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

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

                                    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, 2003

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

                         Commission file number 0-21970

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

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

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


                               47131 Bayside Drive
                            Fremont, California 94538
              (Address and zip code of principal executive offices)

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

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

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, $0.001 Par Value per Share.


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 10K or any amendment to this
Form 10-K. [X]

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

The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of June 29, 2003 was $103,286,547, based on
the closing price for the registrant's common stock reported by the NASDAQ
National Market System. Shares of voting stock held by each director and
executive officer and by STEAG Electronics Systems AG have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

Number of shares outstanding of registrant's Common Stock as of March 1, 2004:
49,770,029.
<PAGE>

Documents incorporated by reference:

Portions of the Proxy Statement for registrant's 2004 Annual Meeting of
Stockholders, which will be filed on or before April 29, 2004, are incorporated
herein by reference into Part III.

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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 management's current expectations. Such
risks and uncertainties include those set forth herein under "Risk Factors That
May Affect Future Results and Market Price of Stock" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". 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 ("SEC").

                                     PART I

ITEM 1. BUSINESS

We are a leading supplier of semiconductor wafer processing equipment used in
the fabrication of integrated circuits (ICs). According to Gartner Dataquest, an
independent research firm, we were the second largest supplier of both dry strip
equipment and RTP equipment for the semiconductor industry in 2002. 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-130 nm design rules and the use of new
materials, such as copper and low capacitance (low-k) dielectrics.

Our customers consist of foundries, and logic and memory device manufacturers
throughout the world, and have included Elpida Memory, GSMC, He Jian, Hynix, IBM
Microelectronics, Infineon Technologies, Inotera, Motorola, Nan Ya, Powerchip,
ProMOS Technologies, Samsung Electronics, SMIC, Sony Corporation, Texas
Instruments, Toshiba, TSMC and UMC Group. We have a global sales and support
organization, focused on developing strong, long-term customer relationships. We
have design and manufacturing centers in the United States and Europe. Our sales
and support presence in Asia includes offices in Japan, Korea, Singapore, Taiwan
and China, which represent the largest share of the world's capacity for
semiconductor manufacturing. We opened our office in Shanghai in 2002 to give
closer support to customers in the growing China market, where our core products
are now installed at several leading foundries. In 2003, we achieved the
International Organization for Standardization (ISO) 9001:2000 global
certification for our manufacturing sites and sales and service operations.

During 2002 and early 2003, we focused our business on our core technologies in
dry strip and RTP. We took restructuring actions to align the company with this
narrower focus and divested our wet products division. As a result, we
significantly streamlined our operations and are able to concentrate our
resources on the development and sale of our RTP and strip products.

Mattson Technology was incorporated in California in 1988, reincorporated in
Delaware in 1997, and is headquartered in Fremont, California. Our principal
executive offices are 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 web
site is not incorporated herein by reference.


                                       2
<PAGE>

Industry Background

The 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 formed. To build an IC,
transistors are first created on the surface of the silicon wafer, known as
front-end-of-line fabrication, and then the transistors are microscopically
wired together by means of the interconnect metal layers, known as the back-
end-of-line 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 hundreds of ICs on a single wafer.

Semiconductor manufacturers face continuing competitive pressures to manufacture
increasingly complex ICs, improve their yields per wafer and reduce their
manufacturing costs. Advances in semiconductor manufacturing processes focus on
methods to enable smaller and smaller transistor sizes and circuit designs. Each
new generation of manufacturing process is characterized by the distance between
pattern lines in the design of the circuit, measured in nanometers (billionths
of a meter). Current generation production processes are commonly based on 130
nm, and leading semiconductor manufacturers have pilot process lines based on 90
nm. The trend toward increasing device complexity and shrinking geometries
requires new interconnect materials, such as copper conducting materials and
low-k dielectric films. At the same time, the semiconductor industry is in a
transition from 200 mm diameter wafers to 300 mm wafers. These developments
increase manufacturing complexity and create the need for manufacturing
equipment with ever more precise process control capability.


The Mattson Strategy

We are committed to executing the following strategies, and investing in our
technology, customer support infrastructure and operational effectiveness in
order to allow us to increase our market share while building long-term customer
loyalty.

Our strategy for success focuses on three key areas:

   LEVERAGE INNOVATIVE TECHNOLOGIES TO EXTEND PRODUCT LEADERSHIP

We plan to maintain our focus on market and technology leadership in strip and
RTP and on the delivery of innovative products with superior technology and
productivity to bring total cost of ownership advantages to our customers. We
are continuously investing in three generations of wafer process
technology--improving current generation production tools, qualifying and
refining next generation equipment, and developing tools for future generation
processes, to deliver better results on the wafer surface. We will continue to
collaborate with customers, academia and industry consortia to develop product
innovations with process control advantages that allow IC manufacturers to
achieve higher productivity at lower cost.

   COLLABORATE CLOSELY WITH CUSTOMERS TO STRENGTHEN CUSTOMER LOYALTY

We strive to attain preferred vendor status and build loyalty with our customers
by helping to make them more productive while reducing their capital
expenditures. Our global sales and support organization focuses on solving
specific manufacturing challenges faced by customers, aligning our product
development plans with our customers' future technical and production
requirements, and expanding our presence in regional growth markets, such as
China.

   IMPROVE OPERATIONAL FLEXIBILITY AND EFFECTIVENESS

We continue to streamline our internal operations and adjust our manufacturing
resources to create a flexible organization that can operate profitably through
changing industry cycles. Our strategy is to outsource selected non-critical
functions in manufacturing, spare parts logistics and subsystem design to third
parties specializing in these areas. This allows us to concentrate our resources
on our core technologies in strip and RTP, reduce our cost structure and achieve
greater flexibility to expand and contract manufacturing capacity as market
conditions require.


Markets, Applications and Products

  Dry Strip Market

A strip system removes photoresist 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
chemistries and dry technologies. The more advanced dry stripping systems, such
as our Aspen Strip, create gaseous chemistries, or plasmas, to which the wafer
is exposed to remove mask films and residues.


                                       3
<PAGE>

As the complexity and number of thin-film layers required for each wafer has
increased, the demand for advanced strip equipment has grown. Complex ICs
require multiple stripping steps, which 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 130 nm and below, 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 200 and 300 mm strip products are built on our high-productivity Aspen
platform and feature our patented inductively coupled plasma (ICP) technology.
The Aspen platform offers semiconductor manufacturers advantages in process
uniformity, productivity and throughput by enabling multiple strip steps in a
single chamber. We have a large installed base of dry strip systems, and a
majority of our sales of dry strip systems in 2003 were of our 300 mm systems.
Our Aspen ICP Strip system is used in advanced process applications for
high-dose implant strip, photoresist, residue removal and surface cleaning,
including low-k and oxygen and non-oxygen-based processes.

Our Aspen III Highlands, an advanced 300 mm strip resist system targeted for new
low-k/copper barrier layer removal applications, is currently in use in high
volume 130 nm production applications by IC manufacturers that are transitioning
to copper, has been qualified for production in 90 nm applications and is in
development use in 65 nm applications. We are collaborating with customers to
expand the Highlands' processing capabilities.


Rapid Thermal Processing

In rapid thermal processing, semiconductor wafers are rapidly heated to process
temperatures of up to 1200(degree)C, held for a few seconds and rapidly cooled.
Thermal processing can alter and lock in material properties at the wafer
surface. This is called annealing and is critical to achieve the exact
electrical parameters necessary for the IC to operate. Historically, diffusion
furnaces have been used to heat-treat large batches of wafers. As device
features have become smaller, temperature uniformity and exposure control have
become more critical.

Single-wafer RTP inherently enables more precise thermal control, uniformity
across the diameter of the wafer, and repeatability of results from wafer to
wafer.

Our RTP products feature dual-sided, lamp-based heating technology that provides
enhanced control, process uniformity and repeatability for both 200 and 300 mm
wafer production. Our product line includes the 2800 and the 2900 for 200 mm
applications, and the 3000 series for 300 mm fabrication and advanced
applications. The 3000 series tools offer unique transistor annealing and
oxidation process capabilities, in conjunction with more standard RTP
capabilities, to provide IC manufacturers the thermal processing performance
needed for their stringent manufacturing requirements.

In 2002, we introduced the 3000 Plus, which features enhanced temperature
measurement and control capabilities for advanced processes. These enhancements
provide our customers with manufacturing capability for their next-generation
device designs at and below 90 nm geometries. In 2003, in addition to sales to
major foundries, memory device and logic manufacturers, our 3000 Plus product
was selected for advanced transistor process development by International
SEMATECH, a global consortium of semiconductor manufacturers engaged in efforts
to improve manufacturing technology.

We began shipping production units of our latest generation RTP tool in late
2003. Customers have qualified this tool for 90 nm processes, and we are working
with our customers to demonstrate the capabilities of this RTP tool on processes
for advanced 65 nm technology applications.

Plasma Enhanced Chemical Vapor Deposition

Chemical vapor deposition (CVD) processes are used to deposit insulating and
conducting films on wafers. These films are the basic materials used to form the
resistors, capacitors, and transistors of an integrated circuit. These materials
are also used to form the wiring and insulation between these electrical
components.

As feature sizes continue to decrease, CVD processing equipment must meet
increasingly stringent requirements. Particles or defect densities must be
minimized and controlled to achieve the desired yields. Film properties, such as
stress, must also be improved and more tightly controlled. Compatibility with
metallization steps, such as aluminum and copper deposition, is critical.
Finally, as process complexity increases with the use of low-k and dual
damascene processing solutions, the number of plasma-enhanced (PE) CVD steps
increases significantly, and system productivity becomes increasingly important.


                                       4
<PAGE>

We are focused on PECVD applications at the front-end of the fabrication line,
and our products are based on our leading Aspen platform and robotic technology
that provide performance and productivity advantages to our customers. We offer
a PECVD process to deposit insulating films. PECVD allows the system to process
wafers at a relatively low temperature, reducing the risk of device parameter
drift during processing at the front-end-of-line and of damage to metalization
layers during processing at the back-end-of-line. Our Aspen III PECVD product
has been production-certified at leading fabrication sites for both 200 mm and
300 mm applications. In the last two years, we narrowed our CVD efforts to a
limited number of strategic customers for our CVD product line as part of the
company's strategic decision to focus on core businesses in RTP and strip.

Isotropic Etch Market

The etching process selectively removes patterned material from the surface of a
wafer to create the device structures. With the development of sub-micron
integrated circuit feature sizes, dry, or plasma, etching has become one of the
most frequently used processes in semiconductor manufacturing. An isotropic, or
multi-directional, etch system performs a variety of etch processes on
semiconductor wafers that can be used in several steps in a typical
130 nanometer chip fabrication.

Our Aspen II and III LiteEtch systems, developed as extensions of our strip
expertise, use our patented ICP source technology for isotropic etching
applications on 200 and 300 mm wafers. In 2003, our LiteEtch systems continued
to be used by major chipmakers in specialized processes for fabricating
130 nanometer and below memory devices.

Customer Support

One of our primary goals is to strengthen our customer partnerships, and our
customer support organization is critical to maintaining these long-term
relationships. Our customer support organization is headquartered in Fremont,
California, with additional offices located domestically throughout the U.S. and
internationally in France, Germany, Italy, Japan, Korea, Singapore, Taiwan and
mainland China. Our global support infrastructure is composed of an extensive
network of experienced field service teams with diverse technical backgrounds
and process, mechanical and electronics training. After-sales support is an
essential part of our customer satisfaction program, and our international
customer support teams provide the following services: system installation,
on-site repair, telephone support, relocation services and selected post-sales
process development applications.

We offer competitive, comprehensive warranties on all our products. We maintain
spare parts depots in most regions and provide regional field and process
support. 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 continuously improving our customer support. Over the last
two years, we have enhanced our customer service and support programs. We are
actively engaged in new customer joint development programs at major customer
sites to collaborate on product and process development and increase the level
of customer support.

We work closely with SEMI to ensure that our programs comply to its major
support directives, and our Customer Satisfaction Assurance Program (CSAP) has
shown that we have made significant improvements in increasing customer
satisfaction, as evidenced by recent successful customer audits and customer
satisfaction survey ratings.

In 2003, our ongoing commitment to customer satisfaction and to delivering
excellence in all areas of operation earned us the International Organization
for Standardization (ISO) 9001:2000 global certification for all manufacturing
sites and sales and service operations.


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. 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 regional sales offices located
throughout the United States, and maintain sales support offices in China,
France, Germany, Italy, Japan, Korea, Singapore and Taiwan.

In 2003, we maintained our wholly owned direct sales and support organization in
Shanghai, which was established in 2002 to support our growing customer base in
China.


                                       5
<PAGE>

In 2003, we also maintained our distribution relationship with PTS SARL, which
supports our direct sales and support organization, Mattson International France
SARL, and has expanded our sales representation in France. Similarly, we have
established distribution relationships with CSD Ltd. in the UK and MICL Ltd. in
Israel.

In addition to maintaining our wholly owned subsidiary in Japan, we have a
continuing relationships with Canon Sales Company for the distribution of our
RTP systems in Japan, and with NOAH Corporation for regional sales activities of
our plasma strip products in Japan.

International sales accounted for 87% of total net sales in 2003, 74% in 2002
and 78% in 2001. We anticipate that international sales will continue to account
for a significant portion of our net sales. International sales are subject to
certain risks, including unexpected changes in regulatory requirements, exchange
rates, tariffs and other barriers, political and economic instability,
difficulties in accounts receivable collections, extended payment terms,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations and potentially adverse tax
consequences. Because of our dependence upon international sales in general, and
on sales to Japan, China and Pacific Rim countries in particular, we are
particularly at risk to effects from developments such as any Asian economic
problem. Our foreign sales are also 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 "Risk Factors That May Affect Future Results and Market
Price of Stock--We Are Highly Dependant on Our International Sales, and Face
Significant Economic and Regulatory Risks Because a Majority of Our Net Sales
Are From Outside the United States."


Customers

Customers for our products include many of the world's top 20 semiconductor
manufactures and foundries. A representative list of our major customers
includes:

   * Chartered Semiconductor  * Inotera Memories        * Sony Corporation
   * Elpida Memory            * Motorola                * Texas Instruments
   * GSMC                     * Nan Ya Technology       * Toshiba Corporation
   * He Jian Techonology      * Powerchip Semiconductor * Tower Semiconductor
   * Hynix Semiconductor      * ProMOS Technologies     * Trecenti
   * Infineon Technologies    * Samsung Electronics     * TSMC
   * IBM Microelectronics     * SMIC                    * UMC Group

In 2003, two customers, Samsung Electronics and ProMOS Technologies each
accounted for more than 10% of our revenue, accounting for approximately 19% and
11%, respectively. Inotera, TSMC and Samsung accounted for approximately 21%,
20% and 11%, respectively, of our total bookings. Although the composition of
the group comprising our largest customers has varied from year to year, our top
ten customers accounted for 50% of our net sales in 2003, 60% in 2002, and 58%
in 2001. For a discussion of risks associated with changes in our customer base,
see "Risk Factors That May Affect Future Results and Market Price of Our Stock
-- We Are Dependant on Large Purchases From a Few Customers, and Any Loss,
Cancellation, Reduction or Delay in Purchases By, or Failure to Collect
Receivables From, These Customers Could Harm Our Business."


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 approximately $40.3 million as of December 31, 2003,
$68.2 million as of December 31, 2002 and $60.0 million as of December 31, 2001.
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 downturns, such as we continued to experience in 2003, we have
experienced cancellations and delays and push-out of orders that were previously
booked and included in backlog.

                                       6

<PAGE>

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 are the means to allow our customers to implement their
advanced process requirements. Only by continuously striving to develop new
intellectual property for process and hardware to support new processes can we
maintain and advance our competitive position in the market we serve.
Accordingly, we devote a significant portion of our resources to research,
development and engineering (RD&E) programs and seek to maintain close
relationships with our global customers in order to remain responsive to their
product and processing needs.

Our key RD&E activities during fiscal year 2003 involved the successful
development of a new generation of 300 mm RTP tools. These RTP tools feature a
novel, model-based temperature control system that extends our low-temperature
capability to enable advanced silicide formation and additionally provides
tighter peak width control for ultra-shallow junction anneal requirements. Our
new generation RTP tools extend Mattson's RTP capabilities down to the 65
nanometer node and will help to further improve our tool reliability and
productivity, and reduce our customers' cost of ownership. We also developed an
enhanced version of our ICP strip capability that significantly increases strip
rate, and that lowers customer cost of ownership. Other development efforts have
led to improved process uniformity for strip applications. We also made
significant progress in improving the performance of almost every process in our
process application suite for strip products.

Our R&D efforts have been aided by the expansion of our in-house computer
modeling and simulation capabilities. The use of modeling has significantly
reduced the time and cost for tool simulation and design.

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 both
improving existing system capabilities and developing new advanced RTP and strip
technologies for smaller feature sizes, low-k dielectric materials and 300 mm
applications.

We maintain applications development and engineering laboratories in Fremont,
California and Dornstadt, Germany to address new tool and process development
activities and customer-specific requirements. By basing products on existing
and accepted product lines in the RTP and strip markets, we believe that we can
focus our development activities on producing new products more quickly and at
relatively low cost.

The markets in which we compete are characterized by rapidly changing
technology, evolving industry standards and continuous improvements in products
and services. Because of continual changes in these markets, we believe that our
future success will depend upon our ability to continue to improve our existing
systems and processes and to develop systems and new technologies that parallel
and precede the technology roadmaps of our customers more effectively than our
competition. In addition, we must adapt our systems and processes to
technological changes and to support emerging industry standards for target
markets. We cannot be sure that we will complete our existing and future
development efforts within our anticipated schedule or that our new or enhanced
products will have the features to make them successful. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new or improved systems or process technologies. In
addition, these new and improved systems and process technologies may not meet
the requirements of the marketplace and achieve market acceptance.

Furthermore, despite testing by us, difficulties could be encountered with our
products after shipment, resulting in loss of revenue or delay in market
acceptance and sales, diversion of development resources, injury to our
reputation or increased service and warranty costs. The success of new system
introductions is dependent on a number of factors, including timely completion
of new system designs and market acceptance. If we are unable to improve our
existing systems and process technologies or to develop new technologies or
systems, we may lose sales and customers.

Our research, development and engineering expenses were $23.0 million for the
year ended December 31, 2003, $37.4 million for 2002 and $61.1 million for 2001,
representing 13.2% of net sales in 2003, 18.4% in 2002 and 26.6% in 2001. On
March 17, 2003 we divested the Wet business and thereafter research, development
and engineering expenses relate to our RTP and Strip products.

Competition

The global semiconductor fabrication 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 fabrication equipment into a semiconductor production
line. As a result, once a semiconductor manufacturer has selected a particular
supplier's products, the manufacturer often relies, for a significant period of
time, 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 unseat an existing relationship
that a potential customer has with a competitor in order to increase sales of
products to that customer.

                                       7


<PAGE>

Each of our product lines competes in markets defined by the particular wafer
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 market segments in which we compete. 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 Canon, Axcelis
Technologies, KEM, Novellus Systems and Shibaura Mechatronics. We believe that
we compete favorably on each of the competitive elements in this market and
estimate that we are one of the top two providers of dry strip products. The
principal competitor for our RTP systems is Applied Materials. The market in
which our Aspen LiteEtch products compete is a relatively small niche market
with no dominant competitors. Principal competitors for our Aspen LiteEtch
systems include Novellus, Lam Research, Shibaura Mechatronics and Tegal.
Principal competitors for our PECVD systems include Applied Materials, ASM
International and Novellus Systems.


Manufacturing

Our Mattson-owned manufacturing operations are based in the U.S. and Europe and
consist of procurement, assembly, test, quality assurance and manufacturing
engineering. Historically, we have utilized an outsourcing strategy for the
manufacture of components and major subassemblies. In 2003, we began to utilize
an outsourcing partner in Taiwan to manufacture complete systems. This
outsourcing strategy is a key element of our "cyclically flexible enterprise"
(CFE) business model. We have Mattson-owned manufacturing capability in Fremont,
California and Dornstadt, Germany. Our outsourcing partners have manufacturing
facilities in Taiwan, China and Singapore.

Some of our components are obtained from a sole supplier or a limited group of
suppliers. We generally acquire these components on a purchase order basis and
not under long-term supply contracts. Our reliance on outside vendors generally,
and a limited group of suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components.
Because the manufacture of certain of these components and subassemblies is an
extremely complex process and can require long lead times, we could experience
delays or shortages caused by suppliers. 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.

We are subject to a variety of federal, state and local laws, rules and
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used during our sales demonstrations and research and development.
Public attention has increasingly been focused on the environmental impact of
operations which use hazardous materials. Failure to comply with present or
future regulations could result in substantial liability to us, suspension or
cessation of our operations, restrictions on our ability to expand at our
present locations or requirements for the acquisition of significant equipment
or other significant expense. To date, compliance with environmental rules and
regulations has not had a material effect on our operations.


Intellectual Property

We rely on a combination of patent, copyright, trademark and trade secret laws,
non-disclosure agreements and other intellectual property 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. Where
appropriate, we intend to file additional patent applications on inventions
resulting from our ongoing research, development and manufacturing activities to
strengthen our intellectual property rights.


                                       8
<PAGE>

Although we attempt to protect our intellectual property rights through patents,
copyrights, trade secrets and other measures, we cannot be sure that we will be
able to protect our technology adequately, and our competitors could
independently develop similar technology, duplicate our products or design
around our patents. To the extent we wish to assert our patent rights, we cannot
be sure that any claims of our patents will be sufficiently broad to protect our
technology or that our pending patent applications will be approved. In
addition, there can be no assurance that any patents issued to us will not be
challenged, invalidated or circumvented, that any rights granted under these
patents will provide adequate protection to us, or that we will have sufficient
resources to protect and enforce our rights. 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.

As is customary in our industry, from time to time we receive or make inquiries
regarding possible infringement of patents or other intellectual property
rights. Although there are no pending claims against us regarding infringement
of any existing patents or other intellectual property rights or any unresolved
notices that we are infringing intellectual property 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
be able to sell our products. Royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all, which could seriously harm
our business. Our involvement in any patent dispute or other intellectual
property dispute or action to protect trade secrets and know-how could have a
material adverse effect on our business.

Employees

As of December 31, 2003, we had 600 employees. There were 121 employees in
manufacturing operations, 122 in research, development and engineering, 274 in
sales, marketing, field service and customer support, and 83 in general,
administrative and finance. The divestiture of the Wet Products Division on
March 17, 2003 resulted in a reduction of 404 employees. Additionally, during
2003, we implemented reductions in force of 104 employees, in response to the
continuing downturn in the semiconductor industry.

During 2003, we significantly reduced our operations and our workforce. However,
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 is 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 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.

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, http://www.mattson.com,
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with the Securities and
Exchange Commission. The information on our web site is not incorporated herein
by reference.

                                       9

<PAGE>

ITEM 2: PROPERTIES

Our principal properties as of December 31, 2003 are set forth below:

<TABLE>
<CAPTION>
                                                                      Square
Location        Type                  Principal Use                   Footage       Ownership
--------        ----                  -------------                   -------       ---------
<S>             <C>                   <C>                             <C>             <C>
Fremont, CA     Office, plant &       Headquarters, Marketing,
                Warehouse             Manufacturing, Distribution     167,000         Leased
                                      Research and Engineering

Exton, PA       Office, plant &       100% Subleased                  140,000(1)      Leased
                Warehouse

Germany         Office, plant &       Manufacturing, Research         245,000(2       Leased
                Warehouse             and Engineering
</TABLE>


(1)  The two properties at Exton, PA are not needed for our operations and are
     sub-leased to other parties.

