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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1996 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: 0-21047
TECHNOLOGY MODELING ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2708698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
595 LAWRENCE EXPRESSWAY
SUNNYVALE, CALIFORNIA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
TELEPHONE NUMBER (408) 328-0930
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and, (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on February
28, 1997 as reported on the Nasdaq National Market System, was approximately
$54.3 million. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 28, 1997, there were 7,692,669 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference into Part III of this Form 10-K
portions of its Definitive Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held May 22, 1997.
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TECHNOLOGY MODELING ASSOCIATES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page No.
PART I
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Item 1. - Business 3
Item 2. - Properties 10
Item 3. - Legal Proceedings 10
Item 4. - Submission of Matters To a Vote of Security Holders 10
Item 4A. - Executive Officers of the Registrant 10
PART II
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Item 5. - Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6.- Selected Financial Data 12
Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. - Financial Statements and Supplementary Data 19
Item 9. - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
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Item 10. - Directors and Executive Officers of the Registrant 33
Item 11.- Executive Compensation 33
Item 12.- Security Ownership of Certain Beneficial Owners and
Management 33
Item 13.- Certain Relationships and Related Transactions 33
PART IV
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Item 14.- Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 34
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PART I
ITEM 1. BUSINESS
Technology Modeling Associates, Inc. ("the Company") is a leading
provider of physical simulation software to support integrated circuit design
and manufacturing. The Company's technology computer-aided design ("TCAD")
software enables customers to design next-generation integrated circuits ("ICs")
with a focus not only on performance but also on manufacturability and
reliability early in the design process. The migration to deep submicron (less
than 0.5 micron) and other leading edge technologies has resulted in the
emergence of a new set of design problems not adequately addressed by
traditional electronic design automation ("EDA") tools. The Company's software
addresses these problems by allowing designers to model on-chip physical
devices, such as transistors and interconnect structures, at a detailed level
and to analyze various effects related to semiconductor physics. By using the
Company's software, semiconductor companies are able to reduce the need to
manufacture costly and time-consuming experimental wafers to test new technology
designs and accurately predict circuit performance. This allows customers to
evaluate a broader range of technologies in the production of more innovative
products with higher yields while reducing time-to-market.
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT")
ARE FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS, AND ENTAIL VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES ARE SET FORTH THROUGHOUT THIS REPORT.
INDUSTRY BACKGROUND
Semiconductor companies exist within a rapidly changing environment.
Because of the swift pace of technological change, semiconductor companies are
subject to extreme time-to-market, cost containment, product life cycle and
return on investment pressures. These companies' success depends substantially
upon their ability to innovate while maintaining efficiency in manufacturing and
asset utilization. Many IC manufacturers are migrating to deep submicron
geometries (0.5 micron and below) and larger wafer sizes in order to produce
smaller, faster and more complex ICs and are constructing billion dollar
fabrication facilities to accommodate this shift. In the migration to deep
submicron, a new set of design problems has emerged related to the physics of
semiconductor technology.
THREE CRITICAL PRODUCT REQUIREMENTS-PERFORMANCE, MANUFACTURABILITY AND
RELIABILITY
IC designers have typically focused on performance as their primary
objective during the design of a new IC. Performance in this context means
ensuring that a given design meets the specifications established for the final
product, such as refresh time in a DRAM or clock speed in a microprocessor.
Additional concerns such as manufacturability and reliability have generally not
been considered if the final design conforms to the design rules, such as
minimum metal line widths, provided by the technology development or
manufacturing organizations. Technology development organizations within
semiconductor companies typically develop both the on-chip devices, such as
transistors and interconnect structures, and the fabrication process and
subsequently have to resolve manufacturability and reliability issues.
Two additional design objectives have recently gained importance -
Design for Manufacturability ("DFM") and Design for Reliability ("DFR"). DFM
focuses on creating designs that not only meet performance requirements but also
are as tolerant as possible to intrinsic variations in semiconductor
fabrication. Specifically, DFM involves "centering" the design so that the
maximum number of ICs manufactured performs within the tolerances of the product
specifications. This results in greater manufacturing yields - a higher
proportion of "good" to "bad" ICs. DFR involves conforming to longer-term,
rather than immediate, performance specifications. DFR anticipates long-term
reliability problems during the design phase to create better designs that
maximize product life. Examples of such problems include electromigration in
metal lines and electrostatic discharge, both of which can cause product failure
during use.
DEEP SUBMICRON CHALLENGES
As ICs increasingly incorporate deep submicron features, the
achievement of acceptable IC performance, manufacturability and reliability
becomes more challenging. Simply conforming to standard design rules may result
either in designs that are overly conservative, and therefore noncompetitive, or
in designs that cannot be manufactured with acceptable yields. Previously
negligible electrical and optical effects have become critical barriers in IC
production because new deep submicron designs require placing smaller features
in close proximity. As deep submicron designs push the capability limits of
existing stepper technology, the relationship between drawn and printed features
can be
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non-intuitive to the engineer. For example, as line widths approach the
wavelengths of the illumination sources, designers in lithography processing
can no longer depend on any one drawn mask feature being independent of the
other features being printed. Traditional EDA software products lack the
ability to model these and other crucial physical effects in the IC design
process, and thus do not adequately address the objectives of performance,
manufacturability and reliability in today's deep submicron environment.
TRADITIONAL EXPERIMENTAL PROCESS IN DESIGNING AND MANUFACTURING ICS
The current process for designing and manufacturing ICs is iterative
and experimentally based. Process and device technologies are developed, designs
are generated, experimental wafers are manufactured, performance is assessed and
the designs are refined to meet performance, reliability and manufacturing
requirements. This entire process typically is repeated several times before an
IC that meets specifications can be manufactured. As a result, it can take many
months or even years for a new IC to be designed and put into production.
The technology development phase for implementing the physical design
of ICs traditionally has been based on building and testing a number of
transistor and interconnect structures on experimental wafers. This is done to
evaluate process and device alternatives for performance and reliability, and
ultimately to deliver to the circuit designer the transistor and interconnect
models used in simulating full circuit electrical performance. This
experimentally-based approach is expensive and inefficient because the elapsed
time required to build and evaluate experimental wafers can frequently vary from
two to eight or more weeks, with wafers typically processed in actual production
fabrication facilities. The Company estimates that a single lot of 25
experimental wafers costs between $40,000 to $100,000 to process, and
experimental wafers displace salable product for fab time. In addition,
engineers cannot be certain that the information obtained is correct or adequate
due to variations in the manufacturing process, errors in processing and limited
available time to run follow-on experiments. As designs incorporate smaller
feature sizes, the situation is further exacerbated by secondary physical
effects, such as interconnect sidewall capacitance and optical proximity
effects, that begin to affect IC performance and reliability severely. A major
barrier to cost containment, volume production and rapid time-to-market for
these new deep submicron IC designs is the traditional use of experimental
wafers to verify and improve the performance, reliability and manufacturability
issues that require numerous iterations to produce an acceptable product. For
these reasons, semiconductor companies need software tools to supplement or
replace the data generated from running experimental wafer lots.
ADVENT OF TCAD SOFTWARE PRODUCTS
TCAD software products historically were developed at universities and
semiconductor companies to simulate the fabrication process at the semiconductor
device level, providing analysis capabilities and feedback data regarding where
refinement was needed to meet performance objectives. This simulation,
typically performed during the technology development phase, requires a much
more fundamental understanding of the underlying physics of IC design than the
simulations performed at the circuit and logic design phases. Additionally, the
problems associated with deep submicron designs have heightened the need for
software tools with a much higher level of embedded physics than previously had
been required from in-house solutions or EDA vendors. Specifically, IC teams
need highly reliable tools that can predict and simulate the changes in a
wafer's physical characteristics as a result of being exposed to a series of
semiconductor processing steps. They also need tools to analyze and predict the
electrical performance of semiconductor devices, such as transistors, capacitors
and resistors, created in wafer processing. IC design teams need to generate
compact transistor and interconnect models provided by TCAD software for use in
conjunction with traditional EDA tools to perform full circuit analysis. As a
result, semiconductor companies now seek TCAD tools that can reduce the costly
and time-consuming dependence on wafer experimentation, facilitate the quick
evaluation of a number of technology alternatives and allow them to determine
circuit performance, reliability and manufacturability earlier in the design
process.
TMA SOLUTION
The Company is a leading provider of TCAD software tools. The Company's
software enables customers to design next-generation IC products with a focus
early in the design process, not only on performance, but also on
manufacturability and reliability. The Company's research and development team
has broad experience in semiconductor physics, electrical engineering,
mathematics and software development and has established a core expertise in
developing TCAD tools. In addition, the Company has developed numerous
relationships with major IC manufacturers, semiconductor capital equipment
suppliers and EDA vendors to develop a more complete solution for the
semiconductor industry. Using the Company's software, customers are able to
reduce the need to run costly and time-consuming experimental wafers. In
addition, the Company's TCAD products allow designers to consider more design
alternatives in a shorter period of time than through wafer experimentation,
providing greater opportunities for
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creating innovative IC products with superior performance characteristics.
The following diagram illustrates how TCAD software replaces the iterative
experimental process of technology development.
[CHART--picture of technology development methodologies]
The Company's TCAD software allows designers to perform virtual wafer
processing and testing to produce physical designs of leading-edge deep
submicron ICs, thus minimizing the use of experimental wafers and maximizing
performance, reliability and manufacturability. The Company believes that, by
using its TCAD products instead of experimental wafers, engineers can get a more
accurate and complete understanding of their semiconductor technology to produce
better performing, and more reliable IC products with higher yields. TCAD
simulation software allows users to better isolate the effect of changes in
individual design parameters and to run follow-on experiments quickly, without
the concern of encountering processing errors. By reducing the need for
experimental wafers, the customer is able to save both time and money because
the process for running experimental wafers requires the same cost overhead and
processing time as running salable wafers. In addition, the customer can
dedicate more fab capacity to the manufacture of salable products, thereby
recognizing more revenue per additional lot of product. By decreasing the
number of iterative steps in the design process, the Company's customers are
able to reach higher yields earlier improving a product's time-to-market, which
is critical in the intensely competitive semiconductor market. Finally, because
the Company designs its products to support current semiconductor equipment and
other EDA design tools, the Company's tools can extend the life of its
customers' expensive fab equipment or facilitate the introduction of new
equipment and can improve the accuracy of the installed base of traditional EDA
tools, especially early in the design cycle.
PRODUCTS AND SERVICES
The Company provides a suite of software products for physical
simulation of IC technology, consisting of six product categories: process
simulation, topography simulation, device simulation, technology
characterization, simulation environment and application-specific solutions.
