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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 DECEMBER 31, 1999
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
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2159729
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
2730 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
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
At February 2, 2000, there were 14,611,420 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
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the three
month period ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three
month period ended December 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 2A. Quantitative and Qualitative Disclosure about Market Risks 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Securityholders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
Exhibit Index 26
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, September 30,
1999 1999
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ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,756 $16,858
Marketable securities 18,700 10,899
Trade accounts receivable, net 21,344 18,986
Inventories 17,892 16,523
Net deferred tax asset 5,697 5,697
Prepaid expenses and other current assets 3,322 3,197
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Total current assets 75,711 72,160
Property and equipment, net 10,708 11,266
Deposits and other assets 660 782
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Total assets $87,079 $84,208
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under credit facility $ 2,713 $ 2,832
Accounts payable 6,277 5,691
Income taxes payable 4,121 4,616
Accrued expenses 9,885 9,446
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Total current liabilities 22,996 22,585
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Stockholders' equity:
Common stock and
additional paid-in capital 41,810 40,637
Treasury stock (see Note 8) (2,639) (2,639)
Subscription receivable (27) (26)
Unrealized loss on investment (50) -
Retained earnings 24,989 23,651
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Total stockholders' equity 64,083 61,623
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Total liabilities and stockholders' equity $87,079 $84,208
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</TABLE>
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
DECEMBER 31,
--------------------------------
1999 1998
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<S> <C> <C>
Net sales $25,603 $10,022
Cost of sales 14,293 7,870
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Gross margin 11,310 2,152
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Operating expenses:
Costs associated with reduction in force - 407
Research & development 4,366 3,636
Selling, general & administrative 5,915 5,303
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Total operating expenses 10,281 9,346
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Operating income (loss) 1,029 (7,194)
Other income and expense, net 309 315
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Income (loss) before provision for income taxes 1,338 (6,879)
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Provision for income taxes - -
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Net income (loss) $ 1,338 $ (6,879)
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Net income (loss) per share - Basic $0.09 $ (0.49)
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Net income (loss) per share - Diluted $0.09 $ (0.49)
--------- ---------
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Weighted average common shares - Basic 14,659 14,172
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Weighted average common &
common equivalent shares - Diluted 15,258 14,172
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</TABLE>
See accompanying notes.
4
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net cash used for operating activities $ (709) $ (3,383)
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Cash flows from investing activities:
Purchases of property & equipment (595) (290)
Increase in marketable securities (7,850) (578)
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Net cash used for investing activities (8,445) (868)
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Cash flows from financing activities:
Increase (decrease) in borrowings under credit facility (119) 234
Proceeds from issuance of common stock 1,171 673
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Net cash provided by financing activities 1,052 907
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Net decrease in cash and cash equivalents (8,102) (3,344)
Cash & cash equivalents at beginning of period 16,858 14,698
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Cash & cash equivalents at end of period $ 8,756 $ 11,354
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</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 three months ended December 31, 1999 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 fiscal
year ended September 30, 1999.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
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(unaudited)
<S> <C> <C>
Raw Materials $ 7,780 $ 7,784
Work in Process 6,179 5,409
Finished Goods 3,933 3,330
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$17,892 $16,523
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</TABLE>
3. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
Net income (loss) 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).
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings per common share for the three months ended December 31,
1999 and 1998 were computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per common share for the three months ended December 31, 1999 and 1998,
were calculated using the treasury stock method to compute the weighted average
common stock outstanding (in thousands, except per share data).
6
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<TABLE>
<CAPTION>
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PER SHARE
FOR THE THREE MONTHS ENDED DEC. 31, 1999 INCOME SHARES AMOUNT
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<S> <C> <C> <C>
Net income $ 1,338
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 1,338 14,659 $ 0.09
Effect of dilutive securities:
Options issued to purchase common stock 599
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 1,338 15,258 $ 0.09
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PER SHARE
FOR THE THREE MONTHS ENDED DEC. 31, 1998 LOSS SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Net loss $ (6,879)
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders $ (6,879) 14,172 $ (0.49)
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</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments including standalone
instruments, such as forward currency exchange contracts and interest rate swaps
or embedded derivatives and requires that these instruments be marked-to-market
on an ongoing basis. These market value adjustments are to be included either in
the income statement or stockholders' equity, depending on the nature of the
transaction. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and cannot be applied retroactively. The effect of SFAS No. 133 is not
expected to be material to the Company's financial statements.
