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

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FORM 10-Q

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

For the quarterly period ended June 27, 2010

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 000-24838

Mattson Technology, Inc.(Exact name of Registrant as Specified in its Charter)



|Delaware                                                       | 77-0208119                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

47131 Bayside Parkway
Fremont, California      94538

(510) 657-5900

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Indicate by 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    YES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer      ̈ | Accelerated filer    x | Non-accelerated filer     ̈ (Do not check if a smaller reporting company) | Smaller reporting company     ̈
|----------------------------- | ---------------------- | ------------------------------------------------------------------------ | ------------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES     ̈ NO    x Number of shares of common stock outstanding as of July 27, 2010: 50,088,594
Note:PDF provided as a courtesy
MATTSON TECHNOLOGY, INC.TABLE OF CONTENTS


PagePART I. FINANCIAL INFORMATIONItem 1.
Financial Statements (unaudited):Condensed Consolidated Balance Sheets at June 27, 2010 and
December 31, 2009
3Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 27, 2010 and June 28, 2009
4Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 27, 2010 and June 28, 2009
5Notes to Condensed Consolidated Financial Statements
6Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
20Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
28Item 4.
Controls and Procedures
29PART II. OTHER INFORMATIONItem 1.
Legal Proceedings
30Item 1A.
Risk Factors
30Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
30Item 6.
Exhibits
31Signatures
322PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)June 27,

December 31,2010

2009ASSETSCurrent assets:Cash and cash equivalents

$          31,305

$          45,346Short-term investments

9,211

13,089Restricted cash

2,017

2,000Accounts receivable, net of allowance for doubtful accountsof  $1,456 as of June 27, 2010 and $2,167 as of December 31, 2009

15,631

10,420Advance billings

2,841

905Inventories

25,541

25,804Prepaid expenses and other current assets

4,654

5,848Total current assets

91,200

103,412Property and equipment, net

17,425

21,643Intangibles, net

1,125

1,250Other assets

5,932

6,768Total assets

$        115,682

$        133,073LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$          10,562

$            7,514Accrued liabilities

17,691

18,293Deferred revenue

4,556

2,150Total current liabilities

32,809

27,957Income taxes payable, non-current

4,495

4,458Other liabilities

5,047

5,952Total liabilities

42,351

38,367Commitments and contingencies (Note 7)Stockholders' equity:Preferred stock, 2,000 shares authorized; none issued and outstanding

-

-Common stock, par value $0.001, 120,000 shares authorized;    
                 54,269 shares issued and 50,089 shares outstanding as of June 27, 2010;54,140 shares issued and 49,960 shares outstanding as of December 31, 2009

54

54Additional paid-in capital

633,223

631,785Accumulated other comprehensive income

18,337

22,014Treasury stock, 4,181 shares as of June 27, 2010 and 4,181 sharesas of December 31, 2009

(37,986)

(37,986)Accumulated deficit

(540,297)

(521,161)Total stockholders' equity

73,331

94,706Total liabilities and stockholders' equity

$        115,682

$        133,073The accompanying notes are an integral part of these condensed consolidated financial statements.3MATTSON TECHNOLOGY, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)Three Months Ended

Six Months EndedJune 27,

June 28,

June 27,

June 28,2010

2009

2010

2009Sales:Products

$          30,885

$            7,532

$          54,533

$          12,231Services

1,235

536

2,782

1,409Net sales

32,120

8,068

57,315

13,640Cost of sales:Products

21,529

9,576

38,551

22,706Services

665

101

1,076

458Total cost of sales

22,194

9,677

39,627

23,164Gross margin

9,926

(1,609)

17,688

(9,524)Operating expenses:Research, development and engineering

7,059

6,810

13,465

13,460Selling, general and administrative

12,558

11,505

24,931

24,359Restructuring charges

(93)

(100)

(77)

818Total operating expenses

19,524

18,215

38,319

38,637Loss from operations

(9,598)

(19,824)

(20,631)

(48,161)Interest income

30

154

60

433Interest expense

(30)

(23)

(62)

(56)Other income and expense, net

1,425

51

1,883

1,077Loss before income taxes

(8,173)

(19,642)

(18,750)

(46,707)Provision for income taxes

207

254

386

416Net loss

$           (8,380)

$         (19,896)

$         (19,136)

$         (47,123)Net loss per share:Basic and diluted

$             (0.17)

$             (0.40)

$             (0.38)

$             (0.95)Shares used in computing net loss per share:Basic and diluted

50,052

49,772

50,018

49,749The accompanying notes are an integral part of these condensed consolidated financial statements.4MATTSON TECHNOLOGY, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited, in thousands)Six Months EndedJune 27,

June 28,2010

2009Cash flows from operating activities:Net loss

$      (19,136)

$      (47,123)Adjustments to reconcile net loss to net cashused in operating activities:Allowance for doubtful accounts

(711)

(767)Amortization of intangibles

125

-Depreciation

3,530

4,405Inventory valuation

-

13,119Stock-based compensation

1,267

1,700Other non-cash items

72

205Changes in assets and liabilities:Accounts receivable

(4,864)

12,194Advance billings

(1,963)

40Inventories

92

2,672Inventories - delivered systems

-

956Prepaid expenses and other current assets

982

501Other assets

746

568Accounts payable

3,262

(1,080)Accrued liabilities

(183)

(6,143)Deferred revenue

2,156

(2,067)Income taxes payable, non-current and other liabilities

(495)

(43)Net cash used in operating activities

(15,120)

(20,863)Cash flows from investing activities:Purchases of available-for-sale investments

(9,329)

(17,181)Purchases of certificate of deposit

(17)

(2,000)Sales and maturities of available-for-sale investments

13,125

21,500Purchases of property and equipment

(428)

(2,534)Net cash provided by (used in) investing activities

3,351

(215)Cash flows from financing activities:Proceeds from stock plans, net of shares withheld for employee taxes

171

202Net cash provided by financing activities

171

202Effect of exchange rate changes on cash and cash equivalents

(2,443)

(76)Net decrease in cash and cash equivalents

(14,041)

(20,952)Cash and cash equivalents, beginning of period

45,346

77,107Cash and cash equivalents, end of period

$        31,305

$        56,155The accompanying notes are an integral part of these condensed consolidated financial statements.5MATTSON TECHNOLOGY, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
                  June 27, 2010  (unaudited)

1.	Basis of PresentationBasis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America for interim financial information
and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by such accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position
and operations have been included. The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of Mattson Technology, Inc. (the Company or Mattson)
for the year ended December 31, 2009, which are included in the Company's Annual Report on Form 10-K.

The Company's current year will end on December 31, 2010 and include 52 weeks. The
Company closes its fiscal quarters on the Sunday closest to March 31, June 30 and September 30, and on December 31. The
latest fiscal quarter ended on June 27, 2010. The results of operations for the three months and six months ended June 27,
2010 are not necessarily indicative of results that may be expected for future quarters or for the entire year ending
December 31, 2010.

The consolidated financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation.

Management EstimatesThe preparation of the condensed consolidated 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, disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported
periods. Actual results could differ from those estimates.

Liquidity and Management PlansHistorically, the Company has relied on a combination of fundraising from the sale and
issuance of equity securities and cash generated from product and service revenues to provide funding for its operations. As
of June 27, 2010, the Company had cash, cash equivalents, short-term investments and restricted cash of $42.5 million. The
Company believes that these balances will be sufficient to fund its working and other capital requirements over the course of
the next twelve months. The Company will continue to review its expected cash requirements, make all efforts to collect any
aged receivables, and take appropriate cost reduction measures to ensure that it has at least six quarters of available cash at
any time. In the event additional needs for cash arise, the Company may seek to raise additional funds from a combination of
sources including issuance of debt or equity securities. Additional financing may not be available on terms favorable to the
Company, or at all. Any additional financing activity could be dilutive to the Company's current stockholders. If adequate funds
are not available or are not available on acceptable terms, the Company's ability to take advantage of unanticipated
opportunities or respond to competitive pressures could be limited.
Recent Accounting PronouncementsWith the exception of those discussed below, there are no unadopted accounting
pronouncements and there have been no recent accounting pronouncements or changes in accounting pronouncements
during the six months ended June 27, 2010, as compared to the recent accounting pronouncements described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, that are of significance, or
potential significance, to the Company.


6In January 2010, the Financial Accounting Standards Board
("FASB") issued additional guidance on fair value disclosures. The new guidance clarifies two existing disclosure
requirements and requires two new disclosures as follows: (1) a "gross" presentation of activities
(purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the "net"
presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This
guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the
gross presentation of the Level 3 rollforward information, which is required for annual reporting periods beginning after
December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value
disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3 rollforward information,
which the Company is not required to adopt until January 1, 2011.

In October 2009, the FASB issued new standards for revenue
recognition with respect to multiple-deliverable arrangements. As a result of the new standards, multiple-deliverable
arrangements will be separated in more circumstances than under existing revenue recognitions standards. The new
standards establish a selling price hierarchy for determining the selling price of a deliverable. Such selling price for each
deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective
evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is
available. The new standards also replaces the term fair value in the revenue allocation guidance with selling price to clarify
that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant.
The new standards are effective for revenue arrangements that begin or are changed in fiscal years starting after June 15,
2010 and early adoption is permitted.  The Company is currently evaluating the impact of this amendment on its revenue
recognition policies as well as the impact on its financial statements.

2.	Balance Sheet Details

The Company's cash and cash equivalents, short-term investments and restricted cash as of
June 27, 2010 and December 31, 2009 are carried at fair market value, as shown below:

June 27,

December 31,2010

2009(thousands)Cash and cash equivalents:Cash in bank

$        18,520

$          26,948Money market funds

8,785

15,398Commercial paper

4,000

3,000$        31,305

$          45,346Short-term investments:United States agency securities

$          4,043

$            4,057United States corporate bonds

2,219

2,035Commercial paper

2,949

6,997$          9,211

$          13,089Restricted cash:Certificates of deposit

$          2,017

$            2,000As of June 27, 2010 and December 31,
2009, the Company had restricted cash of $2.0 million, which primarily secures standby letters of credit provided to certain
landlords. See Notes 6 and 7.

