<PAGE>
Filed pursuant to 424(B)(4)
Registration No. 333-34418
Prospectus
Issued May 19, 2000
2,025,000 Shares
[GASONICS INTERNATIONAL CORPORATION LOGO APPEARS HERE]
Common Stock
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GaSonics International Corporation is offering 1,700,000 shares of common
stock and the selling stockholders are offering 325,000 shares of common stock
in a firmly underwritten offering. We will not receive any of the proceeds from
the sale of shares by the selling stockholders.
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Our common stock is traded on the Nasdaq National Market under the symbol
"GSNX." The last reported sale price of our common stock on the Nasdaq National
Market on May 18, 2000 was $25.00 per share.
----------------
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 7.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Offering Price........................................... $24.88 $50,371,875
Discounts and Commissions to Underwriters................ $ 1.31 $ 2,644,523
Offering Proceeds to GaSonics............................ $23.57 $40,067,406
Offering Proceeds to the Selling Stockholders............ $23.57 $ 7,659,945
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We have granted the underwriters the right to purchase up to an additional
303,750 shares from us to cover any over-allotments. The underwriters can
exercise this right at any time within thirty days after the offering. Banc of
America Securities LLC expects to deliver the shares of common stock to
investors on May 24, 2000.
Banc of America Securities LLC
CIBC World Markets
Robertson Stephens
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The date of this prospectus is May 19, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Price Range of Our Common Stock.......................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
Management............................................................... 38
Principal and Selling Stockholders....................................... 40
Underwriting............................................................. 42
Legal Matters............................................................ 44
Experts.................................................................. 44
Where You Can Find More Information...................................... 44
Index to Consolidated Financial Statements............................... F-1
</TABLE>
You should rely only upon the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information different from that contained in this prospectus. We are not, and
the underwriters are not, offering to sell these securities in any jurisdiction
where offers and sales are not permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of common stock.
Information contained in our web site does not constitute part of this
prospectus.
GaSonics(R) is our registered trademark. Integrated Clean, Performance
Enhancement Platform and Iridia are our trademarks. This prospectus also
includes trademarks of other companies.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the following summary together with the more detailed information
regarding our company and the common stock being sold in this offering,
especially the risks of investing in our common stock discussed under the
caption "Risk Factors" and our consolidated financial statements and the
related notes appearing elsewhere in this prospectus. The terms "we," "us,"
"our" and "GaSonics" mean GaSonics International Corporation and its
subsidiaries. Unless otherwise indicated, all information in this prospectus
assumes that the underwriters do not exercise their over-allotment option.
GaSonics International Corporation
We are a leading developer and global supplier of photoresist removal 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.
Growth in the communications industry, particularly in the Internet and
mobile electronic device markets, as well as in the traditional markets for
semiconductors, such as computers, automobiles and other consumer and
industrial products, has driven an increase in the demand for semiconductors,
and consequently semiconductor capital equipment. According to Dataquest, the
semiconductor industry is expected to grow at an annual rate of 22.5%, from
$168.7 billion in 1999 to $253.3 billion in 2001. Dataquest also estimates that
the semiconductor capital equipment market is expected to grow at an annual
rate of 39.6%, from $17.5 billion in 1999 to $34.0 billion in 2001.
The manufacturing of semiconductor devices requires a large number of
complex and repetitive processing steps to layer different materials and
imprint various features on a single wafer. Photoresist removal and residue
removal are used to clean the wafer between these processing steps. As
semiconductor devices are becoming more advanced, there are a number of trends
increasing the demand for complex photoresist removal and residue removal
solutions, which include the following:
. manufacturing these advanced semiconductor devices requires an increasing
number of photolithographic masking layers and corresponding photoresist
removal and residue removal steps;
. line geometries, or feature sizes, of semiconductor devices continue to
decrease, increasing the complexity and difficulty of photoresist removal
and residue removal; and
. new processes and materials, including dual damascene, copper and low-k
dielectrics, are complicating preparation of the wafer surface and
therefore complicating photoresist removal and residue removal for
subsequent masking steps.
As a result, we believe the market for cleaning solutions will grow more
rapidly than the semiconductor industry and the semiconductor capital equipment
industry.
Our photoresist removal systems use our innovative microwave downstream
plasma technology, which is designed to increase yields in the manufacturing of
semiconductor devices. This technology offers our customers significant
advantages over traditional techniques by reducing the damage that typically
occurs to the wafer in the photoresist removal processes, thus increasing
yields and reducing cost of ownership. Moreover, our technologically advanced
systems offer a high degree of flexibility, reliability and serviceability.
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Our Integrated Clean systems use our microwave downstream plasma technology
in concert with directional RF plasma technology to remove photoresist and more
difficult to remove residues. These systems allow our customers to achieve
greater fab efficiency and reduced costs by simplifying process flows. In
addition, these systems provide industry leading technology for the complex
cleaning requirements associated with smaller feature sizes as well as new
processes and materials, such as dual damascene, copper and low-k dielectrics.
To further address these new requirements, we have recently entered into joint
development agreements with a number of customers and semiconductor equipment
manufacturers, such as our recently announced participation in the Damascus
Alliance.
Our objective is to be the leading supplier of photoresist removal and
Integrated Clean solutions for the advanced semiconductor manufacturing
industry. Key elements of our strategy include:
. expanding leadership in Integrated Clean solutions;
. providing versatile processing systems;
. extending technological expertise;
. enhancing strategic customer relationships; and
. further penetrating the Pacific Rim market.
Our global infrastructure, developed over our 29-year history in the
semiconductor capital equipment industry, includes sales, service and
applications personnel, as well as spare part depots, in all of the major
semiconductor producing regions in the world.
Recent Operating Results
For the second fiscal quarter ended March 31, 2000, total net sales were
$33.7 million and net income was $3.6 million. As a result, net sales increased
31.6% when compared to the prior quarter and 155.0% when compared to the same
quarter last fiscal year. Increased demand across most geographies and product
lines, including our Integrated Clean Systems, was the principal reason for the
net sales increase. Net income increased $2.3 million versus the prior quarter
and $9.6 million versus the same quarter last fiscal year.
Total net sales to our customers in North America, Europe, Asia Pacific and
Japan, accounted for approximately 48%, 16%, 27% and 9%, respectively, of total
net sales for the second fiscal quarter ended March 31, 2000. These percentages
compare to approximately 62%, 22%, 13% and 3%, respectively, of total net sales
for these regions for the prior quarter.
Both gross margin and operating income improved as well. Gross margin for
the quarter, at 44.3%, was up slightly from the prior quarter, and up from
34.5% for the same quarter last fiscal year. Operating income improved to $3.5
million for the quarter, increasing $2.5 million versus the prior quarter and
$9.7 million from the same quarter last fiscal year.
Recent Events
We have filed a proxy statement with the SEC in connection with a special
meeting of stockholders to be held on July 17, 2000 at which the stockholders
are being asked to approve an amendment to our certificate of incorporation to
increase the authorized shares of common stock from 20,000,000 to 60,000,000
shares.
Additional Information
Our principal executive offices are located at 2730 Junction Avenue, San
Jose, California 95134. Our telephone number is (408) 570-7000.
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The Offering
Common stock offered by GaSonics.......... 1,700,000 shares
Common stock offered by the selling
stockholders.............................. 325,000 shares
Common stock to be outstanding after the
offering.................................. 16,379,907 shares
Use of proceeds........................... We will use the net proceeds from
the offering for working capital
and general corporate purposes. We
may use a portion of the net
proceeds to acquire complementary
assets, technologies and
businesses.
Nasdaq National Market symbol............. "GSNX"
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The number of shares of our common stock outstanding after the offering is
based upon 14,679,907 shares of common stock outstanding as of February 29,
2000 and does not include the following:
. 1,951,137 shares of common stock subject to outstanding options as of
February 29, 2000 at a weighted average exercise price of $9.73 per
share;
. 738,896 additional shares reserved for future issuance under our 1994
Stock Option Plan; and
. 219,740 additional shares reserved for future issuance under our 1994
Employee Stock Purchase Plan.
In no event, however, shall our total number of outstanding shares of common
stock plus our total number of shares of common stock subject to outstanding
options exceed our total number of authorized shares of common stock.
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Summary Consolidated Financial Data
The following table presents our summary consolidated financial data as of
and for the periods indicated. The summary consolidated balance sheet data as
of December 31, 1999 is presented on an actual basis and as adjusted to reflect
the sale of 1,700,000 shares of common stock offered by us in this offering at
a public offering price of $24.88 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses and
giving effect to the application of the net proceeds.
<TABLE>
<CAPTION>
Three Months
Ended December
Fiscal Years Ended September 30, 31,
--------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales............... $102,047 $127,043 $121,256 $100,430 $ 64,279 $10,022 $25,603
Gross margin............ 57,930 62,626 53,964 41,304 24,385 2,152 11,310
Operating income
(loss)................. 19,942 12,370 2,780 (9,597) (15,357) (7,194) 1,029
Net income (loss)....... 16,126 8,930 3,007 (5,713) (14,082) (6,879) 1,338
Net income (loss) per
share:
Basic................. $ 1.26 $ 0.67 $ 0.22 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Diluted............... $ 1.23 $ 0.65 $ 0.21 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Shares used in the
computation of net
income (loss) per
share:
Basic................. 12,798 13,328 13,635 14,039 14,316 14,172 14,659
Diluted............... 13,111 13,738 14,209 14,039 14,316 14,172 15,258
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------
Actual As Adjusted
----------- ------------
(In thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents and marketable securities... $ 27,456 $ 66,848
Working capital....................................... 52,715 92,107
Total assets.......................................... 87,079 126,471
Total stockholders' equity............................ 64,083 103,475
</TABLE>
6
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. Our business, financial condition and results of
operations could be harmed by any of these risks. In addition, the trading
price of our common stock could decline due to any of these risks, and you may
lose all or part of your investment. This prospectus also contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks faced by us
described below and elsewhere in this prospectus.
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 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.
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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:
. 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.
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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.
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 69%
of our net sales in fiscal 1999, 64% in fiscal 1998 and 66% in fiscal 1997. In
fiscal 1999, Intel accounted for greater than 10% of net sales. In fiscal 1998,
Intel and Motorola each accounted for more than 10% of 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
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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
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,
10
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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 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.
In 1999, the Asia/Pacific market represented 26% of our revenue 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 in fiscal 1999,
45% in fiscal 1998 and 55% in fiscal 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.
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
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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.
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.
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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 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.
13
<PAGE>
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.
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 February 29, 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
14
<PAGE>
beneficial, in the short-term, to the interests of the stockholders. In
addition, these provisions 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.
Risks Related to this Offering
A variety of factors may cause the price of our stock to be volatile.
Our stock price may fluctuate due to a variety of factors, including:
. announcements of developments related to our business;
. fluctuations in our operating results;
. sales of our common stock into the marketplace;
. failure to meet or changes in analysts' expectations;
. general conditions in the semiconductor industry or the worldwide
economy;
. announcements of technological innovations, new products or product
enhancements by us or by our competitors;
. developments in patents or other intellectual property rights or any
litigation relating to these rights;
. developments in our relationships with our customers and suppliers;
. natural disasters; and
. outbreaks of hostilities.
In recent years, our stock, the stock market in general and the market for
shares of small capitalization stocks have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Moreover, in recent years the stock prices of many
companies in the semiconductor capital equipment business, including ours, have
declined substantially due to the worldwide semiconductor downturn. There can
be no assurance that the market price of our common stock will not continue to
experience significant fluctuations in the future, including fluctuations that
are unrelated to our performance.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock price.
This type of litigation, if filed against us, could result in substantial costs
or declines in the price of our common stock and divert our management's
attention and resources.
We will retain broad discretion in the use of proceeds from this offering and
may not obtain a significant return on the use of these proceeds.
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management has discretion as to
how to spend the proceeds from this offering and may
15
<PAGE>
spend these proceeds in ways with which our stockholders may not agree.
Management's allocation of the proceeds of this offering may not benefit our
business and the investment of the proceeds may not yield a favorable return.
Investors in this offering could suffer immediate and substantial dilution.
Investors purchasing shares in the offering could incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there could be
further dilution.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that address, among other things: our strategy; the
anticipated development of our solutions and products; our anticipated use of
proceeds; our projected capital expenditures and liquidity; our development of
additional revenue sources; our development and expansion in international
markets; market acceptance of our solutions and products; and our technological
advancement. We intend for these forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. These risks and uncertainties include those
described in "Risk Factors" and elsewhere in this prospectus.
We use words such as "anticipate," "expect," "intend," "plan," "believe,"
"seek," "estimate" and variations of these words and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements, which reflect our management's view only as
of the date of this prospectus. We undertake no obligation to update these
statements or publicly release the result of any revision to the forward-
looking statements that we may make to reflect events or circumstances after
the date of this prospectus or to reflect the occurrence of unanticipated
events.
Market data and forecasts used in this prospectus, including, for example,
estimates of growth in the semiconductor and the semiconductor capital
equipment industries, have been obtained from independent industry sources. We
have not independently verified the data obtained from these sources, and we
cannot assure you of the accuracy or completeness of the data. Forecasts and
other forward-looking information obtained from these sources are subject to
the same qualifications and additional uncertainties accompanying any estimates
of future market size.
USE OF PROCEEDS
The net proceeds from the sale of the 1,700,000 shares of common stock
offered by us, after deducting underwriting discounts and commissions and
estimated offering expenses, will be approximately $39.4 million ($46.6 million
if the underwriters' over-allotment option is exercised in full).
We expect to use these net proceeds for working capital and general
corporate purposes. In addition, we may use a portion of the net proceeds to
acquire complementary assets, technologies and businesses. We currently have no
commitments or agreements with respect to any acquisitions. Pending use of the
net proceeds, we plan to invest the net proceeds in short-term investment grade
securities. We will have broad discretion as to the allocation and use of the
net proceeds that we will receive.
17
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"GSNX." The following table presents, for the periods indicated, the intraday
high and low sales prices for our common stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended September 30, 1998
First Quarter.................................................. $22.81 $ 8.75
Second Quarter................................................. $14.88 $ 9.75
Third Quarter.................................................. $12.63 $ 6.94
Fourth Quarter................................................. $ 8.13 $ 3.44
Year ended September 30, 1999
First Quarter.................................................. $ 9.50 $ 3.56
Second Quarter................................................. $13.75 $ 7.88
Third Quarter.................................................. $15.06 $10.88
Fourth Quarter................................................. $17.56 $13.00
Year ended September 30, 2000
First Quarter.................................................. $19.75 $14.19
Second Quarter................................................. $46.88 $17.88
Third Quarter through May 18, 2000............................. $39.44 $23.38
</TABLE>
On May 18, 2000, the last reported sale price for our common stock as
reported by the Nasdaq National Market was $25.00 per share. As of February 29,
2000, there were 14,679,907 shares of our common stock outstanding, held by 111
stockholders of record.