5. SEGMENT REPORTING
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect the Company's results of operations or financial
position, but did affect the disclosure of segment information. The Company is
organized on the basis of products and services. All of the Company's business
units have been aggregated into one operating segment. The Company's
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service business is a separate operating segment: however, this segment does not
meet the quantitative thresholdsprescribed in SFAS No. 131. As a result, in the
opinion of management, no additional operating segment information is required
to be disclosed.
6. COMPREHENSIVE INCOME
Effective December 31, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. For the three months ended
December 31, 1999 and 1998, there were no material items of other comprehensive
income (loss), thus comprehensive income for these periods did not differ
materially from net income as reported in the accompanying financial statements.
7. CHARGES TAKEN DURING FISCAL YEAR 1999
The three month period ended December 31, 1998 included pre-tax charges of
approximately $407,000, related primarily to costs of a reduction in force
completed in December 1998. As of December 31, 1999, these costs have been paid.
8. STOCK REPURCHASE PROGRAM
On December 16, 1998, the Company's Board of Directors authorized a stock
repurchase program. Under this program 500,000 shares of its Common Stock may be
repurchased by the Company in the open market, from time-to-time at market
prices not to exceed $15.00 per share using available cash. As of December 31,
1999, the Company had repurchased 200,000 shares of common stock in the open
market at an aggregate cost of approximately $2.6 million.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including,
but not limited to, statements relating to future sales, gross margins, product
development, operating expense levels, and the sufficiency of financial
resources to support future operations, and are subject to the Safe Harbor
provisions created by that statute. Such statements are based on current
expectations that involve inherent 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 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 Condensed Consolidated Financial Statements and Notes to
the Condensed Financial Statements presented in the Company's 1999 Annual Report
on Form 10-K, available upon request, for a more complete understanding of the
Company's financial position, business and results of operations.
OVERVIEW
The Company currently has only one principal product line and is a leading
developer and supplier of a portfolio of products and services used in the
fabrication of advanced integrated circuits ("ICs") and flat panel displays
("FPDs"). The Company's products consist of photoresist removal systems,
residual removal systems, isotropic etch systems and high pressure furnaces for
the semiconductor industry and low-pressure chemical vapor deposition systems
("LPCVD") for the flat panel display industry. In addition, the Company provides
spare parts and upgrades, as well as maintenance and support services
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 including the recent, prolonged and severe downturn in the
worldwide semiconductor industry, the timing of significant orders, patterns of
capital spending by customers, the proportion of international sales to net
sales, changes in pricing by the Company, its competitors, customers or
suppliers, market acceptance of the Company's products, the mix of products
sold, financial systems, procedures and controls, credit terms, 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. The Company's 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, overhead absorption levels, utilization of field
service and support resources, and costs associated with new product
introductions and enhancements and the customization of systems. Furthermore,
announcements
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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.
NET SALES. Net sales consist of revenues from system sales, spare part and
upgrade sales and maintenance and support. Net sales in the first quarter of
fiscal 2000 increased 155% to $25.6 million compared to net sales of $10.0
million in the first quarter of fiscal 1999. The severe worldwide business
slowdown in the semiconductor industry, which resulted in many IC manufacturers
in nearly all geographic regions reducing and delaying capital equipment
purchases, is the principal reason for the low sales level last fiscal year. The
industry climate began to slowly improve throughout fiscal 1999 and the company
believes is now beginning to accelerate. As a result, the Company's sales are
increasing due to increased demand across most geographies and most products.
Assuming the global semiconductor industry continues and sustains this recovery,
the Company anticipates that quarter to quarter sales for at least the balance
of fiscal 2000 will continue to increase compared to the first quarter of fiscal
2000.
Sales to customers in North America, Europe, Asia/Pacific and Japan, accounted
for approximately 62%, 22%, 13% and 3%, respectively, of total net sales for the
first quarter of fiscal 2000, compared to approximately 63%, 18%, 14% and 5%,
respectively, of total net sales for the same period in fiscal 1999. The
Company's percentage of international sales will continue to fluctuate from
period to period, but the Company anticipates that international sales will
continue to account for a significant portion of net sales in fiscal 2000.
GROSS MARGIN. The Company's gross margin as a percentage of net sales for the
first quarter of fiscal 2000 was 44.2% compared to 21.5% for the same period of
fiscal 1999. The increase in gross margin for the first quarter of fiscal year
2000 was primarily due to increased utilization of the Company's field service
organization and manufacturing capability resulting from higher sales volume.
The Company continues to focus on its gross margin improvement programs,
including the introduction of new value-added applications, features and options
on its PEP systems, targeted cost reduction programs and controlled spending.