Process and device simulation products accounted for more than 70% of the
Company's total revenue for 1996. The Company's products are designed to be
used as stand-alone tools or as part of an integrated system. An initial set of
tools licensed by a new customer might include TMA WorkBench, TSUPREM-4 and
Medici. This set of products would typically be priced at $100,000 to $200,000
depending on the number of copies licensed and the computer platform upon which
they are installed. The Company's software products are available for use on a
variety of UNIX-based engineering workstations.
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<TABLE>
<CAPTION>
CATEGORY TMA PRODUCT APPLICATION
- -------- ----------- -----------
<S> <C> <C>
Process Simulation TSUPREM-4 Simulate ion implantation, diffusion and oxidation
- -----------------------------------------------------------------------------------------------------------------------
Topography Simulation DEPICT Simulate photolithography
TERRAIN Simulate deposition and etch
- -----------------------------------------------------------------------------------------------------------------------
Device Simulation MEDICI Simulate electrical behavior of 2D device structures
DAVINCI Simulate electrical behavior of 3D device structures
- -----------------------------------------------------------------------------------------------------------------------
Technology Characterization RAPHAEL Extract models for multilayer interconnect structures
AURORA Extract transistor models
- -----------------------------------------------------------------------------------------------------------------------
Simulation Environment TMA WORKBENCH Integrated system for simulation control and data management
TMA VISUAL Analyze data graphically
TMA LAYOUT Graphical interface to layout
DFM WORKBENCH Design for manufacturability for yield optimization
- -----------------------------------------------------------------------------------------------------------------------
Application-Specific Solutions LIQUID Design system for active matrix liquid crystal displays (LCDs)
</TABLE>
The Company has also recently begun to provide dedicated engineering
personnel to strategic customers to assist them in improving operational
efficiency. For this purpose, the Company maintains a staff of experienced IC
technologists that are assigned as consultants to the customer's development or
design staff. Contracted projects are priced at a negotiated fixed fee and
provide both direct revenue contributions to the Company and indirect revenue
contributions by encouraging additional licensing of the Company's software.
TECHNOLOGY
The Company's technical expertise includes semiconductor process and
device physics, algorithms for solving the equations that describe such physics
and modern software techniques for developing simulation systems. The Company's
products reduce complex semiconductor technology physics to efficient physical
models. The Company has developed proprietary methods for fine-tuning these
models so that they predict accurately the unique characteristics of a given IC
manufacturer's technology. The Company has also derived efficient solution
algorithms to enhance the performance and stability of its products. The
Company uses state-of-the-art programming methods, including object-oriented
techniques, in software development to provide IC manufacturers with software
solutions to semiconductor technology-related problems in IC design and
manufacturing.
The Company's products enable engineers to consider performance,
manufacturability and reliability in the initial technology design. The Company
has designed its TCAD software to allow IC design teams to meet nominal
performance, reliability and yield objectives simultaneously. In this process,
the engineer chooses a technology design which produces devices that not only
conform to performance specifications, but also are as tolerant as possible to
manufacturing variations. Subsequently, the engineer uses Monte Carlo sampling
to obtain "worst case" technology models. These models define the fastest and
slowest device performance that can be expected as a result of manufacturing
variations, and are provided to circuit designers so that variations in final IC
product performance can be
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predicted. By using the Company's products, IC manufacturers can understand
technology implications on new IC products earlier and make the corrections
necessary to produce higher yielding products.
The technology models that the Company products generate are typically
used by traditional EDA tools during full circuit design. These models provide
the link between the physical design and the underlying technology, and include
interconnect models that define the parasitic electrical characteristics of
metalization technology and transistor models that define the electrical
performance of the active elements comprising the IC. As deep submicron designs
become more pervasive, the electrical impact of interconnect has become a
greater concern. This has created the current interest in signal integrity
analysis and the market success of the EDA tools that address layout parasitic
extraction and timing simulation. The technology models generated by the
Company's products provide the accuracy that facilitates the use of these more
traditional EDA tools in the deep submicron realm.
CUSTOMERS
The Company sells to more than 240 commercial customers in 19
countries. Substantially all of the Company's customers come from three segments
of the semiconductor industry: IC manufacturers, equipment manufacturers and
fabless companies. To date, a significant majority of the Company's total
revenue has been derived from IC manufacturers.
SALES AND MARKETING
The Company markets its software and services worldwide. In North
America and Europe, the Company uses a direct sales force of nine people to
reach customers from its headquarters in Sunnyvale, California, and its sales
offices in Boston, Portland, Austin, London, England and Milan, Italy. In Asia,
the Company markets its products and services primarily through a distributor
and sales representatives. In Japan, the Company has established a mutually
exclusive distributorship with Innotech Corporation ("Innotech"), which has
seven people dedicated to licensing and supporting the Company's products in
Japan. The Company's distribution agreement with Innotech renews automatically
for one-year terms unless terminated by 90 days written notice prior to
expiration of a renewal period. There can be no assurance that such agreement
will not be terminated or that Innotech will continue to serve as the Company's
distributor. In each of Korea, Taiwan and Singapore, the Company's sales are
made through a local sales representative with geographic exclusivity. The
Company's sales channels, both direct and indirect, are also supported by field
application engineers trained by the Company.
In 1996, 1995 and 1994, licensing and maintenance of the Company's
software products in Asia, primarily Japan, Korea and Taiwan, accounted for
approximately 60.0%, 61.5% and 55.9%, respectively, of the Company's total
revenue. Sales of the Company's product licenses to customers in Japan are made
exclusively through a single distributor, Innotech. In 1996, 1995 and 1994,
sales through this distributor accounted for 22.3%, 35.8% and 19.4%,
respectively, of the Company's total revenue. In Korea, licenses to customers
are made through a single independent sales representative, C&G Technology, Inc.
("C&G"). Revenue from sales in Korea made up approximately 30.3%, 15.4% and
32.5% of the Company's total revenue in 1996, 1995 and 1994, respectively.
Sales to customers in Taiwan, which made up approximately 7.4%, 10.2% and 4.0%
of the Company's total revenue in 1996, 1995 and 1994, respectively, were also
carried out through a single independent sales representative, Business
Technology, Inc. ("BTI"). The Company's agreements with C&G and BTI each renew
automatically every year but may be terminated if either party gives notice 90
days prior to the expiration of a renewal period.
In addition to its direct and indirect sales channels, the Company
utilizes advertising, newsletters, direct mailing and public relations programs,
participates in numerous industry trade shows and organizes seminars and
conferences to promote the adoption of its products and services.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in part on its
ability to maintain and improve its current technologies, enhance its existing
products and develop new products that meet an expanding range of customer
requirements. The research and development process at the Company is focused on
working closely with customers to solve their technology problems, especially
those related to next generation IC technology development and design for
manufacturability. The Company has introduced two products for the TCAD market
in 1996 and a third, DFM WorkBench, in February 1997. The Company strives to
offer regular updates of its product offerings and intends to expand its
existing product offerings in the future. The Company's products run in most
UNIX-based environments. The Company intends to develop versions that will run
on additional platforms as market requirements dictate. Recently, the Company
began to rearchitect certain of its products to provide for next generation
capabilities.
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In the past, the Company has developed products through efforts with,
or acquired technology from IBM, Philips Research Labs, Plessey, Hewlett-Packard
Co., Texas Instruments Inc. and Stanford University that resulted in the
licensing of code and, in some cases, the payment of royalties by the Company.
The Company also has informal arrangements with other EDA companies, such as
Avant!, Inc., Cadence Design Systems, Inc., Epic Design Technology, Inc.,
Frequency Technology, Inc., and Mentor Graphics Corp., to link certain
synergistic products in order to create a solution for IC physical design. In
the future, the Company may license or acquire technology or products from third
parties or consultants.
As of December 31, 1996, the Company's engineering group consisted of
28 full-time employees, 15 of whom had Ph.D. degrees and 10 of whom had M.S.
degrees. The Company seeks to hire experts in the fields of semiconductor
physics, electrical engineering, mathematics and software development. Such
highly skilled individuals are difficult to find, and there is no assurance that
the Company will be able to hire and retain sufficient technological personnel
in the future. During 1996, 1995 and 1994, research and development expenses
were $5.0 million, $4.2 million and $2.7 million, respectively. To date, all
software development costs have been expensed as incurred. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future.
The EDA industry is characterized by rapid technological change,
frequent new product introductions and enhancements of existing products,
evolving industry standards and rapidly changing customer requirements. The
Company must meet the challenges of the EDA industry by introducing new products
and product enhancements, and must continue to address customers' current and
future needs in a timely manner. There can be no assurance that the Company
will succeed in developing and marketing new products or product enhancements or
that the Company will not experience difficulties that could delay or prevent
the development, the introduction or the marketing of these products.
Additionally, there can be no assurance that the Company's new products and
product enhancements will sufficiently meet the requirements of the marketplace,
will be of acceptable quality, or will achieve market acceptance or that the
introduction of new products or new industry standards will not render existing
products obsolete and unmarketable. In order to meet changing market demands,
the Company may need to increase the size and expertise of its product
development staff in order to address technological and product development
challenges. There can be no assurance that the Company will be able to hire
personnel who adequately understand the product development needs of an evolving
industry. An inability of the Company to respond to changing market conditions,
address customer requirements, or develop and introduce products in a timely
manner will materially and adversely affect the Company's business, operating
results and financial condition.
COMPETITION
The historical competition for TCAD products has come from design
automation or research and development groups working within established IC
manufacturing companies. These companies, some of which are customers of the
Company, have access to significantly greater financial resources than the
Company and may be able to develop their own simulation tools, thus reducing
their reliance upon products from independent companies. Established IC
manufacturers or design companies may also elect in the future to market their
internally developed products and compete directly with the Company for other
customers. If these or other established companies enter the market,
competitive pressures could intensify due to their significantly greater
financial, technical and marketing resources, as well as the name recognition
that these companies possess. The principal competitive factors affecting this
market are accuracy, functionality, technical competence of engineering staff,
reliability, price, tool integration and ease of use. The Company believes it
competes favorably with respect to such factors.
In addition, Silvaco International, Inc. ("Silvaco") and one other
small private company offer products that compete with a number of the Company's
products. Other companies offer a single product that competes with one of the
Company's products. Because these competitors are private companies for which
little public information is available, the Company can only estimate their size
and market penetration. The Company has experienced pricing pressures in the
past, and increased competition from current competitors or new market entrants
could result in additional price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, it is
possible that large, well-established EDA companies may acquire the technology
of one or more of the Company's private competitors to gain access to the
markets in which the Company competes. With significantly more financial
resources than the Company and large existing customer bases, these potential
competitors could increase the competition faced by the Company. Because of the
changing nature of the EDA and TCAD markets and actual and potential
competition, there can be no assurance that the Company will be able to maintain
its market share or that its competitors will not increase their market share of
the TCAD market.
