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

                                    FORM 10-K

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

                  For the Fiscal Year Ended September 30, 1997

                         Commission File Number 0-25424


                                 SEMITOOL, INC.
             (Exact Name of Registrant as Specified in Its Charter)

             Montana                                        81-0384392
  -------------------------------                       -------------------
  (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                        Identification No.)

                                 Semitool, Inc.
                655 West Reserve Drive, Kalispell, Montana 59901
                                 (406) 752-2107
          (Address,  including zip code,  and telephone  number,  including area
             code, of registrant's principal executive offices)

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

                                                    Name of each exchange on
          Title of each class                           which registered
      --------------------------                    ------------------------
      Common Stock, no par value                    Nasdaq National Market

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

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.

Yes [X]           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]

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the registrant on December 9, 1997 (based on the last reported
sale price on the Nasdaq National Market as of such date) was $105,841,379.

The number of shares of the registrant's Common Stock, no par value, outstanding
as of December 9, 1997 was 13,770,923.

                       DOCUMENTS INCORPORATED BY REFERENCE

There is  incorporated  by reference  in Part III of this Annual  Report on Form
10-K the information  contained in the  registrant's  definitive proxy statement
for its annual meeting of shareholders to be held February 9, 1998.


<PAGE>



                                     PART I


Item 1.   Business

Introduction

Statements  contained in this Report on Form 10-K which are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  21E  of the
Securities  Exchange  Act of 1934,  as amended,  including  without  limitation,
statements  regarding  trends  in the  semiconductor  industry,  future  product
development, strategic business development, pursuit of new and growing markets,
competition,  patent  filings,  results  from  operations,  and the  adequacy of
manufacturing facilities,  and are subject to the safe harbor provisions created
by that  statute.  A  forward-looking  statement may contain words such as "will
continue to be," "will be," "continue to," "expect to," "anticipates  that," "to
be" or "can impact."  Management  cautions that  forward-looking  statements are
subject to risks and uncertainties that could cause the Company's actual results
to differ  materially from those projected in such  forward-looking  statements.
These risks and  uncertainties  include,  but are not  limited to, the  cyclical
nature of the semiconductor  industry in general,  lack of market acceptance for
new products,  decreasing demand for the Company's existing products,  impact of
competitive  products and pricing,  product development,  commercialization  and
technological  difficulties,  capacity and supply  constraint  difficulties  and
other risks detailed under the heading "Risk Factors" and elsewhere herein.  The
Company's  future  results will depend on its ability to continue to enhance its
existing  products  and to develop and  manufacture  new products and to finance
such  activities.  There can be no assurance that the Company will be successful
in the  introduction,  marketing  and  cost-effective  manufacture  of  any  new
products or that the Company  will be able to develop and  introduce in a timely
manner new products or enhancements to its existing products and processes which
satisfy customer needs or achieve widespread market acceptance.

The Company  undertakes no obligation  to release  revisions to  forward-looking
statements  to  reflect  subsequent  events,  changed   circumstances,   or  the
occurrence of unanticipated events.

The Company

Semitool,  Inc.,  (Semitool or the Company) a Montana  corporation  organized in
1979,  designs,  manufactures,  markets  and  services  equipment  used  in  the
fabrication of  semiconductors.  The Company's products include batch and single
substrate chemical  processing tools,  thermal processing  equipment,  including
thermal   process  control   systems,   wafer  carrier   cleaning   systems  and
electrochemical  deposition  (ECD)  systems.  Many of these systems  include the
Company's own  proprietary  robotics.  These  products  incorporate  proprietary
designs and technologies to enable  customers to perform advanced  semiconductor
fabrication  processes.  The process steps  performed by the Company's  products
occur  repeatedly  throughout the fabrication  cycle, and constitute an integral
part of the  manufacturing  process for virtually every  semiconductor  produced
today. The Company's products are also used to manufacture materials and devices
fabricated  with  similar  processes,  including  thin film  heads,  flat  panel
displays, multichip modules, ink jet print heads, compact disc masters, and hard
disk media.  The  Company's  products  are designed to provide  improved  yields
through  higher  process   uniformity  and  reduced   contamination,   increased
throughput through advanced processes which reduce cycle times, and lower direct
costs  through  reduced  consumables  usage  and  smaller  footprints,   thereby
providing  lower  overall  cost of  ownership.  The  Company's  ECD  systems are
designed  to  allow  the  semiconductor  industry  to make the  transition  from
aluminum to copper  interconnects in order to improve  performance and cost. The
Company markets and sells its products to customers worldwide.

Industry Background

Overview

The fabrication of semiconductor  devices is a complex process involving several
distinct phases repeated numerous times during the fabrication  process.  As the
semiconductor  industry  makes the transition to copper  interconnects,  some of
these processing steps will by necessity change.  Each production phase requires
different  processing  technology  and  equipment,   and  no  one  semiconductor
equipment  supplier currently  produces an entire  state-of-the-art  fabrication
system.   Rather,   semiconductor  device   manufacturers   typically  construct
fabrication facilities by combining  manufacturing equipment produced by several
different   suppliers,   each  of  which  performs  specific  functions  in  the
manufacturing process.

The thin film head, flat panel display,  multichip module and ink jet print head
fabrication  processes  utilize  many of the same basic  technological  building
blocks  as does  the  semiconductor  manufacturing  industry,  in  that  certain
production  equipment  provides the same basic  function or  applications  for a
substrate as semiconductor manufacturing equipment does for a silicon wafer. The
flat  panel  display  and thin  film  head  markets,  while  not as large as the
semiconductor   device  market,   have  over  the  past  few  years  experienced
significant growth.

Industries that use semiconductors are demanding  increasingly  complex,  higher
performance devices. Fabrication of these devices requires increasing the number
of process steps and reducing  feature  sizes,  necessitating  narrower  process
tolerances which makes it more difficult to maintain  acceptable  yields.  These
factors, together with the industry migration to larger wafer sizes, have led to
a substantial increase in the manufacturers' per wafer investment, which in turn
has caused these manufacturers to intensify their efforts to maintain acceptable
yields.  As a result,  manufacturers  demand  equipment  that provides  superior
process results and yields and can accommodate larger wafers and new materials.

The  Company  believes  that  semiconductor   device  manufacturers  are  asking
equipment  suppliers  to  take  an  increasingly  active  role  in  meeting  the
manufacturers'  technology  requirements  and cost constraints by developing and
supporting the products and processes  required to fabricate  advanced products.
Certain  manufacturers  are  seeking  strategic   relationships  with  equipment
suppliers for specific process steps on existing and new products.  As a result,
equipment  companies  are being  asked to provide  advanced  process  expertise,
superior product performance,  reduced overall cost of ownership,  and worldwide
customer support to better meet the needs of manufacturers.

Electrochemical Deposition

Traditionally,  semiconductors  have used  aluminum to connect  the  millions of
transistors  on a micro chip. As line  geometries  become smaller to accommodate
the ever shrinking  chip,  aluminum  becomes  increasing  less efficient to use.
Copper has long been known to have superior electrical  properties when compared
to  aluminum,  but due to its high  mobility,  copper will  migrate  through the
device and poison the transistor.  Recent barrier layer  technology has overcome
this hurdle thus allowing the use of copper interconnects on devices. The use of
copper  interconnects  will require  major changes in how future micro chips are
manufactured.  Existing  equipment  used with aluminum  cannot be retrofitted to
economically  deposit  interconnect  layers of copper with  acceptable  quality.
Different methods will be used for copper and will require different  processing
tools.

Other  applications  for  electrochemical  deposition  are emerging  such as the
deposition of gold  interconnects on gallium arsenide in the manufacture of high
speed  communication  devices.  The  process  can also be used to  automate  the
soldering required on devices utilizing flip chip technology and the manufacture
of thin-film heads and ink-jet print heads can also be enhanced by ECD.

Chemical Processing

The fabrication of semiconductors  involves  numerous  distinct  processes which
can,  depending on the complexity of the device,  exceed 250 steps. The chemical
processing steps involved can include cleaning, developing,  stripping, etching,
milling,  plating, and coating.  Such chemical processes have traditionally been
performed using wet-benches which consist of open chemical and rinse tanks, into
which  cassettes  of wafers are  immersed,  either  manually  or  automatically.
Multiple  process steps are performed by  transferring  wafers from one chemical
bath to  another.  There  are  significant  disadvantages  relating  to  process
uniformity and contamination control inherent in wet-bench processing, which are
becoming increasingly problematic as process tolerances narrow. Wet-benches also
lack the flexibility to readily change  processes,  and are relatively costly to
operate  because they consume large amounts of process  chemicals and have large
footprints that use valuable clean room space.

Thermal Processing

Thermal processing generally addresses the  oxidation/diffusion and low pressure
chemical  vapor  deposition  (LPCVD)  steps  of  the  semiconductor  fabrication
process. Conventional vertical furnaces require loading a batch of wafers into a
rack which is then lifted into an open, heated process chamber. The inability to
control and vary the  environment  within the process  chamber prior to exposing
the wafers to heat can result in unintended oxide growth. Moreover, conventional
vertical furnaces are not capable of performing  multiple processes in a single,
continuously  controlled  environment,  making it  necessary to move wafers from
furnace to furnace to perform sequential  processing.  This requires  purchasing
and operating multiple furnaces,  which constrains  throughput and increases the
risk  of  wafer  contamination.   Conventional  vertical  furnaces  also  create
variances in process  exposure times of individual  wafers (the first wafer into
the  furnace is the last wafer out),  causing  non-uniformity  of process  among
wafers. In addition, the vibration caused by loading the rack of wafers into the
process chamber can create particulate contamination that reduces yield.

Cost of Ownership

As a  result  of  the  increasing  cost  of  equipping  fabrication  facilities,
semiconductor  manufacturers are placing greater  importance on the overall cost
of ownership of each piece of process equipment.  The principal elements of cost
of ownership are yield,  throughput  and direct costs.  Yield,  or the number of
good die per wafer, is primarily  determined by contamination levels and process
uniformity.  Achieving  high yields  becomes more critical to  manufacturers  as
their  per  wafer  investment  increases.  Throughput,  or the  number of wafers
processed by a particular tool in a given period, is primarily a function of the
time required to complete a process cycle and the handling time between  process
steps. Major components of direct cost include the amount of consumables used in
the  manufacturing  process,  the cost of the clean room space  occupied  by the
equipment  (i.e.,  the  "footprint") and the purchase price of the equipment and
other  operating  costs.  The ability to maintain  acceptable  cost of ownership
levels becomes increasingly  challenging as manufacturing  processes become more
complex and process tolerances narrow.

The Semitool Solution

The Company has  developed a broad range of products  that enables its customers
to perform advanced fabrication  processes.  The Company's products are designed
to provide  improved  yields  through  higher  process  uniformity  and  reduced
contamination,  increased  throughput  through  advanced  processes which reduce
cycle times,  and lower direct costs through  reduced usage of  consumables  and
smaller  footprints,  thereby  providing  lower overall cost of  ownership.  The
process steps performed by the Company's  products occur  repeatedly  throughout
the  fabrication  cycle and  constitute  an integral  part of the  manufacturing
process for virtually every semiconductor produced today. The Company's products
include  chemical  processing  tools,  thermal  processing  equipment  and wafer
carrier cleaning systems.

Chemical Processing Equipment

The Company's batch and single substrate  processing  equipment employs chemical
spray multi-processing  within a self-cleaning,  enclosed process chamber. These
tools enable customers to conduct sequential chemical processing steps, and then
rinse  and  centrifugally  dry  substrates,  within  the same  chamber,  thereby
reducing contamination during and between process steps. Spray technology avoids
non-uniformity of process inherent in traditional wet-bench immersion processing
by applying the process chemicals via spray manifolds.  This technique  enhances
chemical reaction on the substrate surface,  which increases process reliability
and shortens process cycle times.  The enclosed process chamber  technology also
allows  for more  efficient  use and  disposal  of  process  chemicals  (through
reclamation, filtration and recirculation) as well as increased operator safety.
The Company's spin rinser/dryer  also utilizes the spray and centrifugal  drying
technologies to remove chemical residue from the wafer surface.  The Company has
developed fully automated  platforms that cluster multiple  chemical  processing
modules for both silicon wafers and the glass substrates used in the fabrication
of flat panel displays, thereby  further increasing  yield and  throughput,  and
providing a total  process  solution  in a single unit with a smaller  footprint
than conventional wet-benches.

Electrochemical Processing Equipment

The Company's  single wafer  processing  platform is also  configured to perform
copper  ECD.   Copper  has  several   advantages  over  the  aluminum  that  has
traditionally  been used for device  interconnects.  Copper  will  significantly
minimize the number of metal layers required, will reduce heat dissipation, will
reduce manufacturing cost, and will increase chip speed. Copper has a resistance
of 1.2 micro ohm/cm,  while  aluminum has a resistance  of 3.1 micro ohm/cm,  so
much  smaller  lines of  copper  have the same  current-carrying  capability  as
today's  aluminum  interconnects.   Using  copper  for  interconnects  has  been
discussed  for  years,  but  the  process  required  a few  recently  discovered
technological  innovations  to occur  before it was  feasible.  Coupled with the
roadblock  that  aluminum  is facing  below  .25mm,  a number  of  semiconductor
manufacturers have announced that copper will be used on their devices with line
widths of .18mm and below. Although,  electroplating  technology has been in use
for a  long  time,  until  now,  it  has  not  been  considered  for  use in the
semiconductor  industry.  The  basic  process  is fairly  simple,  with a cathod
drawing the copper in  solution  from a solid  anode.  Semitool,  utilizing  its
single wafer processing  platform,  adds value by providing the industry's first
semiconductor production-ready,  fully automated plating tool. The tool has been
designed specifically for optimizing the clean room space required.

Thermal Processing Equipment

The Company's  vertical furnace employs a patented "double lift" process chamber
design which provides a continuously  controlled process environment that allows
for sequential  processing  steps to be performed in the same enclosed  chamber.
This design enables the customer to control and vary the environment  within the
sealed process chamber,  thereby avoiding unintended oxide growth and minimizing
the   non-uniformity  of  process  resulting  from  varying  exposure  times  of
individual   wafers.  In  addition,   the  Company's  vertical  furnace  reduces
contamination by employing a fixed quartz process tower that remains  stationary
throughout  loading and  processing.  The double lift design permits the heating
element to be lifted away from the sealed process  chamber,  allowing  wafers to
cool more rapidly in a controlled  environment,  thereby  improving  the overall
cycle time of the thermal process.  The Company has developed a vertical furnace
with fast ramp,  model-based  temperature  control  technology  which provides a
shortened  period  to reach  desired  processing  temperature  thereby  allowing
increased throughput.

Wafer Carrier Cleaning System

The Company has developed  sophisticated  cleaning systems for the cassettes and
boxes used to carry and store finished and in-process substrates.  The Company's
wafer carrier  cleaning  systems allow  customers to increase yields by reducing
particulate  contamination.  In  contrast  to  traditional  cleaning  and drying
methods,  the Company's  cleaning systems employ  centrifugal drying technology,
which  eliminates  the carrier  deformation  that can result  from  conventional
drying and reduces the  contamination  that results from  residues  left on heat
dried surfaces. The double door design allows contaminated carriers to be loaded
outside the clean room. Once cleaned and dried, the carriers are then moved into
the clean  room  environment.  In this  manner,  neither  the clean room nor the
carriers are contaminated.

The Semitool Strategy

The key elements of the Company's business strategy are as follows:

         Develop  Innovative  Solutions.  The Company is committed to developing
new products,  new  applications  for existing  products and enhancing  existing
products to address  evolving  process  requirements.  Accordingly,  the Company
devotes   substantial   resources  to  product   innovation  and   collaborative
development efforts.

         Offer a Broad Range of Products to  Customers in Diverse  Markets.  The
Company  focuses  on  offering a broad  range of  products,  including  chemical
processing  tools,   electrochemical   deposition  systems,  thermal  processing
equipment and wafer carrier cleaning systems, to semiconductor manufacturers for
use in diverse process  applications.  The Company  leverages its technology and
expertise  to provide  solutions to  manufacturers  of other  products  that are
fabricated  using  similar  processes,  such  as thin  film  heads,  flat  panel
displays, multichip modules, ink jet print heads, compact disc masters, and hard
disk media. Some of these other  applications  involve  substrates with surfaces
larger than the current typical semiconductor substrates. By providing solutions
for  applications  involving  larger  substrates,  the Company believes it gains
valuable  expertise which can be later applied to the semiconductor  industry as
semiconductor  substrates  continue to increase in size. By  addressing  diverse
markets, the Company seeks to increase its product sales and reduce its reliance
on the semiconductor industry.

         Capitalize on  Manufacturing  Expertise.  The  Company's  manufacturing
strategy is to identify and perform  internally  those  manufacturing  functions
which add value to the Company's  products.  The Company  believes it achieves a
number of competitive  advantages from its vertically  integrated  manufacturing
operations,  including  the  ability to achieve  cost and quality  benefits,  to
quickly bring new products and product enhancements to market and the ability to
produce sophisticated component parts not available from other sources.

         Focus  on  Overall  Cost  of   Ownership.   The  Company   designs  and
manufactures  equipment  solutions  designed to provide its  customers  with low
overall cost of ownership.  The technologies  employed by the Company's chemical
processing tools provide higher yield, greater throughput, more efficient use of
consumables and smaller footprints than conventional wet-benches. The Magnum and
Centurium cluster multiple process modules into a single automated tool, thereby
providing further cost of ownership advantages. The Company's thermal processing
equipment  also  provides  cost of ownership  advantages  by  enhancing  process
uniformity and reducing contamination that results in corresponding increases in
yields.  Additionally,  the  Company  believes  its  ECD  systems  will  provide
significant cost of ownership  advantages over  conventional  equipment used for
aluminum.

         Address Worldwide  Markets.  The Company markets and sells its products
worldwide  with  emphasis  on  Europe  and Asia as its  principal  international
markets.  The  Company  believes  the  strength of its  international  sales and
service organizations is important to its continued success in these markets. To
facilitate its worldwide marketing strategy,  the Company has dedicated European
sales and support  organizations  in  England,  France,  Germany and Italy.  The
Company  intends  to  continue  to  aggressively  pursue  the Asian  market  and
therefore, the company has augmented its offices in Japan, Korea and Taiwan. See
Note 10 of  Notes  to the  Consolidated  Financial  Statements  for a  breakdown
between domestic and foreign sales.

Products

The Company designs,  manufactures and sells batch and single substrate chemical
processing  tools,   electrochemical   deposition  systems,  thermal  processing
equipment and wafer carrier cleaning systems.