The Company expects that its gross margin rates for the next several quarters of
fiscal 2000 will be higher than prior year comparable periods and slightly
higher than that reported in the first quarter of fiscal 2000 due to further
utilization of field service and manufacturing capability, product cost
reductions, and improved efficiencies in manufacturing. Gross margins, however,
will continue to be at risk and could be materially adversely impacted by
inefficiencies associated with new product introductions, sales of lower margin
flat panel display systems, competitive pricing pressures, the semiconductor
industry climate, the economic troubles still being experienced by many
countries in Asia, including companies in some of the Company's major markets
such as Japan and Korea, changes in product mix and other factors.
COSTS ASSOCIATED WITH REDUCTION IN FORCE. In the first quarter of fiscal 1999,
the Company reduced its workforce in response to market conditions and recorded
a charge of $407,000 primarily for costs of severance compensation. As of
December 31, 1999 the $407,000 had been paid
RESEARCH AND DEVELOPMENT (R&D). The Company's R&D expenses as a percentage of
net sales decreased to 17.1% in the first quarter of fiscal 2000 compared to
36.3% of net sales in the first quarter of fiscal 1999 due primarily to the
Company's higher sales volume. In absolute dollars, R&D expenses for the first
quarter of fiscal 2000 increased to $4.4 million from $3.6 million in the same
period of fiscal 1999. This increase principally reflects increased salaries in
general and
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specifically, increased development costs associated with the Company's 300mm
product development and new process development for advanced photoresist and
advanced clear applications. Additionally, the R&D expenses in the current
quarter were higher compared to the same period last fiscal year due to the
reduced work schedule that was in effect during the first half of fiscal 1999
that was part of the Company's cost reduction efforts taken as a result of poor
business conditions attributable primarily to the industry downturn.
The Company continues to focus its R&D efforts on areas where it believes it may
be able to gain market share. In particular, the Company has focused its R&D
spending on programs to support the expanding number of available applications
that target its integrated clean strategy, the development of the 300mm
platform, the support of the LCD flat panel business and applications
development of the VHP technology. In June 1999, the Company formally introduced
the PEP Iridia which is a leading-edge solution targeting the growing market for
application-specific photoresist and wafer cleaning steps. The Company
anticipates that R&D spending in absolute dollars for the next several quarters
of fiscal 2000 will increase when compared to prior year periods. This increase
will primarily result from 300mm product development, new process applications
primarily for integrated clean applications and, for the second quarter of
fiscal 2000, the increase will also reflect that the Company was on a reduced
work schedule for the first half of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). The Company's SG&A expenses for the
first quarter of fiscal 2000 increased to $5.9 million from $5.3 million in the
first quarter of fiscal 1999. As a percentage of net sales, SG&A expenses
decreased to 23.1% from 52.9% in the same period last fiscal year due primarily
to higher sales volume. The increase in spending was attributable to increased
sales and marketing activities, specifically sales and third party commissions
and increased marketing demonstration and evaluation costs. Additionally,
expenses in the first quarter of fiscal 2000 were higher due to the reduced work
schedule that was in effect during the first half of fiscal 1999. The Company
anticipates that SG&A expenses for the next several quarters of fiscal 2000 will
increase when compared to the same periods last fiscal year due to hiring and
other expenses needed to support the increased business levels that the Company
is now experiencing and due to the lower expenses incurred in the first half of
fiscal 1999 that resulted from the Company's reduced work schedule during that
period.
OTHER INCOME (EXPENSE). Other income and expense generally consists of interest
expense, interest income, currency translation gains and losses and royalty
income. Interest expense of approximately $19,000 was incurred in the first
quarter of fiscal 2000 compared to $12,000 in the first quarter of fiscal 1999
primarily as a result of borrowings under a short-term credit facility from the
Bank of Tokyo-Mitsubishi made to the Company's wholly-owned subsidiary in Japan,
GaSonics International Japan K.K. and due to an accounts receivable factoring
arrangement in Japan. As of December 31, 1999, borrowings under this loan
agreement were approximately 285 million yen, which is equivalent to
approximately $2.7 million. Interest income received, which is primarily derived
from the Company's short-term investments was approximately $330,000 for the
first quarter of fiscal 2000 compared to $277,000 for the same period of fiscal
1999. Foreign currency translations were a net loss of approximately $45,000 and
$40,000 in the first quarter of fiscal 2000 and fiscal 1999, respectively, due
to fluctuations in currency exchange rates primarily in Japan. Royalty income in
connection with the sale of the industrial plasma cleaning products was
approximately $49,000 and $78,000 for the first quarter of fiscal 2000 and
fiscal 1999, respectively.
