**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **(Mark One)** | ** ** | ** **                                                                                          |
|----------------|------------|-----------------------------------------------------------------------------------------------------|
| **ý**     | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|           |       |                                                                                                |
| ** **     | ** ** | **For the quarterly period  ended  July 2, 2005**                                         |
| ** **     | ** ** | ** **                                                                                          |
| **o**          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF  1934** |

 

**For the transition periodfrom            to            **

 

**Commission File Number  0-22248**

 

**ULTRATECH, INC.**

(Exact name of registrant as specified in its charter)

 
| **DELAWARE**                                                   | ** ** | **94-3169580**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. Employer Identification No.) |
|                                                           |       |                                 |
| **3050 Zanker Road, San Jose, California**                     | ** ** | **95134**                            |
| (Address of principal executive offices)                       |       | (Zip Code)                           |

 

Registrant’s telephone number, including areacode        **(408)321-8835**

 

 

(Former name, former address and former fiscal year, if changed sincelast report.)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
| Yes         ý |   | No         o |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------|

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

 
| Yes         ý |   | No         o |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------|

 

Indicatethe number of shares outstanding of each of the issuer’s classes of CommonStock, as of the latest practical date:

 
| **Class**                     | ** ** | **Outstanding as of August 5, 2005** |
|-------------------------------|------------|--------------------------------------|
| common stock, $.001 par value |       | 24,059,998                           |

 

 

----

 

**ULTRATECH, INC.**

 

**INDEX**

 
| **PART I.**                        | **FINANCIAL INFORMATION**                                                                                          | ** ** |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------|------------|
|                               |                                                                                                               |       |
| **Item 1.**                        | **Condensed Consolidated  Financial Statements**                                                                   | ** ** |
|                               |                                                                                                               |       |
|                               | Condensed Consolidated  Balance Sheets as of July 2, 2005 and December 31, 2004                               |       |
|                               |                                                                                                               |       |
|                               | Condensed Consolidated  Statements of Operations for the three and six months ended July 2, 2005 and  July 3, 2004 |       |
|                               |                                                                                                               |       |
|                               | Condensed Consolidated  Statements of Cash Flows for the six months ended July 2, 2005 and July 3,  2004           |       |
|                               |                                                                                                               |       |
|                               | Notes to Condensed  Consolidated Financial Statements                                                              |       |
|                               |                                                                                                               |       |
| **Item 2.**                        | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations**                    | ** ** |
|                               |                                                                                                               |       |
| **Item 3.**                        | **Quantitative and Qualitative  Disclosures About Market Risk**                                                    | ** ** |
|                               |                                                                                                               |       |
| **Item 4.**                        | **Controls and Procedures**                                                                                        | ** ** |
|                               |                                                                                                               |       |
| **PART II.**                       | **OTHER INFORMATION**                                                                                              |       |
|                               |                                                                                                               |       |
| **Item 1.**                        | **Legal Proceedings**                                                                                              | ** ** |
|                               |                                                                                                               |       |
| **Item 2.**                        | **Unregistered Sales of Equity Securities and Use of  Proceeds**                                                   |       |
|                               |                                                                                                               |       |
| **Item 3.**                        | **Defaults upon Senior Securities**                                                                                | ** ** |
|                               |                                                                                                               |       |
| **Item 4.**                        | **Submission of Matters to a Vote of Security Holders**                                                            |       |
|                               |                                                                                                               |       |
| **Item 5.**                        | **Other Information**                                                                                              |       |
|                               |                                                                                                               |       |
| **Item 6.**                        | **Exhibits**                                                                                                       | ** ** |
|                               |                                                                                                               |       |
| **SIGNATURES  AND CERTIFICATIONS** |                                                                                                               |

 

2

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**PART I.          FINANCIALINFORMATION**

**Item 1.  Condensed ConsolidatedFinancial Statements**

 

**ULTRATECH, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| **(In thousands)**                                  | ** ** | **July 2,  2005** | ** ** | **Dec. 31,  2004*** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| ** **                                          | ** ** | **(Unaudited)**   | ** ** | ** **          | ** ** |
| ***ASSETS***                                        |       |              |       |                |       |
| Current assets:                                     |       |              |       |                |       |
| Cash, cash equivalents, and short-term  investments |       | $                 | 146,255    |                | $          | 151,627 |   |
| Accounts receivable, net                            |       | 19,576            |       | 19,907              |       |
| Inventories                                         |       | 29,448            |       | 27,842              |       |
| Taxes receivable                                    |       | 704               |       | 509                 |       |
| Prepaid expenses and other current assets           |       | 3,236             |       | 1,654               |       |
| Total current assets                                |       | 199,219           |       | 201,539             |       |
|                                                |       |              |       |                |       |
| Equipment and leasehold improvements, net           |       | 22,339            |       | 21,992              |       |
|                                                |       |              |       |                |       |
| Intangible assets, net                              |       | —            |       | 95                  |       |
|                                                |       |              |       |                |       |
| Demonstration inventories, net                      |       | 2,913             |       | 4,223               |       |
|                                                |       |              |       |                |       |
| Other assets                                        |       | 2,972             |       | 2,697               |       |
|                                                |       |              |       |                |       |
| Total assets                                        |       | $                 | 227,443    |                | $          | 230,546 |   |
|                                                |       |              |       |                |       |
| ***LIABILITIES AND STOCKHOLDERS’ EQUITY***     |       |              |       |                |       |
| Current liabilities:                                |       |              |       |                |       |
| Notes payable                                       |       | $                 | 6,597      |                | $          | 7,900 |   |
| Accounts payable                                    |       | 10,583            |       | 13,587              |       |
| Deferred product and service income                 |       | 3,435             |       | 1,244               |       |
| Deferred license income                             |       | —            |       | 1,041               |       |
| Other current liabilities                           |       | 9,281             |       | 8,146               |       |
| Total current liabilities                           |       | 29,896            |       | 31,918              |       |
|                                                |       |              |       |                |       |
| Other liabilities                                   |       | 5,826             |       | 5,338               |       |
|                                                |       |              |       |                |       |
| Stockholders’ equity                           |       | 191,721           |       | 193,290             |       |
|                                                |       |              |       |                |       |
| Total liabilities and stockholders’ equity     |       | $                 | 227,443    |                | $          | 230,546 |   |

 

----

* The Balance Sheet as ofDecember 31, 2004 has been derived from the audited financial statementsat that date.

 

*Seeaccompanying notes to unaudited condensed consolidated financial statements*

 

3

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**ULTRATECH,INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands, except per share amounts)**               | ** ** | **July 2,  2005**      | ** ** | **July 3,  2004**    | ** ** | **July 2,  2005** | ** ** | **July 3,  2004** | ** ** |
| Net sales:                                                 |       |                   |       |                 |       |   |   |   |   |
| Products                                                   |       | $                      | 25,698     |                 | $          | 18,690 |   | $ | 49,434 |   | $ | 41,480 |   |
| Services                                                   |       | 2,839                  |       | 2,879                |       | 5,937 |   | 5,772 |   |
| Licenses                                                   |       | 289                    |       | 928                  |       | 1,417 |   | 1,856 |   |
| Total net sales                                            |       | 28,826                 |       | 22,497               |       | 56,788 |   | 49,108 |   |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Cost of sales:                                             |       |                   |       |                 |       |   |   |   |   |
| Cost of products sold                                      |       | 14,752                 |       | 10,151               |       | 28,144 |   | 21,844 |   |
| Cost of services                                           |       | 2,385                  |       | 2,173                |       | 4,677 |   | 4,031 |   |
| Total cost of sales                                        |       | 17,137                 |       | 12,324               |       | 32,821 |   | 25,875 |   |
| Gross profit                                               |       | 11,689                 |       | 10,173               |       | 23,967 |   | 23,233 |   |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Operating expenses:                                        |       |                   |       |                 |       |   |   |   |   |
| Research, development, and engineering                     |       | 6,833                  |       | 6,248                |       | 14,336 |   | 12,458 |   |
| Selling, general, and administrative                       |       | 8,196                  |       | 7,160                |       | 15,731 |   | 14,247 |   |
| Amortization of intangible assets                          |       | —                 |       | 95                   |       | 95 |   | 190 |   |
| Operating loss                                             |       | (3,340                 | )          | (3,330               | )          | (6,195 | ) | (3,662 | ) |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                           |       | (99                    | )          | (20                  | )          | (190 | ) | (55 | ) |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Interest and other income, net                             |       | 1,149                  |       | 857                  |       | 2,063 |   | 1,816 |   |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Loss before income tax                                     |       | (2,290                 | )          | (2,493               | )          | (4,322 | ) | (1,901 | ) |
| Income tax benefit                                         |       | (296                   | )          | (227                 | )          | (432 | ) | (162 | ) |
| Net loss                                                   |       | $                      | (1,994     | )                    | $          | (2,266 | ) | $ | (3,890 | ) | $ | (1,739 | ) |
|                                                       |       |                   |       |                 |       |   |   |   |   |
| Loss per share - basic:                                    |       |                   |       |                 |       |   |   |   |   |
| Net loss                                                   |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |
| Number of shares used in per share  computations - basic   |       | 23,944                 |       | 23,705               |       | 23,912 |   | 23,675 |   |
| Loss per share - diluted:                                  |       |                   |       |                 |       |   |   |   |   |
| Net loss                                                   |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |
| Number of shares used in per share  computations - diluted |       | 23,944                 |       | 23,705               |       | 23,912 |   | 23,675 |   |

 

*See accompanying notes to unaudited condensed consolidated financialstatements*

 

4

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ULTRATECH, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

 
| ** **                                                                    | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                    | ** ** | **July 2,**          | ** ** | **July 3,** | ** ** |
| **(In thousands)**                                                            | ** ** | **2005**             | ** ** | **2004** | ** ** |
| *Cash flows from operating activities:*                                       |       |                 |       |   |   |
| Net loss                                                                      |       | (3,890               | )          | (1,739 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:  |       |                 |       |   |   |
| Depreciation                                                                  |       | 3,326                |       | 3,222 |   |
| Amortization                                                                  |       | 760                  |       | 1,262 |   |
| Loss on disposal of equipment                                                 |       | 3                    |       | 3 |   |
| Loss on sale of short-term investments                                        |       | 8                    |       | — |   |
| Deferred compensation                                                         |       | 68                   |       | 150 |   |
| Deferred income taxes                                                         |       | (17                  | )          | 126 |   |
| Changes in operating assets and  liabilities:                                 |       |                 |       |   |   |
| Accounts receivable                                                           |       | 332                  |       | (5,513 | ) |
| Inventories                                                                   |       | (1,606               | )          | (4,590 | ) |
| Taxes receivable                                                              |       | (195                 | )          | 349 |   |
| Prepaid expenses and other current assets                                     |       | (1,582               | )          | 5 |   |
| Demonstration inventory                                                       |       | 855                  |       | (1,037 | ) |
| Other assets                                                                  |       | (288                 | )          | (453 | ) |
| Accounts payable                                                              |       | (3,004               | )          | 2,567 |   |
| Deferred product and services income                                          |       | 2,191                |       | 2,453 |   |
| Deferred license income                                                       |       | (1,041               | )          | (1,856 | ) |
| Other current liabilities                                                     |       | 1,164                |       | (1,487 | ) |
| Other liabilities                                                             |       | 488                  |       | 763 |   |
| Net cash used in operating activities                                         |       | (2,428               | )          | (5,775 | ) |
|                                                                          |       |                 |       |   |   |
| *Cash flows from investing activities:*                                       |       |                 |       |   |   |
| Capital expenditures                                                          |       | (3,676               | )          | (2,577 | ) |
| Purchase of securities                                                        |       | (76,658              | )          | (69,073 | ) |
| Proceeds from sales and maturities of  securities                             |       | 69,685               |       | 71,587 |   |
| Net cash used in investing activities                                         |       | (10,649              | )          | (63 | ) |
|                                                                          |       |                 |       |   |   |
| *Cash flows from financing activities:*                                       |       |                 |       |   |   |
| Proceeds from notes payable                                                   |       | 66,235               |       | 8,500 |   |
| Repayment of notes payable                                                    |       | (67,538              | )          | (5,764 | ) |
| Proceeds from issuance of common stock                                        |       | 2,046                |       | 1,469 |   |
| Net cash provided by financing activities                                     |       | 743                  |       | 4,205 |   |
|                                                                          |       |                 |       |   |   |
| Net effect of exchange rate changes on cash                                   |       | 367                  |       | 312 |   |
|                                                                          |       |                 |       |   |   |
| Net decrease in cash and cash equivalents                                     |       | (11,967              | )          | (1,321 | ) |
|                                                                          |       |                 |       |   |   |
| Cash and cash equivalents at beginning of  period                             |       | 47,985               |       | 25,149 |   |
|                                                                          |       |                 |       |   |   |
| Cash and cash equivalents at end of period                                    |       | $                    | 36,018     |   | $ | 23,828 |   |
|                                                                          |       |                 |       |   |   |
| Supplemental disclosures of cash flow  information:                           |       |                 |       |   |   |
| Other non-cash change:                                                        |       |                 |       |   |   |
| Systems transferred from (to) inventory to  (from) equipment and other assets |       | $                    | 1,723      |   | $ | 1,537 |   |

