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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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: 333-95695
NUMERICAL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3232104
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
70 West Plumeria Drive 95134-2134
San Jose, California (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (408) 919-1910
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 [_]
The number of shares outstanding of the registrant's Common Stock, par value
$0.0001 per share, as of July 20, 2000 was 30,101,977
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NUMERICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,668 $ 13,486
Short-term investments 15,655 -
Accounts receivable 3,817 1,819
Prepaid and other 904 394
-------- --------
Total current assets 58,044 15,699
Property and equipment, net 2,405 1,613
Acquired intangibles, net 76,441 -
Other assets 229 293
-------- --------
$137,119 $ 17,605
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 1,657 $ 613
Accrued expenses 2,795 1,945
Deferred revenue 6,254 2,642
-------- --------
Total current liabilities 10,706 5,200
-------- --------
Stockholders' equity:
Convertible preferred stock, $0.0001 par value:
Authorized: 5,000 and 12,253 shares in
2000 and 1999, respectively,
Issued and outstanding: 0 and 8,103 shares in
2000 and 1999, respectively - 1
Common stock, $0.0001 par value:
Authorized: 100,000 and 30,000 shares in
2000 and 1999, respectively,
Issued and outstanding: 30,109 and 9,570 shares in
2000 and 1999, respectively 3 1
Additional paid in capital 198,974 50,100
Receivable from stockholders (4,086) (315)
Deferred stock compensation (27,638) (21,220)
Accumulated deficit (40,840) (16,162)
-------- --------
Total stockholders' equity 126,413 12,405
-------- --------
$137,119 $ 17,605
======== ========
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
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NUMERICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
-------- ------- -------- -------
Revenue $ 4,742 $ 1,089 $ 8,198 $ 2,981
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Costs and expenses:
Cost of revenue 296 41 630 63
Research and development 3,257 924 5,849 1,667
Sales and marketing 2,134 886 3,932 1,815
General and administrative 1,204 251 2,089 438
Depreciation and amortization 4,748 69 9,760 139
Amortization of deferred
stock compensation(*) 5,524 714 10,741 1,148
-------- ------- -------- -------
Total costs and expenses 17,163 2,885 33,001 5,270
-------- ------- -------- -------
Loss from operations (12,421) (1,796) (24,803) (2,289)
Interest expense (193) - (893) -
Interest income 875 41 1,018 67
-------- ------- -------- -------
Net loss $(11,739) $(1,755) $(24,678) $(2,222)
======== ======= ======== =======
Net loss per common share, basic and diluted $(0.50) $(0.25) $(1.57) $(0.33)
======== ======= ======== =======
Weighted average common shares outstanding,
basic and diluted 24,850 6,923 16,209 6,731
======== ======= ======== =======
(*)Amortization of deferred stock compensation
Cost of revenue $ 230 $ 21 $ 425 $ 34
Research and development 2,562 329 5,004 529
Sales and marketing 1,330 258 2,586 415
General and administrative 1,402 106 2,726 170
------- -------- -------- -------
$ 5,524 $ 714 $ 10,741 $ 1,148
======= ======== ======== =======
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
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NUMERICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(24,678) $(2,222)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation 474 139
Amortization of deferred stock compensation 10,741 1,148
Amortization of acquired intangibles 9,286 -
Changes in assets and liabilities:
Accounts receivable (872) (651)
Prepaid and other (415) (63)
Other assets 64 (331)
Accounts payable 1,044 105
Accrued expenses 505 276
Deferred revenue 2,518 (106)
-------- -------
Net cash used in operating activities (1,333) (1,705)
-------- -------
Cash flows from investing activities:
Purchase of short-term investments (15,655) -
Purchase of property and equipment (1,055) (352)
-------- -------
Net cash used in investing activities (16,710) (352)
-------- -------
Cash flows from financing activities:
Proceeds from Initial public offering 81,161 -
Repayment on notes payable (40,000) -
Proceeds from issuance of preferred stock - 10,045
Proceeds from exercise of common stock options 1,139 272
Repurchase of common stock (75) (1)
-------- -------
Net cash provided by financing activities 42,225 10,316
-------- -------
Net increase in cash and cash equivalents 24,182 8,259
Cash and cash equivalents at beginning of period 13,486 4,973
-------- -------
Cash and cash equivalents at end of period $ 37,668 $13,232
======== =======
Supplemental disclosure of cash flow information:
Stockholder notes receivable exchanged for common stock 3,771 -
======== =======
Interest paid 893 -
======== =======
</TABLE>
See the accompanying notes to these condensed consolidated financial
statements.
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NUMERICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The unaudited condensed consolidated financial statements have been
prepared by Numerical Technologies, Inc. pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the financial position,
operating results and cash flows for those periods presented. These financial
statements should be read in conjunction with the financial statements and notes
thereto for the years ended December 31, 1999 and 1998, included in our
Registration Statement Form S-1, dated April 7, 2000, as declared effective by
the Securities and Exchange Commission on April 6, 2000. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for any other period or for the fiscal year, which ends
December 31, 2000.
NOTE 2 - ACQUISITION
On January 1, 2000, we acquired Transcription Enterprises Ltd.
("Transcription"), a company incorporated in California. Under the terms of the
acquisition, we issued approximately 3,810,000 shares of Series E Convertible
Preferred Stock and $40.0 million in notes payable for all of the outstanding
stock of Transcription. The total purchase price was approximately $86.0
million, including acquisition costs of approximately $250,000. The transaction
was accounted for under the purchase method of accounting.
