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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

For the quarterly period ended September 30, 2004

OR

For the transition period from              to             

Commission file number 0-26482

TRIKON TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code 44-1633-414-000

Not Applicable

Former name, former address and former fiscal year, if changed since last report

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

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

As of October 22, 2004, the total number of outstanding shares of the Registrant’s common stock was 15,752,309.

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Trikon Technologies, Inc.

INDEX

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Trikon Technologies, Inc.

PART 1 - FINANCIAL INFORMATION

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Trikon Technologies, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2004

NOTE A BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Trikon Technologies, Inc. (the “Company”) and its subsidiaries. All material intercompany balances and transactions have been eliminated.

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The operating results for the three months and nine months ended September 30, 2004 and September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Certain prior year amounts have been reclassified to conform to the current presentation.

NOTE B RECENT ACCOUNTING PRONOUNCEMENTS

On December 17, 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB 104), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). The revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. SAB 104 also recognized the existing guidance on revenue arrangements with multiple deliverables. The adoption of SAB 104 has not had, and is not expected to have, a material effect on the company’s financial condition or results of operations.

In June 2004, the FASB issued Emerging Issues Task Force Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are deemed to be temporarily impaired. The recognition and measurement guidance of EITF 03-1 will be effective for the Company’s fourth fiscal quarter of 2004. The adoption of EITF 03-1 is not expected to have a material effect on the company’s financial condition or results of operations.

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NOTE C INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market value. The components of inventory consist of the following:

NOTE D LIABILITIES

The components of other current liabilities are as follows:

Generally, the Company’s products are sold with a standard warranty, the period of which varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased. The Company accounts for the estimated warranty cost as a charge to cost of sales at the time it recognizes revenue. The warranty cost is based upon historic product performance and is based on a rolling 12-month average of the historic cost per machine per warranty month outstanding.

Changes in the Company’s product warranty liability during the nine months ended September 30, 2004 were as follows (in thousands):

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NOTE E COMPREHENSIVE LOSS

Comprehensive loss is comprised of the following:

NOTE F EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

Basic and diluted earnings per share are calculated in accordance with SFAS 128, “Earnings Per Share,” which specifies the computation, presentation and disclosure requirements for earnings per share. The weighted-average number of shares used to calculate basic earnings per share for the three and nine months ended September 30, 2003 excludes on a pro rata basis 1,149,281 shares of restricted common stock issued to the Chairman of the Board of Directors, which vested on May 14, 2003.

The effect of the Company’s potential issuance of common shares from the Company’s stock option program and unvested restricted stock are excluded from the diluted shares calculation in accordance with SFAS 128, as they are anti-dilutive when a loss is incurred.

NOTE G PREFERRED STOCK

The Board of Directors has the authority to issue up to 20,000,000 shares of Preferred Stock in one or more series with rights, preferences, privileges and restrictions to be determined at the Board’s discretion.

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NOTE H STOCK BASED COMPENSATION EXPENSE

The Company has estimated the fair value of the options at the date of grant using a Black-Scholes option pricing model which was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable.

The Company’s employee stock options have characteristics significantly different from those of traded options; therefore, the Black-Scholes option-pricing model may not provide a reliable measure of the fair value of the Company’s options.

If compensation expense had been determined based on the grant date fair value as computed under the Black-Scholes option pricing model for awards in the three and nine month periods ended September 30, 2004 and 2003 in accordance with the provisions of SFAS No. 123 and SFAS No. 148, the Company’s net result and loss per share would have been amended to the pro forma amounts indicated below:

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Report. This discussion 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. The forward-looking statements included herein and any expectations based on such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Factors that could cause actual results to differ materially include, without limitation, the long sales cycle and implementation periods for Trikon’s systems, market acceptance of Trikon’s technologies and products, Trikon’s ability to respond to technological change, Trikon’s dependence on a limited number of customers and other factors such as those set forth below under the heading “Risk Factors” and the other risks and uncertainties described from time to time in our public announcements and SEC filings, including, without limitation, our Quarterly and Annual Reports on Form 10-Q and 10-K, respectively.

