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

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FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

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

For the transition period from ________to _________

Commission file number 000-24838

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



|Delaware                                                       | 77-0208119                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number)

47131 Bayside Parkway
Fremont, California      94538

(510) 657-5900

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Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.001 par value per share (Title of class)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes     ̈ No    x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes     ̈ No    x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
    ̈

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

Large accelerated filer      ̈ Accelerated filer    x Non-accelerated filer     ̈ Smaller reporting company     ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     ̈ No    x

The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of July 1, 2007 was $502,132,000
based on the closing price for the registrant's common stock reported by the
Nasdaq Global Select Market® on that date. Shares of voting stock held by each director and executive officer have been excluded
in that such persons may be deemed to be affiliates on that date. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.

Number of shares of the registrant's common stock outstanding as of February 15, 2008: 49,347,914.

Documents incorporated by reference: Portions of the Proxy Statement for the registrant's 2008 Annual Meeting of Stockholders,
which will be filed on or before April 29, 2008, are incorporated herein by reference into Part III.




PDF provided as courtesy

MATTSON TECHNOLOGY, INC.
                  FORM 10-K
                  FOR THE YEAR ENDED DECEMBER 31, 2007
                  TABLE OF CONTENTS



|             |                                                                                                               | Page
|------------ | ------------------------------------------------------------------------------------------------------------- | ----
|PART I      
|Item 1.      | Business                                                                                                      | 2   
|Item 1A.     | Risk Factors                                                                                                  | 11  
|Item 1B.     | Unresolved Staff Comments                                                                                     | 19  
|Item 2.      | Properties                                                                                                    | 20  
|Item 3.      | Legal Proceedings                                                                                             | 20  
|Item 4.      | Submission of Matters to a Vote of Security
Holders                                                           | 20  
|PART II     
|Item 5.      | Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases  of Equity Securities | 22  
|Item 6.      | Selected Financial Data                                                                                       | 25  
|Item 7.      | Management's Discussion and Analysis of Financial Condition and Results
of Operations                         | 26  
|Item 7A.     | Quantitative and Qualitative Disclosures about Market
Risk                                                    | 37  
|Item 8.      | Financial Statements and Supplementary Data                                                                   | 38  
|Item 9.      | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure                          | 68  
|Item 9A.     | Controls and Procedures                                                                                       | 68  
|Item 9B.     | Other Information                                                                                             | 69  
|PART III    
|Item 10.     | Directors and Executive Officers of the
Registrant                                                            | 69  
|Item 11.     | Executive Compensation                                                                                        | 69  
|Item 12.     | Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters                | 69  
|Item 13.     | Certain Relationships and Related Transactions, and Director
Independence                                     | 70  
|Item 14.     | Principal Accountant Fees and Services                                                                        | 70  
|PART IV     
|Item 15.     | Exhibits, Financial Statement Schedules                                                                       | 70  
|            
|             | Signatures                                                                                                    | 72  
|Schedule II. | Valuation and Qualifying Accounts                                                                             | 73  

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements made pursuant to the
provisions of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on management's current
expectations and beliefs, including estimates and projections about our industry. Forward-looking statements may be identified by use of terms
such as "anticipates," "expects," "intends," "plans," "seeks," "estimates,"
"believes" and similar expressions, although some forward-looking statements are expressed differently. Statements concerning our
financial position, business strategy and plans or objectives for future operations are forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and may cause
actual results to differ materially from the forward-looking statements and from management's current expectations. Such risks and uncertainties
include those set forth in Item 1A. "Risk Factors" in this Annual Report on Form 10-K. The forward-looking statements in this report
speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. However, readers
should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange
Commission.

PART I

Item 1.  Business
Company OverviewMattson Technology, Inc. (Mattson or the Company) is a leading supplier of semiconductor wafer processing
equipment used in the fabrication of integrated circuits (ICs or chips). Mattson produces dry strip equipment and rapid thermal processing (RTP)
equipment for the wafer chip fabrication industry. Our manufacturing equipment utilizes innovative technology to deliver advanced processing
capabilities and high productivity for the front-end-of-line (FEOL) and back-end-of-line (BEOL) fabrication of current and next-generation ICs.
Our tools, technologies and expertise are enablers in the semiconductor industry's transition to larger 300-millimeter (mm) wafers, sub-65
nanometer (nm) design rules and the use of new materials, such as copper, low capacitance (low-k) dielectrics and barrier metals.

Our customer base is diversified geographically and includes foundries, memory and logic device manufacturers.
We have a global sales and support organization focused on developing strong, long-term customer relationships to build customer loyalty. We
have design and manufacturing centers in the United States, Canada and Germany. Our customer support organization is headquartered in
Fremont, California, with sales and support teams located in China, France, Germany, Israel, Japan, Korea, Singapore, Taiwan and the United
States.

Mattson Technology, Inc. was incorporated in California in 1988 and reincorporated in Delaware in 1997. Our principal
executive office is located at 47131 Bayside Parkway, Fremont, CA 94538. Our telephone number is (510) 657-5900. Additional
information about Mattson is available on our Website at http://www.mattson.com. The information on our Website is not incorporated herein by
reference.Industry BackgroundThe manufacture of ICs is a highly complex process with numerous individual
processing steps, many of which are performed multiple times before manufacturing is complete and the IC is fully functional. To build an IC,
transistors are first created on the surface of the silicon wafer, known as FEOL fabrication, and then the transistors are microscopically wired
together by means of the interconnect metal layers, known as BEOL processing. The steps require the wafer to be subjected to a tightly
controlled series of chemical, thermal and photolithographic processes, resulting in the formation of millions, and in some cases billions, of
transistors per IC and thousands of ICs on a single wafer.


2Several technological trends impact IC manufacturing. One important trend is increasing IC density. Moore's Law, an
observation made in 1965 which states that the number of transistors on a chip doubles approximately every 24 months, has served as a goal
for the entire industry and fueled the worldwide technology revolution. To adhere to Moore's Law, semiconductor manufacturers face continuing
competitive pressures to manufacture increasingly complex ICs, improve yields per wafer and reduce manufacturing costs.

Semiconductor manufacturers have historically sought to increase the number of transistors per wafer by
"shrinking" device structures through reducing device geometries or nodes. Today's advanced devices are being produced at or
below the 90 nm technology node. Leading semiconductor manufacturers are ramping volume production at 65 nm and are beginning pilot line
activities at the 45 nm node.

The trend toward increasing device complexity and shrinking geometries requires the use of new materials and ever
more demanding processes. The industry is transitioning from using silicon/glass and aluminum as the building blocks of ICs to using newer
materials, such as cobalt, copper, hafnium, nickel, tantalum, titanium, and tungsten. Use of these new materials requires increasingly stringent
processes and new transistor structures to increase chip densities and improve chip speed while reducing power consumption. These new
challenging process requirements will drive the need for more research and development to provide more innovative solutions to enable the use
of these new films and processes.

To produce more chips on a wafer and reduce overall manufacturing cost per chip, semiconductor manufacturers have
migrated to larger wafers. Many semiconductor manufacturers have already transitioned to production on 300 mm (12 inch) wafers because of
the manufacturing cost advantages of these larger wafers compared to 200 mm (8 inch). 300 mm wafers yield greater than 2.2 times the
number of chips per wafer as compared to 200 mm wafers, providing significant economies of scale in wafer manufacturing. Most advanced
devices at 90 nm and below are produced on 300 mm wafers. The trend of increasing wafer sizes is expected to continue, but because
switching to production on larger wafers generally requires significant infrastructure changes in equipment and factory automation systems, the
transition will occur less frequently, typically every 10 years.

These developments increase manufacturing complexity and create the need for manufacturing equipment with
ever more precise process control capability, reliability, low defect rates and high productivity. The increased difficulty of achieving transistor
performance at advanced nodes has made high yields important in selecting process equipment. Semiconductor manufacturers demand
systems that can achieve consistent, reliable and repeatable process results within critical tolerance limits while still achieving desired
throughput rates.Consumer Electronics Driving Industry GrowthOver the past several years, consumer products have emerged as the primary force behind
semiconductor industry growth, now driving over half of all semiconductor sales. Semiconductors used in consumer electronic devices include
microcontrollers, microprocessors, digital signal processors and analog devices. In 2007, consumer electronics, such as cell phones, personal
computers (PCs), digital televisions and digital music players, continued to drive chip demand.

Advances in semiconductor technology have resulted in higher-performing consumer products at a much lower price. A
typical PC today sells for less than 30 percent of the price of a comparable unit in 1995, but today's model is 100 times more powerful. The
introduction of Microsoft's Vista (the latest release of the company's Windows operating system) is driving the increase in IC content per PC.
Sales of PCs, the largest single market for chips, grew by approximately 11 percent in 2007.

The recent growth in the memory market is being driven by consumers' demand for electronic devices that provide more
functionality, with larger storage capacity and mobility on a digital device. The demand for digital cameras and portable flash media players,
especially the Apple iPod and iPhone, was a significant driver of sales of NAND flash memory in 2007. Through 2010, flash memory is
forecasted to have the highest growth rate of the semiconductor industry, with 20 percent annual growth from $23.1 billion in 2007 to $39.7
billion in 2010, and
flash memory is also expected to surpass DRAM in terms of revenue.

3The growth in the logic market is being driven by the demand for devices with more functionality, faster processing
speed, lower power consumption and diversified applications.

The increasing proliferation of semiconductors into an ever-broader range of consumer products is expected to
drive industry growth for the next several years.

Mattson Strategy

Our business objective is to continuously grow Mattson while delivering strong financial performance. We are
committed to continuing this successful trend and grow Mattson by:

driving share gains in each of our existing market segments; and
leveraging our current technology capabilities to expand into new market segments.Strategies to achieve our long-term growth goals include:Technology LeadershipToday's semiconductor manufacturers demand processes that deliver results
with an unprecedented level of precision. We work closely with our customers, supply chain vendors and technology partners to deliver on these
demands. An important element of Mattson's growth strategy is our commitment to technology leadership in the markets we serve, and the
production-proven performance of our strip and RTP systems has earned us leading positions in both of these markets. We plan to extend our
market and technology leadership by developing robust processing solutions that provide semiconductor manufacturers superior technology,
productivity and total cost of ownership advantages. Investments in research and development have enabled us to make process improvements
and product innovations that are ready to deliver two technology nodes ahead of current device requirements, resulting in powerful and
expanding product and patent portfolios. We believe that our focus on delivering advanced technologies and increasing customer value will
enable us to increase our competitive advantage, expand our share in existing markets and penetrate new segments, further reinforcing our
leadership.Customer LoyaltyOur success is based on providing technical and production worthy value to our
customers and enabling them to succeed. We develop and deliver products that increase productivity and reduce manufacturing costs to help
our customers get their next-generation chips to market faster, thereby maximizing their returns on investment. Our global sales and service
organization works with our customers to align our business with their technology and production needs. We are a vendor of choice at leading
semiconductor manufacturers around the world; a testament to our success in maintaining strong relationships and building customer loyalty
and satisfaction.Operational ExcellenceBecause the semiconductor industry is a global business, it is critical for
semiconductor equipment suppliers to have operations in each region available 24 hours a day/7 days a week/52 weeks a year. We have
developed a globally integrated operations organization that responds quickly to deliver solutions and products to customers anywhere in the
world. Through the successful implementation of our cyclically flexible enterprise (CFE) business model, we have built a leaner, more flexible
organization designed to deliver profitability and efficiency throughout all industry cycles. We have established partnerships with our supply
chain, and the outsourcing of non-core functions allows us to concentrate resources on what is most critical for our customers: developing and
delivering advanced products that meet our customers' current IC technology demands and that are extendible for future devices. We have also
implemented measures and programs designed to increase manufacturing efficiencies and reduce material costs. In the coming year, we will
continue to implement these measures and programs to increase enterprise-wide efficiencies and operational excellence.

4Markets, Applications and Products
Dry StripA strip system removes photoresist (PR) or other residues from a wafer following
each step of film deposition or diffusion processing in preparation for the next processing step. Methods for stripping off these residues include
wet and dry technologies. The more advanced dry stripping systems, such as our SupremaTM and Aspen strip tools, create gaseous
chemistries, or plasmas, to which the wafer is exposed to remove mask films and residues.

As the complexity and number of thin-film layers required for each wafer has increased, the demand for advanced
strip equipment has grown. This has led to a need for semiconductor manufacturers to increase their strip capacity and to place greater
emphasis on low-damage results and residue-free stripping. The fabrication of ICs with feature sizes of sub-100 nm, and the use of copper and
low-k dielectric films, create new challenges for advanced stripping equipment. The resist or residues must be removed from the interconnect
layer without degrading the low-k materials, oxidizing any exposed copper or damaging the surface of the wafer.

Our Suprema system utilizes a new and innovative wafer handling architecture to deliver superior productivity and
reliability with exceptionally low cost of ownership for manufacturing at the 90 nm node and below. The Suprema features our patented
inductively coupled plasma (ICP) technology. The system utilizes an enhanced radio frequency (RF) matching network and a higher-capacity
heating source to provide increased throughput, process performance and reliability. The Suprema system is in high-volume production at
customer sites around the world.

The eHighlands is our advanced low temperature resist strip system that enables semiconductor manufacturers to work
with a single tool for the following applications in damascene/copper integration:


Low-k /ultra low-k ashing;





The system also provides excellent performance for other advanced dry strip applications, including metal gate strip
required for the 45 nm technology node and beyond.

Rapid Thermal Processing

In RTP, semiconductor wafers are rapidly heated under controlled ambient conditions to process temperatures of
up to 1350 °
C, held at the desired temperature for a short, defined time and then rapidly cooled. Thermal processing can alter and lock in material properties
at the wafer surface as well as in the bulk silicon. Typical processes include:

- Rapid thermal annealing: to achieve defined electrical properties in the devices or in the bulk of the wafer;
- Rapid thermal silicidation: to optimize the electrical conductive structures on the wafer; and

- Rapid thermal oxidation: to grow an oxide layer on the wafer surface.

Historically, diffusion furnaces have been used to heat-treat large batches of wafers. As device features continue to
shrink, temperature uniformity and exposure control have become more critical and require process capabilities beyond those that diffusion
furnaces can provide. Single-wafer RTP inherently enables more precise thermal control, uniformity across the diameter of the wafer and
repeatability of results from wafer to wafer with substantially less thermal budget.

Mattson's RTP products feature dual-sided, lamp-based heating technology that provides enhanced process
uniformity and repeatability with precise process control for both 200 and 300 mm manufacturing. Our product lines
include the 2900 for 200 mm
applications, the HeliosTM RTP system for 300 mm anneal applications and the AtmosTM rapid thermal oxidation
(RTO) system for 300 mm advanced oxidation applications.

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The Helios features a state-of-the-art model-based temperature measurement and control system that provides the
uniformity, repeatability and reliability required for achieving superior device performance for the most demanding 300 mm applications,
including source drain anneals, spike anneals and nickel silicide (NiSi) formation. This dual-chamber RTP system has been in volume
production since 2003 at 90 nm and below, and is in development for 32 nm applications at major customer sites. In 2007, the Helios increased
its market presence worldwide, gaining new customers in China, Japan and Taiwan primarily based on the system's excellent productivity and
cost-of-ownership advantages. We will continue working with our customers to demonstrate the Helios' capabilities on processes for advanced
32 nm and below technology applications.

In 2007, we enhanced Atmos' productivity performance, expanded its market presence to China and Taiwan and
we shipped Atmos to new accounts for 70 nm and below applications.

Our flash-assisted RTP (fRTP) system, MilliosTM, which features a patented arc lamp technology
capable of reducing thermal cycle time by a factor of over a hundred, is designed to enable our customers to meet advanced gate anneal and
activation process requirements through the 32 nm technology node and beyond.

Etch (Isotropic and Low Aspect Ratio Reactive Ion)

Etching processes, which are repeated numerous times during the IC manufacturing cycle,
selectively remove patterned material from the surface of a wafer to create the device structures. As IC feature sizes continue to shrink, dry, or
plasma, etching has become one of the most frequently used processes in semiconductor manufacturing because of plasma etching's ability to
create the fine line widths required for smaller geometries.

Plasma-based etching can be divided into sub categories: isotropic and anisotropic etching. An isotropic, or
multi-directional, etch system utilizes mostly neutral and low energy ions to perform a variety of etch processes on semiconductor wafers at and
beyond the 65 nm node. Anisotropic etching, which occupies the majority of the total available plasma etch market, utilizes energetic ions to
directionally etch the materials. This application space is also expected to extend well beyond the 65 nm node.

Our Aspen III LiteEtch systems use our patented ICP source technology for isotropic etching applications on 200 and
300 mm wafers. The LiteEtch system leverages the very high throughput of our wafer transfer platform and the superior performance of the
patented ICP with Faraday shield to provide superior process on-wafer performance.

Our NexionTM anisotropic etch system is currently in qualification on several etch applications at a major
memory manufacturer. This system draws on our expertise in anisotropic etching using a Faraday-shielded ICP system with bias capability and
a platform with very high throughput to provide low cost-of-ownership, as well as excellent process on-wafer performance to our customers.

Customer Support

One of Mattson's primary goals is to build strong and productive partnerships with our customers. We recognize that
their success is our success. Our customer support organization leads programs meant to build and strengthen these long-term relationships.
Our customer support organization is headquartered in Fremont, California, with additional resources located in China, France, Germany,
Korea, Singapore, Taiwan and the United States. Our global support infrastructure is composed of an extensive network of product and process
technologists, along with experienced field service teams with diverse technical backgrounds and mechanical and electronics training.
After-sales support is an essential part of our customer service program, and our international customer support teams provide the following services:
system installation, on-site repair, telephone support, used tool refurbishment, relocation services and selected post-sales process development
applications.

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We offer competitive, comprehensive warranties on all of our products. We maintain spare parts depots and local
support in most regions. As part of our global support services, we also offer a broad selection of technical training courses, from maintenance
and service training to basic and advanced applications and operation.

We are committed to the continuous improvement of our customer support services. As such, we have invested
significantly in the continued training of our support resources. We are also actively engaged in joint development programs at many major
customer sites to collaborate on product and process development and increase the level of customer support.

We work closely with Semiconductor Equipment Materials International (or SEMI, a global member association for
companies participating in the microelectronics and display industries) to ensure that our programs comply with its major support directives.

Sales and Marketing

Our marketing and sales efforts are focused on building long-term relationships with our customers. We sell
our systems primarily through our direct sales force and distribution agreements in certain regions and countries. Our sales personnel work
closely with our customers to develop solutions to meet their processing needs. In addition to the direct sales force resident in our Fremont,
California headquarters, we have sales and support offices in China, Germany, Japan, Korea, Singapore, Taiwan and the United States.

In 2007, we maintained a few select representatives where it either was advantageous economically or
geographically

Our international sales accounted for 92% of our net sales in 2007, 89% of our net sales in 2006 and 84% of our
net sales in 2005. We anticipate that international sales will continue to account for a significant portion of our future net sales. Asia has been a
particularly important region for our business. Our sales to customers located in China, Japan, Korea, Taiwan and other Asian countries
accounted for 79% of our net sales in 2007, 82% of our net sales in 2006 and 72% of our net sales in 2005. Our foreign sales are subject to
certain governmental restrictions, including the Export Administration Act and the regulations promulgated under this Act. For a discussion of the
risks associated with our international sales, see Item 1A. Risk Factorsto this Annual Report on Form 10-K, under the caption "We
are highly dependent on international sales, and face significant international business risks."

Backlog

We schedule production of our systems based on both backlog and regular sales forecasts. We include in
backlog only those systems for which we have accepted purchase orders and assigned shipment dates within the next 12 months. Orders
may be subject to cancellation or delay by the customer with limited or no penalty. Our backlog was $27.0 million as of
December 31, 2007, $48.9 million as of December 31, 2006 and $48.3 million as of December 31, 2005.

In the second half of 2007, due to weakness in the overall semiconductor market, our customers significantly decreased
their requested delivery times, in order to allow them more time to evaluate market conditions before placing orders. This change in our
customers' behavior makes direct comparison of our 2007 backlog to prior years less meaningful. Because of possible future changes in
delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily representative of actual sales to be
expected for any succeeding period, and our actual sales for the year may not meet or exceed the backlog represented. During periods of
industry downturn, we have experienced cancellations, delays and push-outs of orders that were previously included in backlog.

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Customers

Our customer base is diversified, both geographically and by chip segments. In 2007, customers for our
products include 15 of the world's top 20 semiconductor manufacturers. The composition of our largest customers has varied from year to year.
The following table shows our net sales from customers representing more than ten percent of total sales in each of the last three years and net
sales from our top ten customers as a group for each of those years:

|                             |  | Year Ended December 31,
|---------------------------- |  | -----------------------
|                             |  | 2007                   
|                             |  |                        
|Customer A                   |  | 15%                    
|Customer B                   |  | 13%                    
|Customer C                   |  | 12%                    
|Customer D                   |  | 10%                    
|Customer E                   |  | -                      
|Customer F                   |  | -                      
|                             |  |                        
|Top ten customers as a group |  | 74%                    

For a discussion of risks associated with changes in our customer base, see Item 1A.
Risk Factorsto this Annual Report on Form 10-K, under the caption "We are dependent on a highly concentrated customer base,
particularly with customers in the memory market, and any cancellation, reduction or delay of purchases by or failure to collect receivables from
these customers could harm our business. Additionally, we may not achieve anticipated revenue levels if we are not selected as `vendor of
choice' for new or expanded fabrication facilities."

Research, Development and Engineering

The semiconductor equipment industry is characterized by rapid technological
change and product innovation. We develop process and process integration solutions with results at the wafer surface for our customers. The
products that we develop and market allow our customers to address their advanced process requirements. Only by continuously striving to
develop new intellectual property (IP) for processes and hardware to support new processes can we maintain and advance our competitive
position in the markets we serve. Accordingly, we devote a significant portion of our resources to research, development and engineering
(RD&E) programs. We seek to maintain close relationships with our global customers and to remain responsive to their product and
processing needs.

Our key RD&E activities during 2007 involved the ongoing process improvements of our strip and RTP systems, as
well as the development of a new 300 mm reactive ion etch tool. Significant work was also done on the commercialization of our Millios flash
RTP (fRTP) tool.

Our Suprema strip system incorporates our ICP

Other development efforts have led to further improvements in process performance for strip applications involving
heavily ion-implanted photoresist. We also made significant progress in improving the performance of the processes in our process application
suite for strip products for 65, 45 and 32 nm advanced applications.

We have extended the capability of our latest-generation RTP tools for 45 and 32 nm technology requirements and
improved our tool reliability and productivity to help reduce our customers' cost of ownership. Both our Helios RTP and Atmos RTO systems
feature a model-based temperature control system for improved uniformity on advanced process applications. Improved temperature
measurement and control features also enable advanced silicide formation and provide tighter peak-width control for conventional ultra-shallow
junction (USJ) anneal requirements. We

8

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continued to work with our customers to demonstrate the process capabilities of the Helios for
advanced 32 nm technology applications.