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There can be no assurance that the Company's current or potential
competitors will not develop products comparable or superior to those developed
by the Company or that they will not adapt more quickly than the Company to new
technologies. New competition and potential alliances could emerge and rapidly
acquire a significant market share, which could have a material adverse effect
on the Company's business, operating results and financial condition.
PROPRIETARY RIGHTS
The Company licenses from third parties software code that has been
incorporated into certain of the Company's products. Such licenses contain
provisions that could lead to termination upon the Company's breach or
abandonment. Any such termination could have a material adverse effect upon the
Company's business, operating results and financial condition.
The Company relies primarily on a combination of trade secrets,
copyright and trademark laws, confidentiality procedures and contractual
provisions to protect its proprietary rights in its software products. The
Company licenses its software pursuant to signed license agreements that impose
certain restrictions on licensees' abilities to utilize the software. The
Company also ships its software to all customers with a security device. The
Company does not license or release the source code for its proprietary software
to its customers, except in connection with joint development agreements. The
Company also generally enters into proprietary information and confidentiality
agreements with its employees, consultants and distributors to limit access to
and distribution of its source code, documentation and other proprietary
information. The Company currently has no patents or patent applications
pending.
Despite the Company's efforts to protect its proprietary rights, there
can be no assurance that a third party will not copy or otherwise obtain and use
the Company's products or technology without authorization, or develop similar
or superior technology independently. Policing unauthorized use of the
Company's products is difficult, and, while the Company is unable to determine
the extent to which piracy of its software products exists, software piracy can
be expected to be a persistent problem. In addition, the laws of many countries
do not protect the Company's proprietary rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate.
Although the Company believes its products do not infringe on the
proprietary rights of third parties, there can be no assurance that infringement
claims will not be asserted against the Company in the future and that any such
claims will not require the Company to enter into costly litigation.
Irrespective of the validity or the successful assertion of such claims, any
such claims or any such litigation could result in significant diversions of
effort by the Company's technical and management personnel, as well as the
Company's incurring significant costs with respect to the defense thereof, and
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, if any claims or actions are
asserted against the Company, the Company may choose to, or be required to,
obtain a license under a third party's intellectual property rights. There can
be no assurance that under such circumstances a license would be available upon
reasonable terms if, at all.
EMPLOYEES
As of December 31, 1996, the Company employed 85 full-time persons,
including 27 in sales, presales technical support, marketing and related
activities, 44 in research and development, including operations support, 5
in the professional services group and 9 in management, administration and
finance. None of the Company's employees is represented by a labor union or
is the subject of a collective bargaining agreement with respect to his or
her employment by the Company. The Company has never experienced a work
stoppage and believes that its employee relations are good.
The Company's success depends to a significant extent upon a number of
key technical and management employees. The loss of the services of any of the
Company's key employees could have a material adverse effect on the Company.
The Company's success also depends in large part on its continued ability to
attract and retain highly skilled technical, managerial, sales and marketing
personnel with significant experience in semiconductor physics, electrical
engineering, mathematics and software engineering. In the current employment
climate in the Silicon Valley, competition for such personnel is particularly
intense. Also, certain members of the Company's current management team have
worked together only for a brief period. The Company's Vice President, Finance
and Administration and Chief Financial Officer joined the Company in March 1996,
the Company's Vice President, Worldwide Sales joined the Company in
January 1996, and the Company's Vice President, Strategic Alliances and Business
Development joined the Company in December 1995. There can be no assurance that
the Company will be successful in retaining its key technical and management
personnel and in attracting and retaining the personnel it requires to continue
to grow.
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ITEM 2. PROPERTIES
The Company's principal administrative, sales, marketing, support and
product development facility is located in approximately 32,000 square feet of
space in Sunnyvale, California. The lease on this office space expires in
February 2001, and the Company has a one-time option to extend the lease term
for an additional three years. The Company also leases or subleases small
offices in Boston, Portland, Austin, England and Italy. The Company continues
to pay rent in connection with the lease agreement related to its previous
headquarters in Palo Alto, California which it is currently subleasing to a
third party through May 1998, when the Company's lease expires. See Note 7 of
Notes to Consolidated Financial Statements. The Company believes that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their ages and positions,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roy E. Jewell. . . . . . 42 President, Chief Executive Officer and
Chairman of the Board of Directors
Bennet L. Weintraub. . . 42 Vice President, Finance and Administration and
Chief Financial Officer
Jue-Hsien Chern. . . . . 42 Vice President, Engineering and Chief
Technical Officer
Lung Chu . . . . . . . . 45 Vice President, Strategic Alliances and
Business Development
David M. Lee . . . . . . 51 Vice President, Operations
Joseph G. Masarich . . . 36 Vice President, Worldwide Sales
Milan G. Lazich. . . . . 35 Director of Marketing
</TABLE>
ROY E. JEWELL has been President and Chief Executive Officer of the
Company since July 1992 and Chairman of the Board of the Company since May
1993. He began his employment with the Company in June 1988 as a product
marketing engineer, and from May 1991 to July 1992, was Vice President of
Marketing and Sales of the Company. Mr. Jewell received his B.S. and M.A. in
Physics from the University of South Florida and his M.S. in Management and
Administration Science from the University of Texas, Dallas.
BENNET L. WEINTRAUB has been Vice President, Finance and Administration
and Chief Financial Officer of the Company since March 1996. From
September 1993 to February 1996, he was the Director of Finance for Metra
Biosystems Inc., a developer of medical diagnostic tools. From September 1987 to
September 1993, Mr. Weintraub was the Controller of Advanced Polymer Systems
Inc., a developer of drug delivery technology. Mr. Weintraub received his B.A.
in Mathematical Economics from Pomona College and his M.B.A. from Harvard
University. Mr. Weintraub is a Certified Public Accountant.
JUE-HSIEN CHERN has been Vice President, Engineering of the Company
since August 1994 and Chief Technical Officer since January 1997. From
February 1989 to July 1994, he was Branch Manager, TCAD Branch, for Texas
Instruments Inc., a manufacturer of electronic components and systems.
Dr. Chern received his B.S. and M.S. in Civil Engineering from National Taiwan
University and his Ph.D. in Civil Engineering from the State University of New
York, Buffalo.
10
<PAGE>
LUNG CHU has been Vice President, Strategic Alliances and Business
Development, of the Company since December 1995. From October 1991 to
December 1995, Mr. Chu was the Director of the Services Program Office, Japan
and Director of Technology Partnership for Cadence Design Systems, Inc., a
developer of design automation software. From July 1986 to October 1991, he was
the Manager, Corporate CAD, at Apple Computer, Inc. Mr. Chu received his B.S.
in Mechanical Engineering from National Taiwan University, his M.S. in
Engineering from Case Western Reserve University and his M.S. in Electrical
Engineering and Computer Science and his M.B.A. from San Jose State University.
DAVID M. LEE has been Vice President, Operations, of the Company since
March 1996. From March 1995 to March 1996, Mr. Lee was the Company's Director
of Operations and from May 1990 to March 1995, he was the Company's Manager of
Operations. Mr. Lee received his B.S. in Electrical Engineering from the
University of Texas.
JOSEPH G. MASARICH has been Vice President, Worldwide Sales, of the
Company since January 1996. From August 1994 to June 1995, Mr. Masarich
attended the Sloan Senior Management Program at Stanford Business School. From
July 1993 to May 1994, he was Vice President, Worldwide Sales, for Comdisco
Systems, a business unit of Cadence Design Systems, Inc., a developer of design
automation software. From January 1989 to July 1993, he held various sales
management positions at Cadence Design Systems, Inc. Mr. Masarich received his
B.M.E. in Mechanical Engineering from Pratt Institute and his M.S. in Management
from Stanford University.
MILAN G. LAZICH has been Director of Marketing of the Company since
March 1996. From January 1992 to March 1996, Mr. Lazich was the Marketing
Manager of the Company, and, from June 1989 to January 1992, he was a Marketing
Analyst of the Company. Mr. Lazich received his B.A. in Economics from the
University of California, Los Angeles and his M.B.A. from Santa Clara
University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been traded on the Nasdaq National
Market under the symbol TMAI since the Company's initial public offering on
September 20, 1996. Prior to that time, there was no public market for the
Company's Common Stock. The following table sets forth for the periods
indicated the high and low closing sale prices on the Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1996 HIGH LOW
---- ---
<S> <C> <C>
Fourth Quarter $15 1/4 $9 1/2
Third Quarter (from September 20) $16 $12
</TABLE>
As of February 28, 1997, there were approximately 63 holders of record of the
Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock in
recent years. The Company currently anticipates that it will retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Total product revenue $17,571 $12,240 $10,270 $7,112 $5,466
Funded development 388 353 1,808 976 -
------- ------- ------- ------ ------
Total revenue 17,959 12,593 12,078 8,088 5,466
Income (loss) from operations 1,732 2,098 2,298 1,199 (262)
Net income (loss) $ 1,224 $ 1,282 $ 1,454 $ 768 $ (168)
Net income (loss) per share $ 0.20 $ 0.23 $ 0.23 $ 0.09 $(0.02)
Weighted average common and common
equivalent shares 6,217 5,508 6,389 8,238 9,236
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments $35,003 $3,284 $4,011 $1,597 $1,110
Working capital 34,454 2,742 1,909 1,063 583
Total assets 41,965 8,068 6,899 4,115 2,530
Long-term liabilities, net of current portion (1) 858 728 1,031 350 -
Total shareholders' equity 36,357 3,455 2,033 1,526 1,304
</TABLE>
___________
See Notes 6 and 7 of Notes to Consolidated Financial Statements.
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain unaudited quarterly financial data
for each quarter of 1996 and 1995. This unaudited information has been prepared
on the same basis as the audited consolidated financial statements contained
herein. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
SUMMARY QUARTERLY DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 QUARTER ENDED 1995 QUARTER ENDED
------------------------------------ ------------------------------------
DEC 31 SEP 30 JUN 30 MAR 31 DEC 31 SEP 30 JUN 30 MAR 31
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Total product revenue $5,055 $4,735 $4,098 $3,683 $3,888 $2,845 $3,171 $2,336
Funded development 79 82 146 81 249 30 74 -
------ ------ ------ ------ ------ ------ ------ ------
Total revenue 5,134 4,817 4,244 3,764 4,137 2,875 3,245 2,336
Gross profit 4,190 3,978 3,579 3,088 3,654 2,572 2,874 2,068
Income from operations 502 616 362 252 857 382 502 357
Net income $ 632 $ 298 $ 174 $ 120 $ 526 $ 248 $ 310 $ 198
Net income per share $ 0.08 $ 0.05 $ 0.03 $ 0.02 $ 0.09 $ 0.04 $ 0.06 $ 0.04
Weighted average common and common
equivalent shares 8,412 5,521 5,426 5,510 5,744 5,570 5,314 5,403
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW The Company was founded in 1979 to develop, market and support
physical simulation software for IC design and manufacturing. The Company's
original products were based on research done at Stanford University, and, until
1988, the Company was focused primarily on research and development. In 1988,
the Company hired additional management, established an engineering strategy,
added distribution channels and marketing capabilities and began to position its
products with a more commercial focus. Today, the Company sells twelve products
in six product groups and strives to offer regular updates for its products.
