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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 JUNE 30, 1997
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: 0-23372
GASONICS INTERNATIONAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2159729
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2540 JUNCTION AVENUE, SAN JOSE, CALIFORNIA 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 570-7000
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
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At August 5,1997, there were 13,787,268 shares of the Registrant's Common
Stock, $0.001 par value per share, outstanding.
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GASONICS INTERNATIONAL CORPORATION
FORM 10-Q
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and September 30, 1996 3
Condensed Consolidated Statements of Operations for the
three and nine month periods ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Securityholders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
Exhibit Index 24
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, Sept. 30,
ASSETS 1997 1996
----------- ---------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 11,099 $ 11,774
Marketable securities 7,233 14,135
Trade accounts receivable, net 31,965 23,032
Inventories 27,938 26,817
Prepaid and deferred income taxes 3,451 3,451
Prepaid expenses & other current assets 2,005 3,204
---------- ---------
Total current assets 83,691 82,413
Property & equipment, net 14,819 11,575
Deposits and other assets 1,795 2,442
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Total assets $ 100,305 $ 96,430
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---------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 2,609 $ 2,455
Accounts payable 8,520 7,318
Income taxes payable 1,033 1,100
Accrued expenses 12,245 12,316
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Total current liabilities 24,407 23,189
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Long-term liabilities 445 552
---------- ---------
Stockholders' equity:
Common stock &
additional paid-in capital 33,568 31,413
Unrealized gain on investment - 902
Note receivable from stockholder - (65)
Retained earnings 41,885 40,439
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Total stockholders' equity 75,453 72,689
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Total liabilities & stockholders' equity $ 100,305 $ 96,430
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---------- ---------
See accompanying notes.
3
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1997 (1) 1996 1997 (1) 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 30,126 $ 29,058 $ 89,404 $ 99,837
Cost of sales 16,552 15,876 49,981 48,177
----------- ---------- ----------- ----------
Gross margin 13,574 13,182 39,423 51,660
----------- ---------- ----------- ----------
Operating expenses:
Write-off of accounts receivable (see Note 6) 4,517 - 4,517 -
Research & development 4,425 4,669 12,842 13,456
Selling, general & administrative 7,206 7,654 21,529 24,713
----------- ---------- ----------- ----------
Total operating expenses 16,148 12,323 38,888 38,169
----------- ---------- ----------- ----------
Operating income (loss) (2,574) 859 535 13,491
Other income
Interest and other income, net 183 188 474 824
Gain on sale of stock 1,215 143 1,215 143
----------- ---------- ----------- ----------
Income (loss) before provision for income taxes (1,176) 1,190 2,224 14,458
Provision (credit) for income taxes (412) 416 778 5,060
----------- ---------- ----------- ----------
Net income (loss) $ (764) $ 774 $ 1,446 $ 9,398
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Net income (loss) per share $ (0.06) $ 0.06 $ 0.10 $ 0.69
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Weighted average common &
common equivalent shares 13,600 13,603 14,073 13,625
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
See accompanying notes.
4
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net cash used for operating activities $ (3,992) $ (9,126)
--------- ---------
Cash flows from investing activities:
Purchases of property & equipment (4,992) (5,147)
Decrease in marketable securities 6,000 12,692
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Net cash provided by investing activities 1,008 7,545
--------- ---------
Cash flows from financing activities:
Proceeds from Note payable 2,609 -
Increase in Note payable (2,455) -
Proceeds from issuance of common stock 2,155 2,073
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Net cash provided by financing activities 2,309 2,073
--------- ---------
Net increase (decrease) in cash and cash equivalents (675) 492
Cash & cash equivalents at beginning of period 11,774 7,595
--------- ---------
Cash & cash equivalents at end of period $ 11,099 $ 8,087
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
5
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GASONICS INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit and reflect all adjustments which are,
in the opinion of management, necessary for a fair presentation of the
financial position and the results of operations of the Company for the
interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all information and footnotes required by generally accepted
accounting principles. The results of operations for the nine months ended
June 30, 1997 are not necessarily indicative of the operating results to be
expected for the full fiscal year. Such financial statements should be read
in conjunction with the information contained in the Company's Annual Report
on Form 10-K for the year ended September 30, 1996. Certain
reclassifications have been made to prior year amounts to conform to current
year presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
June 30, September 30,
1997 1996
----------- -------------
(unaudited)
Raw Materials $ 8,818 $ 12,985
Work in Process 6,839 7,648
Finished Goods 12,281 6,184
--------- -----------
$ 27,938 $ 26,817
--------- -----------
--------- -----------
3. NET INCOME PER SHARE
Net income per share data has been computed using the weighted average number
of shares of common stock and dilutive common equivalent shares from stock
options (using the treasury stock method).
In February, 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board Opinion ("APBO") No. 15. SFAS No. 128 replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share, which excludes dilution. SFAS No. 128 also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation. Diluted earnings per share is computed similarly
to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128
must be adopted for financial statements issued for periods ending after
December 15, 1997, including interim periods: earlier application is not
permitted. SFAS No.
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128 requires restatement of all prior-period earnings per share data
presented. Under SFAS 128 for the three months ended, June 30, 1977, basic
earnings per share and diluted earnings per share would be substantially the
same as the reported primary earnings per share. For the nine months ended,
June 30, 1997, basic earnings per share would be $0.11 and diluted earnings
per share would be substantially the same as the reported primary per share.
The Company plans to adopt SFAS No. 128 during the first quarter of fiscal
1998.
4. BANK BORROWINGS
On March 4, 1997 the Company entered into a new loan agreement with Union
Bank that increased the unsecured line of credit from $15 million to $20
million. The new loan agreement expires on February 27, 1998. As of June 30,
1997 there were no borrowings outstanding under this loan agreement. At the
option of the Company, borrowings bear interest at the lower of 1.5% above
the bank's adjusted Libor-rate or at the bank's reference rate (8.5% at June
30, 1997).