DIVIDEND POLICY
We have not paid any dividends since our inception. We currently intend to
retain any earnings for use in developing and growing our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Our bank line of credit with Union Bank of California permits stock
dividends but prohibits cash dividends. Any determination to pay dividends in
the future will be at the discretion of our board of directors and will be
dependent on results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors deemed
relevant by our board of directors.
18
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999 on
an actual basis and as adjusted to reflect the sale of the 1,700,000 shares of
common stock we are offering at a public offering price of $24.88 per share and
after deducting the underwriting discounts and commissions and estimated
offering expenses and giving effect to the application of the net proceeds.
This table should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------
Actual As Adjusted
----------- --------------
(In thousands)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000
shares authorized; no shares issued and
outstanding actual and as adjusted............... $ -- $ --
Common stock, $0.001 par value; 20,000,000 shares
authorized; 14,513,082 shares issued and
outstanding actual; 16,213,082 shares issued and
outstanding as adjusted.......................... 15 16
Additional paid-in capital........................ 41,795 81,186
Treasury stock, at cost........................... (2,639) (2,639)
Subscription receivable........................... (27) (27)
Unrealized loss on investment..................... (50) (50)
Retained earnings................................. 24,989 24,989
----------- ------------
Total stockholders' equity...................... $ 64,083 $ 103,475
=========== ============
</TABLE>
The number of shares of our common stock outstanding after the offering is
based upon 14,513,082 shares of common stock outstanding as of December 31,
1999 and does not include:
. 2,050,216 shares of common stock subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $8.68 per
share;
. 824,636 additional shares reserved for future issuance under our 1994
Stock Option Plan; and
. 219,740 additional shares reserved for future issuance under our 1994
Employee Stock Purchase Plan.
In no event, however, shall our total number of outstanding shares of common
stock plus our total number of shares subject to outstanding options exceed our
total number of authorized shares of common stock.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data as of and
for the periods indicated. The consolidated statement of operations data and
other data for each of the fiscal years in the three-year period ended
September 30, 1999 and the consolidated balance sheet data as of September 30,
1998 and 1999 were derived from our consolidated financial statements audited
by Arthur Andersen LLP included elsewhere in this prospectus. The consolidated
statement of operations data for the fiscal years ended September 30, 1995 and
1996 and the consolidated balance sheet data as of September 30, 1995, 1996 and
1997 were derived from our consolidated financial statements audited by Arthur
Andersen LLP not included in this prospectus. The consolidated statement of
operations data for the three month periods ended December 31, 1998 and 1999
and the consolidated balance sheet data as of December 31, 1999 are derived
from unaudited interim consolidated financial statements included in this
prospectus. The unaudited interim consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, which we consider
necessary for a fair presentation of the data. You should read this information
together with the discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and condensed consolidated financial statements, including the
related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Fiscal Years Ended September 30, Ended December 31,
--------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales............... $102,047 $127,043 $121,256 $100,430 $ 64,279 $ 10,022 $ 25,603
Cost of sales........... 44,117 64,417 67,292 59,126 39,894 7,870 14,293
-------- -------- -------- -------- -------- --------- ---------
Gross margin............ 57,930 62,626 53,964 41,304 24,385 2,152 11,310
Operating expenses:
Research and
development.......... 12,346 18,006 17,410 20,493 17,696 3,636 4,366
Selling, general and
administrative....... 25,067 32,250 29,257 28,727 21,639 5,303 5,915
Special charges....... 575 -- 4,517 1,681 407 407 --
-------- -------- -------- -------- -------- --------- ---------
Total operating
expenses............ 37,988 50,256 51,184 50,901 39,742 9,346 10,281
Operating income
(loss)................. 19,942 12,370 2,780 (9,597) (15,357) (7,194) 1,029
Interest and other
income, net............ 1,025 1,225 631 1,070 1,275 315 309
Gain on sale of
investment............. 4,700 143 1,215 -- -- -- --
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
income tax provision
(benefit).............. 25,727 13,738 4,626 (8,527) (14,082) (6,879) 1,338
Income tax provisions
(benefit).............. 9,601 4,808 1,619 2,814 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)....... $ 16,126 $ 8,930 $ 3,007 $ (5,713) $(14,082) $ (6,879) $ 1,338
======== ======== ======== ======== ======== ========= =========
Net income (loss) per
share:
Basic................. $ 1.26 $ 0.67 $ 0.22 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Diluted............... $ 1.23 $ 0.65 $ 0.21 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Number of shares used in
computing net income
(loss) per share
amounts:
Basic................. 12,798 13,328 13,635 14,039 14,316 14,172 14,659
Diluted............... 13,111 13,738 14,209 14,039 14,316 14,172 15,258
</TABLE>
<TABLE>
<CAPTION>
As of As of
September 30, December 31, 1999
---------------------------------------- ------------------
1995 1996 1997 1998 1999 Actual
------- ------- -------- ------- ------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and marketable
securities............. $36,599 $25,909 $ 24,884 $32,338 $27,757 $27,456
Working capital......... 55,130 59,224 62,971 59,735 49,575 52,715
Total assets............ 85,367 96,430 104,382 97,216 84,208 87,079
Total stockholders'
equity................. 63,188 72,689 79,193 75,408 61,623 64,083
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of
operations should be read in conjunction with our supplemental consolidated
financial statements included elsewhere in this prospectus. This discussion
contains forward-looking statements which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of certain factors, including but not limited to
those discussed in "Risk Factors" and elsewhere in this prospectus.
Overview
We are a leading developer and global supplier of photoresist removal 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
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;
. 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.
Our gross margin as a percentage of net sales for the first quarter of
fiscal 2000 increased compared to the prior sequential quarter and the
comparable quarter of fiscal 1999. These increases were primarily due to
increased utilization of our field service organization and manufacturing
capability resulting from higher sales volume. Gross margin as a percentage of
net sales has decreased in fiscal 1999 from fiscal 1998 and in fiscal 1998 from
fiscal 1997 principally due to an increased underabsorption of manufacturing
overhead and field service and support infrastructure due to the prolonged and
severe worldwide semiconductor business slowdown that occurred during these
periods. In addition, gross margin in fiscal 1998 was negatively impacted by
approximately $2.5 million of charges to increase reserves for potentially
excess and obsolete inventory.
21
<PAGE>
Results of Operations
The following table presents consolidated statements of operations data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Fiscal Years Ended Ended
September 30, December 31,
---------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 43.2 50.7 55.5 58.9 62.1 78.5 55.8
----- ----- ----- ----- ----- ------ ------
Gross margin.......... 56.8 49.3 44.5 41.1 37.9 21.5 44.2
Operating expenses:
Research and
development.......... 12.1 14.2 14.4 20.4 27.5 36.3 17.1
Selling, general and
administrative....... 24.6 25.4 24.1 28.6 33.7 52.9 23.1
Special charges....... 0.6 -- 3.7 1.7 0.6 4.1 --
----- ----- ----- ----- ----- ------ ------
Total operating
expenses........... 37.5 39.6 42.2 50.7 61.8 93.3 40.2
Operating income
(loss)................. 19.5 9.7 2.3 (9.6) (23.9) (71.8) 4.0
Interest and other
income, net............ 1.1 1.0 0.5 1.1 2.0 3.1 1.2
Gain on sale of
investment............. 4.6 0.1 1.0 -- -- -- --
----- ----- ----- ----- ----- ------ ------
Income (loss) before
income tax provision .. 25.2 10.8 3.8 (8.5) (21.9) (68.7) 5.2
Income tax provisions
(benefit).............. 9.4 3.8 1.3 2.8 -- -- --
----- ----- ----- ----- ----- ------ ------
Net income (loss)....... 15.8% 7.0% 2.5% (5.7)% (21.9)% (68.7)% 5.2%
===== ===== ===== ===== ===== ====== ======
</TABLE>
Three Months Ended December 31, 1999 Compared to Three Months Ended December
31, 1998
Net sales. Net sales consists of revenues from system sales, spare parts,
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 semiconductor
device manufacturers in nearly all geographic regions reducing and delaying
capital equipment purchases, is the principal reason for lower sales in fiscal
1999. The industry climate began to slowly improve throughout fiscal 1999, and
we believe is now beginning to accelerate. As a result, our sales are
increasing due to increased demand across most geographies and most products.
Assuming the global semiconductor industry continues and sustains this
recovery, we anticipate 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. 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 net sales in fiscal 2000.
Gross margin. Our 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 2000
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 systems, targeted
cost reduction programs and controlled spending. We expect that our gross
margin for the next few 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
22
<PAGE>
cost reductions and improved efficiencies in manufacturing. Gross margins,
however, will continue to be at risk and could be significantly harmed by
inefficiencies associated with new product introductions, sales of lower margin
FPD systems, competitive pricing pressures, the semiconductor industry 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 workforce. 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 severance costs. As of December 31, 1999,
these severance costs had been paid.
Research and development. Our research and development, or 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 our 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 specifically, increased development costs associated
with our 300mm product development and new process development for our advanced
photoresist removal and Integrated Clean applications. Additionally, R&D
expenses in the current quarter increased compared to the same period in the
last fiscal year due to the reduced work schedule that was in effect during the
first half of fiscal 1999 as part of our cost reduction efforts during 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 our 300mm platform, the
support of the LCD flat panel business and applications development of our VHP
technology. In June 1999, we formally introduced the PEP Iridia product, which
is a leading-edge solution targeting the growing market for photoresist removal
and Integrated Clean solutions. We anticipate 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
solutions and, for the second quarter of fiscal 2000, the increase will also
reflect that we were on a reduced work schedule for the first half of fiscal
1999.
Selling, general and administrative. Our selling, general and
administrative, or 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 in the 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 costs for the demonstration and evaluation of equipment.
Additionally, SG&A expenses in the first quarter of fiscal 2000 increased due
to the reduced work schedule that was in effect during the first half of fiscal
1999. We anticipate that SG&A expenses for the remaining quarters of fiscal
2000 will increase when compared to the same periods in the last fiscal year
due to hiring and other expenses needed to support increased business levels
and due to the lower expenses incurred in the first half of fiscal 1999 from
our reduced work schedule.
Other income (loss). Other income and loss 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 our 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, the amount borrowed under this
loan agreement was approximately 285.0 million yen, which is equivalent to
approximately $2.7 million. Interest income received, which is primarily
derived from our 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
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industrial plasma cleaning products was approximately $49,000 and $78,000 for
the first quarter of fiscal 2000 and fiscal 1999, respectively.
Income tax proxisions (benefit). We did not record a provision for income
taxes related to our net income for the fiscal quarter ended December 31, 1999
because of our tax loss carry-forward that was available to offset applicable
tax liabilities. However, we may begin to record a tax provision later in
fiscal 2000, should our projected pretax income exceed our net tax loss carry-
forward.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Years Ended September
30, 1998 and September 30, 1997
Net sales. Net sales consists of revenues from system sales, spare parts,
upgrade sales and maintenance and support. Net sales in fiscal 1999 of $64.3
million decreased 36% from $100.4 million in fiscal 1998 and decreased 47% from
$121.3 million in fiscal 1997. The severe worldwide business slowdown in the
semiconductor industry, which resulted in many semiconductor device
manufacturers in nearly all geographic regions reducing and delaying capital
equipment purchases, is the principal reason for the decrease in sales from
year to year. This industry slowdown was largely due to a supply and demand
imbalance of dynamic random access memory, or DRAM, depressed DRAM pricing and
the poor economic climate in Asia and Japan. Additionally, logic and
microprocessor manufacturers were adversely impacted by price decreases
resulting from low-cost PCs. As a result of the above, we experienced lost
orders, delays in receiving new orders and rescheduling or cancellations of
previously ordered equipment by North American and Asian customers, which
harmed sales for all of fiscal 1997, fiscal 1998 and fiscal 1999. However,
beginning in fiscal 1999, the industry climate began to slowly improve and
sequential improvement in quarter to quarter sales began in the second fiscal
quarter and continued throughout the balance of fiscal 1999. Assuming the
global semiconductor industry continues to recover, we anticipate that quarter
to quarter sales for at least the first half of fiscal 2000 will increase
moderately compared to the fourth quarter of fiscal 1999.
International sales, which are predominantly to customers based in Europe,
Japan and Asia/Pacific, accounted for approximately 46%, 45% and 55% of total
net sales in fiscal 1999, 1998 and 1997, respectively. Sales to customers in
North America were 54% of total net sales in fiscal 1999 compared to 55% in
fiscal 1998 and 45% in fiscal 1997. In Europe, sales decreased to 20% of total
net sales in fiscal 1999 from 24% in fiscal 1998 and increased from 16% of
total net sales in fiscal 1997. The decrease in European net sales for fiscal
1999 from fiscal 1998 can be attributed primarily to the lack of investment in
new fabrication facilities or expansions during fiscal 1999. In Japan and
Asia/Pacific, sales increased to 26% of total net sales in fiscal 1999 from 21%
in fiscal 1998 and decreased from 38% in fiscal 1997. The decrease in the Japan
and Asia/Pacific sales in fiscal 1999 and fiscal 1998 from fiscal 1997 is
attributable primarily to the financial crisis in parts of that region and a
significant sale in Thailand recorded early in fiscal 1997 that was written-off
in the third quarter of fiscal 1997 as an uncollectible account receivable. We
continued to invest significant resources in international markets,
particularly in Japan, Singapore, Taiwan and the United Kingdom during fiscal
1999 in an attempt to increase our global market share. 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 net sales in fiscal 2000.
Gross margin. Our gross margin as a percentage of net sales was 37.9% in
fiscal 1999, 41.1% in fiscal 1998 and 44.5% in fiscal 1997. The decrease in
gross margin for fiscal 1999 and 1998 primarily reflects our underabsorbed
manufacturing overhead and field service and support resulting from lower
overall net sales. The decrease also resulted from lower sales volume of our
more mature, higher margin single chamber systems as well as competitive
pricing pressures. Additionally, gross margin in fiscal 1998 was negatively
impacted by approximately $2.5 million of charges to increase reserves for
potentially excess manufacturing and spare parts inventory resulting from the
reduction in product demand and for obsolete finished units. The charge related
to finished units was for older generation single chamber products which have
not met sales expectations. This reserve was also driven partially by the
success of our PEP in that customers have transitioned to the multi-chamber PEP
platform faster than anticipated resulting in reduced demand for single chamber
systems. We
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expect that our gross margin will continue to be harmed by inefficiencies
associated with new product introductions, sales of lower margin multi-chamber
and FPD systems, competitive pricing pressures, the semiconductor industry
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. We will continue to focus on our
gross margin improvement programs, including the introduction of new value-
added applications, features and options on the PEP systems, targeted cost
reduction programs and controlled spending. We expect that our gross margin
during fiscal 2000 will be slightly higher as compared to prior year comparable
periods due to expected higher sales levels resulting in increased overhead
absorption and better utilization of field service and support resources.
