MATTSON TECHNOLOGY INC
10-Q, 2000-08-09
SPECIAL INDUSTRY MACHINERY, NEC
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<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 -------------

                                    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 June 25, 2000

                                       OR

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

For the transition period from _____________________ to _____________________

Commission file number 0-21970

                                 -------------

                            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)

2800 BAYVIEW DRIVE
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 July 23 2000: 20,138,092



                                       1
<PAGE>   2

                         PART I -- FINANCIAL INFORMATION


1.      FINANCIAL STATEMENTS

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)

                                     ASSETS

<TABLE>
<CAPTION>
                                                    JUNE 25,        DEC. 31,
                                                     2000            1999
                                                   ---------       ---------
<S>                                                <C>             <C>
Current assets:
    Cash and cash equivalents                      $ 125,493       $  16,965
    Accounts receivable, net                          41,432          21,500
    Inventories                                       36,516          25,374
    Prepaid expenses and other current assets          2,396           2,299
                                                   ---------       ---------
      Total current assets                           205,837          66,138
Property and equipment, net                           11,450          11,260
Goodwill, intangibles and other assets                 3,921           3,750
                                                   ---------       ---------
                                                   $ 221,208       $  81,148
                                                   =========       =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Line of credit                                 $      --       $   3,000
    Accounts payable                                  10,193           8,494
    Accrued liabilities                               21,580          17,635
                                                   ---------       ---------
      Total current liabilities                       31,773          29,129
                                                   ---------       ---------

Stockholders' equity:
    Common stock                                          20              16
    Additional paid in capital                       193,235          66,280
    Retained earnings (deficit)                         (609)        (11,099)
    Treasury stock                                    (2,987)         (2,987)
    Accumulated other comprehensive loss                (224)           (191)
                                                   ---------       ---------
      Total stockholders' equity                     189,435          52,019
                                                   ---------       ---------
                                                   $ 221,208       $  81,148
                                                   =========       =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.



                                       2
<PAGE>   3

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED            SIX MONTHS ENDED
                                                ----------------------       ----------------------
                                                JUNE 25,      JUNE 27,       JUNE 25,      JUNE 27,
                                                  2000          1999           2000          1999
                                                --------      --------       --------      --------
<S>                                             <C>           <C>            <C>           <C>
Net sales                                       $ 50,130      $ 24,128       $ 92,711      $ 38,448
Cost of sales                                     24,564        12,748         46,170        19,824
                                                --------      --------       --------      --------
  Gross profit                                    25,566        11,380         46,541        18,624
                                                --------      --------       --------      --------
Operating expenses:
  Research, development and engineering            6,867         4,525         13,165         8,423
  Selling, general and administrative             13,020         7,106         23,630        13,137
                                                --------      --------       --------      --------
    Total operating expenses                      19,887        11,631         36,795        21,560
                                                --------      --------       --------      --------
Income (loss) from operations                      5,679          (251)         9,746        (2,936)
Interest and other income, net                     1,511           133          1,909           426
                                                --------      --------       --------      --------
Income (loss) before income taxes                  7,190          (118)        11,655        (2,510)
Provision for income taxes                           719            68          1,165           117
                                                --------      --------       --------      --------
Net income (loss)                               $  6,471      $   (186)      $ 10,490      $ (2,627)
                                                ========      ========       ========      ========

Net income (loss) per share:
    Basic                                       $   0.33      $  (0.01)      $   0.57      $  (0.17)
                                                ========      ========       ========      ========
    Diluted                                     $   0.30      $  (0.01)      $   0.51      $  (0.17)
                                                ========      ========       ========      ========
Shares used in computing net income (loss)
  per share:
    Basic                                         19,877        15,601         18,370        15,512
                                                ========      ========       ========      ========
    Diluted                                       21,929        15,601         20,422        15,512
                                                ========      ========       ========      ========
</TABLE>



     See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>   4

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                       SIX MONTHS ENDED
                                                                  -------------------------
                                                                  JUNE 25,         JUNE 27,
                                                                    2000            1999
                                                                  ---------       ---------
<S>                                                               <C>             <C>
Cash flows from operating activities:
    Net income (loss)                                             $  10,490       $  (2,627)
    Adjustments to reconcile net income (loss) to
      net cash used in operating activities:
      Depreciation and amortization                                   2,264           2,360
      Amortization of intangibles                                       451             207
      Changes in assets and liabilities:
         Accounts receivable                                        (19,932)        (10,729)
         Inventories                                                (11,142)         (4,598)
         Prepaid expenses and other current assets                      (97)          4,153
         Goodwill, intangibles and other assets                        (622)             --
         Accounts payable                                             1,699           1,527
         Accrued liabilities                                          3,945           1,041
                                                                  ---------       ---------
      Net cash used in operating activities                         (12,944)         (8,666)
                                                                  ---------       ---------
Cash flows from investing activities:
    Acquisition of property and equipment                            (2,454)           (861)
    Sales and maturities of short-term investments                       --           8,128
                                                                  ---------       ---------
      Net cash (used in) provided by investing activities            (2,454)          7,267
                                                                  ---------       ---------
Cash flows from financing activities:
    Repayment of line of credit                                      (3,000)             --
    Increase in offering costs                                       (8,536)             --
    Proceeds from the issuance of Common Stock, net                 135,495             741
                                                                  ---------       ---------
      Net cash provided by financing activities                     123,959             741
                                                                  ---------       ---------
Effect of exchange rate changes on cash and cash equivalents            (33)            (50)
                                                                  ---------       ---------
Net increase (decrease)  in cash and cash equivalents               108,528            (708)
Cash and cash equivalents, beginning of period                       16,965          11,863
                                                                  ---------       ---------
Cash and cash equivalents, end of period                          $ 125,493       $  11,155
                                                                  =========       =========
</TABLE>



     See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>   5

                    MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
              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 our Annual Report on Form 10-K for the year
ended December 31, 1999.

The results of operations for the three month and six month periods ended June
25, 2000 are not necessarily indicative of results that may be expected for the
entire year ending December 31, 2000.


NOTE 2  BALANCE SHEET DETAIL (IN THOUSANDS):

<TABLE>
<CAPTION>
                                               JUNE 25,      DEC. 31,
                                                 2000          1999
                                               --------      --------
<S>                                            <C>           <C>
Inventories:
    Purchased parts and raw materials          $ 22,459      $ 13,656
    Work-in-process                              10,829         9,433
    Evaluation systems                            3,228         2,285
                                               --------      --------
                                               $ 36,516      $ 25,374
                                               ========      ========
Accrued liabilities:
    Warranty and installation reserve          $  9,510      $  7,371
    Accrued compensation and benefits             5,464         5,041
    Income taxes                                  1,830         1,392
    Commissions                                   1,357         1,045
    Deferred income and customer deposits         1,769         1,561
    Other                                         1,650         1,225
                                               --------      --------
                                               $ 21,580      $ 17,635
                                               ========      ========
</TABLE>


NOTE 3  ACQUISITION OF CONCEPT SYSTEMS DESIGN, INC.

On July 24, 1998, we acquired Concept Systems Design. The transaction was
achieved through the merger of a wholly owned subsidiary of the Company with and
into Concept and has been accounted for as a purchase. In connection with the
merger, the Company issued 795,138 shares of Common Stock to the former
shareholders of Concept.

In addition to the issuance of the 795,138 shares mentioned above, the agreement
for the acquisition of Concept also includes the contingent issuance and
distribution of 100,000 shares of Mattson Common Stock to the Concept
shareholders if Concept achieves net revenues of at least $16,667,000 during the
first 24 full calendar months following the acquisition date. These revenue
goals were not achieved by Concept during the specified period, and no such
additional shares will be issued.



