Cascade Microtech (CSCD) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from            to            

Commission File No. 000-51072

CASCADE MICROTECH, INC.

(Exact name of registrant as specified in its charter)

Oregon	93-0856709
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2430 N.W. 206th Avenue Beaverton, Oregon	97006
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (503) 601-1000

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of October 29, 2009 was 13,326,283.

CASCADE MICROTECH, INC.

INDEX TO FORM 10-Q

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) – September 30, 2009 and December 31, 2008	2
	Condensed Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2009 and 2008	3
	Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2009 and 2008	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
PART II - OTHER INFORMATION
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6.	Exhibits	21
Signatures		22

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Cascade Microtech, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, In thousands)

	September 30, 2009			December 31, 2008
Assets
Current Assets:
Cash and cash equivalents	$	21,030		$	3,750
Short-term marketable securities		8,813			28,795
Accounts receivable, net of allowances of $941 and $1,029		9,970			12,801
Inventories		17,588			19,079
Prepaid expenses and other		810			1,367
Taxes receivable		—			1,003
Deferred income taxes		100			99
Assets held for sale		—			400
Total Current Assets		58,311			67,294
Long-term marketable securities		5,267			2,465
Fixed assets, net of accumulated depreciation of $17,190 and $14,769		12,799			13,580
Purchased intangible assets, net of accumulated amortization of $1,601 and $1,166		1,990			2,425
Deferred income taxes		276			237
Other assets, net of accumulated amortization of $2,978 and $3,397		2,441			2,455
Total Assets	$	81,084		$	88,456
Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of capital leases	$	11		$	19
Accounts payable		3,697			4,110
Deferred revenue		913			1,120
Accrued liabilities		2,769			3,776
Total Current Liabilities		7,390			9,025
Capital leases, net of current portion		33			62
Deferred revenue		87			313
Other long-term liabilities		2,277			2,356
Total Liabilities		9,787			11,756
Shareholders’ Equity:
Common stock, $0.01 par value. Authorized 100,000 shares; issued and outstanding: 13,326 and 13,164		133			132
Additional paid-in capital		85,003			83,213
Accumulated other comprehensive income		35			69
Accumulated deficit		(13,874	)		(6,714	)
Total Shareholders’ Equity		71,297			76,700
Total Liabilities and Shareholders’ Equity	$	81,084		$	88,456

See accompanying Notes to Condensed Consolidated Financial Statements.

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Cascade Microtech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, In thousands, except per share amounts)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2009			2008			2009			2008
Revenue	$	13,971		$	21,128		$	38,056		$	61,174
Cost of sales		8,478			12,068			23,927			33,933
Gross profit		5,493			9,060			14,129			27,241
Operating expenses:
Research and development		2,095			2,308			5,906			8,040
Selling, general and administrative		4,971			7,739			15,552			21,953
Amortization of purchased intangibles		144			582			435			1,879
		7,210			10,629			21,893			31,872
Loss from operations		(1,717	)		(1,569	)		(7,764	)		(4,631	)
Other income (expense):
Interest income, net		68			221			269			711
Other, net		226			(369	)		111			(113	)
		294			(148	)		380			598
Loss before income taxes		(1,423	)		(1,717	)		(7,384	)		(4,033	)
Income tax benefit		(4	)		(426	)		(224	)		(868	)
Net loss	$	(1,419	)	$	(1,291	)	$	(7,160	)	$	(3,165	)
Basic and diluted net loss per share	$	(0.11	)	$	(0.10	)	$	(0.54	)	$	(0.24	)
Shares used in basic and diluted per share calculations:		13,325			13,108			13,291			13,047

See accompanying Notes to Condensed Consolidated Financial Statements.

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Cascade Microtech, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands)

	For the Nine Months Ended September 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(7,160	)	$	(3,165	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization		3,306			4,503
Stock-based compensation, net		1,409			1,925
(Gain) loss on disposal of long-lived assets		7			53
Net (gain) loss on disposal of assets held for sale		40			(33	)
Deferred income taxes		(40	)		(392	)
(Increase) decrease in:
Accounts receivable, net		2,831			1,305
Inventories, net		1,491			(886	)
Prepaid expenses and other		1,486			730
Increase (decrease) in:
Accounts payable		(413	)		(385	)
Deferred revenue		(433	)		(265	)
Accrued and other long-term liabilities		(1,111	)		(1,393	)
Net cash provided by operating activities		1,413			1,997
Cash flows from investing activities:
Purchase of marketable securities		(12,648	)		(38,600	)
Proceeds from sale of marketable securities		29,794			37,360
Purchase of fixed assets		(1,765	)		(2,192	)
Proceeds from disposal of long-lived assets and assets held for sale		376			175
Investment in patents and other assets		(255	)		(517	)
Cash paid for acquisitions, net of cash acquired		—			(96	)
Net cash provided by (used in) investing activities		15,502			(3,870	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(17	)		(11	)
Excess tax benefits related to stock option exercises		111			46
Withholding taxes paid on net settlement of vested restricted stock units		(50	)		(38	)
Proceeds from issuances of common stock		321			1,398
Net cash provided by financing activities		365			1,395
Increase (decrease) in cash and cash equivalents		17,280			(478	)
Cash and cash equivalents:
Beginning of period		3,750			4,900
End of period	$	21,030		$	4,422
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1		$	1
Cash paid (refunds received) for income taxes, net		(1,613	)		1,169
Supplemental disclosure of non-cash information:
Equipment acquired with capital lease	$	—		$	22
Increase in asset retirement obligation		25			—

See accompanying Notes to Condensed Consolidated Financial Statements.

