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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 MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to ________________________
Commission file number: 0-23372
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 May 3, 2000, there were 14,746,732 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 March 31, 2000
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the three and
six month periods ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the six
month periods ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 2A. Quantitative and Qualitative Disclosure about Market Risks 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Securityholders 27
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
Exhibit Index 30
</TABLE>
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PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, Sept. 30,
2000 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,214 $ 16,858
Marketable securities 17,994 10,899
Trade accounts receivable, net 29,006 18,986
Inventories 20,461 16,523
Net deferred tax asset 5,697 5,697
Prepaid expenses and other current assets 3,342 3,197
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Total current assets 88,714 72,160
Property and equipment, net 10,363 11,266
Deposits and other assets 539 782
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Total assets $ 99,616 $ 84,208
=============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under credit facility $ 3,631 $ 2,832
Accounts payable 11,104 5,691
Income taxes payable 4,637 4,616
Accrued expenses 10,955 9,446
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Total current liabilities 30,327 22,585
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Stockholders' equity:
Common stock and
additional paid-in capital 43,533 40,637
Treasury stock (see Note 8) (2,639) (2,639)
Subscription receivable (58) (26)
Unrealized gain/loss on investment (138) -
Retained earnings 28,591 23,651
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Total stockholders' equity 69,289 61,623
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Total liabilities and stockholders' equity $ 99,616 $ 84,208
=============== ==============
</TABLE>
See accompanying notes.
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------- -----------------------------
2000 1999 2000 1999
------------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 33,705 $ 13,215 $ 59,308 $ 23,237
Cost of sales 18,779 8,658 33,072 16,528
---------------- -------------- -------------- -------------
Gross margin 14,926 4,557 26,236 6,709
---------------- -------------- -------------- -------------
Operating expenses:
Costs associated with reduction in force - - - 407
Research & development 4,725 5,662 9,091 9,298
Selling, general & administrative 6,717 5,136 12,632 10,439
---------------- -------------- -------------- -------------
Total operating expenses 11,442 10,798 21,723 20,144
---------------- -------------- -------------- -------------
Operating income (loss) 3,484 (6,241) 4,513 (13,435)
Other income and expenses, net 376 263 685 577
---------------- -------------- -------------- -------------
Income (loss) before provision for income taxes 3,860 (5,978) 5,198 (12,858)
Provision for income taxes 258 - 258 -
---------------- -------------- -------------- -------------
Net income (loss) $ 3,602 $ (5,978) $ 4,940 $ (12,858)
================ ============== ============== =============
Net income (loss) per share - Basic $ 0.25 $ (0.42) $ 0.34 $ (0.90)
================ =============== ============== =============
Net income (loss) per share - Diluted $ 0.23 $ (0.42) $ 0.32 $ (0.90)
================ =============== ============== =============
Weighted average common shares 14,637 14,325 14,525 14,249
================ ============== ============== =============
Weighted average common &
common equivalent shares 15,807 14,325 15,598 14,249
================ ============== ============== =============
</TABLE>
See accompanying notes.
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used for) operating activities $ 128 $ (3,312)
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Cash flows from investing activities:
Purchases of property & equipment (1,202) (557)
Decrease (increase) in marketable securities (7,233) (224)
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Net cash used for investing activities (8,435) (781)
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Cash flows from financing activities:
Increase (decrease) in borrowings under credit facility 799 397
Proceeds from issuance of common stock 2,864 1,266
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Net cash provided by financing activities 3,663 1,663
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Net decrease in cash and cash equivalents (4,644) (2,430)
Cash & cash equivalents at beginning of period 16,858 14,698
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Cash & cash equivalents at end of period $12,214 $12,268
============= =============
</TABLE>
See accompanying notes.
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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 us without audit and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of our financial position and our
results of operations 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 six
months ended March 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 our Annual
Report on Form 10-K for the year ended September 30, 1999 and quarterly report
on Form 10-Q for the period ending December 31, 1999.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------------- ------------------
(unaudited)
<S> <C> <C>
Raw Materials $ 9,681 $ 7,784
Work in Process 6,408 5,409
Finished Goods 4,372 3,330
------------------- ------------------
$20,461 $16,523
=================== ==================
</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, we adopted SFAS No. 128, "Earnings per Share."
Basic earnings per common share for the three and six month periods ended March
31, 2000 and 1999 were computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per common share for the three and six month periods ended March 31, 2000 and
1999, were calculated using the treasury stock method to compute the weighted
average common stock outstanding (in thousands, except per share data).
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<TABLE>
<CAPTION>
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PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2000 INCOME SHARES AMOUNT
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<S> <C> <C> <C>
Net income $ 3,602
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 3,602 14,637 $ 0.25
Effect of Dilutive Securities:
Options issued to purchase Common stock 1,170
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 3,602 15,807 $ 0.23
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1999 LOSS SHARES AMOUNT
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Net loss $ (5,978)
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders $ (5,978) 14,325 $ (0.42)
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PER SHARE
FOR THE SIX MONTHS ENDED MARCH 31, 2000 INCOME SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 4,940
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 4,940 14,525 $ 0.34
Effect of Dilutive Securities:
Options issued to purchase Common stock 1,073
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 4,940 15,598 $ 0.32
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE
FOR THE SIX MONTHS ENDED MARCH 31, 1999 LOSS SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (12,858)
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders $ (12,858) 14,249 $ (0.90)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS No. 133, which establishes
accounting and reporting standards for derivative instruments, including
specific derivative instruments embedded in other contracts and for hedging
activities. It requires that we recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. We are required to adopt SFAS No. 133 in the first
quarter of fiscal 2001. Currently, we do not engage in hedging activities or
purchase derivative instruments. We do not expect the impact of adopting SFAS
No. 133 to be material to us.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," or SAB No. 101. SAB No. 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. We will adopt SAB No. 101 as
required in the first quarter of fiscal 2001. When we adopt SAB No. 101, we
will recognize revenue when we substantially complete the terms of the
applicable sales arrangement, which generally occurs upon the customers'
acceptance. We believe the adoption of SAB No.101 will have a significant
impact on our revenue recognition policy because we currently recognize sales
upon shipment with appropriate accruals of the associated costs. We expect
SAB No. 101 to have a significant effect on our operating results in the
first quarter. Furthermore, adoption of this pronouncement will impact the
comparability of our financial statements from period to period,
relationships with customers and internal procedures and controls. We are
currently evaluating the effect on our financial statements.
5. SEGMENT REPORTING
In 1999, we 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 used by management for
making operating decisions and assessing performance as the source of our
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 our results of operations or financial position, but did
affect the disclosure of segment information. We are organized on the basis
of products and services. All of our business units have been aggregated into
one operating segment. Our service business is a separate operating segment:
however, this segment does not meet the quantitative thresholds a prescribed
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 we adopted SFAS No. 130 "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and our
8
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components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. For the six months ended March 31, 2000
and 1999, 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 six month period ended March 31, 1999 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 had been
paid.
8. STOCK REPURCHASE PROGRAM
On December 16, 1998, our Board of Directors authorized a stock repurchase
program. Under this program 500,000 shares of our Common Stock may be
repurchased in the open market, from time-to-time at market prices not to
exceed $15.00 per share using available cash. As of March 31, 2000, we had
repurchased 200,000 shares of common stock in the open market at an aggregate
cost of approximately $2.6 million.
9
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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 "Risks Related to our Business"
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. We undertake 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 Consolidated Financial
Statements presented in our 1999 Annual Report on Form 10-K and quarterly
report on Form 10-Q for the period ended December 31, 1999, available upon
request, for a more complete understanding of our financial position,
business and results of operations.
OVERVIEW
We are a leading developer and global supplier of photoresist and Integrated
Clean solutions used in advanced semiconductor device manufacturing. Our
versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing their yields and
throughput. We also provide low pressure chemical vapor deposition, or LPCVD,
systems for the flat panel display, or FPD, industry. We market and sell our
products to leading semiconductor device and FPD manufacturers worldwide,
including 15 of the top 20 semiconductor device manufacturers.