Under the terms of the acquisition agreement, we acquired specified
accounts receivable of Transcription, consisting of 45% of accounts receivable
for license fees, plus all fees associated with maintenance, support and other
services rendered by Transcription on such accounts. The allocation of the
purchase price is as follows in thousands:
Net tangible assets................................................. $ 243
In process research and development................................. 300
Developed technology................................................ 7,400
Customer base....................................................... 14,300
Covenants not to compete............................................ 2,700
Work force.......................................................... 1,500
Trade name.......................................................... 200
Goodwill............................................................ 59,327
-------
$85,970
=======
The estimated purchase price was allocated to the identifiable assets
acquired and the liabilities assumed based upon the fair market value on the
acquisition date. The net tangible assets consist primarily of accounts
receivable, property and equipment, and other liabilities. Because the in-
process technology had not reached the stage of technological feasibility at the
acquisition date and had no alternative future use, the amount was immediately
charged to operations. The amounts allocated to developed technology and
customer base and trade name are amortized over the estimated useful life of
five years. The amounts allocated to covenants not to compete and work force are
being amortized over the estimated useful lives of two and four years,
respectively. The excess amount of the purchase price over the fair market value
of the identifiable assets acquired is accounted for as goodwill and is being
amortized over its estimated useful life of five years. The valuation for the
intangible assets has been determined using management's assumptions and the
report from an independent appraiser.
Under the terms of the acquisition agreement, $40 million in promissory
notes were secured by substantially all the assets of Transcription. Shortly
after issuance of the notes, we repaid $5.0 million of the principal, leaving a
balance of $35.0 million outstanding under the notes. The remaining principal
amount, plus interest at 8.0% per annum, was paid in full with a portion of the
net proceeds from our initial public offering completed in April 2000.
Had the acquisition of Transcription occurred on January 1, 1999, pro forma
combined revenues would have been $3,221,000 and $7,061,000 for the three months
and six months ended June 30, 1999, after giving effect to reduction of combined
revenue related to deferred revenues on Transcription contracts. Pro forma net
loss would have been $5,928,000 or $(0.86) per share and $10,666,000 or $(1.58)
per share for the three months and six months ended June 30, 1999. Pro forma
adjustments have been added to record the amortization of identifiable
intangible
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assets and goodwill and interest expense related to the acquisition of
Transcription as if the transaction occurred on January 1, 1999.
NOTE 3 - NET LOSS PER SHARE
Net income per share is computed in accordance with Financial Accounting
Standards Board Statement No. 128 (SFAS 128), "Earnings Per Share," which
requires the presentation of basic and diluted net income per share. Basic net
income per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted net income per share is
calculated using the weighted average number of common shares and common stock
equivalents, if dilutive, outstanding during the period. Common stock
equivalents include common shares issuable upon exercise of common stock
options, conversion of preferred stock and warrants. For the periods presented,
we had losses and therefore all common stock equivalents are excluded from the
computation of diluted net loss per share because their effect is antidilutive.
Net loss per share for the three and six months ended June 30, 2000 include
a non-cash preferred stock dividend of approximately $778,000 related to the
beneficial conversion of warrants exercised in April 2000.
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
For the periods presented, there were no elements of comprehensive income
(loss), except for the net losses.
NOTE 5 - LITIGATION
We are subject to various legal proceedings and claims, either asserted or
unasserted, that arise in the ordinary course of business. In addition, on March
14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S.
patents and have committed unfair or fraudulent business practice under the
California Business and Professions Code. We are currently investigating the
patents and allegations. Litigation is inherently uncertain, and an adverse
decision could limit our ability to offer some features of our optical proximity
correction, or OPC, product. Were an unfavorable ruling to occur, there exists
the possibility of a material impact on the net income for the period in which
the ruling occurs and thereafter. This lawsuit is in early stages of discovery
and no trial date has been set.
NOTE 6 - INITIAL PUBLIC OFFERING
In April 2000, we sold a total of 6,364,100 shares of common stock at
$14.00 per share through our initial public offering. The net proceeds after
underwriters' commission and fees and other costs associated with the offering
totaled approximately $81.2 million. We paid the balance of principal and
accrued interest under the notes payables issued in connection with the
acquisition of Transcription with a portion of the net proceeds. The remaining
proceeds will be used for working capital and general corporate purposes. We may
use a portion of the net proceeds to acquire businesses, products and
technologies that are complementary to our business. Pending these uses, we have
invested the net proceeds from this offering in short-term, interest-bearing,
investment grade securities.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and we intend that such
forward-looking statements are subject to the safe harbors created thereby. The
forward-looking statements are based on current expectations of management. In
addition, our business and operations are subject to substantial risks and
uncertainties that could cause actual results to differ materially from those
reflected in such forward-looking statements, including those under "Factors
Which May Affect Future Results" below. We do not undertake any obligation to
publicly release the results of any revision to these forward-looking
statements.
Overview
We develop and market proprietary technologies and software products that enable
the design and manufacture of semiconductors with subwavelength feature sizes.
We derive revenue from
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intellectual property and software licenses, maintenance and related technical
services. To date, we have derived a significant portion of our revenue from
research and development licenses to integrated device manufacturers, or IDMs,
and foundries of our phase shifting attendant subwavelength technologies and
software licenses, as well as licenses of photomask verification software to
semiconductor equipment resellers. We expect to enter into production licenses
with semiconductor manufacturers as they adopt our proprietary technologies for
production. Production licenses grant licensees the right to use our phase
shifting intellectual property and software to design and manufacture
subwavelength integrated circuits, or ICs.
In April 2000, we sold a total of 6,364,100 shares of common stock at $14.00 per
share through our initial public offering. The net proceeds, after underwriters'
commission and fees and other costs associated with the offering, totaled
approximately $81.2 million. In April 2000, we paid the balance of principal and
accrued interest under the notes payables issued in connection with the
acquisition of Transcription with a portion of the net proceeds. The remaining
proceeds will be used for working capital and general corporate purposes. We may
use a portion of the net proceeds to acquire businesses, products and
technologies that are complementary to our business. Pending these uses, we have
invested the net proceeds from this offering in short-term, interest-bearing,
investment grade securities.
Results of Operations
Revenue. Revenues were $4.7 million and $8.2 million for the three months
and six months ended June 30, 2000 compared to $1.1 million and $3.0 million for
the same periods in 1999, representing increases of 335% and 175% for the
respective periods. These increases were primarily attributable to the continued
adoption of our total solution by companies throughout the design-to-silicon
flow. This continued adoption of our total solution was aided by our acquisition
of Transcription in January 2000.
