CASCADE MICROTECH INC (Form: 10-Q, Received: 08/10/2011 12:34:55)

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Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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

June 30, 2011 For the quarterly period ended June 30, 2011

¨	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 x 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.

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 August 3, 2011 was 14,666,626.

CASCADE MICROTECH, INC.

INDEX TO FORM 10-Q


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) – June 30, 2011 and December 31, 2010		2

	Condensed Consolidated Statements of Operations (unaudited) - Three and Six Months Ended June 30, 2011 and 2010		3

	Condensed Consolidated Statements of Cash Flows (unaudited) - Six Months Ended June 30, 2011 and 2010		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		19

PART II - OTHER INFORMATION

Item 1A.	Risk Factors		20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 6.	Exhibits		20

Signatures			21

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Cascade Microtech, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, In thousands, except per share amounts)


	June 30, 2011			December 31, 2010
	June 30, 2011			December 31, 2010
Assets
Current Assets:
Cash and cash equivalents	$	13,403		$	21,871
Short-term marketable securities		2,909			870
Restricted cash		1,631			1,704
Accounts receivable, net of allowances of $269 and $415		23,313			19,718
Inventories		22,840			20,764
Prepaid expenses and other		3,080			2,032

Total Current Assets		67,176			66,959

Long-term marketable securities		3,498			—
Fixed assets, net of accumulated depreciation of $21,500 and $19,820		10,361			9,973
Goodwill		1,089			985
Purchased intangible assets, net of accumulated amortization of $2,060 and $1,654		2,736			3,142
Other assets, net of accumulated amortization of $3,482 and $3,248		3,048			3,486

Total Assets	$	87,908		$	84,545


Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable		6,835			6,384
Deferred revenue		3,566			3,338
Accrued liabilities		7,781			6,293

Total Current Liabilities		18,182			16,015

Deferred revenue		133			109
Other long-term liabilities		3,290			2,815

Total Liabilities		21,605			18,939

Shareholders' Equity:
Common stock, $0.01 par value. Authorized 100,000 shares; issued and outstanding: 14,644 and 14,500		146			145
Additional paid-in capital		91,925			90,967
Accumulated other comprehensive income (loss)		852			(804	)
Accumulated deficit		(26,620	)		(24,702	)

Total Shareholders' Equity		66,303			65,606

Total Liabilities and Shareholders' Equity	$	87,908		$	84,545

See accompanying Notes to Condensed Consolidated Financial Statement.

Cascade Microtech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, In thousands, except per share amounts)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Revenue	$	27,419		$	23,439		$	55,264		$	43,398
Cost of sales		16,840			15,120			33,457			29,693

Gross profit		10,579			8,319			21,807			13,705

Operating expenses:

Research and development		2,799			3,041			6,006			6,507
Selling, general and administrative		9,302			8,073			16,913			17,929
Amortization of purchased intangibles		203			200			406			380

		12,304			11,314			23,325			24,816

Loss from operations		(1,725	)		(2,995	)		(1,518	)		(11,111	)

Other income (expense):
Interest income, net		13			13			32			45
Other, net		(167	)		542			(184	)		454

		(154	)		555			(152	)		499

Loss before income taxes		(1,879	)		(2,440	)		(1,670	)		(10,612	)
Income tax expense (benefit)		145			413			248			(359	)

Net loss	$	(2,024	)	$	(2,853	)	$	(1,918	)	$	(10,253	)

Basic and diluted net loss per share	$	(0.14	)	$	(0.20	)	$	(0.13	)	$	(0.72	)

Shares used in basic and diluted per share calculations:		14,611			14,307			14,571			14,167

See accompanying Notes to Condensed Consolidated Financial Statements.

Cascade Microtech, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands)


	For the Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(1,918	)	$	(10,253	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,387			2,507
Stock-based compensation, net		1,031			880
Loss on disposal of long-lived assets and assets held for sale		33			159
Loss on write-down of contigent consideration held in escrow		—			76
Deferred income taxes		(29	)		(523	)
(Increase) decrease, net of the effect of acquisition, in:
Accounts receivable, net		(3,426	)		(3,781	)
Inventories, net		(1,402	)		2,933
Income taxes receivable		1,059			636
Prepaid expenses and other		(1,896	)		(1,239	)
Increase (decrease), net of effect of acquisition, in:
Accounts payable		291			1,792
Deferred revenue		205			(337	)
Accrued and other long-term liabilities		1,769			1,770

Net cash used in operating activities		(1,896	)		(5,380	)

Cash flows from investing activities:
Purchase of marketable securities		(7,604	)		(1,797	)
Proceeds from sale of marketable securities		2,085			6,692
Decrease in restricted cash		256			—
Purchase of fixed assets		(2,110	)		(1,047	)
Proceeds from sale of fixed assets and assets held for sale		120			—
Cash paid for acquisition, net of cash acquired		—			(7,052	)

Net cash used in investing activities		(7,253	)		(3,204	)

Cash flows from financing activities:
Principal payments on capital lease obligations		(6	)		(5	)
Withholding taxes paid on net settlement of vested restricted stock units		(280	)		(89	)
Proceeds from issuances of common stock		208			267

Net cash provided by (used in) financing activities		(78	)		173
Effect of exchange rate changes on cash		759			(537	)

Decrease in cash and cash equivalents		(8,468	)		(8,948	)

Cash and cash equivalents:
Beginning of period		21,871			19,471

End of period	$	13,403		$	10,523

Supplemental disclosure of cash flow information:
Refunds received (cash paid) for income taxes, net	$	1,178		$	(53	)

Supplemental disclosure of non-cash information:
Common stock issued in connection with acquisition	$	—		$	3,177
Fair value of assets acquired from acquisition		—			21,029
Liabilities assumed from acquisition		—			(5,406	)

See accompanying Notes to Condensed Consolidated Financial Statements.

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, 2010 is derived from our 2010 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 2010 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. Based on these analyses, we recorded inventory charges of $0.2 million and $0.5 million, respectively, in the three and six-month periods ended June 30, 2011 and $0.6 million and $2.2 million, respectively, in the comparable periods of 2010. Inventory charges for the six-month period ended June 30, 2010 included restructuring costs of $1.1 million for discontinued products.

Inventories consisted of the following (in thousands):


	June 30, 2011		December 31, 2010
Raw materials	$	13,393	$	12,437
Work-in-process		2,601		2,495
Finished goods		6,846		5,832

	$	22,840	$	20,764

Note 3. Net Loss Per Share

Since we were in a loss position for the three and six-month periods ended June 30, 2011 and 2010, 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 1,071 for the three and six-month periods ended June 30, 2011, and 1,268 for the three and six-month periods ended June 30, 2010.

Note 4. Comprehensive Loss

Comprehensive loss was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net loss	$	(2,024	)	$	(2,853	)	$	(1,918	)	$	(10,253	)
Unrealized holding gains (losses)		14			(6	)		18			(16	)
Change in cumulative translation adjustment		528			(1,394	)		1,638			(2,005	)

Comprehensive loss	$	(1,482	)	$	(4,253	)	$	(262	)	$	(12,274	)

Note 5. Product Warranty

We estimate a liability for costs to repair or replace products under warranty for a period of approximately twelve months when the related product revenue is recognized. The liability for product warranties is calculated as a percentage of sales. The percentage is based on historical 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):


	Six Months Ended June 30,
	2011			2010
Warranty accrual, beginning of period	$	701		$	277
Reductions for warranty charges		(365	)		(345	)
Additions to warranty reserve		432			754

Warranty accrual, end of period	$	768		$	686

Additions to the warranty reserve for the first six months of 2010 included accrued warranty costs of $0.5 million assumed with the acquisition of SUSS MicroTec Test Systems GmbH (“SUSS Test”).

