The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included in Item 1, "Condensed Financial Statement" in this quarterly report on Form 10-Q and our consolidated financial statements and related notes included in Item 8, "Financial Statements and Supplementary Data" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

Cautionary Statement Regarding Forward-Looking Statements

The statements in this report include forward-looking statements. These forward-looking statements are based on our management's current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology, including the words "believes," "expects," "goal," "predicts," "projects," "may," "will," "should," "seeks," "intends," "plans," "estimates" or "anticipates" or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; research and development expenses; selling, general and administrative expenses; the development and timing of the introduction of new products and technologies; our ability to maintain and develop relationships with our existing and potential future customers and our ability to maintain the level of investment in research and development and capacity that is required to remain competitive. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including, but not limited to: whether we will be able to complete acquisitions and integrate such businesses successfully and achieve anticipated synergies; variability of our revenues and financial performance; risks associated with product development, technological changes and our dependence on our technology partners for the delivery and confirmation of the technological advantage of new products; development of superior technologies by our competitors; the acceptance of our products in the marketplace by existing and potential future customers; disruption of operations or increases in expenses caused by civil or political unrest or other catastrophic events; general economic conditions and conditions in the solar and semiconductor industries in particular; the continued employment of our key personnel and risks associated with competition.

For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see the "Risk Factors" set forth in Item 1A of Part I of Amtech Systems, Inc.'s Annual Report on Form 10-K for the fiscal year ended September 30, 2008, the "Liquidity and Capital Resources" section under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this item of this report and the other risks and uncertainties that are set forth elsewhere in this report or detailed in our other Securities and Exchange Commission reports and filings. We assume no obligation to update these forward-looking statements.

Introduction

Management's Discussion and Analysis ("MD&A") is intended to facilitate an understanding of our business and results of operations. MD&A consists of the following sections:

º Overview

º Results of Operations

º Liquidity and Capital Resources

º Off - Balance Sheet Arrangements

º Contractual Obligations

º Critical Accounting Policies

º Impact of Recently Issued Accounting Pronouncements

We operate in two segments: the solar and semiconductor equipment segment and the polishing supplies segment. Our solar and semiconductor equipment segment is a leading supplier of thermal processing systems, including related automation, parts and services, to the solar/photovoltaic, semiconductor, silicon wafer and MEMS industries.

Our polishing supplies and equipment segment is a leading supplier of wafer carriers to manufacturers of silicon wafers. The polishing segment also manufactures polishing templates, steel carriers and double-sided polishing and lapping machines for fabricators of optics, quartz, ceramics and metal parts, and for manufacturers of medical equipment components.

Our customers are primarily manufacturers of solar cells and integrated circuits. The solar cell and semiconductor industries are cyclical and historically have experienced significant fluctuations. Our revenue is impacted by these broad industry trends.

Due to the nature of the capital equipment markets that we serve, our revenues, gross margins and operating results have historically fluctuated on a quarterly basis. Our contracts typically include holdbacks of 10-20% of revenue, which are recognized at the time of customer acceptance.

Results of Operations

The following table sets forth certain operational data as a percentage of net
revenue for the periods indicated:

                                                  Three Months Ended               Nine Months Ended
                                               June 30,        June 30,         June 30,        June 30,
                                                 2009            2008             2009            2008
Net revenue                                        100 %            100 %           100 %            100 %
Cost of goods sold                                  71 %             71 %            71 %             72 %
Gross margin                                        29 %             29 %            29 %             28 %
Operating expenses:
    Selling, general and administrative             30 %             20 %            28 %             23 %
    Restructuring Charge                             0 %              1 %             4 %              1 %
    Research and Development                         1 %              1 %             1 %              1 %
Total operating expenses                            31 %             22 %            33 %             25 %
Income from operations                              (2 %)             7 %            (4 %)             3 %
Interest and other income (expense), net            (1 %)             1 %             0 %              2 %
Income before income taxes                          (3 %)             8 %            (4 %)             5 %
Income taxes                                        (1 %)             3 %            (1 %)             3 %
Net Income                                          (2 %)             5 %            (3 %)             2 %

Net Revenue

Net revenue consists of revenue recognized upon shipment or installation of products using proven technology and upon acceptance of products using new technology. In addition, spare parts sales are recognized upon shipment. Service revenue is recognized upon completion of the service activity or ratably over the term of the service contract. The majority of our revenue is generated from large furnace system sales which, depending on the timing of shipment and installation, can have a significant impact on our revenue and earnings in any given period. See Critical Accounting Policies - Revenue Recognition.