Costs and Expenses
Cost of revenue. Cost of revenues were $296,000 and $630,000 for the three
months and six months ended June 30, 2000 compared to $41,000 and $63,000 for
the same periods in 1999. The increase was primarily due to increased cost for
engineers associated with maintenance and technical services, which resulted
from an increased customer base from our acquisition of Transcription in January
2000. In addition, cost of revenues increased as a result of royalties paid to
third parties in the six months ended June 30, 2000 as compared to no royalties
in the comparable six-month period in 1999. As a percent of revenues, cost of
revenue increased to 6% and 8% for the three months and six months ended June
30, 2000 compared to 4% and 2% for the same periods in 1999. We anticipate that
cost of revenues will increase in dollar amount as we support our increasing
number of industry partners and customers and assist our research and
development licensees to transition into production. Our expectation of
increasing cost of revenues is a forward-looking statement.
Research and development. Research and development expenses were $3.3
million and $5.8 million for the three months and six months ended June 30, 2000
compared to $924,000 and $1.7 million for the same periods in 1999. These
increases were primarily due to increased costs associated with additional
personnel in our expanding research and development efforts, and to a lesser
degree as a result of additional personnel acquired in the Transcription
acquisition. Legal costs associated with increased intellectual property
activities also contributed to these increases. As a percent of revenues,
research and development expenses were 69% and 71% for the three months and six
months ended June 30, 2000 compared to 85% and 56% for the same periods in 1999.
We anticipate that we will continue to commit substantial resources to research
and development in the future and expect that research and development expenses
will increase in dollar amounts to support increased research and development
efforts, but decline as a percentage of revenue in the long term. Our
expectation of increased research and development expenses, but declining as a
percentage of revenue, is a forward-looking statement.
Sales and marketing. Sales and marketing expenses were $2.1 million and
$3.9 million for the three months and six months ended June 30, 2000 compared to
$886,000 and $1.8 million for the same periods in 1999. These increases were
primarily due to additional sales and marketing personnel, increased sales
commissions and higher tradeshow expenses, and to a lesser degree as a result of
additional personnel acquired in the Transcription acquisition. As a percent of
revenues, sales and marketing expenses decreased to 45% and 48% for the three
months and six months ended June 30, 2000 compared to 81% and 61% for the same
periods in 1999. We expect that sales and marketing expenses will increase in
dollar amounts to support increased sales efforts, but decline as a percentage
of revenue in the long term. Our expectation of increased sales and marketing
expenses, but declining as a percentage of revenue, is a forward-looking
statement.
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General and administrative. General and administrative expenses were $1.2
million and $2.1 million for the three months and six months ended June 30, 2000
compared to $251,000 and 438,000 for the same periods in 1999. These increases
were primarily the result of increased spending in personnel, personnel-related
costs and professional fees and to a lesser degree as a result of additional
personnel acquired in the Transcription acquisition. General and administrative
expenses increased to 25% for both the three months and six months ended June
30, 2000 compared to 23% and 15% for the same periods in 1999. We expect that
general and administrative expenses will increase in dollar amounts to support
increased administrative efforts, but decline as a percentage of revenue in long
term. Our expectation of increasing general and administrative expenses, but
decreasing as a percentage of revenue, is a forward-looking statement.
Depreciation and amortization. Depreciation and amortization expenses were $4.7
million and $9.8 million for the three months and six months ended June 30, 2000
compared to $69,000 and $139,000 for the same periods in 1999. These increases
were primarily the result of amortization of acquired intangibles associated
with the acquisition of Transcription in January 2000.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation represents the amount of amortization related to the difference
between the exercise price of options granted and the estimated fair market
value of the underlying common stock on the date of the grant. We recognized
stock-based compensation of $5.5 million and $10.7 million for the three months
and six months ended June 30, 2000 compared to $714,000 and $1.1 million for the
same periods in 1999. We are amortizing these amounts over the vesting periods
of the individual options, using the multiple option method.
Interest expense. Interest expense was $193,000 and $893,000 for the three
months and six months ended June 30, 2000 compared to $0 for the same periods in
1999. Interest expense relates to the notes payable associated with the
acquisition of Transcription in January 2000. In April 2000, we paid the
remaining principal and interest due under these notes with proceeds from our
initial public offering.
Interest income. Interest income was $875,000 and $1.0 million for the three
months and six months ended June 30, 2000 compared to $41,000 and $67,000 for
the same periods in 1999. The increase was primarily due to higher average cash
and short-term investment balances as a result of proceeds from our initial
public offering in April 2000.
Liquidity and Capital Resources
As of June 30, 2000, we had cash and cash equivalents and short-term investments
of $53.3 million, including restricted cash of $204,000 related to a certificate
of deposit required as collateral for a letter of credit. As of the same date,
we had working capital of $47.3 million, including deferred revenue of $6.3
million. Deferred revenue represents the excess of amount billed from licensees
over revenue recognized on license and maintenance contracts.
Net cash used in operating activities was $1.3 million during the six month
period ended June 30, 2000, compared with $1.7 million used in the comparable
period in 1999. Net cash used in the six month period ended June 30, 2000
primarily reflects a net loss of $24.7 million, offset by amortization and
depreciation expenses of $20.5 million and an increase in deferred revenue of
$2.5 million.
Net cash used in investing activities was $16.7 million during the six month
period ended June 30, 2000, compared with $352,000 used in the comparable period
in 1999. Net cash used in the six month period ended June 30, 2000 consisted of
net purchases of $15.6 million in short-term investments and purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. We expect to invest approximately $2.0 million in fiscal year 2000
mainly for computer hardware and software, office furniture and equipment, and
business systems upgrades. Our expectation regarding the amount of our
investment in fiscal year 2000 for computer hardware and software, office
furniture and equipment and leasehold improvements is a forward-looking
statement.
Net cash provided by financing activities was $42.2 million during the six month
period ended June 30, 2000, compared with $10.3 million in the comparable period
in 1999. Net cash provided in the six month period ended June 30, 2000 consisted
of a $81.2 net proceeds from our initial public offering and $1.1 million of net
proceeds from common stock option activity, partly offset by payment of the
$40.0 million principal outstanding under the notes issued in connection with
the acquisition of Transcription.
