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<SEC-DOCUMENT>0000950147-01-500914.txt : 20010516
<SEC-HEADER>0000950147-01-500914.hdr.sgml : 20010516
ACCESSION NUMBER:		0000950147-01-500914
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20010331
FILED AS OF DATE:		20010515

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMTECH SYSTEMS INC
		CENTRAL INDEX KEY:			0000720500
		STANDARD INDUSTRIAL CLASSIFICATION:	SPECIAL INDUSTRY MACHINERY, NEC [3559]
		IRS NUMBER:				860411215
		STATE OF INCORPORATION:			AZ
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		
		SEC FILE NUMBER:	000-11412
		FILM NUMBER:		1638968

	BUSINESS ADDRESS:	
		STREET 1:		131 S CLARK DR
		CITY:			TEMPE
		STATE:			AZ
		ZIP:			85281
		BUSINESS PHONE:		6029675146

	MAIL ADDRESS:	
		STREET 1:		131 SOUTH CLARK DRIVE
		CITY:			TEMPE
		STATE:			AZ
		ZIP:			85281

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	QUARTZ ENGINEERING & MATERIALS INC
		DATE OF NAME CHANGE:	19870715
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>e-6775.txt
<DESCRIPTION>QUARTERLY REPORT FOR QTR. ENDED 03/31/2001
<TEXT>

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

                                    FORM 10-Q


(Mark One)

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

     For the quarterly period ended: March 31, 2001

                                       OR

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

     For the transition period from ________________ to ________________


                         Commission File Number: 0-11412


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


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


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


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


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

       Shares of Common Stock outstanding as of March 31, 2001: 2,632,471
<PAGE>
                              AMTECH SYSTEMS, INC.
                                AND SUBSIDIARIES

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION.

  Item 1. Condensed Consolidated Financial Statements

          Consolidated Balance Sheets -
           March 31, 2001 and September 30, 2000........................       3

          Consolidated Statements of Operations -
           Three and Six Months Ended March 31, 2001 and 2000...........       4

          Consolidated Statements of Stockholders' Equity-
           Three and Six Months Ended March 31, 2001 and 2000...........       5

          Consolidated Statements of Cash Flows -
           Three and Six Months Ended March 31, 2001 and 2000...........       6

          Notes to Condensed Consolidated Financial Statements..........       7

  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations
            Results of Operations.......................................      11
            Liquidity and Capital Resources.............................      14
            Recent Accounting Pronouncements............................      14

  Item 3. Quantitative and Qualitative Disclosures about Market Risk....      15
          Forward-Looking Statements....................................      15

PART II. OTHER INFORMATION.

  Item 1. Legal Proceedings ............................................      17

  Item 4. Submission of Matters to a Vote of Security Holders...........      17

  Item 6. Exhibits and Reports on Form 8-K..............................      17

SIGNATURE...............................................................      18

                                        2
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          MARCH 31,           SEPTEMBER 30,
                                                                            2001                  2000
                                                                        ------------          ------------
                                                                         (Unaudited)
<S>                                                                     <C>                   <C>
                                     ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                              $  6,280,412          $  5,784,500
 Accounts receivable - net                                                 5,217,348             4,929,948
 Inventories                                                               5,110,310             4,229,546
 Deferred income taxes                                                       704,000               577,000
 Prepaid expenses                                                             68,332                79,476
                                                                        ------------          ------------
        Total current assets                                              17,380,402            15,600,470

PROPERTY, PLANT AND EQUIPMENT - net                                        1,311,594             1,093,707

GOODWILL AND OTHER ASSETS -  net                                             765,319               789,083
                                                                        ------------          ------------

        TOTAL ASSETS                                                    $ 19,457,315          $ 17,483,260
                                                                        ============          ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                      $  1,522,676          $  2,144,197
  Accrued compensation and related taxes                                     873,652               635,354
  Accrued warranty expense                                                   270,914               218,693
  Accrued installation expense                                               225,196               266,101
  Customer Deposits                                                        1,308,104               245,663
  Income taxes payable                                                       416,000               670,000
  Other accrued liabilities                                                  396,801               486,779
                                                                        ------------          ------------
          Total current liabilities                                        5,013,343             4,666,787
                                                                        ------------          ------------

LONG-TERM OBLIGATIONS                                                        232,950               236,590
                                                                        ------------          ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY :
  Preferred stock; no specified terms;
   100,000,000 shares authorized; none issued                                     --                    --
  Common stock; $0.01 par value; 100,000,000 shares authorized;
   2,632,471 (2,571,808 in 2000) shares issued and outstanding                26,325                25,718
  Additional paid-in capital                                              12,462,049            12,133,058
  Accumulated other comprehensive loss -
  Cumulative foreign currency translation adjustment                        (510,701)             (502,356)
  Retained earnings                                                        2,233,349               923,463
                                                                        ------------          ------------
        Total stockholders' equity                                        14,211,022            12,579,883
                                                                        ------------          ------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $ 19,457,315          $ 17,483,260
                                                                        ============          ============
</TABLE>
                 The accompanying notes are an integral part of
                       these consolidate balance sheets.

                                       3
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             For Three and Six Months Ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED MARCH 31,        SIX MONTHS ENDED MARCH 31,
                                           -----------------------------       ----------------------------
                                               2001              2000              2001             2000
                                           -----------       -----------       -----------      -----------
                                           (Unaudited)       (Unaudited)       (Unaudited)      (Unaudited)
<S>                                        <C>               <C>               <C>              <C>
Net product sales                          $ 7,025,583       $ 4,549,100       $13,907,314      $ 8,411,612
Cost of product sales                        4,486,317         2,868,232         9,241,544        5,504,150
                                           -----------       -----------       -----------      -----------
        Gross margin                         2,539,266         1,680,868         4,665,770        2,907,462

Selling, general and administrative          1,297,996         1,080,420         2,493,026        2,040,101
Research and development                       140,004           196,336           246,626          249,582
                                           -----------       -----------       -----------      -----------
        Operating profit                     1,101,266           404,112         1,926,118          617,779

Interest income - net                           78,106            12,058           151,768           21,218
                                           -----------       -----------       -----------      -----------

Income before income taxes                   1,179,372           416,170         2,077,886          638,997
Income tax provision                           431,000           149,000           768,000          241,000
                                           -----------       -----------       -----------      -----------

NET INCOME                                 $   748,372       $   267,170       $ 1,309,886      $   397,997
                                           ===========       ===========       ===========      ===========
EARNINGS PER SHARE:
  Basic                                    $       .28       $       .13       $       .50      $       .19
  Weighted average shares outstanding        2,657,886         2,109,154         2,631,302        2,108,915

  Diluted                                  $       .27       $       .12       $       .47      $       .18
  Weighted average shares outstanding        2,792,835         2,274,526         2,767,070        2,257,517
</TABLE>

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

                                       4
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             FOR THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                     COMMON STOCK                       ACCUMULATED      RETAINED
                                 --------------------     ADDITIONAL      OTHER          EARNINGS        TOTAL
                                  NUMBER                   PAID-IN     COMPREHENSIVE   (ACCUMULATED   STOCKHOLDERS'
                                 OF SHARES    AMOUNT       CAPITAL     INCOME (LOSS)     DEFICIT)       EQUITY
                                 ---------    ------       -------     -------------     --------       ------
<S>                             <C>            <C>            <C>       <C>             <C>             <C>
BALANCE AT SEPTEMBER 30, 1999    2,108,679    $21,087   $  7,400,152     $(309,064)     $ (401,958)   $ 6,710,217
 Net income                             --         --             --            --         397,997        397,997
 Translation adjustment                 --         --             --       (98,816)             --        (98,816)
                                                                                                      -----------
 Comprehensive income                   --         --             --            --              --        299,181
                                                                                                      -----------
 Warrants and stock options
  exercised                          2,050         20          2,420            --              --          2,440
                                 ---------    -------   ------------     ---------      ----------    -----------
BALANCE AT MARCH 31, 2000        2,110,729    $21,107   $  7,402,572     $(407,880)     $   (3,961)   $ 7,011,838
                                 =========    =======   ============     =========      ==========    ===========

BALANCE AT SEPTEMBER 30, 2000    2,571,808    $25,718   $ 12,133,058     $(502,356)     $  923,463    $12,579,883
 Net income                             --         --             --            --       1,309,886      1,309,886
 Translation adjustment                 --         --             --        (8,345)             --         (8,345)
                                                                                                      -----------
 Comprehensive income                                                                                   1,301,541
                                                                                                      -----------
 Warrants and stock options
  exercised                         60,663        607        328,991            --              --        329,598
                                 ---------    -------   ------------     ---------      ----------    -----------
BALANCE AT MARCH 31, 2001        2,632,471    $26,325   $ 12,462,049     $(510,701)     $2,233,349    $14,211,022
                                 =========    =======   ============     =========      ==========    ===========

