-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BbIFQUuA2gFE3JE6pQf7od85KojAKn4tBoTUXmuJqwItra6UsN6kLwoFe8OgOeMa RdBkMXX4P+xKp+e6FNiW8Q== 0001047469-98-020223.txt : 19980515 0001047469-98-020223.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENUS INC CENTRAL INDEX KEY: 0000837913 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942790804 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17139 FILM NUMBER: 98620888 BUSINESS ADDRESS: STREET 1: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 BUSINESS PHONE: 4087477120 MAIL ADDRESS: STREET 2: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 10-Q 1 10-Q 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 MARCH 31, 1998 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 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1139 KARLSTAD DRIVE, SUNNYVALE, CALIFORNIA 94089 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) (408) 747-7120 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) NOT APPLICABLE - ------------------------------------------------------------------------------ (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 May 8, 1998: 17,129,260 GENUS, INC. INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997 3 CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 4 CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-18 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURES 20 INDEX TO EXHIBITS 21
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 Net sales $ 7,238 $19,681 Costs and expenses: Cost of goods sold 6,941 12,313 Research and development 3,332 3,191 Selling, general and administrative 4,223 3,867 ------- ------- Income (loss) from operations (7,258) 310 Other, net (156) (15) ------- ------- Income (loss) before income taxes (7,414) 295 Provision for income taxes -- 114 ------- ------- Net income (loss) (7,414) 181 Deemed dividends on preferred stock (1,829) -- ------- ------- Net income (loss) available to common shareholders $(9,243) $ 181 ------- ------- ------- ------- Net income (loss) available to common shareholders per common share and per common share assuming dilution (0.54) 0.01 ------- ------- ------- ------- Comprehensive income (loss) $(7,225) $ 69 ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 GENUS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED AUDITED MARCH 31, DECEMBER 31, 1998 1997 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 3,683 $ 8,700 Accounts receivable (net of allowance for doubtful accounts of $1,103 in 1998 and $1,097 in 1997) 11,858 19,469 Inventories 9,709 28,986 Net assets held for sale 30,500 -- Other current assets 1,001 1,029 -------- -------- Total current assets 56,751 58,184 Property and equipment, net 6,406 15,276 Other assets, net 2,025 3,278 -------- -------- Total assets $ 65,182 $ 76,738 -------- -------- -------- -------- LIABILITIES Current liabilities: Short term bank borrowings $ 2,800 $ 7,200 Accounts payable 9,602 8,723 Accrued expenses 6,613 10,613 Current portion of long-term debt 58 874 -------- -------- Total current liabilities 19,073 27,410 Long-term debt, less current portion 74 971 -------- -------- Total liabilities $ 19,147 $ 28,381 -------- -------- SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized, 2,000,000 shares; Issued and outstanding 100,000 shares at March 31, 1998 and none at December 31, 1997 6,222 -- Common stock, no par value: Authorized 50,000,000 shares; Issued and outstanding 17,129,260 shares at March 31, 1998 and 17,120,628 shares at December 31, 1997 99,550 99,149 Accumulated deficit (58,069) (48,863) Cumulative translation adjustment (1,668) (1,929) -------- -------- Total shareholders' equity 46,035 48,357 -------- -------- Total liabilities and shareholders' equity $ 65,182 $ 76,738 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 ------- ------ Cash flows from operating activities: Net income (loss) $(7,414) $ 181 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 1,261 1,264 Provision for doubtful accounts 6 -- Changes in assets and liabilities: Accounts receivable 7,663 (6,046) Inventories (5,340) 1,118 Accounts payable 879 330 Accrued expenses (1,540) (567) Other, net (237) (412) ------- ------- Net cash used in operating activities (4,722) (4,132) ------- ------- Cash flows from investing activities: Acquisition of property and equipment (373) (68) ------- ------- Net cash used in investing activities (373) (68) ------- ------- Cash flows from financing activities: Proceeds from issuance of common stock 16 48 Proceeds from issuance of preferred stock and warrants, net 4,815 -- Proceeds from short-term bank borrowings -- 3,000 Payments of short-term bank borrowings (4,400) (2,500) Payments of long-term debt (413) (497) ------- ------- Net cash provided by financing activities 18 51 ------- ------- Effect of exchange rate changes on cash 60 (34) Net decrease in cash and cash equivalents (5,017) (4,183) Cash and cash equivalents, beginning of period 8,700 11,827 ------- ------- Cash and cash equivalents, end of period $ 3,683 $ 7,644 ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) 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 1997 Annual Report on Form 10-K/A. 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 interim periods presented are not necessarily indicative of results to be expected for the full year. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing income (loss) available to common shareholders, adjusted for convertible preferred dividends and after-tax interest expense on convertible debt, if any, by the sum of the weighted average number of common shares outstanding and potential common shares (when dilutive). A reconciliation of the numerator and denominator of basic and diluted net income (loss) per share is as follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 -------- -------- Numerator-basic: Net income (loss) $(7,414) $ 181 Deemed dividends on preferred stock (1,829) -- -------- -------- Net income (loss) available to common shareholders $(9,243) $ 181 -------- -------- -------- -------- Denominator-basic: Weighted average common shares outstanding 17,125 16,738 -------- -------- -------- -------- Basic net income (loss) per share $ (0.54) $ 0.01 -------- -------- -------- -------- Numerator-diluted: Net income (loss) $(7,414) $ 181 Deemed dividends on preferred stock (1,829) -- -------- -------- Net income (loss) available to common shareholders $(9,243) $ 181 -------- -------- -------- -------- Denominator-diluted: Weighted average common shares outstanding 17,125 16,738 Effect of dilutive securities: stock options -- 118 ------- ------- 17,125 16,856 ------- ------- ------- ------- Diluted net income (loss) per share $ (0.54) $ 0.01 ------- ------- ------- -------