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CASCADE MICROTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial information included herein has been prepared by Cascade Microtech, Inc. without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2008 is derived from our 2008 Annual Report on Form 10-K. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2008 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Note 2. Inventories

Inventories are stated at the lower of standard cost, which approximates cost computed on a first-in, first-out basis, or market, and include materials, labor and manufacturing overhead. Demonstration goods, which are included as a component of finished goods, represent inventory that is used for customer demonstration purposes. This inventory is typically sold after 12 to 18 months. We analyze the carrying value of our inventory quarterly, considering a combination of factors including, but not limited to, the following: forecasted sales or usage, historical usage rates, estimated service period, product end-of-life dates, estimated current and future market values, service inventory requirements and new product introductions. We estimate market value based on factors including, but not limited to, replacement cost and estimated resale value. Inventory reserve charges totaled $81,000 and $548,000, respectively, in the three and nine-month periods ended September 30, 2009 and $263,000 and $345,000, respectively, in the comparable periods of 2008.

Inventories consisted of the following (in thousands):

	September 30, 2009		December 31, 2008
Raw materials	$	10,307	$	10,819
Work-in-process		1,221		1,466
Finished goods		6,060		6,794
	$	17,588	$	19,079

Note 3. Net Loss Per Share

Since we were in a loss position for the three and nine-month periods ended September 30, 2009 and 2008, there was no difference between the number of shares used to calculate basic and diluted net loss per share for those periods. Potentially dilutive securities (in thousands) that are not included in the diluted per share calculations because they would be anti-dilutive totaled 1,530 for the three and nine-month periods ended September 30, 2009, and 1,560 for the three and nine-month periods ended September 30, 2008.

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Note 4. Comprehensive Loss

Comprehensive loss includes unrealized holding gains and losses on our available-for-sale marketable securities, which are included as a separate component of shareholders’ equity until realized. Unrealized holding losses were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Unrealized holding losses	$	(15	)	$	(47	)	$	(34	)	$	(37	)

Note 5. Product Warranty

We estimate a liability for costs to repair or replace products under warranties for a period of approximately twelve months when the related product revenue is recognized. The products are sold without a right of return or price protection rights. The liability for product warranties is calculated as a percentage of sales. The percentage is based on historical actual product repair costs. The liability for product warranties is included in accrued liabilities on our consolidated balance sheet. Product warranty activity was as follows (in thousands):

	Nine Months Ended September 30,
	2009			2008
Warranty accrual, beginning of period	$	313		$	501
Reductions for warranty charges		(332	)		(547	)
Additions to warranty reserve		307			517
Warranty accrual, end of period	$	288		$	471

Note 6. Patents and Purchased Intangibles Assets

Internally Developed Patents

Included in other long-term assets on our balance sheet were internally developed patents as follows: (in thousands):

	September 30, 2009			December 31, 2008
Patents	$	4,888		$	5,395
Accumulated amortization		(2,978	)		(3,397	)
	$	1,910		$	1,998

Purchased Intangible Assets

Purchased intangible assets, net included the following:

	September 30, 2009			December 31, 2008
Customer relationships	$	2,465		$	2,465
Accumulated amortization		(1,076	)		(772	)
		1,389			1,693
Other		1,126			1,126
Accumulated amortization		(525	)		(394	)
		601			732
Total purchased intangible assets, net	$	1,990		$	2,425

Amortization expense of internally developed patents and purchased intangible assets totaled $0.8 million and $2.2 million, respectively, in the nine-month periods ended September 30, 2009 and 2008. Of the amortization expense, $343,000 and $353,000, respectively, was for internally developed patents and was included as a component of selling, general and administrative expense.

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Note 7. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	September 30, 2009		December 31, 2008
Accrued compensation and benefits	$	1,419	$	2,037
Accrued warranty		288		313
Income taxes payable		266		—
Accrued materials returns		58		210
Other		738		1,216
	$	2,769	$	3,776

Note 8. Stock-Based Compensation and Stock-Based Plans

Stock-based compensation was included in our statement of operations as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Cost of sales	$	75	$	73	$	234	$	287
Research and development		76		14		207		225
Selling, general and administrative		326		475		968		1,413
	$	477	$	562	$	1,409	$	1,925

Stock Incentive Plans

Effective January 29, 2009, we offered our U.S. employees, other than current members of our Board of Directors and our executive officers (the “Eligible Employees”), the ability to exchange outstanding stock options with an exercise price equal to or greater than $7.00 per share (the “Eligible Options”) for a lesser number of restricted stock units (the “Option Exchange”). Eligible Employees had until February 27, 2009 to exchange Eligible Options at a ratio of 5 options for every 1 restricted stock unit (“RSU”). Each RSU represents a contingent right to receive one share of our common stock upon vesting. The vesting is contingent on continued employment and will occur in four equal annual installments on the first through fourth anniversaries of the grant date, with full vesting occurring on the fourth anniversary of the grant date. A total of 77 employees participated in the Option Exchange, and a total of 169,590 stock options with a fair value of $70,000 were exchanged for a total of 33,918 RSUs with a fair value of $83,000, resulting in $13,000 of incremental expense to be recognized over the vesting period.