BALANCE AT DECEMBER 31, 1999     2,108,679    $21,087   $  7,400,152     $(360,518)     $ (271,131)   $ 6,789,590
 Net income                             --         --             --            --         267,170        267,170
 Translation adjustment                 --         --             --       (47,362)             --        (47,362)
                                                                                                      -----------
 Comprehensive income                   --         --             --            --              --        219,808
                                                                                                      -----------
 Warrants and stock options
  exercised                          2,050         20          2,420            --              --          2,440
                                 ---------    -------   ------------     ---------      ----------    -----------
BALANCE AT MARCH 31, 2000        2,110,729    $21,107   $  7,402,572     $(407,880)     $   (3,961)   $ 7,011,838
                                 =========    =======   ============     =========      ==========    ===========

BALANCE AT DECEMBER 31, 2000     2,621,621    $26,216   $ 12,410,574     $(392,083)     $1,484,977    $13,529,684
 Net income                             --         --             --            --         748,372        748,372
 Translation adjustment                 --         --             --      (118,618)             --       (118,618)
                                                                                                      -----------
 Comprehensive income                                                                                     629,754
                                                                                                      -----------
 Warrants and stock options
  exercised                         10,850        109         51,475            --              --         51,584
                                 ---------    -------   ------------     ---------      ----------    -----------
BALANCE AT MARCH 31, 2001        2,632,471    $26,325   $ 12,462,049     $(510,701)     $2,233,349    $14,211,022
                                 =========    =======   ============     =========      ==========    ===========
</TABLE>

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

                                       5
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR SIX MONTHS ENDED MARCH 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                        2001                 2000
                                                                     -----------          -----------
                                                                     (Unaudited)          (Unaudited)
<S>                                                                  <C>                  <C>
OPERATING ACTIVITIES:
  Net income                                                         $ 1,309,886          $   397,997
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation and amortization                                        186,973              148,427
    Provision for writeoff of inventory and receivables                  203,236               46,876
    Loss on disposals of long-lived assets                                    --                  432
    Deferred income taxes                                               (127,000)             (61,000)
  Increase in:
    Accounts receivable                                                 (299,742)            (249,067)
    Inventories, prepaid expenses and other assets                    (1,060,434)            (412,669)
  Increase (decrease) in:
    Accounts payable                                                    (632,687)             382,859
    Accrued liabilities and deposits                                   1,229,003              501,359
    Income taxes payable                                                (254,000)              21,366
                                                                     -----------          -----------
          Net Cash Provided By Operating Activities                      555,235              776,580
                                                                     -----------          -----------
INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                            (363,068)             (67,778)
                                                                     -----------          -----------
          Net Cash Used In Investing Activities                         (363,068)             (67,778)
                                                                     -----------          -----------
FINANCING ACTIVITIES:
  Proceeds from  warrant and stock option exercises                      329,598                2,440
  Payments on mortgage loan                                               (4,929)              (5,569)
                                                                     -----------          -----------
          Net Cash Provided By (Used In) Financing Activities            324,669               (3,129)
                                                                     -----------          -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                  (20,924)              38,673
                                                                     -----------          -----------
CASH AND CASH EQUIVALENTS:
  Net increase                                                           495,912              744,346
  Beginning of year                                                    5,784,500            1,124,685
                                                                     -----------          -----------
END OF PERIOD CASH AND CASH EQUIVALENTS                              $ 6,280,412          $ 1,869,031
                                                                     ===========          ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                                         $    14,908          $     6,148
    Income taxes paid                                                  1,149,000              280,000
</TABLE>

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

                                       6
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    THREE AND SIX MONTHS ENDED MARCH 31, 2001


1. BASIS OF PRESENTATION

   The accompanying  condensed  consolidated  financial  statements  include the
   accounts of Amtech Systems, Inc. and its wholly-owned subsidiaries,  Tempress
   Systems,  Inc., based in Heerde,  The Netherlands,  and P. R. Hoffman Machine
   Products, Inc. (collectively,  the "Company").  All significant  intercompany
   balances and transactions have been eliminated in consolidation.

   The  accompanying  condensed  consolidated  financial  statements  have  been
   prepared in accordance with accounting  principles  generally accepted in the
   United  States,  pursuant to the rules and  regulations of the Securities and
   Exchange  Commission  (the  "SEC"),  and are  unaudited.  In the  opinion  of
   management, all adjustments (which include only normal recurring adjustments)
   necessary to present  fairly the financial  position,  results of operations,
   and cash flows for the periods presented have been made.

   Certain information and footnote  disclosures  normally included in financial
   statements  have  been  condensed  or  omitted  pursuant  to  the  rules  and
   regulations of the SEC. These  condensed  consolidated  financial  statements
   should be read in conjunction with the consolidated  financial statements and
   notes thereto  included in the  Company's  Annual Report on Form 10-K for the
   fiscal year ended September 30, 2000.

   The  consolidated  results of  operations  for the six months ended March 31,
   2001,  are not  necessarily  indicative of the results to be expected for the
   full year.

2. REVENUE RECOGNITION

   Revenue is recognized  on the accrual basis when the customer  takes title to
   the product, generally upon shipment. On occasion, the Company will recognize
   revenue prior to shipment.  When this occurs,  the Company ensures that title
   has passed,  the  customer has  committed to take  delivery of the goods in a
   reasonable  period of time, there is a legitimate  business purpose requested
   by the  customer to not ship the  product,  the product is complete and ready
   for shipment  and is  segregated  from  existing  inventory  and there are no
   material contingencies. Upon shipment, the Company recognizes all revenue and
   accrues the estimated costs of installation.

                                       7
<PAGE>
3. INVENTORIES

   The components of inventories are as follows:

                                          March 31,         September 30,
                                            2001                2000
                                         ----------          ----------
         Purchased parts and
           raw materials                 $2,395,255          $1,931,524
         Work-in-process                  2,338,935           1,874,818
         Finished goods                     376,120             423,204
                                         ----------          ----------
         Totals                          $5,110,310          $4,229,546
                                         ==========          ==========

4. EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                     Three Months Ended           Six Months Ended
                                                          March 31,                  March 31,
                                                  -------------------------     -------------------------
                                                     2001           2000           2001           2000
                                                  ----------     ----------     ----------     ----------
<S>                                               <C>            <C>            <C>            <C>
         Net income                               $  748,372     $  267,170     $1,309,886     $  397,997

         Weighted average Shares outstanding:
          Common shares                            2,657,886      2,109,154      2,631,302      2,108,915

          Common  equivalents (1)                    134,949        165,372        135,768        148,602
                                                  ----------     ----------     ----------     ----------

                                                   2,792,835      2,274,526      2,767,070      2,257,517
                                                  ==========     ==========     ==========     ==========
         Earnings Per Share:
           Basic                                  $      .28     $      .13     $      .50     $      .19

           Diluted                                $      .27     $      .12     $      .47     $      .18
</TABLE>

- ----------
(1)  Number of shares calculated using the treasury stock method and the average
     market price during the period.  Options and warrants on 59,300  shares and
     84,000 shares had an exercise  price greater than the average  market price
     in fiscal 2001 and fiscal 2000,  respectively,  and therefore did not enter
     into the calculation.

                                       8
<PAGE>
5. RECENT ACCOUNTING PRONOUNCEMENTS

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

   In December 1999, the SEC issued Staff  Accounting  Bulletin ("SAB") No. 101,
   "Revenue  Recognition,"  which sets forth the SEC  Staff's  views on selected
   revenue recognition issues. Based upon the prevailing  interpretations of SAB
   No. 101,  the Company  may be  required  to delay  recognition  of at least a
   portion of its sales of semiconductor  production  systems until installation
   has been  completed  and customer  acceptance  has  occurred.  The  Company's
   current  policy is to recognize  revenue at the time the customer takes title
   to the product,  generally  at the time of shipment,  because the Company has
   routinely met its installation  obligations and installation  costs represent
   an insignificant  percentage of total costs. The Company believes its current
   accounting   policies  on  revenue  recognition  are  consistent  with  those
   generally used in its industry and have been  consistently  applied since the
   inception of the Company. Therefore, if the Company is required to change its
   revenue  recognition  policies  in  order  to  comply  with  SAB No.  101,  a
   significant  cumulative charge related to a change in an accounting principle
   may be  required.  The  guidance in SAB No. 101 must be adopted no later than
   the fourth quarter of the Company's  fiscal year 2001,  ending  September 30,
   2001,  with a restatement of the first three quarters of that fiscal year. In
   October  2000,  the  SEC  issued  implementation  guidance  in  the  form  of
   "Frequently  Asked Questions." The Company is in the process of assessing the
   impact that SAB No. 101 will have on its  consolidated  financial  statements
   based on the SEC's most recently issued guidance.