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PROVISION FOR INCOME TAXES/BENEFITS. The Company did not record a provision for
income taxes related to the fiscal quarter ended December 31, 1999 net income
because of the Company's tax loss carry-forward that is available to offset
certain future tax liabilities. The Company may however, begin to record a tax
provision later in fiscal 2000, should the Company's projected pretax income
exceed the Company's net tax loss carry-forward.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 2000, cash, cash equivalents and marketable
securities decreased by approximately $300,000 to $27.5 million at December 31,
1999 from $27.8 million at September 30, 1999. Operations used cash of
approximately $700,000 for the first quarter of fiscal 2000 compared to $3.4
million in the first quarter of fiscal 1999. The decrease in cash used by
operating activities in the first quarter of fiscal 2000 compared to the same
quarter of last fiscal year is primarily the result of the Company's operating
income in fiscal 2000 compared to an operating loss for the same period last
year partly offset by increases in receivables and inventory resulting from
increased business levels.
Investing activities in the first quarter of fiscal 2000 used cash of
approximately $8.4 million resulting from the net purchases of marketable
securities of approximately $7.8 million and $600,000 for the acquisition of
equipment and programs in progress for improved operating and information
systems. For the first quarter of fiscal 1999, a total of approximately $900,000
was used for investing activities consisting of approximately $600,000 used for
the net purchases of marketable securities and approximately $300,000 on
programs for improved operating and information systems.
Financing activities in the first quarter of fiscal 2000 provided cash of
approximately $1.2 million from the issuance of common stock in connection with
the Company's employee stock purchase and stock option programs and used cash of
approximately $119,000 to reduce borrowings by GaSonics International Japan K.K.
under its credit facility with the Bank of Tokyo-Mitsubishi (BTM). This compares
to the first quarter of fiscal 1999 where $673,000 was provided from the
issuance of common stock under the Company's stock purchase and option plans and
$234,000 provided from borrowings by Gasonics International Japan K.K. under
their credit facility. At December 31, 1999, borrowings under this line of
credit agreement with BTM totaled $2.7 million.
At December 31, 1999, the Company had working capital of approximately $52.7
million compared to $49.6 million at September 30, 1999. Accounts receivable and
inventory at December 31, 1999 increased by approximately $2.4 million and $1.4
million, respectively, from September 30, 1999. Receivables increased primarily
due to higher sales levels in the current period and inventory is increasing due
to increased demand for the company's products. The Company expects future
inventory levels to fluctuate from period to period, and believes that because
of the relatively long manufacturing cycle of its equipment, its investment in
inventories will continue to require 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.
At December 31, 1999, the Company's principal sources of liquidity consisted of
approximately $8.8 million of cash and cash equivalents, $18.7 million in
marketable securities, and $20.0 million available under the Company's unsecured
working capital line of credit with Union Bank
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of California which expires on March 31, 2000. A commercial letter of credit
provision of $500,000 is also provided under the line of credit. This line of
credit bears interest at the bank's LIBOR rate plus 1.25% per annum. Available
borrowing under the credit line is reduced by the amount of outstanding letters
of credit. As of December 31, 1999, except for $69,193 outstanding under the
letter of credit provision, there were no borrowings under this line. This 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
December 31, 1999, the Company was in compliance with its bank covenants. The
Company's wholly-owned Japanese subsidiary, GaSonics International Japan K.K.,
has a credit facility with the Bank of Tokyo-Mitsubishi with an available credit
line of 300 million Japanese yen which, as of December 31, 1999, is equivalent
to approximately $2.9 million U.S. dollars. This credit facility was renewed on
October 1, 1999, bears interest at a rate of 1.375% per annum, is secured by a
Letter of Guarantee issued by the Company and expires on March 31, 2000. As of
December 31, 1999, GaSonics International Japan K.K. had borrowed 285 million
yen under this credit facility, which is equivalent to approximately $2.7
million as of that date. The Company anticipates renewing both the working
capital line of credit with Union Bank of California and the credit line with
Bank of Tokyo-Mitsubishi prior to expiration. However, there can be no assurance
that it will be successful in renewing either such facility or that the Company
will be able to secure other sources of funding on acceptable terms or at all.
The Company believes that its existing cash, cash equivalents, marketable
securities and available lines of credit at December 31, 1999 are sufficient to
meet the Company's working capital cash requirements during the next twelve
months. Beyond the next twelve months, the Company may require additional equity
or debt financing to achieve its working capital or capital equipment needs.
There can be no assurance that additional financing will be available when
required or, if available, will be on reasonable terms.