On January 1, 2000, we acquired Transcription. In connection with the
acquisition, we issued $40.0 million in promissory notes. Shortly after issuance
of the notes, we repaid $5.0 million of the principal, leaving a balance of
$35.0 million outstanding under the notes. The remaining principal amount, plus
interest at 8.0% per annum, was payable in 16 equal quarterly payments of $2.2
million, plus interest commencing on April 1, 2000. In April 2000, we paid these
notes in
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full with a portion for the net proceeds from our initial public offering
completed in April 2000.
We are subject to various legal proceedings and claims, either asserted or
unasserted, that arise in the ordinary course of business. In addition, on March
14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S.
patents and have committed unfair or fraudulent business practice under the
California Business and Professions Code. We are currently investigating the
patents and allegations. Litigation is inherently uncertain, and an adverse
decision could limit our ability to offer some features of our OPC product. Were
an unfavorable ruling to occur, there exists the possibility of a material
impact on the net income of the period in which the ruling occurs and
thereafter. This lawsuit is in early stages of discovery and no trial date has
been set.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business strategy. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions of, or investments in,
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in our initial public offering
completed in April 2000, together with existing cash, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
12 months. Thereafter, we may find it necessary to obtain additional equity or
debt financing. In the event additional financing is required, we may not be
able to raise it on acceptable terms or at all. Our expectation regarding the
growth of our operating expenses, the materiality of such expenses to our cash
resources, the use of our cash resources to fund acquisitions or investments,
the sufficiency of our existing cash resources to meet our working capital and
capital expenditure requirements and our ability to raise additional financing
are forward-looking statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, or SFAS 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 2000. The Company does not currently hold derivative instruments
or engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin: No. 101 "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 summarizes certain of the Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We have
until the fourth quarter of 2000 to comply with the guidelines in SAB 101. The
impact of SAB 101 on our consolidated financial statements has not yet been
determined.
In March 2000, the Financial Accounting Statements Board issued Interpretation
No. 44 (FIN 44) Accounting for Certain Transactions involving Stock Compensation
an interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to terms of a previously fixed stock or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998, or January 12, 2000. We believe that the impact
of FIN 44 will not have a material effect on our financial positions or results
of operations. Our expectation that FIN 44 will not have a material effect on
our financial positions or results of operations is a forward-looking statement.
Factors Which May Affect Future Results
If the key markets within the semiconductor industry, especially semiconductor
manufacturers, do not adopt our proprietary technologies and software products,
we may be unable to generate sales of our products.
The four key markets within the semiconductor industry are semiconductor
manufacturing, semiconductor equipment, photomask and design. If these key
markets do not adopt our proprietary technologies and software products, our
product sales could decline. We design our technologies and products so that
each key market within the semiconductor industry can work efficiently with the
other markets. For example, if designers do not adopt our technologies and
products, it will be more difficult for them to design semiconductors which are
understood and processed efficiently by mask manufacturers that do adopt our
technologies and products. In addition, we believe semiconductor
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manufacturers need to adopt our proprietary technologies and software products
first in order to drive adoption by the other three markets. Semiconductor
manufacturers define and develop the manufacturing process. While designers,
mask manufacturers and equipment manufacturers are not required to adopt our
technologies and products in order to work with semiconductor manufacturers that
do adopt them, the efficiency of the entire manufacturing process is greatly
diminished if they do not. If each key market of the semiconductor industry does
not perceive our proprietary technologies and software products as the industry
standard, our technologies and products could become less valuable and more
difficult to license. Factors that may limit adoption of our subwavelength
solution within the markets include:
. our current and potential industry partners and customers may fail to
adopt our technologies and products;
. the semiconductor industry may not need subwavelength processes if there
is a slowdown in semiconductor manufacturing or a decrease in the demand for
smaller semiconductor feature sizes; and
. the industry may develop alternative methods to produce subwavelength
features with existing capital equipment due to a rapidly evolving market and
the likely emergence of new technologies.
In order for potential industry partners and customers to adopt, and expend
their own resources to implement, our technologies and products, we must expend
significant marketing resources, with no guarantee of success.
Our proprietary technologies and software products involve a new approach
to the subwavelength gap problem. As a result, we must employ intensive and
sophisticated marketing and sales efforts to educate prospective industry
partners and customers about the benefits of our technologies and products, with
no guarantee of success. Our sales and marketing expenses increased to $3.9
million in the six months ended June 30, 2000 from $1.8 in the six months ended
June 30, 1999. In addition, even if our industry partners and customers adopt
our proprietary technologies and software products, they must devote the
resources necessary to fully integrate our technologies and products into their
operations. This is especially true for our industry partners so that they can
begin to resell and market our solution to their customers. If they do not make
these expenditures, establishing our technologies and products as the industry
standard to the subwavelength gap problem will be difficult.
Our limited operating history and dependence on new technologies make it
difficult to evaluate our future prospects.
We only have a limited operating history on which you can base your
evaluation of our business. We face a number of risks as an emerging company in
a new market. For example, the key markets within the semiconductor industry may
fail to adopt our proprietary technologies and software products, or we may not
be able to establish distribution channels. Our company incorporated in October
1995. In February 1997, we shipped our initial software product, IC Workbench.
We have only recently begun to expand our operations significantly. For example,
we grew from 56 employees as of June 30, 1999 to 120 employees as of June 30,
2000.
We have a history of losses, we expect to incur losses in the future and we may
be unable to achieve profitability.
We may not achieve profitability if our revenue increases more slowly than
we expect or not at all. In addition, our operating expenses are largely fixed,
and any shortfall in anticipated revenue in any given period could cause our
operating results to decrease. We have not been profitable in any quarter, and
our accumulated deficit was approximately $40.8 million as of June 30, 2000. We
expect to continue to incur significant operating expenses in connection with
increased funding for research and development and expansion of our sales and
marketing efforts. In addition, we expect to incur additional noncash charges
relating to amortization of intangibles and deferred stock compensation. As a
result, we will need to generate significant revenue to achieve and maintain
profitability. If we do achieve profitability, we may be unable to sustain or
increase profitability on a quarterly or annual basis.
We recently acquired Transcription Enterprises Limited and if we are not
successful in integrating Transcription's products and operations with ours, our
revenue and operating results could decline.