                                       5
<PAGE>   6

In the first quarter of 1999, a preacquisition contingency was resolved which
reduced the liabilities assumed from Concept by approximately $2.2 million.
Under the provisions of Statement of Financial Accounting Standards No. 38, this
has been recorded by the Company in the first quarter of 1999 on a prospective
basis as an elimination of previously recorded goodwill and a pro-rata reduction
of the balance to the acquired developed technology, workforce and property and
equipment.


NOTE 4 NET INCOME (LOSS) PER SHARE

SFAS No. 128 requires dual presentation of basic and diluted earnings per share
on the face of the income statement. Basic EPS is computed by dividing income
(loss) 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. All amounts in the following table are in thousands except per share
data.

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                  ----------------------       ----------------------
                                                                  JUNE 25,      JUNE 27,       JUNE 25,      JUNE 27,
                                                                    2000          1999           2000          1999
                                                                  --------      --------       --------      --------
<S>                                                               <C>           <C>            <C>           <C>
NET INCOME (LOSS) ..........................................      $  6,471      $   (186)      $ 10,490      $ (2,627)

BASIC EARNINGS (LOSS) PER SHARE:
  Income (loss) available to common shareholders ...........      $  6,471      $   (186)      $ 10,490      $ (2,627)
  Weighted average common shares outstanding ...............        19,877        15,601         18,370        15,512
                                                                  --------      --------       --------      --------

  Basic earnings (loss) per share ..........................      $   0.33      $  (0.01)      $   0.57      $  (0.17)
                                                                  ========      ========       ========      ========

DILUTED EARNINGS (LOSS) PER SHARE:
  Income (loss) available to common shareholders ...........      $  6,471      $   (186)      $ 10,490      $ (2,627)
  Weighted average common shares outstanding ...............        19,877        15,601         18,370        15,512
  Diluted potential common shares from stock options .......         2,052            --          2,052            --
                                                                  --------      --------       --------      --------

  Weighted average common shares and dilutive
    potential common shares ................................        21,929        15,601         20,422        15,512
                                                                  --------      --------       --------      --------

  Diluted earnings (loss) per share ........................      $   0.30      $  (0.01)      $   0.51      $  (0.17)
                                                                  ========      ========       ========      ========
</TABLE>


Options to purchase 101,725 shares during the three months ended June 25, 2000
were excluded from the computation of diluted EPS because these options'
exercise price were greater than the average market price of the Company's
common stock during the period. Total stock options outstanding at June 27, 1999
of 2,920,933 were excluded from the computation of diluted EPS because the
effect of including them would have been antidilutive due to the loss available
to common stockholders.


NOTE 5 COMPREHENSIVE INCOME

SFAS 130 establishes 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.



                                       6
<PAGE>   7

The following are the components of comprehensive income (loss):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED             SIX MONTHS ENDED
                                                             -----------------------       -----------------------
     (in thousands)                                          JUNE 25,       JUNE 27,       JUNE 25,       JUNE 27,
                                                               2000           1999           2000           1999
                                                             --------       --------       --------       --------
<S>                                                          <C>            <C>            <C>            <C>
     Net income (loss) ................................      $  6,471       $   (186)      $ 10,490       $ (2,627)

     Foreign currency translation adjustments .........           (26)            38            (33)           (50)
                                                             --------       --------       --------       --------

     Comprehensive income (loss) ......................      $  6,445       $   (148)      $ 10,457       $ (2,677)
                                                             ========       ========       ========       ========
</TABLE>

The components of accumulated other comprehensive income, net of related tax are
as follows:

<TABLE>
<CAPTION>
     (in thousands)                                JUNE 25,       DEC. 31,
                                                     2000           1999
                                                   --------       --------
<S>                                                <C>            <C>
     Cumulative translation adjustments .....      $   (224)      $   (191)
                                                   ========       ========
</TABLE>

NOTE 6 REPORTABLE SEGMENTS

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with the
"management" approach. SFAS No. 131 establishes standards for reporting
information about operating segments in financial statements. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or chief decision making group, in deciding how to allocate
resources and in assessing performance. Brad Mattson, Chairman and Chief
Executive Officer of the Company, is the Company's chief decision maker. As the
Company's business is completely focused on one industry segment, design,
manufacturing and marketing of advanced fabrication equipment to the
semiconductor manufacturing industry, management believes that the Company has
one reportable segment. The Company's revenues and profits are generated through
the sale and service of products for this one segment. As a result, no
additional operating segment information is required to be disclosed.


NOTE 7 LINE OF CREDIT

During 1999 we entered into a one-year revolving line of credit with a bank in
the amount of $15.0 million. This line of credit expired in July 2000. All
borrowings under this line of credit bore interest at a per annum rate equal to
the lender's prime rate, which was 9.75% at June 25, 2000. The line of credit
was secured by our accounts receivable and other tangible assets. During the
third quarter of 1999 we had borrowed $3.0 million against this revolving line
of credit. This outstanding balance was fully repaid during the first quarter of
2000. Our revolving credit line required us to maintain certain quarterly
financial covenants, including a minimum quick ratio and minimum tangible net
worth. We were in compliance with all of our financial covenants at June 25,
2000. At this time the Company is reviewing further line of credit requirements.


NOTE 8 REVENUE RECOGNITION

We generally recognize sales upon shipment of a system. From time to time,
however, we allow customers to evaluate systems, and since customers can return
such systems any time with limited or no penalty, we do not recognize the
associated revenue until the evaluation system is accepted by the customer.
Service and maintenance contract revenue, which to date has been insignificant,
is recognized on a straight-line basis over the service period of the related
contract. A provision for the estimated future cost of system installation and
warranty is recorded at the time revenue is recognized.



                                       7
<PAGE>   8

NOTE 9 RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities. SFAS 133 requires
that all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133 is effective for fiscal
years beginning after June 15, 2000 and cannot be applied retroactively. The
effect of SFAS 133 is not expected to be material to our financial statements.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. Among other things, SAB 101
would result in a change from the established practice in many industries of
recognizing revenue at the time of shipment of a system, and instead delay
revenue recognition until the time of installation or customer acceptance.
Because of the cyclical nature of the semiconductor equipment industry, and our
dependence on a small number of comparatively large sales, a change in revenue
recognition practices could have a material affect on revenue in any particular
reporting period. We are currently evaluating the effect that such adoption may
have on our consolidated results of operations and financial position and may be
required to adopt SAB 101 in the fourth quarter of 2000.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this report. In
addition to historical information, this discussion contains certain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated by these forward-looking
statements due to factors, including but not limited to, those set forth or
incorporated by reference under "Factors That May Affect Future Results and
Market Price of Stock" and elsewhere in this report.

On June 27, 2000, we entered into a definitive Strategic Business Combination
Agreement to acquire the semiconductor equipment division of STEAG Electronic
Systems AG (excluding STEAG's optical storage and photomask operations), and
entered into an Agreement and Plan of Merger to acquire CFM Technologies, Inc.
We announced these agreements in our June 28 press release. Please see the
discussion below under the caption "Pending Mergers and Acquisitions". Further
information about the transactions is available in filings we have made with the
SEC.

OVERVIEW

We are a leading supplier of advanced, high-productivity semiconductor
processing equipment used in the fabrication of integrated circuits. We
currently offer Aspen Strip, CVD, RTP, LiteEtch and EpiPro products. We began
operations in 1989 and in 1991 we shipped our first product, the Aspen Strip, a
photoresist removal system. Our current Aspen Strip, CVD, RTP and LiteEtch
product lines are based on a common Aspen platform with a modular,
multi-station, multi-chamber architecture, designed to deliver high
productivity, low cost of ownership and savings of cleanroom space. In 1999 and
the first half of 2000, we derived a substantial majority of our sales from our
Aspen Strip systems and our CVD Systems, with our remaining sales derived from
our RTP, LiteEtch and Epi systems, as well as spare parts and maintenance
services.