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 change in the number of orders.

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Our products carry out processes to clean and add or remove materials at the surface of a wafer. In particular our products are used for chemical vapor deposition (CVD), physical vapor deposition (PVD) and plasma 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.

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.

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 if different estimates or judgments were used, the use of these estimates or judgments 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 under which they are made. 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. In accordance with Staff Accounting Bulletin 104 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 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 September 30, 2004 was $1.7 million compared to $5.1 million at December 31, 2003. 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 is 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. Revenue deferred on service contracts was $0.5 million at September 30, 2004 compared to $0.7 million at December 31, 2003.

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During fiscal 2003 we entered into a contract to develop a piece of 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 was required and therefore no revenue was recognized with respect to this project in fiscal 2003. During the second quarter of 2004 we completed certain significant milestones such that we were able to estimate the remaining costs to completion and as a result we recognized 90% of the contract value as revenue. This contract was completed in the third quarter of fiscal 2004 and the remaining revenue was recognized accordingly.

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 dollars. As a result, fluctuations in the exchange rate between the US dollar and the British pound could 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 company, which are determined as being 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. 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 machine. 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.

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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 of the 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.

RESULTS OF OPERATIONS

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

Product revenues

Product revenues for the three months ended September 30, 2004 increased 17.9% to $9.9 million compared to $8.4 million for the three months ended September 30, 2003. Product revenues for the nine months ended September 30, 2004 increased 37.4% to $26.7 million compared to $19.4 million for the nine months ended September 30, 2003. Shipments for the three months ended September 30, 2004 were $10.0 million compared to $9.1 million in the three months ended September 30, 2003. Shipments in the nine months ended September 30, 2004 were $23.5 million compared to $20.7 million in the comparative nine-month period.

Sales outside of the United States accounted for approximately 85% and 81% of total revenues in the three-month periods ended September 30, 2004 and September 30, 2003, respectively and approximately 75% and 64% of total revenues in the nine-month periods ended September 30, 2004 and September 30, 2003, respectively. We expect that sales outside of the United States will continue to represent a significant percentage of our product sales.

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Our sales by type of product are as follows:

Due to the large unit price associated with our systems, we anticipate that our product sales will continue to be made to a small number of customers in each quarter. The quantity, geographical location and type of product may fluctuate significantly from quarter to quarter and the individual customers to whom these products are sold can also change from quarter to quarter. Further our customers are demanding greater flexibility and shorter delivery times which increases the fluctuations that may occur each quarter. Due to the unit prices associated with our products the level of sales activity by type of product in any quarter can significantly impact the product and geographical mix, and are therefore not indicative of a trend.

License revenues

License revenues relate to an exclusive license of power supply technology and a non-exclusive license of Mori technology to a systems integrator in Japan for a non-competing application. License revenues for the three and nine-month periods ended September 30, 2004 were each 0.2% and 0.5% of total revenues respectively.

Gross Margin

The gross margin for the three-month period ended September 30, 2004 was 40.5% as compared to 30.2% for the three-month period ended September 30, 2003 and 30.1% for the nine months ended September 30, 2004 compared with 23.1% for the nine months ended September 30, 2003.

The improvement in gross margin in the three- and nine-month periods ended September 30, 2004 is attributable to a combination of improved resource utilization and reduced costs as a result of the reduction in force initiated in the second quarter. In addition, the margin in the third quarter of fiscal 2004 benefited from a favourable product mix and increased service revenue from our support organisation compared to the second quarter of fiscal 2004 and fiscal 2003. We continue to expect that our margin will be dependent on resource utilization and product mix and that in the fourth quarter of fiscal 2004, the margin will be lower than that achieved in the third quarter.

