UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21970
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MATTSON TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0208119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3550 WEST WARREN AVENUE
FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
(510) 657-5900
(Registrant's telephone number, including area code)
------------------------
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
--- ---
Number of shares of common stock outstanding as of November 6, 1998: 15,001,191
1
PART I -- FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
SEPT. 27, DEC. 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 21,716 $ 25,583
Short-term investments 7,170 8,598
Accounts receivable, net 9,246 14,784
Inventories 11,738 19,068
Income tax receivable 3,300 -
Notes receivable from stockholder 3,129 -
Deferred taxes - 4,222
Prepaid expenses and other current assets 1,510 1,000
--------- ---------
Total current assets 57,809 73,255
Property and equipment, net 12,950 11,188
Other assets 5,616 -
--------- ---------
$ 76,375 $ 84,443
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,637 $ 3,349
Accrued liabilities 19,044 12,910
--------- ---------
Total current liabilities 23,681 16,259
--------- ---------
Stockholders' equity:
Common stock 15 14
Additional paid in capital 62,121 57,418
Retained earnings (6,629) 12,117
Treasury stock (2,987) (1,075)
Other (226) (290)
--------- ---------
--------- ---------
Total stockholders' equity 52,294 68,184
--------- ---------
--------- ---------
$ 76,375 $ 84,443
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
2
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 9,420 $ 22,633 $ 45,317 $ 52,227
Cost of sales 8,924 10,784 28,545 25,507
---------- ---------- ----------- -----------
Gross profit 496 11,849 16,772 26,720
---------- ---------- ----------- -----------
Operating expenses:
Research, development and engineering 4,107 3,899 12,379 10,076
Selling, general and administrative 6,240 6,884 18,607 17,193
Acquired in-process research and development 5,750 - 5,750 -
---------- ---------- ----------- -----------
Total operating expenses 16,097 10,783 36,736 27,269
---------- ---------- ----------- -----------
Income (loss) from operations (15,601) 1,066 (19,964) (549)
Interest and other income (expense), net 431 351 1,420 1,198
---------- ---------- ----------- -----------
Income (loss) before income taxes (15,170) 1,417 (18,544) 649
Provision for (benefit from) income taxes 1,109 468 200 213
---------- ---------- ----------- -----------
Net income (loss) $ (16,279) $ 949 $ (18,744) $ 436
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income (loss) per share:
Basic $ (1.10) $ 0.07 $ (1.29) $ 0.03
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Diluted $ (1.10) $ 0.06 $ (1.29) $ 0.03
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average shares outstanding:
Basic 14,839 14,109 14,522 14,103
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Diluted 14,839 15,629 14,522 15,286
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
See accompanying notes to condensed consolidated financial statements.
3
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
-----------------
SEPT. 27, SEPT. 28,
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ (18,744) $ 436
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 2,517 2,104
In-process research and development 5,750 -
Amortization of intangibles 288 -
Changes in assets and liabilities:
Accounts receivable 5,877 (452)
Inventories 9,900 (5,215)
Income tax receivable (2,778) -
Deferred taxes 4,222 -
Prepaid expenses and other assets (347) (540)
Accounts payable (3,230) 1,939
Accrued liabilities (2,919) 1,167
---------- ---------
Net cash provided by (used in) operating activities 492 (561)
---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (1,224) (2,070)
Notes receivable shareholder (3,129)
Purchases of short-term investments (40,676) (14,036)
Sales and maturities of short-term investments 42,126 22,024
---------- ---------
Net cash provided by (used in) investing activities (2,903) 5,918
---------- ---------
Cash flows from financing activities:
Proceeds from the issuance of Common Stock, net 413 978
Purchase of Common Stock (1,912) (3,131)
---------- ---------
Net cash used in financing activities (1,499) (2,153)
---------- ---------
Effect of exchange rate changes on cash and cash equivalents 43 (59)
---------- ---------
Net increase (decrease) in cash and cash equivalents (3,867) 3,145
Cash and cash equivalents, beginning of period 25,583 21,547
---------- ---------
Cash and cash equivalents, end of period $ 21,716 $ 24,692
---------- ---------
---------- ---------
See accompanying notes to condensed consolidated financial statements.