Provision for uncollectible account. In the third quarter of fiscal 1997, we
recorded an expense of $4.5 million related to the write-off of an
uncollectible account receivable.
Costs associated with reduction in workforce. In fiscal 1999 and 1998, we
reduced our workforce in response to market conditions and recorded charges of
$407,000 and $1.7 million, respectively, primarily for severance costs and
consolidation of facilities. As of September 30, 1999, approximately $1.9 of
the $2.1 million has been paid and approximately $198,000 remains on our books
as an accrual.
Research and development. Our R&D expenses as a percentage of net sales
increased to 27.5% in fiscal 1999 from 20.4% in fiscal 1998 and from 14.4% in
fiscal 1997 due in large part to significantly lower sales volume. In absolute
dollars, R&D expenses for fiscal 1999 decreased to $17.7 million from $20.5
million in fiscal 1998 and increased slightly from $17.4 million in fiscal
1997. The $2.8 million decrease in R&D spending in fiscal 1999 compared to
fiscal 1998 is due to the cumulative impact of three reductions in workforce
that occurred in the second half of fiscal 1998 and the first quarter of fiscal
year 1999, a charge of $500,000 recorded in fiscal 1998 related to accelerated
write-downs of some older-generation applications development equipment and
consulting charges and the reprioritization of engineering projects. Partially
offsetting the above was a $1.8 million charge recorded in the second quarter
of fiscal 1999 primarily for the accelerated write-off of equipment produced
and used in connection with our first-generation 300mm product development
program. This equipment, which consisted primarily of 300mm tools produced for
test, demonstration and evaluation, had significantly declined in value since
we have now transitioned to the next-generation of 300mm product development.
The increase in R&D spending in fiscal 1998 from fiscal 1997 is primarily
attributable to the development of several new product and process capabilities
for advanced photoresist removal and Integrated Clean solutions utilizing our
PEP platform and for the development of a 300mm platform. Expenses for fiscal
1998 also included the $500,000 in charges mentioned above for the accelerated
write-downs of some older generation development equipment and consulting
charges.
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 our 300mm platform, the
support of the LCD flat panel business and applications development of our VHP
technology. In June 1999, we formally introduced the PEP Iridia, which is a
leading-edge solution targeting the growing market for photoresist removal and
Integrated Clean solutions. We anticipate that R&D spending in absolute dollars
for fiscal 2000 will be slightly higher when compared to fiscal 1999 excluding
the $1.8 million write-off discussed above. This increase will likely be due
primarily to the fact that we were on a reduced work schedule for the first
half of fiscal 1999, salary increases in the fourth quarter of fiscal 1999,
scheduled salary increases in the second quarter of fiscal 2000 and a 53-week
fiscal 2000 compared to a 52-week fiscal 1999.
Selling, general and administrative. Our SG&A expenses in fiscal 1999
decreased to $21.6 million from $28.7 million in fiscal 1998 and from $29.3
million in fiscal 1997. As a percentage of net sales, SG&A expenses increased
to 33.7% from 28.6% in fiscal 1998 and from 24.1% in fiscal 1997 due to
significantly lower sales volume. The spending decrease in fiscal 1999 compared
to fiscal 1998 results in part from charges
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<PAGE>
taken in the third quarter of fiscal 1998 for the consolidation of our San
Jose, California operations of approximately $300,000 and for the write-down of
older generation demonstration and evaluation equipment of approximately
$700,000. The balance of the decrease primarily results from the cumulative
impact of our three reductions in workforce and lower third-party sales
commissions on international sales. For approximately the last three years, we
have built a worldwide direct sales and support organization, which has
decreased our dependence on third-party representatives for these services.
Consequently, third-party commissions in all but three regions have been
eliminated, partially offset by increased expenses related to the hiring of and
other expenses associated with building our direct sales and support
organizations. SG&A expenses in fiscal 1998 were lower than fiscal 1997
primarily due to reductions in workforce that occurred in the third and fourth
quarter of fiscal 1998, reduced work schedules and shutdown days during fiscal
1998 and lower third-party sales commission on international sales. These
expense reductions were partially offset by the $700,000 equipment write-down
mention above.
We currently anticipate that SG&A expenses for fiscal 2000 will increase
from fiscal 1999 due to salary increases, hiring and other related expenses
needed to support anticipated increases in business activities during fiscal
2000.
Other income (loss). Other income and loss generally consists of interest
expense, interest income, currency translation gains and losses, royalty income
and gains on sales of stock of a third party. Interest expense of approximately
$42,000, $26,000 and $91,000 was incurred by us in fiscal 1999, 1998 and 1997,
respectively, primarily as a result of borrowings under a short-term credit
facility from the Bank of Tokyo-Mitsubishi by our wholly-owned Japanese
subsidiary, GaSonics International Japan K.K. As of September 30, 1999, the
amount borrowed under this loan agreement was approximately 297.0 million yen,
which is equivalent to approximately $2.8 million. The increase in interest and
other income in fiscal 1999 from fiscal 1998 primarily reflects an increase in
interest income received principally from our short-term investments. This
increase resulted from a change in our investment portfolio early in fiscal
1999 from tax-exempt securities to taxable securities since we are not
incurring a tax liability due to our net operating losses. This increase was
partly offset by a decrease in interest income received on a combined decrease
of cash, cash equivalents and marketable securities that were used to fund
operating and investing activities. The increase in interest and other income
in fiscal 1998 from fiscal 1997 is primarily due to royalty income received in
connection with the sale of our industrial plasma cleaning products and
services business that was sold in July 1997. In fiscal 1999 and 1998 royalty
income was $342,000 and $350,000, respectively. There was no royalty income
recorded in fiscal 1997.
Foreign exchange currency translations were a net loss for fiscal 1999, 1998
and 1997 of approximately $140,000, $52,000 and $52,000, respectively. The
increase in the loss from fiscal 1998 to fiscal 1999 primarily reflects
currency translation impact of a strengthening U.S. dollar against the yen that
has occurred during 1999.
Net income for fiscal 1997 was favorably impacted by sales of shares held by
us in a third-party corporation, which shares were received in exchange for
technology and services rendered in fiscal 1990. We realized pretax gains in
fiscal 1997 of approximately $1,215,000 from this sale. There were no gains
recorded in fiscal 1998 or fiscal 1999 as the last shares were sold in fiscal
1997.
Income tax provisions (benefit). We did not record a provision for tax
benefits related to our net loss in fiscal 1999 because the net loss cannot be
carried back to offset previous amounts of taxable income. The tax loss and
other tax benefits will be carried forward and will be available to offset
future tax liabilities. We do not anticipate recording these tax benefits until
returning to profitability. We had an effective tax benefit rate of 33% in
fiscal 1998 and an effective tax rate of 35% in fiscal 1997. We recognized a
tax benefit in fiscal 1998 due to a carry back of current net operating losses
to prior periods.
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Quarterly Results of Operations
The following table presents unaudited consolidated statement of operations
data for each of the five quarters ended December 31, 1999, as well as such
data expressed as a percentage of net sales. The operating results of any
quarter are not necessarily indicative of the results for any subsequent
quarter.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------
December 31, March 31, June 30, September 30, December 31,
1998 1999 1999 1999 1999
------------ --------- -------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales............... $10,022 $13,215 $17,902 $23,140 $25,603
Cost of sales........... 7,870 8,658 10,280 13,086 14,293
------- ------- ------- ------- -------
Gross margin............ 2,152 4,557 7,622 10,054 11,310
Operating expenses:
Research and
development.......... 3,636 5,662 4,151 4,247 4,366
Selling, general and
administrative....... 5,303 5,136 5,454 5,746 5,915
Special charges....... 407 -- -- -- --
------- ------- ------- ------- -------
Total operating
expenses........... 9,346 10,798 9,605 9,993 10,281
Operating income
(loss)................. (7,194) (6,241) (1,983) 61 1,029
Interest and other
income, net............ 315 263 362 335 309
Income (loss) before
income taxes........... (6,879) (5,978) (1,621) 396 1,338
Income tax provision
(benefit).............. -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)... $(6,879) $(5,978) $(1,621) $ 396 $ 1,338
======= ======= ======= ======= =======
</TABLE>
Net sales. Net sales in the first quarter of fiscal 1999 were at their
lowest point following several quarters of consecutive sales decrease due to
the severe worldwide business slowdown in the semiconductor industry. Beginning
in the second quarter of fiscal 1999, as the semiconductor industry climate
began to improve, our net sales began to increase and have continued to
increase sequentially each quarter.
Gross margin. Gross margins improve sequentially by quarter from 21.5% in
the first quarter of fiscal 1999 to 44.2% in the first quarter of fiscal 2000
primarily due to improved utilization of the field service and support
organization and manufacturing capacity resulting from increased sales volume.
Research and development. R&D expenses have increased from $3.6 million in
the first quarter of fiscal 1999 to $4.3 million in the first quarter of fiscal
2000. The second quarter fiscal 1999 expense increase reflects a $1.8 million
charge primarily for the accelerated write-off of equipment produced and used
in connection with our first generation 300mm product development program.
Sequentially, R&D expenses have increased over the past five quarters primarily
due to increased development costs associated with our 300mm product and new
process development and beginning in the third quarter of fiscal 1999, due to
our return to a full work schedule and salary increases. We were on a reduced
work schedule during the first and second quarter of fiscal 1999 due to the
industry downturn.
Selling, general and administrative. SG&A expenses decreased in the second
quarter of fiscal 1999 compared to the first quarter of fiscal 1999 primarily
due to a reduction in workforce that occurred in December 1998. Beginning in
the third quarter of fiscal 1999, SG&A expenses increased sequentially by
quarter due to increased sales and marketing activities related to and in
support higher sales volume, salary increases and our return to a full work
schedule.
Our quarterly and annual revenue and operating results have varied
significantly in the past and may vary significantly in the future due to a
number of factors. For a discussion of these factors, see "Risk Factors--Our
quarterly results may fluctuate, which may harm our business."
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<PAGE>
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 our 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
our 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. This compares
to the first quarter of fiscal 1999 where $673,000 was provided from the
issuance of common stock under our stock purchase and option plans and $234,000
provided from borrowings by GaSonics International Japan K.K. under its credit
facility. As of December 31, 1999, borrowings under this line of credit
agreement with the Bank of Tokyo-Mitsubishi totaled $2.7 million.
As of December 31, 1999, we 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. Inventory increased
due to increasing 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 inventories will
continue to require a significant portion of working capital. As a result of
such investment in inventories, we may be subject to an increasing risk of
inventory obsolescence, which could harm our operating results.
As of December 31, 1999, our 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 our unsecured working
capital line of credit with Union Bank of California, which expires on May 1,
2000 and is currently being renegotiated. 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 various covenants, including covenants relating to financial
ratios and tangible net worth that must be maintained by us. As of December 31,
1999, we were in compliance with our bank covenants. Our 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 300.0 million 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 us
and expires on May 31, 2001. As of December 31, 1999, GaSonics International
Japan K.K. had borrowed 285.0 million yen under this credit facility, which was
equivalent to approximately $2.7 million as of that date. We anticipate
renewing both the working capital line of credit with Union Bank of California
and the credit line with the 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 we will be able to secure other sources of funding
on acceptable terms, or at all.
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<PAGE>
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.
Year 2000 Readiness Disclosure
We did not experience any material difficulties in connection with the
changeover to the year 2000. Our in-house systems were switched off during the
actual changeover and a phased start-up of our systems and networks on January
1, 2000 did not reveal any issues, nor did the later normalized use of these
systems and networks. Access to and operation of our facilities were not
compromised.
We were asked to assist, and assisted, in the start-up of some older units
in our worldwide installed base. We are not aware of any millenium-related
disruption in connection with our products.
We estimate the total cost of our year 2000 compliance program at
approximately $1.5 million, not including investments in software upgrades that
we had previously planned and accelerated in connection with the year 2000.
Although we believe that our expenditures have been sufficient, we cannot be
certain, for the reasons stated in the next paragraph, that the actual costs of
finalizing the plan will not differ materially from the costs so far. A
significant portion of total year 2000 project expenses have been represented
by existing staff that have been redeployed to this project. We do not believe
that the redeployment of existing staff harmed our business, results of
operations or financial position. Nor do we expect incremental expenses related
to the year 2000 project to materially impact operating results in any one
period.
Although we are not aware of any significant operational issues associated
with the year 2000, we cannot ensure that we will not experience material
unanticipated negative consequences or material costs caused by undetected
errors or defects in such systems or by our failure to adequately prepare for
the results of such errors or defects, including the costs of related
litigation, if any. The impact of such consequences could harm our business,
financial condition or results of operations.
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 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 are currently evaluating
the effect on our financial statements.
29
<PAGE>
BUSINESS
We are a leading developer and global supplier of photoresist removal 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 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 photoresist removal systems use our innovative microwave downstream
plasma technology, which is designed to increase yields in the manufacturing of
semiconductor devices. This technology offers our customers significant
advantages over traditional techniques by reducing the damage that typically
occurs to the wafer in the photoresist removal processes, thus increasing
yields and reducing cost of ownership. Moreover, our technologically advanced
systems offer a high degree of flexibility, reliability and serviceability.
Our Integrated Clean systems use our microwave downstream plasma technology
in concert with directional RF plasma technology to remove photoresist and more
difficult to remove residues. These systems allow our customers to achieve
greater fab efficiency and reduce costs through a simplified process flow. In
addition, these systems provide industry leading technology for the complex
cleaning requirements associated with smaller line widths as well as new
processes and materials, such as dual damascene, copper and low-k dielectrics.
To further address these new requirements, we have recently entered into joint
development agreements with a number of customers and semiconductor equipment
manufacturers, such as our recently announced participation in the Damascus
Alliance.
Industry Background
Growth in the communications industry, particularly in the Internet and
mobile electronic device markets, as well as in the traditional markets for
semiconductors, such as computers, automobiles and other consumer and
industrial products, has driven an increase in the demand for semiconductors
and consequently semiconductor capital equipment. According to Dataquest, the
semiconductor industry is expected to grow at an annual rate of 22.5%, from
$168.7 billion in 1999 to $253.3 billion in 2001. Dataquest also estimates that
the semiconductor capital equipment market is expected to grow at an annual
rate of 39.6%, from $17.5 billion in 1999 to $34.0 billion in 2001.