Research and development expenses

Research and development expenses for the three months ended September 30, 2004 were $1.9 million or 19.5% of total revenues compared with $2.2 million or 25.6% of total revenues for the three months ended September 30, 2003. For the nine months ended September 30, 2004 research and development expenses were $6.8 million or 25.2% of total revenues compared with $6.8 million or 34.8% of total revenues for the nine months ended September 30, 2003. Research and development expenses for the nine-month period ended September 30, 2004 include $322,000 relating to severance costs and expenses in connection with a reduction in force. No similar charges were incurred in the period ended September 30, 2003. While the decrease in research and development expenses for the third quarter of fiscal 2004 reflects reduced headcount and other expenses, we expect that the current levels of expenditure will be focused upon the development of new processes to further advance our proprietary PVD, CVD and etch technologies. This includes the development of novel process solutions for emerging applications and for advanced applications at technology nodes of 90nm and below, including our Flowfill product for 300mm advanced applications for shallow trench isolation.

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We have also identified Broad ion beam deposition technology for MRAM applications as an opportunity for Trikon and we expect to develop this technology over the next eighteen months. This development project is expected to be supported by a UK government grant funding which provides for reimbursement of up to 50% of the total project costs of the estimated project cost of $5.9 million. Grant funding is dependent upon satisfying the initial and continuing criteria set out in the project approval, none of which had been received as of September 30, 2004. Funding is expected to commence in fiscal 2005 and would be received over the length of the project.

Selling, general and administrative expenses.

Selling, general and administrative expenses for the three months ended September 30, 2004 were $4.7 million, or 47.9% of total revenues, compared to $4.4 million, or 52.6% of total revenues in the three months ended September 30, 2003. For the nine months ended September 30, 2004 selling, general and administrative expenses were $14.9 million, or 55.6% of total revenues, compared to $14.6 million, or 75.0% of total revenues, in the nine months ended September 30, 2003.

The three-month period ended September 30, 2004 includes higher than usual legal and professional fees totalling $0.4 million for consultancy services including, expenses related to compliance costs with respect to section 404 of the Sarbanes Oxley Act, costs related to the shareholders meeting and other similar charges. Total non-recurring costs, net of a credit for property taxes, were $1.3 million in the nine-month period ended September 30, 2004, compared to $2.0 million in the corresponding period of the prior year.

Restructuring Costs

In the fourth quarter of fiscal 1997 the Company commenced a restructuring program related to the closure of its Mori etch operations located in Chatsworth, California, which included the transfer of the Mori technology to the Company’s Omega platform and the obsolescence and phase-out of the existing platform. An accrual was charged to the income statement in fiscal 1997 for this restructuring. During fiscal 1998 and 1999 the Company completed this reorganisation and negotiated settlements with many of its customers. The restructuring reserve was reduced accordingly. The Company has carried a residual accrual in the amount of $1.2 million since December 31, 1999 for other potential claims arising out of this restructuring. Following a review of the situation in the third quarter of 2004, the Company has concluded that the probability of further claims is remote and accordingly the reserve has been reversed to the income statement during this period.

Interest (expense) income net

Net interest expense was $92,000 for the three months ended September 30, 2004 compared with net interest expense of $165,000 for the three months ended September 30, 2003. During the nine months ended September 30, 2004, net interest income was $37,000 compared to net interest income of $45,000 in the nine months ended September 30, 2003. Lower cash balances are the primary reason for the lower interest income in the three and nine-month periods ended September 30, 2004 as compared to the corresponding period in the prior year. In addition interest expense associated with leasing contracts increased the interest expense in the three month period ended September 30, 2004.

Income taxes

For the three months ended September 30, 2004, we recorded a tax charge of $45,000 compared with a tax charge of $29,000 for the three months ended September 30, 2003. For the nine months ended September 30, 2004, we recorded a tax charge of $165,000 compared with a tax charge of $187,000 for the nine months ended September 30, 2003. We expect to report a small tax charge for the fiscal year ending December 31, 2004, which will consist primarily of US state taxes including Delaware and a small amount of non US or UK taxes where we have cost plus arrangements in place. In estimating the tax rate for the three and nine months ended September 30, 2004, we have not provided any benefit for the deferred tax asset arising from operating losses generated that can only be offset against future profits.

