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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, 2002

[_]  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)


                               2800 Bayview 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 30, 2002 was $134,383,090, 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 14,
2003: 44,866,783.

                      Documents incorporated by reference:

     Portions of the Proxy Statement for registrant's 2003 Annual Meeting of
Stockholders, which will be filed on or before April 30, 2003, are incorporated
herein by reference into Part III.

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<PAGE>

                           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

     Mattson Technology, Inc. is a leading supplier of semiconductor wafer
processing equipment used in the front-end-of-line fabrication of integrated
circuits (IC). We are among the market leaders in worldwide sales of dry strip
equipment and rapid thermal processing (RTP) equipment and have systems
installed in major fabrication facilities around the world. Our manufacturing
equipment utilizes innovative technology to deliver advanced processing
capability and high productivity for both 200 millimeter (mm) and 300 mm
production at sub-130 nanometer (nm) technology nodes.

     During 2002 and early 2003, we took steps to focus our business on our core
technologies in dry strip and RTP. Restructuring actions were taken to align the
company with this narrower focus and to reduce operational expenses. As part of
this restructuring plan, we divested one significant business unit, our wet
products division. We also narrowed our plasma enhanced chemical vapor
deposition ("PECVD") focus to a limited number of strategic customers and
divested our epi products subsidiary. The wet products divestiture was the last
major action in completing our strategic restructuring plan. The divestiture of
our wet operation allows us to concentrate resources on the development of core
products in RTP and strip solutions.

     Mattson Technology was incorporated in Delaware in 1988 and is
headquartered in Fremont, California. Our principal executive offices are
located at 2800 Bayview Drive, Fremont, CA 94538 (In the last week of April
2003, we plan to consolidate our Fremont facilities at another location, and
thereafter our principal executive offices will be located at 47131 Bayside
Drive, 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.

Industry Background

     Manufacturing an integrated circuit (IC), commonly called a chip, requires
a number of complex steps and processes. Most IC's are built on a base of
silicon, or wafer, and consist of two main structures. The lower structure is
made up of components, typically transistors or capacitors, which perform the
"smart" functions of the chip. The upper structure consists of the
"interconnect" circuitry that connects the components in the lower structure.
Front-end processing is broadly divided into front-end-of-line and
back-end-of-line processing. Fabrication at the front-end-of-line includes the
steps needed to build transistors, up to the first layer of metalization. The
subsequent steps, which create the interconnect metal layers, are called the
back-end of line. Building an IC requires the deposition of a series of film
layers, which may be conductors, dielectrics (insulators) or semiconductors. The
deposition of these film layers is interspersed with numerous other processing
steps that create circuit patterns, remove portions of the film layers and
perform other functions such as heat treatment, measurement and inspection. Each
step of the manufacturing process for ICs requires specialized manufacturing
equipment. Although the semiconductor industry is cyclical, and currently
experiencing a period of downturn and decreased demand, historically, the
overall growth of the semiconductor industry and the increasing complexity of
ICs has led to increasing demand for advanced semiconductor capital equipment.

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<PAGE>


In periods of economic growth, the semiconductor market has grown, fueled in
large part by the growth of the personal computer markets and the emergence of
markets such as wireless communication and digital consumer electronics.
Previous growth in the semiconductor industry has also been driven by the need
to supply increasingly complex, higher performance integrated circuits, while
continuing to reduce cost. In today's market, three major technology transitions
are driving new investments in chipmaking equipment: moves to deep sub-micron
design rules (130 nm and below), innovative new materials (such as low-k
dielectrics and copper interconnects) and 300 mm wafers (the next larger wafer
size from which more than twice as many ICs can be produced as on 200 mm
wafers). The more complex integrated circuits and the accompanying reductions in
feature size require more advanced and expensive wafer fabrication equipment,
which increases the average cost of advanced wafer fabrication facilities. We
offer innovative tools that enable IC manufacturers to transition to these
next-generation technologies.

The Mattson Solution

     We provide our customers with equipment based on innovative technologies
that deliver advanced processing capability for front-end integrated circuit
fabrication. We are among the market leaders in our target front-end of line
markets and offer innovative solutions for dry strip and RTP, as well as
products for back-end of line processing. Our tools, technologies and expertise
are critical enablers in the semiconductor industry's transition to larger 300
mm wafers, sub-130 nm design rules and new materials such as copper and low-k
dielectrics. We plan to leverage our technology and development capabilities to
expand our product offerings with the goal of increasing market share within our
target markets.

The Mattson Strategy

     Our strategy for success focuses on three key areas:

     Strengthen Customer Relationships and Partnerships in Current and Emerging
Markets. Mattson Technology's core purpose is to create value for all our
stakeholders by providing the tools to enable the continuous advancement of the
information revolution. Our primary focus is on our customers. We strive to
attain preferred vendor status and build customer loyalty by delivering
innovative, reliable products and world-class customer service and support. We
continue to strengthen customer relationships and partnerships by delivering
unique process technology and value-added solutions.

     Despite weak industry conditions, we improved customer satisfaction in
2002. In 2002, we also established strong relationships with the top foundries
in the growing China market and have our core products installed at a number of
these customer sites. In 2002, we expanded our service capability and
established our own facility in Shanghai to bring us closer to our customers in
China. We intend to continue to strengthen our commitment to provide innovative,
reliable, high-quality products and continuous service, support and global
infrastructure to meet our customers' needs.

     Achieve Product Segment Leadership by Providing Robust Manufacturing
Process Solutions. Technology leadership is the foundation of our success. We
intend to drive our core products to segment leadership by providing innovative
technologies that deliver robust manufacturing process solutions to our
customers.

     We are a world leader in the dry strip market and the second largest
supplier of RTP products in the world. Our patented technologies include
inductively coupled plasma technology for dry strip and dual-sided lamp
technology for RTP. These enabling technologies offer process control advantages
in addressing customers' challenges in the manufacture of smaller device
structures. We are committed to developing innovative tools and technologies to
help our customers solve their wafer processing problems. This focus on
delivering "results at the wafer surface" differentiates us from other
providers. We continually strive to increase the total value of our solutions by
developing new process technologies that enable our customers to produce the
next-generation of smaller, faster, cheaper chips.

     We have advanced our technology offerings in the areas of 300 mm, low-k
copper cleaning and sub-90 nm transistor formation. We extended the processing
capabilities of our advanced 300 mm Aspen III Highlands and demonstrated its
processing capabilities at beta customer sites in 2002. We are also extending
our tungsten halogen lamp RTP technology down to the 65 nm node, which will
provide our customers a lower risk approach to advanced transistor formation.

     Continuously Improve Operational Effectiveness. We are working to create
cyclical stability for the company. In 2002, we adopted an organizational model
called cyclically flexible enterprise, or CFE. The goal of CFE is to achieve
robust, sustainable operating profit at any point in the semiconductor capital
equipment industry cycle. Key components of CFE are outsourcing non-key
functions, developing manufacturing and supply partners and developing peak load


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service partners. We have begun establishing these partnerships, and we are
continuing to develop others that we expect to reduce our costs and provide the
capacity and flexibility we will need at all points in the cycle. We are
currently ISO 9001 certified at several of our manufacturing facilities, and we
are working to obtain ISO 9001-2000 certification for the entire company. We
intend to continue to streamline internal operations and optimize manufacturing
efficiencies with the goal of having the company operate profitably through
changing industry cycles.

Markets, Applications and Products

  Dry Strip Market

     A strip system removes photoresist and residues from a wafer following each
step of film deposition or diffusion processing in preparation for the next
processing step. Methods for stripping photoresist include wet chemistries and
dry or plasma technologies. Wet chemical stripping removes photoresist by
immersing the wafer into acid or solvent baths. Dry stripping systems, such as
our Aspen Strip, create gaseous atomic oxygen to which the wafer is exposed to
remove the unwanted residues.

     The demand for photoresist strip equipment has grown as the complexity and
number of strip steps required for each wafer has increased. Complex integrated
circuits require multiple photoresist stripping steps, which increase cost and
cycle time, create environmental concerns, increase cleanroom space requirements
and reduce yield. The increase in strip steps in the IC manufacturing process
has led to a need for semiconductor manufacturers to increase their photoresist
strip capacity and to place greater emphasis on low-damage results and
residue-free photoresist stripping. The added complexity of the strip process
has also contributed to higher average selling prices of the equipment.

   Fabrication of integrated circuits with feature sizes under 0.13 micron
requires advanced dry strip technologies such as our Aspen Strip. In addition,
faster integrated circuit devices require new interconnect materials, such as
low capacitance, or low-k dielectric films and copper for conducting materials.
The use of these new materials creates new challenges for photoresist stripping
equipment. The resist or residues must be removed from these materials without
degrading the low-k materials and without oxidizing any exposed copper.

     Our dry strip products encompass both 200 and 300 mm products on our high
productivity Aspen platform, using our patented, inductively coupled plasma
(ICP) technology. We have a large installed base of dry strip systems, including
300 mm ICP systems, currently installed in production facilities around the
world, and we continue to be an industry leader in dry strip technology. In
2002, our established ICP technology achieved acceptance at three major
foundries in China. Our Aspen III Highlands system, which was introduced in late
2001, gained momentum in low-k resist strip applications through its ability to
preserve low-k material integrity and simplify integration schemes by reducing
operational steps. Over the last year, the Highlands system proved its process
and production capability at five customer beta sites, where we continue to
receive repeat orders. We are also extending our joint development programs with
these strategic customers to expand the Highlands' existing processing
capabilities.

Rapid Thermal Processing

     In rapid thermal processing (RTP), semiconductor wafers are rapidly heated
to process temperature, held for a few seconds, and rapidly cooled. This thermal
process is critical to achieve the exact electrical parameters necessary for the
integrated circuit to operate. Historically, diffusion furnaces have been used
to heat-treat large batches of wafers. However, diffusion furnaces have long
processing times, which is unacceptable for many leading-edge device fabrication
processes. In addition, as device features have become smaller, the total
allowable temperature exposure of the wafer, or the thermal budget, has
decreased. RTP subjects the wafer to much shorter processing times, thus
reducing the thermal budget.

     As the device geometries of integrated circuits continue to shrink and the
number of semiconductor wafers increases, the need has grown for RTP equipment
that can meet increasingly stringent processing demands, while maintaining
uniformity and repeatability to ensure the integrity of the integrated circuit.

     We are one of the industry leaders in RTP technology. Our products feature
patented, dual-sided, lamp-based technology that achieves excellent control,
process uniformity and repeatability. Our product line includes: the 2800 with
over 500 units installed worldwide, the 2800cs for compound semiconductor
processing, the 2900 for 200 mm applications, and the 3000 series for 300 mm
fabrication and advanced steam applications.


                                       4
<PAGE>

     In 2002, we enhanced the capability of our RTP systems with innovations in
temperature measurement and control. These new temperature controllers provide
our customers the ability to extend their current technology to future device
generations, especially for device designs at and below 90 nm geometries.

     In the last year, we also began a development program, in collaboration
with Varian Semiconductor, to develop transistor formation technologies for 65
nm and smaller device structures. The initial efforts of this development work
will be focused on ultra-shallow junction formation and will be followed by
additional activities aimed at furthering the integration of front-end-of-line
transistor fabrication processing. We plan to continue our efforts in developing
innovative RTP tools and bringing optimized, deep-submicron integrated
transistor formation processes to the marketplace.

Wet Surface Preparation

     Throughout 2001 and 2002, and in the first quarter of 2003, we developed,
marketed and sold wet surface preparation products, including traditional
multi-bath wet benches, advanced single-bath processing systems, combinations
(Hybrids) and drying systems. During the first quarter of 2003, we divested our
Wet Products Division, to SCP Global Technologies (SCP), a privately held wet
processing equipment provider. This divestiture was made as part of a strategy
we adopted in 2002 to focus on our core technologies where we have market
leadership.

     Wet chemical cleaning strips away photoresist and other residues by
immersing the wafer into acid or solvent baths and thoroughly cleaning the wafer
surface. This is critical in preparing the surface of the wafer for the building
of transistors. Wet processing steps have traditionally been accomplished using
wet benches and spray tools. Advanced wet benches utilize a succession of open
chemical baths and extensive robotic automation to move wafers from one chemical
or rinse bath to the next. Spray tools subject wafers to sequential spray
applications of chemicals as the wafers are spun inside an enclosed chamber.
There are a number of areas in the semiconductor manufacturing process where wet
surface preparation offers the most cost-effective solution to cleaning and
etching the wafers.

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.

     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 2002, 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.

Epi Market

     Until the first quarter of 2003, we owned a subsidiary that developed,
marketed and sold epitaxial deposition systems. Because of market conditions and
reduced demand, we significantly reduced the head count and resources of our epi
business unit during 2002. In February 2003, we sold our epi subsidiary.

     Epitaxial, or epi, deposition systems grow a layer of extremely pure
silicon on a wafer in a uniform crystalline structure to form a high quality
base for building certain types of chips. The silicon properties of the epitaxy
produce a more controlled silicon growth than do manufactured silicon wafers and
offer features that differentiate it from manufactured silicon wafers.


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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 0.13 micron
chip fabrication.

     Our Aspen II and III LiteEtch systems use our patented ICP source
technology for critical etching operations on 200 and 300 mm wafers.

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 Germany, Italy, Japan, Korea, Singapore, Taiwan, the United
Kingdom 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 for four-hour parts turnaround 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. In 2002,
we enhanced our customer service and support programs, and despite weak industry
conditions, our customer satisfaction surveys indicate that we improved our
customer satisfaction rating.

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

   In 2002, we maintained our distribution relationship with PRIMA Research &
Technologies, which continues to support our RTP systems in China. We also
expanded our service capability and established a direct sales and support
organization in Shanghai to bring us closer to our customers in China.

     In addition to maintaining our wholly owned subsidiary in Japan, we are
continuing our relationship with Canon Sales Company for the distribution of our
RTP systems in Japan. In late 2002, we also entered into a distribution
agreement with NOAH Corporation, which will be responsible for the regional
sales activities of our plasma strip products in Japan.

     International sales accounted for 74% of total net sales in 2002, 78% in
2001 and 69% in 2000. 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."


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Customers

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

   * AMD                       * IBM Microelectronics      * SMIC
   * Chartered Semiconductor   * Infineon Technologies     * Sony Corporation
   * Elpida Memory             * Micron Technology         * Texas Instruments
   * GSMC                      * ProMOS Technologies       * TSMC
   * Hewlett Packard           * Samsung Electronics       * UMC Group

   In 2002, three customers, Samsung, Infineon, and UMC each accounted for more
than 10% of our revenue, accounting for approximately 12%, 11% and 11%,
respectively. Samsung and UMC accounted for approximately 20% and 12%,
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 60% of our net sales in 2002, 58% in 2001, and 59% in
2000. 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 are often subject to cancellation or delay by the customer with limited
or no penalty. Our backlog was approximately $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 2002, we have experienced cancellations and delays
and push-out of orders that were previously booked and included in backlog.

Research, Development and Engineering

     The semiconductor equipment industry is characterized by rapid
technological change and product innovation. Continued and timely development of
new products and enhancements to existing products are necessary to maintain our
competitive position. 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 2002 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 provides tighter peak width
control for ultra-shallow junction formation. Our next-generation RTP tools will
extend Mattson's RTP capabilities down to the 65 nm node and will help to
further improve our customers' cost of ownership.

     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 laboratories in Fremont, California and Dornstadt,
Germany to test new systems and customer-specific equipment designs. 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. Prior to the divestiture of our Wet
Product Division, we maintained application laboratories in Pliezhausen, Germany
for wet surface preparation products.

     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 process technologies and to develop systems and new technologies
that compete effectively. 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.


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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 $37.4 million for the
year ended December 31, 2002, $61.1 million for 2001 and $28.5 million for 2000,
representing 18.4% of net sales in 2002, 26.6% in 2001 and 15.8% in 2000. The
expenses for 2001 and thereafter include research, development and engineering
expenses that reflect our acquisition of the STEAG Semiconductor Division and
CFM.

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.

   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 Alcan Technology,
Axcellis Technologies, KEM and Novellus Systems. 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. Prior to the divestiture of
our Wet Products Division, principal competitors for our wet surface preparation
products included Akrion, Dainippon Screen, FSI International, SCP Global
Technologies, Semitool, S.E.S., SEZ, and Tokyo Electron. 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. Prior to the divestiture of our epi business unit,
competitors for our epi products included Kokusai Semiconductor Equipment, LPE
Products, Moore Technology and Toshiba.