The manufacturing of semiconductor devices requires a large number of
complex and repetitive processing steps, including deposition, photolithography
and etch, to layer different materials and imprint various features on a single
wafer. Prior to processing additional layers on the wafer, the photoresist and
post-etch residues from the previous layer must be carefully removed in order
to create a clean and functional foundation for deposition of the next layer.
These processes between etch and deposition, often referred to as photoresist
removal, or ashing, and residue removal are critical to the achievement of
semiconductor manufacturers' fundamental goals, including improved device
performance, higher yields and greater equipment effectiveness. As
semiconductor devices are becoming more advanced, the demand for complex
photoresist removal and residue removal solutions is increasing.
The manufacturing of advanced semiconductor devices, which offer increased
capabilities, more power and greater performance, requires an increasing number
of photolithographic masking layers and corresponding photoresist removal and
residue removal steps. For example, a typical one megabit dynamic random access
memory, or DRAM, chip requires 11 masking steps, each with a corresponding
photoresist and residue removal step. By comparison, a 64 megabit DRAM is
expected to require between 20 and 25 masking steps. Line geometries, or
feature sizes, of a semiconductor device also continue to decrease, increasing
the complexity and difficulty of photoresist removal and residue removal. In
addition, new processes and materials, which include dual damascene, copper,
low-k dielectrics and deep ultraviolet photolithography resists, are
complicating preparation of the wafer surface, and therefore complicating
photoresist removal and residue removal for
30
<PAGE>
subsequent masking steps. Because of these trends, the number and complexity of
photoresist removal and residue removal systems per production line of advanced
semiconductor devices are expected to increase. Consequently, we believe the
market for cleaning solutions will grow more rapidly than the semiconductor
industry or semiconductor capital equipment industry.
In the 1970s, photoresist and residue were typically removed through wet
chemistry processing, which immersed semiconductor devices into large liquid
chemical baths. In the 1980s, dry chemistry processing, which utilizes gases to
remove unwanted materials, began to replace wet chemistry processing for those
advanced processing steps for which wet chemistry was no longer effective, such
as photoresist removal. The dry chemistry processing alternative for
photoresist removal has continued to become more widely used because this
alternative is believed to offer significant cost of ownership savings as
compared with wet chemistry processing, especially for complex semiconductor
devices with small feature sizes. Wet chemistry processing also poses
environmental concerns due to the risks associated with chemical storage,
handling and disposal.
Traditional dry chemistry photoresist processing involves the creation of
plasma and exposure of the wafer to the plasma in a single chamber in order to
remove the photoresist. However, because elements of the plasma can cause
damage to the wafer, direct exposure of the wafer to the plasma results in
reduced yields. This damage becomes increasingly problematic as feature sizes
decrease and could result in significantly reduced yields. Accordingly, the
creation of the plasma must be separated from the wafer processing chamber to
maintain and enhance yields.
New materials, including copper, low-k dieletrics and deep ultraviolet
photolithography resist, new processes, including dual damascene, and an
increasing number of masking layers are all unprecedented residue removal
challenges that current wet chemistry technologies are not equipped to address.
The same factors that prompted the shift from wet to dry photoresist removal is
prompting the shift from wet to dry residue removal for specific applications.
These factors include reduction and inconsistency in yields, the essential
requirement for improved process control, the higher cost of ownership
associated with wet process steps and the hazardous nature of wet chemicals.
Additionally, semiconductor device manufacturers are looking to reduce costs
and simplify process flow by combining multiple cleaning technologies within
one system.
The GaSonics Solution
We are a leading developer and global supplier of photoresist removal 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 systems for the FPD
industry.
We pioneered microwave downstream plasma technology in 1986 to address
challenges in removing photoresist. Our microwave downstream plasma technology
separates the creation of the plasma from its exposure to the wafer. We believe
this technology offers our customers significant yield advantages by reducing
the damage that typically occurs to the wafer in other plasma photoresist
removal systems.
We have leveraged our market leadership in providing advanced photoresist
removal systems to develop Integrated Clean solutions that combine photoresist
and residue removal technologies. These solutions utilize a combination of our
microwave downstream processing technology along with directional RF plasma to
remove photoresist and residues. Our solutions meet the challenges of emerging
technologies, which include:
. decreased line geometries;
. increased wafer sizes; and
. new processes and materials, including dual damascene, copper and low-k
dielectrics.
31
<PAGE>
In addition, we believe our solutions allow our customers to:
. achieve greater fab efficiency;
. solve complex cleaning problems;
. reduce costs through a simplified process flow; and
. configure our systems for their specific processing needs.
To further address our customers' processing requirements, we provide
quality customer service and support through our global infrastructure. In
addition, we have recently entered into joint development agreements with a
number of customers and semiconductor equipment manufacturers, such as our
recently announced participation in the Damascus Alliance.
The GaSonics Strategy
Our objective is to be the leading supplier of photoresist removal and
Integrated Clean solutions for the advanced semiconductor device manufacturing
industry. Key elements of our strategy include:
Expanding Leadership in Integrated Clean Solutions. We are a leader in
providing Integrated Clean solutions. Our PEP Iridia product, which combines
our microwave downstream plasma technology and directional RF plasma
technology, integrates photoresist removal and residue removal capabilities in
one chamber. This technology enables us to expand our portfolio of Integrated
Clean applications to include new materials, such as copper and low-k
dielectrics. These systems also allow greater fab efficiency and reduced costs
by simplifying process flow.
Providing Versatile Processing Systems. We focus on providing multi-chamber
systems for a variety of process applications. This multi-chamber capability
enables our customers to configure our products based on their process
requirements. We also focus on providing flexible process chambers, which allow
us to incorporate different technologies within any given chamber for process
optimization. We plan to continue to provide versatile processing systems as we
move to next-generation products.
Extending Technological Expertise. We are a technological leader in
providing photoresist removal and Integrated Clean solutions to the advanced
semiconductor device industry. We intend to continue to invest in research and
development to extend our technology solutions to meet our customers'
increasingly complex cleaning requirements, arising from decreasing geometries,
increased wafer sizes and the introduction of new processes and new materials.
Enhancing Strategic Customer Relationships. Our long-standing relationships
with leading worldwide semiconductor device manufacturers will be critical to
extending our position as a leading provider of photoresist removal and
Integrated Clean solutions used in the fabrication of advanced semiconductor
devices. We intend to continue to focus our resources on our key customers in
order to develop the process equipment solutions needed to manufacture the next
generation of semiconductor devices. We also intend to build upon our
relationships with leading FPD manufacturers to expand our market share within
the FPD industry.
As part of this focus, we believe that providing dedicated personnel at key
customer facilities enables us to better understand the process requirements of
our customers, design new systems and position ourselves as a principal vendor
of volume equipment orders. In addition, we have a worldwide customer service
and support infrastructure that enables us to supply parts and deploy support
personnel to our customers quickly.
Further Penetrating the Pacific Rim Markets. The Pacific Rim markets for
semiconductor device processing equipment represent over one-half of the total
worldwide market for this industry. Although a significant portion of our sales
has been in Europe and the United States, we have successfully penetrated a
number of large customers in Japan, Korea, Singapore and Taiwan. We intend to
continue to invest in regional infrastructure and to leverage our leadership
position in Integrated Clean solutions to further penetrate the Pacific Rim
markets.
32
<PAGE>
Technology
Microwave Downstream Plasma Processing. Our microwave downstream plasma
processing technology is a dry chemistry process that uses elements created by
plasma in order to remove photoresist and other materials on a wafer. In
traditional dry chemistry processing, the plasma is created in the same chamber
in which the active gases are exposed to the photoresist on the wafer. This
method typically causes significant damage to the wafer because elements that
result from the creation of the plasma react negatively with the wafer. In our
system, the plasma is generated in one chamber and, using our proprietary
technology, the active gases are separated from the rest of the plasma and
introduced downstream into the wafer processing chamber. We believe the
resulting reduction in damage to the wafer increases yields and lowers the
total cost of ownership of the photoresist removal process equipment in
manufacturing advanced semiconductor devices.
Directional RF Plasma Processing. Directional RF plasma technology in our
Iridia product is a dry chemistry process that uses elements created by plasma
that can be directed to the wafer surface. Unlike non-directional, isotropic
technologies, this technology is designed to remove photoresist and other
materials in high aspect ratio structures. Additionally, we believe that many
residues, including fluoropolymers that form on dielectric layers and
carbonized resist surfaces, are best removed with a directional RF plasma
process.
Dual Plasma Source and Temperature Operation. Our temperature control
capability allows customers to use microwave downstream plasma and directional
RF plasma sources together or separately in the same chamber. Specifically,
microwave processing is possible at higher temperatures or at lower
temperatures while RF processing is accomplished only in the lower temperature
range. This dual source and temperature flexibility allows independent
optimization of processes for a wide variety of process applications.
Products
Our product line consists of photoresist removal and Integrated Clean
systems for the semiconductor device industry and LPCVD systems for the FPD
industry.
Performance Enhancement Platform. The PEP is a modular, multi-chamber system
that enables our customers to configure our products based on their process
requirements. The PEP's versatility provides a common platform for new
technology introductions. It accommodates interchangeable process modules while
delivering maximum utilization. The platform's architecture offers process
flexibility through sequential, parallel or independent processing. We offer
both the PEP 3510A and the PEP Plus 3510 for photoresist removal and the PEP
Iridia for Integrated Clean.
PEP 3510A. The PEP 3510A is a versatile photoresist removal system
introduced in 1995. This system uses our innovative microwave downstream
plasma technology and is designed for damage-free removal of photoresist.
This system utilizes a combination of platen and lamp wafer heating
resulting in high removal rates and uniformity.
PEP Plus 3510. The PEP Plus 3510 is an enhanced version of the PEP 3510A
product, introduced in March 2000 and is expected to ship later this year.
It includes an advanced digital microwave power source and delivers
improved photoresist removal rates. In addition, wafer transport and other
reliability upgrades combine to reduce both cost of ownership and cost of
consumables.
PEP Iridia. The PEP Iridia is a versatile Integrated Clean system
combining photoresist and residue removal technologies. This system was
introduced in June 1999. Iridia's directional downstream plasma source is
comprised of a directional RF source paired with our downstream microwave
source. This system also includes an integrated lamp module with our
advanced, closed-loop wafer temperature control enabling multi-temperature
processing in a single chamber. This system uses fluorine and reducing
chemistries, providing flexibility in handling production needs, including
high-dose implant strip, front-end-of-line cleans and back-end-of-line
cleans, such as post-etch cleans for aluminum, copper and low-k dielectric
interconnect structures.
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<PAGE>
Next-Generation Platform. Our next-generation platform is a modular multi-
chamber system that enables customers to configure our products based on their
process requirements. This platform packages advanced process technology,
flexibility and high throughput in a compact footprint. The platform supports
configurations of up to four independent process chambers in a space-efficient,
linear layout for throughput and flexibility in handling 300mm wafer production
needs. Each process chamber includes innovative features such as a patented
load-lock design, unique wafer transport sub-system and an integrated cooling
station. The independent process chamber design on the 300mm platform
accommodates direct transfer of photoresist removal processes from our large
installed base of 200mm PEP systems.
LPCVD Systems. In August 1995, we acquired Tekisco, Ltd., one of Japan's
leading manufacturers of LPCVD systems for the FPD industry, to create our LCD
Division. Our LPCVD systems have been sold to a number of leading Japanese and
Korean FPD manufacturers. Our GX-2104 vertical low pressure chemical deposition
system and our GX-2106 horizontal low pressure chemical deposition system
provide uniform amorphous film deposition on large glass substrates (up to 600
x 720mm) for low temperature poly-silicon thin-film transistor LCD
manufacturing.
Vertical High Pressure Diffusion System. Our VHP system is a fully
automated, thermal processing, vertical high-pressure oxidation furnace. In
1999, this business represented 2.1% of our revenues. In March 2000, we
announced plans to divest this business so we can better focus on our core
businesses.
Spare Parts and Other. We provide a series of products, including spare
parts, retrofit and upgrade kits, contract and billable services, and training
designed to support or enhance the capability of our installed base of systems.
Customers
We sell our products to leading semiconductor device manufacturers and FPD
manufacturers located throughout the United States, Europe and Asia, including
the Pacific Rim markets. In fiscal 1999, Intel accounted for approximately 23%
of net sales. In fiscal 1998, Intel and Motorola accounted for approximately
20% and 11% of net sales. In fiscal 1997, Samsung and Promos Technologies each
accounted for approximately 11% of net sales and Intel accounted for
approximately 10% of net sales. We expect that sales of our products to large
customers, including those listed above, will continue to account for a high
percentage of our net sales in the foreseeable future. We have no long-term
purchase agreements with our customers. Although the composition of the group
comprising our largest customers has varied from year to year, the loss of a
significant customer or any reduction in orders by any significant customer,
could harm our business, financial condition and results of operations.
Sales and Customer Support
We market, sell and service our products domestically and internationally
primarily through our marketing and direct sales and customer support
organizations, including service, applications and logistics personnel. We have
sales, service and applications personnel in Israel, Japan, Korea, Singapore,
Taiwan and five European locations, which are the major semiconductor producing
regions outside the United States. We also maintain three third-party
representatives to sell and service our products. In addition to our principal
executive offices in San Jose, California, we have four United States sales and
service centers strategically located to service our customers.
Our field service and applications engineering personnel based throughout
the United States, Europe and Asia/Pacific, directly support domestic and
international equipment installations, process development, training, spare
parts logistics, warranty service and post-warranty contract service. Our field
service engineers include dedicated site-specific engineers contracted by key
customers. In support of our numerous field support centers located throughout
the world, we also maintain a headquarters-based customer satisfaction
organization.
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<PAGE>
To provide customers with rapid access to replacement service parts, we have
strategically placed an inventory of spare parts in sales and service centers,
customers' sites, and distribution hubs. These inventory depots are located in
several European and Asian countries and in the eastern, central and western
regions of the United States. In addition, the stock room at our headquarters
in San Jose, California keeps buffer inventory to support offsite stock rooms
in case of unexpected demand.
We believe our sales and customer support organizations are critical to our
success in establishing and maintaining long-term customer relationships and
provide us with a competitive advantage. These organizations develop close
working relationships with customers in order to identify their current and
future semiconductor equipment requirements and to assist customers in
overcoming their technology challenges as they move to manufacturing
increasingly complex devices.