Our recent acquisition of Transcription Enterprises Limited will only be
successful if we are able to integrate its operations with ours, which could
substantially divert management's attention from the day-to-day operations of
the combined company. If we encounter any difficulties in the transition
process, the revenue and operating results of the combined company could
decline. We must successfully integrate Transcription's products with ours. We
must also coordinate our research and development and sales and marketing
efforts to realize the technological benefits of this combination.
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We may find it difficult to integrate personnel with disparate business
backgrounds and combine two different corporate cultures. In addition, the
process of combining our company with Transcription could interrupt the
activities of either or both of the companies' businesses. It is possible that
we will not be able to retain Transcription's key management, technical and
sales personnel.
In addition, the acquisition of Transcription could cause our industry
partners and customers to be uncertain about our ability to support the combined
companies' products and the direction of the combined companies' product
development efforts. As a result, they may delay or cancel product orders, which
could significantly decrease our revenue and limit our ability to implement our
combined business strategy.
Our acquisition of Transcription may increase the focus of the semiconductor
industry on the manufacturing data preparation market, which could lead to a
rapid and substantial increase in competition.
Our recent acquisition of Transcription may increase the semiconductor
industry's awareness of the market for manufacturing data preparation software,
which could lead to a substantial increase in the number of start-up companies
that focus on software solutions for data preparation. Manufacturing data
preparation software translates semiconductor designs into instructions that
control manufacturing equipment. Potential competitors could pursue and execute
partnership agreements with key industry partners we intend to pursue, which
could make it difficult or impossible for us to develop relationships with these
potential industry partners. In addition, some of our current competitors may
increase their own research and development budgets relating to data
preparation, or may more aggressively market competing solutions.
If we do not continue to introduce new technologies and software products or
product enhancements ahead of rapid technological change in the market for
subwavelength solutions, our operating results could decline and we could lose
our competitive position.
We must continually devote significant engineering resources to enable us
to introduce new technologies and software products or product enhancements to
address the evolving needs of key markets within the semiconductor industry in
solving the subwavelength gap problem. We must introduce these innovations and
the key markets within the semiconductor industry must adopt them before changes
in the semiconductor industry, such as the introduction by our current and
potential competitors of more advanced products or the emergence of alternative
technologies, render the innovations obsolete, which could cause us to lose our
competitive position. These innovations are inherently complex, require long
development cycles and a substantial investment before we can determine their
commercial viability. Moreover, designers, mask manufacturers and equipment
manufacturers must each respond to the demand of the market to design and
manufacture masks and equipment for increasingly smaller and complex
semiconductors. Our innovations must be viable and meet the needs of these key
markets within the semiconductor industry before the consumer market demands
even smaller semiconductors, rendering the innovations obsolete. We may not have
the financial resources necessary to fund any future innovations. In addition,
any revenue that we receive from enhancements or new generations of our
proprietary technologies and software products may be less than the costs of
development.
Fluctuations in our quarterly operating results may cause our stock price to
decline.
It is likely that our future quarterly operating results may fluctuate from
time to time and may not meet the expectations of securities analysts and
investors in some future period. As a result, the price of our common stock
could decline. Historically, our quarterly operating results have fluctuated. We
may experience significant fluctuations in future quarterly operating results.
The following factors may cause these fluctuations:
. the timing and structure of our product license agreements;
. changes in our pricing policies or those of our competitors; and
. changes in the level of our operating expenses to support our projected
growth.
We intend to pursue new, and maintain our current, industry partner
relationships, which could substantially divert management attention and
resources, with no guarantee of success.
We expect to derive significant benefits, including increased revenue and
customer awareness, from our current and potential industry partner
relationships. In our pursuit to maintain and establish partner relationships
within each of the key markets in the semiconductor industry, we could expend
significant management attention, resources and sales personnel efforts, with no
guarantee of success. To establish and maintain our partner relationships, we
expend our limited financial resources on increasing our sales and business
development personnel, trade shows and marketing within trade publications. If
we did not have to pursue potential industry partners, we could focus these
resources exclusively on direct sales to our customers. In addition, through our
partner relationships, our partners resell, market, either jointly with us or
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unilaterally, and promote our technologies and products. If these relationships
terminate, such as due to our material breach of the contracts or the partners'
election to cancel the contract, which generally is permissible with prior
notice to us, we would have to increase our own limited marketing and sales
resources for these activities. Further, we may be unable to enter into new
industry partner relationships if any of the following occur:
. current or potential industry partners develop their own solutions to
the subwavelength gap problem; or
. our current or potential competitors establish relationships with
industry partners with which we seek to establish a relationship.
We have only recently entered into many of our current partner
relationships. These relationships may not continue or they may not be
successful. We also may be unable to find additional suitable industry partners.
To date, we have entered into agreements with industry partners, including:
. Cadence in the design market;
. DuPont Photomask and Photronics in the mask manufacturing market; and
. Applied Materials, KLA-Tencor and Zygo Corporation in the semiconductor
equipment market.
Many of our current competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do and as a result, they may acquire a significant market share before we do.
Our current competitors, or alliances among these competitors, may rapidly
acquire significant market share. These competitors may have greater name
recognition and more customers which they could use to gain market share to our
detriment. We encounter direct competition from other direct providers of phase
shifting, OPC and manufacturing data technologies. These competitors include
such companies as Avant! and Mentor Graphics. We also compete with companies
that have developed or have the ability to develop their own proprietary phase
shifting and OPC solutions, such as IBM. These companies may wish to promote
their internally developed products and may be reluctant to purchase products
from us or other independent vendors. Our competitors may offer a wider range of
products than we do and thus may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. These
competitors may also be able to undertake more extensive promotional activities,
offer more attractive terms to customers than we do and adopt more aggressive
pricing policies. Moreover, our competitors may establish relationships among
themselves or with industry partners to enhance their services, including
industry partners with which we may desire to establish a relationship.
The market for software solutions that address the subwavelength gap problem is
new and rapidly evolving. We expect competition to intensify in the future,
which could slow our ability to grow or execute our strategy.