Chemical Processing

Batch  Chemical  Processing.  The  Company's  batch  chemical  processing  tools
incorporate  centrifugal  spray  technology to process  wafers and substrates by
exposing them to a  user-programmable,  sequenced  spray of chemicals  inside an
enclosed chamber. Utilizing these tools, cassettes filled with wafers are loaded
into a rotating  fixture  mounted in a process  chamber.  The process chamber is
then sealed and chemicals are sequentially  dispensed into the chamber via spray
manifolds in a closed-loop system. As the rotating fixture turns the cassette, a
chemical  spray is  applied  to the  wafer  surfaces.  This  technique  enhances
chemical reaction on the substrate surface,  which increases process reliability
and shortens process cycle times.  After  application of the process  chemicals,
deionized  ("DI")  water can be sprayed  into the  chamber to stop the  chemical
reaction and to remove chemical residues.  The wafers,  cassette and chamber are
then dried by centrifugal spinning coupled with a flow of warm nitrogen,  either
in the same process chamber or in an adjacent  rinser/dryer  module. The Company
believes its batch spray chemical processing tools offer significant  advantages
over  conventional  wet-benches.  These  advantages  include  higher  yields (by
providing  better  process  uniformity  and  lower  particulate  contamination),
increased  throughput  (by  providing  shorter  process cycle times) and reduced
direct  costs  (by  providing  more  effective  use  of  chemicals  and  smaller
footprints),  thereby  providing  lower  overall  cost of  ownership.  All batch
chemical processing tools are 300mm ready.

The Company's manually loaded batch spray chemical  processing  products include
the Spray Acid Tool and the Spray Solvent  Tool.  The surfaces of the Spray Acid
Tool  that  are  exposed  to  acids  are  made  entirely  of  teflon  and  other
acid-resistant   materials.   This  tool  addresses  applications  that  include
resist-stripping,  pre-diffusion  cleaning,  oxide etching,  polymer removal and
chemical  milling.  The Company's  Spray  Solvent Tool is primarily  made out of
stainless steel and addresses processes which use solvents to dissolve and strip
the  lithographic  media from substrate  surfaces,  remove polymer  residues and
develop  lithographic  images on  substrate  surfaces.  In addition to customary
semiconductor  applications,  the Spray Acid Tools and Spray  Solvent  Tools are
being used to  manufacture  a variety  of other  products  including  flat panel
displays  and thin  film  heads,  and are used with  substrates  as large as 500
millimeters square. The closed-loop/closed-chamber system of the Company's batch
spray processing tools allows for reclamation,  filtration and  recirculation of
chemicals,  resulting  in reduced  chemical  consumption,  better  environmental
control and enhanced operator safety. The purchase prices of the Company's batch
chemical  processing  tools  range  from  $150,000  to  $750,000,  depending  on
configuration. Both tools types have been upgraded for 300mm substrates.

The Company's  manually loaded Spin  Rinser/Dryer is used primarily for removing
chemical  residues from substrate  surfaces with DI water, and utilizes the same
enclosed chamber,  spray processing and centrifugal drying technologies employed
in the Company's Spray Acid Tools and Spray Solvent Tools. The Spin Rinser/Dryer
incorporates  a DI water  resistivity  monitor to ensure the  required  level of
cleanliness.  The Company  introduced the Spin  Rinser/Dryer  in 1979 and, as of
September 30, 1997, had delivered  over 22,000 units to customers.  The purchase
price of the Spin  Rinser/Dryer  ranges from $10,000 to  $150,000,  depending on
configuration.   The  Spin  Rinser/Dryer  has  been  upgraded  to  handle  300mm
substrates.

The Magnum and  Magnum 3000 are  multimodule  chemical  processing  tools  which
cluster the Company's  solvent,  acid and spin  rinser/dryer  capabilities  into
single automated unit. The tools incorporate  Company-designed advanced robotics
which employ fiber optic  communications,  absolute positioning and linear motor
tracking to ensure precise, reliable and particle-free automated wafer handling.
Both offer standard  mechanical  interface  ("SMIF") loading  capabilities and a
touch screen  computer  interface  customized  for ease of operation.  The tools
provide  customers  with  the  flexibility  to mix and  match  process  modules,
including  immersion  modules  as  appropriate,  thereby  providing  them with a
complete  chemical   processing   solution  to  meet  their  particular  process
requirements.  The Magnums possess significant  competitive advantages over both
stand-alone tools and other automated products, including the ability to replace
two or  more  wet-benches  with a  single,  smaller  footprint  tool  as well as
increased  yields and increased  throughput per square foot of clean room space.
Magnum's  latest  innovations  include  the  Magnum  3000  designed  for the new
state-of-the-art  300mm wafer fabs currently  planned by customers.  The Company
believes  that the installed  base of its widely  accepted  chemical  processing
tools has facilitated  market  acceptance of the Magnums.  The purchase price of
the Magnum and Magnum 3000 ranges from $900,000 to over $2.4 million,  depending
on configuration.

Single Substrate Processing

Electrochemical Deposition. Semitool offers two styles of fully automated single
wafer processing  tools that are designed for  electrochemical  deposition.  The
first  generation  tool  utilizes a radial  configuration  and is  designed  for
research and development,  preproduction and production applications. The second
generation,  LT-210, uses a linear  configuration  designed for high through-put
manufacturing.  The LT-210 employs two track robots to feed process chambers and
has automatic  electrolyte  dosing systems to ensure constant  solution strength
for  repeatability  of  deposition,   and  various  proprietary  systems  ensure
uniformity of plating across the wafer. The LT-210 consistently  deposits copper
films with superior step coverage, lower electrical resistance, at a lower price
and at a rate  faster  than is  possible  with  conventional  vacuum  deposition
systems. Both models plate copper for device  interconnects,  gold or solder for
bonding bumps, copper for ink jet devices and copper for magneto resistive heads
used in hard drives.

Cleaning.  The  Company's  Equinox  addresses  the needs of customers  employing
single substrate processing for specialized applications. The Equinox utilizes a
variety of processes,  including immersion,  spray,  hydrofluoric acid vapor and
infrared heating, to address cleaning,  stripping,  etching and developing.  All
such processes are performed with the substrate suspended device side down in an
enclosed process chamber.  This face down positioning allows for enhanced liquid
or gas  delivery  of the  process  chemicals  to the  substrate,  and results in
greater process uniformity and reduced contamination.  The Equinox is a flexible
platform which may contain  multiple  process  chambers,  allowing  customers to
cluster multiple process  technologies into a single tool to perform  sequential
processes.  The Equinox has been used to process ceramic  substrates,  thin film
heads and photo masks in addition to its customary  silicon and gallium arsenide
wafer applications.  In addition to offering complete Equinox tools, the Company
also  offers  Equinox  technologies  to  original  equipment  manufacturers  for
integration  into other  upstream or  downstream  process  equipment,  including
thermal  technologies.  The price of the Equinox  ranges  from  $150,000 to $2.0
million, depending on configuration.

Thermal Processing

The Company's VTP 1500 and EXPRESS  vertical  furnaces  employ a patented design
which provides a continuously  controlled  process  environment  that allows for
oxidation/diffusion   and  LPCVD  processing  steps  such  as  gate  oxide/poly,
oxide/nitride and  oxide/nitride/oxide  to be performed sequentially in the same
processing  chamber.  The Company's furnaces feature a stationary base plate and
quartz process tower with a patented double lift system which allows the process
chamber and heating element to each be raised and lowered independently over the
process tower. The furnace's quartz tower is loaded with wafers by a simple pick
and place robot (thereby avoiding the risk of particle  contamination  caused by
loading the wafers in batches) and the process  chamber is then lowered over the
wafers.  The atmosphere within the process chamber is removed by vacuum purging,
creating an inert  environment.  The heating  element is then  lowered  over the
sealed process chamber.  The inert environment  prevents chemical reactions from
occurring  until the heating element is fully in place, at which time processing
can be conducted by injecting the process tube with the appropriate  active gas.
This design avoids  variances in process  exposure  times of individual  wafers,
preventing  the   non-uniformity   inherent  in  traditional   vertical  furnace
processing.  Because the process tube may be purged and alternative active gases
introduced  in  a  sequential  manner,  wafers  can  remain  in  a  continuously
controlled  environment for multiple  discrete  thermal  processing  steps.  The
Company believes that this sequential,  or "in situ," processing capability is a
significant  competitive advantage of its furnaces.  The double lift design also
permits the heating  element to be lifted away from the sealed process  chamber,
allowing  wafers to cool  more  rapidly  in a  controlled  environment,  thereby
improving  overall  thermal  processing  cycle time of the thermal  process.  In
addition,  the furnaces  have the  flexibility  to be quickly  reconfigured  for
varying processes and can be easily upgraded to accommodate  larger wafer sizes.
The  Company  believes  its  furnaces  produce  higher  quality  film with fewer
impurities and increased electrical  properties,  and have been designed to meet
manufacturers'  requirements  for the production of  semiconductor  devices with
line  geometries as small as .18 micron.  The prices of the VTP 1500 and EXPRESS
range from $600,000 to $1.5 million, depending on configuration. The EXPRESS has
been upgraded to handle 300mm wafers.

The  Company,  through  its  Semy  Engineering,  Inc.  subsidiary,  manufactures
equipment  supervisory  workstations  that  upgrade  diffusion  and low pressure
chemical deposition furnaces with state-of-the-art control features. The Company
has also recently  introduced  equipment  supervisory  workstations that provide
data  collection,  analysis and control for a wide variety of process  tools and
fab supervisory workstations that work in concert with the equipment supervisory
workstations and provide fab wide process information.

Wafer Carrier Cleaning

Silicon wafers are stored, handled and processed in cassettes.  Cassettes filled
with  wafers  are  placed in  plastic  boxes  for  transportation  and  storage.
Significant  increases in yields may be attained through  effective  cleaning of
these  cassettes  and boxes.  Wafer  carriers  have  commonly been cleaned using
commercial  dishwasher  or conveyor  type methods in which they are spray washed
and then dried using hot compressed gases.  Because boxes and cassettes are made
of plastics,  the drying  process can distort the boxes and cassettes and result
in subsequent wafer damage or  contamination.  The Company's Storm wafer carrier
cleaning system cleans and dries the wafer carriers in a unique rinsing/spinning
process that occurs inside an enclosed  chamber.  Solution is sprayed,  cleaning
both the boxes and  cassettes  and the inside of the  chamber,  followed by a DI
water rinse. The boxes and cassettes are then dried using  centrifugal force and
warm filtered  ambient air. The Storm monitors the humidity  inside the enclosed
process chamber to ensure  consistent  drying results.  The Company believes the
Storm removes  particles more effectively than  conventional  technology and has
the lowest cost of ownership of any commercially  available cleaning system. The
Storm  also  has  a  patented  loading  feature  that  allows   through-the-wall
installation  whereby  unwashed boxes and cassettes can be loaded into the Storm
from outside the clean room and then unloaded directly into the clean room after
the cleaning cycle has been completed.  This feature enables  customers to avoid
bringing  contaminated  boxes and cassettes  into the clean room. The price of a
Storm ranges from $190,000 to $400,000, depending on configuration.

Spare Parts and Service

The Company sells spare part kits and spare part  components  for its equipment.
The Company employs customer  service and process  engineers to assist and train
the Company's  customers in  performing  preventive  maintenance  and service on
Semitool  equipment and developing process  applications for the equipment.  The
Company generally  provides a one year parts and labor warranty on equipment and
a 90-day  warranty on parts.  The Company offers a variety of process,  service,
and maintenance  programs that may be purchased for a fee. A number of customers
have purchased  maintenance  contracts  whereby the Company's  service employees
work full-time at the customer's  facility,  and provide service and maintenance
support for Semitool equipment.

Customers, Sales and Marketing

The Company's customers include leading semiconductor manufacturers worldwide as
well as major  manufacturers of thin film heads, flat panel displays,  multichip
modules,  ink jet print heads,  compact disc masters,  and hard disk media.  The
following is a  representative  list of the Company's  largest United States and
international end-user customers, which had purchases in excess of $2,000,000 in
fiscal 1997:

Advanced Micro Devices        LSI                          Oliver Design
Atmel                         Lucent Technologies          Seagate
Fujitsu                       MASCA / Matsushita Semi.     SGS-Thomson
Hewlett-Packard               Micro Chip Corporation       Siemens
Hyundai Electronics           Motorola                     Texas Instruments
IBM                           National Semiconductor       TRW
Intel                         Newport Wafer                VLSI Technology


The Company believes that its sales, service and customer support  organizations
are important to the long-term success of its customer relationships.

International  sales,  primarily in Europe and Asia accounted for  approximately
36%,  44% and  40% of  total  sales  for  fiscal  years  1997,  1996  and  1995,
respectively.  The  Company  markets  and sells its  products  in North  America
through  its sales  organization  which  includes  direct  sales  personnel  and
independent sales  representatives.  The Company currently has sales and service
offices located  throughout the United States. In Europe, the Company has direct
sales  personnel.  In Asia, the Company sells through direct sales personnel and
independent  sales  representatives  as well as through Tokyo Electron,  Limited
("TEL") pursuant to a non-exclusive  distribution  agreement,  whereby TEL sells
the Company's  stand-alone batch and single substrate spray chemical  processing
products (except  electrochemical  deposition  products) in Japan. To supplement
TEL's sales  efforts,  the Company has a direct  sales  operation  in Japan.  To
enhance its sales  capabilities,  the  Company  maintains  a  demonstration  and
process  development  laboratory  and a  clean  room at its  Kalispell,  Montana
facility.

The Company  currently  provides a one year  warranty on equipment  and a 90-day
warranty on parts.  The  Company has field  service  personnel  and  application
engineers  servicing  customers  in the  United  States,  Europe  and Asia,  who
directly  provide  warranty   service,   post-warranty   service  and  equipment
installations.  Field service engineers are located in nine sites throughout the
United States,  including dedicated  site-specific engineers in place at certain
customer  locations  pursuant to  contractual  arrangements.  To further  ensure
customer  satisfaction,  the  Company  also  provides  service  and  maintenance
training as well as process application training for its customers' personnel on
a fee basis. The Company  maintains an extensive  inventory of spare parts which
allows the Company to provide  overnight  delivery for many parts. The Company's
vertically  integrated  manufacturing  allows the Company to quickly manufacture
parts to address customers' service needs.

Backlog

Backlog  decreased to  approximately  $63.8 million at September 30, 1997,  from
approximately $85.9 million at September 30, 1996. The Company's automated batch
chemical  processing  tool,  first shipped in fiscal 1995,  now  represents  the
largest single component of the backlog with the spray solvent tool second.  The
Company  includes in its backlog those customer orders for which it has received
purchase  orders or purchase  order numbers and for which  shipment is scheduled
within the next twelve months.  Orders are generally  subject to cancellation or
rescheduling  by customers with limited or no penalty.  As the result of systems
ordered and shipped in the same quarter,  possible changes in customer  delivery
schedules,  cancellations  of  orders  and  delays  in  product  shipments,  the
Company's backlog at any particular date is not necessarily indicative of actual
sales for any succeeding period.

Manufacturing

Most of the Company's  manufacturing  is conducted at its facilities  located in
Kalispell, Montana. The Company's vertically integrated manufacturing operations
include   state-of-the-art   metals  and  plastics   fabrication  and  finishing
capabilities;  component  part,  circuit board and final product  assembly;  and
extensive product testing capabilities.  The Company's  manufacturing  personnel
work closely with its product  development  personnel to ensure its products are
engineered for  manufacturability,  affording a smooth transition from prototype
to full  scale  production.  Component  and  product  prototyping  is  performed
internally,  and design  engineers  often receive  prototypes of newly  designed
parts from  manufacturing  within 24 hours.  The Company  believes it achieves a
number of competitive  advantages from its vertically  integrated  manufacturing
operations,  including  the ability to achieve cost and quality  advantages,  to
quickly bring new products and product  enhancements to market,  and the ability
to produce sophisticated component parts not available from other sources.

Research and Development

The market for semiconductor  equipment is characterized by rapid  technological
change and  product  innovation.  The Company  believes  that  continued  timely
development of products for both existing and new markets is necessary to remain
competitive.  The Company devotes significant  resources to programs directed at
developing new and enhanced  products,  as well as new applications for existing
products.   The  Company  maintains  an  extensive   demonstration  and  process
development laboratory at its facilities in Montana,  including a clean room for
testing and  developing its products.  Company  research and  development  (R&D)
personnel work directly with customers to provide process solutions, develop new
processes and to design and evaluate new pieces of equipment.

The  Company  developed  new models of its  vertical  furnace,  automated  batch
chemical processor and single substrate  processor during fiscal 1997. The major
R&D project  completed during fiscal 1997 was the introduction of the LT-210 ECD
single wafer processor. The LT-210 provides advanced electrochemical  deposition
to deliver  copper with high purity and  uniformity to the surface of the wafer.
The tool is designed for high-throughput manufacturing and is fully automated to
provide  consistent,  hands-free  processing.  The new Magnum 3000 is capable of
processing 300mm wafers in a total automated ultra clean environment.  Other new
versions of Magnums include a standard  mechanical  interface (SMIF),  increased
batch size of fifty 200mm wafers, a vision system for the  robotics and an ozone
injection   system   designed  to  decrease   operating   expenses  and  enhance
performance.  The Express  vertical furnace was enhanced to handle 300mm wafers.
It  received  an  improved,  proprietary  version of a  model-based  temperature
controller that was optimized  through the use of sophisticated  modeling tools.
The 200mm version of Express includes as an option a fully-automated WIP stocker
for SMIF pods, an industry first.

Expenditures  for R&D, which are expensed as incurred,  during fiscal 1997, 1996
and 1995 were approximately  $21.2 million,  $19.5 million and $11.4 million and
represented 10.9%, 11.2% and 8.9% of net sales, respectively.

Competition

The industry in which the Company  competes is highly  competitive.  The Company
faces  substantial  competition  from  both  established  competitors  and  from
potential new market entrants. Significant competitive factors in the markets in
which the Company competes include system  performance and flexibility,  cost of
ownership,  the size of each  manufacturer's  installed customer base,  customer
support capabilities and breadth of product line. The primary competition to the
Company's  batch chemical  spray  products is currently from wet-bench  chemical
processing  equipment.  The Company is aware of at least two other manufacturers
of spray  chemical  processors.  As the demand  for more  precise  and  reliable
chemical  processing  increases,  the Company anticipates greater competition in
the centrifugal spray technology area. The Company is aware of vertical furnaces
produced by at least four other  manufacturers  which compete with the Company's
thermal processing  equipment.  The single substrate  processing market in which
the Company's  Equinox  competes and the wafer carrier  cleaning market in which
the Company's Storm competes are highly fragmented markets. The Company is aware
of at least two other  companies  competing  in the  plating  market and expects
other major equipment companies to enter next year. In these fragmented markets,
the Company believes that it competes primarily with alternative technologies.