We had net income of $6.5 million during the second quarter ended June 25, 2000.
Future results will depend on a variety of factors, particularly overall market
conditions and timing of significant orders, our ability to bring new systems to
market, the timing of new product releases by our competitors, patterns of
capital spending by our customers, market acceptance of new and/or enhanced


                                       8
<PAGE>   9
versions of our systems, changes in pricing by us, our competitors, customers,
or suppliers and the mix of products we sell. We are increasing our expense
levels to support long term growth in our business. As a result, we are
dependent upon increases in sales in order to sustain profitability. If our
sales do not increase, the current levels of operating expenses could materially
and adversely affect our financial results.

RESULTS OF OPERATIONS

The following table sets forth our statement of operations data expressed as a
percentage of net sales for the period indicated:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED             SIX MONTHS ENDED
                                               -----------------------        -----------------------
                                               JUNE 25,       JUNE 27,        JUNE 25,       JUNE 27,
                                                 2000           1999            2000           1999
                                               --------       --------        --------       --------
<S>                                            <C>            <C>             <C>            <C>
Net sales                                           100%           100%            100%           100%
Cost of sales                                        49%            53%             50%            52%
                                               --------       --------        --------       --------
    Gross margin                                     51%            47%             50%            48%
                                               --------       --------        --------       --------
Operating expenses:
    Research, development and engineering            14%            19%             14%            22%
    Selling, general and administrative              26%            29%             26%            34%
      Total operating expenses                       40%            48%             40%            56%
Income (loss) from operations                        11%            (1%)            11%            (8%)
Income (loss) before income taxes                    14%            (1%)            13%            (7%)
Net income (loss)                                    13%            (1%)            11%            (7%)
</TABLE>

NET SALES

Net sales for the second quarter of 2000 increased 108% to $50.1 million from
$24.1 million for the same quarter last year. The increase in quarterly sales
reflects a 136% increase in unit sales for the second quarter of 2000 compared
to the second quarter of 1999. This increase was partially offset by a different
product mix and a resulting per unit average sales price for products sold
during the second quarter of 2000 as compared to the same quarter last year.

Second quarter bookings were $65.7 million, an increase of 122% compared to
bookings of $29.6 million in the second quarter of 1999, resulting in a book to
bill ratio of 1.3 to 1.0 for the second quarter of 2000. Backlog increased by
$51.5 million to $86.5 million in the second quarter 2000 from $35 million in
the second quarter of 1999.

International sales, which are predominantly to customers based in Japan and the
Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 66% and
70% of net sales for the second quarter of 2000 and 1999, respectively. In 1999,
we shifted our strategy in Japan to a direct sales model, and we completed this
transition during the second quarter of 2000. We anticipate that international
sales will continue to account for a significant portion of total net sales for
2000.

GROSS MARGIN

Our gross margin for the second quarter of 2000 increased to 51% from 47% for
the second quarter of 1999. This increase in gross margins was due to fixed cost
absorption over higher sales volume, partially-offset by a different product mix
sold during the second quarter of 2000 as compared to the same period last year.

Our gross margin may continue to be affected by a variety of factors. Although
we have not offered substantial discounts on our systems to date, there can be
no assurance that we will not experience pricing pressures in the future. Our
gross margin on international sales is substantially the same as domestic sales.



                                       9
<PAGE>   10

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, development and engineering expenses for the second quarter of 2000
were $6.9 million, or 14% of net sales, as compared to $4.5 million, or 19% of
net sales, for the second quarter of 1999. The increase was primarily due to
compensation and related benefits, which increased to $3.1 million in the second
quarter of 2000 from $2.1 million in the second quarter of last year and
engineering materials, which increased to $1.7 million in the second quarter of
2000 from $0.7 million in the second quarter of 1999. The increase in
compensation and related benefits expense was due to increased personnel
required to support our anticipated growth. The increase in engineering
materials is due to ongoing and new product development. The decrease in
research, development and engineering materials as a percentage of net sales
during the second quarter of 2000 as compared to the same period last year is
due to higher sales during the second quarter of 2000.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses for the second quarter of 2000 were
$13.0 million, or 26% of net sales, as compared to $7.1 million, or 29% of net
sales, for the second quarter of 1999. The increase was comprised primarily of
$2.7 million in compensation and related benefits, $1.9 million in professional
fees, advertising and promotion, and travel and entertainment. These increases
in selling, general and administrative expenses are the result of higher
spending levels required to support the increased sales activity incurred during
the second quarter of 2000 over the previous year and the transition in Japan
from a distributorship to direct sales. The decrease in selling, general and
administrative expenses as a percentage of net sales during the second quarter
of 2000 as compared to the same period last year is due to higher net revenues.

PROVISION FOR INCOME TAXES

During the second quarter of 2000, we provided for taxes at an effective tax
rate of 10%. The 2000 tax rate is less than the federal statutory rate primarily
as a result of the planned utilization of net operating loss and credit
carryforwards that would partially offset the Company's tax liability.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents and short term investments were $125 million at
June 25, 2000, an increase of $108 million from $17 million at December 31,
1999. We did not have an outstanding balance on our line of credit and had no
long term debt at June 25, 2000. Stockholders' equity at June 25, 2000 was
approximately $189 million.

Net cash used in operating activities was $12.9 million during the six months
ended June 25, 2000 as compared to $8.7 million during the same period last
year. The net cash used in operating activities during the six months ended June
25, 2000 was primarily due to an increase in accounts receivable and inventories
of $19.9 million and $11.1 million, respectively. The increase in accounts
receivable and inventories was partially offset by our net income of $10.5
million and depreciation and amortization expense of $2.7 million.

Net cash used in investing activities was $2.5 million during the six months
ended June 25, 2000 as compared to net cash provided by investing activities of
$7.3 million during the same period of 1999. The net cash used in investing
activities during the six months ended June 25, 2000 is attributable to the
purchase of property and equipment of $2.5 million. The net cash provided by
investing activities during the same period last year was attributable to the
sale of short term investments of $8.1 million offset by purchases of property
and equipment of $0.9 million.

Net cash provided by financing activities was $124 million during the six months
ended June 25, 2000 as compared to $0.7 during the same period last year. The
net cash provided by financing activities during the six months ended June 25,
2000 is primarily attributable to the completion of our follow on public
offering of 3,000,000 shares of common stock on March 8, 2000. The public
offering price was $42.50 per share before offering costs. This increase was
offset by a $3.0 million repayment against our line of credit.



                                       10
<PAGE>   11

Our Board of Directors authorized us to repurchase, through the year 2000, up to
1,000,000 shares of our Common Stock in the open market from time to time. As of
June 25, 2000, 274,800 of such shares had been repurchased. We do not intend to
repurchase any additional shares of our stock under this repurchase program.

During 1999 we entered into a one-year revolving line of credit with a bank in
the amount of $15.0 million. This line of credit expired in July 2000. All
borrowings under this line of credit bore interest at a per annum rate equal to
the lender's prime rate, which was 9.75% at June 25, 2000. We borrowed $3.0
million under this line of credit during the third quarter of 1999 and repaid
the balance in full during the first quarter of 2000. The line of credit
required us to comply with certain financial covenants, including a minimum
quick ratio and minimum tangible net worth. We were in compliance with all of
our financial covenants at June 25, 2000.