Note 6. Goodwill and Purchased Intangible Assets

Goodwill

The change in goodwill was as follows (in thousands):


Six Months Ended June 30,	2011		2010
Balance, beginning of period	$	985	$	—
Acquisition of SUSS Test		—		1,058
Effect of exchange rate changes		104		(135	)

Balance, end of period	$	1,089	$	923

Purchased Intangible Assets

Purchased intangible assets, net included the following (in thousands):


	June 30, 2011			December 31, 2010
Customer relationships	$	2,465		$	2,465
Other		2,331			2,331

		4,796			4,796
Less accumulated amortization		(2,060	)		(1,654	)

	$	2,736		$	3,142

Purchased intangible asset amortization totaled $0.2 million in the three-month periods ended June 30, 2011 and 2010, and $0.4 million in the six-month periods ended June 30, 2011 and 2010.

The estimated amortization of purchased intangible assets is as follows over the next five years and thereafter (in thousands):


Remainder of 2011	$	406
2012		720
2013		572
2014		378
2015		288
Thereafter		372

	$	2,736

Note 7. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	June 30, 2011		December 31, 2010
Accrued compensation and benefits	$	2,563	$	1,897
Accrued income taxes		1,541		1,342
Accrued warranty		768		701
Accrued commissions		509		649
Deferred rent accrual		305		339
Accrued restructuring costs		521		310
Other		1,574		1,055

	$	7,781	$	6,293

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of sales	$	55	$	61	$	105	$	110
Research and development		112		72		220		111
Selling, general and administrative		384		268		706		659

	$	551	$	401	$	1,031	$	880

Stock Incentive Plans

Stock option activity for the first six months of 2011 was as follows:


	Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2010		793,703		$	6.85
Granted		72,631			6.28
Exercised		(6,733	)		4.36
Forfeited		(22,040	)		7.51

Outstanding at June 30, 2011		837,561			6.80

RSU activity for the first six months of 2011 was as follows:


	Restricted Stock Units			Weighted Average Grant Date Per Share Fair Value
Outstanding at December 31, 2010		791,347		$	5.90
Granted		98,652			6.17
Vested		(123,075	)		5.39
Forfeited		(36,850	)		4.85

Outstanding at June 30, 2011		730,074			6.08

As of June 30, 2011, total unrecognized stock-based compensation related to outstanding, but unvested options and RSUs was $3.1 million, which will be recognized over the weighted average remaining vesting period of 2.5 years.

Employee Stock Purchase Plan

In January 2011, 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 700,000 to 800,000. Employees purchased 57,318 shares in the first six months of 2011 for $0.2 million under the ESPP.

Note 9. 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 operating income of our Systems sales and our Probes and Sockets sales. We do not track our assets on a segment level, and, accordingly, that information is not provided.

Revenue and operating income information by segment was as follows (dollars in thousands):


Three Months Ended June 30, 2011	Systems			Probes and Sockets			Corporate Unallocated			Total
Revenue	$	19,815		$	7,604		$	—		$	27,419
Gross profit	$	7,212		$	3,367		$	—		$	10,579
Gross margin		36.4	%		44.3	%		—			38.6	%
Income (loss) from operations	$	3,133		$	(260	)	$	(4,598	)	$	(1,725	)

Three Months Ended June 30, 2010
Revenue	$	16,152		$	7,287		$	—		$	23,439
Gross profit	$	5,575		$	2,744		$	—		$	8,319
Gross margin		34.5	%		37.7	%		—			35.5	%
Income (loss) from operations	$	1,261		$	(1,127	)	$	(3,129	)	$	(2,995	)

Six Months Ended June 30, 2011	Systems			Probes and Sockets			Corporate Unallocated			Total
Revenue	$	39,347		$	15,917		$	—		$	55,264
Gross profit	$	14,481		$	7,326		$	—		$	21,807
Gross margin		36.8	%		46.0	%		—			39.5	%
Income (loss) from operations	$	6,361		$	(371	)	$	(7,508	)	$	(1,518	)

Six Months Ended June 30, 2010
Revenue	$	28,810		$	14,588		$	—		$	43,398
Gross profit	$	8,349		$	5,356		$	—		$	13,705
Gross margin		29.0	%		36.7	%		—			31.6	%
Income (loss) from operations	$	(746	)	$	(2,447	)	$	(7,918	)	$	(11,111	)

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 income (loss) from operations 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 income (loss) from operations.

No customer accounted for 10% or greater of our total revenue in the three or six-month periods ended June 30, 2011 or 2010.

Note 10. Fair Value Measurements

Various inputs are used in determining the fair value of our financial assets and liabilities and 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 that are reported at fair value on a recurring basis (in thousands):


	June 30, 2011				December 31, 2010
	Fair Value		Input Level		Fair Value		Input Level
Marketable securities – corporate obligations	$	4,394		Level 2	$	751		Level 2
Marketable securities – corporate equities	$	—		—	$	119		Level 1
Marketable securities – U.S. agencies	$	2,013		Level 2	$	—		—
Forward sale contracts for Japanese yen	$	621		Level 2	$	1,602		Level 2

The fair value of our marketable securities is determined based on quoted market prices for similar securities. The fair value of our forward contracts is based on quoted market prices for similar securities and is used for the purpose of determining any gain or loss on our foreign currency positions. We do not record the full value of the forward contracts on our balance sheet. We record the net unrealized gain or loss in our balance sheet and as a component of other income (expense).

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

Note 11. Restructuring

Restructuring charges in 2011 relate to the previously announced integration and consolidation of our manufacturing operations and sales organization. Manufacturing operations for our Systems business are being consolidated at our Dresden, Germany facility and manufacturing operations for our Probes business, as well as our corporate headquarters, are being consolidated at one of our Beaverton, Oregon facilities. We expect the consolidation of our Systems manufacturing operations and relocation of corporate headquarters to be substantially complete by the end of the third quarter of 2011. The consolidation of our Probes manufacturing operations was completed in the second quarter of 2011. The restructuring of our sales organization was completed during the first quarter of 2011. In the first quarter of 2011, we recorded a net reversal of $0.1 million related to termination and severance related charges.

Restructuring costs were included in our statement of operations as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of sales	$	55	$	200	$	114	$	1,297
Research and development		—		31		—		127
Selling, general and administrative		1,356		126		1,190		1,061

	$	1,411	$	357	$	1,304	$	2,485

The following table summarizes the charges, expenditures and write-offs and adjustments related to our restructuring accruals (in thousands):


Six Months Ended June 30, 2011	Beginning Accrued Liability		Charged to (Reversed from) Expense, Net			Expenditures			Write-Offs and Adjustments		Ending Accrued Liability
Termination and severance related	$	276	$	(96	)	$	(36	)	$	11	$	155
Lease abandonment		34		1,400			(53	)		310		1,691

	$	310	$	1,304		$	(89	)	$	321	$	1,846

We expect all accrued termination and severance related costs will be paid by the end of 2011 and the lease abandonment costs will be paid by the end of 2015. We also expect to incur additional lease abandonment and severance charges totaling approximately $2.5 million during the third quarter of 2011 related to the consolidation of our manufacturing operations and relocation of our corporate headquarters.