Backlog
Backlog includes only those accepted customer orders for systems for which
we have assigned shipment dates within twelve months, as well as orders for
spare parts and service and support of systems. Historically, our backlog
fluctuates significantly from quarter to quarter primarily as a result of the
cyclical nature of construction and equipping of new semiconductor device
fabrication facilities. The equipment requirements of new fabrication
facilities cannot be determined with accuracy and, therefore, our backlog at
any given date is not necessarily indicative of future sales. In addition, our
backlog at any particular date is not necessarily representative of actual
sales for any succeeding period. We have in the past experienced, and will
likely continue to experience, cancellations, deferrals and rescheduling of
product orders.
Manufacturing
Our manufacturing strategy is to produce high quality, cost-effective and
reliable systems and assemblies to support on-going and growing requirements
for more environmentally-friendly semiconductor processing equipment. In order
to provide the best added value to our customers and to preserve standards in
performance, we are placing emphasis on in-house system integration and test
activities that require proprietary core technology or specialized knowledge
and are increasing our outsourcing of routine fabrication and assembly to
strategic suppliers. In addition, we have implemented a formalized reliability
system to further strengthen the quality of our products.
To measure and improve customer satisfaction with our products and services,
metrics, such as cycle time, quality, installation discrepancies, on-time
deliveries, backorders, employee flexibility and productivity, are monitored,
measured and compared on a weekly basis.
We offer standard warranty terms for two years on parts and labor on
equipment sales. We also offer service contracts to our customers for continued
maintenance of systems that are not covered by warranty.
Research and Development
The markets for semiconductor manufacturing equipment, including the markets
that utilize our equipment, are characterized by rapid technological
development and product innovation. We intend to continue our commitment of
substantial resources to research and development in photoresist removal,
Integrated Clean and LPCVD for existing and new products.
In order to maintain our long-term relationships with existing customers and
to develop relationships with potential customers, we work to continuously
improve our existing products and develop new products and technologies.
Customers with large installed bases increasingly require their suppliers to
improve existing products with respect to cost-of-ownership, reliability and
process capability to meet their future needs in order to avoid the long
qualifying evaluations required with new equipment, which can be costly and
risky. To further address our customers' processing requirements, we have
recently entered into joint development agreements
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<PAGE>
with a number of customers and semiconductor equipment manufacturers, such as
our recently announced participation in the Damascus Alliance. Our goal is to
continue to develop new products and technologies to meet the changing needs of
the marketplace.
Historically, we have devoted a significant portion of our financial
resources to research and development programs and expect to continue to
allocate significant resources to these efforts. For fiscal 1999, 1998 and
1997, total research and development expenditures were approximately $17.7
million, $20.5 million and $17.4 million and represented approximately 28% of
our total net sales in fiscal 1999, 20% in fiscal 1998 and 14% in fiscal 1997.
As of February 29, 2000, our research, development and engineering staff
included 94 full-time employees.
Competition
The semiconductor capital equipment industry is intensely competitive. We
currently experience intense competition worldwide from a number of leading
foreign and domestic manufacturers, including Eaton Corporation, Mattson
Technology, Plasma Systems and ULVAC. 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. We believe
that the semiconductor capital equipment industry will continue to be subject
to increased consolidation, which will increase the number of larger companies
in the industry sector in which we compete. We also expect our 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 our competitors could cause a significant
decline in sales or loss of market acceptance of our systems, in addition to
intense price competition or otherwise could make our systems or technology
obsolete or noncompetitive. We also believe competition will continue from
current and new suppliers employing other technologies, such as wet chemistry,
traditional dry chemistry and other techniques. Increased competitive pressure
may lead to reduced demand and lower prices our products, thereby harming our
business, financial condition and results of operations.
The principal competitive elements in dry chemistry processing for
photoresist removal and residue removal are technological innovation, total
cost of ownership, including yield, price, product performance and throughput
capability, quality, reliability and customer service and support. Although we
believe that we compete favorably in these areas, competitive product
introductions could cause a decline in sales or loss of market acceptance of
our existing products. In addition, by virtue of our reliance on sales of
advanced dry chemistry processing equipment, we could be at a disadvantage
compared to some competitors that offer more diversified product lines. We
believe that to remain competitive we will have to commit significant financial
resources to develop new product features and enhancements, to introduce next-
generation photoresist removal and Integrated Clean solutions on a timely
basis, and to maintain customer service and support centers worldwide.
Intellectual Property Rights
We hold a number of U.S. patents and corresponding foreign patents and have
pending patent applications covering various aspects of our products and
processes. Where appropriate, we intend to file additional patent applications
on inventions resulting from our ongoing research and development and
manufacturing activities to strengthen our intellectual property rights. In
addition, we own several trademarks including the GaSonics name, Integrated
Clean and others applicable to our products. Nevertheless, we rely primarily on
innovation, technological expertise, know-how and the marketing abilities of
our employees rather than patent, trademark, copyright or other intellectual
property rights protection.
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<PAGE>
Although we attempt to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, there can be no
assurance that we will be able to protect our technology adequately or that
competitors will not develop similar technology independently. There can be no
assurance that any of our pending patent applications will be issued or that
foreign intellectual property laws will protect our intellectual property
rights. Patents issued to us could be challenged, invalidated or circumvented
and the rights granted thereunder may not provide competitive advantages to us.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate our products or, if patents are issued to
us, design around our patents or patent applications.
Employees
As of February 29, 2000, we had 413 full-time employees. We believe our
future success will depend in large part on our ability to attract and retain
highly skilled and motivated employees. Our employees are not covered by a
collective bargaining agreement or represented by a labor union. We consider
our relationships with our employees to be good.
Facilities
Our corporate headquarters are located in San Jose, California and consist
of approximately 117,000 square feet used for administration and manufacturing.
In addition, we lease sales and service facilities in five U.S. locations. In
Asia, our offices are located in Japan, Korea, Singapore and Taiwan.
Legal Proceedings
We are not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and key employees, and their ages and
positions as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers & Key
Employees
Asuri Raghavan.......... 47 Chief Executive Officer, President and Director
Jerauld J. Cutini....... 40 Senior Vice President of Marketing and Business Development
Rammy Rasmussen......... 57 Vice President of Finance, Chief Financial Officer and Secretary
Bill Alexander.......... 43 Vice President, Worldwide Sales and Field Operations
Graham Hills Ph.D....... 50 Vice President, Chief Technical Officer
John Villadsen.......... 47 Vice President, Manufacturing Operations
Directors
Dave Toole.............. 44 Chairman of the Board of Directors
Monte M. Toole.......... 68 Vice Chairman of the Board of Directors
Kenneth L. Schroeder.... 53 Director
Kenneth M. Thompson..... 61 Director
F. Joseph Van Poppelen.. 72 Director
</TABLE>
Asuri Raghavan joined us as Chief Executive Officer, President and a
director in April 1998. Mr. Raghavan was formerly employed by Kulicke and Soffa
Industries, Inc. from November 1988 to March 1998 where he most recently served
as President of the Equipment Group. Prior to that position with Kulicke, Mr.
Raghavan served as its Senior Vice President of Marketing from 1995 to 1997,
its Vice President of the Wire Bonding Business from 1993 to 1995, its Vice
President of Strategic Development from 1991 to 1993 and its Director of
Marketing for the Equipment Group from 1988 to 1991. From 1985 to 1988, Mr.
Raghavan was employed by American Optical Corporation where he held the
position of Director of Research and Technology. From 1980 to 1985, Mr.
Raghavan held various engineering, marketing and product development positions
with Kulicke.
Jerauld J. Cutini joined us as Senior Vice President of Marketing and
Business Development in October 1999. Prior to joining us in August 1990, Mr.
Cutini co-founded OnTrak Systems and from August 1990 to August 1997 served as
OnTrak's Executive Vice President of Marketing, Sales and Customer Service
until the company was acquired by Lam Research Corporation in August 1997.
Following the acquisition, Mr. Cutini served as President of OnTrak, a wholly-
owned subsidiary of Lam Research, until October 1999. From 1988 to 1990, he
served as an Account Manager for Applied Materials, Inc. and from 1980 to 1988
he served at various times as a Field Service Engineer, Product Marketing
Engineering and Sales Engineer for Silicon Valley Group.
Rammy Rasmussen joined us as Vice President of Finance, Chief Financial
Officer and Secretary in January 2000. Mr. Rasmussen served as Chief Financial
Officer for Vadem Limited throughout 1999, for Fujitsu Microelectronics from
March 1996 to January 1999, and for Exponent, Inc. from May 1994 to February
1996. He also held senior financial positions at Raynet from 1990 to 1994, at
Cypress Semiconductor from 1987 to 1990 and at Advanced Micro Devices from 1979
to 1987. Mr. Rasmussen is a Certified Public Accountant.
Bill Alexander joined us as Vice President, Worldwide Sales and Field
Operations in August 1997. Mr. Alexander was employed by Tencor Corporation
(now KLA-Tencor Corporation) from November 1996 to August 1997 where he served
as Vice President of Asia-Pacific Operations. From 1993 to 1996, he first
served as Director of Asia Operations and later as Vice President of
International Operations with Watkins-Johnson Company and from 1990 to 1993
held various senior sales and marketing positions at Lam Research Corporation.
From 1981 to 1990, Mr. Alexander held various management positions with
Watkins-Johnson Company, Innovus Corporation, VLSI Technology and FMC
Corporation.
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<PAGE>
Graham Hills joined us as Vice President and Chief Technical Officer in June
1999. Prior to joining us, Dr. Hills was employed by Lam Research Corporation
since August 1996 where he served as Vice President of Dielectric Etch
Technology and Engineering from January 1998 to June 1999 and Senior Director
of Dielectric Etch Technology from August 1996 to January 1998. From 1995 to
1996, Dr. Hills was employed by Applied Materials Corporation where he served
as Director of Silicon Etch Product Unit, Director of Technology from 1991 to
1996 and a senior technology staff member and an account technology manager
from 1989 to 1991. From 1984 to 1989, Dr. Hills served on the technical staff
of ATT, Bell Laboratories, was an Assistant Professor at the University of
North Carolina from 1978 to 1984 and did postdoctoral work at Rice University
and NRC, Canada from 1974 to 1977.
John Villadsen joined us as Vice President of Manufacturing Operations in
September 1999. Mr. Villadsen was employed by Watkins-Johnson Company from 1982
to 1999. From April 1998 to September 1999, he held the position of Vice
President of Customer Service and Manufacturing. From May 1995 to April 1998,
he served as Director of Assembly and Test for the Semiconductor Equipment
Group. From 1982 to 1985, Mr. Villadsen held various manufacturing management
positions for the Microwave Products Division of Watkins-Johnson.
Dave Toole was appointed Chairman of our board of directors in April 1998.
Mr. Toole has served as the President of Outhink, Inc., a corporate performance
portal company, since April 1999. Mr. Toole served as our Chief Executive
Officer from December 1994 to April 1998. Between May 1993 and April 1998, Mr.
Toole served as President and Chief Operating Officer. Prior to that time, Mr.
Toole served as Vice President, Commercial Operations from May 1991 to May 1993
and as our Vice President and General Manager from April 1989 to May 1991. Mr.
Toole served as our Vice President, Sales and Marketing from October 1986 to
April 1989 and has served as a Director Since April 1979. Mr. Toole has held
various other positions in purchasing, manufacturing, marketing and sales since
joining us in 1979. Prior to 1979, Mr. Toole was employed by Advanced Micro
Devices.
Monte M. Toole founded GaSonics in March 1971 and currently serves as Vice
Chairman of the board of directors. Mr. Toole served as Chairman of the Board
from our inception until April 1998. Mr. Toole served as Chief Executive
Officer from the our inception to December 31, 1994. Between March 1971 and May
1993, Mr. Toole also served as our President. Prior to founding GaSonics, Mr.
Toole was a representative of semiconductor equipment manufacturers at Monte
Toole and Associates, Inc., a manager at Fairchild Semiconductor and a systems
analyst at IBM. From October 1991 to June 1993, Mr. Toole served on the board
of directors of Integrated Process Equipment Corporation.
Kenneth L. Schroeder joined us as a director in July 1995. Mr. Schroeder has
been the President, Chief Executive Officer, and a director of KLA-Tencor
Corporation since July 1999. From November 1991 until June 1999, he was
President and Chief Operating Officer and a director of KLA-Tencor. Mr.
Schroeder has been employed by KLA-Tencor for 17 years in various management
positions. Mr. Schroeder is also a director of SEMI, the trade association for
the semiconductor capital equipment industry.
Kenneth M. Thompson joined us as a director in June 1998. Prior to joining
us, Mr. Thompson was employed by Intel Corporation for 25 years in various
management positions, most recently as Vice President of Manufacturing
Technology Engineering. Mr. Thompson has been a director of Lam Research
Corporation since October 1998, a director of PRI Automation Inc. since June
1989 and a director of Avant Com since June 1999.
F. Joseph Van Poppelen joined us as a director in July 1995. Mr. Van
Poppelen has been the President of The Van Poppelen Company, a consulting firm
focused on marketing and business strategies for high technology companies
since 1989. From 1975 to 1989, Mr. Poppelen served as Senior Vice President,
Worldwide Marketing and Sales of National Semiconductor Corporation. Mr. Van
Poppelen currently serves on the board of directors of Novellus Systems, Inc.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the ownership of our
common stock as of February 29, 2000 by: (i) each director; (ii) certain of our
executive officers; (iii) all executive officers and directors of the Company
as a group; (iv) all those known by us to be beneficial owners of more than
five percent (5%) of our common stock; and (v) each of our current stockholders
who is expected to sell in the offering:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After the
Offering Number of Offering
Name and Address of -------------------- Shares Being --------------------
Beneficial Owner (1) Number Percent(2) Offered Number Percent(2)
- -------------------- ------ ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Principal Stockholders:
Capital Guardian Trust
Company
11100 Santa Monica
Blvd., 15th Floor
Los Angeles, CA
90025(3).............. 3,270,000 22.3% -- 3,270,000 20.0%
Wisconsin Investment
Board
121 East Wilson Street
Madison , WI 53707..... 1,000,000 6.8 -- 1,000,000 6.1
Directors and Executive
Officers:
Monte M. Toole (4)...... 1,885,728 12.8 200,000 1,685,728 10.3
Dave Toole (5).......... 915,914 6.2 125,000 790,914 4.8
Asuri Raghavan (6)...... 125,956 * -- 125,956 *
Kenneth M. Thompson
(7).................... 7,500 * -- 7,500 *
Kenneth L. Schroeder
(8).................... 22,500 * -- 22,500 *
F. Joseph Van Poppelen
(9).................... 32,500 * -- 32,500 *
Bill N. Alexander (10).. 32,800 * -- 32,800 *
Rammy Rasmussen ........ -- -- -- -- --
Graham W. Hills ........ -- -- -- -- --
Jerauld J. Cutini ...... 3,000 * -- 3,000 *
John R. Villadsen ...... -- -- -- -- --
All directors and
executive officers as a
group (11 persons)
(11)................... 3,025,898 20.2 -- 2,700,898 16.2
</TABLE>
- --------
* Less than one percent of the outstanding common stock.