6. BUSINESS SEGMENT INFORMATION

   The Company classifies its products into two core business segments:  (1) the
   semiconductor  equipment  segment  which  designs,  manufactures  and markets
   semiconductor   wafer  processing   equipment  used  in  the  fabrication  of
   integrated circuits,  and (2) the polishing supplies segment,  which designs,
   manufactures  and  markets  carriers,  templates  and  equipment  used in the
   lapping and polishing of wafer thin materials,  including silicon wafers used
   in the  production of  semiconductors.  Information  concerning the Company's
   business segments in fiscal years 2001 and 2000 is as follows:

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                Three Months Ended              Six Months Ended
                                                    March 31,                       March 31,
                                          ---------------------------      ---------------------------
                                             2001            2000             2001            2000
                                          -----------     -----------      -----------     -----------
<S>                                       <C>             <C>              <C>             <C>
         Revenues
           Semiconductor equipment        $ 4,698,579     $ 2,540,822      $ 9,411,267     $ 4,706,296
           Polishing supplies               2,327,004       2,008,278        4,496,047       3,705,316
                                          -----------     -----------      -----------     -----------
                                          $ 7,025,583     $ 4,549,100      $13,907,314     $ 8,411,612
                                          ===========     ===========      ===========     ===========
         Operating profit
           Semiconductor equipment        $   766,538     $   119,753      $ 1,298,911     $   184,929
           Polishing supplies                 334,728         284,359          627,207         432,850
                                          -----------     -----------      -----------     -----------
         Total operating profit             1,101,266         404,112        1,926,118         617,779
           Interest income - net               78,106          12,058          151,768          21,218
                                          -----------     -----------      -----------     -----------
         Income before income taxes       $ 1,179,372     $   416,170      $ 2,077,886     $   638,997
                                          ===========     ===========      ===========     ===========
</TABLE>a

7. LEGAL PROCEEDINGS.

   On or about August 31, 2000, a "P.R.  Hoffman Machine Products" was one of 11
   companies named in a legal action being brought by North  Middleton  Township
   in  Carlisle,  Pennsylvania,  the owner of a landfill  allegedly  found to be
   contaminated.  No detailed  allegations have been filed as part of this legal
   action, which appears to have been filed to preserve the right to file claims
   for contribution to the clean-up of the landfill at a later date. The Company
   acquired the assets of P.R. Hoffman Machine Products  Corporation in an asset
   transaction  consummated on July 1, 1997. The landfill was closed and has not
   been used by P.R. Hoffman since sometime prior to completion of the Company's
   acquisition.  Therefore,  the Company  believes that the named company is the
   prior owner of the  acquired  assets.  Under the terms of the Asset  Purchase
   Agreement  governing the acquisition,  the prior owner,  P.R. Hoffman Machine
   Products Corporation,  is obligated to indemnify the Company for any breaches
   of P.R.  Hoffman's  representations  and  warranties  in the  Asset  Purchase
   Agreement,  including  representations  relating to environmental matters. In
   accordance  with the terms of the Asset Purchase  Agreement,  the Company has
   provided  notice  to  the  prior  owner  of  P.R.  Hoffman  Machine  Products
   Corporation of the Company's intent to seek  indemnification  from such owner
   for any  liabilities  resulting from this legal action.  Based on information
   available to the Company as of the date of this report,  management  believes
   the costs,  if any,  to  resolve  this  matter  will not be  material  to the
   Company's results of operations or financial position.

                                       10
<PAGE>
                      AMTECH SYSTEMS, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

                                 Three Months Ended         Six Months Ended
                                      March 31,                 March 31,
                                --------------------      --------------------
                                 2001          2000        2001          2000
                                ------        ------      ------        ------
Net revenue                      100.0%        100.0%      100.0%        100.0%
Cost of product sales            (63.9)        (63.1)      (66.5)        (65.4)
                                ------        ------      ------        ------
     Gross margin                 36.1          36.9        33.5          34.6

Selling, general and
 administrative expenses         (18.4)        (23.7)      (17.9)        (24.3)

Research and development          (2.0)         (4.3)       (1.8)         (3.0)
                                ------        ------      ------        ------
     Operating profit             15.7%          8.9%       13.8%          7.3%
                                ======        ======      ======        ======

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

     NET REVENUE. The Company's net revenue for the three months ended March 31,
2001 was $7,026,000,  an increase of $2,477,000, or 54%, compared to net revenue
of $4,549,000 for the second quarter of fiscal 2000. Sales in the  semiconductor
equipment  segment and  polishing  supplies  segment  increased  by 85% and 16%,
respectively,  primarily  due to  shipments  of  systems  to  optical  component
manufacturers,  a new market for the Company's products,  and increased sales to
the semiconductor industry, which the Company serves. The Company's first system
shipment to an optical component manufacturer occurred in June 2000.

     Net revenue for the six months  ended  March 31, 2001 was  $13,907,000,  an
increase of  $5,495,000,  or 65%,  compared to net revenue of $8,412,000 for the
same period of fiscal 2000.  Sales in the  semiconductor  equipment  segment and
polishing supplies segment increased by 100% and 21%, respectively. Shipments of
furnace systems to optical component manufacturers,  as discussed above, account
for  approximately  70% of the increase,  with the remaining 30%  represented by
increased  sales  of  the  Company's  IBAL  Automation  products  and  polishing
supplies.

     GROSS  MARGIN.  The  Company's  gross  margin  increased  by  approximately
$858,000,  or 51%, to $2,539,000 for the three months ended March 31, 2001, from
$1,681,000  during  the  comparable  period of the  previous  fiscal  year.  The
increase in gross margin  resulted  from the 54%  increase in revenue  discussed
above.  Gross margin as a percentage  of sales was 36% in the second  quarter of
fiscal  2001,  compared to 37% in the second  quarter of fiscal  2000,  with the
slight  erosion  resulting  from the  product  mix.  In the  polishing  supplies
segment,  gross margin  declined to 30% of revenues  from 33% in the prior year.
Inventory  write-offs were $109,000 higher in the second quarter of fiscal 2001,
than  in  the  comparable  period  of  fiscal  2000,  as  a  result  of  certain
semiconductor equipment order cancellations, which contributed to the decline in
consolidated  gross  margins.  The gross margin of the  semiconductor  equipment
segment declined to 39% of sales in fiscal 2001, compared to 40% of sales in the
second quarter of fiscal 2000.

                                       11
<PAGE>
     Gross margin increased by approximately  $1,759,000,  or 60%, to $4,666,000
for the six months ended March 31, 2001, from  $2,907,000  during the comparable
period of the previous  fiscal year. This increase  resulted  primarily from the
65%  increase in revenue  discussed  above.  As a percentage  of sales,  margins
remained relatively constant.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  for the second  quarter of fiscal  2001  increased  by
$218,000,  or 20%, to  $1,298,000,  compared to  $1,080,000  spent in the second
quarter  of  fiscal  2000.  Approximately  $128,000  of the  increase  is due to
commissions, incentive pay and other costs associated with the increased revenue
and profitability.  Other increases in expenses totaling $90,000 resulted from a
number of factors  including  costs  related  to the  expansion  of  facilities.
Consolidated  expenses  declined to 18% of revenues  for the three  months ended
March 31, 2001, as compared to 24% for the same period in fiscal 2000,  due to a
significant increase in revenues.

     Selling, general and administrative expenses for the six months ended March
31, 2001 increased by $453,000,  or 22%, to  $2,493,000,  compared to $2,040,000
spent  in  the  same  period  of  fiscal  2000.   Selling  expenses,   including
commissions,  account for $188,000 of the cost  increases,  while costs of added
administrative  personnel  increased  by  $64,000.  Other  administrative  costs
account for the remaining increase in these expenses.  Although selling, general
and  administrative  expenses increased  significantly,  they declined to 18% of
revenue in fiscal 2001 from 24% in fiscal 2000.

     RESEARCH  AND  DEVELOPMENT.  Research  and  development  costs  declined by
$56,000,  to $140,000,  during the second quarter of fiscal 2001, as compared to
$196,000  spent in the  second  quarter  of fiscal  2000,  due to  non-recurring
purchases of supplies for the Company's asher research project in fiscal 2000.

     For the first six months of fiscal  2001,  research and  development  costs
declined by $3,000,  to  $247,000,  as  compared  to $250,000  spent in the same
period of fiscal 2000.  Increased  expenditures in development  expenditures for
furnaces in the current  fiscal year nearly  offset the decline in Asher related
costs discussed above.

     OPERATING  PROFIT.  Operating  profit for the second quarter of fiscal 2001
was  $1,101,000,  an increase of  $697,000,  or 173%,  compared to an  operating
profit of $404,000 in the same period of fiscal 2000.  The increase in operating
profit is primarily attributable to the 54% increase in consolidated revenue and
continued  cost control.  Operating  profit for the polishing  supplies  segment
increased by $51,000,  or 18%, to  $335,000,  compared to $284,000 in the second
quarter of fiscal 2000, as a result of the 16% increase in sales volume.  In the
semiconductor  equipment  segment,  operating  profit  increased  by $647,000 to
$767,000,  compared  to  $120,000  in the  second  quarter of fiscal  2000.  The
increase in the second quarter operating profit of the  semiconductor  equipment
segment is due to the 85% increase in sales and  continued  cost  control.  On a
consolidated  basis,  operating  profits  grew to 16% of  revenue  in the second
quarter of fiscal 2001,  compared to 9% of revenue in the second  quarter of the
prior fiscal year.