Note 12. Recent Accounting Guidance

ASU 2010-17

Accounting Standards Update (“ASU”) 2010-17, “Revenue Recognition – Milestone Method,” provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of ASU 2010-17 effective January 1, 2011 did not have a material effect on our financial position, results of operations or cash flows.

ASU 2011-05

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which eliminates the current option of reporting other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. Upon adoption of ASU 2011-05, comprehensive income will either be reported in a single continuous financial statement or in two separate but consecutive financial statements. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011. Since ASU 2011-05 relates to presentation of comprehensive income, we do not expect the adoption of ASU 2011-05 in the first quarter of 2012 to have an impact on our financial position, results of operations or cash flows.

Note 13. Subsequent Event

We have considered all events that have occurred subsequent to June 30, 2011 and through August 9, 2011 and determined that no disclosure is required.

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 2, 2011. 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 our guidance or analyst expectations 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.

•

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.

•

Consolidation of our customer base 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.

•

We may make acquisitions, which could 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 the future, 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.

•

Due to our significant international operations and sales, we are exposed to foreign currency exchange rate risks that could adversely affect our revenues, gross margins and results of operations.

•

Failure to retain key managerial, technical, sales and marketing personnel, independent manufacturers’ representatives and distributors 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.

•

Any disruption in the operations of our manufacturing facilities could harm our business.

•

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

•

Some of our customers may experience sudden and unexpected changes in their financial condition, resulting in decreased sales and bad debts.

•

A 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.

•

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

•

We may be exposed to uninsured risks if the type and amount of coverage we carry are not adequate, or the insurance company is unable honor claims.

•

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 shareholders may consider beneficial.

General

We design, develop, manufacture and market 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, Minnesota and Dresden, Germany, with global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.

Probe stations provide precise and accurate measurement of semiconductor electrical characteristics during chip design or when optimizing the chip fabrication process. Our 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 probe stations to address the specific requirements of our customers and generate revenue through the sales of service contracts.

Our analytical probes are sold to serve as components of our 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 high-volume 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.

Overview

Revenue in the second quarter of 2011 increased $4.0 million, or 17.0%, compared to the second quarter of 2010 as a result of improvements in the semiconductor and semiconductor equipment markets. Net loss in the second quarter of 2011 was $2.0 million compared to a net loss of $2.9 million in the second quarter of 2010. The net loss in the second quarter of 2011 included $1.4 million of restructuring related charges compared to $0.4 million in the second quarter of 2010. Restructuring charges in the second quarter of 2011 were related to severance and abandonment of excess leased facilities in connection with the consolidation of our probes manufacturing operations.

Outlook

Based on our current backlog and projected bookings, we anticipate revenues will be in the range of $26 million to $29 million for the third quarter of 2011. We also expect to incur restructuring charges related to excess leased facilitates and severance benefits totaling approximately $2.5 million during the third quarter of 2011 related to the consolidation of our manufacturing operations and relocation of our corporate headquarters.

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, inventory, lives and recoverability of equipment and other long-lived assets, warranty obligations, deferred income tax assets, unrecognized income tax benefits, restructuring charges, 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.

With the exception of our change in estimate regarding future restructuring charges as discussed below, we reaffirm the critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission on March 2, 2011.

Restructuring Charges

During 2011, we have taken certain actions to reduce our overall cost structure. We have recorded restructuring charges in connection with employees based on estimates of the expected costs associated with severance benefits. If the actual costs incurred exceed the estimated costs, additional expense will be recognized. If the actual costs are less than the estimated costs, a benefit will be recognized.

We have also recorded restructuring charges in connection with excess leased facilities to offset future rent, net of estimated sublease income that could be reasonably obtained. We work with external real estate experts to develop assumptions used to determine a reasonable estimate of the net loss. Our estimates of expected sublease income could change based on factors that affect our ability to sublease those facilities such as general economic conditions and the local real estate market. If the real estate markets worsen and we are not able to sublease the properties as expected, additional charges will be recognized in the period such determination is made. Likewise, if the real estate market strengthens and we are able to sublease the properties earlier or at more favorable rates than projected, a benefit will be recognized.

Results of Operations

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


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		61.4			64.5			60.5			68.4

Gross profit		38.6			35.5			39.5			31.6
Operating expenses:
Research and development		10.2			13.0			10.9			15.0
Selling, general and administrative		33.9			34.4			30.6			41.3
Amortization of purchased intangibles		0.7			0.9			0.7			0.9

Total operating expenses		44.9			48.3			42.2			57.2

Loss from operations		(6.3	)		(12.8	)		(2.7	)		(25.6	)
Other income (expense), net		(0.6	)		2.4			(0.3	)		1.2

Loss before income taxes		(6.9	)		(10.4	)		(3.0	)		(24.5	)
Provision (benefit) for income taxes		0.5			1.8			0.4			(0.8	)

Net Loss		(7.4	)%		(12.2	)%		(3.5	)%		(23.6	)%

(1)	Percentages may not add due to rounding.

Certain financial information by segment was as follows (dollars in thousands):


Three Months Ended June 30, 2011	Systems			Probes and Sockets			Corporate Unallocated			Total
Revenue	$	19,815		$	7,604		$	—		$	27,419
Gross profit	$	7,212		$	3,367		$	—		$	10,579
Gross margin		36.4	%		44.3	%		—			38.6	%
Income (loss) from operations	$	3,133		$	(260	)	$	(4,598	)	$	(1,725	)

Three Months Ended June 30, 2010
Revenue	$	16,152		$	7,287		$	—		$	23,439
Gross profit	$	5,575		$	2,744		$	—		$	8,319
Gross margin		34.5	%		37.7	%		—			35.5	%
Income (loss) from operations	$	1,261		$	(1,127	)	$	(3,129	)	$	(2,995	)


Six Months Ended June 30, 2011	Systems			Probes and Sockets			Corporate Unallocated			Total
Revenue	$	39,347		$	15,917		$	—		$	55,264
Gross profit	$	14,481		$	7,326		$	—		$	21,807
Gross margin		36.8	%		46.0	%		—			39.5	%
Income (loss) from operations	$	6,361		$	(371	)	$	(7,508	)	$	(1,518	)

Six Months Ended June 30, 2010
Revenue	$	28,810		$	14,588		$	—		$	43,398
Gross profit	$	8,349		$	5,356		$	—		$	13,705
Gross margin		29.0	%		36.7	%		—			31.6	%
Loss from operations	$	(746	)	$	(2,447	)	$	(7,918	)	$	(11,111	)

Revenue

Revenue increased $4.0 million, or 17.0%, to $27.4 million in the three-month period ended June 30, 2011 compared to $23.4 million in the same period of 2010 and increased $11.9 million, or 27.3%, to $55.3 million in the six-month period ended June 30, 2011 compared to $43.4 million in the same period of 2010.

Systems

Systems revenue increased $3.6 million, or 22.7%, to $19.8 million in the three-month period ended June 30, 2011 compared to $16.2 million in the same period of 2010 and increased $10.5 million, or 36.6%, to $39.3 million in the six-month period ended June 30, 2011 compared to $28.8 million in the same period of 2010.