6 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) Stock options to purchase approximately 2,244,000 weighted average shares of common stock were outstanding during the three months ended March 31, 1998 but were not included in the computation of diluted loss per share because the Company has a net loss for the three months ended March 31, 1998. Stock options to purchase approximately 1,502,000 weighted average shares of common stock were outstanding during the three months ended March 31, 1997 but were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the common shares. COMPREHENSIVE INCOME (LOSS) In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). Effective January 1, 1998, the Company adopted SFAS 130, which establishes standards for reporting comprehensive income and its components. Comparative financial statements for earlier periods have been reclassified to reflect the adoption of SFAS 130. The Company's other comprehensive income consists of foreign currency translation adjustments. STATEMENT OF CASH FLOW INFORMATION
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 ---- ---- Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 82 $ 47 Income taxes 1 2 Non-cash investing activities: Purchase of property and equipment under long-term debt obligations $ -- $753 Non-cash financing activities: Deemed dividends on preferred stock related to beneficial conversion feature $ 1,792 $ -- Net assets held for sale 30,500 --
LINE OF CREDIT The Company has a revolving line of credit agreement with a bank that provides for maximum borrowings of $10 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 March 31, 1998, the Company had $2.8 million in borrowings outstanding under the line of credit. 7 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) INVENTORIES INVENTORIES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ Raw materials and parts $6,627 $15,210 Work in progress 2,244 6,879 Finished goods 838 6,897 ------ ------- $9,709 $28,986 ------ ------- ------ -------
ACCRUED EXPENSES ACCRUED EXPENSES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ System installation and warranty $ 867 $ 3,741 Accrued commissions and incentives 432 2,062 Accrued payroll and related items 593 1,264 Other 4,721 3,546 ------ ------- $6,613 $10,613 ------ ------- ------ -------
CONTINGENCY Included in accounts receivable at March 31, 1998 is a $3 million amount for a previously recorded sale to Innotech Corporation which is headquartered in Tokyo, Japan. This amount is past due, and it is reasonably possible that this amount is at risk for collection. Upon completion of the Asset Sale, as defined below, this distributor agreement will be terminated. While the Company is vigorously pursuing payment of this account, there can be no assurance that it will be paid. If it is not paid, the Company's financial position, results of operations and cash flows would be adversely affected. ISSUANCE OF PREFERRED STOCK AND WARRANTS On February 2, 1998, the Company entered into a Stock Purchase Agreement (the "Agreement") with certain investors (the "Investors"), pursuant to which the Company issued, on February 12, 1998, to the Investors an aggregate of 100,000 shares of its 6% Series A Convertible Preferred Stock (the "Series A Stock") and warrants to purchase an aggregate of up to 300,000 shares of its Common Stock at an exercise price of $3.67 per share (collectively, the "Warrants"), all for an aggregate purchase price of $5 million in cash. The deemed dividends on preferred stock of $1.8 million reflect the beneficial conversion feature, which is the difference between the proceeds allocated to the preferred stock and the fair value of the preferred stock (assuming immediate conversion) upon issuance, and the accrual of the 6% dividends thereon. CONVERSION RIGHTS. Each share of the Series A Stock was sold at a purchase price of $50 and a stated value of $50 (the "Stated Value"). Each holder of shares of Series A Stock has the right at any time, and from time to time, to convert some or all such shares into fully paid and nonassessable shares of Common Stock. 8 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) Any conversion shall occur according to the following conversion formula: The number of shares of Common Stock issuable upon conversion of each share of Series A Stock will equal (i) the sum of (A) the Stated Value per share and (B) accrued and unpaid dividends on such share, divided by (ii) the Conversion Price. The Conversion Price shall be equal to the lesser of: (a) 110% of the Closing Bid Price for the trading day immediately preceding the original issue date of the Series A Stock, provided that such price shall not be less than $3.47; or (b) 82% of the average of 15 Closing Bid Prices during the 45 trading days prior to the date of the conversion notice, which 15 closing bid prices shall be chosen by the holder converting such shares of Series A Stock. The Closing Bid Price shall mean the closing bid price of the Common Stock as reported on the NASDAQ National Market or other market or exchange on which the Common Stock is then listed or traded. On or after the