In April, 1997, the Company repaid a loan of approximately $2.5 million to
the Bank of Tokyo-Mitsubishi and entered into a new loan agreement with the
same bank providing for borrowings up to a maximum of 300 million yen
(equivalent to approximately $2.6 million). The loan is secured by a letter
of guarantee issued by the Company, bears interest at 1.625% and is due and
payable on February 28, 1998. At June 30, 1997, borrowings under this loan
agreement were $2.6 million.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structures", which will be adopted by the Company in the first
quarter of fiscal 1998. SFAS No. 129 requires companies to disclose certain
information about their capital structure. The Company does not anticipate
that SFAS No. 129 will have a material impact on its financial statement
disclosures.
6. WRITE-OFF OF ACCOUNTS RECEIVABLE
The three and nine month periods ended June 30, 1997 include a $4.5 million
write-off of an uncollectible accounts receivable due from a customer in
Thailand. The write-off covers the unpaid balance in accounts receivable,
less the value of the recovered equipment, which the Company anticipates
reselling in the future.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
With the exception of historical facts, the statements contained in this
discussion may include forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
but not limited to, future sales, gross margins, the anticipated increase in
inventories and operating expenses and the sufficiency of financial resources
to support operations, and are subject to the Safe Harbor provisions created
by that statute. Such statements are based on current expectations that
involve risks and uncertainties, including those discussed below and under
the heading "Additional Risk Factors", that could cause actual results to
differ materially from those expressed. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release
the results of any revisions to any forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. This discussion should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements
and Notes to the Condensed Financial Statements presented on pages six and
seven of the Quarterly Report and the Company's 1996 Annual report on Form
10-K, available upon request, for a complete understanding of the company's
financial position and results of operations.
RESULTS OF OPERATIONS
NET SALES for the third quarter and nine month period ended June 30, 1997
increased 3.7% to $30.1 million and decreased 10.4% to $89.4 million,
respectively, compared to net sales of $29.1 million and $99.8 million for
the comparable periods in fiscal 1996. The increase in sales for the three
month period ending June 30, 1997 as compared to the prior year period was
essentially due to sales of the Company's new Performance Enhancement
Platform (PEP) systems partially offset by a reduction in sales of single
chamber systems. The decrease in net sales for the nine month period
compared to the same period last fiscal year was principally due to the
effect of the slowdown in the semiconductor industry which began to impact
the Company's sales in the third quarter of fiscal 1996. Order and shipment
levels for the industry had been strong through March 1996, and the Company
shipped record numbers of single chamber systems in the first six months of
the last fiscal year. For the three months ended June 30, 1997 and the nine
months ended June 30, 1997, however, revenues, particularly from the sales of
single chamber photoresist removal products, spare parts and service, were
materially adversely impacted by the semiconductor slowdown. The decrease in
the sale of single chamber systems and in spare parts and service revenues
was partially offset by revenues from shipments of the Company's dual chamber
PEP systems. Dual chamber systems have accounted for approximately 46% of
the Company's plasma system sales year to date in fiscal 1997 compared to
less than 2% in the prior year period. Also offsetting, in part, the
decrease in revenue from single chamber systems compared to the last year,
was an increase in revenue from the sale of flat panel display equipment from
the Company's liquid crystal display (LCD) division in Japan and sales of
Vertical High Pressure (VHP) furnace equipment.
8
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Sales to customers in the Pacific Rim, North America and Europe accounted
for approximately 37%, 47% and 16% of net sales, respectively, for the nine
month period ended June 30, 1997 compared to approximately 31%, 49% and 20%,
respectively, for the nine month period ended June 30, 1996.
The Company's bookings of new orders for the quarter ended June 30, 1997
exceeded the previous quarter bookings and current quarter net sales. As
expected, bookings for the quarter were particularly strong in North America,
European bookings were consistent with the previous quarter, and bookings
slowed somewhat in the Pacific Rim and Japan. The Company expects that its
future bookings and sales will continue to be materially adversely impacted
by the current business climate and other factors as discussed herein.
GROSS MARGIN as a percentage of net sales for the third quarter and nine
month period of fiscal 1997 was 45% and 44%, respectively, compared to 45%
and 52% for the same quarter and nine month period of fiscal 1996. The
significant decrease in gross margin percentage for the three and nine month
periods ended June 30, 1997 as compared to the three and nine month period
ended June 30, 1996 was due to several factors, including significantly lower
sales volume of the more mature, higher margin single chamber systems,
underutilization of the manufacturing and field service and support
operations and increased revenues of lower margin new products including the
PEP and flat panel display equipment. The Company's gross margin as a
percentage of net sales is affected by a variety of other factors, including
the mix and average selling prices of products sold and the costs to
manufacture, service and support new product introductions and enhancements.
The Company expects that its gross margin will continue to be materially
adversely impacted by inefficiencies associated with new product
introductions, sales of lower margin PEP systems and flat panel display
equipment products, competitive pricing pressures, changes in product mix and
other factors including those referred to above. The Company, however, will
continue to focus on its gross margin improvement programs, including the
introduction of new value-added applications, features and options on the PEP
systems, targeted cost reduction programs and controlled spending.
A WRITE-OFF OF ACCOUNTS RECEIVABLE was recorded in the third quarter of
fiscal 1997 for the uncollectible accounts receivable due from SubMicron
Technologies PLC in Thailand. The Company recorded a $4.5 million pre-tax
charge to cover the unpaid balance on accounts receivable, less the value of
the recovered equipment, which the Company anticipates reselling in the
future.