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


	Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010			Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Percentage increase (decrease) in probe station unit sales		(6.4	)%		5.1	%
Percentage increase in average sales price		50.0	%		41.5	%

Average sales prices in the first two quarters of 2011 compared to the first two quarters of 2010 were positively affected by changes in sales mix, as a larger number of higher-end 300mm and special application stations were sold relative to total unit sales. The overall numbers of probe stations sold in the three and six-month periods ended June 30, 2011 were relatively consistent with the same periods of the prior year. The differences in unit sales were primarily due to the timing of shipments.

Probes and Sockets

Probes and Sockets revenue increased $0.3 million, or 4.4%, to $7.6 million in the three-month period ended June 30, 2011 compared to $7.3 million in the same period of 2010 and increased $1.3 million, or 9.1%, to $15.9 million in the six-month period ended June 30, 2011 compared to $14.6 million in the same period of 2010. These increases were primarily the result of higher unit sales of our production probe cards and analytical probes.

Cost of Sales and Gross Margin

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

Cost of sales increased $1.7 million, or 11.4%, to $16.8 million in the three-month period ended June 30, 2011 compared to $15.1 million in the same period of 2010 and increased $3.8 million, or 12.7%, to $33.5 million in the six-month period ended June 30, 2011 compared to $29.7 million in the same period of 2010. The overall increases in cost of sales for the three and six-month periods ended June 30, 2011 compared to same periods in 2010 were the result of the increases in sales as discussed above, partially offset by a $0.1 million and a $1.2 million decrease, respectively, in restructuring related charges and an overall increase in gross margin (gross profit as a percentage of net sales), as discussed below, to 38.6% and 39.5%, respectively, in the three and six-month periods ended June 30, 2011, compared to 35.5% and 31.6%, respectively, in the comparable periods of 2010.

Gross margins increased in the three and six-month periods ended June 30, 2011 compared to the same periods of 2010 primarily due to inventory valuation charges of $0.2 million and $0.5 million in the three and six-month periods ended June 30, 2011 compared to $0.6 million and $2.2 million, respectively, in the comparable periods of 2010. Of the $2.2 million inventory charge in the first six months of 2010, $1.0 million represented a restructuring cost for Systems products that were discontinued following our acquisition of SUSS MicroTec Test Systems GmbH (“SUSS Test”) in January 2010.

Systems

Systems gross margins were 36.4% and 36.8%, respectively, in the three and six-month periods ended June 30, 2011 compared to 34.5% and 29.0%, respectively, in the comparable periods of 2010. The increases were primarily due to charges in the three and six-month periods of 2010 that included restructuring and inventory valuation charges of $0.4 million and $1.4 million, respectively, compared to $0.2 million and $0.4 million, respectively, in the comparable periods of 2011. In addition, the 2010 periods included $0.2 million and $0.8 million, respectively, of purchase price allocation adjustments to value finished goods and work-in-process inventory acquired with the SUSS Test acquisition at their estimated selling price less cost to sell. Accordingly, when such inventory was sold, it resulted in near zero gross margins.

Probes and Sockets

The gross margin in Probes and Sockets increased to 44.3% and 46.0%, respectively, in the three and six-month periods ended June 30, 2011 from 37.7% and 36.7%, respectively, in the same periods of 2010. The improved gross margins were primarily due to higher sales volumes, which resulted in lower unallocated fixed overhead costs recorded as period expenses in cost of sales, and a decrease in inventory valuation and restructuring charges.

Research and Development

Research and development costs are expensed as incurred and include compensation and related expenses for personnel, materials, consultants and overhead.

Research and development expenses decreased $0.2 million, or 8.0%, to $2.8 million in the three-month period ended June 30, 2011 compared to $3.0 million in the same period of 2010 and decreased $0.5 million, or 7.7%, to $6.0 million in the six-month period ended June 30, 2011 compared to $6.5 million in the same period of 2010.

The decrease in the three-month period ended June 30, 2011 compared to the same period of 2010 was primarily due to a $0.2 million increase in government grant reimbursements. Increases in salary, benefits and incentive compensation of $0.2 million were offset by $0.2 million decrease in project related expenses. The decrease in the six-month period ended June 30, 2011 compared to the same period of 2010 was primarily due to a $0.3 million decrease in project related expenses, a $0.4 million decrease in professional fees, and a $0.2 million increase in government grant reimbursements, partially offset by a $0.4 million increase in salary, benefits and incentive compensation.

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 expense increased $1.2 million, or 15.2%, to $9.3 million in the three-month period ended June 30, 2011 compared to $8.1 million in the same period of 2010 and decreased $1.0 million, or 5.7%, to $16.9 million in the six-month period ended June 30, 2011 compared to $17.9 million in the same period of 2010.

The increase in the three-month period ended June 30, 2011 compared to the same period of 2010 was primarily due to a $1.2 million increase in restructuring charges, a $0.2 million increase in depreciation and stock-based compensation, and a $0.1 million increase in professional fees, partially offset by a $0.3 million decrease in internal and external commissions due to changes in commissions programs and sales mix. Restructuring charges in SG&A for the three-month period ended June 30, 2011 related to the abandonment of excess leased facilities in connection with the consolidation of our probes manufacturing operations. The decrease in the six-month period ended June 30, 2011 compared to the same period of 2010 was primarily due to the $0.1 million increase in restructuring charges offset by a $0.6 million decrease in professional fees, primarily due to the acquisition of SUSS Test in January 2010, a $0.3 million decrease in internal and external commissions due to changes in commissions programs and sales mix, and a $0.2 million decrease in bad debt expense.

Amortization of Purchased Intangibles

Amortization of purchased intangibles includes amortization related to our acquisitions. Amortization totaled $0.2 million in the three-month periods ended June 30, 2011 and 2010, and $0.4 million in the six-month periods ended June 30, 2011 and 2010. Net purchased intangibles totaled $2.7 million at June 30, 2011 and amortization currently totals approximately $0.2 million per quarter.

Other Income (Expense)

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Interest income, net	$	13		$	13		$	32		$	45
Foreign currency gains (losses)		(134	)		564			(105	)		441
Losses on foreign currency forward contracts		(55	)		(63	)		(114	)		(39	)
Other		22			41			35			52

	$	(154	)	$	555		$	(152	)	$	499

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities.

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.

Income Taxes

Our income tax expense totaled $0.2 million, or 14.9% of loss before income taxes, in the first six months of 2011 and represents the estimated tax expense on income in foreign tax jurisdictions.

Our benefit from income taxes totaled $0.4 million, or 3.4% of loss before income taxes, in the first six months of 2010 and represented a benefit for the release of valuation allowance on deferred tax assets in Germany due to the acquisition of SUSS Test in the first quarter of 2010, partially offset by tax expense in the second quarter of 2010 due to an increase in expected taxable income in foreign tax jurisdictions.

Liquidity and Capital Resources

Changes in our assets and liabilities as presented on our Condensed Consolidated Statements of Cash Flows do not equal the changes in such assets and liabilities as calculated per our Condensed Consolidated Balance Sheets due to the effects of fluctuating foreign exchange rates.

Net cash used in operating activities in the first six months of 2011 was $1.9 million and consisted of our net loss of $1.9 million, net non-cash expenses of $3.4 million and net changes in our operating assets and liabilities as described below.