   We may not be able to maintain our competitive position against current and
potential competition. New products, pricing pressures, rapid changes in
technology and other competitive actions from both new and existing competitors
could materially affect our market position. Some of our competitors have
substantially greater installed customer bases and greater financial, marketing,
technical and other resources than we do and may be able to respond more quickly
to new or changing opportunities, technologies and customer requirements. Our
competitors may introduce or acquire competitive products that offer enhanced
technologies and improvements. In addition, some of our competitors or potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged to gain market share to our detriment. We believe that the
semiconductor equipment industry will continue to be subject to increased
consolidation, which will increase the number of larger, more powerful companies
and increase competition.


                                       8
<PAGE>

Manufacturing

     Our manufacturing operations are based in the U.S. and Europe and consist
of procurement, assembly, test, quality assurance and manufacturing engineering.
We utilize an outsourcing strategy for the manufacture of components and major
subassemblies. This allows us to focus our internal manufacturing efforts on
those precision mechanical and electro-mechanical assemblies that differentiate
our systems from those of our competitors. We have manufacturing capability for
our RTP, PECVD, strip and etch products in Fremont, California and Dornstadt,
Germany. During 2002, our wet surface preparation products were manufactured in
Pliezhausen and Donaueschingen, Germany. The Pliezhausen facilities were
subleased to SCP and the Donaueschingen facilities were transferred to SCP when
we divested our Wet Products Division in the first quarter of 2003.

    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.

     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 a result of the merger, we became
involved in several patent lawsuits that had been brought by or against our
subsidiary, Mattson Wet Products, Inc. (formerly CFM Technologies, Inc.), which
are discussed further below under Item 3: Legal Proceedings. These lawsuits have
been transferred to SCP as a result of our divestiture of our wet products
business, however one of our subsidiaries remains a party and we are obligated
to reimburse legal fees incurred by SCP of up to $1 million.

    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

                                       9
<PAGE>

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, 2002, we had 1,107 employees. There were 308 employees in
manufacturing operations, 237 in research, development and engineering, 430 in
sales, marketing, field service and customer support, and 132 in general,
administrative and finance. During 2002, we implemented reductions in force of
257 employees, in response to the continuing downturn in the semiconductor
industry.

    On March 17, 2003, we divested our Wet Products Division to SCP Global
Technologies, Inc. which resulted in a reduction for us of approximately 341
employees. As of March 24, 2003 we had approximately 705 employees.

   During 2002, 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.






                                       10
<PAGE>

ITEM 2: PROPERTIES

Our principal properties as of December 31, 2002 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     128,000         Leased
                                      Research and Engineering

Exton, PA       Office, plant &       Partially vacant, partially     140,000(1)      Leased
                Warehouse             sub-leased

Germany         Office, plant &       Manufacturing, Research          45,000         Owned
                Warehouse             and Engineering                 255,000         Leased
</TABLE>

(1)  Includes approximately 80,000 square feet that we have sub-leased to
     another party. We are holding approximately 60,000 square feet vacant in
     excess capacity available for sublease. Owner's approval is not required
     for sub-leasing.

     In addition to the above properties, we lease approximately 72,000 square
feet of office space for sales and customer support offices. In total, we lease
office spaces for headquarters, manufacturing, operations, research and
engineering, distribution, marketing, sales and customer support offices in 31
locations throughout the world: 14 in the United States, 12 in Europe, 2 in
Taiwan and one in each of Korea, Singapore, and China.

     During fiscal 2002, we sold a West Chester, PA building for $2,315,000 in
March 2002, and an Austin, TX building for $1,950,000 in April 2002, with no
contingencies.

     We currently have approximately 69,000 square feet excess space capacity
that we are in the process of subleasing to offset the lease obligation
expenses. Excluding this excess space, we are productively utilizing
substantially all of the remaining facilities and consider them suitable and
adequate to meet our requirements.

     In February 2003, we leased another building in Fremont, California. We
plan to consolidate all our Fremont operations and facilities into this
building, with approximately 101,000 square feet area. The lease is for a period
until May 2007. The move is scheduled for April 2003. The leases for our
existing Fremont buildings are expiring on varying dates from April 2003 through
February 2004.

     As a result of the divestiture of our Wet Products Division to SCP Global
Technologies on March 17, 2003, we have transferred to SCP the facilities we
previously owned in Germany, and we plan to sub-lease to SCP a portion of our
facilities in Germany, listed above. The area to be sub-leased is under
determination.


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.

     We have 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 litigations discussed below, although
our subsidiary Mattson Wet Products, Inc. remains as a co-plaintiff in those
actions.


                                       11
<PAGE>

     Two of the pending cases were filed against a competitor, YieldUP
International Corp. ("YieldUP"). Several years ago, YieldUp was acquired by FSI
International Corp. The first of the two pending cases against YieldUP was filed
on September 11, 1995, and is captioned CFMT, Inc. and CFM Technologies, Inc. v.
YieldUP International Corp., Civil Action No. 95-549-JJF. Our wet products
subsidiaries claim infringement, inducement of infringement, and contributory
infringement relating to U.S. Patent No. 4,911,761 (the "'761 patent"), and seek
damages and a permanent injunction to prevent further infringement. YieldUP has
denied infringement and has asserted, among other things, that the subject
patent is invalid and not infringed. The parties are presently engaged in fact
discovery. We have a motion pending to dismiss and/or strike several
counterclaims and defenses by YieldUP, and YieldUP has two motions pending for
summary judgment alleging that the `761 Patent is unenforceable for inequitable
conduct and is invalid for lack of proper written description. All of these
motions have been fully briefed and were orally argued on November 6, 2002.

     The second pending case against YieldUP was filed on December 30, 1998, and
is captioned CFMT, Inc. and CFM Technologies, Inc. v. YieldUP International
Corp., Civil Action No. 98-790-JJF. In this case, our wet products subsidiaries
claim infringement of U.S. Patents Nos. 4,778,532 ("the `532 Patent") and
4,917,123 ("the `123 Patent") by YieldUP, and seek a permanent injunction
preventing YieldUP from using, making or selling equipment that violates these
patents, and request damages for past infringement. YieldUP had asserted
counterclaims for alleged tortious interference with prospective economic
advantage and defamation and a declaratory judgment that the patents are
invalid, not infringed, and unenforceable due to alleged inequitable conduct in
obtaining the patents, and seeking compensatory and punitive damages. On April
4, 2000, the District Court issued an Order granting a YieldUP motion for
summary judgment, and found that the '532 and '123 patents were both invalid due
to lack of enablement. YieldUP withdrew with prejudice the tortious interference
and defamation counterclaims. On June 7, 2001 the District Court issued a
judgment in favor of YieldUP holding that the '532 and '123 patents are
unenforceable due to inequitable conduct during prosecution of the patents
before the U.S. Patent & Trademark Office. On October 23, 2002, the Court
entered an Order placing the case in condition for us to appeal, by dismissing
with prejudice YieldUP's state law counterclaims, declining to exercise
jurisdiction to consider claims asserting the unenforceability of other of our
patents, and deferring until after any appeal any decision as to whether or not
this case is exceptional for purposes of the award of attorneys' fees. The
parties are presently briefing the appeal to the Court of Appeals for the
Federal Circuit.

     The third pending case was filed against Akrion LLC on November 6, 2002,
asserting claims of infringement by Akrion's wet surface preparation products of
our '761 patent (as well as our '532 and '123 patents, which claims are stated
to be contingent on our obtaining a reversal or the vacating of rulings by the
Court that had found those patents invalid and unenforceable). The case is
captioned CFMT, Inc. (aka Mattson Technology IP, Inc.) and CFM Technologies,
Inc. (aka Mattson Wet Products, Inc.) v. Akrion LLC, Civil Action No.
02-1614-JJF The Court entered an Order on March 12, 2003, denying our motion to
consolidate the case against Akrion with the YieldUP case involving the `761
Patent, and staying the Akrion case pending disposition of that YieldUP case.

     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.


                                       12
<PAGE>

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

     None

                      EXECUTIVE OFFICERS OF THE REGISTRANT

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

--------------------------------------------------------------------------------
   Name                      Age   Title
   ----                      ---   -----
   David L. Dutton           42    Chief Executive Officer, President, Director

   Robert MacKnight          53    Chief Operating Officer

   Ludger H. Viefhues        60    Chief Financial Officer, Executive
                                     Vice President, Finance and Secretary

   Yasuhiko (Mike) Morita    60    Executive Vice President, Business Strategy
--------------------------------------------------------------------------------

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

Mr. 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).

Yasuhiko (Mike) Morita - Executive Vice President, Business Strategy

Mr. Morita served as Mattson's Executive Vice President of Business Strategy
from October 2002 until December 2002, and prior to that served as Executive
Vice President of Global Business Operations since December 2001. Mr. Morita
served as the Mattson's Vice President of Global Sales operations from 1998
until 2001. From 1996 to 1998, Mr. Morita was Vice President of Asia Operations
and President of Mattson's subsidiary, Mattson Technology Center, K.K. Mr.
Morita served on Mattson's Board of Directors from July 1994 through February
1996. From 1967 to 1996, Mr. Morita served at Marubeni Corporation in various
positions, most recently as Executive Vice President and General Manager of the
semiconductor equipment division.


                                       13
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

       2001 Quarter
         First.......................................  $18.06    $ 9.50
         Second......................................   19.50     12.19
         Third.......................................   17.35      3.45
         Fourth......................................    9.20      3.06


     On March 14, 2003, the last reported sales price of our common stock on the
Nasdaq National Market was $1.58 per share. We had approximately 228
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.

Private Placement of Stock

     On April 30, 2002, we issued 7.4 million shares of common stock in a
private placement transaction in the amount of $45.6 million, at a price of
$6.15 per share. Of the 7.4 million shares issued, 5.1 million shares were
issued to the State of Wisconsin Investment Board, 1.3 million shares were
issued to STEAG Electronic Systems AG, and the remaining 1.0 million shares were
issued to other investors for an aggregate net cash proceeds of $34.9 million.
Bear, Stearns & Co., Inc. served as sole placement agent for this transaction.


ITEM 6. SELECTED CONSOLIDATED 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, 2002,
2001 and 2000 and the selected consolidated balance sheet data as of December
31, 2002 and 2001 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, 1999 and 1998 and the selected
consolidated balance sheet data as of December 31, 2000, 1999 and 1998 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 and 2002 to our reported
results for previous years. See Note 1 of Notes to Consolidated Financial
Statements for an explanation of this change. Unaudited pro forma information is
provided below to show the effect this accounting method change would have had
in years 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.
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 2001 and 2002 to
our reported results for previous years. See Note 3 of Notes to Consolidated
Financial Statements for further description of these events.


                                       14

<PAGE>
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                      ------------------------------------------------------------------
                                                        2002            2001          2000           1999         1998
                                                      --------       ---------      --------      ---------     --------
                                                                      (in thousands, except per share data)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S>                                                   <C>            <C>            <C>           <C>           <C>
Net sales                                             $203,520       $ 230,149      $180,630      $103,458      $ 59,186
Cost of sales                                          163,063         224,768        93,123        53,472        37,595
                                                      --------       ---------      --------      --------      --------
Gross profit                                            40,457           5,381        87,507        49,986        21,591
                                                      --------       ---------      --------      --------      --------
Operating expenses:
  Research, development and engineering                 37,395          61,114        28,540        19,547        16,670
  Selling, general and administrative                   86,218         110,785        54,508        31,784        24,542
  Acquired in-process research and development               -          10,100             -             -         4,220
  Amortization of goodwill and intangibles               6,591          33,457             -             -             -
  Restructuring and other charges                       17,307               -             -             -             -
  Impairment of long-lived assets and other charges          -         150,666             -             -             -
                                                      --------       ---------      --------      --------      --------
    Total operating expenses                           147,511         366,122        83,048        51,331        45,432
                                                      --------       ---------      --------      --------      --------
Income (loss) from operations                         (107,054)       (360,122)        4,459        (1,345)      (23,841)
Interest and other income, net                          12,636           5,016         6,228           743         1,811
                                                      --------       ---------      --------      --------      --------
Income (loss) before provision (benefit)
  for income taxes and cumulative effect
  of change in accounting principle                    (94,418)       (355,725)       10,687          (602)      (22,030)
Provision (benefit) for income taxes                      (147)        (18,990)        1,068           247           337
                                                      --------       ---------      --------      --------      --------
Income (loss) before cumulative effect
  of change in accounting principle                    (94,271)       (336,735)        9,619          (849)      (22,367)
Cumulative effect of change in accounting
  principle, net of tax benefit                              -               -        (8,080)            -             -
                                                      --------       ---------      --------      --------      --------
Net income (loss)                                     $(94,271)      $(336,735)     $  1,539      $   (849)     $(22,367)
                                                      ========       =========      ========      ========      ========
Income (loss) per share, before cumulative
  effect of change in accounting principle:
     Basic                                             $ (2.23)        $ (9.14)      $  0.50       $ (0.05)      $ (1.52)
     Diluted                                           $ (2.23)        $ (9.14)      $  0.45       $ (0.05)      $ (1.52)
Cumulative effect of change in accounting principle
     Basic                                             $     -         $     -       $ (0.42)      $     -       $     -
     Diluted                                           $     -         $     -       $ (0.38)      $     -       $     -
Net income (loss) per share:
     Basic                                             $ (2.23)        $ (9.14)      $  0.08       $ (0.05)      $ (1.52)
     Diluted                                           $ (2.23)        $ (9.14)      $  0.07       $ (0.05)      $ (1.52)
Shares used in computing net income
  (loss) per share:
     Basic                                              42,239          36,854        19,300        15,730        14,720
     Diluted                                            42,239          36,854        21,116        15,730        14,720

Pro forma amounts with the change in accounting
principle related to revenue recognition applied
retroactively (unaudited):
     Net sales                                             N/A             N/A           N/A      $102,781      $  58,544
     Net income (loss)                                     N/A             N/A           N/A        (3,036)     $ (21,926)
     Net income (loss) per share:
        Basic                                              N/A             N/A           N/A       $ (0.19)      $ (1.49)
        Diluted                                            N/A             N/A           N/A       $ (0.19)      $ (1.49)


                                                                                As of December 31,
                                                      ------------------------------------------------------------------
                                                        2002            2001          2000           1999         1998
                                                      --------       ---------      --------      ---------     --------
                                                                                 (in thousands)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                             $ 87,879        $ 64,057       $33,431       $ 16,965      $11,863
Working capital                                         62,120          74,044       150,234         37,009       31,034
Total assets                                           312,159         432,705       269,668         81,148       68,120
Long-term debt, net of current portion                       -           1,001             -              -            -
Total stockholders' equity                             106,105         141,738       186,127         52,019       49,880

</TABLE>

                                       15

<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 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 front-end-of-line fabrication of integrated circuits. Our products
include dry strip, RTP and PECVD equipment. Our manufacturing equipment utilizes
innovative technology to deliver advanced processing capability and high
productivity for both 200 mm and 300 mm production at technology nodes at and
below 130 nm.

    Our business depends upon capital expenditures by manufacturers of
semiconductor devices. The level of capital expenditures by these manufacturers
depends upon the current and anticipated market demand for such devices. The
semiconductor industry has been experiencing a severe downturn since 2001, which
has resulted in capital spending cutbacks by our customers. Semiconductor
companies continue to reevaluate their capital spending, postpone their new
capital equipment purchase decisions, and reschedule or cancel existing orders.
Declines in demand for semiconductors occurred throughout 2001 and 2002, and are
expected to continue in 2003. Global economic conditions and consumer-related
demand have not improved, resulting in low levels of investment in corporate
infrastructure. The overall demand outlook is still uncertain over the
intermediate term. 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. We are largely dependent upon increases
in sales in order to attain profitability. If our sales do not increase, our
current operating expenses could prevent us from attaining profitability and
adversely affect our financial position and results of operations.

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

     During 2002, we realigned our workforce and production capacity in light of
current business levels. During 2002, we reduced our workforce by approximately
19%, and in light of our business levels, and recorded restructuring charges of
$11.2 million primarily relating to employee severance and consolidation of
facilities. In addition, we recorded aggregate impairment charges of $6.1
million for developed technology, fixed assets and long term assets relating to
the Company's wet operation.

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

     International sales, predominantly to customers based in Europe, Japan and
the Pacific Rim, including Taiwan, Singapore, Korea and China, accounted for 74%
of total net sales for 2002, 78% of total net sales for 2001 and 69% of total
net sales for 2000. We anticipate that international sales will continue to
account for a significant portion of our sales.

                                       16
<PAGE>
     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 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, we
recognized approximately $6.3 million of royalty revenue, and received payments
aggregating $27.0 million.

