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 expected savings and extinguishment of liability in the fourth quarter from cost reduction plans;
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 Conjunction 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 and nine month periods ended June 30, 2009.

Overview

We design, manufacture, install and service highly-engineered equipment for use in the fabrication of semiconductor devices and related devices for solar, LED and hard-disk media. 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. The Company's surface preparation systems are designed for Front End of Line (FEOL), Back End of Line (BEOL) and wafer level packaging of ICs processes. The single-wafer FEOL surface preparation systems are used for photoresist stripping, post etch and pre-diffusion cleans. The BEOL surface preparation systems are used for polymer removal and backside etch applications. Our surface preparation systems are also used for cleaning and etching processes for wafer level packaging and for processing wafers used in the fabrication of solar panels. Our ECD systems are used to plate copper and other metals, which are used for the IC's internal wiring, or interconnects; to plate copper for through-silicon via plating used in chipstacking; to plate solder and lead free solder bumps for wafer level packaging applications; and to plate other metals for various semiconductor and related applications. The 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.

Key Performance Indicators

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.

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

º Third quarter fiscal 2009 bookings were $32.6 million, up from $24.6 million in the second quarter of fiscal 2009 and down from $67.1 million in the third quarter of fiscal 2008.

º Shipments in the third quarter of fiscal 2009 were $33.7 million as compared with $63.8 million in the third quarter of fiscal 2008.

º Net loss was $1.6 million on revenues of $31.8 million as compared with a net income of $3.4 million on revenues of $67.0 million during the third quarter of fiscal 2008.

º Our gross margin was 45.2% of net sales as compared with a gross margin of 47.9% of net sales in the third quarter of fiscal 2008.

º Cash and cash equivalents, including restricted cash, was $44.3 million as of June 30, 2009.

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                 Nine Months Ended
                              -----------------------------     -----------------------------
                                June 30,         June 30,         June 30,         June 30,
                                  2009             2008             2009             2008
                              ------------     ------------     ------------     ------------
Net sales                            100.0 %          100.0 %          100.0 %          100.0 %
Cost of sales                         54.8 %           52.1 %           57.4 %           51.6 %
                              ------------     ------------     ------------     ------------
Gross profit                          45.2 %           47.9 %           42.6 %           48.4 %
Operating expenses:
 Selling, general and
administrative                        33.1 %           28.7 %           43.1 %           32.5 %
 Research and development             18.7 %           11.8 %           21.8 %           12.2 %
 Downsizing costs                      0.5 %            --%              2.8 %            --%
 Gain on sale of assets               (1.3 )%           --%             (0.4 )%           --%
                              ------------     ------------     ------------     ------------
Total operating expenses              51.0 %           40.5 %           67.3 %           44.7 %
                              ------------     ------------     ------------     ------------
Income (loss) from
operations                            (5.8 )%           7.4 %          (24.7 )%           3.7 %
Other income (expense),
net                                   (1.1 )%          (0.4 )%          (0.8 )%           0.3 %
                              ------------     ------------     ------------     ------------
Income (loss) before
income taxes                          (6.9 )%           7.0 %          (25.5 )%           4.0 %
Income tax provision
(benefit)                             (1.8 )%           1.9 %          (10.7 )%           1.3 %
                              ------------     ------------     ------------     ------------
Net income (loss)                     (5.1 )%           5.1 %          (14.8 )%           2.7 %
                              ------------     ------------     ------------     ------------

Net Sales

                               Three Months Ended        Nine Months Ended
                             -----------------------   ---------------------
                              June 30,     June 30,    June 30,    June 30,
                                2009         2008        2009        2008
                             -----------   ---------   ---------   ---------
                                 (In thousands)           (In thousands)
               Net sales      $   31,763    $ 66,973    $ 91,987   $ 178,523

Net sales consist of revenues from sales of semiconductor equipment, spare parts and service and royalties. Our revenue recognition policy provides that a portion of 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 100% 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 record 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.

Net sales decreased $35.2 million or approximately 53%, in the third quarter of fiscal 2009 as compared with the third quarter of fiscal 2008 and $86.5 million or approximately 48% in the year-to-date comparison. Fiscal 2009 revenues have been significantly impacted by the current worldwide economic crisis, which has resulted in customers delaying placing orders and customers pushing out delivery dates for tools already ordered and scheduled for delivery. Most Raider revenues in the first nine months of fiscal 2009 were related to wafer-level packaging applications while Raiders for cleaning applications, primarily related to capacity purchases, have declined the most. Revenue from tool shipments declined approximately 48% in the quarterly comparison and approximately 53% in the year-to-date comparison. Revenue from tool acceptances decreased approximately 98% in the quarterly comparison and 47% in the year-to-date comparison. Acceptances in the third quarter of fiscal 2008 included four fully deferred tools while the acceptances in the third quarter of fiscal 2009 consist solely of installation revenue.