(2)  Includes approximately 140,000 square feet sub-leased to SCP Global
     Technologies, as a result of the divestiture of the Wet Products Division
     to SCP on March 17, 2003.

In addition to the above properties, we lease an aggregate of approximately
33,000 square feet of office space for sales and customer support offices. In
total, we lease office space for headquarters, manufacturing, operations,
research and engineering, distribution, marketing, sales and customer support
offices in 19 locations throughout the world: 7 in the United States, 7 in
Europe and one in each of Taiwan, Korea, Singapore, Japan and China. We are
productively utilizing substantially all of the remaining facilities and
consider them suitable and adequate to meet our requirements.

We are in the process of consolidating all of our Fremont, CA operations and
facilities into one building, with approximately 101,000 square feet area. The
consolidation is expected to be complete by the fourth quarter of 2004. We are
productively utilizing substantially all of our facilities and consider them
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 that it is unlikely that any
current claims or actions will have a material adverse impact on our operating
results or our financial position, given the uncertainty of litigation, we can
not be certain of this. Moreover, the defense of claims or actions against us,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources.

Following our acquisition of CFM Technologies, Inc. on January 1, 2001, we had
been litigating three ongoing cases involving wet surface preparation
intellectual property, all of which were brought in the United States District
Court for the District of Delaware by our subsidiary Mattson Wet Products, Inc.
(formerly CFM Technologies, Inc.) and our former subsidiary Mattson Technology
IP, Inc. (formerly CFMT, Inc.). On March 17, 2003, we divested our wet surface
preparation business. As part of that transaction, we sold the stock of Mattson
Technologies IP, Inc., which is the owner of the patents at issue in the three
cases, and we sold the operating assets of Mattson Wet Products, Inc., including
its right to damages in the pending lawsuits, to SCP Global Technologies, Inc.
As a result, we no longer control Mattson Technology IP, Inc. and its actions in
the pending litigations, although our subsidiary Mattson Wet Products, Inc.
remains as a nominal co-plaintiff in those actions. None of the pending legal
proceedings are material to us.

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



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

                                       10
<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT


The following table and notes sets forth information about our three executive
officers:

--------------------------------------------------------------------------------
   Name                      Age   Title
   ----                      ---   -----
   David L. Dutton           43    Chief Executive Officer, President, Director

   Robert MacKnight          54    Chief Operating Officer

   Ludger H. Viefhues        61    Chief Financial Officer, Executive
                                     Vice President, Finance and Secretary

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


David L. Dutton - Chief Executive Officer

David Dutton has served as Mattson's Chief Executive Officer and President since
October 2001 and was elected to this position in December 2001. Prior to being
elected Chief Executive Officer and President, Mr. Dutton served as the
President of the Plasma Products Division. Mr. Dutton joined Mattson in 1994 as
General Manager in the Strip/Plasma Etch division, then from 1998 to 2000, Mr.
Dutton served as Executive Vice President and Chief Operating Officer of
Mattson. From 1993 to 1994, Mr. Dutton was Engineering Manager for Thin Films
Processing at Maxim Integrated Products, Inc. From 1984 to 1993, Mr. Dutton
served as an engineer and then manager in plasma etch processing and yield
enhancement at Intel Corp.


Robert MacKnight - Chief Operating Officer

Robert MacKnight has served as Mattson's Chief Operating Officer since December
2002. Prior to that Mr. MacKnight served 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. From 1998 to 2001, Mr.
MacKnight served at Microbar, Inc., a manufacturer of chemical systems for the
semiconductor industry where he was most recently 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.


Ludger H. Viefhues - Chief Financial Officer

Ludger Viefhues joined Mattson as the Chief Financial Officer in December 2000
and also serves as Executive Vice President, Finance and Secretary. From 1999 to
2000, Mr. Viefhues was Chief Financial Officer of STEAG RTP Systems GmbH. From
1996 to 1999, Mr. Viefhues was Chief Executive Officer at MEMC Electronic
Materials, Inc., a supplier of silicon wafers. Prior to being appointed Chief
Executive Officer at MEMC, Mr. Viefhues served as MEMC's Chief Financial
Officer. From 1993 to 1996, Mr. Viefhues held the post of Chief Financial
Officer at Huels AG (Germany).



                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

Stock Listing

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

                                                        HIGH      LOW
                                                       ------    ------
       2003 Quarter
         First.......................................  $ 3.01    $ 1.53
         Second......................................    3.95      1.77
         Third.......................................    9.95      2.95
         Fourth......................................   16.59      8.72

       2002 Quarter
         First.......................................  $ 9.90    $ 5.41
         Second......................................   10.07      4.00
         Third.......................................    4.95      1.57
         Fourth......................................    4.05      1.16


On March 1, 2004, the last reported sales price of our common stock on the
Nasdaq National Market was $12.00 per share. We had approximately 222
shareholders of record on that date.


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.

Public Offering

On February 17, 2004, we sold approximately 4.3 million newly issued shares of
common stock in an underwritten public offering priced at $11.50 per share. This
resulted in net proceeds to us of approximately $46.3 million. See Note 18 to
the consolidated financial statements under Item 8 of this Form 10-K.


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 statement of operations data for the years ended December 31, 2003,
2002 and 2001 and the selected consolidated balance sheet data as of December
31, 2003 and 2002 from our audited consolidated financial statements appearing
elsewhere in this report. We derived the selected consolidated statement of
operations data for the years ended December 31, 2000 and 1999 and the selected
consolidated balance sheet data as of December 31, 2001, 2000 and 1999 from our
audited consolidated financial statements, which are not included in this
report. Effective January 1, 2000, we changed our method of accounting for
revenue to implement the revenue recognition provisions of SEC Staff Accounting
Bulletin No. 101 (SAB 101). This change in accounting method effects the
comparability of our financial data for 2000, 2001, 2002 and 2003 to our
reported results for previous years. Unaudited pro forma information is provided
below to show the effect this accounting method change would have had in year
prior to 2000.

On January 1, 2001, we completed the acquisitions of the STEAG Semiconductor
Division and CFM. The acquisitions had been accounted for under the purchase
method of accounting, and the results of operations of the acquired companies
are included in our selected financial data for 2001 and thereafter. On March
17, 2003, we divested our wet surface preparation products business. During 2001
and 2002, we incurred charges relating to impairment of long-lived assets,
inventory valuation charges and restructuring costs. These acquisitions and
charges affect the comparability of our financial data for 2003, 2002 and 2001
to our reported results for previous years, and the divestiture affects the
comparability of our financial data for 2003 to our reported results for 2002
and 2001. These transactions are further discussed in Management's Discussion
and Analysis of Financial Conditions and Results of Operations, and in Notes 1,
3, 4, and 6 to our Consolidated Financial Statements.


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                      ------------------------------------------------------------------
                                                        2003           2002           2001          2000          1999
                                                      --------       ---------      --------      ---------     --------
                                                                      (in thousands, except per share data)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S>                                                   <C>             <C>           <C>           <C>           <C>
Net sales                                             $  174,302     $203,520      $ 230,149      $180,630      $103,458
Cost of sales                                            112,783      163,063        224,768        93,123        53,472
                                                       ---------     --------      ---------      --------      --------
Gross profit                                              61,519       40,457          5,381        87,507        49,986
                                                       ---------     --------      ---------      --------      --------
Operating expenses:
  Research, development and engineering                   22,988       37,395         61,114        28,540        19,547
  Selling, general and administrative                     54,292       86,218        110,785        54,508        31,784
  Acquired in-process research and development                 -            -         10,100             -             -
  Amortization of goodwill and intangibles                 2,151        6,591         33,457             -             -
  Restructuring and other charges                            489       17,307              -             -             -
  Impairment of long-lived assets and other charges            -            -        150,666             -             -
                                                       ---------     --------      ---------      --------      --------
    Total operating expenses                              79,920      147,511        366,122        83,048        51,331
                                                       ---------     --------      ---------      --------      --------
Income (loss) from operations                            (18,401)    (107,054)      (360,122)        4,459        (1,345)
Loss on disposition of Wet Business                      (10,257)           -              -             -             -
Interest and other income, net                               653       12,636          5,016         6,228           743
                                                       ---------     --------      ---------      --------      --------
Income (loss) before provision (benefit)
  for income taxes and cumulative effect
  of change in accounting principle                      (28,005)     (94,418)      (355,725)       10,687          (602)

Provision (benefit) for income taxes                         350         (147)       (18,990)        1,068           247
                                                       ---------     --------      ---------      --------      --------
Income (loss) before cumulative effect
  of change in accounting principle                      (28,355)     (94,271)      (336,735)        9,619          (849)
Cumulative effect of change in accounting
  principle, net of tax benefit                                -            -              -        (8,080)            -
                                                      ----------     ---------     ----------     ---------      --------
Net income (loss)                                     $  (28,355)    $ (94,271)    $ (336,735)    $   1,539      $   (849)
                                                      ==========     =========     ==========     =========      ========


Income (loss) per share, before cumulative
  effect of change in accounting principle:
     Basic                                               $ (0.63)      $ (2.23)       $ (9.14)      $  0.50       $ (0.05)
     Diluted                                             $ (0.63)      $ (2.23)       $ (9.14)      $  0.45       $ (0.05)

Cumulative effect of change in accounting principle
     Basic                                               $     -       $     -        $     -       $ (0.42)      $     -
     Diluted                                             $     -       $     -        $     -       $ (0.38)      $     -

Net income (loss) per share:
     Basic                                                $ (0.63)     $ (2.23)       $ (9.14)      $  0.08       $ (0.05)
     Diluted                                              $ (0.63)     $ (2.23)       $ (9.14)      $  0.07       $ (0.05)

Shares used in computing net income
  (loss) per share:
     Basic                                                 44,997       42,239         36,854        19,300        15,730
     Diluted                                               44,997       42,239         36,854        21,116        15,730

Pro forma amounts with the change in accounting
principle related to revenue recognition applied
retroactively (unaudited):
     Net sales                                                N/A          N/A            N/A           N/A      $102,781
     Net income (loss)                                        N/A          N/A            N/A           N/A        (3,036)
     Net income (loss) per share:
        Basic                                                 N/A          N/A            N/A           N/A       $ (0.19)
        Diluted                                               N/A          N/A            N/A           N/A       $ (0.19)

<CAPTION>
                                                                               As of December 31,
                                                      ------------------------------------------------------------------
                                                        2003           2002           2001          2000          1999
                                                      --------       ---------      --------      --------      --------
                                                                                 (in thousands)
CONSOLIDATED BALANCE SHEET DATA:
<S>                                                   <C>             <C>           <C>           <C>           <C>
Cash and cash equivalents                             $ 77,115       $ 87,879       $ 64,057      $ 33,431      $ 16,965
Working capital                                         56,914         62,120         74,044       150,234        37,009
Total assets                                           207,387        312,159        432,705       269,668        81,148
Long-term debt, net of current portion                       -              -          1,001             -             -
Total stockholders' equity                              83,704        106,105        141,738       186,127        52,019

</TABLE>

                                       13
<PAGE>

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 "Selected Consolidated Financial
Data" and our consolidated financial statements and related notes included
elsewhere in this document. In addition to historical information, the
discussion in this document 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 the caption "Risk Factors
that May Affect Future Results and Market Price of Stock" and elsewhere in this
document.


                                    OVERVIEW

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

Our most recent three fiscal years, 2001 to 2003, were a period of great
challenge and significant change for our Company. The external market
environment was extremely difficult, with the semiconductor industry
experiencing a significant downturn, resulting in severe capital spending
cutbacks by our customers. At the beginning of 2001, we had just completed the
simultaneous acquisition of the semiconductor equipment division of STEAG
Electronic Systems AG and CFM Technologies, Inc. This more than doubled the size
of our company and changed the nature and breadth of our product lines. On top
of the many challenges in integrating multiple merged companies, we were faced
with the impact of dramatically lower sales as a result of the downturn in the
industry, that resulted in excess production capacity. We determined to refocus
our business on our core technologies in dry strip and rapid thermal processing,
and in 2002 and the first quarter of 2003 we took restructuring actions to align
our business with this focus and to reduce our cost structure. As part of this
restructuring effort, we divested a significant line of business, our wet
surface preparation products (the "Wet Business"), in March of 2003.

Our Company is very different at the end of 2003 than it was at the beginning of
2003 or during 2001 and 2002. Because of our significant restructurings and
divestitures during this period, both our revenue sources and our cost structure
have significantly changed. This affects the comparability of our reported
financial information for the annual periods discussed in this report, and
causes our historical information not to be a good indicator or predictor of
results for future periods. Our size, structure and product focus have been more
stable during the last three quarters of 2003.

We had losses from operations in each of fiscal years 2001, 2002 and 2003.
However, as a result of our restructurings and divestitures, we reduced our cost
structure and reduced our rate of losses throughout that period. As we finished
2003, we achieved a small profit from operations for the fourth quarter. Despite
our operational losses and net use of cash in operations during each of these
three years, we ended 2003 with just over $77 million in cash and cash
equivalents, or approximately $10.8 million less than we had at the beginning of
the year. We had no long-term debt at the end of 2003, and during the first
quarter of 2004 we successfully completed an underwritten public offering of
approximately 4.3 million shares of common stock, with net proceeds of
approximately $46.3 million. With the recent improvements in our operating
results and the infusion of additional cash on our balance sheet, we believe we
are in a healthy position in terms of liquidity and capital resources.

Our business depends upon capital expenditures by manufacturers of semiconductor
devices. The level of capital expenditures by these manufacturers depends upon
the current and anticipated market demand for such devices. The semiconductor
industry began experiencing a severe downturn in 2001, which resulted in capital
spending cutbacks by our customers. Declines in demand for semiconductors
occurred throughout 2001, 2002 and the first half of 2003. There are more recent
signs of market improvement, however semiconductor companies continue to
reevaluate their capital equipment purchase decisions. Our backlog of firm
orders was at a relatively low level in relation to our anticipated sales for
much of that period, but has recently begun to improve. The cyclicality and
uncertainties regarding overall market conditions continue to present
significant challenges to us and impair our ability to forecast near term
revenue. Given that many of our costs are fixed in the short-term, our ability
to quickly modify our operations in response to changes in market conditions is
limited. Although we have implemented cost cutting and operational flexibility
measures, we are largely dependent upon increases in sales in order to improve
our profitability.


                                       14
<PAGE>

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) develop and
bring to market new products that address our customers' needs, (b) grow
customer loyalty through collaboration with and support of our customers, and
(c) create a cost structure which will enable us to operate effectively and
profitably throughout changing industry cycles



                          CRITICAL ACCOUNTING POLICIES


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

We consider certain accounting policies related to revenue recognition, warranty
obligations, inventories, goodwill and other intangible assets, impairment of
long-lived assets, and income taxes as critical to our business operations and
an understanding of our results of operations. See Note 1 of Notes to the
Consolidated Financial Statements for a summary of our significant accounting
policies.

     Revenue recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB
104).

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

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

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


                                       15
<PAGE>

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

     Goodwill and Other Intangible Assets. We assess the realizability of
goodwill and other intangible assets at a minimum annually or whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable, in accordance with the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives
to their estimated residual values and reviewed for impairment in accordance
with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Our judgments regarding the existence of impairment indicators are
based on changes in strategy, market conditions and operational performance of
our business. Future events, including significant negative industry or economic
trends, could cause us to conclude that impairment indicators exist and that
goodwill or other intangible assets are impaired. Any resulting impairment loss
could have a material adverse impact on our results of operations. In assessing
the recoverability of goodwill and other intangible assets, we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for these assets.

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

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

                                       16

<PAGE>

Results of Operations

The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of net sales:

                                                      Year Ended December 31,
                                                 -------------------------------
                                                   2003       2002       2001
                                                 ------      -----      -----

Net sales                                         100.0 %    100.0 %    100.0%
Cost of sales                                      64.7       80.1       97.7
                                                  ------     ------    -------
Gross margin                                       35.3       19.9        2.3
                                                  ------     ------    -------
Operating expenses:
  Research, development and engineering            13.2       18.4       26.6
  Selling, general and administrative              31.1       42.4       48.1
  In-process research and development                 -          -        4.4
  Amortization of goodwill and intangibles          1.2        3.2       14.5
  Restructuring and other charges                   0.3        8.5       65.5
                                                  ------     ------    -------
Loss from operations                              (10.6)     (52.6)    (156.8)
Interest and other income, net                      0.4        6.2        2.2
                                                  ------     ------    -------
Loss before provision (benefit) for income taxes  (16.1)     (46.4)    (154.6)
Provision (benefit) for income taxes               (0.2)       0.1        8.3
                                                  ------     ------    -------
Net Loss                                          (16.3)%    (46.3)%   (146.3)%
                                                  ======     ======    =======



     The divestiture of our Wet Business on March 17, 2003 has significantly
affected the comparability of our net sales and our costs in the twelve months
period ended December 31, 2003 to our reported results for prior periods. Our
reported results for 2001, 2002 and the first quarter of 2003 include sales of
Wet Business products and related costs, while our results for the second and
third quarters of 2003 do not. Our results for the fourth quarter of 2003
include the recognition of revenue from the sale of one Wet Business tool
shipped in a prior period, along with related costs. The following table
summarizes the amount of our net sales in each quarter of 2002 and 2003
attributable to products of the Wet Business, to RTP and strip products, and to
royalties from DNS. We believe this additional information regarding our prior
period sales will facilitate comparison of our current and future results of
operations to our results from prior periods:

<TABLE>
<CAPTION>
                                        Net Sales (in millions)               Percent of total net sales
                          ---------------------------------------------    --------------------------------
                             Wet       RTP and       DNS     Reported        Wet        RTP and       DNS
    Three Months          Business      Strip      Royalty     Total       Business      Strip      Royalty
        Ended             Products    Products     Revenue   Net Sales     Products     Products    Revenue
----------------------    --------    --------     -------   ---------     --------     --------    -------

<S>                        <C>         <C>         <C>       <C>             <C>          <C>         <C>
   March 31, 2002          $ 23.7      $ 22.5      $    -    $  46.2         51.3%        48.7%          -
    June 30, 2002            15.3        32.0           -       47.3         32.3%        67.7%          -
 September 29, 2002          15.5        42.3         3.0       60.8         25.6%        69.5%        4.9%
  December 31, 2002          23.0        22.9         3.3       49.2         46.8%        46.5%        6.7%
                           ------     -------      ------    -------         ----         ----         ---
                           $ 77.5     $ 119.7      $  6.3    $ 203.5         38.1%        58.8%        3.1%
                           ======     =======      ======    =======         ====         ====         ===

   March 30, 2003          $ 32.3      $ 32.5      $  3.0    $  67.8         47.7%        47.9%        4.4%
    June 29, 2003               -        27.5         3.0       30.5            -         90.2%        9.8%
 September 28, 2003             -        29.6         3.0       32.6            -         90.8%        9.2%
  December 31, 2003           1.3        39.1         3.0       43.4          3.0%        90.1%        6.9%
                           ------     -------      ------    -------         ----         ----         ---
                           $ 33.6     $ 128.7      $ 12.0    $ 174.3         19.3%        73.8%        6.9%
                           ======     =======      ======    =======         ====         ====         ===

</TABLE>



Years Ended December 31, 2003 and 2002

Net Sales. Our net sales for the year ended December 31, 2003 were $174.3
million, reflecting a decrease of $29.2 million, or 14.4%, compared to net sales
of $203.5 million for the year ended December 31, 2002. Net sales for 2003
included $12.0 million of revenue from DNS royalties and $33.6 million from the
Wet Business that we divested on March 17, 2003. The Wet Business revenue
includes $1.3 million revenue recognized during the fourth quarter of 2003 upon
customer acceptance of a wet tool excluded from the divestiture of the Wet
Business. Net sales decreased in 2003 due to the divestiture of the Wet
Business. Net sales of RTP and Strip products for 2003 were $128.7 million, an
increase of 7.5% from 2002 net sales of RTP and Strip products of $119.7
million. The increase in 2003 net sales of RTP and Strip products over 2002
primarily resulted from an increase in the numbers of units sold. Shipments for
2003 were $131.4 million, a 25% decrease from shipments of $174.6 million in
2002. Results in 2002 and the first quarter of 2003 included shipments of
products from the Wet Business.

                                       17
<PAGE>

Our deferred revenue at December 31, 2003 was approximately $38.7 million, a
decrease of $70.0 million from $108.7 million at December 31, 2002. The $38.7
million in deferred revenue consists of $21.0 million of deferred revenue
related to tools shipped and awaiting customer acceptance and $17.7 million in
advanced payments related to DNS royalties. The decline in deferred revenue
compared to 2002 results primarily from the sale of the Wet Business, which had
accounted for the majority of our deferred revenue at December 31, 2002. We
generally expect deferred revenue from particular product sales to be recognized
as revenue in our consolidated statement of operations with a time lag of three
to ten months from product shipment.

International sales, predominantly to customers based in Europe, Japan and the
Pacific Rim, including Taiwan, Singapore, Korea and China, accounted for 87% of
total net sales for 2003, 74% of total net sales for 2002 and 78% of total net
sales for 2001. We anticipate that international sales will continue to account
for a significant portion of our sales.

Gross Margin. Gross margin for the year ended December 31, 2003 was 35.3%, an
increase from gross margin of 19.9% for the year ended December 31, 2002. The
increase in gross margin in 2003, compared to 2002, was due to the efficiencies
gained from the divestiture of the Wet business, a greater proportion of RTP and
strip products sales as well as spares parts and service revenues with
relatively higher margins, better absorption of our production facilities,
improved manufacturing overhead efficiencies and higher royalty revenue by $5.7
million recognized from DNS with no associated cost of sales. Gross Margin was
also favorably impacted by improvements in our inventory management. Inventory
valuation charges in 2003 were $1.6 million, an 88.8% decrease compared to $14.3
million in charges in 2002. Acquisition-related inventory costs, determined by
Accounting Principles Board Opinion No. 16 (APB 16) "Business Combinations", had
adversely affected the gross margin in 2002 by $9.2 million. In addition, our
gross margin in 2003 was favorably affected by an increase in the proportion of
revenue from customer acceptances (with no associated cost of sales, because
costs for the accepted systems were recorded in a prior year), when compared to
2002.

Our RTP and Strip products have relatively higher gross margins than did the Wet
Business products we offered until the first quarter of 2003. Because Wet
Business products historically represented a significant percentage of our
revenue and our cost of sales, our gross margins for 2003 and prior years are
not good indicators of our gross margins for future periods. In the three
quarters following our divestiture of the Wet Business, our gross margins have
been 39.5%, 39.1% and 41.7%.

Due to intense competition we continue to face pricing pressure from competitors
that can affect our gross margin. In response, we are continuing with our cost
reduction efforts to differentiate our product portfolio. Our gross margin has
varied over the years and will continue to vary based on many factors, including
competitive pressures, product mix, economies of scale, overhead absorption
levels, and costs associated with the introduction of new products.

Research, Development and Engineering. Research, development and engineering
expenses were $23.0 million, or 13.2% of net sales, for the year ended December
31, 2003, compared to $37.4 million, or 18.4% of net sales, for the year ended
December 31, 2002. The decrease in research, development and engineering
expenses in 2003 was primarily due to reductions in personnel and associated
costs by $1.6 million and reduction in depreciation and amortization expense by
$7.3 million resulting from the divestiture of our Wet Business in March 2003,
other restructuring and cost control measures which included more selective
research and development project funding, a $2.2 million credit for cost sharing
with an alliance partner in connection with an R&D project, and control of other
costs that resulted in an additional $3.0 million reduction in expenses. Our
major research, development and engineering efforts in 2003 were focused on the
development of a new generation of 300 mm RTP tools, sub-90nm low-K copper strip
process development for Highlands, and evolutionary development of our Aspen
bulk strip tool.

