-----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, KvWJgvX5xUmc63Jc8287bAYQB7cNx9eLs7Es3ekkpA+gdVDlBGfgiqz34dsphNId 1MI7Y9mYIsdC6R6zUWZN3g== 0000912057-97-026495.txt : 19970811 0000912057-97-026495.hdr.sgml : 19970811 ACCESSION NUMBER: 0000912057-97-026495 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GASONICS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000918647 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942159729 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23372 FILM NUMBER: 97653538 BUSINESS ADDRESS: STREET 1: 2540 JUNCTION AVENUE CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4083251200 MAIL ADDRESS: STREET 1: 2730 JUNCTION AVE CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 FORM 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 JUNE 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: 0-23372 GASONICS INTERNATIONAL CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 94-2159729 - ---------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2540 JUNCTION AVENUE, SAN JOSE, CALIFORNIA 95134 - -------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 570-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- At August 5,1997, there were 13,787,268 shares of the Registrant's Common Stock, $0.001 par value per share, outstanding. GASONICS INTERNATIONAL CORPORATION FORM 10-Q INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1997 and September 30, 1996 3 Condensed Consolidated Statements of Operations for the three and nine month periods ended June 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended June 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 2. Changes in Securities 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Securityholders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 Exhibit Index 24 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) JUNE 30, Sept. 30, ASSETS 1997 1996 ----------- --------- (UNAUDITED) Current assets: Cash and cash equivalents $ 11,099 $ 11,774 Marketable securities 7,233 14,135 Trade accounts receivable, net 31,965 23,032 Inventories 27,938 26,817 Prepaid and deferred income taxes 3,451 3,451 Prepaid expenses & other current assets 2,005 3,204 ---------- --------- Total current assets 83,691 82,413 Property & equipment, net 14,819 11,575 Deposits and other assets 1,795 2,442 ---------- --------- Total assets $ 100,305 $ 96,430 ---------- --------- ---------- --------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Note payable $ 2,609 $ 2,455 Accounts payable 8,520 7,318 Income taxes payable 1,033 1,100 Accrued expenses 12,245 12,316 ---------- --------- Total current liabilities 24,407 23,189 ---------- --------- Long-term liabilities 445 552 ---------- --------- Stockholders' equity: Common stock & additional paid-in capital 33,568 31,413 Unrealized gain on investment - 902 Note receivable from stockholder - (65) Retained earnings 41,885 40,439 ---------- --------- Total stockholders' equity 75,453 72,689 ---------- --------- Total liabilities & stockholders' equity $ 100,305 $ 96,430 ---------- --------- ---------- --------- See accompanying notes. 3 GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------------- --------------------------- 1997 (1) 1996 1997 (1) 1996 ----------- ---------- ----------- ---------- Net sales $ 30,126 $ 29,058 $ 89,404 $ 99,837 Cost of sales 16,552 15,876 49,981 48,177 ----------- ---------- ----------- ---------- Gross margin 13,574 13,182 39,423 51,660 ----------- ---------- ----------- ---------- Operating expenses: Write-off of accounts receivable (see Note 6) 4,517 - 4,517 - Research & development 4,425 4,669 12,842 13,456 Selling, general & administrative 7,206 7,654 21,529 24,713 ----------- ---------- ----------- ---------- Total operating expenses 16,148 12,323 38,888 38,169 ----------- ---------- ----------- ---------- Operating income (loss) (2,574) 859 535 13,491 Other income Interest and other income, net 183 188 474 824 Gain on sale of stock 1,215 143 1,215 143 ----------- ---------- ----------- ---------- Income (loss) before provision for income taxes (1,176) 1,190 2,224 14,458 Provision (credit) for income taxes (412) 416 778 5,060 ----------- ---------- ----------- ---------- Net income (loss) $ (764) $ 774 $ 1,446 $ 9,398 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- Net income (loss) per share $ (0.06) $ 0.06 $ 0.10 $ 0.69 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- Weighted average common & common equivalent shares 13,600 13,603 14,073 13,625 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
See accompanying notes. 4 GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, ------------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net cash used for operating activities $ (3,992) $ (9,126) --------- --------- Cash flows from investing activities: Purchases of property & equipment (4,992) (5,147) Decrease in marketable securities 6,000 12,692 --------- --------- Net cash provided by investing activities 1,008 7,545 --------- --------- Cash flows from financing activities: Proceeds from Note payable 2,609 - Increase in Note payable (2,455) - Proceeds from issuance of common stock 2,155 2,073 --------- --------- Net cash provided by financing activities 2,309 2,073 --------- --------- Net increase (decrease) in cash and cash equivalents (675) 492 Cash & cash equivalents at beginning of period 11,774 7,595 --------- --------- Cash & cash equivalents at end of period $ 11,099 $ 8,087 --------- --------- --------- ---------
See accompanying notes. 5 GASONICS INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements have been prepared by the Company without audit and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations of the Company for the interim periods. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles. The results of operations for the nine months ended June 30, 1997 are not necessarily indicative of the operating results to be expected for the full fiscal year. Such financial statements should be read in conjunction with the information contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1996. Certain reclassifications have been made to prior year amounts to conform to current year presentation. 2. INVENTORIES Inventories consist of the following (in thousands): June 30, September 30, 1997 1996 ----------- ------------- (unaudited) Raw Materials $ 8,818 $ 12,985 Work in Process 6,839 7,648 Finished Goods 12,281 6,184 --------- ----------- $ 27,938 $ 26,817 --------- ----------- --------- ----------- 3. NET INCOME PER SHARE Net income per share data has been computed using the weighted average number of shares of common stock and dilutive common equivalent shares from stock options (using the treasury stock method). In February, 1997, the FASB issued SFAS No. 128, Earnings Per Share, which simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion ("APBO") No. 15. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, which excludes dilution. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial statements issued for periods ending after December 15, 1997, including interim periods: earlier application is not permitted. SFAS No. 6 128 requires restatement of all prior-period earnings per share data presented. Under SFAS 128 for the three months ended, June 30, 1977, basic earnings per share and diluted earnings per share would be substantially the same as the reported primary earnings per share. For the nine months ended, June 30, 1997, basic earnings per share would be $0.11 and diluted earnings per share would be substantially the same as the reported primary per share. The Company plans to adopt SFAS No. 128 during the first quarter of fiscal 1998. 