     Operating profit for the six months ended March 31, 2001 was $1,926,000, an
increase of $1,308,000,  or 212%, compared to an operating profit of $618,000 in
the same period of fiscal 2000.  The  increase in operating  profit is primarily
attributable to the 65% increase in consolidated  revenue.  Operating profit for
the  polishing  supplies  segment  increased by  $194,000,  or 45%, to $627,000,
compared to $433,000 in the same period of fiscal  2000,  as a result of the 21%
increase in sales volume.  In the  semiconductor  equipment  segment,  operating

                                       12
<PAGE>
profit increased by $1,114,000 to $1,299,000,  compared to $185,000 in the first
six months of fiscal 2000. The increase in the second quarter  operating  profit
of the  semiconductor  equipment segment is due to the 85% increase in sales and
continued cost control. On a consolidated  basis,  operating profits grew to 14%
of revenue in the first six months of fiscal 2001,  compared to 7% of revenue in
the same period of the prior fiscal year.

     NET INTEREST INCOME. During the second quarter of fiscal 2001, net interest
income increased  $66,000 to $78,000,  compared to $12,000 in the  corresponding
quarter of fiscal  2000,  due to  interest  earned on the  portion of the equity
capital  raised  in the  fourth  quarter  of  fiscal  2000 that has not yet been
deployed  and cash  generated  from  operations.  As a result  of the  foregoing
factors,  income before  income taxes for the second  quarter of fiscal 2001 was
$1,179,000,  an increase of 183%,  compared to $416,000 in the second quarter of
fiscal 2000.

     For the six months ended March 31,  2001,  net  interest  income  increased
$131,000 to $152,000,  compared to $21,000 in the corresponding period of fiscal
2000 for the reasons  discussed above.  Income before income taxes for the first
six months of fiscal  2001 was  $2,078,000,  an  increase  of 225%,  compared to
$639,000 in the first six months of fiscal 2000.

     PROVISION FOR INCOME TAXES. Income tax expense of $431,000,  recorded at an
effective  tax rate of 37%,  resulted  in net income  for the second  quarter of
fiscal 2001 of $748,000.  During the same  quarter of fiscal  2000,  the Company
recorded income tax expense of $149,000, reflecting a 36% effective tax rate and
resulting in net income of $267,000.

     Income tax expense of $768,000,  recorded at an effective  tax rate of 37%,
resulted  in net income for the first six months of fiscal  2001 of  $1,310,000.
During the same period of fiscal 2000, the Company  recorded  income tax expense
of $241,000,  reflecting a 38%  effective  tax rate,  resulting in net income of
$398,000.

     NET INCOME.  The resulting net income for the second quarter of fiscal 2001
was  $748,000,  or $.27 per diluted  share,  an increase of  $481,000,  or 180%,
compared to the net income of $267,000, or $.12 per share, in the second quarter
of fiscal 2000.

     Net income for the six months ended March 31, 2001 was $1,310,000,  or $.47
per diluted share, an increase of $912,000,  or 229%, compared to the net income
of $398,000, or $.18 per share, for the same period of fiscal 2000.

     BACKLOG. At March 31, 2001, the order backlog was $12,736,000,  an increase
of $758,000,  or 6%, from the  $11,978,000  backlog at December  31,  2000.  New
orders net of  cancellations  in the  second  quarter  of fiscal  2001  exceeded
shipments  during the  period.  Despite  significant  declines in the backlog of
orders for automation  products and polishing  supplies and equipment during the
second quarter of fiscal 2001,  this was more than offset by the increase in the
backlog of orders for diffusion furnaces. The March 31, 2001 backlog declined by
$1,763,000,  or 12%, from the $14,499,000  backlog at September 30, 2000.  While
new orders  nearly  equaled  shipments  for the first  quarter  of fiscal  2001,
cancellations  of four system orders  accounted for the reduction in the backlog
since  September 30, 2000. The backlog as of March 31, 2001,  was  approximately
$8,292,000 higher than at March 31, 2000, an increase of 187%.

     Due to the  possibility of customer  changes in delivery  schedules,  order
cancellations,  potential  delays in  product  shipments,  delays  in  obtaining
inventory  parts  from  suppliers,   failure  to  satisfy  customer   acceptance
requirements and changes in product mix, our backlog as of any point in time may
not be  representative of actual sales and profitability in any future period. A
reduction in backlog during any particular  period could have a material adverse
affect on our business prospects, financial condition and results of operations.

                                       13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     At March  31,  2001,  the  Company  had  $6,280,000  of  readily  available
liquidity  in the  form of cash  and  cash  equivalents,  compared  to cash  and
equivalents  of $5,785,000  at September 30, 2000, an increase of  approximately
$495,000.  The  Company's  current  cash  position is  primarily a result of the
$4,616,000 of net cash proceeds from a private placement of the Company's Common
Stock in  September  2000 and the  positive  cash flow during  fiscal  2001.  An
additional  $2 million line of credit  secured in October 2000 further  enhances
the Company's liquidity position. The Company continues to believe that there is
sufficient liquidity for existing operations and its expansion plans.

     CASH FLOW.  The  $495,000  net increase in cash during the six months ended
March 31,  2001,  approximates  the cash flow  provided by the  operations.  The
$555,000  cash flow  provided by  operations  is comprised of  $1,310,000 of net
income,  depreciation  and  amortization  ($187,000),   non-cash  write-offs  of
inventories and receivables ($203,000),  and approximately a $1 million increase
in customer deposits. These items were partially offset by increased investments
in  inventories  ($1,060,000)  and  receivables  ($300,000)  and  reductions  in
accounts payable and income taxes payable. Proceeds from exercise of outstanding
warrants and options provided  approximately  $330,000 in cash, nearly enough to
finance capital  expenditures  totaling  $363,000,  which primarily were for the
expansion of plant capacity in the semiconductor equipment segment.

     This large increase in inventories  occurred primarily in the first quarter
of  fiscal  2001,  as a result  of volume  purchase  commitments  made to offset
growing  lead  times  that were  being  experienced  in the  fourth  quarter  of
fiscal 2000 and customer  cancellations  and delayed  delivery  schedules in the
first and second quarter of the current fiscal year.  While inventory may remain
at higher than historical levels for several quarters, the Company believes that
it will not increase further and does not expect any significant losses to occur
in the disposing of excess inventory.

     At March 31, 2001,  working  capital was  $12,367,000,  up $1,433,000  from
$10,934,000  at September  30,  2000.  The  Company's  current  ratio  increased
slightly to 3.5:1 at the end of the second  quarter of fiscal 2001 from 3.3:1 at
the  beginning of the 2001 fiscal year.  The Company  believes  that its current
ratio  continues  to indicate a strong  financial  condition.  At the end of the
second quarter of fiscal 2001, cash and cash equivalents  comprised 32% of total
assets and stockholders' equity accounted for 73% of total  capitalization.  The
Company believes that it continues to possess the financial  strength  necessary
to achieve continued growth.

RECENT ACCOUNTING PRONOUNCEMENTS

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

                                       14
<PAGE>
     In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue  Recognition,"  which  sets  forth the SEC  Staff's  views on  selected
revenue recognition issues. Based upon the prevailing interpretations of SAB No.
101, the Company may be required to delay  recognition  of at least a portion of
its  sales of  semiconductor  production  systems  until  installation  has been
completed and customer acceptance has occurred.  The Company's current policy is
to  recognize  revenue  at the time the  customer  takes  title to the  product,
generally at the time of  shipment,  because the Company has  routinely  met its
installation  obligations  and  installation  costs  represent an  insignificant
percentage of total costs. The Company believes its current accounting  policies
on revenue  recognition are consistent with those generally used in its industry
and  have  been  consistently  applied  since  the  inception  of  the  Company.
Therefore, if the Company is required to change its revenue recognition policies
in order to comply with SAB No. 101, a significant  cumulative charge related to
a change in an accounting principle may be required. The guidance in SAB No. 101
must be adopted no later than the fourth  quarter of the  Company's  fiscal year
2001,  ending September 30, 2001, with a restatement of the first three quarters
of that fiscal year. In October 2000, the SEC issued implementation  guidance in
the form of  "Frequently  Asked  Questions."  The  Company is in the  process of
assessing  the impact that SAB No. 101 will have on its  consolidated  financial
statements based on the SEC's most recently issued guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     For financial market risks related to changes in interest rates and foreign
currency exchange rates, refer to Part II, Item 7A, Quantitative and Qualitative
Disclosures  About Market Risk, in the Company's  Annual Report on Form 10-K for
the fiscal year ended  September  30,  2000.  There are no  material  changes in
reported market risk from September 30, 2000.

