Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

¨	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 0-26482

TRIKON TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

Ringland Way,

Newport, Gwent NP18 2TA, United Kingdom

(Address of principal executive offices)

95-4054321

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

(Zip Code)

44 (0)1633 414 000

Registrant’s telephone number, including area code

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


Title of each class		Name of each exchange on which registered
NONE		NONE

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

Common Stock, $0.001 Par Value

(Title of Class)

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

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

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

As of June 30, 2004, the last business day of our most recently completed second quarter, there were 15,750,410 shares of common stock outstanding. The aggregate market value of our common stock held by non affiliates, based on the closing price of our common stock on June 30, 2004 as reported on the Nasdaq National Market was approximately $46,621,213. Common stock held by our officers and directors and by each person owning, to our knowledge, 5% or more of our common stock are excluded because such persons may be deemed affiliates of Trikon. This determination of affiliate status is not necessarily determinative for other purposes.

As of February 22, 2005, the registrant had outstanding 15,754,985 shares of Common Stock.

Documents Incorporated by Reference: None.

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TRIKON TECHNOLOGIES, INC.

Annual Report On Form 10-K/A For The Year Ended December 31, 2004

Index


		Page
EXPLANATORY NOTE		1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I		3

ITEM 1.	BUSINESS	3

PART II		11

ITEM 6.	SELECTED FINANCIAL DATA	11
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	28
ITEM 9A.	CONTROLS AND PROCEDURES	31

PART IV		35

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	35

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EXPLANATORY NOTE

Trikon Technologies, Inc. (“Trikon” or the “Company”) is filing this amendment to its Annual Report on Form 10-K/A for the year ended December 31, 2004 (this “Amendment”) to reflect the restatement of its Consolidated Financial Statements for the years ended December 31, 2000 through 2004 and the interim periods ended March 31, June 30, and September 30, for the years 2003 and 2004 to reflect adjustments determined to be necessary as a result of an internal investigation of the treatment of certain allocations of expenses between account categories and between periods.

The Annual Report on Form 10-K for the year ended December 31, 2004 was initially filed with the Securities and Exchange Commission (“SEC”) on March 16, 2005 (the “Originally Filed 10-K”). This Form 10-K/A is being filed to reflect restatements of the following financial statements:

•

Consolidated balance sheets as at March 31, 2004, June 30, 2004, September 30, 2003 and 2004 and December 31, 2003 and 2004;

•

Consolidated statements of operations for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 and for the quarters ended March 31, June 30 and September 30, for the years 2003 and 2004;

•

Consolidated statements of cash flows for the years ended December 31, 2003 and 2004;

•

and to make certain conforming changes.

The restatement is limited to three areas:

First, in our balance sheets, we previously accounted for invoiced amounts on contracts by recording the full amount in accounts receivable and the portion of the contract price that is withheld until final acceptance as deferred revenue. For example, if payment terms are 90 percent on shipment and 10 percent on acceptance, we invoiced and recognized the full amount in accounts receivable and recognized 10 percent of the invoiced amount as deferred revenue. The interpretive guidance in Securities and Exchange Commission Staff Accounting Bulletin 104 (SAB 104) indicates that when the timing of payment of a portion of the sales price is coincident with the performance of the remaining activity, the remaining activity is considered substantive rather than inconsequential or perfunctory. Interpretative guidance of SAB 104 states that deferred revenue should not be reported for the portion of the contract price that is withheld. In the restated balance sheets as at September 30, 2003 and later, the portion of the contract price withheld is offset against accounts receivable, thereby reducing total liabilities and total assets by the same amount.

Second, we previously deferred recognition of costs in the same proportion as we deferred recognition of revenues on contracts with a portion of the contract price that is withheld until final acceptance. The restated statements of operations for periods ending on or after September 30, 2003 and balance sheets as at September 30, 2003 and later recognize the majority of the product’s costs (i.e. excluding installation costs) on shipment. This affected the timing of recognition of these costs, which in some cases moved costs from one quarter to another and therefore changed cost of goods sold (“COGS”) and net loss in that quarter and net assets at the quarter end.

Third, in our statements of operations, we historically allocated substantially all of our facilities costs to selling, general and administrative cost (“SG&A”). We have determined that a portion of those costs should be re-allocated to COGS and research and development (“R&D”). As a result, in a given period, SG&A was reduced and COGS and R&D together were increased by the same amount. The reallocation of overhead relates to one facility with services shared by administrative, manufacturing and research and development functions. All of our restated statements of operations reflect this reclassification.

For a more detailed description of the restatements, see “Restatements” in notes 13 and 14 to the accompanying consolidated financial statements and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Events - Restatement of 2000 through 2004 Financial Results.”

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We have not amended and do not intend to amend our other previously filed annual reports on Form 10-K or our quarterly reports on Form 10-Q for the periods affected by the restatements or adjustments. For this reason, the consolidated financial statements and related financial information contained in such previously filed reports should no longer be relied upon. All the information in this Form 10-K/A is as of December 31, 2004 and does not reflect any subsequent information or events other than the restatement.

This Form 10-K/A only amends and restates Items 1, 6, 7, 8, 9A and 15 of the Originally Filed 10-K in each case, solely as a result of, and to reflect, the corrections discussed above and, except for such items and Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2, no other information in the Originally Filed 10-K is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Originally Filed 10-K or to modify or update those disclosures affected by subsequent events. In addition, pursuant to rules of the SEC, Item 15 of Part IV of the Originally Filed 10-K has been amended to contain the consent of the Company’s independent registered public accounting firm and currently-dated certificates from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The consent of the Company’s independent registered public accounting firm and the certifications of the Company’s Chief Executive Officer and Chief Financial Officer are attached to this Form 10-K/A as Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 based on the beliefs of our management as of the filing date of this Annual Report on Form 10-K/A. Examples of forward-looking statements include statements about new product development, our ability to penetrate new markets and the potential growth of these markets, our product strategies, availability to achieve or to raise additional capital or reduce expenditure.

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors discussed below in the section titled Risk Factors and in our prior Securities and Exchange Commission filings. These and other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward looking statements made in this document and elsewhere.

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

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PART I

ITEM 1. BUSINESS

Overview

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

We design, manufacture, market and sell advanced production equipment used to process semiconductor wafers for the manufacture of integrated circuits. These circuits and devices are key components in most advanced electronic products, such as telecommunications devices, consumer and industrial electronics and computers. Our equipment has typical selling prices between $0.8 million and $3.5 million depending on the configuration of the equipment.

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

Our goal is to be responsive to the continually changing needs of our customers and the specialist demands associated with niche applications. There are many applications that require specialized development of standard equipment and we focus on those applications that we believe have significant growth potential. We have identified applications that include solutions for the power semiconductor, systems in a package (SiP.)/MEMS, Bulk Acoustic Wave Filter (BAW) and other Aluminum Nitride deposition needs and compound semiconductor markets. We believe that our 200 mm wafer and below processes satisfy the demands for cost effective production worthy tooling for a large variety of applications, while our flowfill and ORION technology provides solutions for gap fill and low k dielectrics at the leading edge of semiconductor development on 300 mm wafer. Overall, our strategy is to identify applications in which we believe we have a technology advantage, and we are positioned to be agile and responsive to support our customer’s equipment needs.

We make available free of charge through our website, www.trikon.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically submitted to the Securities Exchange Commission. Our Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

Recent Developments

On March 14, 2005, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Aviza Technology, Inc. (“Aviza”), a privately held global supplier of thermal process and atomic layer deposition systems. Under the terms of the Merger Agreement, Baseball Acquisition Corp. I, a wholly-owned subsidiary of New Athletics, Inc., a newly formed Delaware corporation (“New Athletics”), will merge with and into us (the “Trikon Merger”), and Baseball Acquisition Corp. II, a wholly-owned subsidiary of New Athletics, will merge with and into Aviza (the “Aviza Merger”). Upon consummation of the mergers, we and Aviza will each continue as wholly-owned subsidiaries of New Athletics.

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In the Trikon Merger, each outstanding share of our common stock will be exchanged for 0.333 shares (the “Trikon Exchange Ratio”) of New Athletics common stock. In addition, each outstanding option and warrant to purchase shares of our common stock will be assumed by New Athletics and will thereafter represent the right to purchase a number of shares of New Athletics common stock based on the Trikon Exchange Ratio, and the exercise price per share will be adjusted accordingly.

In the Aviza Merger, (i) each outstanding share of Aviza common stock will be exchanged for a number of shares of New Athletics common stock equal to the Aviza Exchange Ratio, (ii) each outstanding share of Aviza Series A Preferred Stock will be exchanged for a number of shares of New Athletics common stock equal to the product of (x) the number of shares of Aviza common stock into which such share of Aviza Series A Preferred Stock would have been convertible immediately prior to the effective time of the Aviza Merger multiplied by (y) the Aviza Exchange Ratio, and (iii) each outstanding share of non-voting, redeemable Aviza Series B Preferred Stock will remain outstanding. In addition, each outstanding option to purchase shares of Aviza common stock will be assumed by New Athletics and will thereafter represent the right to purchase a number of shares of New Athletics common stock based on the Aviza Exchange Ratio, and the exercise price per share will be adjusted accordingly. Each outstanding warrant to purchase shares of Aviza Series A Preferred Stock that remains unexercised at the effective time of the Aviza Merger will be cancelled. The holders of such warrants have executed an irrevocable election to net exercise their warrants prior to the effective time of the Aviza Merger. The “Aviza Exchange Ratio” means the quotient obtained by dividing 8,325,000 by, as of immediately prior to the effective time of the Aviza Merger, the sum of all shares of Aviza common stock then (i) issued and outstanding, (ii) issuable upon the conversion of all shares of Aviza Series A Preferred Stock then issued and outstanding, (iii) issuable upon the exercise of all Aviza options then unexercised, unexpired and outstanding and (iv) issuable upon the conversion, exercise or exchange of any other securities then issued and outstanding.

Immediately after completion of the mergers, the New Athletics board of directors will consist of seven directors, including three current members of our board, three current members of the Aviza board, and one member who is not affiliated with us or Aviza.

Concurrently with entering into the Merger Agreement, Trikon and New Athletics entered into a Stockholder Agreement with VantagePoint Venture Partners IV (Q), L.P., VantagePoint Venture Partners IV, L.P. and VantagePoint Venture Partners IV Principals Fund, L.P. (collectively, “VPVP”). Under the terms of the Stockholder Agreement, among other commitments, VPVP will guarantee certain obligations of New Athletics and Aviza under a credit facility with a third-party commercial bank. In consideration for the guarantee, New Athletics will issue VPVP warrants to purchase 333,333 shares of New Athletics common stock.

The consummation of the merger transaction is subject to the approval of our stockholders and other customary closing conditions. The requisite approval of the stockholders of Aviza has already been obtained. New Athletics intends to account for the transaction as a “purchase” of Trikon by Aviza for financial reporting and accounting purposes, in accordance with U.S. generally accepted accounting principles. The merger is expected to close in the second or third quarter of 2005.

Our Products

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

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

•

deposition, or adding material to a substrate, typically a silicon wafer;

Index to Financial Statements

•

patterning, or printing a circuit outline on the substrate; and

•

etching, or removing layers, of material from the substrate.

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

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

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

Chemical Vapor Deposition

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

•

Shallow Trench Isolation (“STI”), to isolate one transistor from another;

•

the pre-metal dielectric (“PMD”), the insulating layer between the active components and the first interconnect metal layer;

•

the inter-metal dielectric (“IMD”), the insulating layer between the different metal layers; and

•

the final passivation layer that seals the completed device from atmospheric moisture.

Our CVD products are based on our single chamber PECVD Delta 201 product and our Planar fxP and Planar 300 cluster tool products. The Planar systems can be configured with up to six process module positions and in addition to the deposition of silicon dioxide, the most common insulating material deposited, we have our Flowfill, low k Flowfill and Orion processes.

Silicon dioxide, when deposited by conventional techniques, displays small voids inside the structure and does not provide for a high degree of planarization. Our patented Flowfill and low k Flowfill products are directed towards customers that require the deposition of a planarizing layer or the deposition into small gaps that reduces the need for chemical metal polishing (CMP) processing with a corresponding reduction in cost of ownership, or in some cases actually removes the CMP steps. Our Flowfill process is a patented CVD technology that was developed to form high quality silicon dioxide layers that possess the properties of both gap fill and a high degree of planarization. When a high degree of planarization is reached, the upper surface of the layer is relatively flat, irrespective of the topography of the surface covered. Flowfill can fill features less than 40 nm wide with a less than 8:1 height to width ratio and simultaneously achieve a very high degree of planarization for large gaps up to 20 microns.

Our low k Flowfill product has similar gap filling and planarization properties to the Flowfill product but also provides a low k dielectric process, which enables device manufacturers to speed up the performance of their integrated circuits. Our low k Flowfill technology is in production with a tunable dielectric constant (‘dielectric constant’ or ‘k value’) of between 2.8 and 3.3 and has the capability of achieving a dielectric constant of 2.5.

Advanced logic device makers use copper damascene wiring for the interconnect with a low k IMD to enhance device performance. Our ORION technology is an ultra low k offering aimed at advanced copper damascene applications where a k value of 2.5 or below is required. ORION can be deposited at dielectric constants of both 2.5 and 2.2, values, which have been independently verified.

Index to Financial Statements

Physical Vapor Deposition

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

•

the bulk conducting layers;

•

the barrier and liner metal layers to prevent diffusion or reactions between metals and silicon regions; and

•

the seed layer for electroplating.

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

Sigma is designed to be one of the cleanest PVD systems on the market, which is a key technology requirement for sputtering the wafer with as high quality film as possible. Various process chambers are available for a large variety of specific functions. In particular, there are advanced PVD chambers for depositing high quality barrier and liner layers for advanced metalization structures. These consist of the “long throw” Hi-Fill and “ionized metal” Advanced Hi-Fill PVD chambers for improved barrier and liner deposition into high aspect ratio structures. Where step coverage over high aspect ratio features is critical, a metal organic CVD (MOCVD) module is available to provide low temperature, largely conformance titanium nitride films. Additional chambers consist of pre heat and sputter etch. We believe that the Sigma systems have the lowest cost of ownership compared to our main competitors, and cost of ownership is an important factor for integrated circuit manufacturers.

We have developed unique, and in many cases patented processes for many markets. For example, in the rapidly growing power device market, we support both front side interconnect and backside solder metal applications, minimizing operating costs by offering same-type equipment for the entire metal module. We also supply technology for the emerging Aluminum Nitride deposition market, which includes the Bulk Acoustic Wave (‘BAW’) market, a technology driven sector for next generation communication devices. BAW devices require very uniform deposition of piezoelectric films and we have developed significant intellectual property in this arena.

Plasma Etch

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

Our Omega plasma etch system is available on two platforms as the Omega fxP^™ and a single chamber Omega 201. The Omega fxP^™, offers up to six process modules combined with tools for wafer alignment and cool-down and two vacuum cassette stations. Multiple chambers provide high throughput for the high volume

Index to Financial Statements

user or the option to ‘mix and match’ different plasma sources so that advanced sequential etching processes can be addressed. The Omega 201 features our plasma source technologies in a single chamber format that combines high performance etching with small footprint and low costs. These attributes make the tool particularly well suited to cost-sensitive manufacturing of silicon integrated circuits, compound device makers and other niche markets.

Both platforms support our three main plasma sources, our M0RI^™ etch technology (M0RI), Plasma Enhanced Reactive Ion Etch (PERIE) and Inductively Coupled Plasma (ICP). Additional modules may also be added that provide secondary functions, such as post etch corrosion processes. M0RI offers the highest plasma density that provides process solutions for the most advanced polysilicon, oxide and low k etch requirements. The ICP is used extensively for high-density aluminium and polysilicon etching as well as for a broad range of front and back face processing on compound semiconductors. The PERIE offers medium plasma density for silicon and dielectric etching where the feature sizes are less challenging. We have also developed a variant of our M0RI etch process chamber specifically for very high aspect ratio silicon etching/micro machining. This Deep Silicon (DSi) chamber offers benefits to production users in Systems in a Package (SiP)/Wafer Level Packaging (WLP) and conventional MEMS applications. Deep Silicon etch techniques are used in a myriad of applications such as the manufacture of discrete components in SiP and accelerometers for car air bags. We also offer a Gas Phase Etch (GPE) module, which removes sacrificial layers to create microscopic moveable structures.

