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

                                 ---------------
                                    FORM 10-Q
                                 ---------------

                                   (Mark One)

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

                  For the quarterly period ended June 29, 2003

                                       OR

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

       For the transition period from ________________ to ________________


                         Commission file number 0-21970

                               ------------------

                            MATTSON TECHNOLOGY, INC.
                            ------------------------
             (Exact name of registrant as specified in its charter)


                          Delaware                       77-0208119
                          --------                       ----------
                  (State or other jurisdiction         (I.R.S. Employer
              of incorporation or organization)      Identification No.)


                47131 Bayside Parkway, Fremont, California  94538
                  --------------------------------------    -----
               (Address of principal executive offices)   (Zip Code)


                                 (510) 657-5900
                                 --------------
              (Registrant's telephone number, including area code)

                             ---------------------

   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 such 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 is an accelerated filer (as
defined in Rule 12b-2 of the Act).   Yes [X]    No [ ]


Number of shares of common stock outstanding as of July 31, 2003: 44,974,373.


<PAGE>



                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                              ---------------------

                                TABLE OF CONTENTS


                         PART I. FINANCIAL INFORMATION
                                                                        PAGE NO.
                                                                        --------

Item 1.   Financial Statements (unaudited)

          Condensed Consolidated Balance Sheets at June 29, 2003
             and December 31, 2002 .......................................... 3

          Condensed Consolidated Statements of Operations for the three
             and six months ended June 29, 2003 and June 30, 2002 ........... 4

          Condensed Consolidated Statements of Cash Flows for the six
             months ended June 29, 2003 and June 30, 2002  .................. 5

          Notes to Condensed Consolidated Financial Statements .............. 6


Item 2.   Management's Discussion and Analysis of Financial Condition and
             Results of Operations ......................................... 17


Item 3.   Quantitative and Qualitative Disclosures About Market Risk........ 34


Item 4.   Controls and Procedures .......................................... 35



                           PART II. OTHER INFORMATION


Item 1.   Legal Proceedings ................................................ 36


Item 2.   Changes in Securities ............................................ 36


Item 3.   Defaults Upon Senior Securities................................... 36


Item 4.   Submission of Matters to a Vote of Security Holders............... 36


Item 5.   Other Information................................................. 36


Item 6.   Exhibits and Reports on Form 8-K ................................. 37


          Signatures........................................................ 38



                                       2
<PAGE>

                         PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                 June 29,         December 31,
                                                                   2003              2002
                                                                ---------          ---------
Current assets:
<S>                                                              <C>                <C>
  Cash and cash equivalents                                      $ 84,163           $ 87,879
  Restricted cash                                                     593              1,105
  Accounts receivable, net                                         22,018             34,834
  Advance billings                                                 17,406             27,195
  Inventories                                                      28,148             50,826
  Inventories - delivered systems                                   2,544             47,444
  Prepaid expenses and other current assets                        17,675             13,676
                                                                ---------          ---------
       Total current assets                                       172,547            262,959
Property and equipment, net                                        15,307             18,855
Goodwill                                                            8,239             12,675
Intangibles                                                         3,283             15,254
Other assets                                                        1,252              2,416
                                                                ---------          ---------
                                                                $ 200,628          $ 312,159
                                                                =========          =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                               $ 11,051           $ 14,346
  Accrued liabilities                                              75,018             77,795
  Deferred revenue                                                 32,241            108,698
                                                                ---------          ---------
       Total current liabilities                                  118,310            200,839
                                                                ---------          ---------

Long-term liabilities:
  Deferred income taxes                                             1,247              5,215
                                                                ---------          ---------
       Total long-term liabilities                                  1,247              5,215
                                                                ---------          ---------
       Total liabilities                                          119,557            206,054
                                                                ---------          ---------

Commitments and contingencies (Note 14)
 Stockholders' equity:
  Common stock                                                         45                 45
  Additional paid-in capital                                      542,807            542,482
  Accumulated other comprehensive income                            7,309              7,131
  Treasury stock                                                   (2,987)            (2,987)
  Accumulated deficit                                            (466,103)          (440,566)
                                                                ---------          ---------
       Total stockholders' equity                                  81,071            106,105
                                                                ---------          ---------
                                                                $ 200,628          $ 312,159
                                                                =========          =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months Ended             Six Months Ended
                                                               -------------------------      ------------------------
                                                                 June 29,      June 30,        June 29,      June 30,
                                                                   2003          2002            2003          2002
                                                                --------       --------        --------      --------
<S>                                                             <C>            <C>             <C>           <C>
Net sales                                                       $ 30,535       $ 47,263        $ 98,293      $ 93,468
Cost of sales                                                     18,442         37,810          67,609        76,596
                                                                --------       --------        --------      --------
  Gross profit                                                    12,093          9,453          30,684        16,872
                                                                --------       --------        --------      --------
Operating expenses:
  Research, development and engineering                            6,683          9,348          14,233        18,912
  Selling, general and administrative                             12,798         21,098          29,671        43,195
  Amortization of intangibles                                        328          1,687           1,495         3,374
                                                                --------       --------        --------      --------
     Total operating expenses                                     19,809         32,133          45,399        65,481
                                                                --------       --------        --------      --------
Loss from operations                                              (7,716)       (22,680)        (14,715)      (48,609)
Loss on disposition of Wet Business                                    -              -         (10,257)            -
Interest and other expense, net                                   (1,605)        (2,005)           (402)       (2,004)
                                                                --------       --------        --------      --------
Loss before provision for (benefit from) income taxes             (9,321)       (24,685)        (25,374)      (50,613)
Provision for (benefit from) income taxes                            225           (162)            163          (313)
                                                                --------       --------        --------      --------
Net loss                                                         $(9,546)      $(24,523)       $(25,537)     $(50,300)
                                                                 =======       ========        ========      ========
Net loss per share:
     Basic                                                       $ (0.21)       $ (0.58)        $ (0.57)      $ (1.27)
                                                                 =======       ========        ========      ========
     Diluted                                                     $ (0.21)       $ (0.58)        $ (0.57)      $ (1.27)
                                                                 =======       ========        ========      ========
Shares used in computing net loss per share:
     Basic                                                        44,897         42,315          44,878        39,712
                                                                 =======       ========        ========      ========
     Diluted                                                      44,897         42,315          44,878        39,712
                                                                 =======       ========        ========      ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       4

<PAGE>


                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                  ------------------------
                                                                                   June 29,       June 30,
                                                                                    2003           2002
                                                                                  --------       ---------
Cash flows from operating activities:
<S>                                                                               <C>            <C>
  Net loss                                                                        $(25,537)      $ (50,300)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
     Depreciation                                                                    3,248           4,855
     Deferred taxes                                                                    578          (1,214)
     Amortization of goodwill and intangibles                                        1,496           3,374
     Loss on disposal of Wet Business                                               10,257               -
     Loss on disposal of property and equipment                                        651             607
     Stock-based compensation                                                            -             125
     Changes in assets and liabilities, net of effect of acquisitions:
       Accounts receivable                                                          11,841          17,527
       Advance billings                                                              3,172          20,703
       Inventories                                                                   3,852           9,340
       Inventories - delivered systems                                              14,059          24,572
       Prepaid expenses and other current assets                                    (6,431)          2,400
       Other assets                                                                    897            (745)
       Accounts payable                                                             (3,207)          2,597
       Accrued liabilities                                                           1,550          (8,759)
       Deferred revenue                                                            (28,143)        (31,381)
                                                                                  --------       ---------
Net cash used in operating activities                                              (11,717)         (6,299)
                                                                                  --------       ---------

Cash flows from investing activities:
  Purchases of property and equipment                                                 (891)           (652)
  Proceeds from the sale of equipment                                                    -           2,939
  Proceeds from the disposition of Wet Business                                      2,000               -
  Purchases of investments                                                               -          (5,118)
  Proceeds from the sale and maturity of investments                                     -           9,590
                                                                                  --------       ---------
Net cash provided by investing activities                                            1,109           6,759
                                                                                  --------       ---------
Cash flows from financing activities:
  Restricted cash                                                                      512            (863)
  Payments on line of credit and long-term debt                                       (475)         (5,341)
  Borrowings against line of credit                                                    810             194
  Payment on STEAG notes payable                                                         -          (1,204)
  Change in interest accrual on STEAG note                                               -           1,255
  Proceeds  from the issuance of common stock, net of costs                              -          34,861
  Proceeds from the issuance of common stock under stock plans                         325           1,342
                                                                                  --------       ---------
Net cash provided by financing activities                                            1,172          30,244
                                                                                  --------       ---------
Effect of exchange rate changes on cash and cash equivalents                         5,720           6,628
                                                                                  --------       ---------
Net increase (decrease) in cash and cash equivalents                                (3,716)         37,332
Cash and cash equivalents, beginning of period                                      87,879          64,057
                                                                                  --------       ---------
Cash and cash equivalents, end of period                                          $ 84,163       $ 101,389
                                                                                  ========       =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>

                        MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 June 29, 2003
                                  (unaudited)

Note 1  Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The condensed consolidated balance
sheet as of December 31, 2002 has been derived from the audited financial
statements as of that date, but does not include all disclosures required by
generally accepted accounting principles. The financial statements should be
read in conjunction with the audited financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2002.

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Estimates are
used for, but are not limited to, the accounting for the allowance for doubtful
accounts, inventory reserves, depreciation and amortization periods, sales
returns, warranty costs and income taxes. Actual results could differ from these
estimates.

     The condensed consolidated financial statements include the accounts of
Mattson Technology, Inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

     The results of operations for the three and six months ended June 29, 2003
are not necessarily indicative of results that may be expected for the future
quarters or for the entire year ending December 31, 2003.


Recent Accounting Pronouncements

     In November 2002, the EITF reached a consensus on issue 00-21, "Multiple -
Deliverable Revenue Arrangements" (EITF 00-21). EITF 00-21 addresses how to
account for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both which are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes." The Company does not believe the adoption of EITF
00-21 will have a material impact on its financial position or results of
operations.

     In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company believes
that the adoption of this standard will have no material impact on the
consolidated financial statements.

                                       6
<PAGE>


     In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." This statement amends SFAS 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires contracts with similar characteristics to be accounted
for on a comparable basis. The Company is assessing the effect of SFAS 149 and
does not expect its adoption, which will be effective for contracts entered into
or modified after June 30, 2003, to have a material effect on its financial
condition or results of operations.

     In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS 150), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS 150 establishes standards
on the classification and measurement of financial instruments with
characteristics of both liabilities and equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003. The Company
does not expect the implementation of the pronouncement to have a material
effect on its financial condition or results of operations.


Stock-Based Compensation

     The Company accounts for its stock-based employee compensation plans under
the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in net
loss, as all options granted under those plans had an exercise price equal to
market value of the underlying common stock on the date of grant. In December
2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation
Transition and Disclosure." The statement amends SFAS No. 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. The Company has
adopted the disclosure provisions of SFAS No. 148 on January 1, 2003.

