Statements contained in this Quarterly Report on Form 10-Q which are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on management's estimates, projections and assumptions that underlie such statements at the time they are made. Forward-looking statements may contain words such as "may," "will," "should," "would," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this Quarterly Report on Form 10-Q include statements regarding:

º key trends in the semiconductor industry that are driving growth;
º the sufficiency of funds and sources of liquidity;
º estimates of capital expenditures;
º the level of research and development expenditures;
º the ability to finance activities;
º our expected effective tax rate;
º accounting policies and estimates; and
º effects of new accounting standards.

Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. The risks, uncertainties and other important factors that may cause our results to differ materially from those projected in such forward-looking statements are detailed under the heading "Risk Factors" and elsewhere in our Annual Report on Form 10-K for our fiscal year ended September 30, 2008. We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

Documents to Review in Connection with Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes presented in this Form 10-Q and the financial statements and notes in our last filed Annual Report on Form 10-K for a full understanding of our financial position and results of operations for the three month period ended December 31, 2008.

Overview

We design, manufacture, install and service highly-engineered equipment for use in the fabrication of semiconductor devices. Our products are focused on the wet chemical process steps in integrated circuit, or IC, manufacturing and include systems for wafer surface preparation and electrochemical deposition, or ECD, applications. Our surface preparation systems are designed for Front End of Line (FEOL), Back End of Line (BEOL) and wafer level packaging of ICs processes. Our single-wafer FEOL surface preparation systems are used for photoresist stripping, post etch and pre-diffusion cleans. Our BEOL surface preparation systems are used for polymer removal and packaging applications. Our ECD systems are used to plate copper and other metals, which are used for the IC's internal wiring, or interconnects; to plate solder and lead free solder bumps for wafer level packaging applications; and to plate other metals for various semiconductor and related applications. Also, our surface preparation systems are used for cleaning and etching processes for wafer level packaging. Our primary product for all of these processes is the Raider platform, which is a multi-chamber single-wafer tool. Our products address critical applications within the semiconductor manufacturing process, and help enable our customers to manufacture more advanced semiconductor devices that feature higher levels of performance. The fabrication of semiconductor devices typically requires several hundred manufacturing steps, with the number of steps continuing to increase for advanced devices. Due to the breadth of our product portfolio and advanced technology capabilities, our solutions address over 150 of these manufacturing steps.

Our management focuses on revenues, gross margin, operating expenses and profitability in managing our business. In addition to these financial measures found in our condensed consolidated financial statements, we also use bookings, backlog, shipments and deferred revenue as key performance indicators. Bookings are firm orders for which we have received written customer authorization in the fiscal period. Backlog is the balance of undelivered orders at the end of a fiscal period. In order to be included in bookings or backlog, an order must be scheduled to ship within the next 12 months. Backlog and forecasted orders drive our production schedule. Shipments measure how well we have met our production plan and are viewed as a primary measure of factory output. Deferred revenue primarily represents tool shipments for which we are awaiting final customer acceptance.

Our results of operations in the first quarter of fiscal 2009 were impacted by the weakening global economy. Many of our customers slowed their capital spending with the onset of the credit crisis and the resulting uncertainty in the worldwide economy. Customers have delayed capital expenditures decisions and also pushed out delivery dates for tools already ordered. Our results of operations were also impacted by the announcement that a customer owing approximately $3.5 million filed for insolvency in a German court in late January 2009.

In response to the challenges facing us as result of the crisis in the global economy, we announced and implemented cost reduction plans in both November 2008 and January 2009 in an effort to address customer push-outs of deliveries and realign our cost structure with forecasted business activity levels. The cost reduction plan in the first quarter consisted primarily of a 12% reduction in our worldwide work force, management pay cuts, reduced overtime and a three-week facilities shutdown in December 2008. One-time involuntary termination costs of $881,000 were reported as a separate component of operating expenses in our fiscal 2009 first quarter. We realized savings of approximately $5.7 million, net of downsizing costs from these actions. We implemented similar measures in the second quarter by reducing our world wide workforce by an additional 26%, increasing and extending the pay cuts to all salaried employees, reducing the work week for our hourly employees and requiring mandatory leave. We estimate additional downsizing costs of $1.6 million will be reported in the second quarter of fiscal 2009 and expect ongoing quarterly savings of approximately $15 million from the combination of these actions. We have lowered our breakeven point by approximately $100 million annually since the end of fiscal 2008. In the current business climate, visibility as to future results is extremely difficult to forecast.