Marketing, Sales and Customer Support

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


	Europe		North America		Asia
2004	61	%	29	%	10	%
2003	56	%	39	%	5	%
2002	64	%	33	%	3	%

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

Our total revenue includes amounts from certain individual customers that exceed 10% of our total revenue. For the year ended December 31, 2004 two customers exceeded 10% of revenues for the year. Infineon AG represented 16% of sales and a North American company represented 13%. For the year ended December 31, 2003, Sarnoff Corporation, Infineon AG and Philips accounted for 16%, 13% and 10% of our total revenue respectively. For the year ended December 31, 2002, Phillips was the only customer who exceeded 10% of our revenue, accounting for 11% of our revenue. Our largest customers may vary from year to year depending upon, among other things, a customer’s budget for capital expenditures, plans for new fabrication facilities and new product introductions.

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

Index to Financial Statements

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

We believe that a comprehensive support program is an essential component for each customer. We have developed an experienced central customer support group in addition to regional based service and support staff at local centers who are in close contact with our customers and provide comprehensive support programs.

Research, Development and Engineering

We believe that our future success will depend upon our ability to continue to improve our systems and technologies and to develop new products that compete effectively on the basis of technical performance and total cost of ownership. These technologies and systems will also need to meet customer requirements and emerging industry standards. Accordingly, we devote a significant portion of our personnel and financial resources to research and development programs and seek to maintain close relationships with our customers in order to remain responsive to their product needs. As of December 31, 2004, we employed 49 professional and technical personnel in research, development and engineering including our head office support team and our expenditure for research and development during the fiscal years 2004, 2003 and 2002 were $10.1 million, $11.1 million and $12.2 million, respectively.

Our research and development group is responsible for identifying new technology applications and developing processes to develop solutions for our target markets and customers. Our current significant research and development programs include projects to address process development for the needs of power semiconductors, MEMS/SiP device customers, Aluminium Nitride deposition including BAW devises, compound semiconductors and the development of our flowfill and Orion technologies. Resources are also being focused on implementing product cost reduction programs that can favorably impact our gross margin and allow us to compete in the cost competitive environment that exists today.

Manufacturing, Raw Materials and Supplies

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

Our manufacturing facility operates at the high levels of cleanliness required in the semiconductor industry. Our manufacturing and final test area is class 1000 representing a high level of cleanliness (a class is a standard definition which represents a number of particles per million, the smaller the number of particles the cleaner the facility). We also support our development and sales process with a class 100 engineering clean room and a class 10 processes and product demonstration room.

We also operate a CNC machinery center which produces chamber components and other parts and wafer transport assemblies. In order to ensure that the CNC facility remains competitive in both quality and price, and

Index to Financial Statements

to help cover fixed costs, it also produces products for third parties. Revenue associated with this facility that is not related to the semiconductor equipment business was approximately $1.8 million; $0.9 million and $1.2 million during the years ended December 31, 2004, 2003 and 2002 respectively.

Competition

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

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

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

Backlog

As of December 31, 2004, our backlog was approximately $6.1 million, as compared to approximately $6.2 million at December 31, 2003. Our backlog consists of system purchase orders that provide for delivery within the following year and the unearned revenue of systems previously shipped. Backlog includes only systems for which a purchase order has been received and a delivery date assigned. Orders are typically subject to cancellation or delay by the customer with limited or no penalties. Because of possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily representative of actual sales for any succeeding periods, nor is backlog any assurance that we will realize profit from completing these orders.

Intellectual Property

We believe that our competitive position is significantly dependant upon skills in engineering, manufacturing, customer support and marketing in addition to our patent position. Protection of our technological assets by obtaining and enforcing patents is important and we file patent applications in the United Kingdom, United States and other countries as we believe to be appropriate. We currently hold 46 U.S. and 89 foreign patents with patents issued and pending in key markets around the world. The issued patents and any subsequent issued patent arising from our pending applications expire between 2009 and 2023.

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

Index to Financial Statements

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

Environmental Matters

We are subject to regulations relating to the use, storage, discharge and disposal of hazardous chemicals and gases used during customer demonstrations and in research and development activities. The United Kingdom has adopted a comprehensive environmental law known as the Environmental Act 1995, which, among other things, deals with the allocation of responsibility for the clean up of contaminated property and expands potential liability with respect to the remediation of such contamination. We lease a number of facilities in the United Kingdom, and failure to comply with present or future regulations could result in substantial liability, suspension or cessation of our operations, restrictions on our ability to expand at our present locations, or requirements for the acquisition of significant equipment or other significant expense. To date, compliance with environmental rules and regulations has not had a material effect on our operations. We believe that we are in material compliance with all applicable environmental rules and regulations and are in compliance with ISO14000 environmental standards.

Employees

As of December 31, 2004, we had 190 full-time employees and 24 temporary employees or contractors. None of our employees are covered by a collective bargaining agreement and we consider our relations with our employees to be good.

Index to Financial Statements

PART II

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data are qualified by reference to and should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. The selected consolidated financial data set forth below as of December 31, 2004, and 2003 and for the years ended December 31, 2004, 2003, and 2002 have been derived from our audited financial statements included elsewhere in this annual report. The selected consolidated financial data set forth below as of December 31, 2002, 2001 and 2000 and for the years ended December 31, 2001 and 2000 have been derived from our audited financial statements that are not included in this annual report. This financial data reflect certain accounting restatements that are more fully described in note 13 of the Notes to the Consolidated Financial Statements in Item 15 of this Form 10-K/A.


	Year Ended December 31,
	2004 (As restated)			2003 (As restated)			2002 (As restated)			2001 (As restated)			2000 (As restated)
	(In thousands of U.S. dollars, except per share information)
Operating Data:
Revenues:
Product sales	$	36,684		$	28,710		$	32,765		$	97,046		$	106,662
License revenues		157			108			50			—			350

Total revenues		36,841			28,818			32,815			97,046			107,012

Costs and expenses:
Cost of goods sold		27,258			23,666			26,838			53,979			57,924
Research and development		10,148			11,101			12,171			10,933			9,545
Selling, general and administrative		16,091			16,382			14,898			19,129			20,300
Settlement of pension liabilities and related costs		—			3,542			818			—			—
Restructuring costs		(1,200	)		—			—			—			—

Total costs and expenses		52,297			54,691			54,725			84,041			87,769

(Loss) income from operations		(15,456	)		(25,873	)		(21,910	)		13,005			19,243
Other income					474			—			681			—
Foreign currency gains (losses)		1,934			573			(2	)		1,150			910
Interest:
Interest expense.		(434	)		(921	)		(1,197	)		(1,504	)		(674	)
Interest income.		494			948			1,309			1,350			325

(Loss) income before income tax (benefit) provision		(13,462	)		(24,799	)		(21,800	)		14,682			19,804
Income tax provision (benefit)		216			236			(2,165	)		3,432			824

Net (loss) income before extraordinary item and cumulative effect of change in accounting principle		(13,678	)		(25,035	)		(19,635	)		11,250			18,980
Cumulative effect of change in accounting principle(1)		—			—			—			—			(1,833	)

Net (loss) income	$	(13,678	)	$	(25,035	)	$	(19,635	)	$	11,250		$	17,147

Net (loss) income applicable to common shares	$	(13,678	)	$	(25,035	)	$	(19,635	)	$	11,109		$	16,121

(Loss) income per common share data :
Basic:
(Loss) income applicable to common shares before extraordinary item and cumulative effect of change of accounting principle	$	(0.87	)	$	(1.80	)	$	(1.57	)	$	0.98		$	1.82
Cumulative effect of change in accounting principle		—			—			—			—			(0.19	)

Net (loss) income	$	(0.87	)	$	(1.80	)	$	(1.57	)	$	0.98		$	1.63

Diluted:
(Loss) income applicable to common shares before extraordinary item and cumulative effect of a change of accounting principle	$	(0.87	)	$	(1.80	)	$	(1.57	)	$	0.88		$	1.58
Cumulative effect of change in accounting principle					—			—			—			(0.16	)

Net (loss) income	$	(0.87	)	$	(1.80	)	$	(1.57	)	$	0.88		$	1.42

Average common shares used in the calculation
– Basic		15,738			13,928			12,533			11,281			9,868
– Diluted		15,738			13,928			12,533			12,658			11,325

Index to Financial Statements


	December 31,
	2004 (As restated)		2003 (As restated)		2002		2001		2000
	(In thousands of U.S. dollars)
Balance Sheet Data:
Working capital	$	26,876	$	33,990	$	55,044	$	62,379	$	33,346
Total assets		61,141		77,372		97,188		112,733		95,694
Long-term debt and capital lease obligations, less current portion		91		188		10,717		15,606		2,376
Stockholders’ equity(2)		40,542		52,958		60,520		65,453		49,920

(1)

We changed our accounting policy with respect to revenue recognition in the year ended December 31, 2000. In accordance with Accounting Principles Board Opinion 20, we accounted for the change as a cumulative effect on the prior years resulting from the change to a different revenue recognition policy.

(2)	Stockholders’ equity for December 31, 2000 includes convertible preferred stock.

The tables below show the specific adjustments that were made to our previously reported financial data as a result of the restatements. These changes are reflected in the above presented financial data. A more thorough discussion of the changes in accounting policies that underlie these adjustments is presented in note 13 to the Consolidated Financial Statements in Item 15 to this Form 10-K/A.


	Year Ended December 31, 2004									Year Ended December 31, 2003
	Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated
	(In thousands of U.S. dollars, except for per share amounts)
Consolidated Statements of Operations Data
Cost and expenses
Cost of goods sold	$	25,062		$	2,196		$	27,258		$	21,086		$	2,580		$	23,666
Research and development		8,607			1,541			10,148			9,629			1,472			11,101
Selling, general and administrative		19,932			(3,841	)		16,091			20,032			(3,650	)		16,382
Net loss		(13,782	)		104			(13,678	)		(24,633	)		(402	)		(25,035	)
Basic loss per share	$	(0.88	)	$	0.01		$	(0.87	)	$	(1.77	)	$	(0.03	)	$	(1.80	)
Diluted loss per share	$	(0.88	)	$	0.01		$	(0.87	)	$	(1.77	)	$	(0.03	)	$	(1.80	)
Consolidated Balance Sheet Data (at year end)
Assets
Current assets
Accounts receivable, net	$	8,595		$	(1,941	)	$	6,654		$	11,287		$	(5,075	)	$	6,212
Prepayments and other current assets		2,782			(579	)		2,203			4,855			(682	)		4,173
Total assets		63,661			(2,520	)		61,141			83,129			(5,757	)		77,372
Liabilities and Stockholders’ Equity
Current liabilities
Deferred revenue	$	2,482		$	(1,941	)	$	541		$	5,803		$	(5,075	)	$	728
Accrued expenses		1,719			(266	)		1,453			1,399			(270	)		1,129
Stockholders’ equity
Accumulated other comprehensive income		2,901			(15	)		2,886			1,833			(10	)		1,823
Accumulated deficit		(223,462	)		(298	)		(223,760	)		(209,680	)		(402	)		(210,082	)
Total liabilities and stockholders’ equity		63,661			(2,520	)		61,141			83,129			(5,757	)		77,372


	Year Ended December 31, 2002									Year Ended December 31, 2001							Year Ended December 31, 2000
	Previously Reported			Adjust- ments			Restated			Previously Reported		Adjust- ments			Restated		Previously Reported		Adjust- ments			Restated
	(In thousands of U.S. dollars, except for per share data)
Consolidated Statements of Operations Data
Cost and expenses
Cost of goods sold	$	24,490		$	2,348		$	26,838		$	51,749	$	2,230		$	53,979	$	55,847	$	2,077		$	57,924
Research and development		10,700			1,471			12,171			9,650		1,283			10,933		8,395		1,150			9,545
Selling, general and administrative		18,717			(3,819	)		14,898			22,642		(3,513	)		19,129		23,527		(3,227	)		20,300
Net (loss) income		(19,635	)		0			(19,635	)		11,109		0			11,109		16,121		0			16,121

Index to Financial Statements

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our business is to design, manufacture, market and sell advanced production equipment used in the production of semiconductors and to provide related support services. We face a variety of challenges in responding to the dynamics of this industry, which is characterized by a high level of volatility caused by sudden changes in demand for semiconductors and manufacturing capacity. In addition, because of the large unit price associated with our systems, which typically vary between $0.8 million and $3.5 million, our backlog, shipments and revenues can be affected, positively or negatively, by a relatively small change in the number of orders.

In addition to the initial sale of equipment, we also provide on site support and spares parts. Sales of on-site support and spare parts were $11.7 million, $10.7 million and $9.0 million (including sales of our CNC subsidiary of $1.8 million, $0.9 million and $1.1 million) for the years ended December 31, 2004, 2003 and 2002, respectively. The sales of support and spares are less volatile than the sale of the equipment.

Restatement

On May 6, 2005, we concluded that we needed to restate our previously reported financial statements for fiscal years 2000 through 2004. We identified three changes to our accounting policies:

First, in our balance sheet, we previously accounted for invoiced amounts on contracts by recording the full amount in accounts receivable and the portion of the contract price that is withheld until final acceptance as deferred revenue. For example, if payment terms are 90 percent on shipment and 10 percent on acceptance, we invoiced and recognized the full amount in accounts receivable and recognized 10 percent of the invoiced amount as deferred revenue. The interpretive guidance in Securities and Exchange Commission Staff Accounting Bulletin 104 (SAB 104) indicates that when the timing of payment of a portion of the sales price is coincident with the performance of the remaining activity, the remaining activity is considered substantive rather than inconsequential or perfunctory. Interpretative guidance of SAB 104 states that deferred revenue should not be recognized for the portion of the contract price that is withheld. In the restated balance sheets as at September 30, 2003 and later, the portion of the contract price withheld is offset against accounts receivable, thereby reducing total liabilities and total assets by the same amount.

Second, we previously deferred recognition of costs in the same proportion as we deferred recognition of revenues on contracts with a portion of the contract price that is withheld until final acceptance. The restated statements of operations for periods ending on or after September 30, 2003 and balance sheets as at September 30, 2003 and later will recognize the majority of the product’s costs (i.e. excluding installation costs) on shipment. This affected the timing of recognition of these costs, which in some cases moved costs from one quarter to another and therefore changed Cost of Goods Sold (COGS) and net loss in that quarter and net assets at the quarter end.

Third, in our statement of operations, we historically allocated substantially all of our facilities costs to Selling, General and Administrative Cost (SG&A). We have determined that a portion of those costs should be re-allocated to COGS and Research and Development (R&D). As a result, in a given period, SG&A was reduced and COGS and R&D together were increased by the same amount. The reallocation of overhead relates to one facility with services shared by administrative, manufacturing and research and development functions. All of our restated statements of operations reflect this reclassification.

As a result of the foregoing, in the consolidated statement of operations our net loss was overstated by $104,000 in fiscal 2004, and understated by $402,000 in fiscal 2003, and in the consolidated balance sheets the total assets were overstated by $2.5 million in fiscal 2004 and by $5.8 million in fiscal 2003 and total liabilities overstated by $2.2 million in fiscal 2004 and by $5.3 million in fiscal 2003.

Index to Financial Statements

The impact of these adjustments at December 31, 2004 is to decrease accumulated other comprehensive income by $15,000 and to increase accumulated deficit by $298,000. The impact of these adjustments at December 31, 2003 is to decrease accumulated other comprehensive income by $10,000 and to increase accumulated deficit by $402,000. As SAB 104 was not effective for periods prior to September 30, 2003, there is no impact on the balance sheets for prior periods.