We believe that the demand for solutions to the subwavelength gap problem
may encourage many competitors to enter into our market. As the market for
software solutions to the subwavelength gap problem proliferates, if our
competitors are able to attract industry partners or customers on a more
accelerated pace than we can and retain them more effectively, we would not be
able to grow and execute our strategy as quickly. In addition, if customer
preferences shift away from our technologies and software products as a result
of the increase in competition, we must develop new proprietary technologies and
software products to address these new customer demands. This could result in
the diversion of management attention or our development of new technologies and
products may be blocked by other companies' patents. We must offer better
products, customer support, prices and response time, or a combination of these
factors, than those of our potential competitors.
We are growing rapidly and must effectively manage and support our growth in
order for our business strategy to succeed.
We have grown rapidly and will need to continue to grow in all areas of
operation. If we are unable to successfully integrate and support our existing
and new employees into our operations, we may be unable to implement our
business strategy in the time frame we anticipate, or at all. Due to our rapid
growth in headcount, we outgrew our principal office facilities earlier than we
expected. As a result, we recently relocated to San Jose, California and may
need to relocate to a larger facility in the future, which could be difficult in
the very competitive Silicon Valley office leasing market. In addition, building
and managing the support necessary for our growth places significant demands on
our management as well as our limited revenue. These demands have, and may
continue to, divert these resources away from the continued growth of our
business and implementation of our business strategy. Further, we must
adequately train our new personnel, especially our technical support personnel,
to adequately, and accurately, respond to and support our industry partners and
customers. If we fail to do this, it could lead to dissatisfaction among our
partners or customers, which could slow our growth.
We must continually attract and retain engineering personnel or we will be
unable to execute our business strategy.
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We have experienced, and we expect to continue to experience, difficulty in
hiring and retaining highly skilled engineers with appropriate qualifications to
support our rapid growth and expansion. We must continually enhance and
introduce new generations of our phase shifting and OPC technologies. As a
result, our future success depends in part on our ability to identify, attract,
retain and motivate qualified engineering personnel with the requisite
educational background and industry experience. If we lose the services of a
significant number of our engineers, it could disrupt our ability to implement
our business strategy. Competition for qualified engineers is intense,
especially in the Silicon Valley where we are located.
Our chief executive officer and chief technology officer, as well as the co-
founders of Transcription, are critical to our business and they may not remain
with us in the future.
Our future success will depend to a significant extent on the continued
services of Y. C. (Buno) Pati, our President and Chief Executive Officer, Yao-
Ting Wang, our Chief Technology Officer, Roger Sturgeon, one of our directors
and a senior executive of Transcription and Kevin MacLean, Vice President and
General Manager of Transcription. If we lose the services of any of these key
executives, it could slow our product development processes and searching for
their replacements could divert our other senior management's time and increase
our operating expenses. In addition, our industry partners and customers could
become concerned about our future operations, which could injure our reputation.
We do not have long-term employment agreements with these executives and we do
not maintain any key person life insurance policies on their lives.
If we fail to protect our intellectual property rights, competitors may be able
to use our technologies which could weaken our competitive position, reduce our
revenue or increase our costs.
Our success depends heavily upon proprietary technologies, specifically our
patent portfolio. The rights granted under our patents and patent applications
may not provide competitive advantages to us. In addition, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. As a result of any such
litigation, we could lose our proprietary rights and incur substantial
unexpected operating costs. Litigation could also divert our resources,
including our managerial and engineering resources. We rely primarily on a
combination of patents, copyrights, trademarks and trade secrets to protect our
proprietary rights and prevent competitors from using our proprietary
technologies in their products. These laws and procedures provide only limited
protection. Our pending patent applications may not result in issued patents,
and our existing and future patents may not be sufficiently broad to protect our
proprietary technologies. Also, patent protection in foreign countries may be
limited or unavailable where we have filed for and need such protection.
Furthermore, if we fail to adequately protect our trademark rights, this could
impair our brand identity and ability to compete effectively. If we do not
successfully protect our trademark rights, this could force us to incur costs to
re-establish our name or our product names, including significant marketing
activities.
If third parties assert that our proprietary technologies and software products
infringe their intellectual property rights, this could injure our reputation
and limit our ability to license or sell our proprietary technologies or
software products.
Third parties, for competitive or other reasons, could assert that our
proprietary technologies and software products infringe their intellectual
property rights. These claims could injure our reputation and decrease or block
our ability to license or sell our software products. For example, on March 14,
2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S.
patents and have committed unfair or fraudulent business practice under the
California Business and Professions Code. We are currently investigating the
patents and allegations. The defense of these claims could divert management's
attention from the day to day operations of our company, as well as divert
resources from current planned uses, such as hiring and supporting additional
engineering personnel. Litigation is inherently uncertain, and an adverse
decision could limit our ability to offer some features in our OPC product.
Third parties have advised us of literature which they believe to be relevant to
our patents. It is possible that this literature or literature we may be advised
of in the future could negatively affect the scope or enforceability of our
present or future patents and/or result in costly litigation. In addition, we
are aware of and are evaluating certain patents with which our products, patents
or patent applications may conflict. If any of these patents are found to be
valid, and we are unable to license such patents on reasonable terms, or if our
products, patents, or patent applications are found to conflict with these
patents, we could be prevented from selling our products, our patents may be
declared invalid or our patent applications may not result in issued patents. In
addition, a company could invite us to take a patent license. If we do not take
the license, the requesting company could contact our industry partners or
customers and suggest that they not use our software products because we are not
licensed under
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their patents. This action by the requesting company could affect our
relationships with these industry partners and customers and may prevent future
industry partners and customers from licensing our software products. The
intensely competitive nature of our industry and the important nature of our
technologies to our competitors' businesses may contribute to the likelihood of
being subject to third party claims of this nature.
Any potential dispute involving our patents or other intellectual property could
include our industry partners and customers, which could trigger our
indemnification obligations with them and result in substantial expense to us.
In any potential dispute involving our patents or other intellectual
property, our licensees could also become the target of litigation. This could
trigger our technical support and indemnification obligations in some of our
license agreements which could result in substantial expense to us. In addition
to the time and expense required for us to supply such support or
indemnification to our licensees, any such litigation could severely disrupt or
shut down the business of our licensees, which in turn could hurt our relations
with our customers and cause the sale of our proprietary technologies and
software products to decrease.
Defects in our proprietary technologies and software products could decrease our
revenue and our competitive market share.