second anniversary of the original issue date of the Series A Stock, the Company may require the conversion of all of the then outstanding and unconverted shares of Series A Stock, provided that certain conditions have been satisfied, including that the Closing Bid Price of the Common Stock for at least 20 of the 30 trading days preceding the date of such Company Conversion Date shall have been at least $3.48 and such conversion shall be effectuated at the Conversion Price then in effect. On and after such conversion, all dividends on the Series A Stock shall cease to accrue and the shares represented thereby shall no longer be deemed outstanding and all rights of the holders thereof as shareholders of the Company shall cease and terminate, except the right to receive the shares of Common Stock upon conversion. PREFERENTIAL CUMULATIVE DIVIDENDS. The holders of Series A Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, and the Company shall pay, cumulative dividends at the rate per share equal to 6% per annum of the Stated Value per share (6% of $50 = $3 per share) payable in cash or shares of Common Stock at the option of the Company, before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Common Stock or other class of stock junior to the Series A Stock (the Common Stock and such junior stock being hereafter collectively the "Junior Stock"). The dividends on the Series A Stock shall be due and payable on each yearly anniversary of the original issue date ("Dividend Payment Date"), and any dividends not paid on any Dividend Payment Date shall accrue and shall be due and payable upon conversion of the Series A Stock. No dividends shall be due and payable for any partial year period for which the Dividend Payment Date has not yet occurred. A party that holds shares of Series A Stock on a Dividend Payment Date will be entitled to receive such dividend payment and any other accrued and unpaid dividends which accrued prior to such Dividend Payment Date, without regard to any sale or disposition of such Series A Stock subsequent to the applicable record date. If dividends are paid in shares of Common Stock, the number of shares of Common Stock payable as such dividend to each holder shall be equal to the cash amount of such dividend payable to such holder on such Dividend Payment Date divided by the Closing Bid Price of the Common Stock on the trading day prior to such Dividend Payment Date ("Dividend Conversion Price"), provided that the Dividend Conversion Price shall not be less than $3.47. LIQUIDATION RIGHTS. In the event of the dissolution, liquidation or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A Stock will be entitled to receive before any payment or distribution will be made on the Junior Stock, out of the assets of the Company available for distribution to shareholders, the Stated Value per share of Series A Stock and all accrued and unpaid dividends to and including the date of payment thereof. Upon the payment in full of all amounts due to holders of the Series A Stock, then the holders of the Junior Stock of the Company will receive, ratably, all remaining assets of the Company legally available for distribution. If the assets of the Company available for distribution to the holders of the Series A Stock are insufficient to permit payment in full of 9 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) the amounts payable as aforesaid to the holders of Series A Stock upon such liquidation, dissolution or winding-up, whether voluntary or involuntary, then all such assets of the Company will be distributed to the exclusion of the holders of shares of Junior Stock ratably among the holders of Series A Stock. A sale, conveyance or disposition of all or substantially all of the assets of the Company or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or a consolidation or merger of the Company with or into any other company or companies shall not be deemed to be a liquidation, dissolution or winding-up of the Company for the purposes of the liquidation rights that would be available to the holders of Series A Stock. REDEMPTION PROVISIONS. On or after the fifth anniversary of the original issue date of the Series A Stock, the Company may elect to redeem all or part of the Stated Value of the Series A Stock upon payment of an amount of dollars equal to the number of shares of Common Stock that could be obtained by converting into the Company's Common Stock that amount of Stated Value plus accrued but unpaid dividends and any other sums payable in respect to that Stated Value at the conversion price in effect on the fifth anniversary of the original issue date of the Series A Stock (the "Redemption Date") multiplied by the average of the Closing Bid Price of the Common Stock for the five trading days immediately preceding (a) such Redemption Date or (b) the date of payment in full by the Company of the redemption price, whichever is greater. The Company may not redeem any amount that a holder of Series A Stock has elected to convert, including a notice of conversion given after the Redemption Date but prior to receipt by the holder of Series A Stock of the payment under the redemption provisions. In addition, upon the occurrence of certain triggering events, the holders of Series A Stock shall have the right, at each such holder's option, to require the Company to redeem all or a portion of the Stated Value of such holder's Series A Stock upon payment of an amount of dollars equal to the number of shares of Common Stock that could be obtained by converting into the Company's Common Stock that amount of Stated Value of such holder's Series A Stock plus accrued but unpaid dividends and any other sums payable in respect to that Stated Value at the conversion price in effect on the date of the triggering event multiplied by the average of the Closing Bid Prices of the Common Stock for the five trading days immediately preceding (a) the date of such