(1) Unless otherwise specified, the address of each beneficial owner is 2730
Junction Avenue, San Jose, California 95134-1909.
(2) Percentage of ownership is based on 14,679,907 shares of common stock
outstanding as of February 29, 2000 and 16,379,907 shares of common stock
outstanding immediately following the offering. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or convertible,
or exercisable or convertible within 60 days of February 29, 2000, are
deemed outstanding for computing the ownership percentage of the person
holding such option or warrant but are not deemed outstanding for
computing the ownership percentage of any other person.
(3) Includes 1,698,000 shares held by Capital Group International, Inc., an
affiliate of Capital Guardian Trust Company.
(4) Includes 997,999 shares of common stock held by the Monte M. Toole Family
Limited Partnership, of which Monte M. Toole is the sole General Partner.
(5) Includes 146,456 shares underlying stock options that are currently
exercisable or which will become exercisable within 60 days after February
29, 2000. Also includes 94,999 shares of common stock held by the David
Toole Family Limited Partnership, of which Dave Toole and his wife, Diane
Toole, are the sole general partners, and 686,062 shares of common stock
held by the David Toole and Diane L. Toole
40
<PAGE>
Family Trust, of which Dave and Diane Toole are the sole Trustees.
Excludes 59,998 shares of common stock held by the trustee of the David
Toole and Diane L. Toole Children's Trust for the benefit of Mr. and Mrs.
Toole's two minor children. Dave Toole disclaims beneficial ownership of
such 59,998 shares. Also excludes 32,462 shares held by the David and
Diane L. Toole Charitable Remainder Unitrust. Dave Toole disclaims
beneficial ownership of such 32,462 shares. Also excludes 6,500 shares
held by the David and Diane L. Toole Charitable Foundation. Dave Toole
disclaims beneficial ownership of such 6,500 shares.
(6) Includes 123,956 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(7) Represents 7,500 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000
(8) Represents 22,500 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(9) Includes 10,000 shares held by Trust Company of America, FBO F. Joseph
Van Poppelen. Also includes 22,500 shares underlying stock options that
are currently exercisable or that will become exercisable within 60 days
after February 29, 2000.
(10) Includes 13,201 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(11) Includes 323,613 shares underlying stock options held by five officers
and two directors (one director which is also an officer) that are
currently exercisable or that will become exercisable within 60 days
after February 29, 2000.
41
<PAGE>
UNDERWRITING
General
We and the selling stockholders are offering the shares of common stock
described in this prospectus through a number of underwriters. Banc of America
Securities LLC, CIBC World Markets Corp. and FleetBoston Robertson Stephens
Inc. are the representatives of the underwriters. We have entered into an
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell to the
underwriters, and each underwriter has severally agreed to purchase, the number
of shares of common stock listed next to its name below at the public offering
price, less the underwriting discounts and commissions described on the cover
page of the prospectus:
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Banc of America Securities LLC............................ 1,113,750
CIBC World Markets Corp................................... 455,625
FleetBoston Robertson Stephens Inc........................ 455,625
---------
Total................................................... 2,025,000
=========
</TABLE>
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any
of them, except those covered by the underwriter's over-allotment option
described below. The underwriters will sell the shares to the public when and
if the underwriters buy the shares from us.
The underwriters initially will offer the shares to the public at the price
specified on the cover page of the prospectus. The underwriters may allow
selected dealers a concession of not more than $0.70 per share. The
underwriters may also allow, and any other dealers may reallow, a concession of
not more than $0.10 per share to some other dealers. If all the shares are not
sold at the public offering price, the underwriters may change the public
offering price and the other selling terms. No change in the public offering
price will vary the proceeds to be received by us as specified on the cover
page of the prospectus. The common stock is offered subject to a number of
conditions, including:
. receipt and acceptance of the common stock by the underwriters; and
. the right on the part of the underwriters to reject orders in whole or in
part.
We have granted the underwriters an option to buy up to 303,750 additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters that exceed the number of shares specified in the table above.
The underwriters may exercise this option at any time within 30 days after the
date of the prospectus. If the underwriters exercise this option, they will
each purchase, subject to a number of terms and conditions, additional shares
approximately in proportion to the amounts specified above. If purchased, the
underwriters will offer such additional shares on the same terms as those on
which the 2,025,000 shares are being offered.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares:
<TABLE>
<CAPTION>
No Full
Exercise Exercise
---------- ----------
<S> <C> <C>
Per share underwriting discounts and commissions..... $ 1.31 $ 1.31
Total underwriting discounts and commissions to be
paid by us.......................................... $2,220,094 $2,616,772
Total underwriting discounts and commissions to be
paid by the selling stockholders.................... $ 424,430 $ 424,430
</TABLE>
The expenses of the offering, not including the underwriting discounts and
commissions, are estimated to be approximately $675,000 and will be paid by us.
Expenses of the offering, exclusive of the underwriting discounts and
commissions, include the SEC filing fee, the NASD filing fee, Nasdaq listing
fees, printing expenses, transfer agent and registration and other
miscellaneous fees.
42
<PAGE>
We, our executive officers and directors have entered into lock-up
agreements with the underwriters. Under these agreements, subject to
exceptions, we may not issue any new shares of common stock, and our executive
officers and directors may not offer, sell, contract to sell or otherwise
dispose of or hedge any common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of 90 days after the date of the prospectus. At any time and
without notice, Banc of America Securities LLC may, in its sole discretion,
release all or some of the securities from these lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
In connection with the offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:
. short sales;
. over-allotment;
. syndicate covering transactions;
. purchases to cover positions created by short sales; and
. stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common
stock in the open market or may exercise their over-allotment option.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of the offering to repay the underwriting discounts
and commissions received by them.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by the prospectus.
In connection with the offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M. Rule 103 permits
passive market making during the period when Regulation M would otherwise
prohibit market activity by the participants in the offering. Passive market
making may occur during the business day before the pricing of the offering,
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as a passive market maker. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, the bid must then be lowered when purchase limits are exceeded.
Net purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period and must be discontinued when such limit
is reached. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
43
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by us hereby will be
passed upon for us by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
Certain legal matters will be passed upon for the underwriters by Morrison &
Foerster LLP, San Francisco, California.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement, to the extent and for the period
indicated in their report, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
said firm as experts in given said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-3 to register the shares of common stock being offered in
this prospectus. This prospectus, which forms part of the registration
statement, does not contain all of the information included in the registration
statement. For further information about us and the shares of common stock
offered in this prospectus, you should refer to the registration statement and
its exhibits and our other SEC filings. You may read and copy any document we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. We incorporate by reference the
documents listed below:
. Our Annual Report on Form 10-K for the fiscal year ended September 30,
1999;
. Our Quarterly Reports on Form 10-Q for the fiscal quarter ended December
31, 1999 and on Form 10-Q for the fiscal quarter ended March 31, 2000;
. The description of our common stock contained in our Registration
Statement on Form 8-A filed under Section 12 of the Exchange Act with
the Commission on February 4, 1994, as amended on March 7, 1994.
. Our Proxy Statement filed in connection with a special meeting of
stockholders to be held on July 17, 2000.
In addition, all documents subsequently filed by us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of this
offering, shall be deemed incorporated by reference into this prospectus.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct any
request for such copies to GaSonics International Corporation, Chief Financial
Officer, 2730 Junction Avenue, San Jose, California 95134, (408) 570-7000.
You should rely only on the information contained in this prospectus and
incorporated by reference into this prospectus. We have not authorized anyone
to provide you with information different from that contained or incorporated
by reference in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the shares.
44
<PAGE>
GASONICS INTERNATIONAL CORP
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of September 30, 1999 and September 30,
1998.................................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1999, 1998 and 1997..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998 and 1997....................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1999, 1998 and 1997..................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
Condensed Consolidated Balance Sheets as of December 31, 1999 and
September 30, 1999...................................................... F-19
Condensed Consolidated Statements of Operations for the Three Months
Ended December 31, 1999 and 1998........................................ F-20
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1999 and 1998........................................ F-21
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GaSonics International Corporation:
We have audited the accompanying consolidated balance sheets of GaSonics
International Corporation (a Delaware corporation) and subsidiaries as of
September 30, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1999. These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GaSonics International
Corporation and subsidiaries as of September 30, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended September 30, 1999 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
October 27, 1999
F-2
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 16,858 $ 14,698
Marketable securities........................................ 10,899 17,640
Trade accounts receivable, net of allowance for doubtful
accounts of $654 in 1999 and $840 in 1998................... 18,986 15,026
Inventories.................................................. 16,523 20,822
Net deferred tax asset....................................... 5,697 5,697
Prepaid expenses and other current assets.................... 3,197 7,437
-------- --------
Total current assets....................................... 72,160 81,320
-------- --------
PROPERTY AND EQUIPMENT:
Furniture and fixtures....................................... 426 786
Machinery and equipment...................................... 21,160 20,099
Leasehold improvements....................................... 4,076 4,023
-------- --------
25,662 24,908
Less--accumulated depreciation and amortization.............. (14,396) (10,098)
-------- --------
NET PROPERTY AND EQUIPMENT..................................... 11,266 14,810
-------- --------
DEPOSITS AND OTHER ASSETS...................................... 782 1,086
-------- --------
TOTAL ASSETS................................................... $ 84,208 $ 97,216
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under credit facility............................. $ 2,832 $ 2,116
Accounts payable............................................. 5,691 4,008
Income taxes payable......................................... 4,616 4,038
Other accrued liabilities.................................... 9,446 11,423
-------- --------
Total current liabilities.................................. 22,585 21,585
-------- --------
LONG-TERM LIABILITIES:
Deferred rent................................................ -- 223
COMMITMENTS (NOTE 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value: Authorized shares--
2,000,000................................................... -- --
Common stock, $0.001 par value: Authorized shares--
20,000,000.................................................. -- --
Outstanding shares--14,382,629 and 14,169,227................ 14 14
Additional paid-in capital................................... 40,623 37,661
Treasury stock............................................... (2,639) --
Subscription receivable...................................... (26) --
Retained earnings............................................ 23,651 37,733
-------- --------
Total stockholders' equity................................. 61,623 75,408
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 84,208 $ 97,216
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES....................................... $ 64,279 $100,430 $121,256
COST OF SALES................................... 39,894 59,126 67,292
-------- -------- --------
GROSS MARGIN.................................... 24,385 41,304 53,964
-------- -------- --------
OPERATING EXPENSES:
Costs associated with reduction in force (Note
5)........................................... 407 1,681 --
Provision for uncollectible account (Note 2).. -- -- 4,517
Research and development...................... 17,696 20,493 17,410
Selling, general and administrative........... 21,639 28,727 29,257
-------- -------- --------
Total operating expenses........................ 39,742 50,901 51,184
-------- -------- --------
OPERATING INCOME (LOSS)......................... (15,357) (9,597) 2,780
OTHER INCOME (EXPENSE):
Interest expense.............................. (42) (26) (91)
Interest and other income, net................ 1,317 1,096 722
Gain on sale of investment.................... -- -- 1,215
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES............................... (14,082) (8,527) 4,626
PROVISION (BENEFIT) FOR INCOME TAXES............ -- (2,814) 1,619
-------- -------- --------
NET INCOME (LOSS)............................... $(14,082) $ (5,713) $ 3,007
======== ======== ========
Net income (loss) per share--Basic.............. $ (0.98) $ (0.41) $ 0.22
======== ======== ========
Net income (loss) per share--Diluted............ $ (0.98) $ (0.41) $ 0.21
======== ======== ========
Weighted average common shares--Basic........... 14,316 14,039 13,635
======== ======== ========
Weighted average common and common equivalent
shares--Diluted................................ 14,316 14,039 14,209
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Unrealized Note
Common Stock Additional Gain on Receivable Total
------------------ Paid-in Subscription Marketable From Retained Stockholders'
Shares Amount Capital Receivable Securities Stockholder Earnings Equity
---------- ------ ---------- ------------ ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1996.................... 13,472,276 $13 $31,400 $ -- $902 $(65) $40,439 $72,689
Issuance of common
stock under employee
stock purchase plan.... 138,325 -- 1,348 -- -- -- -- 1,348
Issuance of common
stock under stock
option plan............ 305,500 1 3,085 (100) -- -- -- 2,986
Forgiveness of note
receivable from
stockholder............ -- -- -- -- -- 65 -- 65
Change in unrealized
gain on marketable
securities............. -- -- -- -- (902) -- -- (902)
Net income............. -- -- -- -- -- -- 3,007 3,007
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1997.................... 13,916,101 14 35,833 (100) -- -- 43,446 79,193
Issuance of common
stock under employee
stock purchase plan.... 189,177 -- 1,198 -- -- -- -- 1,198
Issuance of common
stock under stock
option plan............ 63,949 -- 630 100 -- -- -- 730
Net loss............... -- -- -- -- -- -- (5,713) (5,713)
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1998.................... 14,169,227 14 37,661 -- -- -- 37,733 75,408
Issuance of common
stock under employee
stock purchase plan.... 171,753 -- 1,131 -- -- -- -- 1,131
Issuance of common
stock under stock
option plan............ 241,649 -- 1,831 (26) -- -- -- 1,805
Stock repurchase....... (200,000) -- (2,639) -- -- -- -- (2,639)
Net loss............... -- -- -- -- -- (14,082) (14,082)
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1999.................... 14,382,629 $14 $37,984 $(26) $ -- $ -- $23,651 $61,623
========== === ======= ===== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(14,082) $ (5,713) $ 3,007
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 4,993 3,970 2,773
Provision for doubtful accounts.............. 180 120 4,637
Forgiveness of note receivable from
stockholder................................. -- -- 65
Write-off of fixed assets.................... 62 173 --
Changes in assets and liabilities:
Accounts receivable.......................... (4,140) 13,168 (12,564)
Inventories.................................. 4,299 6,254 2,387
Prepaid expenses and other current assets.... 4,240 (5,650) (830)
Deposits and other assets.................... 304 596 554
Accounts payable............................. 1,683 (2,804) (505)
Income taxes payable......................... 578 984 1,954
Accrued liabilities.......................... (1,977) (1,464) 570
Deferred rent................................ (223) (178) (151)
-------- -------- --------
Net cash provided by (used for) operating
activities.................................. (4,083) 9,456 1,897
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............. (79,370) (67,114) (25,636)
Proceeds from sales of marketable securities... 86,111 61,051 27,292
Purchases of property and equipment............ (1,511) (4,011) (5,935)
-------- -------- --------
Net cash provided by (used for) investing
activities.................................. 5,230 (10,074) (4,279)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of note payable to bank............... -- -- (2,455)
Proceeds from borrowings under credit
facility...................................... 716 80 2,036
Repurchases of common stock.................... (2,639) -- --
Proceeds from issuance of common stock......... 2,936 1,929 4,334
-------- -------- --------
Net cash provided by financing activities.... 1,013 2,009 3,915
-------- -------- --------
Net increase in cash and cash equivalents.... 2,160 1,391 1,533
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 14,698 13,307 11,774
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 16,858 $ 14,698 $ 13,307
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
GaSonics International Corporation (the "Company") is a leading global
supplier of products and services used in the fabrication of advanced
integrated circuits ("semiconductors" or "ICs") and flat panel displays
("FPDs"). The Company markets its products in the Asia/Pacific region, Europe
and the United States primarily to large semiconductor and liquid crystal
manufacturing concerns. The Company is subject to a number of risks including,
but not limited to, volatility in the semiconductor markets and the related
demand for semiconductor equipment and the risk of inventory obsolescence
resulting from new product developments by competitors. See "Additional Risk
Factors."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and branches after elimination of
intercompany accounts and transactions.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those
estimates.