On May 15, 2009, our shareholders approved an amendment to our 2000 Stock Incentive Plan, increasing the number of shares of our common stock reserved for issuance thereunder from 2,400,000 shares to 3,000,000 shares.

Stock option activity for the first nine months of 2009 was as follows:

	Options Outstanding		Weighted Average Exercise Price
Outstanding at December 31, 2008	1,013,220		$	10.22
Granted	309,080			3.11
Exercised	—			—
Forfeited	(330,771	)		11.51
Outstanding at September 30, 2009	991,529			7.57

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Restricted stock unit activity for the first nine months of 2009 was as follows:

	Restricted Stock Units		Weighted Average Grant Date Per Share Fair Value
Outstanding at December 31, 2008	424,762		$	7.36
Granted	137,018			5.57
Vested	(58,459	)		3.08
Forfeited	(7,450	)		4.49
Outstanding at September 30, 2009	495,871			7.41

As of September 30, 2009, total unrecognized stock-based compensation related to outstanding, but unvested options and restricted stock units was $3.1 million, which will be recognized over the weighted average remaining vesting period of 1.6 years.

Employee Stock Purchase Plan

In January 2009, pursuant to the terms of our 2004 Employee Stock Purchase Plan (“ESPP”), and upon approval by our Board of Directors, the number of shares of our common stock available for purchase under the 2004 ESPP was increased from 500,000 to 600,000. In addition, the Board of Directors authorized an amendment of the 2004 ESPP to reduce the offering period of the plan from two-years to six-months, and changed the Enrollment Date to the first trading day on or after May 1 and November 1 of each year. This amendment was effective as of May 1, 2009. The modification of the ESPP resulted in an immaterial amount of incremental compensation expense in the first quarter of 2009.

Employees purchased 120,482 shares in the first nine months of 2009 for $321,000 under the 2004 ESPP.

Note 9. Significant Customer and Segment Reporting

The segment data below is presented in the same manner that management currently organizes the segments for assessing certain performance trends. Our Chief Operating Decision Maker monitors the revenue streams and the gross profit of our Systems sales and our Probes and Sockets sales. We do not track our operating expenses or assets on a segment level, and, accordingly, that information is not provided. Revenue and gross profit information by segment was as follows (dollars in thousands):

Three Months Ended September 30, 2009	Systems			Probes and Sockets			Total
Revenue	$	7,221		$	6,750		$	13,971
Gross Profit	$	2,109		$	3,384		$	5,493
Gross Margin		29.2	%		50.1	%		39.3	%
Three Months Ended September 30, 2008
Revenue	$	11,090		$	10,038		$	21,128
Gross Profit	$	3,730		$	5,330		$	9,060
Gross Margin		33.6	%		53.1	%		42.9	%

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Nine Months Ended September 30, 2009	Systems			Probes and Sockets			Total
Revenue	$	19,538		$	18,518		$	38,056
Gross Profit	$	6,275		$	7,854		$	14,129
Gross Margin		32.1	%		42.4	%		37.1	%
Nine Months Ended September 30, 2008
Revenue	$	31,474		$	29,700		$	61,174
Gross Profit	$	10,764		$	16,477		$	27,241
Gross Margin		34.2	%		55.5	%		44.5	%

The segment data provided is prepared in accordance with Accounting Standards Codification (“ASC”) 280-10, “Segment Reporting - Overall,” and is not meant to represent stand-alone divisional information. In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based on specific factors such as headcount. These factors can have a significant impact on the amount of gross profit for each segment. While we believe we have applied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment gross margins.

No customer accounted for 10% or greater of our total revenue in the three or nine-month periods ended September 30, 2009 or 2008.

Note 10. Fair Value Measurements

We provide information related to the fair value measurements of our assets and liabilities in accordance with the provisions of ASC 820-10, “Fair Value Measurements and Disclosures – Overall,” and ASC 320-10 “Investments - Debt and Equity Securities - Overall.”

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

• Level 1 – quoted prices in active markets for identical securities;

• Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.; and

• Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Following are the disclosures related to our financial assets (in thousands):

	September 30, 2009
	Fair Value		Input Level
Marketable securities – municipal obligations	$	12,009	Level 2
Marketable securities – U.S. agencies	$	2,071	Level 2

The fair value of our marketable securities is determined based on quoted market prices for similar securities.