Selling, General and Administrative. Selling, general and administrative
expenses were $54.3 million, or 31.1% of net sales, for the year ended December
31, 2003, compared with $86.2 million, or 42.4% of net sales, for the year ended
December 31, 2002. The decrease in selling, general and administrative expenses
is primarily due to the divestiture of our Wet Business in March 2003, other
restructuring and cost control measures which included a reduction in personnel
and related costs by $19.0 million, reduction in building rent expenses by $3.4
million, reduction in outside professional services by $6.9 million, reduction
in depreciation and amortization expense by $2.9 million, reduction in sales
commissions by $1.6 million, and reduction in travel expenses by $2.1 million.

Amortization of Goodwill and Intangibles. Upon adoption of SFAS 142 on January
1, 2002, we no longer amortize goodwill. We continue to amortize identified
intangibles, and our amortization expense during 2003 was $2.2 million. In 2002,
we recorded amortization expense of $6.6 million. We estimate our amortization
expense to be $1.3 million for each of fiscal years 2004 and 2005.

Restructuring and Other Charges. In the third quarter of 2003, we recorded a
restructuring charge of $0.5 million, primarily related to headcount reduction.
In 2002, we recorded a charge of $11.6 million that included $6.5 million for
impaired and abandoned property and equipment, $4.4 million for the write off of
intangible assets for developed technology and $0.7 million for impairment of
other long term assets.
                                       18
<PAGE>

Interest and Other Income, Net. Interest income of $0.7 million during 2003 was
primarily related to interest income of $1.2 million from investment of our cash
balances, excess income over net rental on property sublease of $1.0 million and
other net income of $0.3 million partially off-set by interest expense of $0.1
million, loss on sale of fixed assets of $0.7 million and a foreign exchange
loss of $1.0 million. In 2002, interest expense of $1.7 million was primarily
related to interest on notes payable to SES. Interest income of $2.4 million in
2002 primarily resulted from the investment of our cash balances during the
year. We also had net other income in 2002 of $11.9 million which primarily
included DNS settlement payments of $15.0 million offset by approximately $2.0
million foreign exchange loss.

Provision for Income Taxes. We recorded a tax expense of approximately $0.4
million for the year ended December 31, 2003, compared to a tax benefit of $0.1
million for the year ended December 31, 2002. The tax expense recorded in 2003
primarily consists of tax expense related to foreign operations. These expenses
were offset by the tax benefit recorded related to amortization of the
identifiable intangibles acquired in 2001. The tax benefit recorded in 2002 is a
result of amortization of identifiable intangibles acquired in 2001 and the
receipt of a federal tax refund. These benefits were offset by tax expenses
related to foreign operations. FASB Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon available data, which includes our historical operating
performance, we have provided a full valuation allowance against our net
deferred tax asset at December 31, 2003, as the future realization of the tax
benefit is not sufficiently assured. We intend to evaluate the realization of
our deferred tax assets on a quarterly basis.


Years Ended December 31, 2002 and 2001

Net Sales. Our net sales for the year ended December 31, 2002 were $203.5
million, reflecting a decrease of $26.6 million, or 11.6%, compared to net sales
of $230.1 million for the year ended December 31, 2001. Net sales for 2002
included approximately $6.3 million of revenue from DNS royalties. Net sales
decreased in 2002 primarily due to lower demand and lower shipments as a result
of the continuing economic downturn in the semiconductor industry. Shipments in
2002 declined by approximately 44.2% compared to shipments in 2001.

Our total deferred revenue at December 31, 2002 was approximately $108.7
million, which related to tools shipped and awaiting customer acceptance, down
$27.9 million, from $136.6 million deferred revenue at December 31, 2001.

Gross Margin. Gross margin for the year ended December 31, 2002 was 19.9%, an
increase from gross margin of 2.3% for the year ended December 31, 2001. The
increase in gross margin in 2002, compared to 2001, was due to better absorption
of our production facilities, improved manufacturing overhead efficiencies,
royalty revenue recognized from DNS with no associated cost of sales, and a
decrease in inventory valuation charges related to the merger that adversely
affected margins in 2001. Inventory valuation charges in 2002 were $14.3
million, a 45.8% decrease, compared to $26.4 million in 2001.
Acquisition-related inventory costs, determined by Accounting Principles Board
Opinion No. 16 (APB 16) "Business Combinations", continued to effect us in 2002,
although to a lesser extent, as the inventory acquired in the merger was sold
and recorded as cost of sales. The inventory subject to these costs was revalued
upward, to reflect its market value, at the time of the merger. The difference
between the original cost basis of the inventory and its allocated acquisition
costs are our "APB16 costs." The largest portion of this revalued inventory
related to our wet surface preparation products, as to which all revenue was
deferred until we obtained customer acceptances. During 2002, these APB 16 costs
were $9.2 million, or 4.5% of net sales. During 2001, the APB 16 costs had been
$13.8 million, or 6.0% of net sales.

Research, Development and Engineering. Research, development and engineering
expenses were $37.4 million, or 18.4% of net sales, for the year ended December
31, 2002, compared to $61.1 million, or 26.6% of net sales, for the year ended
December 31, 2001. The decrease in research, development and engineering
expenses in 2002 was primarily due to the reduction of personnel and associated
costs, more selective research and development project funding, and various cost
control measures as a result of post-merger product rationalization efforts that
resulted in reduction in expenses for professional fees, outside services,
licenses, and engineering materials. Our major research, development and
engineering effort in 2002 was focused on the development of a new generation of
300 mm RTP tools, our low-K copper Highlands strip tool, continuos improvement
of our Aspen ICP strip tool, and our next generation wet tool.

Selling, General and Administrative. Selling, general and administrative
expenses were $86.2 million, or 42.4% of net sales, for the year ended December
31, 2002, compared with $110.8 million, or 48.1% of net sales, for the year
ended December 31, 2001. The decrease in selling, general and administrative
expenses is primarily due to reduction in personnel and related expenses, lower
bonus pay-outs, fewer buildings, lower utilities, lower sales commissions, lower
outside services, lower professional fees, lower repair & maintenance, and lower
travel expenses.

                                       19
<PAGE>

Amortization of Goodwill and Intangibles. Upon adoption of SFAS 142 on January
1, 2002, we no longer amortize goodwill. We continued to amortize identified
intangibles, and the amortization expense during 2002 was $6.6 million. In 2001,
we recorded amortization expense of $33.5 million.

Restructuring and Other Charges. In the third and fourth quarters of 2002, we
performed assessments of the carrying values of our long-lived assets to be held
and used, including other intangible assets and property and equipment. The
assessment was performed pursuant to SFAS No. 144 as a result of continuing
deteriorated market conditions in the semiconductor industry in general, a
reduced demand specifically for RTP products and certain Wet Business products,
and revised projected cash flows for these products in the future. As a result
of these assessments, we recorded a charge of $11.6 million to reduce the
carrying value of intangible assets, other long term assets and property and
equipment, as it was determined that the carrying amount of these assets
exceeded the estimated future cash flows from the use of these assets. The
charge of $11.6 million recorded includes $6.5 million for impaired and
abandoned property and equipment, $4.4 million for the write off of intangible
assets for developed technology resulting from our Concept Systems acquisition
and our Wet Business, and $0.7 million for impairment of other long term assets.

Interest and Other Income, Net. Interest expense of $1.7 million during 2002 was
primarily related to interest on our notes payable to SES. Interest income of
$2.4 million primarily resulted from the investment of our cash balances during
the year. We also had net other income of $11.9 million which primarily included
DNS settlement payments of $15.0 million offset by an approximately $2.0 million
foreign exchange loss. In 2001, interest expense of $3.0 million was primarily
related to interest on our notes payable to SES. Interest income of $4.4 million
resulted from the investment of our cash balances during the year. We also had
other income of $3.7 million which included losses on sales of fixed assets of
$2.3 million and the remainder was due to foreign exchange gains.

Provision for Income Taxes. We recorded a tax benefit of approximately $0.1
million for the year ended December 31, 2002, compared to a tax benefit of $19.0
million for the year ended December 31, 2001. The tax benefit recorded in 2001
resulted from the release of the deferred tax liability recorded in conjunction
with the purchase of the STEAG Semiconductor Division and CFM. FASB Statement
No. 109 requires that a deferred tax liability be recorded to offset the tax
impact of non-deductible, identifiable intangible assets recorded as part of
purchase accounting. The deferred tax liability decreases proportionally to any
amortization or write-down of the identifiable intangibles. The tax benefit
recorded in 2002 is a result of amortization of identifiable intangibles
acquired in 2001 and the receipt of a federal tax refund. These benefits were
offset by tax expenses related to foreign operations.


Quarterly Results of Operations

The following table sets forth our unaudited consolidated statements of
operations data for each of the eight quarterly periods ended December 31, 2003.
This information should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this annual report. We have
prepared this unaudited consolidated 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 quarters presented. The divestiture of
our Wet Business on March 17, 2003 has significantly affected the comparability
of our net sales, costs and expenses in the quarters ending June 29, September
28 and December 31, 2003 to our reported results for prior quarterly periods. A
table summarizing the amount of our net sales in each quarter of 2002 and of
2003 attributable to products of the Wet Business, to RTP and strip products,
and to royalties from DNS is presented under the caption "Results of
Operations." Conclusions about our future results should not be drawn from the
operating results for any past quarter.



                                       20

<PAGE>
<TABLE>
<CAPTION>
                                                                       Quarter Ended (Unaudited)
                                     ---------------------------------------------------------------------------------------------
                                        MAR 31,     JUN 30,     SEP 29,     DEC 31,      MAR 30,    JUN 29,     SEP 28,    DEC 31,
                                         2002        2002        2002        2002         2003       2003        2003       2003
                                         ----        ----        ----        ----         ----       ----        ----       ----
CONSOLIDATED STATEMENTS
  OF OPERATIONS
<S>                                  <C>         <C>         <C>          <C>          <C>         <C>         <C>        <C>
Net sales                             $  46,205   $  47,263   $  60,808   $  49,244    $  67,758   $  30,535   $ 32,633   $ 43,376
Cost of sales                            38,786      37,810      47,307      39,160       49,167      18,442     19,886     25,288
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
Gross profit                              7,419       9,453      13,501      10,084       18,591      12,093     12,747     18,088
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
Operating expenses:
  Research, development and
    engineering                           9,564       9,348      10,003       8,480        7,550       6,683      4,483      4,272
  Selling, general and administrative    22,097      21,098      22,058      20,965       16,873      12,798     12,638     11,983
  Amortization of intangibles             1,687       1,687       1,687       1,530        1,167         328        328        328
  Restructuring and other charges             -           -       6,171      11,136            -           -        489          -
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
    Total operating expenses             33,348      32,133      39,919      42,111       25,590      19,809     17,938     16,583
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
Income (loss) from operations           (25,929)    (22,680)    (26,418)    (32,027)      (6,999)     (7,716)    (5,191)     1,505
Loss on disposition of Wet Business           -           -           -           -      (10,257)          -          -          -
Interest and other income
  (expense), net                              1      (2,005)     15,728      (1,088)       1,203      (1,605)     1,267       (212)
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
Income (loss) before provision
   (benefit) for income taxes           (25,928)    (24,685)    (10,690)    (33,115)     (16,053)     (9,321)    (3,924)     1,293
Provision (benefit) for income taxes       (151)       (162)      1,346      (1,180)         (62)        225        (21)       208
                                      ---------   ---------   ---------   ---------    ---------   ---------   --------   --------
Net Income (loss)                     $ (25,777)  $ (24,523)  $ (12,036)  $ (31,935)   $ (15,991)  $  (9,546)  $ (3,903)  $  1,085
                                      =========   =========   =========   =========    =========   =========   ========   ========
Net loss per share:
  Basic                               $   (0.70)  $   (0.58)  $  (0.27)   $  (0.71)    $  (0.36)   $  (0.21)   $  (0.09)  $   0.02
  Diluted                             $   (0.70)  $   (0.58)  $  (0.27)   $  (0.71)    $  (0.36)   $  (0.21)   $  (0.09)  $   0.02

Shares used in computing
 loss per share:
  Basic                                  37,079      42,315      44,696      44,753       44,859      44,897     44,975     45,245
  Diluted                                37,079      42,315      44,696      44,753       44,859      44,897     44,975     47,249

</TABLE>


Liquidity and Capital Resources

($ in 000s)                                  2003         2002         2001
                                           --------     --------    ---------
Cash flows from operating activities:      $(16,351)    $(10,900)   $(32,276)

Cash flows from investing activities:        (6,045)       4,964      63,266

Cash flows from financing activities:         4,213       20,247       9,620

Net increase (decrease) in cash
  and cash equivalents                      (10,764)      23,822      30,626



Our cash and cash equivalents (excluding restricted cash) and short-term
investments were $77.1 million at December 31, 2003, a decrease of $10.8 million
from $87.9 million held as of December 31, 2002. Stockholders' equity at
December 31, 2003 was approximately $83.7 million.

We had losses from operations in each of fiscal years 2001, 2002 and 2003.
However, as a result of our restructurings and divestitures, we reduced our cost
structure and our rate of losses decrease over the course of that period. We had
no long-term debt at the end of 2003. Subsequent to the end of 2003, we
completed an underwritten public offering of common stock, with net proceeds of
approximately $46.3 million. With the recent improvements in our operating
results and the additional cash provided by the recent stock offering, we
believe we have adequate liquidity and capital resources for our operations.

On February 17, 2004, we sold approximately 4.3 million newly issued shares of
common stock in an underwritten public offering priced at $11.50 per share. This
resulted in net proceeds to us of approximately $46.3 million.

On April 30, 2002, we issued 7.4 million shares of common stock in a private
placement transaction. Of the 7.4 million shares issued, 1.3 million shares were
issued to Steag Electronic Systems AG ("SES") upon conversion of $8.1 million of
outstanding promissory notes at $6.15 per share. The remaining 6.1 million
shares were sold to other investors at $6.15 per share for aggregate net cash
proceeds of $34.9 million.

                                       21
<PAGE>


We have a revolving line of credit with a bank in the amount of $20.0 million,
which will expire on April 26, 2004. At December 31, 2003, we were in compliance
with the covenants and there were no borrowings under this credit line. All
borrowings under this credit line bear interest at a per annum rate equal to the
bank's prime rate plus 125 basis points. The line of credit is collateralized by
a blanket lien on all of our domestic assets including intellectual property.
The line of credit requires us to satisfy certain quarterly financial covenants,
including maintaining a minimum balance of unrestricted cash and cash
equivalents and a minimum balance of investment accounts, and not exceeding a
maximum net loss limit.

Our Japanese subsidiary has a credit facility with a Japanese bank in the amount
of 900 million Yen (approximately $8.4 million at December 31, 2003),
collateralized by specific trade accounts receivable of the Japanese subsidiary.
At December 31, 2003, there were no borrowings under this credit facility. The
facility bears interest at a per annum rate of TIBOR plus 75 basis points. The
facility will expire on June 20, 2004. We have given a corporate guarantee for
this credit facility. There are no financial covenant requirements for this
credit facility.

On July 2, 2002, we timely retired two obligations, of $26.9 million and 10.2
million EUROS, including accrued interest thereon, and made payments in full to
SES in the total amount of approximately $37.7 million.

On June 24, 2002, we entered into a settlement agreement and a cross license
agreement with DNS under which DNS agreed to make payments to us totaling
between $75 million (minimum) and $105 million (maximum), relating to past
damages, partial reimbursement of attorney's fee and costs, and license fees.
The license fee obligations of DNS would cease if all four patents that had been
the subject of the lawsuit were to be held invalid by a court.

During the year ended December 31, 2003, DNS paid us $24.0 million and as of
December 31, 2003, DNS has made payments aggregating $51.0 million under the
terms of the settlement and license agreements. Of the $51.0 million paid by DNS
as of December 31, 2003, $4.0 million was subjected to Japanese withholding tax,
and the net amount we received was $47.0 million. In future periods, we are
scheduled to receive minimum royalty payments as follows:

                                           Future
             Fiscal Year Ending         DNS Payments
                December 31,           to be received
             ------------------        --------------
                                       (in thousands)

                    2004                 $  6,000
                    2005                    6,000
                    2006                    6,000
                    2007                    6,000
                                         --------
                                         $ 24,000
                                         ========

Off-Balance Sheet Arrangements

As of December 31, 2003, we did not have any significant "off-balance sheet"
arrangements (as defined in Item 303(a)(4)(ii) of SEC Regulation S-K).


Contractual Obligations

Our largest long term obligations are under operating leases for our facilities.
At December 31, 2003, we had inventory purchase commitments with our vendors to
support our manufacturing build plan in the amount of $10.8 million. Most of
these inventory commitments are non-cancelable. Additionally, we had
commitments to our outsourced contract manufacturers in the amount of $2.0
million, which are non-cancelable.


                                       22
<PAGE>

The following table summarizes the our contractual obligations under open
purchase order commitments and non-cancelable operating leases as of December
31, 2003:

<TABLE>
<CAPTION>
                                                Payments due by period (in $ thousands)
                                    -------------------------------------------------------------
                                                   Less                                   More
                                                  than 1        1 - 3        3 - 5       than 5
Contractual Obligations               Total        year         years        years        years
------------------------             -------      -------      -------      -------      -------

<S>                                  <C>          <C>          <C>          <C>          <C>
Inventory commitments                $10,806      $10,806      $  --        $  --        $  --
Subcontractor commitments              2,041        2,041         --           --           --
Non-cancelable operating leases       35,264        5,709        9,021        4,694       15,840
                                     -------      -------      -------      -------      -------
                                     $48,111      $18,556      $ 9,021      $ 4,694      $15,840
                                     =======      =======      =======      =======      =======
</TABLE>


Cash Flows

We used $16.3 million in net cash in operating activities for the year ended
December 31, 2003 and $10.9 million for the year ended December 31, 2002. The
net cash used in operations in 2003 was primarily attributable to net losses of
$28.4 million, a decrease in deferred revenue of $22.1 million, and a decrease
in accrued liabilities of $13.0 million. These uses of cash were offset by the
decreases in inventories and inventories - delivered systems of $13.0 million, a
loss on disposition of the Wet business of $10.3 million, increases in accounts
payable of $6.9 million, a decrease in other assets of $6.0 million, and the
non-cash depreciation and amortization of $8.0 million. The decrease in deferred
revenue was primarily attributable to the disposition of the Wet Business on
March 17, 2003, which carried a majority of our deferred revenue. The decrease
in accrued liabilities was primarily attributable to a reduction in salaries and
benefits accruals, a reduction in reserve for tools return, and settlement of
liabilities related to the Wet Business divestiture. The decreases in
inventories and inventories - delivered systems was primarily attributable to
tighter inventory management aimed at keeping lower inventory, and inventory
transferred to SCP as part of the disposition of the Wet Business. The increase
in accounts payable resulted from timing control of vendor disbursements. The
decrease in other assets resulted from a reclassification of equipment to
property and equipment, and decreases in deposits, deferred financing costs and
other long term assets.

The net cash used in operations in 2002, of $10.9 million, was primarily
attributable to the net loss of $94.3 million, a decrease in deferred revenue of
$43.9 million, decrease in accrued liabilities of $8.1 million, and deferred
taxes of $4.3 million. These uses of cash were offset by the decreases in
inventories and inventories - delivered systems of $41.2 million, decreases in
accounts receivable and advance billings of $49.1 million, and a non-cash
impairment of long-lived assets and other charges of $16.0 million.

The net cash used in operations in 2001, of $32.3 million, was primarily
attributable to the net loss of $336.7 million and a decrease in accrued
liabilities of $25.4 million and accrued payables of $20.7 million. These uses
of cash were offset by non-cash impairment of long-lived assets and other
charges of $150.7 million and depreciation and amortization of goodwill and
intangibles of $33.5 million, an increase in deferred revenue of $95.9 million,
a decrease in accounts receivable of $50.4 million, inventory valuation charges
of $26.4 million and acquired in-process research and development charges of
$10.1 million.

Net cash used in investing activities was $6.0 million for the year ended
December 31, 2003, which consisted of purchase of property and equipment of $8.0
million offset by the proceeds from the disposition of the Wet Business of $2.0
million. The purchase of property and equipment was primarily attributable to
implementation of a new enterprise resource planning (ERP) system which is
expected to be completed in the fourth quarter of 2004.

Net cash provided by investing activities in 2002 was $5.0 million, which
consisted of the sale of $20.8 million of investments and proceeds from the sale
of equipment of $3.7 million, offset by the purchase of $15.0 million of
investments and $4.6 million of property and equipment. Net cash provided by
investing activities in 2001 was $63.3 million, which consisted of the sale of
$58.3 million of investments and cash acquired from the acquisition of the STEAG
Semiconductor Division and CFM of $38.0 million, offset by the purchase of $17.2
million of property and equipment and $16.3 million of investments.

Net cash provided by financing activities was $4.2 million for the year ended
December 31, 2003, primarily due to $3.6 million in proceeds from stock plans
and a decrease in restricted cash of $0.6 million. The decrease in restricted
cash resulted from pledge deposits that were no longer required for leases in
Germany.

Net cash provided by financing activities was $20.2 million in 2002, primarily
resulting from a decrease in restricted cash of $26.2 million, and the net
proceeds from the issuance of common stock of $34.9 million, offset by the
payment on notes payable of $38.8 million, and payment on a line of credit of
$5.3 million. Net cash provided by financing activities was $9.6 million in
2001, primarily resulting from $9.0 million of borrowings against lines of
credit, $3.6 million in proceeds from stock plans and $2.7 million of interest
accrued on the notes payable to SES, offset by the repayment of $4.9 million
against our line of credit.


                                       23
<PAGE>

Based on current projections, we believe that our current cash and investment
positions together with cash provided by operations and the public offering
completed on February 17, 2004 will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next twelve
months.

Our operating plans are based on and require us to reduce our operating losses,
control expenses, manage inventories, and collect accounts receivable balances.
As a result of the prolonged semiconductor market downturn, we are exposed to a
number of challenges and risks, including delays in payments of accounts
receivable by customers, and postponements or cancellations of orders. Postponed
or cancelled orders can cause excess inventory and underutilized manufacturing
capacity. If we are not able to sustain profitability over the upcoming
quarters, the operating losses could adversely affect cash and working capital
balances, and we may be required to seek additional sources of financing through
public or private financing, or other sources, to fund operations. We may not be
able to obtain adequate or favorable financing when needed. Failure to raise
capital when needed could harm our business. When additional funds are raised
through the issuance of equity securities, the percentage ownership of our
stockholders is reduced, and these equity securities may have rights,
preferences or privileges senior to our common stock. Any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive covenants on the Company's operations and financial
condition.


New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 were initially required to be applied
for the first interim or annual period beginning after June 15, 2003. At its
meeting on October 8, 2003, the FASB deferred the latest date by which all
public entities must apply FIN 46 to the first reporting period ending after
December 15, 2003. This deferral applies to all variable interest entities
(VIEs) and potential VIEs, both financial and non-financial in nature. The
adoption of FIN 46 did not have a material impact on the Company's financial
condition or statement of operations.

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

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
(SFAS 150), "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." SFAS 150 establishes standards on the
classification and measurement of financial instruments with characteristics of
both liabilities and equity. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003. While the effective date of certain
elements of SFAS 150 have been deferred, the adoption of SFAS 150 when finalized
is not expected to have a material effect on the Company's financial condition,
results of operations or cash flows.