Fiscal Year
The Company maintains a 52/53 week fiscal year cycle ending on the Saturday
closest to September 30. Fiscal 1999, fiscal 1998 and fiscal 1997 contain 52
weeks. For external reporting purposes, the Company indicates its fiscal period
as ending on September 30.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with an original maturity of 90 days or
less to be cash equivalents.
Cash paid for interest, including amounts paid under capital lease
obligations, and domestic and foreign income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest.......................................... $ 140 $ 25 $ 94
Income taxes...................................... $ 590 $ 224 $ 625
</TABLE>
The Company had one significant non-cash transaction for the year ended
September 30, 1997 related to the Submicron Technologies PLC (see Concentration
of Credit Risk below) write-off of their uncollectible account. Non-cash
activity included a before tax bad debt expense of $4.5 million.
F-7
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments in Marketable Securities
Pursuant to the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company's investments are classified as available-for-sale and
are stated at fair value. Material unrealized gains and losses are recorded as
a separate component of stockholders' equity, net of tax. The Company's
investments in debt securities mature at various dates through July 2000.
The fair value of available-for-sale securities was determined based on
quoted market prices at the reporting date for the instruments.
The components of available-for-sale securities by major security type as of
September 30, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized
Amortized Fair Holding
Gross Value Gains
--------- --------- ----------
<S> <C> <C> <C>
Fiscal 1999
Debt securities issued by the United States
Government and agencies of the United States
Government.................................. $23,001 $23,001 $--
Fiscal 1998
Debt securities issued by states of the
United States and political subdivisions of
the states.................................. $25,774 $25,774 $--
</TABLE>
Proceeds from sales of available-for-sale securities were approximately
$86.1 million, $61.1 million and $27.3 million in fiscal 1999, 1998 and 1997,
respectively. Gross realized gains on those sales were approximately $27,500,
$8,000 and $3,000 in fiscal 1999, 1998 and 1997, respectively. The Company used
specific identification as the cost basis in computing realized gains.
Revenue Recognition and Product Warranty
Revenues from the Company's products are generally recognized upon shipment.
The Company provides for the estimated costs of installation and warranty at
the time revenue is recognized. Maintenance and service revenues account for
approximately 15% of net sales and are recognized as the related work is
performed.
Major Customers
One customer accounted for approximately 23%, 20% and 10% of net sales for
each of fiscal years 1999, 1998 and 1997, respectively. Two other customers
each accounted for approximately 11% of net sales in fiscal 1997. There was one
other customer in fiscal 1998 that accounted for approximately 11% of net
sales.
Software Development Costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. Amounts qualifying for capitalization under the statement are
immaterial and have not been capitalized to date.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing costs. Inventory is valued at
currently adjusted standards which approximate actual costs on a first-in,
first-out basis.
F-8
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company provides inventory reserves for excess, obsolete, damaged or
lost inventory. The process of estimating required inventory reserves is
judgmental and is based on a number of factors which require input and
discussion among various members of management. Such factors include changes in
customer demand, changes in technology and other economic factors.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $ 7,784 $12,547
Work-in-process.............................................. 5,409 2,254
Finished goods............................................... 3,330 6,021
------- -------
$16,523 $20,822
======= =======
</TABLE>
Property and Equipment
Property and equipment are stated at cost and are generally depreciated over
the estimated useful lives of the assets (four to ten years) using the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful lives of the assets or the remaining lease
term. Assets acquired under capital leases are recorded at the present value of
the related lease obligations and amortized on a straight-line basis over the
related lease term.
Other Accrued Liabilities
Other accrued liabilities included the following (in thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------ -------
<S> <C> <C>
Warranty...................................................... $2,252 $ 3,213
Sales commissions............................................. 1,056 805
Employee compensation......................................... 3,538 3,744
Other......................................................... 2,600 3,661
------ -------
$9,446 $11,423
====== =======
</TABLE>
Net Income (Loss) Per Share
Net income (loss) per share data has been computed using the weighted
average number of shares of common stock outstanding for the Basic net income
(loss) per share calculation, and using the weighted average number of shares
of common stock and common stock equivalent shares calculated under the
treasury stock method for the Diluted net income (loss) per share calculation.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, foreign translation and exchange gains and losses, which
have not been material, are reflected in the accompanying consolidated
statements of operations.
F-9
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one financial institution evaluated as highly
creditworthy. Concentration of credit risk with respect to trade receivables
exists because the Company's revenues are derived primarily from the sale of
photoresist removal equipment to companies in the semiconductor industry. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral.
A write-off of accounts receivable was recorded in the third quarter of
fiscal 1997 for the uncollectible account receivable due from SubMicron
Technologies PLC in Thailand. The Company recorded a $4.5 million pre-tax
charge to cover the unpaid balance on accounts receivable, less the value of
the recovered equipment, which the Company resold during fiscal 1998.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Effect of 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 on the balance sheet as
assets or liabilities. It establishes accounting and reporting standards for
derivative 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.
F-10
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. GEOGRAPHIC AREA DATA:
The Company's operations by geographical area for the three years ended
September 30, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
United Other
States Japan Foreign Eliminations Consolidated
-------- ------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1999
Net sales:
Domestic................ $ 34,727 $4,692 $ 3,794 $ -- $ 43,213
Exports Europe.......... 5,004 -- -- -- 5,004
Exports Asia/Pacific.... 16,357 -- -- -- 16,357
Exports Japan........... (295) -- -- -- (295)
Intercompany............ 3,805 1,767 6,726 (12,298) --
-------- ------ ------- -------- --------
Total revenues............ $ 59,598 $6,459 $10,520 $(12,298) $ 64,279
-------- ------ ------- -------- --------
Operating income (loss)... $(15,060) $ (149) $ 143 $ (291) $(15,357)
Identifiable assets....... $ 76,006 $6,492 $ 3,432 $ (1,722) $ 84,208
======== ====== ======= ======== ========
1998
Net sales:
Domestic................ $ 55,294 $3,753 $ 3,596 $ -- $ 62,643
Exports Europe.......... 21,360 -- -- -- 21,360
Exports Asia/Pacific.... 15,121 1,111 -- -- 16,232
Exports Japan........... 195 -- -- -- 195
Intercompany............ 2,303 1,675 7,649 (11,627) --
-------- ------ ------- -------- --------
Total revenues............ $ 94,273 $6,539 $11,245 $(11,627) $100,430
-------- ------ ------- -------- --------
Operating income (loss)... $(10,728) $ 378 $ 755 $ (2) $ (9,597)
Identifiable assets....... $ 88,100 $7,541 $ 3,007 $ (1,432) $ 97,216
======== ====== ======= ======== ========
1997
Net sales:
Domestic................ $ 54,899 $7,829 $ 3,280 $ -- $ 66,008
Exports Europe.......... 16,998 -- -- -- 16,998
Exports Asia/Pacific.... 35,557 -- -- -- 35,557
Exports Japan........... 2,693 -- -- -- 2,693
Intercompany............ 1,916 1,155 7,046 (10,117) --
-------- ------ ------- -------- --------
Total revenues............ $112,063 $8,984 $10,326 $(10,117) $121,256
-------- ------ ------- -------- --------
Operating income.......... $ 67 $1,729 $ 967 $ 17 $ 2,780
Identifiable assets....... $ 95,003 $8,273 $ 2,302 $ (1,196) $104,382
======== ====== ======= ======== ========
</TABLE>
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's various operations. Accordingly, the revenue, operating income (loss)
and identifiable assets shown for each geographic area may not be indicative of
the amounts that would have been reported if the operating units were
independent of one another.
Intercompany sales between areas are accounted for based on established
intercompany sales prices.
Operating income (loss) is revenue less related costs and direct and
allocated operating expenses, excluding interest and, for all areas except the
United States, the unallocated portion of corporate expenses. United States
operating income is net of corporate engineering and development and
administrative expenses.
F-11
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate assets include assets maintained for general purposes, principally
cash equivalents and marketable securities.
4. 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 service
business is a separate operating segment; however, this segment does not meet
the quantitative thresholds as prescribed in SFAS No. 131. As a result, in the
opinion of management, no additional operating segment information is required
to be disclosed.
5. CHARGES TAKEN DURING THE FISCAL YEAR
The twelve month period ended September 30, 1998 included pre-tax charges of
approximately $1.7 million, related to costs of reductions in force completed
in June 1998 and September 1998 and costs of facility consolidations. As of
September 30, 1999, $1.5 million of the $1.7 million has been paid and $175,000
remains on the Company's books as an accrual. Also included in the twelve month
period ended September 30, 1998 are pre-tax charges of approximately $4.0
million, related primarily to reserves for potential excess inventory and
accelerated write-downs of certain demonstration equipment. The twelve month
period ended September 30, 1999 included pre-tax charges of approximately
$407,000, related to costs of a reduction in force completed in December 1998.
As of September 30, 1999, $384,000 of the $407,000 has been paid and $23,000
remains on the Company's books as an accrual.
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 twelve months
ended September 30, 1999 and 1998, there were no material items of
comprehensive income (loss), thus comprehensive income for these periods did
not differ materially from net income as reported in the accompanying financial
statements.
7. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EARNINGS PER SHARE
CALCULATION
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings (loss) per common share were computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during this period. Diluted earnings (loss) per common share for
the twelve months ended September 30, 1999, 1998 and 1997, were calculated
using the treasury stock method to compute the weighted average common stock
outstanding. As a result, the Company's reported earnings per share for fiscal
year 1997 was restated. There has been no impact on reported earnings per share
data when compared to basic and diluted earnings per share calculated under the
provisions of SFAS No. 128 for the twelve month period ended September 30,
1997.
F-12
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Per Share
For the twelve months ended September 30, 1999 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net loss.................................... $(14,082,000)
Basic and diluted loss per share
Loss to common stockholders................. $(14,082,000) 14,316,000 $(0.98)
<CAPTION>
Per Share
For the twelve months ended September 30, 1998 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net loss.................................... $ (5,713,000)
Basic and diluted loss per share
Loss to common stockholders................. $ (5,713,000) 14,039,000 $(0.41)
<CAPTION>
Per Share
For the twelve months ended September 30, 1997 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net income.................................. $ 3,007,000
Basic income per share
Income available to common stockholders..... $ 3,007,000 13,635,000 $ 0.22
Effect of dilutive securities:
Options issued to purchase common stock..... 574,000
Dilutive income per share
Income available to common stockholders..... $ 3,007,000 14,209,000 $ 0.21
</TABLE>
8. LINE OF CREDIT AGREEMENT AND CREDIT FACILITY:
The Company has an unsecured $20,000,000 revolving line of credit agreement
(the "Agreement") with Union Bank of California which expires on March 31,
2000. There were no borrowings outstanding under the Agreement as of September
30, 1999. Under the line of credit, all borrowings bear interest at the bank's
LIBOR rate plus 1.25% per annum. The line of credit agreement contains certain
covenants, including covenants relating to financial ratios, profitability and
tangible net worth which must be maintained by the Company. In June 1999 Union
Bank of California renewed the Loan Agreement to provide a profitability
covenant that the Company may not incur losses in two consecutive quarters
after December 31, 1999. The Company was in compliance with the financial
covenants of the Agreement as of September 30, 1999.
Under the Agreement, the Company has a provision for standby letters of
credit not to exceed $500,000. As of September 30, 1999, there were letters of
credit outstanding in the amount of $69,163. Available borrowing under the
credit line is reduced by any amounts outstanding under the letter of credit
provision.
The Company's wholly-owned subsidiary in Japan, GaSonics International
Japan, K.K. entered into an agreement with the Bank of Tokyo-Mitsubishi to
secure a credit facility to provide operating capital to fund operations. The
credit facility provides for borrowings up to a maximum of 300 million Japanese
yen (equivalent to approximately $2.9 million in U.S. dollars as of September
30, 1999), and is secured by a Letter of Guarantee issued by the Company. The
outstanding balance bears interest at 1.375% per annum and is due and payable
on demand. This credit facility expires on March 31, 2000. At September 30,
1999, borrowings under this credit facility agreement were 297 million Japanese
yen, which is equivalent to approximately $2.8 million U.S. dollars as of that
date. The Company intends to enter into a new agreement or extend the term of
the existing credit facility prior to the due date; however, there can be
assurance that such financing will be available when required or, will be on
reasonable terms.
F-13
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. INCOME TAXES:
The Company accounts for income taxes using an asset and liability approach.