Geographically, our sales mix year-to-date was weighted toward North America and Europe with Asian sales declining as our customers in that region placed their capital spending budgets on hold until their capacity needs increase. Our third quarter bookings were weighted more toward Asia.

Gross Profit

                                    Three Months Ended           Nine Months Ended
                                --------------------------   --------------------------
                                   June 30,      June 30,      June 30,       June 30,
                                     2009          2008          2009           2008
                                --------------   ---------   -------------    ---------
                                  (Dollars in thousands)       (Dollars in thousands)
    Gross profit                  $     14,342    $ 32,102     $    39,194     $ 86,346
    Gross margin percentage               45.2 %      47.9 %          42.6 %       48.4 %

Gross profit decreased by $17.8 million or 55.3% and by $47.2 million or 54.6% in the third quarter and first nine months of fiscal 2009 compared with the third quarter and first nine months of fiscal 2008.

Selling, General and Administrative

                                    Three Months Ended                  Nine Months Ended
                              -------------------------------     ------------------------------
                                 June 30,          June 30,         June 30,          June 30,
                                   2009              2008             2009              2008
                              --------------     ------------     -------------     ------------
                                  (Dollars in thousands)              (Dollars in thousands)
Selling, general and
administrative                  $     10,523      $    19,206       $    39,701      $    57,972
Percentage of net sales                 33.1 %           28.7 %            43.1 %           32.5 %

Selling, general and administrative (SG&A) expenses include employment costs for sales, marketing, customer support and administrative personnel as well as travel, telecom, professional fees and expenses related to sales and service offices at North American and international locations. SG&A expenses decreased $8.7 million and $18.3 million in the third quarter and first nine months of fiscal 2009, respectively, as compared to the third quarter and first nine months of fiscal 2008.

Employment costs decreased approximately $5.3 million and $10.9 million in the third quarter and first nine months of fiscal 2009 as compared with the third quarter and first nine months of fiscal 2008. Throughout fiscal 2009, we have taken measures to realign our cost structure to expected business levels by reducing our staffing worldwide, implementing salaried staff pay cuts and mandatory leave, including three weeks mandatory leave in the third quarter. In the first quarter of fiscal 2009, we also shut down our facilities for three weeks. Because of these cost management measures, travel expenses declined $1.9 million and $3.6 million in the third quarter and the first nine months of fiscal 2009 compared with the same periods in fiscal 2008. Commission expense decreased $815,000 and $3.1 million, respectively, in the third quarter and first nine months of fiscal 2009 when compared with the comparable periods in fiscal 2008. All other major expense categories have also declined year-over-year. These savings have been somewhat offset by the write-off of two customer accounts receivable, totaling approximately $3.6 million and which included the write-off of a major tool sale to a customer that filed for insolvency protection in a German court.

Research and Development

                                     Three Months Ended           Nine Months Ended
                                 --------------------------   --------------------------
                                   June 30,       June 30,      June 30,       June 30,
                                     2009           2008          2009           2008
                                 -------------    ---------   -------------    ---------
                                   (Dollars in thousands)       (Dollars in thousands)
    Research and development       $     5,924      $ 7,917     $    20,101     $ 21,843
    Percentage of net sales               18.7 %       11.8 %          21.8 %       12.2 %

Research and Development (R&D) expense consists of salaries, project materials, laboratory costs, consulting fees and other costs associated with our product research and development efforts. Fiscal 2009 R&D expense decreased approximately $2.0 million and $1.7 million when compared with the third quarter and first nine months of fiscal 2008.

Employment costs decreased approximately $1.4 million and $3.1 million in the third quarter and first nine months of fiscal 2009 as compared with the third quarter and first nine months of fiscal 2008 as we implemented cost savings measures in response to the worldwide economic crisis. Depreciation expense increased by approximately $223,000 and $1.3 million in the quarterly and year-to-date comparative periods as we replaced older technology tools in our demonstration laboratories with new technology tools in order to support our customers' development efforts. Prototype expense increased by approximately $1.0 million in the first nine months of fiscal 2009 primarily because we wrote-down two experimental tools to net realizable value from our work-in-process inventory. We continue to work on a number of leading edge projects including on-going development of porous silicon and texturing applications for enhanced reflectivity for the solar industry and next-generation solar cells.