The  Company  expects  its  competitors  to  continue  to improve the design and
performance  of their  products.  There can be no assurance  that the  Company's
competitors  will  not  develop   enhancements  to  or  future   generations  of
competitive  products that will offer superior price or performance  features or
that new  processes or  technologies  will not emerge that render the  Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate  capital  equipment  into a production  line,  the Company
believes that once a manufacturer has selected certain capital  equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that  vendor to meet other  capital  equipment  requirements.  Accordingly,  the
Company  may be at a  competitive  disadvantage  with  respect  to a  particular
customer  if that  customer  utilizes a  competitor's  manufacturing  equipment.
Increased  competitive  pressure  could lead to lower  prices for the  Company's
products,  thereby  adversely  affecting the  Company's  business and results of
operations.  There can be no assurance  that the Company will be able to compete
successfully in the future.

Patents and Other Intellectual Property

The Company  currently holds numerous  United States patents,  some with pending
foreign counterparts,  has several United States patent applications pending and
intends to file additional patent  applications as appropriate.  There can be no
assurance that patents will issue from any of the Company's pending applications
or that  existing or future  patents will be  sufficiently  broad to protect the
Company's  technology.  The Company  believes that patents and trademarks are of
less  significance  in its  industry  than such  factors as product  innovation,
technical  expertise  and its ability to quickly  adapt its products to evolving
processing requirements and technologies.  While the Company attempts to protect
its intellectual property rights through patents,  copyrights and non-disclosure
agreements,  there can be no assurance  that the Company will be able to protect
its  technology,  or  that  competitors  will  not be able  to  develop  similar
technology independently. In addition, the laws of certain foreign countries may
not protect the Company's  intellectual  property to the same extent as the laws
of the United  States.  Moreover,  there can be no assurance  that the Company's
existing or future patents will not be challenged,  invalidated or circumvented,
or that the  rights  granted  thereunder  will  provide  meaningful  competitive
advantages to the Company.

There has been substantial  litigation  regarding patent and other  intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any  infringement by its products of any patents or proprietary  rights
of others,  further  commercialization  of the Company's  products could provoke
claims of  infringement  from third  parties.  In the future,  litigation may be
necessary to enforce patents issued to the Company,  to protect trade secrets or
know-how  owned  by  the  Company  or to  defend  the  Company  against  claimed
infringement  of the rights of others and to determine the scope and validity of
the  proprietary   rights  of  others.  Any  such  litigation  could  result  in
substantial  cost and diversion of effort by the Company,  which by itself could
have  a  material  adverse  effect  on the  Company's  financial  condition  and
operating  results.  Further,  adverse  determinations  in such litigation could
result in the  Company's  loss of  proprietary  rights,  subject  the Company to
significant  liabilities to third parties,  require the Company to seek licenses
from third  parties or prevent the  Company  from  manufacturing  or selling its
products,  any of which could have a material  adverse  effect on the  Company's
business and results of operations.

Employees

At  September  30,  1997,  the  Company  had 1,363 full time  employees  and 189
temporary contract employees worldwide. This includes 814 in manufacturing,  373
in marketing, sales and field service, 257 in research and development,  and 108
in  general  administration.  The  Company  believes  that the use of  temporary
employees  allows the  Company  to  respond  more  rapidly  to  fluctuations  in
manufacturing  and product  demand and enables the Company to better control the
labor component of its manufacturing  costs. None of the Company's employees are
represented  by a labor  union  and the  Company  has never  experienced  a work
stoppage or strike. The Company considers its employee relations to be good.

Risk Factors

Introduction

The risks detailed in this section as well as risks and uncertainties  discussed
elsewhere  in this  annual  report on Form 10-K and in the  Company's  other SEC
filings  constitute  some of the  risks  common in the  semiconductor  equipment
industry or risks specific to Semitool.  Shareholders or potential  shareholders
should read these risks carefully to better understand the potential  volatility
of the Company's  results and volatility in the Company's share price.  The fact
that some of the risk factors may be the same or similar to the  Company's  past
filings means only that the risks are present in multiple  periods.  The Company
believes  that  many of the risks  detailed  are part of doing  business  in the
semiconductor  equipment  industry  and will  likely be present  in all  periods
reported.  The fact that  certain  risks are  endemic to the  industry  does not
lessen the significance of the risk.

Cyclical Nature of the Semiconductor Industry

The  Company's  business  depends  primarily  on  the  capital  expenditures  of
semiconductor manufacturers,  who correspondingly depend on the demand for final
products  or  systems  that use such  devices.  The  semiconductor  industry  is
cyclical and has historically  experienced  periodic downturns  characterized by
oversupply  and weak demand,  which often have had a material  adverse effect on
capital expenditures by semiconductor  manufacturers.  These downturns generally
have  adversely  affected the business and  operating  results of  semiconductor
equipment suppliers, including the Company. The semiconductor device industry is
presently  experiencing  a slowdown in terms of product demand and volatility in
terms of product pricing. In 1997, the average selling price of memory chips and
certain other semiconductor devices significantly  decreased.  This has resulted
in  semiconductor  device  manufacturers  announcing  delays in their  expansion
plans.  This slowdown and  volatility has caused the  semiconductor  industry to
reduce its demand for semiconductor processing equipment and, in some instances,
to delay capital equipment  decisions.  In some cases this has resulted in order
cancellations or delays of orders and delays of delivery dates for the Company's
products.  No assurance can be given that the  Company's  revenues and operating
results will not be adversely affected during this and possible future downturns
in the semiconductor industry. In addition, the need for continued investment in
research and development, marketing and customer support may limit the Company's
ability to reduce  expenses  in  response  to this and future  downturns  in the
semiconductor industry.

Fluctuations in Future Operating Results

The Company's  business and results of operations have fluctuated  significantly
in the  past  and the  Company  expects  them to  fluctuate  significantly  on a
quarterly  or  annual  basis in the  future.  During  a  particular  quarter,  a
significant  portion of the Company's revenues is often derived from the sale of
a  relatively  small number of high selling  price  systems.  The number of such
systems  sold in, and the  results  for, a  particular  quarter or year can vary
significantly  due to a variety of factors,  including the timing of significant
orders,  the  timing  of  new  product  announcements  by  the  Company  or  its
competitors, patterns of capital spending by customers, market acceptance of new
and  enhanced  versions  of the  Company's  products,  changes in pricing by the
Company, its competitors or suppliers,  the mix of products sold and cyclicality
in the  semiconductor  industry and other industries  served by the Company.  In
addition,  the cancellation or rescheduling of customer orders or any production
difficulty could adversely  impact  shipments which would negatively  impact the
Company's  business and results of operations for the period or periods in which
such  cancellation  or  rescheduling  occurs.  In light of these factors and the
cyclical nature of the semiconductor  industry,  the Company expects to continue
to  experience  significant  fluctuations  in  quarterly  and  annual  operating
results.  Moreover,  many of the Company's  expenses are fixed in the short-term
which,  combined  with  the  need  for  continued  investment  in  research  and
development,  marketing and customer  support,  limits the Company's  ability to
reduce expenses  quickly.  As a result,  shortfalls in net revenues could have a
material adverse effect on the Company's business and results of operations.

Dependence on Product Development

Semiconductor  equipment  is  subject to rapid  technological  change as well as
evolving industry  standards.  The Company believes that its future success will
depend in part upon its ability to continue to enhance its existing products and
their  process  capabilities,  to  continue  to  decrease  the  overall  cost of
ownership  of such  products,  and to continue to develop  and  manufacture  new
products with improved process  capabilities  which conform to evolving industry
standards.  As a result,  the Company  expects to  continue to make  significant
investments in research and development.  Although  historically the Company has
had adequate  funds from its  operations to devote to research and  development,
there can be no assurance that such funds will be available in the future or, if
available,  that they will be  adequate.  The Company  also must manage  product
transitions  successfully,  since announcements or introductions of new products
by the  Company or its  competitors  could  adversely  affect  sales of existing
Company  products.  There can be no  assurance  that the Company will be able to
develop and introduce new products or enhancements to its existing products on a
timely  basis  or  in a  manner  which  satisfies  customer  needs  or  achieves
widespread  market  acceptance.  The failure to do so could adversely affect the
Company's business and results of operations.

Market Acceptance of New Products

The Company  believes  that its growth  prospects  depend in large part upon its
ability to gain  customer  acceptance  of its  products and  technology.  Market
acceptance   of  new  products   depends  upon   numerous   factors,   including
compatibility  with existing  manufacturing  processes  and products,  perceived
advantages over competing  products and the level of customer service  available
to support such products. Moreover, manufacturers often rely on a limited number
of equipment vendors to meet their  manufacturing  equipment needs. As a result,
market acceptance of the Company's new products may be adversely affected to the
extent potential customers utilize a competitor's manufacturing equipment. There
can be no assurance  that growth in sales of new products  will continue or that
the Company will be  successful  in obtaining  broad  market  acceptance  of its
systems and technology.

Competition

The industries in which the Company competes are highly competitive. The Company
faces  substantial  competition from established  competitors,  certain of which
have  greater  financial,  marketing,  technical  and other  resources,  broader
product lines, more extensive customer support capabilities, and larger and more
established sales organizations and customer bases than the Company. The Company
may also face  competition  from new  domestic  and  overseas  market  entrants.
Significant  competitive factors in the semiconductor equipment market and other
markets  in  which  the  Company   competes   include  system   performance  and
flexibility,  cost of  ownership,  the  size of  each  manufacturer's  installed
customer  base,  customer  service and support and breadth of product line.  The
Company  believes that it competes  favorably on the basis of these factors.  In
order  to  remain  competitive,  the  Company  must  maintain  a high  level  of
investment in research and  development,  marketing,  and customer service while
controlling operating expenses.  There can be no assurance that the Company will
have  sufficient  resources  to  continue to make such  investments  or that the
Company's  products  will  continue to be viewed as  competitive  as a result of
technological  advances by  competitors or changes in  semiconductor  processing
technology.  The Company's  competitors  may also increase their efforts to gain
and retain market share through competitive pricing.  Such competitive pressures
may necessitate  significant  price  reductions by the Company or result in lost
orders  which  could  adversely  affect the  Company's  business  and results of
operations.

The  Company  expects  its  competitors  to  continue  to improve the design and
performance  of their  products.  There can be no assurance  that the  Company's
competitors  will  not  develop  enhancements  to,  or  future  generations  of,
competitive products that will offer superior price or performance  features, or
that new  processes or  technologies  will not emerge that render the  Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate  capital  equipment  into a production  line,  the Company
believes that once a manufacturer has selected certain capital  equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that  vendor to meet other  capital  equipment  requirements.  Accordingly,  the
Company  may be at a  competitive  disadvantage  with  respect  to a  particular
customer if that customer utilizes a competitor's manufacturing equipment. There
can be no assurance that the Company will be able to compete successfully in the
future.

Environmental Regulations

The Company is subject to a variety of governmental  regulations  related to the
discharge or disposal of toxic,  volatile or otherwise  hazardous chemicals used
on  the  Company's  premises.  The  Company  believes  that  it is  in  material
compliance  with  these  regulations  and  that it has  obtained  all  necessary
environmental permits to conduct its business.  Nevertheless,  current or future
regulations  could  require the Company to purchase  expensive  equipment  or to
incur other substantial expenses to comply with environmental  regulations.  Any
failure  by the  Company  to  control  the use of, or  adequately  restrict  the
discharge  or disposal of,  hazardous  substances  could  subject the Company to
future  liabilities,  result in fines being imposed on the Company, or result in
the  suspension  of  production  or  cessation  of the  Company's  manufacturing
operations.

International Business

Approximately  36%, 44% and 40% of the Company's sales for fiscal 1997, 1996 and
1995,  respectively,  were  attributable to customers outside the United States.
The Company  expects  sales outside the United States to continue to represent a
significant  portion of its future sales.  Sales to customers outside the United
States  are   subject  to  various   risks,   including   exposure  to  currency
fluctuations, the imposition of governmental controls, the need to comply with a
wide variety of foreign and United  States  export laws,  political and economic
instability,  trade  restrictions,  changes  in tariffs  and  taxes,  and longer
payment cycles  typically  associated with  international  sales.  The Company's
international  sales activities are also subject to the difficulties of managing
overseas  distributors  or  representatives,  and  difficulties  of staffing and
managing foreign subsidiary operations.  In addition,  because a majority of the
Company's  international  sales are  denominated in United States  dollars,  the
Company's  ability  to  compete  overseas  could  be  adversely  affected  by  a
strengthening United States dollar. Moreover,  although the Company endeavors to
meet technical standards established by foreign standards setting organizations,
there can be no  assurance  that the Company will be able to comply with changes
in foreign  standards  in the  future.  The  inability  of the Company to design
products  to comply with  foreign  standards  or any  significant  or  prolonged
decline in the  Company's  international  sales  could  have a material  adverse
effect on the Company's business and results of operations.

Patents and Other Intellectual Property

The Company's success depends in significant part on the technically  innovative
features of its products. While the Company attempts to protect its intellectual
property rights through patents,  copyrights and non-disclosure  agreements,  it
believes  that its  success  will depend to a greater  degree  upon  innovation,
technological  expertise  and its ability to quickly  adapt its  products to new
technology.  There can be no assurance  that the Company will be able to protect
its technology or that  competitors  will not be able to  independently  develop
similar technology.  In addition,  the laws of certain foreign countries may not
protect the Company's intellectual property to the same extent as do the laws of
the United States.  No assurance can be given that the Company's patents will be
sufficiently broad to protect the Company's technology, nor that any existing or
future patents will not be challenged,  invalidated or circumvented, or that the
rights granted thereunder will provide meaningful  competitive advantages to the
Company.  In any of such events,  the Company's  business and operating  results
could be adversely affected.

There has been substantial  litigation  regarding patent and other  intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any  infringement by its products of any patents or proprietary  rights
of others,  there can be no assurance  that such  infringements  do not exist or
will not occur in the  future.  Litigation  may be  necessary  in the  future to
enforce  patents  issued to the Company,  to protect  trade  secrets or know-how
owned by the Company, to defend the Company against claimed  infringement of the
rights of others or to  determine  the  scope and  validity  of the  proprietary
rights of others.  Any such  litigation  could  result in  substantial  cost and
diversion of effort by the Company,  which by itself could adversely  affect the
Company's business and results of operations.  Moreover,  adverse determinations
in such  litigation  could result in the Company's loss of  proprietary  rights,
subject the Company to significant  liabilities  to third  parties,  require the
Company  to seek  licenses  from  third  parties or  prevent  the  Company  from
manufacturing  or selling its products,  any of which could adversely affect the
Company's business and results of operations. The Company knows of no threatened
litigation  that would  adversely  affect the  Company's  intellectual  property
rights.

Dependence on Key Personnel

The  Company's  success  depends to a  significant  extent  upon the  efforts of
certain  senior  management  and  technical  personnel,  particularly  Raymon F.
Thompson,  the Company's  Chairman,  Chief Executive Officer and President.  The
Company's  future  success will depend in large part upon its ability to attract
and retain  highly  skilled  technical,  managerial,  and  marketing  personnel.
Competition  for such  personnel is high and, while to date the Company does not
believe that its  geographic  location has hindered it in  recruiting  qualified
personnel,  no  assurance  can be given  that the  Company's  location  will not
adversely affect future recruiting of key personnel. The loss of the services of
Mr. Thompson or of one or more other key management or technical  personnel,  or
the  inability  to attract  and retain  additional  qualified  personnel,  could
adversely affect the Company's  business and results of operations.  The Company
maintains a $2.0 million "key man" life insurance policy on Mr. Thompson.

Dependence on Key Customers

The  Company's  ten  largest  customers  accounted  for 52%,  42% and 55% of the
Company's net sales in fiscal 1997,  1996 and 1995,  respectively.  Although the
composition of Semitool's  largest  customers has changed from year to year, the
loss  of,  or a  significant  curtailment  of  purchases  by one or  more of the
Company's  key  customers  could  adversely  affect the  Company's  business and
results of operations.

Dependence on Key Suppliers

Certain  components  and  subassemblies  included in the Company's  products are
obtained  from a single  source or a limited  group of  suppliers.  Although the
Company has vertically integrated much of its manufacturing operations, the loss
of, or disruption in shipments  from,  certain sole or limited source  suppliers
could in the short-term  adversely affect the Company's  business and results of
operations.  The Company believes that it could either manufacture components or
secure an alternate  supplier with no long-term  material  adverse effect on the
Company's business or operations.  Further, a significant  increase in the price
of one or more of these components could adversely affect the Company's business
and results of operations.

Effect of Certain Anti-Takeover Provisions

The  Company's  Articles  of  Incorporation  authorize  the  Company's  Board of
Directors to issue  Preferred Stock in one or more series and to fix the rights,
preferences,  privileges and restrictions  granted to or imposed upon any wholly
unissued shares of Preferred Stock and to fix the number of shares  constituting
any series and the  designations of such series,  without further vote or action
by the  shareholders.  Although  the Company  has no present  plans to issue any
Preferred  Stock,  and  views  the  authorized  Preferred  Stock as a  potential
financing  vehicle for the Company,  the Board of Directors may issue  Preferred
Stock with voting and conversion  rights which could adversely affect the voting
power of the holders of Common Stock.  Any issuance of Preferred  Stock may have
the  effect of  delaying,  deferring  or  preventing  a change in control of the
Company.

Volatility of Stock Price

The Company's  Common Stock has experienced in the past, and could experience in
the future,  substantial  price  volatility  as a result of a number of factors,
including quarter to quarter  variations in the actual or anticipated  financial
results,  announcements  by the  Company,  its  competitors  or  its  customers,
government  regulations,   developments  in  the  industry  and  general  market
conditions.  In addition,  the stock market has  experienced  extreme  price and
volume  fluctuations  which have  affected the market  price of many  technology
companies in particular  and which have at times been unrelated to the operating
performance  of the  specific  companies  whose  stock is traded.  Broad  market
fluctuations,  as well as economic conditions generally and in the semiconductor
industry  specifically,  may adversely  affect the market price of the Company's
Common Stock.

Securities Litigation

A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed February 26, 1996, in the Montana  Eleventh  Judicial  District Court,
Flathead  County,  Kalispell,  Montana  against  the  Company and certain of its
officers and  directors.  The complaint  includes  allegations  that the Company
issued  misleading  statements  concerning its business and prospects.  The suit
seeks injunctive relief,  damages,  costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest  the action  vigorously.  However,  given the  inherent  uncertainty  of
litigation,  insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate  outcome will be in the Company's  favor, or that if
the ultimate  outcome is not in the Company's favor,  that such an outcome,  the
diversion of management's attention,  and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's  financial condition or
results of operations.


Item 2.  Properties

The  Company's  170,000  and  21,000  square-foot   facilities  are  located  on
Company-owned  sites in Kalispell,  Montana.  The headquarters for the Company's
European sales and customer service is located in Cambridge, England and is also
owned by the  Company.  The Company  believes  that its  existing  manufacturing
facilities, will be adequate to meet its requirements for the foreseeable future
and that suitable  additional  or substitute  space will be available as needed.
The Company also leases  various other smaller  facilities  worldwide  which are
used as sales and customer service centers.

