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EXCEL - IDEA: XBRL DOCUMENT - MATTSON TECHNOLOGY INCFinancial_Report.xls
EX-31.1 - EXHIBIT - MATTSON TECHNOLOGY INCmtsn2014928-xex311.htm
EX-31.2 - EXHIBIT - MATTSON TECHNOLOGY INCmtsn2014928-ex312.htm
EX-32.1 - EXHIBIT - MATTSON TECHNOLOGY INCmtsn2014928-xex321.htm
EX-10.2 - EXHIBIT - MATTSON TECHNOLOGY INCexhibit102cocagreement.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-Q
____________________________________________________________________________

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2014
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 000-24838
MATTSON TECHNOLOGY, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware
77-0208119
(State or Other Jurisdiction of Incorporation or Organization) 
(I.R.S. Employer Identification Number)

47131 Bayside Parkway
Fremont, California 94538
(Address of Principal Executive Offices including Zip Code)
(510) 657-5900
(Registrant's Telephone Number, Including Area Code)
____________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES    x     NO    o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES    x     NO    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer  
x
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES    ¨    NO    x
At October 31, 2014 there were 73,803,593 shares of common stock outstanding.




Note: PDF provided as a courtesy

MATTSON TECHNOLOGY, INC.
______________________________
TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 

1



PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Net revenue
$
38,430

 
$
33,840

 
$
123,657

 
$
78,651

Cost of goods sold
25,432

 
22,416

 
82,717

 
54,392

     Gross margin
12,998

 
11,424

 
40,940

 
24,259

Operating expenses:
 

 
 
 
 
 
 
Research, development and engineering
4,849

 
4,082

 
13,819

 
12,565

Selling, general and administrative
7,302

 
6,572

 
21,413

 
21,074

Restructuring and other charges
301

 
1,000

 
412

 
3,662

     Total operating expenses
12,452

 
11,654

 
35,644

 
37,301

Income (loss) from operations
546

 
(230
)
 
5,296

 
(13,042
)
Interest income (expense), net
(47
)
 
(163
)
 
(194
)
 
(284
)
Other income (expense), net
148

 
(35
)
 
85

 
(111
)
Income (loss) before income taxes
647

 
(428
)
 
5,187

 
(13,437
)
Provision for (benefit from) income taxes
110

 
(16
)
 
269

 
50

Net income (loss)
$
537

 
$
(412
)
 
$
4,918

 
$
(13,487
)
Net income (loss) per share:
 

 
 

 
 
 
 

Basic
$
0.01

 
$
(0.01
)
 
$
0.07

 
$
(0.23
)
     Diluted
$
0.01

 
$
(0.01
)
 
$
0.07

 
$
(0.23
)
Shares used in computing net income (loss) per share:
 

 
 

 
 
 
 

Basic
73,731

 
59,024

 
71,215

 
58,881

  Diluted
75,023

 
59,024

 
72,637

 
58,881

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

2



MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)

 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Net income (loss)
$
537

 
$
(412
)
 
$
4,918

 
$
(13,487
)
Other comprehensive income (loss)
 

 
 

 
 
 
 
Changes in foreign currency translation adjustments
(1,287
)
 
368

 
(1,770
)
 
235

Changes in unrealized investment loss

 

 

 
(29
)
Other comprehensive income (loss)
(1,287
)
 
368

 
(1,770
)
 
206

Comprehensive income (loss)
$
(750
)
 
$
(44
)
 
$
3,148

 
$
(13,281
)

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

3



MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except par value)
 
September 28,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets
 

 
 

Cash and cash equivalents
$
12,449

 
$
14,578

Accounts receivable, net of allowance for doubtful accounts of $696 as of September 28, 2014 and $704 as of December 31, 2013
31,881

 
26,245

Advance billings
2,585

 
3,346

Inventories
38,548

 
34,126

Prepaid expenses and other current assets
6,697

 
5,267

     Total current assets
92,160

 
83,562

Property and equipment, net
8,273

 
9,216

Restricted cash
2,001

 
2,087

Other assets
649

 
1,058

Total assets
$
103,083

 
$
95,923

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
12,432

 
$
26,624

Accrued compensation and benefits
4,265

 
2,713

Deferred revenues, current
6,588

 
9,107

Revolving credit facility

 
14,000

Other current liabilities
5,195

 
4,122

     Total current liabilities
28,480

 
56,566

Deferred revenues, non-current
1,363

 
1,971

Other liabilities
2,885

 
3,237

     Total liabilities
32,728

 
61,774

Commitments and contingencies (Note 6)


 


Stockholders' equity:
 

 
 

Preferred stock, 2,000 shares authorized; none issued and outstanding

 

Common stock, par value $0.001, 120,000 shares authorized; 78,031 shares issued and 73,786 shares outstanding as of September 28, 2014; 63,384 shares issued and 59,203 shares outstanding as of December 31, 2013
78

 
63

Additional paid-in capital
687,154

 
654,050

Accumulated other comprehensive income
19,060

 
20,830

Treasury stock, 4,245 shares as of September 28, 2014 and 4,181 shares as of December 31, 2013
(38,047
)
 
(37,986
)
Accumulated deficit
(597,890
)
 
(602,808
)
     Total stockholders' equity
70,355

 
34,149

          Total liabilities and stockholders' equity
$
103,083

 
$
95,923

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

4



MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
Cash flows from operating activities:
 
Net income (loss)
$
4,918

 
$
(13,487
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 

 
 

     Depreciation and amortization
2,192

 
3,146

     Stock-based compensation
1,085

 
1,057

     Other non-cash items
108

 
(360
)
     Changes in assets and liabilities:
 
 
 

          Accounts receivable
(5,636
)
 
(15,079
)
          Advance billings
761

 
(1,256
)
          Inventories
(5,589
)
 
759

          Prepaid expenses and other assets
(1,462
)
 
2,017

          Accounts payable
(14,145
)
 
5,665

          Accrued compensation and benefits and other current liabilities
2,510

 
(3,761
)
          Deferred revenue
(3,127
)
 
(475
)
          Other liabilities
(138
)
 
231

Net cash used in operating activities
(18,523
)
 
(21,543
)
Cash flows from investing activities:
 

 
 

(Increase) decrease in restricted cash
70

 
(201
)
Purchases of property and equipment
(738
)
 
(1,126
)
Other
10

 

Net cash used in investing activities
(658
)
 
(1,327
)
Cash flows from financing activities:
 

 
 

Proceeds from revolving credit facility, net of borrowing costs

 
19,610

Repayment of revolving credit facility
(14,000
)
 

Proceeds from issuance of common stock, net 
31,972

 
296

Net cash provided by financing activities
17,972

 
19,906

Effect of exchange rate changes on cash and cash equivalents
(920
)
 
239

Net decrease in cash and cash equivalents
(2,129
)
 
(2,725
)
Cash and cash equivalents, beginning of period
14,578

 
14,354

Cash and cash equivalents, end of period
$
12,449

 
$
11,629

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

5



MATTSON TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mattson Technology, Inc. (referred to in this Quarterly Report on Form 10-Q as "Mattson," "we," "us," or "our") was incorporated in California in 1988 and reincorporated in Delaware in 1997. We design, manufacture, market and globally support semiconductor wafer processing equipment used in the fabrication of integrated circuits.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by such accounting principles for complete financial statements. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly each of the statement of financial position as of September 28, 2014, the statement of operations for the three and nine months ended September 28, 2014 and September 29, 2013, statements of comprehensive income (loss) for the three and nine months ended September 28, 2014 and September 29, 2013, and the statements of cash flows for the nine months ended September 28, 2014 and September 29, 2013, as applicable, have been made. The condensed consolidated balance sheet as of December 31, 2013 has been derived from our audited financial statements as of such date, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2013, which are included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2014.
The condensed consolidated financial statements include the accounts of Mattson Technology, Inc. and our wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.
The results of operations for the three and nine months ended September 28, 2014 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2014.
Fiscal Year
Our fiscal year ends on December 31. We close our first fiscal quarter on the Sunday closest to March 31. Our second and third fiscal quarters are each 13 weeks long and our fourth quarter closes on December 31.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. We evaluate our estimates on an ongoing basis, including those related to the useful lives and fair value of long-lived assets, estimates used to determine facility lease loss liabilities, measurement of warranty obligations, valuation allowances for deferred tax assets, the fair value of stock-based compensation, estimates for allowance for doubtful accounts, and valuation of excess and obsolete inventories. Our estimates and assumptions can be subjective and complex and consequently actual results could differ materially from those estimates.
Reclassifications
For presentation purposes, certain prior period amounts have been reclassified to conform to the reporting in the current period financial statements. These reclassifications do not affect our net income, cash flows or stockholders' equity.
Liquidity and Management Plans
As of September 28, 2014, we had cash and cash equivalents of $12.4 million and working capital of $63.7 million.
On April 12, 2013, we entered into a three-year $25.0 million senior secured revolving credit facility (the "Credit Facility") with Silicon Valley Bank. On October 21, 2014, we entered into an amendment which, among other things, extended the term of the Credit Facility to October 12, 2017. As of September 28, 2014, we had no outstanding borrowings under the Credit Facility. See Note 4. Revolving Credit Facility and Note 12. Subsequent Event.

6



In February 2014, we completed a registered public offering of 14.1 million newly issued shares of our common stock. The common stock was issued at a price to the public of $2.45 per share. We received net proceeds of approximately $31.7 million from the offering after deducting underwriting discounts and estimated offering expenses.
We believe our available financial resources are sufficient to fund our working capital and other capital requirements over the course of the next twelve months. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net revenue, gross margin and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund inventory purchases. In addition, any ineffectiveness in our ability to manage expenditures may cause us to incur additional losses in the future and lower our cash balances. Historically, we have relied on a combination of fundraising from the sale and issuance of equity securities and cash generated from product, service and royalty revenues to provide funding for our operations.
We periodically review our liquidity position and may opportunistically raise additional funds to support our working capital requirements and operating expenses, or for other requirements. Historically, such funding was derived from a combination of sources including, but not limited to, the issuance of equity or debt securities through public or private financings. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. The availability of additional financing will depend on a variety of factors, including among others, market conditions, the general availability of credit, our credit ratings, and our ability to maintain our listing on NASDAQ. We will continue to review our operations and take further actions, as necessary, to minimize the cash used in operations and retain sufficient liquidity to fund our operating activities.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers. The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for us as of the first quarter of our fiscal year ending December 31, 2017. We are currently evaluating the impact that the implementation of this standard will have on our financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. The update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective for us beginning with our annual financial statements for the fiscal year ended December 31, 2016, and interim periods thereafter. We are currently evaluating the impact that the implementation of this standard will have on our financial statements.
There were no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 28, 2014 compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 that are of significance or potential significance to us.

2.
BALANCE SHEET DETAILS
We had restricted cash of $2.0 million and $2.1 million as of September 28, 2014 and December 31, 2013, respectively, which is primarily related to secured standby letters of credit for our long-term leases. Accordingly, such amounts are classified as long term in the accompanying condensed consolidated balance sheets. See Note 6. Commitments and Contingencies.

7



Components of inventories as of September 28, 2014 and December 31, 2013 are shown below (in thousands):
 
September 28,
2014
 
December 31,
2013
Inventories:
 
Purchased parts and raw materials
$
29,005

 
$
26,842

Work-in-process
8,025

 
4,260

Finished goods
1,518

 
3,024

 
$
38,548

 
$
34,126

Components of prepaid expenses and other current assets as of September 28, 2014 and December 31, 2013 are shown below (in thousands):
 
September 28,
2014
 
December 31,
2013
Prepaid expenses and other current assets:
 
Value-added tax
$
2,605

 
$
2,134

Prepaid inventory
2,375

 
492

Other current assets
1,717

 
2,641

 
$
6,697

 
$
5,267

Components of property and equipment as of September 28, 2014 and December 31, 2013 are shown below (in thousands):
 
September 28,
2014
 
December 31,
2013
Property and equipment, net:
 
Machinery and equipment
$
41,559

 
$
42,329

Furniture and fixtures
9,362

 
9,908

Leasehold improvements
18,077

 
18,626

 
68,998

 
70,863

Less: accumulated depreciation                         
(60,725
)
 
(61,647
)
 
$
8,273

 
$
9,216

Components of other current liabilities as of September 28, 2014 and December 31, 2013 are shown below (in thousands):
 
September 28,
2014
 
December 31,
2013
Other current liabilities:
 
Warranty
$
2,261

 
$
1,786

Value-added tax
921

 
358

Accrued restructuring charge, current
502

 
812

Other
1,511

 
1,166

 
$
5,195

 
$
4,122


3.
FAIR VALUE MEASUREMENT
We measure certain assets and liabilities at fair value, which is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The authoritative guidance on fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

8



Level 2. Include other inputs that are directly or indirectly observable in the marketplace.
Level 3. Unobservable inputs that are supported by little or no market activities.
Our money market funds are classified within Level 1 of the fair value hierarchy, as these instruments are valued using quoted market prices. Specifically, we value our investments in money market securities on quoted market prices in active markets. As of September 28, 2014 and December 31, 2013, we had no assets or liabilities classified within Level 2 or Level 3 and there were no transfers of instruments between Level 1, Level 2 and Level 3 regarding fair value measurement.
Cash and cash equivalents and restricted cash are carried at fair value. Accounts receivable and accounts payable are valued at their carrying amounts, which approximate fair value due to their short-term nature.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments as of September 28, 2014 and December 31, 2013 (in thousands):
 
September 28, 2014
 
December 31, 2013
 
Fair Value Measurements at
Reporting Date Using
 
Fair Value Measurements at
Reporting Date Using
 
(Level 1)
 
Total
 
(Level 1)
 
Total
Assets measured at fair value:
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
     Money market funds
$
5,007

 
$
5,007

 
$
5

 
$
5

Restricted cash:
 
 
 
 
 
 
 
     Money market funds
1,805

 
1,805

 
1,875

 
1,875

Total assets measured at fair value
$
6,812

 
$
6,812

 
$
1,880

 
$
1,880


4.
REVOLVING CREDIT FACILITY
On April 12, 2013, we entered into a three-year $25.0 million senior secured revolving credit facility with Silicon Valley Bank. As of September 28, 2014, we had no outstanding borrowing under the Credit Facility.
On October 21, 2014, we entered into Amendment Agreement No. 4 with Silicon Valley Bank, which retroactively lowered our required minimum consolidated earnings before interest, tax, depreciation and amortization ("EBITDA") to $2.0 million for the two consecutive quarters ended September 28, 2014, and established a minimum quick ratio equal to or greater than 1.00. Based on this amendment, we were in compliance with all financial covenants as of September 28, 2014. Refer to Note 12. Subsequent Event, for additional information related to this amendment.


