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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

or

For the transition period from              to             

Commission file number 0-26482

TRIKON TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

Ringland Way,

Newport, Gwent NP18 2TA, United Kingdom

(Address of principal executive offices)

95-4054321

(I.R.S. Employer Identification No.)

(Zip Code)

44 (0)1633 414 000

Registrant’s telephone number, including area code

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

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

Common Stock, No Par Value

(Title of Class)

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.    x  Yes    ¨  No

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

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

As of June 30, 2003, the last business day of our most recently completed second quarter, there were 14,051,760 shares of common stock outstanding. The aggregate market value of our common stock held by non affiliates, based on the closing price of our common stock on June 30, 2003 as reported on the Nasdaq National Market was approximately $49,883,748. Common stock held by our officers and directors and by each person owning, to our knowledge, 5% or more of our common stock are excluded because such persons may be deemed affiliates of Trikon. This determination of affiliate status is not necessarily determinative for other purposes.

As of February 24, 2004, the registrant had outstanding 15,741,671 shares of Common Stock.

Documents Incorporated by Reference: None.

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TRIKON TECHNOLOGIES, INC.

Annual Report On Form 10-K For The Year Ended December 31, 2003

Index

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 based on the beliefs of our management as of the filing date of this Annual Report on Form 10K. These forward-looking statements, which include statements about our development efforts in the field of low k dielectrics, acceptance of our technological innovations and products, our business strategy, the general conditions of the semiconductor industry, our capital requirements and funding sources, our ability to cut costs and manage our business, and our expectations and objectives regarding future expected operating results, revenues and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and other similar expressions or variations of such words are intended to identify these forward-looking statements.

Factors that effect these forward looking statements include, without limitation, the cyclical nature of the semiconductor industry and the continuing and protracted downturn in the semiconductor industry, the long sales cycle and implementation periods, the acceptance of our technologies and products, our ability to respond to technological change, our dependence on a limited number of customers and other factors discussed under the heading “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The reader should also consult the cautionary statements and risk factors listed from time to time in the reports we file with the Securities and Exchange Commission.

All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us as of the filing date of this Annual Report on 10-K, and we assume no obligation to update any such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements.

TRADEMARKS

TRIKON, ORION, OMEGA, OMEGA ETCH, OMEGA 2, SOFT SPUTTER ETCH, PLANAR 200, FORCEFILL, FLOWFILL, HI-FILL, SIGMA, ELECTROTECH, PLASMAFAB, SCIF, DRY DIP, FxP, and THE PLASMA COMPANY are our trademarks and are registered in one or more of the territories in which we sell our products. M0RI, LOW-K FLOWFILL, C3M and PLANAR are our trademarks, and we have applied for trademark registration of these and other marks in the major sales territories in which we operate.

All other trademarks, service marks, or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.

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PART I

ITEM 1. BUSINESS

Recent Developments

On March 10, 2004, we announced the departure of Dr. Jihad Kiwan as our President and Chief Executive Officer. Pursuant to the terms of his employment agreement, Dr. Kiwan resigned from the Board of Directors effective as of such date. Dr. John Macneil, our Chief Technology Officer, will serve as our acting President and Chief Executive Officer and will be assisted by a newly formed Executive Committee of the Board of Directors consisting of Nigel Wheeler and Richard Conn. On March 10, 2004 Dr. In-Kil Hwang resigned from our Board of Directors. In addition on March 12, 2004, Trikon and Richard Deep, formerly our Chief Operating Officer, determined to end their relationship.

Overview

Trikon Technologies Inc (‘Trikon’ or ‘the Company’) was founded in 1987 as Plasma & Materials Technologies, Inc (‘PMT’), a California corporation. In August 1995, we completed our initial public offering of common stock. In November 1996, we acquired Electrotech Limited and Electrotech Equipments Limited (‘Electrotech’), both United Kingdom companies that were significantly larger than PMT and the Company was renamed Trikon Technologies, Inc. In 2002, the Company reincorporated into Delaware as Trikon Technologies, Inc. Our principal executive offices are located at Ringland Way, Newport, South Wales NP18 2TA, United Kingdom, and our telephone number is 44 (0) 1633-414-000. Our head office and management team together with our principle operations are based in the United Kingdom.

We design, manufacture, market and sell advanced production equipment used to process semiconductor wafers for the manufacture of integrated circuits. These circuits and devices are key components in most advanced electronic products, such as telecommunications devices, consumer and industrial electronics and computers.

Our products carry out processes to clean, deposit and/or remove materials on the surface of a wafer. In particular, our products are used for chemical vapor deposition (CVD), physical vapor deposition (PVD) and etch processes. We sell, install and service our systems to semiconductor manufacturers worldwide and our existing customers include a wide range of semiconductor companies, including large independent device makers. We use a direct sales model in all of our markets except in Asia, where we use a combination of direct sales and distributors.

Our mission is to provide technologically innovative, high quality semiconductor manufacturing equipment that can provide a competitive advantage for our customers. Our application focus will be the critical steps in memory and power integrated circuits, together with the development of our low k technologies.

We make available free of charge through our website, www.trikon.com, our annual reports 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 submitted to the Securities Exchange Commission. Our internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

Our Products

Integrated circuits are built on a silicon or other material wafer base, and include a variety of circuit components, such as transistors and other devices, that are connected by multiple layers of wiring (interconnects). To build an integrated circuit, the transistors, capacitors and other circuit components are first created on the surface of the wafer by performing a series of processes to modify, deposit and remove selected film layers. Similar processes are then used to build the layers of wiring structures on the wafer.

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Our products are used in these processes to create the integrated circuit, which includes among many different processes, the following basic operations to create interconnect layers:

These, and other processes, are repeated in multiple cycles, building up microscopically thin layers, thereby interconnecting countless transistors.

We supply production equipment for two of the most typical deposition techniques, chemical vapor deposition and physical vapor deposition, and plasma etching equipment for selective material removal.

Our proprietary technologies and leading-edge wafer processes capabilities enable our customers to perform new and advanced fabrication processes, thereby improving their products.

Chemical Vapor Deposition

Chemical vapor deposition is a process that can be used to deposit thin films of dielectric (insulating) and, to a lesser extent, conductive materials. During the CVD process, gases that contain atoms of the material to be deposited chemically react to form a thin film of solid material on the wafer. Four types of dielectric layers deposited by CVD include:

The most common dielectric films deposited by CVD are silicon dioxide, which is used for the PMD and IMD layers, and silicon nitride, which is used for the final passivation layer. As semiconductor devices get smaller and closer together, there is anticipated to be a requirement for more efficient insulating materials (low k dielectrics) for IMD and PMD applications.

Our CVD products, Planar fxp and Planar 300 for Flowfill, low k Flowfill and ORION deposition are targeted towards the IMD and PMD markets and utilize our proprietary technologies. These products are cluster tools with up to six process module positions.

The IMD and PMD markets require a suitable insulating material to separate the many levels of microscopic wiring in an integrated circuit. The most common insulating material is silicon dioxide, which, when deposited by conventional techniques, is unable to fill small gaps. Addressing the problems of conventional CVD technology our patented Flowfill and low k Flowfill products are primarily directed towards the gap fill market and are used to deposit a planarizing layer that in many cases may be used without the need for chemical mechanical polishing. Our Flowfill process is a patented CVD technology that was developed to form high quality silicon dioxide layers that possess the properties of both gap fill and a high degree of planarization. When a high degree of planarization is reached, the upper surface of the layer is relatively flat, irrespective of the topography of the surface covered. Flowfill can fill features less than 0.04 micron wide with a less than 8:1 height to width ratio and simultaneously achieve a very high degree of planarization for large gaps up to 20 microns.

Our low k Flowfill product has similar gap filling and planarization properties to the Flowfill product but also provides a low k dielectric process, which enables device manufacturers to speed up the performance of their

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integrated circuits. Our low k Flowfill technology is in production with a tunable dielectric constant (‘dielectric constant’ or ‘k value’) of between 2.8 and 3.3 and has the capability of achieving a dielectric constant of 2.5.

Advanced logice device makers are moving from using aluminum as the main conducting material for the interconnect to Copper and need to complement this transition with the use of more efficient dielectric films or low k films. Our ORION technology is an ultra low k offering aimed at advanced copper damascene applications where a k value of 2.5 or below is required. ORION can be deposited at dielectric constants of both 2.5 and 2.2, values, which have been independently verified. Our internal measurements on films deposited by the ORION product suggest that the k value can be reduced to 1.8. The ORION films are deposited using the Planar 300 system, a bridge tool that can process both 200mm and 300mm wafers. This tool has six process module positions and is also capable of running Flowfill and low k Flowfill processes, therefore offering customers a progression path from Flowfill to ORION technology at both 200 and 300 mm production.