4. BANK BORROWINGS On March 4, 1997 the Company entered into a new loan agreement with Union Bank that increased the unsecured line of credit from $15 million to $20 million. The new loan agreement expires on February 27, 1998. As of June 30, 1997 there were no borrowings outstanding under this loan agreement. At the option of the Company, borrowings bear interest at the lower of 1.5% above the bank's adjusted Libor-rate or at the bank's reference rate (8.5% at June 30, 1997). In April, 1997, the Company repaid a loan of approximately $2.5 million to the Bank of Tokyo-Mitsubishi and entered into a new loan agreement with the same bank providing for borrowings up to a maximum of 300 million yen (equivalent to approximately $2.6 million). The loan is secured by a letter of guarantee issued by the Company, bears interest at 1.625% and is due and payable on February 28, 1998. At June 30, 1997, borrowings under this loan agreement were $2.6 million. 5. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about Capital Structures", which will be adopted by the Company in the first quarter of fiscal 1998. SFAS No. 129 requires companies to disclose certain information about their capital structure. The Company does not anticipate that SFAS No. 129 will have a material impact on its financial statement disclosures. 6. WRITE-OFF OF ACCOUNTS RECEIVABLE The three and nine month periods ended June 30, 1997 include a $4.5 million write-off of an uncollectible accounts receivable due from a customer in Thailand. The write-off covers the unpaid balance in accounts receivable, less the value of the recovered equipment, which the Company anticipates reselling in the future. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS With the exception of historical facts, the statements contained in this discussion may include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, future sales, gross margins, the anticipated increase in inventories and operating expenses and the sufficiency of financial resources to support operations, and are subject to the Safe Harbor provisions created by that statute. Such statements are based on current expectations that involve risks and uncertainties, including those discussed below and under the heading "Additional Risk Factors", that could cause actual results to differ materially from those expressed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to any forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes to the Condensed Financial Statements presented on pages six and seven of the Quarterly Report and the Company's 1996 Annual report on Form 10-K, available upon request, for a complete understanding of the company's financial position and results of operations. RESULTS OF OPERATIONS NET SALES for the third quarter and nine month period ended June 30, 1997 increased 3.7% to $30.1 million and decreased 10.4% to $89.4 million, respectively, compared to net sales of $29.1 million and $99.8 million for the comparable periods in fiscal 1996. The increase in sales for the three month period ending June 30, 1997 as compared to the prior year period was essentially due to sales of the Company's new Performance Enhancement Platform (PEP) systems partially offset by a reduction in sales of single chamber systems. The decrease in net sales for the nine month period compared to the same period last fiscal year was principally due to the effect of the slowdown in the semiconductor industry which began to impact the Company's sales in the third quarter of fiscal 1996. Order and shipment levels for the industry had been strong through March 1996, and the Company shipped record numbers of single chamber systems in the first six months of the last fiscal year. For the three months ended June 30, 1997 and the nine months ended June 30, 1997, however, revenues, particularly from the sales of single chamber photoresist removal products, spare parts and service, were materially adversely impacted by the semiconductor slowdown. The decrease in the sale of single chamber systems and in spare parts and service revenues was partially offset by revenues from shipments of the Company's dual chamber PEP systems. Dual chamber systems have accounted for approximately 46% of the Company's plasma system sales year to date in fiscal 1997 compared to less than 2% in the prior year period. Also offsetting, in part, the decrease in revenue from single chamber systems compared to the last year, was an increase in revenue from the sale of flat panel display equipment from the Company's liquid crystal display (LCD) division in Japan and sales of Vertical High Pressure (VHP) furnace equipment. 8 Sales to customers in the Pacific Rim, North America and Europe accounted for approximately 37%, 47% and 16% of net sales, respectively, for the nine month period ended June 30, 1997 compared to approximately 31%, 49% and 20%, respectively, for the nine month period ended June 30, 1996. The Company's bookings of new orders for the quarter ended June 30, 1997 exceeded the previous quarter bookings and current quarter net sales. As expected, bookings for the quarter were particularly strong in North America, European bookings were consistent with the previous quarter, and bookings slowed somewhat in the Pacific Rim and Japan. The Company expects that its future bookings and sales will continue to be materially adversely impacted by the current business climate and other factors as discussed herein. GROSS MARGIN as a percentage of net sales for the third quarter and nine month period of fiscal 1997 was 45% and 44%, respectively, compared to 45% and 52% for the same quarter and nine month period of fiscal 1996. The significant decrease in gross margin percentage for the three and nine month periods ended June 30, 1997 as compared to the three and nine month period ended June 30, 1996 was due to several factors, including significantly lower sales volume of the more mature, higher margin single chamber systems, underutilization of the manufacturing and field service and support operations and increased revenues of lower margin new products including the PEP and flat panel display equipment. The Company's gross margin as a percentage of net sales is affected by a variety of other factors, including the mix and average selling prices of products sold and the costs to manufacture, service and support new product introductions and enhancements. The Company expects that its gross margin will continue to be materially adversely impacted by inefficiencies associated with new product introductions, sales of lower margin PEP systems and flat panel display equipment products, competitive pricing pressures, changes in product mix and other factors including those referred to above. The Company, however, will continue to focus on its gross margin improvement programs, including the introduction of new value-added applications, features and options on the PEP systems, targeted cost reduction programs and controlled spending. A WRITE-OFF OF ACCOUNTS RECEIVABLE was recorded in the third quarter of fiscal 1997 for the uncollectible accounts receivable due from SubMicron Technologies PLC in Thailand. The Company recorded a $4.5 million pre-tax charge to cover the unpaid balance on accounts receivable, less the value of the recovered equipment, which the Company anticipates reselling in the future. RESEARCH AND DEVELOPMENT EXPENDITURES for the third quarter of fiscal 1997 were $4.4 million or 14.7% of net sales compared to $4.7 million or 16.1% of net sales for the third quarter of fiscal 1996. For the nine month periods of fiscal 1997 and fiscal 1996, research and development expenses were $12.8 million or 14.4% of net sales and $13.5 million or 13.5% of net sales, respectively. Research and development expenses consist primarily of salaries, project materials, consultant fees and other costs associated with the Company's research and development efforts. Increased spending for next generation programs including new products to accommodate 300MM wafers, customization of current products and VHP was offset by reduced spending in other areas of engineering including sustaining, product design and LCD product engineering. The Company anticipates that research and development spending in absolute dollars may 9 increase in subsequent quarters due to the emphasis placed by the Company on new product development, particularly on 300MM and new applications including post etch residue removal. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the third quarter of fiscal 1997 were $7.2 million or 23.9% of net sales compared to $7.7 million or 26.3% of net sales for the third quarter of fiscal 1996. For the nine month periods of fiscal 1997 and fiscal 1996, selling, general and administrative expenses were $21.5 million or 24.1% and $24.7 million or 24.7% of net sales, respectively. The decrease in absolute dollars from the corresponding period last year is primarily due to lower third party commissions which are payable on a significant portion of the international sales and, to a lesser extent, to the reduction in headcount that occurred in late fiscal 1996. Third party commissions can fluctuate significantly in any period depending on the mix of domestic versus foreign sales that are subject to third party commissions. International sales accounted for approximately 29% of the net sales for the third quarter of fiscal 1997 and 53% for the nine month period ended June 30, 1997 compared to 51% and 50% for the third quarter and nine month period last fiscal year. The Company has and is continuing to build a worldwide direct sales and support organization which is lessening the Company's dependence on third party representatives for these services. Consequently, third party commissions in some regions have been eliminated or reduced. Although the Company has taken steps to manage its spending, due to the uncertainties of the current business climate, it anticipates that selling, general and administrative spending may increase in absolute dollars in subsequent quarters. OTHER INCOME AND EXPENSES primarily consists of interest expense and interest income. Interest expense of approximately $10,000 for the quarter and $38,000 for the nine month period of fiscal 1997 compared to $12,000 for the quarter and $37,000 for the nine month period of fiscal 1996 is for a short-term loan from the Bank of Tokyo-Mitsubishi made to the Company's wholly owned subsidiary in Japan, GaSonics International Japan K.K.. As of June 30, 1997, borrowings under this loan agreement were 300 million yen which is equivalent to approximately $2.6 million. Interest income from the Company's short-term investments was approximately $140,000 for the third quarter and $542,000 for the nine month period of fiscal 1997 compared to $172,000 and $659,000 for third quarter and nine month period of fiscal 1996, respectively. This decrease is essentially due to a decline in the Company's investments in marketable securities, cash and cash equivalents that were used to fund operating activities. The gain on sale of stock for the three and nine month periods ended June 30, 1997 of $1.2 million and $143,000 for the same periods ended June 30, 1996 was realized from the sale of 54,673 shares and 5,000 shares, respectively, of Integrated Process Equipment Corporation (IPEC) common stock. The Company received a total of 294,600 shares of IPEC Class A common stock during fiscal 1990 in exchange for services provided by the Company. During the third quarter ended June 30, 1997, the Company sold all its 54,673 shares of the IPEC common stock. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of fiscal 1997, cash, cash equivalents and marketable securities decreased by $7.6 million to $18.3 million at June 30, 1997 from $25.9 million at September 30, 1996. Operating activities used $4.0 million of cash for the nine month period ended June 30, 1997 compared to the use of $9.1 million for the same period of fiscal 1996. 10 Investing activities for the first nine months of fiscal 1997 provided cash of approximately $1.0 million. Capital spending of $5.0 million was partially offset by proceeds from the sale of marketable securities totaling $6.0 million. Capital spending included purchases of equipment and the installation of a new computer system. For the same nine month period last year, the Company received proceeds from the sale of $12.7 million in marketable securities and used $5.1 million to purchase equipment and leasehold improvements. Financing activities provided $2.2 million and $2.1 million for the nine month periods ended June 30, 1997 and 1996, respectively, primarily from the issuance of stock in connection with the Company's employee stock purchase and stock option plans. At June 30, 1997, the Company had working capital of $59.3 million compared to $59.2 million at September 30, 1996. Accounts receivable at June 30, 1997 increased $8.9 million from September 30, 1996 due primarily to delayed final acceptance for one customer, extended payment terms and an increase in current quarter revenue over the quarter ending September 30, 1996. If any customer is unable to pay for the Company's equipment, the Company's financial condition and results of operations could be materially adversely affected. Inventory increased $1.1 million from September 30, 1996 to June 30, 1997 primarily due to the recovery of equipment from SubMicron Technologies, which was partially offset by efforts focused on cycle time reduction. The Company expects future inventory levels to fluctuate from period to period, and believes that because of the relatively long manufacturing cycle of its products, its investment in inventories will continue to represent a significant portion of working capital. As a result of such investment in inventories, the Company may be subject to an increasing risk of inventory obsolescence, which could materially adversely affect the Company's operating results. The Company's principal sources of liquidity at June 30, 1997 consisted of approximately $11.1 million in cash and cash equivalents, $7.2 million in marketable securities and a $20.0 million unsecured line of credit with Union Bank which was entered into on March 4, 1997. A commercial letter of credit provision of $500,000 and a foreign exchange contract provision of $1.0 million is also provided under the credit line. Available borrowing under the credit line is reduced by the amount of outstanding letters of credit. The line of credit contains certain covenants, including covenants relating to financial ratios and tangible net worth which must be maintained by the Company. As of June 30, 1997, except for $69,193 outstanding under the letter of credit provision, there were no borrowings outstanding under this line, and the Company was in compliance with its bank covenants. The line of credit agreement expires February 28, 1998. On May 1, 1997 GaSonics International Japan KK entered into a 300 million yen overdraft facility with the Bank of Tokyo Mitsubishi against a promissory note which is secured by a Letter of Guarantee issued by the Company. The overdraft facility expires on February 28, 1998. As of June 30, 1997, GaSonics International Japan KK had borrowed the total 300 million yen available under this loan agreement which is equivalent to approximately $2.6 million as of that date. The Company believes anticipated cash flows from operations, funds available under its existing revolving line of credit facility and existing cash, cash equivalents and marketable securities will be sufficient to meet the Company's cash requirements during the next twelve months. Beyond 11 the next twelve months, the Company may require additional equity or debt financing to achieve its working capital or capital equipment needs. 