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Note 11. Accounting Pronouncements Issued Not Yet Adopted

Codification

Effective July 1, 2009, the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became the single official source of authoritative, nongovernmental generally accepted accounting principles (“GAAP”) in the United States. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the Securities and Exchange Commission. Our accounting policies were not affected by the conversion to ASC. However, references to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate section of ASC.

ASU 2009-13

Accounting Standards Update (“ASU”) 2009-13, “Multiple-Delivered Revenue Arrangements” amends ASC Subtopic 650-25, “Revenue Recognition - Multiple Element Arrangements,” to eliminate the requirement that all undelivered elements have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relevant selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Upon adoption, application of the “residual method” will no longer be permitted and entities will be required to disclose more information about their multiple-element revenue arrangements. The ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. If a company elects early adoption and the period of adoption is not the beginning of its fiscal year, the requirements must be applied retrospectively to the beginning of the fiscal year. While we are still analyzing the effects of the adoption of ASU 2009-13, we do not believe that the adoption of ASU 2009-13 will have a material effect on our financial position, results of operations or cash flows.

ASU 2009-14

ASU 2009-14, “Certain Revenue Arrangements that Include Software Elements,” amends ASC Subtopic 985-605, “Software-Revenue Recognition,” to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. The ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. If a company elects early adoption and the period of adoption is not the beginning of its fiscal year, the requirements must be applied retrospectively to the beginning of the fiscal year. While we are still analyzing the effects of the adoption of ASU 2009-13, we do not believe that the adoption of ASU 2009-13 will have a material effect on our financial position, results of operations or cash flows.

ASU 2009-05

ASU 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value”, amends ASC Topic 820, “Fair Value Measurements”, to allow companies determining the fair value of a liability to use the perspective of an investor that holds the related obligation as an asset. The new guidance is effective for interim and annual periods beginning after August 27, 2009, and applies to all fair-value measurements of liabilities required by GAAP. No new fair-value measurements are required. We do not believe that the adoption of this ASU will have a material effect on our financial position, results of operations or cash flows.

SFAS No. 166

SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140,” amends ASC Topic 860 (FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”) and improves the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance,

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and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. SFAS No. 166 must be applied to transfers occurring on or after the effective date. While we are still analyzing the effects of the adoption of SFAS No. 166, we do not believe that the adoption of SFAS No. 166 will have a material effect on our financial position, results of operations or cash flows.

Note 12. Subsequent Events

We have considered all events that have occurred subsequent to September 30, 2009 and through November 2, 2009, the issuance date of the financial statements as of and for the periods ended September 30, 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements and Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking, including, but not limited to, statements regarding industry prospects; future results of operations or financial position; our expectations and beliefs regarding future revenue growth; the future capabilities and functionality of our products and services, our strategies and intentions regarding acquisitions; the outcome of any litigation to which we are a party; our accounting and tax policies; our future strategies regarding investments, product offerings, research and development, market share, and strategic relationships and collaboration; our dividend policies; and our future capital requirements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology, including “intend,” “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate” “predict,” “potential,” “future,” or “continue,” the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those expressed or implied in such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks included in Item 1A to our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 10, 2009. These risk factors have not significantly changed since they were filed with our Form 10-K and included the following:

• Our operating results have fluctuated in the past and are likely to fluctuate in the future, which could cause us to miss analyst expectations about these results and cause the trading price of our common stock to decline.

• The cyclicality of the semiconductor industry affects our financial results, and, as a result, we may experience reduced sales or operating losses in a semiconductor industry downturn.

• As a result of rapid macroeconomic deterioration, some of our customers may experience sudden and unexpected changes in their financial condition and their ability to order or take delivery of products from us, which could possibly result in bad debts. Additionally, the rapid macroeconomic deterioration may increase competitive pricing pressures, potentially resulting in lower margins or loss of revenues.

• Consolidation of our customer base due to the poor economic environment could adversely affect our revenues and results of operations.

• Because we generally do not have a sufficient backlog of unfilled orders to meet our quarterly revenue targets, revenue in any quarter is substantially dependent upon customer orders received and fulfilled in that quarter.

• As is the case with other companies in our industry, many of our customers defer purchasing decisions until late each quarter. As a result, we are significantly dependent upon the sale of our products in the third month of each quarter, and, if we do not generate enough revenue in the third month of each quarter to meet the earnings expectations of analysts or investors, the price of our common stock could decline.

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• We continue to devote significant effort and resources to the growth and development of our production probe cards and test sockets products, which has had, and could continue to have, an adverse effect on our operating margins.

• If we do not keep pace with technological developments in the semiconductor industry, especially the trend toward faster, smaller and lower cost chips, our revenue and operating results could suffer as potential customers decide to adopt our competitors’ products.

• We may make future acquisitions, which may be costly, difficult to integrate with our operations, divert management resources and dilute shareholder value.

• Intense competition in the semiconductor wafer probing business may reduce demand for our products and reduce our sales.