In December, 2003, the Securities and Exchange Commission (or SEC) issued Staff
Accounting Bulletin No. 104 (or SAB 104), "Revenue Recognition", which
supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's
primary purpose is to rescind the accounting guidance contained in SAB 101
related to multiple-element revenue arrangements that was superseded as a result
of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's related
"Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers" issued with SAB 101 that had been codified in SEC Topic 13, "Revenue
Recognition." While the wording of SAB 104 has changed to reflect the issuance
of EITF 00-21, the revenue recognition principles of SAB 101 remain largely
unchanged by the issuance of SAB 104, which was effective upon issuance. The
Company's adoption of SAB 104 did not have a material effect on its financial
position or results of operations.

                                       24

<PAGE>

Mergers, Acquisitions and Divestitures

As part of our restructuring efforts in 2002 and 2003, in March 17, 2003, we
sold the portion of our business that was engaged in developing, manufacturing,
selling, and servicing wet surface preparation products for the cleaning and
preparation of semiconductor wafers (the "Wet Business") to SCP Global
Technologies, Inc. ("SCP"). We had originally acquired the Wet Business on
January 1, 2001, as part of our merger with the STEAG Semiconductor Division and
CFM. The Wet Business represented a significant portion of our revenues and our
costs in 2001, 2002 and the first quarter of 2003, and the divestiture of that
business affects the comparability of our financial statements in the current
and future periods to our reported results for 2001, 2002, and 2003 and quarters
within those periods.

As part of the Wet Business disposition, SCP acquired certain subsidiaries and
assets, and assumed certain contracts relating to the Wet Business, including
the operating assets, customer contracts and inventory of CFM, all outstanding
stock of Mattson Technology IP, Inc. ("Mattson IP"), a subsidiary that owns
various patents relating to the Wet Business, and all equity ownership interest
in Mattson Wet Products GmbH, a subsidiary in Germany that owned our principal
Wet Business operations. We retained all the cash from the Wet Business
entities, and we retained all rights to payments under the settlement and
license agreements with DNS. SCP acquired the rights to any damages under
pending patent litigation relating to patents owned by Mattson IP. SCP assumed
responsibility for the operations, sales, marketing and technical support
services for our former wet product lines worldwide. The initial purchase price
paid to us by SCP to acquire the Wet Business was $2 million in cash. That
initial purchase price was subject to adjustment based on a number of things,
including the net working capital of the Wet Business at closing, determined on
a pro forma post-closing balance sheet, and an earn-out payable to us, up to an
aggregate maximum of $5 million, based upon sales by SCP of certain products to
identified customers through December 31, 2004. We assumed certain real property
leases relating to transferred facilities in Germany, subject to a sublease to
SCP.

During the first quarter of 2003, we recorded accruals of approximately $11.9
million to cover future obligations relating to the Wet disposition. We did not
record any additional accruals for this transaction thereafter. On December 5,
2003, we paid $4.4 million to SCP to satisfy and be released from any further
liabilities relating to (i) working capital adjustments, (ii) pension
obligations, (iii) reductions in force in Germany (iv) reimbursement of legal
fees, and (v) reimbursement of amounts necessary to cover specified customer
responsibilities.

On January 1, 2001, we simultaneously acquired the semiconductor equipment
division of STEAG Electronic Systems AG (the "STEAG Semiconductor Division") and
CFM Technologies, Inc. ("CFM"), which we refer to as "the merger." We entered
into a definitive Strategic Business Combination Agreement on June 27, 2000, (as
subsequently amended on December 15, 2000 and November 5, 2001, the "Combination
Agreement") to acquire eleven direct and indirect subsidiaries comprising the
semiconductor equipment division of STEAG Electronic Systems AG ("the STEAG
Semiconductor Division"), and we entered into an Agreement and Plan of Merger
("Plan of Merger") to acquire CFM Technologies, Inc. ("CFM").

Under the Combination Agreement, we issued to STEAG Electronic Systems AG
("SES") 11,850,000 shares of common stock, valued at approximately $124 million
as of the date of the amended Combination Agreement. We also paid SES $100,000
in cash, and reimbursed SES $3.3 million in acquisition related costs. We also
assumed certain obligations of SES and STEAG AG, the parent company of SES, and
assumed certain intercompany indebtedness and obligations owed by the acquired
subsidiaries to SES. We issued 1.3 million shares of common stock to SES in
exchange for the conversion of $8.1 million of outstanding promissory notes on
April 30, 2002, and we made payment in full, on July 2, 2002, in the total
amount of approximately $37.7 million, including accrued interest thereon. The
acquisition had been accounted for under the purchase method of accounting, and
the results of operations of the STEAG Semiconductor Division are included in
our consolidated statement of operations from the date of acquisition. The
purchase price of this acquisition was $148.6 million, which included $6.2
million of direct acquisition related costs (including the amount reimbursed to
SES).

Under the Plan of Merger with CFM, we agreed to acquire CFM in a stock-for-stock
merger in which we issued 4,234,335 shares of our common stock, valued at
approximately $150.2 million. In addition, we assumed all outstanding CFM stock
options, which resulted in our issuance of options to acquire 927,457 shares of
our common stock, valued at approximately $20.4 million. The merger had been
accounted for under the purchase method of accounting and the results of
operations of CFM are included in our consolidated statement of operations from
the date of acquisition. The purchase price of the acquisition of CFM was $174.6
million, which included $4.0 million of direct acquisition related costs.


                                       25

<PAGE>

Capital Finance Transactions and DNS Settlement

On February 17, 2004, we sold approximately 4.3 million newly issued shares of
common stock in an underwritten public offering priced at $11.50 per share. This
resulted in net proceeds to us of approximately $46.3 million. In the same
offering, SES sold approximately 4.3 million outstanding shares. Following this
public offering, SES remains our largest stockholder, holding approximately 8.9
million shares, or approximately 17.8 percent, of the 49.2 million shares of our
common stock outstanding.

On April 30, 2002, we issued 7.4 million shares of common stock in a private
placement transaction. Of the 7.4 million shares issued, 1.3 million shares were
issued to Steag Electronic Systems AG upon conversion of $8.1 million of
outstanding promissory notes at $6.15 per share. The remaining 6.1 million
shares were sold to other investors at $6.15 per share for aggregate net cash
proceeds of $34.9 million.

On June 24, 2002, we settled a patent infringement lawsuit with Dainippon Screen
Manufacturing Co., Ltd. ("DNS"). As part of the settlement, DNS agreed to pay
us, at minimum, $75 million, relating to past damages, partial reimbursement of
attorney's fees and costs, and royalties, payable in varying amounts at varying
dates through April 1, 2007, in return for our granting DNS a worldwide license
under the previously infringed patents. Depending on the volume of future
product sales by DNS, we could receive up to an additional $30 million in
royalty payments. We determined, based on relative fair values, how much of the
aggregate payments due to us are attributable to past damages and how much are
attributable to future royalties on DNS sales of wet processing products. Based
on our analysis, which included an independent appraisal, we allocated $15.0
million to past damages, which we recorded as "other income" during 2002, and we
allocated $60 million to royalty income, which is being recognized in our income
statements on a straight-line basis over the license term. During 2002 and 2003,
we recognized royalty revenue of approximately $6.3 million and $12.0 million,
respectively. During 2002, DNS made payments of $27.0 million and during 2003
DNS made payments of $24.0 million, aggregating to $51.0 million.


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

The Semiconductor Equipment Industry is Cyclical, has Recently Been in a Severe
and Prolonged Downturn, and Causes Our Operating Results to Fluctuate
Significantly.

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

     Following the very strong year in 2000, the semiconductor industry entered
a significant and prolonged downturn. The severity and duration of the downturn
are unknown, but is impairing our ability to sell our systems and to operate
profitably. If demand for semiconductor devices and our systems remains
depressed for an extended period, it will seriously harm our business.

     As a result of acquisitions we made at the beginning of 2001, we grew to be
a larger, more geographically diverse company, less able to react quickly to the
cyclicality of the semiconductor business, particularly in Europe and other
regions where restrictive laws relating to termination of employees prohibited
us from quickly reducing costs in order to meet the downturn. Accordingly,
during this latest downturn we have been unable to reduce our expenses quickly
enough to avoid incurring a loss. For the fiscal years ended December 31, 2001
and 2002 and 2003, our net loss was $336.7 million, $94.3 million and $28.4
million, respectively, compared to net income of $1.5 million for the year ended
December 31, 2000. Our net losses in 2002 and the first three quarters of 2003
primarily reflect the impact of our continuing depressed level of net sales. If
our actions to date are insufficient to effectively align our cost structure
with prevailing market conditions, we may be required to undertake additional
cost-cutting measures, and may be unable to continue to invest in marketing,
research and development and engineering at the levels we believe are necessary
to maintain our competitive position in our remaining core businesses. Our
failure to make these investments could seriously harm our long-term business
prospects.


                                       26

<PAGE>

We are Exposed to the Risks Associated with Industry Overcapacity, Including
Reduced Capital Expenditures, Decreased Demand for Our Products, Increased Price
Competition and Delays by Our Customers in Paying for Our Products.

     As a result of the current economic downturn, inventory buildups in
telecommunication products and slower than expected personal computer sales have
resulted in overcapacity of semiconductor devices and has caused semiconductor
manufacturers to reduce their capital spending. As our business depends in
significant part upon capital expenditures by manufacturers of semiconductor
devices, including manufacturers that open new or expand existing facilities,
continued overcapacity and reductions in capital expenditures by our customers
could cause further delays or decreased demand for our products. If existing
fabrication facilities are not expanded or 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. In addition,
the reduced demand levels result in increased competition and may cause downward
pressure on our product prices and margins in order to win customer orders.

     In addition, many semiconductor manufacturers are continuing to forecast
that revenues in the short-term will remain flat or lower than in previous
high-demand years. As a result, if customers are not successful generating
sufficient revenue or securing alternative financing arrangements, we may be
unable to close sales or collect accounts receivables from such customers or
potential customers, and may be required to take additional reserves against our
accounts receivables.


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

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

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


We May Not Achieve Anticipated Revenue Growth if We Are Not Selected as "Vendor
Of Choice" for New or Expanded Fabrication Facilities or If Our Systems and
Products Do Not Achieve Broader Market Acceptance.

     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 for a significant period of time
upon equipment from this "vendor of choice" for the specific production line
application. In addition, the semiconductor manufacturer frequently will attempt
to consolidate its other capital equipment requirements with the same vendor.
Accordingly, we may face narrow windows of opportunity to be selected as the
"vendor of choice" by substantial 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 grow our business and our operating results and financial condition
will be adversely affected.


                                       27
<PAGE>

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

     We are currently engaged in the implementation of a new enterprise resource
planning, or ERP, system, which is expected to become integral to our ability to
accurately and efficiently maintain our books and records, record our
transactions, provide critical information to our management, and prepare our
financial statements. However, the new ERP system could eventually become more
costly, difficult and time consuming to purchase and implement than we currently
anticipate. In addition, implementation of the new ERP system requires us to
change our internal business practices, transfer records to a new computer
system and train our employees in the correct use of and input of data into the
system, which could result in disruption of our procedures and controls and
difficulties achieving accuracy in the conversion of data. If we fail to manage
these changes effectively, our operations could be disrupted, which could result
in the diversion of management's attention and resources, cause us to improperly
state or delay reporting of our financial results, materially and adversely
affect our operating results, and impact our ability to manage our business. In
addition, to manage our business effectively, we may need to implement
additional and improved management information systems, further develop our
operating, administrative, financial and accounting systems and controls, add
experienced senior level managers, and maintain closer coordination among our
executive, engineering, accounting, marketing, sales and operations
organizations. We may incur additional unexpected costs and our systems,
procedures or controls may not be adequate to support our operations.


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

     We have implemented new financial systems used in the consolidation of our
financial results, in order to further automate processes and align the
disparate systems used by our acquired businesses. We have recently implemented
new financial systems to aid in the consolidation of our financial reporting
operations. These financial systems are new and we have not had extensive
experience with them. We may encounter unexpected difficulties, costs or other
challenges that make implementation and use of these systems more difficult or
costly than expected, may cause the consolidation and reporting of our financial
results to be more time-consuming than expected, and may require additional
management resources than expected before they are fully implemented and
operating smoothly. Continued improvement or implementation of new systems,
procedures and controls may be required, and could cause us to incur additional
costs, and place further burdens on our management and internal resources. If
our new financial systems do not result in the expected improvements, or if we
are unable to fully implement these systems, procedures and controls in a timely
manner, our business could be harmed.

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


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

     We have already outsourced certain manufacturing and 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, outsourcing has a number of risks
and reduces our control over the performance of the outsourced functions.
Significant performance problems by these third party service providers could
result in cost overruns, delayed deliveries, shortages, quality issues or other
problems which could 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, time consuming and difficult
and could result in unforeseen operations problems. Substitute service providers
might not be available or, if available, might be unwilling or unable to offer
services on acceptable terms.

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

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

                                       28
<PAGE>

Delays or Technical and Manufacturing Difficulties Incurred in the Introduction
of New Products Could Be Costly and Adversely Affect Our Customer Relationships.

     From time to time, we have experienced delays in the introduction of, and
certain technical and manufacturing difficulties with, the introduction of new
systems and enhancements, and may experience such delays and technical and
manufacturing difficulties in future introductions or volume production of new
systems or enhancements. For example, 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. In addition, we
may from time to time incur unanticipated costs to ensure the functionality and
reliability of our products early in their life cycles, which costs can be
substantial. If new products or enhancements experience reliability or quality
problems, we could encounter 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.


Unless We Can Continue To Develop and Introduce New Systems that Compete
Effectively On the Basis of Price and Performance, We May Lose Future Sales and
Customers, Our Business May Suffer, and Our Stock Price May Decline.

     Because of continual changes in the markets in which our customers and we
compete, our future success will depend in part upon our ability to continue to
improve our systems and technologies. These markets are characterized by rapidly
changing technology, evolving industry standards, and continuous improvements in
products and services. Due to the continual changes in these markets, our
success will also depend upon our ability to develop new technologies and
systems that compete effectively on the basis of price and performance and that
adequately address customer requirements. In addition, we must adapt our systems
and processes to support emerging target market industry standards.

     The success of any new systems we introduce is dependent on a number of
factors, including timely completion of new system designs accepted by the
market, and may be adversely affected by manufacturing inefficiencies and the
challenge of producing systems in volume which meet customer requirements. We
may not be able to improve our existing systems or develop new technologies or
systems in a timely manner. In particular, the transition of the market to 300
mm wafers will present us with both an opportunity and a risk. To the extent
that we are unable to introduce 300mm systems that meet customer requirements on
a timely basis, our business could be harmed. We may exceed the budgeted cost of
reaching our research, development and engineering objectives, and estimated
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. Because of the complexity of our systems, significant
delays can occur between the introduction of systems or system enhancements and
the commencement of commercial shipments.


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

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


Our Results of Operations May Suffer if We Do Not Effectively Manage Our
Inventory.

     To achieve commercial success with our product lines, we need to manage our
inventory of component parts and finished goods effectively to meet changing
customer requirements. Some of our products and supplies have in the past and
may in the future become obsolete while in inventory due to rapidly changing
customer specifications. If we are not successfully able to manage our
inventory, including our spare parts inventory, we may need to write off
unsaleable or obsolete inventory, which would adversely affect our results of
operations.

                                       29
<PAGE>

Warranty Claims in Excess of Our Projections Could Seriously Harm Our Business.

     We offer a warranty on our products. 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 experienced product failures at an unexpectedly high level, our reputation in
the marketplace could be damaged, customers may decline to place new or
additional orders with us, and our business would suffer.


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:

     o    system performance;

     o    cost of ownership;

     o    size of installed base;

     o    breadth of product line;

     o    delivery availability; and

     o    customer support.

     The current economic downturn has increased competitive pressure in several
areas. In particular, there is increased price competition, and customers are
waiting to make purchase commitments, which are then placed with demands for
rapid delivery dates and increased product support. The following
characteristics of our major competitors' systems may give them a competitive
advantage over us:

     o    broader product lines;

     o    longer operating history;

     o    greater experience with high volume manufacturing;

     o    broader name recognition;

     o    substantially larger customer bases;

     o    substantially greater customer support resources; and

     o    substantially greater financial, technical, and marketing resources.

     In addition, to expand our sales we must often replace 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.


Our Lengthy Sales Cycle Increases Our Costs and Reduces the Predictability of
Our Revenue.

     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. Potential new customers evaluate the need to acquire
new semiconductor manufacturing equipment infrequently. Even after the customer
determines that our systems meet their qualification criteria, we experience
delays finalizing system sales while the customer obtains approval for the
purchase and constructs new facilities or expands its existing facilities. We
may expend significant sales and marketing expenses during this evaluation
period. 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. In this difficult economic climate, the average
sales cycle has lengthened even further and is expected to continue to make it
difficult to accurately forecast future sales. If sales forecasted from a
specific customer for a particular quarter 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.

                                       30
<PAGE>

The Timing of the Transition to 300mm Technology is Uncertain and Competition
May Be Intense.

     We have invested, and are continuing to invest, substantial resources to
develop new systems and technologies to automate the processing of 300mm wafers.
However, the timing of the industry's transition to 300mm manufacturing
technology is uncertain, partly as a result of the recent period of reduced
demand for semiconductors. Delay in the transition to 300mm manufacturing
technology could adversely affect our potential revenues and opportunities for
future growth. Moreover, delay in the transition to 300mm technology could
permit our competitors to introduce competing or superior 300mm products at more
competitive prices, causing competition to become more vigorous.

We Are Highly Dependent on Our International Sales, and Face Significant
Economic and Regulatory Risks Because a Majority of Our Net Sales Are From
Outside the United States.

     Asia has been a particularly important region for our business, and we
anticipate that it will continue to be important as we expand our sales and
marketing efforts by opening an office in China. Our sales to customers located
in Taiwan, Japan, other Asian countries and recently China accounted for 71% of
our total sales in 2003, 47% in 2002 and 47% in 2001. During 2001, Europe also
emerged as an important region for our business. During 2003, 2002 and 2001,
sales to customers in Europe accounted for 16%, 27% and 31%, respectively. Our
international sales accounted for 87% of our total net sales in 2003, 74% in
2002 and 78% in 2001 and we anticipate international sales will continue to
account for a significant portion of our future net sales. Because of our
continuing dependence upon international sales, however, we are subject to a
number of risks associated with international business activities, including:

     o    unexpected changes in law or regulations resulting in more burdensome
          governmental controls, tariffs, restrictions, embargoes, or export
          license requirements;

     o    exchange rate volatility;

     o    the need to comply with a wide variety of foreign and U.S. export
          laws;

     o    political and economic instability, particularly in Asia;

     o    differing labor regulations;

     o    reduced protection for intellectual property;

     o    difficulties in accounts receivable collections;

     o    difficulties in managing distributors or representatives;

     o    difficulties in staffing and managing foreign subsidiary operations;
          and

     o    changes in tariffs or taxes.

     In the U.S., our sales to date have been denominated primarily in U.S.
dollars, while our sales in Japan are usually denominated in Japanese Yen. Our
sales to date in Europe have been denominated in various currencies, currently
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 become less price-competitive where 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.

     In addition, we are exposed to the risks of operating a global business,
and maintain certain manufacturing facilities in Germany. Managing our global
operations presents challenges, including varying business conditions and
demands, political instability, export restrictions and fluctuations in interest
and currency exchange rates.


                                       31
<PAGE>


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 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. 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, as it was in 2000, our suppliers strained to provide 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 and subassemblies is an
extremely complex process and requires long lead times. As a result, we have in
the past and we may in the future experience delays or shortages. If we are
unable to obtain adequate and timely deliveries of our required components or
subassemblies, 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.


We Are Highly Dependent on Our Key Personnel to Manage Our Business and Their
Knowledge of Our Business, Management Skills, and Technical Expertise Would Be
Difficult to Replace.

     Our success will depend to a large extent upon the efforts and abilities of
our executive officers, our current management and our technical staff, any of
whom would be difficult to replace. In past years have had significant turnover
among our executive officers and key employees, and several have recently joined
us or have assumed new responsibilities at the company. The addition,
reassignment or loss of key employees could limit or delay our ability to
develop new products and adapt existing products to our customers' evolving
requirements and result in lost sales and diversion of management resources.


As a Result of the Industry Downturn, We Have Implemented Restructuring and
Workforce Reductions, Which May Adversely Affect the Morale and Performance of
our Personnel and our Ability to Hire New Personnel.

     In connection with our efforts to streamline operations, reduce costs and
bring our staffing and structure in line with current demand for our products,
during 2002 and 2003 we restructured our organization and reduced our workforce
by 257 and 508 positions, respectively. We incurred costs associated with these
workforce reductions, and may incur further costs if additional restructuring is
needed to right size our business further or bring our costs down to respond to
continued industry and economic slowdowns. Our restructuring may also yield
unanticipated consequences, such as attrition beyond our planned reduction in
workforce and loss of employee morale and decreased performance. The effects of
the restructuring may be further exacerbated by our sale of the Wet Business to
SCP, which involved the transfer or termination of employment of our employees
engaged in the Wet Business. In addition, the declines in our common stock price
since mid-2000 have decreased the value of the stock options we granted to
employees pursuant to our stock option plan. As a result of these factors, our
remaining personnel may seek employment with larger, more established companies
or companies they perceive as having less volatile operations or stock prices.
Continuity of personnel can be an important factor in the successful sales of
our products and completion of our development projects in our ongoing core
businesses, and turnover in our sales and research and development personnel
could materially and adversely impact our sales, development and marketing
efforts. We believe that hiring and retaining qualified individuals at all
levels is essential to our success, and there can be no assurance that we will
be successful in attracting and retaining the necessary personnel.


Because of Competition for Additional 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 due
to our lack of capacity to develop and market our products to our customers, or
we could fail to meet our delivery commitments or experience deterioration in
service levels or decreased customer satisfaction.


32
<PAGE>

     If the current downturn ends suddenly, we may not have enough personnel to
promptly return to our previous production levels. If we are unable to expand
our existing manufacturing capacity to meet demand, a customer's placement of a
large order for our products during a particular period might deter other
customers from placing similar orders with us for the same period. It could be
difficult for us to rapidly recruit and train substantial numbers of qualified
technical personnel to meet increased demand.


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 thus could cause delays in shipments of products to
our customers, result in cancellation of orders or loss of customers and
seriously harm our business.

If We Are Unable to Protect Our Intellectual Property, We May Lose a Valuable
Asset, Experience Reduced Market Share, and Efforts to Protect Our Intellectual
Property May Require Additional Costly Litigation.

     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, our competitors may be able to legitimately ascertain
the non-patented proprietary technology embedded in our systems. 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. In addition, 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, duplicate our products, 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.

We Might Face Intellectual Property Infringement Claims that May Be Costly to
Resolve and Could Divert Management Attention Including the Potential for Patent
Infringement Litigation.

     We may from time to time be subject to claims of infringement of other
parties' proprietary rights. In addition, we on occasion receive notification
from customers who believe that we owe them indemnification or 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.

Our Failure to Comply with Environmental 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. These laws, rules,
and regulations govern the use, storage, discharge, and disposal of hazardous
chemicals during manufacturing, research and development and sales
demonstrations. If we fail to comply with present or future regulations, we
could be subject to substantial liability for clean up efforts, personal injury,
and 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 or we could be required to acquire costly remediation equipment or incur
other significant expenses.

                                       33
<PAGE>

We Incurred Net Operating Losses for the Fiscal Years 1998, 1999, 2001, 2002 and
2003. We May Not Achieve or Maintain Profitability on an Annual Basis, and If We
Do Not, We May Not Utilize Deferred Tax Assets.