     On March 17, 2003, we sold our wet surface preparation products business
(our "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 Divison and CFM. As part of our sale of the Wet Business,
SCP acquired the operating assets, including customer contracts and inventory of
one of our subsidiaries (formerly CFM Technologies, Inc.), all outstanding stock
of Mattson Technology IP, Inc., which is the owner of various patents relating
to the Wet Business, and all equity ownership of Mattson Wet Products GmbH, a
German corporation. We retained all cash in the Wet Business, and all rights to
payments under the settlement and license agreements with DNS, but we
transferred all rights to any damages under pending patent litigation to SCP.
Upon closing, SCP assumed responsibility for the operations, sales, marketing
and technical support services for our former wet product lines worldwide. We
expect to reserve approximately $14.0 million to $15.0 million to cover our
ongoing potential liability relating to this transaction.

                          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, investments,
intangible assets, income taxes, restructuring costs, retirement benefits,
contingencies and litigation. Management bases its estimates and judgements on
historical experience and on various other factors that are believed to be
reasonable under the circumstances. These form the basis for making judgements
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

     We consider certain accounting policies related to revenue recognition,
warranty obligations, inventories, goodwill and other intangible assets,
impairment of long-lived assets, and income taxes as critical to our business
operations and an understanding of our results of operations. 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. 101, Revenue Recognition in Financial Statements (SAB
101).

     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 all sales of our wet surface preparation products, revenue
is recognized upon customer acceptance; 2) for equipment sales to existing
customers, who have purchased the same equipment with the same specifications
and previously demonstrated acceptance provisions, we recognize revenue on a
multiple element approach in which we bifurcate a sale transaction into two
separate elements based on objective evidence of fair value of the individual
elements. The two elements are shipment of the tool and acceptance of the tool.

                                       17
<PAGE>

Under this approach, the portion of the invoice price that is due upon final
customer acceptance of the tool, 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 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 before we recognize any revenue related to a significant number of
our shipments. Any shortfall in revenue or delay in recognizing revenue could
cause our operating results to vary significantly from quarter to quarter, and
could result in future operating losses.

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

     Inventories. We state inventories at the lower of cost or market, with cost
determined on 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 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, any significant unanticipated changes in demand or
technological developments could have a significant impact on the value of our
inventory and our reported operating results, given the competitive pressures
and cyclicality of the semiconductor industry.

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

     Impairment of Long-Lived Assets. We assess the impairment of identified
intangibles, long-lived assets and related goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable, in
accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Our judgments regarding the existence of
impairment indicators are based on changes in strategy, market conditions and
operational performance of our business. Future events, including significant
negative industry or economic trends, could cause us to conclude that impairment
indicators exist and that long-lived assets are impaired. Any resulting
impairment loss could have a material adverse impact on our financial condition
and results of operations. In assessing the recoverability of long-lived assets,
we must make assumptions regarding estimated future cash flows and other
factors, including discount rates and probability of cash flow scenarios, to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets. See Note 3 in Notes to the Consolidated
Financial Statements regarding fiscal 2002 impairment charges.

                                       18
<PAGE>

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


Results of Operations

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

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              ------------------------------------
                                                               2002           2001          2000
                                                              -------       -------       --------
<S>                                                            <C>           <C>           <C>
Net sales                                                      100.0 %       100.0 %       100.0 %
Cost of sales                                                   80.1          97.7          51.6
                                                              -------       -------       -------
Gross margin                                                    19.9           2.3          48.4
                                                              -------       -------       -------
Operating expenses:
  Research, development and engineering                         18.4          26.6          15.8
  Selling, general and administrative                           42.4          48.1          30.1
  In-process research and development                              -           4.4             -
  Amortization of goodwill and intangibles                       3.2          14.5             -
  Restructuring and other charges                                8.5          65.5             -
                                                              -------       -------       -------
Income (loss) from operations                                  (52.6)       (156.8)          2.5
Interest and other income, net                                   6.2           2.2           3.4
                                                              -------       -------       -------
Income (loss) before provision (benefit) for income taxes
  and cumulative effect of change in accounting principle      (46.4)       (154.6)          5.9
Provision (benefit) for income taxes                             0.1           8.3          (0.6)
                                                              -------       -------       -------
Net income (loss) before cumulative effect of change
  in accounting principle                                       46.3        (146.3)          5.3
Cumulative effect of change in accounting principle,
  net of tax                                                       -             -          (4.5)
                                                              -------       -------       -------
Net income (loss)                                              (46.3)%      (146.3)%         0.8 %
                                                              =======       =======       =======
</TABLE>

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 relates to tools shipped and awaiting customer acceptance, down
$27.9 million, from $136.6 million deferred revenue at December 31, 2001. 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 six to
twelve months from product shipment.

     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 is
deferred until we obtain customer acceptances. The sold inventory of those wet
products is being recognized as revenue as those products are accepted by


                                       19
<PAGE>

customers, and the related costs, including APB 16 costs, are included in our
cost of goods sold, with an adverse effect on our gross margin in the
corresponding quarter. 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. As of December 31, 2002, we had approximately $1.7 million of APB
16 costs remaining in inventories - delivered systems that will continue to have
a negative impact on our future gross margins as the relevant systems are
accepted.

     Due to intense competition we are continuing to face pricing pressure from
competitors that is also affecting our gross margin. In response, we are
continuing with our cost reduction efforts and efforts to differentiate our
product portfolio. Additionally, in light of the prolonged economic slowdown in
our industry, we took steps to reduce the number of our manufacturing sites. We
have closed three manufacturing sites since the first quarter of 2001, and sold
two of those manufacturing sites during 2002. We continue to have excess
capacity at our remaining sites but have reduced costs at those sites in an
effort to improve our gross margin. During the fourth quarter of 2002, we ceased
the wet products operations at our Exton and Malvern, PA facilities and
transferred those operations to our wet products facility in Pliezhausen,
Germany. On March 17, 2003, we sold our Wet Products business to SCP Global
Technologies, a leading wet processing equipment provider. The transaction
involved the transfer of certain subsidiaries, assets and intellectual property
related to the Wet Products Division. As part of the transaction, we will retain
the rights to all future royalty and settlement payments under agreements with
Dainippon Screen Manufacturing Co., Ltd.

     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, remaining ABP 16 costs in our inventories and
costs associated with the introduction of new products.

     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.

     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.

     Amortization of Goodwill and Intangibles. Upon adoption of SFAS 142 on
January 1, 2002, we no longer amortize goodwill. We continued to amortize the
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 the RTP products and certain wet 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 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
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.

                                       20
<PAGE>

     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 the identifiable intangibles
acquired in 2001 and the receipt of a federal tax refund. These benefits were
offset by tax expense 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, 2002, 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, 2001 and 2000

    Net Sales. Our net sales for the year ended December 31, 2001 were $230.1
million, compared to net sales of $180.6 million for the year ended December 31,
2000. We estimated that on a pro forma basis for the year ended December 31,
2000, assuming that we had acquired the STEAG Semiconductor Division and CFM on
January 1, 2000, the combined company would have had net sales of $372.7
million, so that net sales in the year 2001 would reflect a decrease of 38.3%
from 2000. Net sales decreased in 2001 primarily due to the economic downturn in
the semiconductor industry and also due to the timing effects of revenue
recognition, where the time-lag between product shipment and customer acceptance
can exceed one year. A significant proportion of products shipped during fiscal
2001 and 2000 from our Thermal and Wet product divisions (operations acquired
from the STEAG Semiconductor Division and CFM) resulted in deferred revenue in
accordance with our revenue recognition policy, due to the complexities of the
equipment shipped and the associated acceptance clauses.

    Gross Margin. Gross margin for the year ended December 31, 2001 was 2.3%, a
decrease from gross margin of 48.4% for the year ended December 31, 2000. The
decrease in gross margin in 2001 was due to several factors. Our costs were
adversely affected by the under absorption of our production facilities, leading
to manufacturing overhead inefficiencies. We had excess production capacity as a
result of the drop in sales and bookings, combined with our acquisition of
additional production capacity in Germany and Exton, PA as a result of the
merger. Our gross margin in 2001 was also adversely affected by the write-up of
inventory acquired in the merger to fair value, as required by Accounting
Principles Board Opinion No. 16 "Business Combinations", in the amount of $13.8
million, or 6.0 percent of net sales. In addition, our gross margin in 2001 was
adversely affected by increased provisions for excess inventories that we
believed would not be used based on our bookings or forecasted levels of sales,
in the amount of $26.4 million, or 11.5 percent of net sales. This provision
largely covered inventories for RTP and wet products that were acquired in the
merger.

    Research, Development and Engineering. Research, development and engineering
expenses were $61.1 million, or 26.6% of net sales, for the year ended December
31, 2001, compared to $28.5 million, or 15.8% of net sales, for the year ended
December 31, 2000. The increase in absolute dollars in 2001 was due to
additional personnel and spending resulting from the merger. The increase in
research, development and engineering expense as a percentage of net sales in
2001 compared to 2000 was primarily attributable to decreased sales in 2001.
During 2001, major efforts were made with regard to the improvement of our
product line of 300 mm tools and the processes they are capable of running.
Improvement of the reliability of the tools was a focal point for engineering in
fiscal 2001.

     Selling, General and Administrative. Selling, general and administrative
expenses were $110.8 million, or 48.1% of net sales, for the year ended December
31, 2001, compared with $54.5 million, or 30.1% of net sales, for the year ended
December 31, 2000. The increase in absolute dollars in 2001 was due to
additional personnel and spending added by the merger. Also in 2001, the Company
incurred $8.1 million of severance charges and $6.9 million of bad debt charges
recorded in selling, general and administrative expenses. The increase in
selling, general and administrative expenses as a percentage of net sales in
2001 compared to 2000 was primarily attributable to decreased net sales in 2001
and the severance charge.

    In-process research and development. In connection with our acquisition of
the STEAG Semiconductor Division, we allocated approximately $5.4 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 relating
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.

                                       21
<PAGE>

     In connection with the acquisition of CFM, we allocated approximately $4.7
million of the purchase price to an in-process research and development project.
This allocation represented the estimated fair value based on risk-adjusted cash
flows related to one incomplete research and development project. At the date of
acquisition, the development of this project had not yet reached technological
feasibility, and the research and development in progress had no alternative
future use. Accordingly, the purchase price allocated to in-process research and
development was expensed as of the acquisition date.

     Amortization of Goodwill and Intangibles. Goodwill and intangibles
represent the purchase price of the STEAG Semiconductor Division and CFM in
excess of identified tangible assets. In connection with the merger, effective
January 1, 2001, we recorded $207.3 million of goodwill and intangible assets,
which were being amortized on a straight-line basis over three to seven years.
We recorded amortization expense of $33.5 million for the year 2001. Upon
adoption of SFAS 142 on January 1, 2002, goodwill is no longer amortized; only
the identified intangibles continue to be amortized.

     Impairment of Long-Lived Assets and other charges. In 2001, an independent
third party performed assessments of the carrying values of our long-lived
assets to be held and used including goodwill, other intangible assets and
property and equipment recorded in connection with our acquisitions of the STEAG
Semiconductor Division and CFM. The assessment was performed pursuant to SFAS
No. 121 as a result of deteriorated market conditions in the semiconductor
industry in general, a reduced demand specifically for the RTP products and
certain wet products acquired in the merger, and revised projected cash flows
for these products in the future. As a result of these assessments, we 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 these assets
exceeded their fair value. Fair value was determined based on discounted future
cash flows.

     Interest and Other Income, Net. 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. For
the year ended December 31, 2000, we earned interest income of $6.3 million
which was from the investment of the net proceeds from the sale of common stock
in March 2000.

   Provision for Income Taxes. We recorded a tax benefit of $19.0 million for
the year ended December 31, 2001 compared to a tax provision of $1.1 million for
the year ended December 31, 2000. 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. We recognized a
provision for income taxes at an effective tax rate of 10% during 2000, as we
were able to recognize certain benefits from our prior operating losses. 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 provided a full
valuation allowance against our net deferred tax asset at December 31, 2001, as
the future realization of the tax benefit is not sufficiently assured.









                                       22
<PAGE>


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, 2002.
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. Conclusions about our
future results should not be drawn from the operating results for any quarter.

<TABLE>
<CAPTION>

                                                                             Quarter Ended (Unaudited)
                                           ----------------------------------------------------------------------------------------
                                            APR 1,      JUL 1,      SEP 30,     DEC 31,    MAR 31,    JUN 30,    SEP 29,    DEC 31,
                                             2001       2001         2001        2001       2002        2002      2002       2002
                                           --------    --------    --------    --------    -------    -------    -------    -------
CONSOLIDATED STATEMENT
  OF OPERATIONS
<S>                                        <C>         <C>         <C>         <C>        <C>         <C>        <C>        <C>
Net sales                                  $ 73,499    $ 71,355    $ 36,643    $ 48,652   $ 46,205    $47,263    $60,808    $49,244
Cost of sales                                50,327      56,190      56,697      61,554     38,786     37,810     47,307     39,160
                                           --------    --------   ---------    --------   --------   --------   --------    -------
Gross profit (loss)                          23,172      15,165     (20,054)    (12,902)     7,419      9,453      3,501     10,084
                                           --------    --------   ---------    --------   --------   --------   --------    -------
Operating expenses:
  Research, development and
    engineering                              18,901      16,108      12,734      13,371      9,564      9,348     10,003      8,480
  Selling, general and administrative        31,874      23,458      26,196      29,257     22,097     21,098     22,058     20,965
  In-process research and development        10,100           -           -           -          -          -          -          -
  Amortization of goodwill and intangibles   10,399       9,624       8,730       4,704      1,687      1,687      1,687      1,530
  Restructuring and other charges                 -           -           -           -          -          -      6,171     11,136
  Impairment of long-lived assets and
    other charges                                 -           -     127,684      22,982          -          -          -          -
                                           --------    --------   ---------    --------   --------   --------   --------    -------
    Total operating expenses                 71,274      49,190     175,344      70,314     33,348     32,133     39,919     42,111
                                           --------    --------   ---------    --------   --------   --------   --------    -------
Loss from operations                        (48,102)    (34,025)   (195,398)    (83,216)   (25,929)   (22,680)   (26,418)   (32,027)
Interest and other income (expense), net        488       1,307       2,309         912          1     (2,005)    15,728     (1,088)
                                           --------    --------   ---------    --------   --------   --------   --------    -------
Loss before provision (benefit) for         (47,614)    (32,718)   (193,089)    (82,304)   (25,928)   (24,685)   (10,690)   (33,115)
   income taxes
Provision (benefit) for income taxes          2,012         397      (6,231)    (15,168)      (151)      (162)     1,346     (1,180)
                                           --------    --------   ---------    --------   --------   --------   --------    -------
Net loss                                   $(49,626)   $(33,115)  $(186,858)   $(67,136)  $(25,777)  $(24,523)  $(12,036)  $(31,935)
                                           ========    ========   =========    ========   ========   ========   ========   ========
Net loss per share:
  Basic and diluted                        $ (1.36)    $ (0.90)    $ (5.05)    $ (1.81)   $ (0.70)   $ (0.58)   $ (0.27)   $ (0.71)
Shares used in computing
  loss per share:
  Basic and diluted                         36,613      36,804      36,985      37,013     37,079     42,315     44,696     44,753


</TABLE>


Liquidity and Capital Resources

($ in 000s)                                   2002        2001         2000
                                            -------     -------      -------
Cash flows from operating activities       $(10,900)    $(32,276)   $ (53,109)

Cash flows from investing activities          4,964      63,266      (56,463)

Cash flows from investing activities         20,247      9,620      126,105

Net increase in cash and cash equivalents    23,822      30,626       16,466


     Our cash and cash equivalents (excluding restricted cash) and short-term
investments were $87.9 million at December 31, 2002, an increase of $18.1
million from $69.8 million held as of December 31, 2001. Stockholders' equity at
December 31, 2002 was approximately $106.1 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.

                                       23
<PAGE>


     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.

    Our Japanese subsidiary has a credit facility with a Japanese bank in the
amount of 900 million Yen (approximately $7.6 million at December 31, 2002),
secured by specific trade accounts receivable of our Japanese subsidiary. The
facility bears interest at a per annum rate of TIBOR plus 75 basis points. The
term of the facility is through June 20, 2003. We have given a corporate
guarantee for this credit facility. At December 31, 2002, there were no
borrowings under this credit facility.

     On March 29, 2002 we entered into a one-year revolving line of credit with
a bank in the amount of $20.0 million. The line of credit was due to expire on
March 27, 2003, but has been extended for an interim period until April 27,
2003, while the credit line covenants are being modified to reflect changes in
our business. The line of credit is expected to be extended thereafter. All
borrowings under this line bear interest at a per annum rate equal to the bank's
prime rate plus 125 basis points. The line of credit is secured by a blanket
lien on all of our domestic assets including intellectual property. The line of
credit requires us to satisfy certain quarterly financial covenants, including
maintaining a minimum quick ratio and minimum tangible net worth, and meeting
minimum revenue targets. At December 31, 2002, we were in compliance with the
covenants and there were no borrowings under this credit line.