• We obtain some of the materials, components and subassemblies used in our products from a single source or a limited group of suppliers. If these suppliers declare bankruptcy or are unable to provide us with these materials, components or subassemblies in adequate quantities and on a timely basis, we may be unable to manufacture our products or meet our customers’ needs.

• We have long-lived assets, including fixed assets and intangible assets, recorded on our balance sheet. In view of the current turbulent economic environment and the decline in our revenues, the fair value of certain long-lived assets may be reduced below their carrying value. If there has been an impairment of long-lived assets, we would be required to record non-cash asset impairment charges in future periods, which would adversely impact our results of operations.

• We face economic, political and other risks associated with our international sales and operations, which could materially harm our operating results.

• We rely on independent manufacturers’ representatives and distributors for a significant portion of our revenue, and a disruption in our relationship with our manufacturers’ representatives or distributors would have a material adverse effect on our revenue.

• Failure to retain key managerial, technical, and sales and marketing personnel or to attract new key personnel could harm our business.

• Our customers’ evaluation processes can lead to lengthy sales cycles, during which we may incur significant costs that may not result in sales.

• If our products contain defects, our reputation would be damaged, and we could lose customers and revenue and incur warranty expenses.

• If we fail to protect our proprietary technology and rights, competitors may be able to use our technologies, which would weaken our competitive position and could reduce our sales.

• Intellectual property infringement claims by or against us may result in litigation, the cost of which could be substantial and could prevent us from selling our products.

• Our growth could strain our personnel and infrastructure resources, and, if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

• Our success depends on our continued investment in research and development, the level and effectiveness of which could reduce our profitability.

• We manufacture most of our products at our Oregon and Minnesota facilities, and any disruption in the operations of these facilities could harm our business.

• We rely on suppliers and contract manufacturers for the products we sell.

• Reorganization could also result in significant disruption of our business and our relationships with our employees, suppliers and customers could be adversely affected.

• We may fail to comply with environmental regulations, which could result in significant costs and harm our business.

• Product liability claims may be asserted against us, resulting in costly litigation for which we may not have sufficient liability insurance.

• We rely on a small number of customers for a significant portion of our revenue, and the termination of any of these relationships would adversely affect our business.

• Our employment costs in the short-term are, to a large extent, fixed, and therefore, any shortfall in sales would harm our operating results.

• Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.

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• Our officers and directors and their affiliates will control the outcome of matters requiring shareholder approval.

• The anti-takeover provisions of our charter documents and Oregon law may inhibit a takeover or change in our control that our shareholders may consider beneficial.

• If our stock price is volatile, securities class action litigation may be brought against us, which could result in substantial costs.

General

We design, develop and manufacture advanced wafer probing and test socket solutions for the electrical measurement and testing of high performance chips. We design, manufacture and assemble our products in Oregon and Minnesota, with global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.

Engineering probe stations address the need for precise and accurate measurement of semiconductor electrical characteristics during chip design or when optimizing the chip fabrication process. Our engineering probe stations are highly configurable and are typically sold with various accessories, including our analytical probes, as well as accessories from third parties. In addition, we design and build custom engineering probe stations to address the specific requirements of our customers.

Our analytical probes are sold to serve as components of our engineering probe stations, or less often, to serve as components of test equipment manufactured by third parties. Our production probe cards are designed and sold for production test applications, ranging from very low current parametric testing to sophisticated, high speed radio frequency testing. Our test sockets are designed and sold for both production and engineering test applications, typically for high speed digital and radio frequency testing.

We also generate revenue through the sales of service contracts to our customers.

Overview

Revenues decreased to $38.1 million in the first nine months of 2009 compared to $61.2 million in the first nine months of 2008, as uncertainty in the world economic environment impacted demand for semiconductors and semiconductor equipment. However, revenues increased to $14.0 million in the third quarter of 2009 compared to $12.6 million in the second quarter of 2009 and $11.5 million in the first quarter of 2009 as a result of the mild, but continued, recovery in the semiconductor market over the past two quarters. The steady improvement in sales and focus on controlling costs over the past two quarters resulted in an overall increase in gross margin to 39.3% in the third quarter of 2009, compared to 37.9% in the second quarter of 2009, and 33.6% in the first quarter of 2009 as fixed overhead costs were recovered.

Outlook for the Remainder of 2009

Based on the results for first nine months of 2009 and our current forecast, we expect an overall decline in revenue for 2009 compared to 2008. However, we are seeing a mild, but steady, recovery in the market place that we expect to continue in the fourth quarter of 2009. However, continued uncertainty in global economic conditions makes it difficult to predict product demand and other related matters, and makes it more likely that our actual results could differ materially from expectations.

Critical Accounting Policies and the Use of Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts,

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inventory, lives and recoverability of equipment and other long-lived assets, warranty obligations, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We reaffirm the critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 10, 2009.