All short-term investments as of June 27, 2010 and December 31, 2009 are considered available-
for-sale and are marked to market with unrealized gains and losses recorded as a component of other comprehensive loss.
As of June 27, 2010 and December 31, 2009, all short-term investments had contractual maturities due within one year.




7Inventories as of June 27, 2010 and December 31, 2009 were as follows:

June 27,

December 31,2010

2009(thousands)Inventories, net:Purchased parts and raw materials

$        14,083

$          11,539Work-in-process

9,313

8,347Finished goods

2,145

5,918$        25,541

$          25,804As of June 27, 2010 and December 31, 2009, the Company had inventory reserves of $23.4
million and $27.7 million, respectively, which primarily consist of reserves for excess and obsolete inventory. As of June
27, 2010 and December 31, 2009, the Company had reserves for vendor commitments of $0.3 million and $1.1 million,
respectively, which represent inventory not yet received that is in excess of production requirements. The reserve for vendor
commitments is included in accrued liabilities in the Condensed Consolidated Balance Sheet.

Excess and obsolete reserve adjustments inherently involve judgments as to assumptions about
expected future demand and the impact of market conditions on those assumptions. Although the Company believes that the
assumptions it uses in estimating excess and obsolete inventory reserves are reasonable, significant changes in any one of
the assumptions in the future could produce a significantly different result. There can be no assurances that future events and
changing market conditions will not result in significant increases in the Company's excess and obsolete inventory reserve
requirements.

The Company's property and equipment, accrued liabilities and other liabilities as of June 27,
2010 and December 31, 2009 are shown below:

June 27,

December 31,2010

2009(thousands)Property and equipment, net:Machinery and equipment

$        53,675

$          56,818Furniture and fixtures

10,865

11,888Leasehold improvements

17,046

18,39081,586

87,096Less: accumulated depreciation

(64,161)

(65,453)$        17,425

$          21,643Accrued liabilities:Accrued compensation and benefits

$          6,165

$            5,852Warranty

2,094

1,310Accrued value-added tax

2,416

2,942Restructuring

505

609Vendor purchase commitments

323

1,062Other

6,188

6,518$        17,691

$          18,293Other liabilities:Deferred revenue, noncurrent

$          3,125

$            3,375Other




1,922

2,577$          5,047

$            5,95283.	Fair Value

The Company measures assets and liabilities at fair value based on exit price, which is defined by the
authoritative guidance on fair value measurements as the amount that would be received on the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants. The Company's cash and cash equivalents,
short-term investments and restricted cash are carried at fair value, and its accounts receivable and accounts payable are
valued at their carrying amounts which approximate fair value due to their short-term nature. The Company had no debt
outstanding as of June 27, 2010.
Fair Value Hierarchy

The authoritative guidance on fair value measurements establishes a three-tier value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
Level 1. Quoted prices in active markets for identical assets or liabilities.Level 2. Observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less
active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or
corroborated with observable market data for substantially the full term of the assets or liabilities.
Level 3.  Unobservable inputs to the valuation methodology that are significant to the
measurement of the fair value of assets or liabilities.


The Company's cash equivalents and investment instruments are classified within Level 1 or
Level 2 of the fair value hierarchy, as these instruments are valued using quoted market prices, broker or dealer
quotations, or alternative pricing sources with reasonable levels of price transparency and transaction value. Specifically, the
Company values its investments in U.S. government and agency securities, money market securities, certificates of
deposit and plan assets under the Company's Deferred Compensation Plan based on quoted market prices in active markets;
and values its investments in corporate bonds, mortgage-backed and asset-backed products, state, municipal and provincial
obligations based on other observable inputs. As of both June 27, 2010 and December 31, 2009, the Company had no assets
or liabilities classified within Level 3.  For the three months and six months ended June 27, 2010, there were no transfers of
instruments between Level 1 and Level 2 fair value measurement.

As of both June 27, 2010 and December 31, 2009, the Company had a cumulative unrealized
loss of $0.1 million, related to its investment instruments. These amounts were included as a component of other
comprehensive loss. See Note 13.


9Assets Measured at Fair Value on a Recurring BasisAssets measured at fair value on a recurring basis are shown in the table below by their
corresponding balance sheet caption and consisted of the following types of instruments as of June 27, 2010 and December 31, 2009:

June 27, 2010

December 31, 2009Fair Value Measurements at

Fair Value Measurements atReporting Date Using

Reporting Date Using(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

Total(thousands)

(thousands)Cash and cash equivalentsand restricted cash:(1)Money market funds


$    8,785

$              -

$    8,785

$ 15,398

$              -

$   15,398Certificates of deposit


2,017

-

2,017

2,000

-

2,000Commercial paper


-

4,000

4,000

-

3,000

3,000Short-term investments:United States agency securities


4,043

-

4,043

4,057

-

4,057United States corporate bonds


-

2,219

2,219

-

2,035

2,035Commercial paper


-

2,949

2,949

-

6,997

6,997Other assets:Equity instruments(2)


131

-

131

814

-

814Total assets measured at fair value


$ 14,976

$   9,168

$ 24,144

$ 22,269

$ 12,032

$   34,301____________(1) Excludes cash in bank of $18.5 million and $26.9
million as of June 27, 2010 and December 31, 2009, respectively. (2) Represents plan assets under the Company's
Deferred Compensation Plan, which effectively offset corresponding Deferred Compensation Plan liabilities as of the dates
presented.

4.	Intangible Assets

The Company's identified intangible assets consisted of the following as of June 27, 2010
and December 31, 2009:

|                         |  |  |  | June 27,              |  | December 31,         
|------------------------ |  |  |  | --------------------- |  | ---------------------
|                         |  |  |  | 2010                  |  | 2009                 
|                         |  |  |  | (thousands)          
|Developed technology     |  |  |  | $               1,250 |  | $               1,250
|Accumulated amortization |  |  |  | (125)                 |  | -                    
|                         |  |  |  | $               1,125 |  | $               1,250

In December 2009, the Company acquired certain intellectual property assets related to its etch
and strip plasma processes for approximately $1.3 million. These intangible assets are being amortized over a 5-year period.
For the three months ended June 27, 2010 and June 28, 2009, the Company recorded amortization expense of approximately
$0.1 million and $0 (zero), respectively.  For the six months ended June 27, 2010 and June 28, 2009, the Company recorded
amortization expense of approximately $0.1 million and $0 (zero), respectively.

10

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5.	Restructuring Charges

In fiscal 2009 and 2008, the Company implemented several restructuring
programs, resulting in restructuring charges principally comprised of employee severance costs and lease contract
termination costs. The following table summarizes changes in the restructuring accrual for the three months and six months
ended June 27, 2010 and June 28, 2009:

|                     | Three Months Ended June 27, 2010 |  | Three Months Ended June 28, 2009
|-------------------- | -------------------------------- |  | --------------------------------
|                     | Employee                         |  | Contract                        
|                     | Severance                        |  | Termination                     
|                     | Benefits                         |  | Cost                            
|                     | (thousands)                      |  | (thousands)                     
|Beginning balance    | $         135                    |  | $         477                   
|Restructuring charge | -                                |  | -                               
|Payments             | (11)                             |  | -                               
|Reserve adjustments  | (3)                              |  | (93)                            
|Ending balance       | $         121                    |  | $         384                   
|                     |                                  |  |                                 
|                     |                                  |  |                                 
|                     | Six Months Ended June 27, 2010   |  | Six Months Ended June 28, 2009  
|                     | Employee                         |  | Contract                        
|                     | Severance                        |  | Termination                     
|                     | Benefits                         |  | Cost                            
|                     | (thousands)                      |  | (thousands)                     
|Beginning balance    | $            89                  |  | $         520                   
|Restructuring charge | -                                |  | -                               
|Payments             | (24)                             |  | -                               
|Reserve adjustments  | 56                               |  | (136)                           
|Ending balance       | $         121                    |  | $         384                   

The Company anticipates that the remaining severance payments will be completed in 2010.
With respect to the lease contract termination, the Company is currently engaged in an ongoing negotiation with the landlord,
and the payment of the lease termination expense depends on the timing of a final agreement with the landlord.

6. 	Guarantees

The warranty offered by the Company on its system sales is generally 12 months, except where
customer agreements state otherwise, and excludes certain consumable maintenance items. A provision for the estimated
cost of warranty, based on historical costs, is recorded as cost of sales when the revenue is recognized. The Company's
warranty obligations require it to repair or replace defective products or parts during the warranty period at no cost to the
customer. The actual system performance and/or field warranty expense profiles may differ from historical experience, and in
those cases, the Company adjusts its warranty accruals accordingly.

The following table summarizes changes in the product warranty accrual for the three months
and six months ended June 27, 2010 and June 28, 2009:

|                                                        |  | Three Months Ended |  | Six Months Ended
|------------------------------------------------------- |  | ------------------ |  | ----------------
|                                                        |  | June 27,           |  | June 28,        
|                                                        |  | 2010               |  | 2009            
|                                                        |  | (thousands)        |  | (thousands)     
|Beginning balance                                       |  | $   1,808          |  | $   3,091       
|Accrual for warranties issued during the period         |  | 775                |  | 594             
|Changes in liability related to pre-existing warranties |  | 145                |  | (141)           
|Settlements made during the period                      |  | (634)              |  | (814)           
|Ending balance                                          |  | $   2,094          |  | $   2,730       

11

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In the ordinary course of business, the Company's bank provides
standby letters of credit or other guarantee instruments on behalf of the Company to certain parties as required. The
Company has not recorded any liability in connection with these guarantee arrangements beyond what is required to
appropriately account for the underlying transaction being guaranteed. The Company does not believe, based on historical
experience and information currently available, that it is probable that any amounts will be required to be paid under such
guarantee arrangements. As of June 27, 2010, the maximum potential amount that the Company could be required to pay
was approximately $1.6 million, consisting of standby letters of credit. The letters of credit are secured by certificates of
deposit of $2.0 million, which are classified as restricted cash in the accompanying Consolidated Balance Sheet as of June
27, 2010.

