SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NUMBER 0-17139
GENUS, INC.
(Exact name of registrant as specified in its charter)
California 94-279080
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1139 Karlstad Drive, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip code)
(408) 747-7120
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common shares outstanding at November 6, 1997: 16,969,213
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GENUS, INC.
Index
PART I. FINANCIAL INFORMATION PAGE NO.
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations -
Three and nine months ended
September 30, 1997 and 1996 3
Consolidated Balance Sheets -
September 30, 1997 and
December 31, 1996 4
Consolidated Statements of Cash Flows -
Nine months ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8-12
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
Index to Exhibit 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENUS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $24,375 $13,892 $63,407 $65,347
Costs and expenses:
Cost of goods sold 16,024 10,493 39,877 43,334
Research and development 3,066 3,788 9,315 11,371
Selling, general & administrative 4,358 4,926 12,414 14,007
Special charge - 3,540 - 3,540
------- ------- ------- -------
Income (loss) from operations 927 (8,855) 1,801 (6,905)
Other income (expense) net (94) (25) (191) 38
------- ------- ------- -------
Income (loss) before provision for income taxes 833 (8,880) 1,610 (6,867)
Provision for (benefit from) income taxes 321 (775) 621 ---
------- ------- ------- -------
Net income (loss) $ 512 $(8,105) $ 989 $(6,867)
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per share $ 0.03 $ (0.48) $ 0.06 $ (0.41)
------- ------- ------- -------
------- ------- ------- -------
Shares used in per share calculation 17,060 16,841 16,923 16,630
------- ------- ------- -------
------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
GENUS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Unaudited Audited
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,460 $ 11,827
Accounts receivable (net of allowance for doubtful
accounts of $250 in 1997 and 1996) 29,387 15,555
Inventories, net 25,839 26,464
Other current assets 1,584 638
Current deferred taxes 4,427 4,427
--------- ---------
Total current assets 73,697 58,911
Property and equipment, net 13,491 15,345
Other assets, net 3,815 4,459
Non-current deferred taxes 10,417 10,417
--------- ---------
$ 101,420 $ 89,132
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Short term bank borrowings $ 9,980 $ 2,500
Accounts payable 8,683 5,304
Accrued expenses 10,951 10,808
Current portion of long-term debt 801 1,009
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Total current liabilities 30,415 19,621
--------- ---------
Long-term debt, less current portion 1,150 1,260
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SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized, 2,000,000 shares;
Issued and outstanding, none -- --
Common stock, no par value:
Authorized, 50,000,000 shares;
Issued and outstanding 16,968,545 shares at
September 30, 1997 and 16,723,927 shares at
December 31, 1996 98,697 97,915
Accumulated deficit (28,538) (29,527)
Cumulative translation adjustment (304) (137)
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Total shareholders' equity 69,855 68,251
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$ 101,420 $ 89,132
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--------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
GENUS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
Nine Months Ended
-----------------
September 30
-------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 989 $ (6,867)
Adjustments to reconcile net income to net cash
from operating activities:
Special charge -- 3,281
Depreciation and amortization 3,651 4,879
Deferred taxes
Changes in assets and liabilities:
Accounts receivable (13,832) 10,590
Inventories 625 (6,129)
Other current assets (946) (368)
Accounts payable 3,379 (1,571)
Accrued expenses 143 247
Other, net 63 (1,062)
-------- ---------
Net cash provided by (used in) operating activities (5,928) 3,000
-------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (565) (5,228)
Capitalization of software development costs -- (352)
-------- ---------
Net cash used in investing activities (565) (5,580)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 782 1,646
Proceeds from short-term bank borrowings 15,896 1,500
Payments of short-term bank borrowings (8,416) (1,500)
Payments of long-term debt and capital lease obligations (1,071) (735)
-------- ---------
Net cash provided by financing activities 7,191 911
-------- ---------
Effect of exchange rate changes on cash (65) --
Net increase (decrease) in cash and cash equivalents 633 (1,669)
Cash and cash equivalents, beginning of period 11,827 12,630
-------- ---------
Cash and cash equivalents, end of period $ 12,460 $ 10,961
-------- ---------
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
GENUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with SEC requirements for interim financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1996 Annual
Report to Shareholders which is incorporated by reference into the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
the fair statement of financial position, results of operations and cash
flows for the interim periods. The results of operations for the periods
presented are not necessarily indicative of results to be expected for the
full year.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common equivalent (when dilutive)
shares of common stock outstanding during each period.