9



5.
RESTRUCTURING AND OTHER CHARGES
In December 2011, our management approved and initiated a cost reduction plan ("2011 Restructuring Plan") as part of a broad-based cost reduction initiative. During 2012 and 2013, we completed the first four phases of our cost reduction plan, which included the consolidation of our manufacturing and research and development facilities, including contract termination costs related to two vacant facilities; moving a portion of our outsourced spare parts logistics operations in-house; and workforce reductions. We incurred a total of $10.5 million in restructuring and other charges under the 2011 Restructuring Plan through the end of fiscal year 2013, and an additional $0.3 million and $0.4 million during the three and nine months ended September 28, 2014, respectively. We plan to make payments related to these employee severance and contract termination costs through fiscal year 2015.
During the three and nine months ended September 28, 2014, we incurred $0.4 million and $0.5 million, respectively, in restructuring charges related to workforce reductions. We also recorded a reduction in our restructuring accrual of $0.1 million related to a revised estimate of our future rent obligations for one of our vacant facilities.
During the three and nine months ended September 29, 2013, we incurred a total of $1.0 million and $3.7 million, respectively, in restructuring charges. We recorded approximately $0.2 million and $2.8 million during the three and nine months ended September 29, 2013, respectively, related to employee severance costs, which included recruiting costs for a new chief executive officer as well as severance expense for the former chief executive officer of $0.6 million which were recorded in the second quarter of fiscal year 2013. During the three and nine months ended September 29, 2013, we recorded approximately $0.8 million in contract termination costs related to future rent obligations associated with two vacated leased facilities, net of sublease income, which was recorded in the third quarter of fiscal year 2013.
The following table summarizes changes in the restructuring accrual for the three and nine months ended September 28, 2014 (in thousands):
 
Three Months Ended September 28, 2014
 
Nine Months Ended September 28, 2014
 
Employee
Severance
Costs
 
Contract
Termination
Costs
 
Total
 
Employee
Severance
Costs
 
Contract
Termination
Costs
 
Total
Beginning balance
$

 
$
559

 
$
559

 
$

 
$
1,103

 
$
1,103

Restructuring charges
415

 
(114
)
 
301

 
526

 
(114
)
 
412

Payments
(202
)
 
(102
)
 
(304
)
 
(313
)
 
(630
)
 
(943
)
Reserve adjustments
(12
)
 
(8
)
 
(20
)
 
(12
)
 
(24
)
 
(36
)
Ending balance
$
201

 
$
335

 
$
536

 
$
201

 
$
335

 
$
536

As of September 28, 2014, $0.5 million of the restructuring accrual was classified as short-term and recorded within other current liabilities in the condensed consolidated balance sheets, and the remaining balance of $34,000 of the restructuring accrual was classified as long-term and recorded within other liabilities in the condensed consolidated balance sheets.

6.
COMMITMENTS AND CONTINGENCIES
Warranty
The warranty offered by us on our system sales is generally twelve months, and excludes certain consumable maintenance items. A provision for the estimated cost of warranty, based on historical costs, is recorded as cost of goods sold when the revenue is recognized. Our warranty obligations require us to repair or replace defective products or parts during the warranty period at no cost to the customer. The actual system performance and/or field warranty expense profiles may differ from historical experience, and in those cases, we adjust our warranty accruals accordingly.

10



The following table summarizes changes in our product warranty accrual for the three and nine months ended September 28, 2014 and September 29, 2013 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Beginning balance
$
2,088

 
$
1,449

 
$
1,786

 
$
1,691

Warranties issued in the period
598

 
593

 
1,749

 
1,467

Costs to service warranties
(932
)
 
(349
)
 
(2,614
)
 
(1,456
)
Warranty accrual adjustments
507

 
(158
)
 
1,340

 
(167
)
Ending balance
$
2,261

 
$
1,535

 
$
2,261

 
$
1,535

Guarantees
In the ordinary course of business, our bank provides standby letters of credit or other guarantee instruments on our behalf to certain parties as required. The standby letters of credit are secured by money market funds, which are classified as restricted cash in the accompanying condensed consolidated balance sheets. We have never recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of September 28, 2014, the maximum potential amount that we could be required to pay was $1.9 million, the total amount of outstanding standby letters of credit, which were secured by $2.0 million in bank accounts and money market collateral accounts. This amount was recorded as restricted cash as of September 28, 2014.
In connection with our acquisition of Vortek Industries, Ltd. ("Vortek") in 2004, we became party to an agreement between Vortek and the Canadian Minister of Industries (the "Minister") relating to an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, we, or Vortek (renamed Mattson Technology, Canada, Inc. ("MTC")) agreed to various terms, including (i) payment by us of a royalty to the Minister of 1.4 percent of net sales from certain Flash RTP products, up to a total of C$14.3 million (approximately $12.8 million based on the applicable exchange rate as of September 28, 2014), (ii) MTC maintaining a specified average workforce of employees in Canada, making certain investments and complying with certain manufacturing requirements, each, through October 27, 2009, and (iii) certain other covenants concerning protection of intellectual property rights. Under the provisions of this agreement, if MTC is dissolved, files for bankruptcy or we, or MTC, do not materially satisfy the obligations pursuant to any material terms or conditions, the Minister could demand payment of liquidated damages in the amount of C$14.3 million less any royalties paid to the Minister. As of October 27, 2009, we were no longer subject to covenant (ii), as discussed above but are still subject to the remaining terms and conditions until the earlier of payment of royalty of C$14.3 million (approximately $12.8 million based on the applicable exchange rate as of September 28, 2014) or through December 31, 2020. The movement of our Canadian operations to Germany did not result in the dissolution of MTC.
We are a party to a variety of agreements, pursuant to which we may be obligated to indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under which we may agree to hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property, operations or tax-related matters. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have defenses to asserted claims and/or recourse against third parties for payments made. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these agreements have not had a material effect on our financial position, results of operations or cash flows. We believe if we were to incur a loss in any of these matters, such loss would not have a material effect on our financial position, results of operations or cash flows.
We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and certain senior officers. We have not recorded a liability associated with these indemnification agreements, as we historically have not incurred any material costs associated with such indemnification agreements. Costs associated with such indemnification agreements may be mitigated, in whole or only in part, by insurance coverage that we maintain.
Litigation
In the ordinary course of business, we are subject to claims and litigation, including claims that we infringe third party patents, trademarks and other intellectual property rights. Although we believe that it is unlikely that any current claims or actions will have a material adverse impact on our operating results or our financial position, given the uncertainty of litigation,

11



we cannot be certain of this. The defense of claims or actions against us, even if without merit, could result in the expenditure of significant financial and managerial resources.
We record a legal liability when we believe it is both probable that a liability has been incurred, and the amount can be reasonably estimated. We monitor developments in our legal matters that could affect the estimate we have previously accrued. Significant judgment is required to determine both probability and the estimated amount.

7.
EMPLOYEE STOCK PLANS
As of September 28, 2014, we had approximately 3.4 million shares available for future grants under our 2012 Equity Incentive Plan (the "2012 Plan").

Stock Options
Options to purchase common stock granted under the 2012 Plan generally have terms not exceeding seven years. Options to purchase stock under our equity incentive plans are generally granted at exercise prices that are at least 100 percent of the fair market value of our common stock on the date of grant. Generally, 25 percent of the options vest on the first anniversary of the vesting commencement date, and the remaining options vest 1/36th per month for the next 36 months thereafter. In December 2013, our Board of Directors approved the adoption of monthly vesting of stock options for employees with a minimum of one year of service.
In October 2012, our Board of Directors approved a special stock option retention grant to all then existing employees. The 1.7 million shares retention grant vested in its entirety on January 31, 2014, 15 months after the vesting commencement date.
The following table summarizes the stock option activity under all of our equity incentive plans for the nine months ended September 28, 2014:
 
Number of Shares
 
Weighted-
Average
Exercise
Price
 
Weighted- Average Remaining Term
 
Aggregate Intrinsic Value
 
(thousands)
 
(per share)
 
(years)
 
(thousands)
Outstanding as of December 31, 2013
4,993

 
$
2.18

 
 
 


Granted
655

 
$
2.40

 
 
 


Exercised
(353
)
 
$
0.96

 
 
 


Canceled or forfeited
(294
)
 
$
7.63

 
 
 


Outstanding as of September 28, 2014
5,001

 
$
1.98

 
4.6
 
$
4,115

Vested and expected to vest as of September 28, 2014
4,625

 
$
1.98

 
4.5
 
$
3,864

Exercisable as of September 28, 2014
3,120

 
$
2.04

 
3.9
 
$
2,765

 
 
 
 
 
 
 
 
The aggregate intrinsic value represents the pre-tax differences between the exercise price of stock options and the quoted market price of our stock on September 26, 2014 for all in-the-money options.
The following table provides information pertaining to our stock options for the nine months ended September 28, 2014 and September 29, 2013 (in thousands, except weighted-average fair values):
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
Weighted-average fair value of options granted, per share
$
1.23

 
$
0.86

Intrinsic value of options exercised
$
455

 
$
273

Cash received from options exercised
$
339

 
$
241

Restricted Stock Units
The 2012 Plan provides for grants of time-based and performance-based restricted stock units ("RSUs"). As of September 28, 2014, we only had time-based RSUs outstanding.

12



Time-Based Restricted Stock Units
Historically, 25 percent of the time-based RSUs vest on each anniversary of the vesting commencement date or date of grant. In December 2013, our Board of Directors approved a quarterly vesting schedule for RSUs. On occasion, we grant time-based RSUs for varying purposes with different vesting schedules. Time-based RSUs granted under the 2012 Plan are counted against the total number of shares of common stock available for grant under the 2012 Plan at 1.75 shares of common stock for every one share of common stock subject thereto.
The associated stock-based compensation expense on time-based RSUs is determined based on the fair value of our common stock on the date of grant of the RSU and recognized over the vesting period.
The following table summarizes RSU activity under all of our equity incentive plans for the nine months ended September 28, 2014:
 
Number of Shares
 
Weighted Average Grant Date Fair Value
 
(thousands)
 
(per share)
Outstanding as of December 31, 2013
429

 
$
1.45

Granted
697

 
$
2.42

Released
(184
)
 
$
1.85

Canceled or forfeited
(8
)
 
$
2.49

Outstanding as of September 28, 2014
934

 
$
2.08


8.
STOCK-BASED COMPENSATION
We account for stock-based compensation in accordance with the applicable authoritative guidance, which requires the measurement of stock-based compensation on the date of grant based on the fair value of the award, and the recognition of the expense over the requisite service period for the employee. Compensation related to RSUs is the intrinsic value on the date of grant, which is the closing price of our common stock less the employee exercise price, if any. Compensation related to stock options is determined using a stock option valuation model.
Valuation Assumptions
We use the Black-Scholes valuation model to determine the fair value of stock options. The Black-Scholes model requires the input of highly subjective assumptions, which are summarized in the table below for the three and nine months ended September 28, 2014 and September 29, 2013:
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Expected dividend yield
 
 
 
Expected stock price volatility
65%
 
84%
 
67%
 
84%
Risk-free interest rate
1.4%
 
1.5%
 
1.3%
 
0.9%
Expected life of options in years
4.0
 
4.4
 
4.0
 
4.4
We estimate the expected life of options based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based on the historical volatility of our common stock; and the risk-free interest rate is the rate on a U.S. Treasury Bill, with a maturity approximating the expected life of the option. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, the expected dividend yield is zero.

13



Our stock-based compensation for the three and nine months ended September 28, 2014 and September 29, 2013 was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Stock-based compensation by type of award:
 
 
 
Stock options
$
244

 
$
293

 
$
740

 
$
959

Restricted stock units
143

 
36

 
309

 
83

Employee stock purchase plan
12

 
5

 
36

 
15

 
$
399

 
$
334

 
$
1,085

 
$
1,057

Stock-based compensation by category of expense:
 
 
 
Cost of goods sold
$
12

 
$
16

 
$
23

 
$
42

Research, development and engineering
47

 
53

 
135

 
198

Selling, general and administrative
340

 
265

 
927

 
817

 
$
399

 
$
334

 
$
1,085

 
$
1,057

We did not capitalize any stock-based compensation into inventory in the three and nine months ended September 28, 2014 and September 29, 2013, as such amounts were immaterial. As of September 28, 2014, we had $1.5 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock options which will be recognized over a weighted-average period of 2.5 years. As of September 28, 2014, we had $1.4 million in unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested RSUs which will be recognized over a weighted-average period of 3.0 years.