     On June 24, 2002, we entered into a settlement agreement and a cross
license agreement with DNS under which DNS agreed to pay us a total of $75
million, relating to past damages, partial reimbursement of attorney's fee and
costs, and royalties, payable in varying amounts at varying dates through April
1, 2007, as follows: $27.0 million in 2002, $24.0 million in 2003, and
thereafter $6.0 million each year from 2004 through 2007.

     The royalty 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. Royalties
payable under the cross license agreement total a minimum of $30 million and a
maximum $60 million. Once total royalty payments equal $30 million, the minimum
royalties no longer apply. No further royalties are payable once total payments
reach $60 million. As of December 31, 2002, we had received payments aggregating
$27.0 million ($24.3 million, net, after deducting 10% Japanese withholding tax)
from DNS under the terms of the settlement agreement.

     As of December 31, 2002, we have non-cancelable operating lease commitments
of $38.0 million, as follows:

                                               (In thousands)

            2003......................            $ 7,362
            2004......................              4,225
            2005......................              3,344
            2006......................              2,928
            2007......................              2,133
            Thereafter................             17,970
                                                  -------
                                                  $37,962
                                                  =======

     The above table excludes annual rental commitment for the building leased
in February 2003, in the amounts of $0.2 million, $1.0 million, $1.1 million,
$1.2 million and $0.4 million for 2003, 2004, 2005, 2006 and 2007, respectively,
aggregating to $3.9 million.

     We have made loans to certain current and former executive officers, in an
aggregate amount of approximately $670,000. Additionally, we made loans to a
(now former) executive officer and board member in an aggregate amount of
approximately $3.1 million. These loans are described in Note 13.

     Net cash used in operating activities was $10.9 million for the year ended
December 31, 2002 and $32.3 million for the year ended December 31, 2001. The
net cash used in operations in 2002 was primarily attributable to net losses of
$94.3 million, a decrease in deferred revenue of $43.9 million, a 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.

                                       24

<PAGE>

     The net cash used in operations in 2000, of $53.1 million, was primarily
attributable to the net income of $1.5 million, an increase in restricted cash
of $32.0 million, deferred taxes of $6.4 million, an increase in accounts
receivable of $39.6 million, an increase in inventories of $30.1 million, and an
increase in prepaid expenses and other assets of $6.7 million, offset by the
cumulative effect of a change in accounting principle of $8.1 million, non-cash
depreciation and amortization of $4.5 million, an increase in deferred revenue
of $31.3 million, an increase in accounts payable of $6.6 million and an
increase in accrued liabilities of $11.4 million.

     Net cash provided by investing activities was $5.0 million for the year
ended December 31, 2002, 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 used in investing activities in 2000 was $56.5 million,
which consisted of the purchase of $59.4 million of investments and $9.0 million
of property and equipment, offset by the sale of $12 million of investments.

     Net cash provided by financing activities was $20.2 million for the year
ended December 31, 2002, primarily due to 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. Net cash provided by financing activities was $126.1 million in
2000, primarily resulting from $122.8 million in net proceeds from the issuance
of common stock and $6.4 million in proceeds from stock plans, offset by the
repayment of $3.0 million against our line of credit.

     Based on current projections, we believe that our current cash and
investment positions and available credit, together with cash provided by
operations, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Our primary
source of liquidity is our existing unrestricted cash balance and cash generated
by our operations. During 2002, we had operating losses. Our operating plans are
based on and require that we reduce our operating losses, control our expenses,
manage our inventories, and collect our accounts receivable balances. In this
market downturn, we are exposed to a number of challenges and risks, including
delays in payments of our accounts receivable by our customers, and
postponements or cancellations of orders. Postponed or cancelled orders can
cause us to have excess inventory and underutilized manufacturing capacity. If
we are not able to significantly reduce our present operating losses over the
upcoming quarters, our operating losses could adversely affect our cash and
working capital balances, and we may be required to seek additional sources of
financing.

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


New Accounting Pronouncements

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of SFAS No.
146 also includes costs related to terminating a contract that is not a capital
lease and termination benefits that employees who are involuntarily terminated
receive under the terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation contract. Since the
provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002, the adoption of SFAS No. 146 will have no
effect on our current financial condition or result of operations.

                                       25

<PAGE>

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

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 will significantly change
current practice in the accounting for, and disclosure of, guarantees. FIN 45
requires certain guarantees to be recorded at fair value, which is different
from the current practice of recording a liability only when a loss is probable
and reasonably estimable, as those terms are defined in SFAS No. 5, Accounting
for Contingencies. FIN 45 also requires a guarantor to make significant new
disclosures, even when the likelihood of making any payments under the guarantee
is remote, which is another change from the current practice. FIN 45 disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002, while the initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. We are currently evaluating the
impact of the adoption of FIN 45 on our results of operations or financial
condition.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. The statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company adopted the disclosure provisions of SFAS
No. 148 on January 1, 2003. We do not anticipate that adoption of this statement
will have a material impact on our consolidated balance sheets or consolidated
statements of operations.

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

Mergers, Acquisitions and Dispositions

     On June 27, 2000, we entered into a definitive Strategic Business
Combination Agreement, subsequently amended on December 15, 2000 and November 5,
2001("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"). Both
transactions were completed simultaneously on January 1, 2001.

     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 which were settled by the issuance of 1.3 million shares to
SES upon conversion of $8.1 million of outstanding promissory notes at $6.15 per
share of common stock in a private placement transaction, 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
has been accounted for under the purchase method of accounting, and the results
of operations of the STEAG Semiconductor Division are included in our

                                       26
<PAGE>
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). As a
result of our acquisition of the STEAG Semiconductor Division, SES holds
approximately 29.4% of our common stock and currently has two representatives on
our board of directors.

     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
has 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.

     Under the Combination Agreement and the Plan of Merger, we also agreed to
grant options to purchase 850,000 shares of our common stock to employees of the
STEAG Semiconductor Division and options to purchase 500,000 shares of our
common stock to employees of CFM subsequent to the closing of the transactions.
These options are not included in the purchase price of the STEAG Semiconductor
Division or CFM.

     In April 2001, we acquired 97% of the outstanding shares of R.F. Services,
Inc. for a cash price of $928,800 (including acquisition-related costs of
$41,500). Brad Mattson, former Chief Executive Officer of the Company, owned a
majority of the outstanding shares of R.F. Services, Inc. and served as a
director of that company.

     On 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. 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 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 is subject to adjustment based on a number of
things, including the net working capital of the Wet Business at closing, to be
determined based 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 expect
the purchase price adjustment based on the net working capital at closing to
result in a payment to SCP, in an amount less than $1.0 million. We are
obligated to (i) fund salary and severance costs relating to reductions in force
to be implemented in Germany after the closing, (ii) assume certain real
property leases relating to transferred facilities, subject to a sublease to
SCP, (iii) reimburse SCP for future legal fees, up to a maximum of $1 million,
in pending patent litigations, and (iv) reimburse SCP for amounts necessary to
cover specified customer responsibilities. We expect to reserve approximately
$14.0 million to $15.0 million to cover our potential liability under these
items.

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

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

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

     Following the very strong year in 2000, the semiconductor industry is now,
since 2001, in the midst of a significant and prolonged downturn, and we and
other industry participants are experiencing lower bookings, significant push
outs and cancellations of orders. The severity and duration of the downturn

                                       27
<PAGE>

are unknown, but is impairing our ability to sell our systems and to operate
profitably. If demand for semiconductor devices and our systems remains
depressed for an extended period, it will seriously harm our business.

     As a result of the acquisition of the STEAG Semiconductor Division and CFM
at the beginning of 2001, we grew to be a larger, more geographically diverse
company, less able to react quickly to the cyclicality of the semiconductor
business, particularly in Europe and other regions where restrictive laws
relating to termination of employees prohibited us from quickly reducing costs
in order to meet the downturn. Accordingly, during this latest downturn we have
been unable to reduce our expenses quickly enough to avoid incurring a loss. For
the fiscal year ended December 31, 2002 and 2001, our net loss was $94.3 million
and $336.7 million, respectively, compared to net income of $1.5 million for the
year ended December 31, 2000. The net loss in 2002 primarily reflected the
impact of our continuing decline in net sales. Subsequent to December 31, 2002,
we have sold the Wet Business to SCP, which business had originally been
acquired as part of our acquisition of the STEAG Semiconductor Division and CFM.
If our actions to date, including our recent sale to SCP of the Wet Business,
are insufficient to effectively align our cost structure with prevailing market
conditions we may be required to undertake additional cost-cutting measures, and
may be unable to continue to invest in marketing, research and development and
engineering at the levels we believe are necessary to maintain our competitive
position in our remaining core businesses. Our failure to make these investments
could seriously harm our long-term business prospects.

We are Exposed to the Risks Associated with Industry Overcapacity, Including
Reduced Capital Expenditures, Decreased Demand for Our Products and the
Inability of Many of Our Customers to Pay for Our Products.

     As a result of the recent 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 experience cash flow problems and 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, many semiconductor manufacturers are continuing to forecast
that revenues in the short-term will remain flat or lower than in previous
high-demand years, and we believe that we may continue to see some customers
experiencing cash flow problems. 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 Are Implementing New Financial Systems, and Will Need to Continue to Improve
or Implement New Systems, Procedures and Controls.

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


                                       28

<PAGE>

If our new financial systems do not result in the expected improvements, or if
we are unable to fully implement these systems, procedures and controls in a
timely manner, our business could be harmed.

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

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

     We may not obtain the benefits we expect as a result of the sale of the Wet
Business to SCP, such as greater strategic focus on our core businesses. Our
agreement with SCP may require an adjustment to the initial purchase price, if
the net working capital of the Wet Business after the sale is not within a
specified range, and could result in a reduction of the purchase price to us. We
expect the purchase price adjustment based on the net working capital at closing
to result in a payment to SCP, in an amount less than $1.0 million. We have
agreed with SCP to (i) fund salary and severance costs for certain reductions in
force to be implemented in Germany after the closing, (ii) assume real property
leases relating to our former Pliezhausen facilities, subject to a sublease of
all or a portion of such facilities to SCP, (iii) pay legal fees up to a maximum
of $1 million in connection with certain pending patent litigation, and (iv)
reimburse SCP for amounts to cover specified arrangements and responsibilities
with customers and other costs. We expect to record reserves in the aggregate
amount of approximately $14.0 million to $15.0 million to cover our potential
liability under these items. However, our actual costs and expenses could be
greater or lesser than expected, and if greater, could materially adversely
affect our results of operation in future periods.

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

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

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

     To achieve commercial success with our product lines, we will 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.

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<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 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.

Accounting Guidance Under SAB 101 May Result in Wide Fluctuation in Our Revenue.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. Among other
things, SAB 101 has resulted in a change from the established practice of
recognizing revenue at the time of shipment of a system, and instead delaying
revenue recognition in part or totally until the time of customer acceptance. We
adopted SAB 101 effective in the fourth quarter of fiscal 2000, retroactive to
January 1, 2000, with the impact recorded as a cumulative effect in the first
quarter of 2000. In some situations, application of this accounting guidance
delays the recognition of revenue that would otherwise have been recognized in
earlier periods. As a result, our reported revenue may fluctuate more widely and
reported revenue for a particular fiscal period might not meet the expectations
of financial analysts or investors. A delay in recognition of revenue resulting
from application of this guidance, while not affecting our cash flow, could
adversely affect our results of operations, which could cause the value of our
common stock to fall.

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. In addition, our
backlog at the beginning of a quarter is not expected to include all orders
required to achieve our sales objectives for that quarter. As a result, our net
sales and operating results for a quarter depend on our ability to ship orders
as scheduled during that quarter as well as obtain new orders for systems to be
shipped in that same quarter. Any delay in scheduled shipments or in acceptances
of shipped products would delay our ability to recognize revenue, collect
outstanding accounts receivable, and would materially adversely affect our
operating results for that quarter. A delay in a shipment or customer acceptance
near the end of a quarter may 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.


                                       30
<PAGE>

If we are unable to collect a receivable from a large customer, our financial
results will be negatively impacted.

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.

We Incurred Net Operating Losses for the Fiscal Years 1998, 1999, 2001 and 2002.
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 and $94.3 million for the
year ended December 31, 2002. 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.

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 we restructured our organization and reduced our workforce
by 257 positions. We have incurred costs of $3.4 million associated with the
workforce reduction related to severance and other employee-related costs in
2002, 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 recent trading levels of our


                                       31
<PAGE>

common stock have decreased the value of our stock options 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 ongoing 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.

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.

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 47% of
our total sales in 2002, 47% in 2001 and 54% in 2000. During 2001, Europe also
emerged as an important region for our business. During 2002, 2001 and 2000,
sales to customers in Europe accounted for 27%, 31% and 14%, respectively. Our
international sales accounted for 74% of our total net sales in 2002, 78% in
2001 and 69% in 2000 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.


                                       32
<PAGE>

         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.

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.

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.

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


                                       33
<PAGE>

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.

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, certain 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.

We May Not Be Able To Continue To Successfully Compete in the Highly Competitive
Semiconductor 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; and

     o    customer 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; 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, and sale 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.


                                       34
<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 manufacture 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. We 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.

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.

         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.

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

                                       35

<PAGE>

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 had been litigating certain matters involving our Wet Business
intellectual property, which has been sold to SCP. Although SCP has assumed the
responsibility for these legal proceedings, we remain a party to these
litigations, and we have agreed to reimburse SCP for the costs of such
litigation up to the amount of $1 million.

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 as a Result of Our Increased Market Strength in RTP.

         We may from time to time be subject to claims of infringement of other
parties' proprietary rights. Competitors alleging infringement of such
competitors' patents have in the past sued our acquired company, STEAG
Semiconductor Division. Although all such historic lawsuits have been settled or
terminated, the risk of further intellectual property litigation for us may be
increased following the expansion of our business after the merger.

         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.

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

         There are approximately 44.9 million shares of our common stock
outstanding as of December 31, 2002, of which approximately 13.2 million (or
29.4%) are held beneficially by STEAG. STEAG has agreed to restrictions on its
ability to acquire additional shares of our stock, other than to maintain its
percentage ownership in us, and from soliciting proxies and certain other
standstill restrictions in connection with voting shares of our common stock,
for a period of five years after its acquisition of the stock. 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, and STEAG has the right to require us to register for resale all or
a portion of the shares they hold. If STEAG were to sell a 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.


                                       36
<PAGE>

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

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

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

     o    announcements of developments related to our business;

     o    fluctuations in our operating results and order levels;

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

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

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

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

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

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.


                                       37
<PAGE>

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 fixed interest rates.

     The table below presents the fair value of principal amounts and related
weighted average interest rates for our investment portfolio as of December 31,
2002.
                                             Fair Value
                                            December 31,
                                                2002
                                           --------------
                                           (In thousands)
     Assets
        Cash and cash equivalents            $ 87,879
          Average interest rate                 1.47%
        Restricted cash                      $  1,105
          Average interest rate                 0.66%

Foreign Currency Risk

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

     The following table provides information as of December 31, 2002 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.


                                       38
<PAGE>


                                                     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                     $  1,827      120.46          $ 1,858

   Mattson Thermal Products GmbH
    (Euro equivalent amount)
      U.S. Dollar                    EUR  5,828        0.98       EUR  5,434
      Japanese Yen                   EUR  2,748      117.41       EUR  2,722

   Mattson Wet Products GmbH
     (Euro equivalent amount)
       U.S. Dollar                   EUR  9,810        0.98       EUR  9,126


     The local currency is the functional currency for all our foreign sales
operations. Our exposure to foreign currency risk has increased as a result of
our global expansion of business. To neutralize its US operation's exposure to
exchange rate volatility, the Company keeps EUROS in a foreign currency bank
account. The balance of this bank account was 5.0 million EUROS at December 31,
2002.