STATEMENT OF CASH FLOWS INFORMATION
Nine Months Ended
-----------------
September 30
------------
1997 1996
-------- --------
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 298 $ 159
Income taxes 2 105
Non cash investing activities:
Purchase of property and equipment
under long-term debt obligations $ 753 $ 1,410
LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank that
provides for maximum borrowings of $10.0 million and expires in June 1998.
Borrowings under the line of credit, which are secured by substantially all
of the assets of the Company, bear interest at the bank's prime rate minus
0.25% or at LIBOR plus 2%. The agreement requires the Company to comply with
certain financial covenants and restricts the payment of dividends. At
September 30, 1997, the Company had $10.0 million in borrowings outstanding
under the line of credit.
6
GENUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
INVENTORIES
INVENTORIES COMPRISE THE FOLLOWING:
September 30, December 31,
1997 1996
------------- ------------
Raw materials and parts $ 17,218 $ 14,776
Work in progress 3,289 6,847
Finished goods 5,332 4,841
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$ 25,839 $ 26,464
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--------- ---------
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT ARE STATED AT COST AND COMPRISE THE FOLLOWING:
September 30, December 31,
1997 1996
------------- ------------
Demonstration equipment $ 14,351 $ 14,047
Equipment 17,190 16,145
Furniture and fixtures 2,647 2,631
Leasehold improvements 6,901 6,900
--------- ---------
41,089 39,723
Less accumulated depreciation and amortization (27,841) (24,669)
--------- ---------
13,248 15,054
Construction in progress 243 291
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$ 13,491 $ 15,345
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ACCRUED EXPENSES
ACCRUED EXPENSES COMPRISE THE FOLLOWING:
September 30, December 31,
1997 1996
------------- ------------
System installation and warranty $ 4,122 $ 4,884
Accrued commissions and incentives 1,997 1,344
Accrued payroll and related items 1,503 1,003
Other 3,329 3,577
--------- ---------
$ 10,951 $ 10,808
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--------- ---------
CONTINGENCY
Included in accounts receivable at September 30,1997 is a $3,900,000 amount
for a previously recorded sale to the California based manufacturing facility
of InterConnect Technology (ICT), which is headquartered in Malaysia. Due to
financial difficulties that ICT is experiencing, it is reasonably possible
that this $3,900,000 amount is at risk for collection. Although the Company
is currently being advised that this amount will be paid, there can be no
assurance that it will be paid. If it is paid, the Company's financial
position, results of operations and cash flows would be adversely affected.
SPECIAL CHARGES
For the first nine months of 1996, the Company incurred special charges of
$3,540,000 relating primarily to payroll costs associated with a reduction in
force and to inventory and demonstration equipment write-downs.
7
GENUS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1996.
The information in this discussion 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, as amended, and is subject to the Safe
Harbor provisions created by that statute. Such statements are subject to
certain risks and uncertainties, including those discussed below, that could
cause actual results to differ materially from historical results or those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which only speak as of the date thereof.