We expanded the temperature range for RTP applications with improved uniformity for both low temperature and high
temperature ranges. Millios features a flash lamp technology designed to address annealing for advanced USJ applications through the 32 nm
technology node and beyond. In 2007, this next-generation millisecond annealing system was qualified by semiconductor and leading
nanoelectronics research centers in Europe and the United States.

In 2008, we intend to continue to make substantial investments in strategic development and engineering programs
to meet our customers' technical and production requirements. Over the next year, we plan to focus our RD&E efforts on improving existing
system capabilities, developing new advanced strip processes for ion-implanted photoresist and RTP technologies for smaller feature sizes,
low-k dielectric materials and 300 mm applications, as well as the development of new product capabilities.

We maintain applications development and engineering laboratories in Fremont, California; Vancouver, Canada
and Dornstadt, Germany to address new tool and process development activities and customer-specific requirements. Our research,
development and engineering expenses were $34.1 million for the year ended December 31, 2007; $28.3 million for the year ended
December 31, 2006 and $26.6 million for the year ended December 31, 2005; representing 12.7% of net sales in 2007;
10.1% of net sales in 2006 and 12.7% of net sales in 2005.

Competition

The global semiconductor equipment industry is intensely competitive and is
characterized by rapid technological change and demanding customer service requirements. Our ability to compete depends upon our ability to
continually improve products, processes and services, and our ability to develop new products that meet constantly evolving customer
requirements.

A substantial capital investment is required by semiconductor manufacturers to install and integrate new processing
equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular supplier's products,
the manufacturer often relies upon that equipment for the specific production line application, and frequently will attempt to consolidate its other
capital equipment requirements with the same supplier. Accordingly, it is difficult to sell to a customer for a significant period of time in the event
that the customer has selected a competitor's product, and it may be difficult to displace an existing relationship that a potential customer has
with a competitor.

Each of our product lines competes in markets defined by the particular IC fabrication process it performs. In each
of these markets, we have multiple competitors. At present, however, no single competitor competes with us in all of the process areas in which
we serve. Competitors in a given technology tend to have different degrees of market presence in the various regional geographic markets.
Competition is based on many factors; primarily technological innovation; productivity; total cost of ownership of the systems, including yield,
price, product performance and throughput capability; quality; contamination control; reliability and customer support. We believe that our
competitive position in each of our markets is based on the ability of our products and services to address customer requirements related to
these competitive factors.

Our principal competitors in the dry strip market include Axcelis Technologies, Novellus Systems and PSK.
Principal competitors for our thermal annealing systems are Applied Materials, DaiNippon Screen (DNS) and UltraTech Technologies. In the
thermal oxidation market, we compete against mini-batch furnace suppliers, including ASM International N.V., Kokusai Electric and Tokyo
Electron Ltd (TEL). Principal competitors for our etch systems include Applied Materials, Lam Research Corporation and TEL.

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Manufacturing

We have direct manufacturing capability in Fremont, California and Dornstadt, Germany.
Our direct manufacturing operations consist of procurement, assembly, test, quality assurance and manufacturing engineering. We also utilize
an outsourcing strategy for the manufacture of components, major subassemblies/modules and complete systems. In 2007, we continued to
increase the proportion of manufacturing work performed by our strategic outsourcing partners by implementing a vendor-managed inventory
program on major generic modules which ship ocean freight and are sent to Mattson based on customer demand. This outsourcing strategy is a
key element of our CFE business model. Our outsourcing partners have manufacturing facilities in China, Germany, Japan, Singapore, Taiwan
and Vietnam.

We also expanded our merge-in-transit program, a distribution model where several shipments originating and
tested as complete modules at different manufacturing locations are consolidated into one customer delivery. The program is helping to reduce
order-to-delivery cycle-time and improve the distribution channel efficiency of Mattson's products.

Intellectual Property

We rely on a combination of patent, copyright, trademark and trade secret laws, non-disclosure agreements
and other IP protection methods to protect our proprietary technology. We hold a number of United States patents and corresponding foreign
patents and have a number of patent applications pending covering various aspects of our products and processes. We have also licensed a
small number of patents and, where appropriate, we will continue this practice in the future. Where appropriate, we intend to file additional
patent applications on inventions resulting from our ongoing RD&E activities to grow and strengthen all of our individual product IP
portfolios.

As is customary in our industry, from time to time we receive or make inquiries regarding possible infringement of
patents or other IP rights. Although there are no pending claims against us regarding infringement of any existing patents or other IP rights or
any unresolved notices that we are infringing IP rights of others, such infringement claims could be asserted against us or our suppliers by third
parties in the future. Any claims, with or without merit, could be time-consuming, result in costly litigation, result in loss or cancellation of
customer orders, cause product shipment delays, subject us to significant liabilities to third parties, require us to enter into royalty or licensing
agreements or prevent us from manufacturing and selling our products. If our products were found to infringe a third party's proprietary rights,
we could be required to enter into royalty or licensing agreements in order to continue to sell our products. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us, if at all, which could seriously harm our business. Our involvement in any patent or
other IP dispute or action to protect trade secrets and know-how could have a material adverse effect on our business.

Employees

As of December 31, 2007, we had 613 employees. The success of our future operations will depend in
large part on our ability to recruit and retain qualified employees, particularly those highly skilled design, process and test engineers involved in
the manufacture of existing systems and the development of new systems and processes. Historically, during times of economic expansion,
competition for such personnel has been intense, particularly in the San Francisco Bay Area where our headquarters are located. At times, we
have experienced difficulty in attracting new personnel, and if needed we may not be successful in retaining or recruiting sufficient key
personnel in the future. None of our employees outside of Germany is represented by a labor union, and we have never experienced a work
stoppage, slowdown or strike. In Germany, our employees are represented by workers' councils. We consider our relationships with our
employees to be good.

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Environmental Matters

We are subject to Federal, state, local and international environmental laws and regulations. These laws, rules
and regulations govern the use, storage, discharge and disposal of hazardous chemicals during manufacturing, research and development and
sales demonstrations. Neither compliance with Federal, state and local provisions regulating discharge of materials into the environment, nor
remedial agreements or other actions relating to the environment, has had, or is expected to have, a material effect on our capital expenditures,
financial condition, results of operations or competitive position. However, if we fail to comply with applicable regulations, we could be subject to
substantial liability for clean up efforts, personal injuries, fines or suspension or cessation of our operations.

Available Information

We make available free of charge, through our Website,

Item 1A.  Risk Factors

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

The semiconductor equipment industry is highly cyclical and periodically has severe and prolonged downturns,
which causes our operating results to fluctuate significantly. We are exposed to the risks associated with industry overcapacity, including
reduced capital expenditures, decreased demand for our products and increased price competition.

The semiconductor industry is highly cyclical and has historically experienced periodic downturns, whether as
the result of general economic changes or capacity growth temporarily exceeding growth in demand for semiconductor devices. Our business
depends, in significant part, upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that open new or
expand existing facilities. Periods of overcapacity and reductions in capital expenditures by our customers cause decreases in demand for our
products. If existing fabrication facilities are not expanded and new facilities are not built, demand for our systems may not develop or increase,
and we may be unable to generate significant new orders for our systems. If we are unable to develop new orders for our systems, we will not
achieve anticipated net sales levels. During periods of declining demand for semiconductor manufacturing equipment, our customers typically
reduce purchases, delay delivery of ordered products and/or cancel orders, resulting in reduced revenues and backlog, delays in revenue
recognition and excess inventory. Increased price competition may result, causing pressure on our gross margin and net income.

In future downturns, if we are unable to effectively align our cost structure with prevailing market conditions, we
could experience losses, may be required to undertake additional cost-cutting measures and may be unable to continue to invest in research,
development and engineering at the levels we believe are necessary to maintain our competitive position in our core businesses. Our failure to
make these investments could seriously harm our long-term business prospects.

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We are dependent on a highly concentrated customer base, particularly with customers in the memory market, and any
cancellation, reduction or delay of purchases by or failure to collect receivables from these customers could harm our business. Additionally, we
may not achieve anticipated revenue levels if we are not selected as "vendor of choice" for new or expanded fabrication
facilities.

Currently, we derive most of our revenues from the sale of systems to a relatively small number of customers,
which makes our relationship with each customer critical to our business. Because semiconductor manufacturers must make a substantial
investment to install and integrate capital equipment into a semiconductor fabrication facility, these manufacturers will tend to choose
semiconductor equipment manufacturers based on established relationships, product compatibility and proven financial performance.

Once a semiconductor manufacturer selects a particular vendor's capital equipment, the manufacturer generally
relies upon equipment from this "vendor of choice" (VOC) for the specific production line application. In addition, the semiconductor
manufacturer frequently will attempt to consolidate its other capital equipment requirements with the same vendors. Accordingly, we may face
narrow windows of opportunity to be selected as the VOC by significant new customers. It may be difficult for us to sell to a particular customer
for a significant period of time once that customer selects a competitor's product, and we may not be successful in obtaining broader
acceptance of our systems and technology. If we are unable to achieve broader market acceptance of our systems and technology, we may be
unable to maintain and grow our business and our operating results and financial condition will be adversely affected.

The current list prices on our systems range from $0.7 million to more than $4.0 million. Consequently,
any order cancellations, delays in scheduled shipments, delays in customer acceptances or delays in collection of accounts receivable could
materially adversely affect our operating results and cause our results to fall below our expectations and the expectations of market analysts or
investors.

Our list of major customers changes substantially from year to year, and we cannot predict whether a major
customer in one year will make significant purchases from us in future years. Additionally, our customers' capital budget considerations and our
lengthy sales cycle make the timing of customer orders uneven and difficult to predict. Accordingly, it is difficult for us to accurately forecast our
revenues and operating results from year to year.

Although we maintain a backlog of customer orders with expected shipment dates within the next 12 months,
customers may request cancellations or delivery delays. As a result, our backlog may not be a reliable indication of future revenues. If
shipments of orders in backlog are cancelled or delayed, revenues could fall below our expectations and the expectations of market analysts
and investors.

Additionally, a large percentage of our sales are concentrated to customers in the memory market, so a downturn in
memory spending could impact us more than it would impact competitors who are stronger in the logic and foundry markets. Sales to customers
in the memory market accounted for 71% of our net sales in 2007.

We may not be able to continue to successfully compete in the highly competitive semiconductor equipment
industry.

The semiconductor equipment industry is both highly competitive and subject to
rapid technological change. Significant competitive factors include the following:

- system performance;
- cost of ownership;
- size of the installed base;
- breadth of product line;
- delivery speed; and
- customer support.

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Competitive pressure has been increasing in several areas. In particular, there is increased price competition, and
customers are waiting to make purchase commitments based on their end-user demand, which are then placed with requests for rapid delivery
dates and increased product support.

Some of our major competitors are larger than we are, have greater capital resources and may have a competitive
advantage over us by virtue of having:

- broader product lines;
- longer operating history;
- greater experience with high-volume manufacturing;
- substantially larger customer bases;
- the ability to reduce price through product bundling; and
- substantially greater customer support, financial, technical and marketing resources.

Growth in the semiconductor equipment industry is increasingly concentrated in the largest companies, resulting in
increasing industry consolidation.  Semiconductor companies are consolidating their vendor base and prefer to purchase from vendors with a
strong, worldwide support infrastructure.   For us to meet our long-term growth objectives, we must grow significantly in the short to
medium-term.  If we do not grow to a sufficient size, our prospects for future growth would be diminished.

In addition, to expand our sales we must often displace the systems of our competitors or sell new systems to
customers of our competitors. Our competitors may develop new or enhanced competitive products that will offer price or performance features
that are superior to our systems. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in
customer requirements or to devote greater resources to the development, promotion, sale and on-site customer support of their product lines.
We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively.

Significant fluctuations in our operating results are difficult to predict due to our lengthy sales cycle, and our results may
fall short of anticipated levels, which could cause our stock price to decline.

Sales of our systems depend upon the decision of a prospective customer to increase or replace
manufacturing capacity, typically involving a significant capital commitment. Accordingly, the decision to purchase our systems requires
time-consuming internal procedures associated with the evaluation, testing, implementation and introduction of new technologies into our customers'
manufacturing facilities. Even after the customer determines that our systems meet their qualification criteria, we may experience delays
finalizing system sales while the customer obtains approval for the purchase, constructs new facilities or expands its existing facilities.
Consequently, the time between our first contact with a customer regarding a specific potential purchase and the customer's placing its first
order may last from nine to twelve months or longer. We may incur significant sales and marketing expenses during this evaluation period. In
addition, the length of this period makes it difficult to accurately forecast future sales. If sales forecasted from a specific customer are not
realized, we may experience an unplanned shortfall in revenues, and our quarterly and annual revenue and operating results may fluctuate
significantly from period to period.

Our quarterly and annual revenue and operating results have varied significantly in the past and are likely to vary
significantly in the future, which makes it difficult for us to predict our future operating results. We incurred net losses of approximately
$336.7 million for the year ended December 31, 2001, $69.7 million for the year ended December 31, 2002 and
$35.5 million for the year ended December 31, 2003. Although we were profitable for each of the years 2004 to 2007, we may not
achieve profitability in future years. We will need to continue to generate significant sales to achieve and maintain profitability, and we may not
be able to do so. A substantial percentage of our operating expenses are fixed in the short term and we may be unable to adjust spending to
compensate for an unexpected shortfall in revenues. As a result, any delay in generating or recognizing revenues could cause our operating
results to be below the expectations of market analysts or investors, which could cause the price of our common stock to decline.

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We must continually anticipate technology trends, improve our existing products and develop new products in order to
be competitive. The development of new or enhanced products involves significant risk and cost and delays. Technical and manufacturing
difficulties incurred in the introduction of new products could be costly and adversely affect our customer relationships.

The markets in which we and our customers compete are characterized by rapidly changing technology,
evolving industry standards and continuous improvements in products and services. Consequently, our success depends upon our ability to
anticipate future technology trends and customer needs, to develop new systems and processes that meet customer requirements and industry
standards and that compete effectively on the basis of price and performance.

Our development of new products involves significant risk, since the products are very complex and the
development cycle is long and expensive. The success of any new systems we develop and introduce is dependent on a number of factors,
including our ability to correctly predict customer requirements for new processes, to assess and select the potential technologies for research
and development and to timely complete new system designs that are acceptable to the market. We may make substantial investments in new
technologies before we can know whether they are technically or commercially feasible or advantageous, and without any assurance that
revenue from future products or product enhancements will be sufficient to recover the associated development costs. Not all development
activities result in commercially viable products. We may not be able to improve our existing systems or develop new technologies or systems in
a timely manner. We may exceed the budgeted cost of reaching our research, development and engineering objectives, and planned product
development schedules may require extension. Any delays or additional development costs could have a material adverse effect on our
business and results of operations.

Our products are complex, and we may experience technical or manufacturing inefficiencies, delays or difficulties in
the prototype introduction of new systems and enhancements, or in achieving volume production of new systems or enhancements that meet
customer requirements. Our inability to overcome such difficulties, to meet the technical specifications of any new systems or enhancements or
to manufacture and ship these systems or enhancements in volume and in a timely manner would materially adversely affect our business and
results of operations, as well as our customer relationships.

We may from time to time incur unanticipated costs to ensure the functionality and reliability of our products early in
their life cycles, and such costs can be substantial. If we encounter reliability or quality problems with our new products or enhancements, we
could face a number of difficulties, including reduced orders, higher manufacturing costs, delays in collection of accounts receivable and
additional service and warranty expenses, all of which could materially adversely affect our business and results of operations. The cost
associated with our warranty is significant, and in the event our projections and estimates of this cost are inaccurate, our financial performance
could be seriously harmed. In addition, if we experience product failures at an unexpectedly high level, our reputation in the marketplace could
be damaged, and our business would suffer.

We are subject to significant risks related to our global manufacturing operations.

Our gross margins for sales of products that we manufacture in Germany and our operating expenses in Germany may fluctuate due
to changes in the value of the Euro.

We develop and manufacture a significant portion of our products in Germany, where our costs for labor and
materials are primarily established in Euros. In 2007, the increasing strength of the Euro against the U.S. dollar negatively impacted our overall
gross margin performance. Future increases in the strength of the Euro, if any, could increase our development costs, our costs to manufacture
systems in Germany and our costs to purchase spare parts for products from our suppliers, which would make it more difficult to for us to
compete and could adversely affect our results of operations.

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We are increasingly outsourcing manufacturing and logistics activities to third-party service providers, which decreases
our control over the performance of these functions.

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

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

If customer demand for our products increases, we may be unable to secure sufficient additional capacity from our
current service providers on commercially reasonable terms, if at all. Our requirements are expected to represent a small portion of the total
capacities of our third-party service providers, and they may preferentially allocate capacity to other customers, even during periods of high
demand for our products. In addition, such manufacturers could suffer financial difficulties or disruptions in their operations due to causes
beyond our control.

We depend upon a limited number of suppliers for some components and subassemblies, and supply shortages or
the loss of these suppliers could result in increased cost or delays in the manufacture and sale of our products.

We rely, to a substantial extent, on outside vendors to provide many of the components and subassemblies of
our systems. We obtain some of these components and subassemblies from a sole source or a limited group of suppliers. We generally acquire
these components on a purchase order basis and not under long-term supply contracts. Because of our anticipated reliance on outside vendors
generally, and on a sole or a limited group of suppliers in particular, we may be unable to obtain an adequate supply of required components.
Although we currently experience minimal delays in receiving goods from our suppliers, when demand for semiconductor equipment is strong,
our suppliers may have difficulty providing components on a timely basis.

In addition, during periods of shortages of components, we may have reduced control over pricing and timely
delivery of components. We often quote prices to our customers and accept customer orders for our products prior to purchasing components
and subassemblies from our suppliers. If our suppliers increase the cost of components or subassemblies, we may not have alternative sources
of supply and may no longer be able to increase the cost of the system being evaluated by our customers to cover all or part of the increased
cost of components.

The manufacture of some of these components is an extremely complex process and requires long lead times. If
we are unable to obtain adequate and timely deliveries of our required components, we may have to seek alternative sources of supply or
manufacture such components internally. This could delay our ability to manufacture or timely ship our systems, causing us to lose sales, incur
additional costs, delay new product introductions and harm our reputation. Historically, we have not experienced any significant delays in
manufacturing due to an inability to obtain components, and we are not currently aware of any specific problems regarding the availability of
components that might significantly delay the manufacturing of our systems in the future. However, any inability to obtain adequate deliveries, or
any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally, could delay
our ability to ship our systems and could have a material adverse effect on us.

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Our results of operations may suffer if we do not effectively manage our inventory.

We need to manage our inventory of component parts, work-in-process and finished goods effectively to meet
customer delivery demands at an acceptable risk and cost. Customers are increasingly requiring very short lead times for delivery, which may
require us to purchase and carry additional inventory. For both the inventories that support manufacture of our products and our spare parts
inventories, if the anticipated customer demand does not materialize in a timely manner, we will incur increased carrying costs and some
inventory could become obsolete, resulting in write-offs, which would adversely affect our results of operations.

We manufacture many of our products at two primary manufacturing facilities and are thus subject to risk of
disruption.

Although we outsource the manufacturing for certain of our products to third parties, we continue to produce
our latest generation products at our two principal manufacturing plants in Fremont, California and Dornstadt, Germany. We have limited ability
to interchangeably produce our products at either facility, and in the event of a disruption of operations at one facility, our other facility would not
be able to make up the capacity loss. Our operations are subject to disruption for a variety of reasons, including, but not limited to, natural
disasters, work stoppages, operational facility constraints and terrorism. Such disruption could cause delays in shipments of products to our
customers, result in cancellation of orders or loss of customers and seriously harm our business.

Changes in tax rates or tax liabilities could affect results.

We are subject to taxation in the United States and various other countries. Significant judgment is required to
determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including
changes in the applicable tax laws, composition of earnings in countries with differing tax rates or our valuation and utilization of deferred
tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other
tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final
determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could
materially and adversely affect our results of operations.

We are highly dependent on international sales, and face significant international business risks.

International sales accounted for 92% of our net sales in 2007, 89% of our net sales in 2006 and 84% of our
net sales in 2005. We anticipate international sales will continue to account for a significant portion of our future net sales. Asia has been a
particularly important region for our business, and we anticipate that it will continue to be important going forward. Our sales to customers
located in China, Japan, Korea, Taiwan and other Asian countries accounted for 79% of our net sales in 2007, 82% of our net sales in 2006 and
72% of our net sales in 2005. Because of our continuing dependence upon international sales, we are subject to a number of risks associated
with international business activities, including:

- unexpected changes in law or regulations resulting in more burdensome governmental controls, tariffs, taxes,
restrictions, embargoes or export license requirements;
- exchange rate volatility;
- the need to comply with a wide variety of foreign and U.S. export laws;
- political and economic instability;
- government sponsored competition;
- differing labor regulations;
- reduced protection for intellectual property;
- difficulties in accounts receivable collections;

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- increased costs for product shipments and potential difficulties from shipment delays;
- difficulties in managing distributors or representatives; and
- difficulties in staffing and managing foreign subsidiary operations.

In the U.S. and Asia (excluding Japan), our sales to date have been denominated primarily in U.S. dollars, while our
sales in Japan have been primarily denominated in Japanese yen. Our sales to date in Europe have been denominated in various currencies,
primarily U.S. dollars and the Euro. Our sales in foreign currencies are subject to risks of currency fluctuation. For U.S. dollar sales in foreign
countries, our products may become less price-competitive when the local currency is declining in value compared to the dollar. This could
cause us to lose sales or force us to lower our prices, which would reduce our gross margins.

Because of competition for qualified personnel, we may not be able to recruit or retain necessary personnel, which
could impede development or sales of our products.

Our growth will depend on our ability to attract and retain qualified, experienced employees. There is
substantial competition for experienced engineering, technical, financial, sales and marketing personnel in our industry. In particular, we must
attract and retain highly skilled design and process engineers. Historically, competition for such personnel has been intense in all of our
locations, but particularly in the San Francisco Bay Area where our headquarters is located. If we are unable to retain existing key personnel, or
attract and retain additional qualified personnel, we may from time to time experience inadequate levels of staffing to develop and market our
products and perform services for our customers. As a result, our growth could be limited, we could fail to meet our delivery commitments or we
could experience deterioration in service levels or decreases in customer satisfaction.

If we are unable to protect our intellectual property, we may lose a valuable asset and experience reduced market
share. Efforts to protect our intellectual property may be costly to resolve, require additional costly litigation and could divert management
attention.

We rely on a combination of patents, copyrights, trademark and trade secret laws, non-disclosure agreements,
and other intellectual property protection methods to protect our proprietary technology. Despite our efforts to protect our intellectual property,
we may from time to time be subject to claims of infringement of other parties' patents or other proprietary rights. If this occurs, we may not be
able to prevent the use of such technology. Our means of protecting our proprietary rights may not be adequate and our patents may not be
sufficiently broad to protect our technology. Any patents owned by us could be challenged, invalidated or circumvented and any rights granted
under any patent may not provide adequate protection to us.