Our operating results have fluctuated significantly in the past and will
continue to fluctuate significantly in the future. We anticipate that factors
continuing to affect our future operating results will include the
cyclicality of the semiconductor industry and the markets served by our
customers including the prolonged and severe downturn in the worldwide
semiconductor industry, among others. Furthermore, announcements by us or our
competitors of new products and technologies could cause customers to defer
purchases of our existing systems, which would also harm our business. Our
gross margins have varied and will continue to vary significantly based on a
variety of factors, including the following:
- sales mix and average selling prices of our systems;
- price-based competition;
- mix of revenues, including spare parts, service and support revenues;
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- costs associated with new product introductions and enhancements
- configuration and installation costs;
- delays, cancellations or rescheduling of customer orders;
- underabsorption of manufacturing overhead and field service and support
infrastructure;
- start-up inefficiencies associated with new products.
Our gross margin as a percentage of net sales for the second quarter and
first six months of fiscal 2000 has increased compared to the comparable
periods of fiscal 1999. This increase is primarily due to increased
utilization of our field service organization and manufacturing capability
resulting from higher sales volume.
NET SALES. Net sales consist of revenues from system sales, spare part and
upgrade sales and maintenance and support. Our net sales in the second
quarter of fiscal 2000 increased 155% to $33.7 million compared to net sales
of $13.2 million in the second quarter of fiscal 1999. For the six month
period ending March 21, 2000, our net sales also increased approximately 155%
to $59.3 million compared to net sales of $23.2 million for the same period
last year. Increased demand across most geographies and products, including
our new Iridia system, is the principal reason for our sales increase when
compared to last fiscal year, during which the severe worldwide business
slowdown in the semiconductor industry resulted in many IC manufacturers in
nearly all geographic regions reducing and delaying capital equipment
purchases. As a result of this improved business climate, we anticipate that
quarter to quarter sales for at least the balance of fiscal 2000 will
continue to increase compared to the second quarter of fiscal 2000, assuming
the global semiconductor industry continues and sustains its recovery.
Sales to customers in North America, Europe, Asia/Pacific and Japan,
accounted for approximately 54%, 19%, 20% and 7%, respectively, of our total
net sales for the six months ended March 31, 2000, compared to 57%, 13%, 20%
and 10%, respectively, of our total net sales for the same period in fiscal
1999. Our percentage of international sales will continue to fluctuate from
period to period, but we anticipate that international sales will continue to
account for a significant portion of our net sales in fiscal 2000.
GROSS MARGIN. Our gross margin as a percentage of net sales was 44.3% for
both the second quarter and first six months of fiscal 2000, compared to
34.5% and 28.9%, respectively, for the same periods of fiscal 1999. The
increase in gross margin for both periods of fiscal 2000 compared to fiscal
1999 was primarily due to increased utilization of our field service
organization and manufacturing capability resulting from higher sales volume.
We continue to focus on our gross margin improvement programs, including the
introduction of new value-added applications, features and options on our PEP
and Iridia systems, targeted cost reduction programs and controlled spending.
We expect that our gross margin rates for the next several quarters of fiscal
2000 will be higher than prior year comparable periods and may be slightly
higher than that reported in the second quarter of fiscal 2000 due to further
utilization of field service and manufacturing capability, product cost
reductions, and improved efficiencies in manufacturing. Our 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
11
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climate, the economic troubles still being experienced by many countries in
Asia, including companies in some of our 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, we reduced our workforce in response to market conditions and recorded
a charge of $407,000 primarily for costs of severance compensation. As of
March 31, 2000 the $407,000 had been paid.
RESEARCH AND DEVELOPMENT (R&D). Our R&D expenses as a percentage of net sales
decreased to 14.0% and 15.3% in the second quarter and first six months of
fiscal 2000, respectively, compared to 42.8% and 40.0%, respectively, for the
same periods of fiscal 1999, due primarily to our higher sales volume. In
absolute dollars, our R&D expenses for the second quarter of fiscal 2000
decreased to $4.7 million from $5.7 million for the same period of fiscal
1999. For the six-month period ended March 31, 2000, R&D expenses decreased
to $9.1 million from $9.3 million for the six-month period ended March 31,
1999. The decrease in absolute dollars in both fiscal 2000 periods is the
result of a $1.8 million charge in the second quarter of fiscal year 1999
primarily for the accelerated write-off of equipment produced and used in
connection with our first 300mm product development program. However,
increased salaries, development costs associated with our 300mm product, and
new process development for advanced photoresist and advanced clean
applications in fiscal 2000 have largely offset this decrease. Additionally,
our R&D expenses have increased in the current year periods compared to the
same periods of last fiscal year due to the reduced work schedule that was in
effect during the first half of fiscal 1999. This reduced work schedule was
part of our cost reduction efforts taken as a result of poor business
conditions attributable primarily to the industry downturn.
We continue to focus our R&D efforts on areas where we believe we may be able
to gain market share. In particular, we have focused our R&D spending on
programs to support the expanding number of available applications that
target our integrated clean strategy, the development of the 300mm platform
and the support of the LCD flat panel business. In June 1999, we formally
introduced the PEP Iridia which is a leading-edge solution targeting the
growing market for application-specific photoresist and wafer cleaning steps.
We anticipate that R&D spending in absolute dollars for the balance of fiscal
year 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 and joint development projects.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). Our SG&A expenses for the second
quarter of fiscal 2000 increased to $6.7 million from $5.1 million in the
second quarter of fiscal 1999 and increased to $12.6 million from $10.4
million for the six month periods of fiscal 2000 and 1999, respectively. As a
percentage of net sales, SG&A expenses decreased to 19.9% in the second
quarter of fiscal 2000 from 38.9% in the second quarter of fiscal 1999. For
the first six months of fiscal 2000, our SG&A expenses decreased to 21.3%
from 44.9% in the same period last fiscal year. The percentage decrease in
both periods is due primarily to higher sales volume. The increase in
spending was attributable to increased salaries, sales and marketing
activities, specifically sales and third-party commissions and increased
marketing, demonstration and evaluation costs. Additionally, SG&A expenses in
the second quarter and first six months of fiscal 2000 were higher than
fiscal 1999 due to the reduced work schedule that was in effect
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during the first half of fiscal 1999. We anticipate that our SG&A expenses
for the next two 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 we are now experiencing.
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 $11,000 incurred in the
second quarter and $30,000 for the first six months of fiscal 2000 compared
to $17,000 for the second quarter and $26,000 for the first six months of
fiscal 1999 is primarily the result of borrowings under short-term credit
agreements from the Bank of Tokyo-Mitsubishi made to our wholly-owned
subsidiary in Japan, GaSonics International Japan K.K. and due to an accounts
receivable factoring arrangement in Japan. As of March 31, 2000, borrowings
under these loan agreements totaled approximately 392 million yen, which was
equivalent to approximately $3.6 million as of that date. Interest income
received, which is primarily derived from our short-term investments, was
approximately $349,000 and $679,000 for the second quarter and six-month
period of fiscal 2000, respectively, compared to $226,000 and $504,000 for
the same periods, respectively, of fiscal 1999. Foreign currency translations
resulting in a net loss of approximately $8,000 and $52,000 were incurred
during the second quarter and first six months of fiscal 2000 compared to
$25,000 and $65,000 for the corresponding periods of fiscal 1999, 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 $45,000 and $94,000 for the second quarter and first six months
of fiscal 2000, respectively, compared to $101,000 and $178,000 for the
comparable periods of fiscal 1999.
PROVISION FOR INCOME TAXES/BENEFITS. We recorded a $258,000 provision for
income taxes in the second quarter of fiscal 2000 resulting from our latest
projection that fiscal 2000 pretax income will exceed our net tax loss
carry-forward that is available to offset certain future tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of fiscal 2000, cash, cash equivalents and
marketable securities increased by approximately $2.4 million to $30.2
million at March 31, 2000 from $27.8 million at September 30, 1999.
Operations provided cash of approximately $128,000 for the six month period
ended March 31, 2000 compared to $3.3 million of cash used for operating
activities in the same period last year. The change in cash flow from
operations activities for the first half of fiscal 2000 compared to the same
period last fiscal year is primarily the result of our return to
profitability in fiscal 2000 compared to an operating loss for the same
period last year, partly offset by uses of cash to fund receivables and
inventory resulting from increased business levels.