     The following table sets forth the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting For Stock-Based Compensation", to stock-based employee compensation
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                   Three Months Ended             Six Months Ended
                                                               -------------------------      ------------------------
                                                                 June 29,      June 30,        June 29,      June 30,
                                                                   2003          2002            2003          2002
                                                                --------       --------        --------      --------
Net loss:
<S>                                                            <C>            <C>              <C>           <C>
   As reported                                                 $ (9,546)      $  (24,523)      $(25,537)     $(50,300)
   Add: Total stock-based employee compensation expense
       included in net loss                                         --               --             --            --
   Deduct: Total stock-based employee compensation
       expense determined under fair value based method for
       all awards, net of related tax effects                      (685)          (1,743)        (1,158)       (4,317)
                                                               --------       ----------       --------      --------
   Pro forma                                                   $(10,231)      $  (26,266)      $(26,695)     $(54,617)
                                                               ========       ==========       ========      ========
Diluted net loss per share:
   As reported                                                 $  (0.21)      $    (0.58)      $  (0.57)     $  (1.27)
   Pro forma                                                   $  (0.23)      $    (0.62)      $  (0.59)     $  (1.38)

</TABLE>

                                       7
<PAGE>


Note 2   Balance Sheet Detail (in thousands):

                                                   June 29,      December 31,
                                                     2003           2002
                                                   --------       --------
Inventories:
  Purchased parts and raw materials                $ 12,018        $ 27,085
  Work-in-process                                    15,904          20,492
  Finished goods                                        226           3,249
                                                   --------        --------
                                                   $ 28,148        $ 50,826
                                                   ========        ========

Accrued liabilities:
  Warranty and installation                        $ 17,437        $ 16,486
  Accrued compensation and benefits                   8,014          11,140
  Income taxes                                        6,364           5,797
  Commissions                                           575           2,273
  Customer deposits                                   1,226             893
  Line of credit                                        335               -
  Other                                              41,067          41,206
                                                   --------        --------
                                                   $ 75,018        $ 77,795
                                                   ========        ========
Note 3   Disposition of Wet Business

     On March 17, 2003, the Company sold the portion of its business that was
engaged in developing, manufacturing, selling, and servicing wet surface
preparation products for the cleaning and preparation of semiconductor wafers
(the "Wet Business") to SCP Global Technologies, Inc. ("SCP"). The Company had
originally acquired the Wet Business on January 1, 2001, as part of its merger
with the STEAG Semiconductor Division and CFM. As part of this disposition, SCP
acquired certain subsidiaries and assets, and assumed certain contracts relating
to the Wet Business, including the operating assets, customer contracts and
inventory of CFM, all outstanding stock of Mattson Technology IP, Inc. ("Mattson
IP"), a subsidiary that owns various patents relating to the Wet Business, and
all equity ownership interest in Mattson Wet Products GmbH, a subsidiary in
Germany that owned the Company's principal Wet Business operations. The Company
retained rights to all the cash from the Wet Business entities, and the Company
retained all rights to payments under the settlement and license agreements with
DNS. SCP acquired the rights to any damages under pending patent litigation
relating to patents owned by Mattson IP. SCP assumed responsibility for the
operations, sales, marketing and technical support services for the Company's
former wet product lines worldwide. The initial purchase price paid to the
Company by SCP to acquire the Wet Business was $2 million in cash. That initial
purchase price is subject to adjustment based on a number of things, including
the net working capital of the Wet Business at closing, to be determined
post-closing based on a pro forma closing date balance sheet, and an earn-out,
up to an aggregate maximum of $5 million, payable to the Company based upon
sales by SCP of certain products to identified customers through December 31,
2004. There has been no earn-out during the second quarter of 2003. The
Company's obligation towards the net working capital adjustment payment is still
under determination. Pending final determination, the Company anticipates its
payment exposure to be in the range from zero to $2.0 million. The Company is
obligated to (i) fund salary and severance costs relating to reductions in force
to be implemented in Germany after the closing, (ii) assume certain real
property leases relating to transferred facilities, subject to a sublease to
SCP, (iii) reimburse SCP for future legal fees, up to a maximum of $1 million,
in pending patent litigations, and (iv) reimburse SCP for amounts necessary to
cover specified customer responsibilities. During the first quarter of 2003, the
Company recorded additional accruals of approximately $11.9 million to cover
certain future obligations relating to this transaction. The Company did not
record any additional accrual for this transaction during the second quarter of
2003.


                                       8
<PAGE>

     In the first quarter of 2003, the Company recorded a $10.3 million loss on
the disposition of its Wet Business, as detailed below (in thousands):

      Contractual purchase price payment from SCP                  $  2,000
      Net book value of assets sold, including
        goodwill and intangibles                                    (80,824)
      Net book value of liabilities assumed by SCP,
        including deferred revenues                                  76,117
      Other                                                          (7,550)(A)
                                                                   --------
      Loss on disposition of Wet Business                          $(10,257)
                                                                   ========

      (A)  Included in the Other category are cumulative translation
           adjustments, estimated future costs associated with reduction in
           force, working capital adjustment, indemnification for future legal
           fees, investment banker's fees, and legal, accounting and other
           professional fees directly associated with the disposition of Wet
           Business.

     During the second quarter of 2003, the Company paid $1.4 million relating
to reductions in force, $1.5 million for investment banker's fees, $0.3 million
for legal fees, and $0.3 million for accounting and other professional fees
which were charged against accruals set up upon the closing of the sale (and
included in the "other" category of the loss on disposition of the Wet
Business).

     Over the next three or more quarters, the Company expects to make cash
payments as a result of the post-closing obligations related to the disposition
of the Wet Business in an amount estimated to be approximately $15 million. The
actual amount to be paid is uncertain, and could be more or less than the
estimate.

     The Company's Wet Business represented a significant portion of the
Company's net sales and costs in 2001, 2002 and first quarter of 2003. As a
result, the divestiture of the Wet Business affects the comparability of the
Company's Condensed Consolidated Statements of Operations for the three and six
months ending June 29, 2003, to its reported results from prior periods. For
periods prior to the divestiture of the Wet Business, the Company's net sales
were comprised primarily of sales of Wet Business products, sales of RTP
products and strip products, and royalties received from Dainippon Screen
Manufacturing Co., Ltd. ("DNS"). (See Note 11). Following the divestiture of the
Wet Business, the Company's net sales are comprised primarily of sales of RTP
and strip products, and royalties received from DNS. The following table
summarizes the amounts of net sales of the Company for the four quarters of 2002
and the first two quarters of 2003 attributable to Wet Business products, RTP
and strip products, and royalties from DNS:



                                       9
<PAGE>

                                       Net Sales (in millions)
                            ---------------------------------------------
                               Wet        RTP and      DNS
     Three Months            Business      Strip     Royalty      Total
        Ended                Products     Products   Revenue    Net Sales
---------------------       ---------     --------   -------   ----------

    March 31, 2002           $ 23.7       $ 22.5      $   -      $ 46.2
    June 30, 2002              15.3         32.0          -        47.3
  September 29, 2002           15.5         42.3        3.0        60.8
  December 31, 2002            23.0         22.9        3.3        49.2
                             ------      -------      -----      ------
                             $ 77.5      $ 119.7      $ 6.3      $203.5
                             ======      =======      =====      ======

    March 30, 2003           $ 32.3       $ 32.5      $ 3.0      $ 67.8
    June 29, 2003                 -         27.5        3.0        30.5
                             ------      -------      -----      ------
                             $ 32.3       $ 60.0      $ 6.0      $ 98.3
                             ======      =======      =====      ======



Note 4   Goodwill and Intangible Assets

     The following table summarizes the components of goodwill, other intangible
asset and related accumulated amortization balances (in thousands):

<TABLE>
<CAPTION>
                                                       June 29, 2003                             December 31, 2002
                                           -------------------------------------        -------------------------------------
                                             Gross                       Net              Gross                        Net
                                            Carrying    Accumulated    Carrying          Carrying     Accumulated    Carrying
                                             Amount     Amortization    Amount            Amount      Amortization    Amount
                                            ---------   ------------   --------          ---------    ------------   --------

<S>                                           <C>           <C>          <C>             <C>          <C>           <C>
Goodwill                                      $ 8,239       $      -     $ 8,239         $ 12,675     $      -      $ 12,675
Developed technology                            6,565         (3,282)      3,283           24,994       (9,740)       15,254
                                             --------       --------    --------         --------     --------      --------
Total goodwill and intangible assets         $ 14,804       $ (3,282)   $ 11,522         $ 37,669     $ (9,740)     $ 27,929
                                             ========       ========    ========         ========     ========      ========

</TABLE>



     Amortization expense related to intangible assets was as follows
(unaudited, in thousands):

<TABLE>
<CAPTION>

                                      For the Three Months Ended         For the Six Months Ended
                                     ----------------------------     ----------------------------
                                       June 29,        June 30,         June 29,       June 30,
                                         2003            2002             2003           2002
                                       -------         -------          -------        -------
<S>                                     <C>            <C>              <C>            <C>
Developed technology amortization       $ 328          $ 1,687          $ 1,495        $ 3,374
                                        =====          =======          =======        =======
</TABLE>

<PAGE>

     The Company adopted SFAS No. 142 on January 1, 2002 and is no longer
amortizing goodwill. The Company completed the annual goodwill impairment test
in the fourth quarter of 2002 and determined no impairment existed. The Company
evaluates goodwill at least on an annual basis and whenever events and changes
in circumstances suggest that the carrying amount may not be recoverable from
its estimated future cash flow. No assurances can be given that future
evaluations of goodwill will not result in charges as a result of future
impairment. The Company will continue to amortize the identified intangibles.
The amortization expense is estimated to be $0.7 million for the remainder of
fiscal 2003 and thereafter $1.3 million for each of fiscal years 2004 and 2005.
In the first quarter of 2003, the Company sold goodwill amounting to $4.4
million and intangible assets relating to developed technology with a net book
value of $10.5 million, in connection with the Wet Business divestiture.

                                       10

<PAGE>

Note 5 Net Income (Loss) Per Share

    Earnings per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share." SFAS No. 128 requires dual presentation of basic and diluted net
income (loss) per share on the face of the income statement. Basic earnings per
share (EPS) is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period. For purposes of computing diluted earnings per
share, weighted average common share 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. All amounts in the following table are in thousands
except per share data.

<TABLE>
<CAPTION>

                                                 Three Months Ended             Six Months Ended
                                               ----------------------       ----------------------
                                               June 29,     June 30,         June 29,     June 30,
                                                 2003         2002             2003         2002
                                               -------      --------         -------      --------

BASIC AND DILUTED LOSS PER SHARE:
<S>                                            <C>          <C>             <C>           <C>
  Loss available to common stockholders        $(9,546)     $ (24,523)      $ (25,537)    $(50,300)
                                               =======      =========       =========     ========
  Weighted average common shares outstanding    44,897         42,315          44,878       39,712
                                               =======      =========       =========     ========
  Basic and diluted loss per share             $ (0.21)     $   (0.58)      $   (0.57)    $  (1.27)
                                               =======      =========       =========     ========
</TABLE>

     Total stock options outstanding at June 29, 2003 and June 30, 2002 of
5,145,898 and 4,548,669 shares, respectively, were excluded from the computation
of diluted EPS because the effect of including them would have been
antidilutive.


Note 6 Comprehensive Income (Loss)

    SFAS No. 130 establishes standards for disclosure and financial statement
presentation for reporting total comprehensive income and its individual
components. Comprehensive income, as defined, includes all changes in equity
during a period from non-owner sources.

     The following are the components of comprehensive loss:

<TABLE>
<CAPTION>


                                               Three Months Ended             Six Months Ended
                                           ---------------------------     -----------------------
(in thousands)                             June 29,        June 30,        June 29,       June 30,
                                             2003            2002            2003           2002
                                           --------       --------        ---------      ---------

<S>                                        <C>            <C>              <C>            <C>
Net loss                                   $ (9,546)      $(24,523)        $(25,537)      $(50,300)

Cumulative translation adjustments              429          8,058              300          7,995
Decrease in minimum pension liability          --             --               --              (36)
Unrealized investment gain (loss)                (1)          --                 87            (16)
Loss on cash flow hedging instruments          (175)          --               (209)          (116)
                                           --------       --------         --------       --------
Comprehensive loss                         $ (9,293)      $(16,465)        $(25,359)      $(42,473)
                                           ========       ========         ========       ========
</TABLE>


                                       11

<PAGE>




     The components of accumulated other comprehensive income, net of related
tax, are as follows:


    (in thousands)                             June 29,        December 31,
                                                 2003            2002
                                               -------          -------

    Cumulative translation adjustments         $ 7,148          $ 6,848
    Unrealized investment loss                    --                (87)
    Gain on cash flow hedging instruments          161              370
                                               -------          -------
                                               $ 7,309          $ 7,131
                                               =======          =======


Note 7 Reportable Segments

     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or chief decision
making group, in deciding how to allocate resources and in assessing
performance. The chief executive officer of the Company is the Company's chief
decision maker. As the Company's business is completely focused on one industry
segment, 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 through the sale and service of products for this one segment. As a
result, no additional operating segment information is required to be disclosed.