Results of Operations

The following table sets forth our consolidated statement of operations data for the periods indicated as a percentage of revenue.⁽¹⁾

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2009		2008		2009		2008
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	60.7		57.1		62.9		55.5
Gross profit	39.3		42.9		37.1		44.5
Operating expenses:
Research and development	15.0		10.9		15.5		13.1
Selling, general and administrative	35.6		36.6		40.9		35.9
Amortization of purchased intangibles	1.0		2.8		1.1		3.1
Total operating expenses	51.6		50.3		57.5		52.1
Loss from operations	(12.3	)	(7.4	)	(20.4	)	(7.6	)
Other income (expense), net	2.1		(0.7	)	1.0		1.0
Loss before income taxes	(10.2	)	(8.1	)	(19.4	)	(6.6	)
Income tax benefit	(0.0	)	(2.0	)	(0.6	)	(1.4	)
Net loss	(10.2	)%	(6.1	)%	(18.8	)%	(5.2	)%

(1) Percentages may not add due to rounding.

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Revenue and gross profit information by segment was as follows (dollars in thousands):

Three Months Ended September 30, 2009	Systems			Probes and Sockets			Total
Revenue	$	7,221		$	6,750		$	13,971
Gross Profit	$	2,109		$	3,384		$	5,493
Gross Margin		29.2	%		50.1	%		39.3	%
Three Months Ended September 30, 2008
Revenue	$	11,090		$	10,038		$	21,128
Gross Profit	$	3,730		$	5,330		$	9,060
Gross Margin		33.6	%		53.1	%		42.9	%
Nine Months Ended September 30, 2009	Systems			Probes and Sockets			Total
Revenue	$	19,538		$	18,518		$	38,056
Gross Profit	$	6,275		$	7,854		$	14,129
Gross Margin		32.1	%		42.4	%		37.1	%
Nine Months Ended September 30, 2008
Revenue	$	31,474		$	29,700		$	61,174
Gross Profit	$	10,764		$	16,477		$	27,241
Gross Margin		34.2	%		55.5	%		44.5	%

The segment data provided is prepared in accordance with Accounting Standards Codification (“ASC”) 280-10, “Segment Reporting - Overall,” and is not meant to represent stand-alone divisional information. See Note 9 of Notes to Condensed Consolidated Financial Statements above for additional information.

Revenue decreased $7.1 million, or 33.9%, to $14.0 million in the three-month period ended September 30, 2009 compared to $21.1 million in the same period of 2008 and decreased $23.1 million, or 37.8%, to $38.1 million in the nine-month period ended September 30, 2009 compared to $61.2 million in the same period of 2008.

Systems

Systems revenue decreased $3.9 million, or 34.9%, to $7.2 million in the three-month period ended September 30, 2009 compared to $11.1 million in the same period of 2008 and decreased $12.0 million, or 37.9%, to $19.5 million in the nine-month period ended September 30, 2009 compared to $31.5 million in the same period of 2008.

Certain financial information which contributed to the Systems revenue results was as follows:

	Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008		Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Percentage decrease in unit sales	32.0	%	33.5	%
Percentage decrease in average sales price	11.8	%	14.5	%

We realized decreased unit sales in the three and nine-month periods ended September 30, 2009 compared to the same periods of 2008 due to a significant slow-down in the semiconductor and semiconductor equipment markets that began during the third quarter of 2008. Average sales price was negatively affected in the three and nine-month periods ended September 30, 2009 compared to the same periods of 2008 by changes in our sales mix, as fewer high-end 300mm systems were sold in relation to total system sales. Average sales price includes the sales price of any analytical probes, probe cards and accessories purchased with an engineering probe station.

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Probes and Sockets

Probes and Sockets revenue decreased $3.2 million, or 32.8%, to $6.8 million in the three-month period ended September 30, 2009 compared to $10.0 million in the same period of 2008 and decreased $11.2 million, or 37.7%, to $18.5 million in the nine-month period ended September 30, 2009 compared to $29.7 million in the same period of 2008. These decreases were primarily the result of lower unit sales driven by the overall decrease in worldwide semiconductor production.

Cost of Sales and Gross Profit

Cost of sales includes purchased materials, fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties and provision for inventory valuation reserves.

Cost of sales decreased $3.6 million, or 29.7%, to $8.5 million in the three-month period ended September 30, 2009 compared to $12.1 million in the same period of 2008 and decreased $10.0 million, or 29.5%, to $23.9 million in the nine-month period ended September 30, 2009 compared to $33.9 million in the same period of 2008.

Systems

The gross margin in Systems decreased to 29.2% and 32.1%, respectively, in the three and nine-month periods ended September 30, 2009 from 33.6% and 34.2%, respectively, in the same periods of 2008. The decreases in gross margin were primarily attributable to the overall decrease in sales volume and change in product mix. We sold fewer 300mm systems in relation to total system sales, which typically yield higher margins than non-300mm systems due to their higher average sales prices and sales of accessories. The decreases in gross margin due to volume and product mix were partially offset by decreases in salaries, benefits and overhead costs.