The Company is subject to a variety of governmental  regulations  related to the
discharge or disposal of toxic,  volatile, or otherwise hazardous chemicals used
on  the  Company's  premises.  The  Company  believes  that  it is  in  material
compliance  with  these  regulations  and  that it has  obtained  all  necessary
environmental permits to conduct its business.  Nevertheless,  current or future
regulations  could  require the Company to purchase  expensive  equipment  or to
incur other substantial expenses to comply with environmental  regulations.  Any
failure  by the  Company  to  control  the use of, or  adequately  restrict  the
discharge  or disposal of,  hazardous  substances  could  subject the Company to
future  liabilities,  result in fines being imposed on the Company, or result in
the  suspension  of  production  or  cessation  of the  Company's  manufacturing
operations.


Item 3.  Legal Proceedings

A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed on February 26, 1996, in the Montana Eleventh Judicial District Court,
Flathead  County,  Kalispell,  Montana  against  the  Company and certain of its
officers and  directors.  The complaint  includes  allegations  that the Company
issued  misleading  statements  concerning its business and prospects.  The suit
seeks injunctive relief,  damages,  costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest  the action  vigorously.  However,  given the  inherent  uncertainty  of
litigation,  insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate  outcome will be in the Company's  favor, or that if
the ultimate  outcome is not in the Company's favor,  that such an outcome,  the
diversion of management's attention,  and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's  financial condition or
results of operations.


Item 4.  Submission of Matters to a Vote of Security Holders

No matters  were  submitted  to the  shareholders  for a vote  during the fourth
quarter of the fiscal year.



<PAGE>



                                   Part II


Item 5.  Market for Semitool's Common Stock and Related Shareholder Matters

The Company's common stock is traded under the symbol "SMTL"  principally on the
Nasdaq  National  Market.  The  approximate  number of shareholders of record at
December  9,  1997 was 214 and the  reported  last sale  price of the  Company's
common stock on the Nasdaq  National  Market was $14.47.  The high and low sales
prices for the Company's common stock reported by the Nasdaq National Market are
shown below.

                                  Common Stock Price Range
                                         Fiscal Year
                                     Ended September 30,

                                 1997                           1996
                        -------------------           ----------------------
                         High          Low             High             Low
First Quarter           $11.63        $8.38           $24.50          $12.50
Second Quarter          $14.88        $9.50           $17.75          $12.50
Third Quarter           $13.50        $9.50           $17.00          $13.00
Fourth Quarter          $26.88       $12.88           $13.50          $10.25


The Company,  prior to its initial  public  offering of common stock in February
1995 (the "Initial Public  Offering"),  made  distributions  to shareholders for
their share of income taxes related to the Company's S Corporation  status.  The
Company also made a final distribution of S Corporation  retained earnings prior
to the initial public  offering.  The Company  intends to retain its earnings to
fund  the  development  and  growth  of its  business  and  therefor,  does  not
anticipate paying any cash dividends in the foreseeable future.


Item 6.  Selected Financial Data

This  summary  should be read in  conjunction  with the  consolidated  financial
statements and related notes included elsewhere herein.

<TABLE>
<CAPTION>

                                    Summary Consolidated Financial Information
                                       (in thousands, except per share data)

<S>                                                   <C>          <C>          <C>           <C>           <C>
                                                                        Year Ended September 30,
                                                         1997         1996         1995         1994          1993

Statement of Operations Data:
Net sales                                             $193,952     $174,204     $128,326      $62,597       $48,532
Gross profit                                            91,090       84,631       65,858       31,957        24,070
Income from operations                                  20,432       24,182       20,927        3,020           356
Net income (loss)                                       12,523       15,136       14,885        2,170          (445)

Pro forma Statement of Operations Data:
Income from operations (1)                              20,432       24,182       22,599        6,509         3,126
Net income (2)                                          12,523       15,136       14,403        3,723         1,579
Net income per share (3)                                  0.91         1.09         1.15         0.37
Shares used in per share computation (4)                13,833       13,858       12,563        9,946

Balance Sheet Data:
Working capital                                         50,047       43,797       37,209        6,109         6,223
Total assets                                           131,725      114,954       88,067       39,807        30,744
Short-term debt                                          4,393        4,374          924        7,409         5,164
Long-term debt                                           3,364        3,637        4,011        6,089         1,940
Shareholders' equity                                    81,580       68,003       52,813       12,487         2,741
</TABLE>


(1) Pro forma income from operations has been determined by eliminating for each
period  presented  payments for technology  rights that ceased in February 1995,
upon closing of the initial public offering of the Company's common stock.

(2)  Between  October 1, 1986 and  February 1, 1995,  the Company  elected to be
taxed under the provisions of Subchapter S of the Code. Under those  provisions,
the  Company  had not been  subject to federal  corporate  income  taxation.  In
connection  with the  closing of the  Company's  initial  public  offering,  the
Company  terminated  its S  corporation  status.  Pro forma net  income has been
determined by assuming  that the Company had been taxed as a C  corporation  for
federal income tax purposes for each period  presented.  The pro forma provision
for income taxes has been  calculated by using  statutory  rates for federal and
state taxes  applied to pro forma  income  before  income  taxes,  net of actual
research and development credits generated in each year. The pro forma effective
tax rates in fiscal 1993 through 1997 were 33.0%, 36.4%, 37.1%, 37.0%, and 38.0%
respectively.

(3) In accordance with Staff Accounting Bulletin No. 55 issued by the Securities
and Exchange  Commission,  pro forma net income per share data is not  presented
prior to fiscal  year 1994.  Also,  prior to the  termination  of S  corporation
status,  dividends were paid by the Company only in amounts  sufficient to cover
shareholders'  tax  liabilities  other  than  the  final  distribution  of prior
accumulated S  Corporation  earnings.  The per share  dividend  information  has
therefore not been presented.

(4) See Note 1 of Notes to Consolidated  Financial Statements for an explanation
of the  determination  of the number of shares used in  computing  pro forma net
income per share.

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations

CAUTION

Statements contained in this "Management's  Discussion and Analysis of Financial
Condition and Results of Operations"  and elsewhere in this report which are not
historical facts are  forward-looking  statements  within the meaning of Section
21E of the  Securities  Exchange  Act of 1934,  as  amended,  including  without
limitation,   statements   regarding   use  of  sales,   service   and   support
organizations, gross margins,  research and development, costs of manufacturing,
future balances, and effects of new accounting standards, and are subject to the
safe harbor provisions created by that statute. A forward-looking  statement may
contain words such as "will  continue to be," "will be,"  "continue to," "expect
to,"  "anticipates  that," "to be" or "can  impact."  Management  cautions  that
forward-looking  statements  are subject to risks and  uncertainties  that could
cause the Company's actual results to differ  materially from those projected in
such forward-looking statements.  These risks and uncertainties include, but are
not limited to, the cyclical  nature of the  semiconductor  industry in general,
lack of market acceptance for new products,  decreasing demand for the Company's
existing  products,   impact  of  competitive  products  and  pricing,   product
development,  commercialization  and  technological  difficulties,  capacity and
supply  constraint  difficulties and other risks detailed herein.  The Company's
future  results  will depend on its ability to continue to enhance its  existing
products  and to develop  and  manufacture  new  products  and to  finance  such
activities. There can be no assurance that the Company will be successful in the
introduction,  marketing and  cost-effective  manufacture of any new products or
that the Company will be able to develop and  introduce  in a timely  manner new
products or  enhancements  to its existing  products and processes which satisfy
customer needs or achieve widespread market acceptance.

The Company  undertakes no obligation  to release  revisions to  forward-looking
statements  to  reflect  subsequent  events,  changed   circumstances,   or  the
occurrence of unanticipated events.


OVERVIEW

The  Company  was  incorporated  in  1979 to  develop,  manufacture  and  market
innovative  manufacturing  equipment for the semiconductor industry, and shipped
its first product, a spin rinser/dryer, that year. During the 1980s, the Company
introduced several generations of its acid and solvent spray chemical processing
tools and vertical  furnaces,  and began to market its products to manufacturers
outside the  semiconductor  industry.  Since 1990, the Company has developed its
Equinox single substrate  chemical  processing  system,  its Storm wafer carrier
cleaning  system,  and its  Magnum  automated  multimodule  chemical  processing
system.  In the last year the Company  has  completed  development  of its 300mm
tools, the Magnum 3000, and Express furnace.  The Company has also developed the
industry's first  production-ready  copper plating tool, the Equinox LT-210.  In
response  to  increased  demand  for  the  Company's  established  and  recently
introduced products,  the Company expanded its Montana facility in 1994 and 1995
from  approximately  65,000  square  feet at the  beginning  of  fiscal  1994 to
approximately 170,000 square feet at the end of fiscal 1995. The Company built a
separate  21,000  square foot  facility,  also in Montana,  in fiscal  1996.  In
addition,  during fiscal 1997 the Company  increased its production  capacity by
completing a 14,000 square foot facility in Cambridge, England.

The unit  selling  prices  for the  Company's  products  range  from  $15,000 to
$150,000  for a spin  rinser/dryer,  to  $900,000  to over $2.0  million for the
Magnum and LT-210 linear copper plating tool. Due to these  relatively high unit
selling  prices,  a significant  portion of the  Company's  revenue in any given
period is often  derived  from the sale of a  relatively  small number of units.
From time to time,  the  Company  has  experienced,  and  expects to continue to
experience, significant fluctuations in its results of operations,  particularly
on a  quarterly  basis.  The  Company's  expense  levels  are  based  in part on
expectations of future sales. If sales levels in a particular period do not meet
expectations, operating results will be adversely affected. A variety of factors
have an influence on the  Company's  operating  results in a particular  period.
These  factors  include  specific  economic   conditions  in  the  semiconductor
industry,  the timing of the  receipt of orders from major  customers,  customer
cancellations  or delays of shipments,  specific  feature requests by customers,
production  delays or  manufacturing  inefficiencies,  management  decisions  to
commence  or  discontinue  product  lines,  the  Company's  ability  to  design,
introduce and manufacture new products on a cost-effective and timely basis, the
introduction of new products by the Company or its competition, the selection of
the Company's or its competitors'  products by semiconductor  manufacturers  for
new  generations  of  fabrication   facilities,   the  timing  of  research  and
development expenditures,  exchange rate fluctuations, and expenses attendant to
acquisitions,  strategic  alliances and the further development of marketing and
service capabilities.

The Company markets and sells its products  worldwide with an emphasis on Europe
and  Asia  as  its  principal   international   markets.   During  fiscal  1997,
approximately  35.9%  of the  Company's  revenues  were  derived  from  sales to
customers outside the United States. The Company  anticipates that international
sales will continue to account for a significant portion of net sales,  although
the percentage of international  sales may fluctuate from period to period.  The
Company believes its sales,  service and support  organizations are important to
the long-term success of its customer relationships. The Company provides sales,
service and support worldwide,  primarily through direct employees in the United
States, Europe, Japan, Korea, and through distributors elsewhere in the world.


RESULTS OF OPERATIONS

The  following  table sets forth the  Company's  actual and pro forma results of
operations for the periods indicated expressed as a percentage of net sales:

                            Year Ended September 30,

                                                  1997       1996       1995

Statement of Operations Data:
     Net sales                                   100.0%     100.0%     100.0%
     Cost of sales                                53.0       51.4       48.7
                                                 -----      -----      -----
     Gross profit                                 47.0       48.6       51.3
                                                 -----      -----      -----
     Operating expenses:
         Selling, general and administrative      25.5       23.5       24.8
         Research and development                 10.9       11.2        8.9
         Cost of technology rights                  --         --        1.3
                                                 -----      -----      -----
              Total operating expenses            36.4       34.7       35.0
                                                 -----      -----      -----
     Income from operations                       10.6       13.9       16.3
     Other income (expense), net                  (0.1)      (0.1)       0.2
                                                 -----      -----      -----
     Income before income taxes                   10.5       13.8       16.5
     Provision for income taxes                    4.0        5.1        4.9
                                                 -----      -----      -----
     Net income                                    6.5%       8.7%      11.6%
                                                 =====      =====      =====

Pro Forma Statement of Operations Data:
     Income from operations before
         pro forma adjustments                    10.6%      13.9%      16.3%
     Elimination of cost of technology
         rights                                     --         --        1.3
                                                 -----      -----      -----
     Income from operations                       10.6       13.9       17.6
     Other income (expense), net                  (0.1)      (0.1)       0.2
                                                 -----      -----      -----
     Income before income taxes                   10.5       13.8       17.8
     Provision for income taxes                    4.0        5.1        6.6
                                                 -----      -----      -----
     Net income                                    6.5%       8.7%      11.2%
                                                 =====      =====      =====

YEARS ENDED SEPTEMBER 30, 1997 AND 1996

Net Sales.  Net sales consist of revenues  from sales of equipment,  spare parts
and service  contracts.  Net sales  increased  $19.7  million  (11.3%) to $194.0
million in fiscal  1997 from  $174.2  million in fiscal  1996.  Net sales of the
Company's  automated batch chemical  processing tools accounted for the majority
of the increase.

The Company  shipped a number of new tool models during 1997. The first 50 wafer
batch size  Magnum  with a newly  designed  work-in-process  (WIP)  station  was
delivered  during the fiscal year.  New  versions of Magnum also include  vision
systems to guide the robotics and an ozone injection system designed to decrease
operating expenses and enhance performance.  In addition to our own proprietary,
newly designed  model-based  temperature  controller which decreases cycle time,
the Express  furnace  received  new  robotics  and a fully  standard  mechanical
interface (SMIF) compatible WIP station.  The adoption of any of these tools for
future widespread  production use is dependent on a number of factors including,
but not limited to,  performance  and pricing  competition  from other equipment
manufacturers.

International  sales,  predominantly  to  customers  based in  Europe  and Asia,
accounted  for 35.9% of net sales in fiscal 1997  compared to 43.9% in the prior
year. The Company  anticipates that international sales will continue to account
for a significant  portion of net sales,  although the  percentage may fluctuate
from period to period.

Gross Profit.  Gross margin  decreased to 47.0% in fiscal 1997 from 48.6% in the
prior  year.  The  Company's  gross  margin has been,  and will  continue to be,
affected by a variety of factors,  including the costs to  manufacture,  service
and support new and enhanced  products,  as well as the mix and average  selling
prices of products sold. The Company  believes that the largest single factor in
the 1997 gross margin  decline is costs and  inefficiencies  related to recently
developed  products.  The Company  anticipates  that the cost to manufacture and
support the newer tool models will improve over time,  but that it will continue
to design and sell  additional  models of its existing tools and additional tool
types, which may somewhat offset the anticipated improvement in gross margins.

Selling, General and Administrative.  Selling, general and administrative (SG&A)
expenses  were $49.5  million or 25.5% of net sales in fiscal  1997  compared to
$40.9 million or 23.5% of net sales in the prior year. The $8.6 million increase
in SG&A expense in 1997 as compared to 1996  reflects  higher  costs  associated
with  increased  sales  volumes,  a broader  range of  equipment  to market  and
service,  and costs  associated  with  additional  sales and  service  personnel
supporting  the domestic and Asian  marketplaces.  A substantial  portion of the
Company's  SG&A expense is fixed in the  short-term.  While it is the  Company's
goal to reduce  SG&A  expense as a  percentage  of net sales  during  periods of
rising sales, a decline in net sales would cause the Company's selling,  general
and  administrative  expense to increase as a percentage  of net sales and could
have an adverse effect on the Company's business and results of operations.

Research and  Development.  Research and development  (R&D) expenses  consist of
salaries,  project materials,  laboratory costs, consulting fees and other costs
associated  with the Company's  research and development  efforts.  R&D expenses
were  $21.2  million  or 10.9% of net sales in  fiscal  1997  compared  to $19.5
million or 11.2% of net sales in the prior year.  Major projects during the year
include  development  of the Equinox  LT-210 linear copper  plating tool and the
completion of development of the 300mm Magnum 3000 and 300mm Express products.

Spending on R&D  increased  8.6% or $1.7  million in absolute  dollars  over the
prior year due to the number and complexity of projects undertaken.  The Company
is committed to technology  leadership in the semiconductor  equipment  industry
and expects to continue to fund  research and  development  expenditures  with a
multiyear perspective. Such funding has resulted in fluctuations in R&D expenses
from period to period in the past.  The Company  expects  such  fluctuations  to
continue in the  future,  both in absolute  dollars and as a  percentage  of net
sales,  primarily due to the timing of expenditures  and changes in the level of
net sales.

Other Income (Expense).  Interest income on short-term investments declined from
$173,000 in fiscal 1996 to $97,000 in 1997.

Provision for Income Taxes.  The  provisions  for income taxes for 1997 and 1996
were $7.7 million and $8.9  million,  respectively.  The effective tax rates for
1997 and 1996 were 38% and 37%, respectively.


YEARS ENDED SEPTEMBER 30, 1996 AND 1995

Net Sales.  Net sales consist of revenues  from sales of equipment,  spare parts
and service  contracts.  Net sales  increased  $45.9  million  (35.8%) to $174.2
million in fiscal  1996 from  $128.3  million in fiscal  1995.  Net sales of the
Company's  automated batch chemical  processing  tools and its single  substrate
processor accounted for the majority of the increase.  Aggregate sales for these
two tool types  increased  from $15.4 million in fiscal 1995 to $45.8 million in
fiscal 1996.

The Company shipped a number of new tool models during 1996. New automated batch
chemical  processing  tools included two models for processing  glass substrates
used in the  manufacture  of flat  panel  displays  and  multichip  modules,  an
immersion tool for processing silicon wafers, and a carrierless spray processing
tool.  New single  substrate  processor  models  were  introduced  for  plating,
including  multilevel  interconnect  processes for advanced  integrated  circuit
devices.  A vertical  furnace  with much faster  thermal ramp  capabilities  was
shipped to three  different  customers.  The Company also shipped a new model of
its carrier cleaning system developed late in 1995 and a chemical  delivery unit
to interface  between bulk chemical  storage and the Company's  batch and single
substrate  chemical  processing  tools.  The  adoption of any of these tools for
future widespread  production use is dependent on a number of factors including,
but not limited to,  performance  and pricing  competition  from other equipment
manufacturers.

In February of 1996, the Company merged with Semy Engineering,  Inc. (Semy) in a
transaction  accounted  for  as a  pooling-of-interests  and  consequently,  the
Company's financial statements prior to the merger have been restated to include
Semy.  Semy  accounted  for  10.2% of 1995  sales and 8.6% of 1996  sales  after
eliminating intercompany transactions.

International  sales,  predominantly  to  customers  based in  Europe  and Asia,
accounted  for 43.9% of net sales in fiscal 1996  compared to 40.4% in the prior
year. The Company  anticipates that international sales will continue to account
for a significant  portion of net sales,  although the  percentage may fluctuate
from period to period.