 

*See accompanying notes to unaudited condensed consolidated financialstatements.*

 

5

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**Ultratech, Inc.**

**Notes to Condensed Consolidated Financial Statements**

**(Unaudited)**

**July 2, 2005**

**(1)Description of Business**

 

Ultratech, Inc.(referred to as “Ultratech” and “we”) develops, manufactures and marketsphotolithography and laser thermal processing equipment for manufacturers ofsemiconductor and nanotechnology components located throughout North America,Europe, Japan, Taiwan and the rest of Asia.

 

Wesupply step-and-repeat photolithography systems based on one-to-one imagingtechnology. Within the semiconductor industry, we target the market foradvanced packaging applications. Within the nanotechnology industry, our targetmarkets include thin film head magnetic recording devices, optical networkingdevices, laser diodes and LEDs (light emitting diodes). Our laser thermalprocessing equipment is targeted at advanced annealing applications within thesemiconductor industry.

 

Inevaluating its business segments, we gave consideration to the Chief ExecutiveOfficer’s review of financial information and the organizational structure ofour management. Based on this review, we concluded that, at the present time,resources are allocated and other financial decisions are made based onconsolidated financial information. Accordingly, we have determined that weoperate in one business segment, which is the manufacture and distribution ofcapital equipment to manufacturers of integrated circuits and nanotechnologycomponents.

 

**(2)Basis of Presentation**

 

Wehave prepared the unaudited condensed consolidated financial statements inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by U.S. generally accepted accounting principles forcomplete financial statements. In the opinion of management, all adjustments,consisting of only normal recurring adjustments considered necessary for fairpresentation, have been included.

 

Operatingresults for the three and six month periods ended July 2, 2005 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2005, or any future period.

 

**USE OF ESTIMATES**— The preparation of the financial statements and related disclosures inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements. By their nature, these estimates and judgments are subject to aninherent degree of uncertainty. On an ongoing basis, management evaluates itsestimates, including those related to inventories, warranty obligations,purchase order commitments, bad debts, estimated useful lives of fixed assets,asset impairment, income taxes, intangible assets, and contingencies andlitigation. Management bases its estimates on historical experience and onvarious other analyses and assumptions that are believed to be reasonable underthe circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates.

 

**IMPACT OF RECENTLY ISSUEDACCOUNTING STANDARDS**— OnDecember 16, 2004, the Financial Accounting Standards Board (FASB) issuedFASB Statement No. 123 (revised 2004), Share-Based Payment, which is arevision of FASB Statement No. 123, Accounting for Stock-BasedCompensation. Statement 123(R) supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends FASB StatementNo. 95, Statement of Cash Flows. Generally, the approach in Statement123(R) is similar to the approach described in Statement 123. However,Statement 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized in the incomestatement based on their fair values. Pro forma disclosure will no longer be analternative. In April 2005, the Securities and Exchange Commission announcedthe adoption of a new rule that amends the effective date of FAS 123(R). Theeffective date of the new standard under these new rules for our consolidatedfinancial statements is January 1, 2006.

 

As permitted by Statement 123, we currently account forshare-based payments to employees using the intrinsic value method and, assuch, generally recognize no compensation cost for employee stock options.Accordingly, the adoption of Statement 123(R)’s fair value method will have asignificant impact on our results of operations, although it will have noimpact on our overall financial position. The impact of adoption of Statement123(R) cannot be predicted at this time because it will depend on levelsof share-based payments granted in the future, the valuationmodel used to value the options and other variables. However, had we adopted Statement 123(R) in prior periods, theimpact of that standard would have

 

6

----

 

approximated the impact of Statement 123 as described inthe disclosure of pro forma net income (loss) and earnings (loss) per share inNote 3 to our condensed consolidated financial statements.

 

**(3)Stock-Based Compensation**

 

Weaccount for compensation expense related to our stock-based employeecompensation plans under the intrinsic value method. Accordingly, nostock-based employee compensation cost is recorded in the condensed consolidatedstatements of operations, as all options granted under these plans had anexercise price equal to the market value of the underlying common stock on thedate of grant.

 

Thefollowing table illustrates the effect on net loss and net loss per share, hadwe applied the fair value recognition method to account for stock-basedemployee compensation.

 
| ** **                                                                                                                            | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                                                            | ** ** | **July 2,**            | ** ** | **July 3,**          | ** ** | **July 2,** | ** ** | **July 3,** | ** ** |
| **(In thousands, except per share  amounts)**                                                                                         | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net loss as reported                                                                                                                  |       | $                      | (1,994     | )                    | $          | (2,266 | ) | $ | (3,890 | ) | $ | (1,739 | ) |
| Total stock-based employee compensation  expense, determined under fair valuebased method for all awards, net of  related tax effects |       | (436                   | )          | (16,974              | )          | (3,119 | ) | (19,913 | ) |
| Pro forma net loss                                                                                                                    |       | $                      | (2,430     | )                    | $          | (19,240 | ) | $ | (7,009 | ) | $ | (21,652 | ) |
|                                                                                                                                  |       |                   |       |                 |       |   |   |   |   |   |   |   |
| Net loss per share - basic, as reported                                                                                               |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |
| Pro forma net loss per share - basic                                                                                                  |       | $                      | (0.10      | )                    | $          | (0.84 | ) | $ | (0.29 | ) | $ | (0.93 | ) |
|                                                                                                                                  |       |                   |       |                 |       |   |   |   |   |
| Net loss per share - diluted, as reported                                                                                             |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |
| Pro forma net loss per share - diluted                                                                                                |       | $                      | (0.10      | )                    | $          | (0.84 | ) | $ | (0.29 | ) | $ | (0.93 | ) |

 

Thetable above used the following weighted-average assumptions to estimate thefair value of stock options at the date of grant using the Black-Scholesoption-pricing model.

 
| ** **                                              | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **July 2,**            | ** ** | **July 3,**          | ** ** | **July 2,** | ** ** | **July 3,** | ** ** |
| ** **                                              | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                    |       |                   |       |                 |       |   |   |   |   |
| Expected life (in years): stock options                 |       | 3.8                    |       | 2.0                  |       | 3.5 |   | 2.3 |   |
|                                                    |       |                   |       |                 |       |   |   |   |   |
| Expected life (in years): Employee Stock  Purchase Plan |       | NA                     |       | 1.25                 |       | NA |   | 1.25 |   |
|                                                    |       |                   |       |                 |       |   |   |   |   |
| Risk-free interest rate                                 |       | 3.76                   | %          | 2.68                 | %          | 3.44 | % | 2.64 | % |
|                                                    |       |                   |       |                 |       |   |   |   |   |
| Volatility factor                                       |       | 0.46                   |       | 0.62                 |       | 0.51 |   | 0.63 |   |
|                                                    |       |                   |       |                 |       |   |   |   |   |
| Dividend yield                                          |       | 0.00                   | %          | 0.00                 | %          | 0.00 | % | 0.00 | % |
|                                                    |       |                   |       |                 |       |   |   |   |   |

 

Reflectedin the table above is the termination of our Employee Stock Purchase Plan inJuly 2004.

 

**(4) NetLoss Per Share**

 

Thefollowing sets forth the computation of basic and diluted net loss per share:

 

7

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| ** **                                   | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                   | ** ** | **July 2,**            | ** ** | **July 3,**          | ** ** | **July 2,** | ** ** | **July 3,** | ** ** |
| **(In thousands, except per share amounts)** | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                         |       |                   |       |                 |       |   |   |   |   |
| Numerator:                                   |       |                   |       |                 |       |   |   |   |   |
| Net loss                                     |       | $                      | (1,994     | )                    | $          | (2,266 | ) | $ | (3,890 | ) | $ | (1,739 | ) |
|                                         |       |                   |       |                 |       |   |   |   |   |
| Denominator:                                 |       |                   |       |                 |       |   |   |   |   |
| Denominator for basic net loss per share     |       | 23,944                 |       | 23,705               |       | 23,912 |   | 23,675 |   |
| Effect of dilutive employee stock options    |       | —                 |       | —               |       | — |   | — |   |
| Denominator for diluted net loss per share   |       | 23,944                 |       | 23,705               |       | 23,912 |   | 23,675 |   |
|                                         |       |                   |       |                 |       |   |   |   |   |
| Loss per share - basic:                      |       |                   |       |                 |       |   |   |   |   |
| Net loss                                     |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |
|                                         |       |                   |       |                 |       |   |   |   |   |
| Loss per share - diluted:                    |       |                   |       |                 |       |   |   |   |   |
| Net loss                                     |       | $                      | (0.08      | )                    | $          | (0.10 | ) | $ | (0.16 | ) | $ | (0.07 | ) |

 

Forthe three and six-month periods ended July 2, 2005, options to purchase6,297,946 shares of common stock at an average exercise price of $17.88 wereexcluded from the computation of diluted net loss per share, as the effectwould have been anti-dilutive. For the three and six-month periods ended July3, 2004, options to purchase 5,993,586 shares of common stock at an averageexercise price of $18.29, were excluded from the computation of diluted netloss per share, as the effect would have been anti-dilutive. Options areanti-dilutive when we have a net loss or when the exercise price of the stockoption is greater than the average market price of our common stock during theperiod.

 

**(5)Inventories**

 

Inventories consist of the following:

 
| **(In thousands)** | ** ** | **July 2,   2005** | ** ** | **Dec. 31,   2004** | ** ** |
|--------------------|------------|--------------------|------------|---------------------|------------|
| Raw materials      |       | $                  | 10,936     |                | $          | 11,362 |   |
| Work-in-process    |       | 13,209             |       | 13,347              |       |
| Finished products  |       | 5,303              |       | 3,133               |       |
|               |       | $                  | 29,448     |                | $          | 27,842 |   |

 

**(6)Other Assets**

 

Otherassets consist of the following:

 
| **(In thousands)**                | ** ** | **July 2,   2005** | ** ** | **Dec. 31,   2004** | ** ** |
|-----------------------------------|------------|--------------------|------------|---------------------|------------|
| Deferred compensation plan assets |       | $                  | 1,695      |                | $          | 1,401 |   |
| Deferred income taxes             |       | 308                |       | 320                 |       |
| Other.                            |       | 969                |       | 976                 |       |
|                              |       | $                  | 2,972      |                | $          | 2,697 |   |

 

**(7)Line of Credit**

 

InDecember 2004, we entered into a line of credit agreement with a brokeragefirm. Under the terms of this agreement, we may borrow funds at a cost equal tothe current Federal funds open rate plus 100 basis points (approximately 4.25%as of July 2, 2005). Certain of our cash, cash equivalents and short-terminvestments secure borrowings outstanding under this facility. Funds areadvanced to us under this facility based on pre-determined advance rates on thecash and securities held by us in this brokerage account. This agreement has noset expiration date and there are no loan covenants, other than the 

 

8

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aforementionedcollateral requirement. As of July 2, 2005, $6.6 million was outstanding underthis facility, with a related collateral requirement of approximately $8.8million of our cash, cash equivalents and short-term investments.