The following is net sales information by geographic area for the periods
presented (dollars in thousands):


<TABLE>
<CAPTION>
                                               Three Months Ended                              Six Months Ended
                                      ---------------------------------------       ---------------------------------------
                                        June 29, 2003         June 30, 2002           June 29, 2003         June 30, 2002
                                      ---------------       -----------------       ---------------       -----------------
                                         ($)      (%)          ($)       (%)           ($)      (%)         ($)        (%)
                                      --------    ---       --------     ---        --------    ---       --------     ---
<S>                                    <C>         <C>      <C>           <C>       <C>          <C>      <C>           <C>
United States                          $ 5,811     19       $ 15,134      32        $ 16,526     17       $ 22,297      24
Germany                                  7,532     25          6,846      15          15,760     16         12,703      14
Europe - others                              3     --          5,386      11             536     --         10,044      11
Taiwan                                   4,606     15         10,910      23          24,382     25         17,965      19
Asia Pacific (including Korea,
   Singapore and China)                  1,297      4          7,009      15          27,644     28         24,723      26
Japan                                   11,286     37          1,978       4          13,445     14          5,736       6
                                      --------              --------                --------              --------
                                      $ 30,535              $ 47,263                $ 98,293              $ 93,468
                                      ========              ========                ========              ========

</TABLE>

     The net sales above have been allocated to the geographic areas based upon
the installation location of the systems.

   For purposes of determining sales to significant customers, the Company
includes sales to customers through its distributor (at the sales price to the
distributor) and excludes the distributor as a significant customer. In the
second quarter of 2003, two customers accounted for 15% and 22% of net sales. In
the second quarter of 2002, two customers accounted for 18% and 14% of net
sales.

     At June 29, 2003, three customers each accounted for more than 10% of the
Company's accounts receivables, accounting for approximately 16%, 13% and 12%,
respectively. At December 31, 2003, two customers each accounted for more than
10% of the Company's accounts receivables, accounting for approximately 17% and
14%, respectively.

                                       12

<PAGE>

Note 8 Debt

     The Company's Japanese subsidiary has a credit facility with a Japanese
bank in the amount of 900 million Yen (approximately $7.6 million at June 29,
2003), secured by specific trade accounts receivable of the Japanese subsidiary.
The facility bears interest at a per annum rate of TIBOR plus 75 basis points.
The term of the facility has been extended from June 20, 2003 to June 20, 2004.
The Company has given a corporate guarantee for this credit facility. There are
no financial covenant requirements for this credit facility. At June 29, 2003,
$0.3 million had been borrowed under this credit facility, which is included in
accrued liabilities in the Condensed Consolidated Balance Sheet. In July 2003,
the Company repaid the entire borrowing.

     The Company has a revolving line of credit with a bank in the amount of
$20.0 million, which will expire on April 26, 2004. All borrowings under this
credit line bear interest at a per annum rate equal to the bank's prime rate
plus 125 basis points. The line of credit is secured by a blanket lien on all of
the Company's domestic assets including intellectual property. The line of
credit requires the Company to satisfy certain quarterly financial covenants,
which were modified in April 2003, including maintaining a minimum unrestricted
cash and cash equivalents and a minimum balance of investment accounts, and not
exceeding a maximum net loss limit. At June 29, 2003, the Company was in
compliance with the covenants and there were no borrowings under this credit
line.


Note 9 Private Placement

     On April 30, 2002, the Company issued 7.4 million shares of common stock in
a private placement transaction. Of the 7.4 million shares issued, 1.3 million
shares were issued to Steag Electronic Systems AG upon conversion of $8.1
million of then outstanding promissory notes at $6.15 per share. The remaining
6.1 million shares were sold to other investors at $6.15 per share, for
aggregate gross cash proceeds of $37.5 million.


Note 10 Related Party Transactions

     At June 29, 2003, the Company had outstanding three loans to Brad Mattson,
who was formerly a director and the Chief Executive Officer of the Company. At
June 29, 2003, a total of $2,975,566 in principal was outstanding under these
loans. At July 31, 2003, one of the loans had been fully repaid and $1,150,162
in principal remained outstanding under the two remaining loans. The history of
the loans is as follows. In the second quarter of 2000, the Company extended a
loan to Mr. Mattson in the principal amount of $200,000, with interest payable
at 6% per annum. Mr. Mattson repaid the full balance due under this loan in July
2003. In April 2002, the Company extended a loan to Mr. Mattson in the principal
amount of $700,000. This loan did not bear interest and was due and payable on
August 31, 2002. Mr. Mattson has partially repaid this loan, in the amount of
$200,000, and there is a remaining balance due of $500,000. On July 3, 2002, the
Company extended an additional loan to Mr. Mattson in the principal amount of
$2,600,647. The interest rate on this loan is the prime rate plus 125 basis
points. The loan is secured by a pledge of shares of stock of the Company, and
was due and payable on December 31, 2002. In late December 2002, the Company
entered into a Forbearance Agreement with Mr. Mattson in which the Company
agreed to forbear from taking legal action provided that Mr. Mattson repays the
Company in quarterly installments, with final payment due December 31, 2003. Mr.
Mattson resigned as an officer of the Company in October 2001 and resigned as a
director in November 2002.

     At June 29, 2003, the Company had outstanding one loan to Diane Mattson, a
shareholder, in the principal amount of $1,751,058. At August 7, 2003, an
installment payment had been repaid and $1,293,669 in principal remained
outstanding under the loan. The history of this loan is as follows. In April
2002, the Company extended a loan to Ms. Mattson in the principal amount of
$700,000. The loan did not bear interest and was due and payable on August 31,
2002. On July 3, 2002, the Company issued an additional loan to Ms. Mattson in
the principal amount of $1,141,058. The Company and Ms. Mattson subsequently
agreed to consolidate her loans, such that she owed the Company $1,841,058 under
the terms of the July 3, 2002 loan. The interest rate on this loan is the prime
rate plus 125 basis points. The loan is secured by a pledge of shares of stock
of the Company. Ms. Mattson and the Company have agreed to payment terms under
which her loan is payable in quarterly installments beginning June 30, 2003,
with final payment due June 30, 2004.

                                       13
<PAGE>


Note 11  DNS Patent Infringement Suit Settlement

     On March 5, 2002, a jury in San Jose, California rendered a verdict in
favor of the Company's then subsidiary, Mattson Wet Products, Inc. (formally CFM
Technologies, Inc.), in a patent infringement suit against Dainippon Screen
Manufacturing Co., Ltd. ("DNS"), a large Japanese manufacturer of semiconductor
wafer processing equipment. The jury found that six different DNS wet processing
systems infringed on two of CFM's drying technology patents and that both
patents were valid. On June 24, 2002, the Company and DNS jointly announced that
they had amicably resolved their legal disputes with a comprehensive, global
settlement agreement, which included termination of all outstanding litigation
between the companies. On March 17, 2003, as part of the disposition of the Wet
Business, the Company sold to SCP the subsidiary that owns the patents licensed
to DNS. As a result of the disposition of the Wet Business, the Company is no
longer a party to a cross license agreement pertaining to wet processing systems
signed with DNS under the settlement agreement. However, the Company retained
all rights to payments under the settlement and license agreements. (See Note
3).The settlement agreement and license agreement requires DNS to make payments
to Mattson totaling between $75 million (minimum) and $105 million (maximum),
relating to past damages, partial reimbursement of attorney's fee and costs, and
royalties. The settlement and minimum royalty payments are payable in varying
amounts at varying dates through April 1, 2007, as follows:

            Fiscal Year Ending                 DNS
               December 31,                  Payments
            ------------------            --------------
                                          (in thousands)
                   2002                       $ 27,000
                   2003                         24,000
                   2004                          6,000
                   2005                          6,000
                   2006                          6,000
                   2007                          6,000
                                              --------
                            Total             $ 75,000
                                              ========


     During the second quarter of 2003, the Company received $13.0 million
($11.7 million, net of 10% Japanese withholding tax) from DNS. As of June 29,
2003, the Company has received payments aggregating $40.0 million ($36.0
million, net of 10% Japanese withholding tax) from DNS under the terms of the
settlement agreement.

     The Company has obtained an independent appraisal of the DNS arrangements
to determine, based on relative fair values, how much of the aggregate payments
due to Mattson are attributable to past disputes and how much are attributable
to future royalties on DNS sales of the wet processing products. Based on the
appraisal, the Company allocated $15.0 million to past damages, which was
recorded as "other income" during 2002, and allocated $60 million to royalty
income, which is being recognized in the income statement on a straight-line
basis over the license term. During the three and six months ended June 29,
2003, the Company recognized approximately $3.0 million and $6.0 million,
respectively, of royalty income.


                                       14

<PAGE>

Note 12  Guarantees

     The Company adopted Financial Accounting Standards Board Interpretation No.
45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Indebtedness of Others" (FIN 45) during the fourth quarter of 2002. FIN
45 requires disclosures concerning the Company's obligation under certain
guarantees, including its warranty obligations.

     Under its warranty obligations, the Company is required to repair or
replace defective products or parts, generally at a customer's site, during the
warranty period at no cost to the customer. The warranty offered on the
Company's systems ranges from 12 months to 36 months depending on the product. A
provision for the estimated cost of warranty is recorded as a cost of sales,
based on the historical costs, at the time of revenue recognition. The actual
system performance and/or field expense profiles may differ from historical
experience, and in those cases the Company adjusts its warranty accruals
accordingly. The following table is the detail of the product warranty accrual
for the three and six months ended June 29, 2003 and June 30, 2002:

<TABLE>
<CAPTION>
       (in thousands)                                            Three months ended              Six months ended
                                                               ------------------------      ----------------------
                                                                 June 29,     June 30,         June 29,    June 30,
                                                                   2003         2002             2003        2002
                                                                 --------     --------         --------    --------
<S>                                                              <C>          <C>              <C>         <C>
       Balance at beginning of period                            $ 17,537     $ 21,801         $ 16,486    $ 19,936
       Accrual for warranties issued during the period              1,947        2,786            4,154       6,008
       Changes in liability related to pre-existing warranties          -       (2,510)               -      (2,510)
       Settlements made during the period                          (2,047)      (2,898)          (3,203)     (4,255)
                                                                 --------     --------         --------    --------
       Balance at end of period                                  $ 17,437     $ 19,179         $ 17,437    $ 19,179
                                                                 ========     ========         ========    ========
</TABLE>


     During the ordinary course of business, the Company provides standby
letters of credit or other guarantee instruments to certain parties as required.
As of June 29, 2003, the maximum potential amount of future payments that the
Company could be required to make under these guarantee agreements is
approximately $0.8 million. The Company has not recorded any liability in
connection with these guarantee arrangements beyond that 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 these guarantee arrangements.

     The Company is a party to a variety of agreements pursuant to which it may
be obligated to indemnify the other party with respect to certain matters.
Typically, these obligations arise in the context of contracts entered into by
the Company, under which the Company may agree to hold the other party harmless
against losses arising from a breach of representations or under which the
Company may have an indemnity obligation to the counterparty with respect to
certain intellectual property matters or certain tax related matters.
Customarily, payment by the Company with respect to such matters is conditioned
on the other party making a claim pursuant to the procedures specified in the
particular contract, which procedures typically allow the Company to challenge
the other party's claims. Further, 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 recourse against third parties for certain 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 or results of operations. The Company believes if it were to incur a
loss in any of these matters, such loss should not have a material effect on the
Company's financial position or results of operations.

                                       15

<PAGE>

Note 13  Restructuring and Other Charges

     During the third and fourth quarter of 2002, the Company recorded
restructuring and other charges of $17.3 million in connection with the plan to
align its cost structure with projected sales resulting from the unfavorable
economic conditions and to reduce future operating expenses. The $17.3 million
restructuring and other charges for this restructuring program included a
workforce reduction at certain locations of $3.4 million, the shut-down of the
Malvern, Pennsylvania operations and the consolidation of other excess
facilities of $2.3 million, the write-down of certain fixed assets of $6.5
million, the write-down of certain intangible assets of $4.4 million, and the
write-down of certain other long-term assets of $0.7 million.