12 ADDITIONAL RISK FACTORS SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS The Company's operating results have fluctuated significantly in the past and will continue to fluctuate significantly in the future. The Company anticipates that factors continuing to affect its future operating results will include the cyclicality of the semiconductor industry and the markets served by the Company's customers, the timing of significant orders, patterns of capital spending by customers, the proportion of direct sales and sales through distributors, the proportion of international sales to net sales, changes in pricing by the Company, its competitors, customers or suppliers, market acceptance of new and enhanced versions of the Company's products, the mix of products sold, the establishment, expense and improvement of financial systems, procedures and controls, discounts, the timing of new product announcements and releases by the Company or its competitors, delays, cancellations or rescheduling of orders due to customer financial difficulties or otherwise, the Company's ability to produce systems in volume and meet customer requirements, the ability of any customer to finance its purchases of the Company's equipment, changes in overhead absorption levels due to changes in the number of systems manufactured, political and economic instability and lengthy sales cycles. Gross margins have varied and will continue to vary materially based on a variety of factors including the mix and average selling prices of systems sales, the mix of revenues, including service and support revenues, and the costs associated with new product introductions and enhancements and the customization of systems. Furthermore, announcements by the Company or its competitors of new products and technologies could cause customers to defer purchases of the Company's existing systems, which would also materially adversely affect the Company's business, financial condition and results of operations. The Company's gross margin and overall gross margin rate has sharply declined from the level attained less than a year ago due, in part, to start-up inefficiencies associated with new products, competitive pricing pressures, changes in product mix from fewer higher margin rate and mature single chamber products to lower margin rate dual chamber products, products sold by the Company's LCD division in Japan, and other factors. Additionally, sales and earnings for the last half of fiscal 1996 and the first three quarters of fiscal 1997 were materially adversely impacted by the current semiconductor business slowdown and, while the Company has and is continuing to attempt to manage its expenses to partially offset the loss of income from the decline in revenue, it is anticipated that this slowdown in the industry will continue for the next several quarters and will continue to have a material adverse effect on the Company's future revenues and operating results. LIMITED SYSTEM SALES; BACKLOG The Company derives a substantial portion of its sales from the sale of a relatively small number of systems which typically range in purchase price from approximately $150,000 to $700,000 for its photoresist removal systems and up to approximately $2.0 million or more for its other products. As a result, the timing of recognition of revenue for a single transaction could continue to have a material adverse effect on the Company's sales and operating results. The Company's backlog at the beginning of a quarter typically does not include all sales required to achieve the Company's sales objectives for that quarter. Moreover, all customer purchase orders are subject to cancellation or rescheduling by the customer with limited or no penalties and, therefore, backlog at any particular 13 date is not necessarily representative of actual sales for any succeeding period. The Company's net sales and operating results for a quarter may depend upon the Company obtaining orders for systems to be shipped in the same quarter that the order is received. The Company's business and financial results for a particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment during such period. Furthermore, most of the Company's quarterly net sales have recently been realized near the end of the quarter. A delay in a shipment near the end of a particular quarter, due, for example, to an unanticipated shipment rescheduling, to cancellations or deferrals by customers, to unexpected manufacturing difficulties experienced by the Company or to supply shortages, may cause net sales in a particular quarter to fall significantly below the Company's expectations and may materially adversely affect the Company's operating results for such quarter. In addition, significant investments in research and development, capital equipment and customer service and support capability worldwide have resulted in significant fixed costs which the Company will not be able to reduce rapidly if sales goals for a particular period are not met, which has recently been the case. Because the Company builds its systems according to forecast, a reduction in customer orders or backlog could present further difficulties regarding the Company's ability to plan production and inventory levels, which could adversely impact operating results. The impact of these and other factors on the Company's operating results in any future period cannot be forecasted accurately. CYCLICALITY OF SEMICONDUCTOR INDUSTRY The Company's business depends in significant part upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that are opening new or expanding existing fabrication facilities, which, in turn, depend upon the current and anticipated market demand for such devices and products utilizing such devices. The semiconductor industry is highly cyclical and historically has experienced periods of oversupply, resulting in significantly reduced demand for capital equipment, including systems manufactured and marketed by the Company. The semiconductor industry has experienced significant growth in recent years which has resulted in significant growth in the capital equipment industry. However, in the last year the semiconductor industry has experienced a cyclical downturn. The Company has experienced significant delays of new orders and rescheduling of existing orders that have materially adversely affected the Company's last two quarters of fiscal 1996 and the first three quarters of fiscal 1997 financial results and may materially adversely affect future financial results. Accordingly, the Company can give no assurance that it will be able to achieve or maintain its current level of sales. Additionally, the Company anticipates that a significant portion of new orders depend upon demand from integrated circuit (IC) manufacturers building or expanding large fabrication facilities, and there can be no assurance that such demand will exist. HIGHLY COMPETITIVE INDUSTRY The semiconductor capital equipment industry is intensely competitive. A substantial investment is required by customers to install and integrate capital equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer generally relies upon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, the Company expects to experience 14 difficulty in selling