** **

**(8)Other Current Liabilities**

 

Othercurrent liabilities consist of the following:

 
| **(In thousands)**                                | ** ** | **July 2,  2005** | ** ** | **Dec. 31,  2004** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Salaries and benefits                             |       | $                 | 3,251      |               | $          | 2,360 |   |
| Warranty accrual                                  |       | 1,911             |       | 2,013              |       |
| Advance billings                                  |       | 515               |       | 415                |       |
| Income taxes payable                              |       | 490               |       | 31                 |       |
| Reserve for losses on purchase order  commitments |       | 613               |       | 1,090              |       |
| Other                                             |       | 2,501             |       | 2,237              |       |
|                                              |       | $                 | 9,281      |               | $          | 8,146 |   |

 

**WarrantyAccrual**

 

Wegenerally warrant our products for a period of 12 months for new products, or 3months for refurbished products, from the date of customer acceptance formaterial and labor to repair the product; accordingly, an accrual for theestimated cost of the warranty is recorded at the time the product is shipped.Recognition of the related warranty cost is deferred until product revenue isrecognized. Factors that affect our warranty liability include the number ofinstalled units, historical and anticipated rates of warranty claims, and costper claim. We periodically assess the adequacy of our recorded warrantyliabilities and adjust the amounts as necessary.

 

Changesin our warranty accrual are as follows:

 
| ** **                                        | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands)**                                | ** ** | **July 2,  2005**      | ** ** | **July 3,  2004**    | ** ** | **July 2,  2005** | ** ** | **July 3,  2004** | ** ** |
| Balance, beginning of the period                  |       | $                      | 2,026      |                 | $          | 1,596 |   | $ | 2,013 |   | $ | 1,257 |   |
| Warranties issued during the period               |       | 741                    |       | 744                  |       | 1,695 |   | 1,971 |   |
| Settlements made during the period                |       | (1,019                 | )          | (637                 | )          | (2,078 | ) | (1,341 | ) |
| Changes in liability for pre-existing  warranties |       | 163                    |       | (205                 | )          | 281 |   | (389 | ) |
| Balance, end of the period                        |       | $                      | 1,911      |                 | $          | 1,498 |   | $ | 1,911 |   | $ | 1,498 |   |

 

**DeferredServices Income**

 

Wesell service contracts for which revenue is deferred and recognized ratablyover the contract period, for time based service contracts, or as service hoursare delivered, for contracts based on a purchased quantity of hours. Changes inour deferred services income are as follows:

 
| ** **                                             | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands)**                                     | ** ** | **July 2,  2005**      | ** ** | **July 3,  2004**    | ** ** | **July 2,  2005** | ** ** | **July 3,  2004** | ** ** |
| Balance, beginning of the period                       |       | $                      | 1,352      |                 | $          | 867 |   | $ | 1,332 |   | $ | 821 |   |
| Service contracts sold during the period               |       | 2,128                  |       | 1,952                |       | 4,116 |   | 3,944 |   |
| Service contract revenue recognized during  the period |       | (1,920                 | )          | (1,842               | )          | (3,888 | ) | (3,788 | ) |
| Balance, end of the period                             |       | $                      | 1,560      |                 | $          | 977 |   | $ | 1,560 |   | $ | 977 |   |

 

9

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**(9)Other Liabilities**

 

Otherliabilities consist of the following:

 
| **(In thousands)**                    | ** ** | **July 2,  2005** | ** ** | **Dec. 31,  2004** | ** ** |
|---------------------------------------|------------|-------------------|------------|--------------------|------------|
| Deferred rent.                        |       | $                 | 3,323      |               | $          | 3,294 |   |
| Deferred compensation plan liability. |       | 1,898             |       | 1,572              |       |
| Other                                 |       | 605               |       | 472                |       |
|                                  |       | $                 | 5,826      |               | $          | 5,338 |   |

 

**(10)Comprehensive Loss**

 

Thecomponents of comprehensive loss are as follows:

 
| ** **                                               | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands)**                                       | ** ** | **July 2,  2005**      | ** ** | **July 3,  2004**    | ** ** | **July 2,  2005** | ** ** | **July 3,  2004** | ** ** |
| Net loss                                                 |       | $                      | (1,994     | )                    | $          | (2,266 | ) | $ | (3,890 | ) | $ | (1,739 | ) |
| Accumulated other comprehensive loss:                    |       |                   |       |                 |       |   |   |   |   |
| Unrealized gain (loss) on  available-for-sale securities |       | 342                    |       | (866                 | )          | 160 |   | (971 | ) |
| Unrealized gain on foreign exchange forward  contracts   |       | 178                    |       | 151                  |       | 367 |   | 312 |   |
| Comprehensive loss                                       |       | $                      | (1,474     | )                    | $          | (2,981 | ) | $ | (3,363 | ) | $ | (2,398 | ) |

 

Accumulatedother comprehensive loss presented in the condensed consolidated balance sheetsis comprised of changes in unrealized gains or losses on available-for-salesecurities and the effect of exchange rate changes on foreign exchange forwardcontracts, net of tax.

 
| **(In thousands)**                                     | ** ** | **July 2,  2005** | ** ** | **Dec. 31,  2004** | ** ** |
|--------------------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Unrealized gains (losses) on:                          |       |              |       |               |       |
| Available-for-sale investments                         |       | $                 | (354       | )                  | $          | (194 | ) |
| Foreign exchange contracts                             |       | 72                |       | (295               | )          |
| Accumulated other comprehensive loss at end  of period |       | $                 | (282       | )                  | $          | (489 | ) |

 

**(11)Contingencies**

 

**LegalProceedings**.

 

OnFebruary 29, 2000, we filed lawsuits asserting patent infringement andrelated claims against Nikon, Canon, and ASML in the U.S. District Court forthe Eastern District of Virginia. In April 2000, we reached a settlementwith Nikon, and in September 2001, we reached a settlement with Canon. Inthe patent litigation against ASML, a jury trial was conducted during thethree-month period ended July 2, 2005. The jury reached a verdict that thepatent was infringed, but that the asserted claims of the patent were invalid.We have filed a post-trial motion for a new trial and for judgment as a matterof law in our favor. ASML has also filed a motion for judgment as a matter oflaw. In addition, ASML has requested that the Court award costs in the amountof $450,000 and has reserved the right to seek attorneys’ fees. The Company hasrecorded an amount for court costs in our financial statements, but we believethe possible claim for attorneys’ fees would be without merit and we plan tovigorously defend ourselves against such a claim.

 

OnJuly 11, 2003, we filed a lawsuit asserting infringement of certain claimsrelated to U.S. patent No. 5,621,813 in the U.S. District Court in and for theNorthern District of California. The Company received a decision from the Courton May 17, 2005. The Court found the subject “patent-in-suit” to be invalid. Weplan to appeal this decision. The defendant has brought a motion forreimbursement of its attorneys’ fees and costs in a total asserted amount ofapproximately $2 million. We have filed our opposition to this motion and planto defend our position vigorously. We believe this claim for attorneys’ fees tobe without merit and do not consider it probable that we will eventually haveto pay such amounts. Accordingly, we have not recorded this potential cost inour results of operations.

 

10

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**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

Certainof the statements contained herein, which are not a historical fact and whichcan generally be identified by words such as “anticipates”, “expects”, “intends”,“will”, “could”, “believes”, “estimates”, “continue”, and similar expressions,are forward-looking statements under Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, that involve risks and uncertainties, such as risks related to ourdependence on new product introductions and market acceptance of new productsand enhanced versions of our existing products; lengthy sales cycles, includingthe timing of system installations and acceptances; lengthy and costlydevelopment cycles for laser-processing and lithography technologies andapplications; integration, development and associated expenses of the laserprocessing operation; delays, deferrals and cancellations of orders bycustomers; cyclicality in the semiconductor and nanotechnology industries;pricing pressures and product discounts; high degree of industry competition;intellectual property matters; expiration of licensing arrangements, and theresulting adverse impact on our licensing revenues; changes to financialaccounting standards; changes in pricing by us, our competitors or suppliers;customer concentration; international sales; timing of new productannouncements and releases by us or our competitors; ability to volume producesystems and meet customer requirements; sole or limited sources of supply;ability and resulting costs to attract or retain sufficient personnel toachieve our targets for a particular period; dilutive effect of employee stockoption grants on net income per share, which is largely dependent upon usachieving and maintaining profitability and the market price of our stock; mixof products sold; rapid technological change and the importance of timelyproduct introductions; outcome of litigation; manufacturing variances andproduction levels; timing and degree of success of technologies licensed tooutside parties; product concentration and lack of product revenuediversification; inventory obsolescence; asset impairment; effects of certainanti-takeover provisions; future acquisitions; volatility of stock price;business interruptions due to natural disasters or utility failures;environmental regulations; and any adverse effects of terrorist attacks in theUnited States or elsewhere, or government responses thereto, or militaryactions in Iraq, Afghanistan and elsewhere, on the economy, in general, or onour business in particular. Due to these and additional factors, thestatements, historical results and percentage relationships set forth below arenot necessarily indicative of the results of operations for any future period.These forward-looking statements are based on management’s current beliefs andexpectations, some or all of which may prove to be inaccurate, and which maychange. We undertake no obligation to revise or update any forward-lookingstatements to reflect any event or circumstance that may arise after the dateof this report.

** **

**OVERVIEW**

 

Ultratech, Inc.(referred to as “Ultratech” and “we”) develops, manufactures and marketsphotolithography and laser thermal processing equipment for manufacturers ofsemiconductor and nanotechnology components located throughout North America,Europe, Japan, Taiwan and the rest of Asia.

 

Wesupply step-and-repeat photolithography systems based on one-to-one imagingtechnology. Within the semiconductor industry, we target the market foradvanced packaging applications. Within the nanotechnology industry, our targetmarkets include thin film head magnetic recording devices, optical networkingdevices, laser diodes and LEDs (light emitting diodes). Our laser thermalprocessing equipment is targeted at advanced annealing applications within thesemiconductor industry.

** **

**RESULTSOF OPERATIONS**

 

Wederive a substantial portion of our total net sales from sales of a relativelysmall number of newly manufactured systems, which typically range in price from$1.2 million to $4.0 million. As a result of these high sale prices, the timingand recognition of revenue from a single transaction has had and most likelywill continue to have a significant impact on our net sales and operatingresults for any particular period.

 

Ourbacklog at the beginning of a period typically does not include all of thesales needed to achieve our sales objectives for that period. In addition,orders in backlog are subject to a high risk of cancellation, shipment orcustomer acceptance delays, and deferral or rescheduling by a customer withlimited or no penalties. Consequently, our net sales and operating results fora period have been and will continue to be dependent upon our obtaining ordersfor systems to be shipped and accepted in the same period in which the order isreceived. Our business and financial results for a particular period could bematerially adversely affected if an anticipated order for even one system isnot received in time to permit shipment and customer acceptance during thatperiod. Furthermore, a substantial number of our shipments have historicallyoccurred near the end of each quarter. Delays in installation and customeracceptance due, for example, to our inability to successfully demonstrate theagreed-upon specifications or criteria at the customer’s facility, or to thefailure of the customer to permit installation of the system in the agreed upontime, may cause net sales in a particular period to fall significantly belowour expectations, which may materially adversely affect our operating resultsfor that period. This risk is especially applicable in connection with theintroduction and initial sales of a new product line. Additionally, certainorders in backlog contain product evaluation terms.