                                       39
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

                                                                           Page
                                                                           ----

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2002 and 2001 ...........    41

Consolidated Statements of Operations for the years ended December 31,
   2002, 2001 and 2000 .................................................    42

Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 2002, 2001 and 2000....................................     43

Consolidated Statements of Cash Flows for the years ended December 31,
   2002, 2001 and 2000.................................................     44

Notes to Consolidated Financial Statements ...........................      45

Report of Independent Accountants ....................................      68

Financial Statement Schedules:

    Schedule II ........................................................    78










                                       40
<PAGE>
                   MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                            As of December 31,
                                                                        -------------------------
                                                                          2002             2001
                                                                        ---------       ---------
                                        ASSETS
Current assets:
<S>                                                                     <C>             <C>
  Cash and cash equivalents                                             $  87,879       $  64,057
  Restricted cash                                                           1,105          27,300
  Short-term investments                                                        -           5,785
  Accounts receivable, net of allowance for doubtful accounts
     of $10,552 and $12,473 in 2002 and 2001, respectively                 34,834          38,664
  Advance billings                                                         27,195          61,874
  Inventories                                                              50,826          65,987
  Inventories - delivered systems                                          47,444          74,002
  Prepaid expenses and other current assets                                13,676          18,321
                                                                        ---------       ---------
       Total current assets                                               262,959         355,990
Property and equipment                                                     18,855          33,508
Goodwill                                                                   12,675           9,851
Intangibles                                                                15,254          30,765
Other assets                                                                2,416           2,591
                                                                        ---------       ---------
                                                                        $ 312,159       $ 432,705
                                                                        =========       =========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable - STEAG Electroic Systems AG, a shareholder             $       -       $  44,613
  Current portion of long-term debt                                             -             289
  Line of credit                                                                -           4,589
  Accounts payable                                                         14,346          14,175
  Accrued liabilities                                                      77,795          78,459
  Deferred revenue                                                        108,698         136,580
  Deferred income taxes                                                         -           3,241
                                                                        ---------       ---------
       Total current liabilities                                          200,839         281,946
                                                                        ---------       ---------
Long-term liabilities:
  Long-term debt                                                                -           1,001
  Deferred income taxes                                                     5,215           8,020
                                                                        ---------       ---------
       Total long-term liabilities                                          5,215           9,021
                                                                        ---------       ---------
       Total liabilities                                                  206,054         290,967
                                                                        ---------       ---------
Commitments and contingencies (Note 15)
Stockholders' equity:
  Common Stock, par value $0.001, 120,000 authorized shares;                   45              37
     45,232 shares issued and 44,857 shares outstanding in 2002;
     37,406 shares issued and 37,032 shares outstanding in 2001
  Additional paid-in capital                                              542,482         497,536
  Accumulated other comprehensive income (loss)                             7,131          (6,553)
  Treasury stock, 375 shares in 2002 and 2001 at cost                      (2,987)         (2,987)
  Accumulated deficit                                                    (440,566)       (346,295)
                                                                        ---------       ---------
       Total stockholders' equity                                         106,105         141,738
                                                                        ---------       ---------
                                                                        $ 312,159       $ 432,705
                                                                        =========       =========
</TABLE>

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

                                       41
<PAGE>
                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                      -----------------------------------------
                                                                         2002            2001            2000
                                                                      ---------       ---------       ---------
<S>                                                                   <C>             <C>             <C>
Net sales                                                             $ 203,520       $ 230,149       $ 180,630
Cost of sales                                                           163,063         224,768          93,123
                                                                      ---------       ---------       ---------
  Gross profit                                                           40,457           5,381          87,507
                                                                      ---------       ---------       ---------
Operating expenses:
  Research, development and engineering                                  37,395          61,114          28,540
  Selling, general and administrative                                    86,218         110,785          54,508
  Acquired in-process research and development                             --            10,100            --
  Amortization of goodwill and intangibles                                6,591          33,457            --
  Restructuring and other charges                                        17,307            --              --
  Impairment of long-lived assets and other charges                        --           150,666            --
                                                                      ---------       ---------       ---------
     Total operating expenses                                           147,511         366,122          83,048
                                                                      ---------       ---------       ---------
Income (loss) from operations                                          (107,054)       (360,741)          4,459
Interest expense                                                         (1,660)         (2,989)            (55)
Interest income                                                           2,380           4,354           6,251
Other income                                                             11,916           3,651              32
                                                                      ---------       ---------       ---------
Income (loss) before provision (benefit) for income taxes
  and cumulative effect of change in accounting principle               (94,418)       (355,725)         10,687
Provision (benefit) for income taxes                                       (147)        (18,990)          1,068
                                                                      ---------       ---------       ---------
Income (loss) before cumulative effect of
  change in accounting principle                                        (94,271)       (336,735)          9,619
Cumulative effect of change in accounting principle,
   net of tax                                                              --              --            (8,080)
                                                                      ---------       ---------       ---------
Net income (loss)                                                     $ (94,271)      $(336,735)      $   1,539
                                                                      =========       =========       =========
Income (loss) per share before cumulative
  effect of a change in accounting principle:
     Basic                                                            $   (2.23)      $   (9.14)      $    0.50
     Diluted                                                          $   (2.23)      $   (9.14)      $    0.45
Cumulative effect of change in accounting principle
     Basic                                                            $    --         $    --         $   (0.42)
     Diluted                                                          $    --         $    --         $   (0.38)
     Net income (loss) per share:
         Basic                                                        $   (2.23)      $   (9.14)      $    0.08
         Diluted                                                      $   (2.23)      $   (9.14)      $    0.07
     Shares used in computing net income (loss) per share:
         Basic                                                           42,239          36,854          19,300
         Diluted                                                         42,239          36,854          21,116

</TABLE>

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

                                       42


<PAGE>


                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                 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, 1999                16,591    $ 16    $ 66,280      $ (191)      (375)  $(2,987)    $ (11,099)   $ 52,019
    Components of comprehensive
      income (loss):
        Net income                                -      -            -           -          -         -         1,539       1,539
        Cumulative translation
         adjustments                              -      -            -         (67)         -         -             -         (67)
        Unrealized gain on
         investments                              -      -            -          77          -         -             -          77
                                                                                                                          --------
        Comprehensive income                      -      -            -           -          -         -             -       1,549
                                                                                                                          --------
    Exercise of stock options                   652      1        3,506           -          -         -             -       3,507
    Shares issued under employee
      stock purchase plan                       482      -        2,848           -          -         -             -       2,848
    Income tax benefits realized
      from activity in employee
      stock plans                                 -      -        3,454           -          -         -             -       3,454
    Issuance of Common Stock,
      net of offering costs                   3,090      3      122,747           -          -         -             -     122,750
                                            -------   ------    -------      -------     -----    ------      --------    --------
    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
                                            =======   =====    ========     =======       =====  =======     =========    ========

</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       43
<PAGE>

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                              -----------------------------------------
                                                                                 2002            2001            2000
                                                                              ---------       ---------       ---------
<S>                                                                           <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                                           $ (94,271)      $(336,735)      $   1,539
  Adjustments  to reconcile  net income (loss) to net cash
  used in operating activities:
     Cumulative effect of accounting change, net of tax                              --              --           8,080
     Depreciation                                                                10,632          16,611           4,535
     Deferred taxes                                                              (4,322)        (19,673)         (6,413)
     Provision for allowance for doubtful accounts                                  482           6,850              --
     Inventory valuation charges                                                 14,303          26,418              --
     Amortization of goodwill and intangibles                                     6,592          33,457              --
     Impairment of long-lived assets and other charges                           11,598         150,666              --
     Loss on disposal of fixed assets                                             1,268           2,256             113
     Acquired  in-process  research and  development                                 --          10,100              --
     Income tax benefit realized from activity in employee stock plans              132             332           3,454
     Changes in assets and liabilities:
       Restricted cash                                                               --           4,695         (31,995)
       Accounts receivable                                                        8,320          50,360         (39,629)
       Advance billings                                                          40,783         (21,170)             --
       Inventories                                                                5,263          56,638         (30,059)
       Inventories - delivered systems                                           35,936         (62,474)             --
       Prepaid expenses and other current assets                                  2,550          (3,180)         (6,664)
       Other assets                                                               2,163           2,695          (5,402)
       Accounts payable                                                            (282)        (20,656)          6,597
       Accrued liabilities                                                       (8,131)        (25,357)         11,419
       Deferred Revenue                                                         (43,916)         95,891          31,316
                                                                              ---------       ---------       ---------
Net cash used in operating activities                                           (10,900)        (32,276)        (53,109)
                                                                              ---------       ---------       ---------
Cash flows from investing activities:
  Purchases of property and equipment                                            (4,557)        (17,209)         (9,041)
  Proceeds from the sale of equipment                                             3,716             486              --
  Purchases of available for sale investments                                   (14,962)        (16,314)        (59,406)
  Proceeds from the sale and maturity of  available for sale investments         20,767          58,257          11,984
  Net cash acquired from acquisitions                                                --          38,046              --
                                                                              ---------       ---------       ---------
Net cash provided by (used in) investing activities                               4,964          63,266         (56,463)
                                                                              ---------       ---------       ---------
Cash flows from financing activities:
  Restricted cash                                                                26,195              --              --
  Payment on line of credit                                                      (5,341)         (4,888)         (3,000)
  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              --         122,750
  Proceeds from stock plans                                                       1,820           3,580           6,355
                                                                              ---------       ---------       ---------
Net cash provided by financing activities                                        20,247           9,620         126,105
                                                                              ---------       ---------       ---------
Effect of exchange rate changes on cash and cash equivalents                      9,511          (9,984)            (67)
                                                                              ---------       ---------       ---------
Net increase in cash and cash equivalents                                        23,822          30,626          16,466
Cash and cash equivalents, beginning of year                                     64,057          33,431          16,965
                                                                              ---------       ---------       ---------
Cash and cash equivalents, end of year                                        $  87,879       $  64,057       $  33,431
                                                                              =========       =========       =========
Supplemental disclosures:
  Cash paid for interest                                                      $   1,313       $     805       $      55
  Cash paid for income taxes                                                  $   2,478       $     545       $   5,337
  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                             $   9,697       $  14,003       $     216

</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       44
<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 has refocused its business on core technologies in dry strip
and rapid thermal processing, and accordingly in line with that focus, on
February 12, 2003, the Company announced the signing of a definitive agreement
to sell its Wet Products Division to SCP Global Technologies, a leading wet
processing equipment provider. The transaction was completed on March 17, 2003.
The transaction involves the transfer of certain subsidiaries, assets and
intellectual property related to the Wet Products Division. As part of the
transaction, the Company will retain the rights to all future royalty and
settlement payments under agreements with Dainippon Screen Manufacturing Co.,
Ltd.

Risks and Uncertainties

     Based on current projections, the Company believes that its current cash
and investment positions together with cash provided by operations will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. The Company's operating plans
are based on and require that the Company reduce its operating losses, control
expenses, manage inventories, and collect accounts receivable balances. In the
current semiconductor market downturn, the Company is 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
the Company is not able to significantly reduce its present operating losses
over the upcoming quarters, the operating losses could adversely affect cash and
working capital balances, and the Company may be required to seek additional
sources of financing through public or private financing, or other sources, to
fund operations. The Company may not be able to obtain adequate or favorable
financing when needed. Failure to raise capital when needed could harm the
business. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the stockholders would be reduced, and
these equity securities may have rights, preferences or privileges senior to the
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.

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
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. The Company previously
recognized revenue from the sales of its products generally at the time of
shipment of the product. Effective January 1, 2000, 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

                                       45

<PAGE>

all sales of 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 it bifurcates a sale transaction into two separate
elements based on objective evidence of fair value of the individual elements.
The two elements are the tool and the installation of the tool. Under this
approach, the portion of the invoice price that is due upon final customer
acceptance of the tool, 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 customer acceptance, with the exception of sales of 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 was $108.7 million as of December 31, 2002 and $136.6 million as of
December 31, 2001. 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 101.

     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.

     As a result of the change in recognition of revenue on equipment sales,
Mattson reported a change in accounting principle in accordance with Accounting
Principles Board ("APB") Opinion No. 20 "Accounting Changes", by a cumulative
adjustment. The cumulative effect of the change in accounting principle of
($8.1) million (or $.38 per diluted share) was reported as a charge in the
quarter ended March 31, 2000. The charge includes system revenue, net of cost of
sales and certain expenses, including warranty and commission expenses that will
be recognized when the conditions for revenue recognition are met.

Cash and Cash Equivalents

     The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market funds.

Restricted Cash

   At December 31, 2002, the Company had $1.1 million of restricted cash of
which $0.5 million is collateral for the Company's corporate credit card, and
$0.6 million is pledged as deposits for leases in Germany. At December 31, 2001,
the Company had $27.3 million of restricted cash invested in certificates of
deposit. This restricted cash collateralizes the $26.9 million secured
promissory note issued to STEAG Electronic Systems AG, in connection with the
January 1, 2001 acquisition of certain subsidiaries of STEAG Electronic Systems
AG (see Note 3), and additionally collateralizes $0.4 million of the Company's
corporate credit card.

Investments

     Generally, the Company's investments primarily consist of commercial paper
and U.S. Treasury securities. The Company categorizes its investments in
commercial paper and U.S. Treasury securities as available-for-sale. 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, 2002
and 2001, the Company did not have any 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.


                                       46
<PAGE>

   The Company invests in a variety of financial instruments such as
certificates of deposit, corporate bonds and treasury bills. 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, 2002, 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 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, 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.


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.

     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 2002. 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, 2002, 2001 and 2000,
the allowance for excess and obsolete inventory was approximately $49.7 million,
$48.0 million and $6.8 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 five 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 $10.5
million, $16.6 million, and $4.2 million for the years ended December 31, 2002,
2001 and 2000, 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 retirement or disposal are included in
other income in the accompanying consolidated statements of operations. 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 $6.6 million, $33.5 million and $0.9
million for the years ended December 31, 2002, 2001 and 2000, 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
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."
                                       47
<PAGE>

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, 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
Company's 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 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. The warranty offered on the
Company's systems ranges from 12 months to 36 months depending on the product. A
provision for the estimated cost of warranty is recorded as a cost of sales,
based on the historical costs, at the time of revenue recognition. The actual
system performance and/or field expense profiles may differ from historical
experience, and in those cases the Company adjusts its warranty accruals
accordingly. The following table is the detail of the product warranty accrual,
for the year ended December 31, 2002:

    (in thousands)                                               Year Ended
                                                                December 31,
                                                                    2002
                                                                -----------
    Balance at beginning of period                                $ 19,936
    Accrual for warranties issued during the period                  5,715
    Changes in liability related to pre-existing warranties            413
    Settlements made during the period                              (9,578)
                                                                ----------
    Balance at end of period                                      $ 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 and does not anticipate early adopting SFAS No. 123.

     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
income (loss) and income (loss) per share would have been adjusted to the pro
forma amounts indicated in the table below:


                                       48
<PAGE>
                                                 Year Ended December 31,
                                         -------------------------------------
                                            2002         2001           2000
                                         ---------     ---------      --------
                                        (in thousands, except per share amounts)

Net income (loss):
  As reported                            $ (94,271)    $(336,735)     $ 1,539
  Amortization of compensation expense      (7,233)      (10,589)      (3,530)
                                         ---------     ---------      -------
  Pro forma                              $(101,504)    $(347,324)     $(1,991)
                                         =========     =========      =======
Diluted net income/(loss) per share:
  As reported                               $(2.23)       $(9.14)      $ 0.07
  Pro forma                                 $(2.40)       $(9.42)      $(0.09)

Foreign Currency Accounting

   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 and
have not been material.

Forward Foreign Exchange Contracts

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended by SFAS 138, establishes accounting and reporting standards requiring
that all derivatives that are hedged be recorded in the balance sheet as either
an asset or liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge criteria are met. Gains or losses are reported either in
the statement of operations or as a component of comprehensive income, depending
on the type of hedging relationship that exists. The Company adopted the
standard in the first quarter of 2001. The impact of the adoption has not been
significant to the Company's results of operations.

     The Company uses forward foreign exchange contracts primarily to hedge the
short-term impact of foreign currency fluctuations of intercompany accounts
payable denominated in U.S. dollars recorded by its Japanese subsidiary, and
third party non functional currency accounts receivable for its German Thermal
and Wet divisions. 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, 2002 for open forward exchange contracts.

       The following table provides information as of December 31, 2002 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.

                                       49
<PAGE>

                                                     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                     $  1,827      120.46          $ 1,858

   Mattson Thermal Products GmbH
    (Euro equivalent amount)
      U.S. Dollar                    EUR  5,828        0.98       EUR  5,434
      Japanese Yen                   EUR  2,748      117.41       EUR  2,722

   Mattson Wet Products GmbH
     (Euro equivalent amount)
       U.S. Dollar                   EUR  9,810        0.98       EUR  9,126


     The local currency is the functional currency for all our foreign sales
operations. The Company's exposure to foreign currency risk has increased as a
result of our global expansion of business. To neutralize the exposure of its US
operations to exchange rate volatility, the Company keeps EUROS in a foreign
currency bank account. The balance of this bank account was 5.0 million EUROS at
December 31, 2002.

Comprehensive Income

    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, 2002, the accumulated
other comprehensive income was $7.1 million, primarily consisting of $6.8
million currency translation adjustment gains.