The Company is a party to various agreements, pursuant to which it may be obligated to
indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under
which the Company may agree to hold other parties harmless against losses arising from a breach of representations or with
respect to certain intellectual property, operations or tax-related matters. The Company's obligations under these agreements
may be limited in terms of time and/or amount, and in some instances, the Company may have defenses to asserted claims
and/or recourse against third parties for payments made by the Company. It is not possible to predict the maximum potential
amount of future payments under these or similar agreements due to the conditional nature of the Company's obligations and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company
under these agreements have not had a material effect on the Company's financial position, results of operations or cash
flows. The Company believes if it were to incur a loss in any of these matters, such loss would not have a material effect on
its financial position, results of operations or cash flows.

7.	Commitments and Contingencies

The Company holds various operating leases related to its facilities and equipment worldwide
and a sublease in respect to its facility located in Exton, Pennsylvania.

In 2005, the Company entered into a new lease agreement for its existing corporate headquarters
building in Fremont, California. The lease is for a period of 10 years, which commenced on May 31, 2007, and has an initial
annual base rent cost of approximately $1.4 million, with annual increases of approximately 3.5 percent. The Company is also
responsible for an additional minimum lease payment at the end of the lease term of approximately $1.5 million, subject to
adjustment, under a restoration cost obligation provision, which is being recognized on a straight-line basis over the lease
term. To secure this obligation, the Company provided the landlord a letter of credit of $1.5 million, which is included in the
Company's restricted cash balance of  $2.0 million as of June 27, 2010.

The Company continues to lease one building previously used to house the administrative functions
related to wet surface preparation products in Exton, Pennsylvania. The lease for the administrative building will expire on
March 31, 2019 and the current rental cost is approximately $0.9 million annually. The Company expects to make rent
payments under this lease over the remaining term of the lease, less any sublet amounts. In determining the facilities lease
loss, various assumptions were made, including the time period over which the buildings will be vacant, expected sublease
terms and expected sublease rates. Total future expected lease payments of approximately $8.0 million were assumed in
determining the facilities lease loss, offset by the expected sublease income. In January 2008, the Company sublet this facility
until December 2010, with an option for an additional three years; and in October 2009, the lessee entered into an
agreement with the Company to terminate the sublease agreement as of June 30, 2010 and simultaneously entered into a
new agreement to lease approximately 50 percent of the Exton facility until December 2015, cancellable anytime after
December 31, 2012. Under the existing sublease agreement, the Company's estimate of the expected future sublease
income was approximately $4.3 million as of June 27, 2010.  At December 31, 2009, the Company had an accrued liability
balance of $0.7 million related to this facility.  The Company has since updated its analysis based upon its current
assessment of Exton real estate market conditions, including expectations that the Company's current efforts will result in the
remainder of the facility being sublet.  At June 27, 2010, the Company had an accrued liability balance of $0.7 million related
to this facility. Adjustments to this accrual will be made in future periods, if and when there is evidence to indicate it is
appropriate to revise estimates of future events and circumstances.

In connection with its acquisition of Vortek Industries, Ltd (Vortek) in 2004, the Company became
party to an agreement between Vortek and the Canadian Minister of Industry (the Minister) relating to an investment in Vortek
by Technology Partnerships Canada. Under the agreement, as amended, the Company or Vortek (renamed Mattson
Technology, Canada, Inc. or "MTC") agreed to various covenants, including (i) payment by the Company of a royalty

12

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to the Minister of 1.4 percent of revenues from Flash RTP products, up to a total of CAD 14,269,290 (approximately
$14.7 million based on the applicable exchange rate as of June 27, 2010), (ii) MTC maintaining a specified average workforce
of employees in Canada through October 27, 2009, (iii) investment of a certain amount by October 27, 2009 and certain other
covenants concerning protection of intellectual property rights and manufacturing obligations. Under the provisions of this
agreement, if the Company, or MTC, did not materially satisfy its obligations pursuant to the covenants, the Minister could
have demanded payment of liquidated damages in the amount of CAD 14,269,290 (approximately $14.7 million as of June
27, 2010) less any royalties paid by MTC or the Company to the Minister. As of June 27, 2010, the Company was no longer
subject to covenants (ii) and (iii), as discussed above, but is still subject to covenant (i), relating to the payment of royalty on
revenues from the Flash RTP product until 2020.  However, if MTC is dissolved, files for bankruptcy or does not materially
comply with certain terms and conditions of the contract prior to its expiration on December 31, 2020, the Company would be
subject to liquidated damages in the amount of CAD 14,269,290 (approximately $14.7 million as of June 27, 2010) less any
royalties paid by MTC or the Company to the Minister.

During the second quarter of 2010, the Company was informed that it was under review by a
local Korean customs office in relation to the Company's designated repair center in Korea.  The customs office is considering
whether the Company properly moved parts through the repair center and, if not, erroneously benefited from applying lower
customs duty rates on parts delivered to Korea to service warranty needs of customers.  The Company is cooperating with
the customs office but intends to defend its position that it has applied appropriate customs duty rates.   As a result of this
review, the Company accrued $0.4 million of additional customs duty expense in the second quarter of 2010 to account for
the potential difference in customs duty rates, including interest and possible penalties.

In the ordinary course of business, the Company is subject to claims and litigation, including
claims that it infringes third party patents, trademarks and other intellectual property rights. Although the Company believes
that it is unlikely that any current claims or actions will have a material adverse impact on its operating results or its financial
position, given the uncertainty of litigation, the Company cannot be certain of this. The defense of claims or actions against
the Company, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

8.	Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with the applicable
authoritative guidance, which requires the measurement of stock-based compensation on the date of grant based on the fair
value of the award, and the recognition of the expense over the requisite service period for the employee.

The Company's stock-based compensation expense for the three months and six months ended
June 27, 2010 and June 28, 2009 was as follows:

|                                                 |  |                | Three Months Ended |                | Six Months Ended
|------------------------------------------------ |  | -------------- | ------------------ | -------------- | ----------------
|                                                 |  |                | June 27,2010       |                | June 28,2009    
|                                                 |  |                | (thousands)        |                | (thousands)     
|Stock-based compensation by type of award:       |  |                |                    |                |                 
|Stock options                                    |  |                | $          546     |                | $          623  
|Restricted stock units                           |  |                | 69                 |                | 220             
|Employee stock purchase plan                     |  |                | 10                 |                | 5               
|Total stock-based compensation                   |  | $          625 |                    | $          848 |                 
|                                                 |  |                |                    |                |                 
|Stock-based compensation by category of expense: |  |                |                    |                |                 
|Cost of sales                                    |  |                | $             17   |                | $             26
|Research, development and engineering            |  |                | 87                 |                | 101             
|Selling, general and administrative              |  |                | 521                |                | 721             
|Total stock-based compensation                   |  | $          625 |                    | $          848 |                 

The Company did not capitalize any stock-based compensation as inventory for the
three months and six months ended June 27, 2010 and June 28, 2009 as such amounts were inconsequential.

13

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Valuation Assumptions

The Company uses the Black-Scholes valuation model to determine the fair value of stock options.
The Black-Scholes model requires the input of subjective assumptions, which are summarized in the table below for the three
months and six months ended June 27, 2010 and June 28, 2009:

|                                  |  | Three Months Ended |  | Six Months Ended
|--------------------------------- |  | ------------------ |  | ----------------
|                                  |  | June 27, 2010      |  | June 28, 2009   
|Expected dividend yield           |  | -                  |  | -               
|Expected stock price volatility   |  | 74%                |  | 71%             
|Risk-free interest rate           |  | 2.2%               |  | 2.4%            
|Expected life of options in years |  | 5                  |  | 5               

The Company estimates the expected life of options based on an analysis of its
historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life
of the option; expected volatility is based on the historical volatility of the Company's common stock; and the risk free interest
rate is equal to the U.S. Treasury rates, with maturity approximating the expected life of the option. The Company does
not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future; accordingly,
the expected dividend yield is 0% (zero).

9.	Employee Stock Plans

As of June 27, 2010, the Company had 2.5 million shares available for future grants under
the 2005 Equity Incentive Plan (the 2005 Plan). The following table summarizes the combined activity under all of the
Company's equity incentive plans for the six months ended June 27, 2010:

|                              |  |       |             |       |             |                 | Weighted-       |     | Restricted  |                 | Weighted-      
|----------------------------- |  | ----- | ----------- | ----- | ----------- | --------------- | --------------- | --- | ----------- | --------------- | ---------------
|                              |  |       | Awards      |       | Stock       |                 | Average         |     | Stock       |                 | Average        
|                              |  |       | Available   |       | Options     |                 | Exercise        |     | Units       |                 | Grant Date     
|                              |  |       | For Grant   |       | Outstanding |                 | Price           |     | Outstanding |                 | Fair Value     
|                              |  |       | (thousands) |       | (thousands) |                 |                 |     | (thousands) |                 |                
|Balances at December 31, 2009 |  | 3,651 |             | 5,033 |             | $          6.62 |                 | 384 |             | $          4.21
|Stock options:                |  |       |             |       |             |                 |                 |     |             |                 |                
|Granted                       |  |       | (1,377)     |       | 1,377       |                 | $          3.25 |     | -           |                 | -              
|Exercised                     |  |       | -           |       | (68)        |                 | $          0.86 |     | -           |                 | -              
|Cancelled or forfeited        |  |       | 268         |       | (268)       |                 | $        12.87  |     | -           |                 | -              
|Restricted stock units:       |  |       |             |       |             |                 |                 |     |             |                 |                
|Granted                       |  |       | (5)         |       | -           |                 | -               |     | 3           |                 | $          3.96
|Released                      |  |       | 9           |       | -           |                 | -               |     | (30)        |                 | $          7.91
|Cancelled or forfeited        |  |       | 2           |       | -           |                 | -               |     | (1)         |                 | $          6.53
|Balances at June 27, 2010     |  | 2,548 |             | 6,074 |             | $          5.65 |                 | 356 |             | $          3.82

Stock Options

Options and stock purchase rights granted under the 2005 Plan are for periods not to exceed
seven years. Generally, incentive stock option and non-statutory stock option grants under the 2005 Plan must be at exercise
prices that are at least 100 percent of the fair market value of the Company's common stock on the date of grant. Generally,
25 percent of the options vest on the first anniversary of the date of grant, and the remaining options vest 1/36 per month for
the next 36 months thereafter. During the first quarter of 2009, in addition to the annual employee stock option grants, the
Company granted a special retention stock option with a two-year vesting period to certain of its employees.