4
MATTSON TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report for the year ended
December 31, 1997.
The results of operations for the three month and nine month periods ended
September 27, 1998 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1998.
NOTE 2 ACQUISITION OF CONCEPT SYSTEMS DESIGN
On July 24, 1998, the Company completed its acquisition of Concept. The
transaction was achieved through the merger of a wholly-owned subsidiary of
the Company with and into Concept. In connection with the merger, the Company
issued 795,138 shares of Common Stock to the former shareholders of Concept.
The former shareholders of Concept also may acquire up to 547,569 additional
shares of the Company's Common Stock in connection with the merger if certain
conditions are met prior to the end of the first twenty-four full calendar
months following the closing of the transaction. The merger has been
accounted for as a purchase. The purchase price of the acquisition of
$4,689,000, which includes $650,000 of estimated acquisition related costs,
was used to acquire the net assets of Concept. The purchase price was
allocated to assets acquired and liabilities assumed based on the book value
of Concept's current assets and liabilities, which management believes
approximates their fair value, the estimated fair value of property and
equipment, based on management's estimates of fair value, and an independent
appraisal for all other identifiable assets. The excess of the purchase
price over the net tangible and intangible assets acquired and liabilities
assumed has been allocated to goodwill. The allocation of the purchase price
was as follows (in thousands):
Property and equipment $ 3,055
Current and other assets 4,041
Liabilities assumed (13,570)
Goodwill 36
Acquired in-process research and development 5,750
Acquired developed technology and workforce 5,377
--------
$ 4,689
--------
--------
The acquired in-process technology research and development was expensed the
quarter ended September 27, 1998. The acquired developed technology,
workforce and goodwill will be amortized to income over periods ranging from
3 to 7 years.
In addition to the purchase price shown above, the agreement for the
acquisition of Concept also includes the contingent distribution of shares of
Common Stock of Mattson of 100,000 shares that will be issued to the Concept
shareholders if Concept achieves net revenues of at least $16,667,000 during
the first twenty-four full calendar months following the acquisition date.
Up to an additional 447,569 shares of Mattson Common Stock will be issued to
the Concept shareholders if the net revenue milestone is achieved and the
stock price of Mattson Common Stock does not reach at least $12 per share for
any consecutive ten day trading period during the twenty-four full calendar
months following the acquisition.
The following table represents pro forma information assuming that the
acquisition took place at the beginning of the periods presented.
(In thousands) Unaudited Unaudited
9 Months ended 12 Months ended
September 27, 1998 December 31, 1997
------------------ -----------------
Operating revenue $ 48,558 $ 83,040
Net loss (28,149) (8,398)
Basic and diluted
loss per share (1.90) (0.56)
NOTE 3 NOTES RECEIVABLE FROM STOCKHOLDER
During the third quarter of 1998 the Company extended a one year loan to Brad
Mattson, the Chief Executive Officer of the Company, in the amount of $3.1
million. The loan is collateralized by 2.2 million shares of the Company's
Common Stock and is a full recourse note bearing interest at the market rate.
Interest is payable at the end of the one year loan.