Physical Vapor Deposition

Physical vapor deposition is a process used to deposit conducting, liner and barrier metal layers on an integrated circuit. One of the primary PVD methods is sputtering, a process in which an electrical discharge creates ions of an inert gas, such as argon, which are then accelerated in a vacuum at a target typically composed of pure metal or metal compound, such as aluminum, aluminum compounds, tantalum or copper. The target atoms are sputtered away and deposited on the wafer to form a thin film. Thin conductive films, when patterned by lithography and etching, are used to wire an integrated circuit. These sputtered thin films consist of:

Our Sigma fxP systems are used to sputter uniform layers of pure metals or metal alloys and metal compounds such as oxides or nitrides. These products are cluster tools based on industry standard robotics platforms.

Sigma is designed to be one of the cleanest PVD systems on the market, which is a key technology requirement for sputtering the wafer with as high quality film as possible. Various process chambers are available for specific functions. In particular, there are advanced PVD chambers for depositing high quality barrier and liner layers for advanced metalization structures. These consist of the “long throw” Hi-Fill and “ionised metal” Advanced Hi-Fill PVD chambers for improved barrier and liner deposition into high aspect ratio structures and an process module for the most advanced titanium nitride barrier layers which is called an MOCVD module. A Forcefill chamber is also available which fills contact holes on semiconductor wafers with deposited aluminum alloys by applying heat and isostatic high pressure. Additional chambers consist of pre heat and sputter etch. We believe that the Sigma systems have the lowest cost of ownership compared to our main competitors, and cost of ownership is an important factor for integrated circuit manufacturers

We are primarily targeting both memory and power device makers and barrier and liner applications for advanced silicon device production. For the rapidly growing power device market, we support both front side interconnect and backside solder metal applications, minimizing operating costs by offering same-type equipment for the entire metal module. We also supply technology for the emerging Bulk Acoustic Wave (‘BAW’) market, a technology driven sector for next generation communication devices. BAW devices require very uniform deposition of piezoelectric films and we have developed intellectual property in this arena.

Plasma Etch

Plasma etch is a process that removes precisely defined patterns from the wafer surface by chemically converting exposed portions of the surface into a gaseous by-product that is pumped away from the process

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chamber. Almost all deposition processes create a film covering the entire wafer surface. Many layers are required only in selected parts of the wafer, for example to create wires of metal that may be created by a series of steps including a Plasma etch step. Firstly, the entire wafer surface is covered with sputtered aluminum alloys and its associated barrier layers. These conductive layers are then coated with photo resist and are exposed to the wiring pattern during the photolithography process. Plasma etching is then used to remove the exposed conductive layer, thus replicating the wiring pattern. The metal remains in place under the protective photo resist, which is then stripped off.

Our Omega plasma etch system is available on two platforms as the Omega fxP and a single chamber Omega 201. The Omega fxP offers up to 6 process modules combined with tools for wafer alignment and cool-down and two vacuum cassette stations. Multiple chambers provide high throughput for the high volume user or the option to ‘mix and match’ different plasma sources so that advanced sequential etching processes can be addressed. The Omega 201 features our plasma source technologies in a single chamber format that combines high performance etching with small footprint and low costs. These attributes make the tool particularly well suited to cost-sensitive manufacturing of silicon integrated circuits, compound device makers and to the emerging photonics industry.

Both platforms support our three main plasma sources, our M0RI^™ etch technology (MORI), Plasma Enhanced Reactive Ion Etch (“PERIE”) and Inductively Coupled Plasma (“ICP”). Additional modules may also be added that provide secondary functions, such as post etch corrosion processes. M0RI offers the highest plasma density that provides process solutions for the most advanced polysilicon, oxide and low k etch requirements. The ICP is used extensively for high-density aluminium and polysilicon etching as well as for a broad range of front and back face processing on compound semiconductors. The PERIE offers medium plasma density for silicon and dielectric etching where the feature sizes are less challenging. We have recently launched a Deep Silicon (DSi) etch module for the emerging MEMS market utilizing the industry standard Bosch process. The module features magnetic shaping of the plasma to reduce etch non-uniformities. Deep Silicon etch techniques are used in myriads of applications such as accelerometers and gyros, tilting mirrors, vibrating resonators, valves, pumps and turbines.

Marketing, Sales and Customer Support

We sell, install and service our systems to semiconductor manufacturers worldwide and our focus is upon building positive long-term relationships with our customers. We offer highly reliable products that give our customers a competitive edge through technology or cost advantage, comprehensive field support and a responsive parts replacement and service program. Our sales are divided among three geographic regions – Europe, North America and Asia. Set forth below in tabular format is the geographic distribution of our revenue for the past three fiscal years, expressed as a percentage of sales.

In Europe, we market and sell our products primarily through our direct sales and service operations in the United Kingdom, the Netherlands, France and Germany. In North America, we also market and sell our products through our direct sales organization supported by regional service operations. In Asia we combine direct sales, agency and distributor arrangements. In South Korea, we market and sell our products directly. In Japan we use a local distributor with support from our United Kingdom and South Korea offices. In Taiwan and China and the other South Eastern Asian markets we use the services of a regional agent supported in China and Taiwan by a direct sales presence.

Our total revenue includes amounts from certain individual customers that exceed 10% of our total revenue. For the year ended December 31, 2003 three customers exceeded 10% of revenues for the year, with Sarnoff

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Corporation, Infineon AG and Philips accounting for 16%, 13% and 10% respectively. For the year ended December 31, 2002, Phillips was the only customer who exceeded 10% of our revenue, accounting for 11% of our revenue and for the year ended December 31, 2001 Infineon AG represented 17% and Philips represented 15% of total revenue for the year. Our largest customers may vary from year to year depending upon, among other things, a customer’s budget for capital expenditures, plans for new fabrication facilities and new product introductions.

Our sales are not usually seasonal in nature but are cyclical due to the buying patterns of major semiconductor manufacturers. These buying patterns are based on several factors including anticipated market demand for integrated circuits, the development of new technologies and general economic conditions.

We provide customers with evaluation systems of our new products as part of our sales efforts. The provision of evaluation systems is an important step in the lengthy sales cycle. The average duration of an evaluation period for systems can be extensive and can exceed one year. Consequently, as we expand our sales efforts, particularly in the low k market, we believe that a significant increase in our investment in demonstration and evaluation systems will be needed.

We believe that a comprehensive support program is an essential component for each customer. We have developed an experienced central customer support group in addition to regional based service and support staff at local centers who are in close contact with our customers and provide comprehensive support programs. We also have a dedicated training suite housing a clean room with complete systems and the latest generation training aids.

Research, Development and Engineering

We believe that our future success will depend primarily upon our ability to continue to improve our systems and technologies and to develop new products that compete effectively on the basis of technical performance and total cost of ownership. These technologies and systems will also need to meet customer requirements and emerging industry standards. Accordingly, we devote a significant portion of our personnel and financial resources to research and development programs and seek to maintain close relationships with our customers in order to remain responsive to their product needs. As of December 31, 2003, we employed 63 professional and technical personnel in research, development and engineering and our expenditure for research and development during the fiscal years 2003, 2002 and 2001 were $9.7 million, $10.7 million and $9.7 million, respectively.

Our research and development group is responsible for identifying new technology applications and developing processes to meet customer requirements. Major research and development programs for CVD address deposited dielectrics for PMD, IMD and STI gap fill applications and ultra low k dielectrics for copper damascene applications. We are focusing on high aspect ratio etching using our MORI technology in our etch group. Our applications focus in PVD and MOCVD are barrier/liner/seed applications and advanced oxide including backside metallization and thin wafer handling. Resources will also be focused in 2004 to identify and implement product cost reduction programs that can favorably impact our gross margin

Manufacturing, Raw Materials and Supplies

Our manufacturing operations consist of the manufacture, assembly and testing of components and modules and their integration into finished systems at our Newport, United Kingdom facility, where substantially all of our long-lived assets are maintained. We purchase a significant number of parts including mechanical and electrical components from a variety of suppliers. We seek to qualify multiple suppliers for our purchased components, although this is not possible for all components and purchased assemblies and therefore any failure by a supplier to perform could have a short-term adverse effect on our operating results. Most significantly our Sigma^® fxP^™, Planar^™ fxP^™ and Omega^™ fxP^™ systems (“cluster tools”) are designed around an automation module supplied by Brooks Automation. Due to the high cost of these modules we keep very few in inventory. If Brooks Automation fails to deliver the component on a timely basis, delivery of our cluster tools will be delayed and sales may be lost. If Brooks Automation is unable to deliver any such modules for a prolonged period of time, we will have to redesign our cluster tools so that we may utilize other wafer transport systems.

