                                    85,643             79,476
                                                                                ------------       ------------
     Total current assets                                                         16,243,087         15,600,470

PROPERTY, PLANT AND EQUIPMENT - net                                                1,484,437          1,093,707

GOODWILL AND OTHER ASSETS -  net                                                     843,046            789,083
                                                                                ------------       ------------
     TOTAL ASSETS                                                               $ 18,570,570       $ 17,483,260
                                                                                ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                              $    880,006       $  2,144,197
  Accrued compensation and related taxes                                             671,075            635,354
  Accrued warranty expense                                                           304,228            218,693
  Accrued installation expense                                                            --            266,101
  Deferred profit                                                                  1,777,173             25,000
  Customer deposits                                                                  367,523            220,663
  Income taxes payable                                                               135,000            670,000
  Other accrued liabilities                                                          605,547            486,779
                                                                                ------------       ------------
     Total current liabilities                                                     4,740,552          4,666,787
                                                                                ------------       ------------

LONG-TERM OBLIGATIONS                                                                246,184            236,590
                                                                                ------------       ------------

COMMITMENTS AND CONTINGENCIES (Note 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;
    2,649,171 (2,571,808 in 2000) shares issued and outstanding                       26,492             25,718
  Additional paid-in capital                                                      12,539,040         12,133,058
  Accumulated other comprehensive loss -
    cumulative foreign currency translation adjustment                              (368,242)          (502,356)
  Retained earnings                                                                1,386,544            923,463
                                                                                ------------       ------------
     Total stockholders' equity                                                   13,583,834         12,579,883
                                                                                ------------       ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 18,570,570       $ 17,483,260
                                                                                ============       ============
</TABLE>

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

                                      F-2
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
                                                                               -------------------------------------------
                                                                                   2001            2000           1999
                                                                               ------------    ------------   ------------
<S>                                                                            <C>             <C>            <C>
Net revenues                                                                   $ 22,851,920    $ 19,027,446   $ 14,766,075
Cost of sales                                                                    15,974,260      12,398,560     10,599,708
                                                                               ------------    ------------   ------------
  Gross margin                                                                    6,877,660       6,628,886      4,166,367
Selling, general and administrative                                               4,918,902       4,169,631      3,330,348
Research and development                                                            382,186         476,975        268,243
                                                                               ------------    ------------   ------------
  Operating income                                                                1,576,572       1,982,280        567,776
Interest income, net                                                                246,720          93,141         34,531
                                                                               ------------    ------------   ------------
  Income before income taxes and cumulative effect of
    change in accounting principle                                                1,823,292       2,075,421        602,307
Income tax provision                                                                670,000         750,000        240,000
                                                                               ------------    ------------   ------------
  Income before cumulative effect of change in accounting principle               1,153,292       1,325,421        362,307
Cumulative effect of change in accounting principle, net of tax
  benefit of $410,000                                                              (690,211)             --             --
                                                                               ------------    ------------   ------------
  NET INCOME                                                                   $    463,081    $  1,325,421   $    362,307
                                                                               ============    ============   ============

EARNINGS PER SHARE:
  Basic
    Income before cumulative effect of change in accounting principle          $        .43    $        .61   $        .17
    Cumulative effect of change in accounting principle, net of tax                    (.26)             --             --
                                                                               ------------    ------------   ------------
    Basic earnings per share                                                   $        .17    $        .61   $        .17
                                                                               ============    ============   ============
  Diluted
    Income before cumulative effect of change in accounting principle          $        .41    $        .56   $        .17
    Cumulative effect of change in accounting principle, net of tax                    (.25)             --             --
                                                                               ------------    ------------   ------------
    Diluted earnings per share                                                 $        .16    $        .56   $        .17
                                                                               ============    ============   ============
  Number of shares used in per share calculations:
    Basic                                                                         2,661,001       2,158,562      2,109,815
    Diluted                                                                       2,821,583       2,336,497      2,189,201

PRO FORMA AMOUNTS WITH THE CHANGE IN ACCOUNTING PRINCIPLE RELATED TO REVENUE
APPLIED RETROACTIVELY:

  Net revenues                                                                 $ 22,851,920    $ 18,908,378   $ 15,678,058
  Net income                                                                        463,081       1,060,619        480,845
  Earnings per share:
    Basic                                                                      $        .17    $        .49   $        .23
    Diluted                                                                    $        .16    $        .45   $        .22
</TABLE>

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

                                      F-3
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


<TABLE>
<CAPTION>
                                                  Common Stock                         Accumulated      Retained
                                             ----------------------     Additional        Other         Earnings          Total
                                                Number                   Paid-In      Comprehensive   (Accumulated     Stockholders'
                                              of Shares     Amount       Capital          (Loss)         Deficit)         Equity
                                             ----------    --------    ------------   -------------    -----------     ------------
<S>                                          <C>           <C>         <C>            <C>              <C>             <C>
BALANCE AT SEPTEMBER 30, 1998                 2,110,303    $ 21,103    $  7,406,589    $ (216,338)     $  (764,265)    $  6,447,089
 Net income                                          --          --              --            --          362,307          362,307
 Translation adjustment                              --          --              --       (92,726)              --          (92,726)
                                                                                                                       ------------
   Comprehensive income                                                                                                     269,581
                                                                                                                       ------------
 Employee stock bonus -
   net of stock repurchases                      (1,624)        (16)         (6,437)           --               --           (6,453)
                                             ----------    --------    ------------    ----------      -----------     ------------
BALANCE AT SEPTEMBER 30, 1999                 2,108,679      21,087       7,400,152      (309,064)        (401,958)       6,710,217

 Net income                                          --          --              --            --        1,325,421        1,325,421
 Translation adjustment                              --          --              --      (193,292)              --         (193,292)
                                                                                                                       ------------
   Comprehensive income                                                                                                   1,132,129
                                                                                                                       ------------
 Issuance of common
   stock, net of related expenses               383,000       3,830       4,612,117            --               --        4,615,947
 Stock options exercised and other
   including a $59,000 related tax benefit       80,129         801         120,789            --               --          121,590
                                             ----------    --------    ------------    ----------      -----------     ------------
BALANCE AT SEPTEMBER 30, 2000                 2,571,808      25,718      12,133,058      (502,356)         923,463       12,579,883

 Net income                                          --          --              --            --          463,081          463,081
 Translation adjustment                              --          --              --       134,114               --          134,114
                                                                                                                       ------------
   Comprehensive income                                                                                                     597,195
                                                                                                                       ------------
 Warrants and stock options exercised            77,363         774         405,982            --               --          406,756
                                             ----------    --------    ------------    ----------      -----------     ------------
BALANCE AT SEPTEMBER 30, 2001                 2,649,171    $ 26,492    $ 12,539,040    $ (368,242)     $ 1,386,544     $ 13,583,834
                                             ==========    ========    ============    ==========      ===========     ============
</TABLE>