9.
GEOGRAPHIC AND CUSTOMER CONCENTRATION INFORMATION
We have one operating segment in which we design, manufacture and market advanced fabrication equipment for the semiconductor manufacturing industry. The authoritative guidance on segment reporting and disclosure defines operating segment as a component of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. As our business is completely focused on one industry segment, the design, manufacture and marketing of advanced fabrication equipment to the semiconductor manufacturing industry, management believes that we have one reportable segment. Our net revenue and profits are generated from the sales of systems and services in this one segment. For the purposes of evaluating our reportable segments, our Chief Executive Officer is the chief operating decision maker, as defined in the applicable authoritative guidance.
The following table summarizes net revenue by geographic areas based on the installation locations of the systems and the location of services rendered (in thousands, except percentages):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
Net revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
8,188

 
21
 
$
1,045

 
3
 
$
18,763

 
15
 
$
7,380

 
9
South Korea
15,613

 
41
 
9,998

 
30
 
49,735

 
40
 
12,273

 
16
China
853

 
2
 
1,450

 
4
 
16,202

 
13
 
5,410

 
7
Taiwan
10,746

 
28
 
15,753

 
47
 
27,066

 
22
 
42,477

 
54
Other Asia
1,718

 
5
 
3,377

 
10
 
5,588

 
5
 
6,736

 
9
Europe and others
1,312

 
3
 
2,217

 
6
 
6,303

 
5
 
4,375

 
5
 
$
38,430

 
100
 
$
33,840

 
100
 
$
123,657

 
100
 
$
78,651

 
100
For the three months ended September 28, 2014, three customers accounted for 10 percent or more of our total net revenue, representing approximately 37 percent, 20 percent and 10 percent of our total net revenue, respectively. For the nine months ended September 28, 2014, three customers accounted for 10 percent or more of our total net revenue, representing approximately 52 percent, 12 percent and 10 percent of our total net revenue, respectively.

14



For the three months ended September 29, 2013, two customers accounted for 10 percent or more of our total net revenue, representing approximately 38 percent and 29 percent of our total net revenue, respectively. For the nine months ended September 29, 2013, two customers accounted for 10 percent or more of our total net revenue, representing approximately 44 percent and 17 percent of our total net revenue, respectively.
As of September 28, 2014, three customers accounted for 10 percent or more of our total net accounts receivable, representing approximately 31 percent, 23 percent and 13 percent of our total net accounts receivable, respectively. As of December 31, 2013, two customers accounted for 10 percent or more of our net accounts receivable, representing approximately 61 percent and 23 percent of our total net accounts receivable, respectively.
Geographical information relating to our property and equipment, net, as of September 28, 2014 and December 31, 2013 was as follows (in thousands):
 
September 28,
2014
 
December 31,
2013
Property and equipment, net:
 
United States
$
4,555

 
$
4,949

Germany
3,491

 
4,129

Others
227

 
138

 
$
8,273

 
$
9,216


10.
INCOME TAXES
On a quarterly basis, we record our income tax expense or benefit based on our year-to-date results and expected results for the remainder of the year.
We recorded $0.1 million and $0.3 million income tax provision for the three and nine months ended September 28, 2014, respectively. We recorded a minimal income tax benefit for the three months ended September 29, 2013 and a $0.1 million income tax provision for nine months ended September 29, 2013. The net tax provision (benefit) for the three and nine months ended September 28, 2014, and for the three and nine months ended September 29, 2013, is the result of the mix of profits earned by us, in tax jurisdictions with a broad range of income tax rates.

11.
NET INCOME (LOSS) PER SHARE
We present both basic and diluted net income (loss) per share on the face of our condensed consolidated statements of operations in accordance with the authoritative guidance on earnings per share. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding plus the effect of common stock equivalents, unless the common stock equivalents are anti-dilutive. The potential dilutive shares of our common stock resulting from assumed exercises of equity related instruments are determined using the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock will result in a greater number of dilutive securities.

15



The following table presents the computation of net income (loss) per share of common stock (in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2014
 
September 29,
2013
 
September 28,
2014
 
September 29,
2013
Numerator:
 
 
 
     Net income (loss)
$
537

 
$
(412
)
 
$
4,918

 
$
(13,487
)
Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
73,731

 
59,024

 
71,215

 
58,881

Effect of dilutive stock options and restricted stock units
1,292

 

 
1,422

 

Weighted-average shares outstanding - diluted
75,023

 
59,024

 
72,637

 
58,881

Net income (loss) per share of common stock:
 
 
 
 
 
 
 
Basic
$
0.01

 
$
(0.01
)
 
$
0.07

 
$
(0.23
)
Diluted
$
0.01

 
$
(0.01
)
 
$
0.07

 
$
(0.23
)
For the three and nine months ended September 28, 2014, options and RSUs totaling 2.9 million and 2.3 million, respectively, were excluded from diluted net income per share because their inclusion would have been anti-dilutive. For the three and nine months ended September 29, 2013, options and RSUs totaling 5.8 million were excluded from diluted net loss per share because of their anti-dilutive effect.
12.
SUBSEQUENT EVENT
On October 21, 2014, we entered into an amendment with Silicon Valley Bank, as "lender" and "agent," to amend our existing credit agreement, dated as of April 12, 2013. This amendment extends the term of our credit facility to October 12, 2017. This amendment also allows us to make a one-time request to increase the existing credit facility up to an additional $25.0 million.

Under the amendment, the advances available to us under the borrowing base formula increased to 85 percent of eligible accounts receivable and advance billings and 50 percent of eligible inventory. The amendment also lowered the "Applicable Margin," as defined in the credit agreement, with respect to our interest rate on outstanding borrowings to zero percent for ABR loans and 2.75 percent for Eurodollar loans.

The amendment also retroactively lowered our required minimum consolidated EBITDA to $2.0 million for the two consecutive quarters ended September 28, 2014; established a minimum quick ratio requirement equal to or greater than 1.00; and removed certain financial covenants when our "Available Funds," as defined in the credit agreement to be cash, cash equivalents and availability under the credit agreement, are equal to or greater than $30.0 million as of the last day of such fiscal quarter.

In connection with the amendment, we agreed to pay Silicon Valley Bank a commitment fee of $62,500 related to the extension of the term of the facility from April 12, 2016 to October 12, 2017.



16



ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains forward-looking statements, which are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs, including estimates and projections about our industry. Our forward-looking statements may include statements that relate to our future net revenue, earnings, cash flow and cash position; growth of the industry and the size of our served available market; market demand for our products, the timing of significant customer orders for our products; our ability to attract new customers, customer acceptance of delivered products and our ability to collect amounts due upon shipment and upon acceptance; end-user demand for semiconductors, including the growing mobile device industry; customer demand for semiconductor manufacturing equipment; our ability to timely manufacture, deliver and support ordered products; our ability to bring new products to market, to gain market share with such products and the overall mix of our products; our ability to generate significant net revenue, customer rate of adoption of new technologies; risks inherent in the development of complex technology; the timing and competitiveness of new product releases by our competitors; margins; product development plans and levels of research, development and engineering activity; our ability to align our cost structure with market conditions, including operating expenses, and our quarterly break-even point; tax expenses; excess inventory reserves, including the level of our vendor commitments compared to our requirements; economic conditions in general and in our industry; our dependence on international sales and our expectation of growth in international markets; the impact of any litigation or investigation on our operating results or financial position; any offering and sale of securities pursuant to our shelf registration statement or otherwise; volatility in our stock price and any delisting of our stock from NASDAQ for the failure to maintain a minimum bid price; the sufficiency of our financial resources, including availability under our revolving credit agreement, to support future operations and capital expenditures and the availability of all financing resources; compliance with financial covenants related to our revolving credit facility and our control environment including our disclosure control and procedures, internal control over our financial reporting, and our related remediation efforts. Forward-looking statements typically are identified by use of terms such as "anticipates," "expects," "intends," "plans," "seeks," "estimates," "believes" and similar expressions, although some forward-looking statements are expressed differently. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties and assumptions that are difficult to predict. Such risks and uncertainties include those set forth in Part II, Item 1A under "Risk Factors" and this Part I, Item 2 under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our actual results could differ materially from those anticipated by these forward-looking statements. The forward-looking statements in this report speak only as of the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future event, or for any other reason. This discussion should be read in conjunction with the condensed consolidated financial statements and notes presented in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes in our last filed Annual Report on Form 10-K for the year ended December 31, 2013.
Overview
We are a supplier of semiconductor wafer processing equipment used in the fabrication of integrated circuits ("ICs"). Our manufacturing equipment is primarily used for semiconductor manufacturing, utilizing innovative technology to deliver advanced processing capabilities and high productivity for the fabrication of current and next-generation ICs. We were incorporated in California in 1988 and reincorporated in Delaware in 1997.
Our business depends upon capital expenditures by the manufacturers of semiconductor devices. The level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for such devices which is dependent upon the consumer product industry. Since the demand for semiconductor devices is highly cyclical, the demand for wafer processing equipment also is highly cyclical. The semiconductor equipment industry is typically characterized by wide swings in operating results as the industry rotates between cycles.
We continue to focus on the advances we have made in the market position for each of our major products.
Our etch products, specifically our paradigmE XP, are established process tools of record in advanced DRAM, NAND and 3D-NAND production fabs. We are also establishing a development tool of record in advanced foundry for sub-20 nanometer front-end of line processes. The combination of the paradigmE XP’s technical capabilities and high productivity have established a growing etch market position in the memory segment.
The Helios XP, our conventional RTP product, continues to run high-volume production for DRAM, NAND and foundry customers. The Helios XP has established industry leading technical performance in 20 nanometer production with its dual side wafer heating and differential thermal energy control. When the transition to sub-20 nanometer technologies ramps up, we anticipate increasing shipments of our Helios XP products in the foundry and DRAM segments.

17



Our millisecond anneal system ("Millios"), has been qualified and released for high volume advanced foundry/logic production at multiple manufacturing sites. The Millios, with our proprietary arc lamp technology, has achieved leading device performance as well as higher production throughput and system availability. We continue to expect the Millios to play an important role in the volume production of sub-20 nanometer devices. 
Our dry strip products continue to make a steady contribution to our business as our established customers in foundry/logic and memory are expected to continue to make investments.
In February 2014, we completed a registered public offering of 14.1 million newly issued shares of our common stock. The common stock was issued at a price to the public of $2.45 per share. We received net proceeds of approximately $31.7 million from the offering after deducting underwriting discounts and estimated offering expenses. We intend to use the net proceeds from this stock offering for general corporate purposes, which may include working capital, capital expenditures and other corporate expenses.
The future success of our business will depend on numerous factors, including, but not limited to, the market demand for semiconductors and semiconductor wafer processing equipment. Such factors also will include our ability to (a) enhance our competitiveness and profitability; (b) develop and bring to market new products that address our customers' needs; (c) grow customer loyalty through collaboration with and support of our customers; (d) maintain a cost structure that will enable us to operate effectively and profitably throughout changing industry cycles; and (e) generate the gross margin necessary to enable us to make the necessary investments in our business.

Critical Accounting Policies and Use of Estimates
Management's discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting periods.
On an on-going basis, we evaluate our estimates and judgments, including those related to reserves for excess and obsolete inventory, warranty, bad debts, intangible assets, income taxes, restructuring costs, stock-based compensation, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. These form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There were no significant changes to our critical accounting policies during the nine months ended September 28, 2014. For information about critical accounting policies, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies of notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013.

18



Results of Operations
A summary of our results of operations for the three and nine months ended September 28, 2014 and September 29, 2013 are as follows (in thousands, except for percentages):
 
Three Months Ended
 
 
  
 
September 28, 2014
 
September 29, 2013
 
Increase (Decrease)
  
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
Net revenue
$
38,430

 
100.0

 
$
33,840

 
100.0

 
$
4,590

 
13.6

  
Cost of goods sold
25,432

 
66.2

 
22,416

 
66.2

 
3,016

 
13.5

  
Gross margin
12,998

 
33.8

 
11,424

 
33.8

 
1,574

 
13.8

  
Operating expenses:
 

 
 

 
 
 
 

 
 
 
 

  
Research, development and engineering
4,849

 
12.6

 
4,082

 
12.1

 
767

 
18.8

  
Selling, general and administrative
7,302

 
19.0

 
6,572

 
19.4

 
730

 
11.1

  
Restructuring and other charges
301

 
0.8

 
1,000

 
3.0

 
(699
)
 
(69.9
)
 
     Total operating expenses
12,452

 
32.4

 
11,654

 
34.5

 
798

 
6.8

  
Income (loss) from operations
546

 
1.4

 
(230
)
 
(0.7
)
 
776

 
n/m

(1) 
Interest income (expense), net
(47
)
 
(0.1
)
 
(163
)
 
(0.5
)
 
116

 
(71.2
)
 
Other income (expense), net
148

 
0.4

 
(35
)
 
(0.1
)
 
183

 
n/m

(1) 
Income (loss) before income taxes
647

 
1.7

 
(428
)
 
(1.3
)
 
1,075

 
n/m

(1) 
Provision for (benefit from) income taxes
110

 
0.3

 
(16
)
 
0.1

 
126

 
n/m

(1) 
Net income (loss)
$
537

 
1.4

 
$
(412
)
 
(1.2
)
 
$
949

 
n/m

(1) 
(1)Not meaningful.