NOTE 4 BALANCE SHEET DETAIL (IN THOUSANDS):
SEPT. 27, DEC. 31,
1998 1997
---- ----
Inventories:
Purchased parts and raw materials $ 7,532 $ 7,648
Work-in-process 3,465 7,606
Finished goods 376 2,266
Evaluation systems 365 1,548
--------- ---------
$ 11,738 $ 19,068
--------- ---------
--------- ---------
Accrued liabilities:
Warranty, installation and retrofit reserve $ 5,426 $ 4,756
Accrued compensation and benefits 1,574 2,199
Income taxes 1,263 1,971
Commissions 553 1,277
Deferred income 4,353 1,598
Customer deposits 2,801 -
Facilities consolidation accrual 3,074 -
--------- ---------
$ 19,044 $ 12,910
--------- ---------
--------- ---------
NOTE 5 CERTAIN STOCK TRANSACTIONS
In March 1998, the Company announced that its Board of Directors had authorized
the Company to repurchase during the next three years up to 1,000,000 shares of
the Company's Common Stock in the open market from time to time. As of November
3, 1998, the Company had repurchased 274,800 shares for approximately $1.9
million.
5
NOTE 6 NEW ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available for sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
.
The following are the components of comprehensive income (loss):
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands) SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1998 1997 1998 1997
---- ---- ---- ----
Net income (loss) $ (16,279) $ 949 $ (18,742) $ 436
Foreign currency translation adjustments 36 (12) 64 (69)
---------- ------ ---------- ------
Comprehensive income (loss) $ (16,243) $ 937 $ (18,678) $ 367
---------- ------ ---------- ------
---------- ------ ---------- ------
NOTE 7 NET INCOME (LOSS) PER SHARE
The Company adopted Financial Accounting Standards Board (FASB) Statement 128
effective with the quarter and year ended December 31, 1997. All earnings per
share data has been restated to reflect the FASB 128 method of computation.
FASB 128 requires dual presentation of basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed by dividing
income available to common stockholders (numerator) by the weighted average
number of common shares outstanding (denominator) for the period. Diluted EPS
gives effect to all dilutive potential common shares outstanding during the
period. The computation of diluted EPS uses the average market prices during
the period.
For the quarter and nine months ended September 27, 1998, there were no
differences between the numerators and denominators used for the basic and
diluted EPS calculations. For the quarter and nine months ended September 28,
1997, there were no differences in the numerators used for the basic and
diluted EPS calculations; however, there were differences in the denominators
because of the effect of including dilutive stock options. Total stock
options outstanding at September 27, 1998 were 2,696,461.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Mattson Technology, Inc. ("Mattson" or the "Company") designs, manufactures and
markets advanced fabrication equipment to semiconductor manufacturers worldwide.
The Company's product line is based on the Company's modular "Aspen" platform,
which accommodates two process chambers supporting increased throughput. The
Company currently offers Aspen Strip, CVD, RTP, LiteEtch based upon the Aspen
platform and now with the acquisition of Concept Systems Design ("Concept"),
the Company also now offers Epi products. To date, the Company has derived a
substantial majority of its sales from Aspen Strip systems. In addition, the
Company derives sales from spare parts and maintenance services.
6
The cyclicality and uncertainties regarding overall market conditions continue
to present significant challenges to the Company and may continue to have a
significant adverse impact on the Company's ability to forecast near term
revenue expectations. The ability of the Company to modify its operations in
response to short term changes in market conditions is limited. The extent and
duration of the continued reduction in capital spending in the semiconductor
industry and the ultimate impact on the Company and its results of operations
and financial condition cannot be precisely predicted.
The Company continues to be affected by the continuing industry slowdown. In
response to continued lower revenues, the Company has implemented and adhered to
its cost control measures, including a 15 percent reduction in its workforce and
a reduction in executive salaries. Future results will depend on a variety of
factors, particularly overall market conditions and also timing of significant
orders; the ability of the Company to bring new systems to market; the timing of
new product releases by the Company's competitors; patterns of capital spending
by the Company's customers; market acceptance of new and/or enhanced versions of
Company systems; changes in pricing by the Company, its competitors, customers,
or suppliers and the mix of products sold.
The Company generally recognizes a sale upon shipment of a system. However,
from time to time, the Company allows customers to evaluate systems. The
Company does not recognize the associated sale until and unless an evaluation
system is accepted by the customer.