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LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2004, we had $19.0 million in cash and cash equivalents, compared to $31.6 million at December 31, 2003. Cash and cash equivalents excluding bank borrowings was $10.0 million at September 30, 2004 compared to $20.4 million at December 31, 2003. We used cash for operations of $9.1 million in the nine months ended September 30, 2004 compared to a use of cash by operations of $11.4 million in the corresponding period of the prior year. In the three month period ended September 30, 2004, the utilization of cash by operations was $2.7 million compared to $3.0 million in the corresponding period of the prior year.

As of December 31, 2003, we had a term loan from a British bank with a balance outstanding of 6.25 million British pounds (approximately $11.2 million at the exchange rate at such date). The term loan was repaid in full during the three months ended March 31, 2004.

In July 2003, we entered into a two-year revolving credit facility for 5 million British pounds ($9.1 million at the September 30, 2004 exchange rate) (‘2003 facility’). Interest on the 2003 facility is incurred at the London Interbank rate (LIBOR) plus 1.75% for borrowings in British pounds and at the Bank’s short-term offered rate plus 1% for foreign currency. At the end of September 2004 we had 5 million British pounds ($9.1 million at the September 30, 2004 exchange rate) drawn down under this facility.

The 2003 facility, as subsequently amended, includes financial covenants that require that we maintain a consolidated net worth of not less than $40 million, and that our interest expense on the loan does not exceed 70,000 British pounds in any one fiscal quarter. At September 30, 2004 our consolidated net worth was $41.7 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 our bank could exercise its right to cause us to repay amounts outstanding under the 2003 facility and not permit such amounts to be redrawn. A breach of this covenant may occur at the end of the fourth quarter of fiscal 2004.

Our cash balance, net of amounts that the bank may require us to repay if we breach the financial covenant referenced above, combined with cash generated by operations is our primary source of liquidity. 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 reduce our operating losses through revenue growth or cost reduction.

Management believes that the current cash balances, our forecasts for revenue in the next twelve months and the cost reduction efforts we have initiated together with further cost reduction should our revenues be lower than forecast, will be sufficient to fund our operations for at least the next twelve months. In any event, in order to strengthen our cash position, we may seek to raise additional debt or equity financing during the next twelve-month period. Additional financing may not be available, or may only be available on terms that are significantly unfavourable to the Company and its current investors.

RISK FACTORS

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

Our business depends upon the capital expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits. The semiconductor industry is highly cyclical and historically has experienced periodic downturns, which often have had a detrimental effect on the semiconductor industry’s demand for semiconductor capital equipment, including etch and deposition systems manufactured by us. During periods of a prolonged industry slow-down, we would have to initiate a substantial cost containment program and complete a corporate-wide restructuring to preserve our cash. However, the need for continued investment in research and development, possible capital equipment requirements and extensive ongoing customer service and support requirements worldwide will continue to limit our ability to reduce expenses in response to any downturn.

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We have experienced losses over the last few years and we may not be able to achieve profitability and may need to raise additional capital to support our operations.

We have experienced losses of $12.2 million during the nine months ended September 30, 2004 and $24.6 million and $19.6 million for the twelve month periods ended December 31, 2003 and 2002, respectively. We need to increase sales and/or reduce costs to return to profitability. There is no assurance that we can increase sales, further reduce expenses without harming our business or that unforeseen costs may be incurred and there can be no assurance that we will return to profitability.