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                                                Three Months Ended                                        Nine Months Ended
                               June 30,      June 30,         Inc.                       June 30,      June 30,         Inc.
                                 2009          2008           (Dec)            %           2009          2008           (Dec)            %
                                       (dollars in thousands)                                    (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $   11,458    $   22,138    $   (10,680 )       (48 %)    $   36,931    $   47,743    $   (10,812 )       (23 %)
Polishing Supplies Segment         1,070         2,009           (939 )       (47 %)         4,373         5,736         (1,363 )       (24 %)
    Total Net Revenue         $   12,528    $   24,147    $   (11,619 )       (48 %)    $   41,304    $   53,479    $   (12,175 )       (23 %)

Net revenue for the quarter ended June 30, 2009 decreased $11.6 million, or 48%, compared to the quarter ended June 30, 2008. Revenue from the Solar and Semiconductor Equipment Segment decreased $10.7 million, or 48%, due to significantly lower shipments to the solar industry, partially offset by an increase in recognition of previously deferred revenue. The decrease in net revenue from the solar industry was driven by the global economic downturn and credit crisis resulting in delays in many of our customers' capacity expansion plans. The decrease of $0.9 million, or 47%, in net revenue from the Polishing Supplies Segment was due to lower sales volume of polishing machines, insert carriers and templates caused mainly by the downturn in the semiconductor industry.

Net revenue for the nine months ended June 30, 2009 decreased by $12.2 million, or 23%, compared to the nine months ended June 30, 2008. Revenue from the Solar and Semiconductor Equipment Segment decreased $10.8 million, or 23%, due to the economic downturn as described above. The decrease of $1.4 million, or 24%, in net revenue from the Polishing Supplies Segment is also due to the economic downturn as described above.

The ongoing global credit crisis and related downturn in the global economy has caused many of our customers to delay or suspend their capacity expansion plans, which has resulted in lower orders. In addition, some of our customers have, and others may, request delays or cancellations in the shipment of their orders. A continuation of the global credit crisis and related downturn in the global economy are likely to negatively impact future revenues from both solar and semiconductor markets and could have a significant adverse affect on our results of operations and financial condition.

Backlog and Orders

Our order backlog as of June 30, 2009 and 2008 was $29.7 million and $60.1 million, respectively. Our backlog as of June 30, 2009 includes approximately $27.1 million of orders from our solar industry customers compared to $44.2 million at June 30, 2008. New orders booked in the quarter ended June 30, 2009 were $5.3 million compared to $20.2 million in the third quarter of fiscal 2008. New orders booked in the nine-month periods ended June 30, 2009 and 2008 were $22.1 million and $83.8 million, respectively. As the majority of the backlog is denominated in euros, the strengthening of the dollar during the first three quarters of fiscal 2009 resulted in a reduction in backlog of approximately $2.0 million. The decrease in new orders and backlog is due primarily to the ongoing global credit crisis and related economic downturn. This has caused many of our customers to delay or suspend their capacity expansion plans. Total bookings are expected to remain noticeably lower than prior year quarters at least until the lingering global economic downturn improves.

The orders included in our backlog are generally credit approved customer purchase orders expected to ship within the next twelve months. Because our orders are typically subject to cancellation or delay by the customer, our backlog at any particular point in time is not necessarily representative of actual sales for succeeding periods, nor is backlog any assurance that we will realize profit from completing these orders. Our backlog also includes revenue deferred pursuant to our revenue recognition policy, derived from orders that have already been shipped, but which have not met the criteria for revenue recognition. Our backlog as of June 30, 2009 includes $1.2 million of deferred revenue for which there is an equal amount of deferred costs, i.e. with no gross profit to be realized.

As of June 30, 2009, two customer's individually account for 44% and 42% of our order backlog, respectively. The customer representing 44% of the order backlog has delayed shipment for some of its orders beginning in the second quarter of the current fiscal year. Further delays by this customer of the shipment of a significant portion of these orders past December 31, 2009 could have a significant adverse effect on the results of operations during fiscal 2010.

Gross Profit and Gross Margin

Gross profit is the difference between net revenue and cost of goods sold. Cost
of goods sold consists of purchased material, labor and overhead to manufacture
equipment and spare parts and the cost of service and support to customers for
warranty, installation and paid service calls. Gross margin is gross profit as a
percent of net revenue.