RESEARCH AND DEVELOPMENT EXPENDITURES for the third quarter of fiscal 1997
were $4.4 million or 14.7% of net sales compared to $4.7 million or 16.1% of
net sales for the third quarter of fiscal 1996. For the nine month periods
of fiscal 1997 and fiscal 1996, research and development expenses were $12.8
million or 14.4% of net sales and $13.5 million or 13.5% of net sales,
respectively. Research and development expenses consist primarily of
salaries, project materials, consultant fees and other costs associated with
the Company's research and development efforts. Increased spending for next
generation programs including new products to accommodate 300MM wafers,
customization of current products and VHP was offset by reduced spending in
other areas of engineering including sustaining, product design and LCD
product engineering. The Company anticipates that research and development
spending in absolute dollars may
9
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increase in subsequent quarters due to the emphasis placed by the Company on
new product development, particularly on 300MM and new applications including
post etch residue removal.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the third quarter of fiscal
1997 were $7.2 million or 23.9% of net sales compared to $7.7 million or
26.3% of net sales for the third quarter of fiscal 1996. For the nine month
periods of fiscal 1997 and fiscal 1996, selling, general and administrative
expenses were $21.5 million or 24.1% and $24.7 million or 24.7% of net sales,
respectively. The decrease in absolute dollars from the corresponding period
last year is primarily due to lower third party commissions which are payable
on a significant portion of the international sales and, to a lesser extent,
to the reduction in headcount that occurred in late fiscal 1996. Third party
commissions can fluctuate significantly in any period depending on the mix of
domestic versus foreign sales that are subject to third party commissions.
International sales accounted for approximately 29% of the net sales for the
third quarter of fiscal 1997 and 53% for the nine month period ended June 30,
1997 compared to 51% and 50% for the third quarter and nine month period last
fiscal year. The Company has and is continuing to build a worldwide direct
sales and support organization which is lessening the Company's dependence on
third party representatives for these services. Consequently, third party
commissions in some regions have been eliminated or reduced. Although the
Company has taken steps to manage its spending, due to the uncertainties of
the current business climate, it anticipates that selling, general and
administrative spending may increase in absolute dollars in subsequent
quarters.
OTHER INCOME AND EXPENSES primarily consists of interest expense and interest
income. Interest expense of approximately $10,000 for the quarter and
$38,000 for the nine month period of fiscal 1997 compared to $12,000 for the
quarter and $37,000 for the nine month period of fiscal 1996 is for a
short-term loan from the Bank of Tokyo-Mitsubishi made to the Company's
wholly owned subsidiary in Japan, GaSonics International Japan K.K.. As of
June 30, 1997, borrowings under this loan agreement were 300 million yen
which is equivalent to approximately $2.6 million. Interest income from the
Company's short-term investments was approximately $140,000 for the third
quarter and $542,000 for the nine month period of fiscal 1997 compared to
$172,000 and $659,000 for third quarter and nine month period of fiscal 1996,
respectively. This decrease is essentially due to a decline in the Company's
investments in marketable securities, cash and cash equivalents that were
used to fund operating activities. The gain on sale of stock for the three
and nine month periods ended June 30, 1997 of $1.2 million and $143,000 for
the same periods ended June 30, 1996 was realized from the sale of 54,673
shares and 5,000 shares, respectively, of Integrated Process Equipment
Corporation (IPEC) common stock. The Company received a total of 294,600
shares of IPEC Class A common stock during fiscal 1990 in exchange for
services provided by the Company. During the third quarter ended June 30,
1997, the Company sold all its 54,673 shares of the IPEC common stock.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1997, cash, cash equivalents and
marketable securities decreased by $7.6 million to $18.3 million at June 30,
1997 from $25.9 million at September 30, 1996. Operating activities used
$4.0 million of cash for the nine month period ended June 30, 1997 compared
to the use of $9.1 million for the same period of fiscal 1996.
10
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Investing activities for the first nine months of fiscal 1997 provided cash
of approximately $1.0 million. Capital spending of $5.0 million was
partially offset by proceeds from the sale of marketable securities totaling
$6.0 million. Capital spending included purchases of equipment and the
installation of a new computer system. For the same nine month period last
year, the Company received proceeds from the sale of $12.7 million in
marketable securities and used $5.1 million to purchase equipment and
leasehold improvements.
Financing activities provided $2.2 million and $2.1 million for the nine
month periods ended June 30, 1997 and 1996, respectively, primarily from the
issuance of stock in connection with the Company's employee stock purchase
and stock option plans.
At June 30, 1997, the Company had working capital of $59.3 million compared
to $59.2 million at September 30, 1996. Accounts receivable at June 30, 1997
increased $8.9 million from September 30, 1996 due primarily to delayed final
acceptance for one customer, extended payment terms and an increase in
current quarter revenue over the quarter ending September 30, 1996. If any
customer is unable to pay for the Company's equipment, the Company's
financial condition and results of operations could be materially adversely
affected. Inventory increased $1.1 million from September 30, 1996 to June
30, 1997 primarily due to the recovery of equipment from SubMicron
Technologies, which was partially offset by efforts focused on cycle time
reduction. The Company expects future inventory levels to fluctuate from
period to period, and believes that because of the relatively long
manufacturing cycle of its products, its investment in inventories will
continue to represent a significant portion of working capital. As a result
of such investment in inventories, the Company may be subject to an
increasing risk of inventory obsolescence, which could materially adversely
affect the Company's operating results.
The Company's principal sources of liquidity at June 30, 1997 consisted of
approximately $11.1 million in cash and cash equivalents, $7.2 million in
marketable securities and a $20.0 million unsecured line of credit with Union
Bank which was entered into on March 4, 1997. A commercial letter of credit
provision of $500,000 and a foreign exchange contract provision of $1.0
million is also provided under the credit line. Available borrowing under
the credit line is reduced by the amount of outstanding letters of credit.
The line of credit contains certain covenants, including covenants relating
to financial ratios and tangible net worth which must be maintained by the
Company. As of June 30, 1997, except for $69,193 outstanding under the
letter of credit provision, there were no borrowings outstanding under this
line, and the Company was in compliance with its bank covenants. The line of
credit agreement expires February 28, 1998. On May 1, 1997 GaSonics
International Japan KK entered into a 300 million yen overdraft facility with
the Bank of Tokyo Mitsubishi against a promissory note which is secured by a
Letter of Guarantee issued by the Company. The overdraft facility expires on
February 28, 1998. As of June 30, 1997, GaSonics International Japan KK had
borrowed the total 300 million yen available under this loan agreement which
is equivalent to approximately $2.6 million as of that date.