Recent Developments

On March 14, 2005, we entered into an Agreement and Plan of Merger with Aviza Technology, Inc., a privately held global supplier of thermal process and atomic layer deposition systems. Under the terms of the Merger Agreement, a wholly-owned subsidiary of New Athletics, Inc., a newly formed Delaware corporation, will merge with and into us, and a wholly-owned subsidiary of New Athletics will merge with and into Aviza. Upon consummation of the mergers, we and Aviza will each continue as wholly-owned subsidiaries of New Athletics.

New Athletics intends to account for the transaction as a “purchase” of Trikon by Aviza for financial reporting and accounting purposes, in accordance with U.S. generally accepted accounting principals. Product revenues for the three months and year ended December 31, 2004 include $900,000 attributable to sales of products to Aviza.

The consummation of the merger is subject to the approval of our stockholders and other customary closing conditions. The requisite approval of the stockholders of Aviza has already been obtained. The merger is expected to close in the second or third quarter of 2005.

Critical Accounting Policies

General

Our discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

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

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

Revenue Recognition

We derive our revenues from three sources—equipment sales, spare parts sales and the provision of services. In accordance with Staff Accounting Bulletin 104 issued by the staff of the Securities and Exchange Commission, we recognize revenue when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services rendered, the sales price is fixed or determinable and collectivity is reasonably

Index to Financial Statements

assured. For transactions that consist of multiple deliverables we allocate revenue to each of the deliverables based upon relative fair values and apply the revenue recognition criteria above to each element.

Generally, we recognize revenue on shipment, as the equipment is pre-tested in the factory prior to shipment and our terms of business are FOB factory. For new customers, or new products, revenue is recognized on shipment only if the customer attends and approves the pre-shipment testing procedures and we, and the customer, are satisfied that the performance of the equipment, once installed and operated, will meet the customer-defined specifications. Generally even with new customers we recognize revenue on shipment because the customer attends and approves the pre-shipment testing. The amount of revenue recorded is reduced by the amount of any customer retention (typically between 10% and 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved.

The amount of revenue related to system shipments and customer retentions not recognized at December 31, 2004 was $1.9 million compared to $5.1 million at December 31, 2003.

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

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

During fiscal 2003 we entered into a contract to develop a piece of equipment for a customer and we determined that the revenue associated with this transaction should be accounted for in accordance with SOP 81-1—‘Accounting for the performance of Construction-Type and certain Production-Type contracts’. The developed equipment was shipped to the customer in fiscal 2003, however significant development work was required and therefore no revenue was recognized with respect to this project in fiscal 2003. This contract was completed in fiscal 2004 and the revenue was recognized accordingly.

Foreign Currency Translation

Most of our operations are located within the United Kingdom and most of our costs are incurred in British pounds. However our system sales are generally in US dollars and, to a lesser extent, in euros, and we report in US dollars. As a result, fluctuations in the exchange rate between the US dollar and the British pound could have a significant effect on our reported earnings and net asset position. We have determined that the functional currency for all UK operations is the British pound and as a result our actual expenses expressed in US dollars will fluctuate with changes in foreign currency exchange rates and result in currency gains and losses, which are charged to net income. Changes in the value of non-US net assets as a result of these movements of foreign currency exchange rates are treated as changes to the cumulative translation adjustment on the balance sheet. We also have significant intercompany loans between the United Kingdom operating subsidiary and the parent, which were determined as being repayable in the foreseeable future. This determination results in exchange gains and losses associated with these loans being accounted for in the statement of operations.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value, using standard costs which approximate to actual cost. We maintain a perpetual inventory system and continuously record the quantity on hand and standard cost of each product including purchased components, sub assemblies and finished goods. We maintain the integrity of the perpetual inventory through a cycle stock count program.

Our standard costs are re-assessed at least annually and generally reflect the most recent purchase cost and currently achievable assembly and test labor and overhead rates. We estimate our labor and overhead rates based

Index to Financial Statements

upon average utilization rates and treat as a period cost abnormal absorption variances, which arise due to low or high production volumes. As a result of the low levels of production, significant negative volume variances are being experienced, which has resulted in a gross margin that is below levels that could be achieved at higher revenue levels.

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

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

Installation and Warranty

Our contracts cover on-site installation services and provide for a warranty of the machine. Our standard warranty period varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased.

We account for the estimated warranty cost as a charge to cost of sales on delivery. The warranty reserve is based upon historic product performance and is based on a rolling 12-month average of the historical cost per machine per warranty month outstanding. We also recalculate the estimated warranty cost for all remaining systems still under warranty using the most recent historic average and the difference is included as a component of cost of sales. We do not maintain any general reserves for warranty obligations. Actual warranty costs in the future may vary from historic costs, which could result in adjustments to our warranty reserves in future periods that are more volatile than in recent years.

Comparison of the Years Ended December 31, 2004 and 2003

Product Revenue.

Product revenues for the year ended December 31, 2004 increased 28% to $36.7 million compared to $28.7 million for the year ended December 31, 2003. Shipments for the year ended December 31, 2004 were $33.7 million compared to $32.7 million shipped in the prior year.

Product revenues outside of the United States accounted for approximately 72% and 61% of total revenues for the years ended December 31, 2004 and 2003, respectively. We expect that sales outside of the United States will continue to represent a significant percentage of our product sales through 2005.

Our sales by product as a percentage of total revenue are as follows:


	Year Ended December 31,
	2004		2003
PVD	36	%	22	%
CVD	6	%	21	%
Etch	25	%	20	%
Spares and support	33	%	37	%

Total	100	%	100	%

Index to Financial Statements

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

License Revenues.

License revenues are associated with an exclusive license of power supply technology and a non-exclusive license of our M0RI technology to a systems integrator in Japan for a non-competing application. License revenues increased 45% to $157,000 for the year ended December 31, 2004 compared to $108,000 received during the year ended December 31 2003.

Gross Margin.

Our gross profit from period to period is affected by the treatment of certain product sales in accordance with Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition,” or SAB 104, which superseded the earlier related guidance in SAB No. 101, “Revenue Recognition in Financial Statements,” or SAB 101. For these sales, we recognize all of a product’s cost upon shipment, except installation, even though a portion of a product’s revenue may not be recognized until final payment is due, typically upon customer acceptance.

The gross margin for the year ended December 31, 2004 was 26.0% as compared to 17.9% for the year ended December 31, 2003. The improvement in gross margin is primarily attributable to improved efficiency within manufacturing and customer support with the combination of increased utilization and significantly reduced headcount following cost reductions in fiscal 2003 and 2004.

Research and Development Expenses.

Research and development expenses for the year ended December 31, 2004 were $10.1 million or 27.5% of total revenues compared with $11.1 million or 38.5% of total revenues for the prior year. The decrease in research and development expenses for fiscal 2004 compared to the prior year reflects reduced headcount and other expenses. We believe, however, that the current levels of expenditure are adequate and are focused upon the development of new processes to further advance our proprietary PVD, CVD and etch technologies This includes the development of novel process solutions for emerging applications and for advanced applications at technology nodes of 90nm and below.

We have also received an offer of a grant from the UK government to develop broad ion beam deposition technology for MRAM applications and we expect to develop this technology over the next eighteen months in collaboration with other parties. This grant will reimburse 50% of our total project costs and expenditure to a maximum reimbursement of $3.1 million. None of these funds has been received as of December 31, 2004 and are contingent on all parties accepting the offer. Although we have been informed that one party may not wish to continue the program, we have been informed that it will be possible to substitute such party. The expenditure and funding are expected to commence in fiscal 2005 and would be expended/received over the eighteen month period of the project.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the year ended December 31, 2004 were $16.1 million, or 43.7% of total revenues, compared to $16.4 million, or 56.8% of total revenues, in the year ended December 31, 2003.

Index to Financial Statements

The year ended December 31, 2004 includes non-recurring costs totaling $1.9 million for higher than usual legal fees, consultancy services including, expenses related to compliance costs with respect to section 404 of the Sarbanes Oxley Act, costs of a reduction in force and other higher than normal legal and professional charges, compared to similar non recurring costs of $0.9 million in the prior year.

Restructuring Costs

In the fourth quarter of fiscal 1997 the Company commenced a restructuring program related to the closure of its M0RI etch operations located in Chatsworth, California, which included the transfer of the M0RI technology to the Company’s Omega platform and the obsolescence and phase-out of the existing platform. An accrual was charged to the income statement in fiscal 1997 for this restructuring. During fiscal 1998 and 1999 the Company completed this reorganization and negotiated settlements with many of its customers. The restructuring reserve was reduced accordingly. The Company has carried a residual accrual in the amount of $1.2 million since December 31, 1999 for other potential claims arising out of this restructuring. Following a review of the situation in the third quarter of 2004, the Company has concluded that the probability of further claims is remote and accordingly the reserve has been reversed to the income statement during the year ended December 31, 2004.

Result from Operations.

We incurred a loss from operations of $15.5 million in the year ended December 31, 2004 compared to a loss of $25.9 million in the prior year. The combination of increased revenue, better gross margins and reduced operating expenses all contributed to the reduction in the loss from operations. The pension settlement charge of $3.5 million in the year ended December 31, 2003 and the release of the reserve for restructuring in fiscal 2004 of $1.2 million also had an effect on the comparison of the results of operations for fiscal 2004 when compared to fiscal 2003.

Other Income.

We earned $0.5 million during the year ended December 31, 2003 in connection with the sale of property we no longer required for our operations. No similar income was received in fiscal 2004.

Interest Income and Expense, Net.

Net interest income was $60,000 for the year ended December 31, 2004 compared with $27,000 for the year ended December 31, 2003. Net interest income increased in the year ended December 31, 2004 compared to the prior year, due to higher interest payable in fiscal 2003 from interest payable on taxes incurred in fiscal 2003, which did not reoccur in fiscal 2004. Excluding this item, net interest income declined due to lower cash balances.

Income Taxes.

For the year ended December 31, 2004 we recorded a tax charge of $0.2 million compared to a tax charge of $0.2 million for year ended December 31, 2003 resulting in an effective income tax rate of (1.6)% and (1.0)%, respectively. The current year tax charge primarily relates to US state franchise taxes and to income taxes in our non United Kingdom subsidiaries. The low effective tax rate arises primarily as a result of the generation of net operating losses for which we have not recognized any deferred tax assets, which can only be utilized against future profits. See Note 6 of the notes to the financial statements for a detailed reconciliation of the tax rate for 2004 and 2003.

As of December 31, 2004, we had US federal losses of $25.6 million, various state operating losses and United Kingdom net operating losses of approximately $64.4 million, which can be offset against future income. Our ability to use our US and United Kingdom net operating losses and credit carry forwards will depend upon

Index to Financial Statements

the ability to generate future income within the US and United Kingdom to utilize these losses. Further, a portion of our US net operating losses are subject to annual limitations arising from a change of control as defined by Section 382 of the internal revenue code, as revised.

Comparison of the Years Ended December 31, 2003 and 2002

Product Sales.

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

Our sales by product as a percentage of revenue are as follows:


	Year Ended December 31,
	2003		2002
PVD	22	%	34	%
CVD	21	%	17	%
Etch	20	%	22	%
Spares and support	37	%	27	%

Total	100	%	100	%

Sales outside of the United States accounted for approximately 61% and 67% of total revenues for the years ended December 31, 2003 and 2002, respectively.

License Revenues.

License revenues are associated with an exclusive license of power supply technology and a non-exclusive license of our M0RI technology to a systems integrator in Japan for a non-competing application. License revenues increased 116% to $108,000 for the year ended December 31, 2003 compared to $50,000 received during the year ended December 31 2002.

Gross Margin on Product Sales.

The gross margin on product revenues for the year ended December 31, 2003 was 17.9% as compared to 18.2% for the year ended December 31, 2002. Cost of goods sold for the year ended December 31, 2003 included $290,000 relating to the costs of a reduction in workforce compared to $345,000 in the year ended December 31, 2002. Cost of goods sold for the year ended December 31, 2003 also included a non-cash charge of $2.1 million with respect to the write-down of inventory associated with the current downturn in the semiconductor business compared to $2.3 million in the prior year.

Research and Development Expenses.

Research and development expenses for the year ended December 31, 2003 were $11.1 million or 38.5% of total revenues compared with $12.2 million or 37.1% of total revenues for the prior year. The major focus of our research and development efforts continued to be the development of new processes in further advancing our proprietary PVD, CVD and etch technologies as well as adding enhancements to our existing products.

Index to Financial Statements

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the year ended December 31, 2003 were $16.4 million, or 56.8% of total revenues, compared to $14.9 million, or 45.4% of total revenues, in the year ended December 31, 2002. As the majority of our costs are incurred in British pounds, in local currency terms our expenses declined in fiscal 2003 compared to fiscal 2002. In addition, in fiscal 2003 we incurred non-recurring costs associated with employer social security taxes relating to the vesting of 1,149,281 shares, a contested 2003 annual shareholder meeting, accruals with respect to leasehold buildings no longer used by the Company and the succession of the Chief Executive Officer, which totaled $941,000.

Result from Operations.

We incurred a loss from operations of $25.9 million in the year ended December 31, 2003 compared to a loss of $21.9 million in the prior year. Lower revenue was the major component of the increase in the loss from operations. The pension settlement charge of $3.5 million in the year ended December 31, 2003 compared to $818,000 in the year ended December 31, 2002 had a significant effect upon the result of operations for fiscal 2003. See note 11, ‘Pensions and other Post Retirement Benefits’ in the notes to the consolidated financial statements.

Other Income.

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

Interest Income and Expense, Net.

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

Income Taxes.

For the year ended December 31, 2003 we recorded a tax charge of $0.2 million compared to a tax credit of $2.2 million for year ended December 31, 2002 resulting in an effective income tax rate of (1.0%) and 9.9%, respectively. The tax charge primarily relates to US state franchise taxes and to income taxes related to operations in our German subsidiary

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

Liquidity and Capital Resources

At December 31, 2004, we had $21.2 million in cash and cash equivalents, compared to $31.6 million at December 31, 2003.

At December 31, 2003, we had a term loan from a British bank with a balance outstanding of 6.2 million British pounds (approximately $11.2 million at the December 31, 2003 exchange rate). The term loan was repaid in full during the first quarter of fiscal 2004.

Index to Financial Statements

In July 2003 we entered into a two-year revolving credit facility for 5.0 million British pounds (approximately $9.6 million at the December 31, 2004 exchange rate) (‘2003 facility’). Interest on the 2003 facility will be incurred at LIBOR plus 1.75% for borrowings in British pounds and at the bank’s short-term offered rate plus 1% for loans in any other currency. At December 31, 2004 we had drawn down the whole of this facility.

The 2003 facility, as subsequently amended, includes financial covenants that require that we maintain a consolidated net worth of not less than $40 million, and that our interest expense on the loan net of any interest receivable from the same British bank does not exceed 70,000 British pounds in any one fiscal quarter. At December 31, 2004 our consolidated net worth was $40.5 million. The primary factors that affect our consolidated net worth are foreign currency translation and net losses. To the extent the US dollar strengthens against the British pound or we incur net losses, our consolidated net worth will continue to decline. If our consolidated net worth falls below $40 million then we would be in breach of this covenant and our bank could exercise its right to cause us to repay amounts outstanding under the 2003 facility and not permit such amounts to be redrawn. We may breach this covenant at the end of the first quarter of 2005, and in any event unless the 2003 facility is renewed, it will expire pursuant to it’s terms at the end of the second quarter of 2005 and all amounts outstanding at that time will be required to be repaid.

Our cash and cash equivalent balances, net of amounts borrowed under the 2003 facility was $11.6 million at December 31, 2004 and represents our primary source of liquidity. Our cash used in operating activity has been $7.2 million, $10.8 million and $6.9 million in the years ended December 31, 2004, 2003 and 2002, respectively. As a result, if we do not continue to increase revenue, reduce operating costs and return to profitability we may use all, or a substantial part of our cash balance to fund our current obligations and our operations.