FORWARD-LOOKING STATEMENTS

     The  statements  contained  in  this  report  on  Form  10-Q  that  are not
historical fact are  forward-looking  statements (as such term is defined in the
Private  Securities  Litigation  Reform Act of 1995).  These  statements  can be
identified  by the  use of  forward  looking  terminology  such  as  "believes,"
"expects,"  "may,"  "will,"  "should,"  "anticipates,"  or  "possible,"  or  the
negative thereof or other written variations thereof or comparable  terminology.
The   forward-looking   statements   contained   herein  are  based  on  current
expectations  that involve a number of risks and  uncertainties.  Among  others,
these  forward-looking  statements are based on assumptions that (a) the Company
will not lose a  significant  customer or  customers,  (b) the Company  will not
experience  significant  reductions in demand or rescheduling or cancellation of
customer purchase orders, (c) the Company's products will remain accepted within
their respective markets and will not be significantly further replaced by newer
technology  equipment,  (d) competitive  conditions within the Company's markets
will not  materially  deteriorate,  (e) the  Company's  efforts to  improve  its
products and maintain  its  competitiveness  in the markets in which it competes
will  continue  to  progress  and  that  the  savings   associated   with  these
expenditures  and/or the increased product demand resulting  therefrom justifies
such development costs, (f) the Company will be able to retain, and when needed,
add  key  technical   and   management   personnel,   (g)  business  or  product
acquisitions,  if any,  will be  successfully  integrated  and  the  results  of
operations  therefrom  will support the  acquisition  price,  (h) the  Company's
forecasts  will  accurately  anticipate  market  demand,  (i)  there  will be no
material adverse changes in the Company's existing  operations,  (j) the Company
will be able to obtain sufficient equity or debt funding to increase its capital
resources by the amount needed for new business or product acquisitions, if any,
(k) the  semiconductor  equipment  industry  will not enter a period of slowdown

                                       15
<PAGE>
during  fiscal 2001,  (l) the  condition in the Asian  markets will  continue to
improve,  (m) the Company will be able to continue to control costs,  (n) demand
for the Company's products will not be adversely and significantly influenced by
trends  within  the  semiconductor   industries,   including   consolidation  of
semiconductor  manufacturing  operations  through mergers and the subcontracting
out of the  production of  semiconductors  to foundries,  and (o) the effects of
adopting  SAB No. 101 will  largely be offset by  increased  sales.  Assumptions
related to the foregoing  involve judgments with respect to, among other things,
future economic,  competitive and market conditions, all of which are beyond the
control of the  Company.  Although  the Company  believes  that the  assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could  prove  inaccurate  and,  therefore,  there can be no  assurance  that the
results  contemplated  in  forward-looking   statements  will  be  realized.  In
addition,  the business and operations of the Company are subject to substantial
risks,  which  increase  the  uncertainty   inherent  in  such   forward-looking
statements.   In  light  of  the  significant   uncertainties  inherent  in  the
forward-looking  information  included herein,  such  information  should not be
regarded as a  representation  by the  Company,  or any other  person,  that the
objectives or plans for the Company will be achieved.

                                       16
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     On or about August 31, 2000, a "P.R.  Hoffman Machine  Products" was one of
11 companies named in a legal action being brought by North  Middleton  Township
in  Carlisle,  Pennsylvania,  the  owner  of a  landfill  allegedly  found to be
contaminated.  No  detailed  allegations  have been  filed as part of this legal
action,  which  appears to have been filed to preserve  the right to file claims
for  contribution  to the clean-up of the landfill at a later date.  The Company
acquired the assets of P.R.  Hoffman  Machine  Products  Corporation in an asset
transaction  consummated  on July 1, 1997.  The  landfill was closed and has not
been used by P.R.  Hoffman since  sometime  prior to completion of the Company's
acquisition. Therefore, the Company believes that the named company is the prior
owner of the acquired  assets.  Under the terms of the Asset Purchase  Agreement
governing  the  acquisition,  the prior owner,  P.R.  Hoffman  Machine  Products
Corporation,  is  obligated  to  indemnify  the Company for any breaches of P.R.
Hoffman's  representations  and  warranties  in the  Asset  Purchase  Agreement,
including  representations relating to environmental matters. In accordance with
the terms of the Asset Purchase  Agreement,  the Company has provided  notice to
the prior owner of P.R.  Hoffman Machine  Products  Corporation of the Company's
intent to seek  indemnification  from such owner for any  liabilities  resulting
from this legal action. Based on information  available to the Company as of the
date of this  report,  management  believes  the costs,  if any, to resolve this
matter will not be material to the Company's  results of operations or financial
position.

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

     On March 15, 2001, the Company held its annual meeting of  shareholders  at
which 2,180,175,  or 83% of the 2,628,871 shares outstanding were represented by
proxy  or in  person.  The  following  persons  where  elected  to the  board of
directors with shares voted as follows:

          Election of Directors               For               Withheld
          ---------------------            ---------            --------
          Jong S. Whang                    2,174,237              5,938
          Robert T. Hass                   2,174,365              5,810
          Donald F. Johnston               2,174,333              5,842
          Alvin Katz                       2,174,208              6,967
          Bruce R. Thaw                    2,174,365              5,810

     At the annual meeting the shareholders  approved an amendment to the Amtech
Systems,  Inc. 1998 Stock Option Plan to increase the number of shares available
for issuance  thereunder by 250,000 from 50,000 to 300,000.  Of the shares voted
on the proposal, 402,202 voted for, 169,972 voted against and 7,614 abstained.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

          10.1      Employment Agreement between Amtech System, Inc. and Jong S.
                    Whang, its President and Chief Executive Officer.

     (b) Reports on Form 8-K

         None.

                                       17
<PAGE>
                                    SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

     AMTECH SYSTEMS, INC.


     By /s/ Robert T. Hass                                   Dated: May 15, 2001
        ------------------------------------------
        Robert T. Hass, Vice-President-Finance and
        (Chief Financial and Accounting Officer)

                                       18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>ex10-1.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT OF JONG S. WHANG
<TEXT>

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT


     AGREEMENT,  dated this 15th day of March,  2001,  between  Amtech  Systems,
Inc., an Arizona  corporation  (the  "Company")  with offices at 131 South Clark
Drive, Tempe, Arizona, and Jong S. Whang (the "Executive"),

                                  WITNESSETH:

     WHEREAS, the Company and the Executive wish to enter into an employment and
compensation arrangement on the following terms and conditions:

     1. EMPLOYMENT.  Subject to the terms and conditions of this Agreement,  the
Company agrees to employ the Executive as its Chief Executive Officer during the
Employment Period (as defined in Section 7) and Executive agrees to perform such
acts and duties and furnish  such  services  to the  Company and its  affiliates
consistent  with such  position as the Company's  Board of Directors  shall from
time to time direct.  The Executive  shall have general and active charge of the
business  and  affairs  of  the  Company  and,  in  such  capacity,  shall  have
responsibility  for the  day-to-day  operations  of the Company,  subject to the
authority  and  control of the Board of  Directors  of the  Company.  During the
Employment  Period, the Company shall continue to take such actions as necessary
to cause the Executive's nomination as a member of the Board of Directors of the
Company.  The Executive  hereby accepts such employment and agrees to devote his
full time and best efforts to the duties  provided  herein,  provided,  that the
Executive may engage in other business  activities which (i) involve no conflict
of interest with the interests of the Company  (subject to approval by the Board
of Directors, which approval shall not be unreasonably withheld) and (ii) do not
materially  interfere with the  performance by the Executive of his duties under
this Agreement.

     2.  COMPENSATION.  For services  rendered to the Company during the term of
this  Agreement,  the Company shall  compensate  the  Executive  with an initial
salary, payable in monthly installments, of $188,402 per annum. Such base salary
shall be  reviewed  on an  annual  basis by the  Compensation  Committee  of the
Company's  Board  of  Directors  (the  "Compensation  Committee")  and  shall be
increased by at least five (5%) percent per annum.

     3. INCENTIVE  COMPENSATION.  The Executive shall also be entitled to annual
cash  bonuses not to exceed fifty per cent (50%) of the  applicable  base salary
for each fiscal year during the Employment  Period  ("Incentive  Compensation").
The Executive's  Incentive  Compensation  for each such fiscal year shall be the
total of the amounts calculated as follows:

          (a) an amount equal to two percent (2%) of the Earnings of the Company
for such fiscal year; plus

          (b) an amount  equal to two  percent  (2%) of the  amount by which the
revenues of the Company for such fiscal year exceed such  revenues  for the next
preceding  fiscal year. For purposes of determining the amount by which revenues
of the Company for the fiscal year in which any  operations  are first  acquired
exceed the Company's  revenues for the next preceding  fiscal year, the revenues
of the acquired  operations shall be added on a pro forma basis to the Company's
<PAGE>
revenues  for the same period of the next  preceding  fiscal year for which such
revenues  are  included  in the  Company's  revenues  in the fiscal  year of the
acquisition.  For purposes of  determining  the amount by which  revenues of the
Company  for the next  fiscal  year  following  the  fiscal  year in  which  any
operations are first acquired exceed the Company's  revenues for the fiscal year
in which such  operations  are first  acquired,  the  revenues  of the  acquired
operations  for the  period  of the  fiscal  year of  acquisition  prior  to the
acquisition  date shall be added on a pro forma basis to the Company's  revenues
for such fiscal year.