     The following is a summary of activities remaining in the
restructuring-related accruals during the six month period ended June 29, 2003:

<TABLE>
<CAPTION>
                                                           Cash Payments
                                                              during
                                                             Six months
                                      Liability as of           ended         Liability as of
                                     December 31, 2002     June 29, 2003       June 29, 2003
                                      ----------------     -------------      ---------------

<S>                                       <C>                <C>                   <C>
Workforce reduction                       $ 2,307            $(1,959)              $   348
Consolidation of excess facilities          2,056               (355)                1,701
                                          -------            -------               -------
Total                                     $ 4,363            $(2,314)              $ 2,049
                                          =======            =======               =======
</TABLE>


     The Company anticipates that the accrued liabilities at June 29, 2003 for
the workforce reduction and the consolidation of excess facilities will be paid
out in the next three months and the next two to three years, respectively.


Note 14 Commitments and Contingencies

     The Company is party to certain claims arising in the ordinary course of
business. While the outcome of these matters is not presently determinable,
management believes that they will not have a material adverse effect on the
financial position or results of operations of the Company.

     The Company leases two buildings previously used to house its manufacturing
and administrative functions related to wet surface preparation products in
Exton, Pennsylvania. The lease for both buildings has approximately 16 years
remaining with an approximate combined rental cost of $1.5 million annually. The
lease agreement for both buildings allows for subleasing the premises without
the approval of the landlord. The administrative building has been sublet for a
period of five years with an option for the subtenant to extend for an
additional five years. The sublease is expected to cover all related costs on
the administrative building. In the second quarter of 2002, the Company leased
space in two new facilities in Malvern, Pennsylvania to house its administrative
functions previously located in Exton, Pennsylvania. These leases are each for a
two year term. On July 23, 2003, the Company sublet the manufacturing building
at the Exton, Pennsylvania location for a period of approximately three years,
with an option for the subtenant to renew for a total of two successive periods,
the first for five years and the second for the balance of the term of the
master lease. The sublease, aggregating to approximately $2.1 million lease
payments, is expected to cover all related costs on the manufacturing building
for the approximately three year lease period. In determining the facilities
lease loss, net of cost recovery efforts from expected sublease income, various
assumptions were made, including, the time period over which the building will
be vacant; expected sublease terms; and expected sublease rates. The Company has
estimated that under certain circumstances the facilities lease losses could
increase approximately $0.9 million for each additional year that the facilities
are not leased and could aggregate approximately $14.3 million, net of expected
sublease income, under certain circumstances. The Company expects to make
payments related to the above noted facilities lease losses over the next
sixteen years, less any sublet amounts.


                                       16

<PAGE>

     In connection with the disposition of the Wet Business, the Company agreed
to assume the lease obligations with respect to the facilities used to house the
manufacturing and administrative functions of the transferred Wet Business in
Pliezhausen, Germany. That lease has approximately 3 years remaining with an
approximate rental cost of $1.2 million annually. The Company has sublet the
facilities to SCP on terms that cover all rent and costs payable by the Company
under the primary lease. During the second quarter of 2003, the Company received
sublease payments of approximately $384,000 from SCP. Under its sublease, SCP
has the right upon 90 days notice to partially or completely terminate the
sublease, in which case the Company would become responsible for the lease
costs, net of cost recovery efforts and any sublease income.

     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 our financial position, given the uncertainty of
litigation, we can not be certain of this. Moreover, the defense of claims or
actions against the Company, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.


Note 15 Income Taxes

     In the second quarter of 2003, the Company recorded an income tax provision
of approximately $0.2 million, and approximately $0.2 million for the first six
months of 2003, which consisted of foreign withholding taxes of $0.6 million,
foreign taxes incurred by it's foreign sales and service operations of $0.1
million, and state income taxes of approximately $0.1 million, partially offset
by a deferred tax benefit on the amortization of certain intangible assets of
$0.6 million. There is no US or German current income tax benefit or expense.
The effective income tax rate was a negative 0.6% for the six months ended June
29, 2003.

     In the second quarter of 2002, the Company recorded an income tax benefit
of approximately $0.1 million, and approximately $0.3 million for the first six
months of 2002, which consisted of foreign taxes incurred by it's foreign sales
and service operations of $0.2 million, other foreign taxes of $0.6 million, and
state income taxes of $0.1 million, partially offset by deferred tax benefit on
the amortization of certain intangible assets of $1.2 million. There was no US
or German current income tax benefit or expense. The effective income tax rate
was 0.6% for the six months ended June 30, 2002.



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

   The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included elsewhere in this
report. In addition to historical information, this discussion contains certain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated by these forward-looking
statements due to factors including, but not limited to, those set forth or
incorporated by reference under "Factors That May Affect Future Results and
Market Price of Stock" and elsewhere in this document.

Overview

   We are a leading supplier of semiconductor wafer processing equipment used in
the front-end-of-line fabrication of integrated circuits. Our products include
dry strip, rapid thermal processing ("RTP") and plasma enhanced chemical vapor
deposition ("PECVD") equipment. Our manufacturing equipment utilizes innovative
technology to deliver advanced processing capability and high productivity to
semiconductor manufacturers for both 200 mm and 300 mm wafer production at
technology nodes at and below 130 nm.

                                       17

<PAGE>


   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. The
semiconductor industry has been experiencing a severe downturn since 2001, which
has resulted in capital spending cutbacks by our customers. Semiconductor
companies continue to reevaluate their capital spending, postpone their new
capital equipment purchase decisions, and reschedule or cancel existing orders.
Declines in demand for semiconductors occurred throughout 2001 and 2002, and
have continued into 2003. Global economic conditions and consumer-related demand
have not improved, resulting in low levels of investment in manufacturing
capacity and corporate infrastructure. The overall demand outlook is still
uncertain over the intermediate term, and our backlog of firm orders is at a
relatively low level in relation to our anticipated sales. The cyclicality and
uncertainties regarding overall market conditions continue to present
significant challenges to us and impair our ability to forecast near term
revenue. Given that many of our costs are fixed in the short-term, our ability
to quickly modify our operations in response to changes in market conditions is
limited. During 2002 and first quarter of 2003, we took steps to restructure our
operations and reduce our operating cost levels to align them with expected
market conditions. Although we continue to look for ways to reduce costs, we are
largely dependent upon increases in sales in order to attain profitability. If
our sales do not increase, our current operating expenses could prevent us from
attaining profitability and adversely affect our financial position and results
of operations.

     On January 1, 2001, we simultaneously acquired the semiconductor equipment
division of STEAG Electronic Systems AG (the "STEAG Semiconductor Division") and
CFM Technologies, Inc. ("CFM"), which we refer to as "the merger." The merger
substantially changed the size of our company and the nature and breadth of our
product lines. At the time we completed the merger, our industry was entering an
economic downturn that deepened sequentially and still continues. The merger
more than doubled the size of our company, and we faced a number of challenges
in integrating the merged companies, coupled with the impact of lower sales as a
result of the downturn in the industry, that resulted in excess production
capacity. Subsequently, during 2002, we took steps to realign our workforce and
production capacity in light of business levels experienced at that time.

     During 2002, we determined to refocus our business on our core technologies
in dry strip and rapid thermal processing. Restructuring actions were taken in
2002 and the first quarter of 2003 to align our business with this focus and to
reduce operational expenses. As part of this restructuring effort, we divested
one significant line of business, our wet surface preparation products business
(our "Wet Business"), which was sold to SCP Global Technologies, Inc. ("SCP") on
March 17, 2003. We had originally acquired the Wet Business on January 1, 2001,
as part of our merger with the STEAG Semiconductor Division and CFM. We also
narrowed our CVD focus to a limited number of strategic customers, and divested
the subsidiary that had constituted our epi products group. These divestitures
were the last major actions in completing our strategic restructuring plan.
These actions are intended to reduce our cost structure and allow us to
concentrate resources on the development of core products in enabling RTP and
strip solutions. Our Wet Business represented a significant portion of our
revenues and our costs in 2001, 2002 and the first quarter of 2003, and the
divestiture of that business will affect the comparability of our financial
statements in future periods to our reported results for 2001, 2002 and the
first quarter of 2003.

     As part of our disposition of the Wet Business, SCP acquired the operating
assets, including customer contracts and inventory, of one of our subsidiaries
(formerly CFM Technologies, Inc.), all outstanding stock of Mattson Technology
IP, Inc., which is the owner of various patents relating to the Wet Business,
and all equity ownership of Mattson Wet Products GmbH, a German corporation that
owned the principal Wet Business operations. We retained rights to all cash in
the Wet Business, and all rights to payments under the settlement and license
agreements with DNS, but we transferred all rights to any damages under pending
Wet Business patent litigation to SCP. Upon closing, SCP assumed responsibility
for the operations, sales, marketing and technical support services for our
former wet product lines worldwide. During the first quarter of 2003, we
recorded accruals of approximately $11.9 million to cover certain future
obligations relating to this transaction. We did not record any additional
accrual for this transaction during the second quarter of 2003.


                                       18
<PAGE>

     On June 24, 2002, we settled a patent infringement lawsuit with Dainippon
Screen Manufacturing Co., Ltd. ("DNS"). As part of the settlement, DNS agreed to
pay us, at minimum, $75 million, relating to past damages, partial reimbursement
of attorney's fees and costs, and royalties, payable in varying amounts at
varying dates through April 1, 2007, in return for our granting DNS a worldwide
license under the previously infringed patents. Depending on the volume of
future product sales by DNS, we could receive up to an additional $30 million in
royalty payments. We determined, based on relative fair values, how much of the
aggregate payments due to us are attributable to past damages and how much are
attributable to future royalties on DNS sales of wet processing products. Based
on our analysis, which included an independent appraisal, we allocated $15.0
million to past damages, which we recorded as "other income" during 2002, and we
allocated $60 million to royalty income, which is being recognized in our income
statements on a straight-line basis over the license term. During 2002 and in
the first six months of 2003, we recognized royalty revenue of approximately
$6.3 million and $6.0 million, respectively. During 2002, DNS made payments of
$27.0 million and during the first six months of 2003 DNS made payments of $13.0
million, aggregating to $40.0 million.

    During the three and six month periods ended June 29, 2003, we had net
losses of $9.5 million and $25.5 million, respectively. Future results will
depend on a variety of factors, particularly overall market conditions and the
timing of significant orders, our cost reduction efforts, our ability to bring
new systems to market, the timing of new product releases by our competitors,
patterns of capital spending by our customers, market acceptance of new and/or
enhanced versions of our systems, changes in pricing by us, our competitors,
customers, or suppliers and the mix of products sold. We are dependent upon
increases in sales or reductions in our cost structures in order to achieve and
sustain profitability. If our sales do not increase, the current levels of
operating expenses could materially and adversely affect our financial position
and results.


                          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
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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 period. On an on-going basis, management
evaluates its estimates and judgements, including those related to reserves for
excess and obsolete inventory, warranty obligations, bad debts, intangible
assets, income taxes, restructuring costs, retirement benefits, contingencies
and litigation. Management bases its estimates and judgements on historical
experience and on various other factors that are believed to be reasonable under
the circumstances. These form the basis for making judgements 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.

     We consider certain accounting policies related to revenue recognition,
warranty obligations, inventories, goodwill and other intangible assets,
impairment of long-lived assets, and income taxes as critical to our business
operations and an understanding of our results of operations.

     Revenue recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101).

                                       19

<PAGE>


     We derive revenue from two primary sources- equipment sales and spare part
sales. We account for equipment sales as follows: 1) for equipment sales of
existing products with new specifications or to a new customer, for all sales of
new products (and, for the first quarter of 2003 and earlier periods, for all
sales of our wet surface preparation products), revenue is recognized upon
customer acceptance; 2) for equipment sales to existing customers, who have
purchased the same equipment with the same specifications and previously
demonstrated acceptance provisions, we recognize revenue on a multiple element
approach in which we bifurcate a sale transaction into two separate elements
based on objective evidence of fair value of the individual elements. The two
elements are the tool and installation of the tool. Under this approach, the
portion of the invoice price that is due after installation services have been
performed and upon final customer acceptance of the tool has been obtained,
generally 10% of the total invoice price, is deferred until final customer
acceptance of the tool. The remaining portion of the total invoice price
relating to the tool, generally 90% of the total invoice price, is recognized
upon shipment and title transfer of the tool. From time to time, however, we
allow customers to evaluate systems, and since customers can return such systems
at any time with limited or no penalty, we do not recognize revenue until these
evaluation systems are accepted by the customer. Revenues associated with sales
to customers in Japan are recognized upon title transfer, which generally occurs
upon customer acceptance, with the exception of sales of our RTP products
through our distributor in Japan, where revenues are recognized upon title
transfer to the distributor. For spare parts, revenue is recognized upon
shipment. Service and maintenance contract revenue is recognized on a
straight-line basis over the service period of the related contract.