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Our manufacturing facility operates at the high levels of cleanliness required in the semiconductor industry. Our manufacturing and final test area is class 1000 representing a high level of cleanliness (a class is a standard definition which represents a number of particles per million, the smaller the number of particles the cleaner the facility). We also support our development and sales process with a class 100 engineering clean room and a class 10 processes and product demonstration room. We also have a dedicated training suite of classrooms and a clean workshop stocked with our products, both current and former generations, where we are able to train our own and our customers’ engineers.

We also operate two additional sites near our Newport facility where assemblies are made, a sheet metal fabrication workshop producing enclosures, panels and other parts and a CNC machinery center, producing chamber components and other parts and wafer transport assemblies. In order to ensure that the CNC facility remains competitive in both quality and price, and to help cover fixed costs, it also produces products for third parties. Revenue associated with this facility that is not related to the semiconductor equipment business was approximately $0.9 million in the year ended December 31, 2003 and $1.2 million in the year ended December 31, 2002.

Competition

The markets we serve are highly competitive and subject to rapid technological change. Historically, new technologies have only gained acceptance when industry leaders have concurrently adopted such new technologies. Significant competitive factors include timing of new product offerings, system performance, cost of ownership, size of installed base, depth and breadth of product line and customer support.

We face significant competition from various suppliers of systems that utilize similar or alternative technologies. Competitors range from very large, well capitalized corporations with a diversified product portfolio to smaller companies that compete with a single innovative product. However, many of our competitors are substantially larger companies, some with broader product lines. They have well-established reputations in the markets in which we compete, greater experience with high volume manufacturing, broader name recognition, substantially larger customer bases, and substantially greater financial, technical, manufacturing and marketing resources.

We have granted non-exclusive, worldwide, paid-up licenses of our M0RI technology and Force Fill PVD technologies to Applied Materials and granted a non-exclusive, worldwide, paid-up license of our M0RI technology to Lam Research. As a result, in the future our PVD and etch products may have to compete with products of Applied Materials or Lam Research based on our technologies. The license agreements do not preclude us from utilizing, or licensing to other third parties, the licensed technologies.

Backlog

As of December 31, 2003, our backlog was approximately $6.2 million, as compared to approximately $8.5 million at December 31, 2002. Our backlog consists of system purchase orders that provide for delivery within the following year and the unearned revenue of systems previously shipped. Backlog includes only systems for which a purchase order has been received and a delivery date assigned. Orders are typically subject to cancellation or delay by the customer with limited or no penalties. Because of possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily representative of actual sales for any succeeding periods. The stated backlog is not necessarily indicative of sales for any future period nor is a backlog any assurance that we will realize profit from filling these orders.

Intellectual Property

We believe that our competitive position is significantly dependant upon skills in engineering, manufacturing, customer support and marketing in addition to our patent position. Protection of our technological assets by obtaining and enforcing patents is important and we file patent applications in the United Kingdom,

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United States and other countries as appropriate. We currently hold 44 U.S. patents with patents issued and pending in key markets around the world. The issued patents and any subsequent issued patent arising from our pending applications expire between 2009 and 2022.

There can be no assurance that patents will be issued on our pending patent applications or that competitors will not be able to legitimately ascertain proprietary information embedded in our products that is not covered by patent or copyright. In such case, we may be precluded from preventing the competitor from making use of such information. In addition, should we wish to assert our patent rights against a particular competitor’s product, there can be no assurance that any claim in any of our patents will be sufficiently broad nor, if sufficiently broad, any assurance that our patent will not be challenged, invalidated or circumvented, or that we will have sufficient resources to prosecute our rights.

In the normal course of business, we receive inquiries regarding possible patent infringement. In dealing with such inquiries, it may become necessary or useful for us to obtain or grant licenses or other rights. However, there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms. If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on commercially reasonable terms and/or successfully prosecute or defend our position, our business, financial condition and results of operations could be materially and adversely affected.

Environmental Matters

We are subject to a variety of rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals and gases used during customer demonstrations and in research and development activities. The United Kingdom adopted a new and comprehensive environmental law known as the Environmental Act 1995, which, among other things, deals with the allocation of responsibility for the clean up of contaminated property and expands potential liability with respect to the remediation of such contamination. We lease a number of facilities in the United Kingdom, and failure to comply with present or future regulations could result in substantial liability, 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. We believe that we are in material compliance with all applicable environmental rules and regulations and are in compliance with ISO14000 environmental standards.

Employees

As of December 31, 2003, we had 266 full-time employees and contractors, including 63 engaged in research, development and engineering.

None of our employees are covered by a collective bargaining agreement and we consider our relations with our employees to be good.

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ITEM 2. PROPERTIES

Certain information concerning our principal properties at December 31, 2003 is set forth below:

We have a number of smaller properties and field offices located in the United States, the United Kingdom, Germany, France and South Korea. We believe that our properties adequately serve our present needs.

ITEM 3. LEGAL PROCEEDINGS

As of March 3, 2004 there were no material pending legal proceedings to which our subsidiaries or we are a party. From time to time we become involved in ordinary, routine or regulatory legal proceedings incidental to our business.

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

No matters were submitted to a vote of our stockholders during the quarter ended December 31, 2003.

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PART II

Market for the Registrant’s Common Equity

Our Common Stock trades on the Nasdaq National Market under the symbol “TRKN”. The quarterly high and low closing sale prices for Common Stock as reported by the Nasdaq National Market for the periods indicated below are as follows.

As of March 3, 2004, there were 200 holders of record of our common stock. On March 3, 2004, the closing price of the Common Stock as reported on the Nasdaq National Market was $5.93 per share.

We have never declared or paid dividends on the Common Stock and we do not expect to pay dividends on our common stock in the foreseeable future.

The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in item 12 of this Annual Report on Form 10-K.

Unregistered Sales of Registrant’s Equity Securities During Last Fiscal Year

On October 22, 2003 we sold 1,400,000 shares of our common stock and warrants to purchase 350,000 additional shares of common stock with an exercise price of $6.25 per share in a private transaction under rule 506 of the Securities Act of 1933, as amended, with Special Situations Fund III LP and certain of its affiliated funds. The gross proceeds of the sale were $7.0 million and our costs amounted to approximately $0.5 million. Oppenheimer & Co, Inc (‘the placement agent’) managed the private placement. The placement agent received in addition to certain cash consideration, a warrant to purchase up to 52,500 shares of common stock at an exercise price of $6.50 per share

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data are qualified by reference to and should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. The selected consolidated financial data set forth below as of December 31, 2003, and 2002 and for the years ended December 31, 2003, 2002, and 2001 have been derived from our audited financial statements included elsewhere in this annual report. The selected consolidated financial data set forth below as of December 31, 2001, 2000 and 1999 and for the years ended December 31, 2000 and 1999 have been derived from our audited financial statements that are not included in this annual report.

As discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we changed our accounting policy with respect to revenue recognition in the year ended December 31, 2001. In accordance with Accounting Principles Board Opinion 20, we accounted for the change as a cumulative effect on the prior years resulting from the change to a different revenue recognition policy. As a result, the selected consolidated financial data for the periods ending on and before December 31, 2000 have not been restated, but pro forma revenue, net income and earnings per share are included as a footnote to the selected consolidated data.

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Overview

Our business is to design, manufacture market and sell advanced production equipment and related support services that are used in the production of semiconductors. We face a variety of challenges in responding to the dynamics of this industry, which is characterized by a high level of volatility caused by sudden changes in demand for semiconductors and manufacturing capacity. In addition because of the large unit price associated with our systems, which typically vary between $0.9 million and $3.5 million, our backlog, shipments and revenues can be affected positively, or negatively, by a relatively small swing in orders. Our revenues during the three fiscal years ending December 31, 2003 were substantially affected by the rapid reduction in demand for semiconductor equipment that began towards the end of fiscal 2000. As fiscal 2001 progressed, the decline in demand deepened and the industry entered a severe downturn. This downturn continued into fiscal 2003 and while there have been indications that an industry recovery started in the second half of 2003, we did not benefit from this recovery in fiscal 2003.