RESULTS OF OPERATIONS
Net sales for the three and nine months ended September 30, 1997 were $24.4
million and $63.4 million, respectively, compared to net sales of $13.9
million and $65.3 million, respectively, for the corresponding periods in
1996. During the second half of 1996, the semiconductor manufacturing
equipment industry experienced a significant slowdown in sales as a result of
excess capacity within the semiconductor industry. Accordingly, the
Company's sales of $13.9 million in the third quarter of 1996 declined from
the previous quarter sales of $25.1 million, and increased slightly to $17.2
million during the fourth quarter of 1996. Third quarter sales for 1997, an
increase of 76% compared to third quarter sales for 1996, reflect higher unit
sales and increased service revenues. Nonetheless, while sales have grown on
a quarterly basis since third quarter of 1996, year-to-date sales still lag
behind year-to-date sales of $65.3 million for 1996 due to lower unit sales
of systems as well as lower revenue from spares and service. Net sales
include $2.5 million and $14.8 million related to ship-in-place transactions
for the three and nine month periods ended September 30, 1997, respectively,
as compared with $3.0 million for the three and nine month periods ended
September 30, 1996. The increase is primarily due to the Company's largest
customer placing significant ship-in place orders during the first six months
of 1997, pending completion of construction of its wafer fabrication facility
which was completed in July, 1997. When customers request that the Company
manufacture and invoice systems on a ship-in place basis, revenue is
recognized for systems prior to shipment upon completion of customer source
inspection and factory acceptance of the system and where risk of loss and
title to the system has passed to the customer.
In response to the industry slowdown, during the last two quarters of 1996,
the Company incurred special charges of $5.9 million, relating to capacity
cost reductions including a reduction in force, increased inventory reserves
and the write-off of property and equipment. The reorganization has resulted
in lower spending in all expense categories as discussed below.
Gross margin for the quarter and nine months ended September 30, 1997 was 34%
and 37% compared to 25% and 34% for the same periods in 1996. The gross
margin for the third quarter of 1996 was negatively impacted by the depressed
level of sales resulting in less absorption of fixed manufacturing and
service costs. In addition to the higher sales level in the third quarter of
1997, the Company was able to improve its gross margin due to some operating
efficiencies compared to 1996 despite competitive pricing pressures. The
improvement in gross margin for the nine-month period is primarily due to
operating efficiencies as a result of the restructuring. The Company's gross
margins have historically been affected by variations in average selling
price (ASP), changes in the mix of product sales, unit shipment levels, the
level of foreign sales, and competitive pricing pressures.
8
For the third quarter of 1997, research and development (R&D) expenses were
$3.1 million or 13% sales compared to $3.8 million or 27% sales for the third
quarter of 1996. R& D expenditures for the first nine months of 1997 were
$9.3 million, compared to $11.4 million for the same period in 1996. For
both the quarter and the nine months, the decrease in absolute dollars from
1996 to 1997 is primarily attributable to the restructuring of the Company's
operations and two reductions in force that occurred during the second half
of 1996. The Company continually evaluates its R&D investment in view of
evolving competition and market conditions and expects that R&D spending may
increase during the last quarter of 1997.
Selling, general and administrative expenses (S, G&A) were $4.4 million for
the third quarter of 1997 or 18% of sales, down from the $4.9 million for the
third quarter of 1996. For the nine months ended September 30, 1997 and
1996, S,G&A was $12.4 million, and $14.0 million, respectively. Similar to
R&D, the decrease in absolute dollars is attributable to the reduction in
force. In addition, sales commissions were higher in 1996, commensurate with
the higher sales level.
During the third quarter of 1996 the Company recorded a special charge of
$3.5 million, relating to capacity cost reductions in association with the
Company's reduction in force, increased inventory reserves and the write-off
of property and equipment.
For the third quarter of 1997, other expense was $94,000 compared with other
expense of $25,000 for the third quarter of 1996. For the nine months ended
September 30, 1997, other expense was $191 thousand, compared to $38 thousand
of other income for the comparable period in 1996. The other expense is
comprised primarily of net interest expense associated with capital leases
and short term borrowings, with the increase from 1996 through 1997 for both
the three month and nine month periods ended September 30, 1997 due to a
higher average short term borrowings. The effective tax rate for the quarter
was 38.5%, compared to an effective tax rate of 7.0% for the same quarter a
year ago
Net income for the quarter and nine months ended September 30, 1997 was
$512,000 and $989,000, respectively, resulting in earnings per share of $0.03
and $0.06 for the corresponding periods. This compares with losses of $8.1
million and $6.9 million for the comparable periods in 1996 with losses per
share of $0.48 and $0.41.