     Revenues are difficult to predict, due in part to our reliance on customer
acceptance related to a portion of our revenues. Any shortfall in revenue or
delay in recognizing revenue could cause our operating results to vary
significantly from quarter to quarter and could result in future operating
losses.

     Warranty. Our warranties require us to repair or replace defective products
or parts, generally at a customer's site, during the warranty period at no cost
to the customer. The warranty offered on our systems ranges from 12 months to 36
months, depending on the product. At the time of revenue recognition, a
provision for the estimated cost of warranty is recorded as a cost of sales
based on our historical costs. While our warranty costs have historically been
within our expectations and the provisions we have established, we cannot be
certain that we will continue to experience the same warranty repair costs that
we have in the past. A significant increase in the costs to repair our products
could have a material adverse impact on our operating results for the period or
periods in which such additional costs materialize.

     Inventories. We state inventories at the lower of cost or market, with cost
determined on a first-in, first out basis. Due to changing market conditions,
estimated future requirements, age of the inventories on hand and our
introduction of new products, we regularly monitor inventory quantities on hand
and declare obsolete inventories that are no longer used in current production.
Accordingly, we write down our inventories to estimated net realizable value.
Actual demand may differ from forecasted demand and such difference may result
in write downs that have a material effect on our financial position and results
of operations. In the future, if our inventory is determined to be overvalued,
we would be required to recognize the decline in value in our cost of goods sold
at the time of such determination. Although we attempt to accurately forecast
future product demand, given the competitive pressures and cyclicality of the
semiconductor industry there may be significant unanticipated changes in demand
or technological developments that could have a significant impact on the value
of our inventory and our reported operating results.

     Goodwill and Other Intangible Assets. We assess the realizability of
goodwill and other intangible assets at least annually or whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable, in accordance with the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives
to their estimated residual values and

                                       20

<PAGE>

reviewed for impairment in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Our judgments regarding the
existence of impairment indicators are based on changes in strategy, market
conditions and operational performance of our business. Future events, including
significant negative industry or economic trends, could cause us to conclude
that impairment indicators exist and that goodwill or other intangible assets
are impaired. Any resulting impairment loss could have a material adverse impact
on our financial condition and results of operations. In assessing the
recoverability of goodwill and other intangible assets, we must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. If these estimates or their related assumptions
change in the future, we may be required to record impairment charges for these
assets.

     Impairment of Long-Lived Assets. We assess the impairment of identified
intangibles, long-lived assets and related goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable, in
accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Our judgments regarding the existence of
impairment indicators are based on changes in strategy, market conditions and
operational performance of our business. Future events, including significant
negative industry or economic trends, could cause us to conclude that impairment
indicators exist and that long-lived assets are impaired. Any resulting
impairment loss could have a material adverse impact on our financial condition
and results of operations. In assessing the recoverability of long-lived assets,
we must make assumptions regarding estimated future cash flows and other
factors, including discount rates and probability of cash flow scenarios, to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets.

     Income taxes. We record a valuation allowance to reduce our net deferred
tax asset to the amount that is more likely than not to be realized. In
assessing the need for a valuation allowance, we consider historical levels of
income, expectations and risks associated with estimates of future taxable
income and ongoing prudent and feasible tax planning strategies. In the event we
determine that we would be able to realize deferred tax assets in the future in
excess of the net recorded amount, we would record an adjustment to the deferred
tax asset valuation allowance. This adjustment would increase income in the
period such determination was made.


Results of Operations

     The following table sets forth our statement of operations data expressed
as a percentage of net sales for the periods indicated:

                                       21
<PAGE>

<TABLE>
<CAPTION>

                                                         Three Months Ended          Six Months Ended
                                                        --------------------    -   -------------------
                                                         June 29,   June 30,        June 29,  June 30,
                                                          2003       2002            2003       2002
                                                        ---------  ---------    -  ---------  ---------

<S>                                                       <C>        <C>             <C>        <C>
Net sales                                                 100.0%     100.0%          100.0%     100.0%
Cost of sales                                              60.4%      80.0%           68.8%      81.9%
                                                          ------     ------          ------     ------
  Gross profit                                             39.6%      20.0%           31.2%      18.1%
                                                          ------     ------          ------     ------
Operating expenses:
  Research, development and engineering                    21.9%      19.8%           14.5%      20.3%
  Selling, general and administrative                      41.9%      44.6%           30.2%      46.2%
  Amortization of intangibles                               1.1%       3.6%            1.5%       3.6%
                                                          ------     ------          ------     ------
     Total operating expenses                              64.9%      68.0%           46.2%      70.1%
                                                          ------     ------          ------     ------
Loss from operations                                       (25.3)%    (48.0)%         (15.0)%    (52.0)%
Loss on disposition of Wet Business                          --         --            (10.4)%      --
Interest and other expense, net                             (5.3)%     (4.2)%          (0.4)%     (2.1)%
                                                          ------     ------          ------     ------
Loss before provision for (benefit from) income taxes      (30.6)%    (52.2)%         (25.8)%    (54.1)%
Provision for (benefit from) income taxes                     0.7%     (0.3)%            0.2%     (0.3)%
                                                          ------     ------          ------     ------
Net loss                                                   (31.3)%    (51.9)%         (26.0)%    (53.8)%
                                                          ======     ======          ======     ======

</TABLE>

     The divestiture of our Wet Business in the first quarter of 2003 has
significantly affected the comparability of our net sales and our costs in the
three and six month periods ended June 29, 2003 to our reported results for
prior periods. Our reported results for 2002 and the first quarter of 2003
include sales of Wet Business products, and related costs, while our results for
the second quarter of 2003 do not. The following table summarizes the amount of
our net sales in each quarter of 2002 and in the first two quarters of 2003
attributable to products of the Wet Business, to RTP and strip products, and to
royalties from DNS. We believe this additional information regarding our prior
period sales will facilitate comparison of our current and future results of
operations to our results from prior periods:



                                           Net Sales (in millions)
                                ---------------------------------------------
                                   Wet       RTP and        DNS
            Three Months         Business     Strip       Royalty      Total
               Ended             Products    Products     Revenue    Net Sales
        ---------------------    --------    --------     -------    ---------

           March 31, 2002          $ 23.7     $ 22.5       $  --      $ 46.2
           June 30, 2002             15.3       32.0          --        47.3
         September 29, 2002          15.5       42.3         3.0        60.8
         December 31, 2002           23.0       22.9         3.3        49.2
                                   ------    -------       -----      ------
                                   $ 77.5    $ 119.7       $ 6.3      $203.5
                                   ======    =======       =====      ======

           March 30, 2003          $ 32.3     $ 32.5       $ 3.0      $ 67.8
           June 29, 2003               --       27.5         3.0        30.5
                                   ------    -------       -----      ------
                                   $ 32.3     $ 60.0       $ 6.0      $ 98.3
                                   ======    =======       =====      ======


                                       22

<PAGE>

Net Sales

     The divestiture of our Wet Business on March 17, 2003 has reduced our net
sales in the second quarter of 2003, and affects the comparability of the
results from the second quarter of 2003 and from the first six months of 2003 to
results from prior periods. Net sales of Wet Business products represented 47.6%
of our total net sales in the first quarter of 2003, and represented 51.3%,
32.3%, 25.6% and 46.7% of our total net sales in the first, second, third and
fourth quarters of 2002, respectively. The balance of our net sales in those
periods, and all of our net sales in the second quarter of 2003, are of our RTP
and strip products.

     Net sales for the second quarter of 2003 were $30.5 million. This reflects
a decrease of 35.4% compared to $47.3 million of net sales for the second
quarter of 2002, and a decrease of 54.9% compared to $67.8 million of net sales
for the first quarter of 2003. These decreases are primarily the result of the
divestiture of the Wet Business on March 17, 2003 and the absence of further wet
product sales from our operations after that date. Net sales of RTP and strip
products for the second quarter of 2002 were $32.0 million, and for the first
quarter of 2003 were $32.5 million. Net sales of RTP and strip products in the
second quarter of 2003 thus reflect a decrease of 14.0% compared to the net
sales of those products in the second quarter of 2002, and a decrease of 15.4%
compared to the net sales of those products in the first quarter of 2003. These
decreases are primarily due to product sales returns, lower unit sales and
reduced customer demand as a result of the continuing economic downturn in the
semiconductor industry. Units of RTP and strip products shipped in the second
quarter of 2003 decreased 30.6% and 28.6% compared to the second quarter of 2002
and the first quarter of 2003, respectively. Net sales for the second quarter of
2003 also reflects a reduction of $3.3 million as a result of returns from
product sales which occurred in 2001. The decrease in our net product sales in
the second quarter of 2003 compared to the same quarter last year was partially
offset by royalty revenue from DNS of $3.0 million. We anticipate our net sales
for the third quarter of 2003 to be approximately $28.0 million, slightly lower
than the net sales for the second quarter of 2003.

     Net sales for the first six months of 2003 were $98.3 million, reflecting
an increase of 5.2% compared to net sales of $93.5 million for the first six
months of 2002. This increase was primarily due to royalty revenue of $6.0
million in the first six months of 2003. Net sales of RTP and strip products for
the first six months of 2003 were $60.0 million, and for the first six months of
2002 were $54.5 million. Net sales of RTP and strip products for the first six
months of 2003 reflect an increase of 10.1% compared to the first six months of
2002, primarily due to higher customer acceptances of systems. Net sales for the
first six months of 2003 also reflects a reduction of $3.3 million as a result
of returns from product sales which occurred in 2001.

     Total deferred revenue at June 29, 2003 was approximately $32.2 million, a
decrease from $117.4 million at the end of the second quarter of 2002, and an
increase from $24.4 million at the end of the first quarter of 2003. The
decrease from 2002 was primarily due to the elimination of deferred revenue
related to Wet Business products as a result of the divestiture of our Wet
Business on March 17, 2003. Wet Business product sales previously accounted for
the majority of our deferred revenue. The deferred revenue at end of the second
quarter of 2003 increased compared to the first quarter of 2003 primarily due to
the $11.7 million, net of withholding tax, in pre-paid royalties received from
DNS during the second quarter of 2003. The remaining amount of deferred revenue
represents tools shipped that are awaiting customer acceptance. We generally
expect deferred revenue from particular product sales to be recognized as
revenue in our consolidated statement of operations with a time lag of three to
ten months from product shipment.

   International sales, which are predominantly to customers based in Europe,
Japan and the Pacific Rim (which includes Taiwan, Singapore, Korea and China),
accounted for 81.0% and 68.0% of net sales for the second quarter of 2003 and
2002, respectively, and 83.2% and 76.1% of net sales for the first six months of
2003 and 2002, respectively. We anticipate that international sales will
continue to account for a significant portion of net sales for the remainder of
2003.


                                       23
<PAGE>

Gross Margin

     Our gross margin for the second quarter of 2003 was 39.6%, an increase from
20.0% for the second quarter of 2002. Our gross margin for the first six months
of 2003 was 31.2%, an increase from 18.1% for the first six months of 2002. The
increase in gross margin was primarily due to the relatively higher margin
profile associated with our ongoing core businesses resulting from the
divestiture of the Wet Business, our ability to better control unfavorable
manufacturing variances due to improved visibility in our plants, royalty
revenue recognized from DNS with no associated cost of sales, and a decrease in
inventory valuation charges related to the merger that adversely affected
margins in the second quarter of 2002. Additionally, we continue to see improved
gross margin contribution from our spare parts and service operations. We
anticipate gross margin for the third quarter of 2003 to be approximately 35%.

     The divestiture of our Wet Business on March 17, 2003, affects the
comparability of our gross margin in the current period, and will affect the
comparability of our gross margins in future periods, to our historical margins.