Accounts receivable, net increased by $3.6 million to $23.3 million at June 30, 2011, compared to $19.7 million at December 31, 2010. The increase in accounts receivable was primarily due to the timing of shipments in the second quarter of 2011 compared to the fourth quarter of 2010.

Inventories increased by $2.0 million to $22.8 million at June 30, 2011, compared to $20.8 million at December 31, 2010. The increase in inventory was primarily due to increased purchases in preparation of our previously announced factory consolidations and the effect of exchange rate change on euro-denominated inventory, partially offset by inventory reserve charges of $0.5 million. If our actual results are significantly different than our current expectations for 2011, we may incur charges to write down inventory in future periods.

Accrued liabilities increased by $1.5 million to $7.8 million at June 30, 2011, compared to $6.3 million at December 31, 2010 primarily due to a $0.7 million increase in accrued compensation and benefits due to the timing of payments, a $0.2 million increase in accrued restructuring and a $0.2 million increase in accrued income taxes payable.

Fixed asset purchases of $2.1 million in the first six months of 2011 were primarily for improvements to our business information systems, research and development tools, production testing equipment and facility improvements related to our previously announced factory consolidation. We anticipate fixed asset additions for all of 2011 to be approximately $5.0 million, primarily for production related equipment, facility improvements, research and development tools, business information systems and information technology equipment.

We anticipate meeting our cash requirements for the next 12 months and for the foreseeable future from existing cash and cash equivalents and marketable securities, which totaled $19.8 million at June 30, 2011.

We continue to evaluate opportunities for acquisition and expansion and any such transactions, if consummated, may use a portion of our cash and marketable securities.

Recent Accounting Guidance

See Note 12 of Notes to Condensed Consolidated Financial Statements.

Contractual Commitments

The following is a summary of our contractual commitments and obligations as of June 30, 2011 (in thousands):


	Payments Due By Period
Contractual Obligation	Total		Remainder of 2011		2012 and 2013		2014 and 2015		2016 and beyond
Operating Leases	$	13,152	$	1,705	$	5,825	$	4,799	$	823
Capital Leases		24		7		17		—		—
Purchase Order Commitments		10,863		9,680		1,183		—		—
Forward contracts		621		621		—		—		—

	$	24,660	$	12,013	$	7,025	$	4,799	$	823

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 2010 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 2, 2011.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting 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.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2010 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, 2010, which was filed with the Securities and Exchange Commission on March 2, 2011. 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 June 30, 2011, we had used approximately $5.5 million of those proceeds for the repayment of indebtedness and $27.1 million, net of cash acquired, for our acquisitions of the eVue product line and Gryphics, Inc. and certain assets of Synatron GmbH and SUSS Test.

Item 6. Exhibits

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



10.1		Form of Change in Control Severance Agreements (incorporated by reference to our Current Report on Form 8-K filed on July 20, 2011).

10.2		Cascade Microtech, Inc. 2011 Employee Incentive Plan

10.3		Lease Agreement by and between Cascade Microtech Dresden GmbH and Süss Grundstücksverwaltungs GbR dated as of June 17, 2011.

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.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

Pursuant to Rule 406T of Regulation S-T, the Interactive data Files on Exhibit 101, submitted electronically herewith, are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 or the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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: August 10, 2011	CASCADE MICROTECH, INC.
	(Registrant)

	By:	/s/ MICHAEL D. BURGER
	Michael D. Burger
	Director, President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/JEFF KILLIAN
	Jeff Killian
	Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

LOGO

Exhibit 10.2

Cascade Microtech, Inc.

2011 Employee Incentive Plan

Overview:

The objective of the Cascade Microtech, Inc. 2011 Employee Incentive Plan (“the Plan”) is to motivate and reward performing employees of Cascade Microtech, Inc. and its wholly-owned subsidiaries (the “Company”) for their contributions to the Company’s success by aligning the goals of each employee with those of the Company.

Effective Date:

This Plan is effective as of July 1, 2011. This Plan replaces or supersedes all previous Executive Incentive Plan (EIP) and Cascade Incentive Plan (CIP) documents and plan descriptions, under which employees were previously eligible.

Definitions:

“Business Unit” or “BU” means any one of the Company’s four business units: (1) Systems, (2) Sockets, (3) P-Probes and (4) E- Probes.

“Compensation” means wages paid to an employee exclusive of allowances, discretionary bonuses and service or recognition awards; in compliance and consistent with the regulations and regular business practices in each location where Cascade does business as determined by the Plan Administrator.

“Executive” means the Chief Executive Officer (“CEO”) and each person who reports directly to the CEO.

“MDCC” means the Management Development and Compensation Committee of the Company’s Board of Directors.

“Non Business Unit Group” or “Non BU Group” means any one of the following groups: (1) Finance/IT, (2) Human Resources, (3) Administrative Staff, (4) Sales Support, (5) Operations, (6) Corporate Marketing and (7) Corporate Technology or any other groups as determined by the Plan Administrator.

“Plan Administrator” means the MDCC or the person(s) appointed by the MDCC, the CEO or the VP of HR who are responsible for carrying out the terms of this Plan.

Eligibility:

Each Company employee is eligible to participate in the Plan if the employee meets all of the criteria listed below:

•

Is an active, regular, full-time or part time employee of the Company during the Incentive Period (as defined below).

•

Is on the Company’s payroll on the date of the incentive payment(s).

•

Is meeting performance expectations.



Cascade Microtech, Inc.	2011 Employee Incentive Plan	Page 1

LOGO

•

Is not participating in the sales or other incentive plan.

Incentive Periods:

There are two incentive periods each year: (1) January 1 through June 30, and (2) July 1 through December 31 (each, an “Incentive Period”).

Target Incentive:

The annual target incentive (“Annual Target Incentive”) is a percentage of each eligible employee’s Compensation, based on their salary grade or equivalent. The target incentive percentage for each salary grade or equivalent will be determined by management and will be communicated to each individual.

Performance Criteria and Metrics:

The Plan is designed to motivate and reward two types of performance: (1) financial performance and (2) team performance. The payouts for each Incentive Period will be determined based on the level of achievement of the performance targets established for that Incentive Period. There will be two financial performance targets for each Incentive Period: (1) revenue and (2) net contribution.

Revenue Targets

Business Units : The revenue target for each BU for each Incentive Period will be set by the BUs and reviewed and approved by the Company’s Board of Directors.

Non BU Groups: The revenue target for the Non BU Groups for each Incentive Period will be the Company’s revenue target, which will be a consolidation of the BU revenue targets.

Executives : The revenue target for Executives for each Incentive Period will be the Company’s revenue target.

Net Contribution Target

All employees will be measured on total “Net Contribution.” Total Net Contribution (adjusted income from operations) will be calculated based on income from operations excluding unallocated corporate expenses and may be adjusted to exclude certain unusual items, which may include, but are not limited to, gains or losses resulting from one-time events, including the write-off or impairment of assets, the gain or loss on the sale of assets or property, severance charges, restructuring expenses, and other extraordinary transactions or events.

Team Performance Goals

For each Incentive Period, each BU or Non BU Group will establish 3-4 key team performance objectives to be approved by EMT. They may include project completion, operational targets, or any other quantifiable goal relating to the group’s performance.