OPERATIONS The following table sets forth, for the periods indicated, certain
statements of operations data of the Company expressed as a percentage of total
revenue.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
License 69.1% 69.7% 69.2%
Maintenance and other 28.7 27.5 15.8
----- ----- -----
Total product revenue 97.8 97.2 85.0
Funded development 2.2 2.8 15.0
----- ----- -----
Total revenue 100.0 100.0 100.0
Cost of revenue:
License 6.2 3.9 5.2
Maintenance and other 8.9 5.3 2.8
Funded development 2.3 2.1 13.0
----- ----- -----
Total cost of revenue 17.4 11.3 21.0
----- ----- -----
Gross margin 82.6 88.7 79.0
Operating expenses:
Sales and marketing 35.1 27.5 29.0
Research and development 28.0 33.2 22.4
General and administrative 9.9 11.3 8.6
----- ----- -----
Total operating expenses 73.0 72.0 60.0
----- ----- -----
Income from operations 9.6 16.7 19.0
Other income (expense), net 2.5 0.4 (0.7)
----- ----- -----
Income before provision for income taxes 12.1 17.1 18.3
Provision for income taxes 5.3 6.9 6.3
----- ----- -----
Net income 6.8% 10.2% 12.0%
----- ----- -----
----- ----- -----
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE License revenue consists principally of revenue for licensing the
Company's software and is generally recognized when the software has been
shipped and there are no significant remaining obligations. Maintenance and
other revenue consists primarily of fees for providing system updates, user
documentation and technical support for software products, and is recognized
ratably over the term of the maintenance agreement. Maintenance and other
revenue also includes revenue from professional services contracts, which is
recognized under the percentage of completion method. Funded development
revenue consists of revenue earned on development contracts with government-
sponsored and private entities and is recognized under the percentage of
completion method.
Total revenue increased 42.6% to $18.0 million for the year ended December 31,
1996 from $12.6 million for the year ended December 31, 1995.
International sales were $12.8 million and $9.1 million for 1996 and 1995,
respectively, representing 71.1% and 72.2% of total revenue for the respective
periods. The increase in both total and international revenue was due primarily
to increased licensing and maintenance and other revenue from Asia. It is
anticipated that international revenue will continue to constitute a significant
portion of total revenue for the foreseeable future. International revenues are
subject to certain additional risks normally associated with international
operations, including, among others, adoption and expansion of government trade
restrictions, volatile foreign exchange rates, foreign withholding taxes,
limitations on repatriation of earnings and reduced protection of intellectual
property rights. It has been the Company's experience that some of its large
Korean customers institute significant upgrades of their design tools relatively
infrequently and their purchasing patterns are hard to predict.
License revenue increased 41.5% to $12.4 million for 1996 from $8.8 million for
1995. The primary reason for the
13
<PAGE>
increase in license revenue was additional licensing of the Company's process
simulation and device simulation products.
Maintenance and other revenue increased 48.6% to $5.2 million for 1996 from $3.5
million for 1995. The increase in maintenance and other revenue was
attributable to an increase in the Company's installed base of products, the
Company's continued effort toward obtaining customer renewals of maintenance,
and the commencement of revenue from contracts obtained by the Company's
professional services group.
Revenue from funded development contracts increased slightly to $388,000 in 1996
from $353,000 in 1995 as the Company concluded work on outstanding funded
development projects. In 1995, the Company deliberately reduced its
participation in funded development programs and did not pursue new contracts in
1996.
COST OF REVENUE Cost of revenue consists primarily of the costs of media and
shipping of licensed products, the costs of providing maintenance support to the
Company's customers, royalties payable and the cost of the Company's
professional services group. Cost of license revenue as a percent of license
revenue increased to 8.9% for 1996 from 5.5% of license revenue for 1995. Cost
of license revenue increased primarily due to increased royalty expenses
incurred on revenues from third party software products sold by the Company.
Cost of maintenance and other revenue as a percent of maintenance and other
revenue increased to 31.2% for 1996 from 19.4% for 1995. The increase in the
cost of maintenance and other revenue was attributable primarily to the start-up
costs associated with the Company's professional services group and additional
personnel who are providing maintenance support to the Company's customers.
Cost of funded development revenue as a percentage of funded development revenue
increased to 105.0% for 1996 from 76.0% for 1995 as a result of the timing of
milestone payments associated with funded development programs.
SALES AND MARKETING Sales and marketing expenses include the costs associated
with sales and marketing personnel, commissions, promotional events (such as
trade show and technical conference attendance) and advertising and public
relations programs. Sales and marketing expenses increased to $6.3 million for
1996 from $3.5 million for 1995 and increased as a percentage of total revenue
to 35.1% from 27.5% for 1996 and 1995, respectively. Sales and marketing
expenses increased primarily due to the addition of sales and marketing
personnel and the opening of new sales offices in Boston, Portland and Milan,
Italy. The Company expects that its sales and marketing expenses will continue
to increase in absolute dollars.
RESEARCH AND DEVELOPMENT Research and development expenses include the costs of
creating new products and developing enhancements to existing products and
providing operations support. Software development costs have been expensed as
incurred, because software development has generally been completed concurrently
with the establishment of technological feasibility. Research and development
expenses increased to $5.0 million for 1996 from $4.2 million for 1995, but
decreased as a percentage of total revenue to 28.0% from 33.2% for 1996 and
1995, respectively. Research and development costs increased primarily due to
increased headcount. The decrease as a percentage of revenue was due to
revenues increasing at a faster rate than the increase in research and
development expenses.
GENERAL AND ADMINISTRATIVE General and administrative expenses include the
costs associated with the Company's executive office, human resources and
finance functions. General and administrative expenses increased to $1.8
million for 1996 from $1.4 million for 1995, but decreased as a percentage of
total revenue to 9.9% from 11.3% for 1996 and 1995, respectively. General and
administrative expenses increased primarily due to increased headcount and the
costs of being a public company. The decrease as a percentage of revenue was
due to revenues increasing at a faster rate than the increase in general and
administrative expenses. The Company expects general and administrative
expenses will continue to decrease as a percentage of revenue.
OTHER INCOME (EXPENSE), NET Other income is primarily interest income earned on
excess cash balances. Other expense is primarily interest paid on notes payable
and under capitalized lease obligations. Other income was $568,000 and $192,000
for 1996 and 1995, respectively. Other expense was $129,000 and $143,000 for
1996 and 1995, respectively. The increase in other income was due to the
interest earned on proceeds received from the Company's initial public offering.
14
<PAGE>
PROVISION FOR INCOME TAX Provision for income tax consists primarily of federal
income taxes, state taxes and international withholding taxes. The Company's
effective rate of taxation was 43.6% for 1996 and 40.3% for 1995. Because the
Company generates a significant portion of its total revenue from international
sales that require the withholding of foreign tax, it has not been able to
utilize all of its available tax credits. Accordingly, the Company has
generated significant tax credit carryforwards. Given the uncertainty over
ultimate utilization of these credits, they have not been fully benefited in the
tax provision, which has resulted in an effective rate of taxation in excess of
the U.S. statutory rate. The Company expects its effective tax rate to decline
in 1997 as it begins to utilize its foreign tax credits.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUE Total revenue increased 4.3% to $12.6 million for the year ending
December 31, 1995 from $12.1 million for the year ending December 31, 1994.
International sales were $9.1 million and $7.8 million for 1995 and 1994,
respectively, representing 72.2% and 64.6% of total revenue for the respective
periods. The increase in both total and international revenue was due primarily
to higher unit sales in Japan and other parts of the world that more than offset
a decrease in sales in Korea and in North America.
License revenue increased 4.9% to $8.8 million for 1995 from $8.4 million for
1994. The primary reason for the increase in license revenue was additional
licensing of the Company's process simulation and device simulation products.
Maintenance and other revenue increased 81.6% to $3.5 million for 1995 from $1.9
million for 1994. The increase in maintenance and other revenue was due
primarily to the continuation of renewals of maintenance contracts and the sales
of additional licenses to existing and new customers.
Revenue from funded development contracts decreased to $353,000 in 1995 from
$1.8 million in 1994 as the Company deliberately reduced its participation in
funded development programs in 1995.
COST OF REVENUE Cost of license revenue as a percent of license revenue
decreased to 5.5% for 1995 from 7.5% of license revenue for 1994, primarily as a
result of the Company's selling a higher percentage of non-royalty products.
Cost of maintenance and other revenue as a percent of maintenance and other
revenue increased to 19.4% for 1995 from 17.9% for 1994, as the Company put more
resources in its sales support operations. Cost of funded development revenue
decreased to $268,000 in 1995 from $1.6 million in 1994, as the Company made a
strategic decision not to pursue additional funded development projects in order
to focus its resources on increasing product sales.
SALES AND MARKETING Sales and marketing expenses remained constant in absolute
dollars at $3.5 million, but decreased as a percent of revenue to 27.5% for 1995
from 29.0% for 1994 due primarily to a large decline in commissions on lower
sales in Korea that offset an increase in headcount.
RESEARCH AND DEVELOPMENT Research and development expenses increased to $4.2
million for 1995 from $2.7 million for 1994 and increased as a percentage of
total revenue to 33.2% from 22.4% for 1995 and 1994, respectively. Research and
development expenses increased as the Company increased engineering headcount in
1995 by approximately one-third.
GENERAL AND ADMINISTRATIVE General and administrative expenses increased to
$1.4 million for 1995 from $1.0 million for 1994 and increased as a percentage
of total revenue to 11.3% from 8.6% for 1995 and 1994, respectively. The
increase in general and administrative expenses was primarily due to additional
personnel and higher legal and accounting fees.
OTHER INCOME (EXPENSE), NET Other income increased to $192,000 from $32,000 for
1995 and 1994, respectively, due to interest earned on cash balances. Other
expense increased to $143,000 from $115,000 for 1995 and 1994, respectively, due
to interest paid on notes payable.