     Due to intense competition we are continuing to face pricing pressure from
competitors that is also affecting our gross margin. In response, we are
continuing with our cost controls and efforts to differentiate our product
portfolio. We continue to have excess capacity at our remaining manufacturing
sites but have reduced costs at those sites in an effort to improve our gross
margin.

   Our gross margin has varied over the years and will continue to vary based on
many factors, including competitive pressures, product mix, economies of scale,
overhead absorption levels and costs associated with the introduction of new
products.

Research, Development and Engineering

     Research, development and engineering expenses for the second quarter of
2003 were $6.7 million, or 21.9% of net sales, as compared to $9.3 million, or
19.8% of net sales, for the second quarter of 2002. The decrease in research,
development and engineering expenses in the second quarter of 2003 in absolute
dollars was primarily due to the reduction of personnel and associated costs
resulting from the divestiture of our Wet Business on March 17, 2003, more
selective research and development project funding, and various cost control
measures that resulted in a reduction in expenses. Total research, development
and engineering expenses in the second quarter of 2003 declined from $7.6
million, or 11.1% of net sales, in the first quarter of 2003 as a result of the
divestiture of our Wet Business, the reduction of personnel and continuing cost
controls during the second quarter of 2003. The increase in research,
development and engineering expenses as a percentage of net sales during the
second quarter of 2003 compared to the same period last year and compared to the
first quarter of 2003 is primarily due to the decrease in sales.

     Research, development and engineering expenses for the first six months of
2003 were $14.2 million, or 14.5% of net sales, as compared to $18.9 million, or
20.3% of net sales, for the first six months of 2002. The decrease in research,
development and engineering expenses was primarily due to the divestiture of our
Wet Business on March 17, 2003, reduction of personnel and associated costs,
more selective research and development project funding, and various cost
control measures that resulted in reduction in expenses.


Selling, General and Administrative

     Selling, general and administrative expenses for the second quarter of 2003
were $12.8 million, or 41.9% of net sales, as compared to $21.1 million, or
44.6% of net sales, for the second quarter of 2002. The decrease in selling,
general and administrative expenses in the second quarter of 2003 compared to
the second quarter of 2002 is primarily due to the divestiture of our Wet
Business on March 17, 2003, which included a reduction in personnel and related
costs, reduction in building rent expenses, lower utilities costs, lower sales
commissions, and lower travel expenses. Total selling, general and
administrative expenses in the second quarter of 2003 declined from $16.9
million, or 24.9% of net sales, in the first quarter of 2003, as a result of the
divestiture of our Wet Business, reduction of personnel and continuing cost
controls during the second quarter of 2003.

                                       24
<PAGE>


     Selling, general and administrative expenses for the first six months of
2003 were $29.7 million, or 30.2% of net sales, as compared to $43.2 million, or
46.2% of net sales, for the first six months of 2002. The decrease in selling,
general and administrative expenses is primarily due to the divestiture of our
Wet Business on March 17, 2003, which included a reduction in personnel and
related costs, reduction in building rent expenses, lower utilities, lower sales
commissions, and lower travel expenses.


Amortization of Intangibles

     We no longer amortize goodwill following our adoption of SFAS 142 on
January 1, 2002. We continue to amortize the identified intangibles, in an
amount estimated to be $0.7 million for the remainder of fiscal 2003 and
thereafter $1.3 million for each of fiscal years 2004 and 2005.

Interest and Other Expense

     Interest and other expense for the second quarter of 2003 was $1.6 million,
or 5.3% of net sales, as compared to $2.0 million, or 4.2% of net sales, for the
second quarter of 2002. During the second quarter of 2003, other expense
consisted of a foreign exchange loss of $1.1 million, loss on sale of fixed
asset of $0.2 million, interest expense of $0.1 million and other expense of
$0.5 million partially offset by interest income of $0.3 million resulting from
the investment of our cash balances. In the same period of 2002, interest and
other expense of $2.0 million primarily related to foreign exchange losses of
$3.2 million that was partially offset by interest income of $0.6 million
primarily related to investment of our cash balances.

     Interest and other expense for the first six months of 2003 was $0.4
million, or 0.4% of net sales, as compared to $2.0 million, or 2.1% of net
sales, for the first six months of 2002. During the first six months of 2003,
other expense consisted of a foreign exchange loss of $0.7 million, loss on sale
of fixed asset of $0.6 million and interest expense of $0.2 million partially
offset by interest income of $0.7 million resulting from the investment of our
cash balances and other income of $0.4 million. In the same period of 2002,
interest and other expense of $2.0 million primarily related to interest expense
of $1.4 million related to interest on our notes payable to STEAG Electronic
Systems AG and foreign exchange losses of $1.7 million that was partially offset
by interest income of $1.1 million primarily related to investment of our cash
balances.

Provision for Income Taxes

     In the second quarter of 2003, we recorded an income tax provision of
approximately $0.2 million, and approximately $0.2 million for the first six
months of 2003, which consisted of foreign withholding taxes of $0.6 million,
foreign taxes incurred by our foreign sales and service operations of $0.1
million, and state income taxes of approximately $0.1 million, partially offset
by a deferred tax benefit on the amortization of certain intangible assets of
$0.6 million. There is no US or German current income tax benefit or expense.
The effective income tax rate was a negative 0.6% for the six months ended June
29, 2003.

     In the second quarter of 2002, we recorded an income tax benefit of
approximately $0.1 million, and approximately $0.3 million for the first six
months of 2002, which consisted of foreign taxes incurred by our foreign sales
and service operations of $0.2 million, other foreign taxes of $0.6 million, and
state income taxes of $0.1 million, partially offset by deferred tax benefit on
the amortization of certain intangible assets of $1.2 million. There was no US
or German current income tax benefit or expense. The effective income tax rate
was 0.6% for the six months ended June 30, 2002.

                                       25

<PAGE>

Liquidity and Capital Resources

   Our cash and cash equivalents, excluding restricted cash, were $84.2 million
at June 29, 2003, a decrease of $3.7 million from $87.9 million at December 31,
2002 and an increase of $2.5 million from $81.7 million at March 30, 2003.
During the second quarter of 2003, we received $11.7 million in payments from
DNS. Stockholders' equity at June 29, 2003 was $81.1 million, compared to $106.1
million as of December 31, 2002.

     Over the next three or more quarters, we expect to make cash payments as a
result of our post-closing obligations related to the disposition of our Wet
Business in an amount estimated to be approximately $15 million. The actual
amount to be paid is uncertain, and could be more or less than our estimate.
During the second half of 2003, we expect to receive payments of $9.9 million
(net of withholding tax) from DNS.

     On April 30, 2002, we issued 7.4 million shares of common stock in a
private placement transaction. Of the 7.4 million shares issued, 1.3 million
shares were issued to Steag Electronic Systems AG upon conversion of $8.1
million of then outstanding promissory notes at $6.15 per share. The remaining
6.1 million shares were sold to other investors at $6.15 per share, for
aggregate gross cash proceeds of $37.5 million.

     We have a revolving line of credit with a bank in the amount of $20.0
million, which will expire on April 26, 2004. All borrowings under this line
bear interest at a per annum rate equal to the bank's prime rate plus 125 basis
points. The line of credit is secured by a blanket lien on all of our domestic
assets including intellectual property. The line of credit requires us to
satisfy certain quarterly financial covenants, which were modified in April
2003, including maintaining a minimum unrestricted cash and cash equivalents and
a minimum balance of investment accounts, and not exceeding a maximum net loss
limit. At June 29, 2003, we were in compliance with the covenants and there were
no borrowings under this credit line.

     Our Japanese subsidiary has a credit facility with a Japanese bank in the
amount of 900 million Yen (approximately $7.6 million at June 29, 2003), secured
by specific trade accounts receivable of our Japanese subsidiary. The facility
bears interest at a per annum rate of TIBOR plus 75 basis points. The term of
the facility has been extended from June 20, 2003 to June 20, 2004. We have
given a corporate guarantee for this credit facility. There are no financial
covenant requirements for this credit facility. At June 29, 2003, the borrowing
under this credit facility was $0.3 million, which is included in accrued
liabilities in the Condensed Consolidated Balance Sheet. In July 2003, we repaid
the entire borrowing.

     On June 24, 2002, we entered into a settlement agreement and a cross
license agreement with DNS under which DNS agreed to make payments to us
totaling between $75 million and $105 million, relating to past damages, partial
reimbursement of attorney's fee and costs, and license fees. The settlement and
minimum license fee payments are payable in varying amounts at varying dates
through April 1, 2007, as follows:

            Fiscal Year Ending                 DNS
               December 31,                  Payments
            ------------------            --------------
                                          (in thousands)
                   2002                       $ 27,000
                   2003                         24,000
                   2004                          6,000
                   2005                          6,000
                   2006                          6,000
                   2007                          6,000
                                              --------
                            Total             $ 75,000
                                              ========


                                       26

<PAGE>

     Payments under the cross license agreement total a minimum of $30 million
and a maximum $60 million. Once total license payments equal $30 million, the
minimum payment schedule no longer applies. No further license fees are payable
once total license payments reach $60 million. The license fee obligations of
DNS would cease if all four patents that had been the subject of the lawsuit
were to be held invalid by a court. During the second quarter of 2003, we
received payments aggregating $13.0 million ($11.7 million, net of 10% Japanese
withholding tax) from DNS. As of June 29, 2003, we had received payments
aggregating $40.0 million ($36.0 million, net, after deducting 10% Japanese
withholding tax) from DNS under the terms of the settlement agreement. These
payments received are being utilized in our operating activities.

     Net cash used in operating activities was $11.7 million during the six
months ended June 29, 2003 as compared to $6.3 million during the same period in
2002.

     The net cash used in operating activities during the six months ended June
29, 2003 was primarily attributable to a net loss of $25.5 million, a decrease
in deferred revenue of $28.1 million, a decrease in prepaid expenses and other
current assets of $6.4 million, and a decrease in accounts payable of $3.2
million. The cash used in operating activities was offset by a net loss
attributable to a decrease in inventories and inventories - delivered systems of
$17.9 million, a decrease in accounts receivable and advance billing of $15.0
million, the loss on disposition of Wet Business of $10.3 million, and the
non-cash depreciation and amortization of $4.7 million.

     The net cash used in operating activities during the six months ended June
30, 2002 was $6.3 million and was primarily attributable to a net loss of $50.3
million, a decrease in deferred revenue of $31.4 million, a decrease in accrued
liabilities of $8.8 million, and a decrease in deferred taxes of $1.2 million.
The cash used in operating activities was offset by non-cash depreciation and
amortization of $8.2 million, a decrease in inventories and inventories -
delivered systems of $33.9 million, a decrease in advance billings of $20.7
million, a decrease in accounts receivable of $17.5 million, and an increase in
accounts payable of $2.6 million.

   Net cash provided by investing activities was $1.1 million during the six
months ended June 29, 2003 as compared to $6.8 million during the same period
last year. The net cash provided by investing activities during the six months
ended June 29, 2003 is attributable to proceeds from the disposition of the Wet
Business of $2.0 million offset by purchase of property and equipment of $0.9
million. The net cash provided by investing activities during the first six
months of 2002 was attributable to the proceeds from the sale of investments of
$9.6 million and sale of equipment of $2.9 million offset by purchases of
investments of $5.1 million.

     Net cash provided by financing activities was $1.2 million during the six
months ended June 29, 2003 as compared to $30.2 million during the same period
last year. The net cash provided by financing activities during the six months
ended June 29, 2003 is primarily attributable to borrowing against our Japanese
line of credit in the amount of net $0.3 million and proceeds from the issuance
of common stock under stock plans of $0.3 million. The net cash provided by
financing activities during the first six months of 2002 was primarily
attributable to the net proceeds from the issuance of common stock of $34.9
million, an increase in the interest accrual on a note payable to SES of $1.3
million, offset by payments against our Japanese line of credit and long-term
debt in the amount of $5.3 million, and payment on SES notes payable of $1.2
million.