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

                                      F-4
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                         -----------------------------------------
                                                                             2001           2000           1999
                                                                         -----------    -----------    -----------
<S>                                                                      <C>            <C>            <C>
OPERATING ACTIVITIES:
  Net income                                                             $   463,081    $ 1,325,421    $   362,307
  Adjustments to reconcile net income to net
   cash provided by (used in) operating activities:
    Cumulative effect of change in accounting principle, net of tax          690,211             --             --
    Depreciation and amortization                                            376,308        294,122        312,371
    Provision for inventory and receivable write-offs                        833,354         76,851        142,490
    Loss on disposals of long-lived assets                                     1,660            431             --
    Deferred income taxes                                                   (538,000)      (156,000)       (28,000)
  (Increase) decrease in:
    Accounts receivable                                                      691,529     (1,973,716)      (473,383)
    Inventories, prepaid expenses and other assets                          (988,147)    (2,593,647)       (60,958)
  Increase (decrease) in:
    Accounts payable                                                      (1,293,612)     1,636,815       (542,561)
    Accrued liabilities and customer deposits                                 59,015        846,877       (155,788)
    Deferred profit                                                          676,962             --             --
    Income taxes payable                                                    (532,273)       759,672        364,063
                                                                         -----------    -----------    -----------
    Net Cash Provided By (Used In) Operating Activities                      440,088        216,826        (79,459)
                                                                         -----------    -----------    -----------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                                (664,733)      (322,292)      (158,232)
                                                                         -----------    -----------    -----------
    Net Cash Used In Investing Activities                                   (664,733)      (322,292)      (158,232)
                                                                         -----------    -----------    -----------
FINANCING ACTIVITIES:
  Proceeds from stock options exercised and other                            406,757         62,590             --
  Employee stock bonus, net of stock repurchases                                  --             --         (6,453)
  Net proceeds from private placement of common stock                             --      4,615,947             --
  Net payments and borrowings on mortgage loan                                   930        (10,605)       (12,062)
                                                                         -----------    -----------    -----------
    Net Cash Provided By (Used In) Financing Activities                      407,687      4,667,932        (18,515)
                                                                         -----------    -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                       30,578         97,349         29,349
                                                                         -----------    -----------    -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         213,620      4,659,815       (226,857)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                               5,784,500      1,124,685      1,351,542
                                                                         -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                   $ 5,998,120    $ 5,784,500    $ 1,124,685
                                                                         ===========    ===========    ===========
SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the year for:
  Interest                                                               $    29,816    $    12,805    $    10,169
  Income taxes paid  (refunded)                                            1,743,000        143,000       (102,000)
</TABLE>

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

                                      F-5
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


(1)  NATURE OF OPERATIONS:

     Amtech  Systems,  Inc.  (an Arizona  corporation),  P. R.  Hoffman  Machine
Products, Inc., a wholly-owned subsidiary formed in July 1997 ("P. R. Hoffman"),
both based in the United  States,  and Tempress  Systems,  Inc., a  wholly-owned
subsidiary  formed in September 1994 and based in The Netherlands  ("Tempress"),
comprise  the  "Company."  The Company  designs,  assembles,  sells and installs
capital  equipment and related  consumables used in the manufacture of wafers of
various materials,  primarily silicon wafers for the semiconductor industry, and
in certain  semiconductor  fabrication  processes.  These  products  are sold to
manufacturers of silicon wafers and  semiconductors  worldwide,  particularly in
the United States,  Korea and northern  Europe.  During fiscal 1997, the Company
began providing semiconductor manufacturing support services.

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

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION - The accompanying  consolidated financial statements
include the accounts of Amtech Systems, Inc. and its wholly-owned  subsidiaries,
P. R. Hoffman (see Note 3) and Tempress.  All significant  intercompany accounts
and transactions have been eliminated in consolidation.

     REVENUE RECOGNITION - During its fourth fiscal quarter, the Company changed
its revenue recognition policy retroactively effective October 1, 2000, based on
guidance provided in Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The
Company  recognizes revenue when persuasive  evidence of an arrangement  exists;
title  transfers,  generally upon shipment or services have been  rendered;  the
seller's  price  is fixed  or  determinable  and  collectibility  is  reasonably
assured.   Certain  of  the  Company's   product  sales  are  accounted  for  as
multiple-element  arrangements.  For the semiconductor equipment segment, if the
Company  has  met  defined  customer   specifications  with  similarly  situated
customers  and  the  specific  equipment  and  process  involved,   the  Company
recognizes  equipment  revenue  upon  shipment  and  transfer of title,  and the
remainder when it becomes due, generally upon acceptance. Product sales that are
shipped, but do not meet this criteria are deferred and recognized upon customer
acceptance.

     Equipment sold by the polishing  supplies  segment does not involve process
guarantees  or  acceptance  criteria,  so 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  upon  performance  of the services
requested by the customer.

     In  accordance  with guidance  provided in SAB 101, the Company  recorded a
non-cash charge of $690,211 (after  reduction for income taxes of $410,000),  or
$0.26 per basic share, to reflect the cumulative effect of the accounting change
as of the beginning of the 2001 fiscal year.

                                      F-6
<PAGE>
     The  deferred  profit  balance  as of the  beginning  of  fiscal  2001  was
$1,125,211.  This amount represents the revenue net of the related cost of sales
for systems that were shipped and that had not been accepted and did not qualify
for  multiple-element  accounting as of September 30, 2000. Of the $1,125,211 in
deferred  profit as of the beginning of fiscal 2001,  $936,994 was recognized in
2001.  The  pro  forma  amounts  presented  on the  consolidated  statements  of
operations  were  calculated  assuming the accounting  change was  retroactively
adopted as of October 1, 1998.

     Prior to fiscal  2001,  the  Company's  revenue  recognition  policy was to
recognize  revenue and accrue the estimated  installation  costs at the time the
customer  took title to the product,  generally at the time of shipment  because
the Company  routinely met its installation  obligations and installation  costs
represented a small percentage of total costs.

     As revenue is not reported on a consistent  basis  between  years,  certain
data  contained in these  financial  statements  may not be  comparable  between
years.

     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.

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

                                                          September 30,
                                                    -----------------------
                                                       2001         2000
                                                    ----------   ----------
Purchased parts (less allowance for obsolescence)   $2,487,470   $1,931,524
Work-in-progress                                     1,255,676    1,874,818
Finished goods                                       1,061,311      423,204
                                                    ----------   ----------
                                                    $4,804,457   $4,229,546
                                                    ==========   ==========

     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 are from three
to five  years;  for  furniture  and  fixtures  from five to ten years;  and for
buildings  twenty years.  Depreciation  expense for fiscal years 2001,  2000 and
1999 was approximately $296,000, $241,000 and $256,000, respectively.