14

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During the three months ended June 27, 2010 and June 28, 2009, the Company granted 0.1
million and 0.2 million stock options, respectively, with an estimated total grant-date fair value of $0.4 million and $0.1 million,
respectively, net of estimated forfeitures. During the six months ended June 27, 2010 and June 28, 2009, the Company
granted 1.4 million and 1.5 million stock options, respectively, with an estimated total grant-date fair value of $2.7 million and
$0.7 million, respectively, net of estimated forfeitures.

Restricted Stock Units (RSU)

The Company's equity incentive plan under the 2005 Plan provides for grants of time-based and performance-based
RSUs.

Time-Based Restricted Stock Units

RSUs granted through 2007 generally vest 25 percent of the units granted on the first anniversary
of the date of grant, and 1/16 of the initial units granted per quarter thereafter. Beginning in 2008, time-based RSUs vest 25
percent of the units granted on each anniversary of the date of grant. On occasion, the Company grants time-based RSUs for
varying purposes with different vesting schedules. Time-based RSUs granted under the 2005 Plan are counted against the
total number of shares of common stock available for grant under the plan at 1.75 shares for every one share subject thereto.

The Company granted 3,000 time-based RSUs in the three months ended June 27, 2010 with an
estimated total grant-date fair value of $12,000.   The Company did not grant any time-based RSUs during the first quarter of
2010 or during the three months and six months ended June 28, 2009.  The associated stock-based compensation expense
on time-based RSUs is determined based on the fair value of the Company's common stock on the date of grant of the RSU
and recognized over the vesting period. For the three months ended June 27, 2010 and June 28, 2009, the Company
recognized stock-based compensation expense of $0.1 million and $0.2 million, respectively, related to time-based RSUs, net
of estimated forfeitures. For the six months ended June 27, 2010 and June 28, 2009, the Company recognized stock-based
compensation expense of $0.2 million and $0.4 million, respectively, related to time-based RSUs, net of estimated forfeitures.
As of June 27, 2010, the Company had 0.1 million of unvested time-based RSUs outstanding, with unrecognized
compensation expense of $0.2 million, net of estimated forfeitures and an estimated weighted-average amortization period of
1.4 years.

Performance-Based Restricted Stock Units

The vesting of performance-based RSUs is contingent on the Company's achievement of
certain predetermined financial goals and in some cases, the achievement of certain market performance. The amount of
stock-based compensation expense recognized in any one period can vary based on the achievement or anticipated
achievement of specific performance goals. If a performance goal is not met or is not expected to be met, no compensation
cost would be recognized on the underlying RSUs, and any previously recognized compensation expense on those RSUs
would be reversed.

During the first quarter of 2008, the Company's Board of Directors approved the grant of 0.7
million performance-based RSUs to certain of its senior-level management, with vesting in four equal tranches upon the
achievement of four sequentially increasing revenue performance targets and contingent on the achievement of certain
operating profit margin and stock price thresholds. By December 31, 2008, the Company determined that due to the
deteriorating market conditions during the fourth quarter of 2008, it was not probable that any of the four revenue targets and
the operating profit targets would be met by the specified dates. As a result, the stock-based compensation related to these
RSUs was deemed unrecognizable. Since the fourth quarter of 2008, the Company has cancelled a total of 0.4 million of
these performance-based RSUs based on employee terminations, leaving 0.3 million units outstanding as of June 27, 2010. If
and when the Company determines that the related targets are probable of being achieved, the Company will begin
recognizing expenses in the period that such determination is made. The Company did not record any compensation expense
related to these RSUs during the three months and six months ended June 27, 2010.

15

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Supplemental disclosure information
about the Company's stock options and restricted stock units with time-based vesting is as follows:

|                                                |  | Three Months Ended                               |  | Six Months Ended                                
|----------------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------------------
|                                                |  | June 27,2010                                     |  | June 28,2009                                    
|                                                |  | (thousands, except weighted-average fair values) |  | (thousands, except weighted-average fair values)
|Stock options:                                  |  |                                                  |  |                                                 
|Weighted-average fair value of options granted  |  | $          2.96                                  |  | $          0.75                                 
|Intrinsic value of options exercised (1)        |  | $  110                                           |  | $                -                              
|Cash received from options exercised            |  | $   22                                           |  | $                -                              
|Restricted stock units with time-based vesting: |  |                                                  |  |                                                 
|Weighted-average fair value of                  |  |                                                  |  |                                                 
|time-based RSUs granted                         |  | $          3.96                                  |  | $                -                              

____________

(1) Amount represents the difference between the
exercise price of the option and the Company's closing stock price on the date of exercise.

Supplemental disclosure information about the Company's stock options outstanding as of June
27, 2010 is as follows:

|                                                    |  |             |  |                  |  | Weighted-   |  |              
|--------------------------------------------------- |  | ----------- |  | ---------------- |  | ----------- |  | -------------
|                                                    |  |             |  | Weighted-        |  | Average     |  |              
|                                                    |  |             |  | Average          |  | Remaining   |  | Aggregate    
|                                                    |  |             |  | Exercise         |  | Contractual |  | Intrinsic    
|                                                    |  | Shares      |  | Price            |  | Life        |  | Value        
|                                                    |  | (thousands) |  |                  |  | (in years)  |  | (thousands)  
|Vested and exercisable options as of  June 27, 2010 |  | 3,631       |  | $           7.39 |  | 3.5         |  | $       2,471
|Unvested options as of June 27, 2010                |  | 2,443       |  | $           3.07 |  | 6.1         |  | $       3,627
|Outstanding options as of June 27, 2010             |  | 6,074       |  | $           5.65 |  | 4.5         |  | $       6,098

The aggregate intrinsic value shown in the table above represents the total pretax intrinsic value,
based on the Company's closing stock price of $4.18 as of June 25, 2010, which would have been received by the option
holders had all option holders exercised their options at that date. The Company settles employee stock option exercises with
newly issued common shares.  As of June 27, 2010, the Company had $3.2 million in unrecognized stock-based
compensation costs related to stock options, net of estimated forfeitures, which will be recognized over a weighted-average
period of 2.8 years.

10.	Reportable Segments

The Company has one operating segment, the design, manufacturing and marketing of advanced
fabrication equipment to the semiconductor manufacturing industry. The authoritative guidance on segment reporting and
disclosure defines operating segment as a component of an enterprise for which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. As the Company's business is completely focused on one industry segment, the design, manufacturing and
marketing of advanced fabrication equipment to the semiconductor manufacturing industry, management believes that the
Company has one reportable segment. The Company's revenues and profits are generated from the sales of systems and
services in this one segment. For the proposes of evaluating the Company's reportable segments, the Company's Chief
Executive Officer is its chief operating decision maker, as defined in the applicable authoritative guidance.

16

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The following shows net sales by geographic areas based on the installation locations of the systems
and the location of services rendered:

|                  | Three Months Ended |  | Six Months Ended
|----------------- | ------------------ |  | ----------------
|                  | June 27, 2010      |  | June 28, 2009   
|                  | (thousands)        |  | %               
|United States     | $         991      |  | 3               
|Taiwan            | 4,964              |  | 15              
|Korea             | 18,848             |  | 59              
|Japan             | 487                |  | 2               
|Other Asia        | 5,281              |  | 16              
|Europe and others | 1,549              |  | 5               
|                  | $    32,120        |  | 100             

In the three months ended June 27, 2010, two customers accounted for 46 percent and 14
percent of net sales, respectively. In the three months ended June 28, 2009, two customers accounted for 45 percent and 13
percent of net sales, respectively. In the six months ended June 27, 2010, two customers accounted for 50 percent and 13
percent  of net sales, respectively. In the six months ended June 28, 2009, two customers accounted for 27 percent and 17
percent of net sales, respectively. As of June 27, 2010, one customer accounted for 44 percent of the Company's accounts
receivable balance. As of December 31, 2009, three customers accounted for 27 percent, 19 percent and 14 percent of the
Company's accounts receivable balance, respectively.

Geographical information relating to the Company's property and equipment, net, as of June 27,
2010 and December 31, 2009 is as follows:

|              |  | June 27, 2010   |  | December 31, 2009
|------------- |  | --------------- |  | -----------------
|              |  | (thousands)     |  | %                
|United States |  | $        12,548 |  | 72               
|Germany       |  | 2,768           |  | 16               
|Canada        |  | 1,912           |  | 11               
|Others        |  | 197             |  | 1                
|              |  | $        17,425 |  | 100              

11.	Income Taxes

The provision for income taxes for the six months ended June
27, 2010 and June 28, 2009 were each $0.4 million, consisting of provisions for foreign taxes. On a quarterly basis, the
Company evaluates its expected income tax expense or benefit based on its year-to-date operations, and records an
adjustment in the current quarter.  The net tax provision is the result of the mix of profits earned by the Company and its
subsidiaries in tax jurisdictions with a broad range of income tax rates.