The Company believes anticipated cash flows from operations, funds available
under its existing revolving line of credit facility and existing cash, cash
equivalents and marketable securities will be sufficient to meet the
Company's cash requirements during the next twelve months. Beyond
11
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the next twelve months, the Company may require additional equity or debt
financing to achieve its working capital or capital equipment needs.
12
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ADDITIONAL RISK FACTORS
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated significantly in the past and
will continue to fluctuate significantly in the future. The Company
anticipates that factors continuing to affect its future operating results
will include the cyclicality of the semiconductor industry and the markets
served by the Company's customers, the timing of significant orders, patterns
of capital spending by customers, the proportion of direct sales and sales
through distributors, the proportion of international sales to net sales,
changes in pricing by the Company, its competitors, customers or suppliers,
market acceptance of new and enhanced versions of the Company's products, the
mix of products sold, the establishment, expense and improvement of financial
systems, procedures and controls, discounts, the timing of new product
announcements and releases by the Company or its competitors, delays,
cancellations or rescheduling of orders due to customer financial
difficulties or otherwise, the Company's ability to produce systems in volume
and meet customer requirements, the ability of any customer to finance its
purchases of the Company's equipment, changes in overhead absorption levels
due to changes in the number of systems manufactured, political and economic
instability and lengthy sales cycles. Gross margins have varied and will
continue to vary materially based on a variety of factors including the mix
and average selling prices of systems sales, the mix of revenues, including
service and support revenues, and the costs associated with new product
introductions and enhancements and the customization of systems. Furthermore,
announcements by the Company or its competitors of new products and
technologies could cause customers to defer purchases of the Company's
existing systems, which would also materially adversely affect the Company's
business, financial condition and results of operations. The Company's gross
margin and overall gross margin rate has sharply declined from the level
attained less than a year ago due, in part, to start-up inefficiencies
associated with new products, competitive pricing pressures, changes in
product mix from fewer higher margin rate and mature single chamber products
to lower margin rate dual chamber products, products sold by the Company's
LCD division in Japan, and other factors. Additionally, sales and earnings
for the last half of fiscal 1996 and the first three quarters of fiscal 1997
were materially adversely impacted by the current semiconductor business
slowdown and, while the Company has and is continuing to attempt to manage
its expenses to partially offset the loss of income from the decline in
revenue, it is anticipated that this slowdown in the industry will continue
for the next several quarters and will continue to have a material adverse
effect on the Company's future revenues and operating results.
LIMITED SYSTEM SALES; BACKLOG
The Company derives a substantial portion of its sales from the sale of a
relatively small number of systems which typically range in purchase price
from approximately $150,000 to $700,000 for its photoresist removal systems
and up to approximately $2.0 million or more for its other products. As a
result, the timing of recognition of revenue for a single transaction could
continue to have a material adverse effect on the Company's sales and
operating results. The Company's backlog at the beginning of a quarter
typically does not include all sales required to achieve the Company's sales
objectives for that quarter. Moreover, all customer purchase orders are
subject to cancellation or rescheduling by the customer with limited or no
penalties and, therefore, backlog at any particular
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date is not necessarily representative of actual sales for any succeeding
period. The Company's net sales and operating results for a quarter may
depend upon the Company obtaining orders for systems to be shipped in the
same quarter that the order is received. The Company's business and financial
results for a particular period could be materially adversely affected if an
anticipated order for even one system is not received in time to permit
shipment during such period. Furthermore, most of the Company's quarterly net
sales have recently been realized near the end of the quarter. A delay in a
shipment near the end of a particular quarter, due, for example, to an
unanticipated shipment rescheduling, to cancellations or deferrals by
customers, to unexpected manufacturing difficulties experienced by the
Company or to supply shortages, may cause net sales in a particular quarter
to fall significantly below the Company's expectations and may materially
adversely affect the Company's operating results for such quarter. In
addition, significant investments in research and development, capital
equipment and customer service and support capability worldwide have resulted
in significant fixed costs which the Company will not be able to reduce
rapidly if sales goals for a particular period are not met, which has
recently been the case. Because the Company builds its systems according to
forecast, a reduction in customer orders or backlog could present further
difficulties regarding the Company's ability to plan production and inventory
levels, which could adversely impact operating results. The impact of these
and other factors on the Company's operating results in any future period
cannot be forecasted accurately.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's business depends in significant part upon capital expenditures
by manufacturers of semiconductor devices, including manufacturers that are
opening new or expanding existing fabrication facilities, which, in turn,
depend upon the current and anticipated market demand for such devices and
products utilizing such devices. The semiconductor industry is highly
cyclical and historically has experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including systems
manufactured and marketed by the Company. The semiconductor industry has
experienced significant growth in recent years which has resulted in
significant growth in the capital equipment industry. However, in the last
year the semiconductor industry has experienced a cyclical downturn. The
Company has experienced significant delays of new orders and rescheduling of
existing orders that have materially adversely affected the Company's last
two quarters of fiscal 1996 and the first three quarters of fiscal 1997
financial results and may materially adversely affect future financial
results. Accordingly, the Company can give no assurance that it will be able
to achieve or maintain its current level of sales. Additionally, the Company
anticipates that a significant portion of new orders depend upon demand from
integrated circuit (IC) manufacturers building or expanding large fabrication
facilities, and there can be no assurance that such demand will exist.