A summary of key factors which impacted our financial performance during the first quarter includes:

º First quarter fiscal 2009 bookings were $22.1 million, down from $63.8 million in the first quarter of fiscal 2008.

º Shipments in the first quarter of fiscal 2009 were $31.7 million as compared with $50.5 million in the first quarter of fiscal 2008.

º Net loss was $7.4 million on revenues of $33.1 million as compared with a net loss of $776,000 on revenues of $48.6 million during the first quarter of fiscal 2008.

º Our gross margin was 42.8% of net sales as compared with a gross margin of 49.7% of net sales in the first quarter of fiscal 2008.

Results of Operations

The following table sets forth our condensed consolidated results of operations
for the periods indicated as a percentage of net sales:

                                                      Three Months Ended
                                               --------------------------------
                                                December 31,      December 31,
                                                    2008              2007
                                               --------------     -------------
      Net sales                                         100.0 %           100.0 %
      Cost of sales                                      57.2 %            50.3 %
                                               --------------     -------------
      Gross profit                                       42.8 %            49.7 %
      Operating expenses:
       Selling, general and administrative               55.8 %            38.5 %
       Research and development                          23.7 %            14.3 %
       Downsizing costs                                   2.7 %              -- %
      Total operating expenses                           82.2 %            52.8 %
                                               --------------     -------------
      Loss from operations                              (39.4 )%           (3.1 )%
      Other income (loss), net                           (1.1 )%            0.9 %
                                               --------------     -------------
      Loss before income taxes                          (40.5 )%           (2.2 )%
      Income tax benefit                                (18.1 )%           (0.6 )%
                                               --------------     -------------
      Net loss                                          (22.4 )%           (1.6 )%
                                               --------------     -------------

First Quarter of Fiscal 2009 Compared with First Quarter of Fiscal 2008

Net Sales

                                        Three Months Ended
                                  -------------------------------
                                   December 31,     December 31,
                                       2008             2007
                                  --------------   --------------
                                          (In thousands)
                    Net sales       $     33,066    $      48,592

Net sales consist of revenues from sales of semiconductor equipment, spare parts and service and royalties. Our revenue recognition policy provides that revenue from sales of semiconductor equipment may be recognizable upon shipment if the tool incorporates proven technology ("existing tool") and is shipped to a customer environment in which we have already successfully installed and gained acceptance of our products and the revenue recognition criteria in SEC Staff Accounting Bulletin (SAB) 104, "Revenue Recognition" have been met. Alternatively, revenue will be deferred and only recognized upon final customer acceptance for tools that are new technology products ("new tools") or where an existing tool is sold into a new customer environment. Revenue for elements other than equipment, such as installation revenue, is included in tool acceptance revenue.

Our products are highly customized. Each customer has specific technical requirements for the performance of the equipment in the fabrication of semiconductor devices. Consequently, the specific terms of the acceptance provisions are negotiated with each customer on a tool-specific basis in order to reflect the technical specifications that will be used to determine whether the tool passes the applicable acceptance tests. These acceptance specifications are lengthy, technically complex and vary greatly from customer to customer and product to product.

We have a proven track recording of obtaining customer acceptances within a reasonable timeframe. In the rare event when acceptance does not occur because the customer does not believe that the tool has met the applicable technical specifications, the parties treat the matter as a contractual issue that needs to be resolved before the customer accepts the equipment. That resolution can take many different forms, including re-testing the equipment, making technical modifications to resolve the disagreement or extending the warranty to accommodate a delayed acceptance. Whether or not a customer may have any further remedy where a resolution cannot be agreed between the parties, including any right of return of the equipment, would be a question of contract interpretation that ultimately would have to be adjudicated in accordance with applicable law.