Investing activities in the first half of fiscal 2000 used cash of
approximately $8.4 million resulting from the net purchases of marketable
securities of approximately $7.2 million and $1.2 million for the acquisition
of equipment and programs in progress for improved operating and information
systems. For the first half of fiscal 1999, a total of approximately $781,000
was used for investing activities consisting of approximately $224,000 used
for the net purchases of marketable securities and approximately $557,000 on
programs for improved operating and information systems.
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Financing activities in the first six months of fiscal 2000 provided cash of
approximately $2.9 million from the issuance of common stock in connection
with our employee stock purchase and stock option programs and $799,000 from
borrowings by GaSonics International Japan K.K. under its credit agreements
with the Bank of Tokyo-Mitsubishi ("BTM"). For the first six months of fiscal
1999, $1.3 million was provided from the issuance of common stock under our
stock purchase and option plans and $397,000 was provided from borrowings by
Gasonics International Japan K.K. ("Gasonics K.K.") under its overdraft
credit agreement with BTM. At March 31, 2000, borrowings under Gasonics
K.K.'s line of credit agreements with BTM totaled $3.6 million.
At March 31, 2000, we had working capital of approximately $58.4 million
compared to $49.6 million at September 30, 1999. Accounts receivable and
inventory at March 31, 2000 increased by approximately $10.0 million and $3.9
million, respectively, from September 30, 1999. Our receivables increased
primarily due to our higher sales levels in the current period and our
inventory increased due to increased demand for our products. We expect
future inventory levels to fluctuate from period to period, and believe that
because of the relatively long manufacturing cycle of our equipment, our
investment in inventory will continue to require a significant portion of
working capital. As a result of such investment in inventory, we may be
subject to an increasing risk of inventory obsolescence, which could
materially adversely affect our operating results.
At March 31, 2000, our principal sources of liquidity consisted of
approximately $12.2 million of cash and cash equivalents, $18.0 million in
marketable securities, and $20.0 million available under our unsecured
working capital line of credit with Union Bank of California, the maturity
date of which has been extended from March 31, 2000 to May 1, 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 March 31, 2000, except for
$69,193 outstanding under the letter of credit provision, there were no
borrowings under this line. We anticipate renewing the working capital line
of credit with Union Bank of California prior to expiration. However, there
can be no assurance that it will be successful in renewing this credit
facility or that we will be able to secure other sources of funding on
acceptable terms or at all. This line of credit contains certain covenants,
including covenants relating to financial ratios and tangible net worth which
we must maintain. As of March 31, 2000, we were in compliance with our bank
covenants. Our wholly-owned Japanese subsidiary, GaSonics K.K., has an
overdraft credit agreement with the Bank of Tokyo-Mitsubishi ("BTM") with an
available credit line totaling 300 million Japanese yen which, as of March
31, 2000, is equivalent to approximately $2.8 million U.S. dollars. This
overdraft credit facility was renewed on March 31, 2000, bears interest at a
rate of 1.375% per annum and expires on March 31, 2001. As of March 31, 2000,
GaSonics K.K. had borrowed 292 million yen under this credit facility, which
is equivalent to approximately $2.7 million as of that date. Additionally,
GaSonics K.K. has a basic credit agreement with BTM which provides up to 200
million yen in credit issued in the form of notes payable. On February 29,
2000 a note payable was issued under this agreement for 100 million yen,
which is equivalent to approximately $900,000, bears interest at 1.5% per
annum
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<PAGE>
and expires on January 31, 2001. Both agreements with BTM are secured by a
Letter of Guarantee issued by us.
We believe that our existing cash, cash equivalents, marketable securities
and available lines of credit at March 31, 2000 are sufficient to meet our
working capital cash requirements during the next twelve months. Beyond the
next twelve months, we may require additional equity or debt financing to
achieve our 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.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING RESULTS COULD FLUCTUATE, WHICH MAY CAUSE OUR STOCK PRICE TO
DECLINE.
Our operating results have fluctuated significantly in the past, and we
expect that results will continue to fluctuate significantly in the future
for a number of reasons, including:
- the cyclicality of the semiconductor industry;
- changes in pricing by us, competitors, customers or suppliers;
- inventory obsolescence;
- accounts receivable write-offs;
- product mix;
- the timing of new product announcements and releases by us or our
competitors;
- delays, cancellations or rescheduling of customer orders;
- our ability to produce systems in volume and meet customer requirements;
- the ability of any customer to finance purchases of our equipment;
- procedures and controls;
- changes in overhead absorption levels due to changes in the number of
systems manufactured; and
- lengthy sales cycles.
Fluctuations in our operating results may adversely impact our stock price.
Furthermore, if these factors are not adequately addressed, they may harm our
business.
CYCLICALITY IN THE SEMICONDUCTOR DEVICE INDUSTRY COULD HARM OUR OPERATING
RESULTS.
Our operating results have varied, and may vary in the future, due to the
cyclical nature of the semiconductor device industry. Downturns in the
semiconductor device industry will likely lead to proportionately greater
downturns in our revenues. Our business depends upon the capital expenditures
of semiconductor device manufacturers, which, in turn, depend upon the
current and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor device industry is cyclical and has
historically experienced periodic downturns, which have often resulted in
substantial decreases in demand for semiconductor capital equipment,
including photoresist removal and residue removal equipment. There is
typically a six to twelve month lag between a change in the economic
condition of the semiconductor device industry and the resulting change in
the level of capital expenditures by semiconductor device
15
<PAGE>
manufacturers. In most cases, the resulting decrease in capital expenditures
has been more pronounced than the precipitating downturn in semiconductor
device industry revenues. The semiconductor device industry experienced
downturns in 1998 and 1996, during which industry revenues declined by an
estimated 8.4% and 8.6% as reported by World Semiconductor Trade Statistics,
Inc. During these periods, we experienced significant cancellations and
delays of new orders and rescheduling of existing orders, which harmed our
financial results.
The semiconductor device industry may experience severe and prolonged
downturns in the future. Future downturns in the semiconductor device
industry, or any failure of that industry to fully recover from its recent
downturn, will seriously harm our business, financial condition and results
of operations.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH MAY HARM OUR BUSINESS.
In the past, we have experienced fluctuations in our quarterly results and
fluctuations may continue in the future. Specifically, our quarterly net
sales and operating results have in the past, and will in the future, depend
upon obtaining orders and shipping systems in the same quarter. Backlog at
the beginning of a quarter typically does not include all orders required to
achieve our sales objectives for that quarter. In addition, orders in backlog
are subject to cancellations or reschedulings by customers with limited or no
penalties. We cannot forecast the timing of these occurrences or their impact
on our sales and operating results. We have experienced and will continue to
experience cancellations and rescheduling of orders. Consequently, backlog at
any particular date is not necessarily representative of actual sales
expected for the succeeding period. Our business for a particular quarter may
also be harmed if an anticipated order is not received in time to permit
shipment during the same quarter.
Moreover, our quarterly results fluctuate because a substantial portion of
our revenues is derived from the sale of our systems, which typically range
in price from approximately $150,000 to $2.0 million or more. As a result,
operating results for a particular quarter could be significantly impacted by
the timing of a single transaction.
Furthermore, significant investments in research and development, capital
equipment and customer service and support capability worldwide have resulted
in significant fixed costs, which we have not been and will not be able to
reduce rapidly if sales goals for a particular period are not met. As a
result, a delay in generating or recognizing revenue for any reason could
cause significant variations in our operating results from quarter to quarter
and could result in greater than expected operating losses. Also, because we
manufacture our systems according to forecast, a reduction in customer orders
or backlog could lead to excess inventory and possible inventory
obsolescence, increasing costs and reducing margins that could harm our
business, financial condition and results of operations.
OUR GROSS MARGINS MAY FLUCTUATE, WHICH MAY HARM OUR BUSINESS.
