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 Consolidated Financial Statements" 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, 2011.

Cautionary Statement Regarding Forward-Looking Statements

Certain information contained or incorporated by reference in this Quarterly Report on Form 10-Q is forward-looking in nature. All statements included or incorporated by reference in this Quarterly Report on Form 10-Q, or made by management of Amtech Systems, Inc. and its subsidiaries ("the Company" or "Amtech"), other than statements of historical fact, are hereby identified as "forward-looking statements" (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "would," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Examples of forward-looking statements include statements regarding Amtech's future financial results, operating results, business strategies, projected costs, products under development, competitive positions and plans and objectives of the Company and its management for future operations. We cannot guarantee that any forward-looking statement will be realized, although we believe that the expectations reflected in the forward-looking statements are reasonable. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The Form 10-K that we filed with the Securities and Exchange Commission for the year-ended September 30, 2011 listed various important factors that could affect Amtech's future operating results and financial condition and could cause actual results to differ materially from historical results and expectations based on forward-looking statements made in this document or elsewhere by Amtech or on its behalf. These factors can be found under the heading "Risk Factors" in the Form 10-K and investors should refer to them. Because it is not possible to predict or identify all such factors, any such list cannot be considered a complete set of all potential risks or uncertainties. Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

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:
• Overview

• Results of Operations

• Liquidity and Capital Resources

• Off - Balance Sheet Arrangements

• Contractual Obligations

• Critical Accounting Policies

• Impact of Recently Issued Accounting Pronouncements

Overview

We design, assemble, sell and install capital equipment and related consumables used in the manufacture of solar cells, semiconductors and wafers of various materials, primarily for the solar and semiconductor industries. We are developing a solar ion implanter to provide our customers with a more complete solution for their next-generation high-efficiency solar cell production. The Company sells these products worldwide, primarily in Asia, the United States and Europe. The Company serves markets in industries that are experiencing rapid technological advances, and which historically have been cyclical. Therefore, future profitability and growth depend on the Company's ability to develop or acquire and market profitable new products, and on its ability to adapt to cyclical trends.

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,
                                                  2012           2011          2012           2011
Net revenue                                       100  %          100 %        100  %          100 %
Cost of goods sold                                 80  %           64 %         77  %           62 %
Gross margin                                       20  %           36 %         23  %           38 %
Operating expenses:
Selling, general and administrative                27  %           17 %         26  %           18 %
Impairment charges                                  0  %            0 %          1  %            0 %
Research and Development                           15  %            2 %         14  %            2 %
Total operating expenses                           42  %           19 %         41  %           20 %
Income (loss) from operations                     (22 )%           17 %        (18 )%           18 %
Interest income (expense), net                      0  %            0 %          0  %            0 %
Income (loss) before income taxes                 (22 )%           17 %        (18 )%           18 %
Income taxes provision (benefit)                   (5 )%            7 %         (2 )%            7 %
Net Income (loss)                                 (17 )%           10 %        (16 )%           11 %
Add: net loss attributable to noncontrolling
interest                                            5  %            0 %          3  %            0 %
Net income (loss) attributable to Amtech
Systems, Inc.                                     (12 )%           10 %        (13 )%           11 %

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. Since the majority of our revenue is generated from large thermal system sales, revenue and operating income can be significantly impacted by the timing of system shipments, the impact of revenue deferral on those shipments and recognition of revenue based on customer acceptances.

Net revenue for the quarters ended June 30, 2012 and 2011 was $24.3 million and $71.9 million, respectively, a decrease of $47.6 million or 66%. Revenue decreased primarily due to significantly lower shipments of our equipment to the solar industry and lower shipments to the semiconductor industry, partially offset by increased recognition of previously-deferred revenue. Net revenue from the solar market was $15.2 million and $60.7 million for the three months ended June 30, 2012 and 2011, respectively; a $45.5 million or 75% decrease. The current supply / demand imbalance and global economic conditions have negatively impacted the growth of the solar equipment market and have caused our customers to significantly slow or push out their capacity expansion plans. We expect this downturn to continue for at least the next two quarters, and it is difficult to predict when the market will improve.

Net revenue for the nine months ended June 30, 2012 and 2011 was $70.6 million and $186.8 million, respectively, a decrease of $116.2 million or 62%. Revenue decreased primarily due to significantly lower shipments of our equipment due to the worldwide excess solar cell manufacturing capacity, partially offset by increased recognition of previously-deferred revenue and higher shipments to the semiconductor industry. Net revenue from the solar market was $41.4 million and $159.7 million for the nine months ended June 30, 2012 and 2011, respectively; a $118.3 million or 74% decrease. The year-to-date results were negatively impacted by the supply / demand imbalance and global economic conditions discussed above.