 

11

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Further,product evaluation terms could result in extended product acceptance cycles,which could delay recognition of revenue; or result in the return of product.

 

Thefailure to receive anticipated orders or delays in shipments and customeracceptances due, for example, to rescheduling, delays, deferrals orcancellations by customers, additional customer configuration requirements,customer evaluation or demonstration criteria, or to unexpected manufacturingdifficulties or delays in deliveries by suppliers due to their long productionlead times or otherwise, have caused and may continue to cause net sales in aparticular period to fall significantly below our expectations, materiallyadversely affecting our operating results for that period. In particular, thelong manufacturing and acceptance cycles of our laser thermal processingsystems and advanced packaging wafer steppers and the long lead time for lensesand other materials, could cause shipments and acceptances of such products tobe delayed from one quarter to the next, which could materially adverselyaffect our financial condition and results of operations for a particularquarter.

# ** **

# **Netsales**

** **

**SecondQuarter**

** **
| ** **                         | ** ** | **Three Months Ended** | ** ** | ** **        | ** ** | ** **            | ** ** |
|------------------------------------|------------|------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In millions)**                  | ** ** | **July 2,  2005**      | ** ** | **July 3,  2004** | ** ** | **Amount of  Change** | ** ** | **Percentage  Change** | ** ** |
| Sales of:                          | ** ** | ** **             | ** ** | ** **        | ** ** | ** **            | ** ** | ** ** | ** ** |
| Products: Systems                  |       | $                      | 21.2       |              | $          | 16.0                  |       | $ | 5.3 |   | 33 | % |
| Products: Spare parts and upgrades |       | 4.5                    |       | 2.7               |       | 1.7                   |       | 64 | % |
| Services                           |       | 2.8                    |       | 2.9               |       | —                |       | -1 | % |
| Licenses                           |       | 0.3                    |       | 0.9               |       | (0.6                  | )          | -69 | % |
| Total net sales                    |       | $                      | 28.8       |              | $          | 22.5                  |       | $ | 6.3 |   | 28 | % |

 

Netsales consist of revenues from system sales, spare parts sales, services andlicensing of technologies. System sales increased 33%, to $21.2 million, on aunit volume increase of 9% in the second quarter of 2005 as compared to thesecond quarter of 2004. Weighted-average selling prices increased 22%, ascompared to the comparable year-ago period, primarily due to a higherproportion of new system sales to total sales, which includes lower pricedrefurbished system sales as well as new system sales. Average selling pricesfor newly manufactured systems are typically substantially higher than thosefor refurbished systems.

 

Ona product market application basis, system sales to the semiconductor industry,primarily for advanced packaging applications, were $15.3 million for thequarter ended July 2, 2005, an increase of 36% when compared with system salesto this market in the second quarter of 2004. This increase was due to a 16%increase in unit volumes and higher average selling prices resulting from ahigher proportion of 300mm systems sold, which typically have much higherselling prices than comparable 200mm systems. System sales to thenanotechnology market were $6.0 million for the quarter ended July 2, 2005, anincrease of 25% as compared with system sales to this market in the secondquarter of 2004. This increase was primarily a result of a higher proportion ofnew system sales to total sales.

 

Geographically,the increase in systems sales was primarily a result of higher system sales inEurope

 

Spareparts and upgrades sales for the second quarter of 2005 were $4.5 million, anincrease of 64% over last year’s second quarter, primarily as a result of agreater number of system upgrades. Revenues from services for the secondquarter of 2005 were essentially unchanged, as compared to the same period ayear ago.

 

Revenuesfrom licenses were $0.3 million in the quarter ended July 2, 2005, as comparedwith $0.9 million in the comparable period a year ago. This decrease was aresult of the completion of the amortization period of prior-period proceedsfrom licensing agreements. Future revenues from licensing activities, if any,will be contingent upon the outcome of current litigation (see “LegalProceedings”), and upon existing and future licensing and royalty arrangements.The Company may not be successful in generating licensing revenues in thefuture and does not anticipate the recognition of additional licensing incomeduring the remainder of 2005.

 

AtJuly 2, 2005, we had approximately $3.4 million of deferred product andservices income resulting from products shipped but not yet installed andaccepted and deferred service revenue, as compared to $1.2 million at December31, 2004. Deferred 

 

12

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incomerelated to our products is recognized upon satisfying the contractual obligationsfor installation and/or customer acceptance.

 

Forthe quarter ended July 2, 2005, international net sales were $22.1 million, or77% of total net sales, as compared with $13.6 million, or 60% of total netsales for the second quarter of 2004. We expect sales to internationalcustomers to represent a significant majority of our revenues during theremainder of 2005. Our revenue derived from sales in foreign countries is notgenerally subject to significant exchange rate fluctuations, principally becausesales contracts for our systems are generally denominated in U.S. dollars. InJapan, however, orders are often denominated in Japanese yen. This subjects usto the risk of currency fluctuations. We attempt to mitigate this risk byentering into foreign currency forward exchange contracts for the periodbetween when an order is received and when it is recorded as revenue. Afterrecording revenue, we use various mechanisms, such as foreign currency forwardexchange contracts and natural hedges, to offset substantial portions of thegains or losses associated with our Japanese yen denominated receivables due toexchange rate fluctuations. We had approximately $3.2 million of Japanese yendenominated receivables at July 2, 2005. International sales expose us to anumber of additional risks, including fluctuations in the value of localcurrencies relative to the U.S. dollar, which impact the relative cost ofownership of our products and, thus, the customer’s willingness to purchase ourproduct. (See “Additional Risk Factors: International Sales”).

 

**Year-To-Date:**
| ** **                         | ** ** | **Six Months Ended** | ** ** | ** **        | ** ** | ** **            | ** ** |
|------------------------------------|------------|----------------------|------------|-------------------|------------|-----------------------|------------|
| **(In millions)**                  | ** ** | **July 2,  2005**    | ** ** | **July 3,  2004** | ** ** | **Amount of  Change** | ** ** | **Percentage  Change** | ** ** |
| Sales of:                          | ** ** | ** **           | ** ** | ** **        | ** ** | ** **            | ** ** | ** ** | ** ** |
| Products: Systems                  |       | $                    | 41.5       |              | $          | 36.4                  |       | $ | 5.1 |   | 14 | % |
| Products: Spare parts and upgrades |       | 7.9                  |       | 5.1               |       | 2.8                   |       | 56 | % |
| Services                           |       | 5.9                  |       | 5.8               |       | 0.2                   |       | 3 | % |
| Licenses                           |       | 1.4                  |       | 1.9               |       | (0.4                  | )          | -24 | % |
| Total net sales                    |       | $                    | 56.8       |              | $          | 49.1                  |       | $ | 7.7 |   | 16 | % |

 

Systemsales increased 14% to $41.5 million. The increase was primarily a result of a19% increase in weighted-average selling prices of systems sold, which waspartially offset by a unit volume decrease of 4%. The increase in averageselling prices was primarily the result of a higher proportion of 300mm systemsales to 200mm system sales in the current period, and a higher proportion ofnewly manufactured systems to refurbished systems in the current period, ascompared to the same period a year ago. On a market segment basis, theyear-over-year increase in systems sales was a result of higher sales to theadvanced packaging market. Geographically, the year-over-year increase insystems sales was primarily a result of higher sales in Europe as compared tono systems sales in Europe for the six months ended July 3, 2004, partiallyoffset by a 44% sales decrease in Japan.

 

Spareparts and upgrades sales for the first half of 2005 were $7.9 million, anincrease of 56% over the first half of 2004, primarily as a result of higherlevels of system upgrades. Revenues from services were essentially unchanged from2004 levels. Revenues from licenses decreased by $0.4 million in the first halfof 2005, as compared to the first half of 2004. This decrease was a result ofthe completion of the amortization period of prior-period proceeds fromlicensing agreements. Future revenues from licensing activities, if any, willbe contingent upon the outcome of current litigation (see “Legal Proceedings”),and upon existing and future licensing and royalty arrangements. The Companymay not be successful in generating licensing revenues in the future and doesnot anticipate the recognition of additional licensing income during theremainder of 2005.

 

Forthe first half of 2005, international net sales were $42.9 million, or 75% oftotal net sales, as compared with $34.0 million, or 69% of total net sales forthe first half of 2004.

 

13

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**Grossprofit**

 
| ** **                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                              | ** ** | **July 2,**            | ** ** | **July 3,**          | ** ** | **July 2,** | ** ** | **July 3,** | ** ** |
| **Expressed as a % of total net sales** | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                    |       |                   |       |                 |       |   |   |   |   |
| Total net sales                         |       | 100.0                  | %          | 100.0                | %          | 100.0 | % | 100.0 | % |
|                                    |       |                   |       |                 |       |   |   |   |   |
| Cost of products and services sold      |       | 59.4                   | %          | 54.8                 | %          | 57.8 | % | 52.7 | % |
| Gross margin                            |       | 40.6                   | %          | 45.2                 | %          | 42.2 | % | 47.3 | % |

 

Ona comparative basis, the decline in gross margin percentage in the three monthsended July 2, 2005, as compared with the comparable period a year ago, wasprimarily due to higher service expenses (2.3 percentage points) andunfavorable manufacturing variances/efficiencies (1.5 percentage points)principally associated with the our new laser spike annealing technologies. Thedecline in gross margin percentage can also be attributed to lower licensingrevenues (1.3%), resulting from the completion of the amortization period ofcertain licensing payments received in prior periods. These aforementionedfactors were partially offset by other factors (which net to 0.4 percentagepoints).

 

Thedecline in gross margin percentage on a year-to-date basis can also beattributed to the same factors described in the prior paragraph. The declinewas primarily a result of higher service costs (2.4 percentage points) andunfavorable manufacturing variances (2.3 percentage points) principallyassociated with our new laser spike annealing technologies. The decline ingross margin percentage can also be attributed to lower licensing revenues(0.4%), resulting from the completion of the amortization period of certainlicensing payments received in prior periods.

 

Exclusiveof licensing revenues, gross margin was 39.9% for the quarter ended July 2,2005 as compared with 42.9% for the same period in 2004. For the first half of2005, gross margin, exclusive of licensing revenue, was 40.7% as compared with45.2% for the same period in 2004. We believe disclosure of gross marginswithout reference to licensing revenues provides additional appropriatedisclosure to allow comparison of our product and service gross margins overtime because there is little, if any, cost of sales associated with ourlicensing revenues. Future revenues from licensing activities, if any, will becontingent upon the outcome of current litigation (see “Legal Proceedings”),and upon existing and future licensing and royalty arrangements. The Companymay not be successful in generating licensing revenues in the future and doesnot anticipate the recognition of additional licensing income during theremainder of 2005. Gross margins will be negatively impacted by thediscontinuance of license revenue.

 

Ourgross profit as a percentage of sales has been and most likely will continue tobe significantly affected by a variety of factors, including the introductionof new products, which typically have higher manufacturing costs untilmanufacturing efficiencies are realized and which are typically discounted morethan existing products until the products gain market acceptance; the mix ofproducts sold; the rate of capacity utilization; writedown of inventory andopen purchase commitments; technology support and licensing revenues, whichhave little or no associated cost of sales; product discounts, pricing andcompetition in our targeted markets; non-linearity of shipments during thequarter which can result in manufacturing inefficiencies; the percentage ofinternational sales, which typically have lower gross margins than domesticsales principally due to higher field service and support costs; and start-upcosts and inefficiencies associated with the implementation of subcontractingarrangements.