On March 8, 2000 we completed our public offering of 3,000,000 shares of our
common stock. The public offering price was $42.50 per share. On March 16, 2000,
the underwriters exercised a right to purchase an additional 90,000 shares to
cover over-allotments. We expect to use the net proceeds for general corporate
purposes, principally working capital and capital expenditures. We currently
anticipate that the net proceeds from the offering discussed above, together
with our current cash, cash equivalents and available credit facilities, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other sources, to fund our operations and any potential acquisitions. We may not
be able to obtain adequate or favorable financing when needed. Failure to raise
capital when needed could harm our business. If we raise additional funds
through the issuance of equity securities, the percentage ownership of our
stockholders would be reduced. Furthermore, these equity securities may have
rights, preferences or privileges senior to our common stock.

PENDING MERGERS AND ACQUISITIONS

On June 27, 2000, we entered into a definitive Strategic Business Combination
Agreement to acquire the semiconductor equipment division of STEAG Electronic
Systems AG ("SES") (excluding STEAG's optical storage and photomask operations),
and entered into an Agreement and Plan of Merger to acquire CFM Technologies,
Inc. The transactions are mutually conditioned on one another and are required
to close simultaneously.

The Company will issue 11,850,000 shares of common stock to SES upon the
closing. The Company has agreed to issue options to purchase 850,000 shares of
common stock at the closing to employees of the entities acquired from SES. As a
result of the transaction, SES will hold approximately 32% of the outstanding
common stock of the Company. The Company and SES have agreed to enter into a
Stockholder Agreement providing, among other things, for the expansion of the
Company's Board of Directors from five members to seven, for the election of two
persons designated by SES to the Company's Board of Directors, for certain
restrictions on future acquisitions or dispositions of Company common stock by
SES, and for registration rights in favor of SES.

Under the Merger Agreement with CFM Technologies, Inc. ("CFM"), the Company is
to acquire CFM in a stock-for-stock merger in which the Company will issue
0.5223 shares of Company common stock for each share of CFM stock outstanding at
the closing (which would represent approximately 4,100,000 shares of Company
common stock as of June 27, 2000). In addition, the Company will assume all
outstanding CFM stock options, based on the same exchange ratio. As of June 27,
2000, options were outstanding to purchase approximately 1,782,000 shares of CFM
common stock. The Company has agreed to issue additional options to purchase
500,000 shares of common stock at the closing to employees of CFM. As a result
of the transaction, shareholders of CFM will hold approximately 12% of the
outstanding common stock of the Company. A representative of CFM will join the
Company's Board of Directors at closing.

The transactions will be accounted for by the Company as purchases. The
transaction with CFM is intended to qualify as a tax-free reorganization for
purposes of U.S. tax law. The transactions are subject to, among other things,
the approval of the stockholders of the Company and CFM, clearance under the
U.S. and German antitrust laws and other customary closing conditions. The
closing of the transactions is expected to occur in January 2001. The parties
agreed that the closing would occur no earlier than January 1, 2001 in light of
German tax and accounting considerations. The parties agreed to provisions in
the acquisition agreements designed to reduce risk of nonconsummation in the


                                       11
<PAGE>   12
event certain conditions are satisfied prior to January 2001. Copies of the
acquisition agreements with both SES and CFM are publicly available on-line as
part of filings we have made with the SEC.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

In this report and from time to time, we may make forward looking statements
regarding, among other matters, our future strategy, product development plans,
productivity gains of our products, financial performance 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 which are subject to a number of risks and uncertainties,
including those set forth in our Annual Report on Form 10-K, all of which are
incorporated here by reference, and the following:

MOST OF OUR REVENUE COMES FROM A SMALL NUMBER OF LARGE SALES, AND ANY DELAY IN
THE TIMING OF INDIVIDUAL SALES COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE
FROM QUARTER TO QUARTER

A delay in a shipment near the end of a quarter may cause net sales in that
quarter to fall below our expectations and the expectations of market analysts
or investors. We derive most of our revenues from the sale of a relatively small
number of expensive systems. The list prices on these systems range from
$500,000 to over $2.2 million. At our current revenue level, each sale, or
failure to make a sale, could have a material effect on us. Our lengthy sales
cycle, coupled with customers' competing capital budget considerations, make the
timing of customer orders uneven and difficult to predict. In addition, our
backlog at the beginning of a quarter typically does not include all orders
required to achieve our sales objectives for that quarter. As a result, our net
sales and operating results for a quarter depend on us shipping orders as
scheduled during that quarter as well as obtaining new orders for systems to be
shipped in that same quarter. Any delay in scheduled shipments or in shipments
from new orders would materially and adversely affect our operating results for
that quarter, which could cause our stock price to decline.

OUR QUARTERLY FINANCIAL RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF
ANTICIPATED LEVELS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE

We base our operating expenses on anticipated revenue levels, and a substantial
percentage of our expenses are fixed in the short term. As a result, any delay
in generating or recognizing revenues could cause our operating results to be
below the expectations of market analysts or investors, which could cause the
price of our common stock to decline.

Our quarterly revenue and operating results have varied significantly in the
past and may vary significantly in the future due to a number of factors,
including:

   -  market acceptance of our systems and the products of our customers;

   -  substantial changes in revenues from significant customers;

   -  increased manufacturing overhead expenses due to reductions in the number
      of systems manufactured;

   -  timing of announcement and introduction of new systems by us and by our
      competitors;

   -  sudden changes in component prices or availability;

   -  changes in product mix;

   -  delays in orders due to customer financial difficulties;

   -  manufacturing inefficiencies caused by uneven or unpredictable order
      patterns, reducing our gross margins;



                                       12
<PAGE>   13
      and

   -  higher fixed costs due to increased levels of research and development and
      expansion of our worldwide sales and marketing organization.

Due to the foregoing factors, we believe that period-to-period comparisons of
our operating results should not be relied upon as an indicator of our future
performance.

THE PRICE OF OUR COMMON STOCK HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO
FLUCTUATE SIGNIFICANTLY IN THE FUTURE, INCLUDING AS A RESULT OF OUR RECENTLY
ANNOUNCED, PENDING ACQUISITIONS, WHICH MAY LEAD TO LOSSES BY INVESTORS OR TO
SECURITIES LITIGATION

The market price of our common stock has been highly volatile in the past, and
our stock price may decline in the future. We believe that a number of factors
could cause the price of our common stock to fluctuate, perhaps substantially,
including:

-       our recently announced, pending acquisitions of the semiconductor
        business of STEAG Electronic Systems AG and of CFM Technologies, Inc.,
        and other announcements of developments related to our business;

-       general conditions in the semiconductor industry or in the worldwide
        economy;

-       fluctuations in our operating results and order levels;

-       announcements of technological innovations by us or by our competitors;

-       new products or product enhancements by us or by our competitors;

-       developments in patents or other intellectual property rights; or

-       developments in patents or other intellectual rights; or

-       developments in our relationships with our customers, distributors and
        suppliers.

In addition, in recent years the stock market in general and the market for
shares of high technology stocks in particular, have experienced extreme price
fluctuations. These fluctuations have frequently been unrelated to the
operating performance of the affected companies. Such fluctuations could
adversely affect the market price of our common stock. In the past, securities
class action litigation has often been instituted against a company following
periods of volatility in the company's stock price. This type of litigation, if
filed against us, could result in substantial costs and divert our management's
attention and resources.