The amount of funding required by operations in fiscal 2005 will depend on numerous factors including, market conditions within the semi conductor industry, general economic conditions, our ability to increase our revenue, or reduce our expenditures or our ability to reduce our working capital requirements in areas such as inventory and accounts receivable. However, management believes, based upon our current forecast for revenues, operating expenses, cashflows and other financial metrics that the resources available at December 31, 2004 are sufficient to fund operations for at least the next twelve months. If anticipated revenues from fiscal 2005 do not meet our expectations we would continue to seek to scale back our operations to lower the use of cash. We also anticipate that we would seek to raise additional debt or equity funding during the next twelve months and to seek an extension or replacement to the current line of credit.

At December 31, 2004, our cash obligations and commitments relating to our debt obligations and lease payments were as follows ($’000):


	Total	Less than 1 year	1 to 3 years	3 to 5 years	Greater than 5 years
Bank loan	9,600	9,600	—	—	—
Capital lease obligations	424	330	94	—	—
Operating lease obligations	7,128	1,565	2,769	2,475	319

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

Index to Financial Statements

RISK FACTORS

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

We have experienced losses of $13.7 million, $25.0 million and $19.6 million during the years ended December 31, 2004, 2003 and 2002, respectively. We will need to increase sales and/or reduce costs to return to profitability. However we may never generate sufficient revenues to achieve profitability. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future.

As of December 31, 2004, we had cash and cash equivalents of approximately $21.2 million and short-term debt of approximately $9.9 million. The short-term debt includes 5 million British pounds ($9.6 million at the December 31, 2004 exchange rate) outstanding under our credit facility that we may be required to repay if we breach the consolidated net worth covenant in the facility. A breach of this covenant may occur at the end of the first quarter of fiscal 2005 and in any event, this facility expires on June 30, 2005. There can be no assurance that a replacement facility can be obtained. and we may need to raise additional capital in the next twelve months from the sale of equity. In addition, regardless of whether such financing is absolutely necessary, we may seek additional debt or equity financing in the next twelve months in order to strengthen our cash position. We may not be able to obtain additional financing on acceptable terms, or at all. If we issue additional equity or convertible debt securities to raise funds, the ownership percentage of our existing stockholders would be reduced and they may experience significant dilution. New investors may demand rights, preferences or privileges that differ from, or are senior to, those of existing holders of our common stock, including warrants in addition to the securities purchased and protection against future dilutive transactions. If we are unable to achieve positive cash flows or raise additional capital, we may be forced to implement further expense reduction measures, including, but not limited to, the sale of assets, the consolidation of operations, workforce reductions, and/or the delay, cancellation or reduction of certain product development, marketing or other operational programs.

We may not achieve profitability in fiscal 2005 and may not achieve the sales necessary to avoid further expense reduction measures in the future. Such expense reduction measures could materially adversely affect our results of operations and prospects and may not be successful in preserving sufficient cash to continue operations.

The semiconductor industry is highly cyclical and unpredictable.

Our business depends upon the capital expenditures of semiconductor manufacturers, which in turn depend on the current anticipated market demand for integrated circuits. The semiconductor industry has historically been cyclical due to sudden changes in demand for semiconductors and manufacturing capacity using the latest technology. These changes in demand have affected the timing and amounts of customers’ capital equipment purchases and investments in technology, and continue to affect our orders, net sales, gross margin and results of operations.

During periods of decreasing demand for integrated circuit manufacturing equipment, we must be able to appropriately align our cost structure with prevailing market conditions and effectively motivate and retain key employees. Conversely, during periods of increasing demand, we must have sufficient manufacturing capacity and inventory to meet customer demand, and must be able to attract, retain and motivate a sufficient number of qualified individuals. If we are not able to timely adjust our cost structure with business conditions and/or to effectively manage our resources and production capacity during changes in demand, our business, financial condition or results of operations may be materially and adversely affected.

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

Our orders and revenue are from a relatively small number of manufacturers of integrated circuits and we expect this to continue. In fiscal 2004 two customers exceeded 10% of revenue. This may lead customers to demand from us less favorable pricing and other terms. In addition, sales to any single customer may vary

Index to Financial Statements

significantly from quarter to quarter. If current customers delay, cancel or do not place orders we may not be able to replace these orders with new orders. As our products are configured to customer specifications, changing, rescheduling or canceling orders may result in significant and often non-recoverable costs. The resulting fluctuations in the amount of and terms of orders could have a material adverse effect on our business, financial condition and results of operations.

We will not be able to compete effectively if we fail to address the technology needs of our customers.

We operate in a highly competitive environment, and our future success is heavily dependent on effective development, commercialization and customer acceptance of new products compared to our competitors. In addition, our success is dependent upon our ability to timely and cost-effectively: (1) develop and market new products and technologies; (2) improve existing products and technologies; (3) expand into or develop equipment solutions for new markets for integrated circuit products; (4) achieve market acceptance and accurately forecast demand for our products and technologies; (5) achieve cost efficiencies across our product offerings; (6) qualify new or improved products for volume manufacturing with our customers; and (7) lower our customers’ cost of ownership. The development, introduction and support of new or improved products and technologies, including those which enable smaller feature sizes, new materials and the utilization of 300 mm wafers becomes increasingly expensive and unpredictable. For example, the adoption of our ORION for ultra low k deposition has been delayed as a result of integration issues at the potential customers. Until such integration issues are resolved our ability to obtain commercial sales of our ORION technology is limited and there can be no assurance that these integration issues will be resolved. We also need to continue to develop technology for such customer needs as power semiconductors, SiP/Mems, BAW, Flowfill, and other applications and there can be no assurance that such developments will be consistent with the needs of these customers.

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

Integrated circuit manufacturers have been slow to adopt the use of new materials and if we fail to continue to develop these solutions to achieve all the specifications required by device manufacturers and/or the device manufacturers fail to successfully integrate these technologies with their other processes, or our competitors develop competing solutions, then our ability to grow our revenues from these products would be negatively affected.

Our operating results could be negatively affected by currency fluctuations.

We are based in the United Kingdom, and most of our operating expenses are incurred in British pounds. Our revenues, however, are generally denominated in US dollars, and to a lesser extent in euros, and we report our financial results in US dollars. Accordingly, if the British pound increases in value against the US dollar, our expenses as a percentage of revenues will increase and gross margins and net income will be negatively affected.

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

The percentage of worldwide semiconductor production that is based in the Asian region is growing, particularly within China. Our business has traditionally been strongest with the European semiconductor

Index to Financial Statements

manufacturers and we have only a small installed base and limited brand recognition in Asia. It will be necessary for us to penetrate new customers in this region to grow our business. While we have appointed sales representatives in this region and we were able to increase the percentage of sales in the Asian region in fiscal 2004 to 10% of total revenues, there is no assurance that we will be able to continue to penetrate these geographic markets, which are subject to growth rates that are higher than worldwide growth rates. Failure to penetrate these markets may harm our competitive position and adversely affect our future business prospects.

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

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

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

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

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 established relationships, product compatibility and proven system performance.

Once a semiconductor manufacturer selects a particular vendor’s capital equipment, the manufacturer generally relies for a significant period of time upon the equipment from this vendor of choice for the specific production line application. To do otherwise creates risk for the manufacturer because the manufacture of a semiconductor requires many process steps and a fabrication facility will contain many different types of machines that must work cohesively to produce products that meet the customers’ specifications. If any piece of equipment fails to perform as expected, the customer could incur significant costs related to defective products, production line downtime, or low production yields.

Since most new fabrication facilities are similar to existing ones, semiconductor manufacturers tend to continue using equipment that has a proven track record. Based on our experience with major customers such as Infineon, we have observed that once a particular piece of equipment is selected from a vendor, the customer is likely to continue purchasing that same piece of equipment from the vendor for similar applications in the future. Our customer list, though limited, has increased in fiscal 2004. Yet our broadening market share remains at risk due to choices made by customers that continue to be influenced by pre-existing installed bases by competing vendors. Consequently, our penetration of new customers and our ability to get additional orders may be limited.

A semiconductor manufacturer frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, we may face narrow windows of opportunity to be selected as the “vendor of choice” by potential new customers. 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, and we may not be successful in obtaining broader acceptance of our systems and technology. If we are not able to achieve broader market

Index to Financial Statements

acceptance of our systems and technology, we may be unable to grow our business and our operating results and financial condition will be harmed.

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

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

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

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

We depend upon sole suppliers for certain key components.

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

Our final assembly and testing is concentrated in one facility.

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

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

Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for

Index to Financial Statements

qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed.

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

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

There can be no assurance that patents will be issued on our pending patent applications or that competitors will not be able to ascertain legitimately proprietary information embedded in our products that is not covered by patent or copyright. In such case, we may be precluded from preventing the competitor from making use of such information.

In addition, should we wish to assert our patent rights against a particular competitor’s product, there can be no assurance that any claim in any of our patents will be sufficiently broad nor, if sufficiently broad, any assurance that our patent will not be challenged, invalidated or circumvented, or that we will have sufficient resources to prosecute our rights. Failure to protect our intellectual property could have an adverse effect on our business.

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

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

•

lose or forfeit our proprietary rights;

•

stop manufacturing or selling our products that incorporate the challenged intellectual property;

•

obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all and may involve significant royalty payments;

•

pay damages, including treble damages and attorney’s fees in some circumstances; or

•

redesign those products that use the challenged intellectual property.

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

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

We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, manufacture and disposal of all materials present at, or our output from, our facilities, including the toxic or other

Index to Financial Statements

hazardous chemical by-products of our manufacturing processes. Environmental claims against us, or our failure to comply with any present or future regulations, could result in significant costs to remediate, the assessment of damages or imposition of fines against us; the suspension of production of our products; or the cessation of our operations.

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

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

We may consider it necessary to invest in complementary products, companies or technologies, such investments involve numerous risks, including but not limited to: (1) diversion of management’s attention from other operational matters; (2) inability to complete acquisitions as anticipated or at all; (3) inability to realize synergies expected to result from an acquisition; (4) failure to commercialize purchased technologies; (5) ineffectiveness of an acquired company’s internal controls; (6) impairment of acquired intangible assets as a result of technological advancements or worse-than-expected performance of the acquired company or its product offerings; (7) unknown and/or undisclosed commitments or liabilities; (8) failure to integrate and retain key employees; and (9) ineffective integration of operations. Mergers and acquisitions are inherently subject to significant risks, and the ability to effectively manage these risks could materially and adversely affect our business, financial condition and results of operations.

Changes in accounting rules

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

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

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

Index to Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following tables present our audited and unaudited consolidated balance sheets at December 31, September 30, June 30, and March 31, for the years 2003 and 2004 and the unaudited quarterly consolidated results of operations for the eight quarters in the period ended December 31, 2004. You should read the following tables in conjunction with the consolidated financial statements and the related notes, listed in the index appearing under Item 15 of this Form 10-K/A. We have prepared this data on a basis consistent with our audited consolidated financial statements, and this data reflect certain accounting restatements that are the subject of this Amendment and that are more fully described in notes 13 and 14 of the Notes to the Consolidated Financial Statements in Item 15 of this Form 10-K/A. These tables include all adjustments considered necessary for a fair statement of our financial position and operating results for the dates and periods presented.

Trikon Technologies, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	2004								2003
	December 31 (As restated)		September 30 (As restated)		June 30 (As restated)		March 31 (As restated)		December 31 (As restated)		September 30 (As restated)		June 30		March 31
			(unaudited)		(unaudited)		(unaudited)				(unaudited)		(unaudited)		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,202	$	19,009	$	22,253	$	29,024	$	31,646	$	25,125	$	30,329	$	37,729
Accounts receivable, less allowances of $195 and $190 at December 31, 2004 and 2003, respectively (a)		6,654		8,797		7,146		2,787		6,212		8,626		8,921		5,507
Inventories		16,543		15,465		15,657		16,037		15,257		17,552		19,904		18,509
Prepayments and other current assets (a)		2,203		2,277		1,888		3,047		4,173		2,087		2,101		2,619

Total current assets (a)		46,602		45,548		46,944		50,895		57,288		53,390		61,255		64,364
Property, plant and equipment, net		13,597		14,091		15,127		16,794		16,896		17,279		18,009		18,172
Demonstration systems, net		551		1,270		2,501		2,618		2,814		2,503		1,638		2,912
Other assets		391		377		382		393		374		187		188		185

Total assets (a)	$	61,141	$	61,286	$	64,954	$	70,700	$	77,372	$	73,359	$	81,090	$	85,633

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowing	$	9,600	$	9,050	$	9,050	$	9,200	$	—	$	—	$	—	$	—
Accounts payable		5,709		5,663		6,318		4,971		5,785		5,724		5,848		5,038
Accrued expenses (a)		1,453		1,574		1,758		1,716		1,129		—		—		—
Warranty and related expenses		1,171		1,032		1,055		1,035		1,285		—		—		—
Current portion of long-term debt and capital lease obligations		281		220		334		456		11,736		13,069		15,053		16,389
Deferred revenue (a)		541		542		630		1,611		728		632		1,609		981
Other current liabilities		971		1,290		2,192		2,820		2,635		4,258		3,867		3,950

Total current liabilities (a)		19,726		19,371		21,337		21,809		23,298		23,683		26,377		26,358
Long-term debt and capital lease obligations, less current portion		91		16		71		128		188		211		363		495
Pension obligations		—		—		—		—		—		330		743		4,771
Other long term liabilities		782		783		835		902		928		908		950		955

Total liabilities (a)	$	20,599	$	20,170	$	22,243	$	22,839	$	24,414	$	25,132	$	28,433	$	32,579

Index to Financial Statements


	2004												2003
	December 31 (As restated)			September 30 (As restated)			June 30 (As restated)			March 31 (As restated)			December 31 (As restated)			September 30 (As restated)			June 30			March 31
				(unaudited)			(unaudited)			(unaudited)						(unaudited)			(unaudited)			(unaudited)

Stockholders’ equity:
Common stock		261,416			261,413			261,411			261,389			261,217			254,636			254,551			254,540
Accumulated other comprehensive income (loss) (a)		2,886			2,095			2,039			2,341			1,823			(245	)		(1,446	)		(8,986	)
Deferred compensation		—			—			—			—			—			—			—			(190	)
Accumulated deficit (a)		(223,760	)		(222,392	)		(220,739	)		(215,869	)		(210,082	)		(206,164	)		(200,448	)		(192,310	)

Total stockholders’ equity (a)		40,542			41,116			42,711			47,861			52,958			48,227			52,657			53,054

Total liabilities and stockholders’ equity (a)	$	61,141		$	61,286		$	64,954		$	70,700		$	77,372		$	73,359		$	81,090		$	85,633

(a)	These amounts have been restated. See notes 13 and 14 of the Notes to the Consolidated Financial Statements for further information.