The Company experienced losses during the third and fourth quarter of 1996 as
a result of an overall industry downturn. As a result of the restructuring
of operations and an increase in sales compared to the latter half of 1996,
the Company returned to profitability for the first quarter of 1997 and has
shown increased profitability in the two subsequent quarters. Nonetheless,
due to the Company's order rates in the last twelve months, the Company's
continued reliance on one customer for a significant portion of its orders,
the continued competitive market environment for the Company's products and
the historically cyclical nature of the semiconductor equipment market, the
Company remains cautious about the short-term prospects for its business.
The Company continues to make strategic investments in new product
development and manufacturing improvements with a view to improving future
performance by enhancing product offerings; however, such investment may
adversely affect short-term operating performance. The Company is also
continuing its efforts to implement productivity improvements for future
operating performance.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, the Company's cash and cash
equivalents increased slightly to $12.5 million from $11.8 million while
accounts receivable grew by $13.8 million to $29.4 million. While some of
the growth in accounts receivable is attributable to increased sales for the
three months ended September 30, 1997 compared to the last quarter of 1996,
some of the growth is due to extended payment terms granted to customers
earlier this year. In addition, it is reasonably possible that a $3.9
million receivable for a previously recorded sale to the California-based
manufacturing facility of
9
InterConnect Technology (ICT), headquartered in Malaysia, is at risk for
collection due to financial difficulties that ICT is experiencing. Although
the Company is currently being advised that this receivable will be paid,
there can be no assurance that it will be paid. If it is not paid, the
Company's financial position, and cash flow would be adversely affected.
The Company's primary source of funds at September 30, 1997 consisted of
$12.5 million in cash, of which $10.0 million was borrowed under the
Company's revolving line of credit. The line of credit is secured by
substantially all of the assets of the Company and expires in June 1998.
Capital expenditures and property and equipment acquisitions acquired under
capital lease obligations during the first nine months of 1997 were $1.3
million and were primarily leasehold improvements for the Ion Technology
Products group located in Newburyport, Massachusetts.
The Company believes that cash on hand and generated from operations, if any
will be sufficient to satisfy its cash needs for the foreseeable future.
There can be no assurance that any required additional funding, if needed,
will be available on terms attractive to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any additional equity financing may be dilutive to
shareholders, and debt financing, if available, may involve restrictive
covenants.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION PRESENTED IN THIS REPORT. THIS REPORT CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING RISK FACTORS.
HISTORICAL PERFORMANCE. Although the Company had net income of $19.3 million
and $4.2 million in the years ended December 31, 1995 and 1994, the Company
experienced losses of $9.2 million, $6.9 million and $17.1 million for the
years ended December 1996, 1993 and 1992, respectively. In addition,
although the Company has experienced improved sales and operating results in
recent quarters, there can be no assurance that the Company will be able to
sustain similar revenue growth on a quarterly or annual basis, or that the
Company will be able to maintain profitability on a quarterly or annual basis.