15
<PAGE>
PROVISION FOR INCOME TAX Provision for income tax consists primarily of federal
income taxes, state taxes and international withholding taxes. The Company's
effective rate of taxation was 40.3% for 1995 and 34.4% for 1994. Because the
Company generates a significant portion of its total revenue from international
sales that require withholding of foreign tax, it has not been able to utilize
all of its available tax credits. Accordingly, the Company has generated
significant tax credit carryforwards. Given the uncertainty over ultimate
utilization of these credits, they have not been benefited in the tax provision,
which has resulted in an effective rate of taxation in excess of the U.S.
statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through private
sales of equity securities and with cash generated from operations. During
1996, approximately $31.0 million in cash, net of expenses, was raised
through the Company's initial public offering.
Net cash provided by operating activities was $2.3 million for 1996
which resulted primarily from net income and an increase in deferred revenue.
Cash used in investing activities resulted primarily from net purchases of
short-term investments and additions to property and equipment.
As of December 31, 1996, the Company had working capital of $34.5
million and cash and equivalents and short-term investments of $35.0 million.
As of December 31, 1996, the Company had no bank indebtedness and no long-
term commitments other than operating lease obligations. The Company expects
to spend approximately $1 million on capital items in the next 12 months.
The Company believes that the existing cash and equivalents and short-term
investments and funds generated from operations will provide the Company with
sufficient funds to finance its operations on a short and long term basis.
The Company may require additional funds to support its working capital
requirements or for other purposes and may seek to raise such additional
funds through public or private financing or from other sources. No
assurance can be given that additional financing will be available or that,
if available, such financing will be obtainable on terms favorable to the
Company or its shareholders.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters
discussed in this Form 10-K are forward looking statements that include risks
and uncertainties, including but not limited to those listed below and from
time to time in the Company's other reports filed with the SEC. The actual
results that the Company achieves may differ materially from any forward
looking statements due to such risks and uncertainties.
The Company's operating results have varied in the past, and may vary
significantly in the future, depending on factors such as size and timing of
significant customer orders, timing and levels of operating expenses,
increased competition, timing of new product announcements and releases by
the Company and its competitors, market acceptance of new and enhanced
versions of the Company's products, gain or loss of significant customers,
distributors or sales representatives, renewal rates of maintenance
contracts, pricing changes by the Company or its competitors, personnel
changes, and economic conditions in general and in the semiconductor industry
specifically. Any unfavorable change in these or other factors could have a
material adverse effect on the Company's operating results.
In particular, revenue and operating results depend on the volume and
timing of orders received during the quarter. A significant portion of the
Company's revenue in each period results from licenses entered into during
that period, and the Company historically has operated with little order
backlog. There can be no assurance that the Company will attain a
significant backlog in the future. The Company's expense levels are
relatively fixed and are based, in part, on expectations regarding future
revenue. Furthermore, the Company often recognizes a substantial portion of
its license revenue in the last month or even weeks of a quarter, and,
therefore its net income, if any, may be disproportionately affected by a
reduction in revenue because only a small portion of the Company's expenses
vary with its revenue. Because of the relatively large dollar size of the
Company's typical software license, any delay in the closing of a transaction
may have a significant impact on the Company's operating results for a
particular period.
In addition, the Company's revenue and results of operations have been
and may continue to be affected by seasonal trends, which may result in
higher revenue in certain periods due to customers' purchasing and budgetary
practices. There can be no assurance that seasonal trends in customer
purchasing will not materially adversely affect the Company's results of
operations in future periods. Consequently, operating results in any period
should not be
16
<PAGE>
considered indicative of the results to be expected for any future period.
The historical competition for TCAD products has come from design
automation or research and development groups working within established IC
manufacturing companies. These companies, some of which are customers of the
Company, have access to significantly greater financial resources than the
Company and may be able to develop their own simulation tools, thus reducing
their reliance upon products from independent companies such as the Company.
Established IC manufacturers or design companies may elect in the future to
market their internally developed products and compete directly with the
Company for other customers. If these or other established companies enter
the market, competitive pressures could intensify due to their significantly
greater financial, technical and marketing resources, as well as the name
recognition that these companies possess.
In addition, Silvaco International, Inc. and at least one other small
private company offer products that compete with a number of the Company's
products. Other companies offer a single product that competes with one of
the Company's products. Because these competitors are private companies for
which little public information is available, the Company can only estimate
their size and market penetration. The Company has experienced pricing
pressures in the past, and increased competition from current competitors or
new market entrants could result in additional price reductions, reduced
margins or loss of market share, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, it is possible that large, well established EDA companies may
acquire the technology of one or more of the Company's private competitors in
order to gain access to the markets in which the Company competes. With
significantly more financial resources than the Company and large existing
customer bases, these potential competitors could increase the competition
faced by the Company. Because of the changing nature of the EDA and TCAD
markets and actual and potential competition, there can be no assurance that
the Company will be able to maintain its market share or that its competitors
will not increase their market share of the TCAD market.
The EDA industry is characterized by rapid technological change,
frequent new product introductions and enhancements of existing products,
evolving industry standards and rapidly changing customer requirements. The
Company must meet the challenges of the EDA industry by introducing new
products and product enhancements, and must continue to address customers'
current and future needs in a timely manner. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
development, the introduction of the marketing of these products.
Additionally, there can be no assurance that the Company's new products and
product enhancements, if developed, will meet the requirements of the
marketplace, will be of acceptable quality or will achieve market acceptance
or that the introduction of new products or new industry standards will not
render existing products obsolete and unmarketable.
In 1996, 1995, and 1994 licensing and maintenance of the Company's
software products in Asia, primarily Japan, Korea and Taiwan, accounted for
approximately 60.0%, 61.5% and 55.9%, respectively, of the Company's total
revenue. Sales of the Company's product licenses to customers in Japan are
made exclusively through a single distributor, Innotech Corporation
("Innotech"). In Korea, licenses to customers are made through a single
independent sales representative, C&G Technology, Inc. ("C&G"). Sales to
customers in Taiwan were also carried out through a single independent sales
representative, Business Technology, Inc. ("BTI"). The Company expects that
sales to customers in Japan, Korea and Taiwan will continue to make up a
significant proportion of the Company's total product revenue for the
foreseeable future. Since the Company's products are used by highly skilled
professional engineers, in order to be effective, a distributor or sales
representative must possess sufficient technical, marketing and sales
resources and must devote these resources to a lengthy sales cycle, customer
training and product service and support. Only a limited number of
distributors and sales representatives possess such resources. There can be
no assurance that any or all of the agreements with Innotech, C&G and BTI
will continue for any substantial period of time or that these companies will
continue to distribute the Company's software products, and there is no
assurance that the Company could replace these entities without significant
difficulty.
17
<PAGE>
In addition, international sales inherently involve a number of risks,
including currency fluctuations, unexpected changes in governmental
regulatory requirements, tariffs and taxes, difficulties in staffing and
managing foreign operations, longer payment cycles, greater difficulty in
accounts receivable collection, limited protection of the Company's products
and intellectual property rights under the laws of certain foreign countries
and political instability and economic recession in foreign markets. There
can be no assurance that such factors will have a material adverse effect on
future international licensing and maintenance revenue and, consequently, on
the Company's business, operating results and financial condition.
The Company derived a significant majority of its total revenue in
1996 from the licensing and maintenance of two software products, TSUPREM-4
and Medici, and the Company expects to continue to derive a substantial
portion of its total revenue from these two products for the foreseeable
future. As a result, the Company's future operating results are
significantly dependent upon continued market acceptance of TSUPREM-4 and
Medici. There can be no assurance that the Company will successfully develop
new products or that such products will find market acceptance or meet
customer expectations. The Company's two principal products may be rendered
obsolete by future technical advances by the Company's competitors or even by
certain of its customers or marketing partners. The failure of the Company
to maintain and enhance the capabilities of its current products or to
introduce new products successfully into the market could have a material
adverse effect on the Company's business, operating results and financial
condition.
