Ultratech (UTEK)

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $0.1 million for the three months ended April 4, 2009, compared with $9.7 million for the comparable period in 2008. Net cash provided by operating activities during the three months ended April 4, 2009 was primarily attributable to our net income generated from product and service sales and lower overall spending from our cost-cutting measures plus the net effect of non-cash expenses from depreciation, amortization and stock-based compensation charges. Other source of cash from operating activities included decreases in trade receivables was due to strong collections in the three months ended April 4, 2009. These sources of cash were partially offset by uses of cash for

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purchase of inventories, prepaid expenses and other current assets and lower deferred product and service income. The decrease in deferred product and services income was primarily due to reduced system shipments and acceptance resulting in fewer systems deferred at April 4, 2009. The decreases in accounts payable and other current liabilities were due to reduced purchases made during the period resulting from our cost-cutting measures.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant portion of working capital. Currently, we are devoting significant resources to the commercialization of our laser processing systems and to the development of our next generation 1X lithography technologies. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing, and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels may be adversely impacted in the future by costs associated with the production of our laser processing systems and by future generations of our 1X wafer steppers. These costs include, but are not limited to, additional manufacturing overhead, costs of demonstration systems and facilities and the establishment of additional after-sales support organizations. Moreover, there can be no assurance that operating expenses will not increase, relative to sales, as a result of adding technical, marketing and administrative personnel, among other costs, to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in inventory write-offs and asset impairment charges, either of which could materially adversely impact our results of operations.

During the three months ended April 4, 2009, net cash used in investing activities was $4.2 million, attributable to net purchase of short-term investments of $3.4 million and capital expenditures of $0.8 million during the quarter ended April 4, 2009.

Net cash provided by financing activities was $2.1 million during the three months ended April 4, 2009, attributable to net proceeds of $2.5 million under our notes payable offset partially by tax payments of $0.5 million for the issuance of common stock from the release of restricted stock units under our employee stock option plans.

At April 4, 2009, we had working capital of $184.7 million. Our principal sources of liquidity at April 4, 2009 consisted of $151.2 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit. We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 125 basis points (approximately 1.44% as of April 4, 2009). Certain of our cash, cash equivalents and marketable securities secure borrowings outstanding under this facility, but we are not restricted in the use of those assets. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants other than a collateral requirement. As of April 4, 2009, $8.5 million was outstanding under this facility, with a related collateral requirement of approximately $11.3 million of our cash, cash equivalents and short-term investments.

The development and manufacture of new lithography and laser-based systems and system enhancements is highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

We may in the future pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company. In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our business, financial condition and results of operations. In the event that any such acquisition does occur, there can be no assurance as to the effect thereof on our business or operating results.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $2.5 million for the first nine months ended September 30, 2006, compared with net cash provided by operating activities of $5.5 million for the comparable period in 2005. Net cash provided by operating activities during the first nine months of 2006 was primarily attributable to non-cash charges to net loss, principally for depreciation, amortization, and stock-based compensation of $7.0 million; an increase in deferred product and services income of $3.0 million; an increase in accounts payable of $2.8 million; a decrease in accounts receivable of $2.2 million; and an increase in other current liabilities of $1.4 million; offset by a net loss of $2.2 million; an increase in inventories of $9.8 million; an increase in prepaid expenses and other current assets of $1.0 million  a decrease in other liabilities of $0.5 million; and an increase in demonstration inventories and other assets of $0.4 million.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant and growing portion of working capital. Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing, and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels may be adversely impacted in the future by costs associated with the initial production of the laser processing system and by future generations of our 1X wafer steppers. These costs include, but are not limited to, additional manufacturing overhead, costs of demonstration systems and facilities and the establishment of additional after-sales support organizations. Additionally, there can be no assurance that operating expenses will not increase, relative to sales, as a result of adding technical, marketing and administrative personnel, among other costs, to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced.

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Our failure to achieve our sales targets for these new products could result in additional inventory write-offs and asset impairment charges, either or both of which could materially adversely impact our results of operations.

During the first nine months of 2006, net cash provided by investing activities was $1.6 million, attributable to net proceeds of short and long-term investments of $4.1 million and proceeds from the sale of fixed assets of $0.1 million, offset by capital expenditures of $2.6 million.