On July 24, 1998 the Company completed its acquisition of Concept Systems
Design, Inc. ("Concept"), a supplier of epitaxial (EPI) systems. The
transaction was achieved through the merger of a wholly owned subsidiary of
Mattson with and into Concept. In connection with the merger, Mattson issued
795,138 shares of Mattson Common Stock to the former shareholders of Concept.
The former shareholders of Concept also may acquire up to 547,569 additional
shares of Mattson Common Stock in connection with the merger if certain
conditions are met prior to the end of the first twenty-four full calendar
months following the closing of the transaction. The transaction has been
accounted for as a purchase. The acquisition resulted in a $5.8 million
write-off of in-process research and development in the third quarter of 1998.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has commenced a Year 2000 date conversion project to address
necessary changes and an implementation strategy. The "Year 2000 Computer
Problem" creates risks for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals on financial
transactions. The Company does not anticipate that it will incur material
expenditures for the resolution of any Year 2000 issues related either to its
own information systems, databases and programs, or its products. However,
there can be no assurance that the Company will not experience serious
unanticipated negative consequences or material costs caused by undetected
errors. In addition, the Company could be adversely impacted by Year 2000
issues faced by major distributors, suppliers, customers, vendors and financial
service organizations with which the Company interacts. Management is in the
process of determining the impact, if any, that third parties who are not Year
2000 compliant may have on the operations of the Company.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains forward looking statements regarding, among
other matters, the Company's future strategy, product development plans, and
productivity gains and growth. The forward looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward looking statements address matters that are subject to a number
of risks and uncertainties. In addition to the general risks associated with
the development of complex technology, future results of the Company will depend
on a variety of factors as described herein and in other filings made by the
Company with the Securities and Exchange Commission.
7
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of net sales for the period indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 95% 48% 63% 49%
--- --- --- ---
Gross margin 5% 52% 37% 51%
-- --- --- ---
Operating expenses:
Research, development and engineering 44% 17% 28% 19%
Selling, general and administrative 67% 30% 40% 33%
Acquired in process research and development 61% - 13% -
Total operating expenses 172% 48% 81% 52%
Income (loss) from operations (166)% 5% (44%) (1%)
Income (loss) before income taxes (161))% 6% (41)% 1%
Net income (loss) (173)% 4% (42)% 1%
NET SALES
Net sales for the third quarter of 1998 decreased 58% to $9.4 million from $22.6
million for the third quarter of 1997. The quarterly decrease in sales reflected
a 67% decrease in unit sales for the third quarter of 1998 compared to the third
quarter of 1997. There were no system revenues from the newly acquired Concept
Epi product line. Net sales for the first nine months of 1998 decreased 13% to
$45.3 million from $52.2 million for the first nine months of 1997. Net sales
for the first nine months of 1998 compared to first nine months of 1997
reflected a 20% decrease in unit sales. This decrease was due to the Company's
lower sales of its Aspen Strip products which was principally a result of the
general industry slowdown.
Third quarter bookings were $11.0 million, down from $25.2 million for the
third quarter of 1997, a decrease of 57 percent. Backlog decreased 46% to
$21.9 million, compared to $40.2 million at the end of the third quarter of
1997. There were no system bookings from the newly acquired Concept Epi
product line and there is no current backlog.
Average selling prices (ASP's) increased 6% for the third quarter of 1998
compared to the third quarter of 1997. The increases were primarily as result
of a sale of a dual chamber CVD partially offset by lower ASP's on the Aspen
Strip single chamber. ASP's increased 4% for the first nine months of 1998
compared to the first nine months of 1997. The increases were primarily a
result of the proportionate decrease in sales of the Aspen Strip single
chamber systems.