triggering event or (b) the date of payment in full by the Company of such redemption price, whichever is greater. A "Triggering Event" shall be deemed to have occurred at such time as any of the following events: (i) the failure of the Registration Statement to be declared effective by the Commission on or prior to the date that is 180 days after the original issue date; (ii) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the holder of the Series A Stock for sale of the Registrable Securities (as defined in the Registration Rights Agreement) other than in accordance with the terms of the Registration Rights Agreement, provided that the cause of such lapse or unavailability is not due to factors solely within the control of such holder seeking to be redeemed; (iii) the failure of the Common Stock to be listed on the NASDAQ Stock Market, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of seven consecutive days; or (iv) the Company's notice to any holder of Series A Stock, including by way of public announcement, at any time, of its intention not to comply with proper requests for conversion of any Series A Stock into shares of Common Stock. VOTING RIGHTS. The shares of Common Stock into which the Series A Stock is converted will have full voting rights. Except as otherwise required by law, the Series A Stock has no voting rights. 10 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) SUBSEQUENT EVENTS In April 1998, the Company entered into an agreement with Varian Associates, Inc. to sell selected assets and transfer selected liabilities related to the MeV ion implantation equipment product line for approximately $25 million plus additional payments if certain revenue targets are achieved ("Asset Sale"). The completion of the Asset Sale is subject to standard government reviews as well as approval by the Company's shareholders. While the March 31, 1998 balance sheet indicates $30.5 million in net assets held for sale, the Company expects that, after planned sales of inventory and scheduled repayments of capital lease obligations, the net assets at the time of closing will approximate $25 million, resulting in no material gain or loss on the Asset Sale. In connection with the Asset Sale and the refocusing of the Company's business on thin film products, the Company anticipates that it will significantly reduce the workforce at several of its locations during the second quarter, at which time the related charge will be recorded. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENTS IN THIS REPORT WHICH EXPRESS "BELIEF", ANTICIPATION" OR "EXPECTATION" AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT ARE 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. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS REPORT. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS REPORT. RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 1998 were $7.2 million, a 63% decrease compared to net sales of $19.7 million for the corresponding period in 1997. After modest sales growth for the first nine months of 1997 compared to 1996, during the fourth quarter of 1997, the Company's sales fell from the immediate-prior quarter as the financial crisis in Asia resulted in customers pushing out their required delivery dates. During the first quarter of 1998, weakness among the Company's Asian customers continued, and the Company's sales continued to decline from the 1997 fourth quarter levels as deliveries continued to be rescheduled or cancelled. Gross margin for the quarter ended March 31, 1998 was 4% compared to 37% for the same period in 1997. The gross margin for the first quarter of 1998 was negatively impacted by the depressed level of sales resulting in underabsorption of fixed manufacturing and service costs. Even at relatively constant higher levels of sales, the Company's gross margins have historically been affected by variations in average selling prices, changes in the mix of product sales, unit shipment levels, the level of foreign sales, and competitive pricing pressures. For the first quarter of 1998, research and development expenses ("R&D") were $3.3 million, or 46% of sales, compared to $3.2 million, or 16% of sales, for the first quarter of 1997. Despite the general industry slowdown and the near term outlook for sales, the Company continued to invest in R&D to position itself for the latter half of 1998 and beyond. The increased spending was primarily due to the addition of personnel and engineering supplies. Selling, General and Administrative expenses ("SG&A") were $4.2 million for the first quarter of 1998, or 58% of sales, an increase from the $3.9 million of SG&A for the first quarter of 1997. The increase reflects the addition of headcount throughout 1997 as well as increased expenses for marketing and sales programs as the Company continued its efforts to broaden its customer base. For the first quarter of 1998, other expense was $156,000 compared with other expense of $15,000 for the first quarter of 1997. For both years, other expense includes net interest expense associated with capital leases and short term borrowings. In addition, in the first quarter of 1998, the Company incurred foreign exchange losses of approximately $72,000. The net loss for the quarter ended March 31, 1998 was $7.4 million. This compares with net income of $181,000 for the first quarter of 1997. In February 1998, the Company issued $5 million of convertible preferred stock in a private placement. Warrants were also issued as part of the transaction. The deemed dividends on preferred stock of $1.8 million reflect the difference between the proceeds allocated to the preferred stock and the fair value of the preferred stock (assuming immediate conversion) upon issuance. This charge resulted in a net loss of $9.2 million available to common shareholders, or $0.54 per share for the first quarter of 1998. 