In addition to the initial sale of equipment, we also provide on site support and spares parts. Sales of on site support and spare parts were $10.7 million and $9.0 million (including sales of our CNC subsidiary of $0.9 million and $1.1 million) for the years ended December 31, 2003 and 2002 respectively. The sales of support and spares is less volatile than the sale of the equipment.

Critical Accounting Policies

General

Our discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Note 1 to notes to consolidated financial statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these accounting policies are considered to be critical accounting policies as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates generally require us to make assumptions about matters that are highly uncertain at the time of the estimate; and

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if different estimates or judgments were used would have a material effect on our financial condition or results of operations.

The estimates and judgments we make that affect the reported amount of assets, liabilities, revenues and expenses are based on our historical experience and on various other factors which we believe to be reasonable in the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We consider our accounting policies related to revenue recognition, foreign currency translation, the valuation of inventories including demonstration inventory and accounting for the costs of installation and warranty obligations to be critical accounting policies.

Revenue Recognition

We derive our revenues from three sources – equipment sales, spare parts sales and the provision of services. We changed our revenue recognition policy in fiscal 2000 to adopt Staff Accounting Bulletin 101 issued by the staff of the Securities and Exchange Commission. We recognize revenue when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services rendered, the sales price is fixed or determinable and collectivity is reasonably assured. For transactions that consist of multiple deliverables we allocate revenue to each of the deliverables based upon relative fair values and apply the revenue recognition criteria above to each element.

Generally, we recognize revenue on shipment, as the equipment is pre-tested in the factory prior to shipment and our terms of business are FOB factory. For new customers, or new products, revenue is recognized on shipment only if the customer attends and approves the pre-shipment testing procedures and we, and the customer, are satisfied that the performance of the equipment, once installed and operated, will meet the customer-defined specifications. Generally even with new customers we recognize the revenue on shipment because the customer attends and approves the pre-shipment testing. The amount of revenue recorded is reduced by the amount of any customer retention (typically between 10% and 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. The amount of revenue related to system shipments and customer retentions deferred at December 31, 2003 was $5.1 million compared to $1.2 million at December 31, 2002. Generally the provision of installation and commissioning services are not considered essential to the functionality of the equipment.

Equipment sold as demonstration or evaluation units are recognized as revenue on transfer of title and, either final acceptance, or satisfactory completion of testing to demonstrate that the equipment meets all the customer defined specifications.

Revenue related to spare parts is recognized on shipment. Revenue related to service contracts is recognized ratably over the duration of the contracts.

During fiscal 2003 we entered into a contract to develop new equipment for a customer and we determined that the revenue associated with this transaction should be accounted for in accordance with SOP 81-1 – ‘Accounting for the Performance of Construction-Type and Certain Production-type Contracts’. The developed equipment was shipped to the customer in fiscal 2003, however significant development work will be required during fiscal 2004 and no revenue was recognized with respect to this project in fiscal 2003. The full value of the contract has been deferred until such time as we can establish criteria to recognize the revenue under the percentage of completion method or alternatively on completion of the contract. Deferred revenue at December 31, 2003 includes $1.8 million in respect of this contract.

Foreign Currency Translation

Most of our operations are located within the United Kingdom and most of our costs are incurred in British pounds. However our system sales are generally in US dollars and, to a lesser extent, in euro and we report in US

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dollars. As a result, fluctuations in the exchange rate between the US dollar and the British pound have a significant effect on our reported earnings and net asset position. We have determined that the functional currency for all UK operations is the British pound and as a result our actual expenses expressed in US dollars will fluctuate with changes in foreign currency exchange rates and result in currency gains and losses, which are charged to net income. Changes in the value of non-US net assets as a result of these movements of foreign currency exchange rates are treated as changes to the cumulative translation adjustment on the balance sheet. We also have significant intercompany loans between the United Kingdom operating subsidiary and the parent, which are short-term in nature. This determination results in exchange gains and losses associated with these loans being accounted for in the profit and loss account.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value, using standard costs which approximate to actual cost. We maintain a perpetual inventory system and continuously record the quantity on hand and standard cost of each product including purchased components, sub assemblies and finished goods. We maintain the integrity of the perpetual inventory through a cycle stock count program. Our standard costs are re-assessed at least annually and generally reflect the most recent purchase cost and currently achievable assembly and test labor and overhead rates. We estimate our labor and overhead rates based upon average utilization rates and treat as a period cost abnormal absorption variances, which arise due to low or high production volumes. As a result of the low levels of production, significant negative volume variances are being experienced, which has resulted in a gross margin that is below levels that could be achieved at higher revenue levels.

We also make provision for slow moving and obsolete inventory and evaluate their adequacy on a quarterly basis. For our work in process and finished goods inventory, which generally consist of specific systems or modules, we compare the inventory on hand to current sales and market forecasts and other information that indicates the ability to identify a purchaser for such equipment. We apply a formula approach to reserves against raw materials and spares inventory based upon 12 months historic usage, applying different criteria to components that are required for current products, non current products and spares.

A major component of the estimate of inventory reserves is our forecast of future customer demand, technological and/or market obsolescence, and general semiconductor market conditions. If future customer demand or market conditions are less favorable than our projections then additional inventory write-downs may be required, and these would be reflected in cost of sales in the period the reserves were adjusted.

Installation and Warranty

Our contracts cover on-site installation services and provide for a warranty of the equipment. Generally we accrue for the costs of installation and commissioning services at the time of revenue recognition. Our standard warranty period varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased. We account for the estimated warranty cost as a charge to cost of sales at the time we recognize revenue. The warranty reserve is based upon historic product performance and is based on a rolling 12-month average historic cost per machine per warranty month outstanding. We also recalculate the estimated warranty cost for all remaining systems still under warranty using the most recent historic average and the difference is included as a component of cost of sales. We do not maintain any general reserves for warranty obligations. Actual warranty costs in the future may vary from historic costs, which could result in adjustments to our warranty reserves in future periods that are more volatile than in recent years.

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Results of Operations

The following table sets forth certain operating data as a percentage of total revenue for the periods indicated:

Comparison of the Years Ended December 31, 2003 and 2002

Product Sales.

Product sales for the year ended December 31, 2003 decreased 12% to $28.7 million compared to $32.8 million for the year ended December 31, 2002. Shipments for the year ended December 31, 2003 were $32.7 million compared to $28.9 million shipped in the prior year. The level of sales and shipments in the year reflects the effects of the global slowdown in the semiconductor industry.

Our sales by product are as follows:

Sales outside of the United States accounted for approximately 61% and 67% of total revenues for the years ended December 31, 2003 and 2002, respectively. We expect that sales outside of the United States will continue to represent a significant percentage of our product sales through 2004.

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Because of the large unit price associated with our systems, our product sales are represented by a small number of unit sales in each year and therefore the quantity, product mix and geographical mix of product shipped in any particular year can fluctuate significantly as can the individual customers to whom these products are sold.

License Revenues.

License revenues are in respect of an exclusive license of power supply technology and a non-exclusive license of our MORI technology to a systems integrator in Japan for a non-competing application. License revenues increased 116% to $108,000 for the year ended December 31, 2003 compared to $50,000 received during the year ended December 31 2002. License revenues are expected to continue to represent a small part of our revenue.

Gross Margin on Product Sales.

The gross margin on product revenues for the year ended December 31, 2003 was 26.8% as compared to 25.4% for the year ended December 31, 2002. Cost of goods sold for the year ended December 31, 2003 included $290,000 relating to the costs of a reduction in workforce compared to $345,000 in the year ended December 31, 2002. Cost of goods sold for the year ended December 31, 2003 also included a non-cash charge of $2.1 million with respect to the write-down of inventory associated with the current downturn in the semiconductor business compared to $2.3 million in the prior year. Better utilization of manufacturing costs positively impacted the gross margin in fiscal 2003 but this was offset in part by an unfavorable product mix compared to 2002.

Research and Development Expenses.