     Based on current projections, we believe that our current cash and
investment positions will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months. Our
primary source of liquidity is our existing unrestricted cash balance, and cash
generated by our operations. During 2001, 2002 and the first six months of 2003,
we had operating losses. Our operating plans are based on and require that we
reduce our operating losses, control our expenses, manage our inventories, and
collect our accounts receivable balances. In this market downturn, we are
exposed to a number of challenges and risks, including delays in payments of our
accounts receivable


                                       27


<PAGE>

by our customers, and postponements or cancellations of orders. Postponed or
cancelled orders can cause us to have excess inventory and underutilized
manufacturing capacity. If we are not able to significantly reduce our present
operating losses over the upcoming quarters, our operating losses could
adversely affect our cash and working capital balances, and we may be required
to seek additional sources of financing.

     We may need to raise additional funds in future periods through public or
private financing, or other sources, to fund our operations. We may not be able
to obtain adequate or favorable financing when needed. Failure to raise capital
when needed could harm our business. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced, and these equity securities may have rights, preferences or
privileges senior to our common stock. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants on our operations and financial condition.



        FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

    In this report and from time to time, we may make forward looking statements
regarding, among other matters, our anticipated sales and gross margins in
future periods, changes in our future costs as result of our disposition of the
Wet Business, our future strategy, product development plans, productivity gains
of our products, financial performance and growth. The forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements address
matters which are subject to a number of risks and uncertainties which could
cause actual results to differ materially, including those set forth in our
Annual Report on Form 10-K, all of which are incorporated here by reference, in
addition to the following:


The Semiconductor Equipment Industry is Cyclical, is Currently Experiencing a
Severe and Prolonged Downturn, and Causes Our Operating Results to Fluctuate
Significantly.

     The semiconductor industry is highly cyclical and has historically
experienced periodic downturns, whether the result of general economic changes
or capacity growth temporarily exceeding growth in demand for semiconductor
devices. During periods of declining demand for semiconductor manufacturing
equipment, customers typically reduce purchases, delay delivery of products
and/or cancel orders. Increased price competition may result, causing pressure
on our net sales, gross margin and net income. We are experiencing
cancellations, delays and push-outs of orders, which reduce our revenues, cause
delays in our ability to recognize revenue on the orders and reduce backlog.
Further order cancellations, reductions in order size or delays in orders will
materially adversely affect our business and results of operations.

     Following the very strong year in 2000, the semiconductor industry is now,
since 2001, in the midst of a significant and prolonged downturn, and we and
other industry participants are experiencing lower bookings, significant push
outs and cancellations of orders. The severity and duration of the downturn are
unknown, but is impairing our ability to sell our systems and to operate
profitably. If demand for semiconductor devices and our systems remains
depressed for an extended period, it will seriously harm our business.

     As a result of the acquisition of the STEAG Semiconductor Division and CFM
at the beginning of 2001, we grew to be a larger, more geographically diverse
company, less able to react quickly to the cyclicality of the semiconductor
business, particularly in Europe and other regions where restrictive laws
relating to termination of employees prohibited us from quickly reducing costs
in order to meet the downturn. Accordingly, during this latest downturn we have
been unable to reduce our expenses quickly enough to avoid incurring a loss. For
the fiscal year ended

                                       28


<PAGE>

December 31, 2002 and 2001, and for the first six months of 2003, our net loss
was $94.3 million, $336.7 million, and $25.5 million, respectively, compared to
net income of $1.5 million for the year ended December 31, 2000. The net loss in
2002 and the first half of 2003 primarily reflects the impact of our continuing
decline in net sales. In the first quarter of 2003, we sold the Wet Business to
SCP, which business had originally been acquired as part of our acquisition of
the STEAG Semiconductor Division and CFM. If our actions to date, including our
recent sale to SCP of the Wet Business, are insufficient to effectively align
our cost structure with prevailing market conditions, we may be required to
undertake additional cost-cutting measures, and may be unable to continue to
invest in marketing, research and development and engineering at the levels we
believe are necessary to maintain our competitive position in our remaining core
businesses. Our failure to make these investments could seriously harm our
long-term business prospects.


The Sale of Our Wet Business to SCP May Fail to Result in the Benefits We
Anticipate, and May Cause Us to Incur Greater Costs Than Anticipated.

     We may not obtain the benefits we expect as a result of the sale of the Wet
Business to SCP, such as greater strategic focus on our core businesses. Our
agreement with SCP may require an adjustment to the initial purchase price, if
the net working capital of the Wet Business after the sale is not within a
specified range, and could result in a reduction of the purchase price to us. We
expect the purchase price adjustment based on the net working capital at closing
to result in a payment to SCP, in an amount approximately $2.0 million. We have
agreed with SCP to (i) fund salary and severance costs for certain reductions in
force to be implemented in Germany after the closing, (ii) assume real property
leases relating to our former Pliezhausen facilities, subject to a sublease of
all or a portion of such facilities to SCP, (iii) pay legal fees up to a maximum
of $1 million in connection with certain pending patent litigation, and (iv)
reimburse SCP for amounts to cover specified arrangements and responsibilities
with customers and other costs. We recorded additional accruals of approximately
$11.9 million to cover certain future obligations relating to this transaction.
Over the next three quarters or more, we expect to make cash payments relating
to these obligations and other costs of ending of our wet business operations in
an amount estimated to be approximately $15 million. However, our actual costs
and expenses could be greater or lesser than expected, and if greater, could
materially adversely affect our results of operation in future periods.

     In addition, our consolidated financial statements do not reflect what our
financial position, results of operations and cash flows would have been had the
Wet Business been a separate stand-alone entity during the periods presented.
Therefore, we cannot predict with certainty what the effects of the divestiture
might be on ongoing operations and results, and whether the expected cost
savings will materialize, or whether the transaction may have a material effect
on our financial position, results of operations or cash flows taken as a whole,
or whether the transaction will contribute to our financial results differently
from the investment community's expectations. Our divestiture of the Wet
Business may also result in the cancellation of orders by customers who may be
unhappy that we are discontinuing the product line, particularly if the customer
has previously purchased wet processing products from us. We may lose future
orders if customers are wary or unsure of our long-term plans, or become
concerned that we will discontinue other product lines, or they elect to
purchase products from suppliers that appear to have a broader product offering.
Customers of our wet processing products may attempt to return the products if
they fear that ongoing maintenance and support of the product will not be
available.

     The divestiture may also prove more costly or difficult than expected,
could cause us to lose key employees, and divert management attention and
resources from our other core businesses, particularly over the next several
quarters. In addition to the employees and facilities transferred to SCP as part
of the divestiture, we are shutting down other facilities in the United States
previously devoted largely to the Wet Business, and terminating additional
employees not hired by SCP who had predominantly worked in the Wet Business. In
order to achieve the desired cost savings from the divestiture, we will need to
incur substantial restructuring costs, including severance costs associated with
headcount reductions, and asset write-offs associated with manufacturing and
facility closures. We may incur additional costs associated with the
discontinued operations, and the dedication of management resources to the sale
has distracted and may continue to distract attention from our remaining core
businesses. We may incur additional costs associated with these activities,
which could materially reduce our short term earnings.


                                       29

<PAGE>

We Are Implementing New Financial Systems, and Will Need to Continue to Improve
or Implement New Systems, Procedures and Controls.

     We are implementing new financial systems used in the consolidation of our
financial results, in order to further automate processes and align the
disparate systems used by our acquired businesses. The integration of the STEAG
Semiconductor Division and CFM and their operational and financial systems and
controls after the merger in 2001 placed a significant strain on our management
information systems and our administrative, operational and financial resources,
requiring us to improve our systems and implement new operational and financial
systems, procedures and controls. Since that acquisition, we have been pursuing
integration of the businesses, systems and controls of the three companies, as
each business historically used a different financial system. We have recently
implemented new financial systems to aid in the consolidation of our financial
reporting operations. These financial systems are new and we have not had
extensive experience with them. We may encounter unexpected difficulties, costs
or other challenges that make implementation and use of these systems more
difficult or costly than expected, may cause the consolidation and reporting of
our financial results to be more time-consuming than expected, and may require
additional management resources than expected before they are fully implemented
and operating smoothly. In addition, the sale of our Wet Business to SCP will
continue to place a significant strain on our management information systems and
our administrative, operational and financial resources as we separate out the
Wet Business as a discontinued operation from our core businesses. Continued
improvement or implementation of new systems, procedures and controls may be
required, and could cause us to incur additional costs, and place further
burdens on our management and internal resources. If our new financial systems
do not result in the expected improvements, or if we are unable to fully
implement these systems, procedures and controls in a timely manner, our
business could be harmed.

     In addition, as a result of new requirements proposed by the Securities and
Exchange Commission, in response to the passage of the Sarbanes-Oxley Act of
2002, requiring annual review and evaluation of our internal control systems,
and attestation of these systems by our independent auditors, we are currently
reviewing our internal control procedures, and working with our auditors to
implement any enhancements of such procedures, or further documentation of such
procedures, that may be necessary. Any improvements in our internal control
systems or in documentation of such internal control systems could be costly to
prepare or implement, divert attention of management or finance staff, and may
cause our operating expenses to increase over the ensuing year.



We Are Beginning the Implementation of a New Enterprise Resource Planning
System, Which May Be More Difficult or Costly Than Anticipated, and Could Cause
Disruption to the Management of Our Business and the Preparation of Our
Financial Statements.

     We are currently beginning the implementation of a new enterprise resource
planning, or ERP, system, which is expected to become integral to our ability to
accurately and efficiently maintain our books and records, record our
transactions, provide critical information to our management, and prepare our
financial statements. However, the new ERP system could eventually become more
costly, difficult and time consuming to purchase and implement than we currently
anticipate. In addition, implementation of the new ERP system requires us to
change our internal business practices, transfer records to a new computer
system and train our employees in the correct use of and input of data into the
system, which could result in disruption of our procedures and controls and
difficulties achieving accuracy in the conversion of data. If we


                                       30


<PAGE>

fail to manage these changes effectively, our operations could be disrupted,
which could result in the diversion of management's attention and resources,
cause us to improperly state or delay reporting of our financial results,
materially and adversely affect our operating results, and impact our ability to
manage our business. In addition, to manage our business effectively, we may
need to implement additional and improved management information systems,
further develop our operating, administrative, financial and accounting systems
and controls, add experienced senior level managers, and maintain closer
coordination among our executive, engineering, accounting, marketing, sales and
operations organizations. We may incur additional unexpected costs and our
systems, procedures or controls may not be adequate to support our operations.



We Depend on Large Purchases From a Few Customers, and Any Loss, Cancellation,
Reduction or Delay in Purchases By, or Failure to Collect Receivables From,
These Customers Could Harm Our Business.

     Currently, we derive most of our revenues from the sale of a relatively
small number of systems to a relatively small number of customers, which makes
our relationship with each customer critical to our business. The list prices on
our systems range from $500,000 to over $2.2 million. Our lengthy sales cycle
for each system, coupled with customers' capital budget considerations, make the
timing of customer orders uneven and difficult to predict. Any delay in
scheduled shipments or in acceptances of shipped products would delay our
ability to recognize revenue and collect outstanding accounts receivable, and
could materially adversely affect our operating results for that quarter. A
delay in a shipment or customer acceptance near the end of a quarter could cause
net sales in that quarter to fall below our expectations and the expectations of
market analysts or investors.

     Our list of major customers changes substantially from year to year, and we
cannot predict whether a major customer in one year will make significant
purchases from us in future years. Accordingly, it is difficult for us to
accurately forecast our revenues and operating results from year to year. If we
are unable to collect a receivable from a large customer, our financial results
will be negatively impacted.



Our Backlog Orders are Subject to Cancellation or Delay, and Our Current Backlog
is Relatively Low in Relation to Our Projected Revenues, so that we Must Book
and Ship Significant Orders Within the Same Quarter to Achieve Our Revenue
Goals.

     Although we maintain a backlog of customer orders expected to be filled
within 12 months, customers may request cancellations or delivery delays. As a
result, our backlog may not be a reliable indication of our future revenues. In
addition, our backlog is relatively low in relation to our projected quarterly
revenues, so meeting our revenue goals requires that we book and ship
significant orders in the same quarter, in addition to shipping orders out of
backlog on schedule. Given our current limited bookings visibility, this makes
predicting revenues increasingly difficult. If we do not receive sufficient
orders that can be shipped within a relatively short time-frame, or if shipments
of such orders or of previously scheduled orders in backlog are cancelled or
delayed, our revenues could fall below our expectations and the expectations of
market analysts and investors.