COMPETITION. The semiconductor manufacturing capital equipment industry is
highly competitive. The Company faces substantial competition throughout the
world. The Company believes that to remain competitive, it will require
significant financial resources in order to offer a broader range of
products, to maintain customer service and support centers worldwide and to
invest in product and process research and development. Many of the
Company's existing and potential competitors have substantially greater
financial resources, more extensive engineering, manufacturing, marketing and
customer service and support capabilities, as well as greater name
recognition than the Company. The Company expects its competitors to
continue to improve the design and performance of their current products and
processes and to introduce new products and processes with improved price and
performance characteristics. If the Company's competitors enter into
strategic relationships with leading semiconductor manufacturers covering MeV
or CVD products similar to those sold by the Company, this could have a
material adverse effect on the Company's ability to sell its products to
these manufacturers. No assurance can be given that the Company will
continue to compete successfully in the United States or worldwide. The
Company faces direct competition in CVD tungsten silicide from Applied
Materials, Inc. and Tokyo Electron, Ltd. In the MeV marketplace, the
Company's MeV ion implantation systems compete with MeV systems marketed by
Eaton Corporation. There can be no assurance that competitors will not
succeed in developing new technologies, in offering products that are offered
at lower prices than those of the Company or in obtaining market acceptance
for products more rapidly than the Company.
10
DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The Company believes that its
future performance will depend in part upon its ability to continue to
enhance its existing products and their process capabilities and to develop
and manufacture new products with improved process capabilities. As a
result, the Company expects to continue to invest in research and
development. The Company also must manage product transitions successfully,
as introductions of new products could adversely affect sales of existing
products. There can be no assurance that the market will accept the
Company's new products or that the Company will be able to develop and
introduce new products or enhancements to its existing products and processes
in a timely manner which satisfy customer needs or achieve market acceptance.
The failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, if the
Company is not successful in the development of advanced processes or
equipment for manufacturers with whom it has formed strategic alliances, its
ability to sell its products to those manufacturers would be adversely
affected.
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The Company's business
depends upon the capital expenditures of semiconductor manufacturers, which
in turn depend on the current and anticipated market demand for integrated
circuits and products utilizing integrated circuits. The semiconductor
industry is cyclical and has historically experienced periodic downturns,
which often have had an adverse effect on the semiconductor industry's demand
for semiconductor manufacturing capital equipment. Prior semiconductor
industry downturns have adversely affected the Company's revenue, operating
margins and results of operations. No assurance can be given that the
Company's revenue and operating results will not be materially and adversely
affected if a downturn in the semiconductor industry occurs in the future.
In addition, the need for continued investment in research and development,
substantial capital equipment requirements and extensive ongoing worldwide
customer service and support capability may limit the Company's ability to
reduce expenses or to maintain them at current levels. Accordingly, there is
no assurance that the Company will be able to remain profitable in the future.
RELIANCE ON INTERNATIONAL SALES. International sales accounted for
approximately 86%, 88% and 89% respectively, of total net sales in fiscal
1996, 1995 and 1994 and were 83% for the first nine months of 1997. In
addition, net sales to Korean customers accounted for approximately 59%, 63%,
60% and 62% respectively, of total net sales during the same periods. The
Company anticipates that international sales, including sales to Korea, will
continue to account for a significant portion of net sales. As a result, a
significant portion of the Company's sales will be subject to certain risks,
including unexpected changes in regulatory requirements, tariffs and other
barriers, political and economic instability, difficulties in accounts
receivable collection, difficulties in managing distributors or
representatives, difficulties in staffing and managing foreign subsidiary
operations and potentially adverse tax consequences. Although the Company's
foreign sales are denominated in U.S. dollars and the Company does not engage
in hedging transactions, the Company's foreign sales are subject to the risks
associated with unexpected changes in exchange rates, which could have the
effect of making the Company's products more or less expensive. There can be
no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of
operations.
RELIANCE ON A SMALL NUMBER OF CUSTOMERS. Historically, the Company has
relied on a limited number of customers for a substantial portion of its net
sales. For the first nine months of 1997, one customer accounted for 52% of
its net sales. In 1996, two customers accounted for 53% and 18%,
respectively, of the Company's net sales. Net sales to one customer
accounted for 63% of the total net sales in 1995. Because the semiconductor
manufacturing industry is concentrated in a limited number of generally
larger companies, the Company expects that a significant portion of its
future product sales will be concentrated within a limited number of
customers. None of these customers has entered into a long-term agreement
requiring it to purchase the Company's products. Furthermore, sales to
certain of these customers may decrease in the future when those customers
complete their current semiconductor equipment purchasing requirements for
new or expanded fabrication facilities. Although the composition of the
Company's largest customer varies from year to year, the loss of a
significant customer or any reductions in orders from a significant customer,
including reductions due to customer departures from recent buying patterns,
market, economic or competitive conditions in the semiconductor industry or
in the industries that manufacture products utilizing
11
integrated circuits, would have a material adverse effect on the Company's
business, financial condition and results of operations.