As of December 31, 2009, the Company had $27.6 million of unrecognized tax benefits exclusive
of interest and penalties described below.  Included in the $27.6 million is approximately $3.3 million of unrecognized tax
benefits (net of federal benefit) that, if recognized, would favorably affect the effective tax rate in a future period before
consideration of changes in the valuation allowance.  The Company does not anticipate there will be a significant change in
its unrecognized tax benefits within the next twelve months.

The Company's practice is to recognize interest and/or penalties related to unrecognized tax
benefits in income tax expense. As of December 31, 2009, the Company had $1.1 million accrued for estimated interest and
$0.1 million accrued for estimated penalties. For the six months ended June 27, 2010, the recorded income tax expense
included estimated interest of $0.1 million.

The Company and its subsidiaries are subject to United States Federal income tax as well as to
income taxes in various foreign and state jurisdictions. The Company's Federal and state income tax returns are generally not
subject to examination by tax authorities for years before 2003.  The Company has no tax audits in progress as of June 27, 2010.

17

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12.	Net Loss Per Share

The Company presents both basic and diluted net income per share on the face of its Condensed
Consolidated Statements of Operations in accordance with the authoritative guidance on earnings per share. Basic earnings
per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding for
the period. Diluted net income per share is computed using the weighted-average number of shares of common stock
outstanding plus the effect of all dilutive securities representing potential shares of common stock outstanding during the
period. For the purposes of computing diluted net income per share, weighted average common stock equivalents do not
include stock options with an exercise price that exceeded the average market price of the Company's common stock for the
period.

The following table summarizes the incremental shares of common stock from these potentially
dilutive securities, calculated using the treasury stock method:

|                                              |  | Three Months Ended |  | Six Months Ended
|--------------------------------------------- |  | ------------------ |  | ----------------
|                                              |  | June 27,           |  | June 28,        
|                                              |  | 2010               |  | 2009            
|                                              |  | (thousands)        |  | (thousands)     
|Weighted average shares outstanding - Basic   |  | 50,052             |  | 49,772          
|Diluted potential common shares from stock    |  |                    |  |                 
|options and restricted stock units            |  | -                  |  | -               
|Weighted average shares outstanding - Diluted |  | 50,052             |  | 49,772          

For the six months ended June 27, 2010 and June 28, 2009, the Company had 6.4 million and
7.1 million shares  of equity awards, respectively, that could potentially dilute basic earnings per share but were excluded
from the computation in the periods presented as their effect would have been anti-dilutive.

13.	Other Comprehensive Income

The balance of accumulated comprehensive income is as follows:

|                                   |  | June 27,             |  | December 31,        
|---------------------------------- |  | -------------------- |  | --------------------
|                                   |  | 2010                 |  | 2009                
|                                   |  | (thousands)         
|Cumulative translation adjustments |  | $             18,454 |  | $             22,123
|Unrealized investment loss         |  | (117)                |  | (109)               
|                                   |  | $             18,337 |  | $             22,014

Following are the components of comprehensive loss:

|                                   |  | Three Months Ended |  | Six Months Ended
|---------------------------------- |  | ------------------ |  | ----------------
|                                   |  | June 27,           |  | June 28,        
|                                   |  | 2010               |  | 2009            
|                                   |  | (thousands)        |  | (thousands)     
|Net loss                           |  | $        (8,380)   |  | $      (19,896) 
|Cumulative translation adjustments |  | (2,344)            |  | 1,424           
|Unrealized investment loss         |  | 1                  |  | 96              
|Comprehensive loss                 |  | $      (10,723)    |  | $      (18,376) 

18

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14.	Subsequent Event

On July 21, 2010, the Company filed a universal shelf registration statement on Form S-3
with the Securities and Exchange Commission ("SEC"), which has not yet been declared effective.  The shelf
registration statement is intended to provide the Company with financial flexibility to raise capital from the offering of up to $75
million of common stock, preferred stock, warrants, depository shares, units and/or debt securities, conducted in one or
multiple offerings while the shelf registration statement is effective.  The Company intends to use the proceeds from any sale
of securities under the shelf registration statement for general corporate purposes.  The Company does not have any
immediate plans to offer or sell its securities under the shelf registration statement.







19

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Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements, which are subject to the
Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are
based on management's current expectations and beliefs, including estimates and projections about our industry. Our
forward-looking statements may include statements that relate to our future revenue, gross margin, earnings, cash flow and
cash position, customer demand, market share, competitiveness, margins, product development plans and levels of research,
development and engineering ("RD&E") activity, customer acceptance of our new product lines, market
demand for semiconductor devices, outsourcing plans, operating expenses, tax expenses, the expected effects, cost and
timing of restructurings, excess inventory reserves, the level of our vendor commitments as compared to our requirements,
cost-saving initiatives, consolidation of operations and facilities, economic conditions in general and in our industry, the impact
of any litigation or investigation on our operating results or financial position, any offering and sale of securities pursuant to
our shelf registration statement, and the sufficiency of our financial resources to support future operations and capital
expenditures. Forward-looking statements typically are identified by use of terms such as "anticipates,"
"expects," "intends," "plans," "seeks," "estimates,"
"believes" and similar expressions, although some forward-looking statements are expressed differently. These
statements are not guarantees of future performance and are subject to numerous risks, uncertainties and assumptions that
are difficult to predict. Such risks and uncertainties include those set forth in Part II, Item 1A under "Risk Factors"
and Part I, Item 2 under "Management's Discussion and Analysis of Financial Condition and Results of
Operations."  Our actual results could differ materially from those anticipated by these forward-looking statements. The
forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at
any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of
new information, future event, or for any other reason.

Documents to Review In Connection With Management's Discussion and Analysis of Financial
Condition and Results of Operations

This discussion should be read in conjunction with the condensed
consolidated financial statements and notes presented in this Quarterly Report on Form 10-Q and the consolidated financial
statements and notes in our last filed Annual Report on Form 10-K, for the year ended December 31, 2009 (our "2009
Form 10-K").

Overview

We are a supplier of semiconductor wafer processing equipment used in the fabrication of integrated
circuits ("ICs"). Our manufacturing equipment is used for transistor level, or front-end-of-line manufacturing, and
also in specialized applications for processing the interconnect layer, or back-end-of-line processing. Our manufacturing
equipment utilizes innovative technology to deliver advanced processing capabilities and high productivity for the fabrication
of current and next-generation ICs.

Our business depends upon capital expenditures by manufacturers of semiconductor devices. The
level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for such
devices. Because the demand for semiconductor devices is highly cyclical, the demand for wafer processing equipment is
also highly cyclical. The semiconductor equipment industry is typically characterized by wide swings in operating results as
the industry moves through its cycle. The recently concluded downturn in the industry was unusually severe and extreme due
to the global economic crisis. However, based on recent trends, we believe that the industry has entered a recovery phase.

The trough of the last cycle was the first quarter of 2009. Since that point, we began to see our
customers enter a period of technology purchases, particularly technology that enables shrinkage of device geometries, thus
enabling more IC's on each wafer. During this phase of the recovery, we began to see increased orders from a small group of
customers for our technology oriented core products, such as the RTP Helios, and continuing acceptance of our more recent
product introductions, the paradigmE, Millios and HeliosXP. This trend has resulted in consecutive quarters of sequential
double-digit revenue growth. Recently, additional customers have announced expansion plans to be executed over the next
six to eight quarters, and some industry analysts are predicting a favorable long-term outlook for the semiconductor industry.
We believe that based on these trends, the industry has entered a new phase of the cycle characterized by capacity
expansion of existing facilities and the building of new fabs. Accordingly, we expect to see continued capacity orders by
customers across all of our product offerings.

20

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We believe that we are strongly positioned to capitalize on the industry upturn, due in large part to our
strategy to diversify our core products and to enter the large etch market. During the first half of the 2010, we have seen a
wider set of customers ordering our core strip and RTP products, which has historically been indicative of industry capacity
expansion. We continue to see increasing orders and shipments of the Suprema strip product and the HeliosXP, our new
RTP tool.  In our growing etch business, our paradigmE system made its first contribution to sales in the second quarter of
2010 upon receipt of final acceptance of the paradigmE dielectric etch system from a leading foundry, in accordance with our
revenue recognition policy for new products.  Further revenue shipments and follow-on orders have been received for the
paradigmE system, our innovative product targeted to meet the requirements of advanced dielectric etch applications.  As a
result of our investments in new and innovative solutions, we have more products at leading edge applications than at any
time in our history.

Going forward, the success of our business will be dependent on numerous factors including, but
not limited to, the market demand for semiconductors and semiconductor wafer processing equipment. Such factors will also
include our ability to (a) significantly grow the Company, either organically or through acquisitions, in order to enhance our
competitiveness and profitability; (b) develop and bring to market new products that address our customers' needs; (c) grow
customer loyalty through collaboration with our customers; (d) maintain a cost structure that will enable us to operate
effectively and profitably throughout changing industry cycles; (e) ensure sufficient liquidity and capital resources to fund our
business and (f) generate the gross profits necessary to enable us to make the necessary investments in our business.