Gross Profit.  Gross margin  decreased to 48.6% in fiscal 1996 from 51.3% in the
prior  year.  The  Company's  gross  margin has been,  and will  continue to be,
affected by a variety of factors,  including the costs to  manufacture,  service
and support new and enhanced  products,  as well as the mix and average  selling
prices of products sold. The Company  believes that the largest single factor in
the 1996  gross  margin  decline  is costs  and  inefficiencies  related  to the
manufacturing and servicing of recently  developed  products.  The number of new
tool  models  introduced  in  fiscal  1996 was  unprecedented  in the  Company's
history, both as to number and complexity. The Company anticipates that the cost
to  manufacture  and support the newer tool models will improve  over time,  but
that it will continue to design and sell additional models of its existing tools
and additional tool types, which may somewhat offset the anticipated improvement
in gross margins.

Selling, General and Administrative.  Selling, general and administrative (SG&A)
expenses  were $40.9  million or 23.5% of net sales in fiscal  1996  compared to
$31.8 million or 24.8% of net sales in the prior year. The $9.1 million increase
in SG&A expense in 1996 as compared to 1995  reflects  higher  costs  associated
with  increased  sales  volumes,  a broader  range of  equipment  to market  and
service, costs associated with additional sales and service personnel supporting
the Asian marketplace, and employee severance cost accruals provided at year end
in response to a decline in the Company's  fourth  quarter  bookings,  partially
offset by reduced  employee  bonus costs.  The decline in these  expenses,  as a
percentage of net sales, was primarily due to improved  overhead  absorption.  A
substantial  portion of the  Company's  SG&A expense is fixed in the short term.
While  it is the  Company's  goal  to  continue  to  reduce  SG&A  expense  as a
percentage of net sales during  periods of rising sales,  a decline in net sales
would  cause the  Company's  selling,  general  and  administrative  expense  to
increase as a  percentage  of net sales and could have an adverse  effect on the
Company's business and results of operations.

Research and  Development.  Research and development  (R&D) expenses  consist of
salaries,  project materials,  laboratory costs, consulting fees and other costs
associated  with the Company's  research and development  efforts.  R&D expenses
were  $19.5  million  or 11.2% of net sales in  fiscal  1996  compared  to $11.4
million or 8.9% of net sales in the prior year.

Spending on R&D  increased  70.8% or $8.1  million in absolute  dollars over the
prior year due to the number and complexity of projects undertaken.  The Company
is committed to technology  leadership in the semiconductor  equipment  industry
and expects to continue to fund  research and  development  expenditures  with a
multiyear perspective. Such funding has resulted in fluctuations in R&D expenses
from period to period in the past.  The Company  expects  such  fluctuations  to
continue in the  future,  both in absolute  dollars and as a  percentage  of net
sales,  primarily due to the timing of expenditures  and changes in the level of
net sales.

Cost of Technology  Rights.  In 1979, the Company  acquired  certain  technology
rights from Raymon F. Thompson for installment  payments equal to 8% of revenues
from the sale of certain of the Company's  products that embody the  technology.
All expense recognized in fiscal 1995 relates to the period from October 1, 1994
to February 2, 1995.  All payments for  technology  rights ceased in conjunction
with the Company's initial public offering,  resulting in no cost to the Company
from that point forward, including all of fiscal 1996.

Other Income (Expense).  Interest income on short-term investments declined from
$428,000 in fiscal 1995 to $173,000 in 1996 as the funds raised in the Company's
initial public offering have been invested in  receivables,  inventory and fixed
assets.  The Company  realized a net loss of $17,000 on the sale of fixed assets
in 1996 compared to a net gain of $191,000 the year before.

Provision for Income Taxes.  The  provisions  for income taxes for 1996 and 1995
were $8.9 million and $6.4 million, respectively. Effective in 1986, the Company
elected to have its United States  income taxed under  Subchapter S of the Code.
The Company,  however,  remained a taxpaying entity for Montana state income tax
purposes.  Income tax provisions recognized by the Company after 1986 and before
February  1, 1995  relate to state  income  taxes and taxes  imposed  by foreign
governments  on the Company's  foreign  operations.  The Company  terminated its
Subchapter  S  election  as of the close of  business  on January  31,  1995 and
subsequent  to that date  became  subject  to  federal  income  taxation  at the
corporate level.


LIQUIDITY AND CAPITAL RESOURCES

The Company has  financed its growth  since its  February  1995  initial  public
offering  primarily  through  amounts raised in conjunction  with that offering,
operations  and  borrowings on its revolving  line of credit.  Cash generated by
operating activities in fiscal 1997 was $8.5 million as compared to $4.2 million
used  by  operations  in  fiscal  1996.  Substantial   investments  in  accounts
receivable  and inventory and a decrease in customer  advances in 1997 were more
than offset by net income and non-cash  expenses.  As of September 30, 1997, the
Company had $40.9 million of accounts receivable and $41.1 million of inventory,
compared to $39.2 million of accounts  receivable and $36.9 million of inventory
at September  30,  1996.  As is  customary  in the  semiconductor  manufacturing
equipment  industry,  products are  generally  built to fill  specific  customer
orders,  with typical order fulfillment times ranging from four to six weeks for
certain products to six months or more for more complex  products.  Accordingly,
while the Company's  finished goods inventory  accounts for slightly over 10% of
total inventory,  overall  inventory levels tend to fluctuate with the level and
type of orders  received.  Currently,  the tools with the longest  average cycle
times are the automated batch chemical tools and the single substrate processor.
The Company expects future  receivable and inventory  balances to fluctuate with
net sales.

Cash used in investing activities in fiscal 1997 was $7.3 million as compared to
$7.8  million  in fiscal  1996.  Investing  activities  consisted  primarily  of
acquisitions  of property and  equipment and  intangible  assets in fiscal 1997.
Property and  equipment  purchases  used cash of $6.2 million in fiscal 1997 and
$10.2 million in fiscal 1996.  During fiscal 1996, the Company  constructed  and
put  into  service  a  separate   satellite   facility  in  Kalispell   totaling
approximately 21,000 square feet and refurbished one of the several buildings on
the  Cambridge,  England site for use as office  space and an inventory  storage
depot. In connection with the merger of Semy, the Company  invested $1.2 million
in a covenant not to compete with certain of the principals of Semy.

Financing  activities  consisted  primarily of $1.0 million in proceeds from the
exercise of stock options and $0.4 million of long-term debt repayments.

As of September 30, 1997, the Company's principal sources of liquidity consisted
of  approximately  $5.1  million  of cash and  cash  equivalents,  $6.0  million
available  under the Company's  $10 million  revolving  line of credit,  and $15
million under a long-term  facility  renewed during the fourth quarter of fiscal
1997.  Both credit  facilities  are with  Seafirst Bank and bear interest at the
bank's prime lending rate.  The  revolving  line of credit  expires on March 31,
1999 when all principal  amounts owing are due. The  long-term  credit  facility
expires on December 31, 1999 with  principal  amounts  outstanding  repayable in
monthly  principal and interest payments over a five-year period ending December
2004.

The  Company  believes  that cash and cash  equivalents,  funds  generated  from
operations,  and funds available under its bank lines will be sufficient to meet
the  Company's  planned  capital  requirements  during  the next  twelve  months
including the spending of approximately $10 million to purchase property,  plant
and  equipment.  The Company  believes  that  success in its  industry  requires
substantial  capital in order to maintain the  flexibility  to take advantage of
opportunities  as they arise.  The Company may, from time to time, as market and
business  conditions  warrant,  invest in or acquire  complementary  businesses,
products  or  technologies.  The Company  may effect  additional  equity or debt
financings to fund such activities or to fund greater than  anticipated  growth.
The sale of additional equity securities or the issuance of equity securities in
a business combination could result in dilution to the Company's shareholders.


LITIGATION

A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed on February 26, 1996, in the Montana Eleventh Judicial District Court,
Flathead  County,  Kalispell,  Montana  against  the  Company and certain of its
officers and  directors.  The complaint  includes  allegations  that the Company
issued  misleading  statements  concerning its business and prospects.  The suit
seeks injunctive relief,  damages,  costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest  the action  vigorously.  However,  given the  inherent  uncertainty  of
litigation,  insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate  outcome will be in the Company's  favor, or that if
the ultimate  outcome is not in the Company's favor,  that such an outcome,  the
diversion of management's attention,  and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's  financial condition or
results of operations.


NEW ACCOUNTING PRONOUNCEMENTS

In February  1997,  Statement of Financial  Accounting  Standards  No. 128 (SFAS
128),  "Earnings  per Share" was  issued.  SFAS 128  established  standards  for
computing and  presenting  earnings per share (EPS) and  simplifies the existing
standards.  This  standard will replace the  presentation  of primary EPS with a
presentation  of basic EPS. It also requires the dual  presentation of basic and
diluted EPS on the face of the income  statement  for all entities  with complex
capital  structures  and will  require a  reconciliation  of the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.  SFAS 128 is effective for financial  statements issued
for periods  ending  after  December  15, 1997,  including  interim  periods and
requires  restatement of all prior-period  EPS data presented.  The Company does
not believe the  application of this standard will have a material effect on its
earnings per share.

In June 1997,  Statement of Financial  Accounting  Standards No. 130 (SFAS 130),
"Comprehensive Income," was issued. SFAS 130 establishes standards for reporting
and display of comprehensive  income and its components in a full set of general
purpose financial  statements.  SFAS 130 is effective for fiscal years beginning
after December 15, 1997, and requires  restatement of earlier periods presented.
The Company  does not  believe  the  application  of this  standard  will have a
material  effect on the results of  operations  or  financial  condition  of the
Company.

In June 1997,  Statement of Financial  Accounting  Standards No. 131 (SFAS 131),
"Disclosures  about  Segments of an  Enterprise  and Related  Information,"  was
issued.  SFAS 131  establishes  standards  for the way that a public  enterprise
reports information about operating segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial  reports  issued to  shareholders.  SFAS 131 is
effective  for fiscal years  beginning  after  December  15, 1997,  and requires
restatement  of earlier  periods  presented.  The  Company  does not believe the
application  of this  standard  will have a  material  effect on the  results of
operations or financial condition of the Company.


FOREIGN EXCHANGE CONTRACTS

The Company  conducts its Japanese  business in Japanese yen. The Company enters
into forward foreign exchange  contracts  primarily as an economic hedge against
the  short-term  impact  of  foreign  currency   fluctuations  of  its  Japanese
subsidiary.  In 1997,  these contracts were denominated in the Japanese yen. The
maturities of the forward foreign exchange contracts are generally short-term in
nature.  The impact of movements in currency  exchange rates on forward  foreign
exchange  contracts  offsets  the  related  impact on  anticipated  transactions
denominated  in yen.  Net  foreign  currency  gains  and  losses  have  not been
material.


Item 8.  Financial Statements and Supplementary Data

The  financial  statements  and  supplementary  data  listed  in  the  Index  to
Consolidated  Financial Statements at Item 14 of this Form 10-K are incorporated
by reference into this Item 8 of Part II of this Form 10-K.


Item 9.  Changes in and Disagreements  with Accountants on Accounting
         and Financial Disclosures

None.

<PAGE>

                                   PART III


Item 10. Executive Officers and Directors

The following table sets forth certain information with respect to the executive
officers and directors of the Company:

         Name              Age                Position
   Raymon F. Thompson      56   Chairman, President and Chief Executive Officer
   Timothy C. Dodkin       48   Senior Vice President
                                Managing Director, Semitool Europe, Ltd.
   Thomas Sulzbacher       29   Vice President, Sales and Customer Service
   Gregory L. Perkins      54   Vice President, Operations and General Manager
   Larry A. Viano          43   Treasurer, Principal Financial Officer and
                                Controller

   Howard E. Bateman (1)   63   Director
   Richard A. Dasen (2)    55   Director
   Daniel J. Eigeman (2)   63   Director
   John Osborne (1)        53   Director
   Calvin S. Robinson (1)  77   Director and Secretary
-----------

(1)      Member of the Compensation and Stock Option Committee.
(2)      Member of the Audit Committee.

The  following  sets forth the  background  of each of the  Company's  executive
officers and directors,  including the principal occupation of those individuals
for the past five years:

Raymon F.  Thompson  founded  the  Company  and has  served as  Chairman,  Chief
Executive  Officer and  President  since its  inception  in 1979.  In 1979,  Mr.
Thompson  designed,  patented and introduced the first on-axis  rinser/dryer for
the semiconductor industry.

Timothy  C.  Dodkin  joined  the  Company  in 1985 and  served as the  Company's
European  Sales Manager from 1985 to 1986.  Since 1986, Mr. Dodkin has served as
Managing  Director of Semitool  Europe,  Ltd. Prior to joining the Company,  Mr.
Dodkin worked at Cambridge Instruments,  a semiconductor equipment manufacturer,
for ten years in national and international sales.

Thomas  Sulzbacher is Semitool's  Vice President of Sales and Customer  Service.
Mr.  Sulzbacher  has been with  Semitool for nine years;  his  experience in the
semiconductor  industry was  developed  through  Service and Sales  positions in
Semitool's Bad Reichenhall, Germany office. Upon relocating to the United States
in 1994,  Mr.  Sulzbacher  managed  the Magnum  sales force prior to his current
position. Mr. Sulzbacher is Raymon F. Thompson's son-in-law.

Gregory L. Perkins joined the Company in 1990 as Vice  President,  Manufacturing
and,  since August 1994,  has served as the Company's Vice President and General
Manager. Prior to joining the Company, Mr. Perkins served as General Manager for
Modulair, Inc., a manufacturer of clean rooms, from 1987 to 1990.

Larry A. Viano joined the Company in 1985 and serves as the Company's treasurer,
principal  financial  officer and  controller.  Mr. Viano serves on the Board of
Directors of Semitool  Europe,  Ltd. Mr. Viano, a Certified  Public  Accountant,
also serves on the Accounting Advisory Board of the University of Montana.

Howard E. Bateman has served on the Company's Board of Directors since 1990. Mr.
Bateman formerly owned and operated Entech, a Pennsylvania company that has been
an independent sales representative for the Company's products since 1979.

Richard A. Dasen has served on the Company's Board of Directors since 1984. From
1974 to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank
holding company. Since 1992, Mr. Dasen has been an independent businessman.

Daniel J. Eigeman has served on the  Company's  Board of  Directors  since 1985.
From 1971 to 1993, Mr. Eigeman was President of Eigeman,  Hanson & Co., P.C., an
accounting  firm, and since 1993 has been Vice  President of Junkermier,  Clark,
Campanella,  Stevens, P.C., CPAs. Mr. Eigeman served as President of the Montana
Society of Certified Public Accountants in 1993.

John Osborne has served on the Company's  Board of Directors  since July of 1997
and has thirty years of experience in the semiconductor  industry,  including 20
years  in  microchip  manufacturing  and  ten  years  in the  capital  equipment
industry.  During the past ten years,  Mr.  Osborne had held  senior  management
positions  at Lam  Research  in  Fremont,  CA.  These  positions  included  Vice
President of Lam's Worldwide Customer Support.  Mr. Osborne holds seven patents,
has numerous technical and business publications, and has served on the Board of
Directors of four companies.

Calvin S.  Robinson  has served as a director  of the Company  since  1982.  Mr.
Robinson  has been of counsel to  Crowley,  Haughey,  Hanson,  Toole & Dietrich,
P.L.L.P.  since 1989. This firm has provided legal services to the Company since
1979. Mr. Robinson is also a director of Winter Sports, Inc.

The executive  officers are elected each year by the Board of Directors to serve
for a one-year term of office.

The information  concerning  compliance with Section 16(a) of the Securities and
Exchange Act of 1934, as amended,  required  under this item is contained in the
Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting
of Shareholders under the caption "Other Matters" and is incorporated  herein by
reference.


Item 11.  Executive Compensation

The  information  concerning  compensation  of executive  officers and directors
required  under this item is contained in the  Company's  Proxy  Statement to be
filed in  connection  with its 1998  Annual  Meeting of  Shareholders  under the
caption "Executive Compensation," and is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information  concerning certain principal holders of securities and security
ownership  of  executive  officers  and  directors  required  under this item is
contained in the Company's  Proxy  Statement to be filed in connection  with its
1998 Annual Meeting of  Shareholders  under the caption  "Security  Ownership of
Certain  Beneficial  Owners  and  Management"  and  is  incorporated  herein  by
reference.


Item 13.  Certain Relationships and Related Transactions

The  information  concerning  certain  relationships  and  related  transactions
required  under this item is contained in the  Company's  Proxy  Statement to be
filed in  connection  with its 1998  Annual  Meeting of  Shareholders  under the
caption "Certain Transactions," and is incorporated herein by reference.


<PAGE>

                                   PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as a part of this report:

1.   Financial Statements:
     --------------------

         Report of Independent Accountants

         Consolidated Balance Sheets at September 30, 1997 and
                  September 30, 1996

         Consolidated Statements of Income for the Years Ended
                  September 30, 1997, September 30, 1996, and
                  September 30, 1995

         Consolidated  Statements  of  Changes in  Shareholders'  Equity for the
                  Years  Ended  September  30,  1997,  September  30,  1996  and
                  September 30, 1995

         Consolidated Statements of Cash Flows for the Years Ended September 30,
                  1997, September 30, 1996 and September 30, 1995

         Notes to Consolidated Financial Statements

2.   Financial Statement Schedules:
     -----------------------------

         Report of Independent Accountants
         II - Valuation and Qualifying Accounts

3.   Exhibits:
     --------

(a)  The exhibits  listed  below are filed as part of this Annual Report on
       Form 10-K or are incorporated herein by reference:

Exhibit No.                          Description
----------                           -----------

2.1           Asset Purchase Agreement and Plan of Reorganization, dated
              February 19, 1996 between the Compan and Semy Engineering, Inc (1)
3.1           Restated  Articles of  Incorporation  of the Company (2)
3.2           By-laws of the Company dated August 1, 1979 and related amendments
              to these By-laws (2)
3.3           Amended Bylaws of Semitool, Inc. (5)
3.4           Amended Bylaws of Semitool, Inc. (6)
10.1          Form of Semitool, Inc. S Corporation Termination, Tax Allocation
              and Indemnification Agreement between the Company and its current
              shareholders (2)
10.2          Form of Indemnification Agreement between the Company and each of
              its officers and directors (2)
10.3          Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4          Form of Agreement and Plan of Merger between the Company and
              Semitherm, Inc. (2)
10.5          Aircraft Lease Agreement, dated September 9, 1994, between the
              Company and Mr. Thompson (2)
10.6          Aircraft Lease Agreement, dated November 1, 1994, between the
              Company and Mr. Thompson (2)
10.7          Agreement, dated June 7, 1983, between the Company and Entech (2)
10.8          Form of Agreement of Cancellation of Sale Agreement between the
              Company and Mr. Thompson (2)
10.9          Agreement of Sale of Centrifugal Wafer Processor Invention, dated
              August 1, 1979, between the Company and Mr. Thompson (2)
10.10         Articles of Merger,  dated  September  1, 1993,  of Semitool,
              Inc., a California corporation, with and into the Company (2)
10.11         Agreement, dated June 1994, among Robert G. Massey, Donald W,
              Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm Partnership,
              Mr. Thompson and the Company (2)
10.12         Agreement  between the Company and the Semitool European
              Companies (2)
10.13         Aircraft Lease Agreement, dated April 1, 1996, between the Company
              and Mr. Thompson (3)
10.14         Business Loan  Agreement,  dated  September 30, 1996,  between the
              Company  and the  Bank of  America  NW,  N.A.  doing  business  as
              Seafirst Bank (3)
10.15         Promissory Note, dated September 30, 1996, between the Company and
              the Bank of America NW, N.A doing business as Seafirst Bank (3)
10.16         Business Loan  Agreement,  dated  September 30, 1997,  between the
              Company and the Bank of America NT & SA doing business as Seafirst
              Bank (6)
10.17         Promissory Note, dated September 29, 1997, between the Company and
              the Bank of America  National Trust and Savings Association  doing
              business as Seafirst Bank (6)
10.18         Loan Modification Agreement, dated September 29, 1997 between the
              Company and The Bank of America National Trust And Savings
              Association doing business as Seafirst Bank (6)
10.19         Loan Modification Agreement, dated October 2, 1997 between the
              Company and the Bank of America National Trust And Savings
              Association doing business as Seafirst Bank (6)
10.20         Loan Modification Agreement, dated October 2, 1997 between the
              Company and the Bank of America National Trust And Savings
              Association doing business as Seafirst Bank (6)
11.1          Statement Re Computation of Pro Forma per share Earnings (6)
21.1          Subsidiaries of Registrant (6)
27            Financial data schedule (6)
99.1          Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)


(1) Incorporated herein by reference to the identically numbered exhibits to the
Company's Current Report on Form 8-K, date of report February 29, 1996.