12 LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 1998, the Company's cash and cash equivalents decreased to $3.7 million at March 31, 1998 from $8.7 million at year-end. Accounts receivable declined from $19.5 million at year-end to $11.7 million at March 31, 1998. The decline in accounts receivable is due to the lower sales level as well as collections during the quarter. Included in accounts receivable at March 31, 1998 is a $3.0 million amount for a previously recorded sale to Innotech Corporation which is headquartered in Tokyo, Japan. This amount is past due, and it is reasonably possible that this amount is at risk for collection. Upon completion of the Asset Sale, as defined below, this distributor agreement will be terminated. While the Company is vigorously pursuing payment of this account, there can be no assurance that it will be paid. If it is not paid, the Company's financial position, results of operations and cash flows would be adversely affected. The Company's primary source of funds at March 31, 1998 consisted of $3.7 million in cash and funds available under a $10.0 million revolving line of credit. The line of credit is secured by substantially all of the assets of the Company and expires in June 1998. At March 31, 1998, the Company had $2.8 million of borrowings outstanding under the line of credit. Availability of borrowings is based on eligible accounts receivable and inventory. A monthly borrowing base certificate is required by the bank. In February 1998, the Company issued equity securities through a private placement of Series A Convertible Preferred Stock ("Series A Stock") for gross proceeds of $5 million. Upon fulfillment of certain conditions, the same investors in the Company's Series A Stock (the "Preferred Investors") have committed to provide an additional $5 million in equity financing through the private placement of Series B Convertible Preferred Stock (the "Series B Stock"). Among the conditions that must be satisfied before the Company may require the purchase of the Series B Stock are the following: (a) the closing bid price per share of the Common Stock of the Company shall be no less than $4.00 for the 30 trading days prior to the Company's notice to the Preferred Investors of its intention to require their purchase of the Series B Stock; (b) such notice by the Company may not be given sooner than 90 days after the effective date of the Registration Statement on Form S-3 for the Series A Stock (the "Series A Registration") and no suspension or stop order may have been entered against such Series A Registration; (c) the closing bid price for the Common Stock of the Company shall not, in the 30 trading days prior to the completion of the sale of the Series B Stock, have decreased by greater than 35% from the highest closing bid price during such period, (d) the maintenance of a waiver in connection with existing bank line of credit and (e) no change of control of the Company shall have occurred. "Change of control" is defined as, (i) the acquisition of more than 50% of the voting securities of the Company, (ii) the replacement of more than one-half the members of the Board of Directors, (iii) the merger of the Company with or into another entity, (iv) the sale of all or substantially all of the assets of the Company, or (v) the execution of any agreement providing for any of (i), (ii), (iii), or (iv) above. Accordingly, if the Asset Sale, as defined below, is deemed to be a sale of substantially all of the assets of the Company, the Company cannot require the Preferred Investors to purchase the Series B Stock nor can the Preferred Investors require the Company to sell the Series B Stock. In April 1998, the Company entered into an agreement with Varian Associates, Inc. to sell selected assets and transfer selected liabilities related to the millions of electron volts ("MeV") ion implantation equipment product line for approximately $25 million plus additional payments if certain revenue targets are achieved ("Asset Sale"). The completion of the Asset Sale is subject to approval by the Company's shareholders as well as to expiration of the applicable waiting periods under federal Hart-Scott-Rodino premerger notification requirements. As a result of the Asset Sale, the Company will no longer engage in the ion implant business and will refocus its efforts on thin film deposition. The Company will use the net proceeds of the Asset Sale for repayment of certain outstanding indebtedness as well as for working capital and general corporate purposes, including investment in R&D of thin film products. In connection with the Asset Sale and the refocusing of the Company's business on thin film products, the Company anticipates that it will significantly reduce the workforce at several of its locations during the second quarter, at which time the related charge will be recorded. The Company incurred operating losses during each of the two years in the period ended December 31, 1997 and incurred an additional operating loss in the first quarter of 1998. Additionally, the Company's bank line of credit is scheduled to expire in June 1998. The accompanying consolidated financial statements have 13 been prepared assuming the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result from the outcome of this uncertainty. Assuming either (i) the Company fulfills the conditions and receives the proceeds from the Series B Stock financing and is able to secure borrowings upon renewal of its existing bank line of credit or under a new line of credit or (ii) the Asset Sale is completed, the Company believes that its existing cash resources together with funds from the Series B Stock financing and line of credit or the Asset Sale will be sufficient to fund the Company's expected working capital requirements for at least the next 12 months. However, the exact amount and timing of these working capital requirements and the Company's ability to continue as a going concern will be determined by numerous