Index to Financial Statements

Trikon Technologies, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three Months Ended 2004												Three Months Ended 2003
	December 31			September 30			June 30			March 31			December 31			September 30			June 30			March 31
	(As restated)			(As restated)			(As restated)			(As restated)			(As restated)			(As restated)			(As restated)			(As restated)
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues:
Product revenues	$	9,982		$	9,858		$	10,106		$	6,738		$	9,275		$	8,364		$	5,967		$	5,104
License revenues		31			17			66			43			10			49			49			—

		10,013			9,875			10,172			6,781			9,285			8,413			6,016			5,104

Costs and expenses:
Cost of goods sold (a)		6,641			6,528			8,303			5,786			6,578			6,916			5,310			4,862
Research and development (a)		2,227			2,314			2,710			2,897			3,257			2,508			2,665			2,671
Selling, general and administrative (a)		4,053			3,756			3,773			4,509			4,327			3,558			4,572			3,925
Restructuring cost		—			(1,200	)		—			—			—			—			—			—
Settlement of pension liabilities and related expenses		—			—			—			—			(80	)		899			2,017			706

		12,921			11,398			14,786			13,192			14,082			13,881			14,564			12,164

Loss from operations (a)		(2,908	)		(1,523	)		(4,614	)		(6,411	)		(4,797	)		(5,468	)		(8,548	)		(7,060	)
Foreign currency gains (losses)		1.568			7			(264	)		623			473			(55	)		433			(278	)
Interest (expense) income, net		23			(92	)		63			66			(18	)		(165	)		112			98
Other Income		—			—			—			—			474			—			—			—

Loss before income tax charge (a)		(1,317	)		(1,608	)		(4,815	)		(5,722	)		(3,868	)		(5,688	)		(8,003	)		(7,240	)
Income tax charge		51			45			55			65			49			29			134			24

Net loss (a)	$	(1,368	)	$	(1,653	)	$	(4,870	)	$	(5,787	)	$	(3,917	)	$	(5,717	)	$	(8,137	)	$	(7,264	)

Loss per share data:
Basic (a)	$	(0.09	)	$	(0.10	)	$	(0.31	)	$	(0.37	)	$	(0.26	)	$	(0.41	)	$	(0.60	)	$	(0.56	)

Diluted (a)	$	(0.09	)	$	(0.10	)	$	(0.31	)	$	(0.37	)	$	(0.26	)	$	(0.41	)	$	(0.60	)	$	(0.56	)

Weighted average common shares used in the calculation:
Basic		15,754			15,752			15,745			15,702			15,258			14,078			13,494			12,880

Diluted		15,754			15,752			15,745			15,702			15,258			14,078			13,494			12,880

(a)	These amounts have been restated. See notes 13 and 14 to the Consolidated Financial Statements for further information.

Index to Financial Statements

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, to allow timely decisions regarding required disclosure.

In connection with the preparation of our Originally Filed 10-K, as of December 31, 2004, an evaluation was performed under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management reviewed the selection, application and monitoring of our historical accounting policies. Based on information and advice available at the time, we initially determined that our disclosure controls and procedures were effective as of December 31, 2004 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

In May 2005, we re-evaluated controls over the selection, application and monitoring of our accounting policies with respect to (i) the classification of accounts receivable and deferred revenues on contracts with a portion of the contract price that is withheld until final acceptance, (ii) the timing of recognition of costs on those contracts and (iii) the allocation of facilities cost, and deemed they were not effective. Accordingly, we decided to restate certain of our previously issued financial statements to reflect the corrections (see notes 13 and 14 to our consolidated financial statements).

Auditing Standard Number 2 issued by the Public Company Accounting Oversight Board, or PCAOB, indicates that a restatement of previously issued financial statements is a “strong indicator that a material weakness in internal control over financial reporting exists.” Based on that evaluation, Trikon’s management has revisited its initial evaluation and has now concluded that our disclosure controls and procedures were not effective as of December 31, 2004.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements.

On March 15, 2005, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004 in connection with preparation of the Originally Filed 10-K and concluded that our internal control over financial reporting was effective, a conclusion that Ernst & Young LLP opined was, as of December 31, 2004 fairly stated in all material respects based on the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control—Integrated Framework. Ernst & Young LLP also opined on March 15, 2005 that we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004 based on the COSO criteria. However, as noted above, on May 6, 2005, we determined to restate certain of our previously issued financial statements to reflect the correction of misstatements arising from certain of our historical accounting policies. Details of the restatements are incorporated by reference to notes 13 and 14 to our consolidated financial statements. As a result of our review of our accounting policies, management reassessed our internal control over financial reporting using the COSO criteria.

Index to Financial Statements

Management has concluded that controls over the selection, application and monitoring of accounting policies with respect to (i) the classification of accounts receivable and deferred revenues on contracts with a portion of the contract price that is withheld until final acceptance, (ii) the timing of recognition of costs on those contracts and (iii) the allocation of facilities cost were ineffective and represented a material weakness in our internal control over financial reporting. Accordingly, management has concluded that, as of December 31, 2004, our internal control over financial reporting was not effective. A material weakness in internal control over financial reporting is a control deficiency (within the meaning of PCAOB Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances (including the restatement of previously issued financial statements to reflect the correction of a misstatement) that, because of their likely significant negative effect on internal control over financial reporting, are to be regarded as strong indicators that a material weakness exists.

Our independent registered public accounting firm, Ernst & Young LLP, has audited our consolidated financial statements included in this Annual Report on Form 10-K/A and has issued a revised attestation report on management’s assessment of our internal control over financial reporting as stated in their report which appears below.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ending December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, subsequent to year end we determined that certain of our accounting policies were not in line with current interpretations of generally accepted accounting principles, or GAAP, and that, as such, a restatement was necessary. During the process of restating our financial statements, we conducted a review of our controls over the application and monitoring of appropriate accounting policies to ensure that they conform to GAAP. In order to remediate our internal controls over financial reporting, subsequent to the year ended December 31, 2004, we sought additional advice and implemented additional review procedures over the selection, application and monitoring of appropriate accounting policies to ensure overall compliance with GAAP. In order to reinforce our existing control procedures and to ensure that our policies continue to conform to GAAP and SEC pronouncements, among other things, we have subscribed to certain relevant informational databases designed expressly for the purpose of monitoring changes in GAAP and reinforced our existing procedures to discuss these changes with our audit committee, independent registered public accounting firm and other advisors as deemed necessary.

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Stockholders and the Board of Directors of Trikon Technologies Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting (as revised), that Trikon Technologies Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weakness described in management’s assessment and described below, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Trikon Technologies Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our report dated March 15, 2005 we expressed an unqualified opinion on management’s assessment that the Company maintained effective internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting. As described in the following paragraph, the Company subsequently identified misstatements in its annual and quarterly financial statements. Such matters were considered to be the result of a material weakness as further discussed in the following paragraph. Accordingly, management has revised its assessment about the effectiveness of the Company’s internal control over financial reporting and our present opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, as expressed herein, is different from that expressed in our previous report.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s revised assessment. The Company’s internal control pertaining to the selection, application and monitoring of accounting policies, in particular the accounting for (i) the classification of accounts receivable and deferred

Index to Financial Statements

revenues on contracts with a portion of the contract price that is withheld until final acceptance, (ii) the timing of recognition of costs on those contracts and (iii) the allocation of facilities costs, was ineffective. In the Company’s Forms 10-Q for the quarterly periods ended March 31, 2004, June 30, 2004 and September 30, 2004 and Form 10-K for the fiscal year ended December 31, 2004, the Company deferred revenue and costs relating to the portion of its contracts that is withheld until final acceptance, and allocated substantially all its facilities costs to selling, general and administrative cost. This resulted in the misstatement of gross margin and net income for the three-month period ended March 31, 2004, the three- and six-month periods ended June 30, 2004, the three- and nine-month periods ended September 30, 2004 and the year ended December 31, 2004 and a misclassification within current assets and current liabilities at March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. As a result of this material weakness in control management concluded the Company’s previously issued financial statements should be restated. The restatement is discussed in detail in notes 13 and 14 of the Notes to the Consolidated Financial Statements. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2004 financial statements (as restated), and this report does not affect our report dated May 27, 2005 on those financial statements.

In our opinion, management’s revised assessment that Trikon Technologies, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Trikon Technologies, Inc. has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Trikon Technologies, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 (as restated) and our report dated May 27, 2005 expressed an unqualified opinion thereon.

Ernst & Young LLP

Bristol, England

May 27, 2005

Index to Financial Statements

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K/A

(1) Financial Statements


Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as at December 31, 2004 and 2003.		F-3
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002		F-6
Notes to Consolidated Financial Statements		F-7

(2) Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are not required under the related instructions or are not applicable and therefore have been omitted.

(3) List of Exhibits



2.1		Share Purchase Agreement, dated July 17, 1996 (the “Share Purchase Agreement”), among the Company, Electrotech and the shareholders of Electrotech. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)

2.2		Amendment No. 1 to the Share Purchase Agreement dated September 9, 1996. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)

2.3		Amendment No. 2 to the Share Purchase Agreement dated October 16, 1996. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)

2.4		Amendment No. 3 to the Share Purchase Agreement dated November 13, 1996. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)

2.5		Agreement and Plan of Merger, between Trikon Technologies, Inc., a Delaware corporation, and Trikon Technologies, Inc., a California corporation. (Previously filed as Exhibit C to the Registrant’s Proxy Statement for the 2002 Annual Meeting of Stockholders, and incorporated herein by reference.)

3.1		Certificate of Incorporation of Trikon Technologies, Inc., a Delaware corporation. (Previously filed as Exhibit D to the Registrant’s Proxy Statement for the 2002 Annual Meeting of Stockholders, and incorporated herein by reference.)

3.2		By-laws of Trikon Technologies, Inc., a Delaware corporation. (Previously filed as Exhibit 3.3 to the Registrant’s Quarterly report on form 10Q for the quarterly period ended June 30, 2003.)

4.1		Common Stock Purchase Warrant, dated May 23, 2001, granted by Trikon Technologies, Inc. to Spinner Global Technology Fund, Ltd. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K dated May 24, 2001, and incorporated by reference herein.)

4.2		Form of redeemable warrant to purchase shares of common stock dated October 22, 2003 issued in connection with the sale of common stock and warrants to Special Situations Fund III LP and certain of it’s affiliate funds (previously filed as an exhibit to the Company’s Current Report on Form 8-K dated October 22, 2003 and incorporated by reference herein.)

Index to Financial Statements



10.1*		2004 Equity Incentive Plan of the Company, as amended to date. (Previously filed as an exhibit to the Company’s Proxy Statement for the 2004 Annual Meeting of Stockholders, and incorporated herein by reference.)

10.2*		Employment agreement dated as of March 10, 2004 between the Company and Dr. John Macneil (previously filed as an exhibit to the Company’s Report on Form 10-Q for the quarter ended March 31, 2004).

10.3		Registration Agreement dated as of November 15, 1996 between the Company and Christopher D. Dobson. (Previously filed as an exhibit to the Company’s Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)

10.4		International Technology License and Sales Agreement between the Company and Anelva Corporation, dated February 7, 1992. (Previously filed as an exhibit to Amendment No. 3 to the Company’s Registration Statement on Form S-1, and incorporated herein by reference.)†

10.5		Lease dated July 5, 1985 concerning the Company’s facilities at Newport, Gwent, United Kingdom, as assigned to Electrotech Limited effective January 19, 1995. (Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein.)

10.6		M0RI(TM) Source Technology License Agreement between the Company and Applied Materials. (Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.)†

10.7		FORCEFILL(TM) Technology License Agreement between Trikon Equipment Limited and Applied Materials. (Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.)†

10.8		FORCEFILL(TM) Technology License Agreement between Trikon Technologies Limited and Applied Materials. (Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.)†

10.9		M0RI(TM) Source Technology License Agreement between the Company and Lam Research Corporation. (Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.)†

10.10*		Letter Agreement, dated as of May 14, 1998, between Christopher D. Dobson and the Company. (Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.)

10.11		Form of Stock Purchase Agreement and Schedule of Investors dated April 17, 2002 (previously filed as an exhibit to current report on Form 8-K filed April 19, 2002)

10.12		Form of Stock Purchase Agreement dated October 22, 2003 (previously filed as an exhibit to current report on Form 8-K filed October 22, 2003 and incorporated herein by reference)

10.13*		Letter agreement with Nigel Wheeler dated June 4, 2003 (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference.)

10.14		Revolving Credit agreement dated July 17, 2003 between the Company and Lloyds TSB plc (previously filed as an exhibit to current report on Form 8-K filed July 22, 2003 and incorporated herein by reference)

10.15		Letter of amendment dated March 1, 2004 to term loan agreement dated July 17, 2003 between the Company and Lloyds TSB (previously filed as an exhibit to the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2004).

Index to Financial Statements



21		Subsidiaries of the Registrant (previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and filed on March 16, 2005)

23.1¶		Consent of Ernst & Young LLP

24.1		Power of Attorney (previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and filed on March 16, 2005)

31.1¶		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

31.2¶		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

32.1¶		Certificate of Chief Executive Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)

32.2¶		Certificate of Chief Financial Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)

*	Indicates a management contract or compensatory plan or arrangement, as required by Item 14(a)3.

†	Certain portions of this exhibit have been omitted from the copy filed and are subject to an order granting confidential treatment with respect thereto.

¶	Filed or furnished herewith.

Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 27, 2005


TRIKON TECHNOLOGIES, INC.

By:		/s/ JOHN MACNEIL
		John Macneil Chief Executive Officer, President and Chief Operating Officer

Index to Financial Statements

INDEX TO FINANCIAL STATEMENTS


		Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as at December 31, 2004 and 2003		F-3
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Stockholders and the Board of Directors Trikon Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Trikon Technologies, Inc. as of December 31, 2004 and 2003 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trikon Technologies, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in note 13, the accompanying consolidated financial statements have been restated.

We also have audited, in accordance with the standards of the Public Accounting Oversight Board (United States), the effectiveness of Trikon Technologies Inc’s internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 27, 2005 expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.

Ernst & Young LLP

Bristol, England

May 27, 2005

F-2

Index to Financial Statements

TRIKON TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	December 31,
	2004 (As restated)			2003 (As restated)
Assets
Current assets:
Cash and cash equivalents	$	21,202		$	31,646
Accounts receivable, less allowances of $195 and $190 at December 31, 2004 and 2003, respectively		6,654			6,212
Inventories		16,543			15,257
Prepayments and other current assets		2,203			4,173

Total current assets		46,602			57,288
Property, plant and equipment, net		13,597			16,896
Demonstration systems, net		551			2,814
Other assets		391			374

Total assets	$	61,141		$	77,372

Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowing		9,600			—
Accounts payable		5,709			5,785
Accrued expenses		1,453			1,129
Deferred Revenue		541			728
Warranty and related expenses		1,171			1,285
Current portion of long-term debt and capital lease obligations		281			11,736
Other current liabilities		971			2,635

Total current liabilities		19,726			23,298
Long-term debt and capital lease obligations, less current portion		91			188
Other long term liabilities		782			928

Total liabilities	$	20,599		$	24,414

Commitments and Contingencies (Note 8)

Stockholders’ equity:
Preferred Stock
Authorized shares — 20,000,000 Series H Preferred Stock, $0.001 par value, $10 per share liquidation preference Issued and outstanding None at December 31, 2004 and 2003	$	—		$	—
Common Stock, no par value
Authorized shares — 50,000,000, $0.001 par value. Issued and outstanding — 15,754,985 at December 31, 2004 and 15,635,888 at December 31, 2003		261,416			261,217
Accumulated other comprehensive income		2,886			1,823
Accumulated deficit		(223,760	)		(210,082	)

Total stockholders’ equity		40,542			52,958

Total liabilities and stockholders’ equity	$	61,141		$	77,372

See accompanying notes to the consolidated financial statements.

F-3

Index to Financial Statements

TRIKON TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)


	Year Ended December 31,
	2004 (As restated)			2003 (As restated)			2002 (As restated)
Revenues:
Product sales	$	36,684		$	28,710		$	32,765
License revenues		157			108			50

	$	36,841		$	28,818		$	32,815

Costs and expenses:
Cost of goods sold		27,258			23,666			26,838
Research and development		10,148			11,101			12,171
Selling, general and administrative		16,091			16,382			14,898
Restructuring cost		(1,200	)		—			—
Settlement of pension liabilities and related expenses		—			3,542			818

		52,297			54,691			54,725

Loss from operations		(15,456	)		(25,873	)		(21,910	)
Interest expense		(434	)		(921	)		(1,197	)
Interest income		494			948			1,309
Foreign currency gains (losses)		1,934			573			(2	)
Other income		—			474			—

Loss before income tax charge (benefit)		(13,462	)		(24,799	)		(21,800	)
Income tax charge (benefit)		216			236			(2,165	)

Net loss	$	(13,678	)	$	(25,035	)	$	(19,635	)

Loss per share:
Basic and diluted	$	(0.87	)	$	(1.80	)	$	(1.57	)

Average common shares used in the calculation — basic and diluted		15,738			13,928			12,533

See accompanying notes to the consolidated financial statements.