Because of the complexity and substantial cost of the Company's
products, licensing these products to the Company's customers typically
involves a significant technical evaluation and commitment of cash and other
resources, with the attendant delays frequently associated with customers'
internal procedures to approve large expenditures and to evaluate and accept
new technologies that affect key operations. In addition, certain of the
Company's foreign customers have lengthy purchasing cycles that may increase
the amount of time the Company must dedicate to placing its products with
these customers. For these and other reasons, the sales cycle associated with
the licensing of the Company's products is lengthy and subject to a number of
significant risks, including customers' budgetary constraints and internal
acceptance evaluations that are beyond the Company's control. Because of the
lengthy sales cycle and the large size of customers' average orders, if
revenue projected from a specific customer for a particular period is not
realized in that period, the Company's operating results for that period
could be materially adversely affected.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Technology Modeling Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Technology
Modeling Associates, Inc. (a California corporation) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Technology Modeling Associates,
Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 24, 1997
19
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $21,074 $3,284
Short-term investments 13,929 -
Accounts receivable, less allowance for
doubtful accounts of $175 and $165, respectively 2,671 2,799
Prepaid income taxes 271 134
Other current assets 1,259 410
------- ------
Total current assets 39,204 6,627
LONG TERM ASSETS 250 -
PROPERTY AND EQUIPMENT, net 2,511 1,441
------- ------
$41,965 $8,068
------- ------
------- ------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 303 $ 303
Current portion of capitalized lease obligations 138 -
Accounts payable 662 604
Accrued liabilities 1,738 1,442
Deferred revenue 1,909 1,536
------- ------
Total current liabilities 4,750 3,885
------- ------
LONG-TERM LIABILITIES, net of current portion:
Notes payable 425 728
Capitalized lease obligations 433 -
------- ------
Total long-term liabilities 858 728
------- ------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, no par value, Authorized: 25,000 shares
Outstanding: 7,693 and 4,311 shares, respectively 33,661 1,030
Notes receivable from shareholders (474) (576)
Deferred compensation (1,041) -
Retained earnings 4,211 3,001
------- ------
Total shareholders' equity 36,357 3,455
------- ------
$41,965 $8,068
------- ------
------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUE:
License $12,418 $ 8,773 $ 8,361
Maintenance and other 5,153 3,467 1,909
------- ------- -------
Total product revenue 17,571 12,240 10,270
Funded development 388 353 1,808
------- ------- -------
Total revenue 17,959 12,593 12,078
------- ------- -------
COST OF REVENUE:
License 1,109 486 626
Maintenance and other 1,607 671 341
Funded development 408 268 1,563
------- ------- -------
Total cost of revenue 3,124 1,425 2,530
------- ------- -------
Gross profit 14,835 11,168 9,548
------- ------- -------
OPERATING EXPENSES:
Sales and marketing 6,310 3,469 3,508
Research and development 5,037 4,178 2,707
General and administrative 1,756 1,423 1,035
------- ------- -------
Total operating expenses 13,103 9,070 7,250
------- ------- -------
Income from operations 1,732 2,098 2,298
OTHER INCOME (EXPENSE), net 439 49 (83)
------- ------- -------
Income before provision for income taxes 2,171 2,147 2,215
PROVISION FOR INCOME TAXES 947 865 761
------- ------- -------
Net income $ 1,224 $ 1,282 $ 1,454
------- ------- -------
------- ------- -------
NET INCOME PER SHARE $ 0.20 $ 0.23 $ 0.23
------- ------- -------
------- ------- -------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 6,217 5,508 6,389
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE TOTAL
------------------ FROM DEFERRED RETAINED SHAREHOLDERS'
SHARES AMOUNT SHAREHOLDERS COMPENSATION EARNINGS EQUITY
------ ------ ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 5,040,000 $ 115 $ - $ - $ 1,411 $ 1,526
Exercise of stock options 748,400 84 - - - 84
Issuance of stock under 1994 Stock
Purchase Plan 274,668 93 - - - 93
Stock compensation expense - - - - 46 46
Repurchase of common stock (3,039,738) (11) - - (1,159) (1,170)
Net income - - - - 1,454 1,454
---------- ------ ----- ----- ------- -------
BALANCE, DECEMBER 31, 1994 3,023,330 281 - - 1,752 2,033
Exercise of stock options 128,200 14 - - - 14
Issuance of stock under 1994 Stock
Purchase Plan 1,258,124 755 (684) - - 71
Forgiveness of notes receivable from
shareholders - - 108 - - 108
Repurchase of common stock (98,472) (20) - - (33) (53)
Net income - - - - 1,282 1,282
---------- ------ ----- ----- ------- -------
BALANCE, DECEMBER 31, 1995 4,311,182 1,030 (576) - 3,001 3,455
Exercise of stock options 323,770 60 - - - 60
Issuance of stock under 1994 Stock
Purchase Plan 495,070 1,191 (152) (800) - 239
Deferred compensation related to
issuance of stock options - 521 - (521) - -
Amortization of deferred
compensation - - - 280 - 280
Forgiveness of notes receivable from
shareholders - - 119 - - 119
Repurchase of common stock (330,888) (190) 135 - (14) (69)
Issuance of common stock, net of
issuance costs 2,893,535 31,049 - - - 31,049
Net income - - - - 1,224 1,224
---------- ------ ----- ----- ------- -------
BALANCE, DECEMBER 31, 1996 7,692,669 $33,661 $(474) $(1,041) $ 4,211 $36,357
---------- ------ ----- ----- ------- -------
---------- ------ ----- ----- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,224 $ 1,282 $ 1,454
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 576 365 290
Allowance for doubtful accounts 10 82 83
Non-cash compensation expense 399 108 46
Changes in operating assets and liabilities--
Accounts receivable 118 (1,313) 27
Prepaid income taxes (137) (134) -
Other current assets (599) (245) (103)
Accounts payable 58 253 (200)
Accrued liabilities 296 (327) 1,008
Deferred revenue 373 124 578
------- ------ -------
Net cash provided by operating activities 2,318 195 3,183
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (13,929) (1,901) (755)
Proceeds from sales of short-term investments - 2,656 -
Issuance of note receivable (250) - -
Capital expenditures (986) (651) (658)
Purchase of long-term assets (250) - -
------- ------ -------
Net cash provided by (used for) investing activities (15,415) 104 (1,413)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (89) - -
Payment of notes payable (303) (303) (258)
Issuances of common stock 31,348 85 167
Repurchases of common stock (69) (53) (20)
------- ------ -------
Net cash provided by (used for) financing activities 30,887 (271) (111)
------- ------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,790 28 1,659
CASH AND CASH EQUIVALENTS, beginning of period 3,284 3,256 1,597
------- ------ -------
CASH AND CASH EQUIVALENTS, end of period $21,074 $3,284 $ 3,256
------- ------ -------
------- ------ -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period-
Income taxes $ 981 $ 915 $ 765
Interest 133 122 82
Noncash financing activities-
Notes payable to former shareholders for repurchase of common stock $ - $ - $ 1,150
Issuance of common stock for notes receivable 152 684 10
Property and equipment financed with capital lease obligations 660 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Technology Modeling Associates, Inc. (the "Company") was incorporated in
California in June 1980. The Company operates in a single industry segment and
is involved in the design, development, marketing, and support of physical
simulation software for integrated circuit design and manufacture. The Company
completed its Initial Public Offering on September 20, 1996.
The Company is subject to the risks and challenges associated with other
companies of similar size, including dependence on key individuals, successful
development of product enhancements, competition from substitute products and
larger companies, and continued successful marketing of its products. For the
three years ended December 31, 1996, 1995 and 1994, the Company derived a
significant portion of its total revenue from the licensing and maintenance of
two products, TSUPREM-4 and Medici, and the Company expects to continue to
derive a substantial portion of its revenue from these two products for the
foreseeable future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
FINANCIAL INSTRUMENTS
Cash and cash equivalents, primarily deposited at two financial
institutions, consist of money market instruments purchased with original
maturities of three months or less. Short-term investments the Company held
during 1996 were corporate and government debt instruments and U.S. Treasury
securities with maturities ranging from six to 18 months.
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In compliance with SFAS No. 115,
the Company's investments are classified as available-for-sale and are stated at
fair value, which approximates their cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the useful lives of
the respective assets, generally three to seven years.
REVENUE RECOGNITION
License revenue consists principally of revenue from licensing the
Company's software and is generally recognized when the software has been
shipped and there are no significant remaining obligations. Maintenance revenue
consists of fees for providing system updates, user documentation and technical
support for software products, and is recognized ratably over the term of the
maintenance agreement. Professional services revenue consists of revenue earned
on services contracts and is recognized under the percentage of completion
method. Funded development revenue consists of revenue earned on development
contracts with government-sponsored and private entities. Revenue under these
arrangements is recognized under the percentage of completion method.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
24
<PAGE>
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility. The Company has defined the establishment of technological
feasibility as the completion of a working model, which occurs concurrently with
completion of the development efforts. Accordingly, amounts qualifying for
capitalization have not been material.
INCOME TAXES
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The measurement of deferred tax assets is reduced,
if necessary, by a valuation allowance for any tax benefits of which future
realization is uncertain (see Note 10).
STOCK COMPENSATION
Effective January 1, 1996 the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". In accordance with the
provisions of SFAS No. 123, the company applies APB Opinion 25 and related
interpretations in accounting for its employee stock plans. Note 9 to the
Consolidated Financial Statements contains a summary of the pro forma effects on
reported net income and earnings per share for 1996 and 1995 based on the fair
value of options and shares granted as prescribed by SFAS No. 123.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of shares issuable upon the exercise of stock options
using the treasury stock method. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, such computations include all
common and common equivalent shares issued within the twelve months preceding
the filing date as if they were outstanding for all periods presented (using the
treasury stock method and an assumed Initial Public Offering price of $12.00 per
share for stock options).
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in prior years to
conform to the current year presentation.
3. SHORT-TERM INVESTMENTS:
Management determines the appropriate classifications of securities at the
time of purchase and reevaluates such designations as of each balance sheet
date. The Company has classified its marketable securities as available-for-
sale. Available-for-sale securities are carried at fair value with unrealized
holding gains and losses, if material, being reported in shareholders' equity.
Realized gains and losses on available-for-sale securities are included in other
income (expense). At December 31, 1996, the fair market value of these
securities closely approximated their carrying cost.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
VALUE AT
DECEMBER 31, 1996
-----------------
<S> <C>
U.S. Government and Agency Instruments $ 6,053
Corporate Debt Instruments 7,876
-------
$13,929
-------
-------
</TABLE>
25
<PAGE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Computer equipment $2,406 $1,787
Purchased software 851 718
Leasehold improvements 326 16
Furniture and fixtures 967 383
------ ------
4,550 2,904
Less accumulated depreciation and amortization 2,039 1,463
------ ------
$2,511 $1,441
------ ------
------ ------
</TABLE>
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Accrued compensation $ 826 $ 591
Commissions payable to foreign sales representatives 384 392
Accrued subcontractor costs - 231
Other accrued liabilities 528 228
------ ------
$1,738 $1,442
------ ------
------ ------
</TABLE>
6. NOTES PAYABLE:
During 1993 and 1994, the Company repurchased 6,600,000 shares of common
stock from three different shareholders in exchange for $116,600 in cash and
$1,616,600 in promissory notes. The three shareholders consisted of two former
officers and one director of the Company. These notes are due in quarterly
installments, bear interest at 10% per annum, and expire July 1, 1998, April 15,
1999 and October 15, 1999. Two of the notes can be prepaid without penalty.
The amounts due under the notes were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996
----
<S> <C>
1997 $303
1998 280
1999 145
----
728
Less current portion (303)
----
Long-term portion $425
----
----
</TABLE>
7. LEASE COMMITMENTS:
The Company leases its primary facility under a noncancelable operating
lease that expires in February 2001. In connection with the move to this
facility in March 1996, the Company vacated its former facility and subleased it
to a third party. This sublease is effective from May 1, 1996 through May 31,
1998, the expiration of the lease.
In May 1996, the Company entered into a $660,000 capital lease line for the
purchase of furniture and other office equipment. The interest rate on the
lease is 9.0% and borrowings are secured by the purchased equipment. As of
December 31, 1996, the Company had acquired $660,000 of furniture and other
office equipment under the lease line.
26
<PAGE>
Minimum future lease payments under noncancelable capital and operating
leases as of December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997 $ 184 $ 772
1998 184 614
1999 184 517
2000 128 486
2001 - 77
------- ------
Total minimum lease payments 680 $2,466
------
------
Less amount representing interest (109)
-------
Present value of lease payments 571
Less current portion (138)
-------
Long-term portion $ 433
-------
-------
</TABLE>
The minimum operating lease payments for the Company's former facility have
not been reduced by the minimum sublease rentals of $427,000 due ratably over
the next 17 months under the noncancelable sublease. Rent expense for 1996, 1995
and 1994 was $612,000, $362,000 and $325,000, respectively.
8. PROFIT SHARING:
The Company has a profit sharing plan covering substantially all of its
employees. Expenses related to the plan were $183,000, $210,000 and $236,000
for the years ended December 31, 1996, 1995 and 1994, respectively. For the
years ended December 31, 1995 and 1994, employees had the right to utilize
distributions under this plan to purchase shares of the Company's common stock
pursuant to the Company's 1994 Stock Purchase Plan.
9. COMMON STOCK:
In January 1996, the Company's Board of Directors declared a 2-for-1
split of the Company's common stock. Accordingly, all share and per share
amounts have been restated to reflect the split. In July 1996, the Company's
Board of Directors (the "Board") and shareholders approved an increase in the
authorized number of shares of common stock from 10,000,000 to 25,000,000.