PRODUCT CONCENTRATION; RAPID TECHNOLOGICAL CHANGE. Semiconductor
manufacturing equipment and processes are subject to rapid technological
change. The Company derives its revenue primarily from the sale of its MeV
ion implantation and tungsten silicide CVD systems. The Company estimates
that the life cycle for these systems is generally from three to five years.
The Company believes that its future prospects will depend in part upon its
ability to continue to enhance its existing products and their process
capabilities and to develop and manufacture new products with improved
process capabilities. As a result, the Company expects to continue to make
significant investments in research and development. The Company also must
manage product transitions successfully, as introductions of new products
could adversely affect sales of existing products. There can be no assurance
that future technologies, processes or product developments will not render
the Company's product offerings obsolete or that the Company will be able to
develop and introduce new products or enhancements to its existing and future
processes in a timely manner which satisfies customer needs or achieves
market acceptance. The failure to do so could adversely affect the Company's
business, financial condition and results of operations. Furthermore, if the
Company is not successful in the development of advanced processes or
equipment for manufacturers with whom it currently does business, its ability
to sell its products to those manufacturers would be adversely affected.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's revenue and
operating results may fluctuate significantly from quarter to quarter. The
Company derives its revenue primarily from the sale of a relatively small
number of high-priced systems, many of which may be ordered and shipped
during the same quarter. The Company's results of operations for a
particular quarter could be adversely affected if anticipated orders for even
a small number of systems were not received in time to enable shipment during
the quarter, if anticipated shipments were delayed or canceled by one or more
customers or if shipments were delayed due to manufacturing difficulties.
The Company's revenue and operating results may also fluctuate due to the mix
of products sold and the channel of distribution.
DEPENDENCE ON KEY SUPPLIERS. Certain of the components and sub-assemblies
included in the Company's products are obtained from a single supplier or a
limited group of suppliers. Disruption or termination of these sources could
have a temporary adverse effect on the Company's operations. The Company
believes that alternative sources could be obtained and qualified to supply
these products, if necessary. Nevertheless, a prolonged inability to obtain
certain components could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS. The Company currently sells and
supports its MeV ion implantation and CVD products through direct sales and
customer support organizations in the U.S., Western Europe and Korea and
through five exclusive sales representatives and distributors in the U.S.,
Japan, Korea, Taiwan and Hong Kong. Although the Company believes that
alternative sources of distribution are available, the disruption or
termination of its existing distributor relationships could have a temporary
adverse effect on the Company's business, financial condition and results of
operations.
VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced
substantial price volatility, particularly as a result of quarter-to-quarter
variations in the actual or anticipated financial results of, or
announcements by, the Company, its competitors or its customers. Also, the
stock market has experienced extreme price and volume fluctuations which have
affected the market price of many technology companies, in particular, and
which have often been unrelated to the operating performance of these
companies. These broad market fluctuations, as well as general economic and
political conditions in the United States and the countries in which the
Company does business, may adversely affect the market price of the Company's
Common Stock. In addition, the occurrence of any of the events described in
these "Risk Factors" could have a material adverse effect on such market
price. See "Price Range of Common Stock" in the Company's 1996 Form 10-K.
12
GENUS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying "Index to Exhibits" are filed
as part hereof, or incorporated by reference into, the report.
(b) Report on Form 8-K
No report on Form 8-K was filed during the period July 1, 1997 to
September 30, 1997.
13
GENUS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1997 GENUS, INC.