Historically, our gross margins have varied significantly, and we expect that
our gross margins will continue to vary based on a variety of factors,
including:
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<PAGE>
- sales mix and average selling prices of our systems;
- price-based competition;
- mix of revenues, including spare parts, service and support revenues;
- costs associated with new product introductions and enhancements;
- configuration and installation costs;
- delays, cancellations or rescheduling of customer orders;
- underabsorption of manufacturing overhead and field service and support
infrastructure; and
- start-up inefficiencies associated with new products.
If the factors causing fluctuations are not adequately addressed, they may
harm our business and adversely impact our stock price.
IF WE DO NOT CONTINUALLY IMPROVE OUR SYSTEMS IN RESPONSE TO RAPID
TECHNOLOGICAL CHANGES, WE WOULD ENCOUNTER A DECLINE IN SALES OR A LOSS OF
MARKET ACCEPTANCE.
The semiconductor manufacturing industry is characterized by rapid
technological change resulting in new product introductions and enhancements.
Failure to keep pace with technological developments in the semiconductor
manufacturing industry, to translate technological development into systems
and products on a timely and cost-effective basis, or to develop a sufficient
volume of manufacturing for new products would significantly harm our
business. Furthermore, new product introductions or enhancements and new
technologies developed by our competitors could result in a decline in our
sales and loss of market acceptance of our existing products.
Our success in developing, introducing and selling new and enhanced systems
depends upon a variety of factors, including:
- product selection relative to the technological and commercial needs of
the industry;
- timely and efficient completion of product design and development;
- timely and efficient execution of the manufacturing and assembly
processes;
- effective sales and marketing; and
- product performance and reliability in the field.
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 semiconductor devices under development by leading semiconductor
device manufacturers and the equipment required to produce semiconductor
devices. We may not be successful in selecting, developing, manufacturing and
marketing new products or enhancing our existing products. If we are unable
to offer these products in a competitive manner, our business will be harmed.
Additionally, our future performance depends, in part, on the successful
commercialization of our low pressure chemical vapor deposition, or LPCVD,
systems and 300mm systems. However, these products may not lead to
significant revenues or enhance our profitability.
17
<PAGE>
A LIMITED NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR
NET SALES, AND THE LOSS OF, OR REDUCTION IN ORDERS FROM, A MAJOR CUSTOMER
COULD HARM OUR BUSINESS.
We sell a significant proportion of our systems to a limited number of
customers. Sales to our ten largest customers accounted for approximately 77%
of our net sales in the first six months of fiscal 2000, 69% in fiscal year
1999, 64% in fiscal year 1998 and 66% in fiscal year 1997. In the first six
months of fiscal 2000, Intel, Motorola and Lucent Technologies each accounted
for greater than 10% of our total net sales. In fiscal 1999, Intel accounted
for greater than 10% of our net sales. In fiscal 1998, Intel and Motorola
each accounted for more than 10% of our net sales. In fiscal 1997, Samsung,
Promos Technologies and Intel each accounted for more than 10% of net sales.
We expect that a high percentage of our net sales will continue to come from
a limited number of customers.
We have no long-term purchase agreements with our customers. If we lose a
significant customer, our sales could decline and our business will be
harmed. In addition, if sales to some customers decrease or those customers
complete or delay purchasing requirements for new or expanded fabrication
facilities, our business could be harmed. For example, Intel has recently
announced a decision to diversify its supplier base and may decrease its
purchases from us in the future.
OUR LONG AND VARIABLE SALES CYCLE DEPENDS ON MANY FACTORS OUTSIDE OF OUR
CONTROL AND COULD CAUSE US TO EXPEND SIGNIFICANT TIME AND RESOURCES PRIOR TO
EARNING ASSOCIATED REVENUES.
Sales of our systems depend, in part, upon the decision of prospective
customers to increase manufacturing capacity by expanding existing
manufacturing facilities or building new facilities. Because facilitization
of these plants requires significant capital commitment, equipment
qualification and equipment installation, we often experience delays in
finalizing these sales following initial system qualification. Due to these
and other factors, our systems typically have a lengthy and variable sales
cycle during which we may expend substantial funds and management effort to
secure final sale and installation of our products.
The length of the sales cycle may increase if customers centralize purchasing
decisions or if they delay purchase decisions in periods of industry
downturns. The lengthy sales cycles may also intensify the evaluation
process, which may increase sales and marketing expenditures, exposing us to
risks, including obsolescence, fluctuations and the resulting difficulties in
forecasting operating results.
THE COMPLEXITY OF OUR SYSTEMS MAY RESULT IN A SIGNIFICANT DELAY BETWEEN THE
INITIAL INTRODUCTION OF OUR SYSTEMS AND THE COMMENCEMENT OF VOLUME PRODUCTION.
The large number of components in, and the complexity of, our systems can
lead to significant delays between the initial introduction of our systems
and the commencement of volume production. As is typical in the semiconductor
capital equipment market, we experience occasional delays in the introduction
of some of our systems and enhancements, and we may continue to experience
delays in the future. We have experienced and will continue to experience
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<PAGE>
technical, quality and manufacturing difficulties with some of our systems
and enhancements. Any delay in the introduction of our systems could cause us
to lose revenue, incur substantial expenses and harm our reputation. In
addition, if new products have reliability or quality problems, our operating
results will be harmed because of additional expenses, such as service and
warranty expenses.
OUR OPERATIONS ARE CHARACTERIZED BY THE NEED FOR CONTINUED INVESTMENT IN
RESEARCH AND DEVELOPMENT AND, AS A RESULT, OUR ABILITY TO REDUCE COSTS IS
LIMITED.
Our operations are characterized by the need for continued investment in
research and development. If our revenues are below expectations, our
operating results could be harmed because our ability to reduce these costs
while remaining competitive is limited. In addition, because of our emphasis
on research and development and technological innovation, there can be no
assurance that our operating costs will not increase in the future. We expect
the level of research and development expenses to increase in the near future
in absolute dollar terms.
THE SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRY IS INTENSELY COMPETITIVE, WHICH
COULD IMPAIR SALES OF OUR PRODUCTS AND HARM OUR REVENUES AND RESULTS OF
OPERATIONS.
We operate in the highly competitive semiconductor capital equipment industry
and face competition from a number of companies, including Eaton Corporation,
Mattson Technology, Plasma Systems and ULVAC, some of which have greater
financial, engineering, manufacturing, marketing and customer support
resources and broader product offerings than we do. As a result, our
competitors may be able to respond more quickly to new or emerging
technologies or market developments by devoting greater resources to the
development, promotion and sale of products, which could impair sales of our
products. Moreover, there has been significant merger and acquisition
activity among our competitors and potential competitors, particularly during
the recent downturn in the semiconductor device and semiconductor capital
equipment industries. These transactions by our competitors and potential
competitors may provide them with a competitive advantage over us by enabling
them to rapidly expand their product offerings and service capabilities to
meet a broader range of customer needs. Many of our customers and potential
customers in the semiconductor device manufacturing industry are large
companies that require global support and service for their semiconductor
capital equipment. While we believe that our global support and service
infrastructure is sufficient to meet the needs of our current customers,
future or existing competitors may have more extensive infrastructures than
we do, or better infrastructures in particular geographic regions, which
could place us at a disadvantage when competing for the business of global
semiconductor device manufacturers.
In addition, because we rely on sales of our dry chemistry processing
equipment, we may be at a disadvantage to some competitors that offer more
diversified product lines. We believe that we will continue to face
competition from current and new suppliers employing other technologies, such
as wet chemistry, traditional dry chemistry and other techniques, as those
competitors attempt to extend the capabilities of their existing products.
Furthermore, many of our competitors invest heavily in the development of new
systems that will compete directly with ours. We expect our competitors in
each product area to continue to
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<PAGE>
improve the design and performance of their products and to introduce new
products with competitive prices and performance characteristics. Our systems
may not be able compete successfully with those of our competitors. Increased
competitive pressure has led and may continue to lead to reduced demand and
lower prices for some of our products, which could harm our business.
Competitors of our LCD division in Japan include Japan-based companies and
Japan-based joint ventures who manufacture alternative technologies and are
well established in Japan. At any time they could enter our markets with
improved technologies or with systems that directly compete with our LCD
division.