The Board also authorized 4,000,000 shares of preferred stock.
EMPLOYEE STOCK OPTION PLANS
The Company has issued stock options under three separate plans, the
1989 Stock Option Plan (the "1989 Plan"), the 1995 Stock Option Plan (the
"1995 Plan"), and the 1996 Equity Incentive Plan (the "1996 Equity Plan").
The right to grant further options under the 1989 Plan was terminated by vote
of the Board of Directors in 1995, the right to grant further options under
the 1995 Plan was terminated upon the completion of the Company's Initial
Public Offering in September 1996 and all subsequent grants have been made
under the 1996 Equity Plan.
Under the 1989 Plan, nonqualified stock options ("NQSO's") were granted
to eligible employees, officers and directors at prices not less than fair
market value as determined by the Board of Directors at the grant date.
Options granted under the 1989 Plan vest over four years, and expire five
years from the date of grant.
Under the 1995 Plan, incentive stock options ("ISO's") were granted to
eligible employees and officers and directors who are employees. NQSO's were
granted to non-employee directors. The 1995 Plan specifies that the exercise
price of NQSO's will be set by the Board of Directors at its discretion. The
exercise price of ISO's was not to be less than 100% of the fair market value
as determined by the Board of Directors at the grant date. Options granted
under the 1995 Plan generally vest over four years, and expire five years
from the date of grant.
In conjunction with the establishment of the 1995 Plan, the Board or
Directors offered employees holding NQSO's under the 1989 Plan the opportunity
to cancel their current options in exchange for the same number of ISO's under
the 1995 Plan. The exercise price of the new options was the fair market value
at the time of the new grant. The new options retain the same vesting schedule
as the old options, and expire five years from the new date of grant. NQSO's for
59,600 shares ranging in prices from $0.375 to $0.55 per share were canceled and
exchanged for ISO's at $0.60 per share.
27
<PAGE>
Options granted under the 1989 Plan and the 1995 Plan will remain
outstanding in accordance with their terms, but no further options have been
granted under the 1989 Plan or the 1995 Plan after the offering.
The 1996 Equity Plan provides for the grant of both ISO's and NQSO's.
ISO's can only be granted to eligible employees, officers and directors, who are
also employees. NQSO's can be granted to eligible employees, officers,
directors, advisors and consultants. The 1996 Equity Plan specifies that the
exercise price of NQSO's will not be less than 85% of the fair market value on
the date of grant. The exercise price of ISO's will not be less than 100% of
the fair market value on the date of grant. The options can be granted for
periods of up to ten years and generally will vest over four years.
As of December 31, 1996, the Company had issued options to purchase 8,000
shares of common stock under the 1996 Equity Plan and there were 1,492,000
shares available for future grant. The Company has reserved 1,500,000 shares of
common stock for issuance under the 1996 Equity Plan.
1996 DIRECTORS STOCK OPTION PLAN
In July 1996, the Board adopted and the shareholders approved the 1996
Directors Stock Option Plan (the "1996 Directors Plan"). The Company has
reserved 150,000 shares of common stock for issuance under the 1996 Directors
Plan. The 1996 Directors Plan provides for the grant of nonqualified stock
options to nonemployee directors of the Company including an option to purchase
15,000 shares of common stock on the date that the optionee first becomes a
nonemployee director of the Company and an additional option to purchase 5,000
shares of common stock at each succeeding annual meeting. The exercise price
per share of all options granted under the 1996 Directors Plan will be equal to
the fair market value of the Company's common stock on the date of grant.
Options can be granted for periods of up to ten years and generally will vest
over four years. As of December 31, 1996, no options were granted under this
plan.
1996 EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Board adopted and the shareholders approved the 1996
Employee Stock Purchase Plan (the "1996 Purchase Plan"). The Company has
reserved 200,000 shares of common stock for issuance under the 1996 Purchase
Plan. The 1996 Purchase Plan will enable eligible employees to purchase common
stock at 85% of the lower of the fair market value of the Company's common stock
on the first or last day of each six-month purchase period. As of December 31,
1996 no shares were issued under the plan.
1994 STOCK PURCHASE PLAN
On January 22, 1994, the Company adopted the 1994 Stock Purchase Plan (the
"1994 Plan") under which eligible employees, officers, consultants and directors
of the Company may purchase shares of the Company's common stock at the
discretion of the Board of Directors at a purchase price of 100% of the fair
market value of the stock as determined by the Board of Directors at the time of
purchase. Shares purchased under the 1994 Plan are subject to a right of
repurchase by the Company at the original issuance price. This repurchase right
lapses over a period of four years. On January 20, 1996, the Board of Directors
increased the number of shares reserved for issuance under the 1994 Plan from
2,000,000 to 3,000,000 shares. As of December 31, 1996, the Company had issued
and outstanding a total of 1,688,502 shares under the 1994 Plan of which 694,505
shares are subject to repurchase by the Company. As of December 31, 1996, there
were 1,311,498 shares available for future sale under the 1994 Plan.
NOTES RECEIVABLE FROM SHAREHOLDERS
In June 1995, the Company issued a total of 1,140,000 shares of common
stock to two officers of the Company in exchange for notes receivable. The
terms of the notes specify that 25% of the balance will be forgiven on each
anniversary date of the note while these individuals are still actively employed
by the corporation. The first year's forgiveness was guaranteed. The Company
has recorded compensation expense of $119,000 and $108,000 for the years ending
December 31, 1996 and 1995, respectively, in connection with the forgiveness of
these notes. In January 1996, one of the officers left the Company. The amount
of shares equal to his first year's forgiveness was repurchased by the Company.
The remaining balance of the note was canceled in exchange for the unvested
shares.
During 1996, the Company issued a total of 189,500 shares of common
stock to certain officers of the Company in exchange for notes receivable of
$152,000. The notes bear interest at 5.45% to 5.73% and the principal, with
interest, is due in January and April, 2000.
28
<PAGE>
STOCK BASED COMPENSATION EXPENSE
The Company has several stock plans, as described above, which are
accounted for under APB Opinion No. 25, under which no compensation cost has
been recognized (except as discussed in the section entitled "Deferred
Compensation" below). Because the FASB Statement No. 123 method of accounting
has not been applied to options granted prior to January 1, 1995, the resulting
pro forma compensation cost may not be representative of that to be expected in
future years. Had compensation cost for these plans been determined consistent
with Statement 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts (in thousands, except per share
data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET INCOME: As reported $1,224 $1,282
Pro forma 1,135 1,277
EARNINGS PER SHARE: As reported $ 0.20 $ 0.23
Pro forma 0.18 0.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted average
assumptions respectively:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Dividend yield 0% 0%
Expected life: 3.22 years 3.22 years
Expected volatility: (after Sept. 20) 76.41%
(before Sept. 20) 0% 0%
Risk-free interest rates: 5.19% - 6.43% 5.62% - 7.67%
Weighted average fair values: $0.48 $0.11
</TABLE>
If the Company had elected to recognize the compensation cost based on
the fair value of the employees' stock purchase plan rights, the cost would
have been estimated using the Black-Scholes model with the following
assumptions for the period from September 20, 1996 to December 31, 1996:
<TABLE>
<S> <C>
Dividend yield 0%
Expected life: 6 months
Expected volatility: 76.41%
Risk-free interest rate: 5.53%
Weighted average fair value: $4.08
</TABLE>
STOCK OPTION ROLL FORWARD
A summary of the Company's stock options plans at December 31, 1996,
1995 and 1994 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
(in thousands except per share data) 1996 1995 1994
---- ---- ----
Shares Wtd. Avg Shares Wtd. Avg Shares Wtd. Avg
000s Ex Price 000s Ex Price 000s Ex Price
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year 954.1 $0.37 2,019.9 $0.18 2,329.8 $0.12
Granted 426.7 5.23 385.0 0.59 714.8 0.34
Exercised (323.8) 0.19 (128.2) 0.11 (748.4) 0.11
Canceled (109.1) 1.02 (1,322.6) 0.17 (276.3) 0.21
------ ----- -------- ----- ------- -----
Outstanding at end of the year 947.9 2.55 954.1 0.37 2,019.9 0.18
------ ----- -------- ----- ------- -----
Exercisable at end of the year 186.7 0.43 337.4 0.19 880.7 0.13
------ ----- -------- ----- ------- -----
</TABLE>
29
<PAGE>
The following table summarizes information about outstanding stock options
at December 31, 1996:
<TABLE>
<CAPTION>
Weighted Weighted Average Number of Weighted Average
Number of Shares Exercise Average Remaining Shares Exercise Price of
Outstanding Price Range Exercise Price Contractual Life Exercisable Options Exercisable
----------- ----------- -------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
705,950 $0.11 and $0.80 $ 0.55 3.3 years 186,700 $0.43
234,000 $5.00 and $9.00 $ 8.20 4.5 years 0 Not Applicable
8,000 $12.38 and $13.50 $ 13.36 9.8 years 0 Not Applicable
</TABLE>
DEFERRED COMPENSATION
During 1996, the Company had sold 495,070 shares of common stock under the
1994 Plan and issued options to purchase 432,500 shares of common stock under
the 1995 Plan at per share prices that were subsequently determined to be less
than the fair value of the common stock at the date of issuance, resulting in
total deferred compensation of $1,321,000. This amount will be recognized as
expense over the four year vesting period of the underlying equity instruments.
Deferred compensation expense of $280,000 was recognized for the year ending
December 31, 1996.
10. INCOME TAXES:
The provisions for income taxes consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 50 $ 40 $ 43
State 109 80 76
Foreign withholding taxes 955 745 642
----- ----- ----
1,114 865 761
----- ----- ----
Deferred:
Federal (167) - -
State - - -
Foreign withholding taxes - - -
----- ----- ----
(167) - -
----- ----- ----
Total $ 947 $ 865 $761
----- ----- ----
----- ----- ----
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate of 34% to income before provision for
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate $ 738 $ 730 $ 753
State taxes, net of Federal tax benefit 71 53 50
Foreign withholding taxes incurred 955 745 642
Foreign tax credit utilized (955) (698) (642)
Change in valuation allowance 139 95 23
Tax credits - (52) (30)
Other (1) (8) (35)
------ ------ ------
$ 947 $ 865 $ 761
------ ------ ------
------ ------ ------
</TABLE>
30
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment $ - $ 32
Reserves and accruals 423 180
State taxes 37 36
Foreign tax credit, research credit and
alternative minimum tax credit carryforwards 689 486
----- -----
Total deferred tax assets 1,149 734
Less: Valuation allowance (803) (664)
----- -----
Net deferred tax assets 346 70
----- -----
Deferred tax liabilities:
Depreciation (153) (70)
Other (46) -
----- -----
Total deferred tax liabilities (199) (70)
----- -----
Net deferred tax assets $ 147 $ -
----- -----
----- -----
</TABLE>
As of December 31, 1996, the Company had foreign tax credit carryforwards
of approximately $216,000 and alternative minimum tax credit carryforwards of
approximately $176,000 for Federal income tax purposes. The Company also has
research credit carryforwards of approximately $270,000 and $28,000 for Federal
and California income tax purposes, respectively. If not utilized, these
carryforwards will expire in 1997 through 2011. Under the Tax Reform Act of
1986, the amount of credits that can be utilized in the carryforward period may
be limited in the event of certain stock ownership changes. The Company
experienced such a change in 1994; therefore, its ability to utilize the
carryforwards is subject to certain limitations.