For purposes of this paragraph 3, the term "Earnings" shall mean the earnings of
the Company  and its  subsidiaries  determined  on a  consolidated  basis and in
accordance with generally accepted accounting  principles,  consistently applied
for each fiscal year of the Company  during the  Employment  Period,  before any
provision is made for federal or state income taxes, but after provision for all
bonuses, both in stock and cash.

     4. STOCK OPTIONS.

          (a) OUTSTANDING OPTIONS. All currently outstanding options to purchase
Common  Stock of the Company  held by  Executive  shall remain in full force and
effect in accordance with the provisions of Employer's Stock Option plan and the
applicable Stock Option Agreements, as may be amended from time to time.

          (b) NEW OPTIONS.  As further  compensation,  Employee  shall be issued
150,000 stock options  (hereinafter  "stock options") upon the effective date of
this  Agreement.  All of the stock options shall be  "Incentive  Stock  Options"
within the  meaning  of the  Internal  Revenue  Code of 1986,  as  amended  (the
"Code"), subject to the limitations of the Code. Any stock options which are not
allowed to be  incentive  stock  options  under the Code shall be  non-qualified
stock options. The stock options shall be issued at the fair market value of the
Employer's  common  stock as of the date of this  Agreement  and shall vest at a
rate of 30,000 options for each full year of service during the first five years
of the  Employment  Period  (and  shall not be vested for  interim  periods on a
pro-rata basis,  except as otherwise  provided herein or in the applicable Stock
Option Agreement).

     5.  BENEFITS.  During the Employment  Period,  the Company shall provide or
cause to be provided to the Executive such employee  benefits as are provided to
other executive  officers of the Company,  including  family medical and dental,
disability  and life  insurance,  and  participation  in pension and  retirement
plans, incentive compensation plans, stock option plans and other benefit plans.
During the Employment Period, the Company may provide or cause to be provided to
the Executive such additional  benefits as the Company may deem appropriate from
time to time.  The Company  shall also provide the  Executive  at the  Company's
expense  the use of an  automobile  of at least  equal  value  to that  which is
presently  utilized by the Executive as of the date of this Agreement as well as
a life insurance policy in the face amount of $250,000 with  Executive's  spouse
as the beneficiary.

     6.  VACATION.  The  Executive  shall be  entitled  to annual  vacations  in
accordance with the Company's  vacation policies in effect from time to time for
executive officers of the Company.

                                       2
<PAGE>
     7. TERM:  Employment Period. The "Employment  Period" shall commence on the
date of this  Agreement  (the  "Effective  Date")  and shall  terminate  5 years
thereafter,  unless extended by written  agreement between the parties or unless
earlier  terminated  pursuant to Section 8. If the Executive shall remain in the
full time employ of the Company beyond the Employment Period without any written
agreement  between the parties,  this Agreement shall be deemed to continue on a
month to month  basis and either  party shall have the right to  terminate  this
Agreement at the end of any ensuing calendar month on written notice of at least
30 days.

     8. TERMINATION.

          (a) Executive's employment with the company shall be "at will". Either
the Company or the  Executive  may  terminate  this  Agreement  and  Executive's
employment at any time,  with or without Cause or Good Reason (as such terms are
defined  below),  in its or his sole  discretion,  upon  thirty  (30) days prior
written notice of termination.

          (b) Without limiting the foregoing Section 8(a), (i) the Executive may
terminate his employment  with the company at any time for Good Reason,  or (ii)
the Company may  terminate his  employment at any time for Cause.  "Good Reason"
shall  mean (i) the  Company's  failure  to elect or  reelect,  or to appoint or
reappoint, Executive to offices or positions involving duties, responsibilities,
authority  and dignity of a scope of  comparable  to those of  Executive's  most
significant  offices or positions held at any time during the Employment Period;
(ii)  material  changes by the Company in the  Executive's  function,  duties or
responsibilities  (including  reporting  responsibilities)  of a scope less than
that  associated with  Executive's  most  significant  position with the Company
during the Employment  Period;  (iii)  Executive's base salary is reduced by the
Company  below the  highest  base  salary of  Executive  in  effect  during  the
Employment Period; (iv) relocation of Executive's  principal place of employment
to a place  that is not  within  either the city  limits of Tempe,  Arizona,  or
within a radius of ten (10) miles of his primary  residence;  (v) failure by the
Company to obtain the assumption of this Agreement by any successor or assign of
the Company;  or (vi) material  breach of this  Agreement by the Company,  which
breach is not  cured  within  five (5) days  after  written  notice  thereof  is
delivered  to the  Company.  "Cause"  shall  mean (i) the  Executive's  willful,
repeated or negligent failure to perform his duties hereunder and to comply with
any reasonable or proper  direction given by or on behalf of the Company's Board
of  Directors  and the  continuation  of such  failure  following  ten (10) days
written  notice to such  effect,  (ii) the  Executive  being  guilty of  serious
misconduct  on  the  Company's   premises  or  elsewhere,   whether  during  the
performance of his duties or not,  which is reasonably  likely to cause material
damage to the  reputation of the Company or render it materially  more difficult
for the  Executive  to  satisfactorily  continue  to perform  his duties and the
continuation or a second instance of such serious misconduct  following ten (10)
days written notice to such effect;  (iii) the Executive being found guilty in a
criminal  court  of any  offense  of a  nature  which is  reasonably  likely  to
materially  adversely  affect the  reputation  of the  Company or to  materially
prejudice its interests if the Executive  were to continue to be employed by the
Company;  (iv)  the  Executive's  commission  of any  act  of  fraud,  theft  or
dishonesty,  or any intentional tort against the Company; or (v) the Executive's
violation of any of the material terms, covenants, representations or warranties
contained in this  Agreement  and failure to correct such  violation  within ten
(10) days after written notice by the Company.

                                       3
<PAGE>
          (c)  "Disability"  shall  mean that the  Executive,  in the good faith
determination  of the Board of  Directors  of the  Company,  is unable to render
services of the character contemplated hereby and that such inability (i) may be
expected to be permanent, or (ii) may be expected to continue for a period of at
least six (6) consecutive  months (or for shorter periods totaling more than six
(6) months  during any period of twelve (12)  consecutive  months).  Termination
resulting  from  Disability may only be effected after at least thirty (30) days
written  notice by the Company of its  intention  to terminate  the  Executive's
employment.

          (d) "Termination  Date" shall mean (i) if this Agreement is terminated
on account of death, the date of death; (ii) if this Agreement is terminated for
Disability, the date established by the Company pursuant to Section 8(c) hereof;
(iii) if this Agreement is terminated by the Company, the date on which a notice
of termination is given to the Executive; (iv) if the Agreement is terminated by
the  Executive,  the date the Executive  ceases work;  or (v) if this  Agreement
expires   by  its  terms,   the  last  day  of  the  term  of  this   Agreement.
Notwithstanding  the  foregoing,  if within thirty (30) days after any notice of
termination is given,  the party  receiving such notice notifies the other party
that a dispute exists concerning the termination,  the Termination Date shall be
the date finally determined to be the Termination Date, either by mutual written
agreement  of the parties or by binding  arbitration  in the manner  provided in
Section 23 hereof;  provided  that the  Termination  Date shall be extended by a
notice  of  dispute  only if such  notice  is given in good  faith and the party
giving such notice  pursues  the  resolution  of such  dispute  with  reasonable
diligence.  Notwithstanding  the pendency of any such dispute,  the Company will
continue to pay the  Executive his full  compensation  in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all  compensation,  benefit and insurance plans in which he was participating
when the notice  giving  rise to the  dispute  was given,  until the  dispute is
finally  resolved.  Amounts paid under this Section 8(d) shall be in addition to
all other amounts due under this  Agreement  and shall not be offset  against or
reduce any  amounts due under this  Agreement;  provided,  however,  that if the
arbitrator  determines that any notice of dispute by the Executive was not given
in good  faith or that the  Executive  did not  pursue  the  resolution  of such
dispute with  reasonable  diligence,  the Executive  shall repay the Company the
amount of compensation  paid to the Executive  pursuant to Section 8(d) from the
Termination  Date which  would have  applied had such notice of dispute not been
given,  plus  interest  thereon at the  applicable  federal rate provided for in
Section  1274(d)  of the  Internal  Revenue  Code,  or any  successor  provision
thereof,  for an  obligation  with a term equal to the  period  from the date of
payment to the date of repayment pursuant to this Section 8(d).

     9. SEVERANCE:

          (a) If (i) the Company  terminates  the  employment  of the  Executive
against  his will  and  without  Cause,  or (ii) the  Executive  terminates  his
employment for Good Reason,  the Executive  shall be entitled to receive salary,
Incentive  Compensation and vacation accrued through the Termination  Date, plus
the following:

               (i) an amount  equal to two years of  Executive's  base salary in
effect on the Termination Date;

                                       4
<PAGE>
               (ii) a pro-rated portion of the amount of Incentive  Compensation
Executive would earn for the fiscal year in which the termination  occurs if the
results of  operations  of the Company for the period from the beginning of such
fiscal year to the Termination  Date were  annualized (the "Pro-Rated  Incentive
Compensation");

               (iii) full  vesting of all stock  options  issued  under  Section
4(b)(1) hereof (the "Section 4(b)(1) Options");

               (iv)  vesting  of a  pro-rated  portion  of the  number  of stock
options  which would have  vested for the fiscal  year in which the  termination
occurs  under  Section  4(b)(2) and  Section  4(b)(3)  hereof (the  "Performance
Options")  if the results of  operations  of the Company for the period from the
beginning of such fiscal year to the Termination Date were annualized.