     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.

                                      F-7
<PAGE>
     The following is a summary of property, plant and equipment:

                                                      September 30,
                                               --------------------------
                                                   2001           2000
                                               -----------    -----------
Building and leasehold improvements            $   691,405    $   545,633
Equipment and machinery                          1,435,427      1,191,298
Furniture and fixtures                             837,623        532,677
                                               -----------    -----------
                                                 2,964,455      2,269,608
Accumulated depreciation                        (1,480,018)    (1,175,901)
                                               -----------    -----------
                                               $ 1,484,437    $ 1,093,707
                                               ===========    ===========

     GOODWILL - The purchase  price in excess of net assets  acquired,  commonly
referred  to as  goodwill,  is being  amortized  over  fifteen  years  using the
straight-line method.  Amortization expense was approximately  $67,000,  $37,000
and $37,000 for fiscal years 2001, 2000 and 1999, respectively.

     WARRANTY  - The  Company  provides  free  of  charge  a  limited  warranty,
generally  twelve to twenty-four  months,  to all purchasers of its new products
and  systems.  Warranty  expense  for fiscal  2001,  2000 and 1999  amounted  to
approximately $372,000, $109,000 and $190,000, respectively. Management believes
these  amounts and the  amounts  accrued for future  warranty  expenditures  are
sufficient for all future  warranty costs on systems sold through  September 30,
2001.

     RESEARCH  AND  DEVELOPMENT   EXPENSES  -  The  Company   expenses   product
development costs as they are incurred.

     FOREIGN  CURRENCY  TRANSACTIONS  AND  TRANSLATION  - Financial  information
relating to the Company's  foreign  subsidiary  is reported in  accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 52, "Foreign Currency
Translation."   Net  income  includes   pretax  losses  from  foreign   currency
transactions of $118,000 in 2001, gains of $25,000 in 2000 and losses of $83,000
in 1999. The functional  currency of Tempress is the  Netherlands  guilder.  The
gains or losses resulting from the translation of Tempress' financial statements
have been included as a separate component of stockholders' equity.

     INCOME TAXES - The Company files  consolidated  federal  income tax returns
and computes  deferred income tax assets and  liabilities  based upon cumulative
temporary   differences   between   financial   reporting  and  taxable  income,
carryforwards available and enacted tax law. (See Note 12).

     EARNINGS  PER  COMMON  SHARE - The  Company  calculates  basic and  diluted
earnings  per share  ("EPS") in  accordance  with SFAS No.  128,  "Earnings  Per
Share". (See Note 13).

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

     STOCK-BASED   COMPENSATION   -  The  Company   accounts  for  its  employee
stock-based  compensation plans under SFAS No. 123,  "Accounting for Stock-Based
Compensation."  SFAS No. 123 permits  companies to record  employee  stock-based
transactions  under  Accounting  Principles  Board Opinion ("APB") No. 25, under
which no  compensation  cost is recognized and the pro forma effects on earnings
and  earnings per share are  disclosed as if the fair market value  approach had
been adopted. (See Note 14).

                                      F-8
<PAGE>
     CONCENTRATION  OF CREDIT  RISK AND 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.

     As of  September  30,  2001,  receivables  from  customers  in the  optical
component industry  comprised 51% of total receivables,  of which three accounts
comprised 39.4% of total  receivables,  representing a  concentration  of credit
risk as defined by SFAS No. 105,  "Disclosure  of  Information  about  Financial
Instruments  with  Off-Balance   Sheet  Risk  and  Financial   Instruments  with
Concentration  of Credit Risk." As of September 30, 2000,  receivables  from two
customers  comprised  40% of  accounts  receivable,  one of  which  was from the
optical component industry and accounted for 12% of receivables. A concentration
of receivables from such a small number of customers places the Company at risk.

     In July 2001, an optical component customer filed a petition for protection
from  creditors  under  Chapter 11 of the U.S.  bankruptcy  code,  an example of
possible  problems  caused by  concentrations  of credit risk. The amount of the
sale was $1,609,000. The customer had made payments of $794,000 before filing in
bankruptcy court, leaving an unpaid balance of approximately  $815,000.  Through
increased  reserves the Company has written down this receivable to an estimated
net realizable value of $225,000.  The Company believes this receivable has been
recorded at its net realizeable value at September 30, 2001.

     FAIR VALUE OF FINANCIAL  INSTRUMENTS - The carrying values of the Company's
financial  instruments  approximate  fair  value due to the short  term in which
these instruments  mature.  The carrying values of the Company's lines of credit
(see Note 4) and long-term debt (see Note 5) approximate  fair value because the
variable  interest rates  approximate the prevailing  interest rates for similar
debt instruments.

     ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES - On October
1, 2000, the Company  adopted  Statement of Financial  Accounting  Standards No.
133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS No.
133").  SFAS No. 133 requires the Company to recognize  all  derivatives  on the
balance sheet at fair value.  Derivatives  that do not qualify as hedges must be
adjusted to fair value through  income.  If the  derivative  qualifies for hedge
treatment,  depending  on the nature of the hedge,  changes in the fair value of
the derivative are either offset against the change in the fair value of assets,
liabilities,  or through  earnings  (fair value  hedges) or  recognized in other
comprehensive  income until the hedged item is recognized in earnings (cash flow
and foreign currency hedges).  The ineffective  portion of a derivative's change
in fair value is  immediately  recognized in earnings.  The adoption of SFAS No.
133 did not have a  material  impact  on the  Company's  consolidated  financial
position or operating results.

     ACCOUNTING  PRONOUNCEMENTS  NOT YET ADOPTED - In July 2001,  the  Financial
Accounting  Standards Board issued Statements of Financial  Accounting Standards
No. 141,  "Business  Combinations"  ("SFAS No. 141"), and No. 142, "Goodwill and
Other Intangible  Assets" ("SFAS No. 142"). SFAS No. 141 eliminates  poolings of
interest as a method for  accounting  for  business  combinations.  SFAS No. 142
requires the  discontinuance  of the  amortization  of goodwill  and  intangible
assets with indefinite lives and at least an annual  assessment of whether there
has  been an  impairment  of such  assets  that  needs  to be  recognized  as an
impairment charge. SFAS Nos. 141 and 142 must be adopted by the Company no later

                                      F-9
<PAGE>
than October 1, 2002,  with early adoption  permitted on October 1, 2001.  Since
amortization of goodwill is currently  $67,000 per year, the  discontinuance  of
such  amortization  will not have a material affect on the Company's  results of
operations  or  financial  condition.  The  Company  does not expect to incur an
impairment  charge related to the $789,000 of goodwill included in its assets as
of September 30, 2001.