21

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Results of Operations

The following table sets forth our condensed consolidated results of
operations for the periods indicated, along with comparative information regarding the absolute and percentage changes in
these amounts:

|                                      |  | Three Months Ended |  |       |               |  |             |                    
|------------------------------------- |  | ------------------ |  | ----- | ------------- |  | ----------- | -------------------
|                                      |  | June 27, 2010      |  |       | June 28, 2009 |  |             | Increase (Decrease)
|                                      |  | (thousands)        |  | %     |               |  | (thousands) |                    
|Sales:                                |  |                    |  |       |               |  |             |                    
|Products                              |  | $   30,885         |  | 96.2  |               |  | $    7,532  |                    
|Services                              |  | 1,235              |  | 3.8   |               |  | 536         |                    
|Net sales                             |  | 32,120             |  | 100.0 |               |  | 8,068       |                    
|Cost of sales:                        |  |                    |  |       |               |  |             |                    
|Products                              |  | 21,529             |  | 67.0  |               |  | 9,576       |                    
|Services                              |  | 665                |  | 2.1   |               |  | 101         |                    
|Total cost of sales                   |  | 22,194             |  | 69.1  |               |  | 9,677       |                    
|Gross margin                          |  | 9,926              |  | 30.9  |               |  | (1,609)     |                    
|Operating expenses:                   |  |                    |  |       |               |  |             |                    
|Research, development and engineering |  | 7,059              |  | 22.0  |               |  | 6,810       |                    
|Selling, general and administrative   |  | 12,558             |  | 39.1  |               |  | 11,505      |                    
|Restructuring charges                 |  | (93)               |  | (0.3) |               |  | (100)       |                    
|Total operating expenses              |  | 19,524             |  | 60.8  |               |  | 18,215      |                    
|Loss from operations                  |  | (9,598)            |  | n/m   | (1)           |  | (19,824)    |                    
|Interest income                       |  | 30                 |  | 0.1   |               |  | 154         |                    
|Interest expense                      |  | (30)               |  | (0.1) |               |  | (23)        |                    
|Other income (expense), net           |  | 1,425              |  | 4.5   |               |  | 51          |                    
|Loss before income taxes              |  | (8,173)            |  | n/m   | (1)           |  | (19,642)    |                    
|Provision for income taxes            |  | 207                |  | 0.7   |               |  | 254         |                    
|Net loss                              |  | $   (8,380)        |  | n/m   | (1)           |  | $ (19,896)  |                    
|                                      |  |                    |  |       |               |  |             |                    
|                                      |  |                    |  |       |               |  |             |                    
|                                      |  | Six Months Ended   |  |       |               |  |             |                    
|                                      |  | June 27, 2010      |  |       | June 28, 2009 |  |             | Increase (Decrease)
|                                      |  | (thousands)        |  | %     |               |  | (thousands) |                    
|Sales:                                |  |                    |  |       |               |  |             |                    
|Products                              |  | $   54,533         |  | 95.1  |               |  | $  12,231   |                    
|Services                              |  | 2,782              |  | 4.9   |               |  | 1,409       |                    
|Net sales                             |  | 57,315             |  | 100.0 |               |  | 13,640      |                    
|Cost of sales:                        |  |                    |  |       |               |  |             |                    
|Products                              |  | 38,551             |  | 67.2  |               |  | 22,706      |                    
|Services                              |  | 1,076              |  | 1.9   |               |  | 458         |                    
|Total cost of sales                   |  | 39,627             |  | 69.1  |               |  | 23,164      |                    
|Gross margin                          |  | 17,688             |  | 30.9  |               |  | (9,524)     |                    
|Operating expenses:                   |  |                    |  |       |               |  |             |                    
|Research, development and engineering |  | 13,465             |  | 23.5  |               |  | 13,460      |                    
|Selling, general and administrative   |  | 24,931             |  | 43.5  |               |  | 24,359      |                    
|Restructuring charges                 |  | (77)               |  | (0.1) |               |  | 818         |                    
|Total operating expenses              |  | 38,319             |  | 66.9  |               |  | 38,637      |                    
|Loss from operations                  |  | (20,631)           |  | n/m   | (1)           |  | (48,161)    |                    
|Interest income                       |  | 60                 |  | 0.1   |               |  | 433         |                    
|Interest expense                      |  | (62)               |  | (0.1) |               |  | (56)        |                    
|Other income (expense), net           |  | 1,883              |  | 3.3   |               |  | 1,077       |                    
|Loss before income taxes              |  | (18,750)           |  | n/m   | (1)           |  | (46,707)    |                    
|Provision for income taxes            |  | 386                |  | 0.7   |               |  | 416         |                    
|Net loss                              |  | $ (19,136)         |  | n/m   | (1)           |  | $ (47,123)  |                    

____________

(1)

22

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Net Sales

Net sales were $32.1 million for the three months ended June 27,
2010, an increase of $24.0 million, compared to net sales of $8.1 million for the three months ended June 28, 2009. The
extremely low revenue level of the year-ago quarter reflected that we were only one quarter removed from the trough of the
cycle.  Since that time, we have experienced sequential double-digit increases in sales as the upturn has moved from
primarily technology purchases to the current capacity building phase of the cycle.  The increase in net sales for the second
quarter of 2010 over the same period of 2009 is broad-based across all of our products.

Net sales were $57.3 million for the six months ended June 27, 2010, an increase of $43.7
million, compared to net sales of $13.6 million for the six months ended June 28, 2009.  The extremely low revenue level of
the year-ago period reflected that we were in the trough of the recently ended downturn in the semiconductor equipment
industry. Since that time, we first began to see technology purchases by certain of our customers which has now expanded to
a broader base of customers.  The increase in net sales for the first half of 2010 over the first half of 2009 is broad-based
across all of our products, as our customers fund their capacity expansion plans during the current recovery.

International sales to customers based in Europe and Asia, including China, Japan, Korea,
Singapore and Taiwan, comprised approximately 97 percent of net sales for the three months ended June 27, 2010
compared to 90 percent for the three months ended June 28, 2009.  For the six months ended June 27, 2010 and June 28,
2009, international sales comprised 97% and 87% of net sales, respectively.

Gross Margin

Gross margin dollars were $9.9 million for the three months ended June 27, 2010, an increase of
$11.5 million compared to a negative $1.6 million for the three months ended June 28, 2009.  The increase in gross margin
dollars was primarily due to (i) a $6.2 million contribution from the $24.0 million increase in net sales year over year; (ii) a $3.8
million reduction in inventory valuation adjustments to $0 (zero) in the second quarter of 2010 compared to $3.8 million in the
same period of 2009; and (iii) a $1.5 million reduction in underabsorbed overhead to $0.2 million in the second quarter of
2010 compared to $1.7 million in same period of 2009.  Gross margin percentage was 31 percent for the three months ended
June 27, 2010 compared to a negative 20 percent for the three months ended June 28, 2009.

Gross margin dollars for the six months ended June 27, 2010 were $17.7 million, an increase of
$27.2 million compared to a negative $9.5 million for the six months ended June 28, 2009.  The increase in gross margin
dollars was primarily due to (i) a $12.5 million contribution from the $43.7 million increase in net sales year over year; (ii) a
$13.1 million reduction in inventory valuation adjustments to $0 (zero) in the first half of 2010 compared to $13.1 million in the
same period of 2009; and (iii) a $2.2 million reduction in underabsorbed overhead to $1.5 million in 2010 compared to $3.7
million in 2009.  Gross margin percentage was 31 percent for the six months ended June 27, 2010 compared to a negative 70
percent for the six months ended June 28, 2009.

Research, Development and Engineering



RD&E expenses remained flat at $13.5 million for the six months ended June 27, 2010
compared to the six months ended June 28, 2009.   A $0.5 million decrease in depreciation and amortization, primarily due to
certain equipment having become fully depreciated in 2009, was effectively offset by a $0.2 million increase in salaries and
related costs in support of new products and a $0.2 million increase in travel.

Selling, General and Administrative

Selling, General and Administrative ("SG&A") expenses were $12.6 million for
the three months ended June 27, 2010, an increase of $1.1 million or 9 percent, compared to $11.5 million for the three
months ended June 28, 2009.  The year-over-year increase reflects the higher level of revenues and related business activities in 2010,

23

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including a $0.9 million increase in freight and duty expenses, a $0.6 million increase in customer
evaluation materials and a $0.3 million increase in travel in support of customers.  Partially offsetting these increases was a
$1.2 million decrease in depreciation and amortization, primarily due to lower evaluation tool depreciation.  Additionally, while
we continue to benefit from the subsequent realization of accounts receivable previously provided for in the allowance for
doubtful accounts during the recent industry downturn, the benefit of such realizations decreased $0.5 million in the second
quarter of 2010 compared to the same period in 2009, when the recovery was just beginning.

SG&A expenses were $24.9 million for the six months ended June 27, 2010, an increase of
$0.5 million or 2 percent, compared to $24.4 million for six months ended June 28, 2009.  The year-over-year increase
reflects the higher level of revenues and related business activities in 2010, including a $1.5 million increase in freight and
duty expenses, a $0.9 million increase in customer evaluation and courtesy materials, a $0.8 million increase in
representative commissions and a $0.5 million increase in travel in support of customers.  Partially offsetting these increases
was a $2.5 million decrease in depreciation and amortization, primarily due to lower evaluation tool depreciation.  Additionally,
salaries and related costs decreased $1.0 million year over year, reflecting the effects of our various cost-cutting initiatives
taken during the previous two fiscal years, which included headcount reduction in SG&A functions, as well as a greater
allocation of expenses to warranty and product service activities in the first half of 2010 as a result of the increase in
sales.

Restructuring Expenses

Beginning in the second quarter of 2008 through the third quarter of 2009, we
implemented several restructuring plans, which resulted in combined restructuring charges of approximately $8.6 million, a
combined reduction of approximately 40 percent of our workforce and a combined expected annualized cost-savings of
approximately $24.0 million. As of December 31, 2009, we had a remaining restructuring reserves balance of $0.6 million,
comprised of severance costs of $0.1 million and lease termination costs of $0.5 million. We had minimal restructuring
activities during the three months and six months ended June 27, 2010. As of June 27, 2010, we had a restructuring reserves
balance of $0.5 million, comprised of severance costs of $0.1 million and lease termination costs of $0.4 million.

We anticipate that severance payments against the reserves will be substantially completed in
fiscal 2010. With respect to the lease termination, we are currently engaged in an ongoing negotiation with the landlord, and
the payment of the lease termination expense will depend on the timing of a final agreement with the landlord.