International sales to customers based in Europe, Japan and the Pacific Rim
(which includes Taiwan, Singapore and Korea), accounted for 62% and 78% of net
sales for the third quarter of 1998 and 1997, respectively. International sales
for the first nine months of 1998 and 1997 were 72% and 56% of net sales,
respectively. All sales are denominated in U.S. dollars. The Company's
operating results could be materially and adversely affected by any loss of
business from, the cancellation of orders by, or decreases in prices of systems
sold through Marubeni, the Company's distributor in Japan. The Company
anticipates that international sales will continue to account for a significant
portion of 1998 total net sales.
8
GROSS MARGIN
The Company's gross margin for the third quarter of 1998 decreased to 5% from
52% for the third quarter of 1997, and for the first nine months of 1998
decreased to 37% from 51% for the first nine months of 1997. The decrease in
margins was significantly affected by a $2.6 million write down of inventory
related to the Company's 300mm program. Due to the continued push-out of the
industry 300mm requirements, previously inventoried 300mm program materials have
been expensed in the third quarter. Also, the addition of Concept manufacturing
overhead, the lower production volumes and pricing pressure in Taiwan and Japan
continue to result in lower margins.
The Company's gross margin may continue to be affected by a variety of factors.
Although the Company has not offered substantial discounts on its systems to
date, there can be no assurance that the Company will not continue to experience
pricing pressures in the future. The Company's gross margin on international
sales, other than sales through Marubeni, is substantially the same as domestic
sales. Sales to Marubeni typically carry a lower gross margin, as Marubeni is
primarily responsible for sales and support costs in Japan.
The Company's reliance on outside vendors generally, and a sole or a limited
group of suppliers in particular, involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over pricing and timely delivery of components. Any inability to obtain
adequate deliveries or any other circumstance that would require the Company to
seek alternative sources of supply or to manufacture such components internally
could delay the Company's ability to ship its systems and could have a material
adverse effect on the Company, including an increase in the Company's cost of
sales and therefore an adverse impact on gross margin. In addition, new system
introductions and enhancements and rapid growth may also have an adverse effect
on gross margin due to the inefficiencies associated with manufacturing of new
product lines and rapid expansion, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the third quarter of 1998
were $4.1 million, or 44% of net sales, as compared to $3.9 million, or 17%,
for the third quarter of 1997. The increase in expense as a percentage of net
sales for the third quarter of 1998 was due primarily to lower sales volume. The
addition of Concept increased research and development charges by approximately
$0.3 million for the third quarter of 1998. Research, development and
engineering expenses for the first nine months of 1998 were $12.4 million, or
132% of net sales, as compared to $10.1 million, or 19%, for the first nine
months of 1997. The increase in expenses for the first nine months of 1998 as
compared to the first nine months of 1997 was primarily due to compensation
expense which increased to $6.4 million for the first nine months of 1998 from
$5.6 million for the first nine months of 1997 and engineering materials which
increased to $2.6 million for the first nine months of 1998 from $1.9 million
for the first nine months of 1997. The Company believes that continued
investment in research and development, including its multi-product strategy is
critical to maintaining a strong technological position in the industry.
The loss in the third quarter of 1998 includes one-time charges of $5.7 million
for the write-down of certain in-process technology which were incurred as part
of the Company's acquisition of Concept Systems Design.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the third quarter of 1998
were $6.2 million, or 67% of net sales, as compared to $6.9 million, or 30%,
for the third quarter of 1997. The addition of Concept increased selling,
general and administrative charges by approximately $0.5 million for the
third quarter of 1998. The decrease in expenses for the third quarter of 1998
was due to decreases in commission expense of $1.1 million partially offset
by increases in building and utilities of $0.4 million and a $0.6 million non
recurring facilities charge. The facilities charge relates to the remaining
lease cost on the Company's former corporate offices which were vacated by a
move of the corporate offices to the acquired Concept facilities. The
expenses for the nine months of 1998 were $18.6 million, or 41% of net sales,
as compared to $17.2 million, or 32.9%, for nine months of 1997. The increase
of $1.4 million in expenses for the nine months of 1998 was due to an
increase in building and utilities of $0.9 million and the excess facilities
charge of $0.6 million.