                                       20
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                                                Three Months Ended                                           Nine Months Ended
                               June 30,       June 30,          Inc.                       June 30,        June 30,          Inc.
                                 2009           2008           (Dec)            %            2009            2008           (Dec)            %
                                        (dollars in thousands)                                      (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $   3,283      $   6,457      $   (3,174 )       (49 %)    $   11,127      $   12,971      $   (1,844 )       (14 %)
Polishing Supplies Segment          299            621            (322 )       (52 %)           898           1,794            (896 )       (50 %)
    Total Gross Profit        $   3,582      $   7,078      $   (3,496 )       (49 %)    $   12,025      $   14,765      $   (2,740 )       (19 %)
    Gross margin                     29 %           29 %                                         29 %            28 %

Gross profit for the quarter ended June 30, 2009 decreased $3.5 million or 49% from $7.1 million in the third quarter of fiscal 2008 to $3.6 million in the third quarter of fiscal 2009. Consolidated gross margin and that of the Solar and Semiconductor Segment in the quarters ended June 30, 2009 and 2008 was 29%. We recognized $0.6 million of previously deferred profit for the quarter ended June 30, 2009, net of deferrals, compared to a net deferral of $1.8 million of profit for the quarter ended June 30, 2008. Excluding the impact of the change in deferred revenue and profit, gross margin in the Solar and Semiconductor Equipment Segment decreased to 25% in the third quarter of fiscal 2009 versus 34% in the third quarter of fiscal 2008, due primarily to lower production and shipment volumes and the related reduction in efficiencies and plant utilization. Gross profit and margins in the Polishing Supplies Segment decreased due to lower volumes of polishing machines, carriers and templates.

Gross profit for the nine months ended June 30, 2009 decreased $2.7 million or 19% to $12.0 million in the first nine months of fiscal 2009 from $14.8 million in the first nine months of fiscal 2008. Gross margin increased to 29% in the first nine months of fiscal 2009 from 28% in the first nine months of fiscal 2008. We recognized $0.3 million of previously deferred profit for the nine months ended June 30, 2009, net of deferrals, compared to a net deferral of $1.6 million of profit for the nine months ended June 30, 2008. Excluding the impact of deferred revenue and profit activity, gross margin in the Solar and Semiconductor Equipment Segment decreased to 28% in the first nine months of fiscal 2009 from 30% in the first nine months of fiscal 2008 due primarily to lower efficiencies and plant utilization experienced in the second and third quarters of fiscal 2009 In the first nine months of fiscal 2009, we deferred revenue included $1.1 million with an equal amount of deferred cost.

Gross profit and gross margin in the fourth quarter of fiscal 2009 will be significantly influenced by the amount of deferred profit recognized during the period. The remaining amount of deferred profit is expected to decline significantly during the fourth quarter of this fiscal year, which combined with the potential for lower shipments associated with the decline in new order bookings could materially and adversely affect gross profit and gross margins in 2010.

Selling, General and Administrative

Selling, general and administrative expenses consist of the cost of employees,
consultants and contractors, facility costs, sales commissions, promotional
marketing expenses, legal and accounting expenses.

                                                Three Months Ended                                           Nine Months Ended
                               June 30,       June 30,          Inc.                       June 30,        June 30,          Inc.
                                 2009           2008           (Dec)            %            2009            2008           (Dec)            %
                                        (dollars in thousands)                                      (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $   3,432      $   4,482      $   (1,050 )       (23 %)    $   10,348      $   11,030      $     (682 )        (6 %)
Polishing Supplies Segment          301            365             (64 )       (18 %)           970           1,085            (115 )       (11 %)
    Total SG&A                $   3,733      $   4,847      $   (1,114 )       (23 %)    $   11,318      $   12,115      $     (797 )        (7 %)
    Percent of net revenue           30 %           20 %                                         28 %            23 %

Selling, general and administrative (SG&A) expenses for the three months ended June 30, 2009 decreased $1.1 million, or 23%, to $3.7 million from $4.8 million for the three months ended June 30, 2008. SG&A expenses include $0.2 million and $0.1 million of stock-based compensation expense in the three months ended June 30, 2009 and 2008, respectively. The decrease in SG&A expenses was due primarily to a $0.7 million of decrease in selling expense, primarily commissions, related to lower revenues generated in regions where third party sales agents are utilized. General and administrative expenses decreased $0.4 million due primarily to lower accruals for incentive compensation, offset by the increases in stock-based compensation expense.

Impairment and Restructuring Charge

The Bruce operations are primarily dependent upon a mature segment of the semiconductor industry which is experiencing a significant downturn. The industry downturn resulted in recent operating losses and deterioration in forecasted revenue and earnings at Bruce. It is uncertain when, and to what extent, the markets served by Bruce will recover. Therefore, the Bruce operations were restructured in the second quarter of fiscal 2009 to focus primarily on a parts supply business versus furnace systems sales. The restructuring included a reduction in the number of employees and a reduction in the amount of space required to operate the business. The restructuring resulted in a charge of $620,000 in the second quarter of fiscal 2009, which includes a $350,000 charge for unutilized leased space, a $160,000 write-off of furnace-related inventory parts that are not expected to be utilized in the future and $110,000 of severance and outplacement costs. Our Bruce Technologies operations were also reorganized in the third quarter of fiscal 2008, which resulted in a restructuring charge of $0.3 million, consisting mainly of severance and outplacement costs for affected personnel.