OUR FUTURE DEPENDS ON OUR ABILITY TO FURTHER PENETRATE THE ASIA/PACIFIC
MARKET, WHICH CONSISTS OF JAPAN, KOREA, SINGAPORE AND TAIWAN.
For the first six months of fiscal 2000 and for fiscal 1999, the Asia/Pacific
market represented 27% and 26%, respectively, of our total net sales, while
the Asia/Pacific market represents 57% of the worldwide semiconductor capital
equipment industry. Some of our competitors have products that are targeted
to address the need for low-cost, high-throughput equipment found in Taiwan
foundries. Some of our competitors also have well entrenched positions in
these markets as a result of long personal relationships, robust
infrastructures and experienced management teams. We may not be able to
displace our entrenched competitors. As a result, our market share and
overall global competitive position may be harmed, and the future growth of
our business may be limited. Our efforts to further penetrate these
increasingly important Pacific Rim markets may not be successful.
WE ARE DEPENDENT ON INTERNATIONAL SALES AND SUBJECT TO THE RISKS OF
INTERNATIONAL BUSINESS.
International sales accounted for 46% of our total net sales for the first
six months of fiscal 2000 and 46% in fiscal year 1999, 45% in fiscal year
1998 and 55% in fiscal year 1997. As a result of our expanded international
operations, we anticipate that international sales will continue to account
for a significant portion of our total net sales in the foreseeable future.
These international sales will continue to be subject to a number of 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;
- outbreaks of hostilities;
- difficulties in accounts receivable collection;
- longer collection cycles;
- difficulties in managing distributors or representatives; and
- difficulties in staffing and managing foreign subsidiary and branch
operations.
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We are also subject to the risks associated with the imposition of domestic
and foreign legislation and regulations relating to the import or export of
semiconductor equipment. We cannot predict if the import or export of our
products will be subject to tariffs, quotas, duties, taxes or other charges
or restrictions imposed by the United States or any other country in the
future.
In addition, Taiwan accounts for a growing portion of the world's
semiconductor manufacturing. There are currently strained relations between
China and Taiwan. Any adverse development in those relations could
significantly impact the worldwide production of semiconductors, which would
lead to reduced sales of our products and harm our operating results.
WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL AND THEY MAY BE DIFFICULT TO
REPLACE.
Our success depends to a large extent upon the efforts and abilities of our
key managerial and technical employees. The loss of key employees could limit
our ability to develop new products and adapt existing products to our
customers' evolving requirements and result in lost sales and diversion of
management resources. We have no employment agreements preventing our
officers or key employees from joining our competitors or competing with us.
Furthermore, much of our competitive advantage and intellectual property is
based on the expertise, experience and know-how of our key personnel
regarding our technologies, systems and products. If we are unable to retain
our key personnel, or if any of our key personnel join a competitor or
otherwise compete with us, our business and operating results could be harmed.
OUR FUTURE PERFORMANCE DEPENDS ON OUR ABILITY TO ATTRACT KEY PERSONNEL.
Our growth depends in part on our ability to attract and retain qualified
management, engineering, financial and accounting, technical, marketing and
sales and support personnel for our operations. Competition for personnel is
intense, particularly in Northern California where we are based. We may not
be successful in attracting or retaining personnel, which could harm our
business.
IF WE ARE FOUND TO INFRINGE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR
BUSINESS MAY BE HARMED.
As is typical in the semiconductor industry, we occasionally receive notices
from third parties alleging infringement claims. Although we have no
significant claims or lawsuits regarding any possible infringement claims
currently filed against us, there can be no assurance that infringement
claims by third parties, or claims for indemnification by our customers
resulting from infringement claims, will not be asserted against us in the
future. These assertions, whether or not proven to be true, could harm our
business.
If any claims are asserted against us, we may seek to obtain a license under
the third party's intellectual property rights. However, whether such a
license would be available to us at all, or on terms acceptable to us, is
unclear. Any license would likely increase our expenses. We could also decide
to resort to litigation to challenge claims or enforce our intellectual
property rights.
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<PAGE>
Litigation against us, even if unsuccessful, could be very expensive and time
consuming and could harm our business.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR
BUSINESS MAY BE HARMED.
We attempt to protect our intellectual property rights through patents,
copyrights, trade secrets and other measures. However, there can be no
assurance that we will be able to protect our technology adequately or that
competitors will not independently develop similar technology. Nor can we be
sure that any of our pending patent applications will be issued or that
foreign intellectual property laws will protect our intellectual property
rights. Our issued patents could be challenged, invalidated or circumvented
and the rights granted may not provide us with competitive advantages.
Furthermore, we cannot be certain that others will not independently develop
similar products, duplicate our products or design around our patents or
patent applications.
IF WE ENGAGE IN ACQUISITIONS, WE WILL INCUR A VARIETY OF EXPENSES, AND WE MAY
NOT BE ABLE TO REALIZE THE ANTICIPATED BENEFITS.
In the future, we may pursue acquisitions of additional product lines,
technologies or businesses. We may have to issue debt or equity securities to
pay for future acquisitions, which could be dilutive, and in the case of debt
would have to be repaid, and could harm our business. In addition, we have
limited experience in the acquisition process. Acquisitions involve a number
of risks, including:
- difficulties in and costs associated with the assimilation of the
operations, technologies;
- personnel and products of the acquired companies;
- assumption of known or unknown liabilities or other unanticipated events
or circumstances;
- diversion of management's attention;
- risks of entering markets in which we have limited or no experience; and
- potential loss of key employees.
From time to time, we have engaged in preliminary discussions with third
parties concerning potential acquisitions of product lines, technologies and
businesses. However, there are currently no commitments or agreements with
respect to any acquisitions.
WE PRODUCE A MAJORITY OF OUR PRODUCTS AT A SINGLE FACILITY AND ANY DISRUPTION
IN THE OPERATIONS OF THAT FACILITY COULD HARM OUR BUSINESS.
We produce most of our products in our manufacturing facility located in San
Jose, California. Our manufacturing processes are highly complex and require
sophisticated and costly equipment and a specially designed facility. As a
result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage to this facility as a result of an earthquake, fire or any other
reason, could harm our business, financial condition or results of
operations. Furthermore, San Jose is located on a primary fault
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line. We currently do not have a disaster recovery plan and do not carry
sufficient business interruption insurance to compensate us for losses that
may occur.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR PRODUCTS, AND THE LOSS OF ANY
SUPPLIER MAY HARM OUR BUSINESS.
We purchase a number of components and subassemblies necessary for
manufacturing our systems from a limited number of suppliers and in some
instances a sole supplier. Specifically, we rely on a limited number of
suppliers for robotics, microwave power supplies and platens, and on single
sources for magnetrons and microwave applicators used in our products. Our
LCD division in Japan is heavily dependent on a single supplier for quartz
fabrication used in its LPCVD systems.
We are exploring alternative sources for these critical materials. In
addition, we have been establishing longer term contracts with some of these
suppliers to mitigate the potential risks of shortages, lack of control over
pricing and delays in delivery of components and subassemblies. However, we
are also increasingly relying on outside vendors to manufacture components
and subassemblies.
Our reliance on sole or a limited number of suppliers and our increasing
reliance on subcontractors involve several risks, including shortages, lack
of control over pricing and delays in delivery of components and
subassemblies. Because our manufacturing process is typically a complex
process and requires long lead times, there may be delays or shortages caused
by suppliers in the future. Some of our suppliers may have relatively limited
financial and other resources, which could impact their ability to deliver
products in a timely manner. Inadequate deliveries or any other circumstance
that would require us to seek alternative sources of supply or to manufacture
necessary components internally could significantly delay shipments, which
could damage relationships with current and prospective customers and harm
our business.
A NEW ACCOUNTING PRONOUNCEMENT MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." As a result of this
pronouncement, companies will be required to recognize revenue only when they
substantially complete the applicable sales agreements, which will typically
occur upon customer acceptance. This pronouncement particularly impacts the
semiconductor manufacturing industry and the semiconductor capital equipment
industry. Historically, the industry has recognized revenue upon shipment,
and we have consistently applied this revenue recognition policy. In
compliance with this pronouncement, we will adopt the accounting change in
revenue recognition in the first fiscal quarter of 2001, which we expect to
have a significant effect on our operating results in the first quarter.