HIGHLY COMPETITIVE INDUSTRY
The semiconductor capital equipment industry is intensely competitive. A
substantial investment is required by customers to install and integrate
capital equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular vendor's capital
equipment, the Company believes that the manufacturer generally relies upon
that equipment for the specific production line application and frequently
will attempt to consolidate its other capital equipment requirements with the
same vendor. Accordingly, the Company expects to experience
14
<PAGE>
difficulty in selling to a particular customer for a significant period of
time if that customer selects a competitor's capital equipment. The Company
currently has only one principal product line and experiences intense
competition worldwide from a number of foreign and domestic manufacturers,
including Alcantech, Applied Materials, Inc., Fusion Systems Corporation, Lam
Research Corporation, Matrix Semiconductor Systems, Inc., Mattson Technology,
Inc., Plasma Systems and Ramco, many of which have substantially greater
installed bases and greater financial, marketing, technical and other
resources than the Company. It was recently announced that one of the
Company's competitors, Fusion, is being acquired by a much larger corporation
and the Company believes this consolidation will cause the Company's
competitors to continue to be larger with greater infrastructures and
resources. Certain of the Company's competitors have announced the
introduction of, or have introduced, competitive products that offer other
technologies and improvements. Applied Materials and Lam Research have
introduced and currently sell modules to their products which remove
photoresist using dry chemical processing and, therefore, compete with the
Company's products. The Company expects its competitors to continue to
develop enhancements to and future generations of competitive products that
may offer improved price or performance features. New product introductions
and enhancements by the Company's competitors could cause a significant
decline in sales or loss of market acceptance of the Company's systems in
addition to intense price competition or otherwise make the Company's systems
or technology obsolete or noncompetitive. In addition, by virtue of its
reliance on sales of advanced dry chemistry processing equipment, the Company
could be at a disadvantage compared to certain competitors that offer more
diversified product lines. The Company believes that it will continue to face
competition from current and new vendors employing other technologies, such
as wet chemistry, traditional dry chemistry and other ashing techniques, as
such competitors attempt to extend the capabilities of their existing
products. Increased competitive pressure has led to reduced demand and lower
prices for the Company's products, thereby materially adversely affecting the
Company's operating results. There can be no assurance that the Company will
be able to compete successfully in the future.
Competitors of the Company's LCD division in Japan include Japan-based
companies and Japan-based joint ventures such as Applied Komatsu and Koyo
Lindbergh. These competitors manufacture alternative technology systems and
they could, at any time, enter the Company's markets with improved technology
or with systems that are directly competitive with those of the Company's LCD
division.
DEPENDENCE ON KEY CUSTOMERS
Historically, the Company has sold a significant proportion of its systems in
any particular period to a limited number of customers. Sales to the
Company's ten largest customers in fiscal 1994, 1995 and 1996 and the first
nine months of fiscal 1997 accounted for approximately 71%, 68%, 51% and 64%
of net sales, respectively. The Company expects that sales of its products to
relatively few customers will continue to account for a high percentage of
net sales in the foreseeable future. None of the Company's customers has
entered into a long-term agreement requiring it to purchase the Company's
products. Moreover, sales to certain of its customers have decreased as those
customers have completed or delayed purchasing requirements for new or
expanded fabrication facilities. Although the composition of the group
comprising the Company's largest customers has varied from year to year, the
loss of a significant customer or any reduction in orders from any
significant customer, including reductions from recent buying patterns,
market, economic or competitive
15
<PAGE>
conditions in the semiconductor industry or in the industries that
manufacture products utilizing ICs, could materially adversely affect the
Company's business, financial condition and results of operations. The
Company's ability to increase or maintain current sales levels in the future
will depend in part upon its ability to obtain orders from new customers as
well as the financial condition and success of its customers and the general
economy, of which there can be no assurance.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
The Company has undergone a period of rapid growth. Since 1993, the Company
has significantly increased the scale of its operations to support increased
sales levels and has expanded its operations to address critical
infrastructure requirements, including the hiring of additional personnel,
commencement of independent operations in the United Kingdom, France, Italy,
Korea, Japan, Singapore and Taiwan and significant investments in research
and development to support product development. The Company's expansion has
resulted in significantly higher operating expenses and due to the recent
slowdown in new orders, it is anticipated that the Company's future operating
results will continue to be materially adversely affected.
The past growth in the Company's sales and expansion in the scope of its
operations has placed a considerable strain on its management, financial and
other resources and has required the Company to initiate an extensive
reevaluation of its operating and financial systems, procedures and controls.
The Company successfully implemented new management information,
manufacturing and cost accounting systems during the second quarter of fiscal
1997 and will continue to improve these systems. There can be no assurance,
however, that any existing or new systems, procedures or controls will be
adequate to support the Company's operations or that its new systems will be
implemented in a cost-effective and timely manner.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The semiconductor manufacturing industry is subject to rapid technological
change and new product introductions and enhancements. The Company's ability
to be competitive will depend in part upon its ability to develop new and
enhanced systems and to introduce these systems at competitive prices and in
a timely and cost effective manner to enable customers to integrate the
systems into their operations either prior to or upon commencement of volume
product manufacturing. In addition, new product introductions or enhancements
by the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Increased competitive pressure
has led to intensified price-based competition resulting in lower prices and
margins, which has and could continue to materially adversely affect the
Company's business, financial condition and results of operations. Any
success of the Company in developing, introducing and selling new and
enhanced systems depends upon a variety of factors including product
selection, timely and efficient completion of product design and development,
timely and efficient implementation of manufacturing and assembly processes,
effective sales and marketing and product performance in the field. In
particular, the Company's future performance will depend in part upon the
successful commercialization of the VHP and the PEP. There can be no
assurance that any such product will achieve any significant revenues or
contribute to any profitability of the Company. Because new product
development commitments must be made well
16
<PAGE>
in advance of sales, new product decisions must anticipate both the future
demand for the type of ICs under development by leading IC manufacturers and
the equipment required to produce such ICs. There can be no assurance that
the Company will be successful in selecting, developing, manufacturing and
marketing new products or in enhancing existing products.