Net cash used in financing activities was $2.6 million during the first nine months of 2006, attributable to repurchase of common stock of $10.8 million, offset by net proceeds under our notes payable of $5.6 million, and $2.6 million of proceeds received from the issuance of common stock under our employee stock option plans.

At September 30, 2006, we had working capital of $109.7 million and long-term investments of $48.1 million. Our principal sources of liquidity at September 30, 2006 consisted of $80.7 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit, and $48.1 million of long-term investments. As of September 30, 2006, based upon recent operating results and expectations of future operating income, the Company classified certain investment securities with remaining maturities of one year or more as long-term investments. We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 6.25% as of September 30, 2006). Certain of our cash, cash equivalents and marketable securities secure borrowings outstanding under this facility. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants other than a collateral requirement. As of September 30, 2006, $9.8 million was outstanding under this facility, with a related collateral requirement of approximately $13.1 million of our cash, cash equivalents and investments.

On September 19, 2005, our Board of Directors authorized the repurchase of up to $30 million of our common stock in the open market at then prevailing market prices during the period commencing September 19, 2005 through September 30, 2007. Through September 30, 2006, we had repurchased 1,386,580 shares of our common stock at a total purchase price of $20 million. We repurchased 742,045 shares at a total purchase price of $10.8 million during the quarter ended September 30, 2006.   Any future repurchase of stock could have a significant impact on our cash position.

The development and manufacture of new lithography and laser-based systems and enhancements are highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

We may in the future pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company. In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our business, financial condition and results of operations. In the event that any such acquisition does occur, there can be no assurance as to the effect thereof on our business or operating results.

LIQUIDITY AND CAPITAL RESOURCES

Net cash generated by operating activities was $0.9 million for the six-month period ended July 1, 2006, compared with net cash used in operating activities of $2.4 million for the comparable period in 2005. Net cash generated by operating activities during the first six months of 2006 was primarily attributable to net income of $0.4 million; non-cash charges to income, principally for depreciation, amortization and stock-based compensation of $4.7 million; an increase in accounts payable of $5.8 million; and an increase in deferred product and services income of $2.7 million; partially offset by an increase in inventories of $9.2 million; an increase in demonstration inventory of $1.9 million; and an increase in prepaid expenses and other current assets of $1.6 million.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant and growing portion of working capital. Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing, and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels may be adversely impacted in the future by costs associated with the initial production of the laser processing system and by future generations of our 1X wafer steppers. These costs include, but are not limited to, additional manufacturing overhead, costs of demonstration systems and facilities and the establishment of additional after-sales support organizations. Additionally, there can be no assurance that operating expenses will not increase, relative to sales, as a result of adding technical, marketing and administrative personnel, among other costs,

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to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in additional inventory write-offs and asset impairment charges, either or both of which could materially adversely impact our results of operations.

During the first half of 2006, net cash used in investing activities was $4.4 million, attributable to net purchases of short and long-term investments of $3.0 million and capital expenditures of $1.5 million, partially offset by proceeds from the sale of fixed assets of $0.1 million.

Net cash provided by financing activities was $8.2 million during the first half of 2006, attributable to net borrowings under our notes payable of $5.5 million and $2.6 million of proceeds received from the issuance of common stock under our employee stock option plans.

At July 1, 2006, we had working capital of $120.6 million and long-term marketable securities of $50.1 million. Our principal sources of liquidity at July 1, 2006 consisted of $87.8 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit, and $50.1 million of long-term marketable securities. As of July 1, 2006, based upon recent operating results and expectations of future operating income, the Company classified certain investment securities with remaining maturities of one year or more as long-term investments. We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 6.25% as of July 1, 2006). Certain of our cash, cash equivalents and marketable securities secure borrowings outstanding under this facility. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants. As of July 1, 2006, $9.8 million was outstanding under this facility, with a related collateral requirement of approximately $13.1 million of our cash, cash equivalents and investments.