     We incurred net losses of approximately $22.4 million for the year ended
December 31, 1998, $0.8 million for the year ended December 31, 1999, $336.7
million for the year ended December 31, 2001, $94.3 million for the year ended
December 31, 2002 and $28.4 million for the year ended December 31, 2003. We
expect to continue to incur significant research and development and selling,
general and administrative expenses and may not return to profitability in 2003.
We will need to generate significant increases in net sales to achieve and
maintain profitability on an annual basis, and we may not be able to do so. In
addition, our ability to realize our deferred tax assets in future periods will
depend on our ability to achieve and maintain profitability on an annual basis.


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

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

     o    cyclicality of the semiconductor industry;

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

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

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

     o    entry of new competitors into our market, or the announcement of new
          products or product enhancements by competitors;

     o    sudden changes in component prices or availability;

     o    variability in the mix of products sold;

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

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

     o    successful expansion of our worldwide sales and marketing
          organization.

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


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

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

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

     o    announcements of developments related to our business;

     o    fluctuations in our operating results and order levels;

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

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

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

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

                                       34

<PAGE>


     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.


Future Sales of Shares by STEAG Could Adversely Affect the Market Price of Our
Common Stock.

     There are approximately 49.8 million shares of our common stock outstanding
as of March 2004, of which approximately 8.9 million (or 17.8%) are held
beneficially by STEAG Electronic Systems AG. STEAG may sell these shares in the
public markets from time to time, subject to certain limitations on the timing,
amount and method of such sales imposed by SEC regulations. STEAG has reduced
its ownership in our common stock on February 17, 2004 by selling approximately
4.1 million shares. We have currently registered approximately 2.9 million
additional shares of our common stock for resale by STEAG. STEAG has the
contractual right to require us to register for resale all of the shares they
hold. If STEAG were to sell additional large number of shares, the market price
of our common stock could decline. Moreover, the perception in the public
markets that such sales by STEAG might occur could also adversely affect the
market price of our common stock.


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 additional
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:

     o    difficulty of assimilating the operations, products, and personnel of
          the acquired businesses;

     o    potential disruption of our ongoing business;

     o    unanticipated costs associated with the acquisition;

     o    inability of management to manage the financial and strategic position
          of acquired or developed products, services, and technologies;

     o    inability to maintain uniform standards, controls, policies, and
          procedures; and

     o    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.


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

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

                                       35

<PAGE>

We May Need Additional Capital, Which May Not Be Available and Which Could Be
Dilutive to Existing Stockholders.

     Based on current projections, we believe that our current cash and
investments along with cash generated through operations will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
the next 12 months. Management's projections are based on our ability to manage
inventories and collect accounts receivable balances in this market downturn. If
we are unable to manage our inventories or accounts receivable balances, or if
we otherwise experience higher operating costs or lower revenue than we
anticipate, we may be required to seek alternative sources of financing. We may
need to raise additional funds in future periods through public or private
financing or other sources to fund our operations. We may not be able to obtain
adequate or favorable financing when needed. If we fail to raise capital when
needed, we would be unable to continue operating our business as we plan, or at
all. In addition, we may need to continue reducing costs, which could cause us
to curtail research and development activities, resulting in a delay in new
product introduction or enhancement. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced. In addition, any future equity securities may have rights,
preferences or privileges senior to our common stock. Furthermore, debt
financing, if available, may involve restrictive covenants on our operations.


The Effect of Terrorism, the War in Iraq, and Political Instability Could Harm
our Results of Operation.

     The threat of terrorism targeted at the regions of the world in which we do
business, including the United States, increases the uncertainty in our markets
and may delay any recovery in the general economy. Any delay in the recovery of
the economy and the semiconductor industry could seriously impact our business.
Increased international political instability, as demonstrated by the September
2001 terrorist attacks, disruption in air transportation and further enhanced
security measures as a result of the terrorist attacks, and the effects of war
in Iraq, may hinder our ability to do business and may increase our costs of
operations. Such continuing instability could cause us to incur increased costs
in transportation, make such transportation unreliable, increase our insurance
costs, and cause international currency markets to fluctuate. This same
instability could have the same effects on our suppliers and their ability to
timely deliver their products. If this international political instability
continues or increases, our business and results of operations could be harmed.


ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

     The table below presents the fair value of principal amounts and related
weighted average interest rates for our investment portfolio as of December 31,
2003.

                                                    Fair Value
                                                    December 31,
                                                       2003
                                                  --------------
                                                  (In thousands)
       Assets
            Cash and cash equivalents               $ 77,115
                 Average interest rate                 0.80%
            Restricted cash                         $   509
                 Average interest rate                 0.65%


     These securities are subject to interest rate risk and will decline in
value if interest rates increase. Due to the short duration of our investment
portfolio, an immediate 10 percent change in interest rates is not expected to
have a material effect on our near-term financial condition or results of
operations.


                                       36
<PAGE>

Foreign Currency Risk

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

The following table provides information as of December 31, 2003 about us and
our subsidiaries' derivative financial instruments, which are comprised of
foreign currency forward exchange contracts. The information is provided in U.S.
dollar and EURO equivalent amounts, as listed below. The table presents the
notional amounts (at the contract exchange rates), the weighted average
contractual foreign currency exchange rates, and the estimated fair value of
those contracts.

The local currency is the functional currency for all our foreign sales
operations. Our exposure to foreign currency risk has increased as a result of
our global expansion of business. To neutralize our US operation's exposure to
exchange rate volatility, we keep EUROS in a foreign currency bank account. The
balance of this bank account was 7.8 million EUROS at December 31, 2003.


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

Foreign currency forward sell
  exchange contracts:

   Mattson Technology Inc.
     (US Dollar equivalent amount)
        Japanese Yen                    $  2,800       111.02         $  2,898

   Mattson Thermal Products GmbH
     (Euro equivalent amount)
        U.S. Dollar                   EUR  9,155         1.19       EUR  8,832
                                        $ 11,325                      $ 10,925
        Japanese Yen                  EUR  2,344       132.79       EUR  2,342
                                        $  2,899                      $  2,897

                                       37
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                   Index to Consolidated Financial Statements

                                                                            Page
                                                                            ----
Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2003 and 2002 ................39

Consolidated Statements of Operations for the years
        ended December 31, 2003, 2002 and 2001...............................40

Consolidated Statements of Stockholders' Equity
        for the years ended December 31, 2003, 2002 and 2001.................41

Consolidated Statements of Cash Flows
        for the years ended December 31, 2003, 2002 and 2001.................42

Notes to Consolidated Financial Statements...................................43

Report of Independent Auditors ..............................................62


Financial Statement Schedules:

    Schedule II..............................................................72



                                       38

<PAGE>


                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                       As of December 31,
                                                                               ------------------------------
                                                                                     2003             2002
                                                                               --------------  --------------
                                   ASSETS
Current assets:
<S>                                                                                 <C>             <C>
  Cash and cash equivalents                                                         $ 77,115        $ 87,879
  Restricted cash                                                                        509           1,105
  Accounts receivable, net of allowance for doubtful accounts
     of $5,567 and $10,552 in 2003 and 2002, respectively                             34,260          34,834
  Advance billings                                                                    20,684          27,195
  Inventories                                                                         27,430          50,826
  Inventories - delivered systems                                                      6,549          47,444
  Prepaid expenses and other current assets                                           12,995          13,676
                                                                                   ---------       ---------
       Total current assets                                                          179,542         262,959

Property and equipment, net                                                           16,211          18,855
Goodwill                                                                               8,239          12,675
Intangibles, net                                                                       2,626          15,254
Other assets                                                                             769           2,416
                                                                                   ---------       ---------
           Total assets                                                            $ 207,387       $ 312,159
                                                                                   =========       =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                  $ 21,340        $ 14,346
  Accrued liabilities                                                                 62,608          77,795
  Deferred revenue                                                                    38,680         108,698
                                                                                   ---------       ---------
      Total current liabilities                                                      122,628         200,839
                                                                                   ---------       ---------

Long-term liabilities:
  Deferred income taxes                                                                1,055           5,215
                                                                                   ---------       ---------
       Total long-term liabilities                                                     1,055           5,215
                                                                                   ---------       ---------
       Total liabilities                                                             123,683         206,054
                                                                                   ---------       ---------

Commitments and contingencies (Note 17)

Stockholders' equity:
  Preferred stock, 2,000 shares authorized; none issued and outstanding                   --              --
  Common Stock, par value $0.001, 120,000 authorized shares;
     45,826 shares issued and 45,451 shares outstanding in 2003;
     45,232 shares issued and 44,857 shares outstanding in 2002                           45              45
  Additional paid-in capital                                                         546,099         542,482
  Accumulated other comprehensive income                                               9,468           7,131
  Treasury stock, 375 shares in 2003 and 2002 at cost                                 (2,987)         (2,987)
  Accumulated deficit                                                               (468,921)       (440,566)
                                                                                   ---------       ---------
       Total stockholders' equity                                                     83,704         106,105
                                                                                   ---------       ---------
           Total liabilities and stockholders' equity                              $ 207,387       $ 312,159
                                                                                   =========       =========

</TABLE>

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

                                       39
<PAGE>



                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                      ----------------------------------------
                                                         2003           2002            2001
                                                      ---------      ---------       ---------

<S>                                                    <C>            <C>            <C>
Net sales                                              $174,302       $203,520       $ 230,149
Cost of sales                                           112,783        163,063         224,768
                                                      ---------      ---------       ---------
  Gross profit                                           61,519         40,457           5,381
                                                      ---------      ---------       ---------
Operating expenses:
  Research, development and engineering                  22,988         37,395          61,114
  Selling, general and administrative                    54,292         86,218         110,785
  Acquired in-process research and development                -              -          10,100
  Amortization of goodwill and intangibles                2,151          6,591          33,457
  Restructuring and other charges                           489         17,307               -
  Impairment of long-lived assets and other charges           -              -         150,666
                                                      ---------      ---------       ---------
     Total operating expenses                            79,920        147,511         366,122
                                                      ---------      ---------       ---------
Loss from operations                                    (18,401)      (107,054)       (360,741)
Loss on disposition of Wet Business                     (10,257)             -               -
Interest expense                                           (122)        (1,660)         (2,989)
Interest income                                           1,207          2,380           4,354
Other income (expense), net                                (432)        11,916           3,651
                                                      ---------      ---------       ---------
Loss before provision (benefit) for income taxes        (28,005)       (94,418)       (355,725)
Provision (benefit) for income taxes                        350           (147)        (18,990)
                                                      ---------      ---------       ---------
Net loss                                              $ (28,355)     $ (94,271)      $(336,735)
                                                      =========      =========       =========
Net loss per share:
  Basic                                               $   (0.63)     $   (2.23)      $   (9.14)
  Diluted                                             $   (0.63)     $   (2.23)      $   (9.14)
Shares used in computing net loss per share:
  Basic                                                  44,997         42,239          36,854
  Diluted                                                44,997         42,239          36,854

</TABLE>


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

                                       40
<PAGE>



                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            Accumulated
                                              Common Stock                     Other      Treasury Stock
                                            ----------------   Additional  Comprehensive  --------------
                                                                Paid-In       Income                         Accumulated
                                            Shares    Amount    Capital       (Loss)     Shares   Amount      Deficit       Total
                                            -------   ------    -------      -------     ------  --------    ---------    --------
<S>                                        <C>        <C>      <C>          <C>           <C>    <C>         <C>          <C>
 Balance at December 31, 2000             20,815      $20    $ 198,835        $ (181)     (375)   $ (2,987)  $  (9,560)   $186,127

 Components of comprehensive loss:
    Net loss                                   -        -            -             -         -           -    (336,735)   (336,735)
   Cumulative translation adjustments          -        -            -        (6,463)        -           -           -      (6,463)
   Increase in minimum
     pension liability                         -        -            -            36         -           -           -          36
   Unrealized loss on investments              -        -            -           (61)        -           -           -         (61)
   Accumulated derivative gain                 -        -            -           116         -           -           -         116
                                                                                                                          --------
    Comprehensive loss                         -        -            -             -         -           -           -    (343,107)
                                                                                                                          --------
 Exercise of stock options                   362        1        2,418             -         -           -           -       2,419
 Shares issued to Concept shareholder         20        -            -             -         -           -           -           -
 Shares issued to STEAG shareholders      11,850       12      124,176             -         -           -           -     124,188
 Shares issued to CFM shareholders         4,234        4      170,614             -         -           -           -     170,618
 Shares issued under employee stock
    purchase plan                            125        -        1,161             -         -           -           -       1,161
 Income tax benefits realized from
   activity in employee stock plans            -        -          332             -         -           -           -         332
                                          ------      ---     --------       -------      ----     -------   ---------    --------
 Balance at December 31, 2001             37,406       37      497,536        (6,553)     (375)     (2,987)   (346,295)    141,738

 Components of comprehensive loss:
   Net loss                                                                                                    (94,271)    (94,271)
   Cumulative translation adjustments          -        -            -        13,570         -           -           -      13,570
   Unrealized loss on investments              -        -            -          (103)        -           -           -        (103)
   Accumulated derivative gain                 -        -            -           217         -           -           -         217
                                                                                                                          --------
    Comprehensive loss                         -        -            -             -         -           -           -     (80,587)
                                                                                                                          --------
 Private placement, net of
   offering costs                          6,124        7       34,855             -         -           -           -      34,862
 Shares issued for conversion of
   STEAG notes                             1,300        1        8,139             -         -           -           -       8,140
 Exercise of stock options                   114        -          596             -         -           -           -         596
 Shares issued under employee stock                                                                                              -
    purchase plan                            288        -        1,224             -         -           -           -       1,224
 Issuance of options to non-employees          -        -          132             -         -           -           -         132
                                           ------      ---     --------       -------      ----    -------    ---------   --------
  Balance at December 31, 2002             45,232       45      542,482         7,131      (375)    (2,987)    (440,566)   106,105

 Components of comprehensive loss:
   Net loss                                                                                                     (28,355)   (28,355)
   Cumulative translation adjustments          -        -            -         2,621         -         -            -        2,621
   Unrealized loss on investments              -        -            -            86         -         -            -           86
   Accumulated derivative gain                 -        -            -          (370)        -         -            -         (370)
                                                                                                                           --------
    Comprehensive loss                         -        -            -             -         -         -            -      (26,018)
                                                                                                                           --------
 Exercise of stock options                   399        -        3,329             -         -         -            -        3,329
 Shares issued under employee stock                                                                                              -
    purchase plan                            195        -          288             -         -         -            -          288
                                          ------      ---     --------       -------      ----    -------    ---------    --------
 Balance at December 31, 2003             45,826      $45     $546,099       $ 9,468      (375)   $(2,987)   $(468,921)   $ 83,704
                                          ======      ===     ========       =======      ====    =======    =========    ========

</TABLE>

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

                                       41
<PAGE>


                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                              ------------------------------------------
                                                                                  2003            2002           2001
                                                                                  ----            ----           ----
Cash flows from operating activities:
<S>                                                                           <C>             <C>             <C>
  Net loss                                                                    $ (28,355)      $ (94,271)      $(336,735)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation                                                                 5,858          10,632          16,611
     Deferred taxes                                                                (828)         (4,322)        (19,673)
     Provision for allowance for doubtful accounts                                 --               482           6,850
     Inventory valuation charges                                                  1,586          14,303          26,418
     Amortization of goodwill and intangibles                                     2,151           6,592          33,457
     Impairment of long-lived assets, restructuring and other charges               489          11,598         150,666
     Loss on disposal of Wet Business                                            10,257            --              --
     Loss on disposal of fixed assets                                             2,730           1,268           2,256
     Acquired  in-process  research and  development                               --              --            10,100
     Income tax benefit realized from activity in employee stock plans             --               132             332
     Changes in assets and liabilities:
       Restricted cash                                                             --              --             4,695
       Accounts receivable                                                          709           8,320          50,360
       Advance billings                                                             182          40,783         (21,170)
       Inventories                                                                1,225           5,263          56,638
       Inventories - delivered systems                                           10,234          35,936         (62,474)
       Prepaid expenses and other current assets                                   (415)          2,550          (3,180)
       Other assets                                                               6,034           2,163           2,695
       Accounts payable                                                           6,884            (282)        (20,656)
       Accrued liabilities                                                      (13,003)         (8,131)        (25,357)
       Deferred Revenue                                                         (22,089)        (43,916)         95,891
                                                                              ---------       ---------       ---------
Net cash used in operating activities                                           (16,351)        (10,900)        (32,276)
                                                                              ---------       ---------       ---------
Cash flows from investing activities:
  Purchases of property and equipment                                            (8,045)         (4,557)        (17,209)
  Proceeds from the sale of equipment                                              --             3,716             486
  Proceeds from the disposition of Wet Business                                   2,000            --              --
  Purchases of available for sale investments                                      --           (14,962)        (16,314)
  Proceeds from the sale and maturity of  available for sale investments           --            20,767          58,257
  Net cash acquired from acquisitions                                              --              --            38,046
                                                                              ---------       ---------       ---------
Net cash provided by (used in) investing activities                              (6,045)          4,964          63,266
                                                                              ---------       ---------       ---------
Cash flows from financing activities:
  Restricted cash                                                                   596          26,195            --
  Payment on line of credit                                                        --            (5,341)         (4,888)
  Borrowings against line of credit                                                --               194           9,043
  Payment on STEAG notes payable                                                   --           (38,775)           (805)
  Change in interest accrual on STEAG note                                         --             1,292           2,690
  Proceeds  from the issuance of Common Stock, net of offering costs               --            34,862            --
  Proceeds from stock plans                                                       3,617           1,820           3,580
                                                                              ---------       ---------       ---------
Net cash provided by financing activities                                         4,213          20,247           9,620
                                                                              ---------       ---------       ---------
Effect of exchange rate changes on cash and cash equivalents                      7,419           9,511          (9,984)
                                                                              ---------       ---------       ---------
Net increase in cash and cash equivalents                                       (10,764)         23,822          30,626
Cash and cash equivalents, beginning of year                                     87,879          64,057          33,431
                                                                              ---------       ---------       ---------
Cash and cash equivalents, end of year                                        $  77,115       $  87,879       $  64,057
                                                                              =========       =========       =========
Supplemental disclosures:
  Cash paid for interest                                                      $      24       $   1,313       $     805
  Cash paid for income taxes                                                  $   1,588       $   2,478       $     545
  Common stock issued for acquisition of STEAG Semiconductor division         $    --         $    --         $ 124,188
  Common stock issued for acquisition of CFM                                  $    --         $    --         $ 170,618
  Common stock issued for STEAG note conversion                               $    --         $   8,140       $    --
  Non-cash adjustment to goodwill and intangibles                             $  14,912       $   9,697       $  14,003

</TABLE>


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

                                       42
<PAGE>
                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mattson 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" fabrication of integrated circuits to the
semiconductor manufacturing industry worldwide.

The Company refocused its business on core technologies in dry strip and rapid
thermal processing, and accordingly in line with that focus the Company divested
its Wet Products Division on March 17, 2003. The transaction involved the
transfer of certain subsidiaries, assets and intellectual property related to
the Wet Products Division. As part of the transaction, the Company retained the
rights to all future royalty and settlement payments under agreements with
Dainippon Screen Manufacturing Co., Ltd.


Basis of Presentation

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

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

The Company's fiscal year ends on December 31. The Company's fiscal quarters end
on the last Sunday in the calendar quarter.


Revenue Recognition

Mattson derives revenue from two primary sources - equipment sales and spare
part sales. In December 1999, the Securities and Exchange Commission (or SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements." The Company implemented the provisions of SAB 101 in the
fourth quarter of 2000, retroactive to January 1, 2000. In December, 2003, the
SEC issued Staff Accounting Bulletin No. 104 (or SAB 104), "Revenue
Recognition", which supersedes SAB 101. The adoption of SAB 104 did not have a
material effect on our revenue recognition policy. The Company accounts for
equipment sales as follows: 1) for equipment sales of existing products with new
specifications or to a new customer, for all sales of new products (and, for the
first quarter of 2003 and earlier periods, for all sales of the wet surface
preparation products), revenue is recognized upon customer acceptance; 2) for
equipment sales to existing customers, who have purchased the same equipment
with the same specifications and previously demonstrated acceptance provisions,
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
after installation services have been performed and upon final customer
acceptance of the tool has been obtained, generally 10% of the total invoice
price, is deferred until final customer acceptance of the tool. The remaining
portion of the total invoice price relating to the tool, generally 90% of the
total invoice price, is recognized upon shipment and title transfer of the tool.
From time to time, however, 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 until these evaluation systems
are accepted by the customer. Revenues associated with sales to customers in
Japan are recognized upon title transfer, which generally occurs upon customer
acceptance, with the exception of sales of the RTP products through the
Company's distributor in Japan, where revenues are recognized upon title
transfer to the distributor. For spare parts, revenue is recognized upon
shipment. Service and maintenance contract revenue is recognized on a
straight-line basis over the service period of the related contract. Equipment
that has been delivered to customers but has not been accepted is classified as
"Inventories - delivered systems" in the accompanying consolidated balance
sheets. Receivables for which revenue has not been recognized are classified as
"Advance Billings" in the accompanying consolidated balance sheets. Deferred
revenue for tools awaiting customer acceptance was $21.0 million as of December
31, 2003 and $108.7 million as of December 31, 2002. These amounts represent
equipment that was shipped for which amounts were billed per the contractual
terms but have not been recognized as revenue in accordance with SAB 104.

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

                                       43
<PAGE>

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with 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 high-grade
money market funds and auction rate securities.


Restricted Cash

At December 31, 2003, the Company had $0.5 million of long-term restricted cash
towards collateral for the Company's corporate credit card. At December 31,
2002, the Company had $1.1 million of restricted cash of which $0.5 million was
collateral for the Company's corporate credit card, and $0.6 million was pledged
as deposits for leases in Germany.


Investments

Generally, the Company's investments primarily consist of overnight money market
funds and auction rate securities. The investments are reported at fair market
value, in accordance with the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The fair value of the Company's investments, if any, is
determined based on the quoted market prices at the reporting date for those
instruments. Investments with a contractual maturity of one year or less are
classified as short-term. At December 31, 2003 and 2002, the Company did not
have any short-term investments or long-term investments.


Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments, trade accounts receivable and financial instruments used in hedging
activities.

The Company invests in a variety of financial instruments such as money market
and auction rate securities. 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,
other Pacific Rim countries and Europe. 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. During the year ended December 31, 2003, the Company did
not provide for any additional allowance for doubtful accounts receivable, as
the current level is deemed appropriate by management to provide for potential
uncollectible accounts. In 2003, two customers, Samsung and Promos each
accounted for more than 10% of the Company's revenue, accounting for
approximately 19% and 11%, respectively. In 2002, three customers, Samsung,
Infineon, and UMC each accounted for more than 10% of the Company's revenue,
accounting for approximately 12%, 11% and 11%, respectively. At December 31,
2003, two customers, TSMC and UMC, accounted for more than 10% of the Company's
accounts receivables, accounting for 14% and 19 %, respectively. At December 31,
2002, two customers, Infineon and UMC, accounted for more than 10% of the
Company's accounts receivables, accounting for 17% and 14%, respectively.

The Company is exposed to credit loss in the event of non performance by
counterparties on the forward foreign exchange contracts used in hedging
activities. The Company does not anticipate nonperformance by these
counterparties.

                                       44


<PAGE>

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.

During 2003, inventory valuation charges of approximately $1.6 million were
recorded. In 2002, due to the changing market conditions, prolonged economic
downturn since 2001 and estimated future requirements, inventory valuation
charges of approximately $14.3 million were recorded. In 2001, inventory
valuation charges of approximately $26.4 million were recorded that largely
related to inventories for RTP and Omni products that were acquired in the
merger with the Steag Semiconductor Division and CFM. As of December 31, 2003
and 2002, the allowance for excess and obsolete inventory was approximately
$29.0 million and $49.7 million, respectively.