Incentive Award Determination:

For each Incentive Period, one-half of the amount of the incentive award will be based on the level of achievement of the Revenue Target and one-half will be based on the level of achievement of the Net Contribution Target. Achievement of the Team Performance Goals will increase the total incentive payout by up to 10%.



Cascade Microtech, Inc.	2011 Employee Incentive Plan	Page 2

LOGO

Revenue Target

Any payout on the revenue target is contingent upon achieving 80% of the applicable revenue target. If 80% of the revenue target is achieved, the payout would be 80% of the target payout for the Incentive Period. For revenue levels in excess of 80% of the revenue target, the payout increases linearly from 80% and is capped at a payout of 200% of the target payout for revenue achievement equal to or greater than 200% of the revenue target.

Net Contribution Target

Payout on the Net Contribution (adjusted income from operations) target component pays out linearly and is capped at 100%

Team Performance Goals

Completion or achievement of team performance goals will be evaluated and determined by EMT at the end of each Incentive Period. Accomplishment will be scaled from 1 to 10. Based on the rating, the corresponding percentage will be applied to the earned incentive and added to the payout.

Timing

Any incentive payable under the Plan shall be paid as soon as administratively practicable following the date on which the public earnings release has been made and the award has been calculated.

Funding of Incentive Pool:

In order to ensure that the cash awards are balanced between Company and shareholder needs, the Company will establish a minimum consolidated profitability threshold for each Incentive Period. That profitability threshold must be achieved by the Company before there can be any incentive payout. If the minimum profitability threshold is achieved, 50% of the amount above the threshold will be available for the incentive payout. The 50% will be used to fund all existing eligible plans . The Company will pay out the lesser of the 50% payout or the calculated target amount. If the payout is limited by the 50% calculation, the pool will be allocated on a pro-rata basis amongst each participant.

Administrative Discretion:

Notwithstanding the foregoing, incentives will be paid at the sole discretion of the Company. The amount of an award for employees is at the discretion of the CEO. The CEO has authority to increase, decrease or eliminate any incentive award to employees under the Plan. Payments to the CEO are subject to the final approval of the Board of Directors Management Development and Compensation Committee (MDCC). The MDCC retains the right to amend the incentive awards as deemed necessary. The previous timing or payment of incentives does not dictate timing of future incentive periods, nor guarantee payment of future incentives, if any.

Pro-Rated Awards:

For employees hired after the beginning of an Incentive Period, awards, if any, will be pro-rated based on the date of hire.

Leaves of Absence :

Employees who are on an approved leave of absence during an Incentive Period may be eligible for a pro-rated incentive amount provided they have been actively employed during the period, have received an acceptable performance rating, the pool has funded, and the employee is an active employee of the Company when incentives are paid.



Cascade Microtech, Inc.	2011 Employee Incentive Plan	Page 3

LOGO

Promotions/Transfers:

If any employee transfers from one position to another position (with a higher, lower, or same target incentive), or to another Business Unit or Non BU Group during an Incentive Period, the incentive amount will be apportioned based on the amount of time spent at each incentive target or with each Business Unit or group.

Termination of Employment:

An employee who ceases employment with the Company for any reason prior to the last day of an Incentive Period ceases to be an eligible employee in this Plan and is not eligible for any award. In addition, an employee who ceases employment with the Company for any reason prior to the date incentives are paid will not be eligible for any award.

Tax Withholding:

The Company shall deduct or withhold amounts sufficient to satisfy Country, Federal, State, local, employment and other taxes required to be withheld with respect to any incentive.

Administration:

The Plan Administrator shall have complete discretion and authority to administer the Plan. The Plan Administrator may delegate the administration of the Plan to such persons as deemed appropriate. Any determination, decision or action of the Plan Administrator or any delegate in connection with the administration or application of the Plan shall be final.

Modification, Interpretation, and/or Termination of the Plan:

The Company reserves the right to modify or terminate the Plan at its sole discretion, at any time, with or without written notification.

At Will:

The existence of, or an employee’s eligibility to participate in, this Plan shall not be deemed to give the employee any unique or additional right to be retained in the employ of the Company and shall not change employees’ employment status.



Cascade Microtech, Inc.	2011 Employee Incentive Plan	Page 4

Exhibit 10.3

Rental Agreement


between

		Süss Grundstücksverwaltungs GbR,
		represented by Dr. Winfried Süss,
		Südliche Münchner Str. 51
		820131 Grünwald

		- hereinafter known as the Lessor -

and

		Cascade Microtech Dresden GmbH
		legally represented by Managing Dir. Dr. Claus Dietrich
		Süss-Straße 1, 01561 Sacka

		- hereinafter known as the Lessee -

§ 1

Rental property

The Lessor shall rent to the Lessee, in the municipality of Sacka near Dresden, on the “Am Straßenberg” parcels 591/1, 592/1 and 593/1 with a total of 52,998 square meters, one building with an office wing and manufacturing hall, having a total interior area of 2,784 square meters (Sacka I), and a second building with an office wing and manufacturing hall, having an interior area of 1,100 square meters (Sacka II), as well as the associated exterior facilities.

The scope of the overall rented property shall be determined on the basis of the site plan included as a component of this Agreement.

The Lessee is already familiar with the rental property from previous use. The property shall be rented in the known condition, which is documented by way of a joint inspection, as is. The existing condition at the time this Agreement is signed shall be acknowledged as contractually agreed.

The Lessor shall, at the Lessee’s request, create a connecting structure between the two buildings, Sacka I and Sacka II, by the end of the fourth quarter of 2011, at the Lessor’s expense.

§ 2

Rental purpose

The rental shall take place for the purpose of operating a plant to manufacture and sell optical devices, precision mechanics, electronics and other technical devices for the fields of science and industry. The rental property shall only be used for this contractually agreed purpose. Any changes to the intended purpose require prior written permission from the Lessor. Such permission can only be refused for good cause.

The Lessee must, at its own expense, obtain any necessary official permits or authorizations for changing or expanding the intended purpose.

§ 3

Rental agreement – term of rental

The Rental Agreement shall begin on June 1, 2011 and end on December 31, 2017.

It shall be extended by one year in each case if it is not terminated before this time or during the subsequent period before the end of the Agreement, with one year’s notice to the end of a calendar month. Termination must take place in writing, via registered letter.

The Lessee can request an additional five-year extension of the Rental Agreement no later than six months before the end of the Rental Agreement, as long as the other contractual provisions are fulfilled. The Lessee must exercise the extension option in writing, and the Lessor must confirm it in writing.

The Lessor shall ensure that the provisions of this Rental Agreement remain valid without modification, regardless of any sale of the rental property.

§ 4

Rent

The regular monthly rent for the rental property in its current condition ( Sacka I and II ), including all exterior facilities available for use by the Lessee, open spaces and traffic routes, shall be €21,362.00, which corresponds to a rate of €5.50/m ² .

Starting in the month after the completion and transfer of the connecting structure described in §1 for use by the Lessee, the monthly rent shall increase in proportion to the newly created usable interior space.

Furthermore, the amount paid to the Lessor by Sächsische Aufbaubank, in light of the renovation measures intended by the Lessee to the rental property, shall be taken into account as a rent reduction. The rent reduction shall take effect in the month of the first assistance benefit (payment to the Lessor). The assistance amount expected at this point shall then be paid linearly over the remaining months of the Agreement term in the form of a rent reduction.