Furthermore, we may not have sufficient resources to protect our rights. Our competitors may independently
develop similar technology, or design around patents that may be issued to us. In addition, the laws of some foreign countries may not protect
our proprietary rights to as great an extent as do the laws of the United States and it may be more difficult to monitor the use of our products in
such foreign countries. As a result of these threats to our proprietary technology, we may have to resort to costly litigation to enforce our
intellectual property rights.

In addition, we on occasion receive notification from customers who believe that we owe them indemnification
or have other obligations related to infringement claims made against the customers by third parties. Our involvement in any patent dispute or
other intellectual property dispute or action to protect trade secrets, even if the claims are without merit, could be very expensive to defend and
could divert the attention of our management. Adverse determinations in any litigation could subject us to significant liabilities to third parties,
require us to seek costly licenses from third parties and prevent us from manufacturing and selling our products. Royalty or license agreements,
if required, may not be available on terms acceptable to us, or at all. Any of these situations could have a material adverse effect on our
business and operating results in one or more countries.

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We previously had material weaknesses in our internal control over financial reporting

During the audit of our 2005 financial statements, we identified the following material weaknesses in our internal control
over financial reporting:

- lack of sufficient personnel and resources to properly perform the quarterly and year-end financial statement closing
processes, including the monitoring of the previously selected accounting policy for the amounts received from a patent infringement settlement,
and the review of certain account reconciliations and analyses; and
- lack of effective controls over the computation and review of reserves for slow-moving and excess and obsolete
inventory.

In 2006, we undertook a number of initiatives to address these material weaknesses, and management has determined
that as of December 31, 2007 and 2006, the material weaknesses identified in 2005 had been remediated. In the future, however, we may
identify other material weaknesses or significant deficiencies in our internal control over financial reporting that we have not discovered to date.
Furthermore, if additional material weaknesses are identified in the future, the initiatives required to remedy those material weaknesses could
result in additional costs for increased personnel, which could adversely affect our operating results.

From time to time we may enhance, modify or upgrade our enterprise resource planning and other key software
applications, which could cause unexpected problems to occur and could cause disruption to the management of our business.

From time to time, we may enhance, modify or upgrade our enterprise resource planning (ERP) system used
for our worldwide operations, as well as other key software applications used in our operations. Our ERP system is integral to our ability to
accurately and efficiently maintain our books and records, record our transactions, provide critical information to our management and prepare
our financial statements.

Enhancements may eventually become more costly, difficult and time-consuming to purchase and implement than
we currently anticipate. We may encounter unexpected difficulties or costs or other challenges, any of which may disrupt our business or cause
delays in the reporting of our financial results. Our existing systems, procedures or controls may not be adequate to support our operations and
require us to change our internal business practices. Corrections and improvements may be required as we enhance, modify or upgrade our
systems, procedures and controls, and could cause us to incur additional costs and require additional management attention, placing burdens
on our internal resources. If we fail to manage these changes effectively, it could adversely affect our ability to manage our business and our
operating results.

Our failure to comply with environmental or safety regulations could result in substantial liability.

We are subject to a variety of Federal, state, local and foreign laws, rules, and regulations relating to
environmental protection and workplace safety. These laws, rules and regulations govern the use, storage, discharge and disposal of hazardous
chemicals during manufacturing, research and development and sales demonstrations, as well as governmental standards for workplace safety.
If we fail to comply with present or future regulations, especially in our Fremont, California and Dornstadt, Germany manufacturing facilities, we
could be subject to substantial liability for clean up efforts, personal injury, fines or suspension or cessation of our operations. We may be
subject to liability if our acquired companies have past violations. Restrictions on our ability to expand or continue to operate our present
locations could be imposed upon us, we could be required to acquire costly remediation equipment or incur other significant expenses.

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The price of our common stock has fluctuated in the past and may continue to fluctuate significantly in the future, which
may lead to losses by investors or to securities litigation.

The market price of our common stock has been highly volatile in the past, and our stock price may decline in the
future. For example, for the year ended December 31, 2007, the price range for our common stock was $7.69 to $11.66 per share.

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

Any future business acquisitions may disrupt our business, dilute stockholder value or distract management
attention.

As part of our ongoing business strategy, we may consider acquisitions of, or significant investments in,
businesses that offer products, services and technologies complementary to our own. Such acquisitions could materially adversely affect our
operating results and/or the price of our common stock. Acquisitions also entail numerous risks, including:

- difficulty of assimilating the operations, products and personnel of the acquired businesses and possible
impairments caused by this;
- potential disruption of our ongoing business;
- unanticipated costs associated with the acquisition;
- inability of management to manage the financial and strategic position of acquired or developed products, services
and technologies;
- inability to maintain uniform standards, controls, policies and procedures; and
- impairment of relationships with employees and customers that may occur as a result of integration of the acquired
business.

To the extent that shares of our stock or other rights to purchase stock are issued in connection with any future
acquisitions, dilution to our existing stockholders will result, and our earnings per share may suffer. Any future acquisitions may not generate
additional revenue or provide any benefit to our business, and we may not achieve a satisfactory return on our investment in any acquired
businesses.

Item 1B.  Unresolved Staff Comments

None.

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Item 2.  Properties

Our principal properties as of December 31, 2007 are set forth below:

|                   |  |                                      |  |                                                                              |  | Square  |     |          
|------------------ |  | ------------------------------------ |  | ---------------------------------------------------------------------------- |  | ------- | --- | ---------
|Location           |  | Type                                 |  | Principal Use                                                                |  | Footage |     | Ownership
|                   |  |                                      |  |                                                                              |  |         |     |          
|Fremont, CA        |  | Office, plant and 
        warehouse |  | Headquarters, marketing,manufacturing, distribution,research and engineering |  | 105,000 |     |          
|                   |  |                                      |  |                                                                              |  |         |     |          
|Exton, PA          |  | Office, plant and 
       warehouse  |  | Subleased and available forsublease                                          |  | 140,000 | (1) |          
|                   |  |                                      |  |                                                                              |  |         |     |          
|Dornstadt, Germany |  | Office, plant and
      warehouse    |  | Manufacturing, research andengineering                                       |  | 102,000 |     |          

___________

|(1) | The two properties in Exton, PA are not needed for our operations. At December 31, 2007, one property with
80,000 square feet was subleased to another party and one property with 60,000 square feet was available for sublease.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the above properties, we lease an aggregate of approximately 47,000 square feet of office space for
sales and customer support offices. In Canada, we also lease approximately 20,000 square feet of office, plant and warehouse space for office,
manufacturing and research facilities. In total, we lease office space for headquarters, manufacturing, operations, research and engineering,
distribution, marketing, sales and customer support in twenty locations throughout the world: four in the United States, four in China, four in
Korea, three in Taiwan, two in Germany, and one in each of Canada, Japan and Singapore. We consider these current facilities suitable and
adequate to meet our requirements.

Item 3.  Legal Proceedings

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

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

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

No matters were submitted to a vote of security holders during the fourth quarter.

20

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Executive Officers of the Registrant

The following table and notes set forth information about our four executive officers:

|Name                |  | Age |  | Title                                                                         
|------------------- |  | --- |  | ------------------------------------------------------------------------------
|                    |  |     |  |                                                                               
|David L. Dutton     |  | 47  |  | Chief Executive Officer and Director                                          
|Robert B. MacKnight |  | 58  |  | Chief Operating Officer and President                                         
|William I. Turner   |  | 52  |  | Chief Financial Officer, Executive Vice President-Finance
       and Secretary
|Stephen Lanza       |  | 48  |  | Senior Vice President - Global Business Operations                            

David L. Dutton - Chief Executive Officer and Director

David Dutton has served as Mattson's Chief Executive Officer since October
2001. Mr. Dutton also served as Mattson's President from October 2001 to June 2005. From 1998 to 2000, Mr. Dutton served as
Executive Vice President and Chief Operating Officer of Mattson. Mr. Dutton previously served as President of the Plasma Products
Division. Mr. Dutton joined Mattson in 1994 as General Manager of the Strip/Plasma Etch division. Mr. Dutton started his career in
the semiconductor industry in 1984 and held engineering management positions for wafer processing and development at Intel Corporation and
Maxim Integrated Products, Inc. Mr. Dutton serves on the Board of Directors for the Bay Area Council.

Robert B. MacKnight - Chief Operating Officer and President

Robert MacKnight has served as Mattson's Chief Operating Officer since
December 2002. Mr. MacKnight also has served as President since June 2005 and as President of the Thermal/Films/Etch division and
Executive Vice President since December 2001. Mr. MacKnight joined Mattson in September 2001 as Executive Vice
President of Corporate Development and General Manager of the RTP Product Business Unit. From 1998 to 2001, Mr. MacKnight served
at Microbar, Inc., a manufacturer of chemical systems for the semiconductor industry, where he last served as President and Chief
Operating Officer. From 1996 to 1998, Mr. MacKnight was Vice President and General Manager of After Market Operations for
Cymer, Inc., a supplier of equipment used in semiconductor manufacturing.

On November 14, 2007, the Company announced that, effective March 31, 2008, Robert MacKnight will retire from
the position of President and Chief Operating Officer of the Company. Mr. MacKnight has entered into a separation agreement with the
Company as of November 14, 2007, which provides for his transition from President and Chief Operating Officer to Vice President, with a
transition period and term of employment ending July 31, 2009.

William I. Turner - Chief Financial Officer, Executive Vice President-Finance and Secretary

William Turner has served as Mattson's Chief Financial Officer since January
2007. Prior to that, Mr. Turner served as Senior Vice President, Finance since August 2006, and as Chairman of the Audit Committee of
Mattson's Board of Directors from November 2002 to July 2006. From 1983 to 1997, Mr. Turner was employed by KLA-Tencor Corporation,
where he served as Corporate Controller from 1989 to 1996 and as Vice-President, Finance from 1996 to 1997.

Stephen Lanza - Senior Vice President - Global Business Operations

Stephen Lanza has served as Mattson's Senior Vice President - Global Business
Operations since June 2006. Mr. Lanza joined Mattson as Vice President of Sales for North America/Europe and Global Support in June 2005.
From 2003 to 2005, Mr. Lanza worked for CPU Technology Corporation, where he served as Executive Vice President of Operations and Chief
Financial Officer. From 2000 to 2003, Mr. Lanza worked for NeoMagic Corporation, where he last served as Senior Vice President of Operations
and Chief Financial Officer. Previously, Mr. Lanza held operations and finance management positions with Watkins-Johnson Company,
SyQuest Technology, PolyStor Corporation and Raychem Corporation.

21

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PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market for Registrant's Common Equity

Our common stock has been traded on the Nasdaq Global Select MarketÒ
 (Formerly Nasdaq National Market) since our initial public offering on September 28, 1994. Our stock is quoted under the symbol
"MTSN". The following table sets forth the low and high closing prices as reported by the Nasdaq Global Select Market for the
periods indicated:

|             |  | Low                |  | High              
|------------ |  | ------------------ |  | ------------------
|2007 Quarter |  |                    |  |                   
|First        |  | $             8.25 |  | $             9.71
|Second       |  | 9.11               |  | 10.48             
|Third        |  | 8.65               |  | 11.66             
|Fourth       |  | 7.69               |  | 9.49              
|             |  |                    |  |                   
|2006 Quarter |  |                    |  |                   
|First        |  | $           10.16  |  | $           13.27 
|Second       |  | 7.84               |  | 12.37             
|Third        |  | 7.10               |  | 9.74              
|Fourth       |  | 8.17               |  | 10.12             

On February 15, 2008, the last reported sales price of our common stock on the Nasdaq Global Select Market was
$6.00 per share. According to the records of our transfer agent, we had 202 stockholders of record of our common stock on February 15, 2008.
Because brokers and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these recordholders.

Dividends

We have never paid cash dividends on our common stock and have no present plans to pay cash dividends.
We are also restricted by the terms of our credit facility with our bank from paying future dividends. We intend to retain all future earnings for use
in our business.

Equity Compensation Plan Information

The following table summarizes our equity compensation plans as of December 31, 2007:

|                              | Number of securities
to be issued upon
exercise of
outstanding
options | Weighted-averageexercise price ofoutstanding options | Number of securities remaining availablefor future issuance under equitycompensation plans (excluding securitiesreflected in column (a))
|----------------------------- | ---------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------
|                              |                                                                        | (a)                                                  |                                                                                                                                         
|Equity compensation plans     |                                                                        |                                                      |                                                                                                                                         
|approved by security holders  |                                                                        | 6,118,000                                            |                                                                                                                                         
|Equity compensation plans not |                                                                        |                                                      |                                                                                                                                         
|approved by security holders  |                                                                        | -                                                    |                                                                                                                                         
|                              |                                                                        | 6,118,000                                            |                                                                                                                                         

22

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Comparison of Stockholder Return

The following graph compares the cumulative five-year total return provided shareholders on Mattson Technology,
Inc.'s common stock relative to the cumulative total returns of the NASDAQ Composite index and the NASDAQ Electronic Components index.

Comparison of Five-Year Cumulative Total Return
                  From December 31, 2002 through December 31, 2007 (1)
                  Among Mattson Technology, Inc., the NASDAQ Composite Index
                  and the NASDAQ Electronic Components Index





|                             |  | December 31,
|---------------------------- |  | ------------
|                             |  | 2002        
|                             |  |             
|Mattson Technology, Inc.     |  | $ 100.00    
|NASDAQ Composite             |  | $ 100.00    
|NASDAQ Electronic Components |  | $ 100.00    

___________

|(1) | Assumes that $100.00 was invested in Mattson common stock and in each index at market closing prices on
December 31, 2002, and that all dividends were reinvested.  No cash dividends have been declared on our common stock.  Stockholder returns
over the indicated period should not be considered indicative of future stockholder returns.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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Issuer Repurchases of Equity Securities

In April, 2007, our Board of Directors approved a common stock repurchase plan (Repurchase Plan) that authorized the
repurchase of up to $20.0 million of our outstanding shares of common stock through open-market purchases or private transactions
pursuant to a plan in conformity with Rule 10(b)5-1. As of December 31, 2007, we have completed all repurchases under this initial
authorization, at a weighted-average cost of $9.97 per share.

In October 2007, our Board of Directors expanded our Repurchase Plan, authorizing the repurchase of up to an
additional $30 million of the Company's shares of common stock through open-market purchases or private transactions. The size and timing of
future repurchases will depend on the Company's share price.

During the three months ended December 31, 2007, we repurchased shares of common stock under the Repurchase
Plan as follows:

|                          |  | Total Number                             |  |                |  |  | Total Number of Shares |  |  |  | Remaining Amount            | 
|------------------------- |  | ---------------------------------------- |  | -------------- |  |  | ---------------------- |  |  |  | --------------------------- | 
|                          |  | of Shares                                |  | Average        |  |  | Purchased as Part of   |  |  |  | Available Under             | 
|                          |  | Repurchased                              |  | Price Paid     |  |  | Publicly Announced     |  |  |  | the Repurchase              | 
|Period                    |  | (1)                                      |  | Per Share      |  |  | Plans or Programs (2)  |  |  |  | Programs                    | 
|                          |  | (in thousands, except per share amounts)
|                          |  |                                          |  |                |  |  |                        |  |  |  |                             | 
|As of September 30, 2007  |  | 2,005                                    |  | $      9.97    |  |  | 2,005                  |  |  |  | $                         - | 
|Authorized - October 2007 |  |                                          |  |                |  |  |                        |  |  |  | $               30,000      | 
|October 1, 2007 to        |  |                                          |  |                |  |  |                        |  |  |  |                             | 
|October 31, 2007          |  | -                                        |  | -              |  |  | -                      |  |  |  | $             30,000        | 
|November 1, 2007 to       |  |                                          |  |                |  |  |                        |  |  |  |                             | 
|November 30, 2007         |  | 750                                      |  | $         8.47 |  |  | 750                    |  |  |  | $                23,646     | 
|December 1, 2007 to       |  |                                          |  |                |  |  |                        |  |  |  |                             | 
|December 1, 2007 to       |  | 722                                      |  | $         8.36 |  |  | 722                    |  |  |  | $                17,613     | 
|As of December 31, 2007   |  | 3,477                                    |  | $      9.31    |  |  | 3,477                  |  |  |  | $            17,613         | 

___________

|(1) | All shares were purchased pursuant to a publicly announced plan in open-market transactions.                                                                                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | For 2007, in addition to shares repurchased under the Board authorized repurchase program and included in this
column are approximately 24,000 shares, which the Company withheld through net share settlements upon the vesting of restricted stock
awards under the Company's equity compensation plans to cover tax withholding obligations.

24

---



Item 6.  Selected Financial Data

The following historical financial data should be read in conjunction with our consolidated financial
statements and notes thereto. We derived the selected consolidated income (loss) statement data for the years ended December 31,
2007, 2006 and 2005 and the selected consolidated balance sheet data as of December 31, 2007 and 2006 from our audited
consolidated financial statements appearing in Item 8. of this report.

|Consolidated Income (Loss) Statement Data:
|------------------------------------------
|                                          
|                                          
|                                          
|                                          
|Net sales                                 
|Cost of sales                             
|Gross profit                              
|Income (loss) from operations             
|Net income (loss)                         
|                                          
|Net income (loss) per share:              
|Basic                                     
|Diluted                                   
|Shares used in computing                  
|net income (loss) per share:              
|Basic                                     
|Diluted                                   
|                                          
|Consolidated Balance Sheet Data:          
|                                          
|                                          
|                                          
|                                          
|Cash and cash equivalents                 
|Working capital                           
|Total assets                              
|Total stockholders' equity                

In 2007, operating expenses were reduced by $1.6 million due to the release of amounts previously accrued as we
completed all remaining obligations under a foreign government-funded capital development project. We also recorded an incremental $3.8
million in income tax expense related to a ruling on the applicability of tax law in one of our foreign locations. In 2007 and 2006, we reduced our
tax benefits by $0.4 million and $1.5 million, respectively, due to the utilization of certain acquired tax assets, largely consisting of net operating
loss carryforwards, which were used to reduce goodwill rather than benefit income taxes in accordance with the requirements of Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. In 2006, we incurred charges relating to the impairment of
long-lived assets of $2.6 million. In 2006 and 2005, we recorded gains related to the disposition of our wet surface preparation products
business (the Wet business) of $0.6 million and $2.9 million, respectively. In October 2004, we completed the acquisition of Vortek
Industries Ltd. (Vortek). This acquisition has been accounted for under the purchase method of accounting, and the results of operations
of Vortek are included in our selected financial data from that date. In 2003, we divested the Wet business, and recorded a loss on disposition of
$10.3 million. These items affect the comparability of our financial data for the periods shown in the preceding table. These transactions are
further discussed in Item 7, Management's Discussion and Analysis of Financial Conditions and Results of Operations, and in the
accompanying consolidated financial statements.

25

---



Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with Item 6. "Selected Financial Data," our consolidated financial statements and related notes included elsewhere in
this document. In addition to historical information, the discussion below contains certain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements due to various factors,
including, but not limited to, those set forth under Item 1A. "Risk Factors" in this Annual Report on Form 10-K and elsewhere in this
document.

Overview

We are a leading supplier of semiconductor wafer processing equipment used in the fabrication of integrated
circuits (ICs). Our manufacturing equipment is used for transistor level, or front-end-of-line manufacturing, and also in specialized applications
for processing the interconnect layer, or back-end-of-line processing. Our manufacturing equipment utilizes innovative technology to deliver
advanced processing capabilities and high productivity for the fabrication of current and next-generation ICs. Our tools, technologies and
expertise are enablers in the semiconductor industry's transition to larger 300 mm wafers, sub-90 nm design rules and the use of new materials,
such as copper, low capacitance (low-k) dielectrics and barrier metals.

Our business depends upon capital expenditures by manufacturers of semiconductor devices. The level of capital
expenditures by these manufacturers depends upon the current and anticipated market demand for such devices. Because the demand for
semiconductor devices is highly cyclical, the demand for wafer processing equipment is also highly cyclical.

In 2007, revenues decreased by 5.1% to $267.3 million from $281.8 million in 2006. Gross profit increased year
over year by $14.2 million, primarily as a result of the net recognition of $11.4 million in previously deferred systems revenue in accordance with
our revenue recognition policy and an increase of $4.0 million in royalty revenue received from DNS. We also increased our research,
development and engineering (RD&E) activity in 2007 to expand our product portfolio to accommodate sub-45 nanometer design rules,
driving an increase in RD&E expenses of $5.8 million, or 20.5%. Income before taxes was $32.5 million, or 12.1% of net sales in 2007,
compared to $21.2 million, or 7.5% of net sales in 2006.

Part of our strategy is to outsource selected non-critical functions in manufacturing, spare parts logistics, subsystem
design and other areas to third parties specializing in these areas. This allows us to concentrate our resources on our core technologies in strip
and RTP and leverage our expertise into new markets, reduce our fixed costs and achieve greater flexibility to expand and contract capacity as
market conditions require. Although we have implemented cost cutting and operational flexibility measures, we are largely dependent upon
increases in sales and decreases in cost of sales in order to improve our profitability.

We had $152.6 million of cash, cash equivalents and short-term investments and no long-term debt at
December 31, 2007. With our continued strong operating results and our current cash position, we believe we are in a healthy position in
terms of liquidity and capital resources. In 2007, the Company's Board of Directors authorized the repurchase of up to $50 million of the
Company's shares of common stock through open-market purchases or private transactions. In 2007, 3.5 million shares were repurchased
under this program for $32.4 million. We have adopted this program because we believe that our available cash has exceeded the amount
required to run our operations, and we also believe that the repurchases should be accretive to earnings as we execute to our business
plan.

In the second half of 2007, we experienced weakness in the overall semiconductor market, and we expect that
weakness to continue into 2008. Our customers are decreasing their requested delivery times, which has reduced our backlog as of December
31, 2007 and made our projections of future earnings more difficult. Further, due to the overall market weakness, we may experience
cancellations or delays of orders that were previously included in backlog.

26

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

Results of Operations

Years Ended December 31, 2007 and 2006

The following table sets forth our consolidated results of operations for the years ended December 31, 2007 and
2006, and the year-over-year increase (decrease) in our results, expressed both in dollar amounts (in thousands) and as a percentage of net
sales, except where indicated:

|                                      |  | Year Ended December 31, |  | Increase (Decrease)
|------------------------------------- |  | ----------------------- |  | -------------------
|                                      |  | 2007                    |  | 2006               
|                                      |  |                         |  |                    
|Net sales                             |  | $ 267,286               |  | 100.0              
|Cost of sales                         |  | 144,075                 |  | 53.9               
|Gross profit                          |  | 123,211                 |  | 46.1               
|Operating expenses:                   |  |                         |  |                    
|Research, development and engineering |  | 34,116                  |  | 12.7               
|Selling, general and administrative   |  | 64,343                  |  | 24.1               
|Amortization of intangibles           |  | 511                     |  | 0.2                
|Gain on disposition of Wet business   |  | -                       |  | -                  
|Impairment of intangibles             |  | -                       |  | -                  
|Total operating expenses              |  | 98,970                  |  | 37.0               
|Income from operations                |  | 24,241                  |  | 9.1                
|Interest income                       |  | 7,037                   |  | 2.6                
|Interest expense                      |  | (31)                    |  | -                  
|Other income, net                     |  | 1,207                   |  | 0.4                
|Income before income taxes            |  | 32,454                  |  | 12.1               
|Provision for income taxes            |  | 4,901                   |  | 1.8                
|Net income                            |  | $   27,553              |  | 10.3               

Sales.The decrease in net sales in 2007 compared with 2006 was primarily due to an
$18.1 million decrease in system sales, or 7.7%, and a $0.6 million decrease in service and spare parts sales, or 1.5%. Our net
sales for 2007 also included $11.5 million of royalty revenue from Dainippon Screen Co. (DNS), compared with $7.5 million for 2006. The
sales decline in 2007 reflected the overall decline in capital spending by semiconductor manufacturers. In 2007, we received business from
leading semiconductor manufacturers in all regions we serve - China, Europe, Japan, Korea, Singapore, Taiwan and the United States.