Property and Equipment

Property 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 term of the related lease or the estimated useful
lives of the improvements, whichever is shorter. Depreciation expense was $5.9
million, $10.6 million, and $16.6 million for the years ended December 31, 2003,
2002 and 2001, 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 in the
accompanying consolidated statements of operations. Asset retirements, write
downs or other dispositions, as well as repair and maintenance costs are
expensed as incurred.


Goodwill and Intangibles

In connection with its merger with the semiconductor equipment division of STEAG
Electronics Systems AG and CFM Technologies, Inc., effective January 1, 2001,
the Company recorded $207.3 million of goodwill and intangible assets which were
being amortized on a straight-line basis over three to seven years. Those
goodwill and intangible assets reflected the purchase price of the STEAG
Semiconductor Division and CFM, in excess of identified net tangible assets.
Intangible assets were comprised of purchased technology and workforce and are
presented at cost, net of accumulated amortization. The intangible asset for
workforce was reclassified as goodwill upon adoption of SFAS 141 on January 1,
2002. The Company continues to amortize other intangible assets for developed
technology. Amortization expense was $2.2 million, $6.6 million and $33.5
million for the years ended December 31, 2003, 2002 and 2001, respectively. The
Company assesses the realizability of goodwill and other intangible assets at
least annually or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable, in accordance with the provisions of SFAS
No. 142 and SFAS No. 144. SFAS No. 142 requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives
and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."


Impairment of Long-Lived Assets

Pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), the Company reviews the recoverability of
long-lived assets based upon its estimate of the future undiscounted cash flows
to be generated by the long-lived assets and reserves for impairment whenever
such estimated future cash flows indicate that the carrying amount of the assets
may not be fully recoverable. During the year ended December 31, 2003, the
Company did not record any impairment charge. During the year ended December 31,
2002, the Company recorded an aggregate impairment loss of $6.1 million for
intangible assets, property and equipment and other long-term assets relating to
the wet operation as it was determined that the carrying amount of these assets
exceeded the estimated future cash flows from the use of these assets.


Warranty

The warranty offered by the Company on its systems generally ranges from 12
months to 36 months depending on the product. A provision for the estimated cost
of warranty is recorded as a cost of sales when the revenue is recognized.

Under its warranty obligations, the Company is required to repair or replace
defective products or parts, generally at a customer's site, during the warranty
period at no cost to the customer. A provision for the estimated cost of
warranty is recorded as a cost of sales, based on the historical costs, at the
time of revenue recognition. The actual system performance and/or field expense
profiles may differ from historical experience, and in those cases the Company
adjusts its warranty accruals accordingly. The following table is the detail of
the product warranty accrual, for the years ended December 31, 2003 and 2002:


                                       45
<PAGE>
(in thousands)                                     Year Ended
                                         ------------------------------
                                         December 31,      December 31,
                                             2003              2002
                                           --------          --------
Balance at beginning of period             $ 16,486          $ 19,936
Accrual for warranties issued
  during the period                          10,378             5,715
Changes in liability related to
  pre-existing warranties                      (462)              413
Settlements made during the period           (9,894)           (9,578)
                                           --------          --------
Balance at end of period                   $ 16,508          $ 16,486
                                           ========          ========


Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As allowed by the provisions of SFAS
No. 123, the Company has continued to apply APB Opinion No. 25 in accounting for
its stock option plans and, accordingly, does not recognize compensation cost
because the exercise price of stock options equals the market price of the
underlying stock at the date of option grant. The Company adopted the disclosure
provisions of SFAS No. 123. In April 2000, the Financial Accounting Standards
Board issued FIN 44, "Accounting for Certain Transactions Involving Stock
Compensation: An Interpretation of APB No. 25." The Company has adopted the
provisions of FIN 44, and such adoption did not materially impact the Company's
results of operations. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation Transition and Disclosure." The
statement amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. The Company has adopted the disclosure provisions of SFAS
No. 148.

If the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
loss and loss per share would have been adjusted to the pro forma amounts
indicated in the table below:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                    -------------------------------------------------
                                                         2003             2002               2001
                                                         ----             ----               ----
                                                        (in thousands, except per share amounts)
Net loss:
<S>                                                   <C>               <C>               <C>
  As reported                                         $ (28,355)        $ (94,271)        $ (336,735)
  Add:      Stock-based compensation expense
             included in reported net loss                    -                 -                 -
  Deduct:   Total stock-based compensation
             expense determined under fair
             value method                                (2,095)           (7,233)           (10,589)
                                                      ---------         ---------         ----------
  Pro forma                                           $ (30,450)        $(101,504)        $ (347,324)
                                                      =========         =========         ==========
Diluted net loss per share:
  As reported                                         $   (0.63)        $   (2.23)        $    (9.14)
  Pro forma                                           $   (0.68)        $   (2.40)        $    (9.42)

</TABLE>


Foreign Currency

The local currency is the functional currency for all foreign operations.
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/(loss). Foreign currency transaction gains and losses are
recognized in the consolidated statements of operations as they are incurred.


                                       46
<PAGE>

Forward Foreign Exchange Contracts

The Company uses forward foreign exchange contracts primarily to hedge the
short-term impact of foreign currency fluctuations of third party receivable
denominated in Japanese Yen, and third party non functional currency accounts
receivable for its German Thermal division. All forward foreign exchange
contracts employed by the Company are short-term in nature. Because the impact
of movements in currency exchange rates on forward foreign exchange contracts
offsets the related impact on the underlying items being hedged, these financial
instruments do not subject the Company to speculative risks that would otherwise
result from changes in currency exchange rates. All foreign currency contracts
are marked-to-market and gains and losses on forward foreign exchange contracts
are deferred and recognized in the accompanying consolidated statements of
operations when the related transactions being hedged are recognized. Gains and
losses on unhedged foreign currency transactions are recognized as incurred.
While the Company does record foreign exchange gains or losses related to
transactions and revaluations, in ordinary course of business, to date, there
are no significant losses as of December 31, 2003 for open forward exchange
contracts.

The following table provides information as of December 31, 2003 about the
Company and its subsidiaries' derivative financial instruments, which are
comprised of foreign currency forward exchange contracts. The information is
provided in U.S. dollar and EURO equivalent amounts, as listed below. The table
presents the notional amounts (at the contract exchange rates), the weighted
average contractual foreign currency exchange rates, and the estimated fair
value of those contracts.

<TABLE>
<CAPTION>
                                                                                    Average             Estimated
                                                                  Notional          Contract              Fair
                                                                   Amount            Rate                Value
                                                                   ------            ----                -----
                                                                 (In thousands, except for average contract rate)
 <S>                                                             <C>                 <C>              <C>
  Foreign currency forward sell exchange contracts:

     Mattson Technology Inc. (US Dollar equivalent amount)
          Japanese Yen                                             $   2,800         111.02             $   2,898

     Mattson Thermal Products GmbH (Euro equivalent amount)
          U.S. Dollar                                            EUR   9,155           1.19           EUR   8,832
                                                                   $  11,325                            $  10,925
          Japanese Yen                                           EUR   2,344         132.79           EUR   2,342
                                                                   $   2,899                            $   2,897
</TABLE>


Comprehensive Income (Loss)

The Company's comprehensive income includes net loss, foreign currency
translation adjustments, increase in minimum pension liability, derivative gains
and losses and unrealized gains and losses on investments and is presented in
the statement of stockholders' equity. At December 31, 2003, the accumulated
other comprehensive income was $9.5 million which consisted of currency
translation adjustment gains. At December 31, 2002, the accumulated other
comprehensive income was $7.1 million, primarily consisting of $6.8 million
currency translation adjustment gains.

The following are the components of comprehensive loss:

                                                          Year ended
                                                 -----------------------------
(in thousands)                                   December 31,     December 31,
                                                     2003             2002
                                                   --------        --------
Net loss                                           $(28,355)       $(94,271)

Cumulative translation adjustments                    2,621          13,570
Unrealized investment  gain (loss)                       86            (103)
Gain (loss) on cash flow hedging instruments           (370)            217
                                                   --------        --------
Comprehensive loss                                 $(26,018)       $(80,587)
                                                   ========        ========

                                       47

<PAGE>


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

(in thousands)                              December 31,     December 31,
                                                2003             2002
                                              -------          -------
Cumulative translation adjustments            $ 9,469          $ 6,848
Unrealized investment  loss                        (1)             (87)
Gain on cash flow hedging instruments            --                370
                                              -------          -------
                                              $ 9,468          $ 7,131
                                              =======          =======

Net Income (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share gives effect to all dilutive potential common shares
outstanding during the period. For purposes of computing diluted earnings per
share, weighted average common share equivalents do not include stock options
with an exercise price that exceeded the average market price of the Company's
common stock for the period.

Income Taxes

The 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 assets which are not likely to be
realized.

New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 were initially required to be applied
for the first interim or annual period beginning after June 15, 2003. At its
meeting on October 8, 2003, the FASB deferred the latest date by which all
public entities must apply FIN 46 to the first reporting period ending after
December 15, 2003. This deferral applies to all variable interest entities
(VIEs) and potential VIEs, both financial and non-financial in nature. The
adoption of FIN 46 did not have a material impact on the Company's financial
condition or statement of operations.

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

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
(SFAS 150), "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity." SFAS 150 establishes standards on the
classification and measurement of financial instruments with characteristics of
both liabilities and equity. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003. While the effective date of certain
elements of SFAS 150 have been deferred, the adoption of SFAS 150 when finalized
is not expected to have a material effect on the Company's financial condition,
results of operations or cash flows.

In December, 2003, the Securities and Exchange Commission (or SEC) issued Staff
Accounting Bulletin No. 104 (or SAB 104), "Revenue Recognition", which
supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's
primary purpose is to rescind the accounting guidance contained in SAB 101
related to multiple-element revenue arrangements that was superseded as a result
of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's related
"Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers" issued with SAB 101 that had been codified in SEC Topic 13, "Revenue
Recognition." While the wording of SAB 104 has changed to reflect the issuance
of EITF 00-21, the revenue recognition principles of SAB 101 remain largely
unchanged by the issuance of SAB 104, which was effective upon issuance. The
Company's adoption of SAB 104 did not have a material effect on its financial
position or results of operations.

                                       48

<PAGE>


2. BALANCE SHEET DETAIL

                                         As of December 31,
                                       ----------------------
                                         2003           2002
                                       --------      --------
                                           (in thousands)
INVENTORIES:
  Purchased parts and raw materials    $ 18,884      $ 27,085
  Work-in-process                         5,444        20,492
  Finished goods                          3,102         3,249
                                       --------      --------
                                       $ 27,430      $ 50,826
                                       ========      ========

PROPERTY AND EQUIPMENT, NET:
  Land and buildings                   $  2,376      $  2,746
  Machinery and equipment                30,359        35,705
  Furniture and fixtures                 18,550        22,346
  Leasehold improvements                  2,831         5,735
                                       --------      --------
                                         54,116        66,532
  Less: accumulated depreciation        (37,905)      (47,677)
                                       --------      --------
                                       $ 16,211      $ 18,855
                                       ========      ========

ACCRUED LIABILITIES:
  Warranty and installation            $ 16,508      $ 16,486
  Accrued compensation and benefits       6,596        11,140
  Income taxes                            6,992         5,797
  Other                                  32,512        44,372
                                       --------      --------
                                       $ 62,608      $ 77,795
                                       ========      ========


3.  DISPOSITION OF WET BUSINESS

On March 17, 2003, the Company sold the portion of its business that was engaged
in developing, manufacturing, selling, and servicing wet surface preparation
products for the cleaning and preparation of semiconductor wafers (the "Wet
Business") to SCP Global Technologies, Inc. ("SCP"). The Company had originally
acquired the Wet Business on January 1, 2001, as part of its merger with the
STEAG Semiconductor Division and CFM. As part of this disposition, SCP acquired
certain subsidiaries and assets, and assumed certain contracts relating to the
Wet Business, including the operating assets, customer contracts and inventory
of CFM, all outstanding stock of Mattson Technology IP, Inc. ("Mattson IP"), a
subsidiary that owns various patents relating to the Wet Business, and all
equity ownership interest in Mattson Wet Products GmbH, a subsidiary in Germany
that owned the Company's principal Wet Business operations. The Company retained
rights to all the cash from the Wet Business entities, and the Company retained
all rights to payments under the settlement and license agreements with DNS. See
Note 8. SCP acquired the rights to any damages under pending patent litigation
relating to patents owned by Mattson IP. SCP assumed responsibility for the
operations, sales, marketing and technical support services for the Company's
former wet product lines worldwide.

The initial purchase price paid to the Company by SCP to acquire the Wet
Business was $2 million in cash. That initial purchase price was subject to
adjustment based on a number of criteria, including the net working capital of
the Wet Business at closing, to be determined post-closing based on a pro forma
closing date balance sheet, and an earn-out, up to an aggregate maximum of $5
million, payable to the Company based upon sales by SCP of certain products to
identified customers through December 31, 2004. There has been no earn-out
received during the twelve months ended December 31, 2003. The Company assumed
certain real property leases relating to transferred facilities in Germany,
subject to a sublease to SCP. The Company made payments of $4.4 million to SCP
during the fourth quarter of 2003, settling substantially all of its outstanding
obligations to SCP. The Company's obligations were to (i) fund salary and
severance costs relating to reductions in force to be implemented in Germany
after the closing, (ii) fund a net working capital adjustment, (iii) reimburse
SCP for future legal fees, up to a maximum of $1 million, in pending patent
litigations, and (iv) reimburse SCP for amounts necessary to cover specified
customer responsibilities. As a result of significant continuing involvement
subsequent to the disposition, the transaction was accounted for as a sale of
assets and liabilities.


                                       49

<PAGE>

During the first quarter of 2003, as part of the loss on disposition of the Wet
Business, the Company recorded accruals of approximately $11.9 million to cover
the future obligations relating to this transaction. The Company did not record
any additional accrual for this transaction during the fourth quarter of 2003.

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


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

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

On December 5, 2003, the Company signed the Second Amendment to Stock and Asset
Purchase Agreement for Wet Products Division (the "Second Amendment") with SCP.
Under the terms of the Second Amendment, the Company paid $4.4 million to SCP in
exchange for being released from any further liabilities relating to (i) working
capital adjustments, (ii) pension obligations, (iii) reductions in force in
Germany (iv) reimbursement of legal fees, and (v) reimbursement of amounts
necessary to cover specified customer responsibilities.

As of December 31, 2003, the Company had paid $11.5 million relating to
reductions in force, working capital adjustment, investment banker's fees, legal
fees, and accounting and other professional fees which were charged against
accruals established at the closing of the sale. With the signing of the Second
Amendment on December 5, 2003, the Company has no further obligation to SCP
relating to the sale of the Wet Business.

The Company's Wet Business represented a significant portion of the Company's
net sales and costs in 2001, 2002 and the first quarter of 2003. As a result,
the divestiture of the Wet Business affects the comparability of the Company's
Consolidated Statements of Operations to its reported results from prior
periods. For periods prior to the divestiture of the Wet Business, the Company's
net sales were comprised primarily of sales of Wet Business products, sales of
RTP products and strip products, and royalties received from Dainippon Screen
Manufacturing Co., Ltd. ("DNS"). (See Note 8). Following the divestiture of the
Wet Business, the Company's net sales are comprised primarily of sales of RTP
and strip products, and royalties received from DNS. In the fourth quarter of
2003, $1.3 million of revenue was recognized that related to a deferred Wet
system that remained the property of the Company after the divestiture.


4.  ACQUISITIONS

In connection with the acquisitions of the STEAG Semiconductor Division and CFM
Technologies in 2001, the Company allocated approximately $10.1 million of the
purchase price to in-process research and development projects. This allocation
represented the estimated fair value based on risk-adjusted cash flows related
to the incomplete research and development projects. At the date of acquisition,
the development of these projects had not yet reached technological feasibility,
and the research and development in progress had no alternative future uses.
Accordingly, the purchase price allocated to in-process research and development
was expensed as of the acquisition date.

                                       50

<PAGE>

5. GOODWILL AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                                       December 31, 2003                             December 31, 2002
                                           ---------------------------------------        -------------------------------------
                                            Gross                          Net             Gross                          Net
                                           Carrying     Accumulated      Carrying         Carrying     Accumulated     Carrying
                                            Amount      Amortization      Amount           Amount     Amortization      Amount
                                            ------      ------------      ------           ------     ------------      ------
<S>                                         <C>            <C>            <C>              <C>           <C>            <C>
Goodwill                                    $ 8,239        $  --          $ 8,239          $12,675       $  --          $12,675
Developed technology                          6,565         (3,939)         2,626           24,994        (9,740)        15,254
                                            -------        -------        -------          -------       -------        -------
Total goodwill and intangible assets        $14,804        $(3,939)       $10,865          $37,669       $(9,740)       $27,929
                                            =======        =======        =======          =======       =======        =======

</TABLE>

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

<TABLE>
<CAPTION>
                                                       For the Year Ended
                                         -------------------------------------------------
                                          December 31,      December 31,      December 31,
                                             2003              2002              2001
                                            -------          -------            -------
<S>                                         <C>              <C>                <C>
Goodwill amortization                       $  --            $  --              $13,384
Other intangible assets amortization           --               --                7,285
Developed technology amortization             2,151            6,592             12,788
                                            -------          -------            -------
 Total amortization                         $ 2,151          $ 6,592            $33,457
                                            =======          =======            =======
</TABLE>


In accordance with SFAS 142, the Company performed an annual goodwill impairment
test as of December 31, 2003 and determined that goodwill was not impaired. The
Company evaluates goodwill at least on an annual basis and whenever events and
changes in circumstances suggest that the carrying amount may not be recoverable
from its estimated future cash flow. No assurances can be given that future
evaluations of goodwill will not result in charges as a result of future
impairment.

An intangible asset for workforce was reclassified as goodwill upon adoption of
SFAS 141 on January 1, 2002. The Company continues to amortize developed
technology intangible assets. Amortization expense for developed technology and
other intangible assets was $2.2 million and $6.6 million for the years ended
December 31, 2003 and 2002, respectively. The amortization expense is estimated
to be $1.3 million for each of fiscal years 2004 and 2005. In the first quarter
of 2003, goodwill and intangible assets relating to developed technology were
reduced by $4.4 million and $10.5 million, respectively, in connection with the
Wet Business divestiture.

In the third quarter of the year ended December 31, 2002, the Company wrote-off
the intangible assets for developed technology related to the EPI product line
and recorded a $1.3 million impairment charge, which is included in
non-recurring, restructuring and other charges.

In the fourth quarter of the year ended December 31, 2002, the Company recorded
a $3.1 million impairment charge for the intangible assets for developed
technology relating to the Company's wet operation as it was determined that the
carrying amount of the asset exceeded the estimated future cash flows to be
derived from the use of the asset.

Net loss for 2001, on an adjusted basis, excluding goodwill amortization
expense, would have been as follows (unaudited, in thousands, except per share
data):
                                                        Year Ended
                                                        December 31,
                                                           2001
                                                        -----------
Net loss, as reported                                   $ (336,735)
Add: goodwill amortization                                  20,669
                                                        ----------
Net loss -- as adjusted                                 $ (316,066)
                                                        ==========

Basic and diluted loss per share, as reported           $    (9.14)
Add: goodwill amortization                                    0.56
                                                        ----------
Basic and diluted loss per share -- as adjusted         $    (8.58)
                                                        ==========

                                       51
<PAGE>


6. RESTRUCTURING AND OTHER CHARGES

During the third quarter of 2003, the company recorded restructuring and other
charges of $489,000 that included $381,000 for workforce reductions in Fremont
and Germany and $108,000 for consolidation of excess facilities in California
resulting from realignment to current business conditions. In connection with
the workforce reductions the Company terminated 104 employees. The Company
anticipates that the accrued liabilities at December 31, 2003 for the workforce
reduction and the consolidation of excess facilities will be paid out by March
31, 2004 and the next two to three years, respectively.

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

The following is a summary of activities in the restructuring-related accruals
during the year ended December 31, 2003:

<TABLE>
<CAPTION>
                                                                 Restructuring           Cash Payments
                                           Liability as of       charges during             during           Liability as of
                                             December 31,        the year ended          the year ended        December 31,
                                                2002           December 31, 2003       December 31, 2003           2003
                                           --------------      -----------------       -----------------      ---------------

<S>                                          <C>                        <C>                <C>                   <C>
Workforce reduction                          $ 2,307                $   381                $(2,573)              $   115
Consolidation of excess facilities             2,056                    108                   (989)                1,175
                                             -------                -------                -------               -------
                  Total                      $ 4,363                $   489                $(3,562)              $ 1,290
                                             =======                =======                =======               =======
</TABLE>


During 2002, in response to the continued slow-down in capital spending by
semiconductor manufacturers, and to better align the Company with current
industry conditions and its business strategy, the Company took cost reduction
actions and recorded $17.3 million of restructuring and other charges related to
property and equipment, leased facilities, personnel and an intangible asset.

The following table summarizes the restructuring charges and related activity
for the year ended December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                                  Liability as of
                                             Total     Non-cash    Cash Payments    December 31,
                                            Charges     Charges       in 2002           2002
                                           ---------   ---------   ------------    --------------

<S>                                         <C>        <C>           <C>               <C>
    Workforce reduction                     $ 3,371    $      -      $ (1,064)         $ 2,307
    Consolidation of excess facilities        2,338           -          (282)           2,056
    Impairment of fixed assets                6,531      (6,531)            -                -
    Impairment of intangible assets           4,363      (4,363)            -                -
    Impairment of other long-term assets        704        (704)            -                -
                                           --------    --------      --------          -------
          Total                            $ 17,307    $(11,598)     $ (1,346)         $ 4,363
                                           ========    ========      ========          =======
</TABLE>



                                       52

<PAGE>

The following paragraphs describe in more detail the components of the
non-recurring, restructuring and other charges.

Workforce reduction

In September 2002, the Company reduced the workforce at its Fremont, California
location by approximately 30 employees, primarily in connection with the
reorganization of the EPI and CVD product lines and consolidation of RTP
operations into the Company's Dornstadt, Germany facility. The Company also
implemented a reduction in force that affected employees at its Malvern,
Pennsylvania location, where approximately 65 individuals were notified in
August 2002 that their employment would cease on various dates from October 29,
2002 through April 1, 2003 in connection with the planned shutdown of the
Company's Malvern facilities. Severance and related employee benefit costs
related to the reduction in force at both locations amounted to $1.0 million,
which have been or will be paid at the time of their separation. During the
fourth quarter of 2002, approximately 52 individual's employment ceased at the
Malvern, Pennsylvania location. Additionally, in December 2002, the Company
further reduced the workforce by approximately 80 employees, at its locations in
California, Germany, UK, France and Italy, and recorded a charge of $2.4
million. $2.2 million out of the $2.3 million accrued liability at December 31,
2002 was paid out during the first three quarters of 2003.

In fiscal 2001, the Company recorded a charge of $8.1 million for severance. The
charge was included in selling, general, and administrative expense and was
related to the termination of 466 employees. During 2001, $2.6 million was paid
for severance and at December 31, 2001 the remaining severance accrual was $5.5
million.

Consolidation of excess facilities

The Company incurred a $2.3 million restructuring charge in 2002 for four excess
leased facilities located in Pennsylvania, as well as several other excess
leased facilities in the US and overseas. The remaining lease obligations on
vacated facilities that are non-cancellable, net of the income from subleasing
these facilities, are estimated to be approximately $2.4 million. The income
from subleasing these facilities is estimated based upon current comparable
rates for leases in the respective markets. If facilities rental rates continue
to decrease in these markets, or if it takes longer than expected to sublease
these facilities, the actual loss could exceed this estimate. The accrued
liability at December 31, 2002 of $2.1 million is estimated to be paid out in
the next one to two years.