As of September 30, 2004, we had cash and cash equivalents of approximately $19.0 million and short-term debt of approximately $9.3 million. The short term debt includes 5 million British pounds ($9.1 million at the September 30, 2004 exchange rate) outstanding under our credit facility that we may be required to repay if we breach the consolidated net worth covenant in the facility. A breach of this covenant may occur at the end of the fourth quarter of fiscal 2004. Unless we become cash flow positive on a quarterly basis, we may need to raise additional capital in the next twelve months. In addition, regardless of whether such financing is absolutely necessary, we may seek additional debt or equity financing in the next twelve months in order to strengthen our cash position. We may not be able to obtain additional financing on acceptable terms, or at all. If we issue additional equity or convertible debt securities to raise funds, the ownership percentage of our existing stockholders would be reduced and they may experience significant dilution. New investors may demand rights, preferences or privileges that differ from, or are senior to, those of existing holders of our common stock, including warrants in addition to the securities purchased and protection against future dilutive issuances. If we are unable to achieve positive cash flows or raise additional capital, we may be forced to implement further expense reduction measures, including, but not limited to, the sale of assets, the consolidation of operations, workforce reductions, and/or the delay, cancellation or reduction of certain product development, marketing or other operational programs. Some of these measures would require third party consents or approvals and we can not provide assurances that such consents or approvals will be obtained.

We cannot assure our shareholders and investors that we will achieve profitability in fiscal 2004 and beyond, nor can we provide assurances that we will achieve the sales necessary to avoid further expense reductions in the future.

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 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 enhance our existing systems and their process capabilities, and to develop and manufacture in a timely manner new systems with improved process capabilities, 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 during a 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 also purchase equipment for initial evaluation but experience delays and technical and manufacturing difficulties in their introductions or transition to volume production, causing significant delays between the sale of an initial tool and limit the potential for follow on sales for production. 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 continue to develop our Flowfill and Orion as well as other products for advanced applications and we are dedicating resources to develop these products and to achieve commercial sales of these systems. However, device manufacturers have been slow to adopt the use of new materials and if we fail to continue to develop these solutions to achieve all the specifications required by device manufacturers and/or the device manufacturers fail to successfully integrate these technologies with their other processes, or our competitors develop competing solutions, then our ability to grow our revenues from these products would be negatively affected. For example, the adoption of our Orion for ultra low k deposition has been delayed as a result of integration issues at the potential customers. Until such integration issues are resolved our ability to obtain commercial sales of our Orion technology is limited and there can be no assurance that these integration issues will be resolved .

Our operating 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 euro, and we report 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. 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. Failure to penetrate these markets may harm our competitive position and adversely affect our future business prospects.

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.

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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.

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.

Customers are also demanding shorter delivery times from the time of placing a purchase order. We therefore are required to negotiate with our suppliers shorter lead times for the materials required and we may need to purchase inventory and to commence building for a customer prior to receipt of a confirmed purchase order. It is not possible to fully mitigate this risk within the supply chain. In the event a purchase order is not received from a customer where we had commenced manufacturing, then higher inventory levels would be incurred and potential inventory write-off’s would also be incurred if an alternative customer is not identified to purchase that system.

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

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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, which could significantly harm our business.

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. Failure to protect our intellectual property could have an adverse effect on our business.

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’s time and attention. Any potential intellectual property litigation could force us to do one or more of the following:

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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 operating results and financial condition.

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:

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

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Changes in accounting rules

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. These principles are subject to interpretation by the Securities and Exchange Commission (the “SEC”) and various bodies formed to interpret and create accounting policies. A change in these policies can have a significant effect on our reported results and may even retroactively affect previously reported transactions. In particular, changes to FASB guidelines relating to accounting for stock-based compensation will likely increase our compensation expense, could make our net result less predictable in any given reporting period and could change the way we compensate our employees or cause other changes in the way we conduct our business.

Our internal control over financial reporting may not be considered effective resulting in possible regulatory sanctions and a decline in our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2004, we will be required to furnish a report on our internal control over financial reporting. Such report will contain an assessment by our management of the effectiveness of our internal control over financial reporting (including the disclosure of any material weakness) and a statement that our auditors have attested to and reported on management’s evaluation of such internal controls.