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, particularly the recent prolonged, severe worldwide
semiconductor slowdown, the timing and terms 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, inventory
obsolescence, accounts receivable write-offs, the mix of products sold,
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
throughout the world, particularly in the Asia/Pacific region, and lengthy sales
cycles. The Company's 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
13
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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. For example, the Company has experienced and expects to continue to
experience decreased sales of its single chamber products due to the
introduction of the PEP (dual-chamber) systems. The Company's gross margin and
overall gross margin rate has declined from the level attained in prior years,
in part, due to an increased under absorption of manufacturing overhead and
under utilization of the field service and support infrastructure resulting from
lower net sales, changes in product mix from fewer higher margin rate and mature
single chamber products to lower margin rate dual chamber products, start-up
inefficiencies associated with new products, competitive pricing pressures,
products sold by the Company's liquid crystal display manufacturing equipment
(LCD) division in Japan, and other factors. Additionally, the Company's sales
and earnings for approximately the last two years were materially adversely
affected by the worldwide semiconductor business slowdown. Beginning in fiscal
1999, the industry showed signs of an initial recovery and the Company's
revenues have improved sequentially quarter to quarter beginning with the second
quarter of fiscal 1999. Although the Company currently anticipates that revenues
for at least the next several quarters of fiscal 2000 will increase moderately
from the level achieved in the first quarter of fiscal 2000, there can be no
assurance that the Company will be able to increase or even maintain its sales
at current levels.
LIMITED SYSTEM SALES; BACKLOG
The Company derives a substantial portion of its sales from the sale of systems
which typically range in price from approximately $150,000 to $950,000 for its
photoresist and post-etch residue removal systems and up to approximately $2.0
million or more for many of its other products. As a result, the timing of
revenue recognition for even a single transaction has had and 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 date is not necessarily representative of actual sales
to be expected for any succeeding period. The Company has in the past
experienced, and expects to continue to experience, cancellations and
rescheduling of orders. As a result, the Company's net sales and operating
results for a quarter depend upon the Company obtaining orders for systems to be
shipped in the same quarter in which 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, additional customer configuration requirements 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 any 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 has not been and will not be able to reduce rapidly if sales goals
for a particular period are not met. Because the Company builds its systems
14
<PAGE>
according to forecast, a reduction in customer orders or backlog will lead to
excess inventory and possibly inventory obsolescence, increased costs and
reduced margins which could materially adversely effect the Company's business,
financial condition and results of operations. 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.
Beginning in 1996, the worldwide semiconductor industry experienced a severe
cyclical downturn, which extended throughout 1998. During this period, the
Company experienced significant cancellations and delays of new orders and
rescheduling of existing orders that have materially adversely affected the
Company's financial results. In early 1999, the industry began a slow recovery
which now appears to be accelerating. The Company, however, can give no
assurance that it will be able to increase or even maintain its current level of
sales. Additionally, the Company anticipates that a significant portion of new
orders will depend upon demand from IC manufacturers building or expanding large
fabrication facilities, and there can be no assurance that such demand will
exist in the near future or at all.
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 supplier's product, the
manufacturer often relies for a significant period of time upon that equipment
for the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same supplier.
Accordingly, it is difficult for the Company to sell to a particular customer
for a significant period of time once that customer selects a competitor's
product. The Company currently has only one principal product line and
experiences intense competition worldwide from a number of foreign and domestic
manufacturers, including Canon, Applied Materials, Inc., Eaton Corporation, Lam
Research Corporation, Matrix Semiconductor Systems, Inc., Mattson Technology,
Inc., Plasma Systems and MC Electronics, some of which have substantially
greater installed bases and greater financial, marketing, personnel, technical
and other resources than the Company. The Company believes that the industry
will continue to be subject to increased consolidation which will increase the
number of larger more powerful companies in the industry sector in which the
Company competes. Certain of the Company's competitors have announced the
introduction of, or have introduced or acquired, competitive products that offer
enhanced technologies and improvements. For example, Applied Materials and Lam
Research have modules on 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, enhance or acquire
competitive products that may offer improved price or performance features. New
product announcements, 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
15
<PAGE>
addition to intense price competition or could otherwise make the Company's
systems or technology obsolete or non-competitive. 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 suppliers employing other technologies, such as
wet chemistry, traditional dry chemistry and other techniques, as such
competitors attempt to extend the capabilities of their existing products.
Increased competitive pressure has led and may continue to lead to reduced
demand and lower prices for the Company's products, thereby materially adversely
affecting the Company's business, financial condition and operating results.