9
PROVISION FOR INCOME TAXES
The Company recorded an income tax expense of $1.1 million in the third
quarter. This expense leaves the cumulative tax provision for the year at
$0.2 million which relates to estimated foreign taxes. The Company has
recorded approximately $3.3 million in refundable taxes as a result of the
current year losses which can be carried back to previous years taxes paid.
In addition the Company has assessed the realizability of the remaining
deferred tax assets and determined that a full valuation allowance is
necessary for the deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations during the first nine months of 1998 was $1.1
million, compared to $6.2 million of net cash used in operations during the
first nine months of 1997. Net cash provided by operations during the first
nine months of 1998 was primarily attributable to the net loss of $18.7
million partially offset by a decrease in accounts receivable of $5.5 million,
a decrease in inventories of $7.3 million and an increase in accrued liabilities
of $6.1 million.
The Board of Directors has authorized the Company to repurchase up to 1,000,000
shares of the Company's Common Stock, of which 274,800 shares have been
repurchased by the Company as of November 3, 1998 for approximately $1.9
million.
During the third quarter of 1998 the Company extended a one year loan to Brad
Mattson, the Chief Executive Officer of the Company, in the amount of $3.1
million. The loan is fully collateralized. The interest rate established on
the loan is set at the market rate. The note is a full recourse note.
While the Company believes that it currently has sufficient cash and
short-term investment balances to meet the Company's cash requirements during
at least the next twelve months, to the extent that such funds are
insufficient to fund the Company's activities, the Company may need to raise
additional funds through public or private equity or debt financing from
other sources. The sale of additional equity or additional convertible debt
may result in additional dilution to the Company's stockholders and such
securities may have rights, preferences or privileges senior to those of the
Common Stock. There can be no assurance that additional equity or debt
financing will be available when required or, if available, will be on terms
satisfactory to the Company.
MERGER WITH CONCEPT SYSTEMS DESIGN, INC.
On July 24, 1998, the Company completed its acquisition of Concept. The
transaction was achieved through the merger of a wholly-owned subsidiary of the
Company with and into Concept. In connection with the merger, the Company issued
795,138 shares of Common Stock to the former shareholders of Concept. The
former shareholders of Concept also may acquire up to 547,569 additional shares
of the Company's Common Stock in connection with the merger if certain
conditions are met prior to the end of the first twenty-four full calendar
months following the closing of the transaction. The merger has been accounted
for as a purchase.
The purchase price of the acquisition was $4,689,000 which included $650,000 of
estimated acquisition related costs. The purchase price was allocated as
follows:
Property and equipment $ 3,055,000
Current and other assets 4,041,000
Liabilities assumed (13,570,000)
Goodwill 36,000
Acquired in process research and development 5,750,000
Acquired developed technology and workforce 5,377,000
------------
Total $ 4,689,000
------------
10
The goodwill, acquired developed technology and workforce are recorded on the
balance sheet as other assets and will be amortized on a straight-line basis
over periods ranging from 3 to 7 years.
The acquired in process research and development was expensed at the time of the
acquisition as a one-time charge.
11
PART II -- OTHER INFORMATION
Item 3. Quantitative and Qualitative disclosures About Market Risk
Not Applicable
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 (Electronic filing only)
(b) Reports on Form 8-K(a)
Form 8-K filed August 6, 1998 reporting the acquisition of Concept
Systems Design, Inc. by the Company
Form 8-K/A filed September 28, 1998 amending the Company's Form 8-K
filed August 6, 1998 to include the financial statements of Concept
Systems Design, Inc. and pro forma financial information.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1998 MATTSON TECHNOLOGY, INC.
/s/ Richard S. Mora
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Richard S. Mora
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
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