Backlog and Orders

Our order backlog as of June 30, 2012 and 2011 was $35.6 million and $140.5 million, respectively. Our backlog as of June 30,

2012 includes approximately $26.1 million of orders and deferred revenue from our solar industry customers, compared to $130.0 million at June 30, 2011. New orders booked in the quarter ended June 30, 2012 were $6.1 million compared to $13.5 million in the quarter ended June 30, 2011. New orders booked in the nine months ended June 30, 2012 were $35.3 million compared to $223.0 million in the nine months ended June 30, 2011. As the majority of the backlog is denominated in Euros, the weakening of the Euro during the first nine months of fiscal 2012 resulted in a decrease in backlog of approximately $4.5 million. As of June 30, 2012, one customer accounted for 25% of our order backlog. Our order pipeline has slowed significantly, due mainly to the worldwide overcapacity of solar cell production. The pipeline is also negatively influenced by slower growth in demand for solar modules caused by the frequently-fluctuating government subsidies for solar energy installations. While there were no significant customer order cancellations, the reduction in backlog during the quarter ended June 30, 2012 reflects our estimate that certain customer orders amounting to approximately $10.0 million will not be delivered within the next twelve months.

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.

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 installation, warranty and paid service calls. Gross margin is gross profit as a percent of net revenue.

Gross profit for the three months ended June 30, 2012 and 2011 was $4.8 million and $26.1 million, respectively; a decrease of $21.3 million or 82%. Gross margin was 20% in the quarter ended June 30, 2012 compared to 36% in the quarter ended June 30, 2011. Lower gross margin was caused primarily by lower sales volumes, resulting in less efficient capacity utilization, partially offset by increases in recognition of previously-deferred profit. Gross margin was negatively impacted in the third quarter of fiscal 2012 by $3.7 million in charges for excess and obsolete inventory, accruals for potential purchase order cancellation charges and warranty-related items mainly due to the worldwide overcapacity of solar cell production. In the quarter ended June 30, 2012, we had net profit recognition of $6.7 million due to an increased number of system acceptances by customers during the period, compared to net profit deferral of $4.9 million in the quarter ended June 30, 2011.

Gross profit for the nine months ended June 30, 2012 and 2011 was $16.1 million and $70.4 million, respectively; a decrease of $54.4 million or 77%. Gross margin was 23% in the nine months ended June 30, 2012 compared to 38% in the nine months ended June 30, 2011. Gross margin was negatively impacted primarily by lower sales volumes, resulting in less efficient capacity utilization, partially offset by increases in recognition of previously-deferred profit. In the nine months ended June 30, 2012, we had net profit recognition of $14.7 million of previously deferred profit, compared to net profit deferral of $13.7 million in the nine months ended June 30, 2011. In the nine months ending June 30, 2012, gross margin was negatively impacted by $5.1 million in charges for excess and obsolete inventory, potential purchase order cancellations and warranty-related items due mainly to the worldwide overcapacity of solar cell production. This compares to $0.6 million in charges for excess and obsolete inventory in the first nine months of fiscal 2011.

Selling, General and Administrative

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

Selling, general and administrative (SG&A) expenses for the three months ended June 30, 2012 were $6.4 million or 27% of revenue. For the three months ended June 30, 2011, SG&A expenses were $12.0 million or 17% of revenue. SG&A expenses include $0.4 million of stock-based compensation expense for each of the quarters ended June 30, 2012 and 2011. The decrease in SG&A expenses was due primarily to lower commissions and shipping expenses related to lower revenues and also reflects corporate-wide cost control initiatives.

Selling, general and administrative (SG&A) expenses for the nine months ended June 30, 2012 were $18.7 million or 26% of revenue. For the nine months ended June 30, 2011, SG&A expenses were $33.7 million or 18% of revenue. SG&A expenses include $1.3 million and $1.1 million of stock-based compensation expense, respectively, for the nine months ended June 30, 2012 and 2011. The decrease in SG&A expenses was due primarily to lower commissions and shipping expenses related to lower revenues and also reflects corporate-wide cost control initiatives.

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 as
well as materials and supplies used in producing prototypes. Reimbursement of
research and development costs in the form of governmental research and
development grants are netted against these expenses.

                                     Three Months Ended                                            Nine Months Ended
                                                       Incr.                                                         Incr.
                  June 30, 2012     June 30, 2011     (Decr.)      % change     June 30, 2012     June 30, 2011     (Decr.)     % change
                      (dollars in thousands)                                        (dollars in thousands)
Research and
development      $       3,902     $       2,187     $  1,715         78 %     $      10,289     $       4,330     $  5,959        138 %
Grants earned             (208 )            (252 )         44         17 %              (543 )            (613 )         70         11 %
Net research and
development      $       3,694     $       1,935     $  1,759         91 %     $       9,746     $       3,717     $  6,029        162 %

Research and development costs for the three and nine months ending June 30, 2012 increased $1.8 million and $6.0 million, respectively, compared to the same periods in 2011. Increased research and development spending relates, in part, to investments in the development of a solar ion implanter. Additional investments were made in the development of other technologies and processes for solar (photovoltaic) cell manufacturing to increase throughput and cell efficiency. We receive reimbursements through governmental research and development grants which are netted against these expenses.