There can be no assurance that the Company will be able to compete successfully
in the future.
The Company believes that to remain competitive it will have to commit
significant financial resources to develop new product features and
enhancements, to introduce next generation photoresist and residue removal
products on a timely basis, and to maintain customer service and support centers
worldwide. In marketing its products, the Company will face competition from
suppliers employing new technologies in order to extend the capabilities of
competitive products beyond their current limits or increase their productivity.
In addition, increased competitive pressure could lead to intensified
price-based competition, resulting in lower prices and margins, which would
materially adversely affect the Company's business, financial condition and
operating results.
Competitors of the Company's LCD division in Japan include Japan-based companies
and Japan-based joint ventures such as Applied Komatsu, Koyo Lindbergh and
ULVAC. These competitors manufacture alternative technology systems and are well
established in Japan 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. Late in fiscal 1995, the Company acquired
its LCD division in Japan, but to date, this has not enabled the Company to
significantly penetrate the photoresist removal market in Japan. Japanese IC
process equipment manufacturers dominate the market for certain types of
integrated circuits which use the Company's systems. Japanese manufacturers are
well established in the Japanese process equipment market, making it difficult
for non-Japanese manufacturers to penetrate the Japanese market. Furthermore,
Japanese semiconductor manufacturers have extended their influence outside of
Japan by licensing products and process technologies to non-Japanese
semiconductor manufacturers. Such licenses could result in a recommendation to
use certain semiconductor capital equipment manufactured by Japanese companies.
The Company has not established itself as a major competitor in the Japanese
market and there can be no assurance that the Company will be able to achieve
significant sales to Japanese IC manufacturers or compete successfully in the
future.
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 the first quarter of fiscal 2000 and for the fiscal
years 1999, 1998 and 1997 accounted for approximately 82%, 69%, 64% and 66% of
net sales, respectively. In the first quarter of fiscal 2000, three customers
each accounted for greater than 10% of total net sales. In fiscal 1999, one
customer accounted for greater than 10% of net sales. In fiscal 1998, two
customers each accounted for greater than 10% of total net sales and in fiscal
1997, three customers each accounted for greater than 10% of total net sales.
The Company expects that sales of its products to relatively few large
16
<PAGE>
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 due to
customer departures from recent buying patterns, market, economic or competitive
conditions in the semiconductor industry or in the industries that manufacture
products utilizing ICs, has materially adversely affected and could in the
future 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
Since 1993, the Company has significantly increased the scale of its operations
to support sales levels and, despite recent layoffs, has generally expanded its
operations to address critical infrastructure requirements, including the hiring
of additional personnel, commencement of independent operations in the United
Kingdom, Ireland, France, Germany, Italy, Korea, Japan, Singapore, Taiwan and
Israel and significant investments in research and development to support
product development.
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 implemented new management information, manufacturing and cost
accounting systems during the second quarter of fiscal 1997 and continues to
upgrade and implement new management systems, particularly in the area of
inventory control, to better enable it to manage its business. 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 large 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
17
<PAGE>
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, LPCVD systems and 300mm systems. There
can be no assurance that any such product will achieve significant revenues, if
any, or enhance the Company's profitability. Because new product development
commitments must be made well 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 and any failure could have a material adverse effect on the Company's
business, financial condition and results of operations.
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 experienced 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 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
and reliability of its future product introductions early in the product's life
cycle. If new products have reliability or quality problems, the Company may
experience decreased sales, loss of customers, reduced orders or higher
manufacturing costs, increased costs, delays in collecting accounts receivable
and additional service and warranty expenses, any of which 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 which may not ultimately lead to actual sales. 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 and
continue to be cautious in their purchase decisions due to the recent severe
downturn in the semiconductor market, which is expected to intensify the
evaluation process and require additional sales and marketing expenditures by
the Company. Lengthy sales cycles subject the Company to a number of significant
risks, including obsolescence and fluctuations and non-predictability of
operating results, over which the Company has little or no control.