 
Nine Months Ended
 
 
  
 
September 28, 2014
 
September 29, 2013
 
Increase (Decrease)
  
 
Amount

 
Percent
 
Amount

 
Percent

 
Amount

 
Percent

 
Net revenue
$
123,657

 
100.0

 
$
78,651

 
100.0

 
$
45,006

 
57.2

  
Cost of goods sold
82,717

 
66.9

 
54,392

 
69.2

 
28,325

 
52.1

  
Gross margin
40,940

 
33.1

 
24,259

 
30.8

 
16,681

 
68.8

  
Operating expenses:
 
 
 

 
 
 
 

 
 

 
 

  
Research, development and engineering
13,819

 
11.2

 
12,565

 
16.0

 
1,254

 
10.0

  
Selling, general and administrative
21,413

 
17.3

 
21,074

 
26.8

 
339

 
1.6

  
Restructuring and other charges
412

 
0.3

 
3,662

 
4.6

 
(3,250
)
 
(88.7
)
 
     Total operating expenses
35,644

 
28.8

 
37,301

 
47.4

 
(1,657
)
 
(4.4
)
  
Income (loss) from operations
5,296

 
4.3

 
(13,042
)
 
(16.6
)
 
18,338

 
n/m

(1) 
Interest income (expense), net
(194
)
 
(0.2
)
 
(284
)
 
(0.4
)
 
90

 
(31.7
)
 
Other income (expense), net
85

 
0.1

 
(111
)
 
(0.1
)
 
196

 
n/m

(1) 
Income (loss) before income taxes
5,187

 
4.2

 
(13,437
)
 
(17.1
)
 
18,624

 
n/m

(1) 
Provision for income taxes
269

 
0.2

 
50

 

 
219

 
438.0

 
Net income (loss)
$
4,918

 
4.0

 
$
(13,487
)
 
(17.1
)
 
$
18,405

 
n/m

(1) 
(1)Not meaningful.


19



Net Revenue
A summary of our net revenue for the three and nine months ended September 28, 2014 and September 29, 2013 are as follows (in thousands, except for percentages):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
 
September 29,
 
Increase (Decrease)
 
September 28,
 
September 29,
 
Increase (Decrease)
 
2014
 
2013
 
Amount
 
Percent
 
2014
 
2013
 
Amount
 
Percent
Net revenue:
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
United States
$
8,188

 
$
1,045

 
$
7,143

 
684

 
$
18,763

 
$
7,380

 
$
11,383

 
154

International:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

South Korea
15,613

 
9,998

 
5,615

 
56

 
49,735

 
12,273

 
37,462

 
305

China
853

 
1,450

 
(597
)
 
(41
)
 
16,202

 
5,410

 
10,792

 
199

Taiwan
10,746

 
15,753

 
(5,007
)
 
(32
)
 
27,066

 
42,477

 
(15,411
)
 
(36
)
Other Asia
1,718

 
3,377

 
(1,659
)
 
(49
)
 
5,588

 
6,736

 
(1,148
)
 
(17
)
Europe and others
1,312

 
2,217

 
(905
)
 
(41
)
 
6,303

 
4,375

 
1,928

 
44

 
30,242

 
32,795

 
(2,553
)
 
(8
)
 
104,894

 
71,271

 
33,623

 
47

Total net revenue
$
38,430

 
$
33,840

 
$
4,590

 
14

 
$
123,657

 
$
78,651

 
$
45,006

 
57

Net revenue was $38.4 million for the three months ended September 28, 2014, an increase of $4.6 million, or 14 percent, compared to $33.8 million for the three months ended September 29, 2013. The increase in net revenue during the three months ended September 28, 2014 compared to the three months ended September 29, 2013 was largely attributable to higher overall net revenue of our etch systems into memory applications.
During the third quarter of 2014, net revenue from customers in Asia continued to account for a significant portion of our total net revenue. For the three months ended September 28, 2014 and September 29, 2013, international sales comprised approximately 79 percent and 97 percent, respectively, of our total net revenue.
For the three months ended September 28, 2014, three customers accounted for 10 percent or more of our total net revenue, representing approximately 37 percent, 20 percent and 10 percent of our total net revenue, respectively. For the three months ended September 29, 2013, two customers accounted for 10 percent or more of our total net revenue, representing approximately 38 percent and 29 percent of our total net revenue, respectively.
Net revenue was $123.7 million for the nine months ended September 28, 2014, an increase of $45.0 million, or 57 percent, compared to $78.7 million for the nine months ended September 29, 2013. The increase in net revenue during the nine months ended September 28, 2014 compared to the nine months ended September 29, 2013 was largely attributable to higher overall net revenue of our etch systems into memory applications.
For the nine months ended September 28, 2014 and September 29, 2013, international sales comprised approximately 85 percent and 91 percent, respectively, of our total net revenue.
For the nine months ended September 28, 2014, three customers accounted for 10 percent or more of our total net revenue, representing approximately 52 percent, 12 percent and 10 percent of our total net revenue, respectively. For the nine months ended September 29, 2013, two customers accounted for 10 percent or more of our total net revenue, representing approximately 44 percent and 17 percent of our total net revenue, respectively.
We have seen improvements in market conditions and customer demand since the third quarter of 2013. However, primarily due to a change in the sub 20-nanometer foundry product ramp and a pause in 3D-NAND spending, we had a decrease in revenues for the third quarter of 2014 as compared to the first and second quarters of fiscal year 2014. On a long-term basis, we expect investment in capital equipment to remain positive, predominately driven by a memory investment cycle and foundry spending for 20- and sub 20-nanometer processing technologies.

20



Cost of Goods Sold and Gross Margin
A summary of our cost of goods sold and gross margin for the three and nine months ended September 28, 2014 and September 29, 2013 are as follows (in thousands, except for percentages):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
 
September 29,
 
Increase (Decrease)
 
September 28,
 
September 29,
 
Increase (Decrease)
 
2014
 
2013
 
Amount
 
Percent
 
2014
 
2013
 
Amount
 
Percent
Cost of goods sold
$
25,432

 
$
22,416

 
$
3,016

 
13
 
$
82,717

 
$
54,392

 
$
28,325

 
52
Gross margin
$
12,998

 
$
11,424

 
$
1,574

 
14
 
$
40,940

 
$
24,259

 
$
16,681

 
69
Gross margin percentage
33.8
%
 
33.8
%
 
 
 
 
 
33.1
%
 
30.8
%
 
 
 
 
Our cost of goods sold consists of the costs associated with manufacturing our products, and includes the purchase of raw materials and related overhead, labor, warranty costs, charges for excess and obsolete inventory and costs incurred by our contract manufacturers in the production of our components and major sub-assemblies/modules.
Our gross margin percentage remained flat between the three months ended September 29, 2013, at 33.8 percent, compared to the three months ended September 28, 2014, at 33.8 percent. Our gross margin percentage increased from 30.8 percent during the nine months ended September 29, 2013 to 33.1 percent during the nine months ended September 28, 2014, primarily attributable to the increase in total net revenue and a more favorable product mix, partially offset by higher than expected installation and warranty costs for certain of our newer products.
Our gross margin has varied over the years and will continue to be affected by many factors, including competitive pressures, product mix, inventory reserves, economies of scale, material and other costs, overhead absorption levels and the timing of revenue recognition.
Research, Development and Engineering
A summary of our research, development and engineering expenses for the three and nine months ended September 28, 2014 and September 29, 2013 are as follows (in thousands, except for percentages):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
 
September 29,
 
Increase (Decrease)
 
September 28,
 
September 29,
 
Increase (Decrease)
 
2014
 
2013
 
Amount
 
Percent
 
2014
 
2013
 
Amount
 
Percent
Research, development and engineering
$
4,849

 
$
4,082

 
$
767

 
19
 
$
13,819

 
$
12,565

 
$
1,254

 
10
Percentage of net revenue
12.6
%
 
12.1
%
 
 
 
 
 
11.2
%
 
16.0
%
 
 
 
 
Research, development and engineering expenses consist primarily of salaries and related costs of employees engaged in research, development and engineering activities, costs of product development and depreciation on equipment used in the course of research, development and engineering activities.
Research, development and engineering expenses increased by $0.8 million, or 19 percent, in the three months ended September 28, 2014 compared to the three months ended September 29, 2013. This increase was largely attributable to an increase in activity resulting from the development of new process applications for our products and an increase in salaries and related costs due to the termination of a work furlough program in the third quarter of fiscal year 2013.
Research, development and engineering expenses increased by $1.3 million, or 10 percent, in the nine months ended September 28, 2014 compared to the nine months ended September 29, 2013. This increase was largely attributable to an increase in activity resulting from the development of new process applications for our products and an increase in salaries and related costs due to the termination of a work furlough program in the third quarter of fiscal year 2013.

21



Selling, General and Administrative
A summary of our selling, general and administrative expenses for the three and nine months ended September 28, 2014 and September 29, 2013 are as follows (in thousands, except for percentages):
 
Three Months Ended
 
Nine Months Ended
 
September 28,
 
September 29,
 
Increase (Decrease)
 
September 28,
 
September 29,
 
Increase (Decrease)
 
2014
 
2013
 
Amount
 
Percent
 
2014
 
2013
 
Amount
 
Percent
Selling, general and administrative
$
7,302

 
$
6,572

 
$
730

 
11
 
$
21,413

 
$
21,074

 
$
339

 
2
Percentage of net revenue
19.0
%
 
19.4
%
 
 
 
 
 
17.3
%
 
26.8
%
 
 
 
 
Selling, general and administrative expenses consist primarily of employee-related expenses, as well as legal and professional fees, insurance costs, amortization of evaluation systems and certain facilities and information technology costs.
Selling, general and administrative expenses increased by $0.7 million, or 11 percent during the three months ended September 28, 2014 as compared with the three months ended September 29, 2013, primarily due to increased investments to support the higher revenue levels and an increase in salaries and related costs due to the termination of a work furlough program in the third quarter of fiscal year 2013.
Selling, general and administrative expenses increased by $0.3 million, or 2 percent percent during the nine months ended September 28, 2014 as compared with the nine months ended September 29, 2013, primarily due to increased investments to support the higher revenue levels and an increase in salaries and related costs due to the termination of a work furlough program in the third quarter of fiscal year 2013, partially offset by lower depreciation and amortization in fiscal year 2014.

Restructuring and Other Charges
In December 2011, our management approved and initiated a cost reduction plan ("2011 Restructuring Plan") as part of a broad-based cost reduction initiative. During 2012 and 2013, we completed the first four phases of our cost reduction plan, which included the consolidation of our manufacturing and research and development facilities, including contract termination costs related to two vacant facilities; moving a portion of our outsourced spare parts logistics operations in-house; and workforce reductions. We incurred $10.9 million in restructuring and other charges under the 2011 Restructuring Plan since its inception in the fourth quarter of 2011, of which $0.3 million and $0.4 million was recorded during the three and nine months ended September 28, 2014, respectively, and $1.0 million and $3.7 million was recorded during the three and nine months ended September 29, 2013, respectively. We plan to make payments related to these employee severance and contract termination costs through fiscal year 2015.

Interest Income (Expense), net
Interest income (expense), net was minimal for all periods presented. The net expense for the three and nine months ended September 28, 2014 and three and nine months ended September 29, 2013 primarily resulted from interest charges on borrowings under our Credit Facility.
Other Income (Expense), net
Other income (expense), net was minimal for all periods presented. The other income (expense) for the three and nine months ended September 28, 2014 and three and nine months ended September 29, 2013 primarily consisted of foreign exchange gains and losses from foreign currency denominated inter-company balances.

Provision for (Benefit from) Income Taxes
On a quarterly basis, we record our income tax expense or benefit based on our year-to-date results and expected results for the remainder of the year.
We recorded a $0.1 million and $0.3 million income tax provision for the three and nine months ended September 28, 2014, respectively. We recorded a minimal income tax benefit and a $0.1 million income tax provision for the three and nine months ended September 29, 2013, respectively. The net tax provision (benefit) was the result of the mix of profits earned by us in tax jurisdictions with a broad range of income tax rates.

22




Liquidity and Capital Resources
Our cash and cash equivalents as of September 28, 2014 and December 31, 2013 were $12.4 million and $14.6 million, respectively. Working capital as of September 28, 2014 was $63.7 million, compared to $27.0 million as of December 31, 2013. Stockholders' equity as of September 28, 2014 was $70.4 million, compared to $34.1 million as of December 31, 2013. The aforementioned increases in working capital and stockholders' equity are primarily related to a registered public offering in February 2014 of 14.1 million newly issued common stock shares which resulted in net proceeds to us of approximately $31.7 million.
 