factors, including the level of and gross margin on future sales, the payment terms extended to and by the Company and the timing of capital expenditures. Furthermore, there can be no assurance that funds will be received or become available from the Series B Stock financing, line of credit or the Asset Sale, or that these funds, together with the Company's existing cash resources, will be sufficient to implement the Company's operating strategy or meet the Company's other working capital requirements. Accordingly, the Company may be required to seek additional equity or debt financing. There can be no assurance that the Company would be able to obtain additional debt or equity financing, if and when needed, on terms that the Company finds acceptable. Any additional equity or debt financing may involve substantial dilution to the Company's shareholders, restrictive covenants or high interest costs. If the Company is unable to obtain sufficient funds to satisfy its cash requirements, it will be forced to curtail operations, dispose of assets or seek extended payment terms from its vendors. There can be no assurance that the Company would be able to reduce expenses or successfully complete other steps necessary to continue as a going concern. Such events would materially and adversely affect the value of the Company's equity securities. RISK FACTORS CERTAIN SECTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH ABOVE IN MANAGEMENT'S DISCUSSION AND ANALYSIS AND THIS RISK FACTORS SECTION. THE DISCUSSION OF THESE FACTORS IS INCORPORATED BY THIS REFERENCE AS IF SAID DISCUSSION WAS FULLY SET FORTH IN MANAGEMENT'S DISCUSSION AND ANALYSIS. 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 $19.3 million, $9.2 million, and $6.9 million for the years ended December 31, 1997, 1996 and 1993, respectively. In addition, the Company experienced an operating loss of $7.4 million in the first quarter of 1998. As a result of the Company's inconsistent sales and operating results in recent years, there can be no assurance that the Company will be able to attain or sustain consistent future revenue growth on a quarterly or annual basis, or that the Company will be able to attain or maintain consistent profitability on a quarterly or annual basis. RELIANCE ON INTERNATIONAL SALES. Export sales accounted for approximately 74%, 84% and 88% of total net sales in the years ended 1997, 1996 and 1995, respectively. In addition, net sales to South Korean customers accounted for approximately 50%, 59% and 63%, respectively, of total net sales during the same periods. During the first quarter of 1998, the Company's only system sale was to a domestic customer, thereby decreasing export sales to 35% of total net sales. Nonetheless, the Company anticipates that international sales, including sales to South 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 system sales are primarily 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 14 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. Further, the Company has a wholly owned South Korean subsidiary providing service and support to the installed base of customers and whose functional currency is the won. As a result of the devaluation of the won in the fourth quarter of 1997, the Company incurred a foreign exchange loss of $1.1 million. There can be no assurance that the Company will not incur currency losses or gains in future quarters as the currency fluctuates. A substantial portion of the Company's sales are in Asia. Recent turmoil in the Asian financial markets has resulted in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness. In addition, Dynamic Random Access Memory ("DRAM") prices have fallen dramatically and may continue to do so as some Asian integrated circuit ("IC") manufacturers may be selling DRAMs at less than cost in order to raise cash. These developments may affect the Company in several ways. Currency devaluation may make dollar-denominated goods, such as the Company's, more expensive for Asian clients. Asian manufacturers may limit capital spending. Furthermore, the uncertainty of the DRAM market may cause manufacturers everywhere to delay capital spending plans. These circumstances may also affect the ability of Company customers to meet their payment obligations, resulting in the cancellations or deferrals of existing orders and the limitation of additional orders. Some of the Company's South Korean customers have rescheduled their required delivery dates for orders previously placed and have announced delays in the facilitization of their new manufacturing areas. In addition, some portion of IC fabrication plant construction has been subsidized by Asian governments. Financial turmoil may weaken these governments' willingness to continue such subsidies. Such developments could have a material adverse effect on the Company's business, financial condition and results of operations. RELIANCE ON A SMALL NUMBER OF CUSTOMERS AND CONCENTRATION OF CREDIT RISK. The Company continued its efforts to expand its customer base in 1997 and was successful, with new customers in Taiwan and North America. Historically, the Company has relied on a limited number of customers for a substantial portion of its net sales. In 1997, two customers, Samsung Electronics Company, Ltd. and Innotech Corporation accounted for 47% and 17%, respectively, of the Company's net sales. In 1996, these same two customers accounted for 53% and 18%, respectively, of the Company's net sales. During the first quarter of 1998, one customer accounted for 54% of the Company's net sales. Additionally, three customers, Samsung Electronics Company, Ltd., Micron Technology, Inc. and Innotech Corporation, accounted for an aggregate of 75% of accounts receivable at December 31, 1997; and three customers, Samsung Electronics Company, Ltd., Innotech Corporation and Newport Wafer-Fab Ltd., accounted for an aggregate of 71% of accounts receivable at December 31, 1996. 