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 June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring activities
that are currently accounted for under EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The scope of SFAS No.
146 also includes costs related to terminating a contract that is not a capital
lease and termination benefits that employees who are involuntarily terminated
receive under the terms of a one-time benefit arrangement that is not an ongoing
benefit arrangement or an individual deferred-compensation contract. Since the
provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002, the adoption of SFAS No. 146 will have no
effect on our current financial condition or result of operations.


                                       50
<PAGE>

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

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 will significantly change
current practice in the accounting for, and disclosure of, guarantees. FIN 45
requires certain guarantees to be recorded at fair value, which is different
from the current practice of recording a liability only when a loss is probable
and reasonably estimable, as those terms are defined in SFAS No. 5, "Accounting
for Contingencies". FIN 45 also requires a guarantor to make significant new
disclosures, even when the likelihood of making any payments under the guarantee
is remote, which is another change from the current practice. FIN 45 disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002, while the initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. We are currently evaluating the
impact of the adoption of FIN 45 on our results of operations or financial
condition.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. The statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements for both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company adopted the disclosure
provisions of SFAS No. 148 on January 1, 2003. We do not anticipate that
adoption of this statement will have a material impact on our consolidated
balance sheets or consolidated statements of operations.

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


Reclassifications

     Certain amounts in prior years have been reclassified to conform with the
current year presentation to comply with the provisions of SFAS 142.






                                       51

<PAGE>


2. BALANCE SHEET DETAIL
                                                      As of December 31,
                                                    ----------------------
                                                      2002          2001
                                                    --------      --------
                                                        (in thousands)
INVENTORIES:
  Purchased parts and raw materials                 $ 27,085      $ 31,321
  Work-in-process                                     20,492        25,480
  Finished goods                                       3,249         4,406
  Evaluation systems                                       -         4,780
                                                    --------      --------
                                                    $ 50,826      $ 65,987
                                                    ========      ========
PROPERTY AND EQUIPMENT, NET:
  Land and buildings                                $  2,746      $  4,419
  Machinery and equipment                             35,705        39,042
  Furniture and fixtures                              22,346        15,685
  Leasehold improvements                               5,735         7,655
                                                    --------      --------
                                                      66,532        66,801
  Less: accumulated depreciation                     (47,677)      (33,293)
                                                    --------      --------
                                                    $ 18,855      $ 33,508
                                                    ========      ========
ACCRUED LIABILITIES:
  Warranty and installation                         $ 16,486      $ 19,936
  Accrued compensation and benefits                   11,140        10,320
  Income taxes                                         5,797         5,165
  Commissions                                          2,273         2,765
  Customer deposits                                      893           686
  Other                                               41,206        39,587
                                                    --------      --------
                                                    $ 77,795      $ 78,459
                                                    ========      ========

3. ACQUISITIONS

     On June 27, 2000, the Company entered into a Strategic Business Combination
Agreement, subsequently amended by an Amendment to the Strategic Business
Combination Agreement dated December 15, 2000 ("Combination Agreement"), as
amended on November 5, 2001, to acquire eleven direct and indirect subsidiaries,
comprising the semiconductor equipment division of STEAG Electronic Systems AG
("the STEAG Semiconductor Division"), and simultaneously entered into an
Agreement and Plan of Merger ("Plan of Merger") to acquire CFM Technologies,
Inc. ("CFM"). Both transactions were completed simultaneously on January 1,
2001.

STEAG Semiconductor Division

     Pursuant to the Combination Agreement, the Company 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 Combination Agreement, paid SES
$100,000 in cash, assumed certain obligations of SES and STEAG AG, the parent
company of SES, and agreed to repay certain intercompany indebtedness owed by
the acquired subsidiaries to SES, in exchange for which the Company delivered to
SES a secured promissory note in the principal amount of $26.9 million (with an
interest rate of 6% per annum). Under the amendment to the Combination
Agreement, the Company also agreed to pay SES the amount of 19.2 million EUROS.
On April 30, 2002, upon closure of a private placement transaction, the Company
issued approximately 1.3 million shares of common stock to SES in exchange for
the cancellation of $8.1 million (approximately 9.0 million EUROS as of April
30, 2002) of indebtedness. Under these two obligations, on July 2, 2002, the
Company paid to SES, in full, $26.9 million and 10.2 million EUROS and accrued
interest thereon, aggregating approximately $37.7 million.

     The Company reimbursed SES $3.3 million in acquisition related costs, in
April 2001. The Company also agreed to grant options to purchase 850,000 shares
of common stock to employees of the STEAG Semiconductor Division subsequent to
the closing of the transaction, which is not included in the purchase price of
the STEAG Semiconductor Division. As part of the acquisition transaction, the
Company, SES, and Mr. Mattson (the then chief executive officer and
approximately 17.7% stockholder of the Company, based on shares outstanding
immediately prior to the acquisition) entered into a Stockholder Agreement dated
December 15, 2000, as amended on November 5, 2001, providing for, among other
things, the election of two persons designated by SES to the Company's board of
directors, SES rights to maintain its pro rata share of the outstanding Company
common stock and participate in future stock issuances by the Company, and
registration rights in favor of SES. At December 31, 2002, SES held
approximately 29.4% of the Company's common stock, and currently has two
representatives on the Company's board of directors.


                                       52
<PAGE>


     The acquisition has been accounted for under the purchase method of
accounting and the results of operations of the STEAG Semiconductor Division are
included in the consolidated statement of operations of the Company from the
date of acquisition. The purchase price of the acquisition of $148.6 million,
which included $6.2 million of direct acquisition related costs (including
amounts reimbursed to SES), was used to acquire the common stock of the eleven
direct and indirect subsidiaries of the STEAG Semiconductor Division. The
allocation of the purchase price to the assets acquired and liabilities assumed,
is as follows (in thousands):

       Net tangible assets ........................         $ 114,513
       Acquired developed technology ..............            18,100
       Acquired workforce .........................            11,500
       Goodwill ...................................            10,291
       Acquired in-process research and development             5,400
       Deferred tax liability .....................           (11,248)
                                                            ---------
                                                            $ 148,556
                                                            =========

   Purchased intangible assets, including goodwill, workforce and developed
technology were approximately $39.9 million. Goodwill, including workforce, is
no longer amortized under SFAS 142. Developed technology is being amortized over
an estimated useful life of five years.

     In connection with the acquisition of the STEAG Semiconductor Division, the
Company allocated approximately $5.4 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.

     At the acquisition date, the STEAG Semiconductor Division was conducting
design, development, engineering and testing activities associated with the
completion of the Hybrid tool and the Single wafer tool. The projects under
development at the valuation date represented next-generation technologies that
were expected to address emerging market demands for wet processing equipment.

     At the acquisition date, the technologies under development were
approximately 60 percent complete based on engineering man hours and
technological progress. Due to market conditions the Hybrid tool project has
been redefined as the Kronos II project. As redefined, the project was expected
to reach beta stage in mid-2003.

     In making its purchase price allocation, management considered present
value calculations of income, an analysis of project accomplishments and
remaining outstanding items, an assessment of overall contributions, as well as
project risks. The value assigned to purchased in-process technology was
determined by estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting net cash flows from the
projects, and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected trends in
technology, and the nature and expected timing of new product introductions by
the Company and its competitors. The resulting net cash flows from such projects
were based on management's estimates of cost of sales, operating expenses, and
income taxes from such projects.

     During 2001, the Company performed assessments of the carrying value of its
long-lived assets to be held and used including goodwill, other intangible
assets and property and equipment recorded in connection with its acquisition of
the STEAG Semiconductor Division. The assessment was performed pursuant to SFAS
No. 121 as a result of deteriorated market conditions in the semiconductor
industry in general, a reduced demand specifically for the Thermal products
acquired in the merger and revised projected cash flows for these products in
the future. As a result of this assessment, the Company recorded a charge of
$3.5 million to reduce the carrying value of certain intangible assets
associated with the acquisition of the STEAG Semiconductor Division based on the
amount by which the carrying value of these assets exceeded their fair value.
Fair value was determined based on valuations performed by an independent third
party. In addition, the Company recorded a charge of $1.0 million to reduce
certain property and equipment purchased from the STEAG Semiconductor Division
to zero as there were no future cash flows expected from these assets. These
charges of $4.5 million relating to the STEAG Semiconductor Division were
recorded as impairment of long-lived assets and other charges in the third and
fourth quarters of 2001.


                                       53
<PAGE>


CFM Technologies

     Under the Plan of Merger with CFM, the Company agreed to acquire CFM in a
stock-for-stock merger in which the Company issued 0.5223 shares of its common
stock for each share of CFM common stock outstanding at the closing date. In
addition, the Company agreed to assume all outstanding CFM stock options, based
on the same 0.5223 exchange ratio. The Company also agreed to issue additional
options to purchase 500,000 shares of its common stock to employees of CFM
subsequent to the closing of the transaction, which are not included in the
purchase price of CFM. On January 1, 2001, the Company completed its acquisition
of CFM. The purchase price included 4,234,335 shares of Mattson common stock
valued at approximately $150.2 million and the issuance of 927,457 options to
acquire Mattson common stock for the assumption of outstanding options to
purchase CFM common stock valued at approximately $20.4 million using the
Black-Scholes option pricing model and the following assumptions: risk free
interest rate of 6.5%, average expected life of 2 years, dividend yield of 0%
and volatility of 80%.

    The merger has been accounted for under the purchase method of accounting
and the results of operations of CFM are included in the consolidated statement
of operations of the Company 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. The allocation of the purchase price to the assets
acquired and liabilities assumed, is as follows (in thousands):

          Net tangible assets ............................. $ 28,536
          Acquired developed technology ...................   50,500
          Acquired workforce .............................    14,700
          Goodwill ........................................  102,216
          Acquired in-process research and development ....    4,700
          Deferred tax liability ..........................  (26,081)
                                                            --------
                                                            $174,571
                                                            ========

    Purchased intangible assets, including goodwill, workforce and developed
technology were approximately $167.4 million. Goodwill, including acquired
workforce, is no longer amortized under SFAS 142. Developed technology is being
amortized over an estimated useful life of five years.

     In connection with the acquisition of CFM, the Company allocated
approximately $4.7 million of the purchase price to an in-process research and
development project. This allocation represented the estimated fair value based
on risk-adjusted cash flows related to one incomplete research and development
project. At the date of acquisition, the development of this project had not yet
reached technological feasibility, and the research and development in progress
had no alternative future use. Accordingly, the purchase price allocated to
in-process research and development was expensed as of the acquisition date.

     At the acquisition date, CFM was conducting design, development,
engineering and testing activities associated with the O3Di (Ozonated Water
Module). The project was completed in August 2002, and represents
next-generation technology that had been expected to address emerging market
demands for more effective, lower cost, and safer resist and organics residue
removal processes. CFM had spent approximately $0.2 million on the in-process
project prior to the merger, and since the completion of the merger the Company
spent approximately an additional $60,000 to complete the project. The Company
discontinued this as a regular product and has subsequently sold this portion of
its business to SCP Global Technologies, Inc. on March 17, 2003.

     In making its purchase price allocation, management considered present
value calculations of income, an analysis of project accomplishments and
remaining outstanding items, an assessment of overall contributions, as well as
project risks. The value assigned to purchased in-process research and
development was determined by estimating the costs to develop the acquired
technology into a commercially viable product, estimating the resulting net cash
flows from the project, and discounting the net cash flows to their present
value. The revenue projection used to value the in-process research and
development was based on estimates of relevant market sizes and growth factors,
expected trends in technology, and the nature and expected timing of new product
introductions by the Company and its competitors. The resulting net cash flows
from the project is based on management's estimates of cost of sales, operating
expenses, and income taxes from such projects.

     Aggregate revenues for the developmental CFM product were estimated for the
five to seven years following introduction, assuming the successful completion
and market acceptance of the major research and development programs. At the
time of acquisition, the estimated revenues for the in-process project was
expected to peak within two years of acquisition and then decline sharply as
other new products and technologies are expected to enter the market. This
project was merged into the Kronos II project, expected to be beta tested in
mid-2003. The Company has subsequently sold this portion of its business to
SCP Global Technologies, Inc. on March 17, 2003.


                                       54
<PAGE>

     The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the projected growth and profitability of
the developmental project, a discount rate of 23 percent was used to value the
in-process research and development. This discount rate was commensurate with
CFM's stage of development and the uncertainties in the economic estimates
described above.

     During 2001, the Company performed assessments of the carrying value of the
long-lived assets to be held and used including goodwill, other intangible
assets and property and equipment recorded in connection with its acquisition of
CFM. The assessment was performed pursuant to SFAS No. 121 as a result of
deteriorated market conditions in the semiconductor industry in general, a
reduced demand specifically for the Omni products acquired in the merger and
revised projected cash flows for these products in the future. As a result of
this assessment, the Company recorded a charge of $134.6 million during 2001 to
reduce the carrying value of goodwill, and other intangible assets, associated
with the acquisition of CFM based on the amount by which the carrying value of
these assets exceeded their fair value. Fair value was determined based on
valuations performed by an independent third party. In addition, the Company
recorded a charge of $5.8 million to reduce certain property and equipment
purchased from CFM to zero as there were no future cash flows expected from
these assets. The total charge of $140.4 million relating to CFM has been
recorded as impairment of long-lived assets and other charges in the third and
fourth quarters of 2001.

     The following table presents the unaudited pro forma results for the year
ended December 31, 2000 assuming that the Company acquired the STEAG
Semiconductor Division and CFM on January 1, 2000. The pro forma information
does not purport to be indicative of what would have occurred had the
acquisitions been made as of January 1, 2000 or of the results that may occur in
the future. Net loss excludes the write-off of acquired-in-process research and
development of $10.1 million and includes amortization of goodwill and
intangibles related to these acquisitions of $33.5 million for the year ended
December 31, 2000. The unaudited pro forma information is as follows (in
thousands, except net loss per share):

                                         Year Ended
                                       DEC. 31, 2000
                                        (unaudited)
                                       -------------
    Net sales                            $ 372,708

    Net loss                             $(141,397)

    Net loss per share                     $ (3.80)

     At December 31, 2002, pursuant to SFAS No. 144, the Company performed
assessments of the fair value of the long-lived assets including other
intangible assets and property and equipment for its Wet business recorded in
connection with its acquisition of the STEAG Semiconductor Division and CFM. As
a result of this assessment, which included an appraisal obtained from an
independent third party, the Company recorded an aggregate impairment charge of
$6.1 million during 2002 to reduce the carrying value of other intangible assets
by $3.1 million, other long-term assets by $0.7 million, and property and
equipment by $2.3 million on the amount by which the carrying value of these
assets exceeded their fair value.


4. 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, 2002                     December 31, 2001
                                            ---------------------------------     ---------------------------------
                                              Gross                     Net         Gross                     Net
                                            Carrying   Accumulated   Carrying     Carrying   Accumulated   Carrying
                                             Amount    Amortization   Amount       Amount    Amortization   Amount
                                            --------   ------------  --------     --------   ------------  --------

<S>                                         <C>          <C>         <C>          <C>          <C>         <C>
    Goodwill                                $12,675      $     -     $12,675      $ 12,610     $(2,759)    $ 9,851
    Other intangible assets                       -            -           -         5,126        (570)      4,556
    Developed technology                     24,994       (9,740)     15,254        31,997      (5,788)     26,209
                                            -------      -------     -------      --------     -------     -------
    Total goodwill and intangible assets    $37,669      $(9,740)    $27,929      $ 49,733     $(9,117)    $40,616
                                            =======      =======     =======      ========     =======     =======
</TABLE>

                                       55

<PAGE>

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

                                                   For the Year Ended
                                               ---------------------------
                                               December 31,   December 31,
                                                   2002           2001
                                               -----------    ------------
    Goodwill amortization                        $     -        $13,384
    Other intangible assets amortization               -          7,285
    Developed technology amortization              6,591         12,788
                                                 -------        -------
    Total amortization                           $ 6,591        $33,457
                                                 =======        =======

     In accordance with SFAS 142, the Company performed a transitional goodwill
impairment test in the first quarter of the year ended December 31, 2002 and
determined that goodwill was not impaired. Additionally, the Company performed
an annual goodwill impairment test as of December 31, 2002 and determined that
goodwill was not impaired.

     The intangible asset for workforce was reclassified as goodwill upon
adoption of SFAS 141 on January 1, 2002. The Company continues to amortize for
developed technology intangible assets. Amortization expense for developed
technology and other intangible assets was $6.6 million and $20.1 million for
the years ended December 31, 2002 and 2001, respectively.