(2) Incorporated herein by reference to the identically numbered exhibits to the
Company's Registration  Statement on Form S-1 (File No. 33-87548),  which became
effective on February 2, 1995.

(3) Incorporated herein by reference to the identically numbered exhibits to the
Company's Annual Report on Form 10-K, date of report September 30, 1996.

(4) Incorporated herein by reference to the identically  numbered exhibit to the
Company's Quarterly Report on Form 10-Q, date of report March 31, 1997.

(5) Incorporated herein by reference to the identically  numbered exhibit to the
Company's Quarterly Report on form 10-Q, date of report June 30, 1997.

(6) Filed herewith.


(b)   Reports on Form 8-K. During the fourth quarter of fiscal 1997,  there were
      no Form 8-K's filed by the Company.

(c)   Exhibits. The Exhibits listed in Item 14(a)(3)(a) hereof are filed as part
      of this Annual Report on Form 10-K or incorporated herein by reference.

(d) Financial Statement Schedules. See Item 14(a)(2) above.

<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.


Dated:  December 22, 1997                       SEMITOOL, INC.



                                            By:/s/Raymon F. Thompson
                                               --------------------------------
                                               Raymon F. Thompson
                                               Chairman of the Board, President
                                               and Chief Executive Officer

<PAGE>



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
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/Raymon F. Thompson
----------------------
Raymon F. Thompson     Chairman of the Board,                 December 22, 1997
                       President and Chief Executive
                       Officer
                       (Principal Executive Officer)



/s/Larry A. Viano
----------------------
Larry A. Viano         Treasurer, Controller and              December 22, 1997
                       Principal Financial Officer



/s/Howard E. Bateman
----------------------
Howard E. Bateman                 Director                    December 22, 1997



/s/Richard A. Dasen
----------------------
Richard A. Dasen                  Director                    December 22, 1997



/s/Daniel J. Eigeman
----------------------
Daniel J. Eigeman                 Director                    December 22, 1997



/s/John Osborne
----------------------
John Osborne                      Director                    December 22, 1997


/s/Calvin S. Robinson
----------------------
Calvin S. Robinson         Director and Secretary             December 22, 1997


<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS



Board of Directors and Shareholders
Semitool, Inc.


We have audited the accompanying  consolidated balance sheets of Semitool,  Inc.
and subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period  ended  September  30,  1997.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Semitool,  Inc.  and  subsidiaries  as of September  30, 1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.



                                                      Coopers  & Lybrand L.L.P.


Spokane, Washington
October 30, 1997


<PAGE>

<TABLE>
<CAPTION>


                                                   SEMITOOL, INC.
                                             CONSOLIDATED BALANCE SHEETS
                                             September 30, 1997 and 1996
                                  (Amounts in Thousands, Except for Share Amounts)

                                                       ASSETS
<S>                                                                                     <C>             <C>

                                                                                             1997            1996

Current assets:
   Cash and cash equivalents                                                            $     5,060     $     3,058
   Trade receivables, less allowance for doubtful accounts
      of $224 and $233                                                                       40,896          39,183
   Inventories                                                                               41,124          36,909
   Prepaid expenses and other current assets                                                  1,771           2,323
   Deferred income taxes                                                                      5,902           4,373
                                                                                        -----------     -----------
         Total current assets                                                                94,753          85,846
Property, plant and equipment, net                                                           33,685          26,337
Intangibles, less accumulated amortization of $1,460 and $899                                 2,142           1,581
Other assets, net                                                                             1,145           1,190
                                                                                        -----------     -----------
         Total assets                                                                   $   131,725     $   114,954
                                                                                        ===========     ===========

                                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Note payable to bank                                                                 $     4,000     $     4,000
   Accounts payable                                                                          16,735          17,177
   Accrued commissions                                                                        1,850           1,751
   Accrued warranty and installation                                                          9,820           7,997
   Accrued payroll and related benefits                                                       6,164           5,032
   Other accrued liabilities                                                                  1,029             594
   Customer advances                                                                          1,722           3,757
   Income taxes payable                                                                       2,986           1,334
   Long-term debt, due within one year                                                          393             374
   Payable to shareholders                                                                        7              33
                                                                                        -----------     -----------
         Total current liabilities                                                           44,706          42,049
Long-term debt, due after one year                                                            3,364           3,637
Deferred income taxes                                                                         2,075           1,265
                                                                                        -----------     -----------
         Total liabilities                                                                   50,145          46,951
                                                                                        -----------     -----------

Commitments and contingencies (Note 9)

Shareholders' equity:
   Preferred stock, no par value, 5,000,000 shares authorized, no
      shares issued and outstanding                                                              --              --
   Common stock, no par value, 30,000,000 shares authorized,
      13,755,514 and 13,655,577 shares issued and outstanding
      in 1997 and 1996                                                                       40,590          39,577
   Retained earnings                                                                         40,949          28,426
   Foreign currency translation adjustment                                                       41              --
                                                                                        -----------     -----------
         Total shareholders' equity                                                          81,580          68,003
                                                                                        -----------     -----------
         Total liabilities and shareholders' equity                                     $   131,725     $   114,954
                                                                                        ===========     ===========

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                   SEMITOOL, INC.
                                          CONSOLIDATED STATEMENTS OF INCOME
                                for the years ended September 30, 1997, 1996 and 1995
                                (Amounts in Thousands, Except for Per Share Amounts)

<S>                                                                   <C>             <C>            <C>

                                                                         1997            1996           1995

Net sales                                                             $ 193,952       $ 174,204      $ 128,326
Cost of sales                                                           102,862          89,573         62,468
                                                                      ---------       ---------      ---------
Gross profit                                                             91,090          84,631         65,858
                                                                      ---------       ---------      ---------
Operating expenses:
    Selling, general and administrative                                  49,479          40,946         31,843
    Research and development                                             21,179          19,503         11,416
    Cost of technology rights                                                --              --          1,672
                                                                      ---------       ---------      ---------
       Total operating expenses                                          70,658          60,449         44,931
                                                                      ---------       ---------      ---------
Income from operations                                                   20,432          24,182         20,927
                                                                      ---------       ---------      ---------
Other income (expense):
    Interest income                                                          97             173            428
    Interest expense                                                       (499)           (540)          (571)
    Other, net                                                              168             211            456
                                                                      ---------       ---------      ---------
                                                                           (234)           (156)           313
                                                                      ---------       ---------      ---------
Income before income taxes                                               20,198          24,026         21,240
Provision for income taxes                                                7,675           8,890          6,355
                                                                      ---------       ---------      ---------
Net income                                                            $  12,523       $  15,136      $  14,885
                                                                      =========       =========      =========

Unaudited pro forma information (Notes 1 and 13):
    Income from operations before pro forma
       adjustments                                                    $  20,432       $  24,182      $  20,927
    Elimination of cost of technology rights                                 --              --          1,672
                                                                      ---------       ---------      ---------
    Income from operations                                               20,432          24,182         22,599
    Other income (expense), net                                            (234)           (156)           313
                                                                      ---------       ---------      ---------
    Income before income taxes                                           20,198          24,026         22,912
    Provision for income taxes                                            7,675           8,890          8,509
                                                                      ---------       ---------      ---------
    Net income                                                        $  12,523       $  15,136      $  14,403
                                                                      =========       =========      =========
    Net income per share                                              $    0.91       $    1.09      $    1.15
                                                                      =========       =========      =========
    Shares used in pro forma calculation                                 13,833          13,858         12,563
                                                                      =========       =========      =========

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                 SEMITOOL, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              for the years ended September 30, 1997, 1996 and 1995
               (Amounts in Thousands, Except for Per Share Amount)

                                                                    Common Stock
                                                      -----------------------------------------
                                                                            Semitool
                                                           Semitool         European  Semitherm
                                                             Inc.           Companies   Inc.
                                                      -----------------------------------------
                                                        Number                                               Foreign
                                                          of                                      Retained   Currency
                                                        Shares    Amount     Amount    Amount     Earnings   Translation   Total
<S>                                                    <C>       <C>        <C>       <C>        <C>          <C>         <C>
Balance September 30, 1994                              8,657    $ 1,038    $  36     $ 8,650    $   2,763    $   --      $12,487
     Net income                                            --         --       --          --       14,885        --       14,885
     Dividends on common stock ($1.08 per share)           --         --       --          --       (8,665)       --       (8,665)
     Proceeds from initial public offering              4,242     33,414       --          --           --        --       33,414
     Purchase and merger of Semitherm, Inc.
         for Semitool, Inc. stock                         692         --       --      (8,650)       8,650        --           --
     Purchase of the Combined Group of
         Semitool European Companies
         by Semitool, Inc.                                 --         --      (36)         --         (170)       --         (206)
     Contribution of S corporation retained
         earnings with change to C corporation
         status                                            --      4,173       --          --       (4,173)       --           --
     Exercise of stock options                             59        509       --          --           --        --          509
     Stock compensation                                    --         18       --          --           --        --           18
     Income tax effect of nonqualified
         stock options                                     --        371       --          --           --        --          371
                                                       ------    -------    -----     -------     --------    ------      -------
Balance September 30, 1995                             13,650     39,523       --          --       13,290        --       52,813
     Net income                                            --         --       --          --       15,136        --       15,136
     Exercise of stock options                              6         54       --          --           --        --           54
                                                       ------    -------    -----     -------     --------    ------      -------
Balance September 30, 1996                             13,656     39,577       --          --       28,426        --       68,003
     Net income                                            --         --       --          --       12,523        --       12,523
     Exercise of stock options                            100      1,013       --          --           --        --        1,013
     Translation adjustment                                --         --       --          --           --        41           41
                                                       ------    -------    -----     -------     --------    ------      -------
Balance September 30, 1997                             13,756    $40,590    $  --     $    --    $  40,949    $   41      $81,580
                                                       ======    =======    =====     =======     ========    ======      =======

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                 SEMITOOL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              for the years ended September 30, 1997, 1996 and 1995
                             (Amounts in Thousands)
<S>                                                                <C>          <C>           <C>

                                                                       1997         1996         1995

Operating activities:
  Net income                                                       $  12,523    $  15,136     $ 14,885
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
        (Gain) loss on sale of equipment                                   6           17         (191)
        Depreciation and amortization                                  6,077        4,002        2,392
        Reduction in patent costs                                         --           42           50
        Deferred income tax benefit                                     (719)      (1,093)      (2,138)
        Stock compensation                                                --           --           18
        Change in:
          Trade receivables                                           (1,662)     (10,700)     (15,155)
          Inventories                                                (10,649)     (18,837)      (8,343)
          Prepaid expenses and other current assets                      552         (989)        (921)
          Shareholders receivable/payable                                (26)         (44)        (668)
          Other assets                                                  (262)         134         (268)
          Accounts payable                                              (442)      11,115         (262)
          Accrued commissions                                             99         (341)         846
          Accrued warranty and installation                            1,823        3,746        3,502
          Accrued payroll and related benefits                         1,132       (4,149)       6,429
          Other accrued liabilities                                      435       (1,427)       1,276
          Customer advances                                           (2,035)         808        2,019
          Income taxes payable                                         1,652       (1,648)       3,175
                                                                   ---------    ---------     --------
             Net cash provided by (used in) operating
             activities                                                8,504       (4,228)       6,646
                                                                   ---------    ---------     --------
Investing activities:
  Purchases of marketable securities                                      --           --      (10,015)
  Proceeds from the sale of marketable securities                         --        4,010        6,005
  Purchases of property, plant and equipment                          (6,174)     (10,194)      (8,069)
  Increase in intangible assets                                       (1,122)        (796)        (841)
  Increase in covenant not to compete                                     --       (1,200)          --
  Proceeds from sale of equipment                                         42          397          192
                                                                   ---------    ---------     --------
             Net cash used in investing activities                    (7,254)      (7,783)     (12,728)
                                                                   ---------    ---------     --------
Financing activities:
  Net proceeds from initial public offering                               --           --       33,414
  Proceeds from exercise of stock options                              1,013           54          509
  Borrowings under line of credit                                     61,835       49,170       12,805
  Repayments under line of credit                                    (61,835)     (45,170)     (19,045)
  Proceeds from long-term debt                                           131           --           71
  Repayments of long-term debt                                          (385)        (924)      (2,394)
  Dividends distributed                                                   --           --       (8,871)
                                                                   ---------    ---------     --------
             Net cash provided by financing activities                   759        3,130       16,489
                                                                   ---------    ---------     --------
Effect of exchange rate changes on cash and cash equivalents              (7)          --           --
                                                                   ---------    ---------     --------
Net increase (decrease) in cash and cash equivalents                   2,002       (8,881)      10,407
Cash and cash equivalents at beginning of year                         3,058       11,939        1,532
                                                                   ---------    ---------     --------
Cash and cash equivalents at end of year                           $   5,060    $   3,058     $ 11,939
                                                                   =========    =========     ========

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                 SEMITOOL, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
              for the years ended September 30, 1997, 1996 and 1995
                             (Amounts in Thousands)

<S>                                                                         <C>           <C>           <C>

                                                                                 1997          1996         1995
Supplemental  disclosures  of cash flow  information:
  Cash paid during the year for:
     Interest, net of amounts capitalized                                   $     497     $     582     $    579
     Income taxes                                                               6,748        10,699        5,711

Supplemental disclosures of noncash financing and investing activity:
     Inventory transferred to equipment                                     $   6,434     $   1,191     $    994


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

</TABLE>


<PAGE>


                                 SEMITOOL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Company Organization and Summary of Significant Accounting Policies:

      Semitool,  Inc.  (Semitool)  designs,  manufactures,  markets and services
      equipment  used in the  manufacture  of  semiconductors  as well as  other
      products  requiring similar processes  including thin film heads,  compact
      disc  masters,  flat panel  displays  and hard disk  media.  Semitool  has
      various  subsidiaries  which operate as sales and service offices in their
      respective geographic areas.

      Significant accounting policies followed by Semitool, Inc. and its
      subsidiaries (the Company) are:

         Principles of Consolidation

         The 1997  consolidated  financial  statements  include the  accounts of
         Semitool  and its  wholly-owned  subsidiaries:  Semitool  Europe  Ltd.,
         (United Kingdom); Semitool Halbleitertechnik Vertriebs GmbH, (Germany);
         Semitool  France  SARL;   Semitool  Italia  SRL;  Semitool  KK,  Japan;
         Semitool,  Inc., Korea;  Semitool,  Inc., FSC; Semy  Engineering,  Inc.
         (Semy) and Rhetech,  Inc.  (Rhetech).  The British,  German, and French
         Companies (the "Combined Group of Semitool  European  Companies")  were
         acquired by Semitool in  connection  with the initial  public  offering
         (Offering) in February 1995. Semitool also acquired all the outstanding
         common shares of Semitherm, Inc. (Semitherm) in exchange for its common
         stock in connection with the Offering and concurrently merged Semitherm
         into Semitool (see Note 12) in February 1995.

         On February 29, 1996,  the Company  acquired  substantially  all of the
         assets and assumed certain liabilities of Semy, in exchange for 600,000
         shares of the Company's  common stock.  This  transaction was accounted
         for using the  pooling-of-interests  method and accordingly all periods
         presented are restated to show the effects of this transaction as if it
         had occurred at the beginning of each period presented.

         All significant  intercompany  accounts and transactions are eliminated
         in consolidation.

         Estimates

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         dates of the financial  statements and the reported amounts of revenues
         and expenses during the reporting periods.  Actual results could differ
         from those estimates.

         Cash Equivalents

         The Company considers cash equivalents to consist of short-term, highly
         liquid  investments  with  remaining  maturities at time of purchase of
         three  months  or  less.   Substantially  all  of  its  cash  and  cash
         equivalents  are held by major  financial  institutions.  At times such
         investments may be in excess of the federal insurance limit.

         Inventories

         Inventories are carried at the lower of first-in, first-out (FIFO) cost
         or  net  realizable  value.  The  Company   periodically   reviews  its
         inventories to identify slow moving and obsolete  inventories to record
         such inventories at net realizable  values.  It is reasonably  possible
         that the  Company's  estimates  regarding net  realizable  values could
         change in the near term due to technological changes.

         Property, Plant and Equipment

         Property,  plant and  equipment  is stated  at cost.  Depreciation  and
         amortization is provided using the  straight-line  method with
         estimated  useful lives as follows:

            Buildings and improvements                          10-40 years
            Machinery and equipment                               2-5 years
            Furniture, fixtures and leasehold improvements        3-7 years
            Vehicles and aircraft                                5-10 years

         Major additions and betterments are  capitalized.  Costs of maintenance
         and repairs which do not improve or extend the lives of the  respective
         assets are expensed currently.  When items are disposed of, the related
         costs and  accumulated  depreciation  are removed from the accounts and
         any gain or loss is recognized in operations.