 

**Operatingexpenses**

 

Research,development and engineering expenses for the second quarter and the first halfof 2005 were $6.8 million and $14.3 million, respectively, an increase of $0.6million and $1.9 million, respectively, from the amounts reported for thecomparable periods of 2004. This year-over-year increase in spending wasprimarily due to increased investment in the development of our laserprocessing technologies.

 

Selling,general, and administrative expenses were $8.2 million and $15.7 million forthe second quarter and the first half of 2005, an increase of $1.0 million and$1.5 million, respectively, as compared with the comparable periods in 2004. Asa percentage of net sales, selling, general, and administrative expensesdecreased to 28.4% and 27.7% in the second quarter and first half of 2005,respectively, as compared to 31.8% and 29.0% in the second quarter and firsthalf of 2004, respectively. This increase, in term of dollars, was primarilydue to significantly increased legal costs related to our being a plaintiff inseveral patent infringement lawsuits in trial during the period.

 

14

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**Interestand other income, net**

 

Interestand other income, net, which consists primarily of interest income, was $1.1million and $2.1 million for the second quarter and first half of 2005,respectively, as compared with $0.9 million and $1.8 million for the comparableperiods of 2004. The year-over-year increases were primarily attributable tohigher interest rates on our investments. We presently maintain an investmentportfolio with a weighted-average maturity of approximately 1.25 years. As aresult, changes in short-term interest rates have had, and will continue tohave, a significant impact on our interest income.

 

**Incometax benefit**

 

Forthe three and six months ended July 2, 2005, we recorded an income taxbenefit of $0.3 million and $0.4 million, respectively, as compared to anincome tax benefit of $0.2 million and $0.2 million for the comparable periodsin 2004. The tax benefit recognized in the current period resulted from ourfull-year forecast of an effective tax rate of approximately 10% of pre-taxincome. Similarly, the year-ago tax provision resulted from our then-forecasted effective tax rate of approximately 10% of pre-tax income for theyear ended December 31, 2004. The estimated effective tax rate of 10% for 2005results primarily from foreign income taxes and the U.S. federal alternativeminimum tax. This effective rate is substantially less than the statutory ratebecause of available U.S. federal net operating loss carry-forwards.

 

InOctober 2004, the United States enacted The American Jobs Creation Act of2004 (“the Act”). The Act provides for a three year phase-out of currentextraterritorial income tax (“ETI”) benefits and replaces ETI with a phased-in9% domestic production activity deduction that will not be fully effectiveuntil 2010. We do not currently realize ETI tax benefits. This provision of theAct is not expected to have a material effect on our results of operations orfinancial position in the near future. The Act also includes a deduction of 85%for certain foreign earnings that are repatriated, as defined in the Act. We donot intend to repatriate any of our foreign earnings during the effectiveperiod of this deduction under the Act.

 

Income tax estimates can be affected by whether or not,and within which jurisdictions, future earnings will occur and how and whencash is repatriated to the United States, combined with other aspects of anoverall income tax strategy. Additionally, taxing jurisdictions couldretroactively disagree with our tax treatment of certain items, and somehistorical transactions have income tax effects going forward. Accountingrules require these future effects to be evaluated using current laws,rules and regulations, each of which can change at any time and in anunpredictable manner. We believe we have adequately provided for any reasonablyforeseeable outcome related to these matters, and we do not anticipate anymaterial earnings impact from their ultimate resolutions.

 

**Outlook**

 

Althoughwe believe that our served markets have generally strengthened during the lasttwelve months, the anticipated timing of orders, shipments and customeracceptances usually requires us to fill a number of production slots in anygiven quarter in order to meet our sales targets. If we are unsuccessful in ourefforts to secure those production orders, or if existing production orders aredelayed or cancelled, our results of operations will be materially adverselyimpacted. Accordingly, we may not be able to achieve or maintain our current orprior level of sales. We presently expect that net sales for the third quarterof 2005 may be in a range of $33 million to $36 million. For the full year, webelieve we could see annual net sales growth of 20% to 25%, over levelsachieved in 2004.

 

Becauseour net sales are subject to a number of risks, including: risks associatedwith the introduction of our new laser processing product line; delays incustomer acceptances; intense competition in the capital equipment industry;uncertainty relating to the timing and market acceptance of our products; andthe condition of the macro-economy and the semiconductor industry, we may notexceed or maintain our current or prior level of net sales for any period inthe future. Additionally, we believe that the market acceptance and volumeproduction of our advanced packaging systems, laser processing systems, and our100/1000 series family of wafer steppers are of critical importance to ourfuture financial results. At July 2, 2005, these critical systemsrepresented 90% of our backlog. To the extent that these products do notachieve or maintain significant sales due to difficulties involvingmanufacturing or engineering, the inability to reduce the current long manufacturingand customer acceptance cycles for these products, competition, excess capacityin the semiconductor or nanotechnology device industries, or any other reason,our business, financial condition and results of operations would be materiallyadversely affected.

 

Webelieve that gross margin for the third quarter of 2005 will be between 44% and47%. The final gross margin achieved will depend heavily upon sales volumes andthe resulting product mix. Should our sales not reach the level expected, we mayincur a higher risk of inventory obsolescence and excess purchase commitmentsand lower utilization of our manufacturing infrastructure, which wouldmaterially adversely impact our results of operations. New products generallyhave lower gross margins until there is widespread market acceptance and untilproduction and after-sales efficiencies can be achieved. Should significantmarket demand fail to develop for our laser processing systems and our newadvanced packaging offerings, our business, financial condition and results ofoperations would be materially adversely affected. In addition, higher costs 

 

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associatedwith extended manufacturing and customer acceptance periods on shipments of ournew laser processing products have had, and will continue to have, an adverseimpact on our gross margins.

 

Webelieve operating margin for the third quarter of 2005 may be in a range of5%-10%. Finally, net income per share is projected in a range of $0.10 to $0.20.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Netcash used in operating activities was $2.4 million for the six-month periodended July 2, 2005, as compared with net cash used in operating activities of$5.8 million for the comparable period in 2004. Net cash used in operatingactivities during the first half of 2005 was primarily attributable to the netloss of $3.9 million, a reduction in accounts payable of $3.0 million, anincrease in inventories of $1.6 million, an increase in prepaid expenses andother current assets of $1.6 million and a decrease in deferred license revenueof $1.0 million, partially offset by non-cash charges to income fordepreciation and amortization of $4.1 million, an increase in deferred productand services income of $2.2 million, an increase in other current liabilitiesof $1.2 million and a decrease in demonstration inventories of $0.9million.  The increase in inventoriesduring the first half of 2005 results primarily from laser processing systemsshipped to customers pursuant to purchase orders containing product evaluationprovisions.

 

Webelieve that because of the relatively long manufacturing cycle of certain ofour systems, particularly newer products, our inventories will continue torepresent a significant portion of working capital. Currently, we are devotingsignificant resources to the development, introduction and commercialization ofour laser processing system and to the development of our next generation 1Xlithography technologies. Additionally, we have purchased significant levels ofinventories, and have made commitments to purchase additional inventories, tosupport the current production plan for our laser processing andnext-generation lithography systems. We currently intend to continue to incursignificant operating expenses in the areas of research, development andengineering, manufacturing and selling, general and administrative costs inorder to further develop, produce and support these new products. Additionally,gross profit margins, inventory and capital equipment levels will be adverselyimpacted in the future by costs associated with the initial production of ourlaser processing system and by our next-generation 1X wafer stepper platform.These costs include, but are not limited to: additional manufacturing overhead;cost of demonstration and customer evaluation systems; ongoing research,development and engineering costs; additional technical, marketing andadministrative personnel; and the establishment of additional after-salessupport organizations. If we are unable to achieve significantly increased netsales, or if our sales fall below expectations, our cash flow and operatingresults will be materially adversely affected until, among other factors, costsand expenses can be reduced. Our failure to achieve our sales targets for thesenew products could result in significant additional inventory write-offs andasset impairment charges, either of which would materially adversely impact ourresults of operations.

 

Duringthe first half of 2005, net cash used in investing activities was $10.6million, attributable to net purchases of short-term marketable securities of$7.0 million and capital expenditures of $3.7 million.

 

Netcash provided by financing activities was $0.7 million during the first half of2005, attributable to $2.0 million of proceeds received from the issuance ofcommon stock under our employee stock option plans, partially offset by the netrepayment of our note payable of $1.3 million.

 

AtJuly 2, 2005, we had working capital of $169.3 million. Our principal source ofliquidity at July 2, 2005 consisted of $139.7 million in cash, cash equivalentsand short-term investments, net of outstanding borrowings under our line ofcredit.

InDecember 2004, we entered into a line of credit agreement with a brokeragefirm replacing a similar arrangement that we had with a different firm. Underthe terms of this agreement, we may borrow funds at a cost equal to the currentFederal funds open rate plus 100 basis points (approximately 4.25% as of July2, 2005). Certain of our cash, cash equivalents and short-term investmentssecure borrowings outstanding under this facility. Funds are advanced to usunder this facility in accordance with pre-determined advance rates based onthe cash and securities held by us in this brokerage account. This agreementhas no set expiration date and there are no loan covenants. As of July 2, 2005,$6.6 million was outstanding under this facility, with a related collateralrequirement of approximately $8.8 million of our cash, cash equivalents andshort-term investments.

 

Thedevelopment and manufacture of laser processing and new lithography systems andenhancements are highly capital-intensive. In order to be competitive, webelieve we must continue to make significant expenditures for: inventories;facilities; capital equipment; sales, service, training and supportcapabilities; systems, procedures and controls; and expansion of operations andresearch and development, among many other items. We expect that cash generatedfrom operations and our cash, cash equivalents and short-term investments willbe sufficient to meet our cash requirements for at least the next twelvemonths. However, in the near-term, we may continue to utilize existing andfuture lines of credit, and other sources of financing, in order to maintainour present levels of cash, cash equivalents and short-term investments. Beyondthe next twelve months, we may require additional equity or debt financing toaddress our working capital or capital equipment needs. In addition, we mayseek to raise equity or debt capital at any time that we deem market conditionsto be favorable. Additional financing, if needed, may not be available onreasonable terms, or at all.

 

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Wemay in the future pursue additional acquisitions of complementary productlines, technologies or businesses. Future acquisitions may result inpotentially dilutive issuances of equity securities, the incurrence of debt andcontingent liabilities and amortization expenses and impairment charges relatedto goodwill and other intangible assets, which could materially adverselyaffect our financial condition and results of operations. In addition,acquisitions involve numerous risks, including difficulties in the assimilationof the operations, technologies, personnel and products of the acquiredcompanies; the diversion of management’s attention from other businessconcerns; risks of entering markets in which we have limited or no directexperience; and the potential loss of key employees of the acquired company. Inthe event we acquire product lines, technologies or businesses which do notcomplement our business, or which otherwise do not enhance our sales oroperating results, we may incur substantial write-offs and higher recurringoperating costs, which could have a material adverse effect on our business,financial condition and results of operations. In the event that any suchacquisition does occur, there can be no assurance as to the effect thereof onour business or operating results.