     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):
                                                       For the Year Ended
                                                  ---------------------------
                                                  December 31,    December 31,
                                                      2002            2001
                                                  -----------     -----------
    Net loss, as reported                          $ (94,271)      $(186,069)
    Add: goodwill amortization                             -          20,669
                                                   ---------       ---------
    Net loss -- as adjusted                        $ (94,271)      $(165,400)
                                                   =========       =========

    Basic and diluted loss per share, as reported    $ (2.23)        $ (5.05)
    Add: goodwill amortization                             -            0.56
                                                     -------         -------
    Basic and diluted loss per share--as adjusted    $ (2.23)        $ (4.49)
                                                     =======         =======


5. RESTRUCTURING AND OTHER CHARGES

     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.


                                       56
<PAGE>

     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>

     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. The Company anticipates that the accrued liability at December 31, 2002
of $2.3 million will be paid out in the next three to six months.

     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 Company anticipates that the accrued liability at December 31, 2002
of $2.1 million will be paid out in the next two to three 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.


                                       57
<PAGE>

     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.

6. DEBT

     The Company's Japanese subsidiary has a credit facility with a Japanese
bank in the amount of 900 million Yen (approximately $7.6 million at December
31, 2002), secured by specific trade accounts receivable of our Japanese
subsidiary. The facility bears interest at a per annum rate of TIBOR plus 75
basis points. The term of the facility is through June 20, 2003. The Company has
given a corporate guarantee for this credit facility. At December 31, 2002,
there were no borrowings under this credit facility.

     On March 29, 2002 the Company entered into a one-year revolving line of
credit with a bank in the amount of $20.0 million. The line of credit was due to
expire on March 27, 2003, but has been extended for an interim period until
April 27, 2003, while the credit line covenants are being modified to reflect
changes in the Company's business. The line of credit is expected to be extended
thereafter. All borrowings under this line bear interest at a per annum rate
equal to the bank's prime rate plus 125 basis points. The line of credit is
secured by a blanket lien on all of 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 quick
ratio and minimum tangible net worth, and meeting minimum revenue targets. At
December 31, 2002, the Company was in compliance with the covenants and there
were no borrowings under this credit line.


7. 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. Steag Electronic Systems AG holds approximately
29.4% of the Company's common stock.


8. DNS PATENT INFRINGEMENT SUIT SETTLEMENT

     On March 5, 2002, a jury in San Jose, California rendered a verdict in
favor of the Company's subsidiary, Mattson Wet Products, Inc. (formerly 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 have amicably resolved their legal disputes with a comprehensive, global
settlement agreement, which included termination of all outstanding litigation
between the companies. The Company also released all DNS customers from any
claims of infringement relating to their purchase and future use of DNS wet
processing equipment. In addition, DNS and the Company entered into a cross
license agreement pertaining to automated batch immersion wet processing
systems. Under the cross license agreement, the Company and DNS will pay
royalties to each other for future sales of products utilizing the cross
licensed technologies. The settlement agreement and license agreement requires
DNS to pay Mattson a total of $75 million, relating to past damages, partial
reimbursement of attorney's fee and costs, and royalties, payable in varying
amounts at varying dates through April 1, 2007, as follows:


                                       58

<PAGE>

        Fiscal Year Ending              DNS
          December 31,               Payments
        ------------------           --------
                                    (in thousands)

                2002                  $27,000
                2003                   24,000
                2004                    6,000
                2005                    6,000
                2006                    6,000
                2007                    6,000
                                      -------
               Total                  $75,000
                                      =======

     As of December 31, 2002, the Company received payments aggregating $27.0
million from DNS under the terms of the settlement agreement.

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


9. CAPITAL STOCK

     Mattson's authorized capital stock consists of 120,000,000 shares of common
stock of which 44,481,983 were issued and 44,856,783 were outstanding at
December 31, 2002, and 2,000,000 shares of preferred stock, none of which were
outstanding at December 31, 2002.

Common Stock

     On March 8, 2000 the Company completed its secondary public offering of
3,000,000 shares of its common stock. The public offering price was $42.50 per
share. On March 16, 2000, the underwriters exercised a right to purchase an
additional 90,000 shares to cover over-allotments. The net proceeds of the
offering were $122.8 million.

     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.

Stock Option Plan

   In September 1989, the Company adopted an incentive and non-statutory stock
option plan under which a total of 10,475,000 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, 2002, approximately 5.8 million shares were
available for grant under future options.

   A summary of the status of the Company's stock option plans at December 31,
2002, 2001 and 2000 and changes during the years then ended is presented in the
following tables and narrative. Share amounts are shown in thousands.




                                       59
<PAGE>
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                 --------------------------------------------------------------------
                                                          2002                  2001                    2000
                                                 ----------------------  --------------------   ---------------------
                                                            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                   5,680     $12.77       2,824      $12.44       3,143      $ 7.57
Granted                                            1,674       5.36       3,299       10.67         625       28.36
CFM options assumed                                    -          -         927       18.99          -           -
Exercised                                           (114)      5.20        (362)       6.51        (663)       5.84
Forfeited                                         (1,458)     11.41      (1,008)      13.69        (281)       8.99
                                                  ------                 ------                  ------
Outstanding at end of year                         5,782      11.11       5,680       12.77       2,824       12.44
                                                  ======                 ======                  ======
Exercisable at end of year                         2,773      14.10       2,259       14.47       1,279        7.91
                                                  ======                 ======                  ======
Weighted-average fair value per option granted                3.70                     7.32                   19.65
</TABLE>

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

   The following table summarizes information about stock options outstanding at
December 31, 2002 (amounts in thousands except exercise price and contractual
life):
                             Options Outstanding            Options Exercisable
                      ---------------------------------   ----------------------
                                 Weighted-    Weighted-               Weighted-
                                  Average      Average                 Average
   Range of                     Contractual   Exercise                 Exercise
   Exercise Prices     Number      Life        Price       Number       Price
   ---------------    --------  ---------     --------    -------     ---------
   $  1.69 - $  6.00    1,022       7.5       $  3.58        434       $  5.14
   $  6.04 - $  7.06      975       8.5       $  6.92        189       $  7.03
   $  7.13 - $  9.38    1,008       7.4       $  8.14        356       $  8.62
   $  9.80 - $ 10.44    1,147       7.8       $ 10.43        570       $ 10.42
   $ 10.50 - $ 19.50    1,189       6.5       $ 15.38        835       $ 15.59
   $ 19.81 - $ 69.20      441       5.6       $ 34.81        389       $ 34.76
                      -------     ------      -------     ------       -------
                        5,782       7.4       $ 11.11      2,773       $ 14.10
                      =======     ======      =======     ======       =======


   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:
                                          2002       2001       2000
                                        -------    -------    -------

   Expected dividend yield                   -           -          -
   Expected stock price volatility          93%        89%        85%
   Risk-free interest rate                 3.6%       6.0%       6.0%
   Expected life of options             2 years    2 years    2 years


Employee Stock Purchase Plan

   In August 1994, the Company adopted an employee stock purchase plan
("Purchase Plan") under which 3,975,000 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, 2002, approximately 2.7
million shares were available in the Plan.


                                       60
<PAGE>


   The weighted average fair value on the grant date of rights granted under the
employee stock purchase plan was approximately $2.85 in 2002, $5.92 in 2001, and
$3.15 in 2000. Shares sold under the Purchase Plan were approximately 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:

                                          2002       2001       2000
                                        -------    -------    -------
    Expected dividend yield                   -         -           -
    Expected stock price volatility         93%        89%         85%
    Risk-free interest rate                3.6%       6.0%        6.0%
    Expected life of options            2 years    2 years     2 years


10. INCOME TAXES

   The components of income (loss) before provision for income taxes are as
follows:
                                                     Year Ended December 31,
                                              ---------------------------------
                                                 2002        2001       2000
                                              ---------   ---------   ---------
                                                        (in thousands)

Domestic income (loss)                        $(79,767)   $(266,719)   $ 10,946
Foreign income (loss)                          (14,651)     (89,006)       (259)
                                              --------    ---------    --------
Income (loss) before provision
  for income taxes and cumulative effect
  of change in accounting principle           $(94,418)   $(355,725)   $ 10,687
                                              ========    =========    ========


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

                                                     Year Ended December 31,
                                              ---------------------------------
                                                 2002        2001       2000
                                              ---------   ---------   ---------
                                                        (in thousands)
    Current:
      Federal                                 $ (1,136)     $   -       $ 6,709
      State                                        201         129          549
      Foreign                                    5,110       2,782          223
                                              --------     --------    --------
    Total current                                4,175       2,911        7,481
                                              --------     --------    --------
    Deferred:
      Federal                                   (4,322)     (19,163)     (5,452)
      State                                          -       (2,738)       (961)
                                              --------     --------    --------
    Total deferred                              (4,322)     (21,901)     (6,413)
                                              --------     --------    --------
    Provision (benefit) for income taxes        $ (147)    $(18,990)    $ 1,068
                                              ========     ========    ========



                                       61
<PAGE>
Deferred tax assets are comprised of the following:
                                                         As of December 31,
                                                     -------------------------
                                                        2002            2001
                                                     ---------       ---------
                                                           (in thousands)
    Reserves not currently deductible                $  25,489       $  34,615
    Deferred revenue                                     6,672          18,310
    Depreciation                                         6,636           6,276
    Net operating loss carryforwards                   108,535          54,759
    Tax credit carryforwards                            12,535           7,874
    Other                                                1,482           1,113
                                                     ---------       ---------
    Total net deferred taxes                           161,349         122,947
    Deferred tax assets valuation allowance           (161,349)       (122,947)
                                                     ---------       ---------
       Net deferred tax asset                                -               -
                                                     ---------       ---------
    Deferred tax liability - acquired intangibles       (5,215)        (11,261)
                                                     ---------       ---------
      Total deferred tax asset/(liability)           $  (5,215)      $ (11,261)
                                                     =========       =========

   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:
                                                     Year Ended December 31,
                                             -----------------------------------
                                                2002         2001         2000
                                             ---------    ----------    --------
                                                        (in thousands)
  Provision (benefit) at statutory rate      $ (33,046)   $(124,504)   $  3,740
  State taxes, net of federal benefit           (2,578)      (9,711)        436
  Foreign earnings taxed at different rates     (3,357)      (2,011)          -
  Benefit of foreign sales corporation               -            -      (1,272)
  Current unbenefitted losses                   26,079       37,935           -
  Non-deductible amortization and
    impairment charge                                -       37,471           -
  Research and development tax credits               -            -      (1,151)
  Foreign tax credits                           (1,968)           -           -
  Deferred tax asset valuation allowance        12,323       41,834        (950)
  Other                                          2,400           (4)        265
                                             ---------   ----------    --------
          Total provision for income taxes   $    (147)  $  (18,990)   $  1,068
                                             =========   ==========    ========

     The valuation allowance at December 31, 2002 and 2001 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, 2002, the Company had Federal net operating loss carryforwards
of approximately $240 million which will expire at various dates through 2022.
The Company also has approximately $80 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 $44 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 $0.8
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.


                                       62
<PAGE>
11. 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 2002, 2001, and 2000 the Company made matching
contributions of $920,000, $1,171,000, $663,000, respectively.

     One of the Company's entities in Germany has a pension plan that is
established in accordance with certain German laws. Benefits are determined
based upon retirement age and years of service with the Company. The plan is not
funded and there are no plan assets. The Company makes payments to the plan when
distributions to participants are required. The accumulated benefit obligation
acquired under the pension plan on January 1, 2001 (date of acquisition) was
$640,000. Pension expense for the year 2002 and 2001 was $46,000 and $32,000,
respectively. At December 31, 2002, the accumulated benefit obligation was
$701,000.

12. 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.
                                                      Year Ended December 31,
                                               ---------------------------------
                                                  2002        2001        2000
                                               ---------   ----------   --------
BASIC NET INCOME (LOSS) PER SHARE:
  Income available to common stockholders      $ (94,271)  $ (336,735)   $ 1,539
                                               ---------   ----------   --------
  Weighted average common shares outstanding      42,239       36,854     19,300
                                               ---------   ----------   --------
  Basic earnings (loss) per share                $ (2.23)     $ (9.14)    $ 0.08
                                               =========   ==========   ========
DILUTED NET INCOME (LOSS) PER SHARE:
  Income available to common stockholders      $ (94,271)  $ (336,735)   $ 1,539
                                               ---------   ----------   --------
  Weighted average common shares outstanding      42,239       36,854     19,300
  Diluted potential common shares
    from stock options                                 -            -      1,816
                                               ---------   ----------   --------
  Weighted average common shares and
    dilutive potential common shares              42,239       36,854     21,116
                                               ---------   ----------   --------
  Diluted net income (loss) per share            $ (2.23)     $ (9.14)    $ 0.07
                                               =========   ==========   ========

      Total stock options outstanding at December 31, 2002 of 5,819,233, at
December 31, 2001 of 1,889,248, and at December 31, 2000 of 480,637 were
excluded from the computations of diluted net income (loss) per share because of
their anti-dilutive effect on earnings (loss) per share.

13. RELATED PARTY TRANSACTIONS

     The Company has outstanding three loans to Brad Mattson, who was formerly a
director and the Chief Executive Officer of the Company. Mr. Mattson resigned as
an officer in October 2001 and resigned as a director in November 2002. In the
second quarter of 2000, the Company extended a loan to Mr. Mattson in the
principal amount of $200,000, with interest payable at 6% per annum. The loan
was originally due in the first quarter of 2001, but was subsequently extended
to December 31, 2002. Mr. Mattson is currently in default on the repayment of
this loan. In April 2002, the Company extended a loan to Mr. Mattson in the
principal amount of $700,000. This loan did not bear interest and was due and
payable on August 31, 2002. Mr. Mattson has partially repaid this loan in the
amount of $200,000, and is currently in default as to the balance. On July 3,
2002, the Company extended an additional loan to Brad Mattson in the principal
amount of $2,600,647. The interest rate on this loan is the greater of the prime
rate plus 125 basis points, or that interest rate that would have been charged
under margin agreement the borrower had previously maintained with Prudential
Securities. The loan is secured by a pledge of shares of stock of the Company,
and was due and payable on December 31, 2002. In late December 2002, the Company
entered into a Forbearance Agreement with Mr. Mattson in which the Company
agreed to forbear from taking legal action provided that Mr. Mattson repays the
loan in quarterly installments, with final payment due December 31, 2003. Mr.
Mattson has acknowledged the amounts due, and has indicated his intention to
repay them as soon as practicable. The Company intends to pursue the collection
of the loan balances.
                                       63
<PAGE>

     In April 2002, the Company extended a loan to Diane Mattson, a shareholder,
in the principal amount of $700,000. The loan did not bear interest and was due
and payable on August 31, 2002. On July 3, 2002, the Company issued an
additional loan to Ms. Mattson in the principal amount of $1,141,058. The
Company and Ms. Mattson subsequently agreed to consolidate her loans, such that
she owed the Company $1,841,058 under the terms of the July 3, 2002 loan. The
interest rate on this loan is the greater of the prime rate plus 125 basis
points, or that interest rate that would have been charged under margin
agreement the borrower had previously maintained with Prudential Securities. The
loan is secured by a pledge of shares of stock of the Company, and was
originally due and payable on December 31, 2002. In November 2002, Ms. Mattson
repaid $90,000 on the loan. Ms. Mattson and the Company subsequently agreed to
payment terms under which her loan is payable in quarterly installments
beginning June 30, 2003 with final payment due June 30, 2004.

     During the past four years, the Company had extended three loans to David
Dutton, the Company's Chief Executive Officer. As of December 31, 2002 and 2001,
the total principal balance owed on these loans was $170,000. Mr. Dutton paid
his loan balances in full in February 2003. The three loans had originated as
follows. In the fourth quarter of 1998, the Company extended a two-year loan to
Mr. Dutton in the principal amount of $100,000, bearing interest at 6% per
annum. The loan was secured by approximately 32,000 shares of the Company's
common stock. During the second quarter of 2000, the Company extended a second
loan to Mr. Dutton in the principal amount of $50,000, also bearing interest at
6% per annum. Repayment of the second loan was originally due in the first
quarter of 2001. During the third quarter of 2001, the Company extended a note
to Mr. Dutton in the amount of $20,000, again bearing interest at 6% per annum,
payable on December 31, 2002. In the fourth quarter of 2001, the Company
extended the maturity date on the first two loans to December 31, 2002.

     During the third quarter of 2000, the Company extended a loan to Mr.
Morita, formerly Executive Vice President, Global Business Operations, in the
principal amount of $300,000, bearing interest at 6% per annum. As of December
31, 2001 and 2000, principal balance owed on the loan was $300,000. The
repayment of the loan, originally due in the first quarter of 2001, was extended
to December 31, 2002. Mr. Morita is currently in default in repayment of the
loan. He has acknowledged the amount due and indicated his intention to repay it
as soon as practicable.