Because of the large number of components in, and the complexity of, the
Company's systems, significant delays can occur between a system's initial
introduction and the commencement of volume production. As is typical in the
semiconductor capital equipment market, the Company has been experiencing
delays from time to time in the introduction of, and certain technical,
quality and manufacturing difficulties with, certain of its systems and
enhancements and may continue to experience delays and technical, quality
and manufacturing difficulties in future introductions or volume production
of new systems or enhancements. The Company's inability to complete the
development or meet the technical specifications of any of its new systems or
enhancements or to manufacture and ship these systems or enhancements in
volume and in a timely manner would materially adversely affect the Company's
business, financial condition and results of operations as well as its
customer relationships. In addition, the Company may incur substantial
unanticipated costs to ensure the functionality, quality and reliability of
its future product introductions early in the product's life cycle. If new
products have reliability or quality problems, reduced orders or higher
manufacturing costs, delays in collecting accounts receivable and additional
service and warranty expenses may result, which events could materially
adversely affect the Company's business, financial condition and results of
operations.
LENGTHY SALES CYCLE
Sales of the Company's systems depend, in significant part, upon the decision
of a prospective customer to increase manufacturing capacity through the
expansion of existing fabrication facilities or the opening of new
facilities, which typically involves a significant capital commitment. The
Company often experiences delays in finalizing system sales following initial
system qualification while the customer evaluates and receives approvals for
the purchase of the Company's systems and completes a new or expanded
facility. Due to these and other factors, the Company's systems typically
have a lengthy sales cycle during which the Company may expend substantial
funds and management effort. The Company believes that the length of the
sales cycle will continue to increase as certain of its customers centralize
purchasing decisions into one decision making entity, which is expected to
intensify the evaluation process and require additional sales and marketing
expenditures by the Company.
RISKS ASSOCIATED WITH THE JAPANESE MARKET
The Company believes that increased penetration of the Asia Pacific market,
particularly Japan, will be essential to its future financial performance.
The Company has sold a relatively few number of systems to Japanese
semiconductor manufacturers, although there was a significant increase in the
Company's sales from Japan in fiscal 1996 compared to fiscal 1995 and for the
first three quarters of fiscal 1997 compared to the same period of fiscal
1996. To date, for its photoresist business, the Company has not fully
developed a customer service and support capability in Japan and remains at a
disadvantage in selling, servicing and supporting such products in Japan. The
Japanese semiconductor market (including fabrication plants operated outside
of Japan by Japanese
17
<PAGE>
semiconductor manufacturers) represents a substantial percentage of the
worldwide semiconductor manufacturing capacity, and has been difficult for
non-Japanese companies to penetrate. Furthermore, the licensing of products
and process technologies by Japanese semiconductor manufacturers to
non-Japanese semiconductor manufacturers could result in a recommendation to
use certain semiconductor capital equipment manufactured by Japanese
companies. Late in fiscal 1995, the Company acquired its LCD division in
Japan, but there can be no assurance that this company will enable the
Company to penetrate the photoresist removal market in Japan. In addressing
this market, the Company is at a distinct competitive disadvantage compared
to leading Japanese suppliers, many of which have long-standing collaborative
relationships with Japanese semiconductor manufacturers. In addition, since
1992, Japanese semiconductor manufacturers have substantially reduced their
levels of capital spending on new fabrication facilities and equipment,
thereby increasing competitive pressures in the Japanese market. Although the
Company is investing significant resources in Japan which has significantly
increased operating expenses, there can be no assurance that the Company will
be able to achieve significant sales to the Japanese semiconductor market.
INTERNATIONAL SALES
International sales accounted for 41%, 40%, 54% and 53% of net sales in
fiscal years 1994, 1995, 1996 and the first three quarters of fiscal 1997,
respectively. The Company has established independent operations in the
United Kingdom, France, Italy, Korea, Japan, Singapore, Taiwan and during the
third quarter of fiscal 1997, established subsidiaries in Israel and Ireland.
The Company anticipates that international sales will continue to account
for a significant portion of net sales. International sales are subject to
certain risks, including unexpected changes in regulatory requirements,
difficulty in satisfying existing regulatory requirements, exchange rates,
foreign currency fluctuations, tariffs and other barriers, political and
economic instability, potentially adverse tax consequences, natural
disasters, outbreaks of hostilities, difficulties in accounts receivable
collection, extended payment terms, difficulties in managing distributors or
representatives and difficulties in staffing and managing foreign subsidiary
and branch operations. The Company is also subject to the risks associated
with the imposition of legislation and import and export regulations. The
Company cannot predict whether tariffs, quotas, duties, taxes or other
charges or restrictions will be implemented by the United States, Japan or
any other country upon the importation or exportation of the Company's
products in the future. There can be no assurance that these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
INTELLECTUAL PROPERTY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, it believes
that its financial performance will depend more upon the innovation,
technological expertise and marketing abilities of its employees than upon
such protection. There can be no assurance that any of the Company's pending
patent applications will be issued or that foreign intellectual property laws
will protect the Company's intellectual property rights. There can be no
assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will
provide competitive advantages to the Company. Furthermore, there can be no
assurance that others will not
18
<PAGE>
independently develop similar products, duplicate the Company's products or,
if patents are issued to the Company, design around the patents issued to the
Company.
As is typical in the semiconductor industry, the Company has received notices
from time to time from third parties alleging infringement claims. Although
there are currently no pending claims or lawsuits against the Company
regarding any possible infringement claims, there can be no assurance that
infringement claims by third parties or claims for indemnification resulting
from infringement claims will not be asserted in the future or that such
assertions, if proven to have merit, will not materially adversely affect the
Company's business, financial condition and results of operations. If any
such claims are asserted against the Company, the Company may seek to obtain
a license under the third party's intellectual property rights. There can be
no assurance that a license will be available on reasonable terms or at all.
The Company could decide, in the alternative, to resort to litigation to
challenge such claims. Such challenges could be extremely expensive and time
consuming and could materially adversely affect the Company's business,
financial condition and results of operations.