     The FASB recently  issued SFAS No. 144,  "Accounting  for the Impairment or
Disposal of  Long-Lived  Assets,"  that is  applicable  to financial  statements
issued for fiscal  years  beginning  after  December 15,  2001.  This  statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for  Long-Lived  Assets to be Disposed  Of," and portions of APB Opinion No. 30,
"Reporting the Results of Operations." SFAS No. 144 provides a single accounting
model for  long-lived  assets to be  disposed of and  significantly  changes the
criteria   that  must  be  met  to   classify  an  asset  as  "held  for  sale."
Classification as "held for sale" is an important  distinction since such assets
are not  depreciated  and are  stated  at the lower of fair  value and  carrying
amount.  SFAS No.  144 also  requires  expected  future  operating  losses  from
discontinued operations to be displayed in the period(s) in which the losses are
incurred,  rather than as of the  measurement  date as presently  required.  The
provisions  of SFAS No. 144 are not  expected  to have a material  effect on the
Company's financial position or operating results.

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

     P.R. Hoffman  specializes in the development,  manufacture and marketing of
double-sided  lapping and polishing machines and related consumables used in the
manufacture of  semiconductor  silicon  wafers.  As a result of the July 1, 1997
acquisition of substantially all of the assets and operating liabilities of P.R.
Hoffman,  the Company is  obligated  to make  additional  payments to the former
owner  of P.R.  Hoffman  equal  to 50% of  pretax  income  of the P. R.  Hoffman
operation  in  excess  of  $800,000  per  year for a  period  of 5 years  ending
September 30, 2002,  limited to a maximum aggregate amount of $2 million of such
payments.  Those payments are payable in cash or the Company's  common stock, at
the  Company's  option,  with a minimum  of  thirty-five  percent  (35%) of such
payments being either cash or registered shares.  This additional  consideration
will be treated as part of the purchase price to the extent  earned.  Contingent
consideration  of  $108,000  and  $313,000  was earned in fiscal  2001 and 2000,
respectively. No contingent consideration was earned in fiscal 1999.

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

(4)  LINE OF CREDIT:

     In June 2001,  the  Company  was  granted a line of credit in the amount of
625,000 Netherlands guilders,  approximately  $260,000 as of September 30, 2001,
at an interest  rate of 1.75% over a  Netherlands  bank's basic  interest  rate,
which was 4.5% as of September 30, 2001.  The line of credit  declines by 12,500
Netherlands  guilders per quarter until it reaches 250,000 Netherlands  guilders
on January 1, 2004 and is secured  by a lien of  approximately  $105,000  on the
Company's land and buildings in The Netherlands and certain accounts receivable,
which  amounted to  approximately  $2,450,000  as of September  30, 2001.  As of
September 30, 2001, there were no borrowings on this line of credit.

                                      F-10
<PAGE>
(5)  LONG-TERM OBLIGATIONS:

     Long-term  debt included in long-term  obligations  includes a fifteen-year
mortgage  secured by the Company's land and building located in The Netherlands.
The  non-current  portion of the long-term  debt was $149,000 and $142,000 as of
September  30,  2001 and 2000,  respectively.  As of  September  30,  2001,  the
collateral has a carrying value of $410,000. No principal payments are due until
June 30,  2016,  when the loan  matures.  Interest is paid monthly at a variable
rate of  1.25%  over a  Netherlands  bank's  basic  rate,  which  was 4.5% as of
September  30,  2001.  There is no  penalty  for  prepayment  of the  loan.  The
remaining  balance in long-term  obligations  is comprised of other  non-current
liabilities.

(6)  STOCKHOLDERS' EQUITY:

     On September 8, 2000, the Company issued 383,000 shares of common stock and
warrants to purchase an aggregate amount of up to 59,300 shares of common stock,
pursuant to a Stock and Warrant Purchase Agreement and related commitments.  One
share and one warrant for one-tenth of a share were sold at a combined  price of
$13.75. An additional  21,000 warrants were issued to the placement agents.  The
warrants are  exercisable at a price per share of $15.12 and expire on September
8, 2005.  The  Company  has  registered  the resale of the shares  issued in the
transaction,  including  those  issuable upon  exercise of the  warrants.  Gross
proceeds in the transaction  were  $5,266,000.  Net proceeds to the company were
$4,616,000.

     During May 1999,  the  Company's  Board of Directors  adopted a stockholder
rights plan, which authorized the distribution of one right for each outstanding
common share to purchase one  one-hundredth of a share of Series A Participating
Preferred Stock, at a purchase price of $8.50,  subject to certain  antidilution
adjustments.  The  rights  will  expire  10  years  after  issuance  and will be
exercisable if (a) a person or group becomes the beneficial owner of 15% or more
of the  Company's  common  stock or (b) a person or group  commences a tender or
exchange offer that would result in the offeror  beneficially owning 15% or more
of the common stock (a "Stock  Acquisition  Date").  If a Stock Acquisition Date
occurs, each right,  unless redeemed by the Company at $.01 per right,  entitles
the holder to purchase an amount of common stock of the  Company,  or in certain
circumstances  a combination of securities  and/or assets or the common stock of
the  acquirer,  having  an  equivalent  market  value of  $17.00  per right at a
purchase  price of $8.50.  Rights  held by the  acquiring  person or group  will
become void and will not be exercisable.

     In fiscal  2001,  67,050  warrants  were  exercised.  These are  related to
warrants  issued in the fiscal  1997  acquisition  of  substantially  all of the
assets and operating liabilities of P.R. Hoffman.

(7)  COMMITMENTS AND CONTINGENCIES:

     Key suppliers include two steel mills, one domestic and one German, capable
of meeting the material  specification the Company requires. As of September 30,
2001, the Company had  unconditional  commitments to purchase $648,000 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.

     On or about August 31, 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,  the  owner  of a  landfill  allegedly  found to be
contaminated.  No  detailed  allegations  have been  filed as part of this legal
action,  which  appears to have been filed to preserve  the right to file claims
for  contribution  to the clean-up of the landfill at a later date.  The Company
acquired  the  assets  of  P.R.  Hoffman  Machine  Products,  Inc.  in an  asset

                                      F-11
<PAGE>
transaction  consummated on July 1, 1997.  (See Note 3.) The landfill was closed
and has not been used by P.R.  Hoffman since sometime prior to completion of the
Company's acquisition. Therefore, the Company believes that the named company is
the prior owner of the acquired  assets.  Under the terms of the Asset  Purchase
Agreement  governing the  acquisition,  the prior owner,  P.R.  Hoffman  Machine
Products,  Inc. is obligated  to indemnify  the Company for any breaches of P.R.
Hoffman's  representations  and  warranties  in the  Asset  Purchase  Agreement,
including  representations relating to environmental matters. In accordance with
the terms of the Asset Purchase  Agreement,  the Company has provided  notice to
the prior owner of P.R. Hoffman Machine  Products,  Inc. of the Company's intent
to seek indemnification from such owner for any liabilities  resulting from this
legal action.  Based on  information  available to the Company as of the date of
this report,  management  believes the Company's  costs, if any, to resolve this
matter will not be material to its results of operations or financial position.