F-4

Index to Financial Statements

TRIKON TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)


	Common Stock			Accumulated Deficit			Accumulated Other Comprehensive Income			Deferred Compensation			Total
	Shares	Amount		Accumulated Deficit			Accumulated Other Comprehensive Income			Deferred Compensation			Total
Balance January 1, 2002	12,855	$	242,725	$	(165,412	)	$	(9,774	)	$	(2,086	)	$	65,453

Issuance of stock, net of issuance costs	1,093		11,736		—			—			—			11,736
Exercises of employee stock options	78		75		—			—			—			75
Amortization of restricted stock	—		—		—			—			1,517			1,517
Currency translation adjustments	—		—		—			5,069			—			5,069
Deficit on defined benefit plan	—		—		—			(3,695	)		—			(3,695	)
Net loss	—		—		(19,635	)		—			—			(19,635	)

Comprehensive loss	—		—		—			—			—			(18,261	)

Balance at December 31, 2002	14,026	$	254,536	$	(185,047	)	$	(8,400	)	$	(569	)	$	60,520

Issuance of stock, net of issuance costs	1,400		6,456		—			—			—			6,456
Exercises of employee stock options	210		225		—			—			—			225
Amortization of restricted stock	—		—		—			—			569			569
Currency translation adjustments(a)	—		—		—			3,003			—			3,003
Deficit on defined benefit plan	—		—		—			7,220			—			7,220
Net loss(a)	—		—		(25,035	)		—			—			(25,035	)

Comprehensive loss(a)	—		—		—			—			—			(14,812	)

Balance at December 31, 2003(a)	15,636	$	261,217	$	(210,082	)	$	1,823		$	—		$	52,958

Exercises of employee stock options	119		199		—			—			—			199
Currency translation adjustments(a)	—		—		—			1,063			—			1,063
Net loss(a)	—		—		(13,678	)		—			—			(13,678	)

Comprehensive loss(a)														(12,615	)

Balance at December 31, 2004(a)	15,755	$	261,416	$	(223,760	)	$	2,886		$	—		$	40,542

(a)	As restated

See accompanying notes to the consolidated financial statements.

F-5

Index to Financial Statements

TRIKON TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2004 (As restated)			2003 (As restated)			2002
Operating activities
Net loss	$	(13,678	)	$	(25,035	)	$	(19,635	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of plant, equipment, leasehold improvements, and demonstration systems		5,641			5,368			5,279
Gain on sale of property plant and equipment		(22	)		(505	)		(6	)
Amortization of deferred compensation		—			569			1,517
Provision for loss on accounts receivable		5			41			(96	)
Changes in operating assets and liabilities:
Accounts receivable		(447	)		2,695			10,923
Inventories (including demonstration systems)		977			5,084			1,431
Other current assets		1,970			(1,502	)		413
Accounts payable and other liabilities		(1,432	)		2,991			(1,247	)
Income tax payable		(98	)		(48	)		(1,585	)
Deferred revenue		(187	)		(441	)		(3,937	)

Net cash used in operating activities		(7,271	)		(10,783	)		(6,943	)

Investing Activities
Purchases of property, equipment and leasehold improvements		(2,067	)		(1,481	)		(2,098	)
Proceeds from sale of property, equipment and leasehold improvements		1,111			1,682			107
Other assets and liabilities		(163	)		(245	)		(1,688	)

Net cash used in investing activities		(1,119	)		(44	)		(3,679	)

Financing Activities
Issuance of stock		199			6,681			11,811
Borrowings under bank credit lines		9,600			—			—
Repayments of borrowings under bank credit lines		(11,188	)		(8,351	)		(8,050	)
Payments on capital lease obligations		(364	)		(700	)		(663	)

Net cash (used in) provided by financing activities		(1,753	)		(2,370	)		3,098
Effect of exchange rate changes in cash		(301	)		2,286			5,414

Net decrease in cash and cash equivalents		(10,444	)		(10,911	)		(2,110	)
Cash and cash equivalents at beginning of year		31,646			42,557			44,667

Cash and cash equivalents at end of year	$	21,202		$	31,646		$	42,557

Supplemental Cash Flow Information
Cash paid during the year for:
Interest	$	434		$	921		$	1,157
Taxes (primarily foreign)	$	369		$	446		$	1,133
Non-cash investing and financing activities:
Equipment acquired under capital lease	$	184		$	—		$	182

See accompanying notes to the consolidated financial statement

F-6

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements

1.	COMPANY INFORMATION, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET ANALYSIS

Background

Trikon Technologies, Inc. and its subsidiaries (collectively the “Company”) operate in one segment, designing, manufacturing and servicing of front-end wafer processing semiconductor-manufacturing equipment. These products are used for chemical and physical vapor deposition and for etch applications and are sold to semiconductor manufacturers worldwide.

The consolidated financial statements of the Company include the accounts of its subsidiaries all of which are wholly owned.

The Company incurred a net loss of $13.7 million, $25.0 million and $19.6 million for the years ended December 31, 2004, 2003 and 2002, respectively and may continue to incur additional losses through fiscal 2005. In addition, at December 31, 2004 the Company had an accumulated deficit of $223.8 million. The Company’s financial statements are prepared on the basis that it is a going concern, which contemplates continuity of operations and the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2004 the Company had cash and cash equivalents of $11.6 million net of its borrowing under lines of credit that expire in June 2005 and working capital of $26.9 million. The amount of funding required by the business in fiscal 2005 will depend on numerous factors including market conditions, the Company’s ability to grow revenue or reduce costs and the Company’s ability to manage the working capital, in particular accounts receivable and inventory levels. However, management believes, based upon their current forecast for revenues, operating expenses, cash flows and other financial metrics that the resources available at December 31, 2004 are sufficient to fund operations for at least the next twelve months. If anticipated revenues from fiscal 2005 do not meet management’s expectations the Company would continue to seek to scale back its operations to lower the use of cash. The Company would also anticipate that it would seek to raise additional debt or equity funding during the next twelve months and to seek an extension or replacement to the current line of credit.

The financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or classification of liabilities that may result from the inability of the Company to continue as a going concern.

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

Revenue Recognition

The Company derives its revenues from three sources—equipment sales, spare parts sales and the provision of services and changed its revenue recognition policy in fiscal 2000 to adopt Staff Accounting Bulletin (“SAB”)101 issued by the staff of the Securities and Exchange Commission. SAB 104 has superceded the earlier guidance given in SAB 101, and in accordance with SAB 104, the Company recognizes revenue when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services rendered, the sales price is fixed or determinable and collectivity is reasonably assured. For transactions that consist of multiple deliverables the Company allocates revenue to each of the deliverables based upon relative fair values and applies the revenue recognition criteria above to each element.

Revenues related to equipment sales are generally recognized upon shipment and transfer of title when the equipment has been pre-tested in the factory under conditions similar to which the customer intends to operate the equipment and meets all of the customers defined specifications. For new customers, or new products, revenue is recognized only on final acceptance unless the customer attends and approves the pre-testing procedures and the customer and the Company are satisfied that the performance of the equipment, once installed and operated, will

F-7

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

continue to meet the customer-defined specifications. Equipment sold as demonstration or evaluation units are recognized as revenue on transfer of title and either final acceptance, or satisfactory completion of testing to demonstrate that the equipment meets all the customer defined specifications. Equipment sales generally include the provision of installation and commissioning services, which are not essential to the functionality of the equipment but have contractual payment terms linked to the final acceptance. The Company reduces the amount of revenue recorded by the portion of revenue contractually linked to final acceptance, or the fair value of the installation services, if greater, until after acceptance of the machine. Revenue related to spare parts is recognized on shipment and revenue related to service contracts is recognized ratably over the duration of the contracts.

During fiscal 2003 we entered into a contract to develop a piece of equipment for a customer and we determined that the revenue associated with this transaction should be accounted for in accordance with SOP 81-1—‘Accounting for the performance of Construction-Type and Certain Production-type Contracts’. The developed equipment was shipped to the customer in fiscal 2003, however significant development work was required during fiscal 2004 and no revenue was recognized with respect to this project in fiscal 2003. The full value of the contract was deferred and the full value of the contract was recognized in fiscal 2004 following establishment of criteria to estimate the percentage of completion. The contract was completed in fiscal 2004.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following:


	December 31,
	2004		2003
	(In thousands)
Customer service spares	$	2,723	$	3,237
Components		7,648		5,646
Work-in-process		6,172		6,374

	$	16,543	$	15,257

Cash Equivalents

Cash equivalents represent short-term investments that are highly liquid, are of limited credit risk and have original maturities of three months or less when purchased.

Property, plant and equipment

Property, plant and equipment is stated at cost or fair market value for assets held at or prior to November 1996. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets (five years) or the lease term.

F-8

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The components of property, plant and equipment are as follows:


	December 31,
	2004		2003
	(In thousands)
Machinery and equipment	$	32,594	$	26,358
Furniture and fixtures		4,264		4,707
Leasehold improvements		13,115		13,120

		49,973		44,185
Less accumulated depreciation and amortization		36,376		27,289

	$	13,597	$	16,896

Cost of equipment under capital leases included in property and equipment at December 31, 2004 and 2003 was $1,246,000 and $2,427,000, respectively, and accumulated amortization was $841,000 and $1,303,000, respectively. Amortization expense under these leases is included in depreciation expense.

During the year ended December 31, 2003 the Company disposed of an empty facility that had previously been its corporate and operational headquarters. The sales proceeds, net of expenses, amounted to $1,682,000. As at the date of sale the net book value of the building was $1,208,000 resulting in a profit on disposal of $474,000, which is recorded as other income on the face of the consolidated statement of operations.

The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired as defined by Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Demonstration Systems

Demonstration or evaluation systems are completed systems located at certain strategic customer sites or at the Company’s facilities. The Company provides these demonstration systems at no charge for a specified evaluation period. The customer pays all operating costs incurred during the evaluation period. At the conclusion of the agreed upon evaluation period, provided that the equipment performs to required specifications, management expects that the customer, while not obligated to do so, will purchase the system. Demonstration systems are stated at the lower of cost or estimated net realizable value and are depreciated on a straight-line method over four years, if the product is not sold after one year. Demonstration systems, net of depreciation, amounted to $0.6 million and $2.8 million at December 31, 2004 and 2003, respectively.

Accounting for Income Taxes

The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes.

Stock-based Compensation

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to continue to apply the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for

F-9

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Stock Issued to Employees,” and related interpretations in accounting for its employee stock option plan. The Company is generally not required under APB Opinion No. 25 and related interpretations to recognize compensation expense in connection with its employee stock option plans, since stock options are granted at fair market value.

The Company has estimated the fair value of the options at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2004, 2003, and 2002, respectively: Risk-free interest rates of 2.8%, 2.66% and 2.46%; a zero dividend yield in all three years; volatility factors of the expected market price of the Company’s Common Stock of 79.6%, 76.3% and 91.5% and an expected life of the options of 3.7 years, 4.0 years and 3.8 years. These assumptions resulted in weighted-average fair values of $4.27, $4.36, and $6.35, per share for stock options granted in 2004, 2003, and 2002, respectively.

The Black-Scholes option-pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. However, the Company’s employee stock options have characteristics significantly different from those of traded options; therefore, the Black-Scholes option-pricing model may not provide a reliable measure of the fair value of the Company’s options.

If compensation expense had been determined based on the grant date fair value as computed under the Black-Scholes option pricing model for awards in fiscal 2004, 2003 and 2002 in accordance with the provisions of SFAS No. 123 and SFAS No. 148, the Company’s net result and earnings per share would have been reduced to the pro forma amounts indicated below:


	Years ended December 31,
	2004 (As restated)			2003 (As restated)			2002
	(In thousands, except per share data)
Net loss as reported	$	(13,678	)	$	(25,035	)	$	(19,635	)
Compensation expense included in determination of reported net income		—			569			1,517
Pro forma compensation expense calculated on the fair value method		(994	)		(1,699	)		(2,871	)

Pro forma net loss	$	(14,672	)	$	(26,165	)	$	(20,989	)

Pro forma loss earnings per common share:
Basic and diluted:	$	(0.93	)	$	(1.88	)	$	(1.67	)

Research and Development Costs

Research and development costs are expensed as incurred.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred within cost of goods sold.

Foreign Currency Translation

The functional currency of most of the Company’s foreign subsidiaries is the local currency. The Company translates the assets and liabilities of its foreign subsidiaries at the rate of exchange in effect at the balance sheet date and translates the statement of operations items at the average exchange rate for the year. Translation adjustments are recorded as a component of stockholders’ equity on the line item “Other Comprehensive Income” in the consolidated balance sheet. Transaction gains and losses, other than those that relate to transactions deemed to be of a long-term nature, are recognized in earnings.

F-10

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Prepayments and other current assets

The components of prepaid and other current assets are as follows:


	December 31,
	2004 (As restated)		2003 (As restated)
	(In thousands)
Prepayments	$	766	$	798
Other(a)		1,437		3,375

Total(a)	$	2,203	$	4,173

(a)	As restated

Other current liabilities

The components of other current liabilities are as follows:


	December 31,
	2004		2003
	(In thousands)
Customer deposits	$	26	$	1,095
Payroll taxes		693		1,326
Income taxes		80		133
Other		172		81

Total	$	971	$	2,635

Warranty expense

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

Changes in the Company’s product warranty liability during the year ended December 31, 2004 were as follows (in thousands):


Balance, January 1, 2004	$	1,285
Provisions for warranty		1,034
Consumption of reserves		(1,259	)
Translation adjustment		111

Balance, December 31, 2004	$	1,171

Restructuring Costs

F-11

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

technology to the Company’s Omega platform and the obsolescence and phase-out of the existing platform. An accrual was charged to the income statement in fiscal 1997 for this restructuring. During fiscal 1998 and 1999 the Company completed this reorganization and negotiated settlements with many of its customers. The restructuring reserve was reduced accordingly. The Company has carried a residual accrual in the amount of $1.2 million since December 31, 1999 for other potential claims arising out of this restructuring. Following a review of the situation in the third quarter of 2004, the Company has concluded that the probability of further claims is remote and accordingly the reserve has been reversed to the income statement during the year ended December 31, 2004.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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

As permitted by Statement 123, the company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair market value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements. Statement 123(R) also requires the benefit of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement is not expected to have a material effect on the Company’s financial condition or results of operations.

3. SEGMENT, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

The Company’s revenue by geographic area to unaffiliated customers was as follows:


	Year Ended December 31,
	2004		2003		2002
	(In thousands)
North America	$	10,600	$	11,155	$	10,728
Europe		22,662		16,278		21,112
Asia		3,579		1,385		975

Total	$	36,841	$	28,818	$	32,815

F-12

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Sales between geographic regions are accounted for at prices that provide a profit and are in accordance with the rules and regulations of the respective governing bodies. The geographic locations of the Company’s assets are as follows:


	December 31,
	2004		2003
	(In thousands)
Long lived assets:
North America	$	10	$	28
Europe		13,532		16,850
Asia		55		18

Total	$	13,597	$	16,896

All identifiable assets:
North America	$	4,695	$	8,776
Europe(a)		56,262		68,168
Asia		184		428

Total(a)	$	61,141	$	77,372

(a)	As restated

The Company’s main facility is based in the United Kingdom and most of the Company’s products are shipped directly from the United Kingdom to the end geographic region. During the years ended December 31, 2004, 2003 and 2002 export sales of the Company originating from the United States were $282,000, $256,000 and $2,380,000 respectively.