International sales, predominantly to customers based in Europe and Asia, including China, Japan, Korea,
Singapore and Taiwan, accounted for 92% of net sales in 2007, compared to 89% for 2006. We anticipate that international sales will continue
to account for a significant portion of our net sales.

27

---



Gross Profit and Gross Profit Margin.The increase in gross profit for 2007 compared
with 2006 was primarily due to net recognition of $11.4 million in previously deferred systems revenue in accordance with our revenue
recognition policy. Our gross profit for 2007 included $11.5 million of royalty revenue received from DNS, compared with
$7.5 million for 2006. The royalty revenue carries no associated cost of sales.

Gross profit margin increased by 7.4 percentage points in 2007 compared to 2006, 4.2 percentage points of which
was due to net recognition of previously deferred systems revenue in accordance with our revenue recognition policy, 1.0 percentage point of
which was due to higher gross profit margin related to systems sales, 1.7 percentage points of which was due to DNS royalties and 0.5
percentage point of which was due to higher gross profit margin from service and spare parts sales.

Due to intense competition, we continue to face pricing pressure that can affect our gross profit margin. Our gross
profit margin has varied over the years and will continue to be affected by many factors, including competitive pressures, product mix,
economies of scale, material costs and other costs, overhead absorption levels and our revenue recognition requirements.

Research, Development and Engineering.RD&E expenses consist primarily of
salary and benefits for our RD&E staff as well as contractors' fees and other costs associated with the enhancements of existing products
and development of new products. The increase in RD&E expenses in 2007 compared with 2006 was primarily due to increased activity in
2007 to expand our portfolio of products capable of addressing stringent sub-45 nm requirements.

Selling, General and Administrative.Sales and marketing expenses consist
primarily of the costs of personnel involved in the sales and marketing process, outside service costs, sales commissions, advertising and
promotional materials, sales facilities expense, trade shows and seminars. General and administrative expenses consist primarily of personnel
costs for finance, administration, operations and general management, headquarters and general office facilities costs, as well as legal and
accounting expenses. In 2007, we continued to adjust our resources through outsourcing in an effort to maintain a more flexible organization
that can operate profitably through changing industry cycles.

The increase in selling, general and administrative (SG&A) expenses in 2007 compared with 2006 was primarily
the result of a $5.1 million increase in employee compensation and a $1.2 million increase in stock-based compensation as determined in
accordance with SFAS No. 123(R), Share-Based Payment; which were partially offset by a $1.6 million decrease which related to the
release of amounts previously accrued as we completed all remaining obligations under a foreign government-funded capital development
project, a $1.6 million decrease related to the release of previously reserved accounts receivable that were collected during the period, a $1.1
million decrease in outside services and a net decrease in other miscellaneous expenses of $0.1 million. As a percentage of net sales, our
SG&A expenses increased in 2007 compared to 2006 because of the increased SG&A spending in 2007 and a decrease in net sales
in 2007.

Amortization of Intangibles.Amortization expenses in 2007 and 2006 were due to our
acquisition of Vortek in October 2004. We estimate our annual amortization expense to be $0.5 million for the years 2008 through
2012.

Gain on Disposition of Wet Business.In 2006, we concluded all activities related to the
disposition of the Wet business, and released a remaining accrual of $0.6 million, which was previously established as an estimate of a portion
of the projected costs to fulfill our obligations under the sale of the Wet business.

Impairment of Intangibles.In 2006, we recorded an impairment charge of $2.6 million to
write down the book value of certain intangible assets, as required by SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The write down represented the remaining book value of certain technology acquired from Vortek in October of 2004.

28

---



Interest and Other Income, Net.Interest income increased in 2007 compared with 2006
due to higher cash investment balances in 2007. Interest expense for 2007 and 2006 remained minimal. The $0.7 million increase in other
income, net in 2007 compared with 2006 was primarily due to a $0.6 million increase due to foreign currency translation and a $0.1 million
increase in net gains on forward foreign exchange contracts settled in 2007.

Provision for Income Taxes.   The provision for income taxes in 2007 primarily consisted of a $0.2
million provision for Federal and state income taxes and a $4.7 million provision for foreign taxes, which includes an incremental $3.8 million in
income tax expense related to a ruling on the applicability of tax law in one of our foreign locations. The provision for income taxes in 2006
primarily consisted of a $2.3 million provision for Federal and state income taxes and a $1.8 million provision for foreign taxes. In 2007 and
2006, we reduced our current tax liability by $0.4 million and $1.5 million, respectively, through the utilization of certain acquired tax assets,
largely consisting of net operating loss carryforwards resulting from the acquisition of STEAG in 2001. The Federal and state tax provisions for
2007 and 2006, however, do not reflect a benefit for the utilization of these net operating losses, as it was used to reduce the goodwill originally
recorded in the acquisition.

Currently, we have provided a full valuation allowance for all jurisdictions except Germany as we have determined
that, due to uncertainties and other negative evidence in our current operations and our expectations of future operations, it is more likely than
not that our deferred tax assets generated from net operating loss carryforwards will not be realized. Our provision for income taxes could be
favorably impacted during 2008 if our results of operations and forecasts for future profitability improve sufficiently to indicate that the related
deferred tax assets will be realized. Such a change in management's expectations could result in a material change to our valuation allowance
assessment and the resulting income tax provision.

Years Ended December 31, 2006 and 2005



The following table sets forth our consolidated results of operations for the years ended December 31, 2006 and
2005, and the year-over-year increase (decrease) in our results, expressed in both amounts (in thousands) and as a percentage of net sales,
except where indicated:

|                                      |  | Year Ended December 31, |  | Increase (Decrease)
|------------------------------------- |  | ----------------------- |  | -------------------
|                                      |  | 2006                    |  | 2005               
|                                      |  |                         |  |                    
|Net sales                             |  | $ 281,781               |  | 100.0              
|Cost of sales                         |  | 172,720                 |  | 61.3               
|Gross profit                          |  | 109,061                 |  | 38.7               
|Operating expenses:                   |  |                         |  |                    
|Research, development and engineering |  | 28,314                  |  | 10.1               
|Selling, general and administrative   |  | 62,523                  |  | 22.2               
|Amortization of intangibles           |  | 688                     |  | 0.2                
|Gain on disposition of Wet business   |  | (572)                   |  | (0.2)              
|Impairment of intangibles             |  | 2,618                   |  | 0.9                
|Total operating expenses              |  | 93,571                  |  | 33.2               
|Income from operations                |  | 15,490                  |  | 5.5                
|Interest income                       |  | 5,448                   |  | 1.9                
|Interest expense                      |  | (197)                   |  | (0.1)              
|Other income (expense), net           |  | 467                     |  | 0.2                
|Income before income taxes            |  | 21,208                  |  | 7.5                
|Provision (benefit) for income taxes  |  | 4,094                   |  | 1.4                
|Net income                            |  | $   17,114              |  | 6.1                

___________

|(1) | Not meaningful
|--- | --------------

29

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Sales.The increase in net sales in 2006 compared with 2005 was primarily due to a
$65.9 million increase in system sales, or 39.1%, and a $9.8 million increase in service and spare parts sales, or 32.6%. Sales in
2006 represented strong growth in capital spending by semiconductor manufacturers due to increasing demand in 2006 for consumer
electronics. Our net sales for 2006 included $7.5 million of royalty revenue from DNS, compared with $10.8 million for 2005. International
sales accounted for 89% of net sales in 2006, compared to 84% for 2005.

Gross Profit and Gross Profit Margin.The increase in gross profit for 2006 compared
with 2005 was primarily due to our overall increase in sales. Our gross profit for 2006 included $7.5 million of royalty revenue received
from DNS, compared with $10.8 million for 2005. The royalty revenue carries no associated cost of sales.

Gross profit margin decreased by 2.0 percentage points in 2006 compared to 2005, 3.8 percentage points of which
decline was due to net deferral of systems revenue in accordance with our revenue recognition policy, 2.5 percentage points of which was due
to lower gross profit margin from DNS and 0.3 percentage points of which was due to lower gross profit margin from service and spare parts
sales, which was partially offset by higher gross profit margin of 4.6 percentage points which was due to systems sales.

Research, Development and Engineering.The increase in RD&E expenses in 2006
compared with 2005 was primarily due to increased activity in 2006 to expand our portfolio of products capable of addressing stringent sub-65
nm requirements.

Selling, General and Administrative.	The increase in SG&A expenses in
2006 compared with 2005 was primarily the result of a $3.9 million increase in outside service expenses, which related to higher levels of
business activity and to the additional audit, legal and other professional expenses efforts needed to complete our 2005 Form 10-K and restate
certain financial statements, a charge of $2.1 million for stock-based compensation in 2006 due to the adoption of SFAS No. 123(R), other
increased salary and benefits expenses of $0.6 million primarily due to increased benefits costs, increased travel expenses of $1.5 million due
to higher levels of business activity, and increased support costs for evaluation equipment of $1.2 million,  partially offset by a $2.3 million
decrease in depreciation expenses. SG&A expenses were also $1.5 million higher in 2006 due to a charge of $0.6 million in 2006 for
allowance for doubtful accounts, compared to a corresponding benefit of $0.9 million in 2005. As a percentage of net sales, our SG&A
expenses decreased in 2006 compared to 2005 because of the increase in net sales in 2006.

Interest and Other Income (Expense), Net.Interest income increased in 2006 compared
with 2005 due to higher cash investment balances in 2006 and higher average interest rates. Interest expense for 2006 and 2005 remained
minimal. The $1.0 million increase in other income (expense), net in 2006 compared with 2005 was primarily due to a $1.9 million increase in
2006 due to $0.6 million in gains on forward foreign exchange contracts settled in 2006 compared to $1.3 million in losses on forward foreign
exchange contracts settled in 2005, partially offset by a $0.7 million reduction due to foreign currency translation losses.

Provision for Income Taxes.   The provision for income taxes in 2006 primarily consisted of a $2.3
million provision for Federal and state income taxes, a $1.3 million provision for taxes in Germany and a provision of $0.5 million for other
foreign taxes. The tax benefit in 2005 primarily consisted of a $3.0 million benefit due to a reduction in our deferred tax asset valuation
allowance and a $0.6 million benefit from the release of certain foreign tax reserves.

Stock-based Compensation

Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment. SFAS
No. 123(R) establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is
measured at grant date, based on the fair value of the award, which is computed using the Black-Scholes option valuation model, and is
recognized as expense over the requisite service period for the employee. We previously applied Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations, and provided the required pro forma disclosures of SFAS
No. 123, Accounting for Stock-Based Compensation. We elected to adopt the modified prospective application method as

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provided by SFAS No. 123(R). Accordingly, in 2007 and 2006 we recorded stock-based compensation cost totaling the amount that would have been
recognized had the fair value method been applied since the effective date of SFAS No. 123. We did not restate previously reported
amounts.

During the years ended December 31, 2007 and 2006, we recorded $3.2 million and $2.0 million, respectively, of
stock-based compensation related to stock options. As of December 31, 2007, there was $7.4 million of unrecorded deferred stock-based
compensation, after estimated forfeitures, related to stock options, which will be recognized over an estimated weighted-average amortization
period of 2.7 years. During the years ended December 31, 2007 and 2006, we recorded $0.1 million and $0.1 million, respectively, of
stock-based compensation related to our employee stock purchase plan and $0.6 million and $0.4 million, respectively, of compensation cost related
to restricted stock units. Compensation cost for restricted stock units is determined based on the grant date fair value of the shares of common
stock, and is recognized on a straight-line basis over the requisite service period. As of December 31, 2007, there was $1.5 million of
unrecorded deferred stock-based compensation, after estimated forfeitures, related to non-vested restricted stock units granted under the 2005
Equity Incentive Plan. We expect to recognize that cost over an estimated weighted-average amortization period of 2.8 years.

Liquidity and Capital Resources

Our cash, cash equivalents and short-term investments were $152.6 million at December 31,
2007, an increase of $13.7 million from $138.9 million held as of December 31, 2006. Stockholders' equity at December 31,
2007 was $245.3 million.

Credit Arrangements

In June 2007, we renewed our $10 million revolving line of credit with a bank, which may be
increased to $20 million at our option. The revolving line of credit now expires in June 2009 and has an annual commitment fee of $25,000.  At
December 31, 2007, we were in compliance with all covenants and we had no borrowing under this credit line.

Contractual Obligations

Under U.S. generally accepted accounting principles, certain obligations and commitments are not required
to be included in our consolidated balance sheets. These obligations and commitments, while entered into in the normal course of business,
may have a material impact on our liquidity.

Our contractual commitments as of December 31, 2007 are summarized in the following table:

|           |  | Operating             |  | Vendor Commitments    |  | Sublease    
|---------- |  | --------------------- |  | --------------------- |  | ------------
|           |  | Lease Payments        |  | Subcontractor         |  | Inventory   
|           |  | (thousands)          
|           |  |                       |  |                       |  |             
|2008       |  | $               5,275 |  | $               3,465 |  | $     20,232
|2009       |  | 5,009                 |  | -                     |  | -           
|2010       |  | 4,764                 |  | -                     |  | -           
|2011       |  | 4,197                 |  | -                     |  | -           
|2012       |  | 4,235                 |  | -                     |  | -           
|Thereafter |  | 22,040                |  | -                     |  | -           
|           |  | $             45,520  |  | $               3,465 |  | $     20,232

___________

|(1) | Other vendor commitments primarily include service-related contracts and agreements for information technology
support, commitments for non-inventory purchases of assets, and other service-related commitments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Our deferred income taxes have been excluded from the table above because the related future cash outflows are
uncertain. As discussed in Note 17, on January 1, 2007 we adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109.  At December 31, 2007, we had
approximately $29.6 million of gross unrecognized tax benefits that may be subject to examination by applicable tax authorities. Included in the
balance of unrecognized tax benefits at
December 31, 2007 is $2.4 million related to tax positions and estimated interest and penalties for which
it is reasonably possible that the statute of limitations will expire in various foreign jurisdictions within the next twelve months.

In connection with the acquisition of Vortek, we became party to an agreement between Vortek and the Canadian
Minister of Industry (the Minister) relating to an investment in Vortek by Technology Partnerships Canada. Under that agreement, as amended,
we or Vortek agreed to various covenants, including (a) payment by us of a royalty to the Minister of 1.4% of revenues from Flash RTP
products, up to a total of CAD14,269,290 (approximately $14.1 million at December 31, 2007), and (b) Vortek maintaining a
specified average workforce of employees in Canada through October 27, 2009. If we, or Vortek, do not satisfy our obligations, the
Minister may demand payment of liquidated damages in the amount of CAD14,269,290 less any royalties paid by Vortek or us to the Minister. At
December 31, 2007, we were in compliance with the covenants of this agreement.

Off-Balance Sheet Arrangements

As of December 31, 2007, we do not have any significant "off-balance sheet"
arrangements as defined in Item 303 (a)(4)(ii) of Regulation S-K.

Legal Settlement

On June 24, 2002, we entered into a settlement agreement and a license agreement with DNS under which
DNS agreed to make payments to us totaling between $75 million (minimum) and $105 million (maximum), relating to past
damages, partial reimbursement of attorney fees and costs, and license fees. See Note 15 to the accompanying consolidated financial
statements. As of December 31, 2007, DNS has made payments aggregating $88.7 million under the terms of the settlement and license
agreements.

For the years ended December 31, 2006 and December 31, 2005, DNS paid us minimum annual royalty payments
of $6.0 million each year.  We have received all scheduled minimum annual royalty payments. In 2007, 2006 and 2005, DNS made additional
payments of $11.5 million, $2.4 million and $5.4 million, respectively, based on sales by DNS for their fiscal years ended March 31, 2007, 2006
and 2005, respectively. These additional payments were recorded as royalty revenue when we received notification of the amounts to be paid.
The remaining royalty payment to be paid by DNS under the license agreement will be due in June 2008, based on sales by DNS through
January 15, 2008.

The Company recognized $11.5 million, $7.5 million and $10.8 million of royalty revenue from DNS for the years
ended December 31, 2007, 2006 and 2005, respectively, which is recognized as net sales in the consolidated income statements.

Liquidity and Capital Resources Outlook

As of December 31, 2007, we had cash, cash equivalents and short-term investments of $152.6
million. We believe that these balances, including interest to be earned thereon, and anticipated cash flows from operating activities will be
sufficient to fund our working and other capital requirements over the course of the next twelve months and for the foreseeable future. In the
normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing
in these businesses. We may use available cash and cash equivalents and marketable security investments to fund such activities in the future.
In the event additional needs for cash arise, we may raise additional funds from a combination of sources including the potential issuance of
debt or equity securities. Additional financing may not be available on terms favorable to us, or at all. If adequate funds were

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not available or were not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could
be limited.

Cash Flows from Operating Activities

Net cash provided by operations of $48.7 million in 2007 was primarily due to net income of $27.6 million, a
$28.9 million decrease in accounts receivable and advanced billings, a $5.7 million increase in other liabilities, a $1.9 million decrease in
inventories - delivered systems, $6.5 million in depreciation and $3.9 million in stock-based compensation, partially offset by a $13.3 million
decrease in accounts payable and accrued liabilities, a $6.1 million increase in inventories, a $5.2 million decrease in deferred revenue and a
$1.0 million reduction in allowance for doubtful accounts.

Net cash provided by operations of $13.8 million in 2006 was primarily due to net income of $17.1 million;
depreciation and amortization charges of $6.5 million; non-cash charges of $2.6 million for impairment of intangibles and $2.4 million for
stock-based compensation; an increase in accounts payable and accrued liabilities of $8.2 million; an increase in deferred revenue of $4.3
million; a decrease in prepaid expenses and other current assets of $2.8 million and inventory valuation charges of $1.7 million; partially offset
by an increase in accounts receivable of $26.8 million due to record sales in the fourth quarter and an  increase in inventories of $6.8 million.

Net cash provided by operations of $42.3 million in 2005 was primarily due to net income of $11.3 million, a
decrease in accounts receivable of $29.5 million, depreciation and amortization charges of $10.2 million, a decrease in advance billings of
$6.6 million, a decrease in inventories of $7.3 million and inventory valuation charges of $2.5 million; partially offset by a decrease in
accounts payable and accrued liabilities of $13.1 million, a decrease in deferred revenue of $6.6 million and an increase in prepaid expenses
and other current and noncurrent assets of $4.0 million. A significant portion of the change in our balance sheet accounts resulted from a higher
level of sales at the end of 2004, which had required increased working capital.

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

Cash Flows from Investing Activities

Net cash provided by investing activities of $11.3 million in 2007 was primarily due to proceeds from
sales and maturities of available-for-sale investments of $61.6 million and proceeds from sales of property and equipment of $0.5 million,
partially offset by purchases of available-for-sale investments of $40.4 million and capital spending of $10.3 million. Our capital
spending in 2007 was primarily due to additions of technology used in our RD&E activities.

Net cash used in investing activities of $46.3 million in 2006 was primarily due to purchases of
available-for-sale investments of $51.6 million and capital spending of $12.0 million, partially offset by proceeds from sales and maturities of
available-for-sale investments of $16.7 million. Our capital spending in 2006 was primarily due to additions of technology used in our
RD&E activities.

Net cash used in investing activities of $12.1 million in 2005 was primarily due to purchases of
available-for-sale investments of $25.3 million and capital spending of $5.6 million, partially offset by proceeds from sales and maturities of
available-for-sale investments of $15.2 million, gains from earn-out payments related to the sale of our Wet business of $2.9 million and a
decrease in restricted cash of $0.5 million. Our capital spending in 2005 was primarily due to additions of technology used in our
RD&E activities.

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Cash Flows from Financing Activities

Net cash used in financing activities in 2007 was $29.6 million, which was primarily attributable to
purchases of treasury stock of $32.4 million, partially offset by net proceeds of $2.8 million from stock plans. Net cash provided by
financing activities of $3.9 million in 2006 consisted of $3.9 million in proceeds from stock plans. Net cash provided by financing
activities of $3.3 million in 2005 consisted of $3.3 million in proceeds from stock plans.

Critical Accounting Policies and Use of Estimates

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

We consider certain accounting policies related to revenue recognition, warranty obligations, inventories, goodwill
and other intangible assets, impairment of long-lived assets, income taxes and stock-based compensation as critical to our business operations
and an understanding of our results of operations. See Note 2 of the accompanying consolidated financial statements for a summary of
our significant accounting policies.

Revenue Recognition.  We recognize revenue in accordance with SEC SAB No. 104,
Revenue Recognition in Financial Statements. We account for equipment sales as follows: 1) for equipment sales of existing
products with new specifications and for all sales of new products, revenue is recognized upon customer acceptance; 2) for equipment
sales to existing customers who have purchased the same equipment with the same specifications and previously demonstrated acceptance
provisions, or equipment sales to new customers purchasing existing products with established reliability, we recognize revenue on a multiple
element approach in which we bifurcate a sale transaction into two separate elements based on objective evidence of fair value. The two
elements are the tool and installation of the tool. Under this approach, the portion of the invoice price that is due upon shipment, generally 90%
of the total invoice price, is recognized as revenue upon shipment and title transfer of the tool; and the remaining portion of the total invoice
price, generally 10% of the total invoice price, which is due once installation services have been accepted, is not recognized as revenue until
final customer acceptance of the tool. From time to time, however, we allow customers to evaluate systems, and since customers can return
such systems at any time with limited or no penalty, we do not recognize revenue until these evaluation systems are accepted by the customers.
In 2006 and earlier periods, revenues associated with sales to customers in Japan were recognized upon title transfer, which generally occurred
upon customer acceptance, with the exception of sales of RTP products through our distributor in Japan, where we recognized revenues upon
title transfer to the distributor. In December 2006, we expanded our distributor relationship in Japan to cover all our products. Under the new
distributor agreement, revenues are recognized upon title transfer, which occurs upon shipment to the distributor. For spare parts, we recognize
revenue upon shipment. We recognize service and maintenance contract revenue on a straight-line basis over the service period of the related
contract. Accounts receivable for which revenue has not been recognized are classified as advance billings in the accompanying consolidated
balance sheets.