Probes and Sockets

The gross margin in Probes and Sockets decreased to 50.1% and 42.4%, respectively, in the three and nine-month periods ended September 30, 2009 from 53.1% and 55.5%, respectively, in the same periods of 2008. The decreases in gross margin were primarily due to the decreases in sales volume as production costs for Probes and Sockets have a higher component of fixed overhead than Systems. As sales volumes decline, unallocated fixed overhead costs recorded as a period expense in cost of sales increase. The impact of the decline in sales volume was partially offset by an overall reduction in salaries, benefits and overhead costs and improvement in yields on certain product lines.

Research and Development

Research and development costs are expensed as incurred and include compensation and related expenses for personnel, materials, consultants and overhead. From time to time, we enter into arrangements that provide for the reimbursement of research and development expenses. Such reimbursements are netted against gross research and development expenses.

Research and development expenses decreased $0.2 million, or 9.2%, to $2.1 million in the three-month period ended September 30, 2009 compared to $2.3 million in the same period of 2008 and decreased $2.1 million, or 26.5%, to $5.9 million in the nine-month period ended September 30, 2009 compared to $8.0 million in the same period of 2008.

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The decreases were primarily due to the following:

	Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008			Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Decrease in wages and benefits due to lower headcount	$	(335,000	)	$	(1,639,000	)
Increase in consulting fees for R&D projects		99,000			181,000
Decrease in production costs allocated to R&D		(5,000	)		(172,000	)
Decrease in travel, meals and entertainment expenses		(24,000	)		(125,000	)
Decrease in allocated occupancy expenses		(15,000	)		(117,000	)
Decrease in recruiting expenses		(28,000	)		(97,000	)
Increase (decrease) in incentive compensation		6,000			(44,000	)
Increase (decrease) in stock-based compensation		62,000			(18,000	)
Other, net		40,000			(69,000	)
	$	(200,000	)	$	(2,100,000	)

Selling, General and Administrative

Selling, general and administrative, or SG&A, expense includes compensation and related expenses for personnel, travel, outside services, manufacturers’ representative commissions, internally developed patent and trademark amortization and overhead incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions, as well as costs to operate as a public company.

SG&A expenses decreased $2.7 million, or 35.8%, to $5.0 million in the three-month period ended September 30, 2009 compared to $7.7 million in the same period of 2008 and decreased $6.4 million, or 29.2%, to $15.6 million in the nine-month period ended September 30, 2009 compared to $22.0 million in the same period of 2008. The decreases were primarily due to the following:

	Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008			Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Decrease in wages and benefits due to lower headcount	$	(827,000	)	$	(1,845,000	)
Decrease in accounting and consulting fees		(374,000	)		(937,000	)
Decrease in internal and external sales commissions		(240,000	)		(671,000	)
Decrease in travel, meals and entertainment expenses		(121,000	)		(604,000	)
Decrease in recruiting and relocation expenses		(22,000	)		(117,000	)
Decrease in advertising, sales materials and event fees		(91,000	)		(389,000	)
Decrease in stock-based compensation		(149,000	)		(446,000	)
Decrease in restructuring costs		(490,000	)		(360,000	)
Increases (decrease) in allocated occupancy expenses		36,000			(237,000	)
Decrease in executive incentive compensation		(39,000	)		(189,000	)
Decrease in equipment repairs and maintenance		(69,000	)		(186,000	)
Decrease in departmental supplies		(69,000	)		(151,000	)
Decrease in bad debt expense		(139,000	)		(107,000	)
Other, net		(106,000	)		(161,000	)
	$	(2,700,000	)	$	(6,400,000	)

Amortization of Purchased Intangibles

Amortization of purchased intangibles includes amortization related to our prior acquisitions. Amortization expense decreased $0.5 million to $0.1 million in the three-month period ended September 30, 2009 compared to $0.6 million in the same period of 2008 and decreased $1.5 million to $0.4 million in the nine-month period ended September 30, 2009 compared to $1.9 million in the same period of 2008 due to the asset impairment charge recorded in the fourth quarter of 2008. Net purchased intangibles totaled $2.0 million at September 30, 2009.

Other Income (Expense)

Other income (expense) typically includes interest income, interest expense, gains and losses on foreign currency forward contracts and re-measurement related foreign currency gains and losses. Other income (expense) can also include other miscellaneous non-operating gains and losses.

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Other income (expense), net was comprised of the following (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Interest income, net	$	68		$	221		$	269		$	711
Re-measurement related foreign currency gains (losses)		270			(81	)		253			(261	)
Gains (losses) on foreign currency forward contracts		(53	)		(361	)		(167	)		26
Other		9			73			25			122
	$	294		$	(148	)	$	380		$	598

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities. The decreases in the three and nine-month periods ended September 30, 2009 compared to the same periods of 2008 were primarily due to a decrease in interest rates on investments. Re-measurement related foreign currency gains and losses primarily result from a combination of changes in foreign currency exchange rates and the net value of monetary assets and liabilities denominated in Yen, Euro and other foreign currencies. The nine-month period ended September 30, 2009 includes an adjustment for foreign currency re-measurement related to 2008, which increased other income by $0.3 million for the period.