RISKS ASSOCIATED WITH THE ASIA/PACIFIC MARKET
18
<PAGE>
The Company believes that increased penetration of the Asia/Pacific market,
particularly Japan and Taiwan, will be essential to its future financial
performance. To date, the Company has sold relatively few systems to Japanese
semiconductor manufacturers. Sales in Japan accounted for approximately 3% of
the Company's total net sales in first quarter of fiscal 2000, 7% of total net
sales in fiscal 1999, 4% of total net sales in fiscal 1998 and 9% of total net
sales in fiscal 1997. The Japanese semiconductor market (including fabrication
plants operated outside of Japan by Japanese 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 has
resulted in recommendations to use certain semiconductor capital equipment
manufactured by Japanese companies. Late in fiscal 1995, the Company acquired
its LCD division in Japan, but to date, this has not enabled the Company to
significantly penetrate the photoresist removal market in Japan. As a relatively
recent entrant, the Company is at a distinct competitive disadvantage in the
Japanese market 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, particularly over the past two years due to the
overall downturn in the Japanese economy and the severe downturn in the
worldwide semiconductor market, thereby, further increasing competitive
pressures in the Japanese market. Although the Company is investing significant
resources, and has established a direct presence in Japan, which has and will
significantly increase operating expenses, there can be no assurance that the
Company will be able to achieve significant sales to the Japanese semiconductor
market, which failure could materially adversely affect the Company's business,
financial condition and results of operations.
Taiwan currently represents approximately 17% of the worldwide demand for
capital semiconductor equipment and this percentage is expected to increase in
the future. The success of the Company will, in part, be dependent upon its
ability to succeed in this very competitive marketplace. Currently, the
Company's primary competitors in the Taiwan bulk ash market are Mattson, Plasma
Systems Taiwan (PST) and Kokusai, Ramco (KEM). The Company's sales in Taiwan
accounted for approximately 3% of the Company's total net sales in the first
quarter of fiscal 2000, 9% of total net sales in fiscal 1999, and 12% of total
net sales in fiscal 1998 and 1997.
INTERNATIONAL SALES
International sales accounted for 38%, 46%, 45% and 55% of total net sales for
the first three months of fiscal 2000 and for the fiscal years 1999, 1998 and
1997, respectively. The Company has established independent operations in the
United Kingdom, Ireland, France, Italy, Germany, Korea, Japan, Singapore, Taiwan
and Israel. 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
19
<PAGE>
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.
20
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not develop similar technology independently. 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. Patents issued to the Company could be challenged,
invalidated or circumvented and the rights granted thereunder may not provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not 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 occasionally receives
notices from third parties alleging infringement claims. Although there
currently are no pending material 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 by the
Company's customers resulting from infringement claims will not be asserted in
the future against the Company or that such assertions, if proven to be true,
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 if available on reasonable terms or at all. Any such license
would increase the Company's expenses and could cause a material adverse effect
on the Company's business, financial condition and results of operations. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or enforce its proprietary rights. Litigation, even if unsuccessful,
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, two other companies for microwave power supplies, two companies for
platens, one company for magnetrons and one company for microwave applicators
used in its products. The Company's LCD division in Japan is heavily dependent
on one key supplier for quartz fabrication used in its LPCVD and thermal
annealing systems. The Company is exploring alternative sources or technology to
provide back-up for critical materials when the primary suppliers are unable to
deliver. In addition, the Company has been establishing longer term contracts
with these suppliers to mitigate the potential risks of inadequate supply of
required components and control over pricing and timely delivery of components
and subassemblies. However, 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
21
<PAGE>
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 significantly 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.
FUTURE ACQUISITIONS
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 Company's business, financial condition
and results of operations. In addition, the Company is inexperienced in
negotiating, effecting and assimilating such acquisitions and all acquisitions
involve numerous risks, including difficulties in the assimilation of the
operations, technologies, personnel 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 such acquisition.
In the event that such an acquisition does occur, there can be no assurance that
such an acquisition will not have a material adverse effect on the Company's
business, financial condition or results of operations.
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. The loss of any key person could have a material adverse
effect on the business, financial condition and results of operations of the
Company. 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, particularly in the San
Francisco Bay Area where the Company is based, 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
22
<PAGE>
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 and could result in a material adverse effect on the
Company's business, financial condition and results of operations.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As of December 31, 1999, the Company's officers, directors and members of their
families who may be deemed affiliates of such persons beneficially owned
approximately 19% of the Company's 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, either by the Company
or its existing stockholders, failure to meet or changes in analysts'
expectations, general conditions in the semiconductor industry or the worldwide
economy, natural disasters, outbreaks of hostilities, 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 such as the Company's, in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Moreover, in
recent years the stocks of many companies in the semiconductor capital equipment
business, including the stock of the Company, have declined substantially due to
the worldwide semiconductor downturn. There can be no assurance that the market
price of the Company's Common Stock will not continue to experience significant
fluctuations in the future, including fluctuations that are unrelated to the
Company's performance.
23
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ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Interest Rate Risk
The Company's exposure to market risk for change in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default
risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in safe and high-credit quality
securities and by constantly positioning its portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer,
guarantor or depository. The portfolio includes only securities with active
secondary or resale markets to ensure portfolio liquidity.
