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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


[X]     Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2003 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 by check mark whether the registrant is an accelerated filer(as defined
in  Rule  12b-2  of  the  Exchange  Act).  Yes      No X
                                               ---    ---


As of August 1, 2003, the issuer had 29,834,757 shares of common stock
outstanding.


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<PAGE>
                                   GENUS, INC.
                                    FORM 10-Q
                                      INDEX


PART  I.  FINANCIAL  INFORMATION

Item  1.  Financial  Statements

     Condensed Consolidated Statements of Operations for the three
     months and six months ended June 30, 2003 and June 30, 2002 . . . . . . . 3

     Condensed Consolidated Balance Sheets as of June 30, 2003 and
     December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

     Condensed Consolidated Statements of Cash Flows for the six
     months ended June 30, 2003 and June 30, 2002. . . . . . . . . . . . . . . 5

     Notes to Condensed Consolidated Financial Statements. . . . . . . . . . . 7

Item  2.  Management's  Discussion  and  Analysis
   of  Financial  Condition  and  Results  of  Operations . . . . . . . . . . 16

Item  3. Quantitative and Qualitative Disclosures About Market Risk . . . . . 30

Item  4.  Controls  and  Procedures . . . . . . . . . . . . . . . . . . . . . 30




PART  II.  OTHER  INFORMATION

Item  1:  Legal  Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 31


Item  4:  Submission  of Matters to a Vote of Security Holders. . . . . . . . 31



Item  6:  Exhibits  and  Reports  on  Form  8-K . . . . . . . . . . . . . . . 32


Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36


                                        2
<PAGE>
<TABLE>
<CAPTION>
                         PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                                   GENUS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                              (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                  THREE MONTHS ENDED        SIX MONTHS ENDED
                                                       JUNE 30,                 JUNE 30,
                                                   2003         2002        2003        2002
                                                -----------  -----------  ---------  -----------
<S>                                             <C>          <C>          <C>        <C>
Net sales. . . . . . . . . . . . . . . . . . .  $   14,739   $    6,743   $ 32,434   $   16,334
Costs and expenses:
    Cost of goods sold . . . . . . . . . . . .      10,813        5,170     22,390       12,637
    Research and development . . . . . . . . .       1,981        1,767      4,094        3,952
    Selling, general and administrative. . . .       2,868        3,295      6,042        6,731
                                                -----------  -----------  ---------  -----------
Loss from operations                                  (923)      (3,489)       (92)      (6,986)

Interest (expense) . . . . . . . . . . . . . .        (477)        (117)      (907)        (235)
Other income (expense), net. . . . . . . . . .          42           85         49          (52)
                                                -----------  -----------  ---------  -----------
Loss before income taxes . . . . . . . . . . .      (1,358)      (3,521)      (950)      (7,273)

Provision for income taxes . . . . . . . . . .           0           88          0           88
                                                -----------  -----------  ---------  -----------
Net loss . . . . . . . . . . . . . . . . . . .  $   (1,358)  $   (3,609)  $   (950)  $   (7,361)
                                                ===========  ===========  =========  ===========

Net loss per share:
    Basic. . . . . . . . . . . . . . . . . . .  $    (0.05)  $    (0.13)  $  (0.03)  $    (0.28)
    Diluted. . . . . . . . . . . . . . . . . .  $    (0.05)  $    (0.13)  $  (0.03)  $    (0.28)

Shares used in per share calculation - basic .      29,313       26,749     29,114       26,003
                                                ===========  ===========  =========  ===========
Shares used in per share calculation - diluted      29,313       26,749     29,114       26,003
                                                ===========  ===========  =========  ===========
</TABLE>


    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                GENUS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                                       (IN THOUSANDS)


                                                                   JUNE 30,    DECEMBER 31,
                                                                     2003          2002
                                                                  ----------  --------------
<S>                                                               <C>         <C>
ASSETS
Current Assets:
  Cash and cash equivalents  . . . . . . . . . . . . . . . . . .  $  10,944   $      11,546
  Accounts receivable (net of allowance for doubtful
    accounts of $152 in 2003 and $69 in 2002). . . . . . . . . .      7,817           7,505
  Inventories  . . . . . . . . . . . . . . . . . . . . . . . . .     10,625          11,405
  Other current assets . . . . . . . . . . . . . . . . . . . . .        947           1,336
                                                                  ----------  --------------
    Total current assets . . . . . . . . . . . . . . . . . . . .     30,333          31,792
  Equipment, furniture and fixtures, net . . . . . . . . . . . .      9,629           8,661
  Other assets, net. . . . . . . . . . . . . . . . . . . . . . .      1,289           1,057
                                                                  ----------  --------------
    Total assets . . . . . . . . . . . . . . . . . . . . . . . .  $  41,251   $      41,510
                                                                  ==========  ==============

LIABILITIES
Current Liabilities:
  Short-term bank borrowings . . . . . . . . . . . . . . . . . .  $   7,773   $       7,813
  Accounts payable . . . . . . . . . . . . . . . . . . . . . . .      4,037           6,498
  Accrued expenses . . . . . . . . . . . . . . . . . . . . . . .      4,043           3,064
  Deferred revenue . . . . . . . . . . . . . . . . . . . . . . .      5,241           2,713
  Customer advances. . . . . . . . . . . . . . . . . . . . . . .          0           1,809
  Loan payable, current portion. . . . . . . . . . . . . . . . .        260             245
                                                                  ----------  --------------
    Total current liabilities. . . . . . . . . . . . . . . . . .     21,354          22,142

  Convertible notes. . . . . . . . . . . . . . . . . . . . . . .      5,491           5,301
  Loan payable . . . . . . . . . . . . . . . . . . . . . . . . .        116             270
                                                                  ----------  --------------
    Total liabilities. . . . . . . . . . . . . . . . . . . . . .     26,961          27,713
                                                                  ----------  --------------

Contingencies (see note)


SHAREHOLDERS' EQUITY
Common stock, no par value:
  Authorized 100,000 shares on June 30, 2003; and 50,000 shares
    on December 31, 2002;
    Issued and outstanding 29,757 shares at June 30, 2003
    and 28,621 shares at December 31, 2002 . . . . . . . . . . .    125,310         123,890
  Accumulated deficit. . . . . . . . . . . . . . . . . . . . . .   (108,759)       (107,809)
  Note receivable from shareholder . . . . . . . . . . . . . . .       (151)           (151)
  Accumulated other comprehensive loss . . . . . . . . . . . . .     (2,110)         (2,133)
                                                                  ----------  --------------
    Total shareholders' equity . . . . . . . . . . . . . . . . .     14,290          13,797
                                                                  ----------  --------------
    Total liabilities and shareholders' equity . . . . . . . . .  $  41,251   $      41,510
                                                                  ==========  ==============
</TABLE>


    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                        4
<PAGE>
<TABLE>
<CAPTION>
                          GENUS, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                  (IN THOUSANDS)


                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                               2003        2002
                                                            ----------  ----------
<S>                                                         <C>         <C>
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $    (950)  $  (7,361)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation. . . . . . . . . . . . . . . . . . . . .     1,617       1,806
      Write-down for excess and obsolete inventories. . . .       167         445
      Provision for doubtful accounts . . . . . . . . . . .        83           -
      Amortization and accretion of finance costs . . . . .       484           -
      Fixed assets written-off. . . . . . . . . . . . . . .       140           -
      Changes in assets and liabilities:
        Accounts receivable . . . . . . . . . . . . . . . .      (395)     (2,045)
        Inventories . . . . . . . . . . . . . . . . . . . .       402       1,702
        Other assets. . . . . . . . . . . . . . . . . . . .      (587)        388
        Accounts payable. . . . . . . . . . . . . . . . . .    (2,461)     (1,390)
        Accrued expenses and customer advances. . . . . . .      (830)       (347)
        Deferred revenue. . . . . . . . . . . . . . . . . .     2,528        (894)
                                                             ----------  ----------
        Net cash provided by (used) in operating activities       198       (7,696)
                                                             ----------  ----------

Cash flows from investing activities:
  Acquisition of equipment, furniture and fixtures. . . . .     (1,914)       (385)
                                                             ----------  ----------
      Net cash used in investing activities . . . . . . . .     (1,914)       (385)
                                                          .  ----------  ----------
Cash flows from financing activities:
  Proceeds from issuance of common stock. . . . . . . . . .      1,270       9,588
  Proceeds from short-term bank borrowings. . . . . . . . .     22,887      12,600
  Payments for short-term bank borrowings . . . . . . . . .    (22,927)    (12,898)
  Proceeds from loan payable. . . . . . . . . . . . . . . .          -       1,200
  Payments on loan payable. . . . . . . . . . . . . . . . .       (139)       (339)
                                                             ----------  ----------
      Net cash provided by financing activities . . . . . .      1,091      10,151
                                                             ----------  ----------

Effect of exchange rate changes on cash . . . . . . . . . .         23         181
                                                             ----------  ----------

Net increase (decrease) in cash and cash equivalents. . . .       (602)      2,251
Cash and cash equivalents, beginning of period. . . . . . .     11,546       3,043
                                                             ----------  ----------
Cash and cash equivalents, end of period. . . . . . . . . .  $  10,944   $   5,294
                                                             ==========  ==========
Supplemental cash flow information
  Cash paid during the period for:. . . . . . . . . . . .

  Interest. . . . . . . . . . . . . . . . . . . . . . . . .  $     380   $     113

  Income taxes. . . . . . . . . . . . . . . . . . . . . . .  $     158   $     157

  Non-cash investing and financing activities

  Transfer of inventory to fixed assets . . . . . . . . . .  $     143  $       -


                                        5
<PAGE>

  Transfer of other assets to fixed assets. . . . . . . . .  $     600   $       -

  Conversion of convertible note to common stock. . . . . .  $     150   $       -
</TABLE>


    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                        6
<PAGE>
BASIS  OF  PRESENTATION

     The  accompanying  condensed  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 condensed
consolidated  financial  statements  and notes thereto included in the Company's
2002  Annual  Report  on  Form  10-K.

     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.

LIQUIDITY

     The  Company  has  an accumulated deficit of $109 million and a net loss of
$950,000  during  the  six  months  ended  June  30, 2003 while cash provided by
operations  was  $198,000 during the six months ended June 30, 2003. The Company
is in the process of executing its business strategy and has plans to eventually
achieve  profitable  operations  on  an  ongoing basis. Management believes that
existing  cash,  cash  generated  by operations, and available financing will be
sufficient to meet projected working capital, capital expenditure and other cash
requirements  for  the  next twelve months. Management cannot provide assurances
that its cash and its future cash flows from operations alone will be sufficient
to  meet  operating requirements and allow the Company to service debt and repay
any  underlying  indebtedness  at  maturity.  If  the  Company  does not achieve
anticipated  cash  flows,  we  may  not  be able to meet planned product release
schedules  and forecast sales objectives. In such event the Company will require
additional  financing  to  fund  on-going and planned operations and may need to
implement  expense reduction measures. In the event the Company needs additional
financing,  there  is  no assurance that funds would be available to the Company
or,  if  available,  under  terms  that  would  be  acceptable  to  the Company.


NET  LOSS  PER  SHARE

     Basic  net  loss  per  share  is  computed  by  dividing net loss to common
shareholders by the weighted average number of common shares outstanding for the
period.  Diluted  net  loss per share is computed by dividing net loss to common
shareholders  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
loss per share is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED        SIX MONTHS ENDED
                                                      JUNE 30,                 JUNE 30,
                                                 2003         2002         2003        2002
                                              -----------  -----------  ----------  ----------
<S>                                           <C>          <C>          <C>         <C>
Basic:
Net loss . . . . . . . . . . . . . . . . . .  $   (1,358)  $   (3,609)  $    (950)  $  (7,361)
                                              ===========  ===========  ==========  ==========
  Weighted average common shares outstanding      29,313       26,749      29,114      26,003
                                              ===========  ===========  ==========  ==========
  Basic net loss per share . . . . . . . . .  $    (0.05)  $    (0.13)  $   (0.03)  $   (0.28)
                                              ===========  ===========  ==========  ==========

Diluted:
  Net loss . . . . . . . . . . . . . . . . .  $   (1,358)  $   (3,609)  $    (950)  $  (7,361)
                                              ===========  ===========  ==========  ==========
  Weighted average common shares outstanding      29,313       26,749      29,114      26,003
                                              ===========  ===========  ==========  ==========
  Diluted net loss per share . . . . . . . .  $    (0.05)  $    (0.13)  $   (0.03)  $   (0.28)
                                              ===========  ===========  ==========  ==========
</TABLE>


                                        7
<PAGE>
     Stock  options,  warrants  and  convertible  debt to purchase approximately
10,933,000  shares of common stock were outstanding as of June 30, 2003 but were
not  included in the computation of diluted net earnings per share because their
effect  would  be  anti-dilutive.

     Stock  options  and  warrants to purchase approximately 4,750,000 shares of
common  stock were outstanding as of June 30, 2002, but were not included in the
computation  of  diluted  net  loss  per  share  because  their  effect would be
anti-dilutive.

Stock Compensation. The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees" and Financial Accounting
Standards Board Interpretation No. 44 "Accounting for Certain Transactions
Involving Stock Compensation."  Generally, the Company's policy is to grant
options with an exercise price equal to the quoted market price of the Company's
stock on the date of the grant. Accordingly, no compensation cost has been
recognized in the Company's statements of operations. Pro forma information
regarding net loss and net loss per share as if the Company recorded
compensation expense based on the fair value of stock-based awards have been
presented in accordance with Statement of Financial Accounting Standards No.148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" and is as
follows for the three and six months ended June 30, 2003 and 2002 (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                        JUNE 30,                  JUNE 30,
                                                                   2003         2002         2003        2002
                                                                -----------  -----------  ----------  ----------
<S>                                                             <C>          <C>          <C>         <C>
Net loss, as reported                                           $   (1,358)  $   (3,609)  $    (950)  $  (7,361)
Add: Stock -based employee compensation recorded                         0            0           0           0
Deduct: Total stock-based employee compensation
       expense, net determined using a fair value based method
       for all awards, net of related tax effects                    ( 411)        (274)     (1,114)     (1,068)
                                                                ===========  ===========  ==========  ==========

Pro forma net loss attributable to common
  shareholders                                                  $   (1,769)  $   (3,883)  $  (2,064)  $  (8,429)
                                                                ===========  ===========  ==========  ==========

Earnings per share

  Basic - as reported                                           $    (0.05)  $    (0.13)  $   (0.03)  $   (0.28)
                                                                ===========  ===========  ==========  ==========
  Basic - pro forma                                             $    (0.06)  $    (0.15)  $   (0.07)  $   (0.32)
                                                                ===========  ===========  ==========  ==========

  Diluted - as reported                                         $    (0.05)  $    (0.13)  $   (0.03)  $   (0.28)
                                                                ===========  ===========  ==========  ==========

  Diluted - as pro forma                                        $    (0.06)  $    (0.15)  $   (0.07)  $   (0.32)
                                                                ===========  ===========  ==========  ==========
</TABLE>


     The above pro forma effects on net loss may not be representative of the
effects on future results as options granted typically vest over several years
and additional option grants are expected to be made in future years.


                                        8
<PAGE>
     The fair value of options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for the three and six months ended June 30, 2003, and 2002:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED        SIX MONTHS ENDED
                                                  JUNE 30,                JUNE 30,
                                              2003        2002        2003       2002
                                           ----------  ----------  ----------  ---------
<S>                                        <C>         <C>         <C>         <C>
Weighted average risk free interest rates   1.99%       3.37%       2.11%      3.54%
Weighted average expected life              3.0 years   3.0 years   3.0 years  3.0 years
Weighted average expected volatility          96%        102%         99%       104%
Expected dividend yield                        0%          0%          0%        0%
</TABLE>


     The weighted average fair value of options granted in the three months
ended June 30, 2003 and 2002 was $1.77 and $1.92, respectively. The weighted
average fair value of options granted in the six months ended June 30, 2003 and
2002 was $1.78 and $1.96, respectively.


     The fair value of the employees' stock purchase rights under the 1989
Employee Stock Purchase Plan was estimated using the Black-Scholes
option-pricing model with the following assumptions for the six months ended
June 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                              SIX MONTHS ENDED
                                                  JUNE 30,
                                              2003        2002
                                           ----------  ----------
<S>                                        <C>         <C>
Weighted average risk free interest rates   1.04%       1.44%
Weighted average expected life              0.5 years   0.5 years
Weighted average expected volatility         74%         76%
Expected dividend yield                       0%          0%
</TABLE>


     The weighted average fair value of those purchase rights granted in the six
months ended June 30, 2003 and 2002 was $0.81 and $0.88, respectively.


REVENUE RECOGNITION.

     The Company derives revenue from the sale and installation of semiconductor
manufacturing  systems and from engineering services and the sale of spare parts
to  support  such  systems.


                                        9
<PAGE>
     Equipment  selling  arrangements  generally  involve  contractual  customer
acceptance  provisions and installation of the product occurs after shipment and
transfer  of title. Effective January 1, 2000, at which time the Company had not
established  verifiable  objective  evidence  of  the fair value of installation
services,  the  Company  commenced  deferring  recognition  of revenue from such
equipment  sales until installation was complete and the product was accepted by
the customer to comply with the provisions of Securities and Exchange Commission
Staff  Accounting  Bulletin  No.  101. In the third quarter of 2002, the Company
established  verifiable  objective  evidence  of  fair  value  of  installation
services,  one  of  the  requirements  for  Genus  to  recognize  revenue  for
multiple-element  arrangements  prior  to  completion  of installation services.
Accordingly,  under  SAB  101,  if  Genus  has  met  defined customer acceptance
experience  levels  with  both  the customer and the specific type of equipment,
then  the  Company  recognizes  equipment  revenue upon shipment and transfer of
title.  A  portion  of  revenue  associated  with  undelivered  elements such as
installation  and  on-site  support related tasks is recognized for installation
when  the installation is completed and the customer accepts the product and for
on-site  support as the support service is provided.  For products that have not
been  demonstrated  to  meet  product  specifications  for the customer prior to
shipment,  revenue  is recognized when installation is complete and the customer
accepts  the  product.  Revenues  can fluctuate significantly as a result of the
timing  of  customer  acceptances.  At  June 30, 2003 and December 31, 2002, the
Company  had  deferred  revenue  of $5.2 million and $2.7 million, respectively.

     Revenues from sale of spare parts are generally recognized upon shipment.
Revenues from engineering services are recognized as the services are completed
over the duration of the contract.


BORROWINGS

     On  December  20, 2001 and as amended on March 26, 2002 and March 20, 2003,
the  Company maintains line of credit facilities for a maximum of $15.0 million,
based  on  eligible  receivables  and inventory. The interest rate is prime plus
1.75%  per  annum  and  the  facility  expires  on  June  29,  2004. The loan is
collateralized  by a first priority perfected security interest in the Company's
assets  and  has a covenant requiring the Company to maintain a minimum tangible
net  worth  (calculated  as  the  excess  of total assets over total liabilities
adjusted  to  exclude intangible assets and balances receivable from officers or
affiliates  and  to  exclude the convertible notes) of $15.0 million. As of June
30,  2003,  there  was  $7.8 million outstanding under this credit facility, the
maximum  amount  available  to  the  Company.

    On January 4, 2002, the Company received gross proceeds of $1.2 million
under a secured loan, which is payable over 36 months, accrues interest of 8.75%
per annum and is secured by two systems in the Company's demonstration lab.
There was $376,000 outstanding at June 30, 2003.


CONVERTIBLE NOTES AND WARRANTS

     On August 15, 2002, the Company raised $7.0 million, net of issuance costs,
by  issuing $7.8 million unsecured 7% convertible notes and warrants to purchase
2,761,000  shares  of  common  stock.

     -    The  convertible notes are convertible into common stock at a price of
          $1.42  per share and $525,000 of the notes were subsequently converted
          into  370,000  shares  of  common  stock.  In  addition,  a  $300,000
          convertible note was issued and was subsequently converted into common
          stock  at  a  price  of  $1.25 per share. All convertible notes accrue
          interest  at  7% per annum, payable semi-annually each February 15 and
          August  15,  in cash or, at the election of the Company, in registered


                                       10
<PAGE>
          stock.  The  remaining  convertible  notes  are redeemable three years
          after  issuance  or  may  be converted into 4,912,000 shares of common
          stock  prior  to the redemption date at the election of the investors.
     -    Warrants  exercisable  for  2,641,000  shares  of  common  stock at an
          exercise price of $1.42 per share and warrants exercisable for 120,000
          shares  of  common  stock  at  an  exercise  price of $1.25 per share.
          Warrants  for 100,000, 200,000 and 300,000 shares of common stock, for
          a  total  of 600,000 shares of common stock were exercised on November
          2002,  December  2002  and  January  2003, respectively. The remaining
          warrants  for  2,161,000  shares  of  common  stock  are  currently
          exercisable.  The  warrants expire on August 15, 2006 and are callable
          by  the  Company after one year if the common stock price exceeds 200%
          of  the  respective  exercise  prices.

     The  Company  classified  the warrants as equity and allocated a portion of
the proceeds from the convertible notes to the warrants, using the relative fair
value  method  in  accordance with APB No. 14. The allocation of proceeds to the
warrants  reduced  the carrying value of the convertible notes. As a result, the
fair  value  of  the common stock issuable upon conversion of the notes exceeded
the  carrying  value  of  the  convertible  notes,  resulting  in  a  beneficial
conversion  feature.  The  beneficial  conversion  feature  is accreted over the
stated  term  of  the  convertible  notes  in  accordance  with  EITF No. 98-5 "
Accounting  for  Convertible  Securities  with Beneficial Conversion Features or
Contingently  Adjustable  Conversion  Ratios"  and  EITF No. 00-27, "Application
Issue  No.  98-5  to  Certain  Convertible  Instruments".

     The  net  cash  proceeds  from  the  issuance  of the convertible notes and
warrants  were  recorded  as  follows  (in  thousands):



          Convertible note                             $5,560
          Detachable warrants                           1,312
          Beneficial conversion feature                   928
                                                       -------
          Proceeds from issuance costs                  7,800
          Other asset, issuance costs                    (814)
                                                       -------
          Net proceeds                                 $6,986
                                                       =======

     The  $2.2 million difference between the $5.6 million carrying value of the
notes  and  the  $7.8 million face value of the notes, representing the value of
the  warrants and the beneficial conversion feature, has been recorded as equity
and  the  corresponding  debt  discount is accreted as interest expense over the
three  year  term  of  the  convertible notes, using the effective interest rate
method.

     The Company incurred issuance costs of approximately $868,000, representing
cash  obligations  of  $814,000  and  warrants  with  a fair value of $54,000 to
purchase  79,000 shares of common stock at $1.42 per share issued to a placement
agent  in  connection  with  the  transaction.  These Warrants were subsequently
exercised  for  38,631  shares  of  common  stock  as  a result of the cash-less
exercise.

      Issuance  costs  are  included  with  other  assets  and  are amortized as
interest  expense  over  the  stated  term  of  the  convertible  notes.


                                       11
<PAGE>
<TABLE>
<CAPTION>
                                       Convertible    Other Asset,
                                          Note       Issuance Costs
                                      -------------  ---------------
<S>                                   <C>            <C>
Balance at issuance, August 15, 2002 .$      5,560            ($868)
Conversions. . . . . . . . . . . . . .        (675)               -
Accretion and amortization . . . . . .         416              104
                                      -------------  ---------------
Balance at December 31, 2002 . . . . .       5,301             (764)
Conversions                                   (150)               -
Accretion and amortization . . . . . .         340              144
                                      -------------  ---------------
Balance at June 30, 2003 . . . . . . .$      5,491            ($620)
</TABLE>


     The  Company  recorded  interest costs related to the convertible notes and
warrants of $386,000 and $733,000 during the three and six months ended June 30,
2003.

     In  the  event  of a change of control of the Company, the note holders may
elect  to receive repayment of the notes at a premium of 10% over the face value
of  the  notes.

INVENTORIES

     Inventories comprise the following (in thousands):

<TABLE>
<CAPTION>
                                   JUNE 30,   DECEMBER 31,
                                     2003         2002
                                   ---------  -------------
<S>                                <C>        <C>
Raw materials and purchased parts. $   4,705  $       4,493
Work in process. . . . . . . . . .     1,626          3,417
Finished goods . . . . . . . . . .       438            175
Inventory at customers' locations.     3,856          3,320
                                   ---------  -------------
                                   $  10,625  $      11,405
                                   =========  =============
</TABLE>

     Inventory  at customers' locations represent the cost of systems shipped to
customers  for  which  we  are  awaiting  customer  acceptance.


ACCRUED  EXPENSES

     Accrued expenses comprise the following (in thousands):

<TABLE>
<CAPTION>
                                                     JUNE 30,   DECEMBER 31,
                                                       2003         2002
                                                     ---------  -------------
<S>                                                  <C>        <C>
System warranty . . . . . . . . . . . . . . . . . .  $   1,564  $         970
Accrued compensation, commissions and related items        725            509
Federal, state and foreign income taxes . . . . . .        432            751
Accrued sales tax . . . . . . . . . . . . . . . . .        441             72
Accrued legal expenses. . . . . . . . . . . . . . .         69            129
Accrued rent. . . . . . . . . . . . . . . . . . . .        262            162
Other . . . . . . . . . . . . . . . . . . . . . . .        550            471
                                                     ---------  -------------
                                                     $   4,043  $       3,064
                                                     =========  =============
</TABLE>


                                       12
<PAGE>
     Genus adopted Financial Accounting Standards Board Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Indebtedness of Others" (FIN 45) during the first fiscal quarter of
2003. FIN 45 requires disclosures concerning Genus' obligations under certain
guarantees.

     The Company generally provides one-year labor and two-year material
warranty on its products. Warranty expenses are accrued at the time that revenue
is recognized from the sale of products. At present, based upon historical
experience, the Company accrues material warranty equal to 2% and 5% of shipment
value for its 200mm and 300mm  products, respectively, and labor warranty equal
to $20,000 per system for both its 200mm and 300mm products. At the end of every
quarter, the Company reviews its actual spending on warranty and reassesses if
its accrual is adequate to cover warranty expenses on the systems in the field
which are still under warranty. Differences between the required accrual and
recorded accrual are charged or credited to warranty expenses for the period.

     Changes in the warranty reserves during the three and six months ended June
30, 2003 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                                                          JUNE 30, 2003
                                                                       --------------------
<S>                                                                    <C>
Balance, March 31, 2003                                                $             1,290
Accrual for warranty liability for revenues recognized in the period                   611
Settlements made                                                                      (337)
                                                                       --------------------
Balance, June 30, 2003                                                 $             1,564




                                                                         SIX MONTHS ENDED
                                                                          JUNE 30, 2003
                                                                       --------------------
Balance, December 31, 2002                                             $               970
Accrual for warranty liability for revenues recognized in the period                 1,066
Settlements made                                                                      (472)
                                                                       --------------------
Balance, June 30, 2003                                                 $             1,564
</TABLE>


                                       13
<PAGE>
COMMON  STOCK  AND  WARRANTS

     In  the  May 2001 private placement transaction the Company issued warrants
to  purchase 1,270,891 shares of Company Common Stock (the "May 2001 Warrants"),
at  an  exercise  price  of $3.50 per share. As a result of the January 25, 2002
financing,  and  pursuant  to  the  terms  of the May 2001 Warrants, the Company
reduced  the  exercise  price  for the May 2001 Warrants from $3.50 per share to
$2.19 per share and increased the underlying shares to an aggregate of 2,031,094
shares.  The  May  2001  Warrants  have  now  been exercised.  May 2001 Warrants
representing  610,872  shares  were exercised for cash in an aggregate amount of
approximately  $1.3  million  and  the  remaining May 2001 Warrants representing
1,420,224  shares  were  exercised  on  a cash-less basis.  The Company issued a
total  of  642,295  shares  as  a  result  of the cash-less exercise of May 2001
Warrants  pursuant  to  the  terms  therein.

     On January 25, 2002, the Company sold 3,871,330 shares of common stock, and
warrants  to  purchase 580,696 shares of common stock, for aggregate proceeds of
approximately $7.9 million. The warrants issued to the purchasers in the private
placement  are exercisable for $3.23 per share and the warrants have a five-year
term.  As  of  June 30, 2003, all, warrants to purchase 580,696 shares of common
stock,  were  exercisable  and  outstanding.

     In August 2002, the Company completed a $7.8 million financing in a private
placement of subordinated notes convertible into common stock and warrants
convertible into or exercisable for common stock.  Refer to the Convertible
Notes and Warrants footnote for further information.



RELATED  PARTY  TRANSACTIONS

     Mario  M.  Rosati,  a  Director  of the Company is also a partner of Wilson
Sonsini  Goodrich  & Rosati, the general counsel of the Company.  During the six
months  ended  June  30,  2003  and 2002, the Company paid $280,000 and $258,000
respectively,  to  Wilson  Sonsini  Goodrich  &  Rosati.  At  June 30, 2003, the
Company  owed  approximately  $128,000  to  Wilson  Sonsini  Goodrich  & Rosati.



COMPREHENSIVE  LOSS

     The following are the components of comprehensive loss (in thousands):

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED        SIX MONTHS ENDED
                                                           JUNE 30,                  JUNE 30,
                                                      2003         2002         2003        2002
                                                   ----------  ------------  ----------  ----------
<S>                                                <C>         <C>           <C>         <C>
Net loss  . . . . . . . . . . . . . . . . . . . .  $  (1,358)  $    (3,609)  $    (950)  $  (7,361)
Change in foreign currency translation adjustment        135           132          23         181
                                                   ----------  ------------  ----------  ----------
  Comprehensive loss. . . . . . . . . . . . . . .  $  (1,223)  $    (3,477)  $    (927)  $  (7,180)
                                                   ==========  ============  ==========  ==========
</TABLE>


                                       14
<PAGE>
The  components  of  accumulated  other  comprehensive  loss  is  as follows (in
thousands):

<TABLE>
<CAPTION>
                                           JUNE 30    DECEMBER 31
                                            2003         2002
                                          ---------  -------------
<S>                                       <C>        <C>
Cumulative translation adjustment . . . . $ (2,110)  $     (2,133)
                                          =========  =============
</TABLE>

LEGAL  PROCEEDINGS

     On June 6, 2001, ASM America, Inc. ("ASMA") filed a patent infringement
action against Genus, Inc. ASMA's Complaint alleges that Genus is directly and
indirectly infringing U.S. Patent No. 5,916,365 (the "365 Patent"), entitled
"Sequential Chemical Vapor Deposition," and U.S. Patent No. 6,015,590 (the "590
Patent") entitled "Method For Growing Thin Films," which ASMA claims to own or
exclusively license. The Complaint seeks monetary and injunctive relief. Genus
served its Answer to ASMA's complaint on August 1, 2001.  Also on August 1,
2001, Genus counterclaimed against ASMA and ASM International, N.V. ("ASMI") for
(1) infringement of U.S. Patent No. 5,294,568 (the "568 Patent") entitled
"Method of Selective Etching Native Oxide"; (2) declaratory judgment that the
'365 and '590 Patents are invalid, unenforceable, and not infringed by Genus;
and (3) antitrust violations. An initial Case Management Conference was held on
October 16, 2001. On January 9, 2002, the Court issued an order granting ASMA
leave to amend its complaint to add Dr. Sherman as a party and to add a claim
that Genus is directly and indirectly infringing U.S. Patent No 4,798,165 (the
"165 Patent") entitled "Apparatus for Chemical Vapor Deposition Using an Axially
Symmetric Gas Flow", which ASMA claims to own. The Court also severed and stayed
discovery and trail of Genus' antitrust claims until after the trial of the
patent claims. On February 4, 2002, Genus served its Amended Answer to ASMA's
amended complaint and counterclaimed against ASMA for declaratory judgment that
the '165 Patent is invalid, unenforceable, and not infringed by Genus. On August
15, 2002, the Court issued a claim construction order regarding the '590, '365,
and 598' Patents.  A claim construction hearing regarding the '165 Patent was
held on September 26, 2002, and the Court issued a claim construction ruling
regarding this patent on November 13, 2002.  On September 23, 2002 Genus filed
motions for summary judgment on noninfringement regarding the '590 and '365
Patents.  On November 20, 2002, the Court granted the Genus motion for summary
judgment on noninfringement of the '365 Patent.  On January 10, 2003, the Court
granted Genus' motion for summary judgment on the '590 Patent.

     On April 11, 2003, Genus settled its lawsuit with ASMI (the "Settlement").
Under the terms of the Settlement, Genus gained a royalty-free license to each
of the patents ASMI asserted in the litigation, including both ALD patents as
well as Patent '165. By specific agreement of the parties, these licenses are
applicable to Genus' successors and affiliates. Genus has likewise obtained a
covenant from ASMI that it will not sue Genus for patent infringement or
antitrust violations for the next five years.

     In return, Genus has granted ASMI and its successors and affiliates a
royalty-free license to the patent Genus asserted in the litigation, Patent
'568, and has agreed to dismiss its antitrust claims against ASMI. Genus has
also agreed not to sue ASMI for patent infringement or antitrust violations for
the next five years.

     No payments have been made by either Genus or ASMI in exchange for these
licenses and the covenant not to sue. However, under the terms of the
Settlement, ASMI has the right to pursue an appeal of the District Court's
judgments of non-infringement regarding the ALD patents. The agreement specifies
that if the Federal Circuit vacates either of the existing judgments related to
the ALD patents based on a change in the District Court's claim construction,
Genus will pay ASMI $1 million for the royalty-free licenses to the ALD patents
it has been granted under the agreement.


                                       15
<PAGE>
RECENT  ACCOUNTING  PRONOUNCEMENTS

     In  May 2003, the FASB issued Statement of Accounting Standards No. 150
("SFAS   150"),    "Accounting   for   Certain  Financial  Instruments  with
Characteristics  of both Liabilities and Equity." The Statement establishes
standards  for  how  an  issuer  classifies  and measures certain financial
instruments with characteristics of both liabilities and equity and further
requires  that  an  issuer  classify  as  a  liability (or an asset in some
circumstances)  financial  instruments  that  fall within its scope because that
financial  instrument  embodies  an obligation of the issuer. Many of such
instruments  were  previously  classified as equity. The statement is effective
for financial instruments entered into or modified after May 31, 2003,  and
otherwise  is  effective  at the beginning of the first interim period
beginning  after  June  15,  2003,  except for mandatory redeemable financial
instruments  of  nonpublic  entities.  The  Statement  is  to be implemented  by
reporting  the cumulative effect of a change in accounting principle for
financial instruments created before the issuance of the date of  the Statement
and still existing at the beginning of the interim period of  adoption.
Restatement  is  not permitted. The Company does not believe that  the  adoption
of  this  Statement will have a material impact on our
financial position, cash flows or results of operations.

     In April 2003, the FASB issued Statement of Accounting Standards No 149
("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies financial accounting and reporting of
derivative instruments and hedging activities under Statement of Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 149 amends SFAS 133 for decisions made: (i) as part of
the Derivatives Implementation Group process that require amendment to SFAS 133,
(ii) in connection with other FASB projects dealing with financial instruments,
and (iii) in connection with the implementation issues raised related to the
application of the definition of a derivative. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003 and for designated
hedging relationships after June 30, 2003. SFAS 149 will be applied
prospectively. The Company does not believe that the adoption of SFAS 149 will
have a material impact on our financial position, cash flows or results of
operations .

     In  November  2002,  the  EITF  reached  a  consensus  on  Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21  provides  guidance  on  how  to account for arrangements that involve the
delivery  or  performance  of  multiple  products, services and/or rights to use
assets.  The  provisions  of  EITF  Issue  No.  00-21  will  apply  to  revenue
arrangements  entered  into  in fiscal periods beginning after June 15, 2003. We
are  currently  assessing the impact of EITF Issue No. 00-21 on our consolidated
financial  statements.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

     Certain information contained in this Quarterly Report on Form 10-Q is
forward- looking in nature. All statements included in this Quarterly Report on
Form 10- Q or made by management of Genus, Inc., other than statements of
historical fact, are forward-looking statements. Examples of forward-looking
statements include statements regarding the Company's future financial results,
operating results, business strategies, projected costs, products, competitive
positions and plans and objectives of management for future operations. These
forward-looking statements are based on management's estimates and projections


                                       16
<PAGE>
as of the date hereof and include the assumptions that underlie such statements.
In some cases, forward-looking statements can be identified by terminology such
as "may," "will," "should", "would," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "continue," or the negative of
these terms or other comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and uncertainties and other
important factors, including those discussed in the section below entitled "Risk
Factors." Other risks and uncertainties are disclosed in the Company's prior SEC
filings, including its Annual Report on Form 10-K for the fiscal year ended
December 31, 2002. These and many other factors could affect the Company's
future financial and operating results, and could cause actual results to differ
materially from expectations based on forward-looking statements made in this
document or elsewhere by the Company or on its behalf.


CRITICAL  ACCOUNTING  POLICIES

The financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America and require management to
make estimates and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements and related
footnotes.  As such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented.  The significant accounting
policies which we believe are the most critical to aid in fully understanding
and evaluating our reported financial results include the following:

Revenue recognition

The Company derives revenue from the sale and installation of semiconductor
manufacturing systems and from engineering services and the sale of spare parts
to support such systems.

Equipment selling arrangements generally involve contractual customer acceptance
provisions and installation of the product occurs after shipment and transfer of
title. Effective January 1, 2000, the Company did not have verifiable objective
evidence of the fair value of installation services.  The Company generally
defers recognition of revenue from equipment sales until installation is
complete and the product is accepted by the customer.  In the third quarter of
2002, the Company established verifiable objective evidence of fair value of
installation services, one of the requirements for Genus to recognize revenue
for multiple-element arrangements prior to completion of installation services.
Accordingly, if a product delivered to a customer has met defined customer
acceptance experience levels with both the customer and the specific type of
equipment, then the Company recognizes equipment revenue upon shipment and
transfer of title. A portion of revenue associated with undelivered elements
such as installation and on-site support related tasks is recognized for
installation when the installation is completed and the customer accepts the
product and for on-site support as the support service is provided.  For
products that have not been demonstrated to meet product specifications for the
customer prior to shipment, revenue is recognized when installation is complete
and the customer accepts the product. Revenues can fluctuate significantly as a
result of the timing of customer acceptances and the applicability of multiple
element accounting to products shipped in any particular period. At June 30,
2003 and 2002, the Company had deferred revenue of $5.2 million and $6.5
million, respectively.

Revenues from sale of spare parts are generally recognized upon shipment.
Revenues from engineering services are recognized as the services are completed
over the duration of the contract.


                                       17
<PAGE>
Accrual for warranty expenses

The Company generally provides one-year labor and two-year material warranty on
its products. Warranty expenses are accrued at the time that revenue is
recognized from the sale of products. At present, based upon historical
experience, the Company accrues material warranty equal to 2% and 5% of shipment
value for its 200mm and 300mm  products, respectively, and labor warranty equal
to $20,000 per system for both its 200mm and 300mm products. At the end of every
quarter, the Company reviews its actual spending on warranty and reassesses if
its accrual is adequate to cover warranty expenses on the systems in the field
which are still under warranty. Differences between the required accrual and
recorded accrual are charged or credited to warranty expenses for the period. At
June 30, 2003 and December 31, 2002, the Company had accrued $1,564,000 and
$970,000, respectively, for material and labor warranty obligations. Actual
results could differ from estimates. In the unlikely event that a problem is
identified that would result in the need to replace components on a large scale,
we would experience significantly higher expenses and our results of operations
and financial condition could be materially and adversely effected.


Valuation of Inventories

Inventories are recorded at the lower of standard cost, which approximates
actual cost on a first-in-first-out basis, or market value. We write down
inventories to net realizable value based on forecasted demand and market
conditions. Raw material and purchased parts include spare parts inventory for
systems and were $4.7 million and $4.5 million at June 30, 2003 and December 31,
2002, respectively. The forecasted demand for spare parts takes into account the
Company's obligations to support systems for periods that are as long as five
years.

Actual demand and market conditions may be different from those projected by the
Company. This could have a material effect on operating results and financial
position. Inventory write downs during the six months ended June 30, 2003 and
2002, were $167,000 and $445,000, respectively.


Valuation of research and demonstration equipment

Equipment includes research and demonstration equipment, which is located in our
Applications Laboratory and is used to demonstrate to our customers the
capabilities of our equipment to process wafers and deposit films. The gross
value of demonstration equipment is based on the cost of materials and actual
factory labor and overhead expenses incurred in manufacturing the equipment.
Costs related to refurbishing or maintaining existing demonstration equipment,
which do not add to the capabilities or useful life of the equipment, are not
capitalized and are expensed as incurred. Demonstration equipment is stated at
cost and depreciated over a period of five years.  If the Company sells the
equipment, it may experience gross margins that are different from the gross
margins achieved on equipment manufactured specifically for customers.


                                       18
<PAGE>
RESULTS OF OPERATIONS
---------------------

     NET  SALES. Net sales for the three and six months ended June 30, 2003 were
$14.7  million  and  $32.4 million,  which  represented increase of 119% and 99%
when  compared  to  net  sales  of  $6.7  million  and  $16.3  million  for  the
corresponding  periods  in  2002.  The  increase  was  primarily attributable to
increased  orders  from our customers during the fourth quarter of 2002. Two 300
mm  CVD  systems and two 200mm ALD systems were recognized as revenue during the
second  quarter  of  2003 compared with one 200 mm CVD system and one 200 mm ALD
system  recognized  in  the  second quarter of 2002. During the six months ended
June  30, 2003, nine systems were recognized as revenue compared to five systems
in  the  first  six months of 2002. Genus currently expects revenue for the year
ending  December  31,  2003  to  be  between  $50  million  and  $60  million.

     COST  OF  GOODS SOLD. Cost of goods sold for the three and six months ended
June 30, 2003 were $10.8 million and $22.4 million, compared to $5.2 million and
$12.6  million  for  the  same  periods in 2002. Gross profit as a percentage of
revenues  was  27%  for the second quarter of 2003 compared to 23% in the second
quarter  of  2002.  Gross profit as a percentage of revenues was 31% for the six
months ended June 30, 2003 compared to 23% for the corresponding period in 2002.
The increase in gross margin during the three and six months ended June 30, 2003
compared  to  the  three and six months ended June 30, 2002 was primarily due to
higher  revenues and  increased manufacturing efficiencies.

     RESEARCH  AND  DEVELOPMENT. Research and development (R&D) expenses for the
quarter  ended  June  30,  2003 were $2.0 million, or 13% of net sales, compared
with  $1.8  million or 26% of net sales for the same period in 2002. For the six
months ended June 30, 2003, expenses were $4.1 million or 13% of sales, compared
to $4.0 million or 24% of net sales for the first half of 2002.

     SELLING,  GENERAL  AND  ADMINISTRATIVE. Selling, general and administrative
(SG&A)  expenses were $2.9 million and $6.0 million for the three and six months
ended  June  30,  2003  compared  to  $3.3  million  and  $6.7  million  in  the
corresponding  periods  in 2002. As a percent of net sales, selling, general and
administrative  expenses was 19% for the three and six months ended June 30,
2003  compared to  49% and 41% for the corresponding periods in 2002. The dollar
decreases  in selling, general and administrative expenses in first half of 2003
compared  with  corresponding  period in 2002 was mainly due to the reduction in
headcounts  of  $109,000  and a decrease of professional service expenses mostly
related  to  litigation  expenses  of  $590,000.

     INTEREST EXPENSE. Interest expenses for the three and six months ended June
30,  2003  was $477,000 and $907,000, respectively, compared to interest expense
of  $117,000 and $235,000 for the corresponding periods in 2002. The increase in
interest  expense  during the three and six months ended June 30, 2003, compared
with  the  corresponding  period  in  2002  was  primarily due to an increase in
interest  expenses  and  amortization  of discount and issuance costs related to
convertible  notes  that  were  issued  during  the  third  quarter  of  2002.

     OTHER INCOME (EXPENSE), NET. Other income (expenses), net for the three and
six months ended June 30, 2003 were $42,000 and $49,000 respectively compared to
other  income  (expenses),  net  of  $85,000 and ($52,000) for the corresponding
periods  in  2002.

     PROVISION  FOR  INCOME  TAXES.  We  did not record any provision for income
taxes in the U.S. and Japan for the three and six months ended June 30, 2003 and
2002,  as  we recorded losses in these entities. We provide for a full valuation


                                       19
<PAGE>
allowance  against  the  tax  benefit  associated  with these losses. We did not
record  any income tax expense for our South Korean subsidiary for the three and
six  months  ended  June  30,  2003,  as  compared  to  $88,000 recorded for the
corresponding periods in 2002.


LIQUIDITY  AND  CAPITAL  RESOURCES

     At  June  30,  2003,  our  cash  and cash equivalents were $10.9 million, a
$600,000  decrease  over  cash  and cash equivalents of $11.5 million held as of
December  31,  2002 .The reduction in cash and cash equivalents at June 30, 2003
as  compared  with  cash  and  cash  equivalents  balance  at  December 31, 2002
primarily  resulted from investment activities of $1.9 million, partially offset
by  cash  provided  by financing activities of $1.1 million and cash provided by
operations  of $198,000. Cash generated by operating activities totaled $198,000
for  the  six months ended June 30, 2003, and consisted primarily of net loss of
$950,000,  depreciation  of  $1.6 million, increase in deferred revenues of $2.5
million,  partially  offset  by  decreases  in accounts payable of $2.5 million.

     Financing activities provided cash of $1.1 million for the six months ended
June  30, 2003 and primarily consisted of proceeds from issuance of common stock
of  $1.3  million  partially  offset  by  payments  of  debt  of  $139,000.

     We  made capital expenditures of $1.9 million for the six months ended June
30, 2003. These expenditures were primarily related to purchase of demonstration
equipment.

     Our  primary source of funds at June 30, 2002 consisted of $10.9 million in
cash  and  cash equivalents, $7.8 million of accounts receivable, and our credit
line  of  up to $15 million with Silicon Valley Bank, of which $7.8 million, the
maximum  available  amount,  was  outstanding  at  June  30,  2003.

     A summary of our contractual obligations as of June 30, 2003 is as follows
(in thousands):

<TABLE>
<CAPTION>
                                          Less than                            After
                      Total   Revolving     1 year    1-3 years   4-5 years   5 years
                     -------  ----------  ----------  ----------  ----------  --------
<S>                  <C>      <C>         <C>         <C>         <C>         <C>
Silicon Valley Bank  $ 7,773  $    7,773  $        -  $        -  $        -  $      -
Citicapital              376         N/A         260         116           -         -
Convertible Notes*     6,975         N/A           -       6,975           -         -
Operating Leases      17,273         N/A       1,628       4,946       3,768     6,931
                     -------  ----------  ----------  ----------  ----------  --------
                     $32,397  $    7,773  $    1,888  $   12,037  $    3,768  $  6,931
                     =======  ==========  ==========  ==========  ==========  ========
<FN>
*In  the  event  of  a  change of control in the Company, the note holder may elect to
receive  repayment  of  the  notes  at  a  premium  of  10%.
</TABLE>

     The  Company  has  an accumulated deficit of $109 million and a net loss of
$950,000  during  the  six  months  ended  June  30, 2003 while cash provided by
operations  was  $198,000 during the six months ended June 30, 2003. The Company
is in the process of executing its business strategy and has plans to eventually
achieve  profitable  operations  on  an  ongoing basis. Management believes that
existing  cash,  cash  generated  by operations, and available financing will be
sufficient to meet projected working capital, capital expenditure and other cash
requirements  for  the  next twelve months. Management cannot provide assurances
that its cash and its future cash flows from operations alone will be sufficient
to  meet  operating requirements and allow the Company to service debt and repay
any  underlying  indebtedness  at  maturity.  If  the  Company  does not achieve


                                       20
<PAGE>
anticipated  cash  flows,  we  may  not  be able to meet planned product release
schedules  and forecast sales objectives. In such event the Company will require
additional  financing  to  fund  on-going and planned operations and may need to
implement  expense reduction measures. In the event the Company needs additional
financing,  there  is  no assurance that funds would be available to the Company
or, if available, under terms that would be acceptable to the Company.

RELATED  PARTY  TRANSACTIONS

     Mario  M.  Rosati,  a  Director  of the Company is also a partner of Wilson
Sonsini  Goodrich  & Rosati, the general counsel of the Company.  During the six
months  ended  June  30,  2003  and 2002, the Company paid $280,000 and $258,000
respectively,  to  Wilson  Sonsini  Goodrich  &  Rosati.  At  June 30, 2003, the
Company owed approximately $128,000 to Wilson Sonsini Goodrich & Rosati.




RECENT  ACCOUNTING  PRONOUNCEMENTS

     In  May 2003, the FASB issued Statement of Accounting Standards No. 150
("SFAS   150"),    "Accounting   for   Certain  Financial  Instruments  with
Characteristics  of both Liabilities and Equity." The Statement establishes
standards  for  how  an  issuer  classifies  and measures certain financial
instruments with characteristics of both liabilities and equity and further
requires  that  an  issuer  classify  as  a  liability (or an asset in some
circumstances)  financial  instruments  that  fall within its scope because that
financial  instrument  embodies  an obligation of the issuer. Many of such
instruments  were  previously  classified as equity. The statement is effective
for financial instruments entered into or modified after May 31, 2003,  and
otherwise  is  effective  at the beginning of the first interim period
beginning  after  June  15,  2003,  except for mandatory redeemable financial
instruments  of  nonpublic  entities.  The  Statement  is  to be implemented  by
reporting  the cumulative effect of a change in accounting principle for
financial instruments created before the issuance of the date of  the Statement
and still existing at the beginning of the interim period of  adoption.
Restatement  is  not permitted. The Company does not believe that  the  adoption
of  this  Statement will have a material impact on our
financial position, cash flows or results of operations.

     In April 2003, the FASB issued Statement of Accounting Standards No 149
("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies financial accounting and reporting of
derivative instruments and hedging activities under Statement of Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 149 amends SFAS 133 for decisions made: (i) as part of
the Derivatives Implementation Group process that require amendment to SFAS 133,
(ii) in connection with other FASB projects dealing with financial instruments,
and (iii) in connection with the implementation issues raised related to the
application of the definition of a derivative. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003 and for designated
hedging relationships after June 30, 2003. SFAS 149 will be applied
prospectively. The Company does not believe that the adoption of SFAS 149 will
have a material impact on our financial position, cash flows or results of
operations.


                                       21
<PAGE>
     In  November  2002,  the  EITF  reached  a  consensus  on  Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." EITF Issue No.
00-21  provides  guidance  on  how  to account for arrangements that involve the
delivery  or  performance  of  multiple  products, services and/or rights to use
assets.  The  provisions  of  EITF  Issue  No.  00-21  will  apply  to  revenue
arrangements  entered  into  in fiscal periods beginning after June 15, 2003. We
are  currently  assessing the impact of EITF Issue No. 00-21 on our consolidated
financial  statements.


RISK  FACTORS

     Sections of Management's Discussion and Analysis of Financial Condition and
Results  of  Operations contain forward-looking statements within the meaning of
Section  27A  of  the Securities Act of 1933, as amended, and Section 21E of the
Securities  and  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 the Risk
Factors  set  forth  below.


WE  HAVE  EXPERIENCED  LOSSES  OVER THE LAST FEW YEARS AND WE MAY NOT BE ABLE TO
ACHIEVE  OR  SUSTAIN  PROFITABILITY

     We  have experienced losses of $11.6 million, $6.7 million and $9.6 million
for  2002,  2001  and  2000,  respectively.

     While  we  believe our cash position, anticipated cash from operations, and
our  available  credit  facilities are sufficient for the next twelve months, we
cannot  provide  assurances  that  future  cash  flows  from  operations will be
sufficient to meet operating requirements and allow us to service debt and repay
any  underlying  indebtedness at maturity.   If we do not achieve the cash flows
that  we  anticipate,  we  may  not  be able to meet our planned product release
schedules  and  our  forecast  sales  objectives.  In such event we will require
additional  financing  to  fund  on-going and planned operations and may need to
implement further expense reduction measures, including, but not limited to, the
sale  of  assets,  the consolidation of operations, workforce reductions, and/or
the  delay, cancellation or reduction of certain product development, marketing,
licensing,  or other operational programs.  Some of these measures would require
third-party  consents  or  approvals,  including that of our bank, and we cannot
provide assurances that these consents or approvals will be obtained.  There can
be  no  assurance that we will be able to make additional financing arrangements
on  satisfactory  terms,  if  at  all, and our operations and liquidity would be
materially  adversely  affected.

     We  cannot  assure  our  shareholders  and  investors  that we will achieve
profitability  in  fiscal 2003 and beyond, nor can we provide assurances that we
will  achieve  the  sales  necessary  to avoid further expense reductions in the
future.


SUBSTANTIALLY  ALL  OF OUR NET SALES COME FROM A SMALL NUMBER OF LARGE CUSTOMERS

     In six month period ended June 30, 2003, Samsung Electronics Company, Ltd.,
Seagate  Technologies, Inc., IBM, and Selete accounted for 71%, 10%, 10%, and 5%
of  revenues, respectively. In the six month period ended June 30, 2002, Samsung
Electronics  Company accounted for 41% of our net revenues and Seagate accounted
for  49%  of  our  net  revenues.


                                       22
<PAGE>
     The  semiconductor  manufacturing  industry generally consists of a limited
number  of  larger companies. Consequently, we expect that a significant portion
of  our  future  product sales will continue to be concentrated within a limited
number  of  customers

     None  of  our  customers  has  entered  into  a long-term agreement with us
requiring  them  to  purchase  our  products.  If  any  of our customers were to
encounter  financial  difficulties  or  become unable to continue to do business
with  us  at  or  near  current  levels, our business, results of operations and
financial  condition  could  be materially harmed. Customers may delay or cancel
orders  or  may  stop  doing business with us for a number of reasons including:

     -    customer  departures  from  historical  buying  patterns;
     -    general  market  conditions;
     -    economic  conditions;  or
     -    competitive  conditions  in  the  semiconductor  industry  or  in  the
          industries  that  manufacture  products utilizing integrated circuits.

WE  DEPEND  UPON  A  LIMITED  NUMBER  OF  SUPPLIERS  FOR  MANY  COMPONENTS  AND
SUBASSEMBLIES,  AND SUPPLY SHORTAGES OR THE LOSS OF THESE SUPPLIERS COULD RESULT
IN  INCREASED  COST  OR  DELAYS  IN  THE  MANUFACTURE  AND SALE OF OUR PRODUCTS.

     We  rely  on  third  parties  to  manufacture  the  components  used in our
products.  Some  of our suppliers are sole or limited source.  In addition, some
of these suppliers are relatively small-undercapitalized companies that may have
difficulties  in  raising  sufficient funding to continue operations.  There are
risks associated with the use of independent suppliers, including unavailability
of  or  delays  in  obtaining  adequate  supplies  of components and potentially
reduced  control  of  quality,  production costs and timing of delivery.  We may
experience  difficulty  identifying  alternative  sources  of supply for certain
components  used  in our products.  In addition, the use of alternate components
may  require  design  alterations,  which  may  delay  installation and increase
product  costs.  These  components  may  not  be  available  in  the  quantities
required, on reasonable terms, or at all.  Financial or other difficulties faced
by  our  suppliers  or  significant  changes  in  demand for these components or
materials  could  limit their availability.  Any failures by these third parties
to  adequately  perform  may  impair our ability to offer our existing products,
delay the submission of products for regulatory approval, and impair our ability
to  deliver  products  on  a  timely  basis  or otherwise impair our competitive
position.  Establishing  our  own  capabilities  to manufacture these components
would  be  expensive  and  could significantly decrease our profit margins.  Our
business,  results  of  operations  and  financial  condition would be adversely
affected  if we were unable to continue to obtain components in the quantity and
quality  desired  and  at  the  prices  we  have  budgeted.


WE ARE SUBJECT TO RISKS BEYOND OUR CONTROL OR INFLUENCE AND ARE HIGHLY DEPENDENT
ON  OUR  INTERNATIONAL  SALES,  PARTICULARLY  SALES  IN  ASIAN  COUNTRIES

     Export sales accounted for approximately 87% of our total net sales for the
six  months  ended  June 30, 2003. Net sales to our South Korean-based customers
accounted for approximately 71% of total net sales for the six months ended June
30, 2003. Export sales accounted for approximately 72%, 93% and 98% of our total
net  sales  in  2002,  2001  and  2000,  respectively.  Net  sales  to our South
Korean-based customers accounted for approximately 56%, 73% and 92% of total net
sales  in  2002,  2001  and 2000, respectively. We anticipate that international
sales,  including  sales  to  South  Korea,  will  continue  to  account  for  a
significant  portion of our net sales. As a result, a significant portion of our
net  sales  will  be  subject  to  additional  risks,  including:


                                       23
<PAGE>
     -    unexpected  changes  in  foreign  law  or  regulatory  requirements;
     -    exchange  rate  volatility;
     -    tariffs  and  other  barriers;
     -    political  and  economic  instability;
     -    military  confrontation;
     -    Severe  Acute  Respiratory  Syndrome  (SARS);
     -    difficulties  in  accounts  receivable  collection;
     -    extended  payment  terms;
     -    difficulties  in  managing  distributors  or  representatives;
     -    difficulties  in  staffing  our  subsidiaries;
     -    difficulties  in  managing  foreign  operations;  and
     -    potentially  adverse  tax  consequences.

     Our  foreign  sales are primarily denominated in U.S. dollars and we do not
engage  in  hedging  transactions. As a result, our foreign sales are subject to
the  risks  associated  with  unexpected  changes in exchange rates, which could
increase  the  cost  of  our  products  to  our  customers  and could lead these
customers  to  delay  or  defer  their  purchasing  decisions.

     Wherever  currency  devaluations  occur  abroad,  our  goods  become  more
expensive  for  our  customers  in that country. In addition, difficult economic
conditions  may limit capital spending by our customers. These circumstances may
also  affect  the  ability  of  our customers to meet their payment obligations,
resulting  in  the  cancellations  or  deferrals  of  existing  orders  and  the
limitation  of  additional  orders.

OUR  SALES  REFLECT  THE  CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY, WHICH COULD
CAUSE  OUR  OPERATING  RESULTS  TO FLUCTUATE SIGNIFICANTLY AND COULD CAUSE US TO
FAIL  TO  ACHIEVE  ANTICIPATED  SALES

     Our  business  depends  upon  the  capital  expenditures  of  semiconductor
manufacturers, which in turn depend on the current and anticipated market demand
for  integrated circuits and products utilizing integrated circuits. Although we
are  marketing  our  atomic  layer  deposition  technology  to non-semiconductor
markets  such  as  magnetic  thin  film  heads,  flat  panel  displays,
micro-electromechanical  systems  and inkjet printers, we are still dependent on
sales  to  semiconductor  manufacturers.  The semiconductor industry is cyclical
which  impacts  the  semiconductor  industry's  demand  for  semiconductor
manufacturing  capital  equipment.

     Semiconductor industry downturns have significantly decreased our revenues,
operating  margins  and  results  of operations in the past. During the industry
downturn  in  1998, several of our customers delayed or cancelled investments in
new  manufacturing  facilities  and  equipment due to declining DRAM prices, the
Asian economic downturn, and general softening of the semiconductor market. This
caused  our  sales  in  1998  to  be significantly lower than in the prior three
years.

     After  the  dramatic  industry boom for semiconductor equipment that peaked
early  in  the  year 2000, another cyclical downturn is presently occurring. The
sharp  and  severe  industry  downturn in 2001 was the largest in the industry's
history. Almost all previous downturns have been solely due to pricing declines.
However,  the  2001  downturn  in the industry marked a corresponding decline in
unit  production,  as well as price reduction.  We expect that our revenues will
continue  to  be further impacted by the continued downturn in the semiconductor
industry  and  global economy, which may prevent us from increasing our revenues
and  achieving  profitability.


                                       24
<PAGE>
OUR  FUTURE  GROWTH  IS  DEPENDENT  ON  ACCEPTANCE  OF  NEW  PRODUCTS AND MARKET
ACCEPTANCE  OF  OUR  SYSTEMS  RELATING  TO  THOSE  PRODUCTS

     We  believe  that  our  future  growth  will  depend in large part upon the
acceptance  of  our  new  thin  films and processes, especially our atomic layer
deposition  technology. As a result, we expect to continue to invest in research
and  development  in  these new thin films and the systems that use these films.
There  can  be no assurance that the market will accept our new products or that
we  will  be  able  to develop and introduce new products or enhancements to our
existing  products and processes in a timely manner to satisfy customer needs or
achieve  market  acceptance.  The  failure  to  do  so,  or  even a delay in our
introduction of new products or enhancements, could harm our business, financial
condition  and  results  of  operations.

     We  must  manage  product transitions successfully, as introductions of new
products  could harm sales of existing products. We derive our revenue primarily
from  the  sale of equipment used to chemically deposit tungsten silicide in the
manufacture  of memory chips. We estimate that the life cycle for these tungsten
silicide  deposition  systems is three-to-ten years. There is a risk that future
technologies, processes or product developments may render our product offerings
obsolete  and  we  may  not  be  able  to  develop and introduce new products or
enhancements  to  our  existing  products  in  a  timely  manner  or  at  all.


WE MAY NOT BE ABLE TO CONTINUE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE
SEMICONDUCTOR  INDUSTRY  AGAINST  COMPETITORS  WITH  GREATER  RESOURCES

     The  semiconductor  manufacturing  capital  equipment  industry  is  highly
competitive.  We  face  substantial competition throughout the world. We believe
that  to  remain competitive, we will require significant financial resources to
develop  new products, offer a broader range of products, establish and maintain
customer  service  centers  and  invest  in  research  and  development.

     Many  of  our existing and potential competitors have substantially greater
financial  resources,  more extensive engineering, manufacturing, marketing, and
customer  service  capabilities  and  greater  name  recognition.  We expect our
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  our  competitors  enter  into  strategic  relationships  with  leading
semiconductor manufacturers covering thin film products similar to those sold by
us,  it  would  materially  adversely affect our ability to sell our products to
such  manufacturers.  In addition, to expand our sales we must often replace the
systems  of our competitors or sell new systems to customers of our competitors.
Our competitors may develop new or enhanced competitive products that will offer
price  or performance features that are superior to our systems. Our competitors
may  also  be  able  to respond more quickly to new or emerging technologies and
changes  in  customer  requirements,  or  to  devote  greater  resources  to the
development,  promotion  and  sale of their product lines. We may not be able to
maintain  or  expand  our  sales  if  our  resources  do not allow us to respond
effectively  to  such  competitive  forces.

WE  MAY  NOT ACHIEVE ANTICIPATED REVENUE GROWTH IF WE ARE NOT SELECTED AS VENDOR
OF  CHOICE  FOR  NEW  OR  EXPANDED FABRICATION FACILITIES AND IF OUR SYSTEMS AND
PRODUCTS  DO  NOT  ACHIEVE  BROADER  MARKET  ACCEPTANCE

     Because  semiconductor  manufacturers must make a substantial investment to
install  and  integrate  capital  equipment  into  a  semiconductor  fabrication


                                       25
<PAGE>
facility,  these  manufacturers  will  tend  to  choose  semiconductor equipment
manufacturers  based  on  established  relationships,  product compatibility and
proven  system  performance.

     Once  a  semiconductor  manufacturer  selects a particular vendor's capital
equipment,  the  manufacturer  generally relies for a significant period of time
upon  equipment  from  this  vendor  of  choice for the specific production line
application.  To  do  otherwise  creates  risk  for the manufacturer because the
manufacture  of  a  semiconductor  requires many process steps and a fabrication
facility will contain many different types of machines that must work cohesively
to  produce  products  that  meet the customers' specifications. If any piece of
equipment  fails  to  perform  as expected, the customer could incur significant
costs related to defective products, production line downtime, or low production
yields.

     A  semiconductor  manufacturer  frequently  will attempt to consolidate its
other  capital  equipment requirements with the same vendor. Accordingly, we may
face  narrow  windows of opportunity to be selected as the "vendor of choice" by
potential  new  customers.  It  may  be difficult for us to sell to a particular
customer  for  a  significant  period  of  time  once  that  customer  selects a
competitor's  product,  and  we  may  not  be  successful  in  obtaining broader
acceptance  of our systems and technology. If we are not able to achieve broader
market  acceptance  of  our systems and technology, we may be unable to grow our
business  and  our  operating  results  and  financial condition will be harmed.

OUR  LENGTHY  SALES  CYCLE INCREASES OUR COSTS AND REDUCES THE PREDICTABILITY OF
OUR  REVENUE

     Sales  of our systems depend upon the decision of a prospective customer to
increase  manufacturing capacity. That decision typically involves a significant
capital  commitment  by  our customers. Accordingly, the purchase of our systems
typically  involves  time-consuming  internal  procedures  associated  with  the
evaluation,  testing,  implementation  and introduction of new technologies into
our  customers'  manufacturing  facilities.  For  many  potential  customers, an
evaluation  as  to  whether  new semiconductor manufacturing equipment is needed
typically  occurs  infrequently.  Following  an evaluation by the customer as to
whether  our systems meet its qualification criteria, we have experienced in the
past  and  expect  to experience in the future delays in finalizing system sales
while  the  customer  evaluates  and  receives  approval for the purchase of our
systems and constructs a new facility or expands an existing facility.

     Due  to  these  factors,  our  systems typically have a lengthy sales cycle
during  which  we  may  expend substantial funds and management effort. The time
between  our  first  contact  with a customer and the customer placing its first
order  typically  lasts  from  nine  to  twelve months and is often longer. This
lengthy  sales  cycle makes it difficult to accurately forecast future sales and
may  cause  our  quarterly and annual revenue and operating results to fluctuate
significantly  from  period  to  period.  If anticipated sales from a particular
customer  are  not  realized  in  a  particular period due to this lengthy sales
cycle, our operating results may be adversely affected for that period.

IF  WE  ARE  FOUND  TO  INFRINGE  THE  PATENTS OR INTELLECTUAL PROPERTY OF OTHER
PARTIES, OUR ABILITY TO GROW OUR BUSINESS MAY BE SEVERELY LIMITED.

     From  time  to  time,  we  may  receive notices from third parties alleging
infringement  of  patents  or  intellectual property rights. It is our policy to
respect all parties' legitimate intellectual property rights, and we will defend
against such claims or negotiate licenses on commercially reasonable terms where
appropriate.  However,  no  assurance  can  be  given  that  we  will be able to
negotiate  any  such  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  our  business  and  financial  results.


                                       26
<PAGE>
     Litigation  is  time consuming, expensive and its outcome is uncertain.  We
may  not prevail in any litigation in which we are involved.  Should we be found
to  infringe  any  of  the  patents  asserted or any other intellectual property
rights  of  others, in addition to potential monetary damages and any injunctive
relief  granted,  we  may  need  either to obtain a license to commercialize our
products  or  redesign  our  products  so they do not infringe any third party's
intellectual  property.  If  we  are  unable  to  obtain  a  license  or adopt a
non-infringing  product  design, we may not be able to proceed with development,
manufacture  and  sale  of  our  products,  which  would  have  an immediate and
materially  adverse  impact  on  our  business  and  our  operating  results.

WE  ARE  DEPENDENT  UPON  KEY  PERSONNEL  WHO ARE EMPLOYED AT WILL, WHO WOULD BE
DIFFICULT TO REPLACE AND WHOSE LOSS WOULD IMPEDE OUR DEVELOPMENT AND SALES

     We  are highly dependent on key personnel to manage our business, and their
knowledge  of  business,  management  skills  and  technical  expertise would be
difficult  to replace. Our success depends upon the efforts and abilities of Dr.
William  W.R.  Elder,  our  chairman  and chief executive officer, Dr. Thomas E.
Seidel,  our  chief  technology  officer, and other key managerial and technical
employees.  The  loss  of  Dr.  Elder or Dr. Seidel or other key employees could
limit  or  delay our ability to develop new products and adapt existing products
to  our customers' evolving requirements and would also result in lost sales and
diversion of management resources. None of our executive officers are bound by a
written  employment  agreement,  and the relationships with our employees are at
will.

     Because  of  competition  for additional qualified personnel, we may not be
able to recruit or retain necessary personnel, which could impede development or
sales  of  our products. Our growth depends on our ability to attract and retain
qualified,  experienced  employees.  There  is  substantial  competition  for
experienced  engineering, technical, financial, sales and marketing personnel in
our  industry.  In  particular, we must attract and retain highly skilled design
and  process  engineers. Competition for such personnel is intense, particularly
in the San Francisco bay area where we are based. If we are unable to retain our
existing key personnel, or attract and retain additional qualified personnel, we
may  from  time  to  time  experience  inadequate levels of staffing to develop,
market, or manufacture our products or to perform services for our customers. As
a result, our growth could be limited due to our lack of capacity to develop and
market our products to customers, or our failure to meet delivery commitments or
our  service  levels  could  lead  to  customer  dissatisfaction.


OUR FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD RESULT IN SUBSTANTIAL
LIABILITY  TO  US

     We  are  subject  to  a variety of federal, state and local laws, rules and
regulations  relating  to  the  protection  of health and the environment. These
include  laws,  rules  and  regulations  governing  the use, storage, discharge,
release,  treatment  and  disposal  of  hazardous  chemicals  during  and  after
manufacturing,  research and development and sales demonstrations. If we fail to
comply  with  present  or future regulations, we could be subject to substantial
liability  for  clean  up efforts, property damage, personal injury and fines or
suspension  or  cessation  of  our  operations.

     We  use  the  following  regulated  gases  at our manufacturing facility in
Sunnyvale:  tungsten hexafluoride, dichlorosilane silicide, silane and nitrogen.
We  also  use regulated liquids such as hydrofluoric acid and sulfuric acid. The
city  of  Sunnyvale,  California, where our facilities are located, imposes high
environmental  standards  to  businesses  operating  within  the city. Genus has
received  an  operating license from Sunnyvale. Presently, our compliance record
indicates  that  our  methods  and practices successfully meet standards. Moving
forward,  if  we  fail  to  continuously  maintain high standards to prevent the
leakage  of any toxins from our facilities into the environment, restrictions on


                                       27
<PAGE>
our  ability  to  expand  or  continue to operate our present locations could be
imposed  upon us or we could be required to acquire costly remediation equipment
or  incur  other  significant  expenses.

WE  DEPEND  UPON  SIX  INDEPENDENT  SALES  REPRESENTATIVES  FOR  THE SALE OF OUR
PRODUCTS AND ANY DISRUPTION IN THESE RELATIONSHIPS WOULD ADVERSELY AFFECT US

     We  currently  sell and support our thin film products through direct sales
and customer support organizations in the United States, Europe, South Korea and
Japan  and through six independent sales representatives and distributors in the
United  States,  Europe, South Korea, Taiwan, China and Malaysia. We do not have
any  long-term  contracts  with  our sales representatives and distributors. Any
disruption  or  termination  of  our  existing  distributor  relationships could
negatively  impact  sales  and  revenue.

WE  ESTABLISHED  A  DIRECT SALES ORGANIZATION IN JAPAN AND WE MAY NOT SUCCEED IN
EFFECTIVELY  PENETRATING  THE  JAPANESE  MARKETPLACE

     In  2000,  we  invested  significant  resources  in Japan by establishing a
direct  sales  organization,  Genus-Japan,  Inc.  To  date,  we have had limited
success  in penetrating in Japanese semiconductor industry. Although we continue
to  invest  significant  resources  in  our  Japan office, we may not be able to
attract  new  customers in the Japanese semiconductor industry, and as a result,
we  may  fail  to  yield  a  profit or return on our investment in our office in
Japan.

THE  PRICE  OF  OUR  COMMON STOCK HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO
FLUCTUATE  SIGNIFICANTLY IN THE FUTURE, WHICH MAY LEAD TO LOSSES BY INVESTORS OR
TO  SECURITIES  LITIGATION

     Our common stock has experienced substantial price volatility, particularly
as  a  result  of  quarter-to-quarter  variations in our, our competitors or our
customers'  actual  or  anticipated  financial  results,  our competitors or our
customers'  announcements  of  technological  innovations,  revenue  recognition
policies,  changes in earnings estimates by securities analysts and other events
or  factors.  Also,  the stock market has experienced extreme price 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 we do
business,  may  adversely  affect  the  market  price  of  our  common  stock.

BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS

     Our  operations  are  vulnerable to interruption by fire, earthquake, power
loss, telecommunications failure and other events beyond our control. A disaster
could  severely damage our ability to deliver our products to our customers. Our
products  depend  on our ability to maintain and protect our operating equipment
and  computer  systems,  which  are  primarily  located in or near our principal
headquarters  in Sunnyvale, California. Sunnyvale exists near a known earthquake
fault  zone.  Although  our  facilities  are  designed to be fault tolerant, the
systems  are  susceptible  to damage from fire, floods, earthquakes, power loss,
telecommunications  failures,  and  similar events. Although we maintain general
business  insurance against interruptions such as fires and floods, there can be
no  assurance  that  the  amount  of coverage will be adequate in any particular
case.

WE  ARE  OBLIGATED  TO  ISSUE  SHARES  OF  OUR  STOCK UNDER OUTSTANDING OPTIONS,
WARRANTS  AND  CONVERTIBLE  NOTES  AND SUCH ISSUANCE WILL DILUTE YOUR PERCENTAGE
OWNERSHIP  IN  GENUS

     As  of  June  30,  2003,  we have approximately 10,933,000 shares of common
stock  underlying  outstanding  employee stock options, warrants and convertible
notes.  Of  the  stock  options, 1,827,000 shares are exercisable as of June 30,
2003.


                                       28
<PAGE>
2,742,000  underlying  the  warrants,  and  4,912,000  shares  underlying  the
convertible  notes are currently exercisable. Some warrants have terms providing
for  an  adjustment of the number of shares underlying the warrants in the event
that  we  issue  new  shares  at  a  price  lower than the exercise price of the
warrants,  where  we  make a distribution of common stock to our shareholders or
effect  a  reclassification.

     If  all  of  the  shares  underlying  the exercisable options, warrants and
convertible  notes  were  exercised  and sold in the public market, the value of
your  current  holdings in Genus may decline because there may not be sufficient
demand  to  purchase  the increased number of shares that would be available for
sale.


WE  HAVE  IMPLEMENTED  ANTI-TAKEOVER  MEASURES  THAT MAY RESULT IN DILUTING YOUR
PERCENTAGE  OWNERSHIP  OF  GENUS  STOCK

     On September 7, 2000, the Company's Board of Directors declared a dividend
pursuant to a newly adopted Share Purchase Rights Plan, which replaced a similar
earlier plan that had expired on July 3, 2000.  The intended purpose of the
Rights Plan is to protect shareholders' rights and to maximize share value in
the event of an unfriendly takeover attempt.  As of the record date of October
13, 2000, each share of common stock of Genus, Inc. outstanding was granted one
right under the new plan.  Each right is exercisable only under certain
circumstances and upon the occurrence of certain events and permits the holder
to purchase from the Company one one-thousandth (0.001) of a share of Series C
Participating Preferred Stock at an initial exercise price of forty dollars
($40.00) per one one-thousandth share.  The 50,000 shares of Series C preferred
stock authorized in connection with the Rights Plan will be used for the
exercise of any preferred shares purchase rights in the event that any person or
group (the Acquiring Person) acquires beneficial ownership of 15% or more of the
outstanding common stock.  In such event, the shareholders (other than the
Acquiring Person) would receive common stock of the Company having a market
value of twice the exercise price.  Subject to certain restrictions, the Company
may redeem the rights issued under the Rights Plan for $0.001 per right and may
amend the Rights Plan without the consent of rights holders.  The rights will
expire on October 13, 2010, unless redeemed by the Company.

     In  the  event  that  circumstances  trigger  the  transferability  and
exercisability  of  rights  granted in our Rights Plan, your current holdings in
Genus  may decline as a result of dilution to your percentage ownership in Genus
or as a result of a reduction in the per share value of our stock resulting from
the  increase  in the number of outstanding shares available and your failure to
exercise  your  rights  under  the  Rights  Plan.

     In  the  event  of a change of control of the Company, the convertible note
holders may elect to receive repayment of the notes at a premium of 10% over the
face  value  of  the  notes.


FORWARD-LOOKING  STATEMENTS

     We  make  forward-looking statements in this 10-Q report that may not prove
to  be  accurate.

     This 10-Q report contains or incorporates 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  regarding,  among other items, our business
strategy,  growth  strategy  and anticipated trends in our business. We may make
additional  written  or  oral  forward-looking  statements  from time to time in
filings  with  the  Securities and Exchange Commission or otherwise. When we use
the  words "believe," "expect," "anticipate," "project" and similar expressions,
this  should  alert  you  that  this  is  a  forward-looking  statement.


                                       29
<PAGE>
     We  base  these  forward-looking  statements  on our expectations. They are
subject  to  a  number  of  risks  and  uncertainties  that cannot be predicted,
quantified  or  controlled.  Future  events  and  actual  results  could  differ
materially  from  those  set  forth  in,  contemplated  by,  or  underlying  the
forward-looking  statements.

     Statements  in  this  10-Q report, including those set forth above in "Risk
Factors,",  and  in  documents  incorporated  into  this  10-Q  report, describe
factors,  among  others, that could contribute to or cause these differences. In
light  of  these  risks  and  uncertainties,  there can be no assurance that the
forward-looking information contained in this 10-Q report will in fact transpire
or  prove  to  be  accurate.  All  subsequent  written  and oral forward-looking
statements  attributable  to  us  or  persons acting on our behalf are expressly
qualified  in  their  entirety  by  this  section.

     Statements  in  this  report,  including  those  set  forth  above in "Risk
Factors,"  and  in  documents  incorporated  into this report, describe factors,
among  others, that could contribute to or cause these differences.  In light of
these  risks  and  uncertainties,  there  can  be  no  assurance  that  the
forward-looking  information  contained in this report will in fact transpire or
prove  to  be  accurate.  All  subsequent  written  and  oral  forward-looking
statements  attributable  to  us  or  persons acting on our behalf are expressly
qualified  in  their  entirety  by  this  section.


ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     We  face  exposure to adverse movements in foreign currency exchange rates.
These  exposures may change over time as our business practices evolve and could
seriously  harm  our  financial  results. All of our international sales, except
spare  parts  and  service  sales  made  by  our  subsidiary in South Korea, are
currently denominated in U.S. dollars. The spare parts and service sales of $4.2
million  for  six  months  ended  June  30,  2003  generated by the South Korean
subsidiary  are  WON  denominated.  An  increase in the value of the U.S. dollar
relative  to  foreign  currencies  could  make  our products more expensive and,
therefore,  reduce  the demand for our products. Reduced demand for our products
could  materially  adversely  affect  our  business,  results  of operations and
financial  condition.

     We have both fixed rate and floating rate interest obligations.  Fixed rate
obligations  may  result  in  interest  expenses  in  excess  of market rates if
interest  rates  fall,  while floating rate obligations may result in additional
interest  costs  if interest rates rise.  An increase of one percentage point in
interest  rates  would  not  materially  impact  the  results of our operations.

     At  any time, fluctuations in interest rates could affect interest earnings
on  our cash, cash equivalents or increase any interest expense owed on the line
of  credit  facility. We believe that the effect, if any, of reasonably possible
near  term  changes  in  interest  rates  on  our financial position, results of
operations  and  cash  flows  would  not be material. Currently, we do not hedge
these  interest  rates  exposures.



ITEM  4.  CONTROLS  AND  PROCEDURES

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.  Our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that our disclosure controls and procedures are effective
to ensure that information we are required to disclose in reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,


                                       30
<PAGE>
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

     CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.  There was no change
in our internal control over the financial reporting that occurred during the
period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

     During  the  fiscal  2002  financial  reporting  process,  management,  in
consultation with the Company's independent accountants, identified deficiencies
involving  internal  controls  over  inventories,  warranties  and the Company's
Korean  operations  which  constituted  a "Reportable Condition" under standards
established  by  the  American  Institute  of  Certified  Public  Accountants.
Management  believes  that these matters have not had any material impact on our
financial  statements.  Management  established  a  project  plan  and is in the
process  of  implementing  processes and controls to address these deficiencies.
Development  is  ongoing  and  implementation/completion  of  this  project  is
anticipated  in  late  2003/early  2004.



PART  II.  OTHER  INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

The  information  required  by  this  Part  II, Item 1 is incorporated herein by
reference  to  that  certain disclosure under the caption "Legal Proceedings" in
Part  I,  Item  1  of  this  Form  10-Q


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

THE  COMPANY'S  ANNUAL  MEETING  OF  SHAREHOLDERS  WAS  HELD ON JUNE 12, 2003 IN
SUNNYVALE,  CALIFORNIA.  PROXIES  FOR  THE  MEETING  WERE  SOLICITED PURSUANT TO
REGULATION  14A.  AT THE COMPANY'S ANNUAL MEETING, THE SHAREHOLDERS APPROVED THE
FOLLOWING  RESOLUTIONS:

(1)  Election of the following persons as directors.

        Director                    In  Favor     Withheld
        --------                   ----------     --------
        William  W.  R.  Elder     24,491,630     432,692
        G.  Frederick  Forsyth     24,578,475     345,847
        Todd  S.  Myhre            24,544,275     380,047
        Mario  M.  Rosati          24,541,070     383,252
        Robert  J.  Richardson     24,581,475     342,847

(2)  Amendment to the 1989 Employee Stock Purchase Plan increasing the number of
shares reserved for issuance thereunder by 300,000 additional shares.

        For:                       9,718,973
        Against:                   1,439,842
        Abstain:                     143,410
        Broker  Non-Vote:         13,622,097


                                       31
<PAGE>
(3)  Amendment  to  the  2000  Stock Option Plan increasing the number of shares
reserved for issuance thereunder by 1,000,000 additional shares.

        For:                       7,786,600
        Against:                   3,381,494
        Abstain:                     134,131
        Broker  Non-Vote:         13,622,097


(4)  Amendment  to  the  1989 Employee Stock Purchase Plan and 2000 stock option
plan  to  provide  for  an  annual  increase.

        For:                       7,977,004
        Against:                   3,184,980
        Abstain:                     140,241
        Broker  Non-Vote:         13,622,097

(5)  Amendment  to the Company's Amended and Restated Articles of Incorporation.

        For:                      22,668,332
        Against:                   2,133,801
        Abstain:                     122,089
        Broker  Non-Vote:                  0

(6)  Ratification  and  appointment of PricewaterhouseCoopers LLP as independent
accountants.

        For:                      24,561,332
        Against:                     289,276
        Abstain:                      73,714
        Broker Non-Vote:                   0



ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  Exhibits

Exhibit
    No.     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 (13)
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 of Rights, Preferences and Privileges of
      Series A Convertible Preferred Stock (14)


                                       32
<PAGE>
4.5   Certificate of Determination of Rights, Preferences and Privileges of
      Series B Convertible Preferred Stock (17)
4.6   Redemption and Exchange Agreement, dated July 16, 1998, among the
      Registrant and the Investors (17)
4.7   Registration Rights Agreement, dated January 17, 2002, as amended, amongst
      the Registrant and the Investors (20)
4.8   Securities Purchase Agreement dated July 31, 2002 among the Company and
      the Purchasers signatory thereto. (21)
4.9   Resale Registration Rights Agreement dated August 14, 2002 among the
      Company and the Purchasers signatory thereto. (21)
4.10  7% Convertible Subordinated Note Due 2005 dated August 14, 2002. (21)
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  Registrant's 2000 Stock Plan (19)
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)
10.18 Settlement Agreement and Mutual Release, dated April 20, 1998,
      between Registrant and James T. Healy (16)
10.19 Form of Change of Control Severance Agreement (16)
10.20 Settlement Agreement and Mutual Release, dated January 1998, between
      the Registrant and John Aldeborgh (18)
10.21 Settlement Agreement and Mutual Release, dated May 1998, between the
      Registrant and Mary Bobel (18)
31    Certification of Chief Executive Officer and Chief Financial Officer
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32    Certification of Chief Executive Officer and Chief Financial Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.

-----------------------


                                       33
<PAGE>
(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, 1998.
(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.
(17) Incorporated by reference to the exhibit filed with the Registrant's
     Current Report on Form 8-K dated July 29, 1998.
(18) Incorporated by reference to the exhibit filed with the Registrant's
     Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1998.
(19) Incorporated by reference to the exhibit filed with the Registrant's Annual
     Report on Form 10-K for the year ended December 31, 2000.
(20) Incorporated by reference to the exhibit filed with the Registrant's
     Current Report on Form 8-K dated January 25, 2002.
(21) Incorporated by reference to the exhibit filed with the Registrant's
     Current Report on Form 8-K dated August 20, 2002.

(b)  Report  of  Form  8-K

We filed the following  current report on Form 8-K with the SEC during the three
months  ended  June  30,  2003:


                                       34
<PAGE>
1)  On  April  28, 2003, we furnished the press release of our financial results
for  the  three  and  six  months  ended  March  31,  2003.


                                       35
<PAGE>
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:  August  13,  2003
       GENUS,  INC.



     /s/     William  W.R.  Elder

     ---------------------------
     William  W.R.  Elder,  President,
     Chief  Executive  Officer  and  Chairman



     /s/  Shum  Mukherjee

     ---------------------------
     Shum  Mukherjee
     Chief  Financial  Officer
     (Principal  Financial  and  Principal
     Accounting  Officer)


                                       36
<PAGE>