         Interest Capitalization

         The Company capitalizes  interest costs during the construction period
         for qualifying assets.  During the years ended September 30, 1997, 1996
         and 1995, the Company capitalized $0, $9,000 and $18,000 of interest
         costs, respectively.

         Intangible Assets

         Intangible assets include, among other things, the cost of internally
         developed software  and  legal  costs   associated   with  obtaining
         patents.

         Costs  incurred  for  internally   developed   software   products  and
         enhancements  after  technological  feasibility and marketability  have
         been established for the related product are capitalized and are stated
         at the lower of cost or net realizable value.  Amortization is provided
         based on the  greater of the amount  computed  using (a) the ratio that
         current gross  revenues for a product bears to the total of current and
         anticipated  future  gross  revenues  for  that  product,  or  (b)  the
         straight-line  method over the remaining  economic life of the product,
         estimated at three years.

         The cost of  patents is  amortized  on a  straight-line  basis over the
         lesser of the statutory life of 17 years or estimated product life.

         It is reasonably  possible that  estimates of future gross revenues for
         software products,  the estimated remaining product life, or both could
         change  in the near  term due to  technological  advances  which  would
         result in a reduction in the  carrying  value of  capitalized  software
         development costs and patents.

         Accrued Payroll and Related Benefits

         The Company  records the estimated  costs of employee  severance at the
         date management implements a plan of termination.

         Foreign Currency

         Except for Semitool KK, Japan where the functional currency was changed
         to the yen during the fourth quarter of 1997,  the functional  currency
         for the  Company's  foreign  operations  is the U.S.  dollar,  in which
         substantially  all  sales  and  purchases  are  denominated.  For these
         foreign  operations,  realized  gains and losses from foreign  currency
         transactions and unrealized gains and losses from re-measurement of the
         financial  statements  of the foreign  operations  into the  functional
         currency are included in the consolidated statements of income.

         In July 1997,  Semitool KK, Japan commenced  invoicing its customers in
         yen, and therefore,  the Company  changed the functional  currency from
         the U.S.  dollar to the yen. The change in the functional  currency has
         been  accounted for  prospectively  commencing in the fourth quarter of
         1997.  Realized  gains and  losses  are  included  in the  consolidated
         statements   of  income   and   unrealized   gains  and   losses   from
         re-measurement  of the  financial  statements of Semitool KK, Japan are
         reflected as a component of shareholders' equity.

         Revenue Recognition

         Revenue from sales of products is generally  recognized at the time the
         product is shipped.

         Accrued Warranty and Installation

         The   Company's   remaining   obligations   at  time  of  shipment  for
         installation  and  warranty are accrued  concurrently  with the revenue
         recognized.  The  Company  has made a provision  for its  warranty  and
         installation  obligations based upon historical costs incurred for such
         obligations adjusted, as necessary, for current conditions and factors.
         Due  to  the  significant   uncertainties  and  judgments  involved  in
         estimating  the  Company's   warranty  and  installation   obligations,
         including  changing  product designs and  specifications,  the ultimate
         amount incurred for all warranty and installation costs could change in
         the near term from the Company's currently recorded accrual.

         Foreign Currency Exchange Contracts

         The Company  uses  foreign  currency  exchange  contracts as part of an
         overall risk-management strategy. These instruments are used as a means
         of  mitigating   exposure  to  foreign   currency  risk   connected  to
         anticipated sales or existing assets. In entering into these contracts,
         the Company  has  assumed the risk which might arise from the  possible
         inability of counterparties  to meet the terms of their contracts.  The
         Company  does  not  expect  any  losses  as a  result  of  counterparty
         defaults. The Company does not hold or issue derivative financial 
         instruments for trading purposes.

         The foreign  currency  exchange  contracts  are  accounted for based on
         whether the contract is speculative or serves as a hedge. A speculative
         transaction  is  marked  to  market,  with  unrealized  gains or losses
         recognized   currently.   Unrealized   gains  or  losses  on  a  hedged
         transaction  are  determined  based on changes in the  underlying  spot
         rate.  The  difference  between the spot rate and the contract price on
         the date of the  transaction  is accounted for as a premium or discount
         and amortized over the life of the contract.  For hedged  transactions,
         unrealized gains and losses and amortization of the initial discount or
         premium are deferred  and included in the basis of the related  foreign
         currency  transaction.   Cash  flows  from  foreign  currency  exchange
         contracts  are  recognized  in the  statement  of  cash  flows  and are
         reported in the same category as that of the hedged item.

         Research and Development Costs

         Costs of research and development are expensed as incurred.

         Net Income Per Common Share

         Historical net income per common share for the years ended September
         30, 1997,  1996 and 1995 has not been presented as it is not meaningful
         in the  presentation of these consolidated financial statements.

         Pro forma net  income  per  common  share  equals  pro forma net income
         divided by the weighted average common shares outstanding, after giving
         effect to  dilutive  stock  options  and common  shares  issued for the
         acquisition  of Semy. Pro forma net income per share in fiscal 1997 and
         1996 is the same as historical amounts due to the lack of any pro forma
         adjustments.

         In July 1995,  the Board of Directors of Semitool  adopted a resolution
         to split all common  shares of Semitool on a 3-for-2  basis.  All share
         amounts and per share data  presented  herein  reflect the common stock
         split.

         New Accounting Pronouncements

         In February 1997,  Statement of Financial  Accounting Standards No. 128
         (SFAS  128),  "Earnings  per Share" was  issued.  SFAS 128  established
         standards  for computing  and  presenting  earnings per share (EPS) and
         simplifies  the  existing  standards.  This  standard  will replace the
         presentation  of primary EPS with a presentation  of basic EPS. It also
         requires the dual  presentation of basic and diluted EPS on the face of
         the income  statement for all entities with complex capital  structures
         and will require a  reconciliation  of the numerator and denominator of
         the basic EPS  computation  to the  numerator  and  denominator  of the
         diluted EPS computation. SFAS 128 is effective for financial statements
         issued for periods  ending after December 15, 1997,  including  interim
         periods  and  requires   restatement  of  all   prior-period  EPS  data
         presented.  The  Company  does  not  believe  the  application  of this
         standard will have a material effect on its earnings per share.

         In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS
         130),   "Comprehensive   Income,"  was  issued.  SFAS  130  establishes
         standards  for reporting  and display of  comprehensive  income and its
         components in a full set of general purpose financial statements.  SFAS
         130 is effective for fiscal years  beginning  after  December 15, 1997,
         and requires restatement of earlier periods presented. The Company does
         not  believe  the  application  of this  standard  will have a material
         effect on the  results of  operations  or  financial  condition  of the
         Company.

         In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS
         131),   "Disclosures  about  Segments  of  an  Enterprise  and  Related
         Information,"  was issued.  SFAS 131 establishes  standards for the way
         that a public enterprise  reports  information about operating segments
         in annual  financial  statements  and requires  that those  enterprises
         report  selected   information  about  operating  segments  in  interim
         financial  reports  issued to  shareholders.  SFAS 131 is effective for
         fiscal  years   beginning   after   December  15,  1997,  and  requires
         restatement of earlier periods presented.  The Company does not believe
         the  application  of this standard  will have a material  effect on the
         results of operations or financial condition of the Company.


2.    Inventories:

      Inventories  at September 30, 1997 and 1996 are  summarized as follows (in
      thousands):

                                                  1997          1996

         Parts and raw materials             $   22,028    $   18,157
         Work-in-process                         14,869        15,702
         Finished goods                           4,227         3,050
                                             ----------    ----------
                                             $   41,124    $   36,909
                                             ==========    ==========


3.    Property, Plant and Equipment:

      Property, plant and equipment at September 30, 1997 and 1996 is summarized
      as follows (in thousands):

                                                             1997        1996

         Buildings and improvements                      $  13,892   $  12,504
         Machinery and equipment                            16,638      10,055
         Furniture, fixtures and leasehold improvements     10,206       7,892
         Vehicles and aircraft                               5,577       5,478
                                                         ---------   ---------
                                                            46,313      35,929
         Less accumulated depreciation and amortization    (15,460)    (12,072)
                                                         ---------   ---------
                                                            30,853      23,857
         Land and land improvements                          2,832       2,480
                                                         ---------   ---------
                                                         $  33,685   $  26,337
                                                         =========   =========

4.    Note Payable to Bank:

      The Company has two uncollateralized  lines of credit totaling $25 million
      under an agreement with Seafirst Bank (Seafirst). Borrowings under both of
      the lines of credit bear  interest at the bank's prime lending rate (8.50%
      at  September  30,  1997) with the first line of $10  million  expiring on
      March 31, 1999 and the second line of $15 million expiring on December 31,
      1999. The lines of credit require monthly interest payments only, with the
      $10 million line  principal  amount due in full on expiration  and the $15
      million line principal amount repayable in monthly  principal and interest
      payments over a five-year  period ending  December  2004. At September 30,
      1997,  there were $4 million of advances  outstanding on the first line of
      credit.  The  Company has the option with the second line of credit to fix
      the  interest  rate for  specific  periods of time ranging from 30 days to
      five years in amounts of $500,000 or more. The option, if exercised, would
      fix the interest  rate at the London  Interbank  Offered Rate (LIBOR) plus
      1.75%.  The  agreement  for both lines of credit  provides for a quarterly
      commitment fee on any unused portion of the lines of credit. Additionally,
      the agreement includes various restrictive covenants, the most significant
      of  which  relates  to a  prohibition  against  pledging  or  in  any  way
      encumbering  current or operating  assets during the term of the agreement
      and the maintenance of various financial ratios.


5.    Long-Term Debt:

      Long-term  debt  at  September  30,  1997 is  summarized  as  follows  (in
      thousands):

         Mortgage term note  payable in monthly  installments
            of $23  including interest at a blended rate of 5.5%,
            maturing on September 1, 2014 (A)                          $  2,994
         Mortgage term note payable in monthly installments of
            $25 including interest at a blended rate of 4.7%,
            maturing on December 1, 1999 (A)                                643
         Japanese yen term note payable in a single payment of
            14,470,500  Japanese yen due on April 5, 1999.
            Interest accrues at a fixed rate of 2.9% per annum
            and is payable in arrears, on various dates,
            until repaid in full                                            120
                                                                     ----------
                                                                          3,757
         Less current portion                                               393
                                                                     ----------
                                                                     $    3,364
                                                                     ==========

      (A)The mortgage term notes payable are collateralized by a first lien deed
         of trust on  the Kalispell  office and  manufacturing  facility and  by
         all  fixtures  and  personal  property of  Semitool  necessary  for the
         operation  of  the facility.  The Montana  State  Board of  Investments
         provided 80% of the financing  with  Seafirst  providing  the remaining
         20%. The  notes are  personally  guaranteed by Raymon F. Thompson,  the
         Company's chief executive officer,  and are subject to  the restrictive
         covenants described in Note 4.

      Principal maturities for long-term debt outstanding at September 30, 1997,
      are summarized by year as follows (in thousands):

                   Year Ending
                  September 30,

                      1998                        $    393
                      1999                             532
                      2000                             198
                      2001                             134
                      2002                             141
                   Thereafter                        2,359
                                                  --------
                                                  $  3,757
                                                  ========


6.    Employee Benefit and Stock Option Plans:

      Semitool maintains a profit-sharing plan and trust under Section 401(k) of
      the Internal Revenue Code. Under the terms of the plan, the U.S. employees
      of  Semitool,  Semy and Rhetech may make  voluntary  contributions  to the
      plan.  Semitool  contributes  a  matching  amount  equal  to  50%  of  the
      employee's voluntary contribution up to 5% of the employee's compensation.
      Semitool may also make  non-matching  contributions to the plan, which are
      determined  annually  by the  Board of  Directors.  Total  profit  sharing
      contribution expense to this plan was approximately  $1,115,000,  $639,000
      and  $377,000  for the years  ended  September  30,  1997,  1996 and 1995,
      respectively.

      Semitool Europe Ltd. maintains a defined  contribution  pension agreement.
      This  pension  agreement  is open to all  employees  with more than  three
      months of service. The employer and employee contributions are invested in
      each  individual  member's  personal  pension  plan with a United  Kingdom
      insurance company. The employer has an obligation to make contributions at
      one-half of the contribution rate paid by the employee,  subject to a rate
      between 2.5% and 5.0% of the employee's salary. However, there is no upper
      limit on the contributions payable by the employee. The total pension cost
      under this plan for the years  ended  September  30,  1997,  1996 and 1995
      approximated  $37,000,  $23,000  and  $15,000,  respectively.  The pension
      agreement  does  not  impose  any  obligation  on  the  employer  to  make
      contributions  for the periods after an  individual  retires or terminates
      employment.

      The Company's other foreign  subsidiaries do not operate their own pension
      plans,  but  retirement   benefits  are  provided  to  employees   through
      government plans operated in their respective countries.

      In December  1994,  the Board of  Directors  adopted and the  shareholders
      approved the Semitool,  Inc.  1994 Stock Option Plan (the Option Plan).  A
      total of 900,000  shares of common stock were reserved for issuance  under
      the Option Plan. In February 1997, the Option Plan was amended to increase
      the number of shares of common stock available for issuance  thereunder by
      200,000 shares from 900,000 to 1,100,000 shares. Options granted under the
      Option  Plan  generally  become  exercisable  at a rate of 5% per  quarter
      commencing  three months after the grant date.  Semitool may grant options
      which qualify as incentive  stock  options to employees  and  nonqualified
      stock options to employees,  officers, directors,  independent contractors
      and  consultants.  The Option Plan also provides for  automatic  grants of
      nonqualified stock options to independent directors.  The Option Plan will
      terminate in December 2004, unless terminated earlier at the discretion of
      the Board of  Directors.  At  September  30,  1997,  337,350  shares  were
      available for future issuance under the Option Plan.

      The Company has adopted the  disclosure-only  provisions  of  Statement of
      Financial  Accounting  Standards  No. 123 (SFAS No. 123)  "Accounting  for
      Stock-Based  Compensation."  Accordingly,  no  compensation  cost has been
      recognized for the Option Plan. Had compensation  cost for the Option Plan
      been  determined  based on the fair  value at the grant date for awards in
      fiscal 1997 and 1996  consistent  with the provisions of SFAS No. 123, the
      Company's net income and earnings per share would have been reduced to the
      pro  forma  amounts  shown  below  (in  thousands,  except  for per  share
      amounts):
                                                      1997         1996

      Net income:
         As reported                              $   12,523   $   15,136
         Pro forma                                $   12,275   $   15,021

      Earnings per share:
         As reported                              $     0.91   $     1.09
         Pro forma                                $     0.89   $     1.08


      The fair  value of each  option  grant is  estimated  on the date of grant
      using  the   Black-Scholes   option-pricing   model  with  the   following
      weighted-average   assumptions   used  for   grants   in  1997  and  1996,
      respectively:  dividend yield of 0% for both years; expected volatility of
      67.8% for both years;  risk-free  interest  rates of 6.31% and 6.07%;  and
      expected lives of 5.2 years for both years.

      The  following  summary  shows stock  option  activity for the three years
      ended September 30, 1997:

                                           Number of                   Weighted-
                                     Shares Optioned                     Average
                                             But Not              Exercise Price
     Stock Option Activity                 Exercised                   per Share
     ---------------------           ---------------              --------------

     September 30, 1994                           --                          --
     Granted                                 576,000                       $8.73
     Exercised                               (58,715)                      $8.67
     Forfeited                                (4,800)                      $8.67
                                     ---------------              --------------
     September 30, 1995                      512,485                       $8.73
     Granted                                 179,000                      $14.26
     Exercised                                (5,675)                      $8.93
     Forfeited                               (50,000)                     $10.90
                                     ---------------              --------------
     September 30, 1996                      635,810                      $10.12
     Granted                                 163,000                      $10.54
     Exercised                               (99,937)                     $10.14
     Forfeited                              (100,550)                     $10.66
                                     ---------------              --------------
     September 30, 1997                      598,323                      $10.14
                                     ===============              ==============


     The  weighted-average  fair value of stock options granted during the years
     ended  September  30,  1997 and 1996,  calculated  using the  Black-Scholes
     option-pricing model, was $6.31 and $8.46, respectively.

     The following tables summarize  information about stock options outstanding
     at September 30, 1997:

                                            Options Outstanding
                            ---------------------------------------------------
                                                       Weighted-
                                                         Average      Weighted-
                                                       Remaining        Average
                                        Number       Contractual       Exercise
     Range of                   Outstanding at              Life          Price
     Exercise Prices        September 30, 1997        (in years)      per Share
     -------------------    ------------------       -----------      ---------
       $8.67 -     $8.88               335,023               7.1          $8.67
       $9.75 -    $11.17               121,800               9.5          $9.77
      $12.00 -    $13.88               104,500               8.5         $13.53
      $14.63 -    $16.25                37,000               9.3         $15.06
                            ------------------       -----------      ---------
                                       598,323               8.0         $10.14
                            ==================       ===========      =========


                                            Options Exercisable
                            ---------------------------------------------------
                                                                      Weighted-
                                                                        Average
                                        Number                         Exercise
     Range of                   Exercisable at                            Price
     Exercise Prices        September 30, 1997                        per Share
     -------------------    ------------------                        ---------
       $8.67 -     $8.88               154,387                            $8.67
       $9.75 -    $11.17                 6,300                            $9.86
      $12.00 -    $13.88                19,700                           $13.45
      $14.63 -    $16.25                16,250                           $15.11
                            ------------------                        ---------
                                       196,637                            $9.72
                            ==================                        =========

      The  exercise  and  sale of  certain  qualified  options  resulted  in the
      treatment  of those  options as  nonqualified  options.  As a result,  the
      Company  received a tax benefit  associated with those options of $371,000
      in 1995, which has been recorded as additional contributed capital.


7.    Income Taxes:

      The  provision  for income taxes for the years ended  September  30, 1997,
      1996 and 1995 consists of the following (in thousands):

                                   1997         1996        1995
         Federal:
              Current           $  7,643     $  7,882    $  6,354
              Deferred              (643)        (551)     (1,966)
         State:
              Current                899        1,776       1,545
              Deferred               (76)         (67)       (172)
         Foreign:
              Current               (148)         325         594
              Deferred                --         (475)         --
                                --------     --------    --------
                                $  7,675     $  8,890    $  6,355
                                ========     ========    ========

      Domestic and foreign  components  of income (loss) before income taxes for
      the years ended September 30, 1997, 1996 and 1995 are as follows
      (in thousands):

                                   1997         1996        1995

         Domestic               $ 22,245     $ 24,277    $ 19,793
         Foreign                  (2,047)        (251)      1,447
                                --------     --------    --------
                                $ 20,198     $ 24,026    $ 21,240
                                ========     ========    ========


      Prior to February 1, 1995, Semitool and Semitherm were treated for federal
      and state (excluding  Montana) income tax purposes as S corporations under
      Subchapter S of the Internal  Revenue  Code. As a result,  the  companies'
      earnings for such period were taxed at the  shareholder  level.  Effective
      February  1,  1995,  Semitherm  was  merged  into  Semitool  and  Semitool
      terminated its S corporation status (see Notes 1 and 12). From February 1,
      1995,  Semitool's  earnings  have  been  taxed  as  a  C  corporation  and
      provisions  for  income  taxes  have been  reflected  in the  consolidated
      financial  statements.  Semitool  recorded a nonrecurring net deferred tax
      benefit of  approximately  $890,000  associated  with the recognition of a
      related  deferred tax asset due to the  termination  of the S  corporation
      status in 1995.