 

**ForeignCurrency**

 

Aspart of our overall strategy to manage the level of exposure to the risk offoreign currency exchange rate fluctuations, we attempt to hedge most of ourJapanese yen denominated foreign currency exposures. We use foreign currencyforward contracts to hedge the risk that unremitted Japanese yen denominatedreceipts from customers, for actual or forecasted sales of equipment afterreceipt of customer orders, may be adversely affected by changes in foreigncurrency exchange rates. After recording revenue, we use various mechanisms,such as foreign currency forward exchange contracts and natural hedges, tooffset substantial portions of the potential gains or losses associated withour Japanese yen denominated assets and liabilities due to exchange ratefluctuations. At July 2, 2005, we had taken action to hedge approximately 100%of these Japanese yen denominated exposures. In addition to natural hedgesresulting from having both assets and liabilities denominated in Japanese yen,we enter into foreign currency forward contracts that generally have maturitiesof nine months or less. We often close foreign currency forward contracts byentering into an offsetting contract. At July 2, 2005, we had contracts for thesale of $12.3 million of foreign currencies at fixed rates of exchange.

 

**ADDITIONALRISK FACTORS**

 

*Inaddition to risks described in the foregoing discussions, the following risksapply to our business and us:*

 

**Development of New ProductLines; Expansion of Operations  **Currently,we are devoting significant resources to the development, introduction andcommercialization of our laser processing systems and our next-generation 1Xlithography platform. We intend to continue to develop these products andtechnologies during 2005, and will continue to incur significant operatingexpenses in the areas of: research, development and engineering; manufacturing;and selling, general and administrative costs in order to further develop,produce and support these new products. Additionally, gross profit andoperating margins may be further adversely impacted in the future by costsassociated with the initial production of our laser processing systems and byour next-generation platform for our 1X-lithography systems. Introduction ofnew products generally involves higher installation costs and productperformance uncertainties that could delay customer acceptance of our systems,resulting in a delay in recognizing revenue associated with those systems and areduction in gross margins. These costs include, but are not limited to,additional manufacturing overhead, additional inventory write-offs, costs ofdemonstration systems and facilities, and costs associated with theestablishment of additional after-sales support organizations. Additionally,operating expenses may increase, relative to sales, as a result of addingadditional marketing and administrative personnel, among other costs, tosupport our new products. If we are unable to achieve significantly increasednet sales or if our sales fall below expectations, our operating results willbe materially adversely affected.

 

Ourability to develop and commercialize our laser processing technologies ishighly dependent on partnering with semiconductor companies to develop theanneal process. Our ability to deliver timely solutions is also limited bywafer turnaround at potential customers’ fabrication facilities.

 

**Lengthy Sales Cycles  **Salesof our systems depend, in significant part, upon the decision of a prospectivecustomer to increase manufacturing capacity or to restructure currentmanufacturing facilities, either of which typically involves a significantcommitment of capital. Many of our customers in the past have cancelled thedevelopment of new manufacturing facilities and have substantially reducedtheir capital equipment budgets. In view of the significant investment involvedin a system purchase, we have experienced and may continue to experience delaysfollowing initial qualification of our systems as a result of delays in acustomer’s approval process. Additionally, we are presently receiving ordersfor systems that have lengthy delivery schedules, which may be due to longerproduction lead times or a result of customers’ capacity scheduling requirements.For these and other reasons, our systems typically have a lengthy sales cycleduring which we may expend substantial funds and management effort in securinga sale. Lengthy sales cycles subject us to a number of significant risks,including inventory obsolescence and fluctuations in operating results, overwhich we have little or no control. In order to maintain or exceed our presentlevel of net sales, we are dependent upon obtaining orders for systems thatwill ship and be accepted in the current period. We may not be able to obtainthose orders.

 

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**Intellectual Property Rights  **Althoughwe attempt to protect our intellectual property rights through patents,copyrights, trade secrets and other measures, we believe that our success willdepend more upon the innovation, technological expertise and marketingabilities of our employees. Nevertheless, we have a policy of seeking patentswhen appropriate on inventions resulting from our ongoing research anddevelopment and manufacturing activities. We own 103 United States and foreignpatents, which expire on dates ranging from June 2006 to April 2023and have 97 United States and foreign patent applications pending. In addition,we have various registered trademarks and copyright registrations coveringmainly software programs used in the operation of our systems. We also relyupon trade secret protection for our confidential and proprietary information.We may not be able to protect our technology adequately and competitors may beable to develop similar technology independently. Our pending patentapplications may not be issued or U.S. or foreign intellectual property lawsmay not protect our intellectual property rights. In addition, litigation may benecessary to enforce our patents, copyrights or other intellectual propertyrights, to protect our trade secrets, to determine the validity and scope ofthe proprietary rights of others or to defend against claims of infringement.Such litigation has resulted in, and in the future could result in, substantialcosts and diversion of resources and could have a material adverse effect onour business, financial condition and results of operations, regardless of theoutcome of the litigation. Patents issued to us may be challenged, invalidatedor circumvented and the rights granted thereunder may not provide competitiveadvantages to us. Furthermore, others may independently develop similartechnology or products, or, if patents are issued to us, design around thepatents issued to us. Invalidation of our patents related to those technologiescould allow our competitors to more effectively compete against us, which couldresult in less revenue for us.

 

OnFebruary 29, 2000, we filed lawsuits asserting patent infringement andrelated claims against Nikon, Canon, and ASML in the U.S. District Court forthe Eastern District of Virginia. In April 2000, we reached a settlementwith Nikon, and in September 2001, we reached a settlement with Canon. Inthe patent litigation against ASML, a jury trial was conducted during thethree-month period ended July 2, 2005. The jury reached a verdict that thepatent was infringed, but that the asserted claims of the patent were invalid.We have filed a post-trial motion for a new trial and for judgment as a matterof law in our favor. ASML has also filed a motion for judgment as a matter oflaw. In addition, ASML has requested that the Court award costs in the amountof $450,000 and has reserved the right to seek attorneys’ fees. The Company hasrecorded an amount for court costs in our financial statements, but we believethe possible claim for attorneys’ fees would be without merit and we plan tovigorously defend ourselves against such a claim.

 

OnJuly 11, 2003, we filed a lawsuit asserting infringement of certain claimsrelated to U.S. patent No. 5,621,813 in the U.S. District Court in and for theNorthern District of California. The Company received a decision from the Courton May 17, 2005. The Court found the subject “patent-in-suit” to be invalid. Weplan to appeal this decision. The defendant has brought a motion forreimbursement of its attorneys’ fees and costs in a total asserted amount ofapproximately $2 million. We have filed our opposition to this motion and planto defend our position vigorously. We believe this claim for attorneys’ fees tobe without merit and do not consider it probable that we will eventually paysuch amounts. Accordingly, we have not recorded this potential cost in ourresults of operations.

 

Weare involved in other lawsuits and legal actions regarding infringement claims,and we have from time to time been notified of claims that we may be infringingintellectual property rights possessed by third parties. We believe that theoutcome of these matters will not be material to our business or financialcondition, though currently we are spending significant resources on litigationmatters, in particular in connection with the patent infringement lawsuitsdescribed above. Some of the Company’s customers have received notices ofinfringement from Technivision Corporation and the Lemelson Medical, Educationand Research Foundation, Limited Partnership (“Lemelson”) alleging that themanufacture of certain semiconductor products and/or the equipment used to manufacturethose semiconductor products infringes certain issued patents regarding machinevision technology. The Company has been notified by certain of these customersthat the Company may be obligated to defend or settle claims if the Company’sproducts infringe any such patents and, in the event it is subsequentlydetermined that the customer infringes any of such patents, they intend to seekreimbursement from the Company for damages and other expenses resulting fromthis matter. The Company believes that its machine vision technology does notinfringe the patent rights of other parties.

 

Infringementclaims by third parties or claims for indemnification resulting frominfringement claims may be asserted in the future and such assertions couldmaterially adversely affect our business, financial condition and results ofoperations, regardless of the outcome of any litigation. With respect to anysuch future claims, we may seek to obtain a license under the third party’sintellectual property rights. However, a license may not be available onreasonable terms or at all. We could decide, in the alternative, to resort tolitigation to challenge such claims. Such challenges could be expensive andtime consuming and could materially adversely affect our business, financialcondition and results of operations, regardless of the outcome of anylitigation.

 

**Cyclicality ofSemiconductor, Semiconductor Packaging and Nanotechnology Industries  ****Our** businessdepends in significant part upon capital expenditures by******manufacturersof semiconductors, bumped semiconductors and nanotechnology 

 

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components,including thin film head magnetic recording devices, which in turn depend uponthe current and anticipated market demand for such devices and productsutilizing such devices. The semiconductor industry historically has been highlycyclical and has experienced recurring periods of oversupply. This has, fromtime to time, resulted in significantly reduced demand for capital equipmentincluding the systems manufactured and marketed by us. We believe that marketsfor new generations of semiconductors and semiconductor packaging will also besubject to similar fluctuations. Our business and operating results would bematerially adversely affected by downturns or slowdowns in the semiconductorpackaging market or by loss of market share. Accordingly, we may not be able toachieve or maintain our current or prior level of sales. We attempt to mitigatethe risk of cyclicality by participating in multiple markets includingsemiconductor, semiconductor packaging, thin film head and other nanotechnologysectors, as well as diversifying into new markets such as photolithography foroptical networking (a nanotechnology application) and laser-based annealing forimplant activation and other applications. Despite such efforts, when one ormore of such markets experiences a downturn or a situation of excess capacity,our net sales and operating results are materially adversely affected.

 

**Highly Competitive Industry**   The capital equipment industry in which weoperate is intensely competitive. A substantial investment is required toinstall and integrate capital equipment into a semiconductor, semiconductorpackaging or nanotechnology device production line. We believe that once adevice manufacturer or packaging subcontractor has selected a particular vendor’scapital equipment, the manufacturer generally relies upon that equipment forthe specific production line application and, to the extent possible,subsequent generations of similar products. Accordingly, it is difficult toachieve significant sales to a particular customer once another vendor’scapital equipment has been selected.

 

Weexperience competition in advanced packaging from various proximity alignercompanies such as Suss Microtec AG (Suss Microtec) and projection companiessuch as Ushio, Inc. (Ushio) and Tamarack Scientific Co., Inc.(Tamarack). In nanotechnology, we experience competition from proximity alignercompanies, such as Suss Microtec, as well as other stepper manufacturers whohave developed or are developing tools specifically designed for nanotechnologyapplications. We expect our competitors to continue to improve the performanceof their current products and to introduce new products with improved price andperformance characteristics. This could cause a decline in sales or loss ofmarket acceptance of our steppers in our served markets, and thereby materiallyadversely affect our business, financial condition and results of operations.Enhancements to, or future generations of, competing products may be developedthat offer superior cost of ownership and technical performance features.

 

Withrespect to our laser annealing technologies, marketed under the LSA100 productname, the primary competition comes from companies such as AppliedMaterials, Inc., Mattson Technology, Inc., and AxcelisTechnologies, Inc. that offer products utilizing rapid thermal processing(RTP), which is the current prevailing manufacturing technology. RTP does notprevent semiconductor device manufacturers from scaling the lateral dimensionsof their transistors to obtain improved performance, but diffusion resultingfrom the time scales associated with RTP limits the vertical dimension of the junctions.Faster annealing times result in shallower and more abrupt junctions and fastertransistors. We believe our annealing technology results in faster transistorsfor a given size. We believe that RTP manufacturers recognize the need toreduce thermal cycle times and are working toward this goal. In July 2000,we licensed certain rights to our then existing laser processing technology,with reservations, to a competing manufacturer of semiconductor equipment. Wepresently anticipate that this company will offer laser-annealing tools to thesemiconductor industry that will compete with our offerings.