Fictitious sample calculation as clarification:

The expected assistance amount (benefit notification from SAB) is €120,000.

The initial assistance benefit of €20,000 is paid in October 2011.

The remainder of the Agreement term is 74 months.

The rent reduction starting in October 2011 shall be €120,000/74 (in other words, €1621), which corresponds to a new rent of €19,741 (€5.01/m ² ).

The Lessee must additionally pay any value-added tax invoiced by the Lessor in the applicable amount. The rent must be paid on a monthly basis in advance, and must be received by the Lessor no later than the 5 ^th business day of the month.

In the event of a late rent payment and/or additional costs, the Lessor shall be entitled to request late fees in the amount of 8 percentage points over the base lending rate.

If the Lessee is in arrears with payments, partial payments shall be offset according to the Lessor’s instructions regardless of the explicit offsetting requirement.

§ 5

Deposit

In order to secure all primary and secondary claims by the Lessor arising from the rental relationship, the Lessee shall provide a directly enforceable, open-ended, unconditional guarantee from a German banking institution upon initial request, equal to two gross monthly rent payments; in other words, €63,550.00. The original guarantee certificate must be provided at the latest upon the signing of the Agreement. The Lessor shall be entitled to make the conclusion of the Agreement dependent upon the provision of the guarantee.

The original guarantee certificate must be provided to the guarantor no later than 1 month after it has been determined that no further claims against the Lessee exist, or after the guarantor has paid the Lessor the maximum amount.

§ 6

Additional costs

The Lessee shall compensate the Lessor for the following charges: electricity, water, wastewater, heating, chimney sweeping, waste disposal, street sweeping, chimney cleaning, lighting, heating-system maintenance, maintenance of the air-conditioning system, fire extinguishers, fire-alarm system and all other maintenance work, cleaning the gutters, other operations-related auxiliary costs and municipal charges and fees, and property taxes. Where possible, the Lessee shall pay these costs directly to the operators and/or the city. The Lessor shall offset these costs – to the extent that it is responsible for them – by June 30 of the following year, upon provision of receipts. The invoice must be paid within a month.

If ongoing additional costs, property charges and/or public fees are introduced or changed after the conclusion of the Agreement as a result of legal or official regulations, the Lessor shall be entitled to transfer the additional burden to the Lessee in each case. The transfer of the additional charges shall be considered agreed as of the time the charges take effect; no increase declaration shall be required.

If a claim for payment is asserted against the Lessor for assessments or development charges, the Lessor can increase the rent by an amount derived from the amortization of the charges and their interest of 5.5%, based on the remaining usage time of the building.

The Lessee shall provide a monthly partial payment for the additional costs, to be established by the Lessor, of 1/12 of the expected annual costs.

The Lessor shall be entitled to adjust the partial payments for the additional costs on the basis of the annual statement for the past calculation period. This adjustment shall be considered agreed upon receipt of notification.

§ 7

Insurance

The Lessor has insured the rental property against fire and storm damage. If an insurance premium increases as a result of an increased insurance risk, based on the Lessee’s operations or on construction measures carried out or commissioned by the Lessee, the Lessee must compensate the Lessor for the additional premium.

The Lessee must obtain property liability insurance, tap-water damage insurance based on the values established by the building’s fire insurance, glass damage insurance and liability insurance as the operator of facilities for storing environmentally harmful substances, to the extent that such risks are associated with the Lessee’s operations, and in sufficient scope.

§ 8

Value-retention clause

The consumer price index for the past five years, as officially established by the German Federal Statistical Office, is an average of 1.6% and is set for the term of the Agreement. In other words, on January 1 of any subsequent year, the rent will increase by 1.6%. After December 31, 2017, the respective annually established consumer price index will be used as the basis. In the event of a rent increase, the Lessor must report this change by providing a statement; in the event of a decrease, the Lessee must do the same. Failure to do so shall not constitute a waiver of the right to adjustment. However, the respective parties to the Agreement shall only be considered in default for payment of the increased amounts or repayment of the decreased amounts once the respective statement has been received.

The parties to the Agreement hereby agree to cooperate in obtaining the necessary approval from the Central Bank to ensure the legal validity of the above adjustment clause.

§ 9

Condition of the rental property upon conclusion of the Agreement

The rental property is in the contractual condition acknowledged by both parties to the Agreement. The following features should particularly be noted:

•

Presentable appearance of the office wing and the exterior access area

•

Reception area with high-quality natural stone flooring and private stairs with stainless-steel railings

•

Bright, excellently illuminated office spaces, some with heat-insulating glass and additional exterior sun protection

•

Manufacturing, workshop, warehouse: generous space, large windows with exterior sun protection, greater than average amount of daylight

•

Better view to outside compared to the standard

•

Bright, light-reflecting walls and ceiling surfaces

•

Overhead lighting with unusually large dome lights

•

Better room climate due to convector heaters on the exterior walls rather than just unhealthy circulating-air heating

•

Electrical installations and data cables conforming to higher standards, tailored to the intended use

•

Climate-controlled offices

•

High-quality flooring in the manufacturing / warehouse areas

•

Park-like exterior facilities

The attached inspection protocol is a component of the Agreement. The Lessee cannot derive any rights against the Lessor on the basis of damages or defects that are not included in the protocol.

§ 10

Maintenance of the rental property – structural changes – warranty

The Lessor shall be obligated to maintain the rental property for the duration of this Agreement. The Lessor shall not have any warranty obligations beyond this maintenance obligation. Damage claims as per § 538 of the BGB (German Civil Code) are excluded unless an agent of the Lessor intentionally causes the damage.

Structural measures that become necessary after the transfer of the rental property to the Lessee as a result of official instructions or requirements or due to the nature of the operations shall be arranged by the Lessor. If such measures become necessary due to the nature of the operations, the Lessee shall bear the costs. The Lessor shall not be obligated to build additional structures.

The Lessee shall bear the costs for maintenance work in and on the building up to an amount of €300.00 in individual cases, as well as all costs for maintaining the exterior facilities. Furthermore, the Lessee must arrange cosmetic repairs at appropriate intervals and at its own expense, using first-rate materials.

When carrying out maintenance work on the building, the Lessor shall take the Lessee’s interests into consideration wherever possible, particularly by scheduling the work outside the Lessee’s business hours. There is no obligation to compensate the Lessee for any costs or lost profits resulting from the performance of such work.

Structural measures that are not necessary for the upkeep of the building, to prevent risks to the rental property, to eliminate hazards from the rental property or to rectify damages can only be carried out by the Lessor with permission from the Lessee if the performance of such work will hinder the Lessee’s business operations to a more than insignificant degree.

The Lessee shall be entitled to install all operating equipment and machines in and on the building and on the property as needed for its operations. The Lessee shall only be entitled to make structural changes on and to the rental property, particularly renovations and installations, etc., with prior written permission from the Lessor. The Lessor can base such permission on the Lessee’s agreement to guarantee the complete or partial return to the condition of the rental property after the end of Phase 2 in the event that the Lessee moves out.

Unavoidable damages to the rental property itself or its usage, or damages for which the Lessor is not responsible, that are caused while building the connecting structure as per § 1 or as a result of general maintenance or repair measures shall not entitle the Lessee to reduce the rent or to assert damage compensation and/or retention rights.