Geographically, our sales mix year-to-date was weighted toward North America and Europe with Asian sales declining as the major foundries placed their capital spending budgets on hold.

Gross Profit

                                               Three Months Ended
                                         -------------------------------
                                          December 31,     December 31,
                                              2008             2007
                                         --------------   --------------
                                             (Dollars in thousands)
             Gross profit                  $     14,161    $      24,172
             Gross margin percentage               42.8 %           49.7 %

Gross profit decreased by $10.0 million or 41.4% in the first quarter of fiscal 2009 compared with the first quarter of fiscal 2008.

Gross profit decreased in absolute dollars because of lower sales volumes. Our gross margin declined 6.9 percentage points from the first quarter of fiscal 2008 primarily due to a higher than normal level of under-absorbed overhead costs because of under-utilized plant capacity during the quarter and increased inventory reserves taken in response to the worldwide economic slowdown. These increases were partially offset by improved spare parts and service margins. Tool gross margins were flat as compared with the first quarter of fiscal 2008.

Selling, General and Administrative

                                                     Three Months Ended
                                               -------------------------------
                                                December 31,     December 31,
                                                    2008             2007
                                               --------------   --------------
                                                   (Dollars in thousands)
       Selling, general and administrative       $     18,463    $      18,696
       Percentage of net sales                           55.8 %           38.5 %

Selling, general and administrative (SG&A) expenses include employment costs for sales, marketing, customer support and administrative personnel as well as travel, communications, professional fees and expenses related to sales and service offices at North American and international locations. In the first quarter of fiscal 2009, SG&A expenses were essentially flat as compared with the first quarter of fiscal 2008.

Employment costs decreased approximately $1.7 million or 16% in the first quarter of fiscal 2009 as compared with the first quarter of fiscal 2008 as a result of our cost reduction program. Because of lower business volumes and product mix, commission expense declined approximately 49%. Travel and professional fees also decreased in the quarterly comparison. These gains were offset by the $3.5 million write down of a customer receivable related to an announcement that the customer had filed for insolvency in a German court on January 23, 2009.

Research and Development

                                                Three Months Ended
                                         --------------------------------
                                          December 31,      December 31,
                                              2008              2007
                                         --------------    --------------
                                              (Dollars in thousands)
            Research and development       $      7,834       $     6,979
            Percentage of net sales                23.7 %            14.3 %

Research and Development (R&D) expense consists of employment costs, project materials, laboratory costs, consulting fees and other costs associated with our product development efforts. In the first quarter of fiscal 2009, R&D expense increased approximately $855,000 as compared to the first quarter of fiscal 2008.

Our research and development expense has fluctuated from quarter-to-quarter in the past. We expect such fluctuations to continue in the future, both in absolute dollars and as a percentage of net sales, primarily due to the timing of expenditures and fluctuations in the level of net sales in a given quarter. We expect to continue to fund research and development expenditures with a multi-year perspective and are committed to technology leadership in our sector of the semiconductor equipment industry.

Downsizing Costs

                                               Three Months Ended
                                        ---------------------------------
                                         December 31,       December 31,
                                             2008               2007
                                        --------------     --------------
                                             (Dollars in thousands)
            Downsizing costs               $       881            $    --
            Percentage of net sales                2.7 %               -- %

In November 2008, we announced and implemented a plan to align our cost structure with then current business activity levels. The cost reduction plan consisted primarily of a 12% reduction in our worldwide work force, management pay cuts, reduced overtime and a three-week facilities shutdown in December 2008. One-time involuntary termination costs of $881,000 were reported as a separate component of operating expenses in our fiscal 2009 first quarter. All costs related to the downsizing plan were fully incurred in the first quarter of fiscal 2009.