Nine Months Ended
 
September 28, 2014
 
September 29, 2013
Net cash used in operating activities
$
(18,523
)
 
$
(21,543
)
Net cash used in investing activities
(658
)
 
(1,327
)
Net cash provided by financing activities
17,972

 
19,906

Effect of exchange rate changes on cash and cash equivalents
(920
)
 
239

Net increase in cash and cash equivalents
$
(2,129
)
 
$
(2,725
)
Liquidity and Capital Resources Outlook
As of September 28, 2014, our primary sources of liquidity were $12.4 million of cash and cash equivalents, as well as $25.0 million available to us under our Credit Facility.
On April 12, 2013, we entered into a three-year $25.0 million senior secured revolving credit facility with Silicon Valley Bank. Under the Credit Facility, advances are available based on (i) the achievement of certain quarterly levels of our consolidated EBITDA, as defined in the Credit Facility, and (ii) a borrowing base formula equal to the sum of up to (a) 80 percent of eligible accounts receivable and advance billings and (b) 30 percent of eligible inventory, minus any reserves established by the bank. As of September 28, 2014, we had no outstanding borrowing under the Credit Facility. As of September 28, 2014, the effective interest rate on any outstanding borrowing would have been 4.75 percent per annum. On October 21, 2014, we entered into an amendment with Silicon Valley Bank to amend the Credit Facility as described under Note 4. Revolving Credit Facility and Note 12. Subsequent Event of the notes to condensed consolidated financial statements.
In February 2014, we completed a registered public offering of 14.1 million newly issued shares of our common stock shares. The common stock was issued at a price to the public of $2.45 per share. We received net proceeds of approximately $31.7 million from the offering after deducting underwriting discounts and estimated offering expenses. We intend to use the net proceeds from this stock offering for general corporate purposes, which may include working capital, capital expenditures and other corporate expenses.
We believe our available financial resources are sufficient to fund our working capital and other capital requirements over the course of the next twelve months. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our net revenue, gross margin and operating expenses, as well as changes in our operating assets and liabilities. The cyclicality of the semiconductor industry makes it difficult to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of cash to fund inventory purchases. In addition, any ineffectiveness in our cost containment efforts may cause us to incur additional losses in the future and lower our cash balances. We may need additional funds to support our working capital requirements and operating expenses, or for other requirements.
Improvements in our results of operations and resulting cash position are largely dependent upon an improvement in the semiconductor equipment industry. We periodically review our liquidity position and may decide to raise additional funds on an opportunistic basis from sources such as an asset-backed financing agreement or the issuance of equity or debt securities through public or private financings. We currently have an effective omnibus shelf registration statement on file with the SEC that registers up to $25.5 million in securities that we may offer. These financing options may not be available on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders. If adequate funds are not available on acceptable terms, our ability to achieve our intended long-term business objectives could be limited.

23



Operating Activities
Net cash used in operations was $18.5 million for the nine months ended September 28, 2014, comprised primarily of $26.8 million of cash decreases reflected in the net change in assets and liabilities, partially offset by $4.9 million in net income and $3.4 million in non-cash charges. Cash flow decreases resulting from the net change in assets and liabilities consisted primarily of a $14.1 million decrease in accounts payable, a $5.6 million increase in inventory, a $4.9 million increase in accounts receivable and advance billings, a $3.1 million decrease in deferred revenue, a $1.5 million increase in prepaid expenses and other assets, partially offset by a $2.5 million increase in accrued compensation and benefits and other current liabilities. The increase in inventory primarily resulted from the receipt of inventory intended for sale in future quarters. The decrease in accounts payable was largely attributable to the timing of purchases and payments to vendors and services providers. The decrease in deferred revenue was primarily related to the timing of revenue recognition for deliverables under our sales agreements. Non-cash charges consisted primarily of $2.2 million of depreciation and amortization and $1.1 million of stock-based compensation.
Net cash used in operations was $21.5 million for the nine months ended September 29, 2013, comprised primarily of $13.5 million in net loss, partially offset by non-cash charges of $3.8 million and $11.9 million of cash decreases reflected in the net change in assets and liabilities. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of a $16.3 million increase in accounts receivable and advance billings and $0.5 million decrease in deferred revenue, partially offset by a $2.0 million decrease in prepaid expenses and other current assets, a $1.9 million increase in accounts payable, accrued compensation and benefits and other current liabilities and a $0.8 million decrease in inventory. The increase in accounts receivable and advance billings was primarily due to increased net sales and the timing of billing and collections during the third quarter of 2013, with our increased equipment sales back-end loaded during the quarter. The increase in accounts payable were largely attributable to a higher accounts payable balance resulting from the timing of purchases and payments to vendors and services providers, and partially offset by decreases in accrued compensation and benefits attributable to lower headcount and a decrease in accrued restructuring costs. The decrease in prepaid expenses and other current assets is primarily due to a decrease in deferred costs following customer acceptance of a system for which both revenue and costs were deferred as well as a decrease in prepaid value-added-tax due to a tax refund. Non-cash charges consisted primarily of $3.1 million of depreciation and amortization and $1.1 million of stock-based compensation partially offset by a $0.5 million decrease in deferred income taxes.
Cash provided by operations may fluctuate in future periods as a result of a number of factors, including fluctuations in our net revenue and operating results, amount of revenue deferred, inventory purchases, collection of accounts receivable and timing of payments.
Investing Activities
Net cash used in investing activities was $0.7 million in the nine months ended September 28, 2014, which primarily consisted of our capital spending.
Net cash used in investing activities was $1.3 million in the nine months ended September 29, 2013, which consisted of $1.1 million in capital spending and a $0.2 million increase in restricted cash.
Financing Activities
Net cash provided by financing activities was $18.0 million for the nine months ended September 28, 2014, which primarily consisted of approximately $31.7 million in net proceeds from our February 2014 stock offering and $0.2 million in proceeds from the issuance of common stock under our employee stock plans, partially offset by the repayment of $14.0 million of borrowings under our revolving credit facility.
Net cash provided by financing activities was $19.9 million for the nine months ended September 29, 2013, which consisted of $19.6 million in proceeds from our revolving credit facility, net of borrowing costs, and $0.3 million in proceeds from the issuance of common stock under our employee stock plans.
Off-Balance Sheet Arrangements
As of September 28, 2014, we did not have any significant "off-balance sheet" arrangements, as defined in Item 303 (a)(4)(ii) of Regulation S-K.

24



Contractual Obligations
On April 12, 2013, we entered into a three-year $25.0 million senior secured revolving credit facility with Silicon Valley Bank. During the first quarter of 2014 we repaid the $14.0 million outstanding on our Credit Facility, such that we had no outstanding borrowing as of September 28, 2014 under the Credit Facility. See Note 4. Revolving Credit Facility and Note 12. Subsequent Event of the notes to condensed consolidated financial statements.
Under U.S. GAAP, certain obligations and commitments are not required to be included in our condensed consolidated balance sheets. These obligations and commitments, while entered into in the normal course of business, may have a material impact on our liquidity. For further discussion of our contractual obligations, see our 2013 Annual Report on Form 10-K.

Recent Accounting Pronouncements
Information with respect to recent accounting pronouncements may be found in Note 1. Basis of Presentation and Significant Accounting Policies in the notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to various market risks related to fluctuations in foreign currency exchange rates and interest rates. We may use derivative financial instruments to mitigate certain risks related foreign exchange rates. We do not use derivatives or other financial instruments for trading or speculative purposes.
Interest Rate Risk
We are exposed to interest rate risk related to our borrowings. On April 12, 2013, we entered into a three-year $25 million senior secured revolving credit facility with Silicon Valley Bank. At our option, the borrowings under this credit facility can bear interest at an Alternate Base Rate (“ABR”) or Eurodollar Rate. ABR loans bear interest at a per annum rate equal to the greater of the Federal Funds Effective Rate plus 0.50 percent or the prime rate, plus an applicable margin that varies between 0.25 percent and 1.50 percent depending on our consolidated EBITDA for the four fiscal quarters most recently ended. Eurodollar loans bear interest at a margin over British Bankers' Association LIBOR Rate divided by 1 minus Eurocurrency Reserve Requirements. The applicable margin on Eurodollar loan varies between 3.25 percent and 4.50 percent depending on our consolidated EBITDA for the four fiscal quarters most recently ended.
As of September 28, 2014, we had no outstanding borrowing under the Credit Facility. As of September 28, 2014, the effective interest rate for any outstanding borrowing would have been 4.75 percent per annum.
On October 21, 2014, we entered into an amendment with Silicon Valley Bank to amend, among other terms, the effective interest rate on the Credit Facility. See Note 4. Revolving Credit Facility and Note 12. Subsequent Event of the notes to condensed consolidated financial statements.
Foreign Currency Risk
The functional currency of our foreign subsidiaries is their local currencies. Accordingly, all assets and liabilities of these foreign operations are translated using exchange rates in effect at the end of the period, and net sales and costs are translated using average exchange rates for the period. Gains or losses from translation of foreign operations are included as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets. Foreign currency transaction gains and losses are recognized in the accompanying condensed consolidated statements of operations as they are incurred. Because much of our net revenues and capital spending are transacted in U.S. dollars, we are subject to fluctuations in foreign currency exchange rates that could have a material adverse effect on our overall financial position, results of operations or cash flows, depending on the strength of the U.S. dollar relative to the currencies of other countries in which we operate. Exchange rate fluctuations of greater than ten percent, primarily for the U.S. dollar relative to the Euro, South Korean won, New Taiwan dollar and Singapore dollar, could have a material impact on our financial statements. Additionally, foreign currency transaction gains and losses fluctuate depending upon the mix of foreign currency denominated assets and liabilities and whether the local currency of an entity strengthens or weakens during a period. As of September 28, 2014, our U.S. operations had approximately $10.7 million, net, in foreign denominated operating inter-company payables. It is estimated that a ten percent fluctuation in the U.S. dollar relative to these foreign currencies would lead to a profit of $1.1 million (U.S. dollar strengthening), or a loss of $1.1 million (U.S. dollar weakening) on the translation of these inter-company payables, which would be recorded as other income (expense), net in our condensed consolidated statement of operations.

25



We recorded a minimal foreign currency exchange gain and a $0.3 million foreign currency exchange loss during the nine months ended September 28, 2014 and September 29, 2013, respectively, in other income (expense), net in the accompanying condensed consolidated statements of operations.
We included $1.8 million foreign currency translation adjustment loss and a $0.2 million foreign currency translation adjustment gain in the nine months ended September 28, 2014 and September 29, 2013, respectively, in the accompanying condensed consolidated statements of comprehensive income (loss) primarily due to the impact of currency exchange rates on the net foreign currency assets used in our foreign operations which are recorded in local currencies.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
We previously reported a material weakness in internal control over financial reporting related to accounting for the existence, valuation and presentation of inventory, which was described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2013. As previously reported, our management determined that we had various control deficiencies which, while individually were not considered a material weakness, were determined to constitute a material weakness in the aggregate.
Management has concluded that this material weakness is not yet deemed to be remediated as of September 28, 2014 due to the fact that an insufficient period of time has passed for management to test and document the effectiveness of our disclosure controls and procedures. As a result, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of September 28, 2014.
With the oversight of senior management and our audit committee, we have taken steps to enhance our internal controls over financial reporting, primarily through the hiring of personnel and the implementation of new processes and procedures that will address future one-time events such as the transfer of manufacturing operations from Dornstadt, Germany to Fremont, California. We expect that the material weakness will be remediated during fiscal year 2014 once these controls have been operational for a sufficient period of time to allow management to conclude that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as noted in the preceding paragraphs, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 28, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


26




PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the ordinary course of business, we are subject to claims and litigation, including claims that we infringe third party patents, trademarks and other intellectual property rights. Although we believe it is unlikely that any current claims or actions will have a material adverse impact on our operating results or our financial position, given the uncertainty of litigation, we cannot be certain of this. Moreover, the defense of claims or actions against us, even if not meritorious, could result in the expenditure of significant financial and managerial resources.
Our involvement in any patent dispute, other intellectual property dispute or action to protect trade secrets and know-how could result in a material adverse effect on our business. Adverse determinations in current litigation or any other litigation in which we may become involved and regulatory non-compliance, including with respect to export regulations, could subject us to significant liabilities to third parties or government agencies, require us to grant licenses to or seek licenses from third parties and prevent us from manufacturing and selling our products. Any of these situations could have a material adverse effect on our business.
ITEM 1A. RISK FACTORS
Because of the following factors, as well as other variables affecting our operating results, cash flows and financial condition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.
We are dependent on our revenue and the success of our cost reduction measures to ensure adequate liquidity and capital resources during the next twelve months.
We incurred operating losses and generated negative cash flows for the last four years. As of September 28, 2014, we had cash and cash equivalents of $12.4 million and working capital of $63.7 million. Our operations require careful management of our cash and working capital balances. Our liquidity is affected by many factors including, among others, fluctuations in our revenue, gross margin and operating expenses, as well as changes in our operating assets and liabilities, and availability of financing sources, including under our revolving credit facility. The cyclicality of the semiconductor industry makes it difficult for us to predict our future liquidity needs with certainty. Any upturn in the semiconductor industry would result in short-term uses of our cash to fund inventory purchases. In addition, the ineffectiveness of our cost reduction efforts may cause us to incur additional losses in the future and lower our cash balances.
We may need additional funds to support our working capital requirements, and operating expenses, or for other requirements. Historically, we have relied on a combination of fundraising from the sale of equity securities and cash generated from product, service and royalty revenues to provide funding for our operations. On April 12, 2013, we entered into a three-year $25.0 million senior secured revolving credit facility with Silicon Valley Bank (the “Credit Facility”). As of September 28, 2014, we had no outstanding borrowing under the Credit Facility. On October 21, 2014, we entered into an amendment with Silicon Valley Bank to amend the Credit Facility. See Note 4. Revolving Credit Facility and Note 12. Subsequent Event of the notes to condensed consolidated financial statements. If we do not comply with the affirmative and negative covenants contained in the Credit Facility, we may be in default under the Credit Facility, which may have a negative impact on our liquidity position through our inability to utilize any availability under the Credit Facility or an acceleration of any future amounts outstanding under the Credit Facility.
We will continue to review our expected cash requirements and take appropriate cost reduction measures to ensure that we have sufficient liquidity. Although we will pursue cost reduction measures, we are largely dependent upon improvement in the semiconductor equipment industry specifically, and general continued improvement in the economy as a whole, to increase our sales in order to improve our profitability and cash position. We periodically review our liquidity position and, in addition to the net proceeds from our February 2014 registered common stock offering of approximately $31.7 million, we may opportunistically seek to raise additional funds from a combination of sources including the issuance of equity or debt securities through public or private financings. In the event additional needs for cash arise, we also may seek to raise these funds externally through other means. The availability of additional financing will depend on a variety of factors, including among others, market conditions, the general availability of credit, our credit ratings, and our ability to maintain our listing on NASDAQ. As a consequence, these financing options may not be available to us on a timely basis, or on terms acceptable to us, and could be dilutive to our stockholders.
Our current liquidity position may result in risks and uncertainties affecting our operations and financial position, including the following:

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we may be required to reduce planned expenditures or investments;
we may be unable to compete in our newer or developing markets;
suppliers may require standby letters of credit before delivering goods and services, which will result in additional demands on our cash;
we may not be able to obtain and maintain normal terms with suppliers;
customers may delay or discontinue entering into contracts with us; and
our ability to retain management and other key individuals may be negatively affected.
Failure to generate sufficient cash flows from operations, raise additional capital or reduce spending could have a material adverse effect on our ability to achieve our intended long-term business objectives.
We identified three significant deficiencies in our internal control over financial reporting with respect to inventory that, when aggregated, constituted a material weakness in our internal control over financial reporting as of December 31, 2013. Our failure to establish and maintain effective internal control over financial reporting over inventory could result in our failure to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which in turn could cause the trading price of our common stock to decline.
In connection with our assessment of the effectiveness of internal control over financial reporting and the preparation of our financial statements for the year ended December 31, 2013, we identified three significant deficiencies in our internal control over financial reporting with respect to inventory that, when aggregated, constitute a material weakness in our internal control over financial reporting as of December 31, 2013. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
Our material weakness arose from our failure to maintain effective controls over the accounting for the existence, valuation and presentation of inventory. Specifically, we did not have controls that were adequately designed and operated effectively:
(i) To account for the impact of inter-company transitions of certain manufacturing operations from our Dornstadt, Germany location to our Fremont, California location on our excess and obsolete inventory reserve. This methodology error resulted in an understatement of inventory reserves in the second quarter of 2013 of approximately $0.3 million. In the fourth quarter of 2013 the methodology for calculating excess and obsolete reserves was modified by us and a reserve in the amount of $0.3 million was recorded in our financial statements such that the impact to the annual financial statements for the year ended December 31, 2013 was zero. Also related to our calculation of our excess and obsolete inventory reserve, an error was identified in the methodology for calculating the release of excess and obsolete reserves for inventory that has been sold to an end customer. In the fourth quarter of 2013 the transfer of certain inventory from our Dornstadt, Germany location to our Fremont, California location was treated as a sale to an end customer rather than as an inter-company transfer, leading to the improper release of the excess and obsolete reserve associated with that inventory. The impact of this unadjusted audit adjustment was an overstatement of income for the fourth quarter and year ended December 31, 2013 of $0.1 million.
(ii) To account effectively for the impact of inter-company transitions from Dornstadt on our inventory reconciliations. We identified this methodology error arising from the fact that our process was originally designed to accommodate only a relatively limited volume of inventory transfers between locations. As such, due to the high volume of activity associated with the transfer of manufacturing operations from Dornstadt, Germany to Fremont, California the methodology did not operate as designed. As a result, we recorded an adjustment to increase both inventory and accounts payable by $0.7 million for the period ended December 31, 2013. This audit adjustment had no impact on the results of operations for the year ended December 31, 2013 or for any interim period for the year ended December 31, 2013.
(iii) To verify the existence of inventory at company-owned warehouses at interim periods. We have historically relied upon cycle count procedures to substantiate the existence of physical inventory. However, in the first quarter of 2013 we identified that our cycle count procedures were not operating as designed and concluded that we could not rely on those cycle count procedures to obtain reasonable assurance as to the existence of physical inventory. As a result, we conducted a physical inventory observation in the fourth quarter of 2013. The result of our physical inventory observation was a write-off of inventory of approximately $0.6 million in the fourth quarter of 2013. Of this amount, $0.4 million related to each of the interim periods in fiscal 2013.
While none of these significant deficiencies was individually considered a material weakness, our management has determined that, in the aggregate, these control deficiencies constitute a material weakness, because they could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated

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financial statements that would not be prevented or detected. Because of this material weakness, management concluded that the Company did not maintain effective internal control over financial reporting as of each of December 31, 2013, March 30, 2014 and June 29, 2014, based on criteria in Internal-Control Integrated Framework (1992) issued by Committee of Sponsoring Organizations of the Treadway Commission (COSO). See Item 4. Controls and Procedures of this report for a further discussion.
With the oversight of senior management and our audit committee, we have commenced steps intended to address the underlying causes of the significant deficiencies, primarily through the implementation of new processes and procedures that will address future one-time events such as the transfer of manufacturing operations from Dornstadt, Germany to Fremont, California. We plan to remediate all of the control deficiencies underlying this material weakness by the end of 2014.
However, any failure to maintain or implement new or improved internal controls, or any difficulties that we may encounter in their maintenance or implementation, could result in additional significant deficiencies or material weaknesses, result in material misstatements in our financial statements and cause us to fail to meet our reporting obligations, which in turn could cause the trading price of our common stock to decline. In addition, any such failure has adversely affected, and could in the future adversely affect, the results of our periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are dependent on a highly concentrated customer base, and any delays, reduction or cancellation of purchases by these customers could harm our business. Additionally, we may not achieve anticipated revenue levels if we are not selected as “vendor of choice” for new or expanded customer fabrication facilities.
We derive most of our net revenue from the sale of systems to a relatively small number of customers, which makes our relationship with each customer critical to our business. For example, for the nine months ended September 28, 2014, three customers accounted for 10 percent or more of our total net revenue, representing approximately 52 percent, 12 percent and 10 percent of our total net revenue, respectively. In the year ended December 31, 2013, our three largest customers accounted for approximately 73 percent of our net revenue. For each of the year ended December 31, 2012 and 2011, our three largest customers accounted for approximately 60 percent of our net revenue. We currently depend on a few customers for a significant portion of our net revenue, and the delay, significant reduction in, or loss of, orders from these customers would significantly reduce our revenue and adversely impact our operating results. See Item 1. Business - Customers of 2013 of our Annual Report on Form 10-K for a detailed description of our customer concentration.
Because semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor fabrication facility, these manufacturers will tend to choose semiconductor equipment manufacturers based on product compatibility and proven performance. Changes in forecasts or the timing of orders from customers could expose us to the risks of inventory shortages, such as the shortages that resulted from the number of Helios XP system orders from foundry customers in the third quarter of 2013, or excess inventory, which occurred in the second quarter of 2012 as a result of the delay in orders for certain SUPREMA strip systems to a foundry. In addition, customer order cancellations, which are occurring more regularly in our business, could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. Any such changes, delays and cancellations in orders in turn could cause our operating results to fluctuate. If customer relationships are disrupted due to an inability to deliver sufficient products or for any other reason, it could have a significant negative impact on our business.
Although we maintain a backlog of customer orders with expected shipment dates within the next 12 months, customers may request delivery delays or cancellations, as they have been doing more regularly in our business, including the delay in the second quarter of 2012 described above. Customers in some regions place orders a few weeks before the shipment. As a result, our backlog may not be a reliable indication of future net revenue. If shipments of orders in backlog are canceled or delayed, net revenue could fall below our expectations and the expectations of market analysts and investors.
Once a semiconductor manufacturer selects a particular vendor’s capital equipment, the manufacturer generally relies upon equipment from this vendor of choice (“VOC”) for the specific production line application. In addition, the semiconductor manufacturer frequently will attempt to consolidate other capital equipment requirements with the same vendors. Accordingly, we may face narrow windows of opportunity to be selected as the VOC by new customers with significant needs. It may be difficult for us to sell to a particular customer for a significant period of time once that customer selects a competitor’s product. If we are unable to achieve broader market acceptance of our systems and technology, we may be unable to maintain and grow our business and our operating results and financial condition will be adversely affected.
We face stiff competition in the semiconductor equipment industry.
The semiconductor equipment industry is both highly competitive and subject to rapid technological change. Significant competitive factors include the following:
system performance;

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cost of ownership;
size of the installed base;
breadth of product line;
delivery speed; and
customer support.
Competitive pressure has been increasing in several areas. In addition to increased price competition, customers are waiting to make purchase commitments based on their end-user demand, which are then placed with requests for rapid delivery dates and increased product support. Most of our major competitors are larger than we are, have greater capital resources and may have a competitive advantage over us by virtue of having:
broader product lines;
greater experience with handling manufacturing cycles;
substantially larger customer bases; and
substantially greater customer support, financial, technical and marketing resources.
As we derive a substantial percentage of our revenues from a limited number of products, our business, operating results, financial condition, and cash flows could be adversely affected by a decline in demand for even a limited number of our products and a failure to achieve continued market acceptance of our key products.
Growth in the semiconductor equipment industry is increasingly concentrated in the largest companies, continuing the trend in increasing industry consolidation, such as the merger of Lam Research and Novellus Systems in 2012. Semiconductor companies are consolidating their vendor base and prefer to purchase from vendors with a strong, worldwide support infrastructure.
To expand our sales we must often displace the systems of our competitors or sell new systems to customers of our competitors. Our competitors may develop new or enhanced competitive products that offer price or performance features that are superior to our systems. Our competitors also may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion, sale and on-site customer support of their product lines. We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively.
The cyclical nature of the semiconductor industry has caused us to experience losses and reduced liquidity, and it may continue to negatively impact our financial performance.
The semiconductor equipment industry is highly cyclical and periodically has severe and prolonged downturns, which causes our operating results to fluctuate significantly. We are exposed to the risks associated with industry overcapacity, including decreased demand for our products and increased price competition.
The semiconductor industry has historically experienced periodic downturns due to sudden changes in customers’ requirements for new manufacturing capacity and advanced technology, which depend in part on customers’ capacity utilization, production volumes, access to affordable capital, end-user demand, consumer buying patterns, and inventory levels relative to demand, as well as the rate of technology transitions, and general economic conditions. Our business depends, in significant part, upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that open new or expand existing facilities. Periods of overcapacity and reductions in capital expenditures by our customers cause decreases in demand for our products. This could result in significant under-utilization in our factories. If existing customer fabrication facilities are not expanded and new facilities are not built, we may be unable to generate significant new orders and sales for our systems. During periods of declining demand for semiconductor manufacturing equipment, our customers typically reduce purchases, delay delivery of ordered products and/or cancel orders, resulting in reduced net sales and backlog, delays in revenue recognition and excess inventory for us. For example, we experienced a delay in the shipment of SUPREMA strip systems in the second quarter of 2012 as a result of softness in the industry. As a result, we had a reduction in our net sales in the quarter and the year, and consequently, lower results of operations and cash from operations. Increased price competition may also result as we compete for the smaller demand in the market, causing pressure on our gross margin and net income.
We must continually anticipate technology trends, improve our existing products and develop new products in order to be competitive. The development of new or enhanced products involves significant risks, additional costs and delays in revenue recognition. Technical and manufacturing difficulties experienced in the introduction of new products could be costly and could adversely affect our customer relationships.