If, at the end of the rental term, the Lessee wishes to remove/uninstall equipment and/or installations that it has provided in the rental property, it must first offer these to the Lessor. If the Lessor wishes to keep these installations, it must pay the Lessee the manufacturing costs minus an appropriate amount for their depreciation. If not, the Lessee must also restore the original condition in terms of the equipment at the end of the Agreement.

In the event of imminent risk, the Lessee shall be entitled and obligated to take all necessary measures, at the Lessor’s expense, in order to prevent or rectify damages to the rental property if the Lessor cannot be notified at all or not in a timely manner.

The Lessor shall be entitled to access the rental property at any time during normal business hours with prior notice.

§ 11

Lessor’s lien

The Lessee hereby declares that the items listed in the Annex to this Agreement, brought in upon the signing of the Agreement, are its free property and are neither attached nor pledged.

§ 12

Road safety obligation

The Lessee shall release the Lessor internally from third-party claims based on a violation of the road safety obligation for the rental property, as long as the damage is not based on the Lessor’s failure to immediately rectify known structural defects. The Lessee shall be responsible for cleaning, sanding roads and clearing snow, both on and in front of the property, if the owner is subject to a corresponding obligation.

§ 13

Destruction of the rental property through fire or other circumstances

In the event of the complete destruction of, or significant damage to, the building through fire or other effects on the basic structure of the building or the property, the Rental Agreement shall end immediately. In this event, the Lessee shall be released from the obligation to provide a service in return as long as the Lessee did not cause the destruction or significant damage. The Lessee shall not be entitled to any damage compensation claims against the Lessor for destruction or significant damage to the rental property and the resulting effects if the Lessor is not responsible for these. Under no circumstances shall the Lessor be obligated to rebuild the structure.

§ 14

Insolvency of the Lessee

If an application to initiate insolvency proceedings is submitted with regard to the Lessee’s assets, the rental relationship shall be extraordinarily terminated without separate notice on the date the proceedings are initiated. In this event, the Lessee must immediately move out of the rental property. In order to continue using the property, the Lessee must pay a usage fee as an asset liability in the amount of the contractually agreed rent, plus an advance payment for operating costs.

§ 15

Subletting

The Lessee shall not be entitled to sublet the rental property to third parties or allow them to use it without permission from the Lessor. The Lessor can only refuse such permission for subletting and transferring use for good cause.

§ 16

Offsetting, retention

The Lessee can only offset claims against the rent and the additional costs, or exercise a right of retention, if the claim is undisputed or legally established.

§ 17

Liability and assistants

The Lessee shall be liable for damages caused by its employees or third parties to whom it has granted access to the property, whether explicitly or by implication, to the same extent as for its assistants.

§ 18

End of the Rental Agreement

At the end of the Rental Agreement, the rental property must be returned to the Lessor in completely empty, clean condition, with whitewashed walls.

All keys, including those made by the Lessee itself, and/or all technical equipment for an electronic access system must be returned to the Lessor. The Lessor shall be liable for all damages that the Lessor incurs as a result of the failure to fulfill this obligation, particularly as a result of lost keys or other locking components.

§ 19

Other

Modifications to this Agreement must be made in writing. This also applies to modifying the written-form requirement.

The parties have not concluded any side agreements.

If a provision of this Agreement is invalid, this shall not affect the validity of the remaining Agreement. The parties must agree to another provision that as closely as possible approximates the sense and economic significance of the invalid provision.

Lessee: Cascade Microtech Dresden GmbH


[SIGNED]		[SIGNED]
Claus Dietrich	Confirmed:	Steve Mahon


Managing Director				VP of Operations
Cascade Microtech Dresden GmbH Cascade Microtech Inc.

[STAMP: Cascade Microtech Dresden GmbH / Süss-Straße 1 / 01561 Thiendorf OT Sacka / Germany]

Lessor: Süss Grundstücksverwaltungs GbR

[SIGNED]

Dr. Winfried Süss

Enclosures:

Inspection protocol

Site plan


Inspection Protocol for the Rental Agreement
Inspected property:		Property and building Süss-Straße 1 01561 Sacka	Participant (Lessor): Dr. Ralf Süss Participant (Lessee): René Wolf/FM
Date of inspection:		June 10, 2011
Item	Area	Defects discovered	Suggestions for rectification / comments
1	Office building	Rodent infestation in the office building	Check the floor-slab seal – set on-site appointment with Mr. Abt
2	Both halls	Roofs show increasing number of leaks	Observation by Mr. Wolf
3	All buildings	Some windows are not sealed	Order placed to adjust the windows
4	All buildings	Urinal drainage is faulty	Unresolved
5	Office building	Air-conditioning systems in the glass building – defective service	Unresolved
6	Office building	Hall lighting in entry hall – defective software	Mr. Wolf to call for tenders
7	Hall 1	Install water shutoff valves	Mr. Wolf to call for tenders
8	Hall 2	Lightwells show first signs of damage (sealed against rainwater!)	Unresolved
9	All buildings	Property condition documented with digital pictures (images P1020384 through P1020580)

Lessor’s signature: [SIGNED 6/24/2011]			Lessee’s signature: [SIGNED / STAMPED]

[SITE PLAN (illegible)]

DR.-ING. RALF SÜSS

[STAMP: Received June 17, 2011]

DR.-ING. R. SÜSS – BAYREUTHERSTRASSE 4 – 81925 MÜNCHEN

Cascade Microtech GmbH

c/o Dr. Claus Dietrich

Süss-Straße 1

01561 Sacka

Munich, June 14, 2011

Rental Agreement – Clarification

Dear Dr. Dietrich,

on behalf of Süss Grundstücksverwaltungs GbR, I would hereby like to clarify that Phase 2, which is not defined more specifically in the Rental Agreement, refers to a connecting structure between the two existing buildings.

The sentence in §10 of the Rental Agreement:

The Lessor can base such permission on the Lessee’s agreement to guarantee the complete or partial return to the condition of the rental property after the end of Phase 2 in the event that the Lessee moves out.

should be understood to mean:

The Lessor can base such permission on the Lessee’s agreement to guarantee the complete or partial return to the condition of the rental property after the conclusion of construction measures for the connecting structure (as per §1) in the event that the Lessee moves out.

I hope that this clarification will establish a common understanding.

Yours sincerely,

[SIGNED]

p.p. Dr. Ralf Süss (Doctor of Engineering)

Exhibit 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

I, Michael D. Burger, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Cascade Microtech, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2011

/s/ Michael D. Burger

Michael D. Burger

Director, President and Chief Executive Officer

Cascade Microtech, Inc.

Exhibit 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

I, Jeff Killian, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Cascade Microtech, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2011

/s/ Jeff Killian

Jeff Killian

Chief Financial Officer and Treasurer

Cascade Microtech, Inc.

Exhibit 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

In connection with the Quarterly Report of Cascade Microtech, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Burger, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Michael D. Burger

Michael D. Burger

Chief Executive Officer

Cascade Microtech, Inc.

August 10, 2011

This certification is made solely for the purpose of 18 U.S.C. Section 1350, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to Cascade Microtech, Inc. and will be retained by Cascade Microtech, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 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

In connection with the Quarterly Report of Cascade Microtech, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Killian, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Jeff Killian

Jeff Killian

Chief Financial Officer

Cascade Microtech, Inc.

August 10, 2011