The table below presents principal amounts and related weighted average interest
rates by date of maturity for the Company's investment portfolio (in thousands):
<TABLE>
<CAPTION>
Fiscal Years
Cash equivalents and short-term investments 2000 2001
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate short-term investments $18,462 $4,243
Average interest rate 5.90% 6.18%
</TABLE>
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
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.
Effective January 12, 2000, Rammy Rasmussen joined the Company as
Vice President, Chief Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.21 Rammy Rasmussen Employment Agreement
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
25
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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/ Rammy Rasmussen
-------------------
by: Rammy Rasmussen
Vice President, Finance
Chief Financial Officer
(signing on behalf of the registrant
and as principal financial officer)
Date: February 7, 2000
26
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
10.21 Rammy Rasmussen Employment Agreement
27 Financial Data Schedule
27
<PAGE>
[LETTERHEAD] Exhibit 10.21
January 12, 2000
Rammy Rasmussen
480 South Clark
Los Altos, CA 94024
Dear Rammy:
We are very pleased to extend GaSonics International's offer to you to join
our organization. The following is our offer to you:
1. The position of Vice President, Chief Financial Officer reporting to the
President and CEO of GaSonics International, Asuri S. Raghavan.
2. Your base salary will be $16,666.67 per month ($200,000.00 annually).
3. You will receive an executive car allowance of $650.00 per month.
4. You will be eligible to receive an executive incentive of 45% of your
base salary upon achievement of individual and/or financial goals, paid
annually.
5. You will be eligible to participate in our executive deferred
compensation plan.
6. You will receive 50,000 stock options vested over four years. All options
are contingent upon approval by the Board of Directors with option price set
at fair market value established at the time of the grant. Options expire
after 10 years. 25% of the option shares shall become exercisable upon
completion of one year of service. The option will become exercisable for
the balance of the option shares in 36 successive equal monthly installments
upon completion of each additional month of service over the succeeding
three years.
7. Upon acceptance of this offer and joining our company, you will receive a
bonus of $20,000.00. If you voluntarily terminate your employment within 12
months from your date of hire, this amount must be refunded to GaSonics
International on a pro-rated basis.
8. You will be eligible to participate in GaSonics' 401(K) Plan. The
Company contributes 50% of the first 6% of salary deferral made to the Plan
and is vested over a four-year schedule.
<PAGE>
Rammy Rasmussen
1/12/00
Page 3
9. In the event that your employment is terminated within the first twelve
(12) months of employment with the Company and this termination is the
result of a Change of Control, you will receive one (1) year salary and
benefit continuation, and continued stock option vesting for that period.
This will be paid up to a period of twelve (12) months, or until you begin
new employment, whichever comes first.
Upon accepting this offer, you will receive the standard GaSonics
International benefits package. Benefit coverage will commence on your date
of hire. Verification of your citizenship or right to work in the United
States is required, and you will need to provide proof of this on your first
day of employment. BENEFITS ORIENTATION WILL BE CONDUCTED ON YOUR FIRST DAY
OF EMPLOYMENT AT 8:00 AM IN BUILDING ONE, 2730 JUNCTION AVENUE.
Employment with GaSonics International is for no specified period of time.
As a result, either you or GaSonics International are free to terminate your
employment relationship at any time for any reason, with or without cause.
This is the full and complete agreement between us on this term. Although
your job duties, title, compensation and benefits, as well as GaSonics
International's personnel policies and procedures may change from time to
time, the "at-will" nature of your employment may only be changed in an
express writing signed by you and the President of the Company.
This offer is open to you until January 21, 2000. To indicate your
concurrence and acceptance, please sign one copy of this letter and return
it to my attention at your earliest convenience.
GaSonics International is a company with a goal of leading the industry in
some of the most challenging and exciting markets. We have the potential for
being one of the premier growth companies of the 90's. Whether or not we meet
this challenge depends upon the excellence of our people. Thus, the position
offered you is central to the company's success.
We believe that you have a great deal to contribute to our organization, and
we feel certain that you will find many challenges, satisfaction and
opportunities in your association with GaSonics International. We look
forward to having you on the GaSonics team.
<PAGE>
Rammy Rasmussen
1/12/00
Page 3
Sincerely,
/s/ Robert Meams
Robert Meams
Director, Human Resources
GaSonics International
Agreed and Accepted: /s/ Rammy Rasmussen 1/12/00
------------------------------ ---------
Name Date
Employment Start Date: 1/12/00
------------------------------
Date
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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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.
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