Research and development expenses for the year ended December 31, 2003 were $9.6 million or 33.4% of total revenues compared with $10.7 million or 32.6% of total revenues for the prior year. The major focus of our research and development efforts continues to be the development of new processes in further advancing our proprietary PVD, CVD and etch technologies as well as adding enhancements to our existing products. We are committed to continued investment in our research and development and expect that our research and development expenses for 2004 will continue to be incurred at similar or greater levels to fiscal 2003.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the year ended December 31, 2003 were $20.0 million, or 69.5% of total revenues, compared to $18.7 million, or 57.1% of total revenues, in the year ended December 31, 2002. As the majority of our costs are incurred in British Pounds, in local currency terms our expenses declined in fiscal 2003 compared to fiscal 2002. While selling general and administrative expenses when reported in US dollars for the year ended December 31, 2003 compared to the prior year increased 7%, the movement in the US dollar exchange rate to the British Pound increased reported expenses by 9%. In addition, in fiscal 2003 we incurred non-recurring costs associated with employer social security taxes relating to the vesting of 1,149,281 shares, a contested 2003 annual shareholder meeting, accruals with respect to leasehold buildings no longer used by the Company and the changeover of the Chief Executive Officer, which totaled $941,000.

Result from Operations.

We incurred a loss from operations of $25.5 million in the year ended December 31, 2003 compared to a loss of $21.9 million in the prior year. Lower revenue was the major component of the increase in the loss from operations. The pension settlement charge of $3.5 million in the year ended December 31, 2003 compared to $818,000 in the year ended December 31, 2002 had a significant effect upon the result of operations for fiscal 2003. See note 11, ‘Pensions and other Post Retirement Benefits’ to the notes to the consolidated financial statements.

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Other Income.

We earned $474,000 during the year ended December 31, 2003 in connection with the sale of property we no longer required for our operations.

Interest Income and Expense, Net.

Net interest income was $27,000 for the year ended December 31, 2003 compared with $112,000 for the year ended December 31, 2002. Net interest income was reduced in the year ended December 31, 2003 compared to the prior year, in part due to lower cash balances, but also due to interest payable on taxes outstanding from the prior year, which were settled during the year.

Income Taxes.

For the year ended December 31, 2003 we recorded a tax charge of $0.2 million compared to a tax credit of $2.2 million for year ended December 31, 2002 resulting in an effective income tax rate of 0.9% and (9.9)%, respectively. The current year tax charge primarily relates to US state franchise taxes and to income taxes in our German subsidiary.

We generated a significant portion of our consolidated pre-tax losses for the year ended December 31, 2003 and December 31, 2002 within the United Kingdom, which has a lower statutory rate of 30% compared to the US federal rate of 35%. In addition to the lower statutory rate, the generation of net operating losses results in fluctuations in the effective tax rate, as we have not recognized any deferred tax assets with respect to net operating losses, which can only be utilized against future profits. We incurred United Kingdom income taxes in fiscal 2001 and we were able to carry back some of the tax losses incurred in the United Kingdom during fiscal 2002 against these taxes. See note 6 to the notes to the consolidated financial statements for a detailed reconciliation of the tax rate for 2003 and 2002.

As of December 31, 2003, we had US federal losses of $26.1 million, various state operating losses and United Kingdom net operating losses of approximately $46.6 million, which can be offset against future income. Our ability to use our US and United Kingdom net operating losses and credit carry forwards will depend upon the ability to generate future income within the US and United Kingdom to utilize these losses and a portion of our US net operating losses are subject to annual limitations arising from a change of control as defined by Section 382 of the internal revenue code, as revised.

In addition to the United States and the United Kingdom, we have operating subsidiaries in several other countries, and each of these subsidiaries are taxed based on the laws of the jurisdiction in which they operate. Because taxes are incurred at the subsidiary level, and one subsidiary’s tax losses cannot be used to offset the taxable income of subsidiaries in other jurisdictions, our consolidated effective tax rate can vary significantly to the extent we report tax losses in some subsidiaries and taxable income in others. We also assume that our profits generated in overseas jurisdictions are reinvested overseas. The payment of dividends or distributions by the subsidiaries to the United States may be subject to withholding taxes in the country of domicile and further taxation by federal or state authorities subject to the terms or relevant double tax treaties.

Comparison of the Years Ended December 31, 2002 and 2001

Product Sales.

Product sales for the year ended December 31, 2002 decreased 66% to $32.8 million compared to $97.0 million for the year ended December 31, 2001. Shipments for the year ended December 31, 2002 were $28.9 million compared to $92.8 million shipped in the prior year. The decline in sales and shipments in the year reflects the effects of the protracted global slowdown in the semiconductor industry. Our revenues in fiscal 2001 reflected our significant backlog from fiscal 2000, prior to the onset of a global slowdown.

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Our sales by product are as follows:

Sales outside of the United States accounted for approximately 67% and 68% of total revenues for the years ended December 31, 2002 and 2001, respectively. Revenues for the year ended December 31, 2001 included cancellation fees of $1.4 million.

License Revenues.

License revenues of $50,000 in the year ended December 31, 2002 related to power supply technology. No license revenues were earned during the year ended December 31, 2001.

Gross Margin on Product Sales.

The gross margin on product revenues for the year ended December 31, 2002 was 25.4% as compared to 46.7% for the year ended December 31, 2001. Cost of goods sold for the year ended December 31, 2002 included $345,000 relating to the costs of a reduction in workforce compared to $302,000 in the year ended December 31, 2001. Cost of goods sold for the year ended December 31, 2002 also included a non cash charge of $2.3 million with respect to the write down of inventory compared to $1.0 million in the prior year. In addition, under utilization of manufacturing and customer support costs negatively affected the gross margin in the year ended December 31, 2002. Sales of higher margin products and a receipt of fees for order cancellations offset, somewhat, the factors contributing to the reduced gross margin in the year ended December 31, 2002.

Research and Development Expenses.

Research and development expenses for the year ended December 31, 2002 were $10.7 million or 32.6% of total revenues compared with $9.7 million or 9.9% of total revenues for the prior year. The major focus of our research and development efforts continued to be the development of new processes in further advancing our proprietary PVD, CVD and etch technologies as well as adding enhancements to our existing products.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the year ended December 31, 2002 were $19.5 million, or 59.5% of total revenues, compared to $21.5 million, or 22.2% of total revenues, in the year ended December 31, 2001. While the reduction in selling, general and administrative expenses when reported in US dollars for the year ended December 31, 2002 compared to the prior year was only 17%, the movement in the US dollar exchange rate to the British pound had an adverse effect on selling, general and administration by 5% such that the saving in real terms was 22%.

Results from Operations.

As a result of the decrease in revenue for the year ended December 31, 2002 and our strategy to keep our key infrastructure in place during the cyclical industry downturn, we incurred a loss from operations of $21.9 million or 66.8% of revenue compared with income from operations of $14.2 million or 14.6%of revenue in the prior year.

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Other Income.

We earned $681,000 during the year ended December 31, 2001 in connection with the sale of property we no longer required for our operations.

Interest Income and Expense, Net.

Net interest income was $112,000 for the year ended December 31, 2002 compared with net interest expense of $154,000 for the year ended December 31, 2001. The achievement of interest income is due primarily to interest income received on increased cash balances during fiscal 2002 offsetting interest expense on the bank term loan. In addition, interest cost on our 7 ¹/8% subordinated convertible notes ceased in 2001 following their payment in full in October 2001.

Income Taxes.

For the year ended December 31, 2002, we recorded a tax credit of $2.2 million compared to a charge of $3.4 million for year ended December 31, 2001 resulting in an effective income tax rate of 9.9% and 23.4%, respectively.

We generated a significant portion of our consolidated pre-tax losses for the year ended December 31, 2002, and pre-tax income for the year ended December 31, 2001, within the United Kingdom, which has a lower statutory rate of 30% compared to the US federal rate of 35%. In addition to the lower statutory rate, the generation and use of net operating losses results in fluctuations in the effective tax rate, as we have not recognized any deferred tax assets with respect to net operating losses, which can only be utilized against future profits. We incurred United Kingdom income taxes in fiscal 2001 and we were able to carry back some of the tax losses incurred in the United Kingdom during fiscal 2002 against these taxes. The remaining operating losses in the year ended December 31, 2002, are carried forward to future periods and we did not recognize a deferred tax asset with respect to these losses. See Note 6 to the notes to the consolidated financial statements for a detailed reconciliation of the tax rate for 2002 and 2001.