Furthermore, adoption of this pronouncement will impact the comparability of
our financial statements from period to period, relationships with customers
and internal procedures and controls.
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IF WE CANNOT SUCCESSFULLY EXPAND OUR OPERATIONS AND MANAGEMENT SYSTEMS, WE
MAY NOT BE ABLE TO GROW OR MAINTAIN OUR BUSINESS.
Sales growth and expansion in the scope of our operations in the past placed
a considerable strain on our operations and management systems. To
effectively deal with changes brought on by the cyclical nature of the
industry, we may be required to initiate an extensive reevaluation of our
operating and financial systems, procedures and controls. We will continue to
upgrade and implement new management systems as required. If we do not
succeed in these efforts, we may not be able to grow or maintain our
business, and our business may be harmed.
OUR OFFICERS, DIRECTORS AND RELATED FAMILY MEMBERS CAN CONTROL THE OUTCOME OF
MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of March 31, 2000, our officers, directors and members of their families
who may be deemed affiliates of such persons, beneficially owned
approximately 20.2% of our outstanding shares of common stock. Accordingly,
these stockholders will be able to significantly influence the election of
our directors and the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions, regardless of how our other
stockholders may vote. Such a high level of ownership by these persons or
entities could have a significant effect in delaying, deferring or preventing
a change in control and may impact the voting power and other rights of other
holders of common stock.
ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND UNDER
DELAWARE LAW COULD DELAY, IMPAIR OR PREVENT A CHANGE IN CONTROL.
Provisions of our Certificate of Incorporation, 1994 Stock Option/Stock
Issuance Plan, Bylaws and Delaware law may discourage transactions involving
a change in control. Our Certificate of Incorporation and Bylaws contain
provisions that limit liability and provide indemnification of our directors
and officers and provide that our stockholders can take action only at a duly
called annual or special meeting of stockholders. These provisions may have
the effect of deterring hostile takeovers or delaying changes in the control
or management of us. In addition, the ability of our board of directors to
issue preferred stock without further stockholder approval could have the
effect of delaying, deferring or preventing a change in control.
The Delaware anti-takeover law restricts business combinations with some
stockholders once the stockholder acquires 15% or more of our common stock.
The Delaware statute makes it more difficult for our company to be acquired
without the consent of our board of directors and management. We are also
subject to the provisions of Section 203 of the Delaware General Corporation
Law prohibiting, under various circumstances, publicly-held Delaware
corporations from engaging in business combinations with interested
stockholders for a specified period of time without the approval of the
holders of substantially all of its outstanding voting stock. These
provisions could delay or impede the removal of incumbent directors and could
make more difficult a merger, tender offer or proxy contest involving us,
even if these events could be beneficial, in the short-term, to the interests
of the stockholders. In addition, these provisions
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<PAGE>
could limit the price that investors might be willing to pay in the future
for shares of our common stock.
OUR FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS COULD
HARM OUR BUSINESS.
We are 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 our products. We
believe that we are currently in compliance, in all material respects, with
these regulations and that we have obtained all necessary environmental
permits to conduct our business. Nevertheless, the failure to comply with
current or future regulations could result in substantial fines being imposed
on us, suspension of production, alteration of our manufacturing process or
cessation of operations. These regulations could require us to acquire
expensive remediation equipment or to incur substantial expenses to comply
with environmental regulations. Our failure to control the use, disposal or
storage of, or adequately restrict the discharge of, hazardous or toxic
substances could subject us to significant liabilities and could harm our
business.
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ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
INTEREST RATE RISK
Our exposure to market risk for change in interest rates relates primarily to
our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We invest in high-credit quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. As stated in
our policy, we ensure the safety and preservation of our invested principal
funds by limiting default risk, market risk and reinvestment risk.
We mitigate default risk by investing in safe and high-credit quality
securities and by constantly positioning our 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 our investment portfolio (in
thousands):
<TABLE>
<CAPTION>
Fiscal Years
Cash equivalents and short-term investments 2000 2001
-------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Fixed rate short-term investments $18,607 $4,244
Average interest rate 5.97% 6.18%
</TABLE>
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are 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.
The following proposals were voted upon by our stockholders at
our Annual Meeting of Stockholders held on March 10, 2000.
1. The following six directors nominated to serve until the
next Annual Meeting or until their successors are elected
and qualified, were elected by the stockholders.
<TABLE>
<CAPTION>
VOTES BROKER
VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
<S> <C> <C> <C> <C>
Dave Toole 13,028,419 634,159 - -
F. Joseph Van Poppelen 13,028,419 634,159 - -
Kenneth M. Thompson 13,028,419 634,159 - -
Monte M. Toole 13,028,419 634,159 - -
Kenneth Schroeder 13,028,419 634,159 - -
Asuri Raghavan 13,028,419 634,159 - -
</TABLE>
2. An amendment to our 1994 Stock Option/Stock Issuance Plan
(the "Option Plan") to increase the maximum number of
shares of Common Stock authorized for issuance over the
term of the Option Plan from 3,100,000 shares to 3,650,000
shares and to amend the vesting provisions of the 7,500
share automatic grants to non-employee directors so that
such grants will be fully exercisable and vested as of the
grant date was approved with 13,662,578 of our voting
securities voted on the matter, of which 8,597,112 were
voted for the proposal, 5,050,794 were voted against,
14,672 were abstained from voting and there were no broker
non-votes.
27
<PAGE>
3. A proposal to ratify the appointment of Arthur Andersen LLP
as our independent auditors for the fiscal year ending
September 30, 2000, was approved with 13,602,578 shares of
our voting securities voting on the matter, of which
13,636,640 were voted for the proposal, 9,093 were voted
against, 16,845 were abstained from voting and there were
no broker non-votes.
ITEM 5. OTHER INFORMATION.
On April 10, 2000, we filed a registration statement on Form
S-3 for a proposed follow-on equity public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 27 Financial Data Schedule
Exhibit 10.22 Loan Agreement dated March 31, 2000
between Registrant and Bank of
Tokyo-Mitsubishi
Exhibit 10.23 Form of Light Industrial Lease between
Teachers and Annuity Association of
America and the Registrant for office
space at 2730-2760 Junction Avenue and
404-410 East Plumeria Drive, San Jose,
California
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
28
<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/Rammy Rasmussen
---------------------------
Date: May 5, 2000 By: Rammy Rasmussen
Vice President, Finance
Chief Financial Officer and
Secretary (signing on behalf
of the Registrant and as
principal financial officer)
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
<S> <C>
10.22 Loan Agreement dated March 31, 2000 between Registrant and
Bank of Tokyo-Mitsubishi
10.23 Amendment to Form of Light Industrial Lease between Teachers
Insurance and Annuity Association of America and the
Registrant for office space
27 Financial Data Schedule
</TABLE>
30
<PAGE>
Exhibit 10.22
Date: FEBRUARY 29, 2000
TO: THE BANK OF TOKYO-MITSUBISHI, LIMITED
GUARANTEE
- ---------------------------------------------- --------------------------------
The maximum amount guaranteed JPY 200,000,000
- ---------------------------------------------- --------------------------------
The term of this guarantee Until May 31, 2001
- ---------------------------------------------- --------------------------------
In regard to any and all obligations the Principal presently owes and/or
may owe your Bank as a result of transactions at any time until the date set
forth above provided for in Article 1 of the Agreement on Bank Transactions
which the Principal separately executed and delivered to your Bank, the
Guarantor shall be jointly and severally liable with the Principal for the
performance of all such obligations to the extent of the maximum amount set
forth above, and the Guarantor hereby agrees to abide by the terms and
conditions of the said Agreement on Bank Transactions as well as the term,
set forth below with regard to the performance of any such obligations:
1. 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.
2. The Guarantor shall not effect a setoff by any of the Principal's
deposits or credits with your Bank.
3. If and when the Guarantor performs any obligations of this
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.
4. In cases in which the Guarantor has given or gives in the future any
other guarantee in regard to any of the Principal's obligations to your Bank,
the total amount of the obligations guaranteed shall, unless otherwise agreed,
be the aggregate of such guarantees, and this guarantee shall not affect any
such other guarantees.