OUR RECENTLY ANNOUNCED, PENDING ACQUISITIONS AND ANY FUTURE BUSINESS
ACQUISITIONS MAY DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE OR DISTRACT
MANAGEMENT ATTENTION

As part of our business strategy, we consider acquisitions of, or significant
investments in, businesses that offer products, services and technologies
complementary to ours. We have recently announced that we have entered into
definitive agreements to acquire the semiconductor equipment division of STEAG
Electronic Systems AG (excluding STEAG's optical storage and photomask
operations), and entered into an Agreement and Plan of Merger to acquire CFM
Technologies, Inc. Such acquisitions could materially adversely affect our
operating results and/or the price of our common stock. Acquisitions also
entail numerous risks, including:

-       difficulty of assimilating the operations, products and personnel of the
        acquired businesses, particularly where these involve international
        operations;

-       potential disruption of our ongoing business;

-       unanticipated costs associated with the acquisitions;

-       inability of management to manage the financial and strategic position
        of acquired or developed products, services and technologies;

-       inability to maintain uniform standards, controls, policies and
        procedures; and

-       impairment of relationships with employees and customers which may occur
        as a result of integration of the acquired business.

To the extent that shares of our stock or other rights to purchase stock are
issued in connection with any future acquisitions, dilution to our existing
stockholders will result and our earnings per share may suffer. Any future
acquisitions may not generate additional revenue or provide any benefit to our
business, and we may not achieve a satisfactory return on our investment in any
acquired businesses.

WE HAVE ESTABLISHED A DIRECT SALES ORGANIZATION IN JAPAN AND TERMINATED OUR
JAPANESE DISTRIBUTOR, WHICH COULD RESULT IN LOST SALES OR INCREASED RISKS TO OUR
BUSINESS IN JAPAN

As part of our original strategy for penetrating the Japanese market, we
established a distributor relationship with Marubeni Solutions Corp. in 1990. In
1999, we shifted our strategy in Japan to a direct sales model. The process of
terminating our distribution relationship with Marubeni and establishing our own
direct sales force in Japan was completed during the first half of 2000.
Although we intend to continue to invest significant resources in Japan,
including the hiring of additional personnel to support our direct sales effort,
we may not be able to maintain or increase our sales to the Japanese
semiconductor industry. We may miss sales opportunities or lose competitive
sales as we transition to this direct sales model, or Japanese customers and
potential customers may be unwilling to purchase our systems from us directly.
When we make sales directly to customers in Japan, we expect that payment terms
may be as long as 180 days from shipment, compared to 30 days from shipment for
sales in our other regions. Such a delay would negatively impact our cash flows.

CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAY AFFECT OUR REPORTED RESULTS OF
OPERATIONS

We prepare our financial statements to conform with generally accepted
accounting principles, or GAAP. GAAP are subject to interpretation by the
American Institute of Certified Public Accountants, the SEC and various bodies
formed to interpret and create appropriate accounting policies. A change in
those policies can have a significant effect on our reported results.

In December 1999, the SEC issued SAB 101, Revenue Recognition in Financial
Statements. SAB 101 provides new interpretive guidance on applying GAAP to
revenue recognition issues in financial statements. Among other things, SAB 101
would result in a change from the established practice in the semiconductor
equipment industry and many industries of recognizing revenue at the time of
shipment of a system, and instead delay revenue recognition until the time of
installation or customer acceptance. Because of the cyclical nature of the
semiconductor equipment industry, and our dependence on a small number of
comparatively large sales, such a change in revenue recognition practices could
have a material affect on our revenue in any particular reporting period. We may
be required to adopt SAB 101 in the fourth quarter of 2000. We are currently
evaluating the effect that such adoption may have on our consolidated results of
operations and financial position.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

As of June 25, 2000, we had no short term investments and thus no exposure to
changes in market values for investments.

We have international facilities and are, therefore, subject to foreign currency
exposure. The local currency is the functional currency for all foreign sales
operations except those in Japan, where the U.S. dollar is the functional
currency. To date, our exposure related to exchange rate volatility has not been
significant. Due to the short term nature of our investments, we do not believe
that we have a material risk exposure with respect to financial instruments.



                                       13
<PAGE>   14

                          PART II -- OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

           None

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS.

           None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.

           None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

           The annual meeting of stockholders was held on May 17, 2000.

           The stockholders approved a proposal to elect Shigeru Nakayma as
           Class III Director to serve for a three-year term and until his
           successor is elected and qualified. The proposal received the
           following votes:
<TABLE>
<CAPTION>
               <S>                            <C>
                   For                          Withheld
                   ---                          --------
                16,550,154                      828,430
</TABLE>

           The stockholders approved a proposal to amend the Company's 1989
           Amended and Restated Stock Option Plan. The proposal received the
           following votes:

<TABLE>
<CAPTION>
         <S>                 <C>                <C>                 <C>
                                                                       Broker
             For              Against           Abstentions          Non-votes
            -----            --------          -------------         ---------
          12,916,508         4,451,572           10,504                  0
</TABLE>

           The stockholders approved a proposal to ratify selection of Arthur
           Andersen LLP as independent accountants for the fiscal year ending
           December 31, 2000.

<TABLE>
<CAPTION>
         <S>                 <C>              <C>
             For              Against           Abstentions
            -----            --------          -------------
          17,294,739          58,696             25,149
</TABLE>


ITEM 5.    OTHER INFORMATION.

           None

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.

        (a)    Exhibits

<TABLE>
<S>                    <C>
                3.1*   Restated Articles of Incorporation of the Company(1)
                3.2*   Bylaws of the Registrant(1)
               99.1    Risk Factors
</TABLE>



                                       14
<PAGE>   15
                                                                   EXHIBIT 99.1



                                  RISK FACTORS

You should carefully consider the risks described below, together with all of
the other information in our SEC filings, before making an investment decision
to buy or sell our common stock. If any of the following risks actually occur,
our business, financial condition or results of operations could be materially
harmed. If our business is harmed, the trading price of our common stock could
decline, and you may lose all or part of your investment. Our SEC reports may
also contain forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in our reports.

OUR SALES REFLECT THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY, WHICH CAN CAUSE
OUR OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY AND COULD CAUSE US TO FAIL TO
ACHIEVE ANTICIPATED SALES

Our business depends in significant part upon capital expenditures by
manufacturers of semiconductor devices, including manufacturers that are opening
new or expanding existing fabrication facilities. The level of capital
expenditures by these manufacturers of semiconductor devices depends upon the
current and anticipated market demand for such devices and the products
utilizing such devices. The semiconductor industry is highly cyclical. The
industry has in the past, and will likely in the future, experience periods of
oversupply that result in significantly reduced demand for capital equipment,
including our systems. When these periods occur, our operating results and
financial condition are adversely affected. For instance, we were affected by a
severe downturn in the semiconductor industry in 1998, during which our sales
decreased for the first three consecutive quarters of 1998 before increasing in
the fourth quarter of 1998 and throughout 1999. We anticipate that a significant
portion of new orders will depend upon demand from semiconductor manufacturers
and independent foundries who build or expand large fabrication facilities. If
existing fabrication facilities are not expanded or new facilities are not
built, demand for our systems may not develop or increase, and we may be unable
to generate significant new orders for our systems. If we are unable to develop
new orders for our systems, we will not achieve anticipated net sales levels.
Any future downturns or slowdowns in the semiconductor industry will materially
and adversely affect our net sales and operating results.

MOST OF OUR REVENUE COMES FROM A SMALL NUMBER OF LARGE SALES, AND ANY DELAY IN
THE TIMING OF INDIVIDUAL SALES COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE
FROM QUARTER TO QUARTER

A delay in a shipment near the end of a quarter may cause net sales in that
quarter to fall below our expectations and the expectations of market analysts
or investors. We derive most of our revenues from the sale of a relatively small
number of expensive systems. The list prices on these systems range from
$500,000 to over $2.2 million. At our current revenue level, each sale, or
failure to make a sale, could have a material effect on us. Our lengthy sales
cycle, coupled with customers' competing capital budget considerations, make the
timing of customer orders uneven and difficult to predict. In addition, our
backlog at the beginning of a quarter typically



                                       15
<PAGE>   16


does not include all orders required to achieve our sales objectives for that
quarter. As a result, our net sales and operating results for a quarter depend
on us shipping orders as scheduled during that quarter as well as obtaining new
orders for systems to be shipped in that same quarter. Any delay in scheduled
shipments or in shipments from new orders would materially and adversely affect
our operating results for that quarter, which could cause our stock price to
decline.

