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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: June 30, 2005

or

For the transition period from                      to                     

Commission File Number: 0-11412

AMTECH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 480-967-5146

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes    x No

Shares of Common Stock outstanding as of August 15, 2005: 2,705,121

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AMTECH SYSTEMS, INC. AND SUBSIDIARIES

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PART I FINANCIAL INFORMATION

Condensed Consolidated Balance Sheets

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

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Condensed Consolidated Statements of Operations (Unaudited)

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

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Condensed Consolidated Statements Of Cash Flows (Unaudited)

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

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Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended June 30, 2005 (Unaudited)

Nature of Operations and Basis of Presentation - Amtech Systems, Inc., an Arizona corporation (“Amtech”), and its wholly-owned subsidiaries; P. R. Hoffman Machine Products, Inc. (“P. R. Hoffman”) and Bruce Technologies, Inc. (“Bruce Technologies”), based in the United States; and Tempress Systems, Inc. (“Tempress”) based in the Netherlands, comprise the “Company.” We design, assemble, sell and install capital equipment and related consumables used in the manufacture of wafers of various materials, primarily silicon wafers for the semiconductor industry, and in certain semiconductor fabrication processes. These products are sold to manufacturers of silicon wafers and semiconductors worldwide, particularly in the United States, Asia and northern Europe. In addition, we provide semiconductor manufacturing support services.

We serve a niche market in an industry that experiences rapid technological advances, and which in the past has been very cyclical. Therefore, our future profitability and growth depend on our ability to develop or acquire and market profitable new products, and on our ability to adapt to cyclical trends.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal recurring nature, to present fairly our financial position, results of operations and cash flows.

The consolidated results of operations for the three and nine months ended June 30, 2005 are not necessarily indicative of the results to be expected for the full year.

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

Reclassifications - We reclassified expenses previously classified as selling, general and administrative costs to cost of sales in the three months ended December 31, 2004. There was no effect on net income.

Revenue Recognition - We recognize revenue from the sale of equipment upon shipment equal to 90% or such other percentage that the customer is unconditionally obligated to pay based upon the shipment. We defer the portion of the revenue equal to the greater of the fair value of the installation or the amount contingent upon acceptance. As there are others that can perform the installation work, the undelivered services are not essential to the utility of delivered equipment. However, in those cases where the product is not yet proven, 100% of the revenue is deferred until final customer acceptance.

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Deferred Profit - The components of deferred profit are as follows:

Concentrations of Credit Risk - As of June 30, 2005, receivables from one customer amounted to 17% of accounts receivable. During July 2005, the customer paid 90% of the outstanding balance. At June 30, 2004, a customer comprised 27% and another customer 15% of accounts receivable. As of September 30, 2004, receivables from one customer comprised 15% of accounts receivable. The financial terms of our parts, service and retrofit revenue, which usually comprise approximately 50-60% of consolidated revenue, are generally net 30, F.O.B. shipping point or equivalent terms. The financial terms of equipment or systems sales vary depending on the size of the order and the size, reputation and creditworthiness of the customer. As a result, the financial terms of equipment sales can range from 90% due 30 days after shipment and 10% due 30 days after acceptance to 30% due 30 days after order placement, 60% due 30 days after shipment and 10% net due 30 days after acceptance. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness and its country of domicile.

Work-in-process inventory (“WIP”) at June 30, 2005 includes $267,000 that is attributable to a single customer.

During the nine months ended June 30, 2005, net revenues were from customers in the following geographical regions:

During the three months ended June 30, 2005, one customer represented 12% of net revenues and another customer represented 10% of net revenues. No single customer represented more than 10% of net revenues during the nine months ended June 30, 2005.

We had assets of $13.5 million and $5.8 million in the United States and the Netherlands, respectively, at June 30, 2005. At September 30, 2004, we had $10.8 million and $5.8 million of assets in the United States and the Netherlands, respectively.

Long-lived assets excluding intangibles and goodwill are as follows:

Inventories - The components of inventories are as follows:

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Property, Plant and Equipment - Maintenance and repairs are charged to expense as incurred. The costs of additions and improvements are capitalized. The cost of property retired or sold and the related accumulated depreciation are removed from the applicable accounts when disposition occurs and any gain or loss is recognized. Depreciation is computed using the straight-line method. Useful lives for equipment, machinery and leasehold improvements range from three to seven years; for furniture and fixtures from five to ten years; and for buildings twenty years.

The following is a summary of property, plant and equipment:

Goodwill - Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment at least annually. Accordingly, we review goodwill for impairment on an annual basis, or more frequently if circumstances dictate.

Intangibles - Intangible assets are capitalized and amortized over 6 months to 15 years if the life is determinable. If the life is not determinable, amortization is not recorded.

The following is a summary of intangibles:

Warranty - We provide, free of charge, a limited warranty generally for periods of 12 to 24 months to all purchasers of our new products and systems. We record accruals for estimated warranty costs at the time revenue is recognized. Management believes the amounts accrued for future warranty expenditures are sufficient for all warranty costs on systems sold through June 30, 2005.

The following is a summary of activity in accrued warranty expense:

Stock-Based Compensation - We account for the employee stock-based compensation plans

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under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123 permits companies to record employee stock-based transactions in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issues to Employees,” under which compensation cost is recognized under the intrinsic value method.

The pro forma effects on earnings and earnings per share (“EPS”) are disclosed as if the fair value approach had been adopted. There was no expense recognized under the intrinsic value method for the three and nine months ended June 30, 2005 and 2004.