Due to the circumstances related to the Bruce operations discussed above, the Company determined it was necessary to conduct an assessment of the ability to recover the carrying amount of long-lived assets of the Bruce operations. The amount estimated to be recoverable is based upon the Company's judgments and estimates of undiscounted cash flows during the estimated remaining useful life of the assets. It was determined that the carrying value of the net assets was not fully recoverable; therefore, an impairment charge of $373,000 was recorded in the second quarter of fiscal 2009 for the excess of carrying value over the fair value of the customer list and non-compete agreement. Future adverse changes could be caused by, among other factors, a downturn in the industries served, a general economic slowdown, reduced demand for our products in the marketplace, poor operating results, the inability to protect intellectual property or changing technologies and product obsolescence.

As a result of the impairment of long-lived assets described above, it was necessary to conduct an interim review of the goodwill and Bruce trademark for impairment. The fair value of the assets group was determined through estimates of the present value of future cash flows based upon the anticipated future use of the assets. As the carrying value of the Bruce assets exceeded their estimated fair value, the carrying values of goodwill ($89,000) and the Bruce trademark ($592,000) were also recorded as an impairment charge in the second quarter of fiscal 2009.

The total amount of the impairment charge was $1.1 million. Details of the impairment charge are as follows:

                            Gross                            Net
                          Carrying       Accumulated       Carrying
                           Amount       Amortization        Amount
                                    (dollars in thousands)
Goodwill                  $      89     $           -     $       89
Trademark                       592                 -            592
Customer list                   276                87            189
Non-compete agreement           350               166            184
    Impairment Charge                                     $    1,054

Research and Development

Research and development expenses consist of the cost of employees, consultants
and contractors who design, engineer and develop new products and processes;
materials and supplies used in those activities; and product prototyping.

                                       22

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                                              Three Months Ended                                     Nine Months Ended
                               June 30,      June 30,       Inc.                     June 30,      June 30,        Inc.
                                 2009          2008         (Dec)          %           2009          2008         (Dec)           %
                                     (dollars in thousands)                                 (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $      151    $      210    $   (59 )       (28 %)    $      527    $      686    $   (159 )       (23 %)
Polishing Supplies Segment             -             -          -           0 %              -             -           -           0 %
    Total R&D                 $      151    $      210    $   (59 )       (28 %)    $      527    $      686    $   (159 )       (23 %)

Research and development costs for the three and nine months ended June 30, 2009 decreased $0.1 million and $0.2 million, respectively, compared to the three and nine month periods ended June 30, 2008. The decrease is due primarily to increased reimbursements through governmental research and development grants which are netted against these expenses.

Interest and other income (expense), net

Interest and other income (expense), net includes mainly interest income, interest expense and gains and losses on foreign currency transactions. Interest income represents earnings on invested funds. Interest expense primarily consists of interest incurred on equipment financing.

                                       Three Months Ended                          Nine Months Ended
Interest and other            June 30,      June 30,        Inc.          June 30,      June 30,        Inc.
    income (expense), net       2009          2008          (Dec)           2009          2008          (Dec)
                                     (dollars in thousands)                      (dollars in thousands)
Interest and other income
    (expense), net           $      (4 )    $     169    $    (173 )    $       54      $     673    $    (619 )
Foreign currency gains
    (losses)                       (29 )           79         (108 )           (40 )           76         (116 )

Interest income on invested funds decreased due to lower interest rates during fiscal 2009. Foreign currency gains or losses were less than $0.1 million in each reporting period.

Income Taxes

During the three months ended June 30, 2009 and 2008, we recorded income tax expense (benefit) of ($0.1) million and $0.8 million, for an effective tax rate of 30% and 40%, respectively. During the nine months ended June 30, 2009 and 2008, we recorded income tax expense (benefit) of ($0.1) million and $0.9 million. The income tax provision for the nine months ended June 30, 2009 and June 30, 2008 is based on the estimated annual effective tax rate for the entire year and changes in the valuation allowance on deferred tax assets in existence at the beginning of the fiscal year. These estimated annual effective tax rates are adjusted at the end of each interim quarter, based on our estimates for the fiscal year of pretax income or loss, permanent differences, statutory tax rates and changes in those deferred tax assets for which we have established a valuation allowance, and tax planning strategies in the various jurisdictions in which the Company operates. The resulting effective tax rates reflected in the statement of operations for the nine months ended June 30, 2009 and June 30, 2008 were approximately 7% and 40%, respectively. The effective tax rate for the nine months ended June 30, 2009 was negatively impacted by an increase in the valuation allowance and permanent differences between financial income and taxable income, which were higher in relation to the pre-tax loss. Without these adjustments a larger tax benefit would have been recorded for the period.

Liquidity and Capital Resources

At June 30, 2009 and September 30, 2008, cash and cash equivalents and current . . .