If our industry partners and customers discover any defects after they
implement our proprietary technologies and software products, these defects
could significantly decrease the market acceptance and sales of our software
products, which could decrease our competitive market share. Any actual or
perceived defects with our proprietary technologies and software products may
also hinder our ability to attract or retain industry partners or customers,
leading to a decrease in our revenue. These defects are frequently found during
the period following introduction of new products or enhancements to existing
products. Despite testing prior to introduction, our software products may
contain software errors not discovered until after customer implementation. If
our software products contain errors or defects, it could require us to expend
significant resources to alleviate these problems, which could result in the
diversion of technical and other resources from our other development efforts.
We face operational and financial risks associated with international
operations.
We derive a significant portion of our revenue from international sales. We
have only limited experience in developing, marketing, selling and supporting
our proprietary technologies and software products internationally and may not
succeed in maintaining or expanding our international operations, which could
slow our revenue growth. We are subject to risks inherent in doing business in
international markets. These risks include:
. fluctuations in exchange rates which may negatively affect our operating
results;
. greater difficulty in collecting accounts receivable resulting in longer
collection periods;
. compliance with and unexpected changes in a wide variety of foreign laws
and regulatory environments with which we are not familiar;
. export controls which could prevent us from shipping our software
products into and from some markets;
. changes in import/export duties and quotas could affect the competitive
pricing of our software products and reduce our market share in some countries;
and
. economic or political instability.
We may be unable to continue to market our proprietary technologies and
software products successfully in international markets.
We may need to raise additional funds to support our growth or execute our
strategy and if we are unable to do so, we may be unable to develop or enhance
our proprietary technologies and software products, respond to competitive
pressures or acquire desired businesses or technologies.
We currently anticipate that our available cash resources, combined with
the net proceeds from our initial public offering, will be sufficient to meet
our presently anticipated working capital and capital expenditure requirements
for at least the next 12 months. However, we may need to raise additional funds
in order to:
. support more rapid expansion;
. develop new or enhanced products;
. respond to competitive pressures; or
. acquire complementary businesses or technologies.
These factors will impact our future capital requirements and the adequacy
of our available funds. We may need to raise additional funds through public or
private financings, strategic relationships or other arrangements.
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We may be unable to consummate other potential acquisitions or investments or
successfully integrate them with our business, which may slow our ability to
expand the range of our proprietary technologies and software products.
To expand the range of our proprietary technologies and software products,
we may acquire or make investments in additional complementary businesses,
technologies or products if appropriate opportunities arise. We may be unable to
identify suitable acquisition or investment candidates at reasonable prices or
on reasonable terms, or consummate future acquisitions or investments, each of
which could slow our growth strategy. If we do acquire additional companies or
make other types of acquisitions, we may have difficulty integrating the
acquired products, personnel or technologies. These difficulties could disrupt
our ongoing business, distract our management and employees and increase our
expenses.
Our capital stock ownership is concentrated with insiders and this may limit
your ability to influence corporate matters.
The concentration of ownership of our outstanding capital stock with our
directors and executive officers may limit your ability to influence corporate
matters. Our directors and executive officers, and their affiliates,
beneficially own a significant portion of our outstanding capital stock. As a
result, these stockholders, if acting together, will have the ability to control
all matters submitted to our stockholders for approval, including the election
and removal of directors and the approval of any corporate transactions.
We have anti-takeover defenses that could delay or prevent an acquisition of our
company.
Provisions of our certificate of incorporation and bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders.
The market price of our common stock may be volatile and could decline.
The market price of our common stock may fluctuate significantly in response to
factors, some of which are beyond our control, including:
. actual or anticipated fluctuations in our operating results;
. changes in market valuations of other technology companies;
. conditions or trends in the semiconductor industry;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions or partnerships;
. additions or departures of key personnel;
. any deviations in net revenue or in losses from levels expected by
securities analysts;
. volume fluctuations, which are particularly common among highly volatile
securities of technology related companies; and
. sales of substantial amounts of our common stock or other securities in
the open market.
General political or economic conditions, such as recession or interest
rate or currency rate fluctuations in the United States or abroad, also could
cause the market price of our common stock to decline.
Our stock price is likely to be extremely volatile as the market for technology
companies' stock has recently experienced extreme price and volume fluctuations.
Volatility in the market price of our common stock could result in
securities class action litigation. Any litigation would likely result in
substantial costs and a diversion of management's attention and resources.
Despite the strong pattern of operating losses of technology companies, the
market demand, valuation and trading prices of these companies have been high.
At the same time, the share prices of these companies' stocks have been highly
volatile and have recorded lows well below their historical highs. As a result,
investors in these companies often buy the stock at very high prices only to see
the price drop substantially a short time later, resulting in an extreme drop in
value in the stock holdings of these investors. Our stock may not trade at the
same levels as other technology stocks. In addition, technology stocks in
general may not sustain current market prices.
If we raise additional capital through the issuance of new securities, you will
incur additional dilution.
If we raise additional capital through the issuance of new securities, our
stockholders will be subject to additional dilution. If we are unable to access
the public markets in the future, or if our performance or prospects decreases,
we may need to consummate a private placement or public offering of our capital
stock. In addition, any new securities may have rights, preferences or
privileges senior to those securities currently held by our stockholders.
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Exercise of registration rights could adversely affect our stock price.
If holders of registration rights exercise those rights, a large number of
securities could be registered and sold in the public market, which could result
in a decline in the price of our common stock. If we were to include in a
company-initiated registration shares held by these holders pursuant to the
exercise of their registration rights, our ability to raise needed capital could
suffer. The holders of approximately 58.4% of our outstanding stock, are
entitled to rights with respect to registration under the Securities Act of
1933.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
Our exposure to market risk for changes in interest rates relate primarily
to our investment portfolio. We do not use derivative financial instruments for
speculative or trading purposes. We place our investments in instruments that
meet high credit quality standards, as specified in our investment policy. The
policy also limits the amount of credit exposure to any one issuer and type of
instrument. We do not expect any material loss with respect to our investment
portfolio. Our expectations regarding no material loses with respect to our
investment portfolio is a forward-looking statement.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
---------------------------------------
From April 1, 2000 to June 30, 2000, we issued and sold the securities
described below.