Our fiscal 2009 first quarter operating results included savings of approximately $5.7 million, net of downsizing costs, as employment, travel, and general business expenses declined from fourth quarter fiscal 2008 levels in

response to our cost reduction plan

Other Income, Net

                                                     Three Months Ended
                                              --------------------------------
                                               December 31,      December 31,
                                                   2008              2007
                                              --------------    --------------
                                                       (In thousands)
        Interest income                         $         39      $         96
        Interest expense                                (121 )            (111 )
        Foreign exchange gain (loss)                    (376 )             278
        Other                                             85               184
                                              --------------    --------------
        Total other income (expense), net       $       (373 )    $        447
                                              --------------    --------------

Net other income, expense decreased $820,000 to a net other expense of $373,000 in the first quarter of fiscal 2009 as compared with a net other income of $447,000 in the first quarter of fiscal 2008. Foreign exchange gain/loss decreased $654,000 to a $376,000 expense primarily related fluctuations in the Yen to U.S. Dollar exchange rate.

Income Taxes

                                             Three Months Ended
                                       -------------------------------
                                       December 31,      December 31,
                                           2008              2007
                                       -------------    --------------
                                               (In thousands)
                Income tax benefit       $    (5,969 )    $       (280 )

Our estimated effective tax rate is 39% for the three months ended December 31, 2008 as compared to an estimated effective tax rate of 36% for the three months ended December 31, 2007. Our fiscal year 2009 tax rate is higher than in fiscal 2008 due to the extension of the federal research credit during the quarter.

Backlog and Deferred Revenue

                                                         December 31,       December 31,
                                                             2008               2007
                                                         -------------     --------------
                                                              (Dollars in millions)
Backlog                                                   $       44.9       $       73.6
Percentage change in backlog year-over-year                      (39.0 )%            15.0 %
Deferred revenue                                          $       12.2       $       17.3
Percentage change in deferred revenue year-over-year             (29.5 )%            66.3 %

Approximately 83% of our current backlog is for Raider tools. Deferred revenue decreased $5.1 million at December 31, 2008 as compared with December 31, 2007. Current revenue deferrals include all or a part of 29 Raiders as compared with 27 Raiders at December 31, 2007. The fiscal 2009 figure includes a higher percentage of Raiders that represented shipments of new tools or to new customer environments requiring full deferral of revenue on those tools. The installation component of deferred revenue decreased because we have been able to negotiate 100% net payments terms.

We include in backlog those customer orders for which we have written customer authorization and for which shipment is scheduled within the next 12 months. Orders are generally subject to cancellation or rescheduling by customers with limited or no cancellation fees. As the result of systems ordered and shipped in the same quarter, possible changes in customer delivery dates, cancellations and shipment delays, the backlog at any particular date and the bookings for any particular period are not necessarily indicative of actual revenue for any succeeding period. In particular, during periods of downturns in the semiconductor industry we have experienced cancellations and significant shipment delays.

Deferred profit included in our current liabilities is derived from deferred revenue, which primarily relates to equipment shipped to customers that has not been accepted by the customer, less the deferred cost of sales, including warranty and installation, and commission expenses. Deferred revenue is not included in orders backlog. The components of deferred profit are as follows:

                                                              December 31,       September 30,
                                                                  2008               2008
                                                             --------------     ---------------
                                                                       (In thousands)
Deferred revenue                                              $      12,194      $       13,570
Deferred cost of sales - manufacturing costs                         (5,250 )            (4,605 )
Deferred cost of sales - warranty and installation costs             (1,242 )            (1,125 )
Deferred SG&A expense - commissions                                    (123 )              (114 )
                                                             --------------     ---------------
Deferred profit                                               $       5,579      $        7,726
                                                             --------------     ---------------

Stock-Based Compensation

Effective the beginning of fiscal 2006, we adopted Statements of Financial Accounting Standards (SFAS) No. 123(R), "Share-Based Payment," (SFAS No. 123(R)) and elected to adopt the modified prospective application method. SFAS No. 123(R) requires us to use a fair-value based method to account for stock-based compensation. Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as expense over the employees' requisite service period. We have issued both restricted stock awards and stock options. The fair value of each stock option grant is estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Our employee stock options have characteristics that differ from those of publicly traded options.

Total compensation cost for all award types recorded in the first quarter of fiscal 2009 and fiscal 2008 was $300,000 and $699,000, respectively, or $183,000 and $447,000 after tax, respectively, in each period, an impact of approximately $0.01 per basic and diluted share in both periods.

. . .