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The markets in which our customers and we compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. Consequently, our success depends upon our ability to anticipate future technology trends and customer needs, to develop new systems and processes that meet industry standards and customer requirements and that compete effectively on the basis of price and performance.
Our development of new products involves significant risk, since the products are very complex and the development cycle is long and expensive. The success of any new system we develop and introduce is dependent on a number of factors, including our ability to correctly predict customer requirements for new processes, to assess and select the potential technologies for research and development and to timely complete new system designs that are acceptable to the market. We may make substantial investments in new technologies before we can know whether they are technically or commercially feasible or advantageous, and without any assurance that revenue from future products or product enhancements will be sufficient to recover the associated development costs. Not all development activities result in commercially viable products. We may not be able to improve our existing systems or develop new technologies or systems in a timely manner. We may exceed the budgeted cost of reaching our research, development and engineering objectives, and planned product development schedules may require extension. Any delays or additional development costs could have a material adverse effect on our business and results of operations.
Our products are complex, and we may experience technical or manufacturing inefficiencies, delays or difficulties in the prototype introduction of new systems and enhancements, or in achieving volume production of new systems or enhancements that meet customer requirements. Our inability, or the inability of our supply chain partners, to overcome such difficulties, to meet the technical specifications of any new systems or enhancements or to manufacture and ship these systems or enhancements in the required volume and in a timely manner would materially adversely affect our business and results of operations, as well as our customer relationships.
Our revenue recognition policies require that during the initial evaluation phase of a new product, customer acceptance needs to be obtained before we can recognize revenue on the product. Customer acceptance may not be completed in a timely manner for a variety of reasons, whether or not related to the quality and performance of our products. Any delays in customer acceptance may result in revenue recognition delays and have an adverse impact on our results of operations.
We may from time to time incur unanticipated costs to ensure the functionality and reliability of our products early in their life cycles, and such costs can be substantial. If we encounter reliability or quality problems with our new products or enhancements, we could face a number of difficulties, including reduced orders, higher manufacturing costs, delays in collection of accounts receivable and additional service and warranty expenses, all of which could materially adversely affect our business and results of operations. The costs associated with our warranties may be significant, and in the event our projections and estimates of these costs are inaccurate, our financial performance could be seriously harmed. In addition, if we experience product failures at an unexpectedly high level, our reputation in the marketplace could be damaged, and our business would suffer.
We are highly dependent on international sales, and face significant international business risks.
International sales accounted for 85 percent and 90 percent, respectively of our net sales for the nine months ended September 28, 2014 and the year ended December 31, 2013. International sales accounted for 86 percent of our net sales for the year ended December 31, 2012. We anticipate international sales will continue to account for the vast majority of our future net sales. Asia has been a particularly important region for our business, and we anticipate that it will continue to be important going forward. Our sales to customers located in Asia accounted for 80 percent of our net sales during the nine months ended September 28, 2014. Our sales to customers located in Asia accounted for 85 percent of our net sales for the year ended December 31, 2013 and 78 percent of our net sales for the year ended December 31, 2012. Because of our continuing dependence upon international sales, we are subject to a number of risks associated with international business activities, including:
burdensome governmental controls, laws, regulations, tariffs, duties, taxes, restrictions, embargoes or export license requirements;
unexpected changes in laws or regulations prompted by economic stress, such as protectionism, and other attempts to rectify real or perceived international trade imbalances;
exchange rate volatility;
the need to comply with a wide variety of foreign and U.S. customs, export and other laws;
political and economic instability;
government-sponsored competition;
differing labor regulations;

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reduced protection for, and increased misappropriation of, intellectual property;
difficulties in accounts receivable collections;
increased costs for product shipments and potential difficulties from shipment delays;
difficulties in managing distributors, representatives, contract manufacturers and suppliers;
difficulties in staffing and managing foreign subsidiary operations; and
natural disasters, acts of war, terrorism, widespread illness or other catastrophes affecting foreign countries.
Our sales to date have been denominated primarily in U.S. dollars; however future sales to Asian customers may be denominated in the customer's local currency. Our sales in foreign currencies are subject to risks of currency fluctuation. For U.S. dollar sales in foreign countries, our products may become less price competitive when the local currency is declining in value compared to the dollar. This could cause us to lose sales or force us to lower our prices, which would reduce our gross margins.
Significant fluctuations in our operating results are difficult to predict due to our lengthy sales cycle, and our results may fall short of anticipated levels, which could cause our stock price to decline.
Our systems revenues depend upon the decision of a prospective customer to increase or replace manufacturing capacity, typically involving a significant capital commitment. Accordingly, the decision to purchase our systems requires time-consuming internal procedures associated with the evaluation, testing, implementation and introduction of new technologies into our customers' manufacturing facilities. Even after the customer determines that our systems meet their qualification criteria, we may experience delays finalizing system sales while the customer obtains approval for the purchase, constructs new facilities or expands its existing facilities. Consequently, the time between our first contact with a customer regarding a specific potential purchase and the customer's placing its first order may last from one to two years or longer. We may incur significant sales and marketing expenses during this evaluation period, in addition to tying up substantial inventory in customer product evaluations. The length of this period makes it difficult to accurately forecast future sales. Also, any unexpected delays in orders could impact our revenue and operating results. If sales forecast for a specific customer are not realized, we may experience an unplanned shortfall in net revenue, and our quarterly and annual revenue and operating results may fluctuate significantly from period to period.
Our quarterly and annual revenue and operating results have varied significantly in the past and are likely to vary significantly in the future, which makes it very difficult for us to predict our future operating results. We incurred significant net losses between 2001 and 2003, yet were profitable for each of the years 2004 to 2007. We incurred net losses again from 2008 through the third quarter 2013, due to declining demand as a result of the weakness in the semiconductor equipment market and the global economy. We may not achieve profitability in future quarters and years. We will need to generate significant sales to achieve profitability, and we may not be able to do so. A substantial percentage of our operating expenses are fixed in the short term and we may continue to be unable to adjust spending to compensate for shortfalls in net revenue. As a result, we may incur losses in the future, which could cause the price of our common stock to decline further or remain at a low level for an extended period of time.
Any weakness in the global economy may negatively impact our financial performance.
The recessionary conditions of 2008 and 2009 in the global economy and the slowdown in the semiconductor industry impacted customer demand for our products and correspondingly, negatively impacted our financial performance.
There remains high unemployment in developed countries, concerns regarding the availability of credit, uncertainty about a sustained economic recovery in the U.S. and fears of further economic deterioration in Europe, China, and the developing world, which in turn, may lead to a global downturn. Any of these factors could have a negative impact on our business, or our financial condition.
Demand for semiconductor equipment depends on consumer spending. Future economic uncertainty may lead to a decrease in consumer spending and may cause certain of our customers to cancel or delay orders. In addition, if our customers have difficulties obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could lead to charges to our bad debt expense, if we are unable to collect accounts receivables. These conditions could also affect our key suppliers, which could affect their ability to supply parts to us, and result in delays of the completion of our systems and the shipment of these systems to our customers.
Because of the economic downturn and the uncertainty of any future decline in demand for our products due to slowdowns in the semiconductor industry, we are continuing to take, and may have to take additional, actions to reduce costs. These actions have reduced, and could further reduce, our ability to invest in research and development at levels we believe are desirable. If we are unable to effectively align our cost structure with prevailing market conditions, we will experience additional losses and additional reductions in our cash and cash equivalents. If we are not able to suitably adapt to these

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economic conditions in a timely manner or at all, our performance, cash flows, results of operations and ability to access capital could be materially and adversely impacted.
We are exposed to various risks relating to compliance with the regulatory environment, including export control laws material contracts provisions and conflict-mineral reporting, and non-compliance or non-performance with any of these items could result in adverse consequences and monetary fines or damages.
We are subject to various risks related to (1) disagreements and disputes between national and regional regulatory agencies related to international trade; (2) new, inconsistent and conflicting rules by regulatory agencies in the countries in which we operate; and (3) interpretation and application of different laws and regulations. If we are found by a court or regulatory agency to not be in compliance with the applicable laws and regulations, our business, financial condition and results of operations could be adversely affected.
As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S. these laws include the International Traffic in Arms Regulations (“ITAR”) administered by the State Department's Directorate of Defense Trade Controls, the Export Administration Regulations (“EAR”) administered by the Bureau of Industry and Security (“BIS”), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”). The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called “dual use” items, and ITAR governs military items listed on the United States Munitions List. Prior to shipping certain items, we must obtain an export license or verify that license exemptions are available. In addition, we must comply with certain requirements related to documentation, record keeping, plant visits and hiring of foreign nationals. Any failures to comply with these laws and regulations could result in fines, adverse publicity and restrictions on our ability to export our products, and repeat failures could carry more significant penalties. In 2008, we self-disclosed to BIS certain inadvertent EAR violations, and in April 2012, we entered into a settlement agreement with BIS that resolved in full all matters contained in our voluntary self-disclosure and paid a civil penalty of $250,000.
We are a party to governmental contracts that provide for liquidated damages in the event that we fail to comply with their covenants or requirements. These liquidated damage payments could be significant and may adversely impact our financial condition or results of operations.
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established new disclosure and reporting requirements for those companies who use "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries in their products, whether or not these products are manufactured by third parties. These new requirements could affect the sourcing and availability of minerals used in the manufacture of our products. We have to date incurred costs and expect to incur additional costs associated with complying with the disclosure requirements, including for example, due diligence in regard to the sources of any conflict minerals used in our products and the initial filing that reported our results, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. Additionally, we may face reputational challenges with our customers and other stakeholders because we have, to date, been unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures that we implement. We may also face challenges with government regulators and our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free. We expect to continue to incur significant costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products.
Because of competition for qualified personnel, we may not be able to recruit or retain necessary personnel, which could impede development or sales of our products.
Our growth will depend on our ability to attract and retain qualified, experienced employees. Our ability to attract employees may be harmed by our recent financial losses, which have impacted our available cash and our ability to provide performance-based annual cash incentives. Also, part of our total compensation program includes share-based compensation. Share-based compensation is an important tool in attracting and retaining employees in our industry. If the market price of our common shares declines or remains low, it may adversely affect our ability to attract or retain employees.
During periods of growth in the semiconductor industry, there is substantial competition for experienced engineering, technical, financial, sales and marketing personnel in our industry. In particular, we must attract and retain highly skilled design and process engineers. If we are unable to retain existing key personnel, or attract and retain additional qualified personnel, we may from time to time experience inadequate levels of staffing to develop and market our products and perform services for our customers. As a result, our growth could be limited, we could fail to meet our delivery commitments or we could experience deterioration in service levels or decreases in customer satisfaction.
The price of our common stock has fluctuated in the past and may continue to fluctuate significantly in the future, which may lead to losses by investors, delisting, securities litigation or hostile or otherwise unfavorable takeover offers.

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The market price of our common stock has been highly volatile in the past, and our stock price may decline in the future. For example, for the year ended December 31, 2013, the closing price range for our common stock was between $0.95 and $3.09 per share. Our stock may be subject to eventual delisting from NASDAQ if we do not maintain a minimum $1.00 per share trading price. In late 2012, we received a warning letter from NASDAQ as a result of our stock trading below $1.00 for a sustained period of time. While our stock price recovered to trade above $1.00 since January 7, 2013, any future decline below $1.00 per share may trigger a possible delisting by NASDAQ, and any delisting from NASDAQ would likely lead to less liquidity for our shareholders and increased volatility in our stock price.
The relatively low stock price makes us attractive to hedge funds and other short-term investors. This could result in substantial stock price volatility and cause fluctuations in trading volumes for our stock. Fluctuations in the trading price or liquidity of our common stock may harm the value of your investment in our common stock.
In addition, in recent years the stock market in general, and the market for shares of high technology stocks in particular, has experienced extreme price fluctuations. These fluctuations have frequently been unrelated to the operating performance of the affected companies. In the past, securities class action litigation often has been instituted against a company following periods of volatility in its stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources.
Our stock price has been below the 2009 to 2013 five-year peak of $5.46 for several years, and if net revenue do not return to the peak 2010 levels or we are unable to sustain profitability in the near term, we could be an attractive target for acquisition or be impacted by mergers and acquisitions by our competitors or other consolidation in the industry. An acquisition or merger could be hostile or on terms unfavorable to us, and may result in substantial costs and potential disruption to our business.
Other factors that may have a significant impact on the market price and marketability of our securities include changes in securities analysts' recommendations, short selling, and halting or suspension of trading in our common stock by NASDAQ.
We are subject to significant risks related to our operations.
We may outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and quality of our products.
From time to time, we may outsource product manufacturing to third-party service providers. Outsourcing has a number of risks and reduces our control over the performance of the outsourced functions. Significant performance problems by these third-party service providers could result in cost overruns, delayed deliveries, shortages, quality issues or other problems that could result in significant customer dissatisfaction and could materially and adversely affect our business, financial condition and results of operations. If for any reason one or more of these third-party service providers becomes unable or unwilling to continue to provide services of acceptable quality, at acceptable costs and in a timely manner, our ability to deliver our products to our customers could be severely impaired.
We depend upon a limited number of suppliers for some components and sub-assemblies, and supply shortages or the loss of these suppliers could result in increased cost or delays in the manufacture and sale of our products.
We rely, to a substantial extent, on outside vendors to provide many of the components and sub-assemblies of our systems. We obtain some of these components and sub-assemblies from a sole source or a limited group of suppliers. We generally acquire these components on a purchase order basis and not under long-term supply contracts. Because of our reliance on these vendors and suppliers, we may be unable to obtain an adequate supply of required components. When demand for semiconductor equipment is strong, our suppliers may have difficulty providing components on a timely basis.
In addition, during periods of shortages of components, we may have reduced control over pricing and timely delivery of components. We often quote prices to our customers and accept customer orders for our products prior to purchasing components and sub-assemblies from our suppliers. If our suppliers increase the cost of components or sub-assemblies, we may not have alternative sources of supply and may no longer be able to increase the price of the system being evaluated by our customers to cover all or part of the increased cost of components.
The manufacture of some of these components is an extremely complex process and requires long lead times. If we are unable to obtain adequate and timely deliveries of our required components, we may have to seek alternative sources of supply or manufacture such components internally. This could delay our ability to manufacture or ship our systems in a timely manner, causing us to lose sales, incur additional costs, delay new product introductions and harm our reputation. Historically, we have not experienced any significant delays in manufacturing due to an inability to obtain components, and we are not currently aware of any specific problems regarding the availability of components that might significantly delay the manufacturing of our systems in the future. Any inability to obtain adequate deliveries, or any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally, could delay our ability to ship our systems and could have a material adverse effect on us.