Impairment of fixed assets

During the third quarter of 2002, restructuring costs related to abandoned
property and equipment amounted to $1.7 million, which represented the net book
value of fixed assets as of September 29, 2002 relating to the reorganization of
the EPI and CVD product lines and consolidation of RTP development operations
into the Company's Dornstadt, Germany facility. The fixed assets included in the
restructuring charges were removed from service prior to September 29, 2002.
During the fourth quarter of 2002, restructuring costs related to abandoned
property and equipment amounted to $2.5 million, which represented the write off
of fixed assets related to discontinued projects in the Company's Epi and wet
surface preparation product lines. Additionally, the Company performed an
assessment of the carrying amount of property and equipment for its Wet
business, and recorded an impairment charge of $2.3 million.


Impairment of intangible assets

During the third quarter of 2002, the Company wrote off an intangible asset with
a remaining net book value of $1.3 million as of September 29, 2002, for
developed technology resulting from the Company's Concept Systems acquisition in
1998. This developed technology specifically related to the Company's Epi
product line, which was reorganized during September 2002. Additionally, in the
fourth quarter of 2002, the Company performed an assessment of the carrying
value of intangible assets for its Wet business and as a result of this
assessment, recorded a charge of $3.1 million.

Impairment of other long-term assets

In the fourth quarter of 2002, the Company performed an assessment of the
carrying value of other long term assets for its Wet business and as a result of
this assessment, recorded a charge of $0.7 million.

During 2001, in connection with its acquisitions of the STEAG Semiconductor
Division and CFM, the Company, after performing an assessment of the carrying
value of the long-lived assets recorded a charge of $145.4 million to reduce
goodwill, intangible assets and property and equipment based on the amount by
which the carrying value of the assets exceeded their fair value. This was as a
result of deteriorated market conditions in the semiconductor industry in
general, a reduced demand specifically for the Thermal and wet surface
preparation products acquired in the Merger and revised projected cash flows for
these products in the future.

                                       53
<PAGE>


7. DEBT

The Company's Japanese subsidiary has a credit facility with a Japanese bank in
the amount of 900 million Yen (approximately $8.4 million at December 31, 2003),
collateralized by specific trade accounts receivable of the Japanese subsidiary.
The facility bears interest at a per annum rate of TIBOR plus 75 basis points.
The facility will expire on June 20, 2004. The Company has given a corporate
guarantee for this credit facility. There are no financial covenant requirements
for this credit facility. At December 31, 2003, there were no borrowings under
this credit facility.

The Company has a revolving line of credit with a bank in the amount of $20.0
million, which will expire on April 26, 2004. All borrowings under this credit
line bear interest at a per annum rate equal to the bank's prime rate plus 125
basis points. The line of credit is 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 a minimum balance of unrestricted cash and cash
equivalents and a minimum balance of investment accounts, and not exceeding a
maximum net loss limit. At December 31, 2003, the Company was in compliance with
the covenants and there were no borrowings under this credit line.


8. PRIVATE PLACEMENT

On April 30, 2002, the Company issued 7.4 million shares of common stock in a
private placement transaction. Of the 7.4 million shares issued, 1.3 million
shares were issued to Steag Electronic Systems AG upon conversion of $8.1
million of outstanding promissory notes at $6.15 per share. The remaining 6.1
million shares were sold to other investors at $6.15 per share for aggregate net
cash proceeds of $34.9 million. At December 31, 2003, Steag Electronic Systems
AG held approximately 29.4% of the Company's common stock. See Note 18.


9. DNS PATENT INFRINGEMENT SUIT SETTLEMENT

On March 5, 2002, a jury in San Jose, California rendered a verdict in favor of
the Company's then subsidiary, Mattson Wet Products, Inc. (formally CFM
Technologies, Inc.), in a patent infringement suit against Dainippon Screen
Manufacturing Co., Ltd. ("DNS"), a large Japanese manufacturer of semiconductor
wafer processing equipment. The jury found that six different DNS wet processing
systems infringed on two of CFM's drying technology patents and that both
patents were valid. On June 24, 2002, the Company and DNS jointly announced that
they had amicably resolved their legal disputes with a comprehensive, global
settlement agreement, which included termination of all outstanding litigation
between the companies. On March 17, 2003, as part of the disposition of the Wet
Business, the Company sold to SCP the subsidiary that owns the patents licensed
to DNS. However, the Company retained all rights to payments under the
settlement and license agreements. The settlement agreement and license
agreement require DNS to make payments to Mattson totaling between $75 million
(minimum) and $105 million (maximum), relating to past damages, partial
reimbursement of attorney's fee and costs, and royalties.

During year ended December 31, 2003, DNS paid the Company $24.0 million. As of
December 31, 2003, DNS has made payments aggregating $51.0 million under the
terms of the settlement and license agreements. Of the $51.0 million paid by DNS
as of December 31, 2003, $4.0 million was subjected to Japanese withholding tax,
and the net amount the Company received was $47.0 million. In future periods,
the Company is scheduled to receive minimum royalty payments as follows:

                                         Future
        Fiscal Year Ending            DNS Payments
           December 31,              to be received
        -----------------           ----------------
                                     (in thousands)

               2004                     $ 6,000
               2005                       6,000
               2006                       6,000
               2007                       6,000
                                        -------
                                        $24,000
                                        =======

The Company has obtained an independent appraisal of the DNS arrangements to
determine, based on relative fair values, how much of the aggregate payments due
to Mattson were attributable to past disputes and how much are attributable to
future royalties on DNS sales of the wet processing products. Based on the
appraisal, the Company allocated $15.0 million to past damages, which was
recorded as "other income" during 2002, and allocated $60 million to royalty
income, which is being recognized in net sales in the statement of operations on
a straight-line basis over the license term. During the year ended December 31,
2003 and 2002, the Company recognized $12.0 million and $6.3 million of royalty
income, respectively.


                                       54
<PAGE>

10. CAPITAL STOCK

Mattson's authorized capital stock consists of 120,000,000 shares of common
stock of which 45,825,625 were issued and 45,450,825 were outstanding at
December 31, 2003, and 2,000,000 shares of preferred stock, none of which were
outstanding at December 31, 2003.

Common Stock

On April 30, 2002, the Company issued 7.4 million shares of common stock in a
private placement transaction. Of the 7.4 million shares issued, 1.3 million
shares were issued to Steag Electronic Systems AG ("SES") upon conversion of
$8.1 million of outstanding promissory notes at $6.15 per share. The remaining
6.1 million shares were sold to other investors at $6.15 per share for aggregate
net cash proceeds of $34.9 million. See Note 18.


Stock Option Plan

In September 1989, the Company adopted an incentive and non-statutory stock
option plan under which a total of 11,975,000 shares of common stock have been
reserved for issuance. Options granted under this Plan are for periods not to
exceed ten years. Incentive stock option and non-statutory stock option grants
under the Plan must be at prices at least 100% and 85%, respectively, 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. At December 31, 2003, approximately 5.7 million shares were
available for grant under future options.

A summary of the status of the Company's stock option plans at December 31,
2003, 2002 and 2001 and changes during the years then ended is presented in the
following tables and narrative. Share amounts are shown in thousands.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                     ---------------------------------------------------------------------
                                                             2003                     2002                   2001
                                                     ----------------------    -------------------    --------------------
                                                                 Weighted-               Weighted-               Weighted-
                                                                  Average                Average                  Average
                                                                  Exercise               Exercise                 Exercise
Activity                                              Shares       Price       Shares     Price       Shares       Price
--------                                              ------       -----       ------     -----       ------       -----

<S>                                                   <C>         <C>           <C>       <C>           <C>        <C>
Outstanding at beginning of year                      5,782       $11.11        5,680     $12.77        2,824      $12.44
Granted                                               1,380         4.83        1,674       5.36        3,299       10.67
CFM options assumed                                       -            -            -          -          927       18.99
Exercised                                              (399)        7.58         (114)      5.20         (362)       6.51
Forfeited                                            (1,359)        9.66       (1,458)     11.41       (1,008)      13.69
                                                     -------                 ---------               ---------
Outstanding at end of year                            5,404        10.13        5,782      11.11        5,680       12.77
                                                     =======                 =========               =========
Exercisable at end of year                            2,847        13.77        2,773      14.10        2,259       14.47
                                                     =======                 =========               =========
Weighted-average fair value per option granted                      3.94                    3.70                     7.32

</TABLE>


The weighted average fair value of options granted under the option plan was
approximately $4.83 in 2003 and $5.36 in 2002.

The following table summarizes information about stock options outstanding at
December 31, 2003 (amounts in thousands except exercise price and contractual
life):

<TABLE>
<CAPTION>
                                Options Outstanding                      Options Exercisable
                        ------------------------------------         --------------------------
                                     Weighted-
                                     Average        Weighted-                      Weighted-
   Range of                         Contractual      Average                        Average
   Exercise Prices         Number      Life       Exercise Price      Number     Exercise Price
   ---------------         ------      ----       --------------      ------     --------------
<S>                        <C>         <C>          <C>               <C>            <C>
   $ 1.55 -  $ 2.83          969        9.1          $ 2.18             77            $ 2.07
   $ 2.85 -  $ 6.95        1,101        7.7          $ 5.21            423            $ 5.90
   $ 6.97 -  $ 9.36        1,010        7.2          $ 7.78            578            $ 7.76
   $ 9.38 -  $12.29        1,087        7.2          $10.83            613            $10.25
   $12.42 -  $30.30          958        5.2          $17.29            886            $17.41
   $30.63 -  $69.20          279        4.2          $38.32            270            $38.33
                           -----        ---          ------          -----            ------
                           5,404        7.2          $10.13          2,847            $13.77
                           =====        ===          ======          =====            ======
</TABLE>


                                       55
<PAGE>

Compensation cost under SFAS No. 123 for the fair value of each incentive stock
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model for the multiple option approach with the following
weighted average assumptions:

                                           2003         2002        2001
                                           ----         ----        ----

    Expected dividend yield                    -          -           -
    Expected stock price volatility          100%        93%         89%
    Risk-free interest rate                  3.0%       3.6%        6.0%
    Expected life of options            4.8 years    2 years     2 years


Employee Stock Purchase Plan

In August 1994, the Company adopted an employee stock purchase plan ("Purchase
Plan") under which 4,675,000 shares of common stock have been reserved for
issuance. The Purchase Plan is administered generally over offering periods of
24 months, with each offering period divided into four consecutive six-month
purchase periods beginning May 1 and November 1 of each year. Eligible employees
may designate not more than 15% of their 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 six months, 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 is lower. At December 31, 2003, approximately 1.0
million shares were available in the Plan.

The weighted average fair value on the grant date of rights granted under the
employee stock purchase plan was approximately $1.51 in 2003, $2.85 in 2002, and
$5.92 in 2001. Shares sold under the Purchase Plan were approximately 195,154 in
2003 and 411,460 in 2002.

Compensation cost under SFAS No. 123 is calculated for the estimated fair value
of the employees' stock purchase rights using the Black-Scholes option-pricing
model with the following average assumptions:

                                         2003        2002        2001
                                         ----        ----        ----
Expected dividend yield                      -          -           -
Expected stock price volatility            104%        93%         89%
Risk-free interest rate                    3.0%       3.6%        6.0%
Expected life of options                2 years    2 years     2 years


11. INCOME TAXES

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

                                                 Year Ended December 31,
                                        --------------------------------------
                                            2003         2002          2001
                                         ---------     ---------     ---------
                                                     (in thousands)
Domestic loss                            $ (35,646)    $ (79,767)    $(266,719)
Foreign income (loss)                        7,641       (14,651)      (89,006)
                                         ---------     ---------     ---------
Loss before provision for income taxes   $ (28,005)    $ (94,418)    $(355,725)
                                         =========     =========     =========


                                       56

<PAGE>

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

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                              -------------------------------------------
                                                 2003             2002             2001
                                              ---------        ---------        ---------
                                                              (in thousands)
<S>                                           <C>              <C>              <C>
  Current:
    Federal                                   $       -        $  (1,136)       $       -
    State                                           100              201              129
    Foreign                                       1,078            5,110            2,782
                                              ---------        ---------        ---------
 Total current                                    1,178            4,175            2,911
                                              ---------        ---------        ---------
 Deferred:
    Federal                                        (828)          (4,322)         (19,163)
    State                                             -                -           (2,738)
                                              ---------        ---------        ---------
  Total deferred                                   (828)          (4,322)         (21,901)
                                              ---------        ---------        ---------
     Provision (benefit) for income taxes     $     350        $    (147)       $ (18,990)
                                              =========        =========        =========
</TABLE>

Deferred tax assets are comprised of the following:

                                                         As of December 31,
                                                      ------------------------
                                                        2003            2002
                                                      --------        --------
                                                          (in thousands)
Reserves not currently deductible                     $ 24,828        $ 25,489
Deferred revenue                                         2,260           6,672
Depreciation                                             8,924           6,636
Net operating loss carryforwards                       105,478         108,535
Tax credit carryforwards                                12,302          12,535
Other                                                   18,433           1,482
                                                      --------        --------
Total net deferred taxes                               172,225         161,349
Deferred tax assets valuation allowance               (172,225)       (161,349)
                                                      --------        --------
  Net deferred tax asset                                     -               -
                                                      --------        --------
Deferred tax liability - acquired intangibles           (1,055)         (5,215)
                                                      --------        --------
  Total deferred tax asset/(liability)                $ (1,055)       $ (5,215)
                                                      ========        ========

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

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                          -----------------------------------------------
                                                             2003               2002              2001
                                                          ---------          ---------          ---------
                                                                            (in thousands)
<S>                                                       <C>                <C>                <C>
Provision (benefit) at statutory rate                     $  (9,802)         $ (33,046)         $(124,504)
State taxes, net of federal benefit                            (700)            (2,578)            (9,711)
Foreign earnings taxed at different rates                      (124)            (3,357)            (2,011)
Current unbenefitted losses                                   6,288             26,079             37,935
Non-deductible amortization and impairment charge              --                 --               37,471
Foreign tax credits                                            --               (1,968)              --
Deferred tax asset valuation allowance                        4,589             12,323             41,834
Other                                                            99              2,400                 (4)
                                                          ---------          ---------          ---------
            Total provision for income taxes              $     350          $    (147)         $ (18,990)
                                                          =========          =========          =========

</TABLE>

                                       57
<PAGE>


The valuation allowance at December 31, 2003 and 2002 is attributable to federal
and state deferred tax assets, as well as foreign deferred tax assets.
Management believes that sufficient uncertainty exists with regard to the
realizability of 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 and the lack of carryback capacity to
realize these assets. Based on the absence of objective evidence, management is
unable to assert that it is more likely than not that the Company will generate
sufficient taxable income to realize all the Company's net deferred tax assets.
At December 31, 2003, the Company had federal net operating loss carryforwards
of approximately $275 million which will expire at various dates through 2023.
The Company also has approximately $12 million foreign net operating loss
carryforwards in Germany, in addition to the federal net operating loss
carryforwards, that are unlimited and do not have any expiration date.
Approximately $35 million of the deferred tax asset was acquired by the Company
as a result of its acquisitions of the STEAG Semiconductor Division, CFM and
Concept Systems Design, Inc. and, if realized, will be used to reduce the amount
of goodwill and intangibles recorded at the date of acquisition first before
reducing the tax provision. The federal and state net operating losses acquired
from the STEAG Semiconductor Division, CFM and Concept are also subject to
change in control limitations. 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 which can be utilized. Approximately $1.0
million of the valuation allowance is 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.


12. EMPLOYEE BENEFIT PLANS

The Company has a retirement/savings plan (the "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 Plan. The
Plan allows participants to contribute up to 20% of the total compensation that
would otherwise be paid to the participant, not to exceed the amount allowed by
the applicable Internal Revenue Service guidelines. The Company may make a
discretionary matching contribution equal to a percentage of the participant's
contributions. In 2003, 2002, and 2001 the Company made matching contributions
of approximately $562,000, $920,000 and $1,171,000 respectively.

The Company's divested Wet business entity in Germany had a pension plan that
was established in accordance with certain German laws. Benefits were determined
based upon retirement age and years of service with the Company. The plan was
not funded and there were no plan assets. The Company made payments to the plan
when distributions to participants were required. There was no pension expense
in 2003 through the divestiture date of March 17, 2003. Pension expense for the
year 2002 and 2001 were $46,000 and $32,000, respectively. At December 31, 2003,
there was no accumulated benefit obligation.

13. NET INCOME (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                             -----------------------------------------
                                                                2003            2002            2001
                                                             ---------       ---------       ---------
<S>                                                          <C>             <C>             <C>
BASIC NET INCOME (LOSS) PER SHARE:
  Loss available to common stockholders                      $ (28,355)      $ (94,271)      $(336,735)
                                                             ---------       ---------       ---------
  Weighted average common shares outstanding                    44,997          42,239          36,854
                                                             ---------       ---------       ---------
  Basic loss per share                                       $   (0.63)      $   (2.23)      $   (9.14)
                                                             =========       =========       =========
DILUTED NET INCOME (LOSS) PER SHARE:
  Loss available to common stockholders                      $ (28,355)      $ (94,271)      $(336,735)
                                                             ---------       ---------       ---------
  Weighted average common shares outstanding                    44,997          42,239          36,854
  Diluted potential common shares from stock options              --              --              --
                                                             ---------       ---------       ---------
  Weighted average common shares and dilutive potential
     common shares                                              44,997          42,239          36,854
                                                             ---------       ---------       ---------
  Diluted net loss per share                                 $   (0.63)      $   (2.23)      $   (9.14)
                                                             =========       =========       =========
</TABLE>

Total stock options outstanding at December 31, 2003 of 5.4 million, at December
31, 2002 of 5.8 million, and at December 31, 2001 of 1,889,248 were excluded
from the computations of diluted net income (loss) per share because of their
anti-dilutive effect on earnings (loss) per share.

                                       58
<PAGE>

14. RELATED PARTY TRANSACTIONS

At December 31, 2003, the Company had $576,000 of principal and accrued interest
outstanding from Brad Mattson under loans issued in 2002. Mr. Mattson resigned
as an officer of the Company in October 2001 and resigned as a director in
November 2002. The principal balance of $500,000 outstanding at December 31,
2003 was fully repaid by Mr. Mattson on January 7, 2004. The accrued interest of
$76,000 remains outstanding after the payment received on January 7, 2004.

During the third quarter of 2003, Diane Mattson, a shareholder, repaid in full a
total of $1.3 million for outstanding principal and accrued interest under loans
issued to her in 2002. At December 31, 2003, the Company has no outstanding loan
balance from Ms. Mattson.

At December 31, 2003, the Company had loans receivable from other employees of
approximately $19,000 in aggregate. The interest rates on these loans range from
5.5% to 6%. The loans are due in 2004.

On April 30, 2002, the Company issued 7.4 million shares of common stock in a
private placement transaction. Of the 7.4 million shares issued, 1.3 million
shares were issued to Steag Electronic Systems AG ("SES") upon conversion of
$8.1 million of outstanding promissory notes at $6.15 per share. At December 31,
2003, SES held approximately 29.4 percent of the Company's common stock, which
it obtained pursuant to the Combination Agreement in conjunction with the
Company's acquisition of eleven subsidiaries constituting the STEAG
Semiconductor Division. Pursuant to a Stockholder Agreement entered into in
connection with that acquisition transaction, Dr. Jochen Melchior and Dr.
Hans-Georg Betz were elected to the Company's Board of Directors as designees of
SES.

On November 5, 2001, the Company and SES amended the Combination Agreement and
the Stockholder Agreement between them. The Amendment to the Stockholder
Agreement eliminated restrictions on future dispositions of Company common stock
by SES. The Amendment to the Combination Agreement provided for, among other
things, the amendment of the secured promissory note previously issued to SES in
connection with the acquisition transaction, extending the maturity date and
capitalizing accrued interest, and provided for the issuance of a second,
secured promissory note in lieu of payment of profits owed to SES attributable
to two of the acquired subsidiaries, as required under the Combination
Agreement. As discussed in Note 3, the Company paid SES approximately $37.7
million on July 2, 2002, in full settlement of its obligations under these
promissory notes. See Note 18.


15. 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, or chief decision making group, in deciding how
to allocate resources and in assessing performance. The Chief Executive Officer
of the Company is the Company's chief decision maker. As the Company's business
is completely focused on one industry segment, 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 sale and service of
products for this one segment.


                                       59
<PAGE>

The following is net sales information by geographic area for the year ended
December 31, 2003 and 2002 (in thousands):

                                        2003               2002
                                     ---------           --------
       United States                  $ 22,160           $ 53,914
       Germany                          17,891             45,417
       Europe - others                  10,058              8,917
       Japan                            37,632             13,652
       Taiwan                           44,159             36,898
       Korea                            20,121             20,127
       Singapore                         2,480             15,051
       China                            19,801              9,544
                                     ---------          ---------
                                     $ 174,302          $ 203,520
                                     =========          =========


The following is net sales information by geographic area for the year ended
December 31, 2001 (in thousands):

                                              2001
                                            --------
           United States                    $ 51,148
           Japan                              34,190
           Taiwan                             29,394
           Korea                              17,418
           Singapore                          11,487
           Europe                             71,224
           China                              15,243
           Other Asian countries                  45
                                            --------
                                            $230,149
                                            ========

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

For purposes of determining sales to significant customers, the Company includes
sales to customers through its distributor (at the sales price to the
distributor) and excludes the distributor as a significant customer. In 2003,
two customers accounted for 11% and 19% each of net sales. In 2002, three
customers accounted for 12%, 11% and 11% each of net sales. In 2001, 13% of net
sales were to a single customer.

16. 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. As of December 31, 2003, the maximum potential
amount of future payments that the Company could be required to make under these
standby letters of credit is approximately $1.1 million, representing collateral
for corporate credit cards, certain equipment leases and security deposits. The
Company has not recorded any liability in connection with these guarantee
arrangements beyond that required to appropriately account for the underlying
transaction being guaranteed. The Company does not believe, based on historical
experience and information currently available, that it is probable that any
amounts will be required to be paid under these guarantee arrangements.

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


                                       60

<PAGE>

17. COMMITMENTS AND CONTINGENCIES

The Company leases 19 facilities under operating leases, which expire at various
dates through 2019, with minimum annual rental commitments as follows (in
thousands):

                             (In thousands)

          2004                  $ 5,709
          2005                    4,729
          2006                    4,292
          2007                    2,564
          2008                    2,130
          Thereafter             15,840
                                -------
                                $35,264
                                =======

Rent expense was approximately $7.6 million in 2003, $8.8 million in 2002, and
$10.7 million in 2001. The decrease in rent expense in 2003 was primarily due to
the consolidation of facilities and non-renewal of expired leases. The decrease
in rent expense in 2002, compared to 2001, was due to the consolidation of
facilities and non-renewal of expired leases that were acquired by the Company
on January 1, 2001.