On September 19, 2005, our Board of Directors authorized the repurchase of up to $30 million of our common stock in the open market at then prevailing market prices during the period commencing September 19, 2005 through September 30, 2007. Through July 1, 2006, we had repurchased 644,535 shares of our common stock at a total purchase price of $9.2 million. No shares were repurchased during the six-month period ended July 1, 2006. During the quarter ending September 30, 2006, significant levels of cash, cash equivalents and marketable securities have been, and may continue to be, used to repurchase our common stock in the open market (in conjunction with the above-referenced share repurchase plan). As of August 1, 2006, the Company had repurchased an additional 331,970 shares of common stock at a total purchase price of $4.7 million. Any future repurchase of stock could have a significant impact on our cash position.

The development and manufacture of new lithography and laser-based systems and enhancements are highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

We may in the future pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company. In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our business, financial condition and results of operations. In the event that any such acquisition does occur, there can be no assurance as to the effect thereof on our business or operating results.

LIQUIDITY AND CAPITAL RESOURCES

Net cash generated by operating activities was $5.4 million for the three months ended April 1, 2006, compared with net cash used in operating activities of $4.0 million for the comparable period in 2005.  Net cash generated by operating activities during the first quarter of 2006 was primarily attributable to net income of $1.6 million, non-cash charges to income for depreciation and amortization of $1.8 million, an increase in deferred product and services income of $1.4 million, an increase in other current liabilities of $1.3 million, a non-cash charge to income

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LIQUIDITY AND CAPITAL RESOURCES

Net cash generated by operating activities was $5.5 million for the first nine months of 2005, as compared with net cash used in operating activities of $5.4 million for the comparable period in 2004. Net cash generated by operating activities during the first nine months of 2005 was primarily attributable to a decrease in accounts receivable of $7.6 million, non-cash charges to income for depreciation and amortization of $5.9 million and an increase in other current liabilities of $2.0 million, partially offset by an increase in inventories of $5.5 million, the net loss of $3.7 million and a decrease of deferred license income of $1.0 million. The increase in inventories during the first nine months of 2005 resulted primarily from laser processing systems shipped to customers pursuant to purchase orders containing product evaluation provisions.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant portion of working capital. Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies. Additionally, we have purchased significant levels of inventories, and have made commitments to purchase additional inventories, to support the current production plan for our laser processing and next-generation lithography systems. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels will be adversely impacted in the future by costs associated with the initial production of our laser processing system and by our next-generation 1X wafer stepper platform. These costs include, but are not limited to: additional manufacturing overhead; cost of demonstration and customer evaluation systems; ongoing research, development and engineering costs; additional technical, marketing and administrative personnel; and the establishment of additional after-sales support organizations. If we are unable to achieve significantly increased net sales, or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in significant additional inventory write-offs and asset impairment charges, either of which would materially adversely impact our results of operations.

During the first nine months of 2005, net cash used in investing activities was $15.4 million, attributable to net purchases of short-term marketable securities of $10.3 million and capital expenditures of $5.0 million.

Net cash provided by financing activities was $0.8 million during the first nine months of 2005, attributable to $4.8 million of proceeds received from the issuance of common stock under our employee stock option plans, partially offset by a net repayment of our notes payable of $4.0 million.

At October 1, 2005, we had working capital of $171.2 million. Our principal source of liquidity at October 1, 2005 consisted of $148.4 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit. In December 2004, we entered into a line of credit agreement with a brokerage firm replacing a similar arrangement that we had with a different firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 4.75% as of October 1, 2005). Certain of our cash, cash equivalents and short-term investments secure borrowings outstanding under this facility. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants. As of October 1, 2005, $3.9 million was outstanding under this facility, with a related collateral requirement of approximately $5.1 million of our cash, cash equivalents and short-term investments.