Liquidity and Capital Resources

At December 31, 2003, we had $31.6 million in cash and cash equivalents, compared to $42.6 million at December 31, 2002. The primary uses of cash in the year ended December 31, 2003 were operations, which used $10.8 million. In addition we invested $1.5 million in property, plant and equipment, net of retirements and repaid $8.4 million of our term loan facility with a British bank and $700,000 with respect to our leasing facilities. In October 2003, our cash and cash equivalents were increased as a result of the sale of 1,400,000 shares of our common stock, in a private transaction with an institutional shareholder. The net proceeds that we received amounted to approximately $6.5 million. We also disposed of our prior United Kingdom head office building, which had been unused since 1997. This sale generated approximately $1.7 million net of costs of disposal. In addition, the effect of exchange rate changes was an increase of $2.3 million on our cash and cash equivalents at December 31, 2003.

At December 31, 2003, we had a term loan from a British bank with a balance outstanding of 6.2 million British pounds compared to 11.2 million British pounds at December 31, 2002 (approximately $11.2 million and $18.2 million, respectively, at the respective year end exchange rates). The term loan at December 31, 2003 bore interest at the three month London Interbank Borrowing Rate (LIBOR) plus 1.25% per annum (payable at an annual rate of 5.26% as at December 31, 2003) and also carried no prepayment penalties. This term loan was repaid in January 2004.

In July 2003 we entered into a two-year revolving credit facility for 5 million British pounds (approximately $9.0 million at the December 31, 2003 exchange rate) or its equivalent in any other allowed currency (‘2003

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facility’). Interest on the 2003 facility, will be incurred at LIBOR plus 1.75% for borrowings in British pounds and at the Banks short-term offered rate plus 1% for loans in any other currency. No amounts are outstanding under this facility at December 31, 2003.

The 2003 facility included financial covenants that required we maintain a consolidated net worth of not less than $45 million, and that our interest expense on the loan does not exceed 70,000 British pounds in any one fiscal quarter. In March 2004 by way of an amendment letter, the covenant to maintain a consolidated net worth of not less than $45 million was changed to the reduced amount of not less than $40 million. At December 31, 2003 our consolidated net worth was $53.4 million. The primary factors that affect our consolidated net worth are foreign currency translation and net losses. To the extent the US dollar strengthens against the British pound or we incur net losses, our consolidated net worth will continue to decline. If our consolidated net worth falls below $40 million then we would be in breach of this covenant and would need to negotiate a further amendment or waiver to use this line of credit. There can be no assurance that our Bank would agree to such an amendment or waiver. The March 2004 amendment letter did not alter the interest covenant. Based upon the interest rate as at December 31, 2003 the covenant that our interest expense on the loan does not exceed 70,000 British pounds in any one fiscal quarter does not restrict our ability to use this facility.

At December 31, 2003, our cash obligations and commitments relating to our debt obligations and lease payments were as follows ($’000):

With the exception of the above operating leases we have no off balance sheet financing activities.

Our cash balance of $31.6 million combined with cash generated by operations will be our primary source of liquidity. We repaid our outstanding term loan in January 2004, which used $11.2 million of this cash balance. During the next 12 months, we may use all, or a substantial part of our cash balance to fund our current obligations and our operations. The amount of cash reserves that we will use to fund our operations will depend on our ability to grow our revenue or reduce our operating expenses. We also have available the 2003 facility through June 2005 subject to remaining compliant with the financial covenants as discussed above.

We will continue to rely on our cash resources to fund operations, but management believes that the current cash balances, the availability of loans under the 2003 facility, our forecasts for revenue in fiscal 2004 and potential cost reduction efforts, will be sufficient to fund our operations for at least the next 12 months. In the event that loans under our credit facility are not available, or increases in revenues do not materialize, we would need to rely more heavily on cost reduction efforts to maintain sufficient cash to operate the business. In order to further strengthen our cash position, we may seek to raise additional debt or equity financing.

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RISK FACTORS

The semiconductor industry is highly cyclical and unpredictable, which affect our revenue, gross margin and results of operations.

We are subject to the global semiconductor industry’s business cycles, the timing, length and volatility of which are difficult to predict. The semiconductor industry has historically been cyclical because of sudden changes in demand for semiconductors and manufacturing capacity, including capacity utilizing the latest technology. These fluctuations in demand have affected the timing and amounts of customers’ capital equipment purchases and investments in new technology, and continue to affect our revenue, gross margin and results of operations. In addition to affecting our customers and suppliers, these business cycles also challenge our key management, engineering and other employees.

During periods of increasing demand for semiconductor manufacturing equipment, we must have sufficient manufacturing capacity and inventory to meet customer demand, and must be able to attract, hire, assimilate and retain a sufficient number of qualified individuals. The semiconductor industry appears to be in the early stages of an upturn. However, we cannot predict the sustainability of a recovery, if any, and/or the industry’s rate of growth in such a recovery, and our ability to take advantage of the upturn if it continues. As at December 31, 2003 we have not significantly benefited from the early stage of the upturn. If we are unable to effectively manage our resources and production capacity during an industry upturn, there could be a material adverse effect on our business, financial condition and results of operations. Conversely, in downturns, we must be able to appropriately align our cost structure with prevailing market conditions and effectively motivate and retain key employees. In response to the downturn that began in fiscal 2001, we reduced our cost structure as appropriate, however we continued our research and development, customer support and sales and marketing at levels that resulted in operating losses for fiscal 2002 and 2003. We believe these levels of expenditure are necessary to compete in this market. If we are unable to take advantage of a cyclical upturn, or the upturn does not materialize we would continue to incur losses and may be required to reduce our cost structure significantly, such that it would harm our ability to continue to operate in the global semiconductor market place.

We are exposed to risks associated with a highly concentrated customer base.

Our customer base is, and has been, highly concentrated and our orders are from a relatively limited number of manufacturers of integrated circuits. This may lead to customers to demand from us less favorable pricing and other terms. In addition, sales to any single customer may vary significantly from quarter to quarter. If current customers delay, cancel or do not place orders we may not be able to replace these orders with new orders. As our products are configured to customer specifications, changing, rescheduling or canceling orders may result in significant and often non-recoverable costs. The resulting fluctuations in the amount of and terms of orders could have a material adverse effect on our business, financial condition and results of operations.

We will not be able to compete effectively if we fail to address the rapid technological change in the semiconductor industry.

The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing products, and if we are unable to develop and incorporate new technologies in our products, we will be unable to compete effectively and our business will be materially and adversely affected. Technological trends have had and will continue to have a significant impact on our business. Our results of operations and ability to remain competitive are largely based upon our ability to accurately anticipate customer and market requirements. Accordingly, we may be required to maintain a relatively high level of research and development spending, even at time of declining sales and profitability, in order to maintain our competitive position.

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Our success in developing, introducing and selling new and enhanced products depends upon a variety of factors, including:

We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or respond to specific product announcements by our competitors. Our competitors may be developing technologies and products that are more effective or that achieve more widespread acceptance. In addition, we may incur substantial costs to ensure the functionality and reliability of our current and future products. If our products are unreliable or do not meet our customers’ expectations, then reduced orders, higher manufacturing costs, delays in collecting accounts receivable or additional service and warranty expense could result. Our customers may purchase equipment for their new products but experience delays and technical and manufacturing difficulties in their introductions or transition to volume production using our systems causing significant delays between the sale of an initial tool into our customers development facility and potential follow on sales for manufacturing. Any of these events could negatively affect our ability to generate the return we expect to achieve on our investments in these new products.

We expect the semiconductor industry to further migrate to the use of copper and will need to continue to adapt our products for use with copper and copper processes. If we fail to make our products compatible with copper and copper processes at the time our competitors offer copper compatible products, our revenues and market share will be negatively affected.

The semiconductor industry also has historically moved to larger diameter wafers requiring new equipment as a strategy to reduce manufacturing costs. The maximum diameter of silicon wafers used in production is increasing from 200mm to 300mm. While we have already shipped 300mm systems for our CVD products, we continue to develop the technology and solutions for our PVD and etch systems. There can be no assurance, however, that we will be able to complete the development of 300mm systems for our PVD and etch systems in time to meet market demand. If our current products and our 300mm systems for our PVD and etch systems are not competitive or available at the correct time, we may lose customers or fail to gain new business from potential customers, which would have a material adverse effect on our revenues and net earnings.

We believe that our technology for the deposition of low k dielectrics is advanced compared to our competitors and we are dedicating significant resources to continue to lead in this field and to achieve the commercial sales of our low k systems. However, the physical characteristics of low k films make the manufacturing process significantly more difficult than with existing insulating materials and, as a result, device manufacturers have been slow to adopt the use of low k materials and this adoption has been delayed during the current downturn. Device manufacturers continue to find alternative methods to manufacture devices at smaller feature sizes, and forgo the development and use of low k materials. Also, there can be no assurance that the industry will adopt a CVD method for the deposition of low k films. Other technologies for which we do not manufacture equipment could also be used for the deposition of low k films. If we fail to continue to develop our low k CVD solution to achieve all the specifications required by device manufacturers, or our competitors develop competing low k solutions, then our ability to grow our revenues and market share from these products would be negatively affected.