 

Anotherpotential advanced annealing solution utilizes flash lamp annealing technology(FLA). Several companies have published papers on annealing tools thatincorporate flash lamp technology in order to reduce annealing times andincrease anneal temperatures. Developers of FLA technology claim to haveovercome annealing difficulties at the 65nm node. This technique, which employsxenon flash lamps, has shown improvements over RTP in junction depth and sheetresistance, but we believe FLA will suffer from pattern-relatednon-uniformities. Our proprietary laser processing solution has beenspecifically developed to provide junction annealing on near-instantaneoustime-scales, while maintaining low sheet resistance. Laser spike annealing, thefirst implementation of laser processing, activates dopants in themicrosecond-to-millisecond time frame without melting. Research indicates that,at temperatures just below the melting point of silicon, time durations in themicrosecond to millisecond range, are required to achieve full activation, anddopant diffusion is minimal.

 

Additionally,competition to our laser processing products may come from other laser annealingtools, including those presently being used by the flat panel display industryto re-crystallize silicon. Manufacturers of these tools may try to extend theuse of their technologies to semiconductor device applications.

 

Webelieve that being competitive will continue to require that significantfinancial resources be invested in new product development, new features andenhancements to existing products, and the introduction of new generationstepper systems in our served markets on a timely basis, and maintainingcustomer service and support centers worldwide. In marketing our products, wemay also face competition from vendors employing other technologies. Inaddition, increased competitive pressure has led to intensified price-basedcompetition in certain of our markets, resulting in lower prices and margins.Should these competitive trends continue, our business, financial condition andoperating results may be materially adversely affected.

 

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**Customerand Market Concentrations  **Historically, we have sold a substantialportion of our systems to a limited number of customers. In the second quarterand first half of 2005, our top five customers accounted for 56% and 55% of ourtotal systems sales, respectively. In 2004, Intel Corporation accounted for 10%of our net sales. We expect that sales to a relatively few customers willcontinue to account for a high percentage of our net sales in the foreseeablefuture and believe that our financial results depend in significant part uponthe success of these major customers and our ability to meet their futurecapital equipment needs. Although the composition of the group comprising ourlargest customers may vary from period to period, the loss of a significantcustomer or any reduction in orders by a significant customer, includingreductions due to market, economic or competitive conditions in thesemiconductor, semiconductor packaging or nanotechnology industries or in theindustries that manufacture products utilizing integrated circuits, thin filmheads or other nanotechnology components, would likely have a material adverseeffect on our business, financial condition and results of operations. Ourability to maintain or increase our sales in the future depends, in part, onour ability to obtain orders from new customers as well as the financialcondition and success of our existing customers, the semiconductor andnanotechnology industries and the economy in general.

 

Inaddition to the business risks associated with dependence on a few majorcustomers, these significant customer concentrations have in the past resultedin significant concentrations of accounts receivable. These significant andconcentrated receivables expose us to additional risks, including the risk ofdefault by one or more customers representing a significant portion of ourtotal receivables. If we were required to take additional accounts receivablereserves, our business, financial condition and results of operations would bematerially adversely affected.

 

Ona market application basis, sales to the semiconductor industry, primarily foradvanced packaging applications, accounted for approximately 68% and 63% ofsystem revenue for the first half of 2005 and 2004, respectively. During the firsthalf of 2005 and 2004, approximately 32% and 37%, respectively, of our systemsrevenue was derived from sales to nanotechnology manufacturers, including microsystems, thin film head and optical device manufacturers. Our future operatingresults and financial condition would be materially adversely impacted by adownturn in any of these market segments, or by loss of market share in any ofthese segments.

 

Agrowing portion of our backlog of system orders is comprised of laser spikeannealing tools. To date, we have limited experience with this technology andwe are presently in the installation and customer acceptance cycles for severalbeta systems. Should significant demand not materialize, due to technical,production, market, or other factors, the Company’s business, financialposition and results of operations would be materially adversely impacted.

 

**Rapid Technological Change;Importance of Timely Product Introduction  **Thesemiconductor and nanotechnology manufacturing industries are subject to rapidtechnological change and new product introductions and enhancements. Ourability to be competitive in these and other markets will depend, in part, uponour ability to develop new and enhanced systems and related software tools, andto introduce these systems and related software tools at competitive prices andon a timely and cost-effective basis to enable customers to integrate them intotheir operations either prior to or as they begin volume product manufacturing.We will also be required to enhance the performance of our existing systems andrelated software tools. Our success in developing new and enhanced systems andrelated software tools depends upon a variety of factors, including productselection, timely and efficient completion of product design, timely andefficient implementation of manufacturing and assembly processes, productperformance in the field and effective sales and marketing. Because new productdevelopment commitments must be made well in advance of sales, new productdecisions must anticipate both future demand and the technology that will beavailable to supply that demand. We may not be successful in selecting,developing, manufacturing or marketing new products and related software toolsor enhancing our existing products and related software tools. Any such failurewould materially adversely affect our business, financial condition and resultsof operations.

 

Becauseof the large number of components in our systems, significant delays can occurbetween a system’s introduction and the commencement by Ultratech of volumeproduction of such systems. We have experienced delays from time to time in theintroduction of and technical and manufacturing difficulties with, certain ofour systems and enhancements and related software features and options, and mayexperience delays and technical and manufacturing difficulties in futureintroductions or volume production of new systems or enhancements and relatedsoftware features and options.

 

Wemay encounter additional technical, manufacturing or other difficulties thatcould further delay future introductions or volume production of systems orenhancements. Our inability to complete the development or meet the technicalspecifications of any of our systems or enhancements and related softwaretools, or our inability to manufacture and ship these systems or enhancementsand related software tools in volume and in time to meet the requirements formanufacturing the future generation of semiconductor or nanotechnology devices,would materially adversely affect our business, financial condition and resultsof operations. In addition, we may incur substantial unanticipated costs toensure the functionality and reliability of our products early in the products’life cycles. If new products have reliability or quality problems, reducedorders or higher manufacturing costs, delays in customer acceptance, revenuerecognition and collecting accounts receivable and additional service andwarranty expenses may result. Any of such events may materially adverselyaffect our business, financial condition and results of operations.

 

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**International Sales  **Internationalnet sales accounted for approximately 75% and 69% of total net sales for thefirst half of 2005 and 2004, respectively. ** **International net salesaccounted for approximately 65% and 61% of total net sales for the years 2004and 2003, respectively. We anticipate that international sales, which typicallyhave lower gross margins than domestic sales, principally due to increasedcompetition and higher field service and support costs, will continue toaccount for a significant portion of total net sales. As a result, asignificant portion of our net sales will continue to be subject to certain risks,including unexpected changes in regulatory requirements; difficulty insatisfying existing regulatory requirements; exchange rate fluctuations;tariffs and other barriers; political and economic instability; difficulties inaccounts receivable collections; natural disasters; difficulties in staffingand managing foreign subsidiary and branch operations; and potentially adversetax consequences.

 

Althoughwe generally transact our international sales in U.S. dollars, internationalsales expose us to a number of additional risk factors, including fluctuationsin the value of local currencies relative to the U.S. dollar, which, in turn,impact the relative cost of ownership of our products and may further impactthe purchasing ability of our international customers. However, in Japan, wehave direct sales operations and orders are often denominated in Japanese yen.This may subject us to a higher degree of risk from currency fluctuations. Weattempt to mitigate this exposure through the use of foreign currency forwardexchange contracts. We are also subject to the risks associated with theimposition of legislation and regulations relating to the import or export ofsemiconductors and nanotechnology products. We cannot predict whether theUnited States or any other country will implement changes to quotas, duties,taxes or other charges or restrictions upon the importation or exportation ofour products. These factors, or the adoption of restrictive policies, may havea material adverse effect on our business, financial condition and results ofoperations.

 

**Changes to FinancialAccounting Standards May****Affect the Company’s Reported Results of Operations  **Weprepare our financial statements in conformity with accounting principlesgenerally accepted in the United States, or U.S. GAAP. These principles aresubject to interpretation by the Financial Accounting Standards Board (FASB),the American Institute of Certified Public Accountants (AICPA), the Securitiesand Exchange Commission (SEC) and various bodies formed to interpret and createappropriate accounting policies. A change in those policies can have asignificant effect on our reported results and may affect our reporting oftransactions completed before a change is announced.

 

Accountingpolicies affecting many other aspects of our business, includingrules relating to revenue recognition, off-balance sheet transactions,employee stock options, restructurings, asset disposals, intangible assets,derivative and other financial instruments, and in-process research anddevelopment charges, have recently been revised or are under review. Changes tothose rules or the questioning of how we interpret or implement thoserules may have a material adverse effect on our reported financial resultsor on the way we conduct business. In addition, our preparation of financialstatements in accordance with U.S. GAAP requires that we make estimates andassumptions that affect the recorded amounts of assets and liabilities,disclosure of those assets and liabilities at the date of the financialstatements and the recorded amounts of expenses during the reporting period. Achange in the facts and circumstances surrounding those estimates could resultin a change to our estimates and could impact our future operating results.

 

**Sole or Limited Sources of Supply  **Ourmanufacturing activities consist of assembling and testing components andsubassemblies, which are then integrated into finished systems. We rely on alimited number of outside suppliers and subcontractors to manufacture certaincomponents and subassemblies. We order one of the most critical components ofour technology, the glass for our 1X lenses, from external suppliers. We designthe 1X lenses and provide the lens specifications and the glass to othersuppliers, who then grind and polish the lens elements. We then assemble andtest the optical 1X lenses.

 

Weprocure some of our other critical systems’ components, subassemblies andservices from single outside suppliers or a limited group of outside suppliersin order to ensure overall quality and timeliness of delivery. Many of thesecomponents and subassemblies have significant production lead times. To date,we have been able to obtain adequate services and supplies of components andsubassemblies for our systems in a timely manner. However, disruption ortermination of certain of these sources could result in a significant adverseimpact on our ability to manufacture our systems. This, in turn, would have amaterial adverse effect on our business, financial condition and results ofoperations. Our reliance on a sole or a limited group of suppliers and ourreliance on subcontractors involve several risks, including a potentialinability to obtain an adequate supply of required components due to thesuppliers’ failure or inability to provide such components in a timely manner,or at all, and reduced control over pricing and timely delivery of components.Although the timeliness, yield and quality of deliveries to date from oursubcontractors have been acceptable, manufacture of certain of these componentsand subassemblies is an extremely complex process, and long lead-times arerequired. Any inability to obtain adequate deliveries or any other circumstancethat would require us to seek alternative sources of supply or to manufacturesuch components internally could delay our ability to ship our products, whichcould damage relationships with current and prospective customers and have amaterial adverse effect on our business, financial condition and results ofoperations.

 

**Dependence on KeyPersonnel  ****Our**futureoperating results depend, in significant part, upon the continued contributionsof key personnel, many of whom would be difficult to replace. We have enteredinto employment agreements with only a 

 

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limitednumber of our employees, including our Chief Executive Officer, Chief OperatingOfficer and Chief Financial Officer. All of our employees are employed “atwill.” Some of these agreements contain vesting acceleration and severancepayment provisions that could result in significant costs or charges to usshould the employee be terminated without cause, die or have a disability. Wedo not maintain any life insurance on any of our key people. The loss of key personnelcould have a material adverse effect on the business, financial condition andresults of operations of Ultratech. In addition, our future operating resultsdepend in significant part upon our ability to attract and retain otherqualified management, manufacturing, technical, sales and support personnel forour operations. There are only a limited number of persons with the requisiteskills to serve in these positions and it may become increasingly difficult forus to hire such personnel over time. At times, competition for such personnelhas been intense, particularly in the San Francisco Bay Area where we maintainour headquarters and principal operations, and there can be no assurance thatwe will be successful in attracting or retaining such personnel. The failure toattract or retain such persons would materially adversely affect our business,financial condition and results of operations.