The development and manufacture of laser processing and new lithography systems and enhancements are highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for: inventories; facilities; capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and short-term investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $2.4 million for the six-month period ended July 2, 2005, as compared with net cash used in operating activities of $5.8 million for the comparable period in 2004. Net cash used in operating activities during the first half of 2005 was primarily attributable to the net loss of $3.9 million, a reduction in accounts payable of $3.0 million, an increase in inventories of $1.6 million, an increase in prepaid expenses and other current assets of $1.6 million and a decrease in deferred license revenue of $1.0 million, partially offset by non-cash charges to income for depreciation and amortization of $4.1 million, an increase in deferred product and services income of $2.2 million, an increase in other current liabilities of $1.2 million and a decrease in demonstration inventories of $0.9 million.  The increase in inventories during the first half of 2005 results primarily from laser processing systems shipped to customers pursuant to purchase orders containing product evaluation provisions.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant portion of working capital. Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies. Additionally, we have purchased significant levels of inventories, and have made commitments to purchase additional inventories, to support the current production plan for our laser processing and next-generation lithography systems. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels will be adversely impacted in the future by costs associated with the initial production of our laser processing system and by our next-generation 1X wafer stepper platform. These costs include, but are not limited to: additional manufacturing overhead; cost of demonstration and customer evaluation systems; ongoing research, development and engineering costs; additional technical, marketing and administrative personnel; and the establishment of additional after-sales support organizations. If we are unable to achieve significantly increased net sales, or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in significant additional inventory write-offs and asset impairment charges, either of which would materially adversely impact our results of operations.

During the first half of 2005, net cash used in investing activities was $10.6 million, attributable to net purchases of short-term marketable securities of $7.0 million and capital expenditures of $3.7 million.

Net cash provided by financing activities was $0.7 million during the first half of 2005, attributable to $2.0 million of proceeds received from the issuance of common stock under our employee stock option plans, partially offset by the net repayment of our note payable of $1.3 million.

At July 2, 2005, we had working capital of $169.3 million. Our principal source of liquidity at July 2, 2005 consisted of $139.7 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit.

In December 2004, we entered into a line of credit agreement with a brokerage firm replacing a similar arrangement that we had with a different firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 100 basis points (approximately 4.25% as of July 2, 2005). Certain of our cash, cash equivalents and short-term investments secure borrowings outstanding under this facility. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants. As of July 2, 2005, $6.6 million was outstanding under this facility, with a related collateral requirement of approximately $8.8 million of our cash, cash equivalents and short-term investments.

The development and manufacture of laser processing and new lithography systems and enhancements are highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for: inventories; facilities; capital equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and short-term investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $4.0 million for the three-month period ended April 2, 2005, as compared with net cash used in operating activities of $0.3 million for the comparable period in 2004. Net cash used in operating activities during the first quarter of 2005 was primarily attributable to a reduction in accounts payable of $3.4 million, the net loss for the quarter of $1.9 million and an increase in inventories of $1.3 million, partially offset by non-cash charges to income for depreciation and amortization of $2.1 million, and other changes which total $0.5 million. The increase in inventories during the period results primarily from two laser processing systems, shipped to customers during the first quarter of 2005, pursuant to purchase orders containing product evaluation provisions.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant portion of working capital. Currently, we are devoting significant resources to the development, introduction and commercialization of our laser processing system and to the development of our next generation 1X lithography technologies. Additionally, we have purchased significant levels of inventories, and have made commitments to purchase additional inventories, to support the current production plan for our laser processing and next-generation lithography systems. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels will be adversely impacted in the future by costs associated with the initial production of our laser processing system and by our next-generation 1X wafer stepper platform. These costs include, but are not limited to: additional manufacturing overhead; cost of demonstration and customer evaluation systems; ongoing research, development and engineering costs; additional technical, marketing and administrative personnel; and the establishment of additional after-sales support organizations. If we are unable to achieve significantly increased net sales, or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in significant additional inventory write-offs and asset impairment charges, either of which would materially adversely impact our results of operations.

During the quarter ended April 2, 2005, net cash used in investing activities was $1.5 million, attributable to capital expenditures of $2.4 million, partially offset by net proceeds from sales and maturities of short-term investments of $0.9 million (net of purchases).

Net cash provided by financing activities was $0.9 million during the first quarter of 2005, attributable to proceeds received from the issuance of common stock under our employee stock option plans.

At April 2, 2005, we had working capital of $167.9 million. Our principal source of liquidity at April 2, 2005 consisted of $137.7 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit.

In December 2004, we entered into a line of credit agreement with a brokerage firm replacing a similar arrangement that we had with a different firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds rate plus 100 basis points (3.75% as of April 2, 2005). Certain of our cash, cash equivalents and short-term investments secure borrowings outstanding under this facility. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants. As of April 2, 2005, $7.9 million was outstanding under this facility, with a related collateral requirement of approximately $10.5 million of our cash, cash equivalents and short-term investments.

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