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. The loss of a significant customer or any reduction 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 ICs, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is dependent on a small number of customers. Accordingly, the Company is subject to concentration of credit risk. With the exception of the write-off of one account in the fourth quarter of 1997, the Company has not experienced material bad debt expense over the last four years. However, if a major customer were to encounter financial difficulties and become unable to meet its obligations, the Company would be adversely impacted. 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 ICs and products utilizing ICs. The semiconductor industry is cyclical and experiences periodic downturns, which have an adverse effect on the semiconductor industry's demand for semiconductor 15 manufacturing capital equipment. Semiconductor industry downturns have adversely affected the Company's revenues, operating margins and results of operations. There can be no assurance that the Company's revenues and operating results will not continue to be materially and adversely affected by future downturns in the semiconductor industry. In addition, the need for continued investment in R&D, substantial capital equipment requirements and extensive ongoing worldwide customer service and support capability limits the Company's ability to reduce expenses. Accordingly, there is no assurance that the Company will be able to attain profitability in the future. 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, anticipated shipments were delayed or canceled by one or more customers or 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. COMPETITION. The semiconductor manufacturing capital equipment industry is highly competitive. Genus 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 invest in product and process R&D. 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 chemical vapor deposition ("CVD") products similar to those sold by the Company, it would materially adversely affect the Company's ability to sell its products to these manufacturers. There can be no assurance that the Company will continue to compete successfully in the United States or worldwide. The Company faces direct competition in CVD tungsten silicide ("WSiX") 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 these or other competitors will not succeed in developing new technologies, offering products at lower prices than those of the Company or obtaining market acceptance for products more rapidly than the Company. 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 R&D. 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 to 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. 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 WSiX CVD systems. The Company estimates that the life cycle for these systems is generally 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 R&D. 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 16 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 to satisfy customer needs or achieve 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. DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success depends in part on its proprietary technology. While the Company attempts to protect its proprietary technology through patents, copyrights and trade secret protection, it believes that the success of the Company will depend on more technological expertise, continuing the development of new systems, market penetration and growth of its installed base and the ability to provide comprehensive support and service to customers. There can be no assurance that the Company will be able to protect its technology or that competitors will not be able to develop similar technology independently. The Company currently has a number of United States and foreign patents and patent applications. There can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. From time to time, the Company has received notices from third parties alleging infringement of such parties' patent rights by the Company's products. In such cases, it is the policy of the Company to defend against the claims or negotiate licenses on commercially reasonable terms where considered appropriate. However, no assurance can be given that the Company will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on the Company's business and financial results. 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 South Korea and through eight exclusive, independent sales representatives and distributors in the U.S., Europe, Japan, South Korea, Taiwan, Hong Kong and Singapore. The Company does not have any long-term contracts with its sales representatives and distributors. 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; EFFECT OF CONVERSION OF SERIES A STOCK ON THE 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, announcements of technological innovations or new products by the Company or its competitors, changes in earnings estimates by securities analysts and other events or factors. 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. Furthermore, trading in the stock is thin and because the Series A Stock is convertible at a discount to the market price, the holders of Series A Stock can convert the Series A Stock into Common Stock and sell such Common Stock at a profit at any time, which may have a depressive effect on the stock price. In addition, the occurrence of any of the events described in these "Risk Factors" could have a material adverse effect on such market price. 17 READINESS FOR YEAR 2000. Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. These computer systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer service, infrastructure, embedded computer chips, networks and telecommunications equipment and end products. The Company also relies on external systems of business enterprises such as customers, suppliers, creditors, financial organizations, and of governments both domestically and globally, directly for accurate exchange of data and indirectly. During 1997, the Company started the implementation of a new business system. One criteria for the selection of the enterprise software was compliance with Year 2000 issues. Accordingly, the Company's current estimate is that the costs associated with the Year 2000 issue, and the consequences of incomplete or untimely resolution of the Year 2000 issue, will not have a material adverse effect on the result of operations or financial position of the Company in any given year. However, despite the Company's efforts to address the Year 2000 impact on its internal systems, there can be no assurance that the Company has fully identified such impact or that it can resolve it without disruption of its business and without incurring significant expense. In addition, even if the internal systems of the Company are not materially affected by the Year 2000 issue, the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. The Company has not contacted the entities with which it interacts to determine whether such entities are addressing the Year 2000 issue. 18 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 The Company filed a Current Report on Form 8-K dated February 12, 1998 to describe the private placement of convertible preferred stock. 19 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: May 14, 1998 GENUS, INC. /s/ William W.R. Elder --------------------------------- William W.R. Elder, President, Chief Executive Officer and Chairman /s/ Mary F. Bobel --------------------------------- Mary F. Bobel Chief Financial Officer (Principal Financial and Principal Accounting Officer) 20 GENUS, INC. INDEX TO EXHIBITS
EXHIBIT DESCRIPTION - ------- ------------------------------------------------------------------- 2.1 Asset Purchase Agreement, dated April 15, 1998, by and between Varian Associates, Inc. and Registrant and exhibits thereto (15) 3.1 Amended and Restated Articles of Incorporation of Registrant as filed June 6, 1997 (11) 3.2 By-laws of Registrant, as amended (2) 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 (4) 4.2 Convertible Preferred Stock Purchase Agreement, dated February 2, 1998, among the Registrant and the Investors (14) 4.3 Registration Rights Agreement, dated February 2, 1998, among the Registrant and the Investors (14) 4.4 Certificate of Determination (14) 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 Assignment of Lease, dated April 1986, for Registrant's facilities at Unit 11A, Melbourn Science Park, Melbourn, Hertz, England (1) 10.3 Registrant's 1989 Employee Stock Purchase Plan, as amended (5) 10.4 Registrant's 1991 Incentive Stock Option Plan, as amended (10) 10.5 International Distributor Agreement, dated November 23, 1987, between General Ionex Corporation and Innotech Corporation (1) 10.6 Distributor/Representative Agreement, dated August 1, 1984, between Registrant and Aju Exim (formerly Spirox Holding Co./You One Co. Ltd.) (1) 10.7 Exclusive Sales and Service Representative Agreement, dated October 1, 1989, between Registrant and AVBA Engineering Ltd. (3) 10.8 Exclusive Sales and Service Representative Agreement, dated as of April 1, 1990, between Registrant and Indosale PVT Ltd. (3) 10.9 License Agreement, dated November 23, 1987, between Registrant and Eaton Corporation (1) 10.10 Exclusive Sales and Service Representative Agreement, dated May 1, 1989, between Registrant and Spirox Taiwan, Ltd. (2) 10.11 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 (6) 10.12 Asset Purchase Agreement, dated May 28, 1992, by and between the Registrant and Advantage Production Technology, Inc. (7) 10.13 License and Distribution Agreement, dated September 8, 1992, between the Registrant and Sumitomo Mutual Industries, Ltd. (8) 10.14 Lease Agreement, dated October 1995, for Registrant's facilities at Lot 62, Four Stanley Tucker Drive, Newburyport, Massachusetts (9) 10.15 International Distributor Agreement, dated July 18, 1997, between Registrant and Macrotron Systems GmbH (12) 10.16 Credit Agreement, dated August 18, 1997, between Registrant and Sumitomo Bank of California (12) 10.17 Settlement Agreement and Mutual Release, dated April 20, 1998, between Registrant and James T. Healy (16) 10.18 Form of Change of Control Severance Agreement (16) 27.1 Financial Data Schedule
21 (1) Incorporated by reference to the exhibit filed with 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-1 (No. 33-28755) filed on May 17, 1989, and amended May 24, 1989, which Registration Statement became effective May 24, 1989. (3) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (4) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. (5) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (6) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. (7) Incorporated by reference to the exhibit filed with the Registrant's Report on Form 8-K dated June 12, 1992. (8) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 21, 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, 1995. (10) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (11) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (12) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (13) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. (14) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated February 12, 1998. (15) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated April 15, 1998. (16) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1997. 22 EX-27.1 2 EX-27.1
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 3,683 0 12,961 (1,103) 9,709 56,751 29,253 (22,847) 65,182 19,073 0 0 6,222 99,550 (59,737) 65,182 7,238 7,238 6,941 14,496 (72) 0 (84) (7,414) 0 (7,414) 0 0 0 (9,243) (0.54) (0.54) Deemed dividends on preferred stock = (1,829)
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