Our operational results could be negatively affected by currency fluctuations.

We are based in the United Kingdom, and most of our operating expenses are incurred in British pounds. Our revenues, however, are generally denominated in US dollars, and to a lesser extent in euros, and we report

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our financial results in US dollars. Accordingly, if the British pound increases in value against the US dollar, our expenses as a percentage of revenues will increase and gross margins and net income will be negatively affected.

The semiconductor industry is global and is expanding within the Asian region. If we are unable to penetrate this market our ability to grow our revenues will be restricted.

The percentage of worldwide semiconductor production that is based in the Asian region is growing, particularly within China. Our business has traditionally been strongest with the European semiconductor manufacturers and we have only a small installed base and limited brand recognition in Asia. It will be necessary for us to penetrate new customers in this region to grow our business and while we have appointed a new sales representative in this region and hired a small number of employees there is no assurance that we will be able to penetrate these geographic markets which are subject to growth rates that are higher than worldwide growth rates.

Our competitors have greater financial resources and greater name recognition than we do and therefore may compete more successfully.

We face competition or potential competition from many companies with greater resources than ours. If we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

Virtually all of our primary competitors are substantially larger companies and some of them have broader product lines than ours. They have well established reputations in the markets in which we compete, greater experience with high volume manufacturing, broader name recognition, substantially larger customer bases, and substantially greater financial, technical, manufacturing and marketing resources than we do. We also face potential competition from new entrants, including established manufacturers in other segments of the semiconductor capital equipment market who may decide to diversify into our market segments of CVD, PVD and plasma etch.

Semiconductor manufacturers are loyal to their current semiconductor equipment supplier, which may make it difficult for us to obtain new customers.

We believe that once a semiconductor manufacturer has selected a supplier’s equipment for a particular fabrication line, the manufacturer often will continue to rely on that supplier’s equipment for future requirements, including new generations of similar products. If we are unable to sell our products to potential customers who currently are using other suppliers’ equipment, it could be difficult for us to increase our revenues or market share. Changing from one equipment supplier to another may be expensive and may require a substantial investment of resources by the customer. Accordingly, we may experience difficulty in achieving significant sales to a customer using another supplier’s equipment. At the same time, however, we cannot make assurances that our existing customers will continue to use our equipment in the future.

Our products generally have long sales cycles and implementation periods, which increase our costs of obtaining orders and reduce the predictability of our earnings.

Our products are technologically complex. Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a significant number of product presentations and demonstrations, in some instances evaluating equipment on site, before reaching a sufficient level of confidence in the product’s performance and compatibility with their requirements to place an order. As a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. The sales cycles of our products often last for many months or even years. Longer sales cycles require us to invest significant resources in attempting to make sales and delay the generation of revenue. In addition, we may incur significant costs in supporting evaluation equipment at our customers’ facilities.

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Long sales cycles also subject us to other risks, including customers’ budgetary constraints, internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customers’ purchase decisions. The time required for our customers to incorporate our products into their manufacturing processes can vary significantly with the needs of our customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our operating results.

We depend upon sole suppliers for certain key components.

We depend on a number of sole suppliers for key components used in the manufacture of our products. If we are unable to obtain timely delivery of sufficient quantities of these components, we would be unable to manufacture our products to meet customer demand, unless we are able to locate replacement components. Most significantly, our cluster tools are designed around an automation module supplied by Brooks Automation. Due to the high cost of these modules we keep very few in inventory. If Brooks Automation fails to deliver the component on a timely basis, delivery of our cluster tools will be delayed and sales may be lost. If Brooks Automation is unable to deliver any such modules for a prolonged period of time, we will have to redesign our cluster tools so that we may utilize other wafer transport systems. There can be no assurance that we will be able to do so, or that customers will adopt the redesigned systems.

Our final assembly and testing is concentrated in one facility.

Our final assembly and testing activity is concentrated in our facility in Newport, United Kingdom. We have no alternative facilities to allow for continued production if we are required to cease production in our facility, as a result of a fire, natural disaster or otherwise. In such event, we will be unable to produce any products until the facility is replaced. Any such interruption in our manufacturing schedule could cause us to lose sales and customers.

If we are unable to hire and retain a sufficient number of qualified personnel, our ability to manage growth will be negatively affected.

Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties.

Our success and ability to compete depend in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, non-disclosure and other contractual agreements and technical measures to protect our proprietary rights.

There can be no assurance that patents will be issued on our pending patent applications or that competitors will not be able to ascertain legitimately proprietary information embedded in our products that is not covered by patent or copyright. In such case, we may be precluded from preventing the competitor from making use of such information. In addition, should we wish to assert our patent rights against a particular competitor’s product, there can be no assurance that any claim in any of our patents will be sufficiently broad nor, if sufficiently broad, any assurance that our patent will not be challenged, invalidated or circumvented, or that we will have sufficient resources to prosecute our rights.

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Claims or litigation regarding intellectual property rights could seriously harm our business or require us to incur significant costs.

In recent years, there has been significant litigation in the United States in the semiconductor equipment industry involving patents and other intellectual property rights. Infringement claims may be asserted against us in the future and, if such claims are made, we may not be able to defend against such claims successfully or, if necessary, obtain licenses on reasonable terms. Any claim that our products infringe proprietary rights of others would force us to defend ourselves and possibly our customers against the alleged infringement. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their outcome, would likely be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could force us to do one or more of the following:

If we are forced to take any of the foregoing actions, our business could be severely harmed.

Our operations are subject to health and safety and environmental laws that may expose us to liabilities for noncompliance.

We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, manufacture and disposal of all materials present at, or our output from, our facilities, including the toxic or other hazardous chemical by-products of our manufacturing processes. Environmental claims against us, or our failure to comply with any present or future regulations could result in:

New regulations could require us to purchase costly equipment or to incur other significant expenses. Our failure to control the use or adequately restrict the discharge of hazardous substances could subject us to future liabilities, which could negatively affect our earnings and financial position.

Any acquisitions we may make could disrupt our business and severely harm our financial condition.

From time to time, we may consider investments in complementary companies, products or technologies. In the event of any future acquisitions, we could:

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Our operation of any acquired business will also involve numerous risks, including:

You may have difficulty protecting your rights as a stockholder and in enforcing civil liabilities because many of our executive officers and the majority of the members of our board of directors and the majority of our assets are located outside the United States.

Our principal assets and manufacturing plants are located in the United Kingdom. In addition, most of the members of our board of directors and our executive officers are residents of jurisdictions other than the United States. As a result, it may be difficult for stockholders to serve process within the United States upon members of our board of directors and our executive officers, or to enforce against us or members of our board of directors or our executive officers judgments of the U.S. courts, to enforce outside the United States judgments obtained against members of our board of directors or our executive officers in U.S. courts, or to enforce in U.S. courts judgments obtained against members of our board of directors or our executive officers in courts in jurisdictions outside the United States, in any action, including actions that derive from the civil liability provisions of the U.S. securities laws. In addition, it may be difficult for our stockholders to enforce, in original actions brought in courts in jurisdictions located outside the United States, liabilities that derive from U.S. securities laws.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and cash flow are subject to fluctuations in foreign currency exchange rates. Significant factors affecting this risk include our manufacturing, research and development and administrative cost base, which are predominately incurred in British pounds, and product sales outside the United States, which may be expressed in currencies other than the United States dollar. We constantly monitor currency exchange rates and match currency availability and requirements whenever possible. We may from time to time enter into forward foreign exchange transactions in order to minimize risk from firm future positions arising from trading. As at December 31, 2003 and December 31, 2002 we did not have any open forward currency transactions.

Based upon budgeted income and expenditures, a hypothetical increase of 10% in the value of the British pound against all other currencies in the year ended December 31, 2004 would have no material effect on revenues, which are primarily expressed in United States dollars and would increase operating costs and reduce cash flow by approximately $4.5 million. The same increase in the value of the British pound would increase the value of the net assets of we expressed in United States dollars by approximately $7.6 million. We have also received orders for revenue that are denominated in euros, therefore an increase in the value of the euro in relation to the United States dollar would effect the reported value of revenue. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables including competitive risk. If it were possible to quantify this impact, the results could well be different from the sensitivity effects shown above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the British pound. In reality, some currencies may weaken while others may strengthen.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index included at “Item 15. Exhibits and Financial Statements Schedules and Reports on Form 8-K.”