/s/ James T. Healy
----------------------------------------
James T. Healy, President
and Chief Executive Officer
/s/ Mary F. Bobel
----------------------------------------
Mary F. Bobel
Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
14
GENUS, INC.
Index to Exhibits
Exhibit Description
3.1 Amended and Restated Articles of Incorporation of Registrant as
filed June 6, 1997. (14)
3.2 By-Laws of Registrant, as amended (3)
4.1 Common Shares Rights Agreement, dated as of April 27, 1990,
between Registrant and Bank of America, N.T. and S.A., as Rights
Agent (5)
10.1 Lease dated December 6, 1985, for Registrant's facilities at 4
Mulliken Way, Newburyport, Massachusetts, and amendment and
extension of lease dated March 17, 1987 (1)
10.2 Lease dated June 15, 1988, for Registrant's facilities at 100
Merrick Road, West Building, Rockville Center, New York (1)
10.3 Assignment of Lease dated April 1986 for Registrant's facilities
at Unit 11A, Melbourn Science Park, Melbourn, Hertz, England (1)
10.4 Registrant's 1981 Incentive Stock Option Plan, as amended (2)
10.5 Registrant's 1989 Employee Stock Purchase Plan, as amended (6)
10.6 Registrant's 1991 Incentive Stock Option Plan, as amended (13)
10.7 International Distributor Agreement dated November 23, 1987,
between General Ionex Corporation and Innotech Corporation (1)
10.8 Distributor/Representative Agreement dated August 1, 1984,
between Registrant and Aju Exim (formerly Spirox Holding Co./You
One Co. Ltd.) (1)
10.9 Exclusive Sales and Service Representative Agreement dated
October 1, 1989, between Registrant and AVBA Engineering Ltd. (4)
10.10 Exclusive Sales and Service Representative Agreement dated
April 1, 1990, between Registrant and Indosale PVT Ltd. (4)
10.11 License Agreement dated November 23, 1987, between Registrant and
Eaton Corporation (1)
10.12 Exclusive Sales and Service Representative Agreement dated May 1,
1989, between Registrant and Spirox Taiwan, Ltd. (3)
10.13 Lease dated April 7, 1992, between Registrant and The John A. and
Susan R. Sobrato 1979 Revocable Trust for property at 1139
Karlstad Drive, Sunnyvale, California (7)
10.14 Term Loan Agreement dated April 17, 1992, between the Registrant
and Silicon Valley Bank (7)
10.15 Asset Purchase Agreement dated May 28, 1992, between Registrant
and Advantage Production Technology, Inc. (8)
10.16 License and Distribution Agreement dated September 8, 1992,
between Registrant and Sumitomo Mutual Industries, Ltd. (9)
10.17 Mortgage dated February 1, 1993, with Bay Bank Middlesex for
Registrant's facilities at One Merrimack Landing, Unit 26,
Newburyport, Massachusetts (10)
10.18 Revolving Loan Agreement dated May 15, 1994, between Registrant
and Silicon Valley Bank (11)
10.19 Lease Agreement dated October 1995 for Registrant's facilities at
Lot 62, Four Stanley Tucker Drive, Newburyport, Massachusetts
(12)
10.20 Credit Agreement dated August 18, 1997 between Registrant and
Sumitomo Bank of California.
10.21 International Distributor Agreement dated between Registrant and
Macrotron Systems GmbH
11.1 Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
15
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-23861) filed August 18, 1988,
and amended on September 21, 1988, October 5, 1988, November 3, 1988,
November 10, 1988, and December 15, 1988, which Registration Statement
became effective November 10, 1988.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-8 filed January 17, 1991.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-28755) filed on May 17, 1989,
and amended May 24, 1989, which Registration Statement became effective
May 24, 1989.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.
(7) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(8) Incorporated by reference to the exhibit filed with the Registrant's
Report on Form 8-K dated June 12, 1992.
(9) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
(10) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.
(11) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(12) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(13) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(14) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
16