 

**Volatility of Stock Priceand Dilutive Impact of Employee Stock Options  **We believe thatfactors such as announcements of developments related to our business,fluctuations in our operating results, a shortfall in revenue or earnings,changes in analysts’ expectations, general conditions in the semiconductor andnanotechnology industries or the worldwide or regional economies, sales of oursecurities into the marketplace, an outbreak or escalation of hostilities,announcements of technological innovations or new products or enhancements byus or our competitors, developments in patents or other intellectual propertyrights and developments in our relationships with our customers and supplierscould cause the price of our Common Stock to fluctuate, perhaps substantially.The market price of our Common Stock has fluctuated significantly in the pastand we expect it to continue to experience significant fluctuations in thefuture, including fluctuations that may be unrelated to our performance.

 

Asof July 2, 2005, we had options to purchase approximately 6.3 million shares ofour Common Stock outstanding. Among other determinants, the market price of ourstock has a major bearing on the number of shares subject to outstanding stockoptions that are included in the weighted-average shares used in determiningour net income (loss) per share. During periods of extreme volatility, theimpact of higher stock prices can have a materially dilutive effect on our netincome (loss) per share.****Additionally,options are excluded from the calculation of net income (loss) per share whenwe have a net loss or when the exercise price of the stock option is greaterthan the average market price of our Common Stock, as the impact of the stockoptions would be anti-dilutive.

 

**Effects of CertainAnti-Takeover Provisions  **Certainprovisions of our Certificate of Incorporation, equity incentive plans,Shareholder Rights Plan, licensing agreements, Bylaws and Delaware law maydiscourage certain transactions involving a change in control of our company.In addition to the foregoing, our classified board of directors, theshareholdings of Ultratech’s officers, directors and persons or entities thatmay be deemed affiliates and the ability of the Board of Directors to issue “blankcheck” preferred stock without further stockholder approval could have theeffect of delaying, deferring or preventing a change in control of Ultratechand may adversely affect the voting and other rights of holders of CommonStock.

 

**Changes in Securities Laws and Regulations Have Increased Our Costs  **TheSarbanes-Oxley Act of 2002 required changes in our corporate governance, publicdisclosure and compliance practices. The number of rules and regulationsapplicable to us has increased, and will continue to increase, our legal andfinancial compliance costs, and has made some activities more difficult, suchas by requiring stockholder approval of new option plans. In addition, we haveincurred and expect to continue to incur significant costs in connection withcompliance with Section 404 of the Sarbanes-Oxley Act regarding internalcontrol over financial reporting. We expect ongoing costs to maintaincompliance to be between one and two million dollars annually. We also expectthese developments to make it more difficult and more expensive to obtain directorand officer liability insurance, and we may be required to accept reducedcoverage or incur substantially higher costs to obtain coverage. Thesedevelopments could make it more difficult for us to attract and retainqualified members of our board of directors, particularly to serve on our auditcommittee, and qualified executive officers. In addition, in connection withour Section 404 certification process, we may identify from time to timedeficiencies in our internal control. Any material weakness or deficiency inour internal control over financial reporting could materially and negativelyimpact our reported financial results and the market price of our stock couldsignificantly decline. Additionally, adverse publicity related to thedisclosure of a material weakness or deficiency in internal control overfinancial reporting could have a negative impact on our reputation, businessand stock price.

 

**California Manufacturing Location  **Weperform all of our manufacturing activities (final assembly, system testing andcertain subassembly activities) in clean room environments totalingapproximately 26,000 square feet located in San Jose, California. Performingmanufacturing operations in California exposes us to a higher risk of naturaldisasters, including earthquakes. In addition, in the past California hasexperienced power shortages, which have interrupted our operations. Such shortagescould occur in the future and could again interrupt our operations resulting inproduct shipment delays, increased costs and other problems, any of which couldhave a material adverse effect on our business, customer relationships and 

 

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resultsof operations. We are not insured against natural disasters and power shortagesand the occurrence of such an event could have a material adverse impact ourresults of operations.

 

**Environmental Regulations  **Weare subject to a variety of governmental regulations relating to the use,storage, discharge, handling, emission, generation, manufacture and disposal oftoxic or other hazardous substances. We believe that we are currently incompliance in all material respects with such regulations and that we haveobtained all necessary environmental permits to conduct our business. Nevertheless,the failure to comply with current or future regulations could result insubstantial fines being imposed on us, suspension of production, alteration ofthe manufacturing process or cessation of operations. Such regulations couldrequire us to acquire expensive remediation equipment or to incur substantialexpenses to comply with environmental regulations. Any failure by us to controlthe use, disposal or storage of, or adequately restrict the discharge of,hazardous or toxic substances could subject us to significant liabilities.

 

**Terrorist Attacks andThreats, and Government Responses Thereto, May****Negatively Impact Our Operations, Revenues,Costs and Stock Price  **Terroristattacks in the United States and elsewhere, government responses thereto, andmilitary actions in Iraq, Afghanistan and elsewhere, may disrupt our operationsor those of our customers and suppliers and may affect the availability ofmaterials needed to manufacture our products or the means to transport thosematerials to manufacturing facilities and finished products to customers. Inaddition, any of these events could increase volatility in the United Statesand world financial markets which may depress the price of our Common Stock andmay limit the capital resources available to us or our customers or suppliers,which could result in decreased orders from customers, less favorable financingterms from suppliers, and scarcity or increased costs of materials andcomponents of our products. Additionally, terrorist attacks on Ultratech itselfmay significantly disrupt our ability to conduct our business. Any of theseoccurrences could have a significant impact on our operating results, revenuesand costs and may result in increased volatility of the market price of ourCommon Stock.

 

**InformationAvailable on Company Web-site**

 

Ultratech’sweb-site is located at *www.ultratech.com*.We make available, free of charge, through our web-site, our annual report onForm 10-K, quarterly reports on Form 10-Q and current reports onForm 8-K (and amendments to those reports), as soon as reasonablypracticable after such reports are filed electronically with the SEC. We haveadopted a Code of Ethics for our principal executive officer, principalfinancial officer, principal accounting officer or controller, or personsperforming similar functions. We have posted this Code of Ethics on ourweb-site. Any future amendments to this Code will also be posted on ourweb-site.

 

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**Item 3.   Quantitative andQualitative Disclosures about Market Risk**

 

Referenceis made to Part II, Item 7A, “Quantitative and Qualitative Disclosures AboutMarket Risk” in our Annual Report on Form 10-K for the year endedDecember 31, 2004 and to the subheading “Derivative Instruments andHedging” in Item 8, “Financial Statements and Supplementary Data”, under theheading “Notes to Consolidated Financial Statements” of our Annual Report onForm 10-K for the year ended December 31, 2004.

 

**Interestrate risk**

 

Ourexposure to market risk due to potential changes in interest rates, relatesprimarily to our investment portfolio, which consisted primarily of fixedinterest rate instruments as of July 2, 2005. We maintain an investment policydesigned to ensure the safety and preservation of our invested funds bylimiting market risk and the risk of default.

 

Certainof our cash, cash equivalents and short-term investments serve as collateralfor a line of credit we maintain with a brokerage firm. The line of credit isused for liquidity purposes, mitigating the need to liquidate investments inorder to meet our current operating cash requirements.

 

**ForeignCurrency Risk Management**

 

Themajority of our revenue, expense and capital purchasing activities aretransacted in U.S. dollars. However, we do enter into these transactions inother currencies, primarily Japanese Yen. To protect against reductions invalue and the volatility of future cash flows caused by changes in currencyexchange rates we have established transaction and balance sheet hedgingprograms. We use foreign currency forward contracts to hedge the risk thatunremitted Japanese yen denominated receipts from customers for actual orforecasted sales of equipment after receipt of customer orders may be adverselyaffected by changes in foreign currency exchange rates. After recordingrevenue, we use various mechanisms, such as foreign currency forward exchangecontracts and natural hedges, to offset substantial portions of the potentialgains or losses associated with our Japanese yen denominated assets andliabilities due to exchange rate fluctuations. At July 2, 2005, we had takenaction to hedge approximately 100% of these Japanese yen denominated exposures.In addition to natural hedges resulting from having both assets and liabilitiesdenominated in Japanese yen, we enter into foreign currency forward contractsthat generally have maturities of nine months or less. We often close foreigncurrency forward contracts by entering into an offsetting contract. At July 2,2005, we had contracts for the sale of $12.3 million of Japanese yen at fixedrates of exchange. Our hedging programs reduce, but do not always entirelyeliminate, the impact of currency movements.

 

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** **

**Item 4.   Controls and Procedures**

 

Weconducted an evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), as of the end of the period covered by this report (the “Evaluation Date”).Based upon the evaluation, our principal executive officer and principalfinancial officer concluded that as of the Evaluation Date our disclosurecontrols and procedures were effective to ensure that information required tobe disclosed by us in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

 

Disclosurecontrols and procedures are controls and other procedures that are designed toensure that information required to be disclosed in our reports filed orsubmitted under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed in ourreports filed or submitted under the Exchange Act is accumulated andcommunicated to management to allow timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,our management recognizes that any controls and procedures, no matter how well designedand operated, can provide only reasonable assurance of achieving the desiredcontrol objectives. Management is further required to apply judgment inevaluating the cost-benefit relationship of possible controls and procedures.

 

**Changesin Internal Control Over Financial Reporting**

 

Therewere no changes in our internal control over financial reporting during thequarter ended July 2, 2005 that have materially affected, or are reasonablylikely to materially affect our internal control over financial reporting.

 

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| **PART II:** | ** ** | **OTHER  INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Item 1.**  | ** ** | **Legal  Proceedings.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         |       | On  February 29, 2000, we filed lawsuits asserting patent infringement and  related claims against Nikon, Canon, and ASML in the U.S. District Court for  the Eastern District of Virginia. In April 2000, we reached a settlement  with Nikon, and in September 2001, we reached a settlement with Canon.  In the patent litigation against ASML, a jury trial was conducted during the  three-month period ended July 2, 2005. The jury reached a verdict that the  patent was infringed, but that the asserted claims of the patent were  invalid. We have filed a post-trial motion for a new trial and for judgment  as a matter of law in our favor. ASML has also filed a motion for judgment as  a matter of law. In addition, ASML has requested that the Court award costs  in the amount of $450,000 and has reserved the right to seek attorneys’ fees.  The Company has recorded an amount for court costs in our financial statements,  but we believe the possible claim for attorneys’ fees would be without merit  and we plan to vigorously defend ourselves against such a claim. |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Item 2.**  | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | None. |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** ** |
| **Item 3.**  | ** ** | **Defaults  upon Senior Securities.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | None. |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** ** |
| **Item 4.**  | ** ** | **Submission  of Matters to a Vote of Security Holders.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | None |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** ** |
| **Item 5.**  | ** ** | **Other  Information.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | None |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** ** |
| **Item  6**  | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** ** |
| ** **   | ** ** | 31.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | Certification  of Chief Executive Officer required pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
| ** **   | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** |   |
| ** **   | ** ** | 31.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | Certification  of Chief Financial Officer required pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
| ** **   | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** |   |
| ** **   | ** ** | 32.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|              |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  |  |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

**ULTRATECH, INC.**

(Registrant)

 

 
| Date:  | August  5, 2005 |   | By:                                                 | /s/Bruce  R. Wright |   |
|--------|-----------------|--------|-----------------------------------------------------|---------------------|--------|
|   |            |   | Bruce  R. Wright                                    |
|   |            |   | Senior  Vice President, Finance and Chief Financial |
|   |            |   | Officer  (Duly Authorized Officer and Principal     |
|   |            |   | Financial and Accounting Officer)                   |

 

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**EXHIBIT INDEX**

 
| 31.1   |   | Certification of Chief Executive Officer required  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                       |
| 31.2   |   | Certification of Chief Financial Officer required  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                         |
|   |   |                                                                                                                                                                                       |
| 32.1   |   | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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