The Principal: Signature Gasonics International Japan K.K.
- --------------
Full Name: President Kawakami Tetsuo
Company
Stamp Address: JIP Code 243-0801
686-1 Kamiechi, Atsugi-Shi,
Kanagawa-Prefecture
Japan
The Guarantor: Signature: Asuri Raghavan
- --------------
Full Name: Gasonics International Corporation
Asuri Raghavan
Address: 2730 Junction Avenue
San Jose, California 95134
(All questions that may arise within or without the courts of law in regard
the meaning of the words, provisions and stipulations of this Agreement shall
be decided in accordance with the Japanese text.)
<PAGE>
Exhibit 10.23
FIFTH AMENDMENT TO LIGHT INDUSTRIAL LEASE
This Fifth Amendment to Light Industrial Lease (the "Fifth
Amendment"), dated as of March 23rd, 2000, is entered into by and between
TIAA Realty, Inc., a Delaware corporation "Lessor") and Gasonics
International, Inc., a California corporation ("Lessee").
RECITALS
A. Lessor's predecessor-in-interest, Teachers Insurance and Annuity
Association of America, a New York corporation, and Lessee's
predecessor-in-interest, Gasonics, Inc., entered into that certain Light
Industrial Lease dated October 25, 1989, as amended by that certain First
Amendment to Light Industrial Lease dated February 21, 1992, that certain
Second Amendment to Light Industrial Lease dated April 1, 1992, that certain
Third Amendment to Light Industrial Lease (undated) and that certain Fourth
Amendment to Light Industrial Lease dated July, 1999 (collectively, the
"Lease"), pursuant to which Lessor leased to Lessee the premises located at
2730-2760 Junction Avenue, San Jose, California, consisting of approximately
ninety thousand four hundred sixty-seven (90,467) square feet (the "Original
Premises").
B. The Lease is scheduled to expire on December 31, 2001.
C. Lessor and Lessee desire to (1) extend the term of the Lease with
respect to the Original Premises, (2) provide for Lessee's occupancy of
additional space consisting of a portion of the building located at 404-410
East Plumeria Drive, San Jose, California as of May 1, 2000 and (3) provide
for Lessee's occupancy of the remaining space in the building located at
404-410 East Plumeria Drive, San Jose, California as of approximately July 1,
2002, as more specifically provided in this Fifth Amendment.
Now, therefore, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee agree as
follow:
1. ADDITIONAL LEASED PREMISES: Lessor hereby leases to Lessee,
and Lessee leases from Lessor, the following:
a. 404 EAST PLUMERIA. The premises consisting of
approximately twenty- seven thousand nine hundred
eight (27,908) rentable square feet of space in the
Montague Business Park, commonly known as 404 East
Plumeria Drive, San Jose, California (the "404 E.
Plumeria Premises").
b. 410 EAST PLUMERIA. The premises consisting of
approximately twenty seven thousand five hundred
seventy-six (27,576) rentable square feet of space in
the Montague Business Park, commonly known as 410
East Plumeria Drive, San Jose, California (the "410
E. Plumeria Premises").
The 404 E. Plumeria Premises and the 410 E. Plumeria Premises
and the real property of which they are a part are referred to hereinafter
collectively as the "Plumeria Property". All references in the Lease to the
"Premises" shall be deemed to refer to the Original Premises, and as of the
404 E. Plumeria Commencement Date and the 410 E. Plumeria
-1-
<PAGE>
Commencement Date, respectively, the 404 E. Plumeria Premises and the 410 E.
Plumeria Premises. Lessor and Lessee agree that the rentable square footage
of the Premises as set forth above shall be conclusive as between the parties
for the purposes of this Lease and that if a remeasurement of the Premises,
or any portion thereof, reflects a greater or lesser size, there shall be no
adjustment of the base Monthly Rent or any other amount payable finder the
Lease, as amended by this Fifth Amendment,
2. TERM.
a. COMMENCEMENT.
(1) The Term of the Lease for the Original Premises
has already commenced;
(2) The Term of the Lease for the 404 E. Plumeria
Premises shall commence on May 1, 2000 (the "404
E. Plumeria Commencement Date"); and
(3) The Term of the Lease for the 410 E. Plumeria
Premises shall commence on July 1, 2002 (the "410
E. Plumeria Commencement Date").
Provided, however, that if Lessor is unable to
deliver possession of the 404 E. Plumeria Premises
and/or the 410 E. Plumeria Premises by the dates
provided above, such failure shall not affect the
validity of this Lease nor shall it extend the Term
or render Lessor liable to Lessee for any loss or
damage resulting therefrom or delay the 404 E.
Plumeria Commencement Date except as provided in
Paragraph 9 of this Fifth Amendment. Notwithstanding
any other provision of this Lease, if Lessor cannot
deliver possession of the 410 E. Plumeria Premises to
Lessee for any reason including the fault of Lessor,
the Term of the Lease with respect to the 410 E.
Plumeria Premises shall instead commence on the date
on which Lessor tenders possession of the 410 E.
Plumeria Premises to Lessee.
b. EARLY OCCUPANCY. After execution of this Fifth
Amendment and the delivery by Lessee of the security
deposit, insurance certificates showing coverage for
the 404 E. Plumeria Premises in the amounts required
under the Lease and any other sums hereunder required
to be paid upon execution of this Fifth Amendment,
and upon Lessor obtaining possession of the 404 E.
Plumeria Premises, Lessee shall be provided with
access to the 404 E. Plumeria Premises for the
purpose of performing any alterations or improvements
and otherwise preparing for the occupancy of the 404
E. Plumeria PREMISES, provided, however, that any
alterations or improvements shall be undertaken in
compliance with the terms of the Lease. Such early
occupancy shall be on the terms and conditions
contained in the Lease, as amended by this Fifth
Amendment, provided,
-2-
<PAGE>
however, that Lessee shall not be obligated to pay
base Monthly Rent prior to May 1, 2000.
c. TERMINATION. Paragraph 1.2 of the Lease is amended to
extend the Term through and including December 31,
2006. The Term of the Lease shall expire concurrently
for the Original Premises, the 404 E. Plumeria
Premises and the 410 E. Plumeria Premises.
3. MONTHLY RENT.
a. ORIGINAL PREMISES. Through December 31, 2001, the
Monthly Rent payable for the Original Premises shall
remain as specified in the Lease. Effective January
1, 2002 base Monthly Rent for the Original Premises
shall be as follows:
<TABLE>
<CAPTION>
Period Monthly Rent/RSF Monthly Rent
------ ---------------- ------------
<S> <C> <C>
1/1/02 - 4/30/02 $2.00 $180,934.00
5/1/02 - 4/30/03 $2.09 $189,076.03
5/1/03 - 4/30/04 $2.20 $199,027.40
5/1/04 - 4/30/05 $2.31 $208,978.77
5/1/05 - 4/30/06 $2.42 $218,930.14
5/1/06 - 12/31/06 $2.55 $230,690.85
</TABLE>
b. 404 E. PLUMERIA. Lessee shall pay to Lessor base
Monthly Rent for the 404 E. Plumeria Premises as
follows:
<TABLE>
<CAPTION>
Period Monthly Rent/RSF Monthly Rent
------ ---------------- ------------
<S> <C> <C>
5/1/00 - 4/30/01 $1.90 $53,025.20
5/1/01 - 4/30/02 $2.00 $55,816.00
5/1/02 - 4/30/03 $2.09 $58,327.72
5/1/03 - 4/30/04 $2.20 $61,397.60
5/1/04 - 4/30/05 $2.31 $64,467.48
5/1/05 - 4/30/06 $2.42 $67,537.36
5/1/06 - 12/31/06 $2.55 $71,165.40
</TABLE>
c. 410 E. PLUMERIA. Lessee shall pay to Lessor base
Monthly Rent for the 410 E. Plumeria Premises as
follows:
<TABLE>
<CAPTION>
Period Monthly Rent/RSF Monthly Rent
------ ---------------- ------------
<S> <C> <C>
7/1/02 - 4/30/03 $2.09 $57,633.84
5/1/03 - 4/30/04 $2.20 $60,667.20
5/1/04 - 4/30/05 $2.31 $63,700.56
5/1/05 - 4/30/06 $2.42 $66,733.92
5/1/06 - 12/31/06 $2.55 $70,318.80
</TABLE>
-3-
<PAGE>
4. TRIPLE-NET LEASE. Lessee acknowledges that the provisions of
Paragraph 4.3 of the Lease apply to the entire premises and that Lessee shall
pay all expenses of every kind as described in the Lease with respect to the
Original Premises, the 404 E. Plumeria Premises and the 410 E. Plumeria
Premises. Effective as of the 404 E. Plumeria Commencement Date, Lessee shall
pay fifty and three tenths percent (50.3%) of any expenses of the categories
described in the Lease insofar as Lessor incurs those expenses in connection
with the Plumeria Property. Effective as of the 410 E. Plumeria Commencement
Date, Lessee shall pay one hundred percent (100%) of any expenses of the
categories described in the Lease insofar as Lessor incurs those expenses in
connection with the Plumeria Property.