     At December 31, 2002, the Company had loans receivable from other employees
of approximately $253,000 in aggregate. The interest rates on these loans range
from 5.5% to 6%. The loans are due in 2003.

     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. SES holds
approximately 29.4% 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 (see Note 3).
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.

     The Company purchases certain inventory parts from a supplier company, R.F.
Services. In April 2001, the Company completed the acquisition of 97% of the
outstanding shares of R.F. Services, Inc. for a cash price of approximately
$928,800 (including acquisition-related costs of $41,500). Brad Mattson, a
former member of the Company's board of directors and the Company's former Chief
Executive Officer, owned a majority of the outstanding shares of R.F. Services,
Inc. and served as a director of that corporation. Net purchases prior to the
acquisition in 2001 were $868,000, and net purchases during 2000 and 1999 were
$1,161,000 and $680,000, respectively.

     The Company entered into a consulting agreement with Shigeru Nakayama, a
member of its Board of Directors, on August 10, 2000. Under his consulting
agreement, Mr. Nakayama was to receive $10,000 per month and an option to
purchase 6,000 shares of Company common stock per year, in exchange for
consulting services regarding the integration of the Company's operations in
Japan. In May 2001, the Company made payments of $90,000 to Mr. Nakayama for
consulting services performed from August 2000 to April 2001. Mr. Nakayama's
consulting services were discontinued from May 2001.


                                       64
<PAGE>

     In fiscal year 2001, the Company paid approximately $988,000 to STEAG
Electronic Systems AG ("SES") in connection with the purchase of services or
supplies pursuant to several transitional services agreements with SES, under
which SES agreed to provide specified payroll, communications, accounting
information and intellectual property administration services to certain German
subsidiaries of the Company. In addition, in fiscal 2001, the Company purchased
approximately $3.7 million of manufacturing and assembly services pursuant to a
manufacturing supply contract with a company affiliated with SES. During 2002,
the Company did not purchase any services from SES.

     The Company paid Alliant Partners, a technology merger and acquisition
advisory firm, a fee of $300,000 for rendering an opinion as to the fairness
from a financial point of view to Mattson's stockholders of the consideration to
be provided by Mattson in connection with the acquisition of the STEAG
Semiconductor Division and CFM. The Company also agreed to pay Alliant Partners
a success fee of $2,000,000 upon the closing of the transactions. This payment
was made in January 2001. This amount was capitalized in 2000 as a direct
acquisition related cost. Mr. Savage, who was a member of Mattson's Board of
Director until January 1, 2001 was then a partner at Alliant Partners.


14. REPORTABLE SEGMENTS

   SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments, geographic areas and major customers in financial statements.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, 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.

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

                                 2002           2001          2000
                              -----------   -----------   ------------
    United States             $  53,914     $  51,148      $  56,736
    Japan                        13,652        34,190          8,118
    Taiwan                       36,898        29,394         53,355
    Korea                        20,127        17,418         23,029
    Singapore                    15,051        11,487         13,470
    Europe                       54,334        71,224         25,922
    China                         9,544        15,243              -
    Other Asian countries             -            45              -
                              ---------     ---------      ---------
                              $ 203,520     $ 230,149      $ 180,630
                              =========     =========      =========


     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 2002,
three customers accounted for 12%, 11% and 11% each of net sales. In 2001, 13%
of net sales were to a single customer. In 2000, no single customer accounted
for greater than 10% of net sales.



                                       65
<PAGE>

15. COMMITMENTS AND CONTINGENCIES

     The Company  leases 31 out of its 32  facilities  under  operating  leases,
which expire at various dates through 2019, with minimum annual rental
commitments as follows (in thousands):

                                               (In thousands)

              2003...........................     $ 7,362
              2004...........................       4,225
              2005...........................       3,344
              2006...........................       2,928
              2007...........................       2,133
              Thereafter ....................      17,970
                                                 --------
                                                 $ 37,962
                                                 ========

     Rent expense was approximately $8.8 million in 2002, $10.7 million in 2001,
and $3.9 million in 2000. The decrease in rent expense in 2002 was primarily due
to the consolidation of facilities and non-renewal of expired leases. The
increase in rent expense in 2001 was due to the inclusion of the facilities
leased by the companies acquired by the Company on January 1, 2001.

       The Company, at its Exton, Pennsylvania location, leases two buildings
previously used to house its manufacturing and administrative functions related
to the wet surface preparation product. The lease for both buildings has
approximately 17 years remaining with an approximate combined rental cost of
$1.5 million annually. The lease agreement for both buildings allows for
subleasing the premises without the approval of the landlord. The administrative
building has been sublet for a period of five years with an option for the
tenant to extend for an additional five years. The sublease is expected to cover
all related costs on the administrative building. In the second quarter of 2002,
the Company leased space in two new facilities in Malvern, Pennsylvania to house
its administrative functions previously located in Exton, Pennsylvania. These
leases are each for a two year term. During 2002, the Company recorded a charge
for the lease loss of approximately $2.0 million related to the excess
facilities in Pennsylvania and the remaining provision of $0.4 million for San
Jose, California, the lease for which expired in October 2002. 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 facilities lease losses and related asset impairment charges are estimates
in accordance with SFAS No. 5, "Accounting for Contingencies," and represent the
low-end of an estimated range that may be adjusted upon the occurrence of future
triggering events. Triggering events may include, but are not limited to,
changes in estimated time to sublease, sublease terms, and sublease rates.
Should operating lease rental rates continue to decline in current markets or
should it take longer than expected to find a suitable tenant to sublease the
facilities, adjustments to the facilities lease losses accrual will be made in
future periods, if necessary, based upon the then current actual events and
circumstances. The Company has estimated that under certain circumstances the
facilities lease losses could increase approximately $1.5 million for each
additional year that the facilities are not leased and could aggregate $25.5
million under certain circumstances.

       The Company expects to make payments related to the above noted
facilities lease losses over the next sixteen years, less any sublet amounts.

     The Company's subsidiary, Mattson Wet Products, Inc., is a party to two
lawsuits with YieldUP International Corp. ("YieldUP"), primarily involving
claims of patent infringement against YieldUP. YieldUP has made counterclaims
against the Company's subsidiary for attorney's fees and seeking to void an
earlier settlement between the subsidiary and Texas Instruments. The Company
believes that these counterclaims are without merit, and intends to defend
against them vigorously.

       The Company is currently party to various 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.


                                       66
<PAGE>


16. SUBSEQUENT EVENTS

     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 our principal Wet Business operations. The Company retained
all the cash from the Wet Business entities, and the Company retained all rights
to payments under the settlement and license agreements with DNS. SCP acquired
the rights to any damages under pending patent litigation relating to patents
owned by Mattson IP. SCP assumed responsibility for the operations, sales,
marketing and technical support services for the Company's former wet product
lines worldwide. The initial purchase price paid to the Company by SCP to
acquire the Wet Business was $2 million in cash. That initial purchase price is
subject to adjustment based on a number of things, including the net working
capital of the Wet Business at closing, to be determined based on a pro forma
post-closing 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. The Company is obligated to (i)
fund salary and severance costs relating to reductions in force to be
implemented in Germany after the closing, (ii) assume certain real property
leases relating to transferred facilities, subject to a sublease to SCP, (iii)
reimburse SCP for future legal fees, up to a maximum of $1 million, in pending
patent litigations, and (iv) reimburse SCP for amounts necessary to cover
specified customer responsibilities.

     On February 27, 2003, the Company signed a lease agreement to lease a
building with approximately 101,000 square feet area located in Fremont,
California. The Company plans to vacate the two buildings it currently leases in
Fremont, California and relocate its corporate headquarters to the new building
in April 2003. The lease for the new building has a term of approximately 4
years. The annual rental commitment for the building is $0.2 million, $1.0
million, $1.1 million, $1.2 million and $0.4 million for 2003, 2004, 2005, 2006
and 2007, respectively, aggregating to $3.9 million.










                                       67
<PAGE>


                        Report of Independent Accountants



To the board of directors and
stockholders of Mattson Technology, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement 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, 2002, and the results of
their operations and their cash flows for the year then ended 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 audit. We conducted our audit 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 audit provides a
reasonable basis for our opinion. The consolidated financial statements of
Mattson Technology, Inc. as of December 31, 2001, and for each of the two years
in the period 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 financial statements of Mattson Technology, Inc. as of
December 31, 2001, and for each of the two years in the period 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 and 2000 in Note 4 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 or 2000 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 or 2000
financial statements taken as a whole.



PricewaterhouseCoopers LLP
San Jose, California
February 12, 2003, except as to Note 16,
which is as of March 17, 2003









                                       68
<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 sheet for Mattson Technology, Inc.
as of December 31, 2000, the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 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.





                                       69

<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 made substantial  progress
               toward implementing  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.

                                    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 2003 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 2003 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 2003 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 2003 Proxy Statement under the caption "Equity Compensation
Plan Information," and is incorporated herein by reference.

                                       70
<PAGE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information that is required by this item will be included in the 2003
Proxy Statement under the caption "Certain Relationships and Related
Transactions," and is incorporated herein by reference.


ITEM 14. CONTROLS AND PROCEDURES

        (a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our "disclosure controls and procedures" (as defined
in Rule 13a-14(c) under the Securities Exchange Act of 1934) within 90 days of
the filing date of this report. Based on their evaluation, our principal
executive officer and principal accounting officer concluded that, although
effective, our disclosure controls and procedures continue to need improvement.
As disclosed in Item 9 of this report, and as previously disclosed in our Form
8-K filed on May 28, 2002, our former independent accountants, Arthur Andersen
LLP ("Andersen"), noted four conditions that it considered to be reportable
events in connection with the audit of our consolidated financial statements as
of and for the year ended December 31, 2001. Among them, Andersen suggested that
we need to improve and automate procedures for our month-end closings. Our
management did not disagree with the suggestion made by Andersen, and the
Company currently has an active project underway to implement systems with
regard to automating procedures for month-end closings. Management believes that
we have already addressed the other significant conditions reported by Andersen.

     (b) There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the year end evaluation by our senior management
referenced in paragraph (a) above.




                                     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 45.

  (a)(2) Financial Statement Schedules

          Schedule II(a) - Valuation and Qualifying Account for
                             each of the two years in the period ended
                             December 31, 2001

          Schedule II(b) - Valuation and Qualifying Account for
                             the year ended December 31, 2002


  (a)(3) Exhibits
                                                     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.


                                       71

<PAGE>


        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.

        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.

       10.1   Marubeni Japanese Distribution                               (2)
              Agreement, as amended

       10.2   1989 Stock Option plan, as amended                 C         (3)

       10.3   1994 Employee Stock Purchase Plan                  C         (1)

       10.4   Form of Indemnification Agreement                  C         (1)

       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   Amended and Restated Secured Promissory                     (10)
              Note in favor of STEAG Electronic Systems AG,
                dated as of July 2, 2001.

       10.8   Secured Promissory Note in favor of STEAG                   (10)
              Electronic Systems AG, dated as of November 5, 2001.

       10.9   Transition Agreement by and between                C        (10)
              Mattson Technology, Inc. and Brad Mattson,
              dated as of December 13, 2001.

                                       72
<PAGE>
       10.10  Executive Change of Control agreement between      C        (11)
              Mattson Technology, Inc. and David Dutton,
              dated as of March 4, 2002.

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

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

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

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

       21.1   Subsidiaries of Registrant

       23.1   Consent of Independent Accountants

       23.2   Notice regarding Omission of Consent of Arthur Andersen LLP

       24.1   Power of Attorney (See page 74 of
              this form 10-K)

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

       99.2   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 to the corresponding  Exhibit previously filed as
     an Exhibit to Registrant's Form 10-K for fiscal year 1997.

(3)  Incorporated by reference to the corresponding exhibit of the Registrant's
     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 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 the corresponding  Exhibit previously filed as
     an Exhibit  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.


(b) Reports on Form 8-K

         None.
                                       73

<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.

March 31, 2003
                                        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

                               POWER OF ATTORNEY

     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,                    March 31, 2003
--------------------------------    Chief Executive Officer
         David Dutton               and Director

      /s/ Ludger Viefhues           Executive Vice President--    March 31, 2003
--------------------------------    Finance and Chief Financial
        Ludger Viefhues             Officer (Principal Financial
                                    and Accounting Officer)

      /s/ Jochen Melchior           Chairman of the Board and     March 31, 2003
--------------------------------    Director
      Dr. Jochen Melchior

      /s/ Hans-Georg Betz           Director                      March 31, 2003
--------------------------------
      Dr. Hans-Georg Betz

      /s/ Shigeru Nakayama          Director                      March 31, 2003
--------------------------------
        Shigeru Nakayama

      /s/ Kenneth Smith             Director                      March 31, 2003
--------------------------------
        Kenneth Smith

      /s/ Kenneth Kannappan         Director                      March 31, 2003
--------------------------------
        Kenneth Kannappan

      /s/ William Turner            Director                      March 31, 2003
--------------------------------
        William Turner


                                       74
<PAGE>

                                 CERTIFICATIONS


                            MATTSON TECHNOLOGY, INC.
                 SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION


I, David Dutton, certify that:

     1.   I have reviewed this annual report on Form 10-K of Mattson Technology,
          Inc.;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this annual report whether there were significant  changes in internal
          controls or in other factors that could significantly  affect internal
          controls  subsequent  to the  date  of  our  most  recent  evaluation,
          including   any   corrective   actions  with  regard  to   significant
          deficiencies and material weaknesses.


Date: March 31, 2003                   /S/ DAVID DUTTON
                                      -------------------------------------
                                                David Dutton
                                      President and Chief Executive Officer


                                  *************


                                       75
<PAGE>



I, Ludger Viefhues, certify that:

     1.   I have reviewed this annual report on Form 10-K of Mattson Technology,
          Inc.;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this annual report whether there were significant  changes in internal
          controls or in other factors that could significantly  affect internal
          controls  subsequent  to the  date  of  our  most  recent  evaluation,
          including   any   corrective   actions  with  regard  to   significant
          deficiencies and material weaknesses.


Date: March 31, 2003                   /S/ LUDGER VIEFHUES
                                      -------------------------------------
                                                 Ludger Viefhues
                                      Executive Vice President-Finance and
                                             Chief Financial Officer



                                       76
<PAGE>


                      REPORT OF INDEPENDENT ACCOUNTANTS 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 February 12, 2003, except as to Note 16, which is as of March 17, 2003
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
February 12, 2003




















                                       77


<PAGE>


                                                                  SCHEDULE II(a)


                        VALUATION AND QUALIFYING ACCOUNT

                         Allowance for Doubtful Accounts
                                 (in thousands)


                Balance at                  Additions --             Balance at
                 Beginning    Acquisition    Charged to                End of
   Fisal Year    of Year      Adjustments      Income     Deductions    Year
   ----------------------------------------------------------------------------

       2000      $ 141         $     -        $   360     $      -    $    501

       2001      $ 501         $ 9,178        $ 6,850     $ (4,056)   $ 12,473





                                                                  SCHEDULE II(b)


                        VALUATION AND QUALIFYING ACCOUNT

                         Allowance for Doubtful Accounts
                                 (in thousands)


                 Balance at                  Additions --            Balance at
                 Beginning    Acquisition    Charged to               End of
   Fisal Year    of Year      Adjustments      Income     Deductions    Year
   ----------------------------------------------------------------------------

      2002       $ 12,473      $     -        $     -     $ (1,921)   $ 10,552

















                                       78
<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.

       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.

      10.1    Marubeni Japanese Distribution                               (2)
              Agreement, as amended

      10.2    1989 Stock Option plan, as amended                 C         (3)

      10.3    1994 Employee Stock Purchase Plan                  C         (1)

      10.4    Form of Indemnification Agreement                  C         (1)



                                       79
<PAGE>


      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    Amended and Restated Secured Promissory                     (10)
              Note in favor of STEAG Electronic Systems AG,
                dated as of July 2, 2001.

      10.8    Secured Promissory Note in favor of STEAG                   (10)
              Electronic Systems AG, dated as of November 5, 2001.

      10.9    Transition Agreement by and between                    C    (10)
              Mattson Technology, Inc. and Brad Mattson,
              dated as of December 13, 2001.

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

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

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

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

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

      21.1    Subsidiaries of Registrant

      23.1    Consent of Independent Accountants

      23.2    Notice regarding Omission of Consent of Arthur Andersen LLP

      24.1    Power of Attorney (See page 74 of
              this form 10-K)

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

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




                                       80
<PAGE>


--------

(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 to the corresponding  Exhibit previously filed as
     an Exhibit to Registrant's Form 10-K for fiscal year 1997.

(3)  Incorporated by reference to the  corresponding  Registrant's  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 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 the corresponding  Exhibit previously filed as
     an Exhibit  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.





                                       81