We are currently in the process of upgrading controls and procedures to be fully compliant with the new, stringent requirements of Section 404 of the Sarbanes-Oxley Act.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve their internal control systems. While we feel that our key controls are currently effective, we face a significant challenge to bring all of our operations up to the level of documentation, segregation of duty, enterprise resource planning, security process discipline, and support systems required under the COSO standard for internal control. Although we are currently working towards completion of this effort to meet our year-end deadline, we cannot be certain that all internal control processes will be deemed effective based on COSO standards.

Our internal control over financial reporting may not be considered effective if, among others: any material weaknesses in our internal control over financial reporting exist, we fail to evaluate key controls in a timely fashion or we fail to remediate assessed deficiencies.

Due to the number of controls to be examined, the complexity of the project, as well as the subjectivity involved in determining effectiveness of controls we cannot be certain that all of our controls will be considered effective by our management or, if considered effective by our management, that our auditors will agree with such assessment.

If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on our management’s evaluation, we could be subject to regulatory sanctions or lose investor confidence in the accuracy and completeness of our financial reports, either of which could have an adverse effect on our stock price.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion and analysis about market risk disclosures may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements include declarations regarding our intent, belief or current expectations and involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.

Our earnings and cash flow are subject to fluctuations in foreign currency exchange rates. Significant factors affecting this risk include our manufacturing and administrative cost base, which is predominately 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.

Based upon budgeted income and expenditures, a hypothetical increase of 10% in the value of the British pound against all other currencies in the fourth quarter of 2004 would have no material effect on revenues, which are primarily expressed in United States dollars but would increase operating costs and reduce cash flow by approximately $1.3 million. The same increase in the value of the British pound would increase the value of our net assets expressed in United States dollars by approximately $4 million. 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 be significantly 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 4.

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 September 30, 2004.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2004, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Trikon Technologies, Inc.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 10, 2004 Dr. Jihad Kiwan departed the Company as Director and Chief Executive Officer. On March 29, 2004 and April 2, 2004 we received letters from a United Kingdom law firm and from a French law firm respectively, on behalf of Dr. Kiwan, detailing certain monetary claims with respect to severance and other salary matters arising from his contract of employment due to Dr. Kiwan in connection with his employment with Trikon. On April 28, 2004 Dr. Kiwan filed a lawsuit in France and on June 10, 2004 filed similar proceedings in the United Kingdom. As of September 30, 2004 these claims are ongoing and are subject to document discovery procedures. No date has been set for formal proceedings to commence. We do not believe that the outcome of these claims will be material to the financial condition of Trikon.

In addition, from time to time we become involved in ordinary, routine or regulatory legal proceedings incidental to our business.

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

On September 7, 2004 the Company held its annual meeting of stockholders, at which the stockholders voted with respect to the election of the members of the board of directors of the Company, the approval of the Trikon Technologies, Inc. 2004 Equity Incentive Plan, and the ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm.

Joseph Speigel, the owner of 1,000 shares also presented a stockholder proposal.

The following nominees for election to the Company’s Board of Directors, which nominees constituted the six members of the board of directors to be elected by the holders of Common Stock, received the following votes:

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With respect to the proposal to approve the Trikon Technologies, Inc. 2004 Equity Incentive Plan 4,644,873 votes were cast in favor of the proposal, 1,037,393 votes were cast against the proposal and there were 206,541 abstentions and 7,029,245 broker non-votes.

With respect to the proposal to ratify the selection of Ernst & Young LLP to serve as the Company’s independent registered public accounting firm, 12,747,823 votes were cast in favor of the proposal, 152,519 votes were cast against the proposal and there were 16,970 abstentions and 740 broker non-votes.

With respect to the stockholder proposal 1,111,253 were cast in favor of the shareholder proposal, 3,939,588 were cast against the proposal, and there were 837,966 abstentions and 7,029,245 broker non-votes.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) The following exhibits are included herein:

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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