As the Company generates a significant portion of its total revenue from
international sales that require withholding of foreign tax, it has not been
able to utilize all of its available tax credits. Accordingly, the Company has
generated significant tax credit carryforwards and believes that it will
generate additional carryforwards for the foreseeable future. This limitation
along with the change in ownership limitation discussed above raises uncertainty
regarding the realization of the tax credit carryforwards and the Company's
other deferred tax assets. Therefore, the Company has established a valuation
allowance of $803,000 as of December 31, 1996.
The Company's federal income tax return for 1993 is currently under
examination by the Internal Revenue Service ("IRS"). Management believes that
adequate provisions have been made and the IRS has not made a claim for any tax
deficiency. However, there can be no assurance that the IRS will not raise
matters in this examination that could exceed the amount of provision
established by the Company.
11. INDUSTRY SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION:
The Company operates in one industry segment: the development, licensing,
and support of software applications for manufacturers of integrated circuits.
The Company's products are produced in Sunnyvale, California, and are sold
through direct and independent sales representatives mainly in North America,
Europe, Japan, Korea, and Taiwan. Sales in significant markets were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Korea $ 5,445 $ 1,945 $ 3,923
North America 5,194 3,500 4,275
Japan 4,005 4,512 2,339
Taiwan 1,326 1,287 485
Other 1,989 1,349 1,056
------- ------- -------
$17,959 $12,593 $12,078
------- ------- -------
------- ------- -------
</TABLE>
All sales in Japan, Korea and Taiwan are made through an exclusive
distributor or independent sales representative in each country. A change in
distributor or representative could cause a delay in or possible loss of
sales, which would affect operating results adversely.
31
<PAGE>
Sales to customers that comprised more than 10% of total revenue were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Innotech Corporation 22% 38% 19%
Customer A 18 * 11
Customer B * * 13
Customer C * * 12
Customer D * * 11
</TABLE>
___________
*Represents less than 10% of total revenue for the period.
Innotech is the exclusive distributor of the Company's products in
Japan. The other customers are semiconductor manufacturers located in Korea
and the United States.
Accounts receivable concentrated with certain customers in certain
geographic locations potentially subject the Company to concentrations of
credit risk. At December 31, 1996, certain accounts receivable from Japanese
and Korean customers accounted for 8% and 19%, respectively, of total trade
accounts receivable. The Company generally does not require collateral on
accounts receivable as the majority of the Company's customers are large,
well established companies. The Company provides allowances for credit losses
and such losses have been insignificant to date.
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September 1995, the Board of Directors authorized the Company to
retain Arthur Andersen LLP as its independent public accountants and to
dismiss its former accountants, KPMG Peat Marwick LLP. The report of KPMG
Peat Marwick LLP for the year ended December 31, 1994 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or application of accounting principles. During the
year ended December 31, 1994 and through the date of replacement, there were
no disagreements with KPMG Peat Marwick LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's directors
is incorporated by reference from the section captioned "Election of
Directors" contained in the Company's Proxy Statement related to the Annual
Meeting of Shareholders to be held May 22, 1997, to be filed by the Company
with the Securities and Exchange Commission within 120 days of the end of the
Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the
"Proxy Statement"). The information required by this item concerning
executive officers is set forth in Part I of this Report. The information
required by this item concerning compliance with Section 16(a) of the
Exchange Act is incorporated by reference from the section captioned "Section
16(a) Beneficial Ownership Reporting Compliance" contained in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions With Management" contained in the Proxy
Statement.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accounts 19
Consolidated Balance Sheets as of December 31, 1996 and 1995 20
Consolidated Statements of Operations for the Three Years Ended
December 31, 1996 21
Consolidated Statements of Shareholders' Equity for the Three Years
Ended December 31, 1996 22
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1996 23
Notes to Consolidated Financial Statements 24
(a)(2) SCHEDULES
The following schedules of the Company are included herein:
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the
amounts are immaterial of the required information is presented in the
Consolidated Financial Statements or Notes thereto.
34
<PAGE>
(a)(3) EXHIBITS
The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
3.01 - Registrant's Amended and Restated Articles of Incorporation. (1)
3.02 - Registrant's Bylaws. (1)
4.01 - Form of Specimen Certificate for Registrant's Common Stock. (1)
10.01 - Registrant's 1989 Stock Option Plan. (1) (2)
10.02 - Registrant's 1994 Employee Stock Purchase Plan. (1) (2)
10.03 - Registrant's 1995 Stock Option Plan. (1) (2)
10.04 - Registrant's 1996 Equity Incentive Plan. (1) (2)
10.05 - Registrant's 1996 Directors Stock Option Plan. (1) (2)
10.06 - Registrant's 1996 Employee Stock Purchase Plan. (1)
10.07 - Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers. (1) (2)
10.08 - Lease Agreement, dated January 15, 1996, between Registrant and
Morris Associates IX, L.P. (1)
10.09 - Distribution Agreement, dated June 1, 1991, between Registrant and
Innotech Corporation.** (1)
10.10 - International Exclusive Independent Representative Agreement, dated
July 1, 1995, amended as of July 1, 1996, between
Registrant and C&G Technology, Inc.** (1)
10.11 - Independent Representative Agreement, dated March 1, 1994, amended as
of March 1, 1996, between Registrant and Business
Technology, Inc.** (1)
10.12 - Stock Purchase Agreement and Promissory Note between Registrant and
Robert W. Dutton, dated October 15, 1994. (1) (2)
10.13 - Promissory Note and related agreement between Registrant and Roy E.
Jewell, dated June 30, 1995. (1) (2)
10.14 - Promissory Note between Registrant and Joseph G. Masarich dated
January 20, 1996. (1) (2)
10.15 - SUPREM IV License Agreement dated June 26, 1986 between Registrant
and The Board of Trustees of The Leland Stanford Junior
University. (1)
10.16 - License Agreement dated October 8, 1993 between Registrant and The
Board of Trustees of The Leland Stanford Junior University. (1)
11.01 - Statement regarding computation of net income per share.
16.01 - Letter on change of independent auditors.
21.01 - List of Registrant's subsidiaries. (1)
23.01 - Consent of Arthur Andersen LLP, independent auditors.
24.01 - Power of Attorney (see page 35)
27.01 - Financial Data Schedule
___________
** Confidential treatment has been granted with respect to certain portions
of this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the same exhibit number from Registrant's
Registration Statement on Form SB-2 (File No. 333-5252-LA) declared
effective by the Commission on September 19, 1996.
(2) Management contract or compensatory plan.
___________
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly cause this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TECHNOLOGY MODELING ASSOCIATES, INC.
(Registrant)
Date: March 18, 1997 By: /s/ Roy E. Jewell
----------------------- --------------------------------------
ROY E. JEWELL
President and Chief Executive Officer
Chairman of the Board of Directors
POWER OF ATTORNEY:
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roy E. Jewell as his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE OFFICER:
By: /s/ Roy E. Jewell Date: March 18, 1997
--------------------------------------------- -------------------
ROY E. JEWELL
President and Chief Executive Officer
Chairman of the Board of Directors
PRINCIPAL FINANCIAL OFFICER:
By: /s/ Bennet L. Weintraub Date: March 18, 1997
--------------------------------------------- -------------------
BENNET L. WEINTRAUB
Chief Financial Officer and
Vice President of Finance and Administration
ADDITIONAL DIRECTORS:
By: /s/ Louis A. Delmonico Date: March 18, 1997
--------------------------------------------- -------------------
LOUIS A. DELMONICO
Director
By: /s/ William E. Drobish Date: March 18, 1997
--------------------------------------------- -------------------
WILLIAM E. DROBISH
Director
By: /s/ Robert W. Dutton Date: March 18, 1997
--------------------------------------------- -------------------
ROBERT W. DUTTON
Director
By: /s/ Ronald A. Rohrer Date: March 18, 1997
--------------------------------------------- -------------------
RONALD A. ROHRER
Director
36
<PAGE>
EXHIBIT 11.01
TECHNOLOGY MODELING ASSOCIATES, INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $1,224 $1,282 $1,454
------ ------ ------
Weighted average common shares outstanding 5,095 3,685 3,631
Shares related to SAB No. 83 720 959 959
Weighted average common share equivalents
related to stock options (using the treasury
stock method) 402 864 1,799
------ ------ ------
Shares used in per share computation 6,217 5,508 6,389
------ ------ ------
------ ------ ------
Net income per share $ 0.20 $ 0.23 $ 0.23
------ ------ ------
------ ------ ------
</TABLE>
SCHEDULE II
TECHNOLOGY MODELING ASSOCIATES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------
For the Fiscal Years Balance at Charged to Costs Balance at
Ended December 31, Beginning of Period and Expenses Deductions End of Period
- -------------------- ------------------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
1994 $ 0 $83 $ - $ 83
1995 83 82 - 165
1996 165 10 - 175
</TABLE>
37
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8, File No. 333-12389
ARTHUR ANDERSEN LLP
San Jose, California
March 14, 1997
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGE 20 AND 21 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,074
<SECURITIES> 13,929
<RECEIVABLES> 2,846
<ALLOWANCES> 175
<INVENTORY> 0
<CURRENT-ASSETS> 39,204
<PP&E> 4,550
<DEPRECIATION> 2,039
<TOTAL-ASSETS> 41,965
<CURRENT-LIABILITIES> 4,750
<BONDS> 0
0
0
<COMMON> 33,661
<OTHER-SE> 2,696
<TOTAL-LIABILITY-AND-EQUITY> 41,965
<SALES> 0
<TOTAL-REVENUES> 17,959
<CGS> 0
<TOTAL-COSTS> 3,124
<OTHER-EXPENSES> 13,093
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> (439)
<INCOME-PRETAX> 2,171
<INCOME-TAX> 947
<INCOME-CONTINUING> 1,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,224
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