Total revenue includes amounts from certain individual customers that exceed 10% of total revenue. Revenue from two customers represented 16% and 13% each, of total revenue for the year ended December 31, 2004. Revenue from three customers represented 16%, 13% and 10% each of total revenue for the year ended December 31, 2003. Revenue from one customer represented 11% of total revenue for the year ended December 31, 2002.

4. COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss, provisions for unfunded accumulated benefit obligations with respect to the Company’s defined benefit pension plan and currency translation losses as follows:


	Year ended December 31,
	2004 (As restated)			2003 (As restated)			2002
	(In thousands)
Net loss	$	(13,678	)	$	(25,035	)	$	(19,635	)
Pension plan obligations		—			7,220			(3,695	)
Foreign currency translation adjustments		1,063			3,003			5,069

Comprehensive loss	$	(12,615	)	$	(14,812	)	$	(18,261	)

F-13

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Accumulated other comprehensive income comprises:


	December 31,
	2004 (As restated)		2003 (As restated)		2002
	(In thousands)
Foreign currency translation adjustments	$	2,886	$	1,823	$	(1,180	)
Pension plan obligations		—		—		(7,220	)

Total	$	2,886	$	1,823	$	8,400

5. EARNINGS PER SHARE

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


	Year ended December 31
	2004 (As restated)			2003 (As restated)			2002
	(In thousands)
Numerator:
Net loss	$	(13,678	)	$	(25,035	)	$	(19,635	)

Denominator:
For basic earnings per share:
Weighted average shares outstanding		15,738			14,351			13,682
Restricted stock		—			(423	)		(1,149	)

		15,738			13,928			12,533

Basic and diluted earnings per share are calculated in accordance with SFAS128 ‘Earnings per Share’, which specifies the computation, presentation and disclosure requirements for earnings per share. The weighted-average number of shares used to calculate basic earnings per share for the year ended December 31, 2002 and for the year ended December 2003 on a pro rata basis, excludes 1,149,281 shares of restricted common stock issued to the Chairman of the Board of Directors, which vested on May 14, 2003.

6. INCOME TAXES

The income tax charge (credit) consists of the following:


	Year Ended December 31
	2004		2003		2002
	(In thousands)
Current:
Federal	$	—	$	—	$	—
State		153		69		109
Foreign		63		167		(1,672	)

	$	216	$	236	$	(1,563	)
Deferred (foreign)		—		—		(602	)

Total	$	216	$	236	$	(2,165	)

F-14

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

A reconciliation of income taxes (credited) charged at the federal statutory rate (35% in all years) to actual income tax (credit) expense is as follows:


	Year Ended December 31
	2004		2003		2002
Income taxes at the statutory federal income tax rate	(35.0	)%	(35.0	)%	(35.0	)%

Foreign taxes at lower rates than the federal statutory rate	5.4		5.1		4.4

	(29.6	)	(29.9	)	(30.6	)
State taxes payable	1.1		0.3		0.5
Effect of stock compensation amortization	—		(4.4	)	2.4
Research and development credit	—		—		(0.8	)

Change in valuation reserve due to:
Foreign net operating losses generated in the period	31.4		30.4		24.7
Domestic net operating losses utilized in the period	(1.7	)	5.4		1.7
Other	—		—		(1.0	)
Other	0.4		(0.9	)	(6.8	)

	1.6	%	0.9	%	(9.9	)%

The loss before income taxes of the Company’s non-US subsidiaries for the years ended December 31, 2004, 2003 and 2002 was approximately $15.1 million, $24.7 million and $19.1 million, respectively.

As of December 31, 2004, the Company had federal net operating loss carry forwards of approximately $25.6 million (adjusted for the estimated effects of a change of ownership under s382 of the internal revenue code of 1986, as revised (“the Code”)) and California operating loss carry forwards of $20.7 million. The net operating loss carry forwards will expire at various dates beginning in years 2008 through 2024, if not utilized.

At December 31, 2004 the Company also had United Kingdom net operating loss carry forwards of approximately $64.4 million, which can be offset against future profits arising from the same business indefinitely.

Utilization of the net operating losses and credits that arose prior to the change of ownership, under the code, is subject to a substantial annual limitation. This is due to limitations provided by the code and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

Net undistributed earnings from foreign subsidiaries at December 31, 2004, on which no U.S. tax has been provided, amounted to approximately $65.3 million. The net undistributed earnings are intended to finance local operating requirements. Accordingly, an additional US tax provision has not been made on these earnings.

F-15

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Significant components of the Company’s deferred tax liabilities and assets are as follows:


	December 31,
	2004			2003
	(In thousands)
Deferred tax assets:
Domestic:
Allowances and accruals not deducted for current taxes	$	50		$	79
Net operating loss carry forwards		9,760			10,485
Foreign:
Allowances and accruals not deducted for current taxes		27			530
Net operating loss carry forwards		19,018			13,981

		28,855			25,075
Less valuation reserve		(28,719	)		(24,582	)

Deferred tax liabilities:-
Domestic		—			—
Foreign:
Depreciation		(136	)		(367	)
Other		—			(126	)

Net deferred tax asset (liability)	$	—		$	—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is not more likely than not that the Company will realize the benefits of these deductible differences, and thus has recorded a valuation allowance against the entire deferred tax asset.

7. BANK BORROWINGS AND LONG-TERM DEBT

Long-term debt includes the following:


	December 31,
	2004		2003
	(In thousands)
Bank debt	$	9,600	$	11,188
Capital lease obligations		372		736

Total		9,972		11,924
Less current portion		9,881		11,736

Long term portion	$	91	$	188

Bank Debt

During the year ended December 31, 2001, the Company entered into a three-year term loan facility of British pounds 15 million (approximately $26.9 million at the 2004 year-end exchange rates) from a British bank.

F-16

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The balance outstanding at December 31, 2003 was 6,250,000 British pounds (approximately $11.2 million) and was repaid by the Company on January 5, 2004.

In July 2003 the Company entered into a two-year revolving credit facility for 5 million British pounds (approximately $9.6 million at the December 31, 2004 exchange rate) (‘2003 facility’). Interest on the 2003 facility, is incurred at the London Interbank rate (LIBOR) plus 1.75% for borrowings in British pounds and foreign currency at the Banks short-term offered rate plus 1%. The Borrowings under the line of credit at December 31, 2004 incurred interest at 6.5%. Amounts outstanding under the 2003 facility on December 31, 2004 were 5.0 million British pounds (approximately $9.6 million at December 31, 2004 exchange rate).

The 2003 facility includes financial covenants that requires the Company to maintain a consolidated net worth of not less than $40 million, and that the interest expense on the loan net of interest income earned at the same bank cannot exceed 70,000 British pounds in any one fiscal quarter.

The Company also has a (credit) facility with the same bank of up to 1.5 million British pounds for use against standby letters of credit and guarantees (approximately $2.7 million at the year end exchange rate). No amount was outstanding under this facility at December 31, 2004 and 2003. The British bank has a general lien on all the assets of the Company as security for both the 2003 facility and amounts due under this 1.5 million British pound facility.

8. COMMITMENTS AND CONTINGENCIES

Leases:

The Company leases certain equipment under capital leases. The Company also leases its offices, manufacturing facilities and certain equipment under non-cancelable operating lease agreements. Certain leases are subject to escalation clauses based on applicable inflation indexes.

Future minimum lease payments under capital leases and non-cancelable operating leases with initial terms of one year or more consisted of the following at December 31, 2004:


	Capital Leases		Operating Leases
	(In thousands)
2005	$	330	$	1,565
2006		94		1,448
2007		—		1,321
2008		—		1,269
2009		—		1,206

	$	424	$	6,809

Less amounts representing imputed interest		52

Present value of net minimum lease payments, including amounts classified as current	$	372

Rental expense for operating leases was $1.9 million; $2.0 million and $1.8 million for the years ended December 31, 2004, 2003, and 2002, respectively.

F-17

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Contingencies:

In the ordinary course of business the Company is involved with various types of claims and legal proceedings, which may result in litigation, or other legal proceedings. The Company does not anticipate that any of these proceedings will have a material adverse effect on the Company’s financial position, cash flow or results of operations.

On March 10, 2004 Dr. Jihad Kiwan departed the Company as Director and Chief Executive Officer. On March 29, 2004 and April 2, 2004 the Company received letters from a United Kingdom law firm and from a French law firm respectively, on behalf of Dr. Kiwan, detailing certain monetary claims for severance amounts due to Dr. Kiwan with respect to his employment with Trikon. On April 28, 2004 Dr. Kiwan filed a lawsuit in France and on June 10, 2004 filed similar proceedings in the United Kingdom. Dr. Kiwan has subsequently withdrawn the proceedings in the United Kingdom. The Company is in the process of vigorously defending against the French claim. The Company does not believe that the outcome of these claims will be material to the results of operations or the financial condition of Trikon.

9. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The Company’s financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and capital lease obligations. The carrying amounts at December 31, 2004 of these financial instruments approximates their fair value,

The Company from time to time enters into foreign exchange contracts of a short-term nature (typically one month or less) that are generally matched to the estimated collection of accounts receivable. These contracts are generally for the sale of U.S. dollars into British pounds. No contracts were outstanding at December 31, 2004 or 2003. The Company has not entered into any other derivative financial instruments and does not hold or use financial instruments for speculative purposes.

The Company’s exposure to concentration of credit risk arises primarily from its accounts receivables. Accounts receivable consist primarily of amounts due from original equipment manufacturers, end use customers, and distributors within the Company’s industry. At December 31, 2004 four customers represented 19%, 19%, 14% and 11% of total accounts receivable. At December 31, 2003 three customers represented 32%, 16%, and 12% of the total accounts receivable. The Company performs credit evaluations and analysis of amounts due from its customers; however, the Company does not require collateral. Credit losses have been within management’s expectations and an estimate of un-collectible accounts has been provided for in the financial statements.

10. STOCKHOLDERS’ EQUITY

Common Stock

The Company has reserved shares of common stock for future issuance at December 31, 2004 as follows:


Shares reserved for stock option plans		1,532,407
Shares reserved for outstanding warrants		495,093

Total common stock reserved for future issuance		2,027,500

F-18

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

Preferred Stock

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

Restricted Stock

In connection with the consummation of a capital reorganization in fiscal 1998, the Company issued 1,149,281 shares of restricted Common Stock to the Company’s Chairman of the Board, which was subject to certain vesting conditions. This stock vested on May 14, 2003. The restricted stock was valued at $7.6 million based upon average traded prices immediately after the grant. This amount has been accounted for as an addition to Common Stock and as deferred compensation within the Statement of Shareholders Equity. The deferred compensation was amortized on a straight-line basis over a five-year period until vesting in May 2003 which resulted in a charge against operations of $0.6 million and $1.5 million for the years ended December 31, 2003, and 2002, respectively.

Warrants

In connection with the sale of 925,930 common shares to an institutional investor in May 2001, the Company issued warrants for the purchase of 92,593 shares of common stock. The warrants are valid for four years and expire May 23, 2005. The warrants have an exercise price of $13.50. In the event that the volume weighted average market price exceeds $21.60 for any 30-day consecutive period, with a minimum daily trading volume of 200,000 shares, the Company can force the exercise of the warrant.

In connection with the sale of 1,400,000 common shares to an institutional investor in October 2003, the Company issued to that investor warrants for the purchase of 350,000 shares of common stock (‘investor warrants’) with an exercise price of $6.25 per share. In addition further warrants for the purchase of 52,500 shares of common stock (“placement agent warrants”) were issued to the placement agent. The warrants expire October 22, 2007. The warrants may be redeemed at the option of the Company for $0.10 at any time after the first anniversary of the closing date provided that for any 20 trading days in a 30 day trading period the closing market price exceeds $11.25 for the investor warrants, and $11.70 for the placement agent warrants, and the average daily trading volume of the Company’s common stock exceeds 150,000 shares.

Stock Options

The Company has three stock option plans, the 2004 equity incentive plan, the 1991 stock option plan and the 1998 Directors plan.

In September 2004, the Company adopted the 2004 equity incentive plan, which was approved by shareholders at the Annual meeting of shareholders held on September 7, 2004. The number of shares initially reserved for issuance under this plan is 1,300,000. The 2004 equity incentive plan provides for the issuance of options to purchase shares of the Company’s Common Stock and for the awards of restricted stock. The plan also provides for the Board to link the award to performance goals. The plan permits awards to officers, directors, employees and consultants who provide significant services to the Company.

The plan also provides for an automatic award to Directors. Options become exercisable at times and on terms as established at the time of grant by the Company. The Company also determines the time at which the option will expire, however the expiration may not be later than ten years after the grant date.

F-19

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The 1991 stock option plan expired December 31, 2003 and no new grants are permitted under this plan. Outstanding options under this plan as at December 31, 2004 were 1,150,407 and expire between June 2008 and December 2013.

New grants under the 1998 Directors plan were terminated by the Company following the approval of the 2004 equity incentive plan in September 2004. Outstanding options under this plan at December 31, 2004 were 106,000 and expire between June 2008 and May 2014.

A summary of the changes in the status of options is as follows:


	Options Outstanding		Price Range Per Share	Weighted Average Price Per Share
Outstanding at January 1, 2002	998,644		0.31 - 25.25	$	7.78
Granted	412,808		5.09 - 14.34	$	13.18
Cancelled	(71,323	)	1.25 - 14.81	$	12.39
Exercised	(77,586	)	0.47 - 1.41	$	0.97

Outstanding at December 31, 2002	1,262,543		0.31 - 25.25	$	9.70
Granted	893,257		3.03 - 6.35	$	3.84
Cancelled	(104,164	)	1.33 - 14.81	$	11.31
Exercised	(206,878	)	0.31 - 1.41	$	1.09

Outstanding at December 31, 2003	1,844,758		0.47 - 25.25	$	7.77
Granted	296,000		2.05 - 2.11	$	2.07
Cancelled	(489,948	)	1.33 - 25.25	$	5.50
Exercised	(118,403	)	0.47 - 5.04	$	1.59

Outstanding at December 31, 2004	1,532,407		0.47 - 25.25	$	7.84

At December 31, 2004, 2003 and 2002, 752,264, 667,938 and 656,429 shares were exercisable at weighted-average prices of $10.59, $9.76 and $7.12, respectively. There were 1,024,000 options available for grant under the 2004 equity incentive plan as at December 31, 2004.

Information regarding stock options outstanding as of December 31, 2004 is as follows:


Price Range	Options Outstanding				Options Exercisable
Shares	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares	Weighted Average Exercise Price
From $0.47 to $4.99	681,831	$	2.57	8.60	183,618	$	2.42
$5.00 to $9.99	185,400	$	5.94	7.89	66,606	$	6.78
$10.00 to $14.99	613,176	$	12.82	6.21	450,040	$	12.82
$15.00 and above	52,000	$	24.96	5.56	52,000	$	24.96

F-20

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

11. PENSIONS AND OTHER POST-RETIREMENT BENEFITS

General

The Company operates multiple pension arrangements for its employees in the various geographic locations in which it operates. With the exception of the United Kingdom defined benefit pension plan that was settled during fiscal 2003, all these plans are defined contribution schemes operated in accordance with local rules

United Kingdom Defined Benefit Pension Plan

The Company operated a pension plan known as “The Electrotech Retirement Benefits Scheme” (“the Plan”), which undertook to provide retirement benefits to participating employees based upon their final pensionable salary. The assets of the Plan are administered by the Trustees and do not belong to the Company.

In March 2001, the Company decided to curtail the Plan effective April 6, 2001. As a result, participants did not earn additional defined benefits for service after April 6, 2001. In July 2002 the Company entered into a definitive agreement with the trustees of the Plan to settle its obligations.

During 2003 benefits for all members of the Plan were either transferred to individual insurance policies or members chose to transfer their benefits out of the Plan. At December 31, 2003 the Plan had no members. The transfer payments were treated as settlements in accordance with SFAS No. 88 as the Company had eliminated the significant risks related to the long-term pension benefit obligation during the year. The settlement charge to earnings of $3.1 million was incurred in the year ended December 31, 2003.