In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred,
the price is fixed or determinable and collectibility is reasonably assured.

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Warranty.  The warranty we offer on system sales generally ranges from 12 months to
36 months, depending on the product. In 2007, we transitioned our warranty period to 12 months for most systems sales, except where
previous customer agreements stated otherwise. In 2007, we also changed the coverage provided by the warranty to exclude certain
consumable maintenance items.

A provision for the estimated cost of warranty, based on historical costs, is recorded as a cost of sale when the
revenue is recognized for the sale of the equipment or parts. Our warranty obligations require us to repair or replace defective products or parts,
generally at a customer's site, during the warranty period at no cost to the customer. In 2007, we experienced lower warranty settlements than
in prior years, primarily due to (1) a shorter average warranty period in 2007 due to the change to a 12-month warranty, (2) a higher
proportion of systems under warranty during 2007 being second generation 300 mm systems, which have had better performance history and
(3) the exclusion of certain
consumable maintenance items from warranty in 2007. The actual system performance and/or field expense profiles
may differ from historical experience, and in those cases we adjust our warranty accruals accordingly. While our warranty costs have historically
been within our expectations and the provisions we have established, we cannot be certain that we will continue to experience the same
warranty costs that we have had in the past.

Inventories.  Inventories are stated at the lower of cost or market, with cost determined on a first-in,
first-out basis, and include material, labor and manufacturing overhead costs. Finished goods are reported as inventories until the point of title
transfer to the customer. Under our general terms of sale, title transfers when we complete physical transfer of the products to the freight carrier
unless other customer practices prevail. All intercompany profits related to the sales and purchases of inventory between our legal entities are
eliminated from the consolidated financial statements.

Our policy is to assess the valuation of all inventories, including manufacturing raw materials, work-in-process,
finished goods and spare parts, in each reporting period. Although we attempt to accurately forecast future inventory demand, given the
competitive pressures and cyclicality of the semiconductor industry, there may be significant unanticipated changes in demand or technological
developments that could have a significant impact on the value of our inventories and reported operating results.

Inventory Valuation.  The carrying value of inventory is reduced for estimated obsolescence by the
difference between its cost and the estimated market value based upon assumptions about future demand. We evaluate the inventory carrying
value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand. In addition, inventories are
evaluated for potential obsolescence due to the effect of known and anticipated engineering change orders and new products. If actual demand
were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory might be required, which could
have a material adverse effect on our business, financial condition and results of operations.

Goodwill and Other Intangible Assets.  We review our goodwill and intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable, and we also review
goodwill annually in accordance with SFAS No. 142. Goodwill and intangible assets, such as purchased technology, are generally
recorded in connection with business acquisitions. The value assigned to goodwill and intangible assets is usually based on estimates and
judgments regarding expectations for the success and life cycle of products and technology acquired. A severe decline in market conditions
could result in significant impairment charges, which could have a material adverse effect on our business, financial condition and results of
operations.

We are required to test our goodwill for impairment at the reporting unit level. We have determined that we have
only one reporting unit. The test for goodwill impairment is a two-step process. The first step compares the fair value of our reporting unit with its
carrying amount, including goodwill. If the fair value of our reporting unit exceeds its carrying amount, goodwill of our reporting unit is considered
not to be impaired, thus the second step of the impairment test is unnecessary. The second step, used to measure the amount of impairment
loss, compares the implied fair value of our reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of our
reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. There
were no events or changes in circumstances during the first three quarters of 2007 that triggered an impairment review. During the fourth
quarter of 2007, we completed the first step of our annual impairment test based

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on management estimates and fair value assessments, which did not indicate any impairment; thus, the second step was not necessary.

Impairment of Long-Lived Assets.  Pursuant to SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, we review our long-lived assets, including property and equipment, intangibles and other long-lived
assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Recoverability is measured by a comparison of the assets' carrying amount to their expected future undiscounted net cash flows. If such assets
are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset
exceeds its fair value.

In 2007 and 2005, we did not record any impairment charge. In 2006, we recorded an impairment charge of $2.6
million to write down the book value of an intangible asset, as required by SFAS No. 144. The write down represented the remaining book value
of the Radiant technology acquired from Vortek in October of 2004.

Sabbatical Leave Benefits. Pursuant to the Emerging Issues Task Force (EITF) conclusion on Issue
No. 06-02, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, `Accounting for Compensated
Absences', we accrue for employee sabbatical leave over the service period in which employees earn the right to sabbatical leave. We
adopted EITF No. 06-02 on January 1, 2007 as a change in accounting principle, and we have recorded the cumulative effect of adoption of
approximately $0.4 million as an increase in our accumulated deficit in the first quarter of 2007, as permitted by the transition provisions of EITF
No. 06-02.

Income Taxes.  In June 2006, the FASB issued FASB Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109. FIN 48 became effective for Mattson
beginning in 2007. FIN 48 addressed the determination of how tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution. The impact of our reassessment of our tax positions in accordance with FIN 48 resulted in
a cumulative effect of adoption of $0.7 million, which was recorded as an increase in our accumulated deficit in the first quarter of 2007.

At December 31, 2007 and 2006, we had net deferred tax assets of nil and $2.0 million, respectively, related to our
German operations, as we expected that it is more likely than not that we will realize the benefit from the German net deferred tax asset as of
December 31, 2007 and 2006. For all other tax jurisdictions, we recorded a 100% valuation allowance against our net deferred tax asset
as we expect it is more likely than not that we will not realize our net deferred tax asset as of December 31, 2007. In assessing the need
for a valuation allowance, we consider historical levels of income, expectations and risks associated with estimates of future taxable income and
ongoing prudent and feasible tax planning strategies. In the event we determine that we would be able to realize additional deferred tax assets
in the future in excess of the net recorded amount, or if we subsequently determine that realization of an amount previously recorded is unlikely,
we would record an adjustment to the deferred tax asset valuation allowance, which would change income in the period of adjustment.

Stock-based Compensation.  Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004),
Share-Based Payment. Total share-based compensation for the years ended December 31, 2007 and 2006 was $3.9 million and
$2.4 million, respectively.  For more information on stock-based compensation costs for 2007 and 2006, refer to Note 11 in the
accompanying consolidated financial statements.

Determining the appropriate fair-value model and calculating the fair value of employee stock options, restricted stock
awards and rights to purchase shares under employee stock purchase plans at the date of grant requires judgment. We use the Black-Scholes
option pricing model to estimate the fair value of these share-based awards consistent with the provisions of SFAS No. 123(R). Option
pricing models, including the Black-Scholes model, require the use of input assumptions, including expected volatility, expected life, expected
dividend rate and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions

36

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that significantly affect the grant date fair value. The expected dividend rate and expected risk-free rate of return are not significant to the calculation
of fair value.

We use historical volatility based on past performance of our common stock to estimate expected volatility as we believe
historical volatility is an appropriate indicator of expected future volatility. If we determine that another method to estimate expected volatility or
expected life is more reasonable than our current methods, or if another method for calculating these input assumptions is prescribed by
authoritative guidance, the fair value calculated for share-based awards could change significantly. Higher volatility and expected lives result in
an increase to share-based compensation determined at the date of grant.

In addition, SFAS No. 123(R) requires us to develop an estimate of the number of share-based awards which
will be forfeited due to employee turnover. Changes in the estimated forfeiture rate can have a significant effect on reported share-based
compensation, as the effect of adjusting the rate for all expense amortization after January 1, 2006 is recognized in the period the
forfeiture estimate is changed. The effect of forfeiture adjustments in 2007 and 2006 was insignificant. The expense we recognize in future
periods could also differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.

New Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, which permits entities to elect to measure many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. This election is irrevocable. SFAS No. 159 will be effective for us on January 1,
2008. The adoption of SFAS No. 159 will not have a material impact on our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value
by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning January 1, 2008.
The adoption of SFAS No. 157 will not have a material impact on our financial position, results of operations or cash flows.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to financial market risks, including changes in foreign currency exchange rates and changes
in interest rates.

Our exposure to market risk for changes in interest rates relates to our investment portfolio of cash, cash
equivalents, and short-term investments. We do not currently use derivative financial instruments in our investment portfolio, nor hedge for these
interest rate exposures. We place our investments with high credit quality issuers and, by policy, limit the amount of our credit exposure to any
one issuer. Our portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

Our interest rate risk relates primarily to our investment portfolio, which consisted of $84.8 million in cash
equivalents and $27.0 million in short-term investments as of December 31, 2007. An immediate increase in interest rates of 100
basis points would not have a material adverse affect on the fair value of our investment portfolio. Conversely, because of the short-term nature
of our portfolio, an immediate decline of 100 basis points in interest rates could harm interest earnings of our investment portfolio in the future as
securities mature. By policy, we limit our exposure to longer-term investments.

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Foreign Currency Risk

Historically, much of our revenues and capital spending has been transacted in U.S. dollars. The functional
currencies of our foreign subsidiaries are their local currencies. Accordingly, all assets and liabilities of these foreign operations are translated
using exchange rates in effect at the end of the reporting period, and revenues and costs are translated using average exchange rates for the
period. Gains or losses from translation of foreign operations where the local currencies are the functional currency are included as a
component of accumulated other comprehensive income/(loss). Foreign currency transaction gains and losses are recognized in the
consolidated income statements as they are incurred. We believe that foreign currency exchange rates should not materially adversely affect
our overall financial position, results of operations or cash flows.

During 2007 and 2006, we employed a foreign currency hedging program, utilizing foreign currency forward
exchange contracts, to hedge foreign currency fluctuations associated with Japanese Yen denominated firm purchase commitments and
accounts receivable balances. The goal of the hedging program was to hedge against foreign currency fluctuations associated with the sales of
systems to Japan and the revaluation gains (losses) of foreign denominated accounts receivable.

No forward foreign exchange contracts exceeded one year. Under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, these forward contracts did not qualify as designated hedges. All outstanding forward foreign
currency contracts were marked to market with the resulting unrealized gains (losses) recorded in other income (expense), net. We do not use
foreign currency forward exchange contracts for speculative or trading purposes.

At December 31, 2007, we had no outstanding forward foreign exchange contracts. At December 31,
2006, we had one outstanding forward foreign exchange contract for the purchase in total of $23.7 million in exchange for 2.8 billion
Japanese Yen. Recording the fair value of this contract as of December 31, 2006 resulted in an unrealized gain of $0.1 million,
which was charged to the consolidated income statement in 2006. With respect to forward foreign currency exchange contracts, we recorded a
net gain of $0.2 million for 2007, a net gain of $0.6 million in 2006 and a net loss of $1.3 million for 2005 in other income (expense), net.

Item 8.	Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     | Page
|---------------------------------------------------------------------------------------------------- | ----
|Consolidated Financial Statements:                                                                   |     
|Consolidated Balance Sheets as of December 31, 2007 and
2006                                         | 39  
|Consolidated Income Statements for the years ended
December 31, 2007, 2006 and 2005                  | 40  
|Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2007, 2006 and 2005 | 41  
|Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005           | 42  
|Notes to Consolidated Financial Statements                                                           | 43  
|                                                                                                     |     
|Report of Independent Registered Public Accounting
Firm                                              | 66  
|                                                                                                     |     
|Financial Statement Schedule:                                                                        |     
|Schedule II. Valuation and Qualifying
Accounts                                                       | 73  

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MATTSON TECHNOLOGY, INC.
                                           CONSOLIDATED BALANCE SHEETS

December 31,2007

2006ASSETS

(thousands, except par value)Current assets:Cash and cash equivalents

$        125,533

$          91,416Short-term investments

27,034

47,469Accounts receivable, net of allowance for doubtful accountsof $1,463 and $3,222 in 2007 and 2006

36,011

55,957Advance billings

2,576

10,463Inventories

51,073

40,532Inventories - delivered systems

-

1,879Prepaid expenses and other current assets

10,996

11,109Total current assets

253,223

258,825Property and equipment, net

28,600

27,838Goodwill

18,076

18,497Intangibles, net

7,080

7,591Other assets

10,791

4,001Total assets

$        317,770

$        316,752LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$          18,097

$          19,330Accrued liabilities

26,900

37,635Deferred revenue

7,207

16,782Total current liabilities

52,204

73,747Income taxes payable, non-current

14,147

3,675Other liabilities

6,136

400Total liabilities

72,487

77,822Commitments and contingencies (Note 9)Stockholders' equity:Preferred stock, 2,000 shares authorized; none issued and outstanding

-

-Common stock, par value $0.001, 120,000 shares authorized; 
                 53,517 shares issued and 49,665 shares outstanding in 2007;52,930 shares issued and 52,555 shares outstanding in 2006

54

53Additional paid-in capital

623,527

616,827Accumulated other comprehensive income

19,032

13,525Treasury stock, 3,852 shares in 2007 and 375 shares in 2006, at cost

(35,374)

(2,987)Accumulated deficit

(361,956)

(388,488)Total stockholders' equity

245,283

238,930Total liabilities and stockholders' equity

$        317,770

$        316,752The accompanying notes are an integral part of these consolidated financial statements.

39MATTSON TECHNOLOGY, INC. 
                  CONSOLIDATED INCOME STATEMENTS

Year Ended December 31,2007

2006

2005(thousands, except per share amounts)Net sales

$         267,286

$         281,781

$         209,379Cost of sales

144,075

172,720

124,126Gross profit

123,211

109,061

85,253Operating expenses:Research, development and engineering

34,116

28,314

26,625Selling, general and administrative

64,343

62,523

54,086Amortization of intangibles

511

688

2,100Gain on disposition of Wet business

-

(572)

(2,934)Impairment of intangibles

-

2,618

-Total operating expenses

98,970

93,571

79,877Income from operations

24,241

15,490

5,376Interest income

7,037

5,448

2,855Interest expense

(31)

(197)

(195)Other income (expense), net

1,207

467

(537)Income before income taxes

32,454

21,208

7,499Provision for (benefit from) income taxes

4,901

4,094

(3,800)Net income

$           27,553

$           17,114

$           11,299Net income per share:Basic

$               0.53

$               0.33

$               0.22Diluted

$               0.52

$               0.32

$               0.21Shares used in computing net income per share:Basic

51,771

52,357

51,457Diluted

52,716

53,368

52,684The accompanying notes are an integral part of these consolidated financial statements.

40MATTSON TECHNOLOGY, INC.
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common StockShares

and

Accumulatedof

Additional

Other

TreasuryCommon

Paid-In

Comprehensive

Stock

AccumulatedStock

Capital

Income

Shares

Amount

Deficit

Total(thousands)Balance at December 31, 2004

51,892

$       610,742

$            16,027

(375)

$    (2,987)

$     (420,446)

$ 203,336Effect of adjustment entry (Note 10)

(100)

(3,545)

-

-

-

3,545

-Adjusted balance at December 31,
         2004

51,792

607,197

16,027

(375)

(2,987)

(416,901)

203,336Components of comprehensive income:Net income











11,299

11,299Cumulative translation adjustments

-

-

(7,822)

-

-

-

(7,822)Unrealized loss on investments

-

-

(24)

-

-

-

(24)Comprehensive income













3,453Exercise of stock options

349

1,747

-

-

-

-

1,747Shares issued under employee stockpurchase plan

229

1,543

-

-

-

-

1,543Stock-based compensation expensefor non-employee option grants

-

110

-

-

-

-

110Balance at December 31, 2005

52,370

610,597

8,181

(375)

(2,987)

(405,602)

210,189Components of comprehensive income:Net income











17,114

17,114Cumulative translation adjustments

-

-

5,274

-

-

-

5,274Unrealized gain on investments

-

-

70

-

-

-

70Comprehensive income













22,458Exercise of stock options

501

3,351

-

-

-

-

3,351Shares issued under employee stockpurchase plan

59

524

-

-

-

-

524Stock-based compensation expense

-

2,408

-

-

-

-

2,408Balance at December 31, 2006

52,930

616,880

13,525

(375)

(2,987)

(388,488)

238,930Cumulative effect of adoptingnew accounting principles (Note 2)

-

-

-

-

-

(1,021)

(1,021)Adjusted Balance, January 1, 2007

52,930

616,880

13,525

(375)

(2,987)

(389,509)

237,909Components of comprehensive income:Net income











27,553

27,553Cumulative translation adjustments

-

-

5,345

-

-

-

5,345Unrealized gain on investments

-

-

162

-

-

-

162Comprehensive income













33,060Shares issued under employee stock plans

496

2,080

-

-

-

-

2,080Shares issued under employee stockpurchase plan

91

737

-

-

-

-

737Stock-based compensation expense

-

3,884

-

-

-

-

3,884Repurchase of common stock

-

-

-

(3,477)

(32,387)

-

(32,387)Balance at December 31, 2007

53,517

$       623,581

$            19,032

(3,852)

$  (35,374)

$     (361,956)

$ 245,283The accompanying notes are an integral part of these consolidated financial statements.

41MATTSON TECHNOLOGY, INC. 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,2007

2006

2005Cash flows from operating activities:

(thousands)Net income

$        27,553

$        17,114

$        11,299Adjustments to reconcile net income to net cashprovided by operating activities:Allowance for doubtful accounts

(1,035)

552

(946)Amortization of intangibles

511

688

2,100Deferred taxes

(261)

1,281

(455)Depreciation

6,499

5,813

8,132Gain on disposition of Wet business

-

(572)

(2,934)Impairment of intangibles

-

2,618

-Inventory valuation charge

271

1,659

2,507Stock-based compensation

3,884

2,408

110Other non-cash items

87

(151)

(27)Changes in assets and liabilities:Accounts receivable

21,038

(26,769)

29,497Advance billings

7,887

(318)

6,648Inventories

(6,073)

(6,810)

7,337Inventories - delivered systems

1,879

638

2,741Prepaid expenses and other current assets

344

2,839

(1,052)Other assets

(1,091)

(130)

(2,963)Accounts payable

(1,906)

1,243

(640)Accrued liabilities

(11,355)

6,981

(12,435)Deferred revenue

(5,200)

4,318

(6,639)Income taxes payable and other liabilities

5,716

400

-Net cash provided by operating activities

48,748

13,802

42,280Cash flows from investing activities:Purchases of available-for-sale investments

(40,422)

(51,635)

(25,327)Sales and maturities of available-for-sale investments

61,578

16,746

15,225Purchases of property and equipment

(10,334)

(11,971)

(5,560)Sales of property and equipment

475

604

104Restricted cash

-

-

511Proceeds from the disposition of Wet business

-

-

2,934Net cash provided by (used in) investing activities

11,297

(46,256)

(12,113)Cash flows from financing activities:Proceeds from stock plans

2,817

3,875

3,290Purchases of treasury stock

(32,387)

-

-Net cash provided by (used in) financing activities

(29,570)

3,875

3,290Effect of exchange rate changes on cash and cash equivalents

3,642

3,402

(6,517)Net increase (decrease) in cash and cash equivalents

34,117

(25,177)

26,940Cash and cash equivalents, beginning of year

91,416

116,593

89,653Cash and cash equivalents, end of year

$      125,533

$        91,416

$      116,593Supplemental disclosures:Cash paid for interest

$               -

$               42

$             209Cash paid for income taxes

$             940

$             617

$               62The accompanying notes are an integral part of these consolidated financial statements.

42MATTSON TECHNOLOGY, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
                           DECEMBER 31, 2007

1.	Organization and Basis of Presentation
OrganizationMattson Technology, Inc. (the Company or Mattson) was incorporated in California on November 18,
1988. In September 1997, the Company was reincorporated in the State of Delaware. As part of the reincorporation, each outstanding
share of the California corporation, no par value common stock, was converted automatically to one share of the new Delaware corporation,
$0.001 par value common stock.

The Company designs, manufactures and markets semiconductor wafer processing equipment used in "front-end-of-line"
and "back-end-of-line" fabrication of integrated circuits to the semiconductor manufacturing industry worldwide.
Basis of PresentationThe consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation. The Company's year ends on December 31.
The Company's interim fiscal quarters end on the last Sunday in the calendar quarter.

The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reported periods. Actual results could differ from those estimates.
ReclassificationsFor presentation purposes, certain prior period amounts have been reclassified to conform to the reporting
in the current period financial statements. These reclassifications do not affect the Company's net income, cash flows or stockholders'
equity.


2.	Summary of Significant Accounting Policies
Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. The Company's cash and cash equivalents are carried at fair market value, and consist primarily of cash balances,
high-grade money market funds and commercial paper.
InvestmentsThe Company carries short-term investments, which primarily consist of United States agencies securities
and United States corporate bonds, at fair market value. These investments are reported in accordance with the provisions of Statements of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company
classifies short-term investments as available-for-sale and they are reported at fair value, with unrealized gains and losses, net of tax, recorded
in stockholders' equity. The fair value of short-term investments is based on quoted market prices. Realized gains and losses and declines in
fair value that are other than temporary are recorded in the consolidated income statements. Realized gains and losses are determined on a
specific identification basis. At December 31, 2007, $12.6 million in short-term investments had maturities of one to two years. The Company
has recorded these investments as current as these investments are available for current operations and management's intent is to realize
these investments as required to fund current operations.

43Concentration of Credit RiskFinancial instruments that potentially subject the Company to significant concentrations of credit risk
consist principally of cash equivalents, short-term investments, trade accounts receivable and financial instruments used in hedging
activities.

The Company invests in a variety of financial instruments, such as United States agency securities, commercial
paper, money market funds and corporate bonds. The Company limits the amount of credit exposure to any one financial institution or
commercial issuer. To date, the Company has not experienced significant losses on these investments. The Company's trade accounts
receivable are concentrated with companies in the semiconductor industry and are derived from sales in the United States, Japan, Korea,
Taiwan, other Asian countries and Europe. Additionally, the Company is exposed to credit loss in the event of nonperformance by
counterparties on the forward foreign exchange contracts used in hedging activities. The Company does not anticipate nonperformance by
these counterparties. At December 31, 2007, three customers accounted for 27%, 12% and 10% of the Company's accounts receivable.
At December 31, 2006, one customer accounted for 35% of the Company's accounts receivable.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and records specific allowances for bad debts
when a customer is unable to meet its financial obligations, as in the case of bankruptcy filings or deteriorated financial position. Estimates are
used in determining allowances for all other customers based on factors such as current trends, the length of time the receivables are past due
and historical collection experience. The Company writes off a receivable account when all rights, remedies and recourses against the account
and its principals are exhausted and records a benefit when previously reserved accounts are collected. The Company recorded a benefit of
$1.0 million in 2007, a provision of $0.6 million in 2006 and a benefit of $0.9 million in 2005 for allowance for doubtful accounts.
InventoriesInventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis, and include
material, labor and manufacturing overhead costs. Finished goods are reported as inventories until the point of title transfer to the customer.
Under the Company's terms of sale, title generally transfers when the Company completes physical transfer of the products to the freight carrier,
unless other customer practices prevail. All intercompany profits related to the sales and purchases of inventory among the Company and its
subsidiaries are eliminated from the consolidated financial statements.