Income Taxes

The income tax benefit totaled $0.2 million, or 3.0%, and $0.9 million, or 21.5%, of loss before income taxes, in the first nine months of 2009 and 2008, respectively. The income tax benefit for the first nine months of 2009 was primarily attributable to the release of tax contingencies as a result of the Internal Revenue Service (“IRS”) completing its audit of our 2006 and 2007 federal tax returns in April 2009. We continued to record a valuation allowance against certain deferred tax assets generated from our net loss in the first nine months of 2009. The income tax benefit in the first nine months of 2009 differs from the statutory rate due to losses not benefited in certain tax jurisdictions.

Liquidity and Capital Resources

Net cash provided by operating activities in the first nine months of 2009 was $1.4 million and consisted of our net loss of $7.2 million, offset by net non-cash expenses of $4.7 million and net changes in our operating assets and liabilities as described below.

Accounts receivable, net decreased by $2.8 million to $10.0 million at September 30, 2009, compared to $12.8 million at December 31, 2008. The decrease in accounts receivable was primarily due an increase in collection efforts and lower sales in the third quarter of 2009 compared to the fourth quarter of 2008.

Inventories decreased by $1.5 million to $17.6 million at September 30, 2009, compared to $19.1 million at December 31, 2008. The decrease in inventory is attributable to an increase in inventory related reserves of $0.6 million, a decrease in demo equipment of $0.4 million, scrap adjustments of $0.4 million, and an overall decrease in inventory purchasing. We believe that our inventory reserves at September 30, 2009 are adequate. However, if our actual results are significantly different than our current expectations for the remainder of 2009, we may be required to increase reserves for inventory in future periods.

Accounts payable and other accrued liabilities decreased by $1.4 million to $6.5 million at September 30, 2009, compared to $7.9 million at December 31, 2008 primarily due to an overall decrease in accrued compensation and benefits, inventory purchases and operating expenses.

Fixed asset purchases of $1.8 million in the first nine months of 2009 were primarily for socket production related equipment and sustaining on-going capital requirements. We anticipate fixed asset additions for the remainder of 2009 of approximately $0.5 million, primarily for tools and equipment related to the production and design of production probes cards.

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Assets held for sale at December 31, 2008 were sold for $360,000 in the first quarter of 2009. The loss of $40,000 upon sale of these assets was included as a component of selling, general and administrative expenses.

Proceeds from the issuance of common stock of $0.3 million represented the sale of stock pursuant to our employee stock purchase plan.

We anticipate meeting our cash requirements for the next 12 months and for the foreseeable future from existing cash, short-term marketable securities and long-term marketable securities, which totaled $35.1 million at September 30, 2009. We have, from time to time, evaluated, and continue to evaluate, opportunities for acquisition and expansion. Any such transactions, if consummated, may use a portion of our cash and marketable securities.

Accounting Pronouncements Issued Not Yet Adopted

See Note 11 of Notes to Condensed Consolidated Financial Statements.

Contractual Commitments

The following is a summary of our contractual commitments and obligations as of September 30, 2009 (in thousands):

	Payments Due By Period
Contractual Obligation	Total		Remainder of 2009		2010 and 2011		2012 and 2013		2014 and beyond
Operating Leases	$	14,866	$	698	$	5,400	$	4,725	$	4,043
Capital Leases		44		3		28		13		—
Purchase Order Commitments		3,415		2,834		581		—		—
	$	18,325	$	3,535	$	6,009	$	4,738	$	4,043

Purchase order commitments primarily represent open orders for inventory.

Seasonality

Typically, our revenue is lower in our fiscal first quarter than in our fiscal fourth quarter preceding it. In addition, as is typical in our industry, we recognize a large percentage of our quarterly revenue in the last month of the quarter. However, our seasonality can be affected by general economic trends and it should not be expected that historical revenue patterns will continue.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our 2008 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 10, 2009.

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Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Limitation on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all occurrences of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the control systems will detect all control issues, including instances of fraud, if any.

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Part II - Other Information

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2008 includes a detailed discussion of our risk factors. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K. Accordingly, the information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 10, 2009. See also Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this report under the heading “Forward Looking Statements and Risk Factors.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Use of Proceeds

We filed a registration statement on Form S-1, File No. 333-113256 for an initial public offering of common stock, which was declared effective by the Securities and Exchange Commission on December 15, 2004. In that offering, we sold an aggregate of 3.3 million shares of our common stock with net offering proceeds of $41.6 million. No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities or to any affiliates.

As of September 30, 2009, we had used approximately $5.5 million of those proceeds for the repayment of indebtedness and $20.0 million, net of cash acquired, for our acquisitions of the eVue product line, Gryphics, Inc. and certain assets of Synatron GmbH.

Item 6. Exhibits

The following exhibits are filed herewith or incorporated by reference hereto and this list is intended to constitute the exhibit index:

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 2, 2009	CASCADE MICROTECH, INC.
	(Registrant)
	By:	/s/    GEOFF WILD
		Geoff Wild
		Director, President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/    STEVEN SIPOWICZ
		Steven Sipowicz
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

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