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1999 1998 1997
------------------ ---------
<S> <C> <C> <C>
Current
Federal..................................... $ -- $ (2,773) $ 1,509
State....................................... -- 130 223
------
Total current............................. -- (2,643) 1,732
------ ---------- ---------
Deferred
Federal..................................... -- (149) (98)
State....................................... -- (22) (15)
------ ---------- ---------
Total deferred............................ -- (171) (113)
------ ---------- ---------
Provision (benefit) for income taxes.......... $ -- $ (2,814) $ 1,619
====== ========== =========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory Federal income tax rate, as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal tax rate.................... (35.0)% (35.0)% 35.0%
State income taxes, net....................... (3.8) -- 3.6
Foreign operations............................ 4.2 3.2 1.7
Research and development credit............... (1.0) (3.0) (5.5)
Tax exempt income............................. (1.3) (3.1) (4.6)
Valuation allowance........................... 44.1 -- --
Other......................................... (7.2) 4.9 4.8
-------- -------- -------
Provision (benefit) for income taxes........ (0.0)% (33.0)% 35.0%
======== ======== =======
</TABLE>
The major components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------ ------
<S> <C> <C>
Inventory reserves........................................... $4,605 $3,268
Accrued warranty............................................. 859 1,237
Deferred rent................................................ 17 87
Accrued vacation............................................. 299 274
Net operating loss carryforwards............................. 3,153 --
Valuation allowance for deferred assets...................... (6,215) --
State tax carryovers......................................... 1,186 512
Other temporary differences.................................. 1,793 1,189
------ ------
Deferred tax asset........................................... 5,697 6,567
Deferred tax liabilities..................................... -- (870)
------ ------
Total net deferred tax asset............................... $5,697 $5,697
====== ======
</TABLE>
F-14
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INVESTMENT IN IPEC
During fiscal 1990, the Company and Integrated Process Equipment Corporation
(IPEC) entered into an agreement in which the Company received 294,600 shares
of IPEC Class A common stock in exchange for certain services and technology.
In fiscal 1997, the Company sold 54,673 shares of IPEC common stock and
realized an after tax gain of $790,000 which was reported in other income and
(expense) in the accompanying Consolidated Statements of Operations. As of
September 30, 1997, the Company held no shares of IPEC common stock.
11. 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 September 30,
1999, the Company had repurchased 200,000 shares of common stock in the open
market at an aggregate cost of approximately $2.6 million.
12. COMMITMENTS:
The Company leases its facilities and certain machinery and equipment under
operating lease agreements that expire at various dates through June 2005.
Minimum commitments under the non-cancelable leases as of September 30, 1999
were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.................................................................. $2,764
2001.................................................................. 2,282
2002.................................................................. 675
2003.................................................................. 32
2004.................................................................. 32
Thereafter............................................................ 23
------
$5,808
======
</TABLE>
Rent expense was approximately $2,235,000, $2,263,000 and $2,113,000 for the
years ended September 30, 1999, 1998 and 1997, respectively.
The Company's lease agreement for one of its facilities provides for the
deferral of three months cash rental payments in fiscal 1990 and subsequent
scheduled rent increases. Rent expense under this agreement is being recognized
on a straight-line basis over the term of the lease. The difference between the
amounts paid and the amounts expensed is classified as deferred rent in the
accompanying Consolidated Balance Sheets.
No new capital lease obligations were incurred in fiscal 1999 or 1998.
13. INCENTIVE STOCK OPTION PLAN AND STOCK PURCHASE PLAN:
In November 1993, the Company's then President and Chief Executive Officer
(the "President") exercised options to purchase an aggregate of 566,665 shares
of common stock at $0.60 per share, with a 5% interest bearing promissory note
payable to the Company in the amount of $340,000. In January 1994, the Board of
Directors authorized a special bonus program for the President, pursuant to
which $100,000 of the principal of the promissory note would be forgiven upon
his completion of each calendar year of service to the Company from January 1,
1994 through January 1, 1997. Accordingly, the promissory note has been
amortized to compensation expense in the amounts of $65,000 for fiscal 1997 and
$100,000 in fiscal years 1996 and 1995, respectively. The promissory note was
fully amortized at September 30, 1997.
F-15
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1994 Stock Option/Stock Issuance Plan
In fiscal 1994, the Board adopted, and the stockholders subsequently
approved, the 1994 Stock Option/Stock Issuance Plan (the "1994 Stock Option
Plan") and authorized a total of 1,450,000 shares for issuance under the Plan.
The 1994 Stock Option Plan replaced the Company's 1985 Stock Option Plan and
the Company's 1988 Stock Option Plan which have both been terminated. During
fiscal years 1998 and 1997, the Company's Board of Directors authorized, and
the stockholders subsequently approved, an additional 400,000 and 500,000
shares, respectively, for issuance under the Plan. During fiscal 1999, there
were no new shares authorized.
The 1994 Stock Option Plan is divided into three separate components: i) the
Discretionary Option Grant Program under which key employees (including
officers and directors) and consultants may, at the discretion of the Plan
Administrator, be granted options to purchase shares of common stock at an
exercise price not less than 85% of the fair market value of such shares on the
grant date, ii) the Automatic Option Grant Program under which option grants
will automatically be made at periodic intervals to the nonemployee Board
members to purchase shares of common stock at an exercise price equal to 100%
of the fair market value of the option shares on the grant date, and iii) the
Stock Issuance Program under which key employees (including officers and
directors) and consultants may be issued shares of common stock directly,
either through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services or the Company's attainment of financial objectives. In
no event may the aggregate number of shares of common stock for which any
individual participating in the 1994 Plan may be granted stock options and
direct stock issuances exceed 825,000 shares over the term of the Plan. Options
granted under the Discretionary and Automatic Option Grant Programs have a
maximum term of ten years and generally vest over periods of one to five years
from the date of grant, at the discretion of the Plan Administrator. There were
no stock issuances under the 1994 Stock Option Plan in fiscal years 1999, 1998
and 1997.
In August 1996, holders of the Company's options were given the opportunity
to exchange previously granted stock options for new common stock options.
Option holders, excluding non-employee directors of the Company, who held an
outstanding stock option with an exercise price in excess of $7.25 per share
were granted a new option with an exercise price of $7.25 per share, the market
price of the common stock on that date, in exchange for his or her higher-
priced option. Each optionee was given the choice of accepting the new option
with a new four year vesting schedule and having the higher-priced option
canceled or rejecting the new option and retaining the higher-priced option
with its original vesting schedule. Under the terms of the new options, one-
quarter of the shares vest one year from the date of grant and the remaining
shares vest in 36 monthly installments. Options to purchase 416,725 shares were
so exchanged.
In November 1998, holders of the Company's options were given the
opportunity to exchange previously granted stock options for new common stock
options. Option holders, excluding non-employee directors of the Company, who
held an outstanding stock option with an exercise price in excess of $5.625 per
share were granted a new option with an exercise price of $5.625 per share, the
market price of the common stock on that date, in exchange for his or her
higher-priced option. Each optionee was given the choice of accepting the new
option with a new four year vesting schedule and having the higher-priced
option canceled or rejecting the new option and retaining the higher-priced
option with its original vesting schedule. Under the terms of the new options,
one-quarter of the shares vest one year from the date of grant and the
remaining shares vest in 36 monthly installments. Options to purchase 960,131
shares were so exchanged.
F-16
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Option and stock issuance activity under the 1994 Stock Option Plan was as
follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Number of Exercise
For Grant Shares Price
---------- ---------- --------
<S> <C> <C> <C>
Balance at September 30, 1996............... 604,238 1,507,270 $8.37
Additional options authorized............. 500,000 -- --
Granted................................... (653,850) 653,850 9.82
Exercised................................. -- (305,500) 8.04
Canceled.................................. 349,559 (349,559) 10.83
---------- ----------
Balance at September 30, 1997............... 799,947 1,506,061 8.50
Additional options authorized............. 400,000 -- --
Granted................................... (872,150) 872,150 9.27
Exercised................................. -- (63,949) 7.83
Canceled.................................. 221,973 (221,973) 9.04
---------- ----------
Balance at September 30, 1998............... 549,770 2,092,289 9.08
Granted................................... (1,398,731) 1,398,731 7.86
Exercised................................. -- (241,649) 7.60
Canceled.................................. 1,278,341 (1,278,341) 9.83
---------- ----------
Balance at September 30, 1999............... 429,380 1,971,030 $7.91
========== ==========
</TABLE>
The following table summarizes the options outstanding under the 1994 Stock
Option Plan as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
------------------------------------------------------------------------------------
Weighted
Number Average Number Weighted
Outstanding Remaining Weighted Exercisable Average
Range of As of Contractual Average As of Exercise
Exercise Prices Sept. 30, 1999 Life Exercise Price Sept. 30, 1999 Price
---------------- -------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 3.59-$ 5.62 875,681 9.11 $ 5.57 6,375 $ 3.73
$ 6.88-$ 7.20 168,819 6.88 $ 7.17 98,126 7.20
$ 7.25-$ 7.25 284,222 6.86 $ 7.25 208,918 7.25
$ 7.88-$ 8.88 202,433 7.14 $ 8.41 120,499 8.52
$ 9.17-$12.12 277,500 9.30 $11.87 25,739 9.59
$12.75-$16.00 162,375 9.42 $14.90 11,708 13.23
--------- -------
$ 3.59-$16.00 1,971,030 8.44 $ 7.91 471,365 $ 7.81
========= =======
</TABLE>
1994 Employee Stock Purchase Plan
The Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on January 27, 1994 and approved by the
stockholders in March 1994. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of common stock, at semi-annual
intervals, through their periodic payroll deductions under the Purchase Plan.
The Company had initially reserved 300,000 shares of Common Stock for issuance
under the Purchase Plan. The Company's Board of Directors authorized, and the
stockholders subsequently approved, an additional 400,000 shares of Common
Stock under the Purchase Plan in each of fiscal years 1997 and 1996.
Participants in the Purchase Plan may purchase shares at 85% of the lower of
i) the fair market value of the common stock on the participant's entry date
into the offering period or ii) the fair market value on the semi-annual
purchase date. The Purchase Plan will in all events terminate on December 31,
2003.
F-17
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Of the 1,100,000 shares reserved for the 1994 Employee Stock Purchase Plan,
826,235 shares were purchased as of September 30, 1999.
Stock Based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes a fair value
based method of accounting for stock-based compensation plans and requires
additional disclosures for those companies who elect not to adopt the new
method of accounting. The Company adopted SFAS No. 123 in fiscal 1997, and in
accordance with the provisions of SFAS No. 123, the Company applies APB Opinion
25 and related interpretations in accounting for its stock option and stock
purchase plans.
The Company's stock plans, as described above, are accounted for under APB
Opinion No. 25. Because the FASB Statement No. 123 method of accounting has not
been applied to options granted prior to October 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years. Had compensation cost for these plans been determined consistent
with Statement No. 123, the Company's consolidated net income and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998 1997
------------------------------------- -------- ------- ------
<S> <C> <C> <C>
Net income (loss)--as reported.................... $(14,082) $(5,713) $3,007
Net income (loss)--pro forma...................... $(17,424) $(7,682) $1,325
Earnings (loss) per share--Basic--as reported..... $ (0.98) $ (0.41) $ 0.22
Earnings (loss) per share--Diluted--as reported... $ (0.98) $ (0.41) $ 0.21
Earnings (loss) per share--Basic--pro forma....... $ (1.22) $ (0.55) $ 0.10
Earnings (loss) per share--Diluted--pro forma..... $ (1.22) $ (0.55) $ 0.09
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................ 0.0% 0.0% 0.0%
Expected life of options from vest date....... 0.9 Years 0.9 Years 0.9 years
Expected stock volatility..................... 83.5% 84.3% 84.8%
Risk-free interest rates...................... 4.3%-5.9% 4.3%-6.0% 5.6%-6.8%
</TABLE>
The weighted average fair value of option grants using the Black-Scholes
option pricing model was $4.48, $5.55 and $5.91 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.
14. EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) benefit plan covering all employees meeting
certain requirements. The plan includes a deferred compensation arrangement
permitting elective contributions to be made by the participants. Company
contributions are made at the discretion of the Board of Directors. Company
contributions were approximately $437,000, $506,000 and $476,000 in fiscal
1999, 1998 and 1997, respectively.
F-18
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
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
------- -------
Total current assets............................. 75,711 72,160
PROPERTY AND EQUIPMENT, NET.......................... 10,708 11,266
DEPOSITS AND OTHER ASSETS............................ 660 782
------- -------
TOTAL ASSETS......................................... $87,079 $84,208
======= =======
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
------- -------
Total current liabilities........................ 22,996 22,585
------- -------
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
------- -------
Total stockholders' equity....................... 64,083 61,623
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $87,079 $84,208
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
NET SALES................................................ $ 25,603 $ 10,022
COST OF SALES............................................ 14,293 7,870
--------- ---------
Gross margin........................................... 11,310 2,152
--------- ---------
OPERATING EXPENSES:
Costs associated with reduction in force............... -- 407
Research & development................................. 4,366 3,636
Selling, general & administrative...................... 5,915 5,303
--------- ---------
Total operating expenses................................. 10,281 9,346
--------- ---------
OPERATING INCOME (LOSS).................................. 1,029 (7,194)
OTHER INCOME AND EXPENSE, NET............................ 309 315
--------- ---------
Income (loss) before provision for income taxes........ 1,338 (6,879)
Provision for income taxes............................. -- --
--------- ---------
NET INCOME (LOSS)........................................ $ 1,338 $ (6,879)
========= =========
NET INCOME (LOSS) PER SHARE--BASIC....................... $ 0.09 $ (0.49)
========= =========
NET INCOME (LOSS) PER SHARE--DILUTED..................... $ 0.09 $ (0.49)
========= =========
WEIGHTED AVERAGE COMMON SHARES--BASIC.................... 14,659 14,172
========= =========
WEIGHTED AVERAGE COMMON & COMMON EQUIVALENT SHARES--
DILUTED................................................. 15,258 14,172
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities................. $ (709) $ (3,383)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment...................... (595) (290)
Increase in marketable securities...................... (7,850) (578)
--------- ---------
Net cash used for investing activities............... (8,445) (868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in borrowings under credit
facility.............................................. (119) 234
Proceeds from issuance of common stock................. 1,171 673
--------- ---------
Net cash provided by financing activities............ 1,052 907
--------- ---------
Net decrease in cash and cash equivalents................ (8,102) (3,344)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 16,858 14,698
--------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD................. $ 8,756 $ 11,354
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
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
------------ -------------
(unaudited)
<S> <C> <C>
Raw Materials..................................... $ 7,780 $ 7,784
Work in Process................................... 6,179 5,409
Finished Goods.................................... 3,933 3,330
------- -------
$17,892 $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, 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).
<TABLE>
<CAPTION>
Per Share
For the three months ended Dec. 31, 1999 Income Shares Amount
- ---------------------------------------- ------- ------ ---------
<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
<CAPTION>
Per Share
For the three months ended Dec. 31, 1998 Income Shares Amount
- ----------------------------------------- ------- ------ ---------
<S> <C> <C> <C>
Net loss............................................. $(6,879)
Basic and diluted loss per share
Loss to common stockholders.......................... $(6,879) 14,172 $(0.49)
</TABLE>
F-22
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
F-23
<PAGE>
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2,025,000 Shares
[LOGO OF GASONICS INTERNATIONAL CORPORATION]
----------------
Prospectus
May 19, 2000
----------------
Banc of America Securities LLC
CIBC World Markets
Robertson Stephens
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