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management team, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, have concluded that our disclosure controls and procedures were effective as of December 31, 2003 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the year ended December, 2003, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the executive officers of the Company as of March 15, 2004:

Dr. Macneil joined Trikon in 1996 and was appointed Vice President of Technology in June 1998. On March 10, 2004, Dr. Macneil was appointed Acting President and Chief Executive Officer. Dr. Macneil served in various technical positions at Motorola. Subsequently, Dr. Macneil held senior technical positions in a number of research driven organisations both in the United Kingdom and in the United States prior to joining Trikon. Dr. Macneil holds an MBA from Cardiff University in 1996 and gained a PhD in Solid State Physics from Leicester University in 1983.

Mr. Chappell A.C.A. joined Trikon in January 2001 as Chief Financial Officer. Mr. Chappell served with Coopers & Lybrand in various positions between 1983 and 1993, most recently as a Senior Audit Manager in the San Jose, California office. From 1993 to 1995, he served as Director of Finance at Adac Laboratories. Before joining Trikon, Mr. Chappell served as the Chief Financial Officer of a Canadian public company and a private German company. Mr. Chappell has a chemistry degree from the University of Leeds, England.

Mr. Maune joined the Company as Senior Vice President North America Sales in May 2003. From May 1997 to February 2003 he served as a senior vice president at Amkor Technology Inc. Mr. Maune holds a bachelors degree from Truman State University and a masters degree from Prudoe University.

Mr. Noakes joined Trikon in November 1996 on the acquisition of Electrotech and served in several senior sales and marketing positions and was appointed our Senior Vice President responsible for Sales in Europe and Asia in June 2003. From January 1998 to October 1999 he spent two years in the ion implant business development group at Applied Materials. Prior to November 1996, Mr. Noakes held various sales and engineering positions at Electrotech. Mr. Noakes holds a BSc (hons) degree in Physics from the University of Sheffield and a masters degree from the University of Bristol.

The following table sets forth the Directors of the Company as at January 31, 2004. Each of the director’s term of office expires at our next Annual General Meeting of Stockholders:

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Dr. Christopher D. Dobson. Dr. Dobson joined the Board of Directors as Chairman in November 1996 upon the acquisition of Electrotech. From December 1997 to May 1998, Dr. Dobson was our Chief Executive Officer. Dr. Dobson was appointed Chief Technical Officer in May 1998 and served in such capacity until his retirement on May 15, 2001. Dr. Dobson continues to serve as the Chairman of the Board of Directors, a non-executive position. Dr. Dobson was a co-founder of Electrotech and was its Chairman from 1971 to November 1996.

Nigel Wheeler. Mr. Wheeler joined Trikon as a director and the President and Chief Operating Officer in November 1996 upon the acquisition of Electrotech. In October 1998, Mr. Wheeler was appointed Chief Executive Officer. From July 1993 to November 1996, Mr. Wheeler served as Electrotech’s Chief Executive Officer. Effective March 31, 2003, Mr. Wheeler became Vice Chairman of the Board of Directors upon the appointment of Dr. Jihad Kiwan as Trikon’s President and Chief Executive Officer.

Dr. Jihad Kiwan. Dr. Jihad Kiwan was elected to the Board of Directors and appointed President and Chief Executive Officer of Trikon effective March 31, 2003. Prior to joining Trikon, Dr. Kiwan was with Amkor Wafer Fabrication Services from 1997, and served as the Vice President and General Manager. Dr. Kiwan previously worked for SCI Systems and Hewlett Packard. As noted above in “Business – Recent Developments”, on March 10, 2004, Dr. Kiwan departed as President and Chief Executive Officer. Pursuant to the terms of his employment agreement, Dr. Kiwan resigned from the Board of Directors as of such date.

Robert R. Anderson. Mr. Anderson was elected to the Board of Directors in April 2000. Mr. Anderson is a private investor. From January 1994 to January 31, 2001, he was Chairman of Silicon Valley Research, Inc., a semiconductor design automation software company, and its Chief Executive Officer from December 1996 to August 1998, and from April 1994 to July 1995. He also served as Chairman and Chief Executive Officer of Yield Dynamics, Inc., a private semiconductor process control software company, from October 1998 to October 2000, and presently serves as a director. In 1975, Mr. Anderson co-founded KLA Instruments Corporation, the predecessor to KLA-Tencor (“KLA”), a supplier of semiconductor process control systems, from which he retired in 1994. He served as Vice-Chairman of KLA from November 1991 to March 1994, and as Chairman of KLA from May 1985 to November 1991. Prior to that, Mr. Anderson served as Chief Operating Officer and Chief Financial Officer of KLA. In addition to serving as a director of Trikon, Mr. Anderson currently serves as a director of MKS Instruments, Inc., Metron Technology N.V., and Aehr Test Systems, Inc. Furthermore, he serves as a director for three other private companies, and as a trustee of Bentley College.

Richard M. Conn. Mr. Conn was elected to the Board of Directors in January 1998. Mr. Conn formed Business Development Consulting in early 1997 and serves as a consultant in the semiconductor equipment industry. Prior to forming Business Development Consulting, Mr. Conn was a Vice President of Sales at KLA from 1984 until 1996. During his tenure at KLA, Mr. Conn was a member of the boards of directors of KLA’s subsidiaries in the United Kingdom, France and Germany. Mr. Conn has held several other positions in the semiconductor industry at companies that include Eaton Semiconductor Equipment, Applied Materials and ITT Semiconductors.

In Kil Hwang. Dr. Hwang joined the Board of Directors in October 2003. He was appointed President and Chief Executive Officer of Anam Semiconductor in December 1991 and became Vice Chairman in May 1998. He was appointed Vice Chairman of Amkor Korea in January 2001 until his retirement in September 2001. Dr. Hwang has a PhD in Physics from the University of Wyoming and a BS from the National University of Seoul. On March 10, 2004, Dr. Hwang resigned from the Board of Directors.

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Audit Committee Financial Expert

The Board of Directors has determined that Robert Anderson is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.

Code of Ethics

Trikon has adopted a code of business conduct and ethics for directors, officers (including Trikon’s principal executive officer, principal financial officer and controller) and employees, known as The Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on Trikon’s website at www.Trikon.com. Trikon intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendment to, or waiver from, a provision of the code of business conduct and ethics either by filing a Form 8-K or posting such information on our website at www.Trikon.com, provided such method of disclosure is then in compliance with the rules of the NASDAQ National Market and the rules of the Securities and Exchange Commission.

Compliance with SEC Reporting Requirements

Section 16(a) of the Exchange Act requires Trikon’s directors and executive officers and persons beneficially owning more than ten percent of a class of Trikon’s capital stock to file certain reports of beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5) with the SEC. Based solely on its review of copies of Forms 3, 4 and 5 available to it, or written representations that no Forms 5 were required, Trikon believes that all required Forms concerning 2003 beneficial ownership were filed on time by all directors and executive officers.

ITEM 11. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

The following table sets forth all compensation received for services rendered to Trikon in all capacities for the years ended December 31, 2003, 2002 and 2001, by (i) each person who served as Chief Executive Officer of Trikon during the year ended December 31, 2003 and (ii) each of the other executive officers of Trikon who were serving as executive officers at December 31, 2003 and whose total compensation exceeded $100,000 (collectively, the “Named Executive Officers”). Perquisites amounting in aggregate to the lesser of $50,000 or 10% of the total annual salary and bonus reported for the named executive officer are not disclosed. For the purpose of calculating salaries and other compensation paid in British pounds to Nigel Wheeler, William Chappell, Andrew Noakes and John Macneil, the average rate of exchange between the British Pound and the US dollar of $1.64, $1.504 and $1.4438 for each British pound for the years ended December, 31, 2003, 2002 and 2001, respectively, has been used. For the purpose of calculating salaries and other compensation paid in Euro to Jihad Kiwan, the average rate of exchange between the Euro and the US dollar of $1.13 for the year ended December 31, 2003 has been used.

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Summary Compensation Table

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Option Grants in Last Fiscal Year

The following table sets forth each grant of stock options made during the year ended December 31, 2003 to each of the Named Executive Officers. No stock appreciation rights (“SARs”) have ever been granted by Trikon.

Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth the number of exercisable and unexercisable options held by each of the Named Executive Officers at December 31, 2003.