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           Nine Months Ended
                                --------------------------   --------------------------
                                 June 30,        June 30,      June 30,       June 30,
                                   2009            2008          2009           2008
                                -----------     ----------   -------------    ---------
                                  (Dollars in thousands)       (Dollars in thousands)
    Downsizing costs              $     137         $   --     $     2,549       $   --
    Percentage of net sales             0.5 %           -- %           2.8 %         -- %

In November 2008 and January 2009, we announced and implemented plans to align our cost structure closer to then-current business activity levels. On a combined basis, the cost reduction plans consisted primarily of a 35% reduction in our worldwide work force, salaried staff pay cuts, reduced working hours and overtime, mandatory leave, temporary suspension of company-paid 401(k) plan matching and a three-week facilities shutdown in December 2008. One-time involuntary termination costs of $137,000 and $2.5 million, respectively, were reported as a separate component of operating expenses in our fiscal 2009 third quarter and first nine months. All costs related to the downsizing plan have been incurred and we expect that the $164,000 liability for unpaid involuntary termination costs will be extinguished by the end of the fourth fiscal quarter.

Compared to the fourth quarter of fiscal 2008, we are saving approximately $13 million to $14 million per quarter. Net of downsizing costs, we have realized savings of approximately $15 million and $32 million in the third quarter and first nine months of fiscal 2009. These cost savings are reported in gross margin and operating expenses in the Condensed Consolidated Statements of Operations. We will continue to monitor the need for additional cost savings and implement cost reduction measures as needed.

Gain on Sale of Assets

                                    Three Months Ended           Nine Months Ended
                                --------------------------   --------------------------
                                 June 30,        June 30,     June 30,        June 30,
                                   2009            2008         2009            2008
                                -----------      ---------   -----------      ---------
                                  (Dollars in thousands)       (Dollars in thousands)
    Gain on sale of assets       $     (405 )       $   --     $    (405 )       $   --
    Percentage of net sales            (1.3 )%          -- %        (0.4 )%          -- %

We sold an aircraft during the third quarter of fiscal 2009 for approximately $1.5 million and recognized a gain on the sale of approximately $253,000. We also sold a storage facility located near Kalispell, Montana during the third quarter of fiscal 2009 for approximately $200,000 and recognized a gain on the sale of approximately $152,000.

Other Income (Expense), Net

                                          Three Months Ended         Nine Months Ended
                                       ------------------------   ------------------------
                                        June 30,      June 30,     June 30,      June 30,
                                          2009          2008         2009          2008
                                       ----------    ----------   ----------    ----------
                                            (In thousands)             (In thousands)
 Interest income                        $      19     $      56    $      79      $    203
 Interest expense                            (219 )        (118 )       (565 )        (342 )
 Foreign exchange gain (loss)                 (95 )        (345 )       (124 )         318
 Other                                        (64 )         133         (134 )         453
                                       ----------    ----------   ----------    ----------
 Total other income (expense), net      $    (359 )   $    (274 )  $    (744 )    $    632
                                       ----------    ----------   ----------    ----------

Other income (expense), net decreased $85,000 to a net other expense of $359,000 in the third quarter of fiscal 2009 as compared with a net other expense of $274,000 in the third quarter of fiscal 2008. Year-to-date, other income (expense), net decreased $1.4 million from a net other income of $632,000 to a net other expense of $744,000. We determined that the one million shares acquired as an investment security in a sales transaction in fiscal 2008 had experienced an Other-than-temporary impairment under the guidance of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Investments in Certain Debt and Equity Securities" (SFAS No. 115) when the issuer of the security filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code and was subject to delisting from the NASDAQ Stock Market. Accordingly, in fiscal 2009, we revised our cost basis in the investment to zero by writing off $380,000 to Other expense. Foreign exchange gains and losses on intercompany balances held in Yen and Euros were primarily responsible for the balance of the change.

Income Taxes

                                         Three Months Ended         Nine Months Ended
                                      ------------------------   ------------------------
                                      June 30,      June 30,      June 30,      June 30,
                                        2009          2008          2009          2008
                                      ---------    -----------   -----------   ----------
                                           (In thousands)             (In thousands)
   Income tax provision (benefit)      $   (572 )   $    1,271    $   (9,846 )  $   2,360

Our estimated effective tax rate for fiscal 2009 is 37.5% as of June 30, 2009 as compared to an estimated effective tax rate for fiscal 2008 of 36% as of June 30, 2008. Our fiscal 2009 tax rate was benefited from the extension of the federal research credit.

The first quarter of fiscal year 2009 included a benefit of $1.0 million related to the extension of the federal research credit as it pertains to fiscal year 2008. Legislation to extend the federal research credit was signed into law after the close of our fiscal year 2008; therefore we were unable to recognize the federal research credit in the last three quarters of fiscal 2008. This . . .