to a particular customer for a significant period of time if that customer selects a competitor's capital equipment. The Company currently has only one principal product line and experiences intense competition worldwide from a number of foreign and domestic manufacturers, including Alcantech, Applied Materials, Inc., Fusion Systems Corporation, Lam Research Corporation, Matrix Semiconductor Systems, Inc., Mattson Technology, Inc., Plasma Systems and Ramco, many of which have substantially greater installed bases and greater financial, marketing, technical and other resources than the Company. It was recently announced that one of the Company's competitors, Fusion, is being acquired by a much larger corporation and the Company believes this consolidation will cause the Company's competitors to continue to be larger with greater infrastructures and resources. Certain of the Company's competitors have announced the introduction of, or have introduced, competitive products that offer other technologies and improvements. Applied Materials and Lam Research have introduced and currently sell modules to their products which remove photoresist using dry chemical processing and, therefore, compete with the Company's products. The Company expects its competitors to continue to develop enhancements to and future generations of competitive products that may offer improved price or performance features. New product introductions and enhancements by the Company's competitors could cause a significant decline in sales or loss of market acceptance of the Company's systems in addition to intense price competition or otherwise make the Company's systems or technology obsolete or noncompetitive. In addition, by virtue of its reliance on sales of advanced dry chemistry processing equipment, the Company could be at a disadvantage compared to certain competitors that offer more diversified product lines. The Company believes that it will continue to face competition from current and new vendors employing other technologies, such as wet chemistry, traditional dry chemistry and other ashing techniques, as such competitors attempt to extend the capabilities of their existing products. Increased competitive pressure has led to reduced demand and lower prices for the Company's products, thereby materially adversely affecting the Company's operating results. There can be no assurance that the Company will be able to compete successfully in the future. Competitors of the Company's LCD division in Japan include Japan-based companies and Japan-based joint ventures such as Applied Komatsu and Koyo Lindbergh. These competitors manufacture alternative technology systems and they could, at any time, enter the Company's markets with improved technology or with systems that are directly competitive with those of the Company's LCD division. DEPENDENCE ON KEY CUSTOMERS Historically, the Company has sold a significant proportion of its systems in any particular period to a limited number of customers. Sales to the Company's ten largest customers in fiscal 1994, 1995 and 1996 and the first nine months of fiscal 1997 accounted for approximately 71%, 68%, 51% and 64% of net sales, respectively. The Company expects that sales of its products to relatively few customers will continue to account for a high percentage of net sales in the foreseeable future. None of the Company's customers has entered into a long-term agreement requiring it to purchase the Company's products. Moreover, sales to certain of its customers have decreased as those customers have completed or delayed purchasing requirements for new or expanded fabrication facilities. Although the composition of the group comprising the Company's largest customers has varied from year to year, the loss of a significant customer or any reduction in orders from any significant customer, including reductions from recent buying patterns, market, economic or competitive 15 conditions in the semiconductor industry or in the industries that manufacture products utilizing ICs, could materially adversely affect the Company's business, financial condition and results of operations. The Company's ability to increase or maintain current sales levels in the future will depend in part upon its ability to obtain orders from new customers as well as the financial condition and success of its customers and the general economy, of which there can be no assurance. EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH The Company has undergone a period of rapid growth. Since 1993, the Company has significantly increased the scale of its operations to support increased sales levels and has expanded its operations to address critical infrastructure requirements, including the hiring of additional personnel, commencement of independent operations in the United Kingdom, France, Italy, Korea, Japan, Singapore and Taiwan and significant investments in research and development to support product development. The Company's expansion has resulted in significantly higher operating expenses and due to the recent slowdown in new orders, it is anticipated that the Company's future operating results will continue to be materially adversely affected. The past growth in the Company's sales and expansion in the scope of its operations has placed a considerable strain on its management, financial and other resources and has required the Company to initiate an extensive reevaluation of its operating and financial systems, procedures and controls. The Company successfully implemented new management information, manufacturing and cost accounting systems during the second quarter of fiscal 1997 and will continue to improve these systems. There can be no assurance, however, that any existing or new systems, procedures or controls will be adequate to support the Company's operations or that its new systems will be implemented in a cost-effective and timely manner. RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION The semiconductor manufacturing industry is subject to rapid technological change and new product introductions and enhancements. The Company's ability to be competitive will depend in part upon its ability to develop new and enhanced systems and to introduce these systems at competitive prices and in a timely and cost effective manner to enable customers to integrate the systems into their operations either prior to or upon commencement of volume product manufacturing. In addition, new product introductions or enhancements by the Company's competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Increased competitive pressure has led to intensified price-based competition resulting in lower prices and margins, which has and could continue to materially adversely affect the Company's business, financial condition and results of operations. Any success of the Company in developing, introducing and selling new and enhanced systems depends upon a variety of factors including product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, effective sales and marketing and product performance in the field. In particular, the Company's future performance will depend in part upon the successful commercialization of the VHP and the PEP. There can be no assurance that any such product will achieve any significant revenues or contribute to any profitability of the Company. Because new product development commitments must be made well 16 in advance of sales, new product decisions must anticipate both the future demand for the type of ICs under development by leading IC manufacturers and the equipment required to produce such ICs. There can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products. Because of the