Other Income and Expense, Net



Other income and expense, net was $1.4 million for the three months ended June 27, 2010,
which included $0.9 million of net foreign exchange gains primarily attributed to Euro-denominated liabilities as the Euro
weakened approximately 9 percent against the U.S. dollar during the period.  Other income and expense, net was $0.1 million
for the three months ended June 28, 2009.

Other income and expense, net was $1.9 million for the six months ended June 27, 2010, which
included $1.2 million of net foreign exchange gains primarily attributed to Euro-denominated liabilities as the Euro weakened
approximately 14 percent against the U.S. dollar during the period.  Other income and expense, net was $1.1 million for the
six months ended June 28, 2009, which included $0.9 million of net foreign exchange losses primarily attributed to significant
fluctuations of the U.S. dollar against the local currencies of certain of the countries in which we operate.

Provision for Income Taxes

The provision for income taxes for the six months ended June 27, 2010 and June 28,
2009 were each $0.4 million, consisting of provisions for foreign taxes. On a quarterly basis, we evaluate our expected
income tax expense or benefit based on our year-to-date operations, and record an adjustment in the current quarter.  The
net tax provision is the result of the mix of profits earned by us and our subsidiaries in tax jurisdictions with a broad range of
income tax rates.

As of December 31, 2009, we had $27.6 million of unrecognized tax benefits exclusive of interest
and penalties described below.  Included in the $27.6 million was approximately $3.3 million of unrecognized tax benefits (net
of federal benefit) that, if recognized, would favorably affect the effective tax rate in a future period before

24

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consideration of changes in the valuation allowance.  We do not anticipate there will be a significant change in our unrecognized tax benefits
within the next twelve months.

The Company's practice is to recognize interest and/or penalties related to unrecognized tax
benefits in income tax expense. As of December 31, 2009, the Company had $1.1 million accrued for estimated interest and
$0.1 million accrued for estimated penalties. For the six months ended June 27, 2010, the recorded income tax expense
included estimated interest of $0.1 million.

We are subject to United States Federal income tax as well as to income taxes in various foreign
and state jurisdictions. Our Federal and state income tax returns are generally not subject to examination by tax authorities for
years before 2003.  We had no tax audits in progress as of June 27, 2010.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. On an on-going basis, we evaluate our estimates and judgments, including those related to reserves for excess and
obsolete inventory, warranty obligations, bad debts, intangible assets, income taxes, restructuring costs, contingencies and
litigation. Management bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances. These form the basis for making judgment about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.

Consistent with our 2009 Form 10-K, we consider certain accounting policies for the following
areas as critical to our business operations and an understanding of our results of operations:

- Revenue Recognition
- Allowance for Doubtful Accounts
- Warranty
- Inventories and Inventory Valuation
- Fair Value Measurement of Assets and Liabilities
- Impairment of Long-Lived Assets
- Restructuring
- Income Taxes
- Stock-based Compensation

There have been no material changes from the methodology applied by management for critical
accounting estimates previously disclosed in our 2009 Form 10-K.

Liquidity and Capital Resources

Our cash, cash equivalents, short-term investments and restricted cash were $42.5 million as of
June 27, 2010, a decrease of $17.9 million from $60.4 million as of December 31, 2009. We had restricted cash
of $2.0 million as of June 27, 2010, which primarily secures letters of credit provided to certain landlords. Stockholders' equity
as of June 27, 2010 was $73.3 million compared to $94.7 million as of December 31, 2009. Working capital as of June 27,
2010 was $58.4 million compared to $75.5 million as of December 31, 2009.

On July 21, 2010, we filed a universal shelf registration statement on Form S-3 with the
Securities and Exchange Commission ("SEC"), which has not yet been declared effective.
The shelf registration statement is intended to provide the
Company with financial flexibility to raise capital from the offering of up to $75 million of

25

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common stock, preferred stock, warrants,
depository shares, units and/or debt securities, conducted in one or multiple offerings while the shelf registration
statement is effective. The Company intends to use the proceeds from any sale of securities under the shelf registration
statement for general corporate purposes.  We do not have any immediate plans to offer or sell securities under the shelf
registration.

Off-Balance-Sheet Arrangements

As of June 27, 2010, we did not have any significant "off-balance-sheet" arrangements,
as defined in Item 303 (a)(4)(ii) of Regulation S-K.

Contractual Obligations

Under accounting principles generally accepted in the United States of America, certain
obligations and commitments are not required to be included in our consolidated balance sheets. These obligations and
commitments, while entered into in the normal course of business, may have a material impact on our liquidity. For further
discussion of our contractual obligations, see our 2009 Form 10-K.

Cash Flows from Operating Activities

Net cash used in operations of $15.1 million for the six months
ended June 27, 2010 was primarily comprised of net loss of $19.1 million and $0.3 million of cash decreases reflected in the
net change in assets and liabilities, partially offset by non-cash charges of $4.3 million.  Non-cash charges consisted primarily
of $3.5 million of depreciation and $1.3 million of stock-based compensation, partially offset by $0.7 million released from the
allowance for doubtful accounts upon realization of certain customer accounts previously provided for during the recent
industry downturn. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of a $4.9
million increase in accounts receivable, a $2.0 million increase in advance billings and a $0.5 million reduction in income
taxes payable, non-current and other liabilities.  Cash flow increases resulting from the net change in assets and liabilities
primarily consisted of a $3.3 million increase in accounts payable, a $2.2 million increase in deferred revenue, a $1.0 million
decrease in prepaid expenses and other current assets and a $0.7 million decrease in other assets. The increases in
accounts receivable and accounts payable reflect the sharp increase in sales and business activities in the first half of 2010.
The increases in advance billings and deferred revenue were due to an increase in systems shipped during the first half of
2010 for which revenue was deferred as of June 27, 2010, in accordance with the authoritative guidance for revenue
recognition.  The reduction in prepaid assets resulted primarily from VAT returns filed in the second quarter of 2010.

Net cash used in operations of $20.9 million for the six months ended June 28, 2009 was
primarily comprised of net loss of $47.1 million, partially offset by non-cash charges of $18.6 million, and $7.6 million of cash
increases reflected in the net change in assets and liabilities.  Non-cash charges consisted primarily of $13.1 million of
inventory valuation provisions, $4.4 million of depreciation and $1.7 million of stock based compensation, partially offset by
$0.8 million released from the allowance for doubtful accounts upon realization of certain customer accounts previously
provided for during the recent industry downturn.  The inventory valuation provision were for excess inventories and vendor
commitments for excess inventories not yet received, reflecting the sharp decline in demand for our products.  Cash flow
increases resulting from the net change in assets and liabilities primarily consisted of a $12.2 million decrease in accounts
receivable, a $3.6 million decrease in inventories and inventories-delivered systems, a $0.6 million decrease in other assets
and a $0.5 million decrease in prepaids and other current assets.  Cash flow decreases resulting from the net change in
assets and liabilities primarily consisted of a $6.1 million decrease in accrued liabilities, a $2.1 million decrease in deferred
revenue and a $1.1 million decrease in accounts payable.  The decrease in accounts receivable was primarily due to our
collection efforts compounded by the sharp decline in net sales.  The decrease in inventories was due to our efforts to utilize
available inventory wherever feasible to minimize cash outlays for new inventories.  The decreases in accounts payable,
accrued liabilities and deferred revenues were indicative of lower net sales.

We expect that cash provided by or used by operating activities may fluctuate in future periods as
a result of a number of factors including fluctuations in our net sales and operating results, amount of revenue deferred,
inventory purchases, collection of accounts receivable and timing of payments.

26

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Cash Flows from Investing Activities

Net cash provided by investing activities was $3.4 million for the six months ended June
27, 2010, primarily consisting of $3.8 million proceeds from sales and maturities of available-for-sale investments in excess of
purchases, offset by capital spending of $0.4 million.

Net cash used in investing activities was $0.2 million for the six months ended June 28, 2009,
primarily consisting of $4.3 million proceeds from sales and maturities of available-for-sale investments in excess of
purchases, offset by $2.0 million of certificates of deposit purchases and capital spending of $2.5 million.  The $2.0 million of
certificates of deposit primarily secure standby letters of credit provided to certain landlords and continue to be  classified as
restricted cash as of June 27, 2010.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 27, 2010 and June 28, 2009
was not material.

Effect of Exchange Rate Changes on Cash and Cash

The effect of exchange rate changes on cash and cash equivalents for the six months ended
June 27, 2010 was a net cash reduction of $2.4 million, primarily related to cash accounts denominated in Euros as the Euro
weakened against the U.S. dollar by approximately 14 percent during the period.  Exchange rate changes did not have a
material effect on cash and cash equivalents for the six months ended June 28, 2009.

Liquidity and Capital Resource Outlook

As of June 27, 2010, we had cash, cash equivalents, short-term investments and restricted cash
of $42.5 million. We believe that these balances will be sufficient to fund our working and other capital requirements for the
next twelve months. The cyclical nature of our business impacts our liquidity requirements.  An upturn in the semiconductor
industry will result in increased working capital requirements for inventory purchases and accounts receivable. At the same
time, while we do not expect any further weakening in demand for our products in the foreseeable future, should such
weakening occur, it would results in a decrease to our cash balances. We will continue to review our expected cash
requirements, make all efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that
we have at least six quarters of available cash at any time. In the event additional needs for cash arise, we may seek to raise
additional funds from a combination of sources including issuance of debt or equity securities. On July 21, 2010, we filed a
universal shelf registration statement on Form S-3 with the SEC, which, once declared effective, will permit us to raise capital
from the offering of up to $75 million of common stock, preferred stock, warrants, depository shares, units and/or debt
securities, conducted in one or multiple offerings while the shelf registration statement is effective.  Additional financing may
not be available on terms favorable to us, or at all. Any additional financing activity could be dilutive to our current
stockholders or cause a material expense in our operations. If adequate funds are not available or are not available on
acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be
limited.