The trustees are in the process of completing the final administration elements of the windup and they are continuing to investigate a number of contingent liabilities, which will not expire until 2016. As part of the agreement to windup the plan the Company has placed 100,000 British pounds ($192,000) in an escrow account for the benefit of the trustees in the event a claim is made on the trustees.

The net periodic benefit cost and related obligation determined in accordance with SFAS 87, 88 and 132 were calculated and a discount rate of 5.6% for fiscal 2003 and 2002. The long term rate of return on plan assets used was 6.80% and 7.50% for the years ended December 31, 2003 and 2002 respectively.

The actuarial calculations in respect of the Plan assume a rate of increase of pensions in payment accrued after April 6, 2000 of 2.30%. Fixed pension increase rates apply for pension in respect of service before that date.

F-21

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The components of net benefit expense (excluding settlement expense which is included on the face of the income statement) are detailed in the table below.


	Year Ended December 31,
	2004		2003			2002
	(In thousands)
Interest cost on benefit obligation	$	—	$	508		$	849
Expected return on plan assets		—		(433	)		(849	)
Net amortization and deferral:
- recognized and losses		—		114			78

Net periodic benefit expense	$	—	$	189		$	78


	December 31,
	2004		2003			2002
	(In thousands)
Change in benefit obligation
Benefit obligation at start of year	$	—	$	15,620		$	13,753
Translation difference		—		461			1,571
Interest cost		—		508			849
Actuarial losses		—		—			718
Impact of settlement		—		(16,589	)		(1,211	)
Benefits paid		—		—			(60	)

Benefit obligation at end of year	$	—	$	—		$	15,620


	December 31,
	2004		2003			2002
	(In thousands)
Change in plan assets
Fair value of plan assets at start of year	$	—	$	10,308		$	10,331
Translation difference		—		341			1,119
Actual return (loss) on plan assets		—		302			(1,553	)
Contributions by employer		—		1,401			1,925
Settlement		—		(12,352	)		(1,454	)
Benefits (paid)		—		—			(60	)

Fair value of plan assets at end of year	$	—	$	—		$	10,308

Defined Contribution pension arrangements

In November 1993, the Company established a 401(k) plan covering substantially all of its U.S. employees. The 401(k) plan allows eligible employees to contribute up to 15% of their compensation. Company contributions are voluntary and at the discretion of the Board of Directors. There were no contributions made by the Company for the years ended December 31, 2004, 2003, and 2002.

In the United Kingdom, the Company operates a defined contribution pension plan, which allows for employees to contribute part of their compensation to the plan. The Company also makes contributions to this scheme on behalf of the employees and total Company contributions for the years ended December 31, 2004, 2003 and 2002 amounted to $565,000, $569,000 and $689,000, respectively.

There are no other post-retirement benefits provided to employees.

F-22

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

12. SUBSEQUENT EVENT:

On March 14, 2005, we entered into an Agreement and Plan of Merger with Aviza Technology, Inc., a privately held global supplier of thermal process and atomic layer deposition systems. Under the terms of the Merger Agreement, a wholly-owned subsidiary of New Athletics, Inc., a newly formed Delaware corporation, will merge with and into us, and a wholly-owned subsidiary of New Athletics, will merge with and into Aviza. Upon consummation of the mergers, we and Aviza will each continue as wholly-owned subsidiaries of New Athletics.

The consummation of the merger is subject to the approval of the Company’s stockholders and other customary closing conditions. The requisite approval of the stockholders of Aviza has already been obtained. The merger is expected to close in the second or third quarter of 2005.

In addition, on March 14, 2005, the Company entered into an agreement for the joint development of control software for an existing Aviza process module (the “JDA”). The total development fee payable by Aviza to the Company under the JDA is $1.2 million. The development fee includes $900,000 payable upon delivery and sale by the Company to Aviza of one standard, unmodified Trikon transport module. The JDA acknowledges that such delivery and sale and related payment was completed in December 2004 prior to executing the JDA.

The JDA also obligates Aviza to purchase, and Trikon to sell, eight additional Trikon transport modules incorporating the developed software, all on a cost-plus-a specified percentage basis, and all within two years after the completion of the development work (for delivery no later than two and a half years after the date of the JDA).

The JDA includes a grant of license rights to Aviza with respect to the process-module control software to be developed under the JDA, and also with respect to certain manufacturing documentation and software source code for the existing Trikon transport module. The total license fee payable by Aviza to the Company under the JDA is $4 million, half of which was paid upon execution of the JDA, the other half of which is payable by Aviza on or before July 31, 2005. The JDA also specifies per-unit royalties that Aviza is to pay the Company for licensed products sold, subject to an overall cap of $2 million.

13. RESTATEMENT

The Company has restated its consolidated financial statements for the years ended December 31, 2000 through 2004 and the interim periods ended March 31, June 30 and September 30, for the years 2003 and 2004, to reflect adjustments determined to be necessary following a review of the treatment of certain allocations of expenses between account categories and between periods.

The Company believed that its accounting treatment was permitted under generally accepted accounting principles. Following a review, the Company has restated its financial statements.

The restatement is limited to three areas:

First, in the balance sheets, the Company previously accounted for invoiced amounts on contracts by recording the full amount in accounts receivable and the portion of the contract price that is withheld until final acceptance as deferred revenue. For example, if payment terms are 90 percent on shipment and 10 percent on acceptance, the Company invoiced and recognized the full amount in accounts receivable and recognized 10 percent of the invoiced amount as deferred revenue. The interpretive guidance in Securities and Exchange Commission Staff Accounting Bulletin 104 (SAB 104) indicates that when the timing of payment of a portion of

F-23

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

the sales price is coincident with the performance of the remaining activity, the remaining activity is considered substantive rather than inconsequential or perfunctory. Interpretative guidance of SAB 104 states that deferred revenue should not be reported for the portion of the contract price that is withheld. In the restated balance sheets as at September 30, 2003 and later, the portion of the contract price withheld is offset against accounts receivable, thereby reducing total liabilities and total assets by the same amount.

Second, the Company previously deferred recognition of costs in the same proportion as it deferred recognition of revenues on contracts with a portion of the contract price that is withheld until final acceptance. The restated statements of operations for periods ending on or after September 30, 2003 and balance sheets as at September 30, 2003 and later recognize the majority of the product’s costs (i.e. excluding installation costs) on shipment. This affected the timing of recognition of these costs, which in some cases moved costs from one quarter to another and therefore changed cost of goods sold (“COGS”) and net loss in that quarter and net assets at the quarter end.

Third, in the statements of operations, the Company historically allocated substantially all of its facilities costs to selling, general and administrative cost (“SG&A”). The Company has determined that a portion of those costs should be re-allocated to COGS and research and development (“R&D”). As a result, in a given period, SG&A was reduced and COGS and R&D together were increased by the same amount. The reallocation of overhead relates to one facility with services shared by administrative, manufacturing and research and development functions. All of the restated statements of operations reflect this reclassification.

The cumulative effect of the restatement relating to fiscal years 2000 through 2004 is an increase to the accumulated deficit of $298,000. The restatement does not have any impact on the Company’s previously reported cash flows or revenues.

F-24

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The following is a summary of the impact of the restatement on the Company’s consolidated balance sheets and statements of operations at December 31, 2002 through 2004:


	Year Ended December 31, 2004									Year Ended December 31, 2003									Year Ended December 31, 2002
	Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated
	(In thousands of U.S. dollars, except for per share amounts)
Consolidated Statements of Operations Data
Cost and expenses
Cost of goods sold	$	25,062		$	2,196		$	27,258		$	21,086		$	2,580		$	23,666		$	24,490		$	2,348		$	26,838
Research and development		8,607			1,541			10,148			9,629			1,472			11,101			10,700			1,471			12,171
Selling, general and administrative		19,932			(3,841	)		16,091			20,032			(3,650	)		16,382			18,717			(3,819	)		14,898
Net loss		(13,782	)		104			(13,678	)		(24,633	)		(402	)		(25,035	)		(19,635	)		0			(19,635	)
Basic loss per share	$	(0.88	)	$	0.01		$	(0.87	)	$	(1.77	)	$	(0.03	)	$	(1.80	)
Diluted loss per share	$	(0.88	)	$	0.01		$	(0.87	)	$	(1.77	)	$	(0.03	)	$	(1.80	)
Consolidated Balance Sheet Data (at year end)
Assets
Current assets
Accounts receivable, net	$	8,595		$	(1,941	)	$	6,654		$	11,287		$	(5,075	)	$	6,212
Prepayments and other current assets		2,782			(579	)		2,203			4,855			(682	)		4,173
Total assets		63,661			(2,520	)		61,141			83,129			(5,757	)		77,372
Liabilities and stockholders’ equity
Current liabilities
Deferred revenue	$	2,482		$	(1,941	)	$	541		$	5,803		$	(5,075	)	$	728
Accrued expenses		1,719			(266	)		1,453			1,399			(270	)		1,129

Stockholders’ equity
Accumulated other comprehensive income		2,901			(15	)		2,886			1,833			(10	)		1,823
Accumulated deficit		(223,462	)		(298	)		(223,760	)		(209,680	)		(402	)		(210,082	)
Total liabilities and stockholders’ equity		63,661			(2,520	)		61,141			83,129			(5,757	)		77,372

F-25

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

14. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA


	Quarter
	First (As restated)			Second (As restated)			Third (As restated)			Fourth (As restated)
	(In thousands of U.S. dollars, except per share amounts)
2004
Revenues	$	6,781		$	10,172		$	9,875		$	10,013
Gross margin		995			1,869			3,347			3,372
Net loss		(5,787	)		(4,870	)		(1,653	)		(1,368	)
Loss per basic and diluted share		(0.37	)		(0.31	)		(0.10	)		(0.09	)

2003
Revenues	$	5,104		$	6,016		$	8,413		$	9,285
Gross margin		242			706			1,497			2,707
Net loss		(7,264	)		(8,137	)		(5,717	)		(3,917	)
Loss per basic and diluted share		(0.56	)		(0.60	)		(0.41	)		(0.26	)

F-26

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)

The tables below provide a detailed reconciliation of the changes that were made to the financial statements as a result of the restatements discussed in note 13 of the Notes to Consolidated Financial Statements:


	Quarter Ended March 31, 2004									Quarter Ended June 30, 2004									Quarter Ended September 30, 2004									Quarter Ended December 31, 2004
	Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated
		(In thousands of U.S. dollars, except per share amounts)
Cost and Expenses
Cost of goods sold	$	5,343		$	443		$	5,786		$	7,549		$	754		$	8,303		$	5,871		$	657		$	6,528		$	6,299		$	342		$	6,641
Research and development		2,541			356			2,897			2,304			406			2,710			1,921			393			2,314			1,841			386			2,227
Selling, general and administrative		5,395			(886	)		4,509			4,784			(1,011	)		3,773			4,735			(979	)		3,756			5,018			(965	)		4,053
Net loss		(5,874	)		87			(5,787	)		(4,721	)		(149	)		(4,870	)		(1,582	)		(71	)		(1,653	)		(1,605	)		237			(1,368	)
Basic loss per share	$	(0.37	)	$	—		$	(0.37	)	$	(0.30	)	$	(0.01	)	$	(0.31	)	$	(0.10	)	$	—		$	(0.10	)		(0.10	)		0.01			(0.09	)
Diluted loss per share	$	(0.37	)	$	—		$	(0.37	)	$	(0.30	)	$	(0.01	)	$	(0.31	)	$	(0.10	)	$	—		$	(0.10	)		(0.10	)		0.01			(0.09	)
Consolidated Balance Sheet Data (at quarter end)
Assets
Current assets
Accounts receivable, net	$	3,804		$	(1,017	)	$	2,787		$	8,756		$	(1,610	)	$	7,146		$	10,547		$	(1,750	)	$	8,797		$	8,595		$	(1,941	)	$	6,654
Prepayments and other current assets		3,503			(456	)		3,047			2,568			(680	)		1,888			3,034			(757	)		2,277			2,782			(579	)		2,203
Total assets		72,173			(1,473	)		70,700			67,244			(2,290	)		64,954			63,793			(2,507	)		61,286			63,661			(2,520	)		61,141
Liabilities and Stockholders’ Equity
Current liabilities
Deferred revenue	$	2,628		$	(1,017	)	$	1,611		$	2,240		$	(1,610	)	$	630		$	2,292		$	(1,750	)	$	5,42		$	2,482		$	(1,941	)	$	541
Accrued expenses		1,847			(131	)		1,716			1,963			(205	)		1,758			1,786			(212	)		1,574			1,719			(266	)		1,453
Stockholders’ equity
Accumulated other comprehensive income		2,351			(10	)		2,341			2,050			(11	)		2,039			2,105			(10	)		2,095			2,901			(15	)		2,886
Accumulated deficit		(215,554	)		(315	)		(215,869	)		(220,275	)		(464	)		(220,739	)		(221,857	)		(535	)		(222,392	)		(223,462	)		362			(223,760	)
Total liabilities and stockholders’ equity		72,173			(1,473	)		70,700			67,244			(2,290	)		64,954			63,793			(2,507	)		61,286			63,661			(1,860	)		61,141

F-27

Index to Financial Statements

Trikon Technologies Inc.

Notes to Consolidated Financial Statements—(Continued)


	Quarter Ended March 31, 2003									Quarter Ended June 30, 2003									Quarter Ended September 30, 2003									Quarter Ended December 31, 2003
	Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated			Previously Reported			Adjust- ments			Restated
	(In thousands of U.S. dollars, except per share amounts)
Consolidated Statements of Operations Data
Cost and expenses
Cost of goods sold	$	4,340		$	522		$	4,862		$	4,804		$	506		$	5,310		$	5,870		$	1,046		$	6,916		$	6,072		$	506		$	6,578
Research and development		2,318			353			2,671			2,323			342			2,665			2,157			351			2,508			2,831			426			3,527
Selling, general and administrative		4,800			(875	)		3,925			5,420			(848	)		4.572			4,428			(870	)		3,558			5,384			(1,057	)		4,327
Net loss		(7,264	)		0			(7,264	)		(8,137	)		0			(8,137	)		(5,190	)		(527	)		(5,717	)		(4,042	)		125			(3,917	)
Basic loss per share																			$	(0.37	)	$	(0.04	)	$	(0.41	)		(0.26	)					(0.26	)
Diluted loss per share																			$	(0.37	)	$	(0.04	)	$	(0.41	)		(0.26	)					(0.26	)
Consolidated Balance Sheet Data (at quarter end)
Assets
Current assets
Accounts receivable, net																			$	10,301		$	(1,675	)	$	8,626		$	11,287		$	(5,075	)	$	6,212
Prepayments and other current assets																				2,843			(756	)		2,087			4.855			(682	)		4,173
Total assets																				75,790			(2,431	)		73,359			83,129			(5,757	)		77,372
Liabilities and Stockholders’ Equity
Current liabilities
Deferred revenue																			$	2,307		$	(1,675	)	$	632		$	5,803		$	(5,075	)	$	728
Accrued expenses																				5,943			(219	)		5,724			1,399			(270	)		1,129
Stockholders’ equity
Accumulated other comprehensive income																				(235	)		(10	)		(245	)		1,833			(10	)		1,823
Accumulated deficit																				(205,637	)		(527	)		(206,164	)		(209,680	)		125			(210,082	)
Total liabilities and stockholders’ equity																				75,790			(2,431	)		73,359			83,129			(5,230	)		77,372

F-28

Index to Financial Statements

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2004, 2003 and 2002


			Additions				Deductions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Amount Charged to Reserve Net of Reinstatement		Balance at End of Period
Year ended December 31, 2004 Allowance for doubtful receivables	$	190,000	$	5,000	$	—	$	—	$	195,000

Year ended December 31, 2003 Allowance for doubtful receivables	$	149,000	$	41,000	$	—	$	—	$	190,000

Year ended December 31

TRIKON TECHNOLOGIES INC 10-K/A