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Our gross margins may be impacted if we do not effectively manage our inventory and costs.
We need to manage our inventory of component parts, work-in-process and finished goods (principally comprised of products undergoing customer evaluations) effectively to meet customer delivery demands at an acceptable risk and cost. For both the inventories that support manufacture of our products and our spare parts inventories, if the anticipated customer demand does not materialize in a timely manner, we will incur increased carrying costs and some inventory could become excess or obsolete, resulting in write-offs, which would adversely affect our cash position and results of operations. The sale of this inventory during periods of increasing revenue could temporarily impact our gross margins favorably due to the adjusted carrying value of this inventory, and could result in future unpredictability in our gross margin estimates. In addition, we may be subject to higher production costs due to increasing freight, labor and other operating expenses in connection with the shipment of our products due to market factors, particularly heightened when we experience accelerated shipment schedules.
Our gross margins for sales of products that we manufacture in Germany may fluctuate due to changes in the value of the Euro.
We develop and manufacture our Millios product in Germany, where our costs for labor and materials are primarily denominated in Euros. Future increases in the value of the Euro, if any, could increase our development costs, our costs to manufacture systems, and our costs to purchase spare parts for products from our suppliers, which would make it more difficult for us to compete and could adversely affect our results of operations.
We primarily manufacture our products at one manufacturing facility and are thus subject to risk of disruption.
Although, from time to time, we outsource select core product manufacturing to third parties, we continue to produce our latest generation products at our principal manufacturing plant in Fremont, California and produce our Millios product at our research and pilot-line manufacturing facility in Dornstadt, Germany. We have limited ability to interchangeably produce our products at either facility, and in the event of a disruption of operations at one facility, our other facility may not be able to make up the capacity loss. Our operations could be subject to disruption for a variety of reasons, including, but not limited to, natural disasters, including earthquakes in California, work stoppages, operational facility constraints and terrorism. Such disruption could cause delays in shipments of products to our customers, result in cancellation of orders or loss of customers and seriously harm our business.
We self-insure certain risks including earthquake risk. If one or more of the uninsured events occurs, we could suffer major financial losses.
We purchase insurance to help mitigate the economic impact of certain insurable risks; however, certain other risks are uninsurable or are insurable only at significant cost or cannot be mitigated with insurance. An earthquake could significantly disrupt our principal manufacturing operations in Fremont, California, an area highly susceptible to earthquakes. It could also significantly delay our research and development efforts on new products, a significant portion of which is conducted in California. We self-insure earthquake risks because we believe this is a prudent financial decision based on the high cost and limited coverage available in the earthquake insurance market. If a major earthquake were to occur, we could suffer a major financial loss and face significant disruption in our business.
If we are unable to protect our intellectual property, we may lose valuable assets and experience reduced market share. Efforts to protect our intellectual property may be costly to resolve, require costly litigation and could divert management attention. We also agree to indemnify customers for certain claims, and such obligations are more likely to increase during downturns.
We rely on a combination of patents, copyrights, trademark and trade secret laws, non-disclosure agreements, and other intellectual property protection methods to protect our proprietary technology. Despite our efforts to protect our intellectual property, we may from time to time be subject to claims of infringement of other parties' patents or other proprietary rights. If this occurs, we may not be able to prevent their use of such technology. Our means of protecting our proprietary rights may not be adequate and our patents may not be sufficiently broad to protect our technology. Any patents owned by us could be challenged, invalidated or circumvented and any rights granted under any patent may not provide adequate protection to us.
Furthermore, we may not have sufficient resources to protect our rights. When we outsource portions of our manufacturing, we are less able to protect our intellectual property, and rely more on our service providers to do so. Our service providers may not always be able to assure that their employees or former employees do not use our intellectual property for their own account to compete with us. Our competitors may independently develop similar technology, or design around patents that may be issued to us. In addition, the laws of some foreign countries may not protect our proprietary rights to as great an extent as do the laws of the United States and it may be more difficult to monitor the use of our intellectual property in such foreign countries. As a result of these threats to our proprietary technology, we may have to resort to costly litigation to enforce our intellectual property rights.

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Customers may request that we indemnify them or otherwise compensate them because of claims of intellectual property infringement made against them by third parties. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets, even if the claims are without merit, could be very expensive to defend and could divert the attention of our management. Adverse determinations in any litigation could subject us to significant liabilities to third parties, require us to seek costly licenses from third parties and prevent us from manufacturing and selling our products. Royalty or license agreements, if required, may not be available on terms acceptable to us, or at all. Any of these situations could have a material adverse effect on our business and operating results in one or more countries where we do business.
In the normal course of business, we indemnify customers with respect to certain matters, for example if our tool infringes the intellectual property rights of any third party or if we breach any promise in our contract with the customer. During downturns in general or adverse industry specific economic conditions, our customers may feel they have greater leverage in negotiating with us and may require that the extent and scope of our obligation to indemnify them be expanded. In the future, our financial performance could be materially adversely affected if we expend significant amounts in defending or settling any claims raised under customer indemnification provisions in our contract.
Our failure to comply with environmental or safety regulations could result in substantial liability.
We are subject to a variety of federal, state, local and foreign laws, rules, and regulations relating to environmental protection and workplace safety. These laws, rules and regulations govern the use, storage, discharge and disposal of hazardous chemicals during manufacturing, research and development and sales demonstrations, as well as governmental standards for workplace safety. If we fail to comply with present or future regulations, especially in our manufacturing facilities in the U.S. and Germany, we could be subject to substantial liability for cleanup efforts, personal injury, fines or suspension or cessation of our operations. We may be subject to liability if we have past violations. Restrictions on our ability to expand or continue to operate at our present locations could be imposed upon us as a result of such laws, rules and regulations, and we could be required to acquire costly remediation equipment or incur other significant expenses.
Any future business divestitures or acquisitions may disrupt our business, diminish stockholder value or distract management attention.
We may seek to divest of certain assets or businesses from time to time, especially if we need additional liquidity or capital resources. When we make a decision to sell assets or a business, we may encounter difficulty completing the transaction as a result of a range of possible factors such as new or changed demands from the buyer. These circumstances may cause us to incur additional time or expense or to accept less favorable terms, which may adversely affect the overall benefits of the transaction.
As part of our ongoing business strategy, we may consider acquisitions of, or significant investments in, businesses that offer products, services and technologies complementary to our own. Such acquisitions could materially adversely affect our operating results and/or the price of our common stock. Acquisitions also entail numerous risks, including:
difficulty of assimilating the operations, products and personnel of the acquired businesses and possible impairments caused by this;
potential disruption of our ongoing business;
unanticipated costs associated with the acquisition;
inability of management to manage the financial and strategic position of acquired or developed products, services and technologies;
inability to maintain uniform standards, controls, policies and procedures; and
impairment of relationships with employees and customers that may occur as a result of integration of the acquired business.
To the extent that shares of our stock or other rights to purchase stock are issued in connection with any future acquisitions, dilution to our existing stockholders will result, and our earnings per share may suffer. We may be required to incur debt to pay for any future acquisitions, which could subject us to restrictive financial covenants and other leverage limitations. Any future acquisitions may not generate additional revenue or provide any benefit to our business, and we may not achieve a satisfactory return on our investment in any acquired businesses.
Divestitures, acquisitions and other transactions are inherently risky, and we cannot provide any assurance that our previous or future transactions will be successful. The inability to effectively manage the risks associated with these transactions could materially and adversely affect our business, financial condition or results of operations.

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To the extent we are leveraged financially, it could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, to protect and enforce our intellectual property and other needs.
In April 2013, we entered into a three-year $25.0 million senior secured revolving credit facility with Silicon Valley Bank. As of December 31, 2013, we had $14.0 million outstanding borrowing under the Credit Facility. As of September 28, 2014, we did not have any debt outstanding under the Credit Facility and had availability to borrow an additional $25.0 million under the Credit Facility. The degree to which we are leveraged could have important consequences, including, but not limited to, the following:
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited;
a substantial portion of our cash flows from operations in the future will be dedicated to the repayment of the Credit Facility; and
we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.
In 2014, we have entered into several amendments and waivers of our credit facility with Silicon Valley Bank that amended certain financial covenants and waived compliance with certain covenants. We may not be able to obtain waivers of covenants in the future, and a failure to comply with the covenants and other provisions of the Credit Facility could result a lack of availability for borrowing under the Credit Facility or events of default, which could permit acceleration of repayment of all amounts due under the Credit Facility. Any required repayment of our Credit Facility as a result of a fundamental change or other acceleration would lower our current cash on hand such that we would not have those funds available for use in our business.
If we are at any time unable to generate sufficient cash flows from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.
Changes in tax rates or tax liabilities could affect results.
We are subject to taxation in the U.S. and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the applicable tax laws, composition of earnings in countries with differing tax rates or our valuation and utilization of deferred tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our results of operations.
Our restated certificate of incorporation and restated bylaws, our stockholder rights plan and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.
Our restated certificate of incorporation, our restated bylaws, our stockholder rights plan and Delaware law contain provisions that might enable our management to discourage, delay or prevent a change in control. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. Pursuant to such provisions:
our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;
our board of directors is staggered into three classes, only one of which is elected at each annual meeting;
stockholder action by written consent is prohibited;
nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;

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certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advance notice requirements and action of stockholders by written consent may only be amended with the approval of stockholders holding 66 2/3 percent of our outstanding voting stock;
the ability of our stockholders to call special meetings of stockholders is prohibited; and
subject to certain exceptions requiring stockholder approval, our board of directors is expressly authorized to make, alter or repeal our bylaws.
In addition, the provisions in our stockholder rights plan could make it more difficult for a potential acquiror to consummate an acquisition of our company. We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15 percent or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15 percent or more of our outstanding voting stock.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5.
OTHER INFORMATION
On October 31, 2014, Mr. Tyler Purvis and the Company entered into an Executive Change of Control Agreement. The agreement has an initial two year term with an automatic renewal for additional one year periods, unless terminated by either party at least 60 prior to the date of automatic renewal.

Mr. Purvis' agreement specifies, that if, during the Change of Control Period, his employment is terminated (a) by the Company for any reason other than for Good Cause or (b) by Mr. Purvis for Good Reason, then, subject to Mr. Purvis signing and not revoking a release of claims with the Company, he will receive (i) a cash payment equal to (A) the greater of his base salary for the twelve months preceding the Change of Control, or (B) his then-current annual base salary, plus 100% of his annual target bonus award, (ii) full vesting of all of his outstanding stock options, restricted stock units, and any other outstanding awards, and (iii) reimbursement of his medical and dental insurance benefits (and for his dependents) under COBRA for a period of twelve months.

Under the agreement, "Change of Control" is defined as (a) an event or series of events wherein (i) the shareholders of the Company immediately before the event or series of events do not retain immediately after the event or series of events direct or indirect beneficial ownership of more than than 50% of the total combined voting power of the outstanding voting stock of the Company or the surviving corporation; or (ii) a liquidation or dissolution of the Company.

Under the agreement, "Good Cause" is defined as (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company, (ii) dishonesty, material breach of any agreement with the Company, or intentional misconduct, or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person; and "Good Reason" is defined as, without written consent, (i) a significant reduction by the Company in the executive's annual base salary, (ii) the failure of the Company to obtain an agreement from any successor to the Company, or purchaser of all or substantially all of the Company's assets, to assume the Agreement, (iii) the assignment of the executive to duties which reflect a material adverse change in authority, responsibility or status with the Company or any successor, or (iv) the Company requiring the executive to reside or be based at a location 50 miles or more from the location where the executive was based immediately prior to the Change of Control. The executive will not resign for Good Reason without first providing the Company with written notice within 60 days of the event that the executive believes constitutes "Good Reason" specifically identifying the

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acts or omissions constituting the grounds for Good Reason, and a reasonable cure period of not less than 30 days following the date of such notice.

The foregoing summary is qualified in its entirety by reference to the agreement, which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.

ITEM 6.
Exhibits
 
 
 
 
 
 
 
 
 
 
Exhibit
 
 
Incorporated By Reference
 
Filed
Number
 
Description
Form
 
Date
 
Number
 
Within
3.1
 
Amended and Restated Certificate of Incorporation of Mattson Technology, Inc.
8-K/A
 
1/30/2001
 
3(i)
 
 
3.2
 
Amended and Restated Bylaws of Mattson Technology, Inc.
8-K
 
12/22/2010
 
3.1
 
 
10.1
 
Amendment Agreement No. 4 dated October 21, 2014, by and between Mattson Technology, Inc. and Silicon Valley Bank
8-K
 
10/23/2014
 
10.1
 
 
10.2 +
 
Executive Change of Control Agreement, dated October 31, 2014, by and between Mattson Technology, Inc. and Tyler Purvis
 
 
 
 
 
 
X
31.1
 
Certification of Chief Executive Officer Pursuant to Sarbanes‑Oxley Act Section 302(a)
 
 
 
 
 
 
X
31.2
 
Certification of Chief Financial Officer Pursuant to Sarbanes‑Oxley Act Section 302(a)
 
 
 
 
 
 
X
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document.
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
X

+    Management contract or compensatory plan or arrangement.


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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 hereunto duly authorized.
 
MATTSON TECHNOLOGY, INC.
 
(Registrant)

November 5, 2014
 
By: /s/ FUSEN E. CHEN
 
Fusen E. Chen
President and Chief Executive Officer
(Principal Executive Officer)

November 5, 2014
 
By: /s/ J. MICHAEL DODSON
 
J. Michael Dodson
Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary
(Principal Financial Officer)

November 5, 2014
 
By: /s/ TYLER PURVIS
 
Tyler Purvis
Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer)

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