The Company's policy is to assess the valuation of all inventories, including manufacturing raw materials, work-in-process,
finished goods and spare parts, in each reporting period. The Company recorded inventory valuation charges of $0.3 million in
2007, $1.7 million in 2006 and $3.6 million in 2005. Although the Company attempts to forecast future inventory demand, given the
competitive pressures and cyclicality of the semiconductor industry, there may be significant unanticipated changes in demand or technological
developments that could have a significant impact on the value of the Company's inventories and reported operating results.
Property and EquipmentProperty and equipment are stated at cost. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized using the
straight-line method over the useful lives or the term of the related lease, whichever is shorter.

Depreciation expense was $6.5 million, $5.8 million and $8.1 million for the years ended December 31,
2007, 2006 and 2005, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are
removed from the accounts. Gains or losses resulting from asset sales are included in other income (expense), net in the accompanying
consolidated income statements. Repair and maintenance costs are expensed as incurred.

44Goodwill and IntangiblesThe Company reviews its goodwill and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be recoverable, and also reviews goodwill annually in accordance with
SFAS No. 142, Goodwill and Other Intangibles. Goodwill and intangible assets, such as purchased technology, are generally
recorded in connection with business acquisitions. The values assigned to goodwill and intangible assets are usually based on estimates and
judgments regarding expectations for the success and life cycle of products and technologies acquired. A severe decline in expectations could
result in significant impairment charges, which could have a material adverse effect on the Company's business, financial condition and results
of operations.

The Company is required to test its goodwill for impairment at the reporting unit level. The Company has
determined that it has only one reporting unit. The test for goodwill impairment is a two-step process. The first step compares the fair value of
the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. The second step, used to measure the
amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying
amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.
There were no events or changes in circumstances during the first three quarters of 2007 that would have triggered an impairment review.
During the fourth quarter of 2007, the Company completed its first step annual impairment test based on management estimates and fair value
assessments, which did not indicate any impairment, thus the second step was not necessary.
Impairment of Long-Lived AssetsPursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
the Company reviews its long-lived assets, including property and equipment and intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amounts of these assets may not be recoverable. Recoverability is measured by a comparison of the
assets' carrying amount to their expected future undiscounted net cash flows. If such assets are considered to be impaired, the impairment to
be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value.

During the years ended December 31, 2007 and 2005, the Company did not record any impairment charge.

During the year ended December 31, 2006, the Company recorded an impairment charge of $2.6 million to write down
the remaining net book value of the Radiant technology acquired from Vortek Industries Ltd. (Vortek) in October of 2004. As part of the overall
evaluation of impairment, management conducted a thorough review of the intangible assets originally acquired in the Vortek acquisition. During
this process, management looked at resource constraints, strategic focus and potential market opportunities for both the Radiant and Flash RTP
technologies acquired from Vortek. Management decided that it was in Mattson's best interest to focus solely on the Flash RTP business and
determined that the remaining net book value of the intangible asset relating to the Radiant technology was fully impaired. The write down
represented the remaining book value of the Radiant technology acquired from Vortek in October of 2004.

Sabbatical Leave BenefitsPursuant to the Emerging Issues Task Force (EITF) conclusion on Issue No. 06-02, Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, `Accounting for Compensated Absences', the Company accrues for
employee sabbatical leave over the service period in which employees earn the right to sabbatical leave. The Company adopted EITF No. 06-02 on
January 1, 2007 as a change in accounting principle, and has recorded the cumulative effect of adoption of approximately $0.4 million as
an increase in the accumulated deficit in the first quarter of 2007, as permitted by the transition provisions of EITF No. 06-02.

45WarrantyThe warranty offered by the Company on its system sales generally ranges from 12 months to
36 months, depending on the product. In 2007, the Company transitioned its warranty period to 12 months for most systems sales, except
where previous customer agreements stated otherwise. In 2007, the Company also changed the coverage provided by the warranty to exclude
certain consumable maintenance items.

A provision for the estimated cost of warranty, based on historical costs, is recorded as a cost of sales when the
revenue is recognized. The Company's warranty obligations require it to repair or replace defective products or parts, generally at a customer's
site, during the warranty period at no cost to the customer. The actual system performance and/or field expense profiles may differ from
historical experience, and in those cases the Company adjusts its warranty accruals accordingly. In 2007, the Company experienced lower
warranty settlements than in prior years, primarily due to (1) a shorter average warranty period in 2007 due to the change to a 12-month
warranty, (2) a higher proportion of systems under warranty during 2007 being second generation 300 mm systems, which have had
better performance history and (3) the exclusion of certain consumable maintenance items from warranty in 2007.

The following table summarizes movements in the product warranty accrual for the years ended
December 31, 2007, 2006 and 2005:

Year Ended December 31,2007

2006

2005(thousands)Balance at the beginning of the year

$         15,113

$         13,458

$         16,044Accrual for warranties issued during the year

6,618

19,746

14,125Changes in liability related to pre-existing warranties

(695)

-

(6)Settlements made during the year

(11,862)

(18,091)

(16,705)Balance at the end of the year

$           9,174

$         15,113

$         13,458Foreign Currency TranslationThe functional currencies of the Company's foreign subsidiaries are their local currencies. Accordingly, all
assets and liabilities of these foreign operations are translated using exchange rates in effect at the end of the period, and revenues and costs
are translated using average exchange rates for the period. Gains or losses from translation of foreign operations where the local currencies are
the functional currency are included as a component of accumulated other comprehensive income. Foreign currency transaction gains and
losses are recognized in the consolidated income statements as they are incurred.


Revenue RecognitionThe Company derives revenue from two primary sources - equipment (tool) sales and spare part
sales. The Company accounts for equipment sales in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition in Financial Statements, as follows: 1) for equipment sales of existing products with
new specifications and for all sales of new products, revenue is recognized upon customer acceptance; 2) for equipment sales to existing
customers who have purchased the same equipment with the same specifications and previously demonstrated acceptance provisions, or
equipment sales to new customers purchasing existing products with established reliability, the Company recognizes revenue on a multiple
element approach in which the Company bifurcates a sale transaction into two separate elements based on objective evidence of fair value. The
two elements are the tool and installation of the tool. Under this approach, the portion of the invoice price that is due upon shipment, generally
90% of the total invoice price, is recognized as revenue upon shipment and title transfer of the tool; and the remaining portion of the total invoice
price, generally 10% of the total invoice price, which is due once installation services have been accepted, is not recognized as revenue until
final customer acceptance of the tool. From time to time, however, the Company allows customers to evaluate systems, and since customers
can return such systems at any time with limited or no penalty, the Company does not recognize revenue for these evaluation systems46until they are accepted by the customers. In 2006 and earlier periods, sales to customers in Japan were recognized upon title
transfer, which generally
occurred upon customer acceptance, with the exception of sales of RTP products through the Company's distributor in Japan, which where
recognized upon title transfer to the distributor. In December 2006, the Company expanded its distributor relationship in Japan to cover all of the
Company's products. Under the new distributor agreement, there are no rights of return and there are no significant post-shipment obligations;
therefore revenues are recognized upon title transfer, which occurs upon shipment to the distributor. For spare parts, the Company recognizes
revenue upon shipment. The Company recognizes service and maintenance contract revenue on a straight-line basis over the service period of
the related contract. Accounts receivable for which revenue has not been recognized are classified as advance billings in the accompanying
consolidated balance sheets.

In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred,
the price is fixed or determinable and collectibility is reasonably assured.
Research, Development and Engineering ExpensesResearch, development and engineering costs are expensed as incurred.
Advertising ExpensesAdvertising costs are expensed as incurred. Advertising costs were not material for all periods presented.
Foreign Currency Forward Exchange ContractsDuring 2007 and 2006, the Company employed a foreign currency hedging program, utilizing foreign
currency forward exchange contracts, to hedge foreign currency fluctuations associated with Japanese Yen denominated purchase
commitments and accounts receivable balances. The goal of the hedging program was to hedge against foreign currency fluctuations
associated with the sales of systems to Japan and the revaluation gains (losses) of foreign denominated accounts receivable.

No forward foreign exchange contracts employed by the Company exceeded one year. Under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, these forward contracts did not qualify as designated hedges. All
outstanding forward foreign currency contracts were marked to market with the resulting unrealized gains (losses) recorded in other income
(expense), net. The Company does not use foreign currency forward exchange contracts for speculative or trading purposes.

With respect to forward foreign exchange contracts, the Company recorded a net gain of $0.2 million for
2007, a net gain of $0.6 million for 2006 and a net loss of $1.3 million for 2005 in other income (expense), net. At December 31, 2007, the
Company had no outstanding forward foreign exchange contracts. At December 31, 2006, the Company had one outstanding forward
foreign exchange contract for the purchase in total of $23.7 million in exchange for 2.8 billion Japanese Yen. Recording the fair value of
this contract as of December 31, 2006 resulted in an unrealized gain of $0.1 million, which was charged to other income (expense),
net in 2006.
Income TaxesThe Company provides for income taxes under the provisions of SFAS No. 109 Accounting for
Income Taxes. SFAS No. 109 requires an asset and liability based approach in accounting for income taxes. Deferred income tax
assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities using enacted
tax rates. Valuation allowances are provided against deferred income tax assets which are not likely to be realized. In accordance with the
requirements of SFAS No. 109, future utilization of certain acquired net deferred tax assets, largely consisting of net operating loss
carryforwards, if realized, will first be used to reduce the amount of goodwill recorded at the date of acquisition before reducing the tax provision.

47On January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN)
48, Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109. Under FIN 48, The Company must
recognize the tax benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position
are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The impact
of the Company's reassessment of its tax positions in accordance with FIN 48 resulted in a cumulative effect of adoption of $0.7 million, which
was recorded as an increase in accumulated deficit in the first quarter of 2007.
New Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, which permits entities to elect to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair value. This election is irrevocable. SFAS No. 159 will be
effective for the Company on January 1, 2008. The adoption of SFAS No. 159 will not have a material impact on the Company's
financial position, results of operations or cash flows.


In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value
by providing a fair value hierarchy used to classify the source of the information. This statement is effective for the Company beginning January
1, 2008. The adoption of SFAS No. 157 will not have a material impact on the Company's financial position, results of operations or cash
flows.


3.	Financial Instruments
Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments as of December 31, 2007 and 2006, including cash and cash equivalents,
short term investments, accounts receivable, accounts payable and forward foreign exchange contracts, approximate fair value due to the short
maturities of these financial instruments.
Cash, Cash Equivalents and Short-term InvestmentsThe Company's cash and cash equivalents and short-term investments are carried at fair market value. All short-term investments as of
December 31, 2007 and 2006 are marked to market, with unrealized gains (losses) recorded as components of other comprehensive income.
See Note 10.

Cash and cash equivalents by security type at December 31, 2007 and 2006 were as follows:

Amortized

Unrealized

EstimatedCost

Losses

Fair Value(thousands)December 31,2007:Cash in bank

$          40,685

$                  -

$          40,685Money market funds

55,939

-

55,939Commercial paper

28,918

(9)

28,909$        125,542

$                 (9)

$        125,533December 31,2006:Cash in bank

$          38,006

$                  -

$          38,006Money market funds

17,483

-

17,483Commercial paper

35,928

(1)

35,927$          91,417

$                 (1)

$          91,41648Short-term investments by security type at December 31, 2007 and 2006 were as follows:

Amortized

Unrealized

EstimatedCost

Gains

Fair Value(thousands)December 31,2007:United States agency securities

$            4,447

$                   4

$            4,451United States corporate bonds

22,473

110

22,583$          26,920

$               114

$          27,034December 31,2006:United States agency securities

$          37,100

$                 14

$          37,114United States corporate bonds

10,349

6

10,355$          47,449

$                 20

$          47,469The maturities of short-term investments as of December 31, 2007 and 2006 were as follows:

December 31,2007

2006(thousands)Due within one year

$          14,419

$          34,644Due in one to two years

12,615

12,825$          27,034

$          47,469During 2007, the Company closely monitored developments in the credit markets, to ensure that its investments
mitigated credit and interest rate exposures in accordance with policies approved by the Company's Audit
Committee. At December 31, 2007, the Company's $55.9 million in money market balances were in funds backed
by United States Treasury securities. The Company's $28.9 million in commercial paper investments were invested
in debt instruments with a rating of at least A-1/P-1 by Standard & Poors/Moody's, as required by policy. In
addition, the Company's short-term investments in corporate bonds were all rated at least AA/Aa2, as required by
policy.The Company is prohibited by policy from investing in auction rate securities and most derivative investments,
except for certain foreign currency forward exchange contracts entered into as part of its foreign currency hedging
program. See Note 2.For 2007, 2006 and 2005, gross realized gains and losses on sales of short-term investments were not significant. At
December 31, 2007, all gross unrealized losses on short-term investments had been in a loss position for less than 12 months. The Company
reviews its investments to identify and evaluate indications of possible impairment. Factors considered in determining whether a loss is
temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term
prospects of the investee, credit quality and the Company's ability to hold the investment for a period of time sufficient to allow for any
anticipated recovery in market value.

494.	Balance Sheet Details

December 31,2007

2006(thousands)Inventories:Purchased parts and raw materials

$          27,727

$          22,964Work-in-process

10,934

9,803Finished goods

12,412

7,765$          51,073

$          40,532Property and equipment:Machinery and equipment

$          52,328

$          47,990Furniture and fixtures

11,842

11,597Leasehold improvements

14,757

12,85578,927

72,442Less: accumulated depreciation

(50,327)

(44,604)$          28,600

$          27,838Accrued liabilities:Warranty

$            9,174

$          15,113Accrued compensation and benefits

8,193

7,633Other

9,533

14,889$          26,900

$          37,635Other liabilities:Deferred revenue, non-current

$            4,375

$                  -Other

1,761

400$            6,136

$               400As of December 31, 2007 and 2006, the allowance for excess and obsolete inventory was $7.3 million
and $16.6 million, respectively. The $9.3 million decrease in this allowance in 2007 was primarily due to the Company's disposal of $9.0
million in inventory during 2007 that had been previously reserved.


5.	Goodwill and Intangible Assets

The following table summarizes the components of goodwill and intangible assets and related accumulated
amortization balances:

DevelopedGoodwill

Technology

Total(thousands)December 31, 2007:Gross carrying amount

$          18,076

$          15,647

$          33,723Accumulated amortization

-

(8,567)

(8,567)Net carrying amount

$          18,076

$            7,080

$          25,156December 31, 2006:Gross carrying amount

$          18,497

$          15,647

$          34,144Accumulated amortization

-

(8,056)

(8,056)Net carrying amount

$          18,497

$            7,591

$          26,088In 2007 and 2006, tax benefits of $0.4 million and $1.5 million, respectively, related to the utilization of certain
acquired deferred tax assets, consisting largely of net operating loss carryforwards, were used to reduce goodwill rather than benefit income
taxes in accordance with the requirements of SFAS No. 109.

50In 2006, the Company recorded an impairment charge of $2.6 million to write down the book value of certain
intangible assets, as required by SFAS No. 144.

In 2005, the Company adjusted the fair value of the assets and liabilities acquired from Vortek. Pursuant to the
adjustment in 2005, the Company reduced the valuation allowance for deferred tax assets by approximately $4.4 million. This resulted in a
reduction of goodwill during the period of approximately $4.4 million. The resulting deferred tax asset of $2.7 million and $2.9 million at
December 31, 2007 and 2006, respectively, has been offset against previously recorded deferred tax liabilities in the accompanying
consolidated balance sheets in accordance with SFAS No. 109.

The Company recorded amortization expense for its developed technology of $0.5 million, $0.7 million, and
$2.1 million for the years ended December 31, 2007, 2006 and 2005, respectively. The developed technology is being amortized
over a useful life of 17 years. Annual amortization expense is estimated to be $0.5 million for the years 2008 to 2012.
6.	Restructuring Charges
Consolidation of excess facilities

In 2002 and 2003, the Company recorded restructuring charges of $2.4 million for consolidation of several excess
leased facilities in the U.S. and overseas. The Company paid $1.4 million of the restructuring charges during 2002, 2003 and 2004, resulting in
an accrued liability for consolidation of excess facilities of $1.0 million at December 31, 2004. In 2007, 2006 and 2005, the Company made cash
payments of $0.4 million, $0.2 million, and $0.4 million, respectively, related to its restructuring plans. The Company concluded its remaining
restructuring plans in 2007. At December 31, 2007, there is no remaining reserve under the restructuring plans for consolidation of excess
facilities.

7.	Guarantees

During the ordinary course of business, the Company's bank provides standby letters of credit or other
guarantee instruments on behalf of the Company to certain parties as required. The maximum potential amount that the Company could be
required to pay is $1.6 million, representing standby letters of credit outstanding as of December 31, 2007. The Company has not
recorded any liability in connection with these guarantee arrangements beyond that required to appropriately account for the underlying
transaction being guaranteed. The Company does not believe, based on historical experience and information currently available, that it is
probable that any amounts will be required to be paid under these guarantee arrangements.

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

518.	Borrowing Facility

The Company has a $10 million revolving line of credit with a bank, which may be increased to $20
million at the option of the Company. The revolving line of credit was renewed in June 2007, expires in June 2009 and has an annual
commitment fee of $25,000.  All borrowings under this credit line bear interest at a per annum rate equal to either the bank's prime rate minus
50 basis points or the London Interbank Offered Rate (LIBOR) plus 200 basis points, at the option of the Company. The line of credit is
collateralized by a blanket lien on all of the Company's domestic assets including intellectual property. The line of credit requires the Company
to satisfy certain quarterly financial covenants, including maintaining certain minimum financial ratios.  At December 31, 2007, the Company was
in compliance with the covenants, and there was no borrowing under this credit line.

9.	Commitments and Contingencies

The Company holds various operating leases related to its facilities and equipment worldwide and a sublease
in respect to one of its facilities located in Exton, Pennsylvania. The following table sets forth the Company's minimum annual rental
commitments with respect to its operating leases with various expiry dates through 2019 and its sublease which expires in 2010 at
December 31, 2007:

Operating

SubleaseYear

Lease Payments

Income(thousands)2008

$              5,275

$             (1,534)2009

5,009

(1,564)2010

4,764

(1,595)2011

4,197

-2012

4,235

-Thereafter

22,040

-$            45,520

$             (4,693)Rent expense was approximately $5.6 million, $5.7 million and $5.5 million, in 2007, 2006 and 2005,
respectively. The Company recorded sublease income of approximately $1.5 million, $2.0 million and $2.0 million in 2007, 2006
and 2005, respectively.

In 2005, the Company entered into a new lease agreement for its existing corporate headquarters building in
Fremont, California. The lease is for a period of 10 years, commenced on May 31, 2007, and has an initial annual base rent cost of
approximately $1.4 million, with annual base rent increases of approximately 3.5%. The Company has one five-year option to extend the lease
at market lease rates in effect on the expiration date. Additionally, insurance, real property taxes and operating expenses are to be paid by the
Company. The Company is responsible for an additional minimum lease payment at the end of the lease term of approximately $1.5 million,
subject to adjustment, which is being accounted for in accordance with SFAS No. 13 Accounting for Leases, and will be accrued
on a straight-line basis over the lease term. The Company has provided the landlord a letter of credit for $1.5 million to secure this obligation.
The letter of credit amount may be increased to reflect any adjustments made to a restoration cost obligation provision included in the
lease.

The Company leases two buildings previously used to house its manufacturing and administrative functions related
to wet surface preparation products in Exton, Pennsylvania. The lease for both buildings will expire March 31, 2019 with a current
combined rental cost of approximately $1.5 million annually. The Company expects to make payments related to the above noted leases
over the next eleven years, less any sublet amounts. The lease agreement for both buildings allows for subleasing the premises without the
approval of the landlord. In June 2002, the administrative building was sublet for a period of approximately five years, until
December 2007. In June 2007, the tenant entered into a new three-year sublease, which will commence upon the expiration of the
current sublease and will expire in December 2010, with an option for the subtenant to extend for an additional three years. Total lease payments of52approximately $11.9 million are expected to cover all related costs on the administrative building during the sublease
periods. The sublessee for the manufacturing building location vacated the premises in September 2006 and the Company is currently
marketing the property to prospective tenants.  In determining the facilities lease loss, various assumptions were made, including the time period
over which the buildings will be vacant, expected sublease terms and expected sublease rates. As of December 31, 2007 and 2006, the
Company had an accrual balance of $1.0 million and $1.2 million, respectively, related to these leases. Adjustments to the accrual for these
leases will be made in future periods, if necessary, as soon as evidence of any adjustment can be reasonably estimated as future events and
circumstances become known.

In connection with the acquisition of Vortek, the Company became party to an agreement between Vortek and the
Canadian Minister of Industry (the Minister) relating to an investment in Vortek by Technology Partnerships Canada. Under that agreement, as
amended, the Company or Vortek agreed to various covenants, including (a) payment by the Company of a royalty to the Minister of
1.4% of revenues from Flash RTP products, up to a total of CAD14,269,290 (approximately $14.1 million at December 31, 2007), and
(b) Vortek maintaining a specified average workforce of employees in Canada through October 27, 2009. If the Company, or
Vortek, does not satisfy its obligations, the Minister may demand payment of liquidated damages in the amount of CAD14,269,290  less any
royalties paid by Vortek or the Company to the Minister.

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

The Company is currently party to legal proceedings and claims, either asserted or unasserted, which arise in the
ordinary course of business. While the outcome of these matters is not presently determinable and cannot be predicted with certainty,
management does not believe that the outcome of any of these matters or any of the above mentioned legal claims will have a material adverse
effect on the Company's financial position, results of operations or cash flows.

10.	Stockholders' Equity
The number of shares of common stock outstanding at the end of each of the periods presented was
reduced by approximately 100,000 shares to reflect an adjustment for certain unredeemed shares related to the acquisition of CFM
Technologies, Inc. (CFM) in January 2001 that was identified in the first quarter of 2007. In January 2001, the shares issued were placed into
escrow and the fair value was allocated to certain intangible assets that were subsequently impaired in 2001. Since the error occurred in 2001,
and is not material to any of the periods presented, an adjustment was made
to reduce accumulated deficit and additional paid-in capital at the end of each of the periods presented by approximately $3.5
million.

Common Stock Repurchase Program

In March 2007, the Company's Board of Directors authorized the repurchase of up to $20 million of the Company's
shares of common stock through open-market purchases or private transactions. In October 2007, the Company's Board of Directors authorized
the repurchase of up to an additional $30 million of the Company's shares of common stock. The size and timing of future repurchases will
depend on the Company's share price. For the year ended December 31, 2007, 3.5 million shares were repurchased under this program at a
weighted-average purchase price of $9.31. As of December 31, 2007, the Company had $17.6 million available for future repurchases of the
Company's common stock.

53Comprehensive IncomeThe components of accumulated other comprehensive income, net of related tax, at December 31, 2007 and
2006 are as follows:

December 31,2007

2006(thousands)Cumulative translation adjustments, net of tax

$         18,825

$         13,480Unrealized investment gain (loss)

207

45$         19,032

$         13,525Stockholder Rights Plan

On July 28, 2005, the Company adopted a Stockholder Rights Plan (Rights Plan). Under the Rights Plan,
stockholders of record at the close of business on August 15, 2005 received one share purchase right (Right) for each share of the
Company's common stock held on that date.

