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," "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 and technological changes; 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           Six Months Ended
                                            March 31,     March 31,     March 31,     March 31,
                                               2009          2008          2009          2008
Net revenue                                     100 %          100 %        100 %          100 %
Cost of goods sold                               78 %           77 %         71 %           74 %
Gross margin                                     22 %           23 %         29 %           26 %
Operating expenses:
    Selling, general and administrative          28 %           22 %         26 %           24 %
    Restructuring Charge                         16 %            0 %          6 %            0 %
    Research and Development                      2 %            1 %          1 %            2 %
Total operating expenses                         46 %           23 %         33 %           26 %
Income from operations                          (24 %)           0 %         (4 %)           0 %
Interest and other income (expense), net          0 %            2 %          0 %            1 %
Income before income taxes                      (24 %)           2 %         (4 %)           1 %
Income taxes                                     (6 %)           1 %          0 %            0 %
Net Income                                      (18 %)           1 %         (4 %)           1 %

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.

                                               Three Months Ended                                       Six Months Ended
                              March 31,     March 31,         Inc.                     March 31,     March 31,        Inc.
                                 2009          2008          (Dec)            %           2009          2008         (Dec)           %
                                       (dollars in thousands)                                  (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $    9,341    $   15,608    $   (6,267 )       (40 %)    $   25,474    $   25,605    $   (131 )        (1 %)
Polishing Supplies Segment         1,563         1,983          (420 )       (21 %)         3,302         3,727        (425 )       (11 %)
    Total Net Revenue         $   10,904    $   17,591    $   (6,687 )       (38 %)    $   28,776    $   29,332    $   (556 )        (2 %)

Net revenue for the quarter ended March 31, 2009 decreased $6.7 million, or 38%, compared to the quarter ended March 31, 2008. Revenue from the Solar and Semiconductor Equipment Segment decreased $6.3 million, or 40%, due to significantly lower shipments to the solar industry, partially offset by increased shipments to the semiconductor industry. 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 increase in net revenue from the semiconductor industry was due primarily to a multi-system order shipped to a university. The decrease of $0.4 million, or 21%, in net revenue from the Polishing Supplies Segment was due primarily to 43% lower sales volume of insert carriers and templates caused mainly by the downturn in the semiconductor industry. This decrease was partially offset by increased sales of polishing machines during the quarter ended March 31, 2009.

Net revenue for the six months ended March 31, 2009 decreased by $0.6 million, or 2%, compared to the six months ended March 31, 2008. Revenue from the Solar and Semiconductor Equipment Segment decreased $0.1 million, or 1%, due to strong first quarter volumes offset by lower second quarter revenues. The decrease of $0.4 million, or 11%, in net revenue from the Polishing Supplies Segment is due to the second quarter slowdown 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 in the shipment of their orders. As a result, future revenues from both the solar and semiconductor markets are likely to be negatively impacted.

Backlog and Orders

Our order backlog as of March 31, 2009 and 2008 was $34.7 million and $64.2 million, respectively. Our backlog as of March 31, 2009 includes approximately $32.6 million of orders from our solar industry customers compared to $52.6 million at March 31, 2008. New orders booked in our most recent quarter ended March 31, 2009 were $3.2 million compared to $31.8 million in the second quarter of fiscal 2008. New orders booked in the six-month periods ended March 31, 2009 and 2008 were $12.6 million and $68.8 million, respectively. The effects of changes in the foreign exchange rate (U.S. dollar vs. Euro) are netted against new orders. As the majority of the backlog is denominated in euros, the strengthening of the dollar during the first half of fiscal 2009 resulted in a reduction in backlog of approximately $4.0 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 for the next several quarters are expected to remain noticeably lower than prior year quarters as a result of the lingering global economic downturn.

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 March 31, 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.

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.

                                                Three Months Ended                                          Six Months Ended
                               March 31,      March 31,         Inc.                      March 31,      March 31,        Inc.
                                 2009           2008           (Dec)            %           2009           2008           (Dec)           %
                                        (dollars in thousands)                                    (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $   2,067      $   3,455      $   (1,388 )       (40 %)    $   7,845      $   6,514      $   1,331          20 %
Polishing Supplies Segment          290            672            (382 )       (57 %)          598          1,173           (575 )       (49 %)
    Total Gross Profit        $   2,357      $   4,127      $   (1,770 )       (43 %)    $   8,443      $   7,687      $     756          10 %
    Gross margin                     22 %           23 %                                        29 %           26 %

Gross profit for the quarter ended March 31, 2009 decreased $1.8 million or 43% from $4.1 million in the second quarter of fiscal 2008 to $2.4 million in the second quarter of fiscal 2009. Gross margin in the three months ended March 31, 2009 and 2008 was 22% and 23%, respectively. Gross margin in the Solar and Semiconductor Equipment Segment was 22% in each of the three month periods. Excluding the impact of deferred revenue and profit activity, gross margin in the Solar and Semiconductor Equipment Segment decreased to 19% in the second fiscal quarter of fiscal 2009 versus 27% in the second quarter of fiscal 2008 due primarily to lower 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 carriers and templates along with higher volumes of machines which generally realize a lower profit margin than carriers and templates. We recognized $0.5 million of previously deferred profit for the quarter ended March 31, 2009, net of deferrals, compared to a net deferral of $0.7 million of profit for the quarter ended March 31, 2008.