large number of components in, and the complexity of, the Company's systems, significant delays can occur between a system's initial introduction and the commencement of volume production. As is typical in the semiconductor capital equipment market, the Company has been experiencing delays from time to time in the introduction of, and certain technical, quality and manufacturing difficulties with, certain of its systems and enhancements and may continue to experience delays and technical, quality and manufacturing difficulties in future introductions or volume production of new systems or enhancements. The Company's inability to complete the development or meet the technical specifications of any of its new systems or enhancements or to manufacture and ship these systems or enhancements in volume and in a timely manner would materially adversely affect the Company's business, financial condition and results of operations as well as its customer relationships. In addition, the Company may incur substantial unanticipated costs to ensure the functionality, quality and reliability of its future product introductions early in the product's life cycle. If new products have reliability or quality problems, reduced orders or higher manufacturing costs, delays in collecting accounts receivable and additional service and warranty expenses may result, which events could materially adversely affect the Company's business, financial condition and results of operations. LENGTHY SALES CYCLE Sales of the Company's systems depend, in significant part, upon the decision of a prospective customer to increase manufacturing capacity through the expansion of existing fabrication facilities or the opening of new facilities, which typically involves a significant capital commitment. The Company often experiences delays in finalizing system sales following initial system qualification while the customer evaluates and receives approvals for the purchase of the Company's systems and completes a new or expanded facility. Due to these and other factors, the Company's systems typically have a lengthy sales cycle during which the Company may expend substantial funds and management effort. The Company believes that the length of the sales cycle will continue to increase as certain of its customers centralize purchasing decisions into one decision making entity, which is expected to intensify the evaluation process and require additional sales and marketing expenditures by the Company. RISKS ASSOCIATED WITH THE JAPANESE MARKET The Company believes that increased penetration of the Asia Pacific market, particularly Japan, will be essential to its future financial performance. The Company has sold a relatively few number of systems to Japanese semiconductor manufacturers, although there was a significant increase in the Company's sales from Japan in fiscal 1996 compared to fiscal 1995 and for the first three quarters of fiscal 1997 compared to the same period of fiscal 1996. To date, for its photoresist business, the Company has not fully developed a customer service and support capability in Japan and remains at a disadvantage in selling, servicing and supporting such products in Japan. The Japanese semiconductor market (including fabrication plants operated outside of Japan by Japanese 17 semiconductor manufacturers) represents a substantial percentage of the worldwide semiconductor manufacturing capacity, and has been difficult for non-Japanese companies to penetrate. Furthermore, the licensing of products and process technologies by Japanese semiconductor manufacturers to non-Japanese semiconductor manufacturers could result in a recommendation to use certain semiconductor capital equipment manufactured by Japanese companies. Late in fiscal 1995, the Company acquired its LCD division in Japan, but there can be no assurance that this company will enable the Company to penetrate the photoresist removal market in Japan. In addressing this market, the Company is at a distinct competitive disadvantage compared to leading Japanese suppliers, many of which have long-standing collaborative relationships with Japanese semiconductor manufacturers. In addition, since 1992, Japanese semiconductor manufacturers have substantially reduced their levels of capital spending on new fabrication facilities and equipment, thereby increasing competitive pressures in the Japanese market. Although the Company is investing significant resources in Japan which has significantly increased operating expenses, there can be no assurance that the Company will be able to achieve significant sales to the Japanese semiconductor market. INTERNATIONAL SALES International sales accounted for 41%, 40%, 54% and 53% of net sales in fiscal years 1994, 1995, 1996 and the first three quarters of fiscal 1997, respectively. The Company has established independent operations in the United Kingdom, France, Italy, Korea, Japan, Singapore, Taiwan and during the third quarter of fiscal 1997, established subsidiaries in Israel and Ireland. The Company anticipates that international sales will continue to account for a significant portion of net sales. International sales are subject to certain risks, including unexpected changes in regulatory requirements, difficulty in satisfying existing regulatory requirements, exchange rates, foreign currency fluctuations, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, natural disasters, outbreaks of hostilities, difficulties in accounts receivable collection, extended payment terms, difficulties in managing distributors or representatives and difficulties in staffing and managing foreign subsidiary and branch operations. The Company is also subject to the risks associated with the imposition of legislation and import and export regulations. The Company cannot predict whether tariffs, quotas, duties, taxes or other charges or restrictions will be implemented by the United States, Japan or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. INTELLECTUAL PROPERTY RIGHTS Although the Company attempts to protect its intellectual property rights through patents, copyrights, trade secrets and other measures, it believes that its financial performance will depend more upon the innovation, technological expertise and marketing abilities of its employees than upon such protection. There can be no assurance that any of the Company's pending patent applications will be issued or that foreign intellectual property laws will protect the Company's intellectual property rights. There can be no assurance that any patent issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Furthermore, there can be no assurance that others will not 18 independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. As is typical in the semiconductor industry, the Company has received notices from time to time from third parties alleging infringement claims. Although there are currently no pending claims or lawsuits against the Company regarding any possible infringement claims, there can be no assurance that infringement claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future or that such assertions, if proven to have merit, will not materially adversely affect the Company's business, financial condition and results of operations. If any such claims are asserted against the Company, the Company may seek to obtain a license under the third party's intellectual property rights. There can be no assurance that a license will be available on reasonable terms or at all. The Company could decide, in the alternative, to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time consuming and could materially adversely affect the Company's business, financial condition and results of operations. SOLE OR LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS; COMPLEXITY IN MANUFACTURING PROCESS Certain components, subassemblies and services necessary for the manufacture of the Company's systems are obtained from a sole supplier or a limited group of suppliers. Specifically, the Company relies on three companies for supply of the robotics used in its products and two other companies for microwave power supplies used in all of its ashing systems. The Company does not maintain any long-term supply agreements with any of its suppliers. The Company is relying increasingly on outside vendors to manufacture certain components and subassemblies. The Company's reliance on sole or a limited group of suppliers and the Company's increasing reliance on subcontractors involve several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing and timely delivery of components and subassemblies. Because the manufacture of certain of these components and subassemblies is an extremely complex process and requires long lead times, there can be no assurance that delays or shortages caused by suppliers will not occur in the future. Certain of the Company's suppliers have relatively limited financial and other resources. Any inability to obtain adequate deliveries or any other circumstance that would require the Company to seek alternative sources of supply or to manufacture such components internally could delay the Company's ability to ship its products, which could damage relationships with current and prospective customers and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's LCD division in Japan is heavily dependent on one key supplier for quartz and is seeking alternative sources. FUTURE ACQUISITIONS In August 1995, the Company acquired its flat panel display equipment (LCD) division in Japan (formerly called Tekisco). In the future, the Company may pursue acquisitions of additional product lines, technologies or businesses. Future acquisitions by the Company may result in potentially dilutive issuances of equity securities, incurrence of debt and amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the 19 Company's financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no or limited direct prior experience, and the potential loss of key employees of the acquired company. From time to time, the Company has engaged in preliminary discussions with third parties concerning potential acquisitions of product lines, technologies and businesses; however, there are currently no agreements with respect to any acquisition. In the event that such an acquisition does occur, there can be no assurance as to the effect thereof on the Company's business, financial condition or operating results. DEPENDENCE ON KEY PERSONNEL The Company's financial performance will depend in significant part upon the continued contributions of its officers and key personnel, many of whom would be difficult to replace. No employee has an employment or noncompetition agreement with the Company. The Company is recruiting a Vice President of Sales and other employees for key positions. The loss of any key person could have a material adverse effect on the business, financial condition and results of operations of the Company. During the last twelve months, a number of senior management personnel have left the Company to pursue other opportunities. Although the Company has been replacing these senior management personnel, there can be no assurance that these individuals will successfully integrate into the Company's senior management team. In addition, the Company's future operating results depend in part upon its ability to attract and retain other qualified management, engineering, financial and accounting, technical, marketing and sales and support personnel for its operations. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The failure to attract or retain such persons could materially adversely affect the Company's business, financial condition and results of operations. ENVIRONMENTAL REGULATIONS The Company is subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, the failure to comply with current or future regulations could result in substantial fines being imposed on the Company, suspension of production, alteration of its manufacturing process or cessation of operations. Such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses to comply with environmental regulations. Any failure by the Company to control the use, disposal or storage of, or adequately restrict the discharge of, hazardous or toxic substances could subject the Company to significant liabilities. EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS As of June 30, 1997, the Company's officers, directors and members of their families that may be deemed affiliates of such persons beneficially owned approximately 25.3% of the Company's 20 outstanding shares of Common Stock. Accordingly, these stockholders will be able to significantly influence the election of the Company's directors and the outcome of corporate actions requiring stockholder approval, such as mergers and acquisitions, regardless of how other stockholders of the Company may vote. Such a high level of ownership by such persons or entities may have a significant effect in delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. Certain provisions of the Company's Certificate of Incorporation, 1994 Stock Option/Stock Issuance Plan, Bylaws and Delaware law may also discourage certain transactions involving a change in control of the Company. In addition to the foregoing, the ability of the Company's Board of Directors to issue preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing a change in control of the Company. VOLATILITY OF STOCK PRICE The Company believes that factors such as announcements of developments related to the Company's business, fluctuations in the Company's operating results, sales of the Company's Common Stock into the market place, failure to meet or changes in analysts' expectations, natural disasters, outbreaks of hostilities, general conditions in the semiconductor industry or the worldwide economy, announcements of technological innovations or new products or enhancements by the Company or its competitors, developments in patents or other intellectual property rights and developments in the Company's relationships with its customers and suppliers could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the market for shares of small capitalization stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. None. ITEM 5. OTHER INFORMATION. Pascal Didier, Vice President of World Wide Sales, resigned on July 18, 1997. The Company intends to recruit a suitable replacement. On July 14, 1997, the Company consummated the sale of its industrial plasma cleaning products and services business and related assets to MetroLine Industries in Corona, California. This business, consisting of barrel ashing and cleaning systems, focuses primarily on non-semiconductor industrial applications. These operations were not material to the Company's assets, revenues or earnings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit 10.22 Loan agreement dated May 1, 1997 between Registrant and Bank of Tokyo-Mitsubishi Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended June 30, 1997. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GASONICS INTERNATIONAL CORPORATION (Registrant) \s\ TERRY R. GIBSON ---------------------------- Date: August 7, 1997 By: Terry R. Gibson Vice President, Finance Chief Financial Officer 23 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY NUMBERED PAGE 10.22 Loan agreement dated May 1, 1997 between Registrant and Bank of Tokyo-Mitsubishi 27 Financial Data Schedule 24 EX-10.22 2 EXHIBIT 10.22 -- AGREEMENT ON OVERDRAFT Exhibit 10.22 AGREEMENT ON OVERDRAFT IN CURRENT ACCOUNT ----------------------------------------- April 25, 1997 To: THE BANK OF TOKYO-MITSUBISHI, LIMITED In addition to the provisions of the Current Account Regulations and the terms and conditions set forth in the Agreement on Bank Transactions which I/we have separately furnished to your Bank, I/we do hereby agree to the terms and conditions set forth in the following Articles in regard to my/our overdraft transactions in connection with my/our current account transactions with your Bank. Article 1. (Maximum Amount of Overdraft) /1/ The maximum amount of overdraft shall be Y300,000,000. /2/ Your Bank may at its discretion pay checks, promissory notes, bills of exchange or other instruments in excess of the maximum amount of overdraft. In the event your Bank makes such payment, I/we shall pay the amount of such excess to your Bank immediately upon your Bank's demand. Article 2. (Term) The effective period of this Agreement shall terminate on Feb. 27, 1998. However, unless either of the parties indicates its intention to terminate by the day preceding the expiry date, the above period shall be further extended for another 12 months and the same shall apply thereafter. Article 3. (Interest and Damages) /1/ The rate of interest on overdraft shall be at the rate determined by your Bank. Your Bank may collect such interest and damages as will be calculated at such time and in such manner as determined by your Bank by debiting from my/our account or adding such interest and damages to the principal of overdraft. /2/ If, as a result of the addition under the preceding Paragraph, the principal of overdraft exceeds the maximum amount of overdraft, I/we shall pay the amount of such excess to your Bank immediately upon your Bank's demand. Article 4. (Security) In the case of overdraft under this Agreement, all instruments received by your Bank from me/us for deposit in my/our current account shall be deemed to have been assigned to your Bank as security for overdraft. Article 5. (Immediate Payment) /1/ In the event any one of the following events occurs to me/us, I/we shall immediately pay the principal of and interest on overdraft without any notice or demand, etc., from your Bank: - 1 - 1. When I/we have become unable to pay debts or application or petition is submitted for bankruptcy, commencement of composition of creditors, commencement of corporate reorganization proceedings, commencement of company arrangement, or commencement of special liquidation. 2. When the Clearing House in observance of its rules takes procedures for suspension of my/our transactions with banks and similar institutions. 3. When order or notice of provisional attachment, preservative attachment or attachment is dispatched in respect of my/our or the guarantor's deposits and/or any other credits with your Bank. 4. When my/our whereabouts become unknown to your Bank due to my/our failure to notify your Bank of change of my/our address or any other causes attributable to me/us. /2/ In any of the following cases, I/we shall pay the principal of and interest on overdraft immediately upon your Bank's demand: 1. When I/we fail to pay any of my/our obligations to your Bank when it is due. 2. When property offered to your Bank as security is attached or public auction procedure is commenced in respect of such property. 3. When I/we violate the stipulations of any transactions with your Bank. 4. When the guarantor falls under any one of the items of the preceding Paragraph or this Paragraph. 5. In addition to each of the preceding items, when a reasonable and probable cause necessitates the preservation of your Bank's rights. Article 6. (Suspension, Reduction and Termination) /1/ In the event any one of the events provided for in Paragraph /1/ of the preceding Article occurs to me/us, your Bank may suspend the overdraft facility without giving prior notice. The same shall apply in the event the maximal-hypothec security for the obligations under this Agreement has been made definite, or notice of attachment of the maximal-hypothecary assets by way of tax delinquency measures has been made. /2/ In the event there has been a change in the financial conditions or if it becomes necessary for your Bank to preserve your Bank's rights or if there exists any other reasonable causes, your Bank may at any time reduce the maximum amount of overdraft, suspend the overdraft facility or terminate this Agreement. /3/ In the event your Bank effects reduction, suspension or termination pursuant to the preceding two Paragraphs, I/we shall have no objection even if any promissory note or check drawn by me/us or any bill of exchange accepted by me/us by such time is dishonored as a result of such reduction, suspension or termination, and I/we shall bear any and all loss and damage resulting from such dishonor. The same shall apply in the event the transactions herein are terminated upon expiry of the period of this Agreement. /4/ When the transaction pursuant to this Agreement is terminated or when the overdraft facility is suspended, I/we shall immediately pay the principal of and interest on overdraft. Further, if the maximum amount of - 2 - overdraft is reduced, I/we shall immediately pay the amount of overdraft exceeding the revised maximum amount. Article 7. (Guarantee) /1/ In regard to any and all obligations the Principal may owe your Bank as a result of transactions pursuant to this Agreement, the Guarantor shall be jointly and severally liable with the Principal for the performance of all such obligations, and the Guarantor hereby agrees to abide by the terms and conditions of this Agreement as well as the provisions of the Current Account Regulations and the terms and conditions set forth in the Agreement on Bank Transactions which the Principal has separately furnished to your Bank, with regard to the performance of any such obligations. /2/ Even if your Bank changes or releases the security or other guarantees at your Bank's convenience, the Guarantor shall not claim exemption from the obligations. /3/ The Guarantor shall not set off any obligations which the Principal and/or the Guarantor may owe your Bank against any of the Principal's deposits and/or any other credits with your Bank. /4/ If and when the Guarantor performs any obligations of the guarantee, the Guarantor shall not exercise any rights obtained from your Bank by subrogation without the prior approval of your Bank so long as transactions between the Principal and your Bank continue. Upon your Bank's demand, the Guarantor shall assign such rights and priority to your Bank without compensation. /5/ In the event the Guarantor has separately furnished a guarantee with respect to the obligations owed by the Principal to your Bank, or if he shall furnish such guarantee in the future, the total amount of the guarantee shall be the aggregate amount thereof unless otherwise agreed, and such other guarantees shall not be affected by this guarantee. The Principal Signature: Full Name: Address: The Joint Guarantor Signature: Full Name: Address: (All questions that may arise within or without courts of law in regard to the meaning of the words, provisions and stipulations of this Agreement shall be decided in accordance with the Japanese text.) - 3 - EX-27 3 EXHIBIT 27 -- FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 11099 7233 32655 690 27938 83691 20506 5687 100305 24407 0 0 0 604 74849 100305 89404 89404 49981 49981 0 100 38 2224 778 1446 0 0 0 1446 .10 .10
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