5. SECURITY DEPOSIT.
a. 404 E. PLUMERIA. Upon execution of this Fifth
Amendment, Lessee shall increase the security deposit
required pursuant to Paragraph 4.5 of the Lease by
seventy-one thousand one hundred sixty-five and
40/100 dollars ($71,165.40). Upon execution of this
First Amendment, Lessee shall replace the existing
letter of credit with a new letter of credit in the
amount of one hundred forty thousand three hundred
fifty-eight and 40/100 dollars ($140,358.40) which
satisfies the requirements of Paragraph 22 of the
Lease.
b. 410 E. PLUMERIA. On the day preceding the 410 E.
Plumeria Commencement Date, Lessee shall increase the
security deposit required pursuant to Paragraph 4.5
of the Lease by seventy thousand three hundred
eighteen and 80/100 dollars ($70,318.80). On the day
preceding the 410 E. Plumeria Commencement Date,
Lessee shall replace the existing letter of credit
with a new letter of credit in the amount of two
hundred ten thousand six hundred seventy-seven and
20/100 dollars ($210,677.20) which satisfies the
requirements of Paragraph 22 of the Lease.
6. CONDITION OF THE PREMISES. Lessee acknowledges and agrees that
Lessor shall have no obligation to perform or construct any other
alterations, improvements or additions to, or redecoration of, the Original
Premises, the 404 E. Plumeria Premises or the 410 E. Plumeria Premises except
as specifically provided in this Paragraph 6, and that Lessee shall accept
the Original Promises in their existing condition, and the 404 E. Plumeria
Premises and the 410 E. Plumeria Premises in the condition existing as of the
404 E. Plumeria Commencement Date and the 410 E. Plumeria Commencement Date,
respectively. Notwithstanding the foregoing (1) on May 1, 2000, the roof of
the Original Premises and the HVAC systems therein (excluding those serving
any clean room areas in the Original Premises) shall be brought into good
working condition and repair, (2) on the 404 E. Plumeria Commencement Date,
the roof of the 404 E. Plumeria Premises and the HVAC systems therein shall
be brought into good working condition and repair, and (3) on the 410 E.
Plumeria Commencement Date, the roof of the 410 E. Plumeria Premises and the
HVAC systems therein shall be brought into good working condition and repair.
-4-
<PAGE>
7. CONDEMNATION AND DAMAGE AND DESTRUCTION. The provisions of
Paragraphs 12 and 16 of the Lease shall apply separately to each of the
Original Premises, the 404 E. Plumeria Premises and the 410 E. Plumeria
Premises, it being the intent of the parties that if any of such distinct
positions of the Premises are condemned or damaged independently of the other
portions of the Premises, the Lease shall remain in effect for any portion of
the Premises if the terms of the Lease would not provide either party with
the right to terminate the Lease with respect to that portion of the Premises.
8. CROSS DEFAULT. Lessor and Lessee acknowledge and agree that
the payment and performance obligations contained in the Lease, as amended by
this Fifth Amendment, are not distinct obligations as far as they relate to
the Original Premises, the 404 E. Plumeria Premises and the 410 E. Plumeria
Premises, and that any default which would entitle Lessor to terminate the
Lease shall entitle Landlord to terminate the entire Lease, as amended by
this Fifth Amendment, and Lessee's right to occupy all portions of the
Premises.
9. RELEVANCE OF LIABILITY. Lessor has disclosed to Lessee that a
party previously negotiated with Lessor for the occupancy of the 404 E.
Plumeria Premises, Lessee hereby releases Lessor from all liability for any
costs, expenses or damages of any kind which Lessee may incur if such party
files a lawsuit with respect to the 404 E. Plumeria Premises, including,
without limitation, any costs incurred by Lessee in improving the 404 E.
Plumeria Premises, any damages resulting from delay or inability to deliver
possession of the 404 E. Plumeria Premises, and attorneys' fees and court
costs incurred by Lessee in connection therewith. If Lessor is prevented from
delivering possession of the 404 E. Plumeria Premises to Lessee as a result
of any such action for a period in excess of ninety (90) days, whether by
court order or otherwise, Lessee shall have the right, exercisable by
providing written notice within ten (10) days after the expiration of inch
ninety (90) day period, to terminate the Lease with respect to both (but not
one or the other of) the 404 E. Plumeria Premises and the 410 E. Plumeria
Premises and to terminate the Fifth Amendment in its entirety (in which case
Lessee shall continue to occupy the Original Premises pursuant to the terms
of the Lease [including the Term thereof]). If Lessee terminates the Lease
with respect to the 404 E. Plumeria Premises and the 410 E. Plumeria Premises
as provided in the preceding sentence but does not terminate this Fifth
Amendment in its entirety, all references to the 404 E. Plumeria Premises and
the 410 E. Plumeria Premises shall be deleted If Lessee fails to deliver such
notice, the Lease will remain in effect as to the entire Premises, provided
that Lessee shall not be obligated to pay any sums due for the 404 E.
Plumeria Premises unless and until possession is delivered.
10. SEPARATE LEASES. At any time during the Term of this Lease,
Lessor may require that Lessee enter into distinct leases on identical terms
and conditions as are contained in the Lease, as amended by this Fifth
Amendment (except for such terms as would become unnecessary as a result of
the separation of the lease of the Premises into distinct leases), pursuant
to which the Original Promises, the 404 E. Plumeria Premises and/or the 410
E. Plumeria Premises each would be the subject of a separate and distinct
lease (except that the 404 E. Plumeria Premises and the 410 E. Plumeria
Premises may be combined into one lease).
11. In the event of a conflict between the terms and conditions of
the Lease and the terms and conditions of this Fifth Amendment, the terms and
conditions of this Fifth Amendment
-5-
<PAGE>
shall control. Except as amended by this Fifth Amendment, the Lease is in
full force and effect and is hereby ratified by Lessor and Lessee.
In witness whereof, Lessor and Lessee have entered into this Fifth
Amendment as of the date first hereinabove written.
Lessor Lessee
- ------ ------
TIAA Realty, Inc., a Delaware Gasonics International, Inc.,
a California corporation
By: By: /s/ R. Rasmussen
------------------------------- ------------------------------
Name: Name: R. Rasmussen
----------------------------- ----------------------------
Title: Title: CFO
--------------------------- ---------------------------
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET 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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,214
<SECURITIES> 17,994
<RECEIVABLES> 29,741
<ALLOWANCES> 735
<INVENTORY> 20,461
<CURRENT-ASSETS> 88,714
<PP&E> 26,173
<DEPRECIATION> 15,810
<TOTAL-ASSETS> 99,616
<CURRENT-LIABILITIES> 30,328
<BONDS> 0
0
0
<COMMON> 606
<OTHER-SE> 68,683
<TOTAL-LIABILITY-AND-EQUITY> 99,616
<SALES> 59,308
<TOTAL-REVENUES> 59,308
<CGS> 33,072
<TOTAL-COSTS> 33,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 5,198
<INCOME-TAX> 258
<INCOME-CONTINUING> 4,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,940
<EPS-BASIC> .34
<EPS-DILUTED> .32
</TABLE>