Gross profit for the six months ended March 31, 2009 increased $0.8 million or 10% from $7.7 million in the first six months of fiscal 2008 to $8.4 million in the first six months of fiscal 2009. Gross margin increased to 29% in the first six months of fiscal 2009 from 26% in the first six months of fiscal 2008. Excluding the impact of deferred revenue and profit activity, gross margin in the Solar and Semiconductor Equipment Segment increased to 32% in the first half of fiscal 2009 from 27% in the first half of fiscal 2008 due primarily to high efficiencies and plant utilization experienced in the first quarter of fiscal 2009. We deferred $0.3 million of profit for the six months ended March 31, 2009, net of acceptances, compared to a net recognition of $0.2 million of profit for the six months ended March 31, 2008. In the first half of fiscal 2009, deferred revenue included $1.1 million with an equal amount of deferred cost.

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                                       Six Months Ended
                               March 31,      March 31,        Inc.                     March 31,      March 31,       Inc.
                                 2009           2008          (Dec)           %           2009           2008          (Dec)         %
                                       (dollars in thousands)                                  (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $   2,769      $   3,604      $   (835 )       (23 %)    $   6,916      $   6,547      $   369          6 %
Polishing Supplies Segment          332            362           (30 )        (8 %)          669            721          (52 )       (7 %)
    Total SG&A                $   3,101      $   3,966      $   (865 )       (22 %)    $   7,585      $   7,268      $   317          4 %
    Percent of net revenue           28 %           23 %                                      24 %           24 %

Selling, general and administrative (SG&A) expenses for the three months ended March 31, 2009 decreased $0.9 million, or 22%, from $4.0 million to $3.1 million compared to the three months ended March 31, 2008. SG&A expenses include $0.2 million and $0.1 million of stock-based compensation expense in the three months ended March 31, 2009 and 2008, respectively. The decrease in SG&A expenses was due primarily to a $0.6 million of decrease in selling expense, primarily commissions, related to lower revenues generated in regions where third party sales agents are utilized.

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, 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.

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. Recoverability 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 for the excess of carrying value over the fair value of the customer list and non-compete agreement.

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.

                                               Three Months Ended                                       Six Months Ended
                               March 31,      March 31,       Inc.                     March 31,      March 31,        Inc.
                                 2009           2008          (Dec)          %           2009           2008          (Dec)           %
                                      (dollars in thousands)                                   (dollars in thousands)
Solar and Semiconductor
    Equipment Segment         $       152    $       243    $   (91 )       (37 %)    $       376    $       476    $   (100 )       (21 %)
Polishing Supplies Segment              -              -          -           0 %               -              -           -           0 %
    Total R&D                 $       152    $       243    $   (91 )       (37 %)    $       376    $       476    $   (100 )       (21 %)

Research and development costs for the three and six months ended March 31, 2009 decreased $0.1 million compared to the three and six-month periods ended March 31, 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 includes mainly interest income, interest expense and gains and losses on foreign currency transactions.

                                                       Three Months Ended                           Six Months Ended
                                             March 31,      March 31,        Inc.        March 31,      March 31,        Inc.
Interest and other income (expense), net       2009           2008          (Dec)          2009           2008          (Dec)
                                                     (dollars in thousands)                      (dollars in thousands)
Interest and other income (expense), net    $       8      $       298    $   (290 )    $      58      $     504      $   (446 )
Foreign currency gains (losses)                   (22 )             50         (72 )          (11 )           (3 )          (8 )
    Total                                   $     (14 )    $       348    $   (362 )    $      47      $     501      $   (454 )

Interest income represents earnings on invested funds. Interest expense primarily consists of interest incurred on equipment financing. 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 March 31, 2009 and 2008, we recorded income tax expense (benefit) of ($0.6) million and $0.1 million, for an effective tax rate of 22% and 39%, respectively. During the six months ended March 31, 2009 and 2008, we recorded income tax provisions of $0.0 million and $0.2 million respectively. The effective tax rates used for calculating the income tax provisions for the six months ended March 31, 2009 and March 31, 2008 were approximately 0% and 39%, respectively based upon estimates of annual income, annual permanent differences, changes in the valuation allowance and statutory tax rates for fiscal 2009 and 2008 for the various jurisdictions in which we operate. The effective tax rate for the six months ended March 31, 2009 was negatively impacted by an increase to 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 tax benefit would have been recorded for the period.

Liquidity and Capital Resources

At March 31, 2009 and September 30, 2008, cash and cash equivalents and current restricted cash were $37.2 million and $38.5 million, respectively. The decrease in cash and cash equivalents resulted primarily from cash used in investing activities such as purchases of property, plant and equipment as well as payments for our licensing agreements with PST. Cash was also used to repurchase approximately 144,000 shares for $0.4 million. In the first quarter of fiscal 2009 we terminated our line of credit in the amount of Euro 1.0 million (approximately $1.3 million). Our working capital as of March 31, 2009 and September 30, 2008 was $55.2 million and $57.2 million, respectively. We believe that our principal sources of liquidity discussed above are sufficient to meet our anticipated needs for current operations for at least the next 12 months.

The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfactory to management. Our sources of capital in the past have included capital leases, long-term debt and the sale of equity securities, which include common and preferred stock sold in private transactions and public offerings. There can be no assurance that we can raise such additional capital resources on satisfactory terms.

In December, the Board of Directors approved a stock repurchase program authorizing the repurchase of up to $4 million of common stock. Under the program, shares may be repurchased from time to time in open market transactions at prevailing market prices or in privately negotiated purchases. The timing and actual number of future purchases of shares will depend on a variety of factors, such as price, corporate and regulatory requirements, alternative investment opportunities, and other market and economic conditions. Repurchases under the program are funded from available working capital. The program may be suspended or terminated at any time, or from time-to-time at management's discretion without prior notice.

Cash provided by our operating activities was $1.5 million for the six months ended March 31, 2009, compared to $3.6 million used in such activities for the six months ended March 31, 2008. In the first six months of fiscal 2009, cash was generated by decreases in accounts receivable and current restricted cash as . . .