OUR QUARTERLY FINANCIAL RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF
ANTICIPATED LEVELS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE

We base our operating expenses on anticipated revenue levels, and a substantial
percentage of our expenses are fixed in the short term. As a result, any delay
in generating or recognizing revenues could cause our operating results to be
below the expectations of market analysts or investors, which could cause the
price of our common stock to decline. Our quarterly revenue and operating
results have varied significantly in the past and may vary significantly in the
future due to a number of factors, including: - market acceptance of our systems
and the products of our customers; - substantial changes in revenues from
significant customers; - increased manufacturing overhead expenses due to
reductions in the number of systems manufactured; - timing of announcement and
introduction of new systems by us and by our competitors; - sudden changes in
component prices or availability; - changes in product mix; - delays in orders
due to customer financial difficulties; - manufacturing inefficiencies caused by
uneven or unpredictable order patterns, reducing our gross margins; and - higher
fixed costs due to increased levels of research and development and expansion of
our worldwide sales and marketing organization. Due to the foregoing factors, we
believe that period-to-period comparisons of our operating results should not be
relied upon as an indicator of our future performance.

WE HAVE INCURRED NET OPERATING LOSSES FOR THE PRIOR TWO YEARS, WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY ON AN ANNUAL BASIS, AND IF WE DO NOT, WE MAY
NOT UTILIZE DEFERRED TAX ASSETS

We incurred net losses of approximately $22.4 million for the year ended
December 31, 1998 and $800,000 for the year ended December 31, 1999. We expect
to continue to incur significant research and development and selling, general
and administrative expenses. We will need to generate significant increases in
net sales to achieve and maintain profitability on an annual basis, and we may
not be able to do so. In addition, because of these factors, through December
31, 1999, we had not been in a position to utilize our deferred tax assets. Our
ability to realize our deferred tax assets in future periods will depend on our
ability to achieve and maintain profitability on an annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion of our net operating losses.

YEAR-TO-YEAR CHANGES IN OUR LIST OF MAJOR CUSTOMERS MAKE IT DIFFICULT TO
FORECAST OUR REVENUE AND ACHIEVE OUR SALES GOALS

During 1999, one customer, Samsung, accounted for approximately 20% of our net
sales. During 1998, we had no individually significant customers, although sales
to our Japanese distributor, Marubeni, constituted 16% of our net sales. During
1997, one customer, Taiwan


                                       16
<PAGE>   17

Semiconductor Manufacturing Company, accounted for approximately 11% of our net
sales. Although the composition of the group comprising our largest customers
has varied from year to year, our top ten customers accounted for 63% of our net
sales in 1999, 56% in 1998 and 60% in 1997. Our systems represent major capital
investments that our customers and potential customers purchase or replace
infrequently. Therefore, our list of major customers changes substantially from
year to year, and we cannot predict that a major customer in one year will make
significant purchases from us in future years. Accordingly, it is difficult for
us to accurately forecast our revenues and operating results from year to year.
While we actively pursue new customers, if we are unable to successfully make
significant sales to new customers or sell additional systems to existing
customers, we may not achieve anticipated net sales levels and our business and
operating results would suffer.

OUR LENGTHY SALES CYCLE INCREASES OUR COSTS AND REDUCES THE PREDICTABILITY OF
OUR REVENUE

Sales of our systems depend upon the decision of a prospective customer to
increase manufacturing capacity. That decision typically involves a significant
capital commitment by our customers. Accordingly, the purchase of our systems
typically involves time consuming internal procedures associated with the
evaluation, testing, implementation and introduction of new technologies into
our customers' manufacturing facilities. For many potential customers, an
evaluation as to whether new semiconductor manufacturing equipment is needed
typically occurs infrequently. Following an evaluation by the customer as to
whether our systems meet its qualification criteria, we have experienced in the
past and expect to experience in the future, delays in finalizing system sales
while the customer evaluates and receives approval for the purchase of our
systems and constructs a new facility or expands an existing facility. Due to
these factors, our systems typically have a lengthy sales cycle during which we
may expend substantial funds and management effort. The time between our first
contact with a customer and the customer placing its first order typically lasts
from nine to twelve months and is often even longer. This lengthy sales cycle
makes it difficult to accurately forecast future sales and may cause our
quarterly and annual revenue and operating results to fluctuate significantly
from period to period. If anticipated sales from a particular customer are not
realized in a particular period due to this lengthy sales cycle, our operating
results may be adversely affected.

WE ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES, PARTICULARLY SALES IN ASIAN
COUNTRIES, AND IF WE ARE UNABLE TO SUSTAIN AND INCREASE OUR INTERNATIONAL SALES,
WE MAY NOT ACHIEVE ANTICIPATED REVENUE GROWTH

Asia is a particularly important region for our business. Sales to Taiwan, Japan
and other Asian countries accounted for 59% of our total net sales in 1999, 50%
in 1998 and 60% in 1997. All international sales accounted for 71% of our total
net sales in 1999, 67% in 1998, and 65% in 1997. We anticipate that
international sales will continue to account for a significant portion of our
net sales. Because of our dependence upon international sales in general and on
sales to Taiwan, Japan and other Asian countries in particular, we are at risk
to the effects of regional economic problems. Asian economies have been highly
volatile and prone to recession in recent years. In particular, our 1998 net
sales declined during a severe industry downturn caused in


                                       17
<PAGE>   18
large part by recessions in several Asian countries. Our international sales
are subject to a number of additional risks, including: - unexpected changes in
law or regulations resulting in more burdensome governmental controls, tariffs,
restrictions, embargoes or export license requirements; - exchange rate
volatility; - political and economic instability, particularly in Asia;
- difficulties in accounts receivable collections; - extended payment terms
beyond those customarily used in the United States; - difficulties in managing
distributors or representatives; - difficulties in staffing and managing foreign
subsidiary operations; and - potentially adverse tax consequences. Our sales to
date have been denominated in U.S. dollars. If it becomes necessary for us to
make sales denominated in foreign currencies, we will become more exposed to the
risk of currency fluctuations. Our products become less price competitive in
countries with currencies that are declining in value in comparison to the
dollar. This could cause us to lose sales or force us to lower our prices, which
would reduce our gross margins.

WE HAVE ESTABLISHED A DIRECT SALES ORGANIZATION IN JAPAN AND TERMINATED OUR
JAPANESE DISTRIBUTOR, WHICH COULD RESULT IN LOST SALES OR INCREASED RISKS TO OUR
BUSINESS IN JAPAN

As part of our original strategy for penetrating the Japanese market, we
established a distributor relationship with Marubeni Solutions Corp. in 1990. In
1999, we shifted our strategy in Japan to a direct sales model. For the year
ended December 31, 1998, sales to Marubeni accounted for 16% of our net sales.
We have terminated our distribution relationship with Marubeni and established
our own direct sales force in Japan. For the year ended December 31, 1999, sales
to Marubeni accounted for 10% of our net sales. The transition to direct sales
was completed during the first half of 2000. Although we intend to continue to
invest significant resources in Japan, including the hiring of additional
personnel to support our direct sales effort, we may not be able to maintain or
increase our sales to the Japanese semiconductor industry. We may miss sales
opportunities or lose competitive sales as we transition to this direct sales
model, or Japanese customers and potential customers may be unwilling to
purchase our systems from us directly. When we make sales directly to customers
in Japan, we expect that payment terms may be as long as 180 days from shipment,
compared to 30 days from shipment for sales in our other regions. Such a delay
would negatively impact our cash flows.