The Rights, which currently trade with the Company's common stock and represent the right to purchase one
one-thousandth of a share of preferred stock at $55.00 per share, become exercisable when a person or group acquires 15% or more of the
Company's common stock (acquiror) without prior approval of the Company's Board of Directors. In that event, the Rights permit Mattson
stockholders, other than the acquiror, to purchase Mattson common stock having a market value of twice the exercise price of the Rights, in lieu
of the preferred stock. Alternatively, when the Rights become exercisable, the Company's Board of Directors may authorize the issuance of one
share of the Company's common stock in exchange for each Right that is then exercisable. In addition, in the event of certain business
combinations, the Rights permit the purchase of the common stock of an acquiror at a 50% discount. Rights held by the acquiror will become
null and void in each case. Prior to a person or group acquiring 15%, the Rights can be redeemed for $0.001 each by action of the Board. The
Rights expire on July 27, 2015. The Rights distribution was not taxable to stockholders.

The Rights Plan further authorizes the issuance of one Right with each share of common stock that becomes
outstanding after the record date and before the acquisition of 15% of the Company's common stock by an acquiror. At December 31, 2007,
approximately 49.7 million share purchase rights were outstanding under the Rights Plan.
11.	Employee Stock Plans

In May, 2005, the Company amended and restated the Company's 1989 Stock Option Plan (the 1989 Plan) as the
2005 Equity Incentive Plan (the 2005 Plan), under which a total of 11,975,000 shares of common stock were reserved for issuance at December
31, 2006.  In June 2007, the Company's shareholders approved an amendment to the 2005 Plan increasing by 2,500,000 the shares of
common stock reserved for issuance under the 2005 Plan, resulting in a total of 14,475,000 shares of common stock reserved for issuance at
December 31, 2007. The Company had approximately 3.3 million shares available for future grants under the 2005 Plan at
December 31, 2007.

In addition to stock options, the 2005 Plan authorizes the grant of stock purchase rights, stock bonuses and
restricted stock units. Options and stock purchase rights granted under the 2005 Plan are for periods not to exceed seven years. Generally,
incentive stock option and non-statutory stock option grants under the 2005 Plan must be at exercise prices that are at least 100% of the fair
market value of the stock on the date of grant. The options generally vest 25% one year from the date of grant, with the remaining vesting
1/36th per month thereafter.

54Restricted stock units generally vest 1⁄4 of the units granted on the first anniversary of the date of grant, and 1/16 of
the initial units granted per quarter thereafter. 2005 Plan awards of restricted stock units are counted against the total number of shares of
common stock issuable under the plan at 1.75 shares for every one share subject thereto. The value of the restricted stock units was based on
the closing market price of the Company's common stock on the date of award.

In connection with its acquisition of CFM Technologies, Inc. (CFM) in January 2001, the Company filed
with the SEC in January 2001 a registration statement on Form S-8 for the four then existing stock option plans of CFM (CFM
Plans), namely the 1992 Employee Stock Option Plan for approximately 248,000 shares, the Restated 1995 Incentive Plan for approximately
641,000 shares, the Restated Non-employee Directors' Plan for approximately 19,000 shares and the CFM Non-plan Stock Option Plan for
approximately 21,000 shares. The options previously granted by CFM prior to the Company's acquisition had vesting terms set by CFM's then
executive compensation and stock option committee of the board of directors, and expired 10 years after the date of grant. The Company
continues to administer the CFM Plans to the extent that options granted previously are exercised by the optionees or that options previously
granted become terminated under the respective terms of the CFM Plans. As of December 31, 2007, approximately 10,000 stock options
in total remained outstanding and exercisable under the CFM Plans.

The following table summarizes the combined activity under all of the Company's equity incentive plans, including
10,000 shares outstanding under the Company's CFM plans:

Weighted-

Restricted

Weighted-Awards

Stock

Average

Stock

AverageAvailable

Options

Exercise

Units

Grant DateFor Grant

Outstanding

Price

Outstanding

Fair Value(thousands)

(thousands)



(thousands)Balance at December 31, 2006

1,486

6,036

$          9.27

150

$        11.39Stock options:Authorized June 4, 2007

2,500

-

-

-

-Granted

(888)

888

$          9.03

-

-Exercised

-

(454)

$          4.95

-

-Cancelled or forfeited

345

(352)

$        12.08

-

-Restricted stock units:Granted

(177)

-

-

101

$          9.08
 
Released

-

-

-

(66)

$          9.84

Cancelled or forfeited

22

-

-

(13)

$        10.59Balance at December 31, 2007

3,288

6,118

$          9.39

172

$        10.69Supplemental disclosure information about the Company's stock options outstanding as of December 31, 2007 is as follows:

Weighted-Weighted-

AverageAverage

Remaining

AggregateExercise

Contractual

IntrinsicShares

Price

Life

Value(thousands)



(in years)

(thousands)Options exercisable at December 31, 2007

4,551

$            9.43

4.3

$          5,006Options expected to vest at December 31, 2007

1,567

$            9.28

5.9

$             247Options outstanding at December 31, 2007

6,118

$            9.39

4.7

$          5,25355The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on the Company's
closing stock price of $8.56 as of December 31, 2007, which would have been received by the option holders had all option holders exercised
their options as of that date. The total number of shares of common stock subject to in-the-money options exercisable as of December 31, 2007
was 1.9 million. The weighted average grant date fair value of options granted during the years ended December 31, 2007, 2006 and 2005 was
$5.72, $7.32 and $5.77 per share, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2007 was $2.3 million. The total cash
received from employees as a result of employee stock option exercises during the year ended December 31, 2007 was $2.2 million. The
Company settles employee stock option exercises with newly issued common shares.

Acceleration of Stock OptionsOn August 25, 2005, the Company accelerated the vesting of certain unvested and out-of-the-money stock
optionsoutstanding under the Company's stock plans. In making the decision to accelerate these options, the Board
of Directors considered the interest of the stockholders in reducing the earnings impact of the adoption of SFAS No. 123(R) in 2006, and the
impact that this could have had on the Company's market value. In addition, because these options had exercise prices in excess of the
reported closing price on the date of the acceleration, they were not fully achieving their original objectives of incentive compensation and
employee retention.

The acceleration of vesting applied to all unvested options that had an exercise price per share of $9.05 or higher.
As a result of the acceleration, options to purchase approximately 1.47 million shares of the Company's common stock became exercisable
immediately. The weighted average exercise price of the affected options was $10.20 per share. The total number of options subject to
acceleration included options to purchase approximately 503,000 shares held by the executive officers and directors of the Company. In order
to prevent unintended benefits to executive officers and directors, the Company imposed new restrictions on all shares received through the
exercise of accelerated options held by those individuals, which will prevent the sale of those shares prior to the earlier of the original vesting
date of the option or the individual's termination of employment.

In accordance with SFAS No. 123(R), the Company began applying expense recognition provisions relating to
stock options in the first quarter of 2006. As a result of its action to accelerate the vesting of out-of-the-money options, the Company reduced
the non-cash expense it otherwise would otherwise have been required to record in 2006, 2007 and future years. The accelerated vesting of
these options did not result in a charge in 2005 based on generally accepted accounting principles.

Employee Stock Purchase Plan

In August 1994, the Company adopted an employee stock purchase plan (Purchase Plan) under which
6,175,000 shares of common stock had been reserved for issuance through December 31, 2007. The number of shares sold under the
Purchase Plan were approximately 91,000 in 2007, 59,000 in 2006, and 229,000 in 2005. In 2007 and 2006, the Purchase Plan did not contain
a look-back option feature. At December 31, 2007, approximately 3.4 million shares were available for issue under the Purchase
Plan.

The Purchase Plan is administered over varying offering periods up to 27 months. For 2005, the Company completed a
six-month offering period in January 2005, and a five-month offering period in October 2005. For 2006, the Company completed a seven-month
offering period in November 2006. For 2007, the Company completed two six-month offering periods in May and November 2007. The
weighted-average fair value of Purchase Plan shares issued during the years ended December 31, 2007, 2006 and 2005 was $0.90, $0.99 and
$2.21 per share. As there is no look-back option feature in 2007 and 2006, compensation cost for 2007 and 2006 is determined using the
intrinsic value of the 10% discount, and the use of an option-pricing model is not applicable.

56

---



Eligible employees may designate not more than 15% of their gross cash compensation to be deducted each pay
period for the purchase of common stock under the Purchase Plan, and participants may not purchase more than $25,000 worth of common
stock in any calendar year or 10,000 shares in any offering period. On the last business
day of each purchase period, shares of common stock
are purchased with the employees' payroll deductions accumulated during the offering period. For the offering periods in 2005, the offering was
at a price per share equal to 85% of the market price of the common stock on the date immediately preceding the offering date or the date
immediately preceding the purchase date, whichever was lower. For the offering periods completed in 2007 and 2006, the offering is at a price
per share equal to 90% of the market price of the common stock on the date immediately preceding the purchase date.

12.	Stock-Based Compensation

Effective January 1, 2006, Mattson adopted the provisions of SFAS No. 123(R),which established
accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date,
based on the fair value of the award, and is recognized as expense over the requisite service period for the employee. The Company previously
applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and
provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation.

Prior to the adoption of SFAS No. 123(R)

Prior to the adoption of SFAS No. 123(R), the Company provided the disclosures required under SFAS No. 123, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosures. The pro-forma information for the
year ended December 31, 2005 was as follows:

|                                                       |  | Year Ended             
|------------------------------------------------------ |  | -----------------------
|                                                       |  | December 31,           
|(in thousands, except per share amounts)               |  | 2005                   
|                                                       |  |                        
|Net income as reported                                 |  | $             11,299   
|Deduct:  Total employee stock-based compensation       |  |                        
|expense determined under fair value method, net of tax |  | (12,884)               
|Pro forma net loss                                     |  | $              (1,585) 
|                                                       |  |                        
|Basic net income (loss) per share:                     |  |                        
|As reported                                            |  | $                 0.22 
|Pro forma                                              |  | $                (0.03)
|                                                       |  |                        
|Diluted net income (loss) per share:                   |  |                        
|As reported                                            |  | $                 0.21 
|Pro forma                                              |  | $                (0.03)

Impact of the adoption of SFAS No. 123(R)

The Company elected to adopt SFAS No. 123(R) using the modified prospective application method as described
therein. Accordingly, during the years ended December 31, 2007 and 2006, the Company recorded stock-based compensation costs totaling
the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123, adjusted for
estimated forfeitures. Previously reported amounts have not been restated.

In November 2005, the FASB issued FASB Staff Position No. 123(R)-3, Transition Election Related to Accounting for
Tax Effects of Share-Based Payment Awards. The Company has elected to adopt the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of share-based compensation pursuant to SFAS 123(R). The alternative transition method includes a
simplified method to establish the beginning balance of the additional paid-in-capital pool (APIC pool) related to the tax effects of employee
share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R).

57

---



The effect of recording stock-based compensation for the years ended December 31, 2007 and 2006 were as
follows:

|                                                 |                                        |                       | Year Ended December 31,              
|------------------------------------------------ | -------------------------------------- | --------------------- | -------------------------------------
|                                                 |                                        |                       | 2007                                 
|                                                 |                                        |                       | (thousands, except per share amounts)
|                                                 |                                        |                       |                                      
|Stock-based compensation by type of award:       |                                        |                       |                                      
|                                                 | Stock options                          |                       | $               3,234                
|                                                 | Restricted stock units                 |                       | 585                                  
|                                                 | Employee stock purchase plan           |                       | 65                                   
|Total stock-based compensation                   |                                        | 3,884                 |                                      
|                                                 | Tax effect on stock-based compensation |                       | -                                    
|Effect on net income                             |                                        | $               3,884 |                                      
|                                                 |                                        |                       |                                      
|Stock-based compensation by category of expense: |                                        |                       |                                      
|                                                 | Cost of sales                          |                       | $                  129               
|                                                 | Research, development and enginnering  |                       | 478                                  
|                                                 | Selling, general and administrative    |                       | 3,277                                
|Effect on net income                             |                                        | $               3,884 |                                      
|                                                 |                                        |                       |                                      
|Effect on net income per share:                  |                                        |                       |                                      
|                                                 | Basic                                  |                       | $                 0.08               
|                                                 | Diluted                                |                       | $                 0.07               

As of December 31, 2005, the Company had an unrecorded deferred stock-based compensation balance related to
stock options of $2.0 million after estimated forfeitures. In the Company's pro forma disclosures prior to the adoption of SFAS No. 123(R), the
Company accounted for forfeitures upon occurrence. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised if
necessary in subsequent periods if actual forfeitures differ from those estimates. During the years ended December 31, 2007 and 2006, the
Company granted stock options to acquire approximately 0.9 million and 1.0 million shares of common stock, respectively, with an estimated
total grant-date fair value of $4.5 million and $6.6 million, respectively, after estimated forfeitures. As of December 31, 2007, the unrecorded
deferred stock-based compensation balance related to stock options was $7.4 million after estimated forfeitures, which will be recognized over
an estimated weighted average amortization period of 2.7 years.

During the years ended December 31, 2007 and 2006, the Company granted approximately 0.1 million and 0.2 million
restricted stock units, respectively, with an estimated total grant-date fair value of $0.8 million and $1.5 million, respectively, after estimated
forfeitures. As of December 31, 2007, there was $1.5 million of unrecorded deferred stock-based compensation, after estimated forfeitures,
related to nonvested restricted stock units granted under the 2005 Plan. That cost will be recognized over an estimated weighted average
amortization period of 2.8 years.

The Company has not capitalized any stock-based compensation as inventory or deferred system profit at
December 31, 2007 and 2006, as such amounts were inconsequential.

Valuation Assumptions

The Company estimates the fair value of stock options using the Black-Scholes valuation model, consistent with the
provisions of SFAS No. 123(R). The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation
model and the straight-line attribution approach with the following weighted-average assumptions:

58

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|                                |  | Year Ended December 31,
|------------------------------- |  | -----------------------
|                                |  | 2007                   
|Options:                        |  |                        
|Expected dividend yield         |  | -                      
|Expected stock price volatility |  | 74%                    
|Risk-free interest rate         |  | 4.6%                   
|Expected life of options        |  | 5 years                
|                                |  |                        
|ESPP:                           |  |                        
|Expected dividend yield         |  | n/a (1)                
|Expected stock price volatility |  | n/a (1)                
|Risk-free interest rate         |  | n/a (1)                
|Expected life of options        |  | n/a (1)                

___________

|(1) | In 2007 and 2006, the Company's offerings do not include a look-back option feature. As
there is no option feature in 2007 or 2006, compensation cost for 2007 and 2006 is determined using the intrinsic value of the 10% discount,
and the use of an option-pricing model is not applicable.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Option-pricing models require the input of highly subjective assumptions, including the option's expected life and the
price volatility of the underlying stock. The expected life of each option was determined by analyzing historical exercise and post-vest forfeiture
patterns. The risk-free interest rate was determined using the rates for United States Treasury notes for similar terms. The expected stock price
volatility assumption was determined using the historical volatility of the Company's common stock.

13.	Employee Savings Plans

Employee Savings Plan

The Company has a retirement/savings plan (the ESP Plan), which is qualified under section 401(k) of the
Internal Revenue Code. All full-time employees who are twenty-one years of age or older are eligible to participate in the ESP Plan. The ESP
Plan allows participants to contribute up to an amount allowed by the applicable Internal Revenue Service guidelines. The Company may make
a discretionary matching contribution equal to a percentage of the participants' contributions. In 2007, 2006 and 2005 the Company made
matching contributions of approximately $0.6 million in each year.

Deferred Compensation Plan

Effective January 1, 2006, the Company adopted a deferred compensation plan (the DC Plan). Under the DC Plan,
the Company provides eligible employees and non-employee members of its Board of Directors who participate in the DC Plan (Participants)
the opportunity to defer a specified percentage of their base salary or retainer fees for participation on the Company's Board and Board
Committees. In addition, the Company's Board of Directors may make discretionary contributions to the accounts of one or more Participants.

Under the DC Plan, the Company is obligated to deliver on a future date the deferred compensation credited to a
Participant's account, adjusted for any positive or negative investment results from investment alternatives selected by the Participant under the
DC Plan (the Obligations). The Obligations are unsecured general obligations of the Company and rank in parity with other unsecured and
unsubordinated indebtedness of the Company. The Obligations are not transferable, except upon death of a Participant. There is no trading
market for the Obligations.

59

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As of December 31, 2007 and 2006, the Company had approximately $1.1 million and $0.4 million, respectively, in
net assets under the DC Plan, which were invested primarily in equity investment funds. The Company has recorded these assets as other
assets and has recorded the corresponding liability to DC Plan participants as other long-term liabilities in the accompanying consolidated
balance sheets. Unrealized gains and losses on DC Plan investments are recorded in accumulated other comprehensive income in the
accompanying consolidated balance sheets. The corresponding liability is being marked to market and is being recorded as compensation
expense to the extent that there is an increase in value or a reduction of expense to the extent that there is a decrease in value. Unrealized
gains and losses and the impact of marking to market the liability for the years ended December 31, 2007 and 2006 were not material.

14.	Reportable Segments

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information,
establishes standards for reporting information about operating segments, geographic areas and major customers in financial statements.
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Chief Executive Officer
of the Company is the Company's chief decision maker. As the Company's business is completely focused on one industry segment, the
design, manufacturing and marketing of advanced fabrication equipment to the semiconductor manufacturing industry, management believes
that the Company has one reportable segment. The Company's revenues and profits are generated through the sales of systems and services
for this one segment.

The following shows net sales by geographic areas based on the installation locations of the systems and the
location of services rendered. Royalty revenues from DNS of $11.5 million, $7.5 million and $10.8 million in 2007, 2006 and 2005, respectively,
are included in net sales to Japan.

|                  |  | Year Ended December 31,
|----------------- |  | -----------------------
|                  |  | 2007                   
|                  |  | (thousands)            
|                  |  |                        
|United States     |  | $          22,301      
|Taiwan            |  | 73,037                 
|Korea             |  | 52,203                 
|Japan             |  | 51,499                 
|Europe and others |  | 35,141                 
|Other Asia        |  | 33,105                 
|                  |  | $        267,286       

In 2007, four customers accounted for 15%, 13%, 12% and 10% of total revenues, respectively. In 2006, two
customers accounted for 15% and 12% of total revenues, respectively. In 2005, two customers accounted for 12% and 11% of total revenues,
respectively.

60

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Geographical information relating to the Company's property and equipment as of December 31, 2007 and
2006 is as follows:

|              |  |                   |  | December 31,     
|------------- |  | ----------------- |  | -----------------
|              |  |                   |  | 2007             
|              |  |                   |  | (thousands)      
|              |  |                   |  |                  
|United States |  | $          15,118 |  | $          15,616
|Germany       |  | 11,122            |  | 6,248            
|Canada        |  | 2,050             |  | 5,613            
|Others        |  | 310               |  | 361              
|              |  |                   |  | $          28,600

15.	DNS Patent Infringement Suit Settlement

On March 5, 2002, a jury in San Jose, California rendered a verdict in favor of the Company's then
subsidiary, Mattson Wet Products, Inc. (formally CFM Technologies, Inc.), in a patent infringement suit against Dainippon Screen
Manufacturing Co., Ltd. (DNS), a Japanese manufacturer of semiconductor wafer processing equipment. On June 24, 2002, the
Company entered into a settlement agreement and a license agreement with DNS, under which DNS agreed to make payments to the
Company totaling between $75 million (minimum) and $105 million (maximum), relating to past damages, partial reimbursement of
attorney fees and costs and license fees. As of December 31, 2007, DNS has made payments aggregating $88.7 million under the terms of the
settlement and license agreements.

For the years ended December 31, 2006 and December 31, 2005, DNS paid the Company minimum annual royalty
payments of $6.0 million each year.  The Company has received all scheduled minimum annual royalty payments. In 2007, 2006 and 2005,
DNS made additional payments of $11.5 million, $2.4 million and $5.4 million, respectively, based on sales by DNS for their fiscal years ended
March 31, 2007, 2006 and 2005, respectively. These additional payments were recorded as royalty revenue when the Company received
notification of the amounts to be paid. The remaining royalty payment to be paid by DNS under the license agreement will be due in June 2008,
based on sales by DNS through January 15, 2008.

The Company recognized $11.5 million, $7.5 million and $10.8 million of royalty revenue from DNS for the years
ended December 31, 2007, 2006 and 2005, respectively, which is recognized as net sales in the consolidated income statements.

16.	Disposition of Wet Business

On March 17, 2003, the Company sold the portion of its business that related to developing,
manufacturing, selling and servicing wet surface preparation products for the cleaning and preparation of semiconductor wafers (the Wet
business) to SCP Global Technologies, Inc. (SCP). SCP paid the Company the initial purchase price of $2.0 million in cash. That
initial purchase price was subject to adjustment based on a number of criteria, including an earn-out, up to an aggregate maximum of
$5.0 million, payable to the Company based upon sales by SCP of certain products to identified customers through December 31,
2004.

In 2005, the Company received earn-out payments of approximately $2.9 million from SCP for sales in 2004. The
Company has recorded this payment as additional proceeds from the sale of the Wet business. The payment has been recorded as a reduction
of operating expenses for 2005 in the consolidated income statements.

In 2006, the Company concluded all activities related to the disposition of the Wet business, and released a
remaining accrual of $0.6 million, which was previously established as an estimate of a portion of the projected costs to fulfill the Company's
obligations under the sale of the Wet business. The payment has been recorded as a reduction of operating expenses for 2006 in the
consolidated income statements.