We Are Increasingly Outsourcing Manufacturing and Logistics Activities to Third
Party Service Providers, Which Decreases Our Control Over the Performance of
These Functions.

     We have already outsourced certain manufacturing and logistics functions to
third party service providers, and may outsource more of those functions in the
future. While we expect to achieve operational flexibility and cost savings as a
result of this outsourcing, outsourcing has a number of risks and reduces our
control over the performance of the outsourced functions. Significant
performance problems by these third party service providers could result in cost
overruns, delayed deliveries, shortages, quality issues or other problems which
could materially and adversely affect our business, financial condition and
results of operations.


                                       31

<PAGE>

     If for any reason one or more of these third party service providers
becomes unable or unwilling to continue to provide services of acceptable
quality, at acceptable costs and in a timely manner, our ability to deliver our
products to our customers could be severely impaired. We would quickly have to
identify and qualify substitute service providers or increase our internal
capacity, which could be expensive, time consuming and difficult and could
result in unforeseen operations problems. Substitute service providers might not
be available or, if available, might be unwilling or unable to offer services on
acceptable terms.

     If customer demand for our products increases, we may be unable to secure
sufficient additional capacity from our current service providers on
commercially reasonable terms, if at all.

     Our requirements are expected to represent a small portion of the total
capacities of our third party service providers, and they may preferentially
allocate capacity to other customers, even during periods of high demand for our
products. In addition, such manufacturers could suffer financial difficulties or
disruptions in their operations due to causes beyond our control.


Our Quarterly Operating Results Fluctuate Significantly and Are Difficult to
Predict, and May Fall Short of Anticipated Levels, Which Could Cause Our Stock
Price to Decline.

     Our quarterly revenue and operating results have varied significantly in
the past and are likely to vary significantly in the future, which makes it
difficult for us to predict our future operating results. This fluctuation is
due to a number of factors, including:

     o    cyclicality of the semiconductor industry;

     o    delays, cancellations and push-outs of orders by our customers;

     o    delayed product acceptance or payments of invoices by our customers;

     o    size and timing of sales, shipments and acceptance of our products;

     o    entry of new competitors into our market, or the announcement of new
          products or product enhancements by competitors; o sudden changes in
          component prices or availability;

     o    variability in the mix of products sold;

     o    manufacturing inefficiencies caused by uneven or unpredictable order
          patterns, reducing our gross margins;

     o    higher fixed costs due to increased levels of research and development
          costs; and

     o    successful expansion of our worldwide sales and marketing
          organization.

     A substantial percentage of our operating expenses are fixed in the short
term and we may be unable to adjust spending to compensate for an unexpected
shortfall in revenues. As a result, any delay in generating or recognizing
revenues could cause our operating results to be below the expectations of
market analysts or investors, which could cause the price of our common stock to
decline.

                                       32
<PAGE>

The Price of Our Common Stock Has Fluctuated in the Past and May Continue to
Fluctuate Significantly in the Future, Which May Lead to Losses By Investors or
to Securities Litigation.

     The market price of our common stock has been highly volatile in the past,
and our stock price may decline in the future. We believe that a number of
factors could cause the price of our common stock to fluctuate, perhaps
substantially, including:

     o    general conditions in the semiconductor industry or in the worldwide
          economy;

     o    announcements of developments related to our business;

     o    fluctuations in our operating results and order levels;

     o    announcements of technological innovations by us or by our
          competitors;

     o    new products or product enhancements by us or by our competitors;

     o    developments in patent litigation or other intellectual property
          rights; or

     o    developments in our relationships with our customers, distributors,
          and suppliers.

     In addition, in recent years the stock market in general, and the market
for shares of high technology stocks in particular, have experienced extreme
price fluctuations. These fluctuations have frequently been unrelated to the
operating performance of the affected companies. Such fluctuations could
adversely affect the market price of our common stock. In the past, securities
class action litigation has often been instituted against a company following
periods of volatility in its stock price. This type of litigation, if filed
against us, could result in substantial costs and divert our management's
attention and resources.


Legislative actions, higher insurance cost and potential new accounting
pronouncements are likely to cause our general and administrative expenses to
increase and impact our future financial position and results of operations.

     In order to comply with the newly adopted Sarbanes-Oxley Act of 2002, as
well as proposed changes to listing standards by Nasdaq, and proposed accounting
changes by the Securities and Exchange Commission, we may be required to
increase our internal controls, hire additional personnel and additional outside
legal, accounting and advisory services, all of which will cause our general and
administrative costs to increase. Insurers are also likely to increase premiums
as a result of the high claims rates incurred over the past year, and so our
premiums for our various insurance policies, including our directors' and
officers' insurance policies, are likely to increase. Proposed changes in the
accounting rules, including legislative and other proposals to account for
employee stock options as a compensation expense among others, could materially
increase the expenses that we report under generally accepted accounting
principles and adversely affect our operating results.


                                       33


<PAGE>

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

Interest Rate Risk.

     Our exposure to market risk for changes in interest rates relates to our
investment portfolio. We do not use derivative financial instruments in our
investment portfolio. We place our investments with high credit quality issuers
and, by policy, limit the amount of credit exposure to any one issuer. The
portfolio includes only marketable securities with active secondary or resale
markets to ensure portfolio liquidity. We have no cash flow exposure due to rate
changes for cash equivalents and short-term investments, as all of these
investments are at fixed interest rates.

     The table below presents the fair value of principal amounts and related
weighted average interest rates for our investment portfolio as of June 29,
2003.

                                           Fair Value
                                            June 29,
                                              2003
                                         --------------
                                         (In thousands)
      Assets
      Cash and cash equivalents             $84,163
           Average interest rate                0.8%
      Restricted cash                       $   593
           Average interest rate                1.0%


Foreign Currency Risk

     We are primarily a US Dollar functional currency entity. We transact
business in various foreign countries and employ a foreign currency hedging
program, utilizing foreign currency forward exchange contracts, to hedge foreign
currency fluctuations associated with the Japanese Yen, Korean Won, Singapore
Dollar and Taiwan Dollar. Our subsidiaries in Germany are EURO functional
currency entities and they also employ foreign currency hedging programs,
utilizing foreign currency forward exchange contracts, to hedge foreign currency
fluctuations associated with the US Dollar and Japanese Yen. The goal of the
hedging program is to lock in exchange rates to minimize the impact of foreign
currency fluctuations. We do not use foreign currency forward exchange contracts
for speculative or trading purposes.

     The following table provides information as of June 29, 2003 about us and
our subsidiaries' derivative financial instruments, which are comprised of
foreign currency forward exchange contracts. The information is provided in U.S.
dollar and EURO equivalent amounts, as listed below. The table presents the
notional amounts (at the contract exchange rates), the weighted average
contractual foreign currency exchange rates, and the estimated fair value of
those contracts.

                                       34
<PAGE>


<TABLE>
<CAPTION>
                                                                                    Average       Estimated
                                                                   Notional        Contract          Fair
                                                                    Amount           Rate           Value
                                                                   ---------       ---------       --------
                                                                (In thousands, except for average contract rate)

<S>                                                                <C>             <C>             <C>
Foreign currency forward sell exchange contracts:

  Mattson Technology Inc. (US Dollar equivalent amount)
     Japanese Yen                                                  $  3,997        119.03          $  4,039

  Mattson Thermal Products GmbH (Euro equivalent amount)
     U.S. Dollar                                                 EUR  5,868          1.08        EUR  5,517
     Japanese Yen                                                EUR  1,722        123.17        EUR  1,561
</TABLE>


   The local currency is the functional currency for all our foreign sales
operations. Our exposure to foreign currency risk has increased as a result of
our global expansion of business. To neutralize its US operation's exposure to
exchange rate volatility, the Company keeps EUROS in a foreign currency bank
account. The balance of this bank account was 22.3 million EUROS at June 29,
2003.


Item 4. Controls and Procedures

     (a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our "disclosure controls and procedures" (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on the
evaluation, our principal executive officer and principal accounting officer
concluded that, although effective, our disclosure controls and procedures
continued to need improvement as of the end of the period covered by this
quarterly report. In connection with the audit of our consolidated financial
statements as of and for the year ended December 31, 2002, our independent
accountant, PricewaterhouseCoopers LLP ("PwC") noted as a reportable condition
our ongoing need to improve and automate procedures for our month-end closings.
As previously reported, the same condition had been noted by our former
independent accountants, Arthur Andersen LLP, in connection with the audit of
our consolidated financial statements as of and for the year ended December 31,
2001. Our management did not disagree with the report made by PwC or Andersen.
In the first quarter of 2003, we implemented a new computerized system to
automate these procedures. Our work to implement and improve the new system
continues as an active project.

           (b) There have been no significant changes (including corrective
actions with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the quarterly evaluation by our senior
management referenced in paragraph (a) above. As noted in paragraph (a) above,
in the first quarter of 2003 we implemented a new computer system to automate
our monthly closing procedures.


                                       35

<PAGE>

                         PART II -- OTHER INFORMATION

Item 1.   Legal Proceedings.

    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 can
not 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.

     Except as reported in our most recent annual report on Form 10-K and our
quarterly report on Form 10-Q for the quarter ended March 30, 2003, there have
been no material developments in the pending cases during the second quarter of
2003.

   Our involvement in any patent dispute, or 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 2.   Changes in Securities and Use of Proceeds.

          None

Item 3.   Defaults Upon Senior Securities.

          None

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

     Our annual meeting of stockholders was held on May 21, 2003.

     At the meeting, the stockholders elected Dr. Jochen Melchior and Shigeru
Nakayama as Class III directors to hold office for a three-year term and until
their successors are elected and qualified. The nominees received the following
votes:

          Nominee                      For                Withheld
          -------                      ---                --------
          Dr. Jochen Melchior          43,369,647         376,335
          Shigeru Nakayama             43,510,458         235,524


     Our stockholders approved a proposal to increase the number of shares
reserved for issuance under our Amended and Restated 1989 Stock Option Plan by
1,500,000 shares. The proposal received the following votes:

            For             Against         Abstain       Broker Non-Vote
            ---             -------         -------       ---------------
         27,700,176        16,028,570        17,236            -0-


     Our stockholders approved a proposal to increase the number of shares
reserved for issuance under our 1994 Employee Stock Purchase Plan by 700,000
shares. The proposal received the following votes:

            For             Against         Abstain       Broker non-Vote
            ---             -------         -------       ---------------
         43,113,757         618,365          13,860             -0-



Item 5.   Other Information.

          None

                                       36

<PAGE>


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

     (a)  Exhibits

          3.1(1)    Amended and Restated Certificate of Incorporation of the
                    Company.

          3.2(2)    Third Amended and Restated Bylaws of the Company.

          31.1      Certification of Chief Executive Officer Pursuant to
                    Sarbanes-Oxley Act Section 302 (a).

          31.2      Certification of Chief Financial Officer Pursuant to
                    Sarbanes-Oxley Act Section 302 (a).

          32.1      Certification of Chief Executive Officer Pursuant to 18
                    U.S.C. Section 1350.

          32.2      Certification of Chief Financial Officer Pursuant to 18
                    U.S.C. Section 1350.

          99.1      Risk Factors incorporated by reference to Annual Report on
                    Form 10-K.


      (b)  Reports on Form 8-K

                    Form 8-K filed April 1, 2003 reporting under Item 2 and Item
                    7 the disposition of the Wet Business.

                    Form 8-K/A filed April 11, 2003 reporting amendment to the
                    pro forma financial information previously provided on Form
                    8-K filed April 1, 2003.

                    Form 8-K furnished May 13, 2003 reporting under Item 7 and
                    Item 9 the issuance of a press release reporting financial
                    results for the first quarter of 2003.


          -----------

          (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.


                                       37
<PAGE>


                                   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.



Date: August 12, 2003
                                        /s/ David Dutton
                                    ---------------------------------------
                                        David Dutton
                                        President and Chief Executive Officer




                                        /s/ Ludger Viefhues
                                    ---------------------------------------
                                        Ludger Viefhues
                                        Executive Vice President -- Finance
                                        and Chief Financial Officer