1. On April 4, 2000, we issued and sold an aggregate of 20,625 shares of
unregistered common stock to one employee and one consultant at a
price of $1.00 per share, for aggregate cash consideration of $20,625.
These shares were sold pursuant to the exercise of options granted by
the board. As to the employee and the consultant of the registrant who
was issued such securities, we relied upon Rule 701 of the Securities
Act of 1933. Each such person purchased securities of ours pursuant to
a written contract between such person and us. In addition, we met the
conditions imposed under Rule 701(b).
2. On April 4, 2000, we issued and sold an aggregate of 1,875 shares of
unregistered common stock to one employee at a price of $12.00 per
share, for aggregate cash consideration of $22,500. These shares were
sold pursuant to the exercise of options granted by the board. We
relied upon Section 4(2) of the Securities Act of 1933 in connection
with the issuance of these securities.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with us, to information about us.
(d) Use of Proceeds from Registered Securities
------------------------------------------
In April 2000, we sold a total of 6,364,100 shares of common stock (the
total amount registered) at $14.00 per share through our initial public offering
pursuant to a registration statement on Form S-1 declared effective by the
Securities and Exchange Commission on April 6, 2000 (333-95695). The initial
public offering commenced on April 7, 2000 and the net proceeds, after
underwriters' commission and fees and other costs of an estimated $7.9 million
associated with the offering, totaled approximately $81.2 million.
Since April 12, 2000 (the closing date of the Company's initial public
offering), the Company has used an estimated $4.8 million of the net proceeds
from the Company's initial public offering to fund operating expenses and
increase working capital, $.8 million to purchase and install machinery and
equipment, and $30.2 million to pay the balance of principal and accrued
interest under the notes payable issued in connection with the acquisition of
Transcription. The Company has placed approximately $45.4 million in short-term,
interest-bearing, investment grade securities pending future use.
No payments constituted direct or indirect payments to directors, officers,
general partners of the issuer or their associates, or to persons owning ten
percent or more of any class of equity securities of the issuer or to affiliates
of the issuer.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999,
between the registrant, Transcription Enterprises Limited, Transcription
Enterprises, Inc., Kevin MacLean and Roger Sturgeon.*
2.2 Agreement and Plan of Merger between the registrant and Numerical
Technologies, Inc., a Delaware corporation.*
3.2 Amended and Restated Certificate of Incorporation of registrant.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated
January 1, 2000, between the registrant and the parties named therein,
as amended on January 14, 2000.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 2000 Stock Plan and related agreements.*
10.3 1997 Stock Plan and related agreements.*
10.4 2000 Employee Stock Purchase Plan and related agreements.*
10.5 Lease Agreement, dated June 15, 1999, by and between the registrant and
CarrAmerica Realty Corporation.*
10.6 Lease Agreement, dated May 10, 1990, between Transcription Enterprises,
Inc. and Los Gatos Business Park.*
10.7 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Roger Sturgeon.*
10.8 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Kevin MacLean.*
10.9 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Roger Sturgeon.*
10.10 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Kevin MacLean.*
10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and
between the registrant and William Davidow.*
10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and
between the registrant and Richard Mora.*
10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Richard Mora.*
10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and
between the registrant and Atul Sharan.*
10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Atul Sharan.*
10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and
between the registrant and Lars Herlitz.*
10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Lars Herlitz.*
10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and
between the registrant and John Traub.*
10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and John Traub.*
10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the
registrant and Harvey Jones.*
10.21 License Agreement, dated as of October 1, 1999, between registrant and
Cadence Design Systems, Inc.*+
10.22 OEM Software License Agreement, dated December 31, 1997, between
registrant and Zygo Corporation (fka Technical Instrument Company).*+
10.23 Addendum to OEM Software License Agreement, dated March 25, 1999,
between registrant and Zygo Corporation.*
10.24 Software Production and Distribution Agreement, dated January 9, 1998,
between registrant and KLA-Tencor Corporation.*+
10.25 License Agreement, dated December 23, 1999, between registrant and Seiko
Instruments, Inc.*#
10.26 Development and Distribution Agreement, dated October 1, 1991, between
Transcription Enterprises Limited and KLA Instruments Corporation.*+
10.27 Addendum Number One to Development and Distribution Agreement, dated
December 27, 1999, between Transcription Enterprises Limited and KLA
Instruments Corporation.*+
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10.28 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Roger Sturgeon.*
10.29 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Kevin MacLean.*
10.30 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Y.C. (Buno) Pati.*
10.31 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Yao-Ting Wang.*
10.32 Stock Option Agreement--Early Exercise, dated October 23, 1998, by and
between the registrant and Atul Sharan.*
10.33 Amendment No. 1 to Lars Herlitz' Stock Option Agreements dated February
3, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and Lars Herlitz.*
10.34 Amendment No. 1 to Atul Sharan's Stock Option Agreements dated October
23, 1998, March 31, 1999 and December 27, 1999, dated as of January 24,
2000, by and between the registrant and Atul Sharan.*
10.35 Amendment No. 1 to John Traub's Stock Option Agreements dated November
17, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and John Traub.*
10.36 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Naren Gupta.*
10.37 PSM Software Development and License Agreement, dated as of March 10,
2000, by and between registrant and Cadence Design Systems, Inc.*+
10.38 License Agreement, dated March 1, 2000, between registrant and Motorola,
Inc.**+
27.1 Financial Data Schedule.
* Incorporated by reference to registration statement on Form S-1 (333-95695)
as declared effective by the Securities and Exchange Commission on April 6,
2000.
** Incorporated by reference to registration statement on Form 10-Q as filed
with the Securities and Exchange Commission on May 12, 2000.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
# While portions of this agreement were previously inadvertently filed,
management has deemed that this agreement is not material.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by us during the quarter ending June 30,
2000.
Items 1, 3, 4, and 5 are not applicable and have been omitted.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated July 28, 2000, NUMERICAL TECHNOLOGIES, INC.
By: /s/ Richard Mora
Richard Mora
Chief Financial Officer and
Vice President of Operations
(Principal Accounting Officer and Duly Authorized
Signatory)
18
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule
19