Recent Accounting Pronouncements and Accounting Changes

With the exception of those discussed below, there are no unadopted accounting
pronouncements and there have been no recent accounting pronouncements or changes in accounting pronouncements
during the six months ended June 27, 2010, as compared to the recent accounting pronouncements described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, that are of significance, or potential significance, to
us.

In January 2010, the Financial Accounting Standards Board ("FASB") issued
additional guidance on fair value disclosures. The new guidance clarifies two existing disclosure requirements and requires
two new disclosures as follows: (1) a "gross" presentation of activities (purchases, sales, and settlements)
within the Level 3 rollforward reconciliation, which will replace the "net" presentation format; and (2) detailed
disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or
annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward
information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting
thereafter. We adopted the amended fair value disclosures guidance on January 1, 2010, except for the gross
presentation of the Level 3 rollforward information, which we are not required to adopt until January 1, 2011.

27

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In October 2009, the FASB issued new standards for revenue
recognition with respect to multiple-deliverable arrangements. As a result of the new standards, multiple-deliverable
arrangements will be separated in more circumstances than under existing revenue recognitions standards. The new
standards establish a selling price hierarchy for determining the selling price of a deliverable. Such selling price for each
deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective
evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is
available. The new standards also replaces the term fair value in the revenue allocation guidance with selling price to clarify
that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant.
The new standards are effective for revenue arrangements that begin or are changed in fiscal years starting after June 15,
2010 and early adoption is permitted.  We are currently evaluating the impact of this amendment on our revenue recognition
policies as well as the impact on our financial statements.

Item 3.   	Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our short-term investment portfolio and the
potential losses arising from changes in interest rates. Our investment objective is to achieve the maximum return compatible
with capital preservation and our liquidity requirements. Our strategy is to invest our cash in a manner that preserves capital,
maintains sufficient liquidity to meet our cash requirements, and maximizes yields consistent with approved credit risk. We
place our investments with high credit quality issuers and, by policy, limit the amount of our credit exposure to any one issuer.
Our portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. We
classify our cash equivalents and short-term investments in accordance with authoritative guidance for accounting for
investments in debt and equity securities; we consider investments in instruments purchased with an original maturity of
90 days or less to be cash equivalents; and we classify our short-term investments as available-for-sale.

Our cash equivalents and short-term investment portfolios consist primarily of money market funds,
commercial paper, corporate debt securities, and U.S. government and government-sponsored debt securities. Our
short-term investments are reported at fair value with unrealized gains and losses, net of tax, included in Accumulated other
comprehensive income within Stockholders' equity in the Condensed Consolidated Balance Sheets. The amortization of
premiums and discounts on the investments, realized gains and losses, and declines in value judged to be other-than-
temporary on available-for-sale securities are included in Other income (expense), net in the Condensed Consolidated
Statements of Operations.

As of June 27, 2010, our investment portfolio consisted of $33.3 million in cash, cash equivalents
and restricted cash and $9.2 million in short-term investments. Based on the size of investment portfolio as of June 27, 2010,
an immediate increase in interest rates of 100 basis points would not have a material adverse effect on the fair value of our
investment portfolio. Conversely, because of the short-term nature of our portfolio, an immediate decline of 100 basis points in
interest rates could harm interest earnings of our investment portfolio in the future as securities mature. By policy, we limit our
use of longer-term investments. As of June 27, 2010, 100 percent of our short-term investments mature in less than one
year.

Foreign Currency Risk

The functional currency of our foreign subsidiaries is their local currencies. Accordingly, all assets
and liabilities of these foreign operations are translated using exchange rates in effect at the end of the period, and revenues
and costs are translated using average exchange rates for the period. Gains or losses from translation of foreign operations
where the local currencies are the functional currency are included as a component of accumulated other comprehensive
income. Foreign currency transaction gains and losses are recognized in the consolidated income statements as they are
incurred. Because much of our revenues and capital spending are transacted in U.S. dollars, we are subject to fluctuations in
foreign currency exchange rates that could have a material adverse affect our overall financial position, results of operations
or cash flows, depending on the strength of the U.S. dollar relative to the currencies of other countries in which we operate.
Exchange rate fluctuations of greater than ten percent, primarily for the U.S. dollar relative to the Euro or the Canadian dollar,
could have a material impact on our financial statements. For the six months ended June 27, 2010, realized and unrealized
foreign currency exchange gains were $1.2 million, compared to realized and unrealized foreign currency exchange gain of
$0.9 million for same period in 2009. The increase in foreign

28

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currency gain was due to exchange rate fluctuations of the U.S.
dollar against certain of the foreign currencies in which our accounts receivable and accounts payable are denominated.

Cumulative translation adjustments included in comprehensive income for the six months ended
June 27, 2010 were $3.7 million primarily due to the strengthening of the U.S. dollar against the Euro, which negatively
impacted the net assets used in our foreign operations and held in local currencies, resulting in a decrease in cumulative
translation adjustments to $18.5 million as of June 27, 2010, compared to $22.1 million as of December 31, 2009.

We did not have any hedging activities during the six months ended June 27, 2010 and during
the six months ended June 28, 2009. We had no forward foreign exchange contracts outstanding as of June 27, 2010.

Item 4.   	Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-
15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the quarterly period
covered by this report. Our disclosure controls and procedures are intended to ensure that the information we are required to
disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and
forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as the principal executive and financial officers, respectively, to allow timely decisions regarding required
disclosures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report.

It should be noted that any system of controls, however well designed and operated, can provide
only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any
control system is based in part upon certain assumptions about the likelihood of future events.

Quarterly Evaluation of Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during
the second quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. Based on that evaluation, our management concluded that there was no such change during that quarter.



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PART II.  OTHER INFORMATION

Item 1.  	Legal Proceedings

We are currently cooperating with a review by a local Korean customs office with respect to
customs duty classification matters. See Note 7, "Commitments and Contingencies" to the Notes to Condensed
Consolidated Financial Statements elsewhere in this Form 10-Q.

In the ordinary course of business, we are subject to claims and litigation, including claims that
we infringe third party patents, trademarks and other intellectual property rights. Although we believe that it is unlikely that any
current claims or actions will have a material adverse impact on our operating results or our financial position, given the
uncertainty of litigation, we cannot be certain of this. Moreover, the defense of claims or actions against us, even if not
meritorious, could result in the expenditure of significant financial and managerial resources.

Our involvement in any patent dispute, other intellectual property dispute or action to protect
trade secrets and know-how could result in a material adverse effect on our business. Adverse determinations in current
litigation or any other litigation in which we may become involved could subject us to significant liabilities to third parties,
require us to grant licenses to or seek licenses from third parties and prevent us from manufacturing and selling our products.
Any of these situations could have a material adverse effect on our business.

Item 1A.     Risk Factors

Other items in this Quarterly Report on Form 10-Q describe risks and uncertainties
associated with our business, including risks and uncertainties that could cause actual results to differ materially from the
results expressed or implied by forward-looking statements contained in this Quarterly Report on Form 10-Q and in other
statements we make publicly. A more complete description of a number of primary risk factors associated with our business,
and which could cause our results to differ materially from the results expressed or implied by our forward-looking statements
contained in this Quarterly Report on Form 10-Q or elsewhere, is set forth in our 2009 Form 10-K.

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from
the risk factors previously disclosed under Item 1A, "Risk Factors" contained in our 2009 Form 10-K, which are
incorporated herein by reference.

Item 2.  	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

In March 2007, our Board of Directors approved a common stock repurchase plan (Repurchase Plan)
that authorized the repurchase of up to $20.0 million of our outstanding shares of common stock through open-market
purchases or private transactions pursuant to a plan in conformity with Rule 10(b) 5-1. We have completed all repurchases
under this initial authorization, at a weighted-average cost of $9.97 per share.

In October 2007, our Board of Directors expanded our Repurchase Plan, authorizing the
repurchase of up to an additional $30.0 million of the Company's shares of common stock through open-market purchases or
private transactions. As of June 27, 2010, a total of 3.8 million shares have been repurchased against the original and
expanded Repurchase Plan, at a weighted-average purchase price of $9.20 for a total purchase price of approximately $35.0
million. Our last repurchase of common stock under this plan was in the first quarter of 2008. As of June 27, 2010, we have
the authorization to repurchase up to an additional $15.0 million of our shares of common stock under the Repurchase
Plan.

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Item 6.  	Exhibits



|Exhibit
                                  Number | Description                                                                                    
|------------------------------------------------ | -----------------------------------------------------------------------------------------------
|3.1(1)                                           | Amended and Restated Certificate of Incorporation of the Company.                              
|3.2(2)                                           | Third Amended and Restated Bylaws of the Company.                                              
|10.1(3)                                          | Form of Indemnity Agreement.                                                                   
|31.1                                             | Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF
|31.2                                             | Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF
|32.1                                             | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
    PDF           
|32.2                                             | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
    PDF           

_________________

(1)  Incorporated by reference from Mattson Technology, Inc. Current Report on Form 8-K filed on January 30, 2001.
                   (2)  Incorporated by reference from Mattson Technology, Inc. Quarterly Report on Form 10-Q filed on August 14, 2002.
                   (3) Incorporated by reference from the Mattson Technology, Inc. Current Report on Form 8-K filed on June 10, 2010.

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SIGNATURES

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.

| |                                     
| | ------------------------------------
| | MATTSON TECHNOLOGY, INC.(Registrant)

Dated: July 30, 2010

| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ DAVID DUTTON
               David DuttonPresident and Chief Executive Officer
                  (Principal Executive Officer)

Dated: July 30, 2010

| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By: /s/ ANDY MORINGAndy MoringChief Financial Officer and Executive Vice President — Finance 
                  (Principal Financial and Accounting Officer)

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