(8)  MAJOR CUSTOMERS AND FOREIGN SALES:

     The Company had one major  customer  accounting  for more than 10% of sales
for the fiscal  year ended  September  30,  2001.  In fiscal  2000,  no customer
accounted for more than 10% of sales.  In fiscal 1999,  one  different  customer
accounted for 10% or more of sales. The detail of major customers is as follows:

                                                    Year Ended September 30,
                                                    ------------------------
                                                     2001     2000     1999
                                                     ----     ----     ----
 Customer 1                                            14%      --%      --%
 Customer 2                                            --       --       14
                                                     ----     ----     ----
                                                       14%      --%      14%
                                                     ====     ====     ====

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

                                                   Year Ended September 30,
                                                   ------------------------
                                                    2001     2000     1999
                                                    ----     ----     ----
United States                                         53%      60%      59%
Canada                                                 2        1       --
Asia (Korea, People's Republic of China,               8       19        5
Taiwan, Japan, Singapore, Indonesia,
Malaysia and India)
Europe (including 1% or less to Israel
and Africa)                                           37       20       29
Australia                                             --       --        7
                                                    ----     ----     ----
                                                     100%     100%     100%
                                                    ====     ====     ====

                                      F-12
<PAGE>
(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.  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 are aggregated in the semiconductor  equipment  segment.  The polishing
supplies  segment  designs,  manufactures  and markets  carriers,  templates and
equipment used in the lapping and polishing of wafer thin  materials,  including
silicon wafers used in the production of semiconductors.  Information concerning
the Company's business segments is as follows:

<TABLE>
<CAPTION>
                                                        Year Ended September 30,
                                                ---------------------------------------
                                                    2001          2000          1999
                                                -----------   -----------   -----------
<S>                                             <C>           <C>           <C>
Net revenues
Semiconductor equipment                         $15,445,469   $10,859,625   $ 8,852,590
Polishing supplies                                7,406,451     8,167,821     5,913,485
                                                -----------   -----------   -----------
                                                $22,851,920   $19,027,446   $14,766,075
                                                ===========   ===========   ===========
Operating income
Semiconductor equipment                         $   930,915   $   985,157   $   281,789
Polishing supplies                                  645,657       997,123       285,987
                                                -----------   -----------   -----------
Total operating income                            1,576,572     1,982,280       567,776
Interest income, net                                246,720        93,141        34,531
                                                -----------   -----------   -----------
Income before income taxes and cumulative
effect of change in accounting principle        $ 1,823,292   $ 2,075,421   $   602,307
                                                ===========   ===========   ===========

Capital expenditures
Semiconductor equipment                         $   664,733   $   206,740   $    90,036
Polishing supplies                                       --       115,552        68,196
                                                -----------   -----------   -----------
                                                $   664,733   $   322,292   $   158,232
                                                ===========   ===========   ===========
Depreciation and amortization expense
Semiconductor equipment                         $   218,903   $   176,526   $   201,785
Polishing supplies                                  157,405       117,596       110,586
                                                -----------   -----------   -----------
                                                $   376,308   $   294,122   $   312,371
                                                ===========   ===========   ===========
</TABLE>

                                                      September 30,
                                                -------------------------
                                                    2001          2000
                                                -----------   -----------
Identifiable assets
Semiconductor equipment                         $15,682,289   $13,460,752
Polishing supplies                                2,888,281     4,022,508
                                                -----------   -----------
                                                $18,570,570   $17,483,260
                                                ===========   ===========

                                      F-13
<PAGE>
     The  Company  has  manufacturing  operations  in the United  States and The
Netherlands.  Revenues,  operating  income  (loss)  and  identifiable  assets by
geographic region of the locations are as follows:

                                      Year Ended September 30,
                            -------------------------------------------
                                2001            2000           1999
                            ------------    ------------   ------------
Net revenues
United States               $ 11,148,373    $ 13,923,506   $  9,307,085
The Netherlands               11,703,547       5,103,940      5,458,990
                            ------------    ------------   ------------
                            $ 22,851,920    $ 19,027,446   $ 14,766,075
                            ============    ============   ============
Operating income (loss)
United States               $    (76,979)   $  1,474,950   $    610,381
The Netherlands                1,653,551         507,330        (42,605)
                            ------------    ------------   ------------
                            $  1,576,572    $  1,982,280   $    567,776
                            ============    ============   ============
Identifiable assets
United States               $ 13,654,635    $ 13,952,931
The Netherlands                4,915,935       3,530,329
                            ------------    ------------
                            $ 18,570,570    $ 17,483,260
                            ============    ============

(10) LEASES:

     The Company leases buildings,  vehicles and equipment.  As of September 30,
2001,  minimum rental  commitments under  noncancellable  operating leases total
$589,000,  of which $244,000,  $230,000 and $115,000 are payable in fiscal years
2002, 2003 and 2004 and beyond, respectively.

     Rental expense for 2001, 2000 and 1999 was approximately $277,000, $220,000
and $231,000, respectively.

(11) PROPRIETARY PRODUCT RIGHTS:

     The Company  acquired the  proprietary  product rights to Atmoscan in 1983,
which  provides an improved  method for the automatic  loading of silicon wafers
into diffusion furnaces. The Company agreed to pay the inventor royalties for 17
years, which ended November 22, 2000.

     Through the  acquisition  of the net assets of P. R.  Hoffman (see Note 3),
the  Company  acquired  the license  for the design of its steel  carriers  with
plastic inserts for abrasive machining of silicon wafers. In 1995, P. R. Hoffman
Machine Products, Inc. licensed the patent rights from the patent holder.

     Royalty expense for all licenses  included in cost of product sales totaled
approximately   $74,000,   $108,000   and  $73,000  in  2001,   2000  and  1999,
respectively.

                                      F-14
<PAGE>
(12) INCOME TAXES:

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

                                Year Ended September 30,
                       -----------------------------------------
                           2001           2000           1999
                       -----------    -----------    -----------
Current
Domestic federal       $   494,000    $   705,000    $   250,000
Foreign                    606,000        125,000        (25,000)
Domestic state             108,000         76,000         43,000
                       -----------    -----------    -----------
                         1,208,000        906,000        268,000
                       -----------    -----------    -----------
Deferred
Domestic federal          (275,000)       (89,000)       (31,000)
Foreign                   (187,000)         3,000         13,000
Domestic state             (76,000)       (70,000)       (10,000)
                       -----------    -----------    -----------
                          (538,000)      (156,000)       (28,000)
                       -----------    -----------    -----------
Income tax provision   $   670,000    $   750,000    $   240,000
                       ===========    ===========    ===========

     The provision for income taxes before the cumulative  effect of a change in
accounting  principle  is  different  from the amount  that would be computed by
applying  the  United  States  corporate  income  tax  rate to the  income  from
operations before income taxes. The differences are summarized as follows:

<TABLE>
<CAPTION>
                                                          Year Ended September 30,
                                                     ----------------------------------
                                                        2001        2000         1999
                                                     ---------   ---------    ---------
<S>                                                  <C>         <C>          <C>
Provision at the federal rate                        $ 620,000   $ 706,000    $ 205,000
Effect of expenses not deductible for tax purposes      13,000      32,000       15,000
State tax provision                                     32,000     105,000       42,000
Change in valuation allowance                               --     (93,000)     (22,000)
Other items                                              5,000          --           --
                                                     ---------   ---------    ---------
Income tax provision                                 $ 670,000   $ 750,000    $ 240,000
                                                     =========   =========    =========
</TABLE>

     The tax assets  (liabilities)  comprising the net deferred tax asset are as
follows:

                                                        September 30,
                                                 --------------------------
                                                     2001           2000
                                                 -----------    -----------
Allowance for doubtful accounts                  $   263,000    $    59,000
Uniform capitalization of inventory costs            102,000        112,000
Inventory write-downs not currently deductible       202,000        147,000
Book vs. tax depreciation                            (18,000)        (7,000)
Unrealized currency losses (gains)                     2,000         (7,000)
State net operating loss carryforwards                    --         13,000
Liabilities not currently deductible                 974,000        260,000
                                                 -----------    -----------
Deferred income taxes                            $ 1,525,000    $   577,000
                                                 ===========    ===========

     Management  believes  that it is more likely than not that the Company will
realize all deferred tax assets.

                                      F-15
<PAGE>
(13) EARNINGS PER SHARE:

     All EPS data  presented  has been  restated as required by SFAS No. 128 for
the March 15, 1999 reverse stock split. EPS were calculated as follows:

<TABLE>
<CAPTION>
                                                          2001           2000            1999
                                                      -----------    -----------     -----------
<S>                                                   <C>            <C>             <C>
Net income                                            $   463,081    $ 1,325,421     $   362,307
Amortization of contingent consideration (Note 3)              --        (17,155)             --
                                                      -----------    -----------     -----------
                                                      $   463,081    $ 1,308,266     $   362,307
                                                      ===========    ===========     ===========
Weighted average shares outstanding:
Common stock                                            2,661,001      2,158,562       2,109,815
Common stock equivalents issuable upon exercise
  of warrants and stock options (1)                       160,582        144,053          79,386
Estimated common shares issuable as contingent
  consideration (Note 3)                                       --         33,882              --
                                                      -----------    -----------     -----------
Diluted shares                                          2,821,583      2,336,497       2,189,201
                                                      ===========    ===========     ===========

Earnings Per Share:
  Basic                                               $       .17    $       .61     $       .17
  Diluted                                             $       .16    $       .56     $       .17
</TABLE>

     (1)  Number of common stock equivalents calculated using the treasury stock
          method and the average  market  price  during the period.  Options and
          warrants on 45,700 shares,  143,300 shares and 1,492,500 shares had an
          exercise  price greater than the average market price during the years
          ended September 30, 2001, 2000 and 1999,  respectively,  and therefore
          did not enter into the EPS calculation.

(14) STOCK-BASED COMPENSATION:

     STOCK  WARRANTS - In connection  with the  acquisition of the net assets of
P.R.  Hoffman  Machine  Products,  Inc.  during fiscal 1997,  the Company issued
75,000  warrants to purchase  one share each of $.01 par value common stock at a
per share exercise price of $6.00.  These warrants  expire July 1, 2002 and were
valued at  $167,000  using  the  Black-Scholes  valuation  method.  The  primary
assumptions  used in the  valuation of these  warrants were a risk free interest
rate of 6.29%,  expected  dividend  yield of 0%,  average  holding period of 2.5
years, and 69% volatility.  The value of these warrants has been included in the
acquisition  cost  associated  with the purchase of the P. R. Hoffman net assets
(see Note 3).

     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 issuance 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.

     STOCK OPTION PLANS - The board of directors  has reserved  10,000 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  stockholders  in
1996 for the issuance of up to 100,000 shares of common stock to directors.  The
Amended and  Restated  1995 Stock Option Plan and the 1995 Stock Bonus Plan were
also approved by  stockholders  in 1996 under which a combined  total of 160,000
shares were authorized.  The 1998 Employee Stock Option Plan, under which 50,000
shares  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

                                      F-16
<PAGE>
under the 1998 Employee Stock Option Plan to 300,000. The amendment was approved
by the  shareholders  at the annual  meeting on March 15, 2001. All of the plans
expire in 2006. Qualified stock options issued under the terms of the plans have
or will have an exercise price equal to or greater than the fair market value of
the  common  stock at the date of the  option  grant and expire no later than 10
years from the date of grant,  with the most recent grant expiring July 7, 2010.
Under the terms of the 1995 Stock Option Plan,  nonqualified  stock  options may
also be issued.  Options issued in fiscal years 2001,  2000 and 1999 vest at the
rate of 20% - 33% per year.  As of September  30,  2001,  the Company had 65,908
options  available for issuance under the plans.  The stock option  transactions
and the options outstanding are summarized as follows:

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                           --------------------------------------------------------------------
                                                   2001                    2000                    1999
                                           --------------------    --------------------    --------------------
                                                       Weighted                Weighted                Weighted
                                                        Average                 Average                 Average
                                                       Exercise                Exercise                Exercise
                                            Options      Price      Options      Price      Options      Price
                                           --------    --------    --------    --------    --------    --------
<S>                                        <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at beginning of year            163,017     $ 1.74      227,292     $ 1.17      192,292     $ 4.52
Granted                                     258,750       5.88       25,000       4.75       41,500       1.38
Exercised                                    (9,950)      1.32      (89,275)      1.14           --         --
Terminated                                  (25,200)      1.13           --         --       (6,500)      1.13
                                           --------                --------                --------
Outstanding at end of year                  386,617       4.56      163,017       1.74      227,292       1.17
                                           ========                ========                ========
Exercisable at end of year                   60,049     $ 1.58       59,544     $ 1.16       72,117     $ 1.13
Weighted average fair value of
options granted                                         $ 4.64                  $ 3.08                  $ 1.55
</TABLE>

     On October 14, 1998, the Company re-priced all stock options outstanding as
of that  date to the  closing  market  price on that  date of $1.13  per  share.
Vesting schedules and expiration dates remain unchanged.  In accordance with APB
No. 25,  "Accounting for Stock Issued to Employees," the Company is not required
to record  compensation  expense  related to this re-pricing and no such expense
has been recorded in these financial statements.

     No  compensation  expense has been  recognized,  as all  options  have been
granted with an exercise  price equal to the fair value of the common stock upon
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  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,
                           ----------------------------------------------------
                                2001               2000               1999
                           --------------     --------------     --------------
Risk free interest rate     4.5% to 5.5%       6.1% to 6.7%       4.3% to 5.4%
Expected life               4 to 6 years       4 to 6 years       4 to 6 years
Dividend rate                    0%                 0%                 0%
Expected volatility        92.0% to 110.3%    64.6% to 76.0%     66.9 to 85.8%

     Had the  effects of  stock-based  compensation  been  accounted  for in the
financial  statements  using the  Black-Scholes  option pricing method,  the net
income  and  the  basic  and  diluted   earnings   per  share  would  have  been
approximately as follows:

                                      F-17
<PAGE>
                                            Year Ended September 30,
                                      ------------------------------------
                                         2001         2000         1999
                                      ----------   ----------   ----------
Net Income:
  As reported                         $  463,081   $1,325,421   $  362,307
  Pro forma                              290,000    1,240,000      232,000

Basic Earnings per share:
  As reported                         $      .17   $      .61   $      .17
  Pro forma                                  .11          .57          .11

Diluted Earnings per share:
  As reported                         $      .16   $      .56   $      .17
  Pro forma                                  .10          .52          .11

     The following table summarizes  information about stock options outstanding
at September 30, 2001:

<TABLE>
<CAPTION>
                   Options Outstanding                            Options Exercisable
----------------------------------------------------------     --------------------------
                Number                                             Number
            Outstanding at                                     Exercisable at
Exercise     September 30,       Remaining        Exercise      September 30,    Exercise
 Price           2001         Contractual Life     Price            2001           Price
--------    --------------    ----------------    --------     --------------    --------
<S>         <C>               <C>                 <C>          <C>               <C>
 $1.13          78,467              5.42           $1.13           45,949         $1.13
  1.25           5,000              7.26            1.25            2,000          1.25
  1.50          20,000              7.41            1.50            6,500          1.50
  2.00           2,900              8.00            2.00              100          2.00
  3.25           5,000              8.63            3.25            1,000          3.25
  4.36          58,750              9.51            4.36                0          4.36
  4.56           7,500              8.77            4.56            1,500          4.56
  5.56          10,000              9.16            5.56                0          5.56
  5.88          40,000              9.46            5.88                0          5.88
  6.50         150,000              9.45            6.50                0          6.50
  6.81           9,000              8.41            6.81            3,000          6.81
              --------                                            -------
               386,617                                             60,049
              ========                                            =======
</TABLE>

(15) SELECTED QUARTERLY FINANCIAL DATA APPLYING SAB 101 (UNAUDITED):

     The following unaudited selected quarterly financial data has been included
to  demonstrate  the  effect on fiscal  Quarter  1 through  Quarter  3, 2001 (as
previously  reported in fiscal 2001 10-Q  filings)  of  applying  the  Company's
revised revenue recognition  policy,  pursuant to the provisions of SAB 101 (see
Note 2), effective October 1, 2000.

<TABLE>
<CAPTION>
                                                             Year Ended September 30, 2001 (unaudited)
                                                      -------------------------------------------------------
                                                         First         Second          Third        Fourth
                                                        Quarter        Quarter        Quarter       Quarter
                                                      -----------    -----------    -----------   -----------
<S>                                                   <C>            <C>            <C>           <C>
Net revenues
  As previously reported (quarters 1 - 3)             $ 6,881,731    $ 7,025,583    $ 6,053,533
  Effect of change in accounting principle             (3,279,081)      (222,761)     1,969,378
                                                      -----------    -----------    -----------
  As restated in the first three quarters and
    reported in the fourth quarter                      3,602,650      6,802,822      8,022,911     4,423,537
                                                      ===========    ===========    ===========   ===========
</TABLE>

                                      F-18
<PAGE>
<TABLE>
<S>                                                   <C>            <C>            <C>           <C>
Gross margin
  As previously reported (quarters 1 - 3)               2,126,504      2,539,266      1,991,643
  Effect of change in accounting principle               (971,659)       (69,362)       129,992
                                                      -----------    -----------    -----------
  As restated in the first three quarters and
    reported in the fourth quarter                      1,154,845      2,469,904      2,121,635     1,131,276
                                                      ===========    ===========    ===========   ===========

Income (loss) before change in accounting principle
  As previously reported (quarters 1 - 3)                 561,514        748,372        401,954
  Effect of change in accounting principle               (588,397)       (63,067)        76,811
                                                      -----------    -----------    -----------
  As restated in the first three quarters and
    reported in the fourth quarter                        (26,883)       685,305        478,765        16,105

Cumulative effect of change in accounting
  principle, net of $410,000 tax benefit                 (690,211)            --             --            --
                                                      -----------    -----------    -----------   -----------
Net income (loss) as restated in first three
  quarters and reported in fourth quarter             $  (717,094)   $   685,305    $   478,765   $    16,105
                                                      ===========    ===========    ===========   ===========
EARNINGS (LOSS) PER SHARE:

Earnings (loss) per share - basic:
Income before cumulative effect of change in
accounting principle
As previously reported (quarters 1 - 3)               $       .22    $       .28    $       .15
Effect of change in accounting principle                     (.22)          (.02)           .03
                                                      -----------    -----------    -----------
  As restated in the first three quarters and
    reported in fourth quarter                               (.00)           .26            .18           .01

Cumulative effect of change in accounting
  principle, net of tax                                      (.26)            --             --            --
                                                      -----------    -----------    -----------   -----------

Basic earnings (loss) per share                       $      (.26)   $       .26    $       .18   $       .01
                                                      ===========    ===========    ===========   ===========

Earnings (loss) per share - diluted:
Income before cumulative effect of change in
accounting principle
As previously reported (quarters 1 - 3)               $       .20    $       .27    $       .14
Effect of change in accounting principle                     (.21)          (.02)           .03
                                                      -----------    -----------    -----------
  As restated in the first three quarters and
    reported in fourth quarter                               (.01)           .25            .17           .00

Cumulative effect of change in accounting
  principle, net of tax                                      (.25)            --             --            --
                                                      -----------    -----------    -----------   -----------
Diluted earnings (loss) per share                     $      (.26)   $       .25    $       .17   $       .00
                                                      ===========    ===========    ===========   ===========
</TABLE>