The Company shall make the termination  payment required hereunder within thirty
(30) days of the Termination Date.  Notwithstanding  the foregoing,  the Company
shall not be  required to pay any  severance  pay for any period  following  the
Termination Date if the Executive violates the provisions of Section 15, Section
16 or Section 17 of this  Agreement in any material  respect,  and fails to cure
such  violation  willingly  thirty days after written notice from the Company to
the Executive detailing such violation.

          (b) If (i) the Executive  voluntarily  terminates his employment other
than for Good Reason, (ii) the Executive's employment is terminated due to death
or  Disability,  or (iii) the  Executive is terminated by the Company for Cause,
then the  Executive  shall be  entitled to receive  salary and accrued  vacation
through  the  Termination  Date only.  In the event of death or  Disability  the
Executive shall also be entitled to receive the Pro-Rated Incentive Compensation
and  vesting of the  Section  4(b)(1)  Options  and the  Performance  Options as
provided in Section 9(a).

          (c) In addition to the provisions of Section 9(a) and 9(b) hereof,  to
the extent COBRA shall be  applicable  to the Company or as provided by law, the
Executive  shall be entitled to  continuation  of group health plan  benefits in
accordance  with COBRA if the Executive  makes the  appropriate  conversion  and
payments. If requested to do so, the Company will transfer ownership of the life
insurance  policy  referred to in Section 5 to the  Executive  and the Executive
agrees to pay for any costs related to the transfer in excess of $1000 and to be
responsible for all future premiums.

          (d)  The  Executive   acknowledges   that,  upon  termination  of  his
employment, he is entitled to no other compensation, severance or other benefits
other than those  specifically  set forth in this  Agreement  or any  applicable
Stock Option Agreement.

     10.  EXPENSES.  The Company  shall pay or reimburse  the  Executive for all
expenses  normally  reimbursed  by  Company,   reasonably  incurred  by  him  in
furtherance  of his duties  hereunder and authorized and approved by the Company
in compliance with such rules relating  thereto as the Company may, from time to
time,  adopt and as may be required  in order to permit such  payments as proper
deductions to Company under the Internal  Revenue Code of 1986, as amended,  and
the rule and regulations adopted pursuant thereto now or hereafter in effect.

                                       5
<PAGE>
     11.  FACILITIES AND SERVICES.  The Company shall furnish the Executive with
office  space,  secretarial  and  support  staff and such other  facilities  and
services as shall be  reasonably  necessary  for the  performance  of his duties
under this Agreement.

     12. MITIGATION NOT REQUIRED. In the event this Agreement is terminated, the
Executive shall not be required to mitigate  amounts payable  pursuant hereto by
seeking other  employment or otherwise.  The Executive's  acceptance of any such
other  employment  shall not  diminish  or impair  the  amounts  payable  to the
Executive pursuant hereto.

     13. PLACE OF PERFORMANCE.  The Executive shall perform his duties primarily
in Tempe, Arizona or locations within a reasonable proximity thereof, except for
reasonable travel as the performance of the Executive's duties may require.

     14. INSURANCE AND INDEMNITY.  During the Employment Period, if available at
reasonable  costs,  the Company  shall  maintain,  at its expense,  officers and
directors  fiduciary  liability  insurance  covering the Executive and all other
executive  officers and directors in an amount of no less than  $1,000,000.  The
Company shall also indemnify the Executive,  to the fullest extent  permitted by
law, from any liability  asserted against or incurred by the Executive by reason
of the fact that the  Executive  is or was an officer or director of the Company
or any  affiliate  or related  party or is or was serving in any capacity at the
request of the Company for any other  corporation,  partnership,  joint venture,
trust, employment benefit plan or other enterprise. This indemnity shall survive
termination of this Agreement.

     15. NONCOMPETITION.

     A. The Executive  agrees that,  except in accordance  with his duties under
this  Agreement  on behalf of the  Company,  he will not during the term of this
Agreement:

          Participate  in, be employed in any  capacity  by,  serve as director,
consultant,  agent or  representative  for,  or have any  interest,  directly or
indirectly,  in any enterprise which is engaged in the business of distributing,
selling or otherwise  trading in products or services  which are  competitive to
any products or services distributed, sold or otherwise traded in by the Company
or any of its  subsidiaries  during the term of the Executive's  employment with
the Company, or which are competitive to any products or services being actively
developed,  with the bona fide intent to market  same,  by the Company or any of
its subsidiaries during the term of the Executive's employment with the Company;

          In addition, the Executive agrees that for a period of two years after
the  end of the  term  of this  Agreement  (unless  the  Company  breaches  this
Agreement  by failing to pay to the  Executive  all sums due him under the terms
hereof,  in which event the  following  provisions of this Section 15.A shall be
inapplicable),  the  Executive  shall  observe the  covenants  set forth in this
Section 15 and shall not own,  either  directly or  indirectly  or through or in
conjunction  with one or more members of his or his  spouse's  family or through
any trust or other  contractual  arrangement,  a greater  than five percent (5%)
interest  in,  or  otherwise   control  either   directly  or  indirectly,   any
partnership, corporation, or other entity which distributes, sells, or otherwise
trades in products  which are  competitive  to any  products  or services  being
developed,  distributed,  sold, or otherwise  traded in by the Company or any of
its subsidiaries, during the term of this Agreement, or being actively developed

                                       6
<PAGE>
by the Company or any of its subsidiaries during the term of this Agreement with
the Company with a bona fide intent to market same.  Executive  further  agrees,
for such  two-year  period  following  termination,  to refrain from directly or
indirectly soliciting Company's vendors, customers or employees, except that the
Executive  may solicit the Company's  vendors or customers in connection  with a
business that does not compete with the Company or any of its subsidiaries.

     B. The Executive  hereby agrees that damages and any other remedy available
at law would be inadequate  to redress or remedy any loss or damage  suffered by
the Company  upon any breach of the terms of this  Section 15 by the  Executive,
and the Executive  therefore agrees that the Company,  in addition to recovering
on any claim for damages or obtaining  any other remedy  available at law,  also
may enforce the terms of this section 15 by injunction or specific  performance,
and may obtain any other appropriate remedy available in equity.

     16.  ASSIGNMENT OF PATENTS.  Executive  shall disclose fully to the Company
any and all discoveries and any and all ideas,  concepts or inventions  relating
to the  Company's  business as described  in the  Company's  most recent  Annual
Report on Form 10-K filed with the Securities and Exchange  Commission) which he
shall conceive or make during his period of employment,  or during the period of
six months after his employment shall  terminate,  which are in whole or in part
the result of his work with the Company.  Such disclosure is to be made promptly
after each such discovery or conception,  and each such discovery, idea, concept
or invention will become and remain the property of the Company,  whether or not
patent  applications  are filed thereon.  Upon request and at the expense of the
Company,  the Executive shall make application  through the patent solicitors of
the  Company  for  letters  patent of the  United  States  and any and all other
countries  at the  discretion  of the  Company  on such  discoveries,  ideas and
inventions, and to assign all such applications to the Company, or at its order,
forthwith,  without  additional  payment  by the  Company  during  his period of
employment  and for  reasonable  compensation  for  time  actually  spent by the
Executive at such work at the request of the Company  after the  termination  of
the employment.  Executive shall give the Company, its attorneys and solicitors,
all reasonable assistance in preparing and prosecuting such applications and, on
request  of the  Company,  execute  all  papers  and do all  things  that may be
reasonably  necessary  to protect the right of the Company and vest in it or its
assigns the  discoveries,  ideas or inventions,  applications and letters patent
herein contemplated.  Said cooperation shall also include all actions reasonably
necessary  to aid the  Company  in the  defense  of its  rights  in the event of
litigation.

                                       7
<PAGE>
     17. TRADE SECRETS.