MOST OF OUR SALES ARE CURRENTLY CONCENTRATED IN ASPEN STRIP AND CVD SYSTEMS, AND
WE DEPEND UPON CONTINUED MARKET ACCEPTANCE OF THESE PRODUCTS; IF WE ARE UNABLE
TO INCREASE SALES OF OUR OTHER PRODUCTS, WE MAY NOT ACHIEVE ANTICIPATED GROWTH
OF NET SALES

For the year ended December 31, 1999, sales of Aspen Strip and CVD systems
constituted 87% of our net sales. We expect that revenue from these products
will continue to account for a substantial majority of our net sales for the
foreseeable future. Accordingly, continued market acceptance of these systems is
critical to our future success. Market acceptance of our Aspen Strip and CVD
systems is affected by a number of factors including technological innovation,
productivity and cost of ownership. Many of these factors are beyond our
control. Our failure to maintain or increase current levels of market acceptance
for Aspen Strip and CVD systems could significantly impair our net sales growth.
Our future sales will also depend upon achieving broad


                                       18
<PAGE>   19

market acceptance of our Aspen RTP systems, Aspen LiteEtch systems, EpiPro
systems and other future products and services that we might offer. The markets
for these newer products, especially products such as our Aspen III Strip, Aspen
III CVD and Aspen III LiteEtch, which process 300 millimeter wafers, are still
developing and require our substantial investment in development and sales
efforts. If the markets for these products do not develop as anticipated, or if
we are unable to obtain or increase orders in these markets, we may not realize
an adequate return on the investment made in the development of these new
products, and we may not achieve our anticipated revenue growth.

WE MAY NOT ACHIEVE ANTICIPATED REVENUE GROWTH IF WE ARE NOT SELECTED AS "VENDOR
OF CHOICE" FOR NEW OR EXPANDED FABRICATION FACILITIES AND IF OUR SYSTEMS AND
PRODUCTS DO NOT ACHIEVE BROADER MARKET ACCEPTANCE

Because semiconductor manufacturers must make a substantial investment to
install and integrate capital equipment into a semiconductor fabrication
facility, these manufacturers will tend to choose semiconductor equipment
manufacturers based on established relationships, product compatibility and
proven financial performance. Once a semiconductor manufacturer selects a
particular vendor's capital equipment, the manufacturer generally relies for a
significant period of time upon equipment from this vendor of choice for the
specific production line application. In addition, the semiconductor
manufacturer frequently will attempt to consolidate its other capital equipment
requirements with the same vendor. Accordingly, we may face narrow windows of
opportunity to be selected as the "vendor of choice" by substantial new
customers. It may be difficult for us to sell to a particular customer for a
significant period of time once that customer selects a competitor's product,
and we may not be successful in obtaining broader acceptance of our systems and
technology. To date, only our strip and CVD products have gained widespread
market acceptance. If we are unable to achieve broader market acceptance of our
systems and technology, we may be unable to grow our business and our operating
results and financial condition will be adversely affected.

UNLESS WE CAN CONTINUE TO DEVELOP AND INTRODUCE NEW SYSTEMS THAT COMPETE
EFFECTIVELY ON THE BASIS OF PRICE AND PERFORMANCE, WE MAY LOSE FUTURE SALES AND
CUSTOMERS, OUR BUSINESS MAY SUFFER AND OUR STOCK PRICE MAY DECLINE

Because of continual changes in the markets in which we and our customers
compete, our future success will depend in part upon our ability to continue to
improve our systems and our technologies. These markets are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. Due to the continual changes in these
markets, our success will also depend upon our ability to develop new
technologies and systems that compete effectively on the basis of price and
performance and that adequately address customer requirements. In addition, we
must adapt our systems and processes to technological changes and to support
emerging target market industry standards. The success of any new systems we
introduce is dependent on a number of factors. These factors include timely
completion of new system designs and market acceptance. We may not be able to
improve our existing systems or develop new technologies or systems in a timely
manner. In particular, the


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transition of the market to 300 millimeter wafers will present us with both an
opportunity and a risk. To the extent that we are unable to introduce 300
millimeter systems which meet customer requirements on a timely basis, our
business could be harmed.

WE MAY NOT BE ABLE TO CONTINUE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE
SEMICONDUCTOR INDUSTRY

The semiconductor equipment industry is both highly competitive and subject to
rapid technological change. Significant competitive factors include the
following: - system performance; - cost of ownership; - size of installed base;
- breadth of product line; and - customer support. The following characteristics
of our major competitors' systems give them a competitive advantage over us,
particularly with their CVD systems: - broader product lines; - longer operating
history; - greater experience with high volume manufacturing; - broader name
recognition; - substantially larger customer bases; and - substantially greater
financial, technical and marketing resources. In addition, to expand our sales
we must often replace the systems of our competitors or sell new systems to
customers of our competitors. Our competitors may develop new or enhanced
competitive products that will offer price or performance features that are
superior to our systems. Our competitors may also be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
product lines. We may not be able to maintain or expand our sales if competition
increases and we are unable to respond effectively. For further discussion of
Mattson's competition, see "Business -- Competition."

WE DEPEND UPON A LIMITED NUMBER OF SUPPLIERS FOR MANY COMPONENTS AND
SUBASSEMBLIES, AND SUPPLY SHORTAGES OR THE LOSS OF THESE SUPPLIERS COULD RESULT
IN INCREASED COST OR DELAYS IN MANUFACTURE AND SALE OF OUR PRODUCTS

We rely to a substantial extent on outside vendors to manufacture many of the
components and subassemblies of our Aspen systems. We obtain many of these
components and subassemblies from a sole source or a limited group of suppliers.
Because of our reliance on outside vendors generally, and on a sole or a limited
group of suppliers in particular, we may be unable to obtain an adequate supply
of required components. In addition, we may have reduced control over pricing
and timely delivery of components. In addition, we often quote prices to our
customers and accept customer orders for our products prior to purchasing
components and subassemblies from our suppliers. If our suppliers increase the
cost of components or subassemblies, we may not have alternative sources of
supply and may not be able to raise the cost of the system being evaluated by
our customers to cover all or part of the increased cost of components. The
manufacture of some of these components and subassemblies is an extremely
complex process and requires long lead times. As a result, we have in the past
and may in the future experience delays or shortages. If we are unable to obtain
adequate and timely deliveries of our required components or subassemblies, we
may have to seek alternative sources of supply or manufacture such components
internally. This could delay our ability to manufacture or timely ship our
systems, causing us to lose sales, incur additional costs, delay new product
introductions and cause us to suffer harm to our reputation.


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<PAGE>   21


TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS

We have recently experienced a period of rapid growth and expansion that has
placed a significant strain on our management information systems and our
administrative, financial and operational resources. We are currently
undertaking a significant expansion of our operations to support increased sales
levels as a result of the recent improvement in the semiconductor industry,
including the expansion of our international operations and a transition to
direct sales operations in Japan. We are making additional significant
investments in research and development to support product development. We have
grown from 349 employees at December 31, 1998, to 443 employees at December 31,
1999 and plan to further increase our total personnel. This expansion will
continue to result in substantial demands on our management resources. To
accommodate continued anticipated growth and expansion, we will be required to:
- improve existing, and implement new, operational and financial systems,
procedures and controls; - hire, train, manage, retain and motivate qualified
personnel; and - obtain additional facilities and suppliers. These measures may
place additional burdens on our management and our internal resources. IF WE DO
NOT HAVE SUFFICIENT EVALUATION SYSTEMS AVAILABLE TO OUR CUSTOMERS, WE MAY MISS
SALES OPPORTUNITIES We have experienced increased interest in evaluation of our
chemical vapor deposition products. In the past, during periods of high growth,
we have been constrained by a lack of available CVD evaluation units for timely
delivery to prospective customers. If we are not able to make a sufficient
number of evaluation systems available when requested, potential customers may
not be able to evaluate our products before making equipment purchase decisions
and we may miss opportunities to make sales, causing our growth to be adversely
affected.

WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS AND THEIR
KNOWLEDGE OF OUR BUSINESS, MANAGEMENT SKILLS AND TECHNICAL EXPERTISE WOULD BE
DIFFICULT TO REPLACE

Our success depends to a large extent upon the efforts and abilities of Brad
Mattson, our chairman and chief executive officer, as well as other key
managerial and technical employees who would be difficult to replace. The loss
of Mr. Mattson or other key employees could limit or delay our ability to
develop new products and adapt existing products to our customers' evolving
requirements and result in lost sales and diversion of management resources.
None of our executive officers are bound by a written employment agreement and
our relationships with our officers are at will.

BECAUSE OF COMPETITION FOR ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH COULD IMPEDE DEVELOPMENT OR SALES
OF OUR PRODUCTS

Our growth depends on our ability to attract and retain qualified, experienced
employees. There is substantial competition for experienced engineering,
technical, financial, sales and marketing personnel in our industry. In
particular, we must attract and retain highly skilled design and process
engineers. Competition for such personnel is intense, particularly in the San
Francisco Bay Area where we are based. If we are unable to retain our existing
key personnel, or attract


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<PAGE>   22

and retain additional qualified personnel, we may from time to time experience
inadequate levels of staffing to develop and market our products and perform
services for our customers. As a result, our growth could be limited due to our
lack of capacity to develop and market our products to our customers, or we
could fail to meet our delivery commitments or experience deterioration in
service levels or decreased customer satisfaction.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE A VALUABLE
ASSET, EXPERIENCE REDUCED MARKET SHARE OR INCUR COSTLY LITIGATION TO PROTECT OUR
PROPRIETARY TECHNOLOGY

We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. Despite our efforts to protect
our intellectual property, our competitors may be able to legitimately ascertain
the non-patented proprietary technology embedded in our systems. If this occurs,
we may not be able to prevent the use of such technology. Our means of
protecting our proprietary rights may not be adequate and our patents may not be
sufficiently broad to protect our technology. In addition, any patents issued to
us could be challenged, invalidated or circumvented and any rights granted under
the patent may not provide adequate protection to us. Furthermore, we may not
have sufficient resources to prosecute our rights. Our competitors may
independently develop similar technology, duplicate our products or design
around patents that may be issued to us. In addition, the laws of some foreign
countries may not protect our proprietary rights to as great an extent as do the
laws of the United States and it may be more difficult to monitor the use of our
products. As a result of these threats to our proprietary technology, we may
have to resort to costly litigation to enforce our intellectual property rights.

WE MIGHT FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT MAY BE COSTLY TO
RESOLVE AND COULD DIVERT MANAGEMENT ATTENTION

We may from time to time be subject to claims of infringement of other parties'
proprietary rights. Our involvement in any patent dispute or other intellectual
property dispute or action to protect trade secrets, even if the claims are
without merit, could be very expensive to defend and could divert the attention
of our management. Adverse determinations in any litigation could subject us to
significant liabilities to third parties, require us to seek costly licenses
from third parties and prevent us from manufacturing and selling our systems.
Any of these situations could have a material adverse effect on our business and
operating results.

OUR FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD RESULT IN SUBSTANTIAL
LIABILITY TO US

We are subject to a variety of federal, state and local laws, rules and
regulations relating to environmental protection. These laws, rules and
regulations govern the use, storage, discharge and disposal of hazardous
chemicals during manufacturing, research and development and sales
demonstrations. If we fail to comply with present or future regulations, we
could be subject to substantial liability for clean up efforts, personal injury
and fines or suspension or cessation of our operations. Restrictions on our
ability to expand or continue to operate our present locations


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<PAGE>   23

could be imposed upon us or we could be required to acquire costly remediation
equipment or incur other significant expenses.

THE PRICE OF OUR COMMON STOCK HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO
FLUCTUATE SIGNIFICANTLY IN THE FUTURE, WHICH MAY LEAD TO LOSSES BY INVESTORS OR
TO SECURITIES LITIGATION

The market price of our common stock has been highly volatile in the past, and
our stock price may decline in the future. We believe that a number of factors
could cause the price of our common stock to fluctuate, perhaps substantially,
including: - general conditions in the semiconductor industry or in the
worldwide economy; - announcements of developments related to our business; -
fluctuations in our operating results and order levels; - announcements of
technological innovations by us or by our competitors; - new products or product
enhancements by us or by our competitors; - developments in patents or other
intellectual property rights; or - developments in our relationships with our
customers, distributors and suppliers. In addition, in recent years the stock
market in general, and the market for shares of high technology stocks in
particular, have experienced extreme price fluctuations. These fluctuations have
frequently been unrelated to the operating performance of the affected
companies. Such fluctuations could adversely affect the market price of our
common stock. In the past, securities class action litigation has often been
instituted against a company following periods of volatility in the company's
stock price. This type of litigation, if filed against us, could result in
substantial costs and divert our management's attention and resources.

ANY FUTURE BUSINESS ACQUISITIONS MAY DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER
VALUE OR DISTRACT MANAGEMENT ATTENTION

As part of our business strategy, we may consider acquisitions of, or
significant investments in, businesses that offer products, services and
technologies complementary to ours. Such acquisitions could materially adversely
affect our operating results and/or the price of our common stock. Acquisitions
also entail numerous risks, including: - difficulty of assimilating the
operations, products and personnel of the acquired businesses; - potential
disruption of our ongoing business; - unanticipated costs associated with the
acquisition; - inability of management to manage the financial and strategic
position of acquired or developed products, services and technologies; -
inability to maintain uniform standards, controls, policies and procedures; and
- impairment of relationships with employees and customers which may occur as a
result of integration of the acquired business. To the extent that shares of our
stock or other rights to purchase stock are issued in connection with any future
acquisitions, dilution to our existing stockholders will result and our earnings
per share may suffer. Any future acquisitions may not generate additional
revenue or provide any benefit to our business, and we may not achieve a
satisfactory return on our investment in any acquired businesses.

YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS

The date fields coded in many software products and computer systems need to be
able to distinguish 21st century dates from 20th century dates, including leap


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<PAGE>   24
year calculations. The failure to be able to accurately distinguish these dates
is commonly known as the year 2000 problem. While we have yet to experience year
2000 problems, the computer software programs and operating systems used in our
internal operations, including our financial, product development, order
management and manufacturing systems, could experience errors or interruptions
due to the year 2000 problem. For example, a significant failure of our computer
integrated manufacturing systems, which monitor and control factory equipment,
could disrupt manufacturing operations and cause a delay in completion and
shipping of products. In addition, it is possible that our suppliers' and
service providers' failure to adequately address the year 2000 problem could
have an adverse effect on their operations, which, in turn, could have an
adverse impact on us.


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<PAGE>   25

               Exhibit 27 (Electronic filing only)

               (1)    Incorporated by reference to the corresponding Exhibit
                      previously filed as an Exhibit to the Registrant's
                      Registration Statement on Form S-1 filed August 12, 1994
                      (33-92738), as amended.


        (b)    Reports on Form 8-K

               None.
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<PAGE>   26

                                   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.



                                             MATTSON TECHNOLOGY, INC.



Date: August 9, 2000                            /s/ Brian R. McDonald
                                        ----------------------------------------
                                                  Brian R. McDonald
                                              Vice President of Finance
                                             and Chief Financial Officer



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