                                      F-19
<PAGE>
<TABLE>
<S>                                                   <C>            <C>            <C>           <C>
Fiscal Year 2000, as previously reported:
  Net product sales                                   $ 3,862,512    $ 4,549,100    $ 4,693,430   $ 5,922,404
  Gross Margin                                          1,226,594      1,680,868      1,672,613     2,048,811
  Net Income                                              130,827        267,170        292,495       634,929

Earnings (loss) per share:
  Basic                                               $       .06    $       .13    $       .14   $       .28
  Diluted                                             $       .06    $       .12    $       .13   $       .26
</TABLE>

                                      F-20
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

              FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                    For the Year     Balance at      Charged
                       Ended         Beginning      (credited)                     Balance at
                    September 30,     of Year       to Expense      Write-offs     End of Year
                    -------------     -------       ----------      ----------     -----------
<S>                 <C>              <C>            <C>             <C>            <C>
1. Allowance for
   Doubtful Accounts
                        2001         $ 149,000      $ 496,548       $  15,548      $ 630,000
                        2000           140,000         11,579           2,579        149,000
                        1999           143,000         29,144          32,144        140,000

2. Deferred Tax
   Valuation Allowance
                        2001         $      --      $      --       $      --      $      --
                        2000            93,000        (93,000)             --             --
                        1999           115,000        (22,000)             --         93,000

3. Reserve for
   Obsolete Inventory
                        2001         $ 370,125      $ 336,806       $ 191,568      $ 515,363
                        2000           301,439         74,239           5,553        370,125
                        1999           227,400        153,369          79,330        301,439
</TABLE>

                                      S-1
<PAGE>
                                    PART III

     Pursuant  to  Paragraph  G(3) of the  General  Instructions  to Form  10-K,
portions of the information  required by Part III of Form 10-K are  incorporated
by reference from the Company's  Proxy Statement to be filed with the Securities
and  Exchange   Commission  in  connection  with  the  2002  Annual  Meeting  of
Stockholders (the "Proxy Statement").

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 10. EXECUTIVE COMPENSATION

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                     PART IV

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

(a)  FINANCIAL STATEMENTS.

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

     1.   Consolidated Balance Sheets - September 30, 2001 and 2000

     2.   Consolidated  Statements of Operations  for the years ended  September
          30, 2001, 2000 and 1999

     3.   Consolidated  Statements of  Stockholders'  Equity for the years ended
          September 30, 2001, 2000 and 1999

     4.   Consolidated  Statements  of Cash Flows for the years ended  September
          30, 2001, 2000 and 1999

     5.   Notes to Consolidated  Financial Statements - September 30, 2001, 2000
          and 1999

                                       36
<PAGE>
(b)  FINANCIAL STATEMENT SCHEDULES

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

     1.   Schedule II - Valuation and Qualifying Accounts

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

(c)  EXHIBITS.

<TABLE>
<CAPTION>
   EXHIBIT                                                                                                 METHOD
     NO.        DESCRIPTION                                                                               OF FILING
     ---        -----------                                                                               ---------
<S>             <C>                                                                                       <C>
     3.1        Articles of Incorporation                                                                     A
     3.2        Articles of Amendment to Articles of Incorporation, dated April 27, 1983                      A
     3.3        Articles of Amendment to Articles of Incorporation, dated May 19, 1987                        B
     3.4        Articles of Amendment to Articles of Incorporation, dated May 2, 1988                         C
     3.5        Articles of Amendment to Articles of Incorporation, dated May 28, 1993                        F
     3.6        Articles of Amendment to Articles of Incorporation, dated March 14, 1999                      M
     3.7        Amended and Restated Bylaws                                                                   D
     4.1        Rights Agreement dated May 17, 1999                                                           K
    10.1        Amended and Restated 1995 Stock Option Plan                                                   G
    10.2        1995 Stock Bonus Plan                                                                         G
    10.3        Non-Employee Director Stock Option Plan                                                       H
    10.4        Employment Agreement with Robert T. Hass, dated May 19, 1992                                  E
    10.5        Registration Rights Agreement with J.S. Whang, dated January 24, 1994                         F
    10.6        Asset Purchase  Agreement,  dated July 1, 1997,  among the Registrant,
                P.R. Hoffman Machines Corporation and John R. Krieger                                         I
    10.7        1998 Employee Stock Option Plan                                                               J
    10.8        Sublease Agreement, dated July 1, 1999, between the Registrant and John R. Krieger            O
    10.9        Warrant to Purchase Common Stock, dated September 8, 2000                                     N
   10.10        Stock and Warrant Purchase Agreement, dated September 8, 2000                                 N
   10.11        Employment Agreement, dated March 15, 2001, between the Registrant and Jong S. Whang          P
      21        Subsidiaries of the Registrant                                                                L
      23        Consent of Independent Public Accountant                                                      *
      24        Powers of Attorney                                                                           See
                                                                                                           Signature
                                                                                                             Page
</TABLE>

                                       37
<PAGE>
*    Filed herewith.

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

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

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

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

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

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

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

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

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

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

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

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

M    Incorporated  by reference to the Company's  Proxy Statement for the annual
     shareholders meeting held on February 26, 1999.

N    Incorporated by reference to the Company's Current Report on Form 8-K dated
     September 22, 2000.

O    Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended September 30, 1999.

P    Incorporated  by reference to the Company's  Quarterly  Report on Form 10-Q
     for the quarter ended March 31, 2001.

(d)  Reports on Form 8-K.

     The Company did not file any Current  Reports on Form 8-K during the fiscal
     quarter ended September 30, 2001.

                                       38
<PAGE>
                                   SIGNATURES

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


                                             AMTECH SYSTEMS, INC.


January 14, 2002                             By: /s/ Jong S. Whang
                                                 ---------------------------
                                                 Jong S. Whang, President

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints  JONG S. WHANG and ROBERT T. HASS,  and each of
them,  his true and  lawful  attorneys-in-fact  and  agents,  with full power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all capacities,  to sign any and all amendments to this 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. Whang            Chairman of the Board, President   January 14, 2002
-------------------------    (Principal Executive Officer)
Jong S. Whang

/s/ Robert T. Hass           Vice President-Finance and         January 14, 2002
-------------------------    Director (Chief Financial &
Robert T. Hass               Accounting Officer)

/s/ Donald F. Johnston       Director                           January 14, 2002
-------------------------
Donald F. Johnston

/s/ Alvin Katz               Director                           January 14, 2002
-------------------------
Alvin Katz

/s/ Bruce R. Thaw            Director                           January 14, 2002
-------------------------
Bruce R. Thaw

                                       39