The Company leases two buildings previously used to house its manufacturing and
administrative functions related to wet surface preparation products in Exton,
Pennsylvania. The lease for both buildings has approximately 15 years remaining
with a combined rental cost of approximately $1.5 million annually. 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, with an option
for the subtenant to extend for an additional five years. The sublease,
aggregating to approximately $7.2 million lease payments, is expected to cover
all related costs on the administrative building during the sublease period. In
the second quarter of 2002, the Company leased space in two new facilities in
Malvern, Pennsylvania to house its administrative functions previously located
in Exton, Pennsylvania. These leases are each for a two year term until May
2004. In July 2003, the manufacturing building at the Exton, Pennsylvania
location was sublet for a period of approximately three years, until September
2006, with an option for the subtenant to renew for a total of two successive
periods, the first for five years and the second for the balance of the term of
the master lease. The sublease, aggregating to approximately $2.1 million lease
payments, is expected to cover all related costs on the manufacturing building
during the sublease period. In determining the facilities lease loss, net of
cost recovery efforts from expected sublease income, various assumptions were
made, including, the time period over which the building will be vacant;
expected sublease terms; and expected sublease rates. The Company has estimated
that under certain circumstances the facilities lease losses could be
approximately $0.9 million for each additional year that the facilities are not
leased and could aggregate approximately $13.5 million, net of expected sublease
income, under certain circumstances. The Company expects to make payments
related to the above noted facilities lease losses over the next fifteen years,
less any sublet amounts. Adjustments for the facilities leases will be made in
future periods, if necessary, based upon the then current actual events and
circumstances.

In connection with the disposition of the Wet Business, the Company agreed to
assume the lease obligations with respect to the facilities used to house the
manufacturing and administrative functions of the transferred Wet Business in
Pliezhausen, Germany. That lease has approximately 2.5 years remaining, until
August 2006, with an approximate rental cost of $1.2 million annually. The
Company has sublet the facilities to SCP on terms that cover all rent and costs
payable by the Company under the primary lease. During 2003, the Company
received sublease payments of approximately $1.2 million from SCP. Under its
sublease, SCP has the right upon 90 days notice to partially or completely
terminate the sublease, in which case the Company would become responsible for
the lease costs, net of cost recovery efforts and any sublease income.

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

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 flow.


18. SUBSEQUENT EVENTS

On February 17, 2004, the Company sold approximately 4.3 million shares of its
common stock in an underwritten public offering at $11.50 per share and received
net proceeds of approximately $46.3 million, after deducting underwriting
discounts, commissions and estimated offering expenses. Also, on February 17,
2004, SES sold approximately 4.3 million shares of the Company's common stock in
the same underwritten public offering. Following that sale, SES continued to
hold approximately 8.9 million shares of common stock of the Company, or 17.8%
of the outstanding shares.

                                       61
<PAGE>


                         Report of Independent Auditors

To the Board of Directors and
  Shareholders of Mattson Technology, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Mattson
Technology, Inc. and its subsidiaries at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes 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.
We believe that our audits provide a reasonable basis for our opinion. The
consolidated financial statements of Mattson Technology, Inc. for the year ended
December 31, 2001, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those consolidated financial statements in their report dated February 27, 2002.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets".

As discussed above, the consolidated financial statements of Mattson Technology,
Inc. for the year ended December 31, 2001 were audited by other independent
accountants who have ceased operations. As described in Note 4, these financial
statements have been revised to include the transitional disclosures required by
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", which was adopted by the Company as of January 1, 2002. We
audited the transitional disclosures described in Note 4. In our opinion, the
transitional disclosures for 2001 in Note 4 are appropriate. However, we were
not engaged to audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 financial statements taken as a whole.



PricewaterhouseCoopers LLP

January 23, 2004, except for Note 18,
  which is as of February 17, 2004



                                       62
<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders of Mattson Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Mattson
Technology, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2001 and 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mattson Technology, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.


                                               /s/ Arthur Andersen LLP


San Jose, California
February 27, 2002


This audit report of Arthur Andersen LLP, our former independent public
accountants, is a copy of the original report dated February 27, 2002 rendered
by Arthur Andersen LLP on our consolidated financial statements included in our
Form 10-K filed on April 1, 2002, and has not been reissued by Arthur Andersen
LLP since that date. The consolidated balance sheets for Mattson Technology,
Inc. as of December 31, 2001 and 2000, the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
2000 and 1999, and the financial statement schedule referred to in the audit
report of Arthur Andersen are not included in this Annual Report on Form 10-K.
We are including this copy of the Arthur Andersen LLP audit report pursuant to
Rule 2-02(e) of Regulation S-X under the Securities Act of 1933. See Exhibit
23.2 to this report for further discussion.


                                       63

<PAGE>



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     (a)(1) Previous independent accountants

     (i) On May 21, 2002 the Company dismissed Arthur Andersen LLP ("Andersen")
as its independent accountants. Andersen had served as the independent auditors
of the Company since November 1, 1999.

     (ii) The reports of Andersen on the financial statements of the Company for
each of the two fiscal years preceding to their dismissal contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle.

     (iii) The decision to change independent accountants was approved by the
Company's Audit Committee.

     (iv) During the Company's two most recent fiscal years preceding the
dismissal of Anderson, the Company had no disagreements with Andersen on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Andersen, would have caused it to make reference thereto in its
report on the financial statements of the Company for such periods.

     (v) During the Company's two most recent fiscal years preceding the
dismissal of Anderson, the Company has had no reportable events under Item
304(a)(1)(v)(B), (C) or (D) of Regulation S-K. With reference to Item
304(a)(1)(v)(A), in its Memorandum on Internal Control in connection with the
audit for 2001, Andersen noted four conditions that it considered to be
reportable events. In particular, Andersen suggested that the Company needed to
(i) better document the job descriptions, procedure manuals, and reporting lines
within the finance organization, (ii) improve and formalize monitoring
procedures regarding controller or management level review of entries posted by
the staff, (iii) improve and automate procedures for month-end closings, and
(iv) improve policies and procedures for tracking inventory balances. Company
management did not disagree with the suggestions made by Andersen. The Company
believes it has subsequently implemented corrective measures. The Audit
Committee of the Board of Directors discussed these matters with Andersen, and
the Company authorized Andersen to respond fully to any inquiries by
PricewaterhouseCoopers LLP concerning these matters.

     (2) New independent accountants

     The Company engaged PricewaterhouseCoopers LLP ("PwC") as its new
independent accountants as of May 23, 2002. During the two most recent fiscal
years and through the date of their engagement by the Company, the Company did
not consult with PwC regarding issues of the type described in Item 304(a)(2) of
Regulation S-K.


ITEM 9A. CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief
financial officer, conducted an evaluation of the effectiveness of our
"disclosure controls and procedures" (as defined in Exchange Act Rule 13a-15(e))
as of the end of the period covered by this report. 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. 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 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.

Our work to implement and improve new computerized consolidation and enterprise
resource planning systems continues as an active project. 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.


                                       64
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information with respect to Executive Officers, see Part I of this Annual
Report on Form 10-K, under "Executive Officers of the Registrant." The other
information required by this item will be set forth in the 2004 Proxy Statement
under the captions "Election of Directors," and "Section 16(a) Beneficial
Ownership Compliance," and is incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be set forth in the 2004 Proxy
Statement under the caption "Executive Compensation and Other Matters," and is
incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information related to security ownership of certain beneficial owners and
security ownership of management will be set forth in the 2004 Proxy Statement
under the caption "Security Ownership of Management and Principal Stockholders,"
and is incorporated herein by reference. Information with respect to our
securities authorized for issuance under our equity compensation plans will be
set forth in the 2004 Proxy Statement under the caption "Equity Compensation
Plan Information," and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information that is required by this item will be included in the 2004 Proxy
Statement under the caption "Certain Relationships and Related Transactions,"
and is incorporated herein by reference.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be set forth in the 2004 Proxy
Statement under the caption "Audit and Related Fees," and is incorporated herein
by reference.


                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (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 (a) - Valuation and Qualifying Account for the
                  year ended December 31, 2001

Schedule II (b) - Valuation and Qualifying Account for each
                  of the two years in the period ended December 31, 2003

  (a)(3)  Exhibits


                                       65

<PAGE>

                                                    Management Contract
      Exhibit                                      or Compensatory Plan
      Number               Description                or Arrangement      Notes
      -------              -----------             --------------------   -----

        2.1   Strategic Business Combination                               (4)
              Agreement, dated as of June 27,
              2000, by and between STEAG
              Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, and
              Mattson Technology, Inc., a Delaware
              corporation.

        2.2   Amendment to Strategic Business                              (5)
              Combination Agreement, dated as of
              December 15, 2000, by and between
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, and
              Mattson Technology, Inc., a Delaware
              corporation.

        2.3   Agreement and Plan of Merger, dated                          (4)
              as of June 27, 2000, by and among
              Mattson Technology, Inc., a Delaware
              corporation, M2C Acquisition
              Corporation, a Delaware corporation
              and wholly owned subsidiary of
              Mattson, and CFM Technologies, Inc.,
              a Pennsylvania corporation.

        2.4   Second Amendment to Strategic Business                       (10)
              Combination Agreement, dated as of
              November 5, 2001, by and between
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and existing
              under the laws of the Federal Republic of
              Germany, and Mattson Technology, Inc., a
              Delaware corporation.

        2.5   Stock and Asset Purchase Agreement for Wet
              Products Division dated as of February 12, 2003,
              by and among Mattson Technology, Inc., a
              Delaware corporation, Mattson International, Inc.,
              a Delaware corporation, Mattson Wet Products, Inc.,
              a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP
              Global Technologies, Inc., an Idaho corporation.             (13)

        2.6   First Amendment to Stock and Asset Purchase
              Agreement for Wet Products Division dated as
              of March 17, 2003, by and among Mattson Technology,
              Inc., a Delaware corporation, Mattson International,
              Inc., a Delaware corporation, Mattson Wet Products,
              Inc., a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP Global
              Technologies, Inc., an Idaho corporation.                    (13)

         2.7  Second Amendment to Stock and Asset Purchase
              Agreement for Wet Products Division dated as
              of December 5, 2003, by and among Mattson Technology,
              Inc., a Delaware corporation, Mattson International,
              Inc., a Delaware corporation, Mattson Wet Products,
              Inc., a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP Global
              Technologies, Inc., a Delaware corporation.


                                       66
<PAGE>

       3.1   Amended and Restated Certificate of                            (7)
              Incorporation of Mattson Technology, Inc.

       3.2   Third Amended and Restated Bylaws                             (11)
              of Mattson Technology, Inc.

       4.1   Form of Share Purchase Agreement                               (8)

       4.2   Share Purchase Agreement between Mattson                       (9)
             Technology, Inc. and STEAG Electronic
             Systems AG dated April 4, 2002.

       4.3   Form of Senior Indenture.                                     (15)

       4.4   Form of Senior Debt security (included in Exhibit 4.3).

       4.5   Form of Subordinated Indenture.                               (15)

        4.6  Form of Subordinated Debt security (Included in Exhibit 4.5).

       10.2  1989 Stock Option plan, as amended             C              (11)

       10.3  1994 Employee Stock Purchase Plan              C               (1)

       10.4  Form of Indemnity Agreement                        C           (2)

       10.5   Stockholder Agreement by and among                            (6)
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, Mattson
              Technology, Inc., a Delaware
              corporation, and Brad Mattson.

       10.6   Amendment to Stockholder Agreement                           (10)
              dated as of November 5, 2001, by and
              between STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and existing
              under the laws of the Federal Republic of
              Germany, and Mattson Technology, Inc., a
              Delaware corporation.


       10.7   Executive Change of Control agreement between        C       (11)
              Mattson Technology, Inc. and David Dutton,
              dated as of March 4, 2002.

       10.8   Form of Executive Change of Control agreement        C       (11)
              Between Mattson Technology, Inc. and its Executive
              Vice Presidents and Product Division Presidents

       10.9   Promissory Note between Mattson Technology, Inc.     C       (11)
              and Brad Mattson, dated April 29, 2002.

       10.10  Promissory Note between Mattson Technology, Inc.     C       (12)
              and Brad Mattson, dated July 3, 2002.

       10.11  Term Loan and Security Agreement between Mattson       C     (12)
              Technology, Inc. and Brad Mattson, dated July 3, 2002.

       10.12  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.                 (14)

                                       67
<PAGE>


       10.13  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.  (14)

       21.1   Subsidiaries of Registrant

       23.1   Consent of Independent Auditors

       23.2   Notice regarding Omission of Consent of Arthur Andersen LLP

       24.1   Power of Attorney (See page 70 of this form 10-K)

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

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

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

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


--------

(1)  Incorporated by reference to the corresponding Exhibit previously filed as
     an Exhibit to the Registrant's Registration Statement on Form S-1 filed
     August 12, 1994 (33-92738), as amended.

(2)  Incorporated by reference from Appendix B to the Mattson Technology, Inc.
     Proxy Statement filed on June 20, 1997.

(3)  Incorporated by reference to Registration Statement on Form S-8 filed
     October 31, 1997 (333-39129).

(4)  Incorporated by reference from Mattson's filing on Form S-4 (File No. 333-
     46568) filed on September 25, 2000.

(5)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K (File No. 000-24838) filed on December 21, 2000.

(6)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K filed on January 16, 2001.

(7)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K/A filed on January 30, 2001.

(8)  Incorporated by reference from Mattson Technology, Inc. registration
     statement on Form S-3 filed on April 12, 2002.

(9)  Incorporated by reference from Schedule 13 D/A filed by RAG
     Aktiengesellschaft on May 8, 2002.

(10) Incorporated by reference to to Mattson Technology, Inc. annual report on
     Form 10-K for fiscal year 2001, filed on April 1, 2002.

(11) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on August 14, 2002.

(12) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on November 13, 2002.

(13) Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K filed on April 1, 2003.

(14) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on May 14, 2003.

(15) Previously filed as an exhibit to the registrant's Registration Statement
     on Form S-3 (File No. 333-111527) filed on December 23, 2003 and
     incorporated herein by reference.

                                       68

<PAGE>

(b) Reports on Form 8-K

Form 8-K furnished October 22, 2003 reporting under Item 7 and Item 12 the
issuance of a press release reporting financial results for the third quarter of
2003.

                                       69
<PAGE>


                                  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)


                      By: /s/ David Dutton
                          ---------------------------------------------------
                              David Dutton
                              President, Chief Executive Officer and Director



                      By: /s/ Ludger Viefhues
                          ---------------------------------------------------
                              Ludger Viefhues
                              Executive Vice President -- Finance
                              and Chief Financial Officer
March 15, 2004


     KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints David Dutton and Ludger Viefhues, and each of
them, his true and lawful attorneys-in-fact, each with full power of
substitution, for him in all capacities, to sign any amendments to this form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact or their
substitute or substitutes may do or cause to be done by virtue hereof.

     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/ David Dutton         President, Chief Executive     March 15, 2004
--------------------------------   Officer and Director
              David Dutton

        /s/ Ludger Viefhues        Executive Vice President--     March 15, 2004
--------------------------------   Finance and Chief Financial
            Ludger Viefhues        Officer (Principal Financial
                                   and Accounting Officer)

        /s/ Jochen Melchior        Chairman of the Board and      March 15, 2004
--------------------------------   Director
         Dr. Jochen Melchior


        /s/ Hans-Georg Betz        Director                       March 15, 2004
--------------------------------
        Dr. Hans-Georg Betz


        /s/ Shigeru Nakayama       Director                       March 15, 2004
--------------------------------
            Shigeru Nakayama


         /s/ Kenneth Smith         Director                       March 15, 2004
--------------------------------
             Kenneth Smith


       /s/ Kenneth Kannappan       Director                       March 15, 2004
--------------------------------
           Kenneth Kannappan


        /s/ William Turner         Director                       March 15, 2004
--------------------------------
            William Turner

                                       70

<PAGE>


                        REPORT OF INDEPENDENT AUDITORS ON
                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors of
  Mattson Technology, Inc.:

Our audit of the consolidated financial statements referred to in our report
dated January 23, 2004, except as to Note 18, which is as of February 17, 2004
appearing in this Form 10-K also included an audit of the financial statement
schedule II(b) listed in Item 15(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.


PricewaterhouseCoopers LLP

San Jose, California
January 23, 2004





                                 SCHEDULE II(a)

                        VALUATION AND QUALIFYING ACCOUNT


Allowance for Doubtful Accounts (in thousands)

<TABLE>
<CAPTION>
                           Balance at                          Additions -                      Balance at
                            Beginning        Acquisition       Charged to                         End of
         Fisal Year          of Year         Adjustments         Income         Deductions         Year
         ----------          -------         -----------         ------         ----------         ----

<S>         <C>              <C>               <C>               <C>            <C>              <C>
            2001             $  501            $ 9,178           $ 6,850        $ (4,056)        $ 12,473

</TABLE>


                                 SCHEDULE II(b)

                        VALUATION AND QUALIFYING ACCOUNT


Allowance for Doubtful Accounts (in thousands)

<TABLE>
<CAPTION>

                           Balance at       Wet Business       Additions -                      Balance at
                            Beginning        Disposition       Charged to                         End of
         Fisal Year          of Year         Adjustments         Income         Deductions         Year
         ----------          -------         -----------         ------         ----------         ----

<S>         <C>             <C>               <C>               <C>             <C>             <C>
            2002            $ 12,473          $     -           $   -           $ (1,921)       $ 10,552

            2003            $ 10,552          $ (1,432)         $   -           $ (3,553)       $  5,567


</TABLE>

                                       71

<PAGE>

                                  EXHIBIT INDEX

     The following Exhibits to this report are filed herewith or are
incorporated herein by reference. Each management contract or compensatory plan
or arrangement has been marked with the letter "C" to identify it as such.


                                                   Management Contract
      Exhibit                                     or Compensatory Plan
      Number               Description               or Arrangement       Notes
      -------              -----------            --------------------    -----

        2.1   Strategic Business Combination                               (4)
              Agreement, dated as of June 27,
              2000, by and between STEAG
              Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, and
              Mattson Technology, Inc., a Delaware
              corporation.

        2.2   Amendment to Strategic Business                              (5)
              Combination Agreement, dated as of
              December 15, 2000, by and between
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, and
              Mattson Technology, Inc., a Delaware
              corporation.

        2.3   Agreement and Plan of Merger, dated                          (4)
              as of June 27, 2000, by and among
              Mattson Technology, Inc., a Delaware
              corporation, M2C Acquisition
              Corporation, a Delaware corporation
              and wholly owned subsidiary of
              Mattson, and CFM Technologies, Inc.,
              a Pennsylvania corporation.

        2.4   Second Amendment to Strategic Business                      (10)
              Combination Agreement, dated as of
              November 5, 2001, by and between
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and existing
              under the laws of the Federal Republic of
              Germany, and Mattson Technology, Inc., a
              Delaware corporation.

        2.5   Stock and Asset Purchase Agreement for Wet                  (13)
              Products Division dated as of February 12, 2003,
              by and among Mattson Technology, Inc., a
              Delaware corporation, Mattson International, Inc.,
              a Delaware corporation, Mattson Wet Products, Inc.,
              a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP
              Global Technologies, Inc., an Idaho corporation.

        2.6   First Amendment to Stock and Asset Purchase                 (13)
              Agreement for Wet Products Division dated as
              of March 17, 2003, by and among Mattson Technology,
              Inc., a Delaware corporation, Mattson International,
              Inc., a Delaware corporation, Mattson Wet Products,
              Inc., a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP Global
              Technologies, Inc., an Idaho corporation.

                                       72
<PAGE>


        2.7   Second Amendment to Stock and Asset Purchase                (13)
              Agreement for Wet Products Division dated as
              of December 5, 2003, by and among Mattson Technology,
              Inc., a Delaware corporation, Mattson International,
              Inc., a Delaware corporation, Mattson Wet Products,
              Inc., a Pennsylvania corporation, Mattson Technology
              Finance, Inc., a Delaware corporation, and SCP Global
              Technologies, Inc., a Delaware corporation.

       3.1    Amended and Restated Certificate of                          (7)
              Incorporation of Mattson Technology, Inc.

       3.2    Third Amended and Restated Bylaws                           (11)
              of Mattson Technology, Inc.

       4.1    Form of Share Purchase Agreement                             (8)

       4.2    Share Purchase Agreement between Mattson                     (9)
              Technology, Inc. and STEAG Electronic
              Systems AG dated April 4, 2002.

       4.3    Form of Senior Indenture.                                   (15)

       4.4    Form of Senior Debt security (included in Exhibit 4.3).

       4.5    Form of Subordinated Indenture.                             (15)

       4.6    Form of Subordinated Debt security (Included in Exhibit 4.5).

       10.2   1989 Stock Option plan, as amended                          (11)

       10.3   1994 Employee Stock Purchase Plan                            (1)

       10.4   Form of Indemnity Agreement                                  (2)

       10.5   Stockholder Agreement by and among                           (6)
              STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and
              existing under the laws of the
              Federal Republic of Germany, Mattson
              Technology, Inc., a Delaware
              corporation, and Brad Mattson.

       10.6   Amendment to Stockholder Agreement                          (10)
              dated as of November 5, 2001, by and
              between STEAG Electronic Systems AG, an
              Aktiengesellschaft organized and existing
              under the laws of the Federal Republic of
              Germany, and Mattson Technology, Inc., a
              Delaware corporation.


        10.7  Executive Change of Control agreement between               (11)
              Mattson Technology, Inc. and David Dutton,
              dated as of March 4, 2002.

        10.8  Form of Executive Change of Control agreement               (11)
              Between Mattson Technology, Inc. and its Executive
              Vice Presidents and Product Division Presidents

        10.9  Promissory Note between Mattson Technology, Inc.            (11)
              and Brad Mattson, dated April 29, 2002.

                                       73
<PAGE>


        10.10  Promissory Note between Mattson Technology, Inc.           (12)
               and Brad Mattson, dated July 3, 2002.

        10.11  Term Loan and Security Agreement between Mattson           (12)
               Technology, Inc. and Brad Mattson, dated July 3, 2002.

        10.12  Sublease agreement dated February 27, 2003, by             (14)
               and between Lam Research Corporation, a Delaware
               Corporation, and Mattson Technology, Inc., a
               Delaware Corporation, for lease of building.

        10.13  Lease agreement dated September 2, 2001, by and            (14)
               between RENCO EQUITIES IV, a California partnership,
               and Lam Research Corporation, a Delaware Corporation,
               for lease of building.

        21.1   Subsidiaries of Registrant

        23.1   Consent of Independent Auditors

        23.2   Notice regarding Omission of Consent of Arthur Andersen LLP

        24.1   Power of Attorney (See page 70 of this form 10-K)

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

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

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

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


--------

(1)  Incorporated by reference to the corresponding Exhibit previously filed as
     an Exhibit to the Registrant's Registration Statement on Form S-1 filed
     August 12, 1994 (33-92738), as amended.

(2)  Incorporated by reference from Appendix B to the Mattson Technology, Inc.
     Proxy Statement filed on June 20, 1997.

(3)  Incorporated by reference to Registration Statement on Form S-8 filed
     October 31, 1997 (333-39129).

(4)  Incorporated by reference from Mattson's filing on Form S-4 (File No. 333-
     46568) filed on September 25, 2000.

(5)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K (File No. 000-24838) filed on December 21, 2000.

(6)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K filed on January 16, 2001.

(7)  Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K/A filed on January 30, 2001.

(8)  Incorporated by reference from Mattson Technology, Inc. registration
     statement on Form S-3 filed on April 12, 2002.

(9)  Incorporated by reference from Schedule 13 D/A filed by RAG
     Aktiengesellschaft on May 8, 2002.

(10) Incorporated by reference to to Mattson Technology, Inc. annual report on
     Form 10-K for fiscal year 2001, filed on April 1, 2002.

(11) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on August 14, 2002.

(12) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on November 13, 2002.

(13) Incorporated by reference from Mattson Technology, Inc. current report on
     Form 8-K filed on April 1, 2003.

(14) Incorporated by reference from Mattson Technology, Inc. quarterly report on
     Form 10-Q filed on May 14, 2003.

(15) Previously filed as an exhibit to the registrant's Registration Statement
     on Form S-3 (File No. 333-111527) filed on December 23, 2003 and
     incorporated herein by reference.

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