SOLE OR LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS; COMPLEXITY IN
MANUFACTURING PROCESS
Certain components, subassemblies and services necessary for the manufacture
of the Company's systems are obtained from a sole supplier or a limited group
of suppliers. Specifically, the Company relies on three companies for supply
of the robotics used in its products and two other companies for microwave
power supplies used in all of its ashing systems. The Company does not
maintain any long-term supply agreements with any of its suppliers. The
Company is relying increasingly on outside vendors to manufacture certain
components and subassemblies. The Company's reliance on sole or a limited
group of suppliers and the Company's increasing reliance on subcontractors
involve several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and timely
delivery of components and subassemblies. Because the manufacture of certain
of these components and subassemblies is an extremely complex process and
requires long lead times, there can be no assurance that delays or shortages
caused by suppliers will not occur in the future. Certain of the Company's
suppliers have relatively limited financial and other resources. 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
products, which could damage relationships with current and prospective
customers and could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's LCD division in
Japan is heavily dependent on one key supplier for quartz and is seeking
alternative sources.
FUTURE ACQUISITIONS
In August 1995, the Company acquired its flat panel display equipment (LCD)
division in Japan (formerly called Tekisco). In the future, the Company may
pursue acquisitions of additional product lines, technologies or businesses.
Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, incurrence of debt and amortization expenses
related to goodwill and other intangible assets, which could materially
adversely affect the
19
<PAGE>
Company's financial condition and results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience, and the potential loss of key employees of the
acquired company. From time to time, the Company has engaged in preliminary
discussions with third parties concerning potential acquisitions of product
lines, technologies and businesses; however, there are currently no
agreements with respect to any acquisition. In the event that such an
acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business, financial condition or operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's financial performance will depend in significant part upon the
continued contributions of its officers and key personnel, many of whom would
be difficult to replace. No employee has an employment or noncompetition
agreement with the Company. The Company is recruiting a Vice President of
Sales and other employees for key positions. The loss of any key person
could have a material adverse effect on the business, financial condition and
results of operations of the Company. During the last twelve months, a number
of senior management personnel have left the Company to pursue other
opportunities. Although the Company has been replacing these senior
management personnel, there can be no assurance that these individuals will
successfully integrate into the Company's senior management team. In
addition, the Company's future operating results depend in part upon its
ability to attract and retain other qualified management, engineering,
financial and accounting, technical, marketing and sales and support
personnel for its operations. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting
or retaining such personnel. The failure to attract or retain such persons
could materially adversely affect the Company's business, financial condition
and results of operations.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance
in all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. Nevertheless, the
failure to comply with current or future regulations could result in
substantial fines being imposed on the Company, suspension of production,
alteration of its manufacturing process or cessation of operations. Such
regulations could require the Company to acquire expensive remediation
equipment or to incur substantial expenses to comply with environmental
regulations. Any failure by the Company to control the use, disposal or
storage of, or adequately restrict the discharge of, hazardous or toxic
substances could subject the Company to significant liabilities.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As of June 30, 1997, the Company's officers, directors and members of their
families that may be deemed affiliates of such persons beneficially owned
approximately 25.3% of the Company's
20
<PAGE>
outstanding shares of Common Stock. Accordingly, these stockholders will be
able to significantly influence the election of the Company's directors and
the outcome of corporate actions requiring stockholder approval, such as
mergers and acquisitions, regardless of how other stockholders of the Company
may vote. Such a high level of ownership by such persons or entities may have
a significant effect in delaying, deferring or preventing a change in control
of the Company and may adversely affect the voting and other rights of other
holders of Common Stock. Certain provisions of the Company's Certificate of
Incorporation, 1994 Stock Option/Stock Issuance Plan, Bylaws and Delaware law
may also discourage certain transactions involving a change in control of the
Company. In addition to the foregoing, the ability of the Company's Board of
Directors to issue preferred stock without further stockholder approval could
have the effect of delaying, deferring or preventing a change in control of
the Company.
VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, sales of the Company's Common Stock into the market place, failure
to meet or changes in analysts' expectations, natural disasters, outbreaks of
hostilities, general conditions in the semiconductor industry or the
worldwide economy, announcements of technological innovations or new products
or enhancements by the Company or its competitors, developments in patents or
other intellectual property rights and developments in the Company's
relationships with its customers and suppliers could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market in general, and the market for shares of small
capitalization stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's
performance.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Pascal Didier, Vice President of World Wide Sales, resigned on
July 18, 1997. The Company intends to recruit a suitable
replacement.
On July 14, 1997, the Company consummated the sale of its
industrial plasma cleaning products and services business and
related assets to MetroLine Industries in Corona, California.
This business, consisting of barrel ashing and cleaning systems,
focuses primarily on non-semiconductor industrial applications.
These operations were not material to the Company's assets,
revenues or earnings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.22 Loan agreement dated May 1, 1997 between Registrant
and Bank of Tokyo-Mitsubishi
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GASONICS INTERNATIONAL CORPORATION
(Registrant)
\s\ TERRY R. GIBSON
----------------------------
Date: August 7, 1997 By: Terry R. Gibson
Vice President, Finance
Chief Financial Officer
23
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
10.22 Loan agreement dated May 1, 1997 between Registrant and Bank
of Tokyo-Mitsubishi
27 Financial Data Schedule
24
<PAGE>
Exhibit 10.22
AGREEMENT ON OVERDRAFT IN CURRENT ACCOUNT
-----------------------------------------
April 25, 1997
To: THE BANK OF TOKYO-MITSUBISHI, LIMITED
In addition to the provisions of the Current Account Regulations and the
terms and conditions set forth in the Agreement on Bank Transactions which
I/we have separately furnished to your Bank, I/we do hereby agree to the
terms and conditions set forth in the following Articles in regard to my/our
overdraft transactions in connection with my/our current account transactions
with your Bank.
Article 1. (Maximum Amount of Overdraft)
/1/ The maximum amount of overdraft shall be Y300,000,000.
/2/ Your Bank may at its discretion pay checks, promissory notes, bills
of exchange or other instruments in excess of the maximum amount of
overdraft. In the event your Bank makes such payment, I/we shall pay
the amount of such excess to your Bank immediately upon your Bank's
demand.
Article 2. (Term)
The effective period of this Agreement shall terminate on Feb. 27, 1998.