61

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17.	Income Taxes

The components of income before provision for income taxes are as follows:

|                                         |  | Year Ended December 31,
|---------------------------------------- |  | -----------------------
|                                         |  | 2007                   
|                                         |  | (thousands)            
|                                         |  |                        
|Domestic income                          |  | $          31,396      
|Foreign income (loss)                    |  | 1,058                  
|Income before provision for income taxes |  | $          32,454      

The provision (benefit) for income taxes consists of the following:

|                                     |  | Year Ended December 31,
|------------------------------------ |  | -----------------------
|                                     |  | 2007                   
|                                     |  | (thousands)            
|Current:                             |  |                        
|Federal                              |  | $                 67   
|State                                |  | 31                     
|Foreign                              |  | 669                    
|Total current                        |  | 767                    
|Deferred:                            |  |                        
|Federal                              |  | 62                     
|State                                |  | 32                     
|Foreign                              |  | 4,040                  
|Total deferred                       |  | 4,134                  
|Provision (benefit) for income taxes |  | $            4,901     

Deferred tax assets (liabilities) are comprised of the following:

|                                              |  |                      |  | December 31,      
|--------------------------------------------- |  | -------------------- |  | ------------------
|                                              |  |                      |  | 2007              
|                                              |  |                      |  | (thousands)       
|                                              |  |                      |  |                   
|Net operating loss carryforwards              |  |                      |  | $          96,378 
|Capital loss carryforward                     |  |                      |  | 13,503            
|Reserves not currently deductible             |  |                      |  | 8,777             
|Tax credit carryforwards                      |  |                      |  | 7,694             
|Depreciation                                  |  |                      |  | 4,988             
|Deferred revenue                              |  |                      |  | 1,450             
|Research and development capitalization       |  |                      |  | 739               
|Other                                         |  |                      |  | 725               
|Settlement payments                           |  |                      |  | -                 
|Total deferred tax asset                      |  |                      |  | 134,254           
|Valuation allowance                           |  |                      |  | (131,564)         
|Total net deferred tax asset                  |  |                      |  | 2,690             
|Deferred tax liability - acquired intangibles |  | (2,690)              |  | (2,885)           
|                                              |  |                      |  |                   
|Net deferred tax asset                        |  | $                  - |  | $            2,000

62

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Net changes in the income tax valuation allowance are as follows:

|                                      |  |                  |  | December 31.    
|------------------------------------- |  | ---------------- |  | ----------------
|                                      |  |                  |  | 2007            
|                                      |  |                  |  | (thousands)     
|                                      |  |                  |  |                 
|Balance at the beginning of the year  |  | $        137,297 |  | $        142,259
|Utilization and other reductions, net |  | (5,733)          |  | (4,962)         
|Balance at the end of the year        |  | $        131,564 |  | $        137,297

The provision for income taxes reconciles to the amount computed by multiplying income before income tax by the
U.S. statutory rate of 35% as follows:

|                                                  |  | Year Ended December 31,
|------------------------------------------------- |  | -----------------------
|                                                  |  | 2007                   
|                                                  |  | (thousands)            
|                                                  |  |                        
|Provision at statutory rate                       |  | $          11,359      
|Deferred tax asset valuation allowance            |  | (10,147)               
|Foreign earnings taxed at different foreign rates |  | 1,476                  
|State taxes, net of Federal benefit               |  | 1,000                  
|Nondeductible stock option expense                |  | 517                    
|Net operating losses used to reduce goodwill      |  | 421                    
|Foreign earnings taxed at U.S. rate               |  | 362                    
|Settlement with foreign tax authorities           |  | -                      
|Other                                             |  | (87)                   
|Total provision (benefit) for income taxes        |  | $            4,901     

The net deferred tax asset of nil and $2.0 million at December 31, 2007 and 2006, respectively, relates to the
Company's operations in Germany. Management has evaluated both positive and negative factors in determining whether a valuation allowance
in Germany is necessary. Positive factors considered include that the Company's operations in Germany are primarily sales of products and
services to the Company's operations in the United States under a transfer pricing agreement that recognizes profit for German statutory
purposes. Additionally, there is also an unlimited carryover of net operating losses in Germany, and management has the intent to continue
manufacturing operations in Germany for the foreseeable future. Based on the analysis of objective evidence, management believes that it is
more likely than not that the Company will generate sufficient taxable income to realize this net deferred tax asset.

The valuation allowance at December 31, 2007 and 2006 is attributable to Federal and state deferred tax assets, as
well as foreign deferred tax assets other than the German net deferred tax asset of nil in 2007 and $2.0 million in 2006. The Company's
valuation allowance was determined in accordance with the provisions of SFAS 109, which requires an assessment of both positive and
negative evidence when determining whether it is more likely than not that deferred assets are recoverable, with such assessment being
required on a jurisdiction by jurisdiction basis. Management believes that sufficient uncertainty exists with regard to the realizability of these tax
assets such that a valuation allowance is necessary. Factors considered in providing a valuation allowance include the lack of a significant
history of consistent profits, the current weakness in the overall semiconductor market thereby negatively impacting the Company's ability to
sustain or grow revenues and earnings and the lack of carry-back capacity to realize these assets. Based on the absence of sufficient positive
objective evidence, management is unable to assert that it is more likely than not that the Company will generate sufficient taxable income to
realize these remaining net deferred tax assets. The amount of the deferred tax asset valuation allowance, however, could be reduced in future
periods to the extent that future taxable income is realized. If the Company were to release all or a portion of its deferred tax asset valuation
allowance in a future period, a portion of such release up to a total of $6.3 million would be applied to reducing goodwill rather than benefiting
income tax expense.

63

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At December 31, 2007, the Company had Federal and state net operating loss carryforwards of
approximately $274.3 million and $41.5 million, respectively, which will expire at various dates through 2026 for Federal purposes and
2013 for state purposes. The Company also has foreign net operating loss carryforwards in Canada of approximately $15.3 million that
will expire at various dates through 2017.

The Federal and state net operating losses acquired from the STEAG Semiconductor Division, CFM and Concept
acquisitions are also subject to change in control limitations as defined in Section 382 of the Internal Revenue Code. Furthermore, the
Company had a change in control in April 2002, which limited its net operating losses generated prior to the date the ownership change
occurred. If certain substantial changes in the Company's ownership occur, there would be an additional annual limitation on the amount of the
net operating loss carryforwards that can be utilized. The Company acquired $48.0 million of deferred tax assets as a result of its
acquisitions of the Vortek, STEAG Semiconductor Division, CFM and Concept Systems Design, Inc.

In 2007 and 2006, tax benefits of $0.4 million and $1.5 million, respectively, which related to the utilization of certain
acquired deferred tax assets, consisting largely of net operating loss carryforwards, were used to reduce goodwill rather than benefit income
taxes in accordance with the requirements of SFAS No. 109. Future utilization of certain acquired net operating losses, if realized, will first be
used to reduce the amount of goodwill and identified intangibles recorded at the date of acquisition before reducing the tax provision.

At December 31, 2007, the Company had research and development credit carryforwards of approximately $3.6
million and $4.3 million for Federal and state income tax purposes, respectively.  If not utilized, the Federal carryforward will expire in various
amounts beginning in 2026.  The California tax credit can be carried forward indefinitely. At December 31, 2007, the Company has
$13.1 million of valuation allowance related to stock option deductions, which, if realized, will be accounted for as an addition to equity
rather than as a reduction of the provision for taxes.

Adoption of FIN 48

The Company adopted FIN 48 on January 1, 2007. As
a result of the adoption of FIN 48, the Company recognized a $0.7 million increase in the liability for unrecognized tax benefits, which was
accounted for as an increase to the beginning balance of accumulated deficit in the consolidated balance sheet, as
permitted by the transition provisions of FIN 48. Upon adoption, the Company
had $25.2 million of unrecognized tax benefits. Of this total, $9.3 million represented the amount of unrecognized tax benefits that, if recognized,
would favorably affect the effective income tax rate in any future periods. In accordance with FIN 48, at the beginning of fiscal year 2007 the
Company reclassified $9.3 million of income tax liabilities from current liabilities to long-term deferred tax liabilities in the condensed
consolidated balance sheet, as recognition of the liabilities is not anticipated within the next 12 months. In 2007, there
have been no material changes to the amount of unrecognized tax benefits other than a $3.8 million discrete charge, of which $1.6 million has
been accounted for as a long-term payable and $2.2 million has been accounted for as a reduction of deferred tax assets. The discrete charge
is related to a ruling on the applicability of tax law in one of the Company's foreign locations. The following table reconciles the total amounts of
unrecognized tax benefits at the beginning and end of the year:

|                                                        |  |       |  |                     |  | Year Ended  
|------------------------------------------------------- |  | ----- |  | ------------------- |  | ------------
|                                                        |  |       |  |                     |  | December 31,
|                                                        |  |       |  |                     |  | 2007        
|                                                        |  |       |  |                     |  | (millions)  
|Balance at the beginning of the year                    |  |       |  | $              25.2
|Increases for tax positions related to the current year |  | 3.8  
|Effect of exchange rates on tax positions               |  | 0.9  
|Expiration of statutes of limitations                   |  | (0.3)
|Balance at the end of the year                          |  |       |  | $              29.6

Of the total unrecognized tax benefits at December 31,
2007 of $29.6 million, $11.9 million represents the amount that, if recognized, would favorably affect the effective income tax rate in any future
periods.

64

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The Company's practice is to recognize interest and/or penalties related to unrecognized tax benefits in income tax
expense. At December 31, 2007 and 2006, the Company had $1.1 million and $0.6 million, respectively accrued for estimated interest. At both
December 31, 2007 and 2006, the Company had $0.1 million accrued for estimated penalties. In 2007, income tax expense included estimated
interest of $0.6 million. Included in the balance of unrecognized tax benefits at December 31, 2007 is $2.4 million related to tax positions and
estimated interest and penalties for which it is reasonably possible that the statute of limitations will expire in various foreign jurisdictions within
the next twelve months.

The Company and its subsidiaries are subject to United States federal income tax as well as to income taxes in
Germany and various other foreign and state jurisdictions. The Company's Federal and state income tax returns are generally not subject to
examination by tax authorities for years before 2002. The Company's German income tax returns are currently under examination for the tax
years 2001 to 2004. The final outcome of this examination is not yet known. Management does not anticipate any adjustments, however, which
would result in material changes to the Company's financial position, results of operations, or cash flows.

18.	Net Income Per Share

Net income per share is calculated in accordance with SFAS No. 128, Earnings Per Share, which
requires dual presentation of basic and diluted net income per share on the face of the income statement. Basic earnings per share is computed
by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is
computed using the weighted-average number of shares of common stock outstanding plus the effect of all dilutive securities representing
potential shares of common stock outstanding during the period. For purposes of computing diluted net income per share, weighted average
common stock equivalents do not include stock options with an exercise price that exceeded the average market price of the Company's
common stock for the period.

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

|                                                   |  | Year Ended December 31,
|-------------------------------------------------- |  | -----------------------
|                                                   |  | 2007                   
|                                                   |  | (thousands)            
|                                                   |  |                        
|Weighted average common shares outstanding - basic |  | 51,771                 
|Diluted potential common shares from stock options |  |                        
|and restricted stock units                         |  | 945                    
|Escrow shares related to Vortek acquisition        |  | -                      
|Weighted average common shares - diluted           |  | 52,716                 

Total stock options outstanding at December 31, 2007, 2006 and 2005 of 3.8 million, 2.9 million and
3.2 million, respectively, were excluded from the computations, as their inclusion would have been antidilutive.

19.	Related Party Transactions

In Japan, through May 2007, the Company contracted outsource installation and repair services and sells
spare parts through an unrelated party, Mattson Service Company (MSC). A director of the Company, Shigeru Nakayama, holds a minority
interest in MSC. In 2007, 2006 and 2005, the value of spare parts and services transactions between the Company and MSC were $0.5 million,
$4.2 million and $2.9 million, respectively. The Company's management believes that the payments of commissions to MSC related to the sales
of spare parts to customers in Japan and the purchases of contract installation and repair services from MSC were on terms that represent the
market value of these transactions.

65

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Mattson Technology, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Mattson
Technology, Inc. and its subsidiaries at December 31,
2007 and 2006 and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly,
in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007 based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial
statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management's Report on Internal Control over Financial Reporting under Item 9(a).  Our responsibility is to
express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial
reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, in fiscal 2007, the Company
changed the manner in which it accounts for uncertainty in income taxes and the manner in which it accounts for sabbatical leave and other
similar benefits. As discussed in Note 12 to the consolidated financial statements, in fiscal 2006, the Company changed the manner in which it
accounts for share-based compensation.

A company's internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP 
San Jose, California 
February 22, 2008

66

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Supplementary Financial Information

Selected Quarterly Consolidated Financial Data (Unaudited)

The following tables set forth our unaudited condensed consolidated income (loss) statement data for each of the eight
quarterly periods ended December 31, 2007. We have prepared this unaudited information on a basis consistent with our audited
consolidated financial statements, reflecting all normal recurring adjustments that we consider necessary for a fair presentation of our financial
position and operating results for the fiscal quarters presented. Basic and diluted earnings per share are computed independently for each of
the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings
per share.

|                                               |  | Three Months Ended                   
|---------------------------------------------- |  | -------------------------------------
|                                               |  | April 1,                             
|                                               |  | 2007                                 
|                                               |  | (thousands, except per share amounts)
|                                               |  |                                      
|Net sales                                      |  | $        69,941                      
|Gross profit                                   |  | $        31,228                      
|Income from operations                         |  | $          6,011                     
|Net income                                     |  | $          7,651                     
|Net income per share:                          |  |                                      
|Basic                                          |  | $            0.15                    
|Diluted                                        |  | $            0.14                    
|                                               |  |                                      
|Shares used in computing net income per share:
|Basic                                          |  | 52,562                               
|Add: dilutive effect from stock options        |  |                                      
|and restricted stock units                     |  | 978                                  
|Diluted                                        |  | 53,540                               
|                                               |  |                                      
|                                               |  | Three Months Ended                   
|                                               |  | April 2,                             
|                                               |  | 2006                                 
|                                               |  | (thousands, except per share amounts)
|                                               |  |                                      
|Net sales                                      |  | $        58,413                      
|Gross profit                                   |  | $        24,382                      
|Income from operations                         |  | $          2,507                     
|Net income                                     |  | $          3,693                     
|Net income per share:                          |  |                                      
|Basic                                          |  | $            0.07                    
|Diluted                                        |  | $            0.07                    
|                                               |  |                                      
|Shares used in computing net income per share:
|Basic                                          |  | 52,171                               
|Add: dilutive effect from stock options        |  |                                      
|and restricted stock units                     |  | 1,538                                
|Diluted                                        |  | 53,709                               

Operating expenses for the first quarter of 2007 were
reduced by $1.6 million due to the release of amounts previously accrued as we completed all remaining obligations under a foreign
government-funded capital development project. The second quarter of 2007 included $3.8 million in income tax expense related to a ruling on
the applicability of tax law in one of our foreign locations. Additionally, in the third quarter of 2007, we recorded a

67

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benefit of $0.3 million for
Federal taxes and $1.2 million for foreign taxes based on a change in management's estimate of future tax benefits. Net income for the fourth
quarter of 2006 included a loss of  $2.6 million related to a writedown of intangible assets initially recorded in the acquisition of Vortek, and a
reduction of $1.5 million of tax benefits related to the utilization of acquired deferred tax assets, consisting largely of net operating loss
carryforwards, which were used to reduce goodwill rather than benefit income taxes in accordance with the requirements of SFAS No. 109. The
reduction of tax benefits in the fourth quarter of 2006 included approximately $0.7 million, which related to the first three quarters of 2006. The
Company's management has determined that the impact of recording this reduction in the fourth quarter of 2006 was not material to each
quarterly period of 2006. Net income for the third quarter of 2006 included a nonrecurring gain of $0.6 million related to the sale of our Wet
business in 2003.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted
an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended, as of December 31, 2007. Our disclosure controls and procedures are intended to ensure
that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is
(i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's
rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as the principal executive and financial officers, respectively, to allow timely decisions regarding required disclosures.  Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective
as of the end of the period covered by this report.

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

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting; as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.  A company's internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of
December 31, 2007. In making this assessment, management used the criteria set forth in the framework established by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) entitled Internal Control-Integrated Framework. Based on our
evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2007.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2007 has been
audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report, which appears in Item 8 of
this report.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also
conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the fourth quarter of
2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that
evaluation, our management concluded that there was no such change during the fourth quarter.

Item 9B.  Other Information

None.

PART III

Item 10.  Directors and Executive Officers of the Registrant

For information with respect to our executive officers, see Part I of this Annual Report on
Form 10-K, under the caption "Executive Officers of the Registrant." The other information required by this item will be set
forth in our 2008 Proxy Statement under the captions "Election of Directors," "Report of the Audit Committee" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference.

We have adopted a Code of Ethics and Business Conduct for all officers, directors and employees. We have posted
the Code of Ethics and Business Conduct on our website located at www.mattson.com. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, this Code of Ethics by posting such information on our
website.

Item 11.  Executive Compensation

The information required by this item will be set forth in our 2008 Proxy Statement under the captions
"Executive Compensation" and "Report of the Compensation Committee on Executive Compensation" and is
incorporated herein by reference

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Information related to the security ownership of certain beneficial owners and management will be set forth
in our 2008 Proxy Statement under the caption "Security Ownership of Management and Principal Stockholders," and is
incorporated herein by reference. For information with respect to our securities authorized for issuance under our equity compensation plans,
see Item 5 of Part II of this Annual Report on Form 10-K, under "Equity Compensation Plan Information."

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Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth in our 2008 Proxy Statement under the caption
"Certain Relationships and Related Transactions, and Director Independence" and is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services

The information required by this item will be set forth in our 2008 Proxy Statement under the captions "Audit
and Related Fees" and "Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors" and is incorporated herein by reference.

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a)(1)  Financial Statements

The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements in
Item 8 on page 38.

(a)(2)  Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2007,
2006 and 2005, which is included on page 73 of this Form 10-K.

(a)(3)  Exhibits

|ExhibitNumber | Description                                                                                                                                                                                                                                                                                                                                | Notes   
|------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------
|3.1           | Amended and Restated Certificate of Incorporation of Mattson Technology, Inc.                                                                                                                                                                                                                                                              | (1)     
|3.2           | Third Amended and Restated Bylaws of Mattson Technology, Inc.                                                                                                                                                                                                                                                                              | (2)     
|4.1           | Form of Senior Indenture.                                                                                                                                                                                                                                                                                                                  | (3)     
|4.2           | Form of Senior Debt security (included in Exhibit 4.1).                                                                                                                                                                                                                                                                                    |         
|4.3           | Form of Subordinated Indenture.                                                                                                                                                                                                                                                                                                            | (3)     
|4.4           | Form of Subordinated Debt security (Included in Exhibit 4.3).                                                                                                                                                                                                                                                                              |         
|4.5           | Form of Rights Agreement between the Company and Mellon Investor Services, LLC as Rights Agent
(including as Exhibit A the form of Certificate of Designation, Preferences and Rights of the Terms of the Series A
Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of
Rights Agreement) | (4)     
|4.6           | Amendment No. 1 to Rights Agreement between the Company and Mellon Investor Services, LLC as Rights Agent                                                                                                                                                                                                                                  | (5)     
|10.1          | 2005 Equity Incentive Plan                                                                                                                                                                                                                                                                                                                 | (6)  (C)
|10.2          | Amendment #1 to 2005 Equity Incentive Plan                                                                                                                                                                                                                                                                                                 | (7)  (C)
|10.3          | Nonqualified Deferred Compensation Plan                                                                                                                                                                                                                                                                                                    | (8)  (C)

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|ExhibitNumber | Description                                                                                                                                                                               | Notes    
|------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|10.4          | 1989 Stock Option plan, as amended                                                                                                                                                        | (2)  (C) 
|10.5          | 1994 Employee Stock Purchase Plan                                                                                                                                                         | (9)  (C) 
|10.6          | Form of Indemnity Agreement                                                                                                                                                               | (10)  (C)
|10.7          | Executive Change of Control agreement between Mattson Technology, Inc. and David Dutton, dated as of
March 4, 2002.                                                                       | (2)  (C) 
|10.8          | Form of Executive Change of Control agreement Between Mattson Technology, Inc. and its Executive Vice
Presidents and Product Division Presidents.                                         | (2)  (C) 
|10.9          | Separation Agreement Between Robert MacKnight and Mattson Technology, Inc.                                                                                                                | (11)  (C)
|10.10         | Industrial Space Lease, dated August 1, 2005, between the Company and Renco Equities IV, a California
partnership.                                                                        | (12)     
|10.11         | Sublease agreement dated February 27, 2003, by and between Lam Research Corporation, a Delaware
Corporation, and Mattson Technology, Inc., a Delaware Corporation, for lease of building. | (13)     
|10.12         | Lease agreement dated September 2, 2001, by and between RENCO EQUITIES IV, a California
partnership, and Lam Research Corporation, a Delaware Corporation, for lease of building.         | (13)     
|21.1          | Subsidiaries of Registrant.
    PDF provided as courtesy                                                                                                                                  |          
|23.1          | Consent of Independent Registered Accounting Firm.
    PDF provided as courtesy                                                                                                           |          
|31.1          | Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF provided as courtesy                                                                      |          
|31.2          | Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
    PDF provided as courtesy                                                                      |          
|32.1          | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
    PDF provided as courtesy                                                                                 |          
|32.2          | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
    PDF provided as courtesy                                                                                 |          

_______________________

Notes:
   (C)	Management contract or compensatory plan or arrangement.
   (1)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. current report on Form 8-K/A
filed on January 30, 2001.
   (2)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. quarterly report on Form 10-Q
filed on August 14, 2002.
   (3)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. Registration Statement on
Form S-3 (File No. 333-111527) filed on December 23, 2003.
   (4)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. current report on Form 8-A12G
filed on August 22, 2005.
   (5)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. annual report on Form 10-K filed on March 2, 2007.
   (6)	Incorporated by reference to Appendix A to Mattson Technology, Inc. Proxy Statement filed on April 20, 2005. 
   (7)	Incorporated by reference to Appendix 1 to Mattson Technology, Inc. proxy statement filed on April 26,
2007.
   (8)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. current report on
Form S-8 filed on December 16, 2005.
   (9)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. quarterly report on
Form 10-Q filed on August 6, 2004.
   (10)	Incorporated by reference to Appendix B to the Mattson Technology, Inc. proxy statement filed on
June 20, 1997.

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(11)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. current report on
Form 8-K filed on November 14, 2007.
   (12)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. quarterly report on
Form 10-Q filed on November 4, 2005.
   (13)	Incorporated by reference to corresponding exhibit to Mattson Technology, Inc. quarterly report on
Form 10-Q filed on May 14, 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Mattson Technology, Inc.
(Registrant)



|February 25, 2008 | By: | /s/ David Dutton
                  David DuttonChief Executive Officer and Director
                      (Principal Executive Officer)                                                            
|----------------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|February 25, 2008 | By: | /s/ William Turner
                  William TurnerChief Financial Officer
                  and Executive Vice President - Finance
                   (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.



|                                                          | Signature                          |                   |  | Title |  |  | Date | 
|--------------------------------------------------------- | ---------------------------------- | ----------------- |  | ----- |  |  | ---- | 
|/s/ Jochen Melchior
                  Dr. Jochen Melchior | Chairman of the Board and Director | February 25, 2008
|/s/ Hans-Georg Betz
                  Hans-Georg Betz     | Director                           | February 25, 2008
|/s/ John Bolger
                  John Bolger             | Director                           | February 25, 2008
|/s/ Kenneth Kannappan
                  Kenneth Kannappan | Director                           | February 25, 2008
|/s/ Shigeru Nakayama
                  Shigeru Nakayama   | Director                           | February 25, 2008
|/s/ Kenneth Smith
                  Kenneth Smith         | Director                           | February 25, 2008

72

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SCHEDULE II
                                           VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts


Balance at

ChargedBeginning

(Credited)

Deductions

Balance atFisal Year

of Year

to Income

and Other

End of Year(thousands)2007

$           3,222

$         (1,034)

$            (725)

$           1,4632006

$           3,591

$              552

$            (921)

$           3,2222005

$           6,392

$            (946)

$         (1,855)

$           3,591Schedules other than those listed above have been omitted since they are either not required, not applicable, or
because the information required is included in the consolidated financial statements or the notes thereto.


73