Income Taxes

For the three months ended June 30, 2012 and 2011, we recorded income tax expense (benefit) of $(1.1) million and $5.2 million for effective tax rates of 21% and 42%, respectively. For the nine months ended June 30, 2012 and 2011, we recorded income tax expense (benefit) of $(1.7) million and $13.6 million for effective tax rates of 13% and 41%, respectively. The effective tax rate is the ratio of total income tax expense (benefit) to pre-tax income (loss). The income tax provisions for the three and nine months ended June 30, 2012 and 2011 are based upon estimates of annual income, annual permanent differences and statutory tax rates in the various jurisdictions in which we operate, except that certain loss jurisdictions and discrete items, such as the resolution of uncertain tax positions, are treated separately. No tax benefit has been recognized for losses related to Kingstone's ion implant development project, because it does not have a sufficient history of earnings to support a determination that realization of the tax benefit is more likely than not.

Our future effective income tax rate depends on various factors, such as the geographic composition of worldwide earnings, tax regulations governing each region, non-tax deductible expenses incurred as a percent of pre-tax income and the effectiveness of our tax planning strategies. At the end of 2011, we restructured our European operations to lower the tax rate on the Netherlands operations from 35% to a marginal rate of 25%, as we intend to permanently reinvest future Dutch earnings in our foreign operations. The amount of benefit derived from that tax planning will depend on the amount of income earned in the Netherlands and the other factors mentioned above.

However, we expect our overall worldwide average effective tax to be adversely affected in 2012 as compared to 2011. This is principally due to valuation allowances related to the net operating losses at Kingstone associated with increases in solar ion implanter development costs. Our effective tax rate is expected to decline when: (1) we enter the next upturn in the solar industry;
(2) we realize expected earnings from our investments in the ion implant technology; and (3) we resolve our uncertain tax positions.

Liquidity and Capital Resources

At June 30, 2012 and September 30, 2011, cash and cash equivalents were $42.3 million and $67.4 million, respectively. At June 30, 2012 and September 30, 2011, restricted cash was $3.3 million and $6.6 million, respectively. Our working capital was $80.3 million as of June 30, 2012 and $94.1 million as of September 30, 2011.

The decrease in cash for the first nine months of fiscal 2012 was primarily due to cash used in operating activities of $17.5 million, cash used in financing activities of $4.3 million and a decrease in cash of $2.0 million due to the effect of exchange rate changes on cash. The Company maintains a portion of our cash and cash equivalents in Euros at our Netherlands and French operations, therefore, changes in the exchange rate have an impact on our cash balances. Cash used in operating, investing and financing activities is discussed below. Our ratio of current assets to current liabilities was 2.9:1 as of June 30, 2012 compared to 2.2:1 as of September 30, 2011.

We expect to make approximately $5.0 million of income tax payments during the remainder of the calendar year 2012. See information below regarding other contractual obligations. We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future. We believe that our current cash and other sources of liquidity discussed below are adequate to support 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 the sale of equity securities, which include common and preferred stock sold in private transactions and public offerings, capital leases and long-term debt. There can be no assurance that we can raise such additional capital resources on satisfactory terms.

Cash Flows from Operating Activities

Cash used in our operating activities was $17.5 million for the nine months ended June 30, 2012, compared to $5.4 million provided by such activities for the nine months ended June 30, 2011. During the nine months ended June 30, 2012, $3.1 million of cash was used as a result of the net loss from operations, adjusted for non-cash charges. Additional cash was used by the payment of income taxes, accounts payable and accrued compensation and an increase in inventory quantities. The increase in cash from the collections of accounts receivable was more than offset by reductions in deferred profit and customer deposits.

Cash Flows from Investing Activities

Our investing activities for the nine months ended June 30, 2012 and 2011 used $1.5 million and $5.6 million, respectively. Purchases of property, plant and equipment for the nine months ended June 30, 2012 and 2011 were $1.2 million and $4.5 million, respectively. In the second quarter of fiscal 2011, $1.1 million was used toward the purchase price of the 55% interest in Kingstone.

Cash Flows from Financing Activities

For the nine months ended June 30, 2012 $4.1 million was used to reacquire shares issued in connection with the Kingstone acquisition. For the nine months ended June 30, 2011, the primary source of $2.0 million of cash provided by financing activities was proceeds from the issuance of common stock through the exercise of stock options.

Off-Balance Sheet Arrangements

As of June 30, 2012, Amtech had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by the Securities and Exchange Commission.

Contractual Obligations

Purchase obligations were $17.0 million as of June 30, 2012 compared to $47.2 million as of September 30, 2011, a decrease of $30.2 million. We also have a contractual obligation to fund the development of the solar tool at Kingstone. Refer to Amtech's annual report on Form 10-K for the year ended September 30, 2011, for information on the Company's other contractual obligations.

Critical Accounting Policies

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

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

A critical accounting policy is one that is both important to the presentation of our financial position and results of operations, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These uncertainties are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2011. We believe our critical accounting policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.

We believe the critical accounting policies discussed in the section entitled "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 represent the most significant judgments and estimates used in the preparation of our consolidated financial statements. There have been no significant changes in our critical accounting policies during the three months ended June 30, 2012.

Impact of Recently Issued Accounting Pronouncements

For discussion of the impact of recently issued accounting pronouncements, see "Item 1: Financial Information" under "Impact of Recently Issued Accounting Pronouncements".