However, unless either of the parties indicates its intention to terminate
by the day preceding the expiry date, the above period shall be further
extended for another 12 months and the same shall apply thereafter.
Article 3. (Interest and Damages)
/1/ The rate of interest on overdraft shall be at the rate determined by
your Bank. Your Bank may collect such interest and damages as will be
calculated at such time and in such manner as determined by your Bank
by debiting from my/our account or adding such interest and damages
to the principal of overdraft.
/2/ If, as a result of the addition under the preceding Paragraph, the
principal of overdraft exceeds the maximum amount of overdraft, I/we
shall pay the amount of such excess to your Bank immediately upon
your Bank's demand.
Article 4. (Security)
In the case of overdraft under this Agreement, all instruments received by
your Bank from me/us for deposit in my/our current account shall be deemed
to have been assigned to your Bank as security for overdraft.
Article 5. (Immediate Payment)
/1/ In the event any one of the following events occurs to me/us, I/we
shall immediately pay the principal of and interest on overdraft
without any notice or demand, etc., from your Bank:
- 1 -
<PAGE>
1. When I/we have become unable to pay debts or application or petition
is submitted for bankruptcy, commencement of composition of
creditors, commencement of corporate reorganization proceedings,
commencement of company arrangement, or commencement of special
liquidation.
2. When the Clearing House in observance of its rules takes procedures
for suspension of my/our transactions with banks and similar
institutions.
3. When order or notice of provisional attachment, preservative
attachment or attachment is dispatched in respect of my/our or the
guarantor's deposits and/or any other credits with your Bank.
4. When my/our whereabouts become unknown to your Bank due to my/our
failure to notify your Bank of change of my/our address or any other
causes attributable to me/us.
/2/ In any of the following cases, I/we shall pay the principal of and
interest on overdraft immediately upon your Bank's demand:
1. When I/we fail to pay any of my/our obligations to your Bank when
it is due.
2. When property offered to your Bank as security is attached or
public auction procedure is commenced in respect of such property.
3. When I/we violate the stipulations of any transactions with your
Bank.
4. When the guarantor falls under any one of the items of the
preceding Paragraph or this Paragraph.
5. In addition to each of the preceding items, when a reasonable and
probable cause necessitates the preservation of your Bank's rights.
Article 6. (Suspension, Reduction and Termination)
/1/ In the event any one of the events provided for in Paragraph /1/ of
the preceding Article occurs to me/us, your Bank may suspend the
overdraft facility without giving prior notice. The same shall apply
in the event the maximal-hypothec security for the obligations under
this Agreement has been made definite, or notice of attachment of the
maximal-hypothecary assets by way of tax delinquency measures has
been made.
/2/ In the event there has been a change in the financial conditions or
if it becomes necessary for your Bank to preserve your Bank's rights
or if there exists any other reasonable causes, your Bank may at any
time reduce the maximum amount of overdraft, suspend the overdraft
facility or terminate this Agreement.
/3/ In the event your Bank effects reduction, suspension or termination
pursuant to the preceding two Paragraphs, I/we shall have no
objection even if any promissory note or check drawn by me/us or any
bill of exchange accepted by me/us by such time is dishonored as a
result of such reduction, suspension or termination, and I/we shall
bear any and all loss and damage resulting from such dishonor. The
same shall apply in the event the transactions herein are terminated
upon expiry of the period of this Agreement.
/4/ When the transaction pursuant to this Agreement is terminated or when
the overdraft facility is suspended, I/we shall immediately pay the
principal of and interest on overdraft. Further, if the maximum
amount of
- 2 -
<PAGE>
overdraft is reduced, I/we shall immediately pay the amount of
overdraft exceeding the revised maximum amount.
Article 7. (Guarantee)
/1/ In regard to any and all obligations the Principal may owe your Bank
as a result of transactions pursuant to this Agreement, the Guarantor
shall be jointly and severally liable with the Principal for the
performance of all such obligations, and the Guarantor hereby agrees
to abide by the terms and conditions of this Agreement as well as the
provisions of the Current Account Regulations and the terms and
conditions set forth in the Agreement on Bank Transactions which the
Principal has separately furnished to your Bank, with regard to the
performance of any such obligations.
/2/ Even if your Bank changes or releases the security or other
guarantees at your Bank's convenience, the Guarantor shall not claim
exemption from the obligations.
/3/ The Guarantor shall not set off any obligations which the Principal
and/or the Guarantor may owe your Bank against any of the Principal's
deposits and/or any other credits with your Bank.
/4/ If and when the Guarantor performs any obligations of the guarantee,
the Guarantor shall not exercise any rights obtained from your Bank
by subrogation without the prior approval of your Bank so long as
transactions between the Principal and your Bank continue. Upon your
Bank's demand, the Guarantor shall assign such rights and priority to
your Bank without compensation.
/5/ In the event the Guarantor has separately furnished a guarantee with
respect to the obligations owed by the Principal to your Bank, or if
he shall furnish such guarantee in the future, the total amount of
the guarantee shall be the aggregate amount thereof unless otherwise
agreed, and such other guarantees shall not be affected by this
guarantee.
The Principal
Signature:
Full Name:
Address:
The Joint Guarantor
Signature:
Full Name:
Address:
(All questions that may arise within or without courts of law in regard to
the meaning of the words, provisions and stipulations of this Agreement shall
be decided in accordance with the Japanese text.)
- 3 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 11099
<SECURITIES> 7233
<RECEIVABLES> 32655
<ALLOWANCES> 690
<INVENTORY> 27938
<CURRENT-ASSETS> 83691
<PP&E> 20506
<DEPRECIATION> 5687
<TOTAL-ASSETS> 100305
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<COMMON> 604
<OTHER-SE> 74849
<TOTAL-LIABILITY-AND-EQUITY> 100305
<SALES> 89404
<TOTAL-REVENUES> 89404
<CGS> 49981
<TOTAL-COSTS> 49981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 2224
<INCOME-TAX> 778
<INCOME-CONTINUING> 1446
<DISCONTINUED> 0
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