Our employee stock-based compensation plans are summarized in the table below:

Qualified stock options issued under the terms of the plans have, or will have, an exercise price equal to, or greater than, the fair market value of the common stock at the date of the option grant, and expire no later than ten years from the date of grant, with the most recent grant expiring in 2015. Under the terms of the amended and restated 1995 Stock Option Plan, nonqualified stock options may also be issued. Options vest at the rate of 20%-33% per year.

The stock option transactions and the options outstanding are summarized as follows:

We have recognized no compensation expense as all options have been granted with an exercise price equal to, or greater than, the fair value of the common stock on the date of grant. No adjustment has been made for the non-transferability of the options or for the risk of forfeiture at the time of issuance. Forfeitures of unvested options are instead recorded as incurred. The fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

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The following table illustrates the pro-forma effect on net income (loss) and on the net income (loss) per share, as if we had applied the fair value recognition provisions of SFAS No. 123:

The following summarizes information about stock options outstanding at June 30, 2005:

Impact of Recently Issued Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires allocation of fixed production overhead to the costs of conversion be based on the normal

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capacity of the production facilities. We are currently evaluating the provisions of SFAS No. 151 and will adopt it on November 1, 2005, as required. We believe the adoption of this Statement will not have a material effect on our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments”, which amends SFAS No. 123, “Accounting for Stock-Based compensation”. This statement requires companies to expense the fair value of employee stock options and similar awards and is effective for periods beginning after the beginning of the next fiscal year as amended April 14, 2005. We will adopt the provisions of SFAS No. 123R on October 1, 2005. See the pro forma disclosed on the previous page for the impact on current and prior period results using the fair value method as prescribed under SFAS No. 123. We are currently evaluating the impact of adopting SFAS No. 123R.

In January 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 109-1, “Application of SFAS No. 109 to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”. This FSP provides guidance for the accounting of a deduction provided to U. S. manufacturing companies and is effective immediately. We believe the adoption of this position currently will not have a material effect on our financial position or results of operations. However, there is no assurance that there will not be a material impact in the future.

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS 154 replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3 concerning accounting changes and reporting accounting changes in interim periods. Accounting changes and error corrections should now be accounted for by retrospective restatement of the financial statements of prior periods, unless it is impracticable to determine either (1) the period-specific effects, or (2) the cumulative effect of the change. SFAS No. 154 is effective for periods ending after December 15, 2005. We will adopt the provisions of SFAS No. 154 on October 1, 2005. There is no assurance that there will not be a material impact in the future.

In July 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 150-5, “Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares”. This FSP clarifies that warrants on shares that are redeemable or puttable immediately upon exercise and warrants on shares that are redeemable or puttable in the future qualify as liabilities under SFAS 150, regardless of the redemption feature or redemption price. The FSP is effective for the first reporting period beginning after June 30, 2005, with resulting changes to prior period statements reported as the cumulative effect of an accounting change in accordance with the transition provisions of SFAS No. 150. We will adopt the provisions of SFAS No. 154 on July 1, 2005.

In July 2005, the FASB issued EITF 05-6 “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination”, which addresses the amortization period for leasehold improvements on operating leases acquired significantly after the beginning of the lease. The EITF is effective for leasehold improvements made in periods beginning after June 29, 2005. We will adopt the provisions of EIFT 05-6 on July 1, 2005. We believe the adoption of this EITF will not have a material effect on our financial position or results of operations.

Basic EPS are computed by dividing net income available to common shareholders (net income less accrued preferred stock dividends) by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed similarly to basic earnings per share except that the denominator is increased to include the number of

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additional common shares that would have been outstanding if potentially dilutive common shares had been issued, and the numerator is based on net income.

Common shares relating to stock options where the exercise prices exceeded the average market price of our common shares during the period were excluded from the diluted earnings per share calculation as the related impact was anti-dilutive. For the three and nine months ended June 30, 2005, 459,200 shares of options and warrants were excluded from the EPS calculations. For the same periods ended June 30, 2004, 509,317 shares of options and warrants were excluded from the EPS calculation as they are antidilutive due to the net loss in each of the periods.

We classify our products into two core business segments. The semiconductor equipment

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segment designs, manufactures and markets semiconductor wafer processing and handling equipment used in the fabrication of integrated circuits. Also included in the semiconductor equipment segment are the manufacturing support service operations and corporate expenses, except for a small portion that is allocated to the polishing supplies segment. The polishing supplies segment 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 our business segments is as follows:

In December 2004, we entered into a capital lease to finance a laser cutting tool purchased in the fourth quarter of fiscal 2004. We financed $500,000 at an interest rate of 6.55% with 48 monthly payments due in the amount of $11,869 each.

On July 1, 2004, we acquired, through our wholly owned subsidiaries, Bruce Technologies, Inc. and Tempress Systems, Inc., certain semiconductor horizontal diffusion furnace operations and assets in the United States and Europe from Kokusai Semiconductor Equipment Corporation and its affiliate Kokusai Electric Europe, GmbH. The cost of the net assets acquired was approximately $3.6 million, including $3.3 million paid at closing and $0.3 million of transaction costs.

The assets acquired principally consist of intellectual property and technology, customer lists, customer contracts, trademarks, non-compete agreements, inventories and other tangible property used in connection with the acquired business. Liabilities assumed include

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obligations under certain contracts, leases, purchase orders and warranty claims for certain products and services under warranty as of the date of the acquisition.

The seller’s cost of the domestic inventory was $3.2 million for which we paid $2.2 million. If we sell or consume in operations domestic inventory received in the acquisition in excess of $2.2 million, we will make contingent payments for the quantities used based upon the seller’s cost of the inventory, with such contingent payments capped at $1.0 million.

The allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at the date of acquisition is as follows: