<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___ TO ___

COMMISSION FILE NUMBER 0-17139

                                 GENUS, INC.
            (Exact name of registrant as specified in its charter)

                California                                 94-279080
-------------------------------------------------------------------------------
      (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                  Identification No.)

     1139 Karlstad Drive, Sunnyvale, California              94089
-------------------------------------------------------------------------------
      (Address of principal executive offices)             (Zip code)

                                (408) 747-7120
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                Not Applicable
-------------------------------------------------------------------------------
             (Former name, former address and former fiscal year, 
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                              Yes   X         No
                                  -----          -----

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date:

Common shares outstanding at August 7, 1998:              17,361,162
                                                        --------------
<PAGE>

                       PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                        GENUS, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED    SIX MONTHS ENDED 
                                                      JUNE 30,             JUNE 30, 
                                                 1998        1997      1998       1997 
                                               --------    --------  --------   --------
<S>                                            <C>         <C>       <C>        <C>
Net sales                                      $ 12,970    $ 19,351  $ 20,208   $ 39,032 
         
Costs and expenses:         
 Cost of goods sold                              11,718      11,540    18,659     23,853 
 Research and development                         2,939       3,058     6,271      6,249 
 Selling, general and administrative              5,683       4,189     9,906      8,056 
 Special charge                                  11,222           -    11,222          - 
                                               --------    --------  --------   --------
The decrease in the Company's license revenue during the quarter ended 
June[nb]30, 1998 and the six[cad 220]month period then ended as compared to such 
periods for fiscal 1997 may be attributable to a number of factors, including 
an overall decrease in the revenue growth rates in the RDBMS industry which 
has continued during the first half of 1998. The decrease in revenue growth 
rates during 1997 and the first half of 1998 has resulted in heightened 
competition in the RDBMS industry worldwide. In addition, the continued 
uncertainty in the Asian Pacific economies and financial markets has 
contributed to the Company's decreased license revenue in that geographic 
area. Furthermore, the Company's sales in Europe continued to be adversely 
affected by the changes to the Company's European management in the fourth 
quarter of fiscal 1997 and the first quarter of fiscal 1998. International 
Revenues as a whole were unfavorably affected in the quarter ending June[nb]
30, 1998 and the six month period then ended when compared to such periods in 
fiscal 1997 as a result of the strengthening of the U.S.[nb]dollar against 
certain major international currencies.

The decrease in the Company's license revenue during the quarter ended 
June[nb]30, 1998 and the six[cad 220]month period then ended as compared to such 
periods for fiscal 1997 may be attributable to a number of factors, including 
an overall decrease in the revenue growth rates in the RDBMS industry which 
has continued during the first half of 1998. The decrease in revenue growth 
rates during 1997 and the first half of 1998 has resulted in heightened 
competition in the RDBMS industry worldwide. In addition, the continued 
uncertainty in the Asian Pacific economies and financial markets has 
contributed to the Company's decreased license revenue in that geographic 
area. Furthermore, the Company's sales in Europe continued to be adversely 
affected by the changes to the Company's European management in the fourth 
quarter of fiscal 1997 and the first quarter of fiscal 1998. International 
Revenues as a whole were unfavorably affected in the quarter ending June[nb]
30, 1998 and the six month period then ended when compared to such periods in 
fiscal 1997 as a result of the strengthening of the U.S.[nb]dollar against 
certain major international currencies.

 Income (loss) from operations                 (18,592)        564   (25,850)       874 
         
Other, net                                         (237)        (82)     (393)       (97)
                                               --------    --------  --------   --------
 Income (loss) before income taxes              (18,829)        482   (26,243)       777 
         
Provision for income taxes                            -         186         -        300 
                                               --------    --------  --------   --------
 Net income (loss)                              (18,829)        296   (26,243)       477 
         
 Deemed dividends on preferred stock                (74)          -    (1,903)         - 
                                               --------    --------  --------   --------
 Net income (loss) available to 
 common shareholders                           $(18,903)   $    296  $(28,146)  $    477 
                                               --------    --------  --------   --------
                                               --------    --------  --------   --------
Net income (loss) available to common 
shareholders per common share and per 
common share assuming dilution                 $  (1.10)   $   0.02  $  (1.64)  $   0.03 
                                               --------    --------  --------   --------
                                               --------    --------  --------   --------
Comprehensive income (loss)                    $(18,656)   $    321  $(25,809)  $    390 
                                               --------    --------  --------   --------
                                               --------    --------  --------   --------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       2
<PAGE>

                        GENUS, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                              UNAUDITED    AUDITED 
                                                               JUNE 30,   DECEMBER 31, 
                                                                 1998        1997 
                                                               --------    --------
<S>                                                            <C>         <C>
ASSETS     
Current assets:     
 Cash and cash equivalents                                     $  3,754    $  8,700 
 Accounts receivable (net of allowance for doubtful 
 accounts of $497 in 1998 and $1,097 in 1997)                    11,855      19,469 
 Inventories                                                      5,173      28,986 
 Net assets held for sale                                        25,130           - 
 Other current assets                                               778       1,029 
                                                               --------    --------
  Total current assets                                           46,690      58,184 
      
 Property and equipment, net                                      4,628      15,276 
 Other assets, net                                                  734       3,278 
                                                               --------    --------
  Total assets                                                 $ 52,052    $ 76,738 
                                                               --------    --------
                                                               --------    --------
LIABILITIES     
Current liabilities:     
 Short term bank borrowings                                    $  2,800    $  7,200 
 Accounts payable                                                11,527       8,723 
 Accrued expenses                                                10,205      10,613 
 Current portion of long-term debt                                    -         874 
                                                               --------    --------
  Total current liabilities                                      24,532      27,410 
     
 Long-term debt, less current portion                                36         971 
                                                               --------    --------
  Total liabilities                                              24,568      28,381 
                                                               --------    --------

SHAREHOLDERS' EQUITY     
Preferred stock, no par value:     
 Authorized, 2,000,000 shares; 
 Issued and outstanding 98,000 shares at June 30, 1998 
 and none at December 31, 1997                                    6,098           - 
Common stock, no par value:     
 Authorized 50,000,000 shares; 
 Issued and outstanding 17,314,141 shares at 
 June 30, 1998 and 17,120,628 shares at 
 December 31, 1997                                               99,779      99,149 
Accumulated deficit                                             (76,898)    (48,863) 
Cumulative translation adjustment                                (1,495)     (1,929) 
                                                               --------    --------
 Total shareholders' equity                                      27,484      48,357 
                                                               --------    --------
  Total liabilities and shareholders' equity                   $ 52,052    $ 76,738 
                                                               --------    --------
                                                               --------    --------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       3
<PAGE>

                        GENUS, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED 
                                                                  JUNE 30, 
                                                           ---------------------
                                                             1998         1997 
                                                           --------     --------
<S>                                                        <C>          <C>
Cash flows from operating activities:     
 Net income (loss)                                         $(26,243)    $    477 
 Adjustments to reconcile net income (loss) to net cash 
 from operating activities:       
  Depreciation and amortization                               1,863        2,420 
  Special Charge                                             11,222            - 
  Changes in assets and liabilities:     
   Accounts receivable                                        7,702       (9,973) 
   Inventories                                                 (662)       1,629 
   Other current assets                                         251         (222) 
   Accounts payable                                           2,804        1,630 
   Accrued expenses                                            (620)        (764) 
   Other, net                                                  (817)         113 
                                                           --------     --------
    Net cash used in operating activities                    (4,500)      (4,690) 
                                                           --------     --------
Cash flows from investing activities:     
 Acquisition of property and equipment                         (373)        (390) 
                                                           --------     --------
  Net cash used in investing activities                        (373)        (390) 
                                                           --------     --------
Cash flows from financing activities:     
 Proceeds from issuance of common stock                         121          715 
 Proceeds from issuance of preferred stock and 
 warrants, net                                                4,815            - 
 Proceeds from short-term bank borrowings                         -       10,346 
 Payments of short-term bank borrowings                      (4,400)      (5,500) 
 Payments of long-term debt                                    (739)        (814) 
                                                           --------     --------
  Net cash provided by financing activities                    (203)       4,747 
                                                           --------     --------

Effect of exchange rate changes on cash                         130          (14) 
Net decrease in cash and cash equivalents                    (4,946)        (347) 
Cash and cash equivalents, beginning of period                8,700       11,827 
                                                           --------     --------
Cash and cash equivalents, end of period                   $  3,754     $ 11,480 
                                                           --------     --------
                                                           --------     --------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       4
<PAGE>

                        GENUS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          JUNE 30, 1998 (UNAUDITED)

BASIS OF PRESENTATION

     The accompanying consolidated financial statements have been prepared in 
accordance with SEC requirements for interim financial statements.  These 
financial statements should be read in conjunction with the consolidated 
financial statements and notes thereto included in the Company's 1997 Annual 
Report on Form 10-K/A.

     The information furnished reflects all adjustments (consisting only of 
normal recurring adjustments) which are, in the opinion of management, 
necessary for the fair statement of financial position, results of operations 
and cash flows for the interim periods.  The results of operations for the 
interim periods presented are not necessarily indicative of results to be 
expected for the full year.

NET INCOME (LOSS) PER SHARE

     Basic net income (loss) per share is computed by dividing income (loss) 
available to common shareholders by the weighted average number of common 
shares outstanding for the period.  Diluted net income (loss) per share is 
computed by dividing income (loss) available to common shareholders, adjusted 
for convertible preferred dividends and after-tax interest expense on 
convertible debt, if any, by the sum of the weighted average number of common 
shares outstanding and potential common shares (when dilutive).

     A reconciliation of the numerator and denominator of basic and diluted 
net income (loss) per share is as follows:

<TABLE>
<CAPTION>
                                                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                       THREE MONTHS ENDED    SIX MONTHS ENDED 
                                                             JUNE 30,             JUNE 30, 
                                                         1998       1997      1998       1997 
                                                       --------   --------  --------   --------
<S>                                                    <C>        <C>       <C>        <C>
Numerator-basic:         
 Net income (loss)                                     $(18,829)  $    296  $(26,243)  $    477 
 Deemed dividends on preferred stock                        (74)         -    (1,903)         - 
                                                       --------   --------  --------   --------
  Net income (loss) available to common shareholders   $(18,903)  $    296  $(28,146)  $    477 
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
Denominator-basic:         
 Weighted average common shares outstanding              17,160     16,782    17,143     16,760 
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
Basic net income (loss) per share available to
  common shareholders                                  $  (1.10)  $   0.02  $  (1.64)  $   0.03 
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
Numerator-diluted:         
 Net income (loss)                                     $(18,829)  $    296  $(26,243)  $    477 
 Deemed dividends on preferred stock                        (74)         -    (1,903)         - 
                                                       --------   --------  --------   --------
  Net income (loss) available to common shareholders   $(18,903)  $    296  $(28,146)  $    477
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
Denominator-diluted:         
 Weighted average common shares outstanding              17,160     16,782    17,143     16,760 
 Effect of dilutive securities:  stock options                -         72         -         95 
                                                       --------   --------  --------   --------
                                                         17,160     16,854    17,143     16,855 
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
Diluted net income (loss) per share available to
  common shareholders                                  $  (1.10)  $   0.02  $  (1.64)  $   0.03 
                                                       --------   --------  --------   --------
                                                       --------   --------  --------   --------
</TABLE>

                                       5
<PAGE>

                        GENUS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          JUNE 30, 1998 (UNAUDITED)

     Stock options to purchase approximately 2,502,000 weighted average 
shares of common stock were outstanding during the six months ended June 30, 
1998 but were not included in the computation of diluted loss per share 
because the Company has a net loss for the six months ended June 30, 1998.

     Stock options to purchase approximately 1,685,000 weighted average 
shares of common stock were outstanding during the six months ended June 30, 
1997 but were not included in the computation of diluted income per share 
because the exercise price was greater than the average market value of the 
common shares.

COMPREHENSIVE INCOME (LOSS)

     In June 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" 
(SFAS 130).  Effective January 1, 1998, the Company adopted SFAS 130, which 
establishes standards for reporting comprehensive income and its components.  
Comparative financial statements for earlier periods have been reclassified 
to reflect the adoption of SFAS 130.  The Company's other comprehensive 
income consists of foreign currency translation adjustments.

STATEMENT OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                        (DOLLARS IN THOUSANDS) 

                                                           SIX MONTHS ENDED 
                                                               JUNE 30, 
                                                          ------------------
                                                           1998        1997 
                                                          ------      ------
<S>                                                      <C>          <C>
Supplemental Cash Flow Information:     
     
 Cash paid during the period for:     
  Interest                                               $   177      $  188 
  Income taxes                                                 -           2 
      
 Non-cash investing activities:      
  Purchase of property and equipment under long-term 
  debt obligations                                       $     -      $  753 
     
 Non-cash financing activities:     
  Deemed dividends on preferred stock related to 
  beneficial conversion feature                          $ 1,792      $    - 
  Net assets held for sale                                25,130           - 
  Conversion of Series A Convertible Preferred Stock to 
  common stock                                               124           - 

</TABLE>

LINE OF CREDIT

     The Company had a revolving line of credit agreement with a bank that 
provided for maximum borrowings of $10 million which expired in July 1998.  
At June 30, 1998, the Company had $2.8 million in borrowings outstanding 
under the line of credit which were paid off in July 1998 with proceeds from 
the Asset Sale, as defined below. See "Asset Sale."

                                       6
<PAGE>

                        GENUS, INC. AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>

INVENTORIES     
Inventories comprise the following:         (DOLLARS IN THOUSANDS) 
     
                                           JUNE 30,      DECEMBER 31, 
                                             1998           1997 
                                           --------       --------
<S>                                        <C>           <C>
Raw materials and parts                    $  2,702       $ 15,210 
Work in progress                              2,092          6,879 
Finished goods                                  379          6,897 
                                           --------       --------
                                           $  5,173       $ 28,986 
                                           --------       --------
                                           --------       --------
</TABLE>
<TABLE>
<CAPTION>
ACCRUED EXPENSES     
Accrued expenses comprise the following:    (DOLLARS IN THOUSANDS) 
     
                                           JUNE 30,      DECEMBER 31, 
                                             1998           1997 
                                           --------       --------
<S>                                        <C>           <C>
System installation and warranty           $    879       $  3,741 
Accrued commissions and incentives              631          2,062 
Accrued payroll and related items               435          1,264 
Other                                         8,260          3,546 
                                           --------       --------
                                           $ 10,205       $ 10,613 
                                           --------       --------
                                           --------       --------
</TABLE>

ASSET SALE 

     In April 1998, the Company entered into an agreement with Varian 
Associates, Inc. ("Varian") to sell selected assets and transfer selected 
liabilities related to the millions of electron volts ("MeV") ion 
implantation equipment product line for approximately $25 million plus 
additional payments if certain revenue targets are achieved ("Asset Sale").  
The completion of the Asset Sale which was subject to approval by the 
Company's shareholders as well as to expiration of the applicable waiting 
periods under federal Hart-Scott-Rodino premerger notification requirements 
occured in July 1998.  As a result of the Asset Sale, the Company will no 
longer engage in the ion implant business and will refocus its efforts on 
thin film deposition.  The Company used a portion of the net proceeds of the 
Asset Sale for repayment of certain outstanding indebtedness and the 
redemption of 70,000 shares of Series A Convertible Preferred Stock ("Series 
A Stock"), with the remaining proceeds to be used for working capital and 
general corporate purposes, including investment in R&D of thin film 
products.  In connection with the Asset Sale and the refocusing of the 
Company's business on thin film products, the Company significantly reduced 
the workforce at several of its locations during the second quarter, 
resulting in the special charge.

REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK

     In February 1998, the Company issued equity securities through a private 
placement of Series A Stock for gross proceeds of $5 million.  On July 29, 
1998 the Company redeemed 70,000 shares of the outstanding Series A Stock for 
$4.7 million.  In addition, the remaining 28,000 shares of Series A Stock 
were exchanged for 28,000 shares of Series B Convertible Preferred Stock 
("Series B Stock"), which has a fixed conversion price of $1.25 per share.

SPECIAL CHARGE

     During the second quarter of 1998, the Company incurred a special charge 
of $11.2 million.  Included in this charge are personnel charges of $1.9 
million associated with the Company's reduction in workforce as well as $5.4 
million in inventory write-downs, and $1.2 million in property and equipment 
write-downs.  In addition, the Company has provided $1.5 million for expenses 
associated with the closing of several sales offices and transaction losses 
as a result of the sale of the ion implant equipment product line to Varian. 
 Also included in the special charge are $1.2 million in legal, accounting 
and banking fees associated with the Varian transaction.

                                       7
<PAGE>

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

     STATEMENTS IN THIS REPORT WHICH EXPRESS "BELIEF", ANTICIPATION" OR 
"EXPECTATION" AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT ARE 
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE 
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 
1934.  THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND 
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM 
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER 
"RISK FACTORS" IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN OR INCORPORATED BY 
REFERENCE INTO THIS REPORT.  THE FOLLOWING DISCUSSION SHOULD BE READ IN 
CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO 
INCLUDED IN THIS REPORT.

RESULTS OF OPERATIONS

     Net sales for the three and six months ended June 30, 1998 were $13.0 
million and $20.2 million, respectively, compared to net sales of $19.4 
million and $39.0 million for the corresponding periods in 1997.  The decline 
is attributable to lower unit sales of systems as well as lower revenue from 
spares and service largely as a result of the Asian financial crisis which 
began for the Company during the fourth quarter of 1997.  After modest sales 
growth for the first nine months of 1997 compared to 1996, during the fourth 
quarter of 1997, the Company's sales fell from the immediate-prior, quarter 
and weakness among the Company's Asian customers continued during the first 
half of 1998.

     Gross margin for the three and six months ended June 30, 1998 was 10% 
and 8%, respectively, compared to 40% and 39%, respectively, for the same 
periods in 1997.  The gross margin for the first half of 1998 was 
negatively impacted by the depressed level of sales resulting in 
underabsorption of fixed manufacturing and service costs and lower average 
selling prices.  Even at relatively constant higher levels of sales, the 
Company's gross margins have historically been affected by variations in 
average selling prices, changes in the mix of product sales, unit shipment 
levels, the level of foreign sales, and competitive pricing pressures.

     For the second quarter of 1998, research and development expenses 
("R&D") were $2.9 million, or 22% of sales, compared to $3.1 million, or 16% 
of sales, for the second quarter of 1997.  R&D spending for the first half of 
1998 of $6.3 million remained essentially flat relative to the comparable 
period in 1997.  Despite the general industry slowdown and the near term 
outlook for sales, the Company continues to invest in R&D to position itself 
for the latter half of 1998 and beyond.  The Company continually evaluates 
its R&D investment in view of evolving competition and market conditions and 
expects that R&D spending may increase during the second half of 1998.

     Selling, general and administrative expenses ("SG&A") were $5.7 million 
for the second quarter of 1998.  Included in this amount is a $1.4 million 
net charge for the write-off of an account receivable from Innotech 
Corporation, the Company's Japanese distributor.  Absent this write-off, SG&A 
increased slightly relative to the second quarter of 1997.

     During the second quarter of 1998, the Company incurred a special charge 
of $11.2 million.  Included in this charge are personnel charges of $1.9 
million associated with the Company's reduction in workforce as well as $5.4 
million in inventory write-downs, and $1.2 million in property and equipment 
write-downs.  In addition, the Company has provided $1.5 million for expenses 
associated with the closing of several sales offices and transaction losses 
as a result of the sale of the ion implant equipment product line to Varian 
Associates, Inc. ("Varian").  Also included in the special charge are $1.2 
million in legal, accounting and banking fees associated with the Varian 
transaction.

     The net loss for the quarter ended June 30, 1998 was $18.8 million.  
This compares with net income of $296,000 for the second quarter of 1997.  
The net loss for the six month period was $26.2 million, compared to net 
income of $477,000 for the first six months of 1997.

     In February 1998, the Company issued $5 million of Series A Convertible 
Preferred Stock ("Series A Stock") in a private placement.  Warrants were 
also issued as part of the transaction.  During the first quarter, the 
Company recorded deemed dividends on preferred stock of $1.8 million to 
reflect the difference between the proceeds allocated to the Series A Stock 
and the fair value of the Series A Stock 

                                       8
<PAGE>

(assuming immediate conversion) upon issuance.  For the second quarter, the 
Company recorded dividends of $74,000.  These charges resulted in a net loss 
available to common shareholders of $18.9 million, or $1.10 per share for the 
second quarter of 1998 and a net loss available to common shareholders of 
$28.1 million or $1.64 per share for the first half of 1998.  In July 1998, 
the Company redeemed 70,000 shares of the Series A Stock and exchanged the 
remaining 28,000 shares of Series A Stock for 28,000 shares of Series B 
Convertible Preferred Stock ("Series B Stock").  See "Subsequent Events - 
Redemption and Exchange of Series A Convertible Preferred Stock".

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents decreased to $3.8 million at 
June 30, 1998 from $8.7 million at year-end.  Accounts receivable declined 
from $19.5 million at year-end to $11.9 million at June 30, 1998.  The 
decline in accounts receivable is due to the lower sales level as well as 
collections during the quarter, and the $3.0 million write-off of an account 
receivable from Innotech Corporation.  The Company's primary source of funds 
at June 30, 1998 consisted of $3.8 million in cash.  The Company had a $10.0 
million revolving line of credit, secured by substantially all of the assets 
of the Company which expired in July 1998. At June 30, 1998, the Company had 
$2.8 million of borrowings outstanding under the line of credit, which were 
paid off with proceeds from the Asset Sale, as defined below.  See 
"Subsequent Events - Asset Sale to Varian".

     The Company incurred operating losses during each of the two years in 
the period ended December 31, 1997 and incurred additional operating losses 
in the first and second quarters of 1998.  Additionally, the Company's bank 
line of credit expired in July 1998.  However, with the completion of the 
Asset Sale, the Company believes that its existing cash resources will be 
sufficient to fund the Company's expected working capital requirements for at 
least the next 12 months.  In addition, the Company is in discussions with 
financial institutions to secure a line of credit.  While the Company feels 
that its existing cash resources will be sufficient to implement the 
Company's operating strategy and meet the Company's other working capital 
requirements, if the industry downturn persists, the Company may be required 
to seek additional equity or debt financing.  There can be no assurance that 
the Company would be able to obtain additional debt or equity financing, if 
and when needed, on terms that the Company finds acceptable.  Any additional 
equity or debt financing may involve substantial dilution to the Company's 
shareholders, restrictive covenants or high interest costs.

SUBSEQUENT EVENTS

ASSET SALE TO VARIAN

     In April 1998, the Company entered into an agreement with Varian to sell 
selected assets and transfer selected liabilities related to the millions of 
electron volts ("MeV") ion implantation equipment product line for 
approximately $25 million plus additional payments if certain revenue targets 
are achieved ("Asset Sale").  The completion of the Asset Sale which was 
subject to approval by the Company's shareholders as well as to expiration of 
the applicable waiting periods under federal Hart-Scott-Rodino premerger 
notification requirements occurred in July 1998.  As a result of the Asset 
Sale, the Company will no longer engage in the ion implant business and will 
refocus its efforts on thin film deposition.  The Company used a portion of 
the net proceeds of the Asset Sale for repayment of certain outstanding 
indebtedness and the redemption of 70,000 shares of Series A Stock, with the 
remaining proceeds to be used for working capital and general corporate 
purposes, including investment in R&D of thin film products.  In connection 
with the Asset Sale and the refocusing of the Company's business on thin film 
products, the Company significantly reduced the workforce at several of its 
locations during the second quarter, resulting in the special charge.

REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK

     In February 1998, the Company issued equity securities through a private 
placement of Series A Stock for gross proceeds of $5 million.  On July 29, 
1998 the Company redeemed 70,000 shares of the outstanding Series A Stock for 
$4.7 million.  In addition, the remaining 28,000 shares of Series A Stock 
were exchanged for 28,000 shares of Series B Stock which has a fixed 
conversion price of $1.25 per share.

                                       9
<PAGE>

RISK FACTORS

     CERTAIN SECTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN 
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE 
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES 
EXCHANGE ACT OF 1934, AS AMENDED.  ACTUAL RESULTS COULD DIFFER MATERIALLY 
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE 
FACTORS SET FORTH ABOVE IN MANAGEMENT'S DISCUSSION AND ANALYSIS AND THIS RISK 
FACTORS SECTION.  THE DISCUSSION OF THESE FACTORS IS INCORPORATED BY THIS 
REFERENCE AS IF SAID DISCUSSION WAS FULLY SET FORTH IN MANAGEMENT'S 
DISCUSSION AND ANALYSIS.

     HISTORICAL PERFORMANCE.  Although the Company had net income of $19.3 
million and $4.2 million in the years ended December 31, 1995 and 1994, the 
Company experienced losses of $19.3 million, $9.2 million, and $6.9 million 
for the years ended December 31, 1997, 1996 and 1993, respectively.  In 
addition, the Company experienced an additional operating loss of $26.2 
million in the first half of 1998.  As a result of the Company's inconsistent 
sales and operating results in recent years, there can be no assurance that 
the Company will be able to attain or sustain consistent future revenue 
growth on a quarterly or annual basis, or that the Company will be able to 
attain or maintain consistent profitability on a quarterly or annual basis.

     RELIANCE ON A SMALL NUMBER OF CUSTOMERS AND CONCENTRATION OF CREDIT 
RISK.  The Company continued its efforts to expand its customer base in 1997 
and was successful, with new customers in Taiwan and North America.  
Historically, the Company has relied on a limited number of customers for a 
substantial portion of its net sales.  In 1997, two customers, Samsung 
Electronics Company, Ltd. and Innotech Corporation accounted for 47% and 17%, 
respectively, of the Company's net sales.  In 1996, these same two customers 
accounted for 53% and 18%, respectively, of the Company's net sales.  With 
the sale of its ion implantation business in July 1998, the Company's main 
customer for its current generation product is Samsung Electronics Company, 
Ltd., which accounted for over 90% of the Company's net sales of thin film 
products in 1997 and 1996.  Because the semiconductor manufacturing industry 
is concentrated in a limited number of generally larger companies, the 
Company expects that a significant portion of its future product sales will 
be concentrated within a limited number of customers.  None of these 
customers has entered into a long-term agreement requiring it to purchase the 
Company's products.  Furthermore, sales to certain of these customers may 
decrease in the future when those customers complete their current 
semiconductor equipment purchasing requirements for new or expanded 
fabrication facilities.  The loss of a significant customer or any reduction 
in orders from a significant customer, including reductions due to customer 
departures from recent buying patterns, market, economic or competitive 
conditions in the semiconductor industry or in the industries that 
manufacture products utilizing ICs, could have a material adverse effect on 
the Company's business, financial condition and results of operations.

     The Company is dependent on a small number of customers.  Accordingly, 
the Company is subject to concentration of credit risk.  If a major customer 
were to encounter financial difficulties and become unable to meet its 
obligations, the Company would be adversely impacted.

     RELIANCE ON INTERNATIONAL SALES.  Export sales accounted for 
approximately 74%, 84% and 88% of total net sales in the years ended 1997, 
1996 and 1995, respectively.  In addition, net sales to South Korean 
customers accounted for approximately 50%, 59% and 63%, respectively, of 
total net sales during the same periods.  During the first half of 1998, the 
Company sold four systems, two of which were sold to domestic customers, 
thereby decreasing export sales to 60% of total net sales.  Nonetheless, the 
Company anticipates that international sales, including sales to South Korea, 
will continue to account for a significant portion of net sales.  As a result,
a significant portion of the Company's sales will be subject to certain 
risks, including unexpected changes in regulatory requirements, tariffs and 
other barriers, political and economic instability, difficulties in accounts 
receivable collection, difficulties in managing distributors or 
representatives, difficulties in staffing and managing foreign subsidiary 
operations and potentially adverse tax consequences.  Although the Company's 
foreign system sales are primarily denominated in U.S. dollars and the 
Company does not engage in hedging transactions, the Company's foreign sales 
are subject to the risks associated with unexpected changes in exchange 
rates, which could have the effect of making the Company's products more or 
less expensive.  There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition 
and results of operations.

                                       10
<PAGE>

     Further, the Company has a wholly owned South Korean subsidiary 
providing service and support to the installed base of customers and whose 
functional currency is the won.  As a result of the devaluation of the won in 
the fourth quarter of 1997, the Company incurred a foreign exchange loss of 
$1.1 million.  There can be no assurance that the Company will not incur 
currency losses or gains in future quarters as the currency fluctuates.

     A substantial portion of the Company's sales is in Asia.  Recent turmoil 
in the Asian financial markets has resulted in dramatic currency 
devaluations, stock market declines, restriction of available credit and 
general financial weakness.  In addition, Dynamic Random Access Memory 
("DRAM") prices have fallen dramatically and may continue to do so as some 
Asian integrated circuit ("IC") manufacturers may be selling DRAMs at less 
than cost in order to raise cash.  These developments may affect the Company 
in several ways.  Currency devaluation may make dollar-denominated goods, 
such as the Company's, more expensive for Asian clients.  Asian manufacturers 
may limit capital spending.  Furthermore, the uncertainty of the DRAM market 
may cause manufacturers everywhere to delay capital spending plans.  These 
circumstances may also affect the ability of Company customers to meet their 
payment obligations, resulting in the cancellations or deferrals of existing 
orders and the limitation of additional orders.  Some of the Company's South 
Korean customers have rescheduled their required delivery dates for orders 
previously placed and have announced delays in the facilitization of their 
new manufacturing areas.  In addition, some portion of IC fabrication plant 
construction has been subsidized by Asian governments.  Financial turmoil may 
weaken these governments' willingness to continue such subsidies.  Such 
developments could have a material adverse effect on the Company's business, 
financial condition and results of operations.

     CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY.  The Company's business 
depends upon the capital expenditures of semiconductor manufacturers, which 
in turn depend on the current and anticipated market demand for ICs and 
products utilizing ICs.  The semiconductor industry is cyclical and 
experiences periodic downturns, which have an adverse effect on the 
semiconductor industry's demand for semiconductor manufacturing capital 
equipment.  Semiconductor industry downturns have adversely affected the 
Company's revenues, operating margins and results of operations.  There can 
be no assurance that the Company's revenues and operating results will not 
continue to be materially and adversely affected by future downturns in the 
semiconductor industry.  In addition, the need for continued investment in 
R&D, substantial capital equipment requirements and extensive ongoing 
worldwide customer service and support capability limits the Company' ability 
to reduce expenses.  Accordingly, there is no assurance that the Company will 
be able to attain profitability in the future.

     FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.  The Company's revenue and 
operating results may fluctuate significantly from quarter to quarter.  The 
Company derives its revenue primarily from the sale of a relatively small 
number of high-priced systems, many of which may be ordered and shipped 
during the same quarter.  The Company's results of operations for a particular 
quarter could be adversely affected if anticipated orders, for even a small 
number of systems, were not received in time to enable shipment during the 
quarter, anticipated shipments were delayed or canceled by one or more 
customers or shipments were delayed due to manufacturing difficulties.  The 
Company's revenue and operating results may also fluctuate due to the mix of 
products sold and the channel of distribution.

     COMPETITION.  The semiconductor manufacturing capital equipment industry 
is highly competitive.  Genus faces substantial competition throughout the 
world.  The Company believes that to remain competitive, it will require 
significant financial resources in order to offer a broader range of 
products, to maintain customer service and support centers worldwide and to 
invest in product and process R&D.  Many of the Company's existing and 
potential competitors have substantially greater financial resources, more 
extensive engineering, manufacturing, marketing and customer service and 
support capabilities, as well as greater name recognition than the Company.  
The Company expects its competitors to continue to improve the design and 
performance of their current products and processes and to introduce new 
products and processes with improved price and performance characteristics.  
If the Company's competitors enter into strategic relationships with leading 
semiconductor manufacturers covering chemical vapor deposition ("CVD") 
products similar to those sold by the Company, it would materially adversely 
affect the Company's ability to sell its products to these manufacturers.  
There can be no assurance that the Company will continue to compete 
successfully in the United States or worldwide.  The Company faces direct 
competition in CVD 

                                       11
<PAGE>

tungsten silicide ("WSiX") from Applied Materials, Inc. and Tokyo Electron, 
Ltd.  There can be no assurance that these or other competitors will not 
succeed in developing new technologies, offering products at lower prices 
than those of the Company or obtaining market acceptance for products more 
rapidly than the Company.

     DEPENDENCE ON NEW PRODUCTS AND PROCESSES.  The Company believes that its 
future performance will depend in part upon its ability to continue to 
enhance its existing products and their process capabilities and to develop 
and manufacture new products with improved process capabilities.  As a 
result, the Company expects to continue to invest in R&D.  The Company also 
must manage product transitions successfully, as introductions of new 
products could adversely affect sales of existing products.  There can be no 
assurance that the market will accept the Company's new products or that the 
Company will be able to develop and introduce new products or enhancements to 
its existing products and processes in a timely manner to satisfy customer 
needs or achieve market acceptance.  The failure to do so could have a 
material adverse effect on the Company's business, financial condition and 
results of operations.  Furthermore, if the Company is not successful in the 
development of advanced processes or equipment for manufacturers with whom it 
has formed strategic alliances, its ability to sell its products to those 
manufacturers would be adversely affected.

     PRODUCT CONCENTRATION; RAPID TECHNOLOGICAL CHANGE.  Semiconductor 
manufacturing equipment and processes are subject to rapid technological 
change.  The Company derives its revenue primarily from the sale of its WSiX 
CVD systems.  The Company estimates that the life cycle for these systems is 
generally three to five years.  The Company believes that its future 
prospects will depend in part upon its ability to continue to enhance its 
existing products and their process capabilities and to develop and 
manufacture new products with improved process capabilities.  As a result, 
the Company expects to continue to make significant investments in R&D.  The 
Company also must manage product transitions successfully, as introductions 
of new products could adversely affect sales of existing products.  There can 
be no assurance that future technologies, processes or product developments 
will not render the Company's product offerings obsolete or that the Company 
will be able to develop and introduce new products or enhancements to its 
existing and future processes in a timely manner to satisfy customer needs or 
achieve market acceptance.  The failure to do so could adversely affect the 
Company's business, financial condition and results of operations.  
Furthermore, if the Company is not successful in the development of advanced 
processes or equipment for manufacturers with whom it currently does 
business, its ability to sell its products to those manufacturers would be 
adversely affected.

     DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS.  The Company's success 
depends in part on its proprietary technology.  While the Company attempts to 
protect its proprietary technology through patents, copyrights and trade 
secret protection, it believes that the success of the Company will depend on 
more technological expertise, continuing the development of new systems, 
market penetration and growth of its installed base and the ability to 
provide comprehensive support and service to customers.  There can be no 
assurance that the Company will be able to protect its technology or that 
competitors will not be able to develop similar technology independently.  
The Company currently has a number of United States and foreign patents and 
patent applications.  There can be no assurance that any patents issued to 
the Company will not be challenged, invalidated or circumvented or that the 
rights granted thereunder will provide competitive advantages to the Company.

     From time-to-time, the Company has received notices from third parties 
alleging infringement of such parties' patent rights by the Company's 
products.  In such cases, it is the policy of the Company to defend against 
the claims or negotiate licenses on commercially reasonable terms where 
considered appropriate.  However, no assurance can be given that the Company 
will be able to negotiate necessary licenses on commercially reasonable 
terms, or at all, or that any litigation resulting from such claims would not 
have a material adverse effect on the Company's business and financial 
results.

     DEPENDENCE ON KEY SUPPLIERS.  Certain of the components and 
sub-assemblies included in the Company's products are obtained from a single 
supplier or a limited group of suppliers.  Disruption or termination of these 
sources could have a temporary adverse effect on the Company's operations.  
The Company believes that alternative sources could be obtained and qualified 
to supply these products, if

                                       12
<PAGE>

necessary.  Nevertheless, a prolonged inability to obtain certain components 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.

     DEPENDENCE ON INDEPENDENT DISTRIBUTORS.  The Company currently sells and 
supports its CVD products through direct sales and customer support 
organizations in the U.S., South Korea and through seven exclusive, 
independent sales representatives and distributors in the U.S., Europe, South 
Korea, Taiwan, Hong Kong and Singapore.  The Company does not have any 
long-term contracts with its sales representatives and distributors.  
Although the Company believes that alternative sources of distribution are 
available, the disruption or termination of its existing distributor 
relationships could have a temporary adverse effect on the Company's 
business, financial condition and results of operations.

     VOLATILITY OF STOCK PRICE.  The Company's Common Stock has experienced 
substantial price volatility, particularly as a result of quarter-to-quarter 
variations in the actual or anticipated financial results of, or 
announcements by, the Company, its competitors or its customers, 
announcements of technological innovations or new products by the Company or 
its competitors, changes in earnings estimates by securities analysts and 
other events or factors.  Also, the stock market has experienced extreme 
price and volume fluctuations which have affected the market price of many 
technology companies, in particular, and which have often been unrelated to 
the operating performance of these companies.  These broad market 
fluctuations, as well as general economic and political conditions in the 
United States and the countries in which the Company does business, may 
adversely affect the market price of the Company's Common Stock.  In addition,
the occurrence of any of the events described in these "Risk Factors" could 
have a material adverse effect on such market price.

     READINESS FOR YEAR 2000.  Many existing computer systems and 
applications, and other control devices, use only two digits to identify a 
year in the date field, without considering the impact of the upcoming change 
in the century.  These computer systems and applications could fail or create 
erroneous results unless corrected so that they can process data related to 
the year 2000.  The Company relies on its systems, applications and devices 
in operating and monitoring all major aspects of its business, including 
financial systems (such as general ledger, accounts payable and payroll 
modules), customer service, infrastructure, embedded computer chips, networks 
and telecommunications equipment and end products.  The Company also relies 
on external systems of business enterprises such as customers, suppliers, 
creditors, financial organizations, and of governments both domestically and 
globally, directly for accurate exchange of data and indirectly.  During 
1997, the Company started the implementation of a new business system.  One 
criteria for the selection of the enterprise software was compliance with 
Year 2000 issues.  Accordingly, the Company's current estimate is that the 
costs associated with the Year 2000 issue, and the consequences of incomplete 
or untimely resolution of the Year 2000 issue, will not have a material 
adverse effect on the result of operations or financial position of the 
Company in any given year.  However, despite the Company's efforts to address 
the Year 2000 impact on its internal systems, there can be no assurance that 
the Company has fully identified such impact or that it can resolve it 
without disruption of its business and without incurring significant expense. 
 In addition, even if the internal systems of the Company are not materially 
affected by the Year 2000 issue, the Company could be affected through 
disruption in the operation of the enterprises with which the Company 
interacts.  The Company has not contacted the entities with which it 
interacts to determine whether such entities are addressing the Year 2000 
issue.

                                       13
<PAGE>

                         PART II.  OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     See Subsequent Events discussion regarding redemption and exchange of 
Series A Convertible Preferred Stock.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     The Exhibits listed on the accompanying "Index to Exhibits" are filed as
     part hereof, or incorporated by reference into, the report.

(b)  Report on Form 8-K

     The Company filed a Current Report on Form 8-K dated April 24, 1998 to 
     describe the sale to Varian Associates, Inc. of the ion implant 
     equipment product line.

     The Company filed a Current Report on Form 8-K/A dated May 7, 1998.


                                       14
<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 14, 1998               GENUS, INC.


                                     /s/ William W.R. Elder
                                     ------------------------------------
                                     William W.R. Elder
                                     Chairman and Chief Executive Officer



                                     /s/ Kenneth Schwanda
                                     ------------------------------------
                                     Kenneth Schwanda
                                     Vice President, Finance
                                     (Principal Accounting Officer)


                                       15
<PAGE>

                                  GENUS, INC.
                              INDEX TO EXHIBITS

Exhibit   Description
-------   ---------------------------------------------------------------------

  2.1     Asset Purchase Agreement, dated April 15, 1998, by and between Varian
          Associates, Inc. and Registrant and exhibits thereto (2)
 
  4.2     Convertible Preferred Stock Purchase Agreement, dated February 2, 
          1998, among the Registrant and the Investors (1)
 
  4.3     Registration Rights Agreement, dated February 2, 1998, among the 
          Registrant and the Investors (1)
 
  4.4     Certificate of Determination of Rights, Preferences and Privileges of
          Series A Convertible Preferred Stock (1)
 
  4.5     Certificate of Determination of Rights, Preferences and Privileges of
          Series B Convertible Preferred Stock (4)
 
  4.6     Redemption and Exchange Agreement, dated July 16, 1998, among the 
          Registrant and the Investors (4)
 
 10.17    Settlement Agreement and Mutual Release, dated April 20, 1998, between
          Registrant and James T. Healy (3)
 
 10.18    Form of Change of Control Severance Agreement (3)
 
 10.19    Settlement Agreement and Mutual Release, dated June 30, 1998, between
          Registrant and John Aldeborgh
 
 10.20    Settlement Agreement and Mutual Release, dated July 15, 1998, between
          Registrant and Mary Bobel
 
 27.1     Financial Data Schedule


-------------------
(1)  Incorporated by reference to the exhibit filed with the Registrant's 
     Current Report on Form 8-K dated February 12, 1998.

(2)  Incorporated by reference to the exhibit filed with the Registrant's 
     Current Report on Form 8-K dated April 15, 1998.

(3)  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.

(4)  Incorporated by reference to the exhibit filed with the Registrant's 
     Current Report on Form 8-K dated July 29, 1998.

                                       16