      The Company's foreign subsidiaries are subject to the tax regulations that
      exist  in their  respective  countries.  These  subsidiaries  provide  for
      deferred  taxation  at  current  rates  to  take  into  account  temporary
      differences between the treatment of certain items for financial statement
      purposes and the  treatment of those items for  corporation  tax purposes.
      The components of the deferred tax assets and  liabilities as of September
      30, 1997 and 1996 are as follows (in thousands):
<TABLE>
<S>                                                                          <C>          <C>             <C>

         September 30, 1997                                                   Assets      Liabilities        Total

         Accrued liabilities, principally vacation,
            health insurance and profit sharing                              $  1,127     $      --       $  1,127
         Accrued reserves, principally bad debt, warranty
            and inventory                                                       3,608            --          3,608
         Inventory capitalization                                                 485            --            485
         Depreciation and software amortization                                    --        (2,075)        (2,075)
         Covenant not to compete                                                  132            --            132
         Foreign net operating loss carryforward                                  475            --            475
         Other                                                                     75            --             75
                                                                             --------     ---------       --------
                                                                             $  5,902     $  (2,075)      $  3,827
                                                                             ========     =========       ========

         September 30, 1996                                                   Assets      Liabilities        Total

         Accrued liabilities, principally vacation and
             health insurance                                                $    709     $      --       $    709
         Accrued reserves, principally bad debt, warranty
            and inventory                                                       2,669            --          2,669
         Inventory capitalization                                                 433            --            433
         Depreciation and software amortization                                    --        (1,265)        (1,265)
         Covenant not to compete                                                   49            --             49
         Foreign net operating loss carryforward                                  475            --            475
         Other                                                                     38            --             38
                                                                             --------     ---------       --------
                                                                             $  4,373     $  (1,265)      $  3,108
                                                                             ========     =========       ========
</TABLE>


     The  Company  does not  believe  a  valuation  allowance  is  necessary  at
     September 30, 1997 to reduce the deferred tax asset as this asset will more
     likely  than not be  realized  through  the  generation  of future  taxable
     income.

      The differences  between the  consolidated  provision for income taxes and
      income taxes  computed  using income  before  income taxes and the U.S.
      federal income tax rate for the years ended  September  30,  1997,  1996
      and 1995 are as follows (in thousands):
<TABLE>
<S>                                                                               <C>         <C>         <C>

                                                                                     1997        1996        1995

         Amount computed using the statutory rate                                 $  7,069    $  8,409    $  7,434
         Increase (decrease) in taxes resulting from:
            Benefit of recognition of deferred tax asset in
                connection with S corporation termination                               --          --        (890)
            State taxes, net of federal benefit                                        959       1,155         893
            Tax effect of income not subject to federal tax
                due to Subchapter S election                                            --          --        (793)
            Effect of foreign taxes                                                    569         (62)        119
            Research and experimentation credit                                       (863)       (355)       (140)
            Foreign sales corporation benefit                                         (822)       (695)         --
            Other, net                                                                 763         438        (268)
                                                                                  --------    --------    --------
                                                                                  $  7,675    $  8,890    $  6,355
                                                                                  ========    ========    ========
</TABLE>


8.    Related Party Transactions:

      In  August  1979,  Semitool  entered  into an  agreement  with  Raymon  F.
      Thompson,  the Company's chief executive officer and majority shareholder,
      to acquire  all  rights,  title to and  interest  in a  centrifugal  wafer
      processor  invention.  The agreement  called for payments to Mr.  Thompson
      through September 30, 1999 amounting to 8% of all sales of the centrifugal
      wafer   processor,   equipment  using  the   processor's   technology  and
      replacement  parts.  This  agreement  was  terminated  effective  with the
      Offering in February  1995 (see Note 12).  Total  costs,  pursuant to this
      agreement,  were approximately $1,672,000 for the year ended September 30,
      1995.

      Semitool also has  agreements  with Mr.  Thompson to lease  aircraft.  The
      current rental rate is $106,100 per month.  Under these  agreements,  rent
      expense was  approximately  $1,276,600,  $1,158,000  and  $835,000 for the
      years ended September 30, 1997, 1996 and 1995, respectively.

      Periodically,  Semitool  advances  funds to Mr.  Thompson and pays certain
      expenses  for the benefit of Mr.  Thompson.  These  advances are offset by
      amounts  payable to Mr.  Thompson  under the  agreements  described in the
      preceding  paragraphs.  Net  advances to (from) Mr.  Thompson  are charged
      interest at the  federal  funds  short-term  rate.  Associated  with these
      advances, Mr. Thompson received approximately $2,000 of interest income in
      1996, and paid the Company interest of $31,000 in 1995.

      Semitool  purchased raw materials  approximating  $720,000,  $651,000, and
      $570,000  for  the  years  ended   September  30,  1997,  1996  and  1995,
      respectively, from a company owned by Mr. Thompson.


9.    Commitments and Contingencies:

      The Company has various  operating  lease  agreements  for  equipment  and
      office space that expire through the year 2003. Total rent expense for the
      years ended September 30, 1997,  1996 and 1995,  exclusive of amounts paid
      to a related party as described in Note 8, was  approximately  $1,305,000,
      $950,000, and $648,000, respectively. At September 30, 1997, future rental
      payments under these  agreements and the aircraft leases described in Note
      8 are as follows (in thousands):

                      Year Ending
                     September 30,                Total

                        1998                    $  2,099
                        1999                       1,726
                        2000                         936
                        2001                         364
                        2002                         273
                     Thereafter                      273
                                                --------
                                                $  5,671
                                                ========

      A  class  action  lawsuit  brought by  Dr. Stanley Bierman, IRA (Case  No.
      DV-96-124A)  was  filed  on  February 26, 1996,  in  the Montana  Eleventh
      Judicial  District  Court,  Flathead  County,  Kalispell,  Montana against
      the  Company  and  certain of its  officers and  directors.  The complaint
      includes  allegations  that  the  Company  issued  misleading   statements
      concerning  its  business   and   prospects.  The  suit  seeks  injunctive
      relief,  damages,  costs  and  other  relief   as   the  court  may   find
      appropriate.  The  Company  believes  the lawsuit to  be without merit and
      intends  to contest   the  action vigorously.  However, given the inherent
      uncertainty  of  litigation,  insurance  issues,  and  the early  stage of
      discovery, there  can  be  no assurance that  the ultimate outcome will be
      in  the Company's  favor, or that  if the ultimate  outcome  is not in the
      Company's  favor,  that such  an  outcome,  the diversion  of management's
      attention,  and  any  costs associated  with  the lawsuit, will not have a
      material adverse effect  on the Company's financial condition  or  results
      of operations.


10.   Concentration of Credit Risk and Foreign Operations:

      At September 30, 1997 and 1996, the trade  receivables of the Company were
      primarily  from  companies  in the  semiconductor  industry,  and included
      approximately  $11.7 million and $20.5 million,  respectively,  of foreign
      receivables.  Accordingly,  the  Company is exposed to  concentrations  of
      credit risk. The Company routinely  assesses the financial strength of its
      customers  and,  as  a  consequence,  believes  that  its  trade  accounts
      receivable credit risk exposure is limited.

      Consolidated  sales to major  customers,  represented  as a percentage  of
      total consolidated  sales, for the years ended September 30, 1997, 1996
      and 1995 are as follows:

                                  1997         1996        1995

         Customer A               10.9%        0.3%          --%
         Customer B                3.9%        3.1%        13.1%

      Summarized data for the Company's foreign operations  (principally Europe)
      for the  years  ended  September  30,  1997,  1996 and 1995 are as
      follows  (in thousands):
                                                  1997        1996        1995

         Net sales - unaffiliated customers    $ 41,011    $ 49,197     $ 38,091
         Income (loss) from operations           (2,046)        332        1,677
         Identifiable assets                     21,144      23,472       13,232

      Export sales from the Company's United States operations were approximate-
      ly $27.9 million (14%), $27.2 million (16%) and $13.7 million (11%) for
      the years ended September 30, 1997, 1996 and 1995, respectively.


11.   Preferred Stock:

      The Board of  Directors  has the  authority  to issue  preferred  stock of
      Semitool  in one  or  more  series  and to  fix  the  rights,  privileges,
      preferences  and  restrictions  granted  to or imposed  upon any  unissued
      shares of preferred  stock,  without  further vote or action by the common
      shareholders.


12.   Transactions Associated with the Offering:

      In February 1995, the Company  completed its initial public stock offering
      through the sale of 4,241,815  shares of its common stock.  As a result of
      the Offering,  the Company  received net proceeds of  approximately  $33.4
      million.  Approximately  $9.4 million and $8.7 million of the net proceeds
      were used to repay debt of the Company and make distributions of dividends
      to shareholders,  respectively. Also, in connection with the completion of
      the Company's  initial public offering,  payments for technology rights to
      Mr. Raymon F. Thompson described in Note 8 ceased.


13.   Unaudited Pro Forma Statement of Income Information:

      The pro forma  information  included  in the  consolidated  statements  of
      income  reflects the effects of certain  transactions  that  occurred as a
      result of the Offering which are more completely  described in Notes 7 and
      12.

      The  consolidated  pro  forma  statement  of  income  for the  year  ended
      September  30,  1995  presents  the pro forma  effects  on the  historical
      financial  information  to eliminate the cost of technology  rights and to
      recognize a provision  for income taxes at statutory  rates applied to pro
      forma income before income taxes,  net of actual  research and development
      credits generated.

14.   Financial Instruments:

      The  Company has  estimated  the fair value of its  financial  instruments
      including cash and cash equivalents,  payable to shareholder, note payable
      to bank  and  long-term  debt.  The  fair  value  estimates  are made at a
      discrete  point  in  time  based  on  relevant   market   information  and
      information  about the  financial  instruments.  Fair value  estimates are
      based  on  judgments   regarding   current   economic   conditions,   risk
      characteristics of various financial instruments, and other factors. These
      estimates are subjective in nature and involve  uncertainties  and matters
      of  significant  judgment  and,  therefore,   cannot  be  determined  with
      precision.   Changes  in  assumptions  could   significantly   affect  the
      estimates.  Accordingly,  the estimates are not necessarily  indicative of
      what the Company could realize in a current market exchange.

      The following methods and assumptions were used to estimate the fair value
      of each class of financial instruments  at September 30, 1997 and 1996 for
      which it is practicable to estimate that value:

         Cash  and  Cash  Equivalents  - The  carrying  value  of cash  and cash
         equivalents approximates fair value due to the nature of the cash
         investments.

         Payable to Shareholder - The carrying value of the shareholder  payable
         approximates fair value.

         Note Payable to Bank - The carrying value of the note payable to bank
         approximates  fair value due to the fact that the note bears a
         negotiated  variable  interest rate.

         Long-Term  Debt - The  fair  value  of  notes  payable  is based on the
         discounted  value of contractual cash flows using a discount rate which
         the Company  could  currently  obtain for debt with  similar  remaining
         maturities.

         Foreign  Currency  Exchange  Contracts  - The  fair  value  of  foreign
         currency  exchange  contracts is estimated  based on quoted  market
         prices from financial institutions.

         The estimated fair value of financial instruments at September 30, 1997
         and 1996, consisted of the following (in thousands):
<TABLE>
<S>                                                       <C>          <C>            <C>          <C>

                                                                    1997                        1996
                                                           Carrying        Fair        Carrying        Fair
                                                            Amount         Value        Amount         Value
                                                          ----------------------      ----------------------
         Cash and cash equivalents                        $  5,060     $   5,060      $  3,058     $   3,058
         Payable to shareholder                                  7             7            33            33
         Note payable to bank                                4,000         4,000         4,000         4,000
         Long-term debt                                      3,757         3,182         4,011         3,412
         Foreign currency exchange contracts                 2,564         2,521            --            --
</TABLE>

      Foreign Currency Exchange Risk Management

      In the normal course of business, the Company is party to foreign currency
      exchange  contracts  and  borrowings  in  foreign  currency  to reduce its
      exposure to fluctuations in exchange rates. These instruments  involve, to
      varying degrees, elements of credit and/or exchange rate risk in excess of
      the amount recognized in the financial statements.

      The Company  selectively  uses foreign  currency  exchange  contracts  and
      borrowings  in foreign  currency to offset the  effects of  exchange  rate
      changes on cash flow exposures  denominated in foreign  currencies.  These
      exposures  include firm and  anticipated  sales.  The primary  exposure is
      denominated  in yen. The Company  normally  hedges cash flow exposures for
      periods up to one year.

      As of  September  30,  1997,  the Company had  foreign  currency  exchange
      contracts  maturing at various  dates in 1998 to sell  304,300,265  yen at
      contracted forward rates. These forward contracts do not qualify as hedges
      for financial reporting  purposes.  The Company had no outstanding foreign
      currency exchange contracts at September 30, 1996.


<PAGE>

                                  Exhibit Index


Exhibit No.                                 Description
-----------                                 -----------

2.1             Asset Purchase Agreement and Plan of Reorganization, dated as
                of February 19, 1996 between the Company and Semy Engineering,
                Inc. (1)
3.1             Restated Articles of Incorporation of the Company (2)
3.2             By-laws of the Company dated August 1, 1979 and related
                amendments to these By-laws (2)
3.3             Amended Bylaws of Semitool, Inc. (5)
3.4             Amended Bylaws of Semitool, Inc. (6)
10.1            Form of Semitool, Inc. S Corporation Termination, Tax Allocation
                and Indemnification Agreement between the Company and its
                current shareholders (2)
10.2            Form of Indemnification Agreement between the Company and
                each of its officers and directors (2)
10.3            Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4            Form of Agreement and Plan of Merger between the Company and
                Semitherm, Inc. (2)
10.5            Aircraft Lease Agreement, dated September 9, 1994, between the
                Company and Mr. Thompson (2)
10.6            Aircraft Lease Agreement, dated November 1, 1994, between the
                Company and Mr. Thompson (2)
10.7            Agreement, dated June 7, 1983, between the Company and Entech(2)
10.8            Form of Agreement of Cancellation of Sale Agreement between
                the Company and Mr. Thompson (2)
10.9            Agreement of Sale of Centrifugal Wafer Processor Invention,
                dated August 1, 1979, between the Company and Mr. Thompson (2)
10.10           Articles of Merger, dated September 1, 1993, of Semitool,  Inc.,
                a California corporation, with and into the Company (2)
10.11           Agreement, dated June 1994, among Robert G. Massey, Donald W,
                Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm
                Partnership, Mr. Thompson and the Company (2)
10.12           Agreement  between the Company and the Semitool European
                Companies (2)
10.13           Aircraft Lease Agreement, dated April, 1996, between the Company
                and Mr. Thompson (3)
10.14           Business Loan Agreement, dated September 30, 1996, between the
                Company and the Bank of America NW,N.A. doing business as
                Seafirst Bank (3)
10.15           Promissory Note, dated September 30, 1996, between the Company
                and the Bank of America NW,N.A. doing business as
                Seafirst Bank (3)
10.16           Business Loan Agreement, dated September 30, 1997, between the
                Company and the Bank of America NT & SA doing business as
                Seafirst Bank (6)
10.17           Promissory Note, dated September 29, 1997, between the Company
                and the Bank of America National Trust and Savings Association
                doing business as Seafirst Bank (6)
10.18           Loan Modification Agreement, dated September 29, 1997 between
                the Company and the Bank of America National Trust And Savings
                Association doing business as Seafirst Bank (6)
10.19           Loan Modification Agreement, dated October 2, 1997 between the
                Company and the Bank of America National Trust And Savings
                Association doing business as Seafirst Bank (6)
10.20           Loan Modification Agreement, dated October 2, 1997 between the
                Company and the Bank of America National Trust And Savings
                Association doing business as Seafirst Bank (6)
11.1            Statement Re Computation of Pro Forma per share Earnings (6)
21.1            Subsidiaries of Registrant (6)
27              Financial data schedule (6)
99.1            Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)


                  (1)  Incorporated  herein  by  reference  to  the  identically
                  numbered  exhibits to the Company's  Current  Report on Form
                  8-K, date of report February 29, 1996.

                  (2)  Incorporated  herein  by  reference  to  the  identically
                  numbered exhibits to the Company's  Registration  Statement on
                  Form S-1  (File  No.  33-87548),  which  became  effective  on
                  February 2, 1995.

                  (3)  Incorporated  herein  by  reference  to  the  identically
                  numbered  exhibits to the Company's  Annual Report on Form
                  10-K,  date of report September 30, 1996.

                  (4)  Incorporated  herein  by  reference  to  the  identically
                  numbered exhibit to the Company's  Quarterly Report on Form
                  10-Q, date of report March 31, 1997.

                  (5)  Incorporated  herein  by  reference  to  the  identically
                  numbered exhibit to the Company's  Quarterly Report on Form
                  10-Q, date of report June 30, 1997.

                  (6) Filed herewith.

<PAGE>


                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE



Board of Directors and Shareholders
Semitool, Inc.

Our  report on the  consolidated  financial  statements  of  Semitool,  Inc.  is
included  elsewhere  in this Form 10-K.  In  connection  with our audits of such
financial  statements,  we have also  audited  the related  financial  statement
schedule listed under Item 14(a) of this Form 10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.




                                                      Coopers  & Lybrand L.L.P.

Spokane, Washington
October 30, 1997


<PAGE>

<TABLE>
<CAPTION>


                        SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS
                               Three Years Ended September 30, 1997
                                     (Amounts in Thousands)

<S>                                             <C>          <C>          <C>           <C>         <C>

                                                                    Additions
                                                            -----------------------
                                               Balance at   Charged to     Charged                   Balance
                                               beginning    Costs and      to Other                  at end
                                               of Period    Expenses       Accounts    Deductions    of Period
                                               ---------    ----------    ---------    ----------    ---------
Year ended September 30, 1997:
 Deducted from asset accounts:
   Allowance for doubtful accounts              $  233       $   --       $   --        $    9       $  224
   Allowance for inventory obsolescence            548          328           --            --          876

Year ended September 30, 1996:
 Deducted from asset accounts:
   Allowance for doubtful accounts                 213           20           --            --          233
   Allowance for inventory obsolescence            817           31           --           300          548

Year ended September 30, 1995:
 Deducted from asset accounts:
   Allowance for doubtful accounts                  81          132           --            --          213
   Allowance for inventory obsolescence            267          550           --            --          817

</TABLE>