     A. In the course of the term of this Agreement,  it is anticipated that the
Executive shall have access to secret or  confidential  technical and commercial
information,  records, data, specifications,  systems, methods, plans, policies,
inventions,  material and other knowledge ("Confidential Material") owned by the
Company and its  subsidiaries.  The Executive  recognizes and acknowledges  that
included  within  the  Confidential  Material  are  the  Company's  confidential
commercial  information,  technology,  methods of manufacture,  designs, and any
computer  programs,  source codes,  object codes,  executable  codes and related
materials,  all as they may exist from time to time,  and that they are valuable
special and unique  aspects of the  Company's  business.  All such  Confidential
material shall be and remain the property of the Company.  Except as required by
his duties to the Company,  the  Executive  shall not,  directly or  indirectly,
either during the term of his employment or at any time thereafter,  disclose or
disseminate  to  anyone  or  make  use  of,  for  any  purpose  whatsoever,  any
Confidential Material.  Upon termination of his employment,  the Executive shall
promptly deliver to the Company all Confidential  Material (including all copies
thereof,  whether  prepared  by  the  Executive  or  others)  which  are  in the
possession or under the control of the  Executive.  The  Executive  shall not be
deemed to have breached this Section 17 if the Executive  shall be  specifically
compelled  by  lawful  order of any  judicial,  legislative,  or  administrative
authority  or body to disclose any  Confidential  Material or else face civil or
criminal penalty or sanction.

     B. The Executive  hereby agrees that damages and any other remedy available
at law would be inadequate  to redress or remedy any loss or damage  suffered by
the Company  upon any breach of the terms of this  Section 17 by the  Executive,
and the Executive  therefore agrees that the Company,  in addition to recovering
on any claim for damages or obtaining  any other remedy  available at law,  also
may enforce the terms of this Section 17 by injunction or specific  performance,
and may obtain any other appropriate remedy available in equity.

     18. PROVISIONS AFTER CHANGE OF CONTROL.

          (a) In the event Executive's employment with the Company is terminated
within one year following the occurrence of a Change of Control (other than as a
consequence  of death or  Disability)  either (x) by the  Company for any reason
other than for Cause, or (y) by Executive for Good Reason,  then Executive shall
be  entitled  to receive  from the  Company,  in lieu of the  severance  payment
otherwise payable pursuant to Section 9(a), the following:

               (i) an amount equal to three years of Executive's  base salary in
effect on the Termination Date;

               (ii) the  maximum  amount  of the  Incentive  Compensation  which
Executive could earn for the fiscal year in which the  Termination  Date occurs;
and

               (iii)  full  vesting  of the  Section  4(b)(1)  Options  and  the
Performance Options.

The Company shall make the termination  payments  required  hereunder within ten
(10) days of the Termination Date.

                                       8
<PAGE>
          (b) For purposes of this Agreement, the term "Change of Control" shall
mean:

               (i)  The  acquisition,  other  than  from  the  Company,  by  any
individual,  entity or group (within the meaning of Rule 13d-3 promulgated under
the Exchange Act or any successor  provision) (any of the foregoing described in
this  Section 18 (b)(i)  hereafter a "Person")  of 35% or more of either (a) the
then  outstanding  shares of  Capital  Stock of the  Company  (the  "Outstanding
Capital Stock") or (b) the combined voting power of the then outstanding  voting
securities  of the  Company  entitled  to  vote  generally  in the  election  of
directors (the "Voting Securities"),  provided, however, that any acquisition by
(x) the Company or any of its  subsidiaries,  or any  employee  benefit plan (or
related trust) sponsored or maintained by the Company or any of its subsidiaries
or (y) any  Person  that is  eligible,  pursuant  to Rule  13d-1  (b)  under the
Exchange Act, to file a statement on Schedule 13G with respect to its beneficial
ownership  of Voting  Securities,  whether or not such Person shall have filed a
statement  on Schedule  13G,  unless such Person shall have filed a statement on
Schedule 13D with respect to  beneficial  ownership of 35% or more of the Voting
Securities  or (z)  any  corporation  with  respect  to  which,  following  such
acquisition,  more than 60% respectively,  the then outstanding shares of common
stock of such  corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors  is then  beneficially  owned,  directly or  indirectly,  by all or
substantially  all of the  individuals  and  entities  who were  the  beneficial
owners,  respectively,  of the Outstanding  Capital Stock and Voting  Securities
immediately  prior to such acquisition in  substantially  the same proportion as
their  ownership,  immediately  prior to such  acquisition,  of the  Outstanding
Capital Stock and Voting Securities,  as the case may be, shall not constitute a
Change of Control; or

               (ii)  Individuals  who, as of the Effective Date,  constitute the
Board (the  "Incumbent  Board")  cease for any reason to  constitute  at least a
majority  of the  Board,  provided  that  any  individual  becoming  a  director
subsequent to the date hereof whose  election or nomination  for election by the
Company's  shareholders,  was  approved  by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual  were a  member  of the  Incumbent  Board,  but  excluding,  for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened  election  contest  relating to the election of the
Directors  of the Company  (as such terms are used in Rule 14a-11 of  Regulation
14A, or any successor section, promulgated under the Exchange Act); or

               (iii)  Approval  by  the   shareholders   of  the  Company  of  a
reorganization,  merger or  consolidation  (a "Business  Combination"),  in each
case, with respect to which all or substantially  all holders of the Outstanding
Capital  Stock  and  Voting  Securities   immediately  prior  to  such  Business
Combination  do not,  following  such Business  Combination,  beneficially  own,
directly or indirectly,  more than 60% of,  respectively,  the then  outstanding
shares of common  stock and the combined  voting  power of the then  outstanding
voting  securities  entitled to vote generally in the election of directors,  as
the case may be, of the corporation resulting from the Business Combination; or

               (iv) (a) a complete  liquidation or dissolution of the Company or
(b) a sale or other disposition of all or substantially all of the assets of the
Company other than to a corporation  with respect to which,  following such sale
or disposition,  more than 60% of respectively,  the then outstanding  shares of

                                       9
<PAGE>
common  stock  and the  combined  voting  power of the then  outstanding  voting
securities entitled to vote generally in the election of directors is then owned
beneficially,  directly  or  indirectly,  by  all  or  substantially  all of the
individuals and entities who were the beneficial  owners,  respectively,  of the
Outstanding  Capital Stock and Voting Securities  immediately prior to such sale
or disposition in  substantially  the same  proportion as their ownership of the
Outstanding Capital Stock and Voting Securities, as the case may be, immediately
prior to such sale or disposition.

               (v) The first purchase under a tender offer or exchange offer for
20% or more of the outstanding  shares of stock (or securities  convertible into
stock)  of the  Company,  other  than  an  offer  by the  Company  or any of its
subsidiaries or any employee benefit plan sponsored by the Company or any of its
subsidiaries.

     19.  NOTICES.  Any notice  required  or  permitted  to be given  under this
Agreement  shall  be  sufficient  if in  writing  and if sent by  registered  or
certified  mail,  return  receipt  requested to his residence in the case of the
Executive,  or to its  principal  office in the case of the Company,  or to such
other addresses as they may respectively designate in writing.

     20.  ENTIRE  AGREEMENT;   WAIVER.   This  Agreement   contains  the  entire
understanding  of the  parties  and may not be  changed  orally  but  only by an
agreement  in  writing,  signed by the party  against  whom  enforcement  of any
waiver,  change,  modification  or discharge is sought.  Waiver of or failure to
exercise  any rights  provided by this  Agreement  in any  respect  shall not be
deemed a waiver of any further or future rights.

     21.  BINDING  EFFECT;  ASSIGNMENT.  The  rights  and  obligations  of  this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's  business or properties.  The Executive's  rights hereunder
are personal to and shall not be transferable nor assignable by the Executive.

     22.  HEADINGS.  The headings  contained in this Agreement are for reference
purposes  only and  shall not  affect  the  meaning  or  interpretation  of this
Agreement.

     23.  GOVERNING  LAW;  ARBITRATION.  This  Agreement  shall be  construed in
accordance  with and governed for all purposes by the laws and public  policy of
the State of Arizona applicable to contracts executed and to be wholly performed
within such state. Any dispute or controversy arising out of or relating to this
Agreement  shall be settled by arbitration  in accordance  with the rules of the
American  Arbitration  Association and judgment upon the award may be entered in
any  court  having  jurisdiction  thereover.  The  arbitration  shall be held in
Maricopa County or in such other place as the parties hereto may agree.

     24. FURTHER ASSURANCES. Each of the parties agrees to execute, acknowledge,
deliver and  perform,  and cause to be  executed,  acknowledged,  delivered  and
performed,  at any time and from time to time,  all such  further  acts,  deeds,
assignments, transfers, conveyances, powers of attorney and/or assurances as may
be necessary or proper to carry out the provisions or intent of this Agreement.

                                       10
<PAGE>
     25.  SEVERABILITY.  The parties agree that if any one or more of the terms,
provisions, covenants or restrictions of this Agreement shall be determined by a
court of  competent  jurisdiction  to be  invalid,  void or  unenforceable,  the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated.

     26. COUNTERPARTS.  This Agreement may be executed in several  counterparts,
each of which shall be deemed to be an original,  but all of which together will
constitute one and the same Agreement.

     IN WITNESS  WHEREOF,  AMTECH  SYSTEMS,  INC. has caused by instrument to be
signed by a duly authorized  officer and the Executive has hereunto set his hand
the day and year first above written.


AMTECH SYSTEMS, INC.


By /s/ Robert T. Hass                          /s/ Jong. S. Whang
   --------------------------------            ---------------------------